OFFERING CIRCULAR

Freddie Mac

3,500,000 Shares 3,000,000 Shares

Variable Rate, Non-Cumulative 6% Non-Cumulative

Preferred Stock Preferred Stock

V

Dividend Rate:

For the Variable Rate: Initial Rate: 4.48% (from May 30, 2001 through

June 30, 2003)

Variable Rate: 2-year CMT Rate plus 0.20%

Rate Cap: 11%

Rate Reset: As of July 1, 2003 and as of July 1

every two years thereafter; we reset the dividend

rate based on the 2-year CMT Rate determined

two business days before the reset date

For the Fixed Rate: 6%

Optional Redemption:

For the Variable Rate: On June 30, 2003 and on June 30 every two

years thereafter

For the Fixed Rate: On or after June 30, 2006

Dividend Adjustment: We will adjust the dividend if speciÑed adverse

changes to the dividends-received deduction

occur before November 30, 2002

Payment Dates: March 31, June 30, September 30 and

December 31, beginning September 30, 2001

Liquidation Preference: $50 per share plus current dividends

Issue Date: May 30, 2001

Listing: New York Stock Exchange (pending)

We alone are responsible for our obligations under and for making payments on the Preferred

Stock. The Preferred Stock is not guaranteed by, and is not a debt or obligation of, the

United States or any federal agency or instrumentality other than Freddie Mac.

Initial Public Underwriting Proceeds to

OÅering Price(1) Discount Freddie Mac(1)(2)

Variable Rate Preferred Stock:

Per Share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $50.00 $0.4375 $49.5625

Total(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $175,000,000 $1,531,250 $173,468,750

6% Preferred Stock:

Per Share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $50.00 $0.50 $49.50

Total(4) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $150,000,000 $1,500,000 $148,500,000

(1) Plus any accrued dividends from May 30, 2001.

(2) Before deducting estimated expenses of $400,000.

(3) Freddie Mac has granted the Underwriters an option to purchase up to an additional 525,000 shares of the Variable Rate Preferred

Stock to cover overallotments. If all such shares are purchased, the total Initial Public OÅering Price, Underwriting Discount and

Proceeds to Freddie Mac for that preferred stock will be $201,250,000, $1,760,937.50 and $199,489,062.50, respectively. See

Underwriting.

(4) Freddie Mac has granted the Underwriters an option to purchase up to an additional 450,000 shares of the 6% Preferred Stock to

cover overallotments. If all such shares are purchased, the total Initial Public OÅering Price, Underwriting Discount and Proceeds to

Freddie Mac for that preferred stock will be $172,500,000, $1,725,000 and $170,775,000, respectively. See Underwriting.

Lehman Brothers

First Tennessee Bank NA Vining-Sparks IBG, L.P.

Bear, Stearns & Co., Inc. Goldman, Sachs & Co. The Williams Capital Group, L.P.

The date of this OÅering Circular is May 23, 2001.
In this OÅering Circular, we refer to (a) the Variable Rate, Non-Cumulative Preferred Stock

as the ""Variable Rate Preferred Stock,'' (b) the 6% Non-Cumulative Preferred Stock as the

""Fixed Rate Preferred Stock'' and (c) both the Variable Rate and Fixed Rate Preferred Stock

together as the ""Preferred Stock.''

The Underwriters may engage in transactions that aÅect the prices of the Variable Rate

Preferred Stock and Fixed Rate Preferred Stock, including over-allotment, stabilizing and shortcovering transactions and the imposition of a penalty bid, in connection with the OÅering. For a

description of these activities, see Underwriting.

ADDITIONAL INFORMATION

You should read this OÅering Circular together with:

‚ the CertiÑcate of Creation, Designation, Powers, Preferences, Rights, Privileges, QualiÑcations, Limitations, Restrictions, Terms and Conditions (""CertiÑcate of Designation'') for the Variable Rate Preferred Stock, which will be in substantially the form

attached as Appendix A;

‚ the CertiÑcate of Designation for the Fixed Rate Preferred Stock, which will be in

substantially the form attached as Appendix B;

‚ our Information Statement dated March 26, 2001 and our Information Statement

Supplement dated May 15, 2001 (together, the ""Information Statement'').

This OÅering Circular incorporates the Information Statement by reference, which means that

we are disclosing information to you by referring to it rather than by providing you with a separate

copy. It is considered part of this OÅering Circular. We also furnish our common stockholders with

annual reports containing Ñnancial information audited by independent public accountants and

quarterly reports containing unaudited Ñnancial information. You can obtain copies of any of these

documents by contacting us at:

Freddie Mac

Shareholder Relations Department

8200 Jones Branch Drive

McLean, Virginia 22102-3110

Telephone: 1-800-FREDDIE (800-373-3343)

Our Information Statement, Information Statement Supplements and annual report also are

available on the ""Shareholders'' page of our Internet Website (http://www.freddiemac.com).

Because of applicable securities law exemptions, we have not registered the Preferred Stock

with any federal or state securities commission. No securities commission has reviewed this

OÅering Circular.

Dividends paid on the Preferred Stock have no exemption under federal law from federal,

state or local taxation.

Some jurisdictions may by law restrict the distribution of this OÅering Circular and the oÅer,

sale and delivery of the Preferred Stock. Persons who receive this OÅering Circular should know

about and observe any such restrictions.

2
SUMMARY

This summary contains selected information about the Preferred Stock. You should refer to the

remainder of this OÅering Circular for further information.

Issuer ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Federal Home Loan Mortgage Corporation or ""Freddie

Mac,'' a shareholder-owned government-sponsored

enterprise.

Securities OÅered ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,500,000 shares of Variable Rate Preferred Stock and

3,000,000 shares of Fixed Rate Preferred Stock (assuming

the Underwriters' overallotment options are not exercised),

each with a $50 per share redemption price and liquidation

preference.

Dividends:

Variable Rate:

Initial Dividend Rate ÏÏÏÏÏÏ 4.48% per annum. Dividends will accrue at the initial

dividend rate from May 30, 2001 through June 30, 2003.

The dividend rate will reset as of July 1, 2003 and as of

July 1 every two years thereafter; we reset the dividend

based on the 2-year CMT Rate determined two business

days before the reset date.

Variable Dividend Rate ÏÏÏÏ 2-year CMT Rate plus 0.20%. For information about how

and when we determine the 2-year CMT Rate, see

Description of Variable Rate Preferred Stock Ì Dividends Ì Determination of 2-year CMT Rate.

Rate Cap ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11% per annum (maximum 2-year CMT Rate of 10.80%

plus 0.20%).

Fixed Rate:

Dividend Rate ÏÏÏÏÏÏÏÏÏÏÏÏ 6% per annum. Dividends will accrue from May 30, 2001.

FrequencyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ We will pay non-cumulative dividends quarterly, when, as

and if declared by our Board of Directors.

Payment Dates ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ We will pay dividends on March 31, June 30, September 30 and December 31 of each year, or the next business

day, beginning September 30, 2001.

DRD ProtectionÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ If an amendment to the Internal Revenue Code of 1986

(the ""Code'') enacted before November 30, 2002 reduces

the percentage of the dividends-received deduction below

70%, we will increase the amount of dividends we pay on

the Preferred Stock to oÅset the eÅect of that reduction.

However, we will not make any adjustment to the extent

that the percentage of the dividends-received deduction is

reduced below 50%. An adjustment may result in a dividend rate in excess of 11% per annum for the Variable Rate

Preferred Stock.

3
Preferences ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ The Preferred Stock will receive a preference over our

common stock and any other junior stock as to dividends

and upon liquidation. The Preferred Stock will rank equally

with our other currently outstanding series of preferred

stock as to dividends and upon liquidation.

Optional Redemption:

Variable RateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ On June 30, 2003 and on June 30 every two years thereafter, we will have the option to redeem the Variable Rate

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

share plus the amount that would otherwise be payable as

the dividend for the quarterly dividend period ending on

the redemption date.

Fixed Rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Beginning on June 30, 2006 and at any time thereafter, we

will have the option to redeem the Fixed Rate Preferred

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

the amount that would otherwise be payable as the dividend for the quarterly dividend period in which the redemption date falls, accrued through the redemption date.

Liquidation Rights ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ If Freddie Mac is dissolved or liquidated, you will be

entitled to receive, out of any assets available for distribution to our shareholders, up to $50 per share of Preferred

Stock plus the dividend for the then-current quarterly

dividend period accrued through the liquidation payment

date.

Voting Rights ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ None, except in the case of speciÑed changes in the terms

of the Preferred Stock.

Preemptive and Conversion RightsÏÏÏ None.

RatingsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ The Preferred Stock will be rated ""aa3'' by Moody's

Investors Service, Inc. (""Moody's'') and ""AA-'' by Standard & Poor's Credit Markets Services (""S&P''). See

Ratings.

Use of Proceeds ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ We will use the proceeds for general corporate purposes,

including the purchase of residential mortgages, the redemption of previously issued shares of preferred stock, the

repayment of outstanding debt and the repurchase of outstanding shares of our stock.

Transfer Agent, Dividend Disbursing

Agent and Registrar ÏÏÏÏÏÏÏÏÏÏÏÏÏ First Chicago Trust Company, a division of EquiServe.

Exchange Listing ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ We have applied to list the Preferred Stock on the New

York Stock Exchange (the ""NYSE'').

4
SUMMARY SELECTED FINANCIAL DATA

At or For the

Three Months

Ended March 31, At or For the Year Ended December 31,

2001 2000 2000 1999 1998 1997 1996

(dollars in millions, except per share amounts)

BALANCE SHEET

Retained portfolio(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $421,655 $336,338 $ 385,693 $ 324,443 $ 255,009 $ 164,421 $ 137,755

Total assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $497,839 $406,068 $ 459,297 $ 386,684 $ 321,421 $ 194,597 $ 173,866

Primary capital base ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 13,607 $ 12,667 $ 15,621 $ 12,297 $ 11,603 $ 8,215 $ 7,411

Adjusted total capital base ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 15,735 $ 12,805 $ 15,766 $ 12,427 $ 11,765 $ 8,736 $ 7,901

MORTGAGE PURCHASE AND FINANCING

ACTIVITIES

New business purchases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 80,539 $ 36,104 $ 207,423 $ 272,472 $ 288,338 $ 121,490 $ 128,565

Number of new business purchases (# of loans) ÏÏ 419,002 242,350 1,465,280 2,058,330 2,396,651 1,085,046 1,232,540

PC issuances ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 54,280 $ 27,757 $ 166,901 $ 233,031 $ 250,564 $ 114,258 $ 119,702

Total PCs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $833,616 $757,106 $ 822,310 $ 749,081 $ 646,459 $ 579,385 $ 554,260

INCOME STATEMENT

Net interest income on earning assetsÏÏÏÏÏÏÏÏÏÏÏÏ $ 976 $ 667 $ 2,838 $ 2,540 $ 1,927 $ 1,631 $ 1,542

Management and guarantee income ÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 392 $ 366 $ 1,489 $ 1,405 $ 1,307 $ 1,298 $ 1,249

Net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 837 $ 608 $ 2,547 $ 2,223 $ 1,700 $ 1,395 $ 1,243

Earnings per common share:(2)

Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1.14 $ 0.81 $ 3.41 $ 2.97 $ 2.32 $ 1.90 $ 1.65

Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1.13 $ 0.81 $ 3.40 $ 2.96 $ 2.31 $ 1.88 $ 1.63

Dividends per common share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 0.20 $ 0.17 $ 0.68 $ 0.60 $ 0.48 $ 0.40 $ 0.35

(1) Excludes related purchase and sale premiums, discounts and deferred fees, reserve for losses on retained mortgages and net

unrealized gain (loss) on available-for-sale guaranteed mortgage securities.

(2) ""Earnings per common share-basic'' are computed based on weighted average common shares outstanding. ""Earnings per common

share-diluted'' are computed based on the total of weighted average common shares outstanding and the eÅect of dilutive common

equivalent shares outstanding.

5
FREDDIE MAC

Freddie Mac was chartered by Congress on July 24, 1970 under the Federal Home Loan

Mortgage Corporation Act (the ""Freddie Mac Act''). Our statutory purposes are:

‚ to provide stability in the secondary market for residential mortgages,

‚ to respond appropriately to the private capital market,

‚ to 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), and

‚ to promote access to mortgage credit throughout the United States (including central

cities, rural areas and other underserved areas) by increasing the liquidity of mortgage

investments and improving the distribution of investment capital available for residential

mortgage Ñnancing.

Our principal activity is the purchase and Ñnancing of single-family and multifamily mortgages.

We Ñnance our purchases of residential mortgages and mortgage securities with securitization

Ñnancing and debt Ñnancing. Securitization Ñnancing involves the securitization of mortgages in the

form of guaranteed mortgage pass-through securities. Debt Ñnancing involves the use of debt

securities, other liabilities and equity capital to Ñnance mortgages and mortgage-related securities

we hold as portfolio investments. We also engage in other activities that help us to fulÑll our

statutory purposes. Neither the United States nor any agency or instrumentality of the United States

(other than Freddie Mac) is obligated, either directly or indirectly, to fund our mortgage purchase

or Ñnancing activities.

We are subject to two primary types of risk in the conduct of our business: credit risk associated

with our total mortgage portfolio and the institutions with which we do business; and interest-rate

risk and other market risks that principally result from mismatches between the maturities of the

assets and liabilities associated with our mortgage portfolio. We also are subject to operational risk

associated with losses that may occur due to human error, system failure, fraud or circumvention of

internal controls. For a discussion of the impact and management of these risks, see Management's

Discussion and Analysis of Financial Condition and Results of Operations in the Information

Statement.

Our principal oÇce is in McLean, Virginia. We have regional oÇces that are primarily

responsible for the performance of various marketing activities and quality control procedures. These

oÇces are located in Atlanta, Georgia; Chicago, Illinois; Dallas, Texas; McLean, Virginia; New

York, New York and Woodland Hills, California.

A more detailed discussion of our business appears under Business in the Information

Statement.

6
USE OF PROCEEDS

We will use the net proceeds from the sale of Preferred Stock for general corporate purposes,

including the purchase of residential mortgages, the redemption of shares of preferred stock we have

previously issued, the repayment of outstanding indebtedness and the repurchase of outstanding

shares of our stock. The precise amounts and timing of the application of the proceeds will depend

on our funding requirements.

We engage in Ñnancing transactions continuously. The amount and nature of these transactions

are dependent on a number of factors, including the volume of mortgage prepayments and

mortgages we purchase, as well as general market conditions.

7
CAPITALIZATION

The following table shows our capitalization at March 31, 2001 and as adjusted to reÖect the

sale of the Preferred Stock oÅered by this OÅering Circular. You should read this table together

with our Ñnancial statements and other information contained in the Information Statement.

March 31, 2001

(unaudited)

As

Actual Adjusted(1)

(dollars in millions)

Debt securities, net:

Due within one year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $195,735 $195,735

Due after one year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 263,475 263,475

Total debt securities, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 459,210 459,210

Subordinated Borrowings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,128 2,128

Stockholders' Equity(2):

Variable Rate, Non-Cumulative Preferred Stock, $1.00 par value and $50.00 redemption

value(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 250 250

6.125% Non-Cumulative Preferred Stock, $1.00 par value and $50.00 redemption value(4) 287 287

6.14% Non-Cumulative Preferred Stock, $1.00 par value and $50.00 redemption value(5) ÏÏ 600 600

5.81% Non-Cumulative Preferred Stock, $1.00 par value and $50.00 redemption value(6) ÏÏ 150 150

5% Non-Cumulative Preferred Stock, $1.00 par value and $50.00 redemption value(7) ÏÏÏÏÏ 400 400

Variable Rate, Non-Cumulative Preferred Stock, $1.00 par value and $50.00 redemption

value(8) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 220 220

5.1% Non-Cumulative Preferred Stock, $1.00 par value and $50.00 redemption value(8) ÏÏÏ 400 400

5.3% Non-Cumulative Preferred Stock, $1.00 par value and $50.00 redemption value(9) ÏÏÏ 200 200

5.1% Non-Cumulative Preferred Stock, $1.00 par value and $50.00 redemption value(10)ÏÏÏ 150 150

5.79% Non-Cumulative Preferred Stock, $1.00 par value and $50.00 redemption value(11)ÏÏ 250 250

Variable Rate, Non-Cumulative Preferred Stock, $1.00 par value and $50.00 redemption

value(12) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 288 288

Variable Rate, Non-Cumulative Preferred Stock, $1.00 par value and $50.00 redemption

value(13) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 325 325

Variable Rate, Non-Cumulative Preferred Stock, $1.00 par value and $50.00 redemption

value(14) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 230 230

5.81% Non-Cumulative Preferred Stock, $1.00 par value and $50.00 redemption value(15)ÏÏ 172 172

Variable Rate, Non-Cumulative Preferred Stock, $1.00 par value and $50.00 redemption

value(16) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 175

6% Non-Cumulative Preferred Stock, $1.00 par value and $50.00 redemption value(17) ÏÏÏÏ Ì 150

Common stock, $0.21 par value ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 152 152

Additional paid-in capitalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 415 412

Retained earnings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 12,280 12,280

Accumulated other comprehensive income, net of taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (2,950) (2,950)

Less: treasury stock, at cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (998) (998)

Total stockholders' equityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 12,821 13,143

Total capitalization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $474,159 $474,481

(1) ""As adjusted'' reÖects anticipated proceeds of $175 million from the issuance of 3.5 million shares of Variable Rate Preferred Stock

and $150 million from the issuance of 3 million shares of Fixed Rate Preferred Stock, and the deduction of $3 million in estimated

transaction costs. The actual costs may diÅer.

(2) Preferred stock amounts reÖect redemption values as shown. Costs associated with the issuance of preferred stock are included in

additional paid-in capital.

(3) Optional redemption on or after June 30, 2001.

(4) Optional redemption on or after December 31, 2001.

(5) Optional redemption on or after June 30, 2002.

(6) Optional redemption on or after October 27, 1998.

(7) Optional redemption on or after March 31, 2003.

(8) Optional redemption on or after September 30, 2003.

(9) Optional redemption on or after October 30, 2000.

(10) Optional redemption on or after March 31, 2004.

(11) Optional redemption on or after June 30, 2009.

(12) Optional redemption on December 31, 2004 and on December 31 every Ñve years thereafter.

(13) Optional redemption on March 31, 2003 and on March 31 every two years thereafter.

(14) Optional redemption on March 31, 2003 and on March 31 every year thereafter.

(15) Optional redemption on or after March 31, 2011.

(16) Optional redemption on June 30, 2003 and on June 30 every two years thereafter.

(17) Optional redemption on or after June 30, 2006.

8
See Notes 7 and 8 to the Consolidated Financial Statements included in the Information

Statement for further information about our debt securities, subordinated borrowings and stockholders' equity.

We engage in transactions aÅecting stockholders' equity from time to time and we issue or

retire debentures, notes and other debt obligations on an ongoing basis. In addition, management

anticipates that Statement of Financial Accounting Standards No. 133, ""Accounting for Derivative

Instruments and Hedging Activities,'' as amended (""SFAS 133''), which we implemented on

January 1, 2001, may increase, perhaps materially, the volatility of both ""Net income'' and ""Total

stockholders' equity'' in future periods. Accordingly, on any date after March 31, 2001, stockholders'

equity may diÅer, and the amount of debt obligations outstanding will diÅer, and may diÅer

substantially, from the Ñgures contained in this capitalization table.

9
SELECTED FINANCIAL DATA

We have summarized or derived the following selected Ñnancial data for the years 1996 through 2000

from our audited consolidated Ñnancial statements or our internal accounting records. These data should be

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

statements that are presented in our Information Statement. We have summarized or derived the following

selected Ñnancial data for the three months ended March 31, 2001 and March 31, 2000 from our unaudited

condensed consolidated Ñnancial statements or from internal accounting records. In management's opinion,

these data include all adjustments necessary for a fair presentation. Adjustments included in the table are of a

normal, recurring nature, other than adjustments as a result of the adoption of SFAS No. 133, which required

us to recognize all derivatives on our balance sheet as either assets or liabilities measured at their fair value

beginning on January 1, 2001. At or for the

Three Months

Ended March 31, At or for the Year Ended December 31,

2001 2000 2000 1999 1998 1997 1996

(dollars in millions, except per share amounts)

Balance Sheet

Retained portfolio(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $421,655 $336,338 $ 385,693 $ 324,443 $ 255,009 $ 164,421 $ 137,755

Total assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $497,839 $406,068 $ 459,297 $ 386,684 $ 321,421 $ 194,597 $ 173,866

Debt securities, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $459,210 $377,936 $ 426,754 $ 360,581 $ 287,234 $ 172,321 $ 156,491

Total liabilities(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $482,435 $393,602 $ 443,865 $ 374,602 $ 309,978 $ 186,154 $ 166,271

Capital base:

Stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 12,821 $ 11,892 $ 14,837 $ 11,525 $ 10,835 $ 7,521 $ 6,731

Reserve for mortgage losses(3) ÏÏÏÏÏÏÏÏÏÏÏ 786 775 784 772 768 694 680

Primary capital base ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 13,607 12,667 15,621 12,297 11,603 8,215 7,411

Subordinated borrowingsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,128 138 145 130 162 521 490

Adjusted total capital base ÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 15,735 $ 12,805 $ 15,766 $ 12,427 $ 11,765 $ 8,736 $ 7,901

Total PCs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $833,616 $757,106 $ 822,310 $ 749,081 $ 646,459 $ 579,385 $ 554,260

Freddie Mac PCs held in the retained

portfolio ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $261,288 $217,276 $ 246,209 $ 211,198 $ 168,108 $ 103,400 $ 81,195

Primary capital ratio(4) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1.27% 1.34% 1.51% 1.33% 1.45% 1.23% 1.15%

Adjusted total capital ratio(5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1.47% 1.35% 1.52% 1.34% 1.47% 1.30% 1.22%

Total mortgage portfolio ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $993,984 $876,168 $ 961,794 $ 862,326 $ 733,360 $ 640,406 $ 610,820

New Business Purchase and Financing

Activities

New business purchases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 80,539 $ 36,104 $ 207,423 $ 272,472 $ 288,338 $ 121,490 $ 128,565

Number of new business purchases (# of

loans) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 419,002 242,350 1,465,280 2,058,330 2,396,651 1,085,046 1,232,540

PC issuances ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 54,280 $ 27,757 $ 166,901 $ 233,031 $ 250,564 $ 114,258 $ 119,702

Structured securitizations(6) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 23,592 $ 10,064 $ 48,202 $ 119,565 $ 135,162 $ 84,366 $ 34,145

Income Statement and Ratios

Net interest income on earning assetsÏÏÏÏÏÏÏÏ $ 976 $ 667 $ 2,838 $ 2,540 $ 1,927 $ 1,631 $ 1,542

Management and guarantee income ÏÏÏÏÏÏÏÏÏ $ 392 $ 366 $ 1,489 $ 1,405 $ 1,307 $ 1,298 $ 1,249

Total revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1,421 $ 1,066 $ 4,457 $ 4,055 $ 3,337 $ 3,029 $ 2,875

Income before income taxes and cumulative

eÅect of change in accounting principle ÏÏÏÏ $ 1,175 $ 840 $ 3,534 $ 3,161 $ 2,356 $ 1,964 $ 1,797

Net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 837 $ 608 $ 2,547 $ 2,223 $ 1,700 $ 1,395 $ 1,243

Earnings per common share:(7)

Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1.14 $ 0.81 $ 3.41 $ 2.97 $ 2.32 $ 1.90 $ 1.65

Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1.13 $ 0.81 $ 3.40 $ 2.96 $ 2.31 $ 1.88 $ 1.63

Weighted average common shares outstanding

(in thousands):(7)

Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 693,073 695,239 693,555 696,042 679,790 684,937 709,453

Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 696,670 698,084 696,448 700,211 684,658 691,701 714,878

Dividends per common share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 0.20 $ 0.17 $ 0.68 $ 0.60 $ 0.48 $ 0.40 $ 0.35

Ratio of earnings to Ñxed charges(8) ÏÏÏÏÏÏÏÏ 1.17:1 1.14:1 1.14:1 1.16:1 1.16:1 1.17:1 1.19:1

Ratio of earnings to combined Ñxed charges

and preferred stock dividends(8)ÏÏÏÏÏÏÏÏÏÏ 1.15:1 1.13:1 1.13:1 1.14:1 1.15:1 1.16:1 1.18:1

(1) Excludes related purchase and sale premiums, discounts and deferred fees, reserve for losses on retained mortgages and net unrealized gain

(loss) on available-for-sale guaranteed mortgage securities.

(2) Excludes ""Reserve for Losses on Mortgage Participation CertiÑcates'' and ""Subordinated Borrowings.''

(3) ""Reserve for losses on retained mortgages'' plus the ""Reserve for losses on Mortgage Participation CertiÑcates.''

(4) ""Primary capital base'' divided by the sum of ""Total assets'' and ""Total PCs'' less ""Freddie Mac PCs held in retained portfolio.''

(5) ""Adjusted total capital base'' divided by the sum of ""Total assets'' and ""Total PCs'' less ""Freddie Mac PCs held in retained portfolio.''

(6) Includes issuances of mortgage-related securities in which the cash Öows are structured into various classes having a variety of features, the

majority of which qualify for treatment as Real Estate Mortgage Investment Conduits (""REMICs'') under the Internal Revenue Code. (7) ""Earnings per common share-basic'' are computed based on weighted average common shares outstanding. ""Earnings per common sharediluted'' are computed based on the total of weighted average common shares outstanding and the eÅect of dilutive common equivalent shares

outstanding.

(8) Earnings represent consolidated pre-tax income plus consolidated Ñxed charges, less interest capitalized. Fixed charges include interest

(including amounts capitalized) and the portion of net rental expense deemed representative of interest.

10
REGULATION AND GOVERNMENTAL RELATIONSHIPS

From time to time, our statutory, structural and regulatory relationships with the federal

government may be subject to review or modiÑcation. While our status as a government-sponsored

enterprise is often advantageous, proposals have been advanced that could adversely aÅect the

fulÑllment of our statutory purposes, as well as our results of operations. A more detailed discussion

of our regulatory and governmental relationships appears under Regulation and Governmental

Relationships in the Information Statement.

DESCRIPTION OF VARIABLE RATE PREFERRED STOCK

The Variable Rate Preferred Stock will have the terms shown in its CertiÑcate of Designation

attached as Appendix A. The following is a summary of those terms.

General

Section 306(f) of the Freddie Mac Act authorizes us to issue an unlimited number of shares of

preferred stock. The shares of Variable Rate Preferred Stock we are oÅering will have a par value of

$1.00 per share and will be created by its CertiÑcate of Designation.

First Chicago Trust Company, New York, New York, will be the transfer agent, dividend

disbursing agent and registrar for the Variable Rate Preferred Stock.

Authorized Issuance

Our Board of Directors has authorized us to issue the shares of Variable Rate Preferred Stock.

The Board may increase the authorized number of shares at any time, without the consent of the

holders of Variable Rate Preferred Stock. We may ""reopen'' this oÅering at any time by oÅering

additional shares of the Variable Rate Preferred Stock at prices to be determined at that time.

Dividends

General

Dividends on shares of the Variable Rate Preferred Stock are not mandatory. If you own shares

of Variable Rate Preferred Stock, you will be entitled to receive non-cumulative, quarterly cash

dividends which will accrue from but not including May 30, 2001 and will be payable on March 31,

June 30, September 30 and December 31 of each year (each, a ""Dividend Payment Date''),

beginning on September 30, 2001. However, dividends are payable only if declared by our Board of

Directors in its sole discretion, out of funds legally available for dividend payments.

If a Dividend Payment Date is not a Business Day, the related dividend will be paid on the next

Business Day with the same eÅect as though paid on the Dividend Payment Date, without any

increase to account for the period from the Dividend Payment Date through the date of actual

payment. ""Business Day'' means a day other than (a) Saturday or Sunday, (b) a day on which

New York City banks are closed or (c) a day on which our oÇces are closed. We will make

dividend payments to holders of record on the record date established by our Board of Directors,

which will be from 10 to 45 days before the applicable Dividend Payment Date.

The dividend rate for the period from May 30, 2001 through and including June 30, 2003 will

be 4.48%. Thereafter, dividends will accrue at a variable per annum rate equal to the 2-year CMT

Rate plus 0.20%, but not greater than 11%. On July 1, 2003, and on July 1 every two years

thereafter, we will replace the previous dividend rate with a new dividend rate equal to the thencurrent 2-year CMT Rate plus 0.20%. We will determine the 2-year CMT Rate for each two-year

11
period on the second Business Day before the Ñrst day of that period (each, a ""CMT Determination

Date'').

If we declare a dividend for the September 30, 2001 Dividend Payment Date, that initial

dividend, which will be for the ""Dividend Period'' from but not including May 30, 2001 through and

including September 30, 2001, will be $0.74667 per share and will be payable on September 30,

2001. Thereafter, the ""Dividend Period'' relating to a Dividend Payment Date will be the period

from but not including the preceding Dividend Payment Date through and including the related

Dividend Payment Date.

We will compute the amount of dividends payable on the Variable Rate Preferred Stock for any

period shorter than a full Dividend Period on the basis of twelve 30-day months and a 360-day year.

We will compute any dividends payable on the Variable Rate Preferred Stock for each full Dividend

Period by dividing the annual dividend by four. If we redeem the Variable Rate Preferred Stock, we

will include the dividend that would otherwise be payable for the Dividend Period ending on the

date of redemption in the redemption price of the shares redeemed. We will not pay this dividend to

you separately.

Determination of 2-year CMT Rate

We determine the ""2-year CMT Rate'' as follows:

1. The 2-year CMT Rate for any CMT Determination Date will be the rate (not greater

than 10.80%) equal to the weekly average interest rate of U.S. Treasury securities having an

index maturity of two years for the week that ends immediately before the week in which the

relevant CMT Determination Date falls, as that rate appears on page ""7052'' on Telerate (or

any other page that replaces the 7052 page on that service or any successor service) under the

heading "". . . Treasury Constant Maturities . . . Federal Reserve Board Release H.15 . . . Mondays Approximately 3:45 p.m.''

2. If the applicable rate described in clause 1 above is not displayed on Telerate page 7052

at 3:00 p.m., New York City time, on the CMT Determination Date, then the 2-year CMT

Rate will be the Treasury constant maturity rate applicable to a two-year index maturity for the

weekly average as published in H.15(519).

3. If the applicable rate described in clause 2 above does not appear in H.15(519) at 3:00

p.m., New York City time, on the CMT Determination Date, then the 2-year CMT Rate will

be the Treasury constant maturity rate, or other U.S. Treasury rate, applicable to a two-year

index maturity with reference to the CMT Determination Date, that:

‚ is published by the Board of Governors of the Federal Reserve System or the U.S.

Department of the Treasury; and

‚ we have determined to be comparable to the applicable rate formerly displayed on

Telerate page 7052 and published in H.15(519).

4. If the rate described in clause 3 above does not appear at 3:00 p.m., New York City

time, on the CMT Determination Date, then the 2-year CMT Rate will be the yield to maturity

of the arithmetic mean of the secondary market oÅered rates for Treasury notes having an

original maturity of approximately two years and a remaining term to maturity of not less than

one year, and in a representative amount, as of approximately 3:30 p.m., New York City time,

12
on the CMT Determination Date, as quoted by three primary U.S. government securities

dealers in New York City that we select. In selecting these oÅered rates, we will request

quotations from Ñve primary dealers and will disregard the highest quotation Ì or, if there is

equality, one of the highest Ì and the lowest quotation Ì or, if there is equality, one of the

lowest. Treasury notes are direct, non-callable, Ñxed rate obligations of the U.S. government.

5. If we are unable to obtain three quotations of the kind described in clause 4 above, the

2-year CMT Rate will be the yield to maturity of the arithmetic mean of the secondary market

oÅered rates for Treasury notes with an original maturity longer than two years and a remaining

term to maturity closest to two years, and in a representative amount, as of approximately 3:30

p.m., New York City time, on the CMT Determination Date, as quoted by three primary U.S.

government securities dealers in New York City that we select. In selecting these oÅered rates,

we will request quotations from Ñve primary dealers and will disregard the highest quotation Ì

or, if there is equality, one of the highest Ì and the lowest quotation Ì or, if there is equality,

one of the lowest. If two Treasury notes with an original maturity longer than two years have

remaining terms to maturity that are equally close to two years, we will obtain quotations for

the Treasury note with the shorter remaining term to maturity.

6. If fewer than Ñve but more than two primary dealers are quoting oÅered rates as

described above in clause 5, then the 2-year CMT Rate for the CMT Determination Date will

be based on the arithmetic mean of the oÅered rates so obtained, and neither the highest nor

the lowest of those quotations will be disregarded.

7. If two or fewer primary dealers are quoting oÅered rates as described above in clause 5,

the 2-year CMT Rate in eÅect for the new Dividend Period will be the 2-year CMT Rate in

eÅect for the prior Dividend Period.

""H.15(519)'' means the weekly statistical release entitled ""Statistical Release H.15(519),'' or

any successor publication, published by the Board of Governors of the Federal Reserve System.

In the absence of clear error, our determination of the 2-year CMT Rate and dividend rate will

be Ñnal and binding. You can obtain the 2-year CMT Rates and the dividend rates for the current

and preceding Dividend Periods by contacting us at:

Freddie Mac

Investor Inquiry

8200 Jones Branch Drive

McLean, Virginia 22102-3110

Telephone: (800-336-FMPC)

(703-450-3777 within Washington, D.C. area)

e-mail: Investor Inquiry@freddiemac.com

Preferences and Limitations

The Variable Rate Preferred Stock will rank prior to our Voting Common Stock, par value

$0.21 per share (the ""Common Stock''), with respect to dividends, as provided in the CertiÑcate of

Designation for the Variable Rate Preferred Stock. We will not declare or pay any dividend on the

Common Stock or any other junior stock unless dividends have been declared and paid or set apart,

or ordered to be set apart, on the Variable Rate Preferred Stock for the then-current Dividend

Period. The Variable Rate Preferred Stock will rank equally with respect to dividends with the Fixed

13
Rate Preferred Stock and our currently outstanding classes of Preferred Stock (the ""Existing

Preferred Stock''), which are listed in Section 1 of the CertiÑcate of Designation for the Variable

Rate Preferred Stock.

Dividends on the Variable Rate Preferred Stock are not cumulative. If we do not pay a dividend

on the Variable Rate Preferred Stock, the holders of the Variable Rate Preferred Stock will have no

claim to a payment as long as we do not pay a dividend for the then-current period on our Common

Stock, any other junior stock, the Fixed Rate Preferred Stock, or the Existing Preferred Stock.

Our Board of Directors may, in its discretion, choose to pay dividends on the Variable Rate

Preferred Stock without paying dividends on the Common Stock.

We oÅer and sell subordinated debt. The terms of the subordinated debt that we currently oÅer

provide for the deferral of interest payments under certain speciÑed circumstances of Ñnancial

distress. The terms of the subordinated debt prohibit the payment of dividends on our stock,

including the Variable Rate Preferred Stock, during any period when we have deferred paying

interest on such subordinated debt.

We will not declare or pay any dividends on the Variable Rate Preferred Stock if at the same

time any arrears or default exists in the payment of dividends on any outstanding class or series of

our stock ranking prior to the Variable Rate Preferred Stock with respect to the payment of

dividends. At the time of issuance of the Variable Rate Preferred Stock, no class or series of our

stock ranking prior to the Variable Rate Preferred Stock will exist.

Holders of shares of the Variable Rate 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 Regulatory Matters

below for a description of possible regulatory restrictions on our ability to pay dividends.

Changes in the Dividends-Received Percentage

General

If one or more amendments to the Code enacted before November 30, 2002 reduce the

percentage of the dividends-received deduction (currently 70%) as speciÑed in section 243(a)(1) of

the Code or any successor provision (the ""Dividends-Received Percentage''), we will make certain

adjustments in the dividends payable on the Variable Rate Preferred Stock, and Post Declaration

Date Dividends and Retroactive Dividends may become payable, as described below.

We will adjust the amount of each dividend per share of Variable Rate Preferred Stock for

dividend payments made on or after the eÅective date of such a change in the Code, by multiplying

the amount of the dividend payable as described above under Dividends Ì General (before

adjustment) by a factor, which will be the number determined in accordance with the following

formula (the ""DRD Formula''), and rounding the result to the nearest cent (with one-half cent

rounded up):

1-.35(1-.70)

1-.35(1-DRP)

For the purposes of the DRD Formula, ""DRP'' means the Dividends-Received Percentage

(expressed as a decimal) applicable to the dividend in question; however, if the Dividends-Received

14
Percentage applicable to the dividend in question is less than 50%, then the DRP will equal .50. If

the amount of any dividend payable on the Variable Rate Preferred Stock is adjusted through the

application of the DRD Formula, the resulting dividend rate may exceed 11% per annum. No

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

in section 243(a)(1) of the Code or any successor provision, or a change in the percentage of the

dividends-received deduction for certain categories of stock that is applicable to the Variable Rate

Preferred Stock, will give rise to an adjustment.

No adjustment in the dividends will be made, and no Post Declaration Date Dividends or

Retroactive Dividends will be payable, as a result of any amendment to the Code enacted on or after

November 30, 2002.

If we receive either an unqualiÑed opinion of nationally recognized independent tax counsel or

a private letter ruling or similar form of assurance from the Internal Revenue Service (the ""IRS'')

that an amendment does not apply to a dividend payable on the Variable Rate Preferred Stock, then

the amendment will not result in an adjustment, in Post Declaration Date Dividends or in

Retroactive Dividends. Any opinion of counsel must be based upon the legislation amending or

establishing the DRP or upon a published pronouncement of the IRS. Unless the context otherwise

requires, references to dividends in this OÅering Circular will mean dividends as adjusted by the

DRD Formula. Our calculation of the dividends as so adjusted will be Ñnal.

If we adjust the amount of dividends or if we are going to pay Post Declaration Date Dividends

or Retroactive Dividends, we will notify you of that fact.

Post Declaration Date Dividends

If an amendment to the Code as described above is enacted after the dividend payable on a

Dividend Payment Date has been declared but before that dividend is paid, the amount of the

dividend payable will not be increased. Instead, additional dividends (""Post Declaration Date

Dividends'') equal to the excess of:

‚ the product of the dividend we paid on that Dividend Payment Date and the DRD

Formula (where the DRP used in the DRD Formula would be equal to the greater of

the Dividends-Received Percentage applicable to the dividend in question and .50), over

‚ the dividend we paid on that Dividend Payment Date

will be payable, if declared, to holders of Variable Rate Preferred Stock on the record date

applicable to the next succeeding Dividend Payment Date, in addition to any other amounts payable

on that date.

Retroactive Dividends

If an amendment to the Code as described above is enacted and the reduction in the DividendsReceived Percentage retroactively applies to a Dividend Payment Date on which we previously paid

dividends on the Variable Rate Preferred Stock (an ""AÅected Dividend Payment Date''), we will

pay, if declared, additional dividends (""Retroactive Dividends'') to holders of Variable Rate

Preferred Stock on the record date applicable to the next succeeding Dividend Payment Date Ì or,

if the amendment is enacted after the dividend payable on such Dividend Payment Date has been

declared, to holders of Variable Rate Preferred Stock on the record date applicable to the second

15
succeeding Dividend Payment Date following the date of enactment. The Retroactive Dividends will

equal the excess of:

‚ the product of the dividend we paid on each AÅected Dividend Payment Date and the

DRD Formula (where the DRP used in the DRD Formula would be equal to the

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

Dividend Payment Date), over

‚ the sum of the dividends we paid on each AÅected Dividend Payment Date.

We will make only one payment of Retroactive Dividends for any such amendment.

Optional Redemption

The Variable Rate Preferred Stock will not be redeemable before June 30, 2003. On that date

and on June 30 every two years thereafter, we may redeem the Variable Rate Preferred Stock, in

whole or in part, out of legally available funds. The redemption price will be $50.00 per share plus an

amount equal to the amount of the dividend that would otherwise be payable for the Dividend

Period ending on the date of redemption. If we redeem less than all of the outstanding shares of the

Variable Rate Preferred Stock, we will select shares to be redeemed by lot or pro rata (as nearly as

possible) or by any other method which we deem equitable.

We will give notice of optional redemption by mail to holders of the Variable Rate Preferred

Stock from 30 days to 60 days before the redemption date. Each notice will state the number of

shares of Variable Rate Preferred Stock being redeemed, the redemption price, the redemption date

and the place at which a holder's Variable Rate Preferred Stock certiÑcates must be presented for

redemption.

On and after the redemption date, the shares of Variable Rate Preferred Stock called for

redemption will no longer be deemed outstanding, and all rights of the holders of those shares will

cease.

The terms of our currently oÅered subordinated debt prohibit us from redeeming our stock,

including the Variable Rate Preferred Stock, during any period when we have deferred paying

interest on the subordinated debt. The terms of the subordinated debt provide for the deferral of

interest payments under certain speciÑed circumstances of Ñnancial distress.

See Regulatory Matters below for a description of possible regulatory restrictions on our ability

to redeem the Variable Rate Preferred Stock.

No Preemptive Rights and No Conversion

As a holder of Variable Rate Preferred Stock, you will not have any preemptive right to

purchase or subscribe for any other shares, rights, options or other securities. You will not have any

right to convert your shares into or exchange your shares for any other class or series of our stock or

obligations.

No Voting Rights

Section 306(f) of the Freddie Mac Act prohibits the holders of Variable Rate Preferred Stock

from voting for the election of any member of our Board of Directors. Except as described under

Amendments below, as a holder you will not be entitled to vote.

16
Liquidation Rights

If Freddie Mac voluntarily or involuntarily dissolves, liquidates or winds up our business, then,

after payment of or provision for our liabilities and the expenses of dissolution, liquidation or winding

up, the holders of the outstanding shares of the Variable Rate Preferred Stock will be entitled to

receive out of our assets available for distribution to stockholders, before any payment or distribution

is made on the Common Stock or any other junior stock, $50.00 per share plus an amount equal to

the dividend for the then-current quarterly Dividend Period accrued through and including the date

of the liquidation payment.

In the event of our dissolution, liquidation or winding up, the rights of the Variable Rate

Preferred Stock rank equally with those of the Fixed Rate Preferred Stock and the Existing

Preferred Stock. If our assets available for distribution to shareholders are insuÇcient to pay in full

the aggregate amount payable to holders of the Variable Rate Preferred Stock, the Fixed Rate

Preferred Stock, the Existing Preferred Stock and any other class or series of stock of equal priority

upon liquidation, the assets will be distributed to the holders of Variable Rate Preferred Stock, the

Fixed Rate Preferred Stock, the Existing Preferred Stock and such other stock pro rata, based on

the amounts to which they are entitled.

Notwithstanding the foregoing, holders of the Variable Rate Preferred Stock will not be

entitled to be paid any amount in respect of our dissolution, liquidation or winding up until holders

of any classes or series of our stock ranking prior to the Variable Rate Preferred Stock upon

liquidation have been paid all amounts to which they are entitled.

Our consolidation, merger or combination with or into any other corporation or entity, or the

sale of all or substantially all of our property or business, will not constitute a liquidation, dissolution

or winding up for purposes of these provisions on liquidation rights.

Additional Classes or Series of Stock

We will have the right to create and issue additional classes or series of stock ranking prior to,

equally with or junior to the Variable Rate Preferred Stock, as to dividends, liquidation or otherwise,

without the consent of holders of the Variable Rate Preferred Stock.

Amendments

Without the consent of the holders of the Variable Rate Preferred Stock, we will have the right

to amend the CertiÑcate of Designation for the Variable Rate Preferred Stock to cure any

ambiguity, to correct or supplement any term which may be defective or inconsistent with any other

term or to make any other provisions so long as the amendment does not materially and adversely

aÅect the interests of the holders of the Variable Rate Preferred Stock. Otherwise, we may amend

the CertiÑcate of Designation for the Variable Rate Preferred Stock only with the consent of the

holders of at least two-thirds of the outstanding shares of Variable Rate Preferred Stock. On matters

requiring consent, each holder will be entitled to one vote per share.

NYSE Listing

We have applied to list the Variable Rate Preferred Stock on the NYSE. Approval of our

application will be subject, among other things, to satisfactory distribution of the Variable Rate

Preferred Stock.

17
DESCRIPTION OF FIXED RATE PREFERRED STOCK

The Fixed Rate Preferred Stock will have the terms shown in its CertiÑcate of Designation

attached as Appendix B. The following is a summary of those terms.

General

Section 306(f) of the Freddie Mac Act authorizes us to issue an unlimited number of shares of

preferred stock. The shares of Fixed Rate Preferred Stock we are oÅering will have a par value of

$1.00 per share and will be created by its CertiÑcate of Designation.

First Chicago Trust Company, New York, New York, will be the transfer agent, dividend

disbursing agent and registrar for the Fixed Rate Preferred Stock.

Authorized Issuance

Our Board of Directors has authorized us to issue the shares of Fixed Rate Preferred Stock.

The Board may increase the authorized number of shares at any time, without the consent of the

holders of Fixed Rate Preferred Stock. We may ""reopen'' this oÅering at any time by oÅering

additional shares of the Fixed Rate Preferred Stock at prices to be determined at that time.

Dividends

General

Dividends on shares of the Fixed Rate Preferred Stock are not mandatory. If you own shares of

Fixed Rate Preferred Stock, you will be entitled to receive non-cumulative, quarterly cash dividends

which will accrue from but not including May 30, 2001 and will be payable on March 31, June 30,

September 30 and December 31 of each year (each, a ""Dividend Payment Date''), beginning on

September 30, 2001. Dividends on shares of the Fixed Rate Preferred Stock will accrue at an annual

rate of $3.00 per share. However, dividends are payable only if declared by our Board of Directors in

its sole discretion, out of funds legally available for dividend payments.

If a Dividend Payment Date is not a Business Day, the related dividend will be paid on the next

Business Day with the same eÅect as though paid on the Dividend Payment Date, without any

increase to account for the period from the Dividend Payment Date through the date of actual

payment. ""Business Day'' means a day other than (a) Saturday or Sunday, (b) a day on which

New York City banks are closed or (c) a day on which our oÇces are closed. We will make

dividend payments to holders of record on the record date established by our Board of Directors,

which will be from 10 to 45 days before the applicable Dividend Payment Date.

If we declare a dividend for the September 30, 2001 Dividend Payment Date, that initial

dividend, which will be for the ""Dividend Period'' from but not including May 30, 2001 through and

including September 30, 2001, will be $1.00 per share and will be payable on September 30, 2001.

Thereafter, the ""Dividend Period'' relating to a Dividend Payment Date will be the period from but

not including the preceding Dividend Payment Date through and including the related Dividend

Payment Date.

We will compute the amount of dividends payable on the Fixed Rate Preferred Stock for any

period shorter than a full Dividend Period on the basis of twelve 30-day months and a 360-day year.

We will compute any dividends payable on the Fixed Rate Preferred Stock for each full Dividend

18
Period by dividing the annual dividend by four. If we redeem the Fixed Rate Preferred Stock, we

will include the dividend that would otherwise be payable for the Dividend Period in which the

redemption date falls, accrued through the redemption date, in the redemption price of the shares

redeemed. We will not pay this dividend to you separately.

Preferences and Limitations

The Fixed Rate Preferred Stock will rank prior to our Voting Common Stock, par value $0.21

per share (the ""Common Stock''), with respect to dividends, as provided in the CertiÑcate of

Designation for the Fixed Rate Preferred Stock. We will not declare or pay any dividend on the

Common Stock or any other junior stock unless dividends have been declared and paid or set apart,

or ordered to be set apart, on the Fixed Rate Preferred Stock for the then-current Dividend Period.

The Fixed Rate Preferred Stock will rank equally with respect to dividends with the Variable Rate

Preferred Stock and our currently outstanding classes of Preferred Stock (the ""Existing Preferred

Stock''), which are listed in Section 1 of the CertiÑcate of Designation for the Fixed Rate Preferred

Stock.

Dividends on the Fixed Rate Preferred Stock are not cumulative. If we do not pay a dividend

on the Fixed Rate Preferred Stock, the holders of the Fixed Rate Preferred Stock will have no claim

to a payment as long as we do not pay a dividend for the then-current period on our Common Stock,

any other junior stock, the Variable Rate Preferred Stock or the Existing Preferred Stock.

Our Board of Directors may, in its discretion, choose to pay dividends on the Fixed Rate

Preferred Stock without paying dividends on the Common Stock.

We oÅer and sell subordinated debt. The terms of the subordinated debt that we currently oÅer

provide for the deferral of interest payments under certain speciÑed circumstances of Ñnancial

distress. The terms of the subordinated debt prohibit the payment of dividends on our stock,

including the Fixed Rate Preferred Stock, during any period when we have deferred paying interest

on such subordinated debt.

We will not declare or pay any dividends on the Fixed Rate Preferred Stock if at the same time

any arrears or default exists in the payment of dividends on any outstanding class or series of our

stock ranking prior to the Fixed Rate Preferred Stock with respect to the payment of dividends. At

the time of issuance of the Fixed Rate Preferred Stock, no class or series of our stock ranking prior

to the Fixed Rate Preferred Stock will exist.

Holders of shares of the Fixed Rate 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 Regulatory Matters

below for a description of possible regulatory restrictions on our ability to pay dividends.

Changes in the Dividends-Received Percentage

General

If one or more amendments to the Code enacted before November 30, 2002 reduce the

percentage of the dividends-received deduction (currently 70%) as speciÑed in section 243(a)(1) of

the Code or any successor provision (the ""Dividends-Received Percentage''), we will make certain

adjustments in the dividends payable on the Fixed Rate Preferred Stock, and Post Declaration Date

Dividends and Retroactive Dividends may become payable, as described below.

19
We will adjust the amount of each dividend per share of Fixed Rate Preferred Stock for

dividend payments made on or after the eÅective date of such a change in the Code, by multiplying

the amount of the dividend payable as described above under Dividends Ì General (before

adjustment) by a factor, which will be the number determined in accordance with the following

formula (the ""DRD Formula''), and rounding the result to the nearest cent (with one-half cent

rounded up):

1-.35(1-.70)

1-.35(1-DRP)

For the purposes of the DRD Formula, ""DRP'' means the Dividends-Received Percentage

(expressed as a decimal) applicable to the dividend in question; however, if the Dividends-Received

Percentage applicable to the dividend in question is less than 50%, then the DRP will equal .50. No

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

in section 243(a)(1) of the Code or any successor provision, or a change in the percentage of the

dividends-received deduction for certain categories of stock that is applicable to the Fixed Rate

Preferred Stock, will give rise to an adjustment.

No adjustment in the dividends will be made, and no Post Declaration Date Dividends or

Retroactive Dividends will be payable, as a result of any amendment to the Code enacted on or after

November 30, 2002.

If we receive either an unqualiÑed opinion of nationally recognized independent tax counsel or

a private letter ruling or similar form of assurance from the Internal Revenue Service (the ""IRS'')

that an amendment does not apply to a dividend payable on the Fixed Rate Preferred Stock, then

the amendment will not result in an adjustment, in Post Declaration Date Dividends or in

Retroactive Dividends. Any opinion of counsel must be based upon the legislation amending or

establishing the DRP or upon a published pronouncement of the IRS. Unless the context otherwise

requires, references to dividends in this OÅering Circular will mean dividends as adjusted by the

DRD Formula. Our calculation of the dividends as so adjusted will be Ñnal.

If we adjust the amount of dividends or if we are going to pay Post Declaration Date Dividends

or Retroactive Dividends, we will notify you of that fact.

Post Declaration Date Dividends

If an amendment to the Code as described above is enacted after the dividend payable on a

Dividend Payment Date has been declared but before that dividend is paid, the amount of the

dividend payable will not be increased. Instead, additional dividends (""Post Declaration Date

Dividends'') equal to the excess of:

‚ the product of the dividend we paid on that Dividend Payment Date and the DRD

Formula (where the DRP used in the DRD Formula would be equal to the greater of

the Dividends-Received Percentage applicable to the dividend in question and .50), over

‚ the dividend we paid on that Dividend Payment Date

will be payable, if declared, to holders of Fixed Rate Preferred Stock on the record date applicable

to the next succeeding Dividend Payment Date, in addition to any other amounts payable on that

date.

20
Retroactive Dividends

If an amendment to the Code as described above is enacted and the reduction in the DividendsReceived Percentage retroactively applies to a Dividend Payment Date on which we previously paid

dividends on the Fixed Rate Preferred Stock (an ""AÅected Dividend Payment Date''), we will pay,

if declared, additional dividends (""Retroactive Dividends'') to holders of Fixed Rate Preferred

Stock on the record date applicable to the next succeeding Dividend Payment Date Ì or, if the

amendment is enacted after the dividend payable on such Dividend Payment Date has been

declared, to holders of Fixed Rate Preferred Stock on the record date applicable to the second

succeeding Dividend Payment Date following the date of enactment. The Retroactive Dividends will

equal the excess of:

‚ the product of the dividend we paid on each AÅected Dividend Payment Date and the

DRD Formula (where the DRP used in the DRD Formula would be equal to the

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

Dividend Payment Date), over

‚ the sum of the dividends we paid on each AÅected Dividend Payment Date.

We will make only one payment of Retroactive Dividends for any such amendment.

Optional Redemption

The Fixed Rate Preferred Stock will not be redeemable before June 30, 2006. At any time on or

after that date, we may redeem the Fixed Rate Preferred Stock, in whole or in part, out of legally

available funds. The redemption price will be $50.00 per share plus an amount equal to the amount

of the dividend that would otherwise be payable for the Dividend Period in which the redemption

date falls, accrued through the redemption date. If we redeem less than all of the outstanding shares

of the Fixed Rate Preferred Stock, we will select shares to be redeemed by lot or pro rata (as nearly

as possible) or by any other method which we deem equitable.

We will give notice of optional redemption by mail to holders of the Fixed Rate Preferred Stock

from 30 days to 60 days before the redemption date. Each notice will state the number of shares of

Fixed Rate Preferred Stock being redeemed, the redemption price, the redemption date and the

place at which a holder's Fixed Rate Preferred Stock certiÑcates must be presented for redemption.

On and after the redemption date, the shares of Fixed Rate Preferred Stock called for

redemption will no longer be deemed outstanding, and all rights of the holders of those shares will

cease.

The terms of our currently oÅered subordinated debt prohibit us from redeeming our stock,

including the Fixed Rate Preferred Stock, during any period when we have deferred paying interest

on the subordinated debt. The terms of the subordinated debt provide for the deferral of interest

payments under certain speciÑed circumstances of Ñnancial distress.

See Regulatory Matters below for a description of possible regulatory restrictions on our ability

to redeem the Fixed Rate Preferred Stock.

No Preemptive Rights and No Conversion

As a holder of Fixed Rate Preferred Stock, you will not have any preemptive right to purchase

or subscribe for any other shares, rights, options or other securities. You will not have any right to

21
convert your shares into or exchange your shares for any other class or series of our stock or

obligations.

No Voting Rights

Section 306(f) of the Freddie Mac Act prohibits the holders of Fixed Rate Preferred Stock

from voting for the election of any member of our Board of Directors. Except as described under

Amendments below, as a holder you will not be entitled to vote.

Liquidation Rights

If Freddie Mac voluntarily or involuntarily dissolves, liquidates or winds up our business, then,

after payment of or provision for our liabilities and the expenses of dissolution, liquidation or winding

up, the holders of the outstanding shares of the Fixed Rate Preferred Stock will be entitled to

receive out of our assets available for distribution to stockholders, before any payment or distribution

is made on the Common Stock or any other junior stock, $50.00 per share plus an amount equal to

the dividend for the then-current quarterly Dividend Period accrued through and including the date

of the liquidation payment.

In the event of our dissolution, liquidation or winding up, the rights of the Fixed Rate Preferred

Stock rank equally with those of the Variable Rate Preferred Stock and the Existing Preferred

Stock. If our assets available for distribution to shareholders are insuÇcient to pay in full the

aggregate amount payable to holders of the Fixed Rate Preferred Stock, the Variable Rate Preferred

Stock, the Existing Preferred Stock and any other class or series of stock of equal priority upon

liquidation, the assets will be distributed to the holders of Fixed Rate Preferred Stock, the Variable

Rate Preferred Stock, the Existing Preferred Stock and such other stock pro rata, based on the

amounts to which they are entitled.

Notwithstanding the foregoing, holders of the Fixed Rate Preferred Stock will not be entitled to

be paid any amount in respect of our dissolution, liquidation or winding up until holders of any

classes or series of our stock ranking prior to the Fixed Rate Preferred Stock upon liquidation have

been paid all amounts to which they are entitled.

Our consolidation, merger or combination with or into any other corporation or entity, or the

sale of all or substantially all of our property or business, will not constitute a liquidation, dissolution

or winding up for purposes of these provisions on liquidation rights.

Additional Classes or Series of Stock

We will have the right to create and issue additional classes or series of stock ranking prior to,

equally with or junior to the Fixed Rate Preferred Stock, as to dividends, liquidation or otherwise,

without the consent of holders of the Fixed Rate Preferred Stock.

Amendments

Without the consent of the holders of the Fixed Rate Preferred Stock, we will have the right to

amend the CertiÑcate of Designation for the Fixed Rate Preferred Stock to cure any ambiguity, to

correct or supplement any term which may be defective or inconsistent with any other term or to

make any other provisions so long as the amendment does not materially and adversely aÅect the

interests of the holders of the Fixed Rate Preferred Stock. Otherwise, we may amend the CertiÑcate

22
of Designation for the Fixed Rate Preferred Stock only with the consent of the holders of at least

two-thirds of the outstanding shares of Fixed Rate Preferred Stock. On matters requiring consent,

each holder will be entitled to one vote per share.

NYSE Listing

We have applied to list the Fixed Rate Preferred Stock on the NYSE. Approval of our

application will be subject, among other things, to satisfactory distribution of the Fixed Rate

Preferred Stock.

REGULATORY MATTERS

Neither our right to declare dividends on nor our right to redeem the Preferred Stock is

currently subject to prior regulatory approval. Under the Federal Housing Enterprises Financial

Safety and Soundness Act of 1992 (the ""GSE Act''), our ability to exercise these rights may be

subject to regulatory approval only if we fail to meet applicable capital standards.

The GSE Act established our minimum capital, critical capital and risk-based capital

standards.

The GSE Act has required that we maintain ""core capital'' in an amount that equals or exceeds

the levels established under the minimum and critical capital standards since the GSE Act was

enacted in 1992. In June 1996, the Director (the ""Director'') of the OÇce of Federal Housing

Enterprise Oversight (""OFHEO'') issued a Ñnal minimum capital regulation that interprets the

minimum capital standard and implements a calculation methodology similar to the methodology

OFHEO applied on an interim basis since the GSE Act was enacted.

The GSE Act does not require us to maintain ""total capital'' at a level that equals or exceeds

the risk-based capital standard until the Director issues a Ñnal risk-based capital regulation

establishing the risk-based capital stress test (the risk-based capital level cannot be determined from

the GSE Act alone).

The Director of OFHEO has issued a proposed regulation to implement the risk-based capital

standard. We submitted to OFHEO extensive comments on the proposal. We understand that

OFHEO plans to issue a Ñnal risk-based capital rule in 2001. We believe that a reasonable

implementation of the risk-based capital standard would be consistent with our internal assessment

of capital adequacy.

Until a Ñnal risk-based capital regulation has been issued and in eÅect for one year, Freddie

Mac is to be classiÑed as adequately capitalized, the highest capital classiÑcation, so long as it meets

the minimum capital standard.

Subject to the applicability of the risk-based capital standard described above, we may pay a

dividend without prior OFHEO approval if the payment would not decrease our total capital to an

amount less than our risk-based capital level and would not decrease the core capital level to an

amount less than our minimum capital level. Beginning one year after the Ñnal risk-based capital

regulation is issued, if our total capital is less than the risk-based capital level, but our core capital

equals or exceeds the minimum capital level, we are prohibited from making a dividend payment

that would decrease our core capital to an amount less than the minimum capital level. At any time,

if our core capital is less than the minimum capital level, we may make a dividend payment only if

23
the dividend payment satisÑes certain statutory standards and would not decrease our core capital to

less than the critical capital level and if the Director approves the payment.

In addition to the preceding requirements that relate directly to the payment of dividends, the

Director has authority, under certain conditions, to require that we submit for the Director's

approval a capital restoration plan or that we restrict our activities, either of which also could aÅect

the payment of dividends. SpeciÑcally, if the Director determines, after the risk-based capital

regulation has been in eÅect for one year, that we fail to meet the risk-based capital standard, or if

the Director determines, at any time, that we fail to meet the minimum capital standard, we will be

required to submit for the Director's approval a capital restoration plan setting forth a feasible plan

for restoring our capital level. In addition, if we at any time fail to meet the minimum capital

standard, the Director is authorized to impose various limitations on our activities. If, at any time,

the Director determines that we fail to meet the critical capital standard, the Director may appoint a

conservator.

If the Director does not approve a required capital restoration plan or determines that we have

failed to make reasonable eÅorts to comply with such a plan, then the Director may treat us as not

meeting capital standards that we otherwise meet and take the actions authorized when we do not

meet such standards. Similarly, beginning one year after OFHEO issues a Ñnal risk-based capital

regulation, if the Director determines that we are engaging in conduct not approved by the Director

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

mortgages we hold or have securitized has decreased signiÑcantly, the Director is authorized to treat

us as not meeting capital standards that we otherwise meet.

If we fail to meet or are treated by the Director as not meeting applicable capital standards and

the Director has reasonable cause to believe that we are engaging in or about to engage in any

conduct (which could include the payment of dividends) that threatens to result in a material

depletion of our core capital, then the Director is authorized to commence proceedings under which,

after a hearing, the Director could issue a cease-and-desist order prohibiting such conduct. If we

meet all applicable capital standards and the Director determines that the conduct in question is

likely to cause a signiÑcant depletion of core capital, the Director is authorized to commence

proceedings under which, after a hearing, the Director could issue a cease-and-desist order

prohibiting such conduct. In addition, regardless of whether we meet applicable capital standards, if

the Director determines that such conduct is likely to cause a signiÑcant depletion of core capital,

insolvency or otherwise cause irreparable harm to Freddie Mac, the Director can issue a temporary

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

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.

The foregoing discussion with respect to the payment of dividends is equally applicable to our

redemption of the Preferred Stock and is based on our understanding and interpretations of the

relevant provisions of the GSE Act. OFHEO has not yet issued any deÑnitive guidance as to its

interpretations of these provisions of the GSE Act. Until OFHEO has provided such guidance, we

cannot be certain that the foregoing discussion will be consistent with OFHEO's interpretation in

every respect. A more detailed discussion of the regulatory oversight of our capitalization and the

terms used above appears under Management's Discussion and Analysis of Financial Condition and

24
Results of Operations Ì REGULATORY MATTERS Ì Capital Standards in the Information

Statement.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The Preferred Stock and payments on it are generally subject to taxation by the United States

and other taxing jurisdictions to the same extent as stock of any other corporation. The following

discussion addresses some of the U.S. federal income tax consequences that may result from

ownership of the Preferred Stock by a U.S. person who holds the Preferred Stock as a capital asset.

For this purpose, a U.S. person is an individual who is a citizen or resident of the United States

for federal income tax purposes, a corporation, partnership or other type of entity organized under

the laws of the United States or any State (other than a partnership that is not treated as a U.S.

person under any applicable Treasury regulations), an estate whose income is subject to U.S. federal

income tax regardless of its source, or a trust if a court within the United States is able to exercise

primary supervision of the administration of the trust and one or more U.S. persons have the

authority to control all substantial decisions of the trust. Notwithstanding the preceding sentence, to

the extent provided in Treasury regulations, certain trusts in existence on August 20, 1996, and

treated as U.S. persons prior to such date, that elect to continue to be treated as U.S. persons, also

will be U.S. persons.

This discussion does not purport to address all rules which may apply to particular investors.

Investors are encouraged to consult their own tax advisors regarding the federal, state, local and

foreign tax considerations applicable to an investment in the Preferred Stock.

This discussion reÖects current federal income tax laws and regulations and administrative and

judicial interpretations. Changes to any of these that occur after the date of this OÅering Circular

may aÅect the tax consequences that we describe.

Dividends

Distributions on the Preferred Stock which are paid out of current earnings and proÑts, or

earnings and proÑts accumulated after 1984, generally constitute dividends taxable as ordinary

income. To the extent that the amount of any distribution paid on a share of Preferred Stock

exceeds the current or accumulated earnings and proÑts for federal income tax purposes attributable

to that share, such excess will be treated Ñrst as a return of capital (rather than as ordinary income)

and will be applied against and reduce the holder's adjusted tax basis in that share of Preferred

Stock. Any such amount in excess of the holder'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 corporations generally will be eligible for the dividends-received

deduction. The dividends-received deduction is available only with respect to a dividend received on

stock held for more than 45 days (or more than 90 days in the case of a dividend on preferred stock

attributable to periods aggregating in excess of 366 days), including the day of disposition but not

the day of acquisition. This holding period must be satisÑed during the 90-day period (180-day

period in the case of a preferred stock dividend attributable to periods aggregating in excess of 366

days) beginning on the date which is 45 (90) days before the date on which the stock becomes exdividend with respect to the dividend. The length of time that a corporate shareholder is deemed to

25
have held stock for these purposes is reduced for 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 amount of such deduction generally will equal 70

percent of the amount of the dividends received, subject to reduction in certain events, including

where a holder has indebtedness outstanding that is directly attributable to an investment in the

Preferred Stock. For this purpose, indebtedness of a depository institution attributable to deposits

received in the ordinary course of its business is not treated as indebtedness directly attributable to

an investment in the Preferred Stock.

For purposes of the corporate alternative minimum tax, alternative minimum taxable income is

increased by 75 percent of the amount by which a corporation's adjusted current earnings exceeds its

alternative minimum taxable income prior to the addition of the applicable tax preference item. The

amount of any dividend that is included in a corporate shareholder's adjusted current earnings will

not be reduced by any dividends-received deduction otherwise allowable with respect to that

dividend.

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 received and the shareholder's adjusted tax basis in the Preferred Stock. Such gain or loss

generally 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.

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 holder within the meaning of section 302(b)(1) of the Code. In applying this

standard, the holder must take into account not only the Preferred Stock and other stock of Freddie

Mac that it owns directly, but also the Preferred Stock and other stock of Freddie Mac that it

constructively owns within the meaning of section 318 of the Code. A redemption payment made to

a holder will be ""not essentially equivalent to a dividend'' if it results in a ""meaningful reduction'' in

the holder's aggregate stock interest in Freddie Mac. Because of the ambiguities in applying this

rule, each holder should consult its own tax advisor to determine whether a redemption of Preferred

Stock will be treated as a dividend or as payment in exchange for the Preferred Stock. If the

redemption payment is treated as a dividend, the rules discussed above under Dividends apply.

Information Reporting and Backup Withholding

Payments of dividends on shares of Preferred Stock held of record by U.S. persons other than

corporations and other exempt holders are required to be reported to the IRS.

Backup withholding of U.S. federal income tax at a rate of 31 percent may apply to payments

made with respect to shares of Preferred Stock, as well as payments of proceeds from the sale of

shares of Preferred Stock, to holders that are not ""exempt recipients'' and that fail to provide certain

identifying information (such as the taxpayer identiÑcation number of the holder) in the manner

required. Individuals generally are not exempt recipients, whereas corporations and certain other

entities generally are exempt recipients.

26
LEGAL INVESTMENT CONSIDERATIONS

You should consult your own legal advisors to determine whether the shares of Preferred Stock

constitute legal investments for you and whether the shares of Preferred Stock can be used as

collateral for borrowings. In addition, Ñnancial institutions should consult their legal advisors or

regulators in determining the appropriate treatment of the shares of Preferred Stock under riskbased capital or similar rules.

If you are subject to legal investment laws and regulations or to review by regulatory

authorities, you may be subject to restrictions on investing in the shares of Preferred Stock.

Institutions regulated by 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, the Department of the Treasury or any other federal or state

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

guidelines before purchasing or pledging the shares of Preferred Stock.

UNDERWRITING

Under the terms of underwriting agreements (the ""Underwriting Agreements''), we have

agreed to sell to the Underwriters named below, and the Underwriters, for whom Lehman Brothers

Inc. is acting as representative, have severally agreed to purchase from us, the shares of Preferred

Stock opposite their names.

Number of Shares Number of Shares

of Variable Rate of Fixed Rate

Underwriter Preferred Stock Preferred Stock

Lehman Brothers Inc. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,925,000 1,650,000

First Tennessee Bank National AssociationÏÏÏÏÏÏÏÏÏÏÏ 525,000 450,000

Vining-Sparks IBG, L.P. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 525,000 450,000

Bear, Stearns & Co., Inc. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 175,000 150,000

Goldman Sachs & Co. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 175,000 150,000

The Williams Capital Group, L.P. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 175,000 150,000

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,500,000 3,000,000

The Underwriting Agreement pertaining to the Variable Rate Preferred Stock requires the

Underwriters to take and pay for all of the shares of Variable Rate Preferred Stock, if any are taken.

The Underwriting Agreement for the Fixed Rate Preferred Stock contains comparable provisions.

The Underwriters propose to oÅer a portion of the Variable Rate Preferred Stock and Fixed

Rate Preferred Stock directly to the public at the initial oÅering prices shown on the cover page of

this OÅering Circular, plus accrued dividends, if any, from May 30, 2001, and a portion to certain

dealers at those prices less a concession of not more than $0.0875 per share in the case of the

Variable Rate Preferred Stock and $0.10 per share in the case of the Fixed Rate Preferred Stock.

The Underwriters may allow, and the dealers may reallow, a concession of not more than $0.25 per

share in the case of the Variable Rate Preferred Stock and $0.30 per share in the case of the Fixed

Rate Preferred Stock on sales to certain brokers and dealers. After the shares of Preferred Stock are

released for sale to the public, the Underwriters may vary the oÅering price and other selling terms.

The Corporation has granted the Underwriters options exercisable for seven days after the date

of this OÅering Circular to purchase up to an aggregate of 525,000 additional shares of Variable

Rate Preferred Stock and up to an aggregate of 450,000 additional shares of Fixed Rate Preferred

Stock solely to cover overallotments, if any. If the Underwriters exercise their overallotment option

with respect to the Variable Rate Preferred Stock or the Fixed Rate Preferred Stock, the

27
Underwriters have severally agreed, subject to certain conditions, to purchase approximately the

same percentage thereof that the number of shares of Variable Rate Preferred Stock or Fixed Rate

Preferred Stock, as the case may be, to be purchased by each of them, as shown in the foregoing

table, bears to the total number of shares oÅered for that Preferred Stock.

Until this oÅering, there has been no public market for the Preferred Stock. We have applied to

list the Preferred Stock on the NYSE. Trading of the Preferred Stock on the NYSE is expected to

commence within a fourteen-day period after the initial delivery of the Preferred Stock. The

Underwriters have advised us that they intend to make a market in the Preferred Stock prior to the

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

market making at any time without notice.

In connection with the oÅering, the Underwriters may purchase and sell the Preferred Stock in

the open market. These transactions may include over-allotment and stabilizing transactions and

purchases to cover syndicate short positions created in connection with the oÅering. Stabilizing

transactions consist of certain bids or purchases for the purpose of preventing or retarding a decline

in the market prices of the Variable Rate Preferred Stock and Fixed Rate Preferred Stock.

Syndicate short positions involve the sale by the Underwriters of a greater number of shares of

Variable Rate Preferred Stock or Fixed Rate Preferred Stock than they are required to purchase

from us in the oÅering. The Underwriters also may impose a penalty bid, whereby selling

concessions allowed to syndicate members or other broker-dealers for securities sold in the oÅering

for their account may be reclaimed by the syndicate if such shares of Preferred Stock are

repurchased by the Underwriters in stabilizing or covering transactions. These activities may

stabilize, maintain or otherwise aÅect the market prices of the Variable Rate Preferred Stock or

Fixed Rate Preferred Stock, which may be higher than the prices that might otherwise prevail in the

open market; and these activities, if commenced, may be discontinued at any time. These

transactions may be eÅected in the over-the-counter market or otherwise.

We and the Underwriters have agreed to indemnify each other against certain liabilities in

connection with the oÅering and sale of the Preferred Stock.

Some of the Underwriters, dealers or agents may engage in transactions with us and perform

services for us in the ordinary course of business.

RATINGS

Moody's will assign the Variable Rate Preferred Stock and the Fixed Rate Preferred Stock a

rating of ""aa3.'' A rating of ""aa'' is the second highest rating that Moody's assigns to preferred stock.

An issue which is rated ""aa'' is considered by Moody's to be a ""high-grade preferred stock.''

According to Moody's, this rating indicates that ""there is a reasonable assurance the earnings and

asset protection will remain relatively well maintained in the foreseeable future.'' The numerical

modiÑer ""3'' indicates that the issue ranks in the lower end of the generic rating category of ""aa.''

S&P will assign the Variable Rate Preferred Stock and the Fixed Rate Preferred Stock a rating

of ""AA¿.'' A rating of ""AA'' is the second highest rating that S&P assigns to preferred stock. An

issue which is rated ""AA'' is considered by S&P to be a ""high-quality, Ñxed-income security.''

According to S&P, this rating indicates that ""the capacity to pay preferred stock dividends is very

strong, although not as overwhelming as for issues rated AAA.'' The addition of the minus (¿) sign

indicates that the issue ranks in the lower end of the generic rating category ""AA.''

28
A security rating is not a recommendation to buy, sell or hold securities and may be subject to

revision or withdrawal at any time by the assigning rating organization.

INDEPENDENT PUBLIC ACCOUNTANTS

The Consolidated Financial Statements of Freddie Mac included in the Information Statement

dated March 26, 2001, incorporated by reference in this OÅering Circular, have been audited by

Arthur Andersen LLP, independent public accountants, as indicated in their report with respect

thereto, and are included herein in reliance upon the authority of said Ñrm as experts in giving said

reports.

LEGAL MATTERS

Maud Mater, Esq., our Executive Vice President-General Counsel and Secretary, will render

an opinion on the legality of the Preferred Stock. As of May 15, 2001, Ms. Mater was the beneÑcial

owner of 98,016 shares of Common Stock and options covering an additional 152,132 shares of

Common Stock. Cleary, Gottlieb, Steen & Hamilton is representing the Underwriters on legal

matters concerning the Preferred Stock.

29
Appendix A

FREDDIE MAC

CERTIFICATE OF CREATION, DESIGNATION, POWERS,

PREFERENCES, RIGHTS, PRIVILEGES, QUALIFICATIONS,

LIMITATIONS, RESTRICTIONS, TERMS AND CONDITIONS

of

VARIABLE RATE, NON-CUMULATIVE PREFERRED STOCK

(Par Value $1.00 Per Share)

I, MAUD MATER, Secretary of the Federal Home Loan Mortgage Corporation, a government-sponsored enterprise of the United States of America (""Freddie Mac'' or the ""Corporation''),

do hereby certify that, pursuant to authority vested in the Board of Directors of Freddie Mac by

Section 306(f) of the Federal Home Loan Mortgage Corporation Act, as amended (12 U.S.C.

Û1455(f)), the Board of Directors adopted FHLMC Resolution 2001-03 on March 2, 2001, which

resolution is now, and at all times since such date has been, in full force and eÅect, and that the

Chairman and Chief Executive OÇcer, pursuant to the authority delegated to him by such

resolution, approved the Ñnal terms of the public issuance and sale of the preferred stock of Freddie

Mac designated above.

The Variable Rate, Non-Cumulative Preferred Stock shall have the following designation,

powers, preferences, rights, privileges, qualiÑcations, limitations, restrictions, terms and conditions:

1. Designation, Par Value, Number of Shares and Seniority

The class of preferred stock of Freddie Mac created hereby (the ""Non-Cumulative Preferred

Stock'') shall be designated ""Variable Rate, Non-Cumulative Preferred Stock,'' shall have a par

value of $1.00 per share and shall consist of 3,500,000 shares.* The Board of Directors shall be

permitted to increase the authorized number of such shares at any time. The Non-Cumulative

Preferred Stock shall rank prior to the Voting Common Stock of Freddie Mac (the ""Common

Stock'') to the extent provided in this CertiÑcate and shall rank, both as to dividends and upon

liquidation, on a parity with the 6% Non-Cumulative Preferred Stock issued on May 30, 2001, the

5.81% Non-Cumulative Preferred Stock issued on March 23, 2001, the Variable Rate, NonCumulative Preferred Stock issued on March 23, 2001, the Variable Rate, Non-Cumulative

Preferred Stock issued on January 26, 2001, the Variable Rate, Non-Cumulative Preferred Stock

issued on November 5, 1999, the 5.79% Non-Cumulative Preferred Stock issued on July 21, 1999,

the 5.1% Non-Cumulative Preferred Stock issued on March 19, 1999, the 5.3% Non-Cumulative

Preferred Stock issued on October 28, 1998, the 5.1% Non-Cumulative Preferred Stock issued on

September 23, 1998, the Variable Rate, Non-Cumulative Preferred Stock issued on September 23,

1998 and September 29, 1998, the 5% Non-Cumulative Preferred Stock issued on March 23, 1998,

the 5.81% Non-Cumulative Preferred Stock issued on October 27, 1997, the 6.14% Non-Cumulative Preferred Stock issued on June 3, 1997, the 6.125% Non-Cumulative Preferred Stock issued on

November 1, 1996 and the Variable Rate, Non-Cumulative Preferred Stock issued on April 26,

1996 (collectively, the ""Existing Preferred Stock'').

* Plus up to 525,000 additional shares pursuant to Underwriters' overallotment option.

A-1
2. Dividends

(a) Holders of outstanding shares of Non-Cumulative Preferred Stock will be entitled to

receive, ratably, non-cumulative quarterly cash dividends which will accrue from but not including

May 30, 2001 and will be payable on March 31, June 30, September 30 and December 31 of each

year (each, a ""Dividend Payment Date''), beginning on September 30, 2001, when as and if

declared by the Board of Directors in its sole discretion, out of funds legally available for dividend

payments. If a Dividend Payment Date is not a ""Business Day,'' the related dividend will be paid on

the next 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. ""Business Day'' means a day other than (i) a Saturday or Sunday, (ii) a day on

which New York City banks are closed or (iii) a day on which the oÇces of Freddie Mac are closed.

Dividends will be paid to holders of record on the record date Ñxed by the Board of Directors, not to

be earlier than 45 days or later than 10 days preceding the applicable Dividend Payment Date.

The dividend rate for the period from May 30, 2001 through and including June 30, 2003 will

be 4.48%. Thereafter, dividends will accrue at a variable per annum rate (not greater than 11%)

equal to the ""CMT Rate'' (as deÑned below) plus 0.20%. On July 1, 2003, and on July 1 every two

years thereafter, the previous dividend rate will be replaced by a new dividend rate equal to the thencurrent CMT Rate plus 0.20%. The CMT Rate for each two-year period will be determined by

Freddie Mac on the second Business Day immediately preceding the Ñrst day of such period (each,

a ""CMT Determination Date''). If declared, the initial dividend, which will be for the ""Dividend

Period'' from but not including May 30, 2001 through and including September 30, 2001, will be

$0.74667 per share and will be payable on September 30, 2001. Thereafter, the ""Dividend Period''

relating to a Dividend Payment Date will be the period from but not including the preceding

Dividend Payment Date through and including the related Dividend Payment Date. The amount of

each dividend payable for any period shorter than a full Dividend Period shall be computed on the

basis of twelve 30-day months and a 360-day year. The amount of dividends payable for each full

Dividend Period will be determined by dividing the annual dividend by four. If Freddie Mac

redeems the Non-Cumulative Preferred Stock, the dividend that would otherwise be payable for the

Dividend Period ending on the date of redemption will be included in the redemption price of the

shares redeemed and will not be separately payable.

(b) The ""CMT Rate'' for any CMT Determination Date will be the rate (not greater than

10.80%) equal to:

(1) the weekly average interest rate of U.S. Treasury securities having an index maturity

of two years for the week that ends immediately before the week in which the relevant CMT

Determination Date falls, as that rate appears on page ""7052'' on Telerate (or such other page

as may replace the 7052 page on that service or any successor service) under the heading

"". . . Treasury Constant Maturities . . . Federal Reserve Board Release H.15 . . . Mondays

Approximately 3:45 p.m.''

(2) If the applicable rate described in clause (1) above is not displayed on Telerate page

7052 at 3:00 p.m., New York City time, on the relevant CMT Determination Date, then the

CMT Rate will be the Treasury constant maturity rate applicable to a two-year index maturity

for the weekly average as published in H.15(519) (as deÑned below).

A-2
(3) If the applicable rate described in clause (2) above does not appear in H.15(519) at

3:00 p.m., New York City time, on the relevant CMT Determination Date, then the CMT Rate

will be the Treasury constant maturity rate, or other U.S. Treasury rate, applicable to a twoyear index maturity with reference to the relevant CMT Determination Date, that:

(A) is published by the Board of Governors of the Federal Reserve System or the

U.S. Department of the Treasury; and

(B) is determined by Freddie Mac to be comparable to the applicable rate formerly

displayed on Telerate page 7052 and published in H.15(519).

(4) If the rate described in clause (3) above does not appear at 3:00 p.m., New York City

time, on the relevant CMT Determination Date, then the CMT Rate will be the yield to

maturity of the arithmetic mean of the secondary market oÅered rates for Treasury notes

having an original maturity of approximately two years and a remaining term to maturity of not

less than one year, and in a representative amount, as of approximately 3:30 p.m., New York

City time, on the relevant CMT Determination Date, as quoted by three primary U.S.

government securities dealers in New York City selected by Freddie Mac. In selecting these

oÅered rates, Freddie Mac will request quotations from Ñve primary dealers and will disregard

the highest quotation Ì or, if there is equality, one of the highest Ì and the lowest quotation Ì or, if there is equality, one of the lowest. Treasury notes are direct, non-callable, Ñxed

rate obligations of the U.S. government.

(5) If Freddie Mac is unable to obtain three quotations of the kind described in clause

(4) above, the CMT Rate will be the yield to maturity of the arithmetic mean of the secondary

market oÅered rates for Treasury notes with an original maturity longer than two years and a

remaining term to maturity closest to two years, and in a representative amount, as of

approximately 3:30 p.m., New York City time, on the relevant CMT Determination Date, as

quoted by three primary U.S. government securities dealers in New York City selected by

Freddie Mac. In selecting these oÅered rates, Freddie Mac will request quotations from Ñve

primary dealers and will disregard the highest quotation Ì or, if there is equality, one of the

highest Ì and the lowest quotation Ì or, if there is equality, one of the lowest. If two Treasury

notes with an original maturity longer than two years have remaining terms to maturity that are

equally close to two years, Freddie Mac will obtain quotations for the Treasury note with the

shorter remaining term to maturity.

(6) If fewer than Ñve but more than two primary dealers are quoting oÅered rates as

described in clause (5) above, then the CMT Rate for the relevant CMT Determination Date

will be based on the arithmetic mean of the oÅered rates so obtained, and neither the highest

nor the lowest of those quotations will be disregarded.

(7) If two or fewer primary dealers are quoting oÅered rates as described in clause (5)

above, the CMT Rate in eÅect for the new Dividend Period will be the CMT Rate in eÅect for

the prior Dividend Period.

""H.15(519)'' means the weekly statistical release entitled ""Statistical Release H.15(519),'' or

any successor publication, published by the Board of Governors of the Federal Reserve System.

Absent manifest error, Freddie Mac's determination of the CMT Rate and the dividend rate

will be Ñnal and binding.

A-3
No dividends shall be declared or paid or set apart for payment on the Common Stock or any

other class or series of stock ranking junior to or (except as hereinafter provided) on a parity with

the Non-Cumulative Preferred Stock with respect to the payment of dividends unless dividends

have been declared and paid or set apart (or ordered by the Board of Directors to be set apart) for

payment on the outstanding Non-Cumulative Preferred Stock in respect of the then-current

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 Non-Cumulative

Preferred Stock in the event that Freddie Mac shall not have declared or paid or set apart (or the

Board of Directors shall not have ordered to be set apart) dividends on the Non-Cumulative

Preferred Stock in respect of any prior Dividend Period. In the event that Freddie Mac shall not pay

any one or more dividends or any part thereof on the Non-Cumulative Preferred Stock, the holders

of the Non-Cumulative Preferred Stock shall not have any claim in respect of such non-payment so

long as no dividend is paid on any junior or parity stock in violation of the next preceding sentence.

(c) If, prior to November 30, 2002, one or more amendments to the Internal Revenue Code of

1986, as amended (the ""Code''), are enacted that reduce or eliminate the percentage of the

dividends-received deduction as speciÑed in section 243(a)(1) of the Code or any successor

provision (the ""Dividends-Received Percentage''), including any change applicable only to certain

categories of stock, which change is applicable to the Non-Cumulative Preferred Stock, certain

adjustments may be made in respect of the dividends payable by the Corporation, and Post

Declaration Date Dividends and Retroactive Dividends (as such terms are deÑned below) may

become payable, as described below.

The amount of each dividend payable (if declared) per share of Non-Cumulative Preferred

Stock for dividend payments made on or after the eÅective date of such change in the Code will be

adjusted by multiplying the amount of the dividend payable pursuant to Section 2(a) (before

adjustment) by a factor, which shall be the number determined in accordance with the following

formula (the ""DRD Formula''), and rounding the result to the nearest cent (with one-half cent

rounded up):

1-.35(1-.70)

1-.35(1-DRP)

For the purposes of the DRD Formula, ""DRP'' means the Dividends-Received Percentage

(expressed as a decimal) applicable to the dividend in question; provided, however, that if the

Dividends-Received Percentage applicable to the dividend in question is less than 50%, then the

DRP will equal .50. In the event an adjustment to any dividend payable on the Non-Cumulative

Preferred Stock is made pursuant to this Section 2(c), the resulting dividend rate may exceed 11%

per annum. No amendment to the Code, other than a change in the percentage of the dividendsreceived deduction set forth in section 243(a)(1) of the Code or any successor provision, or a

change in the percentage of the dividends-received deduction for certain categories of stock, which

change is applicable to the Non-Cumulative Preferred Stock, will give rise to an adjustment.

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

Corporation receives either an unqualiÑed opinion of nationally recognized independent tax counsel

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

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

payable on the Non-Cumulative Preferred Stock, then such amendment shall not result in the

adjustment provided for pursuant to the DRD Formula with respect to such dividend. The opinion

A-4
referenced in the previous sentence shall be based upon the legislation amending or establishing the

DRP or upon a published pronouncement of the IRS addressing such legislation. Unless the context

otherwise requires, references to dividends herein shall mean dividends as adjusted by the DRD

Formula. The Corporation's calculation of the dividends payable as so adjusted shall be Ñnal and not

subject to review, absent manifest error.

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

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

the amount of the dividend payable on such Dividend Payment Date shall not be increased. Instead,

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

product of the dividend paid by the Corporation on such Dividend Payment Date and the DRD

Formula (where the DRP used in the DRD Formula would be equal to the greater of the DividendsReceived Percentage applicable to the dividend in question and .50) over (y) the dividend paid by

the Corporation on such Dividend Payment Date, shall be payable (if declared) to holders of NonCumulative Preferred Stock on the record date applicable to the next succeeding Dividend Payment

Date, in addition to any other amounts payable on such date.

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

Percentage retroactively applies to a Dividend Payment Date as to which the Corporation previously

paid dividends on the Non-Cumulative Preferred Stock (each, an ""AÅected Dividend Payment

Date''), the Corporation shall pay (if declared) additional dividends (the ""Retroactive Dividends'')

to holders on the record date applicable to the next succeeding Dividend Payment Date (or, if such

amendment is enacted after the dividend payable on such Dividend Payment Date has been

declared, to holders on the record date applicable to the second succeeding Dividend Payment Date

following the date of enactment) in an amount equal to the excess of (x) the product of the dividend

paid by the Corporation on each AÅected Dividend Payment Date and the DRD Formula (where

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

Percentage and .50 applied to each AÅected Dividend Payment Date) over (y) the sum of the

dividend paid by the Corporation on each AÅected Dividend Payment Date. The Corporation will

make only one payment of Retroactive Dividends for any such amendment. Notwithstanding the

foregoing provisions, if, with respect to any such amendment, the Corporation receives either an

unqualiÑed opinion of nationally recognized independent tax counsel selected by the Corporation or

a private letter ruling or similar form of assurance from the IRS to the eÅect that such amendment

does not apply to a dividend payable on an AÅected Dividend Payment Date for the NonCumulative Preferred Stock, then such amendment will not result in the payment of Retroactive

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

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

published pronouncement of the IRS addressing such legislation.

In the event that the amount of dividends payable per share of the Non-Cumulative Preferred

Stock is adjusted pursuant to the DRD Formula and/or Post Declaration Date Dividends or

Retroactive Dividends are to be paid, the Corporation will give notice of each such adjustment and,

if applicable, any Post Declaration Date Dividends and Retroactive Dividends to be given as soon as

practicable to the holders of Non-Cumulative Preferred Stock.

(d) Notwithstanding any other provision of this CertiÑcate, the Board of Directors, in its

discretion, may choose to pay dividends on the Non-Cumulative Preferred Stock without the

payment of any dividends on the Common Stock or any other class or series of stock from time to

A-5
time outstanding ranking junior to the Non-Cumulative Preferred Stock with respect to the

payment of dividends.

(e) No dividend shall be declared or paid or set apart for payment on any shares of the

Non-Cumulative Preferred Stock if at the same time any arrears or default exists in the payment of

dividends on any outstanding class or series of stock of Freddie Mac ranking prior to or (except as

provided herein) on a parity with the Non-Cumulative Preferred Stock with respect to the payment

of dividends. If and whenever dividends, having been declared, shall not have been paid in full, as

aforesaid, on shares of the Non-Cumulative Preferred Stock and on the shares of any other class or

series of stock of Freddie Mac ranking on a parity with the Non-Cumulative Preferred Stock with

respect to the payment of dividends, all such dividends that have been declared on shares of the

Non-Cumulative Preferred Stock and on the shares of any such other class or series shall be paid

pro rata, so that the respective amounts of dividends paid per share on the Non-Cumulative

Preferred Stock and on such other class or series shall in all cases bear to each other the same ratio

that the respective amounts of dividends declared but unpaid per share on the shares of the

Non-Cumulative Preferred Stock (including any adjustments due to changes in the Dividends-Received Percentage) and on the shares of such other class or series bear to each other.

(f) Holders of shares of the Non-Cumulative Preferred Stock shall not be entitled to any

dividends, in cash or in property, other than as herein provided and shall not be entitled to interest,

or any sum in lieu of interest, on or in respect of any dividend payment.

3. Optional Redemption

(a) The Non-Cumulative Preferred Stock shall not be redeemable prior to June 30, 2003. On

that date and on June 30 every two years thereafter, subject to the notice provisions set forth in

Section 3(b) below and to any further limitations which may be imposed by law, Freddie Mac may

redeem the Non-Cumulative Preferred Stock, in whole or in part, out of funds legally available

therefor, at the redemption price of $50.00 per share plus an amount, determined in accordance with

Section 2 above, equal to the amount of the dividend that would otherwise be payable for the

Dividend Period ending on the date of such redemption. If less than all of the outstanding shares of

the Non-Cumulative Preferred Stock are to be redeemed, Freddie Mac shall 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 which Freddie Mac in its sole discretion deems

equitable.

(b) In the event Freddie Mac shall redeem any or all of the Non-Cumulative Preferred Stock

as aforesaid, notice of such redemption shall be given by Freddie Mac by Ñrst class mail, postage

prepaid, mailed neither less than 30 nor more than 60 days prior to the redemption date, to each

holder of record of the shares of the Non-Cumulative Preferred Stock being redeemed, at such

holder's address as the same appears in the books and records of Freddie Mac. Each such notice

shall state the number of shares being redeemed, the redemption price, the redemption date and the

place at which such holder's certiÑcate(s) representing shares of the Non-Cumulative Preferred

Stock must be presented for cancellation or exchanges, as the case may be, upon such redemption.

Failure to give notice, or any defect in the notice, to any holder of the Non-Cumulative Preferred

Stock shall not aÅect the validity of the proceedings for the redemption of shares of any other holder

of the Non-Cumulative Preferred Stock being redeemed.

(c) Notice having been mailed as aforesaid, from and after the redemption date speciÑed

therein and upon payment of the consideration set forth in Section 3(a) above, said shares of the

A-6
Non-Cumulative Preferred Stock shall no longer be deemed to be outstanding, and all rights of the

holders thereof as holders of the Non-Cumulative Preferred Stock shall cease, with respect to shares

so redeemed.

(d) Any shares of the Non-Cumulative Preferred Stock which shall have been redeemed shall,

after such redemption, no longer have the status of authorized, issued or outstanding shares.

4. No Voting Rights

Except as set forth in Section 9(h) below, the shares of the Non-Cumulative Preferred Stock

shall not have any voting powers, either general or special.

5. No Conversion or Exchange Rights

The holders of shares of the Non-Cumulative Preferred Stock shall not have any right to

convert such shares into or exchange such shares for any other class or series of stock or obligations

of Freddie Mac.

6. No Preemptive Rights

No holder of the Non-Cumulative Preferred Stock shall as such holder have any preemptive

right to purchase or subscribe for any other shares, rights, options or other securities of any class of

Freddie Mac which at any time may be sold or oÅered for sale by Freddie Mac.

7. Liquidation Rights and Preference

(a) Except as otherwise set forth herein, upon the voluntary or involuntary dissolution,

liquidation or winding up of Freddie Mac, after payment of or provision for the liabilities of Freddie

Mac and the expenses of such dissolution, liquidation or winding up, the holders of the outstanding

shares of the Non-Cumulative Preferred Stock shall be entitled to receive out of the assets of

Freddie Mac available for distribution to stockholders, before any payment or distribution shall be

made on the Common Stock or any other class or series of stock of Freddie Mac ranking junior to

the Non-Cumulative Preferred Stock upon liquidation, the amount of $50.00 per share plus an

amount, determined in accordance with Section 2 above, equal to the dividend, if any, otherwise

payable for the then-current Dividend Period accrued through and including the date of payment in

respect of such dissolution, liquidation or winding up, and the holders of the outstanding shares of

any class or series of stock of Freddie Mac ranking on a parity with the Non-Cumulative Preferred

Stock upon liquidation shall be entitled to receive out of the assets of Freddie Mac available for

distribution to stockholders, before any such payment or distribution shall be made on the Common

Stock or any other class or series of stock of Freddie Mac ranking junior to the Non-Cumulative

Preferred Stock and to such parity stock upon liquidation, any corresponding preferential amount to

which the holders of such parity stock may, by the terms thereof, be entitled; provided, however,

that if the assets of Freddie Mac available for distribution to stockholders shall be insuÇcient for the

payment of the full amounts to which the holders of the outstanding shares of the Non-Cumulative

Preferred Stock and the holders of the outstanding shares of such parity stock shall be entitled to

receive upon such dissolution, liquidation or winding up of Freddie Mac as aforesaid, then, subject

to paragraph (b) of this Section 7, all of the assets of Freddie Mac available for distribution to

stockholders shall be distributed to the holders of outstanding shares of the Non-Cumulative

Preferred Stock and to the holders of outstanding shares of such parity stock pro rata, so that the

amounts so distributed to holders of the Non-Cumulative Preferred Stock and to holders of such

classes or series of such parity stock, respectively, shall bear to each other the same ratio that the

A-7
respective distributive amounts to which they are so entitled (including any adjustment due to

changes in the Dividends-Received Percentage) bear to each other. After the payment of the

aforesaid amounts to which they are entitled, the holders of outstanding shares of the

Non-Cumulative Preferred Stock and the holders of outstanding shares of any such parity stock

shall not be entitled to any further participation in any distribution of assets of Freddie Mac.

(b) Notwithstanding the foregoing, upon the dissolution, liquidation or winding up of Freddie

Mac, the holders of shares of the Non-Cumulative Preferred Stock then outstanding shall not be

entitled to be paid any amounts to which such holders are entitled pursuant to paragraph (a) of this

Section 7 unless and until the holders of any classes or series of stock of Freddie Mac ranking prior

upon liquidation to the Non-Cumulative Preferred Stock shall have been paid all amounts to which

such classes or series are entitled pursuant to their respective terms.

(c) Neither the sale of all or substantially all of the property or business of Freddie Mac, nor

the merger, consolidation or combination of Freddie Mac into or with any other corporation or

entity, shall be deemed to be a dissolution, liquidation or winding up for the purpose of this

Section 7.

8. Additional Classes or Series of Stock

The Board of Directors 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 Freddie Mac,

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

or on a parity with or junior to the Non-Cumulative Preferred Stock as to dividends or upon

liquidation or otherwise.

9. Miscellaneous

(a) Any stock of any class or series of Freddie Mac shall be deemed to rank:

(i) prior to the shares of the Non-Cumulative Preferred Stock, either as to dividends or

upon liquidation, 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 Freddie

Mac, as the case may be, in preference or priority to the holders of shares of the

Non-Cumulative Preferred Stock;

(ii) on a parity with shares of the Non-Cumulative Preferred Stock, either as to dividends

or upon liquidation, whether or not the dividend rates or amounts, dividend payment dates or

redemption of liquidation prices per share, if any, be diÅerent from those of the

Non-Cumulative 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

Freddie Mac, 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 the Non-Cumulative Preferred Stock; and

(iii) junior to shares of the Non-Cumulative Preferred Stock, either as to dividends or

upon liquidation, if such class or series shall be Common Stock, or if the holders of shares of

the Non-Cumulative Preferred Stock shall be entitled to receipt of dividends or of amounts

distributable upon dissolution, liquidation or winding up of Freddie Mac, as the case may be, in

preference or priority to the holders of shares of such class or series.

A-8
(b) Freddie Mac and any agent of Freddie Mac may deem and treat the holder of a share or

shares of Non-Cumulative Preferred Stock, as shown in Freddie Mac's books and records, as the

absolute owner of such share or shares of Non-Cumulative Preferred Stock for the purpose of

receiving payment of dividends in respect of such share or shares of Non-Cumulative Preferred

Stock and for all other purposes whatsoever, and neither Freddie Mac nor any agent of Freddie Mac

shall be aÅected by any notice to the contrary. All payments made to or upon the order of any such

person shall be valid and, to the extent of the sum or sums so paid, eÅectual to satisfy and discharge

liabilities for moneys payable by Freddie Mac on or with respect to any such share or shares of

Non-Cumulative Preferred Stock.

(c) The shares of the Non-Cumulative Preferred Stock, when duly issued, shall be fully paid

and non-assessable.

(d) The Non-Cumulative Preferred Stock shall be issued, and shall be transferable on the

books of Freddie Mac, only in whole shares, it being intended that no fractional interests in shares of

Non-Cumulative Preferred Stock shall be created or recognized by Freddie Mac.

(e) For purposes of this CertiÑcate, the term ""Freddie Mac'' means the Federal Home Loan

Mortgage Corporation and any successor thereto by operation of law or by reason of a merger,

consolidation or combination.

(f) This CertiÑcate and the respective rights and obligations of Freddie Mac and the holders of

the Non-Cumulative Preferred Stock with respect to such Non-Cumulative Preferred Stock shall be

construed in accordance with and governed by the laws of the United States, provided that the law

of the Commonwealth of Virginia shall serve as the federal rule of decision in all instances except

where such law is inconsistent with Freddie Mac's enabling legislation, its public purposes or any

provision of this CertiÑcate.

(g) Any notice, demand or other communication which by any provision of this CertiÑcate is

required or permitted to be given or served to or upon Freddie Mac shall be given or served in

writing addressed (unless and until another address shall be published by Freddie Mac) to Freddie

Mac, 8200 Jones Branch Drive, McLean, Virginia 22102, Attn: Executive Vice President-General

Counsel and Secretary. Such notice, demand or other communication to or upon Freddie Mac shall

be deemed to have been suÇciently given or made only upon actual receipt of a writing by Freddie

Mac. Any notice, demand or other communication which by any provision of this CertiÑcate is

required or permitted to be given or served by Freddie Mac hereunder may be given or served by

being deposited Ñrst class, postage prepaid, in the United States mail addressed (i) to the holder as

such holder's name and address may appear at such time in the books and records of Freddie Mac or

(ii) if to a person or entity other than a holder of record of the Non-Cumulative Preferred Stock, to

such person or entity at such address as appears to Freddie Mac to be appropriate at such time.

Such notice, demand or other communication shall be deemed to have been suÇciently given or

made, for all purposes, upon mailing.

(h) Freddie Mac, by or under the authority of the Board of Directors, may amend, alter,

supplement or repeal any provision of this CertiÑcate pursuant to the following terms and conditions:

(i) Without the consent of the holders of the Non-Cumulative Preferred Stock, Freddie

Mac may amend, alter, supplement or repeal any provision of this CertiÑcate to cure any

ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or

A-9
questions arising under this CertiÑcate, provided that such action shall not materially and

adversely aÅect the interests of the holders of the Non-Cumulative Preferred Stock.

(ii) The consent of the holders of at least 66 2/3% of all of the shares of the NonCumulative Preferred Stock at the time outstanding, given in person or by proxy, either in

writing or by a vote at a meeting called for the purpose at which the holders of shares of the

Non-Cumulative Preferred Stock shall vote together as a class, shall be necessary for

authorizing, eÅecting or validating the amendment, alteration, supplementation or repeal of the

provisions of this CertiÑcate if such amendment, alteration, supplementation or repeal would

materially and adversely aÅect the powers, preferences, rights, privileges, qualiÑcations,

limitations, restrictions, terms or conditions of the Non-Cumulative Preferred Stock. The

creation and issuance of any other class or series of stock, or the issuance of additional shares of

any existing class or series of stock of Freddie Mac (including the Non-Cumulative Preferred

Stock), whether ranking prior to, on a parity with or junior to the Non-Cumulative Preferred

Stock, shall not be deemed to constitute such an amendment, alteration, supplementation or

repeal.

(iii) Holders of the Non-Cumulative Preferred Stock shall be entitled to one vote per

share on matters on which their consent is required pursuant to subparagraph (ii) of this

paragraph (h). In connection with any meeting of such holders, the Board of Directors shall Ñx

a record date, neither earlier than 60 days nor later than 10 days prior to the date of such

meeting, and holders of record of shares of the Non-Cumulative Preferred Stock on such

record date shall be entitled to notice of and to vote at any such meeting and any adjournment.

The Board of Directors, or such person or persons as it may designate, may establish reasonable

rules and procedures as to the solicitation of the consent of holders of the Non-Cumulative

Preferred Stock at any such meeting or otherwise, which rules and procedures shall conform to

the requirements of any national securities exchange on which the Non-Cumulative Preferred

Stock may be listed at such time.

(i) RECEIPT AND ACCEPTANCE OF A SHARE OR SHARES OF THE NON-CUMULATIVE PREFERRED STOCK BY OR ON BEHALF OF A HOLDER SHALL CONSTITUTE

THE UNCONDITIONAL ACCEPTANCE BY THE HOLDER (AND ALL OTHERS HAVING

BENEFICIAL OWNERSHIP OF SUCH SHARE OR SHARES) OF ALL OF THE TERMS

AND PROVISIONS OF THIS CERTIFICATE. NO SIGNATURE OR OTHER FURTHER

MANIFESTATION OF ASSENT TO THE TERMS AND PROVISIONS OF THIS CERTIFICATE SHALL BE NECESSARY FOR ITS OPERATION OR EFFECT AS BETWEEN

FREDDIE MAC AND THE HOLDER (AND ALL SUCH OTHERS).

IN WITNESS WHEREOF, I have hereunto set my hand and the seal of Freddie Mac this

30th day of May, 2001.

®Seal©

Maud Mater, Secretary

A-10
Appendix B

FREDDIE MAC

CERTIFICATE OF CREATION, DESIGNATION, POWERS,

PREFERENCES, RIGHTS, PRIVILEGES, QUALIFICATIONS,

LIMITATIONS, RESTRICTIONS, TERMS AND CONDITIONS

of

6% NON-CUMULATIVE PREFERRED STOCK

(Par Value $1.00 Per Share)

I, MAUD MATER, Secretary of the Federal Home Loan Mortgage Corporation, a government-sponsored enterprise of the United States of America (""Freddie Mac'' or the ""Corporation''),

do hereby certify that, pursuant to authority vested in the Board of Directors of Freddie Mac by

Section 306(f) of the Federal Home Loan Mortgage Corporation Act, as amended (12 U.S.C.

Û1455(f)), the Board of Directors adopted FHLMC Resolution 2001-03 on March 2, 2001, which

resolution is now, and at all times since such date has been, in full force and eÅect, and that the

Chairman and Chief Executive OÇcer, pursuant to the authority delegated to him by such

resolution, approved the Ñnal terms of the public issuance and sale of the preferred stock of Freddie

Mac designated above.

The 6% Non-Cumulative Preferred Stock shall have the following designation, powers,

preferences, rights, privileges, qualiÑcations, limitations, restrictions, terms and conditions:

1. Designation, Par Value, Number of Shares and Seniority

The class of preferred stock of Freddie Mac created hereby (the ""Non-Cumulative Preferred

Stock'') shall be designated ""6% Non-Cumulative Preferred Stock,'' shall have a par value of $1.00

per share and shall consist of 3,000,000 shares.* The Board of Directors shall be permitted to

increase the authorized number of such shares at any time. The Non-Cumulative Preferred Stock

shall rank prior to the Voting Common Stock of Freddie Mac (the ""Common Stock'') to the extent

provided in this CertiÑcate and shall rank, both as to dividends and upon liquidation, on a parity with

the Variable Rate, Non-Cumulative Preferred Stock issued on May 30, 2001, the 5.81%

Non-Cumulative Preferred Stock issued on March 23, 2001, the Variable Rate, Non-Cumulative

Preferred Stock issued on March 23, 2001, the Variable Rate, Non-Cumulative Preferred Stock

issued on January 26, 2001, the Variable Rate, Non-Cumulative Preferred Stock issued on

November 5, 1999, the 5.79% Non-Cumulative Preferred Stock issued on July 21, 1999, the 5.1%

Non-Cumulative Preferred Stock issued on March 19, 1999, the 5.3% Non-Cumulative Preferred

Stock issued on October 28, 1998, the 5.1% Non-Cumulative Preferred Stock issued on September 23, 1998, the Variable Rate, Non-Cumulative Preferred Stock issued on September 23, 1998

and September 29, 1998, the 5% Non-Cumulative Preferred Stock issued on March 23, 1998, the

5.81% Non-Cumulative Preferred Stock issued on October 27, 1997, the 6.14% Non-Cumulative

Preferred Stock issued on June 3, 1997, the 6.125% Non-Cumulative Preferred Stock issued on

November 1, 1996 and the Variable Rate, Non-Cumulative Preferred Stock issued on April 26,

1996 (collectively, the ""Existing Preferred Stock'').

* Plus up to 450,000 additional shares pursuant to Underwriters' overallotment option.

B-1
2. Dividends

(a) The holders of outstanding shares of Non-Cumulative Preferred Stock shall be entitled to

receive, ratably, when, as and if declared by the Board of Directors, in its sole discretion, out of

funds legally available therefor, non-cumulative, cash dividends at the annual rate of 6%, or $3.00,

per share of Non-Cumulative Preferred Stock. Dividends on the Non-Cumulative Preferred Stock

shall accrue from but not including May 30, 2001 and are payable when, as and if declared by the

Board of Directors quarterly on March 31, June 30, September 30 and December 31 of each year

(each, a ""Dividend Payment Date'') commencing on September 30, 2001. If a Dividend Payment

Date is not a ""Business Day,'' the related dividend shall be paid on the next 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.

""Business Day'' means a day other than (i) a Saturday or Sunday, (ii) a day on which New York

City banks are closed or (iii) a day on which the oÇces of Freddie Mac are closed. The ""Dividend

Period'' relating to a Dividend Payment Date shall be the period from but not including the

preceding Dividend Payment Date (or from but not including May 30, 2001 in the case of the Ñrst

Dividend Payment Date) through and including the related Dividend Payment Date. The dividend

payable in respect of the Ñrst Dividend Period will be $1.00 per share. The amount of dividends

payable in respect of any quarterly Dividend Period other than the Ñrst Dividend Period shall be

computed at a rate equal to 6% divided by 4; the amount of dividends payable in respect of any

shorter period shall be computed on the basis of twelve 30-day months and a 360-day year. Each

such dividend shall be paid to the holders of record of outstanding shares of the Non-Cumulative

Preferred Stock as they appear in the books and records of Freddie Mac on such record date as shall

be Ñxed in advance by the Board of Directors, not to be earlier than 45 days nor later than 10 days

preceding the applicable Dividend Payment Date. No dividends shall be declared or paid or set apart

for payment on the Common Stock or any other class or series of stock ranking junior to or (except

as hereinafter provided) on a parity with the Non-Cumulative Preferred Stock with respect to the

payment of dividends unless dividends have been declared and paid or set apart (or ordered by the

Board of Directors to be set apart) for payment on the outstanding Non-Cumulative Preferred

Stock in respect of the then-current 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 Non-Cumulative Preferred Stock in the event that Freddie Mac shall not have declared

or paid or set apart (or the Board of Directors shall not have ordered to be set apart) dividends on

the Non-Cumulative Preferred Stock in respect of any prior Dividend Period. In the event that

Freddie Mac shall not pay any one or more dividends or any part thereof on the Non-Cumulative

Preferred Stock, the holders of the Non-Cumulative Preferred Stock shall not have any claim in

respect of such non-payment so long as no dividend is paid on any junior or parity stock in violation

of the next preceding sentence.

(b) If, prior to November 30, 2002, one or more amendments to the Internal Revenue Code of

1986, as amended (the ""Code''), are enacted that reduce or eliminate the percentage of the

dividends-received deduction as speciÑed in section 243(a)(1) of the Code or any successor

provision (the ""Dividends-Received Percentage''), including any change applicable only to certain

categories of stock, which change is applicable to the Non-Cumulative Preferred Stock, certain

adjustments may be made in respect of the dividends payable by the Corporation, and Post

Declaration Date Dividends and Retroactive Dividends (as such terms are deÑned below) may

become payable, as described below.

B-2
The amount of each dividend payable (if declared) per share of Non-Cumulative Preferred

Stock for dividend payments made on or after the eÅective date of such change in the Code will be

adjusted by multiplying the amount of the dividend payable pursuant to Section 2(a) (before

adjustment) by a factor, which shall be the number determined in accordance with the following

formula (the ""DRD Formula''), and rounding the result to the nearest cent (with one-half cent

rounded up):

1-.35(1-.70)

1-.35(1-DRP)

For the purposes of the DRD Formula, ""DRP'' means the Dividends-Received Percentage

(expressed as a decimal) applicable to the dividend in question; provided, however, that if the

Dividends-Received Percentage applicable to the dividend in question is less than 50%, then the

DRP will equal .50. No amendment to the Code, other than a change in the percentage of the

dividends-received deduction set forth in section 243(a)(1) of the Code or any successor provision,

or a change in the percentage of the dividends-received deduction for certain categories of stock,

which change is applicable to the Non-Cumulative Preferred Stock, will give rise to an adjustment.

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

Corporation receives either an unqualiÑed opinion of nationally recognized independent tax counsel

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

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

payable on the Non-Cumulative Preferred Stock, then such amendment shall not result in the

adjustment provided for pursuant to the DRD Formula with respect to such dividend. The opinion

referenced in the previous sentence shall be based upon the legislation amending or establishing the

DRP or upon a published pronouncement of the IRS addressing such legislation. Unless the context

otherwise requires, references to dividends herein shall mean dividends as adjusted by the DRD

Formula. The Corporation's calculation of the dividends payable as so adjusted shall be Ñnal and not

subject to review, absent manifest error.

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

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

the amount of the dividend payable on such Dividend Payment Date shall not be increased. Instead,

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

product of the dividend paid by the Corporation on such Dividend Payment Date and the DRD

Formula (where the DRP used in the DRD Formula would be equal to the greater of the DividendsReceived Percentage applicable to the dividend in question and .50) over (y) the dividend paid by

the Corporation on such Dividend Payment Date, shall be payable (if declared) to holders of NonCumulative Preferred Stock on the record date applicable to the next succeeding Dividend Payment

Date, in addition to any other amounts payable on such date.

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

Percentage retroactively applies to a Dividend Payment Date as to which the Corporation previously

paid dividends on the Non-Cumulative Preferred Stock (each, an ""AÅected Dividend Payment

Date''), the Corporation shall pay (if declared) additional dividends (the ""Retroactive Dividends'')

to holders on the record date applicable to the next succeeding Dividend Payment Date (or, if such

amendment is enacted after the dividend payable on such Dividend Payment Date has been

declared, to holders on the record date applicable to the second succeeding Dividend Payment Date

following the date of enactment) in an amount equal to the excess of (x) the product of the dividend

B-3
paid by the Corporation on each AÅected Dividend Payment Date and the DRD Formula (where

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

Percentage and .50 applied to each AÅected Dividend Payment Date) over (y) the sum of the

dividend paid by the Corporation on each AÅected Dividend Payment Date. The Corporation will

make only one payment of Retroactive Dividends for any such amendment. Notwithstanding the

foregoing provisions, if, with respect to any such amendment, the Corporation receives either an

unqualiÑed opinion of nationally recognized independent tax counsel selected by the Corporation or

a private letter ruling or similar form of assurance from the IRS to the eÅect that such amendment

does not apply to a dividend payable on an AÅected Dividend Payment Date for the NonCumulative Preferred Stock, then such amendment will not result in the payment of Retroactive

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

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

published pronouncement of the IRS addressing such legislation.

In the event that the amount of dividends payable per share of the Non-Cumulative Preferred

Stock is adjusted pursuant to the DRD Formula and/or Post Declaration Date Dividends or

Retroactive Dividends are to be paid, the Corporation will give notice of each such adjustment and,

if applicable, any Post Declaration Date Dividends and Retroactive Dividends to be given as soon as

practicable to the holders of Non-Cumulative Preferred Stock.

(c) Notwithstanding any other provision of this CertiÑcate, the Board of Directors, in its

discretion, may choose to pay dividends on the Non-Cumulative Preferred Stock without the

payment of any dividends on the Common Stock or any other class or series of stock from time to

time outstanding ranking junior to the Non-Cumulative Preferred Stock with respect to the

payment of dividends.

(d) No dividend shall be declared or paid or set apart for payment on any shares of the

Non-Cumulative Preferred Stock if at the same time any arrears or default exists in the payment of

dividends on any outstanding class or series of stock of Freddie Mac ranking prior to or (except as

provided herein) on a parity with the Non-Cumulative Preferred Stock with respect to the payment

of dividends. If and whenever dividends, having been declared, shall not have been paid in full, as

aforesaid, on shares of the Non-Cumulative Preferred Stock and on the shares of any other class or

series of stock of Freddie Mac ranking on a parity with the Non-Cumulative Preferred Stock with

respect to the payment of dividends, all such dividends that have been declared on shares of the

Non-Cumulative Preferred Stock and on the shares of any such other class or series shall be paid

pro rata, so that the respective amounts of dividends paid per share on the Non-Cumulative

Preferred Stock and on such other class or series shall in all cases bear to each other the same ratio

that the respective amounts of dividends declared but unpaid per share on the shares of the

Non-Cumulative Preferred Stock (including any adjustments due to changes in the Dividends-Received Percentage) and on the shares of such other class or series bear to each other.

(e) Holders of shares of the Non-Cumulative Preferred Stock shall not be entitled to any

dividends, in cash or in property, other than as herein provided and shall not be entitled to interest,

or any sum in lieu of interest, on or in respect of any dividend payment.

3. Optional Redemption

(a) The Non-Cumulative Preferred Stock shall not be redeemable prior to June 30, 2006.

Subject to this limitation and the notice provisions set forth in Section 3(b) below and to any further

limitations which may be imposed by law, Freddie Mac may redeem the Non-Cumulative Preferred

B-4
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 $50.00 per share plus an amount, determined in accordance with Section 2

above, equal to the amount of the dividend, if any, otherwise payable for the then-current Dividend

Period accrued through and including the date of such redemption. If less than all of the outstanding

shares of the Non-Cumulative Preferred Stock are to be redeemed, Freddie Mac shall 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 which Freddie Mac in its sole discretion deems

equitable.

(b) In the event Freddie Mac shall redeem any or all of the Non-Cumulative Preferred Stock

as aforesaid, notice of such redemption shall be given by Freddie Mac by Ñrst class mail, postage

prepaid, mailed neither less than 30 nor more than 60 days prior to the redemption date, to each

holder of record of the shares of the Non-Cumulative Preferred Stock being redeemed, at such

holder's address as the same appears in the books and records of Freddie Mac. Each such notice

shall state the number of shares being redeemed, the redemption price, the redemption date and the

place at which such holder's certiÑcate(s) representing shares of the Non-Cumulative Preferred

Stock must be presented for cancellation or exchanges, as the case may be, upon such redemption.

Failure to give notice, or any defect in the notice, to any holder of the Non-Cumulative Preferred

Stock shall not aÅect the validity of the proceedings for the redemption of shares of any other holder

of the Non-Cumulative Preferred Stock being redeemed.

(c) Notice having been mailed as aforesaid, from and after the redemption date speciÑed

therein and upon payment of the consideration set forth in Section 3(a) above, said shares of the

Non-Cumulative Preferred Stock shall no longer be deemed to be outstanding, and all rights of the

holders thereof as holders of the Non-Cumulative Preferred Stock shall cease, with respect to shares

so redeemed.

(d) Any shares of the Non-Cumulative Preferred Stock which shall have been redeemed shall,

after such redemption, no longer have the status of authorized, issued or outstanding shares.

4. No Voting Rights

Except as set forth in Section 9(h) below, the shares of the Non-Cumulative Preferred Stock

shall not have any voting powers, either general or special.

5. No Conversion or Exchange Rights

The holders of shares of the Non-Cumulative Preferred Stock shall not have any right to

convert such shares into or exchange such shares for any other class or series of stock or obligations

of Freddie Mac.

6. No Preemptive Rights

No holder of the Non-Cumulative Preferred Stock shall as such holder have any preemptive

right to purchase or subscribe for any other shares, rights, options or other securities of any class of

Freddie Mac which at any time may be sold or oÅered for sale by Freddie Mac.

7. Liquidation Rights and Preference

(a) Except as otherwise set forth herein, upon the voluntary or involuntary dissolution,

liquidation or winding up of Freddie Mac, after payment of or provision for the liabilities of Freddie

Mac and the expenses of such dissolution, liquidation or winding up, the holders of the outstanding

B-5
shares of the Non-Cumulative Preferred Stock shall be entitled to receive out of the assets of

Freddie Mac available for distribution to stockholders, before any payment or distribution shall be

made on the Common Stock or any other class or series of stock of Freddie Mac ranking junior to

the Non-Cumulative Preferred Stock upon liquidation, the amount of $50.00 per share plus an

amount, determined in accordance with Section 2 above, equal to the dividend, if any, otherwise

payable for the then-current Dividend Period accrued through and including the date of payment in

respect of such dissolution, liquidation or winding up, and the holders of the outstanding shares of

any class or series of stock of Freddie Mac ranking on a parity with the Non-Cumulative Preferred

Stock upon liquidation shall be entitled to receive out of the assets of Freddie Mac available for

distribution to stockholders, before any such payment or distribution shall be made on the Common

Stock or any other class or series of stock of Freddie Mac ranking junior to the Non-Cumulative

Preferred Stock and to such parity stock upon liquidation, any corresponding preferential amount to

which the holders of such parity stock may, by the terms thereof, be entitled; provided, however,

that if the assets of Freddie Mac available for distribution to stockholders shall be insuÇcient for the

payment of the full amounts to which the holders of the outstanding shares of the Non-Cumulative

Preferred Stock and the holders of the outstanding shares of such parity stock shall be entitled to

receive upon such dissolution, liquidation or winding up of Freddie Mac as aforesaid, then, subject

to paragraph (b) of this Section 7, all of the assets of Freddie Mac available for distribution to

stockholders shall be distributed to the holders of outstanding shares of the Non-Cumulative

Preferred Stock and to the holders of outstanding shares of such parity stock pro rata, so that the

amounts so distributed to holders of the Non-Cumulative Preferred Stock and to holders of such

classes or series of such parity stock, respectively, shall bear to each other the same ratio that the

respective distributive amounts to which they are so entitled (including any adjustment due to

changes in the Dividends-Received Percentage) bear to each other. After the payment of the

aforesaid amounts to which they are entitled, the holders of outstanding shares of the

Non-Cumulative Preferred Stock and the holders of outstanding shares of any such parity stock

shall not be entitled to any further participation in any distribution of assets of Freddie Mac.

(b) Notwithstanding the foregoing, upon the dissolution, liquidation or winding up of Freddie

Mac, the holders of shares of the Non-Cumulative Preferred Stock then outstanding shall not be

entitled to be paid any amounts to which such holders are entitled pursuant to paragraph (a) of this

Section 7 unless and until the holders of any classes or series of stock of Freddie Mac ranking prior

upon liquidation to the Non-Cumulative Preferred Stock shall have been paid all amounts to which

such classes or series are entitled pursuant to their respective terms.

(c) Neither the sale of all or substantially all of the property or business of Freddie Mac, nor

the merger, consolidation or combination of Freddie Mac into or with any other corporation or

entity, shall be deemed to be a dissolution, liquidation or winding up for the purpose of this

Section 7.

8. Additional Classes or Series of Stock

The Board of Directors 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 Freddie Mac,

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

or on a parity with or junior to the Non-Cumulative Preferred Stock as to dividends or upon

liquidation or otherwise.

B-6
9. Miscellaneous

(a) Any stock of any class or series of Freddie Mac shall be deemed to rank:

(i) prior to the shares of the Non-Cumulative Preferred Stock, either as to dividends or

upon liquidation, 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 Freddie

Mac, as the case may be, in preference or priority to the holders of shares of the

Non-Cumulative Preferred Stock;

(ii) on a parity with shares of the Non-Cumulative Preferred Stock, either as to dividends

or upon liquidation, whether or not the dividend rates or amounts, dividend payment dates or

redemption of liquidation prices per share, if any, be diÅerent from those of the

Non-Cumulative 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

Freddie Mac, 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 the Non-Cumulative Preferred Stock; and

(iii) junior to shares of the Non-Cumulative Preferred Stock, either as to dividends or

upon liquidation, if such class or series shall be Common Stock, or if the holders of shares of

the Non-Cumulative Preferred Stock shall be entitled to receipt of dividends or of amounts

distributable upon dissolution, liquidation or winding up of Freddie Mac, as the case may be, in

preference or priority to the holders of shares of such class or series.

(b) Freddie Mac and any agent of Freddie Mac may deem and treat the holder of a share or

shares of Non-Cumulative Preferred Stock, as shown in Freddie Mac's books and records, as the

absolute owner of such share or shares of Non-Cumulative Preferred Stock for the purpose of

receiving payment of dividends in respect of such share or shares of Non-Cumulative Preferred

Stock and for all other purposes whatsoever, and neither Freddie Mac nor any agent of Freddie Mac

shall be aÅected by any notice to the contrary. All payments made to or upon the order of any such

person shall be valid and, to the extent of the sum or sums so paid, eÅectual to satisfy and discharge

liabilities for moneys payable by Freddie Mac on or with respect to any such share or shares of

Non-Cumulative Preferred Stock.

(c) The shares of the Non-Cumulative Preferred Stock, when duly issued, shall be fully paid

and non-assessable.

(d) The Non-Cumulative Preferred Stock shall be issued, and shall be transferable on the

books of Freddie Mac, only in whole shares, it being intended that no fractional interests in shares of

Non-Cumulative Preferred Stock shall be created or recognized by Freddie Mac.

(e) For purposes of this CertiÑcate, the term ""Freddie Mac'' means the Federal Home Loan

Mortgage Corporation and any successor thereto by operation of law or by reason of a merger,

consolidation or combination.

(f) This CertiÑcate and the respective rights and obligations of Freddie Mac and the holders of

the Non-Cumulative Preferred Stock with respect to such Non-Cumulative Preferred Stock shall be

construed in accordance with and governed by the laws of the United States, provided that the law

of the Commonwealth of Virginia shall serve as the federal rule of decision in all instances except

where such law is inconsistent with Freddie Mac's enabling legislation, its public purposes or any

provision of this CertiÑcate.

B-7
(g) Any notice, demand or other communication which by any provision of this CertiÑcate is

required or permitted to be given or served to or upon Freddie Mac shall be given or served in

writing addressed (unless and until another address shall be published by Freddie Mac) to Freddie

Mac, 8200 Jones Branch Drive, McLean, Virginia 22102, Attn: Executive Vice President-General

Counsel and Secretary. Such notice, demand or other communication to or upon Freddie Mac shall

be deemed to have been suÇciently given or made only upon actual receipt of a writing by Freddie

Mac. Any notice, demand or other communication which by any provision of this CertiÑcate is

required or permitted to be given or served by Freddie Mac hereunder may be given or served by

being deposited Ñrst class, postage prepaid, in the United States mail addressed (i) to the holder as

such holder's name and address may appear at such time in the books and records of Freddie Mac or

(ii) if to a person or entity other than a holder of record of the Non-Cumulative Preferred Stock, to

such person or entity at such address as appears to Freddie Mac to be appropriate at such time.

Such notice, demand or other communication shall be deemed to have been suÇciently given or

made, for all purposes, upon mailing.

(h) Freddie Mac, by or under the authority of the Board of Directors, may amend, alter,

supplement or repeal any provision of this CertiÑcate pursuant to the following terms and conditions:

(i) Without the consent of the holders of the Non-Cumulative Preferred Stock, Freddie

Mac may amend, alter, supplement or repeal any provision of this CertiÑcate to cure any

ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or

questions arising under this CertiÑcate, provided that such action shall not materially and

adversely aÅect the interests of the holders of the Non-Cumulative Preferred Stock.

(ii) The consent of the holders of at least 66 2/3% of all of the shares of the NonCumulative Preferred Stock at the time outstanding, given in person or by proxy, either in

writing or by a vote at a meeting called for the purpose at which the holders of shares of the

Non-Cumulative Preferred Stock shall vote together as a class, shall be necessary for

authorizing, eÅecting or validating the amendment, alteration, supplementation or repeal of the

provisions of this CertiÑcate if such amendment, alteration, supplementation or repeal would

materially and adversely aÅect the powers, preferences, rights, privileges, qualiÑcations,

limitations, restrictions, terms or conditions of the Non-Cumulative Preferred Stock. The

creation and issuance of any other class or series of stock, or the issuance of additional shares of

any existing class or series of stock of Freddie Mac (including the Non-Cumulative Preferred

Stock), whether ranking prior to, on a parity with or junior to the Non-Cumulative Preferred

Stock, shall not be deemed to constitute such an amendment, alteration, supplementation or

repeal.

(iii) Holders of the Non-Cumulative Preferred Stock shall be entitled to one vote per

share on matters on which their consent is required pursuant to subparagraph (ii) of this

paragraph (h). In connection with any meeting of such holders, the Board of Directors shall Ñx

a record date, neither earlier than 60 days nor later than 10 days prior to the date of such

meeting, and holders of record of shares of the Non-Cumulative Preferred Stock on such

record date shall be entitled to notice of and to vote at any such meeting and any adjournment.

The Board of Directors, or such person or persons as it may designate, may establish reasonable

rules and procedures as to the solicitation of the consent of holders of the Non-Cumulative

Preferred Stock at any such meeting or otherwise, which rules and procedures shall conform to

B-8
the requirements of any national securities exchange on which the Non-Cumulative Preferred

Stock may be listed at such time.

(i) RECEIPT AND ACCEPTANCE OF A SHARE OR SHARES OF THE NON-CUMULATIVE PREFERRED STOCK BY OR ON BEHALF OF A HOLDER SHALL CONSTITUTE

THE UNCONDITIONAL ACCEPTANCE BY THE HOLDER (AND ALL OTHERS HAVING

BENEFICIAL OWNERSHIP OF SUCH SHARE OR SHARES) OF ALL OF THE TERMS

AND PROVISIONS OF THIS CERTIFICATE. NO SIGNATURE OR OTHER FURTHER

MANIFESTATION OF ASSENT TO THE TERMS AND PROVISIONS OF THIS CERTIFICATE SHALL BE NECESSARY FOR ITS OPERATION OR EFFECT AS BETWEEN

FREDDIE MAC AND THE HOLDER (AND ALL SUCH OTHERS).

IN WITNESS WHEREOF, I have hereunto set my hand and the seal of Freddie Mac this

30th day of May, 2001.

®Seal©

Maud Mater, Secretary

B-9
If you intend to purchase Preferred Stock, you

should rely only on the information in this OÅering Circular, including the information in the Freddie Mac

disclosure documents that we have incorporated by

reference. We have not authorized anyone to provide you with diÅerent information. 3,500,000 Shares

Variable Rate, This OÅering Circular and the incorporated documents may not be correct after their dates. Non-Cumulative

Preferred Stock We are not oÅering the CertiÑcates in any jurisdiction that prohibits their oÅer. (Liquidation Preference

$50.00 Per Share)

3,000,000 Shares

6% Non-Cumulative

Preferred Stock

(Liquidation Preference

$50.00 Per Share)

TABLE OF CONTENTS

DescriptionPage

Additional Information ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2

Summary ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3

Freddie Mac ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6

Use of ProceedsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7

CapitalizationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8

Selected Financial Data ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 10

Regulation and Governmental Relationships ÏÏÏÏÏÏÏÏ 11

Description of Variable Rate Preferred Stock ÏÏÏÏÏÏÏ 11

Y

Description of Fixed Rate Preferred Stock ÏÏÏÏÏÏÏÏÏ 18 Lehman Brothers

Regulatory Matters ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 23 First Tennessee Bank NA

Certain Federal Income Tax ConsequencesÏÏÏÏÏÏÏÏÏ 25

Legal Investment Considerations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 27 Vining-Sparks IBG, L.P.

UnderwritingÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 27 Bear, Stearns & Co., Inc.

Ratings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 28 Goldman, Sachs & Co. Independent Public AccountantsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 29

Legal Matters ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 29 The Williams Capital Group, L.P.

Appendix A Ì CertiÑcate of Designation for the

Variable Rate Preferred StockÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ A-1 May 23, 2001 Appendix B Ì CertiÑcate of Designation for the

Fixed Rate Preferred Stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ B-1