V
OFFERING CIRCULAR
3,000,000 Shares
Freddie Mac
Variable Rate, Non-Cumulative
Preferred Stock
Dividend Rate:
(3-Month LIBOR ° 1.0%)
1.377
Dividend Rate Cap:
7.5%
Payment Dates:
March 31, June 30, September 30
and December 31 of each year,
beginning December 31, 1998
Dividend Reset Frequency:
Quarterly
Dividend Adjustment:
Dividend amount subject to
adjustment upon certain adverse
changes to dividends-received
deduction prior to September 23,
2000
Liquidation Preference:
$50 per share plus current
dividends
Optional Redemption:
On or after September 30, 2003
Issue Date:
September 23, 1998
Initial Dividend Rate:
4.7204% (from September 23, 1998
through December 31, 1998)
Listing:
New York Stock Exchange
(pending)
FREDDIE MAC'S OBLIGATIONS UNDER THE TERMS OF THE PREFERRED STOCK ARE OBLIGATIONS
OF FREDDIE MAC ONLY AND ARE NOT OBLIGATIONS OF, OR GUARANTEED BY,
THE UNITED STATES OR ANY AGENCY OR INSTRUMENTALITY OF
THE UNITED STATES OTHER THAN FREDDIE MAC.
Initial Public
OÅering Price(1)
Per Share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Underwriting
Discount
Proceeds to
Freddie Mac(1)(2)
$50.00
$150,000,000
$0.50
$1,500,000
$49.50
$148,500,000
(1) Plus accrued dividends, if any, from September 23, 1998.
(2) Before deducting estimated expenses of $100,000 payable by Freddie Mac.
(3) Freddie Mac has granted the Underwriters an option to purchase up to an additional 450,000 shares to cover
overallotments. If all such shares are purchased, the total Initial Public OÅering Price, Underwriting Discount and
Proceeds to Freddie Mac will be $172,500,000, $1,725,000 and $170,775,000, respectively. See ""Underwriting.''
Goldman, Sachs & Co.
Bear, Stearns & Co. Inc.
Blaylock & Partners, L.P.
Lehman Brothers
Merrill Lynch & Co.
J.P. Morgan Securities Inc.
Morgan Stanley Dean Witter
Salomon Smith Barney
The date of this OÅering Circular is September 18, 1998.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE PREFERRED STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN
CONNECTION WITH THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
""UNDERWRITING.''
ADDITIONAL INFORMATION
This OÅering Circular should be read in conjunction with, and is qualiÑed in its entirety by:
‚ the CertiÑcate of Creation, Designation, Powers, Preferences, Rights, Privileges, QualiÑcations,
Limitations, Restrictions, Terms and Conditions (the ""CertiÑcate of Designation'') relating to the
Variable Rate, Non-Cumulative Preferred Stock (the ""Preferred Stock''), which will be in
substantially the form attached as Appendix A to this OÅering Circular; and
‚ Freddie Mac's Information Statement dated March 31, 1998 and its Information Statement
Supplements dated May 15, 1998 and August 14, 1998 (together, the ""Information Statement''),
which are hereby incorporated by reference.
Freddie Mac furnishes its stockholders with annual reports containing Ñnancial information audited by
independent public accountants and quarterly reports containing unaudited Ñnancial information.
The shares of Preferred Stock are exempt from the registration requirements of the Securities Act of
1933 and are ""exempted securities'' within the meaning of the Securities Exchange Act of 1934. Accordingly,
no registration statement has been Ñled with the Securities and Exchange Commission, and Freddie Mac
does not Ñle periodic reports with the Securities and Exchange Commission.
Copies of Freddie Mac's most recent annual and quarterly reports and its most recent proxy statement are
available, and copies of the CertiÑcate of Designation as executed will be available, without charge, from
Shareholder Relations, Freddie Mac, 8200 Jones Branch Drive, McLean, VA 22102, telephone (800)
FREDDIE (800-373-3343).
Dividends paid on the Preferred Stock have no exemption under federal law from federal, state or local
taxation.
The distribution of this OÅering Circular and the oÅer, sale and delivery of the Preferred Stock in
certain jurisdictions may be restricted by law. Persons who receive this OÅering Circular should inform
themselves about and observe any such restrictions.
2
OFFERING SUMMARY
Issuer ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Federal Home Loan Mortgage Corporation (""Freddie Mac'' or
the ""Corporation'').
Security OÅered ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,000,000 shares (assuming the Underwriters' overallotment option is not exercised) of Variable Rate, Non-Cumulative Preferred
Stock (the ""Preferred Stock''), with a redemption price and
liquidation preference of $50 per share.
Dividends:
Rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(3-Month LIBOR ° 1.0%)
1.377
Dividends will accrue from September 23, 1998 and will reset
quarterly. For information about how and when LIBOR will be
determined, see ""Description of Preferred Stock Ì Determination
of LIBOR.''
Initial Rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4.7204% (from September 23, 1998 through December 31, 1998)
Rate Cap ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7.5%
Calculation Agent ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Freddie Mac
FrequencyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Quarterly, when, as and if declared by the Board of Directors.
Payment Dates ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ March 31, June 30, September 30 and December 31 of each year,
beginning December 31, 1998.
DRD Protection ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ If, prior to September 23, 2000, certain amendments to the
Internal Revenue Code of 1986, as amended (the ""Code''), are
enacted that reduce the percentage of the dividends-received
deduction below 70%, the amount of dividends payable in respect
of the Preferred Stock will be adjusted to oÅset the eÅect of such
reduction. However, no adjustment will be made to the extent that
the percentage of the dividends-received deduction is reduced
below 50%. Such adjustment may result in a dividend rate in
excess of 7.5% per annum.
PreferencesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ The Preferred Stock will be entitled to a preference, both as to
dividends and upon liquidation, over the common stock (and any
other junior stock) of Freddie Mac. The Preferred Stock will rank
on a parity, both as to dividends and upon liquidation, with other
currently outstanding series of Freddie Mac preferred stock.
Optional Redemption ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Beginning September 30, 2003, Freddie Mac will have the option
to redeem the Preferred Stock at any time, in whole or in part, at
the redemption price of $50 per share plus the amount that would
otherwise be payable as the dividend for the then-current quarterly
dividend period accrued through the redemption date.
Liquidation Rights ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ In the event of any dissolution or liquidation of Freddie Mac,
holders of the Preferred Stock will be entitled to receive, out of
any assets available for distribution to stockholders, up to $50 per
share plus the dividend for the then-current quarterly dividend
period accrued through the liquidation payment date.
Voting Rights ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ None, except with respect to certain changes in the terms of the
Preferred Stock.
Preemptive and Conversion Rights ÏÏÏÏÏ None.
RatingÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ The Preferred Stock has been rated ""aa3'' by Moody's Investors
Service, Inc. (""Moody's'') and ""AA-'' by Standard & Poor's
Ratings Services (""S&P''). See ""Rating.''
Use of Proceeds ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ To be added to the working capital of Freddie Mac and used 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 the Corporation's stock.
Transfer Agent, Dividend Disbursing
Agent and Registrar ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ First Chicago Trust Company, New York, New York.
NYSE Listing ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Application has been made to list the Preferred Stock on the New
York Stock Exchange (the ""NYSE'').
3
SUMMARY SELECTED FINANCIAL DATA
At or For the Six
Months Ended
June 30,
At or For the Year Ended December 31,
1998
1997
1997
1996
1995
1994
1993
(dollars in millions, except per share amounts)
BALANCE SHEET
Retained portfolio, gross ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 196,634
Total assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 229,991
Primary capital base(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $
9,133
Adjusted total capital base(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $
9,572
MORTGAGE PURCHASE AND FINANCING
ACTIVITIES
Mortgage purchasesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 124,862
Number of mortgages purchased ÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,081,226
PC issuances ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 113,218
Mortgage Participation Certificates (""PCs'')(3) ÏÏ $ 609,791
INCOME STATEMENT
Net interest income on earning assetsÏÏÏÏÏÏÏÏÏ $
1,049
Management and guarantee income ÏÏÏÏÏÏÏÏÏÏ $
650
Net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $
807
Earnings per common share:(4)
Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $
1.11
Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $
1.10
Dividends per common share(4) ÏÏÏÏÏÏÏÏÏÏÏÏÏ $
0.24
Return on common equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
24.4%
$ 149,249 $ 164,421 $ 137,755 $ 107,424 $ 72,828 $
$ 184,003 $ 194,597 $ 173,866 $ 137,181 $ 106,199 $
$
8,192 $
8,215 $
7,411 $
6,546 $
5,895 $
$
8,696 $
8,736 $
7,901 $
7,179 $
7,121 $
55,698
83,880
5,197
6,680
$
51,174 $ 121,490 $ 128,565 $ 98,386 $ 124,246 $ 229,706
457,015 1,085,046 1,232,540
934,890 1,256,566 2,315,162
$ 50,457 $ 114,258 $ 119,702 $ 85,877 $ 117,110 $ 208,724
$ 567,187 $ 579,385 $ 554,260 $ 515,051 $ 491,325 $ 454,906
$
$
$
893 $
646 $
669 $
1,882 $
1,298 $
1,395 $
1,542 $
1,249 $
1,243 $
1,298 $
1,185 $
1,091 $
1,047 $
1,173 $
983 $
808
1,077
786
$
$
$
0.90 $
0.89 $
0.20 $
22.8%
1.90 $
1.88 $
0.40 $
23.1%
1.65 $
1.63 $
0.35 $
22.6%
1.42 $
1.41 $
0.30 $
22.1%
1.27 $
1.26 $
0.26 $
23.3%
1.02
1.01
0.22
22.3%
(1) ""Stockholders' equity,'' ""Reserves for losses on retained mortgages'' and ""Reserves for losses on Mortgage Participation
CertiÑcates.''
(2) ""Primary capital base'' and ""Subordinated borrowings.''
(3) Includes Freddie Mac PCs held in the retained portfolio.
(4) Per share amounts reÖect a four-for-one stock split eÅective December 31, 1996.
4
FREDDIE MAC
Freddie Mac is a shareholder-owned government-sponsored enterprise (""GSE'') chartered on July 24,
1970 pursuant to the Federal Home Loan Mortgage Corporation Act, Title III of the Emergency Home
Finance Act of 1970, as amended (the ""Freddie Mac Act''). Freddie Mac's statutory mission is (i) to provide
stability in the secondary market for residential mortgages, (ii) to respond appropriately to the private capital
market, (iii) 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 (iv) 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. 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 the mortgage
purchase or Ñnancing activities of Freddie Mac.
The principal activity of Freddie Mac consists of the purchase of Ñrst lien, conventional, residential
mortgages, including both whole loans and participation interests in such mortgages. Its mortgage purchases
are primarily Ñnanced by sales of single-class guaranteed mortgage-related securities, primarily various types
of mortgage participation certiÑcates (""PCs''). Freddie Mac guarantees the payment of interest due on PCs
and the principal of the underlying mortgages. Freddie Mac also Ñnances mortgage purchases with debt
securities, other liabilities and equity capital. In addition, Freddie Mac invests in mortgages and mortgagerelated securities, and engages in other activities that support its mortgage purchases, investment and
Ñnancing activities.
Freddie Mac is subject to two primary types of risk in the conduct of its business: credit risk associated
with the mortgages it purchases and the institutions with which it does business; and interest-rate risk that
principally results from mismatches between the maturities of the assets and liabilities associated with its
mortgage portfolio. Freddie Mac also is subject to operational risk associated with losses that may occur due to
human error, system failure (including failures related to the Year 2000 date change), 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.
The principal oÇce of Freddie Mac is in McLean, Virginia. Freddie Mac has 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 the business of the Corporation appears under ""Business'' in the
Information Statement. The preceding description of the business of Freddie Mac is qualiÑed in its entirety by
that discussion.
USE OF PROCEEDS
The Corporation will apply the net proceeds from the sale of Preferred Stock to its general funds to be
used for general corporate purposes, including the purchase of residential mortgages, the redemption of shares
of preferred stock previously issued by the Corporation, the repayment of outstanding indebtedness and the
repurchase of outstanding shares of the Corporation's stock. The precise amounts and timing of the application
of the proceeds will depend upon the funding requirements of the Corporation.
The Corporation engages in Ñnancing transactions continuously. The amount and nature of such
transactions are dependent upon a number of factors, including the volume of mortgage prepayments and
mortgages purchased by the Corporation, as well as general market conditions.
5
CAPITALIZATION
The following table sets forth the capitalization of the Corporation at June 30, 1998 and as adjusted to
reÖect the sale of the Preferred Stock oÅered hereby and the sale of the 5.1% Non-Cumulative Preferred
Stock being oÅered for sale pursuant to an oÅering circular dated September 18, 1998. This table should be
read in conjunction with the Ñnancial statements of the Corporation and other information contained in the
Information Statement.
June 30, 1998
As
Actual
Adjusted(1)
(dollars in millions)
Debt Securities:
Notes and bonds payable due within one year:
Discount notes, medium-term notes and securities sold under
agreements to repurchase ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Current portion of long-term debtÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Notes and bonds payable due after one year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total debt securities, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Subordinated Borrowings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Minority Interest in Real Estate Investment Trusts(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Stockholders' Equity(3):
6.72% Non-Cumulative Preferred Stock, $1.00 par value and $25.00 redemption value(4)
Variable Rate, Non-Cumulative Preferred Stock, $1.00 par value and $50.00 redemption
value(5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
6.125% Non-Cumulative Preferred Stock, $1.00 par value and $50.00 redemption value(6)
6.14% Non-Cumulative Preferred Stock, $1.00 par value and $50.00 redemption value(7)
5.81% Non-Cumulative Preferred Stock, $1.00 par value and $50.00 redemption value(8)
5% Non-Cumulative Preferred Stock, $1.00 par value and $50.00 redemption value(9) ÏÏÏÏ
5.1% Non-Cumulative Preferred Stock, $1.00 par value and $50.00 redemption value(10)
Variable Rate, Non-Cumulative Preferred Stock, $1.00 par value and $50.00 redemption
value(10) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Common stock, $0.21 par value ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Additional paid-in capitalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Retained earnings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net unrealized gain on certain investments reported at fair value, net of taxes ÏÏÏÏÏÏÏÏÏÏÏ
Less: treasury stock, at cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total stockholders' equityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total capitalization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$106,694
4,757
111,451
88,424
199,875
439
3,619
$106,694
4,757
111,451
88,424
199,875
439
3,619
300
300
250
287
600
150
400
Ì
250
287
600
150
400
400
Ì
152
23
7,421
159
(1,329)
8,413
$212,346
150
152
17
7,421
159
(1,329)
8,957
$212,890
(1) ""As adjusted'' reÖects anticipated proceeds of $150 million from the issuance of 3 million shares of Preferred Stock, anticipated
proceeds of $400 million from the issuance of 8 million shares of 5.1% Non-Cumulative Preferred Stock and the deduction of $5.8
million in estimated transaction costs. The actual costs may diÅer.
(2) Represents preferred stock ownership interest in Freddie Mac's real estate investment trust subsidiaries.
(3) Preferred stock amounts reÖect redemption values as shown. Costs associated with the issuance of preferred stock are included in
additional paid-in capital.
(4) Optional redemption on or after September 30, 1998. It is likely that the proceeds from the sale of the Preferred Stock will be used
in part to redeem this issue.
(5) Optional redemption on or after June 30, 2001.
(6) Optional redemption on or after December 31, 2001.
(7) Optional redemption on or after June 30, 2002.
(8) Optional redemption on or after October 27, 1998.
(9) Optional redemption on or after March 31, 2003.
(10) Optional redemption on or after September 30, 2003.
See Notes 7 and 8 to the 1996 Consolidated Financial Statements included in the Information Statement
for further information about Freddie Mac's debt securities, subordinated borrowings and stockholders' equity.
Amounts of debt securities and subordinated borrowings are net of unamortized discounts, premiums and
hedging gains or losses.
The Corporation engages in transactions aÅecting stockholders' equity (including repurchases of its
common stock and redemptions of its preferred stock) from time to time and issues or retires debentures,
notes and other debt obligations on an ongoing basis. Accordingly, on any date subsequent to June 30, 1998,
stockholders' equity may diÅer, and the amount of debt obligations outstanding will diÅer, and may diÅer
substantially, from the Ñgures contained in the capitalization table above.
6
SELECTED FINANCIAL DATA
The following selected Ñnancial data for the years 1993 through 1997 have been summarized or derived
from the audited Ñnancial statements or the internal accounting records of the Corporation. These data are
qualiÑed in their entirety by, and should be read in conjunction with, the detailed information, audited
Ñnancial statements and notes to Ñnancial statements that are presented in the Information Statement. The
following selected Ñnancial data for the six months ended June 30, 1998 and June 30, 1997 have been
summarized or derived from unaudited Ñnancial statements which are included in the Information Statement
Supplement dated August 14, 1998 or from internal accounting records, but in the opinion of management of
the Corporation, all adjustments necessary for a fair presentation have been included. Adjustments included
herein are of a normal, recurring nature.
At or For the Six
Months Ended
June 30,
1998
1997
Balance Sheet
Retained portfolio, gross ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Debt securities, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Capital base:
Stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Reserve for mortgage losses(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Primary capital base ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Subordinated borrowingsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Adjusted total capital base ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Mortgage Participation CertiÑcates (""PCs'')(2)ÏÏÏÏÏÏÏ
Freddie Mac PCs held in the retained portfolio ÏÏÏÏÏÏÏ
Primary capital ratio(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Adjusted total capital ratio(4) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Return on common equity(5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Return on average assets and contingencies(6) ÏÏÏÏÏÏÏÏ
Mortgage Purchase and Financing Activities
Mortgage purchasesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Number of mortgages purchased ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Mortgage PC settlements:
Single-classÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Multiclass (REMICs) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Long-term debt:
Issued ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Retired ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income Statement
Net interest income on earning assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Management and guarantee income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income before income taxes and extraordinary itemÏÏÏÏ
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Earnings per common share:(7)
Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Weighted average common shares outstanding
(in thousands):(7)
Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Dividends per common share(7) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Dividend payout ratio on common stock ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ratio of earnings to Ñxed charges(8) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ratio of earnings to combined Ñxed charges and
preferred stock dividends(8) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
At or For the Year Ended December 31,
1997
1996
1995
1994
(dollars in millions, except per share amounts)
1993
$
$
$
$
196,634
229,991
199,875
217,102
$
$
$
$
149,249
184,003
161,396
171,742
$
$
$
$
164,421
194,597
168,574
182,407
$
$
$
$
137,755
173,866
156,491
166,271
$
$
$
$
107,424
137,181
119,328
130,297
$ 72,828 $
$ 106,199 $
$ 92,053 $
$ 99,368 $
$
8,413
720
9,133
439
9,572
609,791
129,104
1.29%
1.35%
24.4%
0.12%
$
7,507
685
8,192
504
8,696
567,187
92,992
1.24%
1.32%
22.8%
0.10%
$
7,521
694
8,215
521
8,736
579,385
103,400
1.23%
1.30%
23.1%
0.21%
$
6,731
680
7,411
490
7,901
554,260
81,195
1.15%
1.22%
22.6%
0.20%
$
5,863
683
6,546
633
7,179
515,051
56,006
1.10%
1.20%
22.1%
0.19%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
5,162
733
5,895
1,226
7,121
491,325
30,670
1.04%
1.26%
23.3%
0.18%
$
$
$
$
$
55,698
83,880
48,510
77,406
4,437
760
5,197
1,483
6,680
454,906
15,877
0.99%
1.28%
22.3%
0.16%
$ 124,862 $ 51,174 $ 121,490 $ 128,565 $ 98,386 $ 124,246 $ 229,706
1,081,226
457,015 1,085,046 1,232,540
934,890 1,256,566 2,315,162
$ 113,218 $
$ 70,748 $
50,457 $ 114,258 $ 119,702 $
39,818 $ 84,366 $ 34,145 $
$
17,313 $ 31,132 $ 33,852 $ 29,643 $
(8,306)
(21,879)
(20,819)
(11,082)
9,007 $
9,253 $ 13,033 $ 18,561 $
29,040 $
(26,557)
$
2,483 $
$
$
$
$
$
$
1,049
650
1,123
807
$
$
$
$
1.11 $
1.10 $
893
646
932
669
$
$
$
$
0.90 $
0.89 $
1,882
1,298
1,964
1,395
$
$
$
$
1.90 $
1.88 $
1,542
1,249
1,797
1,243
$
$
$
$
1.65 $
1.63 $
85,877 $ 117,110 $ 208,724
15,372 $ 73,131 $ 143,336
1,298
1,185
1,586
1,091
$
$
$
$
1.42 $
1.41 $
22,744 $
(6,462)
16,282 $
1,047
1,173
1,482
983
24,784
(9,924)
14,860
$
$
$
$
808
1,077
1,128
786
1.27 $
1.26 $
1.02
1.01
678,138
689,716
684,937
709,453
721,288
722,663
721,685
683,139
696,445
691,701
714,878
725,114
726,108
725,167
$
0.24 $
0.20 $
0.40 $
0.35 $
0.30 $
0.26 $
0.22
21.51%
22.29%
21.08%
21.26%
21.09%
20.47%
21.63%
1.17:1
1.17:1
1.18:1
1.19:1
1.23:1
1.31:1
1.32:1
1.16:1
1.16:1
(1)
(2)
(3)
(4)
(5)
1.16:1
1.18:1
1.22:1
1.30:1
1.30:1
""Reserves for losses on retained mortgages'' and ""Reserves for losses on Mortgage Participation CertiÑcates.''
Includes Freddie Mac PCs held in the retained portfolio.
""Primary capital base'' divided by the sum of ""Total assets'' and ""PCs'' less ""Freddie Mac PCs held in the retained portfolio.''
""Adjusted total capital base'' divided by the sum of ""Total assets'' and ""PCs'' less ""Freddie Mac PCs held in the retained portfolio.''
""Net income'' less preferred stock dividends, divided by the simple average of the beginning and ending balances of ""Stockholders' equity,'' net of
preferred stock (at redemption value).
(6) ""Net income'' divided by the simple average of the beginning and ending balances of ""Total assets'' and ""PCs'' less ""Freddie Mac PCs held in the
retained portfolio.''
(7) Per share amounts and weighted average common shares outstanding reÖect a four-for-one stock split eÅective December 31, 1996.
(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.
7
REGULATION AND GOVERNMENTAL RELATIONSHIPS
From time to time, Freddie Mac's statutory, structural and regulatory relationships with the federal
government may be subject to review or modiÑcation. While Freddie Mac's GSE status is often advantageous
for the Corporation, proposals have been advanced that could adversely aÅect Freddie Mac's fulÑllment of its
statutory purposes, as well as the Corporation's results of operations. A more detailed discussion of Freddie
Mac's regulatory and governmental relationships appears under ""Regulation and Governmental Relationships'' in the Information Statement.
DESCRIPTION OF PREFERRED STOCK
The description of the Preferred Stock set forth below does not purport to be complete and is qualiÑed in
its entirety by the CertiÑcate of Designation, which will be in substantially the form attached as Appendix A.
General
Under Û306(f) of the Freddie Mac Act, Freddie Mac is authorized to issue an unlimited number of
shares of preferred stock. The shares of Preferred Stock being oÅered hereby will have a par value of $1.00 per
share. The Preferred Stock will be created pursuant to the CertiÑcate of Designation.
First Chicago Trust Company, New York, New York, will be the transfer agent, dividend disbursing
agent and registrar for the Preferred Stock.
Authorized Issuance
Freddie Mac has been authorized by its Board of Directors to issue the shares of Preferred Stock oÅered
hereby. The Board of Directors may increase the authorized number of shares at any time, without the consent
of the holders of Preferred Stock.
Dividends
Dividends on shares of the Preferred Stock will not be mandatory. Holders of Preferred Stock will be
entitled to receive non-cumulative, quarterly cash dividends which will accrue from but not including
September 23, 1998 and will be payable on March 31, June 30, September 30 and December 31 of each year
(each, a ""Dividend Payment Date''), commencing December 31, 1998, when, as and if declared by the Board
of Directors in its sole discretion, out of funds legally available for dividend payments. Dividends will accrue at
a variable per annum rate (not greater than 7.5% per annum) equal to (a) the sum of LIBOR, determined
quarterly as described under ""Determination of LIBOR,'' and 1.0%, divided by (b) 1.377, with the resulting
dividend per share being rounded to the nearest cent (with one-half cent rounded up). 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. For these purposes, ""Business Day'' means
a day other than (i) a Saturday or a 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. If declared, the initial dividend, which will be for the period from but not
including September 23, 1998 through and including December 31, 1998, will be 4.7204% or $0.649055 per
share and will be payable on December 31, 1998. Thereafter, the dividend payable to holders of Preferred
Stock will vary from Dividend Period to Dividend Period. 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. Freddie Mac will calculate the dividend rate for each Dividend
Period based on LIBOR determined as of two London Business Days (deÑned as any day, other than a
Saturday or Sunday, on which banks are open for business in London) prior to the Ñrst day of such Dividend
Period (each, a ""Determination Date''). Each dividend will be calculated on the basis of the actual number of
days elapsed, assuming a year of 360 days, and the dividend rate will be applied to the $50 per share
redemption value.
8
The Preferred Stock will rank prior to the Voting Common Stock, par value $0.21 per share, of Freddie
Mac (the ""Common Stock'') with respect to dividends, to the extent provided in the CertiÑcate of
Designation. No dividend may be declared or paid or set apart for payment 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 Preferred Stock in respect to the then-current Dividend Period. The Preferred Stock will rank on a parity
with the 5.1% Non-Cumulative Preferred Stock being issued on September 23, 1998, the 5% Non-Cumulative
Preferred Stock issued on March 23, 1998 and currently outstanding, the 5.81% Non-Cumulative Preferred
Stock issued on October 27, 1997 and currently outstanding, the 6.14% Preferred Stock issued on June 3, 1997
and currently outstanding, the 6.125% Non-Cumulative Preferred Stock issued on November 1, 1996 and
currently outstanding, the Variable Rate, Non-Cumulative Preferred Stock issued on April 26, 1996 and
currently outstanding and the 6.72% Non-Cumulative Preferred Stock issued on August 2, 1993 and currently
outstanding (collectively, the ""Existing Preferred Stock'') with respect to dividends.
Dividends on the Preferred Stock will not be cumulative. If a dividend is not paid on the Preferred Stock,
the holders of the Preferred Stock will have no claim in respect of such non-payment so long as no dividend is
paid on the Common Stock (or any other junior stock) or the Existing Preferred Stock for the then-current
period.
The Board of Directors may, in its discretion, choose to pay dividends on the Preferred Stock without the
payment of any dividends on the Common Stock.
No dividends will be declared or paid or set apart for payment on any shares of the 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 the Preferred Stock with respect to the payment of dividends. At the
time of issuance of the Preferred Stock, no class or series of stock of Freddie Mac ranking prior to the
Preferred Stock will exist.
Holders of shares of the 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'' for a description of possible regulatory restrictions
on Freddie Mac's payment of dividends.
Changes in the Dividends-Received Percentage
If, prior to September 23, 2000, one or more amendments to the Code are enacted that reduce the
percentage of the dividends-received deduction (currently 70 percent) as speciÑed in section 243(a)(1) of the
Code or any successor provision (the ""Dividends-Received Percentage''), certain adjustments may be made in
respect of the dividends payable by 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 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 described above under ""Dividends'' (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; provided, however, that if the Dividends-Received 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 Preferred Stock is adjusted through such application of the DRD Formula, the
resulting dividend rate may exceed 7.5% per annum. 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 Preferred Stock, will give rise to an adjustment. Notwithstanding the
9
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 Preferred Stock, then such amendment will not result
in the adjustment provided for pursuant to the DRD Formula with respect to such dividend. The opinion
referenced in the previous sentence must be based upon the legislation amending or establishing the DRP or
upon a published pronouncement of the IRS addressing such legislation. Unless the context otherwise
requires, references to dividends in this OÅering Circular will mean dividends as adjusted by the DRD
Formula. The Corporation's calculation of the dividends payable as so adjusted shall be Ñnal and not subject to
review.
Notwithstanding the foregoing, if any such amendment to the Code is enacted after the dividend payable
on a Dividend Payment Date has been declared but before such dividend is paid, the amount of the dividend
payable on such Dividend Payment Date will not be increased; instead, additional dividends (the ""Post
Declaration Date Dividends''), equal to the excess, if any, of (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 Dividends-Received Percentage applicable to the dividend in
question and .50) over (y) the dividend paid by the Corporation on such Dividend Payment Date, will be
payable (if declared) to holders of Preferred Stock on the record date applicable to the next succeeding
Dividend Payment Date, 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
Preferred Stock (each, an ""AÅected Dividend Payment Date''), the Corporation will pay (if declared)
additional dividends (the ""Retroactive Dividends'') to holders of Preferred Stock on the record date
applicable to the next succeeding Dividend Payment Date (or, if such amendment is enacted after the
dividend payable on such Dividend Payment Date has been declared, to Holders of Preferred Stock on the
record date applicable to the second succeeding Dividend Payment Date following the date of enactment) 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 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.
Notwithstanding the foregoing, no adjustment in the dividends payable by the Corporation will be made,
and no Post Declaration Date Dividends or Retroactive Dividends will be payable by the Corporation, in
respect of the enactment of any amendment to the Code on or after September 23, 2000.
In the event that the amount of dividends payable per share of the Preferred Stock is adjusted pursuant to
the DRD Formula and/or Post Declaration Date Dividends or Retroactive Dividends are to be paid, the
Corporation will give notice of each such adjustment and, if applicable, any Post Declaration Date Dividends
and Retroactive Dividends to the holders of Preferred Stock.
Determination of LIBOR
""LIBOR'' means, with respect to a Dividend Period relating to a Dividend Payment Date (in the
following order of priority):
10
(i) the rate (expressed as a percentage per annum) for Eurodollar deposits having a three-month
maturity that appears on Bridge Telerate Capital Markets Report Page 3750 or any successor to such
page (""Telerate Page 3750'') as of 11:00 a.m. (London time) on the related Determination Date;
(ii) if such rate does not appear on Telerate Page 3750 as of 11:00 a.m. (London time) on the
related Determination Date, LIBOR will be the arithmetic mean (if necessary rounded upwards to the
nearest whole multiple of 1/128%) of the rates (expressed as percentages per annum) for Eurodollar
deposits having a three-month maturity that appear on Reuters Monitor Money Rates Page LIBO or any
successor to such page (""Reuters Page LIBO'') as of 11:00 a.m. (London time) on such Determination
Date;
(iii) if such rate does not appear on Reuters Page LIBO as of 11:00 a.m. (London time) on the
related Determination Date, Freddie Mac will request the principal London oÇces of four leading banks
in the London interbank market to provide such banks' oÅered quotations (expressed as percentages per
annum) to prime banks in the London interbank market for Eurodollar deposits having a three-month
maturity as of 11:00 a.m. (London time) on such Determination Date. If at least two quotations are
provided, LIBOR will be the arithmetic mean (if necessary rounded upwards to the nearest whole
multiple of 1/128%) of such quotations;
(iv) if fewer than two such quotations are provided as requested in clause (iii) above, Freddie Mac
will request four major New York City banks to provide such banks' oÅered quotations (expressed as
percentages per annum) to leading European banks for loans in Eurodollars as of 11:00 a.m. (London
time) on such Determination Date. If at least two such quotations are provided, LIBOR will be the
arithmetic mean (if necessary rounded upwards to the nearest whole multiple of 1/128%) of such
quotations; and
(v) if fewer than two such quotations are provided as requested in clause (iv) above, LIBOR will be
LIBOR determined with respect to the Dividend Period immediately preceding such current Dividend
Period.
If the rate for the Eurodollar deposits having a three-month maturity that initially appears on Telerate
Page 3750 or Reuters Page LIBO, as the case may be, as of 11:00 a.m. (London time) on the related
Determination Date is superseded on Telerate Page 3750 or Reuters Page LIBO, as the case may be, by a
corrected rate before 12:00 noon (London time) on such Determination Date, the corrected rate as so
substituted on the applicable page will be the applicable LIBOR for such Determination Date.
Absent manifest error, Freddie Mac's determination of LIBOR and its calculation of the applicable
dividend rate for each Dividend Period will be Ñnal and binding. Investors may obtain the dividend rates for
the current and preceding Dividend Periods by writing, calling or e-mailing the Investor Inquiry Department
at Freddie Mac at 8200 Jones Branch Drive, McLean, Virginia 22102 (outside Washington, D.C. metropolitan area, phone 800/336-FMPC; within Washington, D.C. metropolitan area, phone 703/450-3777; e-mail:
Investor Inquiry@freddiemac.com).
Optional Redemption
The Preferred Stock will not be redeemable prior to September 30, 2003. On or after that date and
subject to any further limitations which may be imposed by law, Freddie Mac may redeem the Preferred
Stock, in whole or in part, at any time or from time to time, out of funds legally available therefor, at the
redemption price of $50.00 per share plus an amount equal to the amount of the dividend, if any (calculated as
provided in the CertiÑcate of Designation), that would otherwise be 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 Preferred Stock are to be redeemed, Freddie Mac will select shares to be redeemed from the outstanding
shares not previously called for redemption by lot or pro rata (as nearly as possible) or by any other method
which Freddie Mac in its sole discretion deems equitable.
Freddie Mac will give notice of any such redemption by mail to holders of the Preferred Stock not less
than 30 days and not more than 60 days prior to the date Ñxed by Freddie Mac for such redemption. Each
such notice will state the number of shares of Preferred Stock being redeemed, the redemption price, the
11
redemption date and the place at which a holder's certiÑcate(s) representing shares of the Preferred Stock
must be presented upon such redemption.
See ""Regulatory Matters'' for a description of possible regulatory restrictions on Freddie Mac's
redemption of the Preferred Stock.
From and after the redemption date, the shares of Preferred Stock called for redemption will no longer be
deemed outstanding, and all rights of the holders thereof as holders of the Preferred Stock will cease.
Regulatory Matters
Neither Freddie Mac's right to declare dividends on nor its 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''), the exercise of these rights may be subject to regulatory approval
only if the Corporation fails to meet applicable capital standards.
The GSE Act established minimum capital, critical capital and risk-based capital standards for the
Corporation.
The GSE Act has required the Corporation to 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 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 the Corporation 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 (and the risk-based capital level cannot be determined from the
GSE Act alone). OFHEO issued a portion of the proposed regulation in June 1996, and OFHEO has stated
that it expects to issue the remainder of the proposed regulation in a second proposal, and to issue the Ñnal
regulation after it has considered comments on both portions of the proposed regulation. Freddie Mac's riskbased capital requirement cannot be estimated from the Ñrst proposal alone. The Ñnal risk-based capital
regulation becomes eÅective when issued but, until the risk-based capital regulation has been in eÅect for one
year, the Director must base any determination of the Corporation's capital adequacy solely on whether the
core capital of the Corporation is equal to or exceeds the minimum and critical capital levels.
Subject to the applicability of the risk-based capital standard described above, the Corporation may pay a
dividend without prior OFHEO approval if the payment would not decrease the total capital of the
Corporation to an amount less than the risk-based capital level for the Corporation and would not decrease the
core capital level to an amount less than the minimum capital level for the Corporation. Beginning one year
after the Ñnal risk-based capital regulation is issued, if the Corporation's total capital is less than the risk-based
capital level, but its core capital equals or exceeds the minimum capital level, the Corporation is prohibited
from making a dividend payment that would decrease its core capital to an amount less than the minimum
capital level. At any time, if the Corporation's core capital is less than the minimum capital level, the
Corporation may make a dividend payment only if the Director determines that the dividend payment satisÑes
certain statutory standards and if the Director approves the payment, and under these circumstances the
Corporation is prohibited from making any dividend payment that would decrease the Corporation's core
capital to less than the critical capital level.
In addition to the preceding requirements that relate directly to the payment of dividends, the Director
has authority, under certain conditions, to require the Corporation to submit for the Director's approval a
capital restoration plan or to restrict the Corporation's 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 the Corporation fails to meet the risk-based capital standard, or if the Director determines,
at any time, that the Corporation fails to meet the minimum capital standard, the Corporation will be required
to submit for the Director's approval a capital restoration plan setting forth a feasible plan for restoring the
Corporation's capital level. In addition, if the Corporation at any time fails to meet the minimum capital
12
standard, the Director is authorized to impose various limitations on the Corporation's activities. If, at any
time, the Director determines that the Corporation fails to meet the critical capital standard, the Director may
appoint a conservator for the Corporation.
If the Director does not approve a required capital restoration plan or determines that the Corporation has
failed to make reasonable eÅorts to comply with such a plan, then the Director may treat the Corporation as
not meeting capital standards that it otherwise meets and take the actions authorized when the Corporation
does not meet such standards. Similarly, if the Director determines that the Corporation is engaging in
conduct not approved by the Director that could result in a rapid depletion of core capital or that the value of
the property subject to mortgages held or securitized by the Corporation has decreased signiÑcantly, the
Director is authorized to treat the Corporation as not meeting capital standards that it otherwise meets.
If the Corporation fails to meet or is treated by the Director as not meeting applicable capital standards
and the Director has reasonable cause to believe that the Corporation or any executive oÇcer or director of the
Corporation is 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 the Corporation's core capital, then the Director is authorized
to commence proceedings pursuant to which, after a hearing, the Director could issue a cease and desist order
prohibiting such conduct. If the Director determines that the conduct in question is likely to cause a signiÑcant
depletion of core capital, the Director can issue such an order without a hearing, which would be eÅective until
completion of the cease-and-desist proceedings, and can do so without regard to whether the Corporation
meets all applicable capital standards.
The Director has the authority to require the Corporation to submit a report to the Director regarding any
capital distribution (including any dividend) declared by the Corporation before the Corporation makes the
distribution.
The foregoing discussion with respect to the payment of dividends is equally applicable to Freddie Mac's
redemption of the Preferred Stock and is based on Freddie Mac's 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, there can be no assurance that
the foregoing discussion will be consistent with OFHEO's interpretation in every respect. A more detailed
discussion of the regulatory oversight of Freddie Mac's capitalization and the terms used above appears under
""Regulation and Governmental Relationships Ì Regulation of Freddie Mac Ì OFHEO Oversight'' in the
Information Statement.
No Preemptive Rights and No Conversion
No holder of the Preferred Stock will 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. The holders of shares of Preferred Stock will 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.
No Voting Rights
Section 306(f) of the Freddie Mac Act prohibits the holders of Preferred Stock from voting with respect
to the election of any member of the Board of Directors. Except as set forth under ""Amendments'' below, the
holders of the Preferred Stock will not be entitled to vote.
Liquidation Rights
Upon any voluntary or involuntary dissolution, liquidation or winding up of Freddie Mac, after payment
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 Preferred Stock will be entitled to receive out of the assets of
Freddie Mac available for distribution to stockholders, before any payment or distribution is made on the
Common Stock (or any other junior stock), the amount of $50.00 per share plus an amount equal to the
dividend (calculated as provided in the CertiÑcate of Designation) for the then-current quarterly Dividend
Period accrued through and including the date of such liquidation payment. In the event of the dissolution,
13
liquidation or winding up of Freddie Mac, the rights of the Preferred Stock are on a parity with those of the
Existing Preferred Stock. If the assets of Freddie Mac available for distribution in such event are insuÇcient
to pay in full the aggregate amount payable to holders of the Preferred Stock, the Existing Preferred Stock and
any other class or series of stock ranking on a parity upon liquidation with the Preferred Stock and the Existing
Preferred Stock, the assets will be distributed to the holders of Preferred Stock, the Existing Preferred Stock
and such parity stock pro rata, based on the amounts to which they are entitled.
Notwithstanding the foregoing, holders of the Preferred Stock will not be entitled to be paid any amount
in respect of a dissolution, liquidation or winding up of Freddie Mac until holders of any classes or series of
stock of Freddie Mac ranking prior to the Preferred Stock upon liquidation have been paid all amounts to
which such classes or series are entitled.
A consolidation, merger or combination of Freddie Mac with or into any other corporation or entity, or
the sale of all or substantially all of the property or business of Freddie Mac, will not be deemed to be a
liquidation, dissolution or winding up of Freddie Mac for purposes of these provisions on liquidation rights.
Additional Classes or Series of Stock
Freddie Mac will have the right to create and issue additional classes or series of stock ranking prior to, on
a parity with or junior to the Preferred Stock, as to dividends, liquidation or otherwise, without the consent of
holders of the Preferred Stock.
Amendments
Without the consent of the holders of the Preferred Stock, Freddie Mac will have the right to amend,
alter, supplement or repeal any terms of the 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 such action does not materially and adversely aÅect the interests of the holders of the Preferred Stock.
Otherwise, the terms of the Preferred Stock may be amended, altered, supplemented or repealed only with the
consent of the holders of at least two-thirds of the outstanding shares of Preferred Stock. On matters requiring
their consent, holders of the Preferred Stock will be entitled to one vote per share.
NYSE Listing
Application has been made to list the Preferred Stock on the NYSE. Approval of such application will be
subject, among other things, to satisfactory distribution of the Preferred Stock.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Preferred Stock and payments thereon are generally subject to taxation by the United States and
other taxing jurisdictions to the same extent and in the same manner as stock of and payments thereon by 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.
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This discussion reÖects current federal income tax laws and regulations and administrative and judicial
interpretations thereof. Changes to any of these subsequent to the date of this OÅering Circular may aÅect the
tax consequences described herein.
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 ex-dividend with respect to the dividend. The length of time that a corporate
shareholder is deemed to 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.
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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.
LEGAL INVESTMENT CONSIDERATIONS
Section 106 of the Secondary Mortgage Market Enhancement Act of 1984 (""SMMEA'') provides that
any person, trust, corporation, partnership, association, business trust or business entity created pursuant to or
existing under the laws of the United States or any state (including the District of Columbia and Puerto Rico)
is authorized to purchase, hold and invest in securities issued or guaranteed by Freddie Mac (including the
shares of Preferred Stock) to the same extent that the investor is authorized to purchase, hold or invest in
obligations issued or guaranteed as to principal and interest by the United States or any agency or
instrumentality thereof. Prior to October 4, 1991, states were authorized by SMMEA to enact legislation
which speciÑcally referred to Û106 and either prohibited or limited an investor's authority to purchase, hold or
invest in securities issued or guaranteed by Freddie Mac. 15 U.S.C. Û77r-1. Certain states enacted such
legislation limiting to varying extents the ability of certain entities (in most cases, insurance companies) to
invest in securities issued or guaranteed by Freddie Mac, including the shares of Preferred Stock.
Notwithstanding the preceding paragraph, investors should consult their own legal
