$888,987,332. Guaranteed REMIC Pass-Through CertiÑcates Fannie Mae REMIC Trust

Transcription

1 Supplement (To Prospectus Supplement dated May 25, 2006) $888,987,332 Guaranteed REMIC Pass-Through CertiÑcates Fannie Mae REMIC Trust This is a supplement to the prospectus supplement dated May 25, 2006 (the ""Prospectus Supplement''). If we use a capitalized term in this supplement without deñning it, you will Ñnd the deñnition of that term in the Prospectus Supplement. Notwithstanding anything set forth on page S-7 or S-8 of the Prospectus Supplement, the applicable formulas or interest rates for the KF, KI, IX, SK and KS Classes that are described as being in eåect for the Ñrst 72 interest accrual periods, will only be in eåect for the Ñrst 71 interest accrual periods. Carefully consider the risk factors starting on page S-12 of the Prospectus Supplement and on page 10 of the REMIC Prospectus. Unless you understand and are able to tolerate these risks, you should not invest in the certiñcates. The certiñcates, together with any interest thereon, are not guaranteed by the United States and do not constitute a debt or obligation of the United States or any of its agencies or instrumentalities other than Fannie Mae. The certiñcates are exempt from registration under the Securities Act of 1933 and are ""exempted securities'' under the Securities Exchange Act of Merrill Lynch & Co. The date of this Supplement is June 28, 2006

2 Prospectus Supplement (To REMIC Prospectus dated May 1, 2002) $888,987,332 Guaranteed REMIC Pass-Through CertiÑcates Fannie Mae REMIC Trust The CertiÑcates Original Final Class Principal Interest Interest CUSIP Distribution We, the Federal National Mortgage Class Group Balance Type Rate Type Number Date Association (Fannie Mae), will issue the classes of certiñcates listed in the chart on this QO ÏÏÏÏÏ 1 $ 26,718,429 PAC (1) PO 31396KAA0 July 2036 page. PS ÏÏÏÏÏ 1 50,000,000(2) NTL (3) INV/IO 31396KAB8 July 2036 Payments to CertiÑcateholders PF ÏÏÏÏÏ 1 50,000,000 PAC (3) FLT 31396KAC6 July 2036 DS ÏÏÏÏÏ 1 85,310,571(2) NTL (3) INV/IO 31396KAD4 July 2036 We will make monthly payments on the KL(4) ÏÏ 1 13,085,000 SEG(TAC)/SCH/AD 6.0 FIX 31396KAE2 June 2036 certiñcates. You, the investor, will receive KM(4)ÏÏ 1 2,006,000 SEG(TAC)/SCH/AD 6.0 FIX 31396KAF9 July 2036 interest accrued on the balance of your KZ ÏÏÏÏÏ 1 3,271,000 SUP 6.0 FIX/Z 31396KAG7 July 2036 certiñcate (except in the case of the accrual KF ÏÏÏÏÏ 1 53,728,258 SEG(TAC)/SUP/AD (5) T 31396KAH5 July 2036 classes), and KO(4) ÏÏ 1 15,670,742 SEG(TAC)/SUP/AD (1) PO 31396KAJ1 July 2036 principal to the extent available for payment KI(4)ÏÏÏ 1 15,670,742(2) NTL (5) T/IO 31396KAK8 July 2036 on your class. HZ ÏÏÏÏÏ 1 210,000 SEG(TAC)/SUP/AD 6.0 FIX/Z 31396KAL6 July 2036 IX(4)ÏÏÏ 1 15,670,742(2) NTL (5) T/IO 31396KAM4 July 2036 We may pay principal at rates that vary from CF(4) ÏÏ 1 79,623,200 PAC (3) FLT 31396KAN2 July 2036 time to time. We may not pay principal to certain classes for long periods of time. MT(4) ÏÏ 1 5,687,371 PAC (5) T 31396KAP7 July 2036 The Fannie Mae Guaranty TA ÏÏÏÏÏ 2 82,112,834 PAC 5.5 FIX 31396KAQ5 January 2030 TD ÏÏÏÏÏ 2 23,589,748 PAC 5.5 FIX 31396KAR3 October 2032 We will guarantee that required payments of TE ÏÏÏÏÏ 2 27,723,217 PAC 5.5 FIX 31396KAS1 May 2035 principal and interest on the certiñcates are TH ÏÏÏÏÏ 2 14,880,906 PAC 5.5 FIX 31396KAT9 July 2036 distributed to investors on time. PK ÏÏÏÏÏ 2 7,490,522 PAC/AD 6.0 FIX 31396KAU6 July 2036 The Trust and its Assets PZ ÏÏÏÏÏ 2 1,000 PAC 6.0 FIX/Z 31396KAV4 July 2036 MN(4) 2 11,985,601 TAC/SUP/AD 6.0 FIX 31396KAW2 September 2018 The trust will own Fannie Mae MBS. ES(4) ÏÏ 2 11,985,602(2) NTL (3) INV/IO 31396KAX0 September 2018 The mortgage loans underlying the Fannie Mae EF(4) ÏÏ 2 11,985,602 TAC/SUP/AD (3) FLT 31396KAY8 September 2018 MBS are Ñrst lien, single-family, Ñxed-rate LZ ÏÏÏÏÏ 2 20,000,000 SUP 6.5 FIX/Z 31396KBA9 July 2036 loans. MOÏÏÏÏÏ 2 8,675,812 CPT(6) (1) PO 31396KAZ5 July 2036 If you own certiñcates of certain classes, you GA ÏÏÏÏÏ 3 146,494,000 SEQ 6.0 FIX 31396KBB7 January 2025 can exchange them for the corresponding RCR GD ÏÏÏÏÏ 3 25,851,340 SEQ 6.0 FIX 31396KBC5 July 2026 certiñcates to be issued at the time of the exchange. The KU, SK, KS, DF, LA, TC and HA ÏÏÏÏÏ 4 93,660,000 PAC 5.5 FIX 31396KBD3 February 2029 DP Classes are the RCR classes, as further HD ÏÏÏÏÏ 4 36,801,000 PAC 5.5 FIX 31396KBE1 September 2032 described in this prospectus supplement. HE ÏÏÏÏÏ 4 30,631,000 PAC 5.5 FIX 31396KBF8 February 2035 HG ÏÏÏÏÏ 4 22,403,313 PAC 5.5 FIX 31396KBG6 July 2036 Carefully consider the risk factors starting DA(4) ÏÏ 4 12,751,000 PAC 6.0 FIX 31396KBH4 February 2036 on page S-12 of this prospectus supplement DB(4) ÏÏ 4 7,272,675 PAC 6.0 FIX 31396KBJ0 July 2036 and on page 10 of the REMIC prospectus. CO ÏÏÏÏÏ 4 6,225,119 SUP (1) PO 31396KBK7 July 2036 Unless you understand and are able to SQ ÏÏÏÏÏ 4 4,500,000 NSJ/SUP (3) INV 31396KBL5 July 2036 tolerate these risks, you should not invest in FQ ÏÏÏÏÏ 4 27,000,000 NSJ/SUP (3) FLT 31396KBM3 July 2036 the certiñcates. ST(4)ÏÏÏ 4 2,421,807 NSJ/SUP (3) INV 31396KBN1 October 2035 You should read the REMIC prospectus as FT(4)ÏÏÏ 4 14,530,836 NSJ/SUP (3) FLT 31396KBP6 October 2035 well as this prospectus supplement. R ÏÏÏÏÏ 0 NPR 0 NPR 31396KBQ4 July 2036 The certiñcates, together with interest RL ÏÏÏÏÏ 0 NPR 0 NPR 31396KBR2 July 2036 thereon, are not guaranteed by the United States and do not constitute a debt or (1) Principal only classes. (4) Exchangeable classes. obligation of the United States or any agency (2) Notional balances. These classes are (5) These classes are toggle classes. See pages S-7 and or instrumentality thereof other than interest only classes. See page S-8 for a S-8 for a description of their interest rates. Fannie Mae. description of how their notional balances (6) This class consists of multiple payment components are calculated. as further described on page S-8. The certiñcates are exempt from registration (3) Based on LIBOR. under the Securities Act of 1933 and are ""exempted securities'' under the Securities Exchange Act of The dealer will oåer the certiñcates from time to time in negotiated transactions at varying prices. We expect the settlement date to be June 30, Merrill Lynch & Co. The date of this Prospectus Supplement is May 25, 2006

3 TABLE OF CONTENTS Page AVAILABLE INFORMATION ÏÏÏÏÏÏÏÏ S- 3 Group 3 Principal Distribution INCORPORATION BY REFERENCE S- 3 Amount ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-23 RECENT DEVELOPMENTS ÏÏÏÏÏÏÏÏÏ S- 4 Group 4 Principal Distribution Amount ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ REFERENCE SHEET ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S- 6 S-23 ADDITIONAL RISK FACTORS ÏÏÏÏÏÏ S-12 STRUCTURING ASSUMPTIONS ÏÏÏÏÏÏÏÏÏÏÏ S-25 DESCRIPTION OF THE Pricing Assumptions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-25 CERTIFICATESÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-13 Prepayment Assumptions ÏÏÏÏÏÏÏÏÏÏÏ S-25 GENERAL ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-14 Structuring Ranges and Rates ÏÏÏÏÏÏÏ S-25 Structure ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-14 Fannie Mae Guaranty ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-14 Initial EÅective Ranges ÏÏÏÏÏÏÏÏÏÏÏÏÏ S-26 Characteristics of CertiÑcates ÏÏÏÏÏÏÏÏ S-14 YIELD TABLES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-26 Authorized Denominations ÏÏÏÏÏÏÏÏÏÏ S-15 GeneralÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-26 Distribution Dates ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-15 The Inverse Floating Rate and Toggle Record Date ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-15 Classes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-27 Class FactorsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-15 The Principal Only Classes ÏÏÏÏÏÏÏÏÏÏ S-30 No Optional Termination ÏÏÏÏÏÏÏÏÏÏÏ S-15 WEIGHTED AVERAGE LIVES OF THE COMBINATION AND RECOMBINATION ÏÏÏÏ S-15 CERTIFICATES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-31 GeneralÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-15 DECREMENT TABLESÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-32 ProceduresÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-16 CHARACTERISTICS OF THE R AND Additional Considerations ÏÏÏÏÏÏÏÏÏÏÏ S-16 RL CLASSES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-39 THE MBS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-16 CERTAIN ADDITIONAL FEDERAL FINAL DATA STATEMENT ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-17 INCOME TAX CONSEQUENCES ÏÏ S-40 DISTRIBUTIONS OF INTEREST ÏÏÏÏÏÏÏÏÏÏ S-18 U.S. TREASURY CIRCULAR 230 NOTICE S-40 Categories of Classes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-18 REMIC ELECTIONS AND SPECIAL TAX GeneralÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-18 ATTRIBUTES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-40 Interest Accrual PeriodsÏÏÏÏÏÏÏÏÏÏÏÏÏ S-19 TAXATION OF BENEFICIAL OWNERS OF Accrual ClassesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-19 REGULAR CERTIFICATES ÏÏÏÏÏÏÏÏÏÏÏÏÏ S-41 Notional ClassesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-19 TAXATION OF BENEFICIAL OWNERS OF Floating Rate, Inverse Floating Rate RESIDUAL CERTIFICATES ÏÏÏÏÏÏÏÏÏÏÏÏ S-41 and Toggle ClassesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-19 TAXATION OF BENEFICIAL OWNERS OF CALCULATION OF LIBOR ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-19 RCR CERTIFICATES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-41 DISTRIBUTIONS OF PRINCIPAL ÏÏÏÏÏÏÏÏÏÏ S-20 GeneralÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-41 Categories of Classes and Components S-20 Combination RCR Classes ÏÏÏÏÏÏÏÏÏÏÏ S-42 ComponentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-20 Principal Distribution AmountÏÏÏÏÏÏÏ S-20 Exchanges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-42 Group 1 Principal Distribution Amount S-21 TAX RETURN DISCLOSURE REQUIREMENTS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ HZ Accrual Amount ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-21 S-42 KZ Accrual Amount ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-21 PLAN OF DISTRIBUTION ÏÏÏÏÏÏÏÏÏÏÏ S-42 Group 1 Cash Flow Distribution GeneralÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-42 Amount ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-21 Increase in CertiÑcates ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-42 Group 2 Principal Distribution Amount S-22 LEGAL MATTERS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-42 LZ Accrual AmountÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-22 PZ Accrual Amount ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-22 SCHEDULE 1 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ A- 1 Group 2 Cash Flow Distribution PRINCIPAL BALANCE Amount ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-22 SCHEDULESÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ B- 1 S-2 Page

4 AVAILABLE INFORMATION You should purchase the certiñcates only if you have read and understood this prospectus supplement and the following documents (the ""Disclosure Documents''): our Prospectus for Fannie Mae Guaranteed REMIC Pass-Through CertiÑcates dated May 1, 2002 (the ""REMIC Prospectus''); our Prospectus for Fannie Mae Guaranteed Mortgage Pass-Through CertiÑcates (Single- Family Residential Mortgage Loans) dated January 1, 2006 (the ""MBS Prospectus''); and any information incorporated by reference in this prospectus supplement as discussed below under the heading ""Incorporation by Reference.'' You can obtain copies of the Disclosure Documents by writing or calling us at: Fannie Mae MBS Helpline 3900 Wisconsin Avenue, N.W., Area 2H-3S Washington, D.C (telephone ). In addition, the Disclosure Documents, together with the class factors, are available on our corporate Web site at You also can obtain copies of the REMIC Prospectus and the MBS Prospectus by writing or calling the dealer at: Merrill Lynch, Pierce, Fenner and Smith Incorporated Prospectus Department 44B Colonial Drive Piscataway, New Jersey (telephone ). INCORPORATION BY REFERENCE In this prospectus supplement, we are incorporating by reference the MBS Prospectus described above. In addition, we are incorporating by reference the documents listed below. This means that we are disclosing information to you by referring you to these documents. These documents are considered part of this prospectus supplement, so you should read this prospectus supplement, and any applicable supplements or amendments, together with these documents. You should rely only on the information provided or incorporated by reference in this prospectus supplement, the REMIC Prospectus and the MBS Prospectus and any applicable supplements or amendments. We incorporate by reference the following documents we have Ñled, or may Ñle, with the Securities and Exchange Commission (""SEC''): our Annual Report on Form 10-K for the Ñscal year ended December 31, 2003 (""Form 10-K''); all other reports we have Ñled pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 since the end of the Ñscal year covered by the Form 10-K until the date of this prospectus supplement, excluding any information ""furnished'' to the SEC on Form 8-K; and all proxy statements that we Ñle with the SEC and all documents that we Ñle with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 subsequent to the date of this prospectus supplement and prior to the completion of the oåering of the certiñcates, excluding any information we ""furnish'' to the SEC on Form 8-K. S-3

5 Any information incorporated by reference in this prospectus supplement is deemed to be modiñed or superseded for purposes of this prospectus supplement to the extent information contained or incorporated by reference in this prospectus supplement modiñes or supersedes such information. In such case, the information will constitute a part of this prospectus supplement only as so modiñed or superseded. We Ñle annual, quarterly and current reports, proxy statements and other information with the SEC. You can obtain copies of the periodic reports we Ñle with the SEC without charge by calling or writing our OÇce of Investor Relations, Fannie Mae, 3900 Wisconsin Avenue, NW, Washington, DC 20016, telephone: (202) The periodic and current reports that we Ñle with the SEC are also available on our Web site. Information appearing on our Web site is not incorporated in this prospectus supplement except as speciñcally stated in this prospectus supplement. In addition, you may read our SEC Ñlings and other information about Fannie Mae at the oçces of the New York Stock Exchange, the Chicago Stock Exchange and the PaciÑc Exchange. Our SEC Ñlings are also available at the SEC's Web site at We are providing the address of the SEC's Web site solely for the information of prospective investors. Information appearing on the SEC's Web site is not incorporated in this prospectus supplement except as speciñcally stated in this prospectus supplement. RECENT DEVELOPMENTS Our safety and soundness regulator, the OÇce of Federal Housing Enterprise Oversight (""OFHEO''), announced in July 2003 that it was conducting a special examination of our accounting policies and practices, and in September 2004 issued a preliminary report of its Ñndings to date. OFHEO subsequently identiñed additional accounting and internal control issues in February 2005, and issued its Report of the Special Examination of Fannie Mae (the ""OFHEO Report'') on May 23, On December 22, 2004, we reported that the Audit Committee of our Board of Directors (the ""Board'') had determined that our previously Ñled interim and audited Ñnancial statements and the independent auditor's reports thereon for the period from January 2001 through the second quarter of 2004 should no longer be relied upon because such Ñnancial statements were prepared using accounting principles that did not comply with U.S. generally accepted accounting principles (""GAAP''). We have subsequently initiated an extensive restatement and re-audit of our Ñnancial statements with our new independent auditor, Deloitte & Touche LLP. We anticipate that the impact of the restatement will be material to Fannie Mae's Ñnancial statements for many, if not all, of the periods involved. Our Board and management have initiated numerous internal and external reviews of our accounting processes and controls, our Ñnancial reporting processes, and our application of GAAP. See ""Risk FactorsÌThere are numerous ongoing internal reviews and external investigations of Fannie Mae'' in the MBS Prospectus. One of these external investigations was conducted by the law Ñrm of Paul, Weiss, Rifkind, Wharton & Garrison LLP (""Paul Weiss''), under the direction of former U.S. Senator Warren Rudman. On February 23, 2006, the Paul Weiss report to the Special Committee of the Board was publicly released, and included numerous Ñndings about Fannie Mae's accounting policies, practices and systems, compensation practices, corporate governance, and internal controls. On February 24, 2006, we Ñled a Form 8-K with the U.S. Securities and Exchange Commission (the ""SEC'') that includes the Paul Weiss report. The OFHEO Report presents OFHEO's Ñndings about Fannie Mae's corporate culture, executive compensation programs, accounting policies and internal controls, internal and external auditors, senior management, and the Board. In conjunction with the release of the OFHEO Report, Fannie Mae entered into settlement agreements with both OFHEO and the SEC on May 23, The settlement agreements require Fannie Mae to pay civil penalties totaling $400 million. In addition, the S-4

6 settlement agreement with OFHEO requires Fannie Mae to undertake certain remedial actions within a speciñed time frame to address the recommendations contained in the OFHEO Report, including an undertaking by Fannie Mae not to increase its ""mortgage portfolio'' assets except as permitted by a plan to be submitted by Fannie Mae for approval by OFHEO. The settlement agreements constitute comprehensive settlements between Fannie Mae and both OFHEO and the SEC relating to the activities of Fannie Mae during the time period in question. Investigations into our accounting policies and practices and our Ñnancial reporting continue with the U.S. Attorney's OÇce for the District of Columbia. Please refer to our Form 8-K Ñled with the SEC on May 30, 2006 for further information about the OFHEO Report and the settlement agreements. A complete copy of the OFHEO Report is available on OFHEO's website at We have not Ñled Quarterly Reports on Form 10-Q for the third quarter of 2004, the Ñrst, second and third quarters of 2005, or the Ñrst quarter of 2006, nor have we Ñled our Annual Reports on Form 10-K for the years ended December 31, 2004 or December 31, As we most recently reported in the Current Report on Form 8-K Ñled with the SEC on June 15, 2006, we currently estimate that we will complete our Ñnancial restatement by the end of See ""Risk FactorsÌThere is a lack of Ñnancial information about us available in the market'' in the MBS Prospectus. Forms 8-K that we Ñle with the SEC prior to the completion of the oåering of the certiñcates are incorporated by reference in this prospectus supplement. This means that we are disclosing information to you by referring you to those documents. You should refer to ""Incorporation by Reference'' above for further details on the information that we incorporate by reference in this prospectus supplement and where to Ñnd it. S-5

7 REFERENCE SHEET This reference sheet is not a summary of the transaction and does not contain complete information about the certiñcates. You should purchase the certiñcates only after reading this prospectus supplement and each of the additional disclosure documents listed on page S-3. Assets Underlying Each Group of Classes Group Assets 1 Group 1 MBS 2 Group 2 MBS 3 Group 3 MBS 4 Group 4 MBS Assumed Characteristics of the Mortgage Loans Underlying the MBS (as of June 1, 2006) Approximate Approximate Original Weighted Average Weighted Approximate Approximate Term to Remaining Term Average Weighted Principal Maturity to Maturity Loan Age Average Balance (in months) (in months) (in months) Coupon Group 1 MBS $250,000, % Group 2 MBS $208,445, % Group 3 MBS $172,345, % Group 4 MBS $258,196, % The actual remaining terms to maturity, weighted average loan ages and interest rates of most of the mortgage loans will diåer from the weighted averages shown above, perhaps signiñcantly. Class Factors The class factors are numbers that, when multiplied by the initial principal balance of a certiñcate, can be used to calculate the current principal balance of that certiñcate (after taking into account principal payments in the same month). We publish the class factors on or shortly after the 11th day of each month. Settlement Date We expect to issue the certiñcates on June 30, Distribution Dates We will make payments on the certiñcates on the 25th day of each calendar month, or on the next business day if the 25th day is not a business day. Book-Entry and Physical CertiÑcates We will issue the book-entry certiñcates through the U.S. Federal Reserve Banks, which will electronically track ownership of the certiñcates and payments on them. We will issue physical certiñcates in registered, certiñcated form. We will issue the classes of certiñcates in the following forms: Fed Book-Entry All classes of certiñcates other than the R and RL Classes Physical R and RL Classes S-6

8 Exchanging CertiÑcates Through Combination and Recombination If you own certain certiñcates, you will be able to exchange them for a proportionate interest in the related RCR certiñcates as shown on Schedule 1. We will issue the RCR certiñcates upon such exchange. You can exchange your certiñcates by notifying us and paying an exchange fee. We use the principal and interest of the certiñcates exchanged to pay principal and interest on the related RCR certiñcates. Schedule 1 lists the available combinations of the certiñcates eligible for exchange and the related RCR certiñcates. Interest Rates During each interest accrual period, the Ñxed rate classes will bear interest at the applicable annual interest rates listed on the cover of this prospectus supplement or on Schedule 1. During the initial interest accrual period, the Öoating rate, inverse Öoating rate and toggle classes will bear interest at the initial interest rates listed below. During subsequent interest accrual periods, the Öoating rate, inverse Öoating rate and toggle classes will bear interest based on the formulas indicated below, but always subject to the speciñed maximum and minimum interest rates: Initial Maximum Minimum Formula for Interest Interest Interest Calculation of Class Rate Rate Rate Interest Rate(1) PS ÏÏÏÏÏÏÏÏÏÏ % % % 7.22% LIBOR PF ÏÏÏÏÏÏÏÏÏÏ % % % LIBOR 28 basis points DS ÏÏÏÏÏÏÏÏÏÏ % % % 6.65% LIBOR KF ÏÏÏÏÏÏÏÏÏÏ % % % (2) KI ÏÏÏÏÏÏÏÏÏÏ % % % (3) IX ÏÏÏÏÏÏÏÏÏÏ % % % (4) CF ÏÏÏÏÏÏÏÏÏÏ % % % LIBOR 25 basis points MT ÏÏÏÏÏÏÏÏÏÏ % % % (5) ES ÏÏÏÏÏÏÏÏÏÏ % % % 6.68% LIBOR EF ÏÏÏÏÏÏÏÏÏÏ % % % LIBOR 32 basis points SQ ÏÏÏÏÏÏÏÏÏÏ % % % 37.2% (6 x LIBOR) FQ ÏÏÏÏÏÏÏÏÏÏ % % % LIBOR 80 basis points ST ÏÏÏÏÏÏÏÏÏÏ % % % % ( x LIBOR) FT ÏÏÏÏÏÏÏÏÏÏ % % % LIBOR 50 basis points DF ÏÏÏÏÏÏÏÏÏÏ % % % LIBOR 35 basis points SK ÏÏÏÏÏÏÏÏÏÏ % % % (6) KS ÏÏÏÏÏÏÏÏÏÏ % % % (7) (1) We will establish LIBOR on the basis of the ""BBA Method.'' (2) For the Ñrst 72 interest accrual periods, the applicable formula for the KF Class will be LIBOR 148 basis points. For each interest accrual period thereafter, the applicable interest rate for the KF Class will be determined as follows: If LIBOR is: Applicable Formula or Rate Less than 7.00% LIBOR 148 basis points Greater than or equal to 7.00% 0.10% (3) For the Ñrst 72 interest accrual periods, the applicable formula for the KI Class will be % ( LIBOR). For each interest accrual period thereafter, the applicable interest rate for the KI Class will be determined as follows: If LIBOR is: Applicable Formula or Rate Less than 7.00% % ( LIBOR) Greater than or equal to 7.00% 0.00% S-7

9 (4) For the Ñrst 72 interest accrual periods, the applicable interest rate for the IX Class will be 0.0%. For each interest accrual period thereafter, the applicable interest rate for the IX Class will be determined as follows: If LIBOR is: Applicable Rate Less than 7.00% 0.00% Greater than or equal to 7.00% % (5) The applicable interest rate for the MT Class during each interest accrual period will be determined as follows: If LIBOR is: Less than or equal to 6.65% Greater than 6.65% Applicable Formula LIBOR 175 basis points 101.5% (14 LIBOR) (6) For the Ñrst 72 interest accrual periods, the applicable formula for the SK Class will be % ( LIBOR). For each interest accrual period thereafter, the applicable interest rate for the SK Class will be determined as follows: If LIBOR is: Applicable Formula or Rate Less than 7.00% % ( LIBOR) Greater than or equal to 7.00% 0.00% (7) For the Ñrst 72 interest accrual periods, the applicable formula for the KS Class will be % ( LIBOR). For each interest accrual period thereafter, the applicable interest rate for the KS Class will be determined as follows: If LIBOR is: Applicable Formula or Rate Less than 7.00% % ( LIBOR) Greater than or equal to 7.00% % We will apply interest payments from exchanged REMIC certiñcates to the corresponding RCR certiñcates, on a pro rata basis, following any exchange. Notional Classes A notional class will not receive any principal. Its notional principal balance is the balance used to calculate accrued interest. The notional principal balances will equal the percentages of the outstanding balances speciñed below immediately before the related distribution date: Components Class PS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 100% of the PF Class DS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 100% of the sum of the CF and MT Classes KI ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 100% of the KO Class IX ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 100% of the KO Class ES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 100% of the EF Class The MO Class is made up of multiple payment components. Each component will have the original principal balance, principal type and interest type as set forth below. Original Principal Balance Principal Type Interest Type MO1 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $5,011,545 SUP PO MO2 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $3,664,267 SUP PO S-8

10 Distributions of Principal Group 1 Principal Distribution Amount HZ Accrual Amount To the KF and KO Classes, pro rata, to zero, and thereafter to the HZ Class. KZ Accrual Amount To Aggregate Group III to its Targeted Balance, and thereafter to the KZ Class. Group 1 Cash Flow Distribution Amount 1. To Aggregate Group II to its Planned Balance. 2. To Aggregate Group III to its Targeted Balance. 3. To the KZ Class to zero. 4. To Aggregate Group III to zero. 5. To Aggregate Group II to zero. For a description of Aggregate Groups II and III, see ""Description of the CertiÑcatesÌ Distributions of PrincipalÌGroup 1 Principal Distribution Amount'' in this prospectus supplement. Group 2 Principal Distribution Amount LZ Accrual Amount To Aggregate Group V to zero, and thereafter to the LZ Class. PZ Accrual Amount To the PK Class to zero, and thereafter to the PZ Class. Group 2 Cash Flow Distribution Amount 1. To Aggregate Group IV to its Planned Balance. 2. (a) % of the remaining amount to the MO1 Component to zero, and (b) % of such remaining amount as follows: Ñrst, to Aggregate Group VI to its Planned Balance; second, (x) % to the MO2 Component to zero, and (y) % as follows: Ñrst, to Aggregate Group V to its Targeted Balance; and second, to the LZ Class and Aggregate Group V, in proportion to their then current principal balances, to zero; and third, to Aggregate Group VI to zero; and 3. To Aggregate Group IV to zero. For a description of Aggregate Groups IV, V and VI, see ""Description of the CertiÑcatesÌ Distributions of PrincipalÌGroup 2 Principal Distribution Amount'' in this prospectus supplement. S-9

11 Group 3 Principal Distribution Amount To the GA and GD Classes, in that order, to zero. Group 4 Principal Distribution Amount 1. To Aggregate Group VIII to its Planned Balance. 2. (a) % of the remaining amount to the CO Class to zero, and (b) % of such remaining amount as follows: Ñrst, to Aggregate Group VII to its Planned Balance; second, if and only if the Group 4 MBS is less than the Group 4 MBS SpeciÑed Balance: Ñrst, to the FQ and SQ Classes, pro rata, to zero; and second, to the FT and ST Classes, pro rata, to zero; and third, (x) 98% to the FT and ST Classes, pro rata, to zero, and (y) 2% to the FQ and SQ Classes, pro rata, to zero; fourth, to the FT and ST Classes, pro rata, to zero; Ñfth, to the FQ and SQ Classes, pro rata, to zero; and sixth, to Aggregate Group VII to zero. 3. To Aggregate Group VIII to zero. For a description of Aggregate Group VII and Aggregate Group VIII, see ""Description of the CertiÑcatesÌDistributions of PrincipalÌGroup 4 Principal Distribution Amount'' in this prospectus supplement. We will apply principal payments from exchanged REMIC certiñcates to the corresponding RCR certiñcates, on a pro rata basis, following any exchange. Weighted Average Lives (years)* PSA Prepayment Assumption Group 1 Classes 0% 100% 115% 201% 285% 300% 500% QO, PS, PF, DS, CF, MT and DF KL ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ KM ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ KZ ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ KF, KO, KI, IX, SK and KS ÏÏÏÏÏÏ HZ ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ KU ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ PSA Prepayment Assumption Group 2 Classes 0% 100% 115% 200% 249% 250% 500% TA ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ TD ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ TE ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ TH ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ PK ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ PZ ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ MN, ES, EF and LAÏÏÏÏÏÏÏÏÏÏÏÏÏÏ LZ ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ MO ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-10

12 PSA Prepayment Assumption Group 3 Classes 0% 100% 220% 350% 500% GA ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ GD ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ PSA Prepayment Assumption Class 0% 100% 110% 165% 200% 250% 340% 341% 500% HA ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ HD ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ HE ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ HG ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ DA ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ DB ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ CO ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ SQ and FQ ÏÏÏÏÏÏÏÏ ST, FT and TC ÏÏÏÏ DP ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ * Determined as speciñed under ""Description of the CertiÑcatesÌWeighted Average Lives of the CertiÑcates'' in this prospectus supplement. S-11

13 ADDITIONAL RISK FACTORS The rate of principal payments on the cer- principal of the certiñcates backed by those tiñcates will be aåected by the rate of principal mortgage loans. Additionally, casualty losses on payments on the underlying mortgage loans. mortgage properties with hurricane or Öood The rate at which you receive principal pay- damage may result in early payment of principal ments on the certiñcates will be sensitive to the of the related certiñcates. rate of principal payments on the mortgage loans underlying the related MBS, including You must make your own decisions prepayments. Because borrowers generally may about the various applicable assumptions, prepay their mortgage loans at any time without including prepayment assumptions, when penalty, the rate of principal payments on the deciding whether to purchase the mortgage loans is likely to vary over time. It is certiñcates. highly unlikely that the mortgage loans will Weighted average lives of the non-sticky prepay jump classes are especially sensitive to prepayments at any of the prepayment rates we asaverage under certain scenarios. The weighted sumed in this prospectus supplement, or lives of the non-sticky jump classes are especially sensitive to the rate of principal pay- at any constant prepayment rate until ments, including prepayments, of the related maturity. mortgage loans. This sensitivity to prepayments Yields may be lower than expected due to is not necessarily proportional to the changes in unexpected rate of principal payments. The acchanges prepayment rates. In some scenarios, small tual yield on your certiñcates probably will be in prepayment rates of the related lower than you expect: mortgage loans may have a dramatic eåect on the weighted average lives of the non-sticky if you buy your certiñcates at a premium jump classes. For an illustration of the sensitivand principal payments are faster than ity, see the related decrement tables for these you expect, or classes in this prospectus supplement. if you buy your certiñcates at a discount Any change in principal priority of the nonand principal payments are slower than sticky jump classes may remain in eåect for an you expect. extended period. Once a change in principal Furthermore, in the case of interest only priority of the non-sticky jump classes occurs, certiñcates and certiñcates purchased at a pre- under many prepayment scenarios the new paymium, you could lose money on your investment ment priority may continue in eåect for subseif prepayments occur at a rapid rate. quent periods. Moreover, it is possible that under various prepayment scenarios the change Recent hurricanes in the Gulf Coast region in payment priority of the non-sticky jump clasmay present risk of increased mortgage loan ses will remain in eåect indeñnitely. prepayments. In August and September 2005, Hurricane Katrina and Hurricane Rita and re- Weighted average lives and yields on the lated events caused catastrophic damage to ex- certiñcates are aåected by actual characteristics tensive areas along the Gulf Coast of the United of the underlying mortgage loans. We have as- States, including portions of coastal and inland sumed that the mortgage loans underlying the Alabama, Florida, Louisiana, Mississippi, and MBS have certain characteristics. However, the Texas. Hundreds of thousands of people have actual mortgage loans probably will have diåerbeen displaced and interruptions in the regional ent characteristics from those we assumed. As a economy have been signiñcant. Although the result, your yields could be lower than you exlong-term eåects are unclear, these events could pect, even if the mortgage loans prepay at the lead to a general economic downturn in the Gulf indicated constant prepayment rates. In addi- Coast region, including job losses and declines in tion, slight diåerences between the assumed real estate values. Accordingly, defaults on any mortgage loan characteristics and the actual mortgage loans in the aåected areas may in- mortgage loans could aåect the weighted avercrease, in turn resulting in early payments of age lives of the classes of certiñcates. S-12

14 Level of Öoating rate index aåects yields on certain certiñcates. The yield on any Öoating rate, inverse Öoating rate or toggle certiñcate will be aåected by the level of its interest rate index. If the level of the index diåers from the level you expect, then your actual yield may be lower than you expect. Slight changes in LIBOR may signiñcantly aåect the interest rates of toggle classes. Toggle classes may be extremely sensitive to certain changes in monthly LIBOR values. In particular, they may experience dramatic declines in their interest rates and yields as a result of certain changes in LIBOR, even if those changes are slight. For an illustration of this sensitivity, see the related yield tables in this prospectus supplement. In addition, in the case of the IX Class, the interest rate for the first 72 months following the settlement date will be 0%. Reinvestment of certiñcate payments may not achieve same yields as certiñcates. The rate of principal payments of the certiñcates is uncertain. You may be unable to reinvest the payments on the certiñcates at the same yields provided by the certiñcates. Unpredictable timing of last payment affects yields on certiñcates. The actual Ñnal payment of your class is likely to occur earlier, and could occur much earlier, than the Ñnal distribu- tion date listed on the cover page of this prospectus supplement. If you assume that the actual Ñnal payment will occur on the Ñnal distribution date speciñed, your yield could be lower than you expect. Some investors may be unable to buy certain classes. Investors whose investment activities are subject to legal investment laws and regulations, or to review by regulatory authori- Delay classes have lower yields and market values. Since certain classes do not receive interest immediately following each interest accrual period, those classes have lower yields and lower market values than they would if there were no such delay. ties, may be unable to buy certain certiñcates. You should obtain legal advice to determine whether you may purchase the certiñcates. Uncertain market for the certiñcates could make them diçcult to sell and cause their values to Öuctuate. We cannot be sure that a market for resale of the certiñcates will develop. Further, if a market develops, it may not continue or be suçciently liquid to allow you to sell your certif- icates. Even if you are able to sell your certiñ- cates, the sale price may not be comparable to similar investments that have a developed mar- ket. Moreover, you may not be able to sell small or large amounts of certiñcates at prices compa- rable to those available to other investors. You should purchase certiñcates only if you under- stand and can tolerate the risk that the value of your certiñcates will vary over time and that your certiñcates may not be easily sold. Terrorist activities and related military and political actions by the U.S. government could cause reductions in investor conñdence and sub- stantial market volatility in real estate and secu- rities markets. It is impossible to predict the extent to which terrorist activities may occur or, if they do occur, the extent of the eåect on the certiñcates. Moreover, it is uncertain what ef- fects any past or future terrorist activities or any related military or political actions on the part of the United States government and others will have on the United States and world Ñnancial markets, local, regional and national economies, real estate markets across the United States, or particular business sectors, including those affecting the performance of mortgage loan bor- rowers. Among other things, reduced investor conñdence could result in substantial volatility in securities markets and a decline in real estate- related investments. In addition, defaults on the mortgage loans could increase, causing early payments of principal to you and, regardless of the performance of the underlying mortgage loans, the liquidity and market value of the certiñcates may be impaired. DESCRIPTION OF THE CERTIFICATES The material under this heading summarizes certain features of the CertiÑcates. You will Ñnd additional information about the CertiÑcates in the other sections of this prospectus supplement, as well as in the additional Disclosure Documents and the Trust Agreement. If we use a capitalized term S-13

15 in this prospectus supplement without deñning it, you will Ñnd the deñnition of that term in the applicable Disclosure Document or in the Trust Agreement. General Structure. We will create the Fannie Mae REMIC Trust speciñed on the cover of this prospectus supplement (the ""Trust'') and a separate trust (the ""Lower Tier REMIC'') pursuant to a trust agreement dated as of June 1, 2006 (the ""Issue Date''). We will issue the Guaranteed REMIC Pass-Through CertiÑcates (the ""REMIC CertiÑcates'') pursuant to that trust agreement. We will issue the Combinable and Recombinable REMIC CertiÑcates (the ""RCR CertiÑcates'' and, together with the REMIC CertiÑcates, the ""CertiÑcates'') pursuant to a separate trust agreement dated as of the Issue Date (together with the trust agreement relating to the REMIC CertiÑcates, the ""Trust Agreement''). We will execute the Trust Agreement in our corporate capacity and as trustee (the ""Trustee''). In general, the term ""Classes'' includes the Classes of REMIC CertiÑcates and RCR CertiÑcates. The Trust and the Lower Tier REMIC each will constitute a ""real estate mortgage investment conduit'' (""REMIC'') under the Internal Revenue Code of 1986, as amended (the ""Code''). The REMIC CertiÑcates (except the R and RL Classes) will be ""regular interests'' in the Trust. The R Class will be the ""residual interest'' in the Trust. The interests in the Lower Tier REMIC other than the RL Class (the ""Lower Tier Regular Interests'') will be the ""regular interests'' in the Lower Tier REMIC. The RL Class will be the ""residual interest'' in the Lower Tier REMIC. The assets of the Trust will consist of the Lower Tier Regular Interests. The assets of the Lower Tier REMIC will consist of four groups of Fannie Mae Guaranteed Mortgage Pass-Through CertiÑcates (the ""Group 1 MBS,'' ""Group 2 MBS,'' ""Group 3 MBS'' and ""Group 4 MBS,'' and together, the ""MBS''). Each MBS represents a beneñcial ownership interest in a pool of Ñrst lien, one- to four-family (""single-family''), Ñxed-rate residential mortgage loans (the ""Mortgage Loans'') having the characteristics described in this prospectus supplement. Fannie Mae Guaranty. We guarantee that we will distribute to CertiÑcateholders: required installments of principal and interest on the CertiÑcates on time, and the principal balance of each Class of CertiÑcates no later than its Final Distribution Date, whether or not we have received suçcient payments on the MBS. In addition, we guarantee that we will distribute to each holder of an MBS: scheduled installments of principal and interest on the underlying Mortgage Loans on time, whether or not the related borrowers pay us, and the full principal balance of any foreclosed Mortgage Loan, whether or not we recover it. Our guarantees are not backed by the full faith and credit of the United States. See ""Description of CertiÑcatesÌThe Fannie Mae Guaranty'' in the REMIC Prospectus and ""Description of the CertiÑcatesÌFannie Mae Guaranty'' in the MBS Prospectus. Characteristics of CertiÑcates. We will issue the CertiÑcates (except the R and RL Classes) in book-entry form on the book-entry system of the U.S. Federal Reserve Banks. Entities whose names appear on the book-entry records of a Federal Reserve Bank as having had CertiÑcates deposited in their accounts are ""Holders'' or ""CertiÑcateholders.'' A Holder is not necessarily the beneñcial owner S-14

16 of a CertiÑcate. BeneÑcial owners ordinarily will hold CertiÑcates through one or more Ñnancial intermediaries, such as banks, brokerage Ñrms and securities clearing organizations. See ""Description of CertiÑcatesÌDenominations and Form'' in the REMIC Prospectus. We will issue the R and RL CertiÑcates in fully registered, certiñcated form. The ""Holder'' or ""CertiÑcateholder'' of the R or RL CertiÑcate is its registered owner. The R or RL CertiÑcate can be transferred at the corporate trust oçce of the Transfer Agent, or at the oçce of the Transfer Agent in New York, New York. U.S. Bank National Association (""US Bank'') in Boston, Massachusetts will be the initial Transfer Agent. We may impose a service charge for any registration of transfer of the R or RL CertiÑcate and may require payment to cover any tax or other governmental charge. See also ""ÌCharacteristics of the R and RL Classes'' below. The Holder of the R Class will receive the proceeds of any remaining assets of the Trust, and the Holder of the RL Class will receive the proceeds of any remaining assets of the Lower Tier REMIC, in each case only by presenting and surrendering the related CertiÑcate at the oçce of the Paying Agent. US Bank will be the initial Paying Agent. Authorized Denominations. We will issue the CertiÑcates in the following denominations: Classes The Non-Sticky Jump Classes The Interest Only, Principal Only, Inverse Floating Rate and Toggle Classes All other Classes (except the R and RL Classes) Denomination $1,000,000 minimum plus whole dollar increments $100,000 minimum plus whole dollar increments $1,000 minimum plus whole dollar increments We will issue the R and RL Classes as single CertiÑcates with no principal balances. Distribution Dates. We will make monthly payments on the CertiÑcates on the 25th day of each month (or, if the 25th is not a business day, on the Ñrst business day after the 25th). We refer to each of these dates as a ""Distribution Date.'' We will make the Ñrst payments to CertiÑcateholders the month after we issue the CertiÑcates. Record Date. On each Distribution Date, we will make each monthly payment on the CertiÑcates to Holders of record on the last day of the preceding month. Class Factors. On or shortly after the eleventh calendar day of each month, we will publish a factor (carried to eight decimal places) for each Class of CertiÑcates (and each related Component). When the applicable class factor is multiplied by the original principal balance (or notional principal balance) of a CertiÑcate of any Class, the product will equal the current principal balance (or notional principal balance) of that CertiÑcate after taking into account payments on the Distribution Date in the same month (as well as any addition to principal in the case of the Accrual Classes). Similarly, when the applicable class factor for a Component is multiplied by the original principal balance of that Component, the product will equal the current principal balance of that Component after taking into account payments on the Distribution Date in the same month. No Optional Termination. We have no option to eåect an early termination of the Lower Tier REMIC or the Trust. Further, we will not repurchase the Mortgage Loans underlying any MBS in a ""clean-up call.'' See ""Description of the CertiÑcatesÌTermination'' in the MBS Prospectus. Combination and Recombination General. You are permitted to exchange all or a portion of the KL, KM, KO, KI, IX, CF, MT, MN, ES, EF, DA, DB, ST and FT Classes of REMIC CertiÑcates for a proportionate interest in the related RCR CertiÑcates in the combinations shown on Schedule 1. You also may exchange all or a S-15

17 portion of the RCR CertiÑcates for the related REMIC CertiÑcates in the same manner. This process may occur repeatedly. Holders of RCR CertiÑcates will be the beneñcial owners of a proportionate interest in the related REMIC CertiÑcates and will receive a proportionate share of the distributions on the related REMIC CertiÑcates. The Classes of REMIC CertiÑcates and RCR CertiÑcates that are outstanding at any given time, and the outstanding principal balances (or notional principal balances) of these Classes, will depend upon any related distributions of principal, as well as any exchanges that occur. REMIC CertiÑcates and RCR CertiÑcates may be exchanged only in the proportions shown on Schedule 1. Procedures. If a CertiÑcateholder wishes to exchange CertiÑcates, the CertiÑcateholder must notify our Structured Transactions Department through one of our ""REMIC Dealer Group'' dealers in writing or by telefax no later than two business days before the proposed exchange date. The exchange date can be any business day other than the Ñrst or last business day of the month subject to our approval. The notice must include the outstanding principal balance of both the CertiÑcates to be exchanged and the CertiÑcates to be received, and the proposed exchange date. After receiving the Holder's notice, we will telephone the dealer with delivery and wire payment instructions. Notice becomes irrevocable on the second business day before the proposed exchange date. In connection with each exchange, the Holder must pay us a fee equal to 1/32 of 1% of the outstanding principal balance (exclusive of any notional principal balance) of the CertiÑcates to be exchanged. In no event, however, will our fee be less than $2,000. We will make the Ñrst distribution on a REMIC CertiÑcate or an RCR CertiÑcate received in an exchange transaction on the Distribution Date in the following month. We will make that distribution to the Holder of record as of the close of business on the last day of the month of the exchange. Additional Considerations. The characteristics of RCR CertiÑcates will reöect the characteristics of the REMIC CertiÑcates used to form those RCR CertiÑcates. You should also consider a number of factors that will limit a CertiÑcateholder's ability to exchange REMIC CertiÑcates for RCR CertiÑcates or vice versa: At the time of the proposed exchange, a CertiÑcateholder must own CertiÑcates of the related Class or Classes in the proportions necessary to make the desired exchange. A CertiÑcateholder that does not own the CertiÑcates may be unable to obtain the necessary REMIC CertiÑcates or RCR CertiÑcates. If, as a result of a proposed exchange, a CertiÑcateholder would hold a REMIC CertiÑcate or RCR CertiÑcate of a Class in an amount less than the applicable minimum denomination for that Class, the CertiÑcateholder will be unable to eåect the proposed exchange. The CertiÑcateholder of needed CertiÑcates may refuse to sell them at a reasonable price (or any price) or may be unable to sell them. Certain CertiÑcates may have been purchased and placed into other Ñnancial structures and thus be unavailable. Principal distributions will decrease the amounts available for exchange over time. Only the combinations listed on Schedule 1 are permitted. The MBS The following table contains certain information about the MBS. The MBS included in each speciñed Group will have the aggregate unpaid principal balance and Pass-Through Rate shown below and the general characteristics described in the MBS Prospectus. The MBS provide that principal and interest on the related Mortgage Loans are passed through monthly. The Mortgage Loans underlying S-16