Prospectus Supplement (To SMBS Prospectus dated January 1, 2009) Guaranteed Stripped Mortgage-Backed Securities Trust Number 397 The SMBS Certificates We, the Federal National Mortgage Asso- ciation (Fannie Mae), will issue the classes of SMBS certificates listed on this cover. Payments to Certificateholders We will make monthly payments on the SMBS certificates. You, the investor, will receive • interest accrued on the balance of your SMBS certificate, and • principal to the extent available for pay- ment on your class. The Fannie Mae Guaranty We will guarantee that required payments of principal and interest on the SMBS certificates are available for distribution to investors on time. The Trust and Its Assets The trust will own Fannie Mae MBS. The mortgage loans underlying the Fannie Mae MBS are first lien, single-family, fixed-rate loans. Class Original Principal or Notional Principal Balance Principal Type(1) Annual Pass-Through Rate Interest Type(1) CUSIP Number 1 $4,000,000,000 PT 0.0% PO 3136FGRR0 2 4,000,000,000(2) NTL 5.0 FIX/IO 3136FGRS8 (1) See “CLASS DEFINITIONS AND ABBREVIATIONS” in Exhibit A to the SMBS prospectus. (2) Notional balance. This is an interest only class. If you own SMBS certificates of the classes listed above, you can exchange them for SMBS certificates of the classes listed in the table that begins on the following page or for a proportionate share of Mega certificate 190397. For further information on exchanges, see “DESCRIPTION OF THE SMBS CERTIFICATES— Exchanges” in this prospectus supplement and “DESCRIPTION OF THE SMBS CERTIFICATES—Exchange of Certificates” in the SMBS prospectus. The dealers named below will offer the SMBS certificates from time to time in negotiated transactions at varying prices. We expect the settlement date to be August 28, 2009. Carefully consider the risk factors beginning on page 9 of the SMBS prospectus. Unless you understand and are able to tolerate these risks, you should not invest in the SMBS certificates. You should read the SMBS prospectus as well as this prospectus supplement. The SMBS certificates, 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 SMBS certificates are exempt from registration under the Securities Act of 1933 and are “exempted securities” under the Securities Exchange Act of 1934. Goldman, Sachs & Co. Credit Suisse Citi Deutsche Bank Securities Barclays Capital JP Morgan BofA Merrill Lynch RBS Securities The date of this Prospectus Supplement is August 24, 2009.
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Prospectus Supplement(To SMBS Prospectus dated January 1, 2009)
Guaranteed Stripped Mortgage-Backed SecuritiesTrust Number 397
The SMBS Certificates
We, the Federal National Mortgage Asso-ciation (Fannie Mae), will issue theclasses of SMBS certificates listed on thiscover.
Payments to Certificateholders
We will make monthly payments on theSMBS certificates. You, the investor, willreceive
• interest accrued on the balance of yourSMBS certificate, and
• principal to the extent available for pay-ment on your class.
The Fannie Mae Guaranty
We will guarantee that required paymentsof principal and interest on the SMBScertificates are available for distributionto investors on time.
The Trust and Its Assets
The trust will own Fannie Mae MBS.The mortgage loans underlying the FannieMae MBS are first lien, single-family,fixed-rate loans.
(1) See “CLASS DEFINITIONS AND ABBREVIATIONS” in Exhibit A to the SMBS prospectus.(2) Notional balance. This is an interest only class.
If you own SMBS certificates of the classes listed above, you can exchange them forSMBS certificates of the classes listed in the table that begins on the following pageor for a proportionate share of Mega certificate 190397. For further information onexchanges, see “DESCRIPTION OF THE SMBS CERTIFICATES—Exchanges” in this prospectus supplement and “DESCRIPTION OF THE SMBSCERTIFICATES—Exchange of Certificates” in the SMBS prospectus.
The dealers named below will offer the SMBS certificates from time to time innegotiated transactions at varying prices. We expect the settlement date to beAugust 28, 2009.
Carefully consider the risk factors beginning on page 9 of the SMBS prospectus. Unless you understand and are able totolerate these risks, you should not invest in the SMBS certificates.
You should read the SMBS prospectus as well as this prospectus supplement.
The SMBS certificates, together with any interest thereon, are not guaranteed by the United States and do not constitute a debt orobligation of the United States or any of its agencies or instrumentalities other than Fannie Mae.
The SMBS certificates are exempt from registration under the Securities Act of 1933 and are “exempted securities” under theSecurities Exchange Act of 1934.
Goldman, Sachs & Co.
Credit SuisseCitiDeutsche Bank SecuritiesBarclays Capital
JP MorganBofA Merrill LynchRBS Securities
The date of this Prospectus Supplement is August 24, 2009.
In addition to the classes of SMBS certificates listed on the preceding page, Mega certificate 190397and the classes of SMBS certificates listed in the following table will be authorized for issuance.
You should purchase the SMBS certificates only if you have read and understood this prospectussupplement and the following documents (the “Disclosure Documents”):
• our Prospectus for Fannie Mae Stripped Mortgage-Backed Securities dated January 1, 2009(the “SMBS Prospectus”);
• our Prospectus for Fannie Mae Guaranteed Pass-Through Certificates (Single-Family Resi-dential Mortgage Loans) dated
O June 1, 2009, for all MBS issued on or after January 1, 2009, or
O April 1, 2008, for all MBS issued on or after June 1, 2007 and prior to January 1, 2009
(as applicable, the “MBS Prospectus”);
• our Prospectus for Fannie Mae Guaranteed MBS Pass-Through Securities (Mega Certificates)dated January 1, 2009 (the “Mega Prospectus”); and
• any information incorporated by reference in this prospectus supplement and under theheading “Incorporation by Reference” in the SMBS Prospectus.
For a description of current servicing policies generally applicable to existing Fannie Mae MBSpools, see “Yield, Maturity, and Prepayment Considerations” in the MBS Prospectus dated June 1,2009.
The MBS Prospectus and the Mega Prospectus are incorporated by reference in this prospectussupplement. This means that we are disclosing information in those documents by referring you tothem. Those documents are considered part of this prospectus supplement, so you should read thisprospectus supplement, and any applicable supplements or amendments, together with thosedocuments.
You can obtain copies of the Disclosure Documents by writing or calling us at:
In addition, the Disclosure Documents, together with the class factors, are available on our corporateWeb site at www.fanniemae.com.
You may also obtain copies of the SMBS Prospectus, the MBS Prospectus and the MegaProspectus from the dealers listed on the cover page of this prospectus supplement, or by writingor calling the applicable dealer using the contact information below:
Goldman Sachs & Co.Prospectus Department85 Broad Street, Concourse LevelNew York, New York 10004(telephone 212-902-1171).
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SUMMARY
This summary contains only limited information about the SMBS certificates. Sta-tistical information in this summary is provided as of August 1, 2009. You should purchasethe SMBS certificates only after reading this prospectus supplement and each of theadditional disclosure documents listed on page S- 3. In particular, please see the discus-sion of risk factors that appears in each of those additional disclosure documents.
Trust Assets
Characteristics of the MBS
ApproximatePrincipalBalance
Pass-Through
Rate
Range of WeightedAverage Coupons
or WACs(annual percentages)
Range of WeightedAverage RemainingTerms to Maturity
or WAMs(in months)
Range of WeightedAverage Loan Age
or WALAs(in months)
$4,000,000,000 5.0% 5.25% to 5.80% 348 to 360 0 to 10
Assumed Characteristics of the Underlying Mortgage Loans
PrincipalBalance
Original Termto Maturity(in months)
Remaining Termto Maturity(in months)
Loan Age(in months)
InterestRate
$4,000,000,000 360 355 5 5.55%
The actual remaining terms to maturity, loan ages and interest rates of most of the mortgageloans underlying the MBS will differ from those shown above, perhaps significantly.
Settlement Date
We expect to issue the SMBS certificates on August 28, 2009.
Distribution Date
We will make payments on the SMBS certificates on the 25th day of each calendar month, or onthe next business day if the 25th day is not a business day.
Record Date
On each distribution date, we will make each monthly payment on the SMBS certificates toholders of record on the last day of the preceding month.
Book-Entry Certificates
We will issue the classes of SMBS certificates and Mega certificate 190397 in book-entry form onthe book-entry system of the Federal Reserve Banks.
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Exchanging Certificates
If you own SMBS certificates issued from this trust, you can exchange them either for otherclasses of SMBS certificates issued from this trust or for a proportionate share of Mega certificate190397. For a more detailed description of permitted exchanges, see “DESCRIPTION OF THESMBS CERTIFICATES—Exchanges” in this prospectus supplement and “DESCRIPTION OFTHE SMBS CERTIFICATES—Exchange of Certificates” in the SMBS prospectus.
Characteristics of Mega Certificate 190397
ApproximatePrincipalBalance
OriginalTerm to
Maturity(in months)
Pass-Through
Rate
$4,000,000,000 360 5.0%
Interest Rates
For a description of the interest rates, see “DESCRIPTION OF THE SMBS CERTIFI-CATES—Distributions of Interest—Interest Rates” in this prospectus supplement.
Distributions of Principal
For a description of the principal distributions, see “DESCRIPTION OF THE SMBS CER-TIFICATES—Distributions on SMBS Certificates—Principal Distributions” in the SMBSprospectus.
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DESCRIPTION OF THE SMBS CERTIFICATES
The material under this heading describes the principal features of the SMBS certificates. Youwill find additional information about the SMBS certificates in the other sections of this prospectussupplement, as well as in the SMBS Prospectus and in the Trust Agreement referred to below. Termsused and not otherwise defined in this prospectus supplement have the meanings assigned to them inthe SMBS Prospectus or in the Trust Agreement.
General
Structure. We will create the Fannie Mae SMBS Trust specified on the cover of this prospectussupplement (the “Trust”) pursuant to a trust agreement dated as of January 1, 2009 and a supple-ment thereto dated as of August 1, 2009 (the “Issue Date”). The trust agreement and supplement arecollectively referred to as the “Trust Agreement.” We will issue the Guaranteed Stripped Mortgage-Backed Securities (the “SMBS certificates”) pursuant to the Trust Agreement. We will execute theTrust Agreement in our corporate capacity and as trustee (the “Trustee”).
The assets of the Trust will include certain Fannie Mae Guaranteed Mortgage Pass-ThroughCertificates (the “MBS”). Each MBS represents a beneficial ownership interest in a pool of first lien,one- to four-family (“single-family”), fixed-rate mortgage loans (the “Mortgage Loans”) having thecharacteristics described in this prospectus supplement.
Fannie Mae Guaranty. For a description of our guaranties of the SMBS certificates and theMBS, see “DESCRIPTION OF THE SMBS CERTIFICATES—Trust Agreement—Fannie MaeGuaranty” in the SMBS Prospectus and “DESCRIPTION OF THE CERTIFICATES—TrustAgreement—Fannie Mae Guaranty” in the MBS Prospectus. Our guaranties are not backed bythe full faith and credit of the United States.
Characteristics of the SMBS Certificates. We will issue the SMBS certificates in book-entryform on the book-entry system of the U.S. Federal Reserve Banks. Entities whose names appear onthe book-entry records of a Federal Reserve Bank as having had SMBS certificates deposited in theiraccounts are “Holders” or “Certificateholders.”
Authorized Denominations. We will issue the SMBS certificates in the followingdenominations:
Classes Denominations
All Classes $100,000 minimum plus whole dollar increments
The MBS
The MBS provide that principal and interest on the Mortgage Loans are passed throughmonthly. The Mortgage Loans are conventional, fixed-rate, fully amortizing mortgage loans securedby first mortgages or deeds of trust on single-family residential properties. The Mortgage Loans haveoriginal maturities of up to 30 years.
For additional information, see “SUMMARY—Trust Assets” in this prospectus supplementand “TRUST ASSETS” in the SMBS Prospectus.
Distributions of Interest
General. The SMBS certificates will bear interest at the applicable rates specified in thisprospectus supplement on a 30/360 basis. Interest to be paid on each SMBS certificate on a distri-bution date will consist of one month’s interest on the outstanding balance of that SMBS certificateimmediately prior to that distribution date.
Delay Classes and No-Delay Classes. The “delay” classes and “no-delay” classes are set forth inthe following table:
Delay Classes No-Delay Classes
Fixed Rate Classes Floating Rate and Inverse Floating Rate Classes
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See also “DESCRIPTION OF THE SMBS CERTIFICATES—Distributions on SMBSCertificates—Interest Distributions” in the SMBS Prospectus.
The Dealers will treat the Principal Only Class as a delay class for the sole purpose of facilitatingtrading.
Interest Rates. During each interest accrual period, the Fixed Rate Classes will bear interest atthe applicable annual interest rates listed in the tables on the cover pages of this prospectussupplement.
During the initial interest accrual period, the Floating Rate and Inverse Floating Rate Classeswill bear interest at the initial interest rates listed below. During subsequent interest accrual periods,the Floating Rate and Inverse Floating Rate Classes will bear interest based on the formulasindicated below, but always subject to the specified maximum and minimum interest rates:
* We will establish LIBOR on the basis of the “BBA Method.”
Exchanges
General. In addition to the Class 1 and Class 2 SMBS certificates, the 202 classes of SMBScertificates listed in the table beginning on the second cover page of this prospectus supplement alsowill be authorized for issuance.
As contemplated in the SMBS Prospectus, SMBS certificates of one or more classes will beexchangeable on the book-entry system of the Federal Reserve Banks for a proportionate share ofMega certificate 190397 issued by the Trust and/or for SMBS certificates of one or more other classes.The conditions for any such exchange are discussed below. See also “DESCRIPTION OF THESMBS CERTIFICATES—Exchange of Certificates” in the SMBS Prospectus.
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Exchanges for Proportionate Shares of Mega Certificate 190397:
• The SMBS certificates surrendered for exchange must have aggregate principal balances(exclusive of any notional principal balances) equal to the principal balances of the propor-tionate share of Mega certificate 190397 received in the exchange.
• The SMBS certificates surrendered for exchange must, in the aggregate, provide for annualdistributions of interest in an amount equivalent to interest at an annual rate of 5.0% on theaggregate principal balance (exclusive of any notional principal balances) of those SMBScertificates so exchanged.
• If an exchange includes one or more Floating Rate or Inverse Floating Rate Classes of SMBScertificates, the annual distributions of interest on those SMBS certificates surrendered forexchange and the Mega certificates received in the exchange must be equal at all levels of theIndex.
Prior to exchanging your SMBS certificates for a proportionate share of Mega certificate 190397,you should read the Mega Prospectus.
Exchanges for Other SMBS Certificates:
• The SMBS certificates surrendered for exchange must have an aggregate principal balance(exclusive of any notional principal balances) equal to the aggregate principal balance(exclusive of any notional principal balances) of the SMBS certificates received in theexchange.
• The SMBS certificates surrendered for exchange must provide for annual distributions ofinterest equal to the annual interest distributions of the SMBS certificates received in theexchange.
• If an exchange includes one or more Floating Rate or Inverse Floating Rate Classes of SMBScertificates, the annual distributions of interest on those SMBS certificates surrendered forexchange and the SMBS certificates received in the exchange must be equal at all levels of theIndex.
The following examples illustrate a few of the possible exchanges of SMBS certificates.
* See “—Distributions of Interest—Interest Rates” above.
The aggregate principal balance of the SMBS certificates of any particular class that is out-standing at any time may be expected to vary over the life of the Trust and will depend upon anyexchanges that occur as well as reductions due to principal distributions. However, the aggregateprincipal balance (exclusive of any notional principal balances) of (x) all the SMBS certificates and (y)Mega certificate 190397 that are outstanding at any particular time will always be equal to theaggregate outstanding principal balance of the MBS and the aggregate distribution of interestrequired thereon always will be equal to the required distributions of interest on the MBS.
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Procedures and Fees. In connection with each exchange, you must pay us a fee of 1/32 of 1% ofthe outstanding aggregate principal balance (exclusive of any notional principal balances) of theSMBS certificates or the Mega certificate to be exchanged. If in any exchange you surrender onlySMBS that have notional principal balances, our fee will be $2,000 for that exchange. Except asprovided in the following paragraph, our fee will never be less than $2,000. For a full description ofour procedures and fees, please refer to “DESCRIPTION OF THE SMBS CERTIFICATES—Exchange of Certificates—Procedures and Fees” in the SMBS Prospectus.
Beginning in September 2009 through and including November 2009, there will be no fee if youexchange SMBS certificates only of Class 1 and Class 2 for a proportionate share of Mega certificate190397, and/or exchange a proportionate share of Mega certificate 190397 for Class 1 and Class 2SMBS certificates only.
Structuring Assumptions
Pricing Assumptions. The information in the tables in this prospectus supplement has beenprepared based on the following assumptions (the “Pricing Assumptions”):
• the Mortgage Loans underlying the MBS have the original term to maturity, remaining termto maturity, loan age and interest rate specified under “SUMMARY—Trust Assets—Assumed Characteristics of the Underlying Mortgage Loans” in this prospectus supplement;
• the Mortgage Loans prepay at the constant percentages of PSA specified in the related tables;
• the settlement date for the SMBS certificates is August 28, 2009; and
• each distribution date occurs on the 25th day of a month.
Prepayment Assumptions. The prepayment model used in this prospectus supplement is PSA.For a description of PSA, see “YIELD, MATURITY AND PREPAYMENT CONSIDERATIONS—Prepayment Models” in the SMBS Prospectus.
It is highly unlikely that prepayments will occur at any constant PSA rate or at any otherconstant rate.
Yield Tables
The tables below illustrate the sensitivity of the pre-tax corporate bond equivalent yields tomaturity of selected classes of SMBS certificates to various constant percentages of PSA and, wherespecified, to changes in the Index. We calculated the yields set forth in the tables by
• determining the monthly discount rates that, when applied to the assumed streams of cashflows to be paid on the applicable SMBS classes, would cause the discounted present values ofthe assumed streams of cash flows to equal the assumed aggregate purchase prices of thoseSMBS classes, and
• converting the monthly rates to corporate bond equivalent rates.
These calculations do not take into account variations in the interest rates at which you couldreinvest distributions on the SMBS certificates. Accordingly, these calculations do not illustrate thereturn on any investment in the SMBS certificates when reinvestment rates are taken into account.
We cannot assure you that
• the pre-tax yields on the applicable SMBS certificates will correspond to any of the pre-taxyields shown here, or
• the aggregate purchase prices of the applicable SMBS certificates will be as assumed.
In addition, it is unlikely that the Index will correspond to the levels shown here. Furthermore,because some of the Mortgage Loans are likely to have remaining terms to maturity shorter or longerthan those assumed and interest rates higher or lower than those assumed, the principal paymentson the SMBS certificates are likely to differ from those assumed. This would be the case even if allMortgage Loans prepay at the indicated constant percentages of PSA. Moreover, it is unlikely that
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• the Mortgage Loans will prepay at a constant PSA rate until maturity,
• all of the Mortgage Loans will prepay at the same rate, or
• the level of Index will remain constant.
The yields on all the SMBS certificates will be sensitive in varying degrees to the rateof principal payments, including prepayments, of the Mortgage Loans and, where appli-cable, to the level of the Index. The Mortgage Loans generally can be prepaid at any timewithout penalty. In addition, the rate of principal payments (including prepayments) ofthe Mortgage Loans is likely to vary, and may vary considerably, from pool to pool. It ispossible that investors in the Interest Only Classes of SMBS certificates, as well as certainother classes of SMBS certificates purchased at a premium, would lose money on theirinitial investments under certain Index and prepayment scenarios.
Changes in the Index may not correspond to changes in prevailing mortgage interest rates. It ispossible that lower prevailing mortgage interest rates, which might be expected to result in fasterprepayments, could occur while the level of the Index increased.
The information shown in the yield tables has been prepared on the basis of the PricingAssumptions and the assumptions that
• the interest rates for the Floating Rate and Inverse Floating Rate Classes for the initialinterest accrual period are the rates listed in the table under “—Distributions of Interest—Interest Rates” above and for each following interest accrual period will be based on thespecified level of the Index, and
• the aggregate purchase prices of the applicable classes of SMBS certificates (expressed in eachcase as a percentage of original principal or notional principal balance) are the prices specifiedin the related yield tables. The prices do not include accrued interest. Accrued interest hasbeen added to the prices in calculating the yields set forth in the tables below.
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Sensitivity of the Principal Only and Fixed Rate Classes to Prepayments(Pre-Tax Yields to Maturity)
We have shown below assumed prices and pre-tax yields for selected classes that have the letterdesignations “SA,” “FI” and “S.” The assumed prices and pre-tax yields for the other classes with thosedesignations would follow the same general patterns.
In the following yield tables, the symbol * is used to represent a yield of less than (99.9)%
Sensitivity of the SA1 Class to Prepayments and LIBOR (Assumed Price 119.0625%)(Pre-Tax Yields to Maturity)
See “MATERIAL FEDERAL INCOME TAX CONSEQUENCES” in the SMBS Prospectus fora discussion of certain tax consequences of the purchase, ownership and disposition of the SMBScertificates.
PLAN OF DISTRIBUTION
We will acquire the MBS from the dealers named on the cover of this prospectus supplement(the “Dealers”) in exchange for the SMBS certificates. The Dealers propose to offer the SMBScertificates directly to the public from time to time in negotiated transactions at varying prices to bedetermined at the time of sale. The Dealers may effect such transactions to or through other dealers.
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No one is authorized to give information orto make representations in connection with theSMBS certificates other than the informationand representations contained in this prospectussupplement and the additional disclosuredocuments. You must not rely on anyunauthorized information or representation. Thisprospectus supplement and the additionaldisclosure documents do not constitute an offeror solicitation with regard to the SMBScertificates if it is illegal to make such an offer orsolicitation to you under state law. By deliveringthis prospectus supplement and the additionaldisclosure documents at any time, no one impliesthat the information contained herein or therein iscorrect after the date hereof or thereof.
The Securities and Exchange Commission hasnot approved or disapproved the SMBS certificatesor determined if this prospectus supplement istruthful and complete. Any representation to thecontrary is a criminal offense.
