I am pleased to provide The Fannie Mae Federal Credit Union's Report of the Board of Directors for 1997. This year's report notes many successes for the credit union and benefits to our members.

The Fannie Mae Federal Credit Union continued to focus on financial safety and soundness during 1997, while investing our resources and capital in additional products and services for members. We are pleased to report that the credit union maintained the National Credit Union Administration's (NCUA) highest composite CAMEL rating of 1 for the fourth consecutive year. Our success in maintaining financial and managerial soundness strengthens the position of the credit union ensuring member service, product delivery, and marketplace competitiveness.

Additionally, we enhanced the credit union's liquidity position within the corporate credit union system by formally joining, as a correspondent, the Mid-Atlantic Corporate Credit Union. Access to this corporate credit union provides liquidity and investment options. Also important, it allows us to offer additional member services in the future such as Western Union Quick Cash, which we expect to introduce mid-year 1998.

During 1997, we implemented two required regulatory initiatives. We revised the credit union's Investment Policy to comply with the newly developed NCUA safety and soundness standards relative to credit union investments. We formally appointed an Investment Committee and Chair, as well as a volunteer advisor, to review our investment activities on an on-going basis. Also, to ensure Year 2000 compliance, we appointed a Technology Committee and Chair to develop and implement the Credit Union's readiness plan. We are fortunate to benefit from the expertise and knowledge of our volunteer advisors in this issue and fully expect to sail smoothly when we enter the 21st century.

While we necessarily focused on these regulatory and internal issues, we were successful in implementing a number of member product and service initiatives. Foremost in 1997, we introduced our 24-Hour telephone teller system, "Teller-Line." With a touch-tone telephone, members are able to access their accounts and process transactions from any location, anytime at their convenience. The results have been outstanding with members processing an average 1,000 transactions per month. In addition, the system significantly lowers the number of calls handled by Credit Union staff, freeing up their time to focus on other member service activities. Also this past year, the credit union completed adding its direct deposit capability through the Automated Clearinghouse (ACH) system of the Federal Reserve, which allows the credit union to originate payroll deductions from employees other than Fannie Mae. With this capability, the credit union may improve service to non-Fannie Mae employed members.

Throughout 1997, as in the past, the credit union offered monthly loan sales and promotions to members. In addition to the annual tax, vacation, and holiday loan specials, the credit union offered vacation certificates as a loan incentive. Over 30 members received certificates to enjoy.

The Board of Directors and credit union volunteers strive to expand the visibility and strengthen our position with employees and our corporate sponsor, Fannie Mae, through active participation in and leadership of credit union activities, as well as promotion of credit union benefits. This past year, the credit union participated in the Fannie Mae Benefits Fair demonstrating the advantages of credit union membership. The Credit Union also conducted two financial planning workshops for employees and members, which were highly attended. In keeping with our "people helping people" philosophy of the credit union community, we donated $1,500 (for a Bronze Sponsorship) to the 1997 Fannie Mae Help The Homeless Campaign.

As we approach another year, we have several exciting efforts underway to help us to serve members better. For example, we are currently working on development plans to include the Fannie Mae Federal Credit Union on the corporate intranet "Homesite," allowing employees and members to have up-to-date information on the credit union. Also, we are working on enhancements to the Visa credit card program to offer more competitive pricing terms. Finally, we plan to conduct a credit union membership survey during 1998. Your participation in the survey will guide the credit union's activities over the next several years by identifying products and services so that the credit union may serve as your primary financial institution.

On a final note, this past year the banking community successfully challenged the credit union industry's multiple group (Select Employee Groups or SEGs) "field of membership" charters. Much of the resolution of this issue is currently pending in the federal legislation process, and the exact outcome on credit union memberships or credit unions generally is uncertain at this time. At this time, the membership issues do not directly impact Fannie Mae Federal Credit Union because our credit union common bond does not include SEGs. Rather, we have one common bond stated as serving Fannie Mae and Fannie Mae Foundation employees, and their immediate family members. There may be future issues surrounding the rights of American consumers to join credit unions and, as you know, credit unions are nonprofit, member-supported institutions that provide a cost-effective alternative to other types of for-profit financial services firms. If this concerns you, we encourage you to talk to your member(s) of Congress and obtain more information from The Credit Union Campaign for Consumer Choice in Washington, DC.

We appreciate your continued support and look forward to serving the credit union in the future. As always, we welcome your comments and suggestions.

Denise Rosso

The financial condition of the Fannie Mae Federal Credit Union is excellent, as evidenced by the accompanying financial statements.

In 1997, your credit union continued to build capital and reserves. Undivided Earnings were increased by 15 percent and Regular Reserves by 9.1 percent. Maintaining and building a strong capital base allows the credit union to offer new services to its members.

Throughout the year the Board monitored expenses and was able to keep them within the 1997 approved budget. Gross income increased by 2.2 percent, however net income before dividends decreased by 1.3 percent. The decrease in net income was due to the purchase of the credit union's 24-hour telephone teller system, "Teller-Line." This purchase also caused the expenses to increase by 7.3 percent. The credit union's largest expenditure continues to be dividends. The credit union returned 65 percent of its net income to members in the form of dividends.

The success of the credit union during 1997 could not have been achieved if it where not for the support, patience, and dedication of the members, volunteers, and staff of the credit union.

Thank you for your support. We look forward to serving you in 1998.

Helen Bunn

In 1997, the Credit Committee disbursed $2,085,122.00 for 251 loans.

Favorable loan rates and new loan products continued to support loan volumes at the credit union. While interest rates remained relatively low over the course of the year, the credit union continued to aggressively approach the market by offering rates below our competitors. In addition, the credit union offered periodic tax, auto, and vacation loan specials at attractive rates to accommodate our members' needs.

The Credit Committee also approved approximately 100 Visa credit cards that represent a credit line of $210,300.00.

By offering competitive loan rates, implementing new lending products, and adjusting our borrower eligibility criteria where prudently possible, we will continue to work to make the credit union every members' first choice for their borrowing needs.

Robert Catalanotto

During 1997, the Supervisory Committee ensured that the credit union's activities complied with the requirements of the Federal Credit Union Act, Bylaws, and Rules and Regulations. Members of the committee also monitored cash transactions, reviewed various policies and procedures, investigated members' complaints, and made recommendations for improving the operations and services of the credit union.

In 1998, we will continue to zealously protect members' interests.

James Paige