Freddie Mac's 2004 net income fell 41% from 2003 to $2.8 billion, reflecting losses related to derivatives used to minimize interest rate risk.Diluted earnings per common share fell to $3.78 in 2004, compared to $6.68 in 2003. Freddie Mac said a $4.5 billion decline in the value of derivative instruments that do not qualify for hedge accounting treatment was the primary driver of the drop in earnings. At the same time, Freddie Mac said that it exceeded a minimum regulatory capital threshold by $10.8 billion and that the fair value of net assets attributable to common stockholders increased 17% to $26.7 billion at the end of last year. Unlike net income under GAAP, the fair value measure takes all of Freddie Mac's assets, liabilities and other factors into account. Patricia Cook, executive vice president at Freddie Mac, said in a conference call with investors and analysts that the fair value measure eliminates the "bias" associated with derivative gains and losses.

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