EXHIBIT NUMBER (A)(1)(A)

Published on January 8, 2003

Offering Circular

Dynex Logo
Exhibit (a)(1)(A)
DYNEX CAPITAL, INC.


Cash Tender Offer and
Offer to Exchange
up to
492,425 Shares of Its Series A Preferred Stock,
662,944 Shares of Its Series B Preferred Stock, and
683,703 Shares of Its Series C Preferred Stock

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THE CASH TENDER OFFER AND EXCHANGE OFFER, AND RELATED WITHDRAWAL RIGHTS AND
PRORATION PERIOD, WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON TUESDAY,
FEBRUARY 11, 2003, UNLESS EXTENDED OR EARLIER TERMINATED BY US.
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Dynex Capital, Inc., a Virginia corporation ("Dynex" or the "Company"),
invites its shareholders to tender shares of its Series A preferred stock (the
"Series A Preferred Stock"), shares of its Series B preferred stock (the "Series
B Preferred Stock"), and shares of its Series C preferred stock (the "Series C
Preferred Stock," and, collectively, with the Series A Preferred Stock and the
Series B Preferred Stock, the "Preferred Stock"), all upon the terms and subject
to the conditions set forth in this document and in the related letters of
transmittal (which, as amended or supplemented from time to time, together
constitute the "Offer"). Each share of Preferred Stock has a par value of $0.01
per share. Upon the terms and subject to the conditions of the Offer, we are
offering to acquire up to an aggregate of 492,425 shares of Series A Preferred
Stock, up to an aggregate of 662,944 shares of Series B Preferred Stock, and up
to an aggregate of 683,703 shares of Series C Preferred Stock (or, in each case,
such lesser number of shares as are properly tendered and not properly
withdrawn), under any of the following options, as so noted on the enclosed
Letter of Transmittal:

Option 1 (for consideration in Cash)

o $24.00 in cash per share of Series A Preferred Stock tendered, up
to an aggregate maximum of 202,763 shares of Series A Preferred
Stock;

o $24.50 in cash per share of Series B Preferred Stock tendered, up
to an aggregate maximum of 272,977 shares of Series B Preferred
Stock; and

o $30.00 in cash per share of Series C Preferred Stock tendered, up
to an aggregate maximum of 281,525 shares of Series C Preferred
Stock;

Under this Option 1 (Cash), the per share cash amount to be
received for each share of Preferred Stock tendered in the Offer
is equal to 100% of the original issue price of such share of
Preferred Stock;

or
Option 2 (for consideration in Senior Notes)

o $25.20 in principal amount of our 9.50% Senior Notes due February
28, 2005, the principal of which will be paid back in eight equal
quarterly installments commencing May 31, 2003 (collectively, the
"Senior Notes" and each, a "Senior Note"), per share of Series A
Preferred Stock tendered, up to an aggregate maximum of 289,662
shares of Series A Preferred Stock;

o $25.725 in principal amount of the Senior Notes per share of
Series B Preferred Stock tendered, up to an aggregate maximum of
389,967 shares of Series B Preferred Stock; and

o $31.50 in principal amount of the Senior Notes per share of
Series C Preferred Stock tendered, up to an aggregate maximum of
402,178 shares of Series C Preferred Stock;

Under this Option 2 (Senior Notes), the per share principal
amount of Senior Notes to be received for each share of Preferred
Stock tendered in the Offer is equal to 105% of the original
issue price of such share of Preferred Stock. The Senior Notes
will be issued in denominations of $25 or in integral multiples
of $25. In cases where the consideration for shares of each
series you tender is not divisible, in the aggregate, by the $25
denomination, you will receive cash consideration for the amount
in excess of the nearest $25 not to exceed $24.99. For a more
detailed description of the terms of the Senior Notes being
offered, please see "Description of Senior Notes;"

or

Option 3 (for a combination of consideration in Cash and Senior Notes)

A combination of Option 1 (Cash) and Option 2 (Senior Notes) in
amounts you designate on the enclosed Letter of Transmittal.


Subject to the terms and conditions of the Offer, we will (i) pay up to
an aggregate of approximately $20,000,000 in cash, and (ii) issue up to
approximately $30,000,000 aggregate principal amount of Senior Notes, in
exchange for up to 1,839,072 shares of Preferred Stock, with an aggregate
original issue price of $48,571,418 and an aggregate liquidation preference as
of December 31, 2002 of $63,845,505.

We reserve the right, in our sole discretion, to increase the total
number of shares that may be exchanged pursuant to this Offer to up to 502,273
shares of Series A Preferred Stock, to up to 676,202 shares of Series B
Preferred Stock, and to up to 697,376 shares of Series C Preferred Stock. Shares
of Preferred Stock not purchased because of the proration provisions described
in this Offering Circular will be returned at Dynex' expense. See "The
Offer--How to Tender."

THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES OF
PREFERRED STOCK BEING TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER
CONDITIONS. SEE "THE OFFER-CONDITIONS TO THE OFFER."

Tendering holders of Preferred Stock will not be obligated to pay
brokerage commissions, solicitation fees, or, upon the terms and subject to the
conditions of the Offer, stock transfer taxes on the sale of shares of Preferred
Stock to Dynex. However, any tendering shareholder or other payee required to
complete a Letter of Transmittal who fails to complete fully and sign the box
captioned "Substitute Form W-9" included in the Letter of Transmittal or, in the
case of a non-U.S. holder, who fails to certify its non-U.S. status, may be


subject to a required tax withholding of 31% of the gross proceeds paid to the
shareholder or other payee pursuant to the Offer. See "Certain United States
Federal Income Tax Consequences." We will pay all charges and expenses of
Wachovia Bank, N.A., the Exchange Agent, and MacKenzie Partners, Inc., the
Information Agent, incurred in connection with the Offer.

Tendering holders of Preferred Stock will not receive any dividends
with respect to such shares, including dividends in arrears that have
accumulated to date, which dividends will be cancelled if the tendered shares
are accepted by us. As of February 28, 2003, a total of approximately
$7,931,000, $11,022,000 and $13,801,000 in dividends in arrears will have
accumulated per share on the Series A Preferred Stock, the Series B Preferred
Stock and the Series C Preferred Stock, respectively.

Tenders pursuant to the Offer may be withdrawn at any time prior to
5:00 p.m., New York City time, on Tuesday, February 11, 2003, which is the
expiration time of the Offer, or such later expiration time if we extend the
Offer, and, if not yet accepted for payment, after March 11, 2003.

As of January 2, 2003 (the last trading day ending prior to our public
announcement of our intention to commence the Offer), the closing sales price
per share for each series of our Preferred Stock, as reported on the Nasdaq
National Market, was $22.50 for our Series A Preferred Stock, $22.25 for our
Series B Preferred Stock, and $28.00 for our Series C Preferred Stock. Under
Option 1 (Cash) and Option 2 (Senior Notes) described above, the exchange price
for the Series A Preferred Stock represented a premium of 6.67% and 12.00%,
respectively, above the market price as of January 2, 2003, the exchange price
for the Series B Preferred Stock represented a premium of 10.11% and 15.62%,
respectively, above the market price as of January 2, 2003, and the exchange
price for the Series C Preferred Stock represented a premium of 7.14% and
12.50%, respectively, above the market price as of January 2, 2003. SHAREHOLDERS
ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES. SEE "PRICE RANGE
OF PREFERRED STOCK."

PLEASE READ THE ENCLOSED MATERIALS CAREFULLY.

For a further description of our Preferred Stock, see "Description of
Capital Stock." We intend to apply for listing of the Senior Notes for trading
on the American Stock Exchange. However, there is no assurance that the Senior
Notes will be listed on the American Stock Exchange or that a liquid trading
market will develop for the Senior Notes. If a trading market does develop,
there can be no assurance as to any price at which the Senior Notes will trade.
See "Risk Factors--By Tendering Your Preferred Stock for the Senior Notes, You
Will Lose Rights Associated with Your Preferred Stock."

The Senior Notes will be unsecured obligations of Dynex. The Senior
Notes mature February 28, 2005 and bear interest at 9.50% per annum on the
outstanding principal balance. Principal and interest will be paid quarterly on
May 31, August 31, November 30 and February 28. Principal payments will be made
quarterly in eight equal installments commencing on May 31, 2003. We will have
the right to prepay the Senior Notes in whole or in part, including all interest
accrued thereon, without penalty. The Senior Notes will be issued under an
Indenture between Dynex and Wachovia Bank, N.A., as trustee. The terms of the
Senior Notes Indenture are governed by certain provisions contained in the Trust
Indenture Act of 1939 (the "Trust Indenture Act"). See "Description of Senior
Notes."

OUR BOARD OF DIRECTORS HAS APPROVED THE MAKING OF THE OFFER. YOU MUST,
HOWEVER, MAKE YOUR OWN DECISION WHETHER TO TENDER SHARES AND, IF SO, HOW MANY
SHARES TO TENDER AND WHETHER TO TENDER FOR CASH AND/OR SENIOR NOTES. NEITHER WE
NOR OUR BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO YOU WITH RESPECT TO THE
OFFER, AND NO PERSON HAS BEEN AUTHORIZED BY US OR OUR BOARD OF DIRECTORS TO MAKE
ANY SUCH RECOMMENDATION. CERTAIN MEMBERS OF OUR BOARD OF DIRECTORS HAVE INFORMED
THE COMPANY THAT THEY WILL PARTICIPATE IN THE OFFER.



YOU SHOULD EVALUATE CAREFULLY ALL OF THE INFORMATION CONTAINED OR
REFERRED TO IN THIS DOCUMENT AND MAKE YOUR OWN DECISION WHETHER TO TENDER SHARES
PURSUANT TO THE OFFER. YOU ARE URGED TO CONSULT A TAX ADVISOR CONCERNING ANY
FEDERAL, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF A SALE OF PREFERRED STOCK
PURSUANT TO THE OFFER.

The address and telephone number of the principal executive offices of
Dynex are 4551 Cox Road, Suite 300, Glen Allen, Virginia 23060, (804) 217-5800.

THE DATE OF THIS OFFERING CIRCULAR IS JANUARY 8, 2003


IMPORTANT

Any shareholder of record desiring to tender all or any portion of his,
her or its shares of Preferred Stock should either complete and sign the Letter
of Transmittal or a facsimile thereof in accordance with the instructions set
forth therein and mail or deliver the Letter of Transmittal, together with the
stock certificates for such shares and any required signature guarantee and any
other required documents, to the Exchange Agent or comply with the book-entry
transfer facility's automated tender offer program procedures described in "The
Offer--How to Tender" to the extent it is available. A shareholder having shares
of Preferred Stock registered in the name of a broker or a dealer, commercial
bank, trust company or other nominee must contact those persons if such
shareholder desires to tender such shares. Shareholders who desire to tender
shares of Preferred Stock and whose certificates for such shares are not
immediately available or whose other required documentation cannot be delivered
to the Exchange Agent by the expiration of the Offer should tender such shares
by following the procedures for guaranteed delivery described in "The Offer-How
to Tender." Any shareholder of record desiring to tender shares of Preferred
Stock for Senior Notes, or electing to receive Senior Notes in the event of an
oversubscription for cash consideration, must have or establish an account with,
and tender such shares through, a broker, dealer, bank or other financial
institution that either clears through or maintains a custodial relationship
with a direct or indirect participant in the book entry and transfer system of
The Depository Trust Corporation ("DTC"). The Senior Notes will be issued only
in book-entry form pursuant to a global note to be registered in the name of
DTC's nominee, Cede & Co., Inc. See "The Offer--How to Tender--Tender Procedure
for Shareholders Tendering for Senior Notes."

Questions and requests for assistance may be directed to the
Information Agent at the address and telephone number set forth on the back
cover of this Offering Circular. Requests for additional copies of this Offering
Circular and all related documents may also be directed to the Information
Agent.

THE SENIOR NOTES ARE BEING OFFERED PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SECTION 3(a)(9) OF THE SECURITIES ACT OF 1933, AS AMENDED.
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE
MERITS OF THE SENIOR NOTES NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF
ANY OFFERING CIRCULAR OR OTHER SELLING LITERATURE.

For a discussion of certain risks and other factors to be considered in
connection with the Offer, see "Risk Factors" beginning on page 12.

We have made no arrangements for and have no understanding with any
dealer, salesman or other person regarding the solicitation of tenders
hereunder, other than the Information Agent, and no person has been authorized
to give any information or to make any representation not contained in this
Offering Circular in connection with the Offer, and, if given or made, such
information or representation must not be relied upon as having been authorized
by us or any other person. Neither the delivery of this Offering Circular nor
any exchange or sale shall, under any circumstances, create any implication that
there has been no change in our affairs since the respective dates as of which
information is given.



This Offering Circular does not constitute an offer to exchange or
sell, or a solicitation of an offer to exchange or buy, any securities other
than the securities covered by this Offering Circular by us or any other person,
or any such offer or solicitation of such securities by us or any such other
person in any state or other jurisdiction to any person to whom it is unlawful
to make any such offer or solicitation. In any state or other jurisdiction where
it is required that the securities offered by this Offering Circular be
qualified for offering or that the offering be approved pursuant to tender offer
statutes in such state or jurisdiction, no offer is hereby being made to, and
tenders will not be accepted from, residents of any such state or jurisdiction
unless and until such requirements have been satisfied.



TABLE OF CONTENTS

PAGE
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AVAILABLE INFORMATION 1
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 1
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SUMMARY TERM SHEET OF THE OFFER 2
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION 9
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USE OF PROCEEDS 13
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RISK FACTORS 14
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FORWARD LOOKING STATEMENTS 19
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RATIO OF EARNINGS TO FIXED CHARGES 20
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THE OFFER 21
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General 21
Proration if Shares of Series of Preferred Stock Tendered Exceed Maximum;
Limitations on Cash and Senior Notes Consideration 25
Executive Officer and Director Participation 26
Expiration Time, Extensions, Termination and Amendments 26
How to Tender 27
Withdrawal Rights 30
Acceptance of Shares of Preferred Stock for Exchange; Delivery of Cash
and Senior Notes to be Exchanged 31
Denominations 32
Conditions to the Offer 32
Source and Amount of Funds 33
Exchange Agent 33
Information Agent 34
No Financial Advisor 34
Exemption from Registration Requirements 34
Certain Legal Matters; Regulatory Approvals 34
Miscellaneous Matters 34
Payment of Expenses 35
PURPOSES AND EFFECT OF THE OFFER 36
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CAPITALIZATION 39
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PRICE RANGE OF PREFERRED STOCK 40
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DIVIDENDS 41
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BUSINESS 42
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MANAGEMENT OF DYNEX 43
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DESCRIPTION OF CAPITAL STOCK 44
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EXECUTIVE OFFICER AND DIRECTOR BENEFICIAL OWNERSHIP 46
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DESCRIPTION OF SENIOR NOTES 47
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LEGAL PROCEEDINGS 55
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES 57
- -----------------------------------------------------




AVAILABLE INFORMATION

MacKenzie Partners, Inc. will act as Information Agent in connection
with the Offer. For further assistance or additional copies of documents call
the Information Agent at (212) 929-5500 (call collect) or (800) 322-2885 (toll
free) or write to the Information Agent at: MacKenzie Partners, Inc., 105
Madison Avenue, New York, New York 10016. See "The Offer--Information Agent" and
the information set forth on the back cover of this Offering Circular. Any
questions, requests for assistance, or requests for additional copies of this
Offer, the Letter of Transmittal or the Notice of Guaranteed Delivery should be
directed to the Information Agent.

You may also contact your broker, dealer, commercial bank or trust
company or any other nominee for assistance concerning this Offer.

We are subject to the periodic reporting and other informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and file reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. Copies of such materials can be obtained by mail
from the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. In addition, the Commission
maintains a site on the World Wide Web that contains reports, proxy and
information statements and other information filed electronically by Dynex with
the Commission which can be accessed over the Internet at http://www.sec.gov.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed with the Commission are enclosed with
this Offering Circular and are hereby incorporated by reference into this
Offering Circular:

o The Company's Annual Report on Form 10-K, as amended, for the
fiscal year ended December 31, 2001;

o The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2002;

o The Company's Current Reports on Form 8-K filed with the
Commission on April 29, 2002, August 20, 2002, September 19, 2002
and October 7, 2002; and

o The Company's Notice and Proxy Statement dated April 29, 2002.

The Company's Quarterly Reports on Form 10-Q, as amended, for the
quarters ended March 31, 2002 and June 30, 2002, as filed with the Commission,
are also hereby incorporated by reference into this Offering Circular. Dynex
incorporates by reference additional documents that it may file with the
Commission between the date of this Offer and the date the Offer proration
period and withdrawal rights expire. Those documents include periodic reports,
such as Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and proxy
statements, which will also be provided to holders of our Preferred Stock.

If any statement contained in any of the foregoing documents is
modified or superseded by a statement in this Offering Circular or in any
document subsequently filed and incorporated by reference herein, the statement
in any such foregoing document will be deemed for the purposes of this Offering
Circular to have been modified or superseded by such statement in this Offering
Circular or subsequently filed document, and the statement in any such foregoing
document is incorporated by reference herein only as modified or to the extent
it is not superseded.



SUMMARY TERM SHEET OF THE OFFER

The following is a summary of certain features of the Offer and other
matters, and all statements contained herein are qualified in their entirety by
reference to the more detailed information and financial statements hereinafter
set forth. When used in this Offering Circular, the terms "Company," "Dynex,"
"we," "our," "ours" and "us" refer to Dynex Capital, Inc., and its consolidated
subsidiaries, unless otherwise specified or the context requires otherwise.

Who is offering to acquire my shares in the Offer?

Dynex is offering to acquire your shares of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock. For information about our
business and certain recent developments, see "Business," and for information
about the Offer, see "The Offer."

What is the purpose of the Offer?

Our Board of Directors believes that, given Dynex' financial condition
and the current market environment, the acquisition of our shares of Preferred
Stock at this time is a prudent course of action to enhance shareholder value
and to provide greater liquidity for holders of the Preferred Stock. Holders of
shares of Preferred Stock electing to participate in the Offer should review the
considerations set forth herein under the heading "Purposes and Effects of the
Offer."

How long will I have to tender my Preferred Stock?

You may tender your shares of Preferred Stock until the Offer expires.
The Offer will expire on Tuesday, February 11, 2003 at 5:00 p.m., New York City
time, unless we extend it. We may choose to extend the Offer for any reason. See
"The Offer-Expiration Time, Extensions, Termination and Amendments."

How many shares of Preferred Stock are being sought in the Offer and
what consideration is being offered for my shares?

We are offering to acquire up to 492,425 shares (or such lesser number
as are properly tendered) of Series A Preferred Stock, up to 662,944 shares (or
such lesser number as are properly tendered) of Series B Preferred Stock, and up
to 683,703 shares (or such lesser number as are properly tendered) of Series C
Preferred Stock.

Upon the terms and subject to the conditions of the Offer set forth in
this Offering Circular and the accompanying Letter of Transmittal, you can
choose to receive the following for your shares of Preferred Stock:

Option 1 (for consideration in Cash)

o $24.00 in cash for each share of Series A Preferred Stock you
tender, up to an aggregate maximum of $4,866,312 in cash for all
shares of Series A Preferred Stock tendered for cash in the Offer
and up to an aggregate maximum of 202,763 shares of Series A
Preferred Stock;

o $24.50 in cash for each share of Series B Preferred Stock you
tender, up to an aggregate maximum of $6,687,937 in cash for all
shares of Series B Preferred Stock tendered for cash in the Offer
and up to an aggregate maximum of 272,977 shares of Series B
Preferred Stock; and



-2-

o $30.00 in cash for each share of Series C Preferred Stock you
tender, up to an aggregate maximum of $8,445,750 in cash for all
shares of Series C Preferred Stock tendered for cash in the Offer
and up to an aggregate maximum of 281,525 shares of Series C
Preferred Stock;

Under this Option 1 (Cash), the per share cash amount to be
received for each share of Preferred Stock tendered in the Offer
is equal to 100% of the original issue price of such share of
Preferred Stock;

or

Option 2 (for consideration in Senior Notes)

o $25.20 in principal amount of our 9.50% Senior Notes due February
28, 2005 (collectively, the "Senior Notes" and each, a "Senior
Note") for each share of Series A Preferred Stock you tender, up
to $7,299,475 in aggregate maximum principal amount of Senior
Notes for all shares of Series A Preferred Stock tendered for
Senior Notes in the Offer and up to an aggregate maximum of
289,662 shares of Series A Preferred Stock;

o $25.725 in principal amount of the Senior Notes for each share of
Series B Preferred Stock you tender, up to $10,031,900 in
aggregate maximum principal amount of Senior Notes for all shares
of Series B Preferred Stock tendered for Senior Notes in the
Offer and up to an aggregate maximum of 389,967 shares of Series
B Preferred Stock; and

o $31.50 in principal amount of the Senior Notes for each share of
Series C Preferred Stock you tender, up to $12,668,600 in
aggregate maximum principal amount of Senior Notes for all shares
of Series C Preferred Stock tendered for Senior Notes in the
Offer and up to an aggregate maximum of 402,178 shares of Series
C Preferred Stock;

Under this Option 2 (Senior Notes), the per share principal
amount to be received for each share of Preferred Stock tendered
in the Offer is equal to 105% of the original issue price of such
share of Preferred Stock. The Senior Notes will be issued in
denominations of $25 or integral multiples thereof. In cases
where the consideration for shares of each series you tender is
not divisible, in the aggregate, by the $25 denomination, you
will receive cash consideration for the amount in excess of the
nearest $25 not to exceed $24.99. For a more detailed description
of the terms of the Senior Notes being offered, please see
"Description of Senior Notes;"

or

Option 3 (for a combination of consideration in Cash and Senior Notes)

A combination of cash and Senior Notes in amounts which you
designate in your Letter of Transmittal. Under this Option 3,
with respect to the shares of each series of Preferred Stock you
tender, you will designate the number of tendered shares of such
series for which you choose to receive cash (which cash shall be
subject to Option 1) and you will designate the number of
tendered shares of such series for which you choose to receive
Senior Notes (which Senior Notes shall be subject to Option 2).



-3-

We have the right to extend or amend the Offer in our sole and absolute
discretion and the right to terminate the Offer at any time prior to the
expiration time of the Offer if the conditions to the Offer are not satisfied.
The Offer is not conditioned on any minimum number of shares being tendered.

You should choose only one Option for the shares of Preferred Stock
that you tender. If you choose Option 3, you will need to designate on the
Letter of Transmittal how many shares are being tendered for cash and how many
shares are being tendered for Senior Notes. You do not have to tender all of
your shares of Preferred Stock to participate in the Offer.

Will I receive a premium above the current market value for tendering
my Preferred Stock?

Whether you will receive a premium above the current market value of
the Preferred Stock for tendering shares of Preferred Stock will depend on the
market value of our Preferred Stock on the date the Offer is completed. As of
January 2, 2003 (the last trading day ending prior to our public announcement of
our intention to commence the Offer), the closing sales price per share for each
series of our Preferred Stock, as reported on the Nasdaq National Market, was
$22.50 for our Series A Preferred Stock, $22.25 for our Series B Preferred
Stock, and $28.00 for our Series C Preferred Stock. Under Option 1 (Cash) and
Option 2 (Senior Notes) described above, the exchange price for the Series A
Preferred Stock represented a premium of 6.67% and 12.00%, respectively, above
the market price as of January 2, 2003, the exchange price for the Series B
Preferred Stock represented a premium of 10.11% and 15.62%, respectively, above
the market price as of January 2, 2003, and the exchange price for the Series C
Preferred Stock represented a premium of 7.14% and 12.50%, respectively, above
the market price as of January 2, 2003. See "Purposes and Effects of the Offer."

Is there a minimum or maximum number of shares of Preferred Stock you
will accept in the Offer?

We will accept up to an aggregate of 492,425 shares of Series A
Preferred Stock, up to an aggregate of 662,944 shares of Series B Preferred
Stock, and up to an aggregate of 683,703 shares of Series C Preferred Stock.
This represents approximately 49% of the shares of each series of our Preferred
Stock outstanding as of December 31, 2002.

This Offer is not conditioned upon any minimum number of shares of
Preferred Stock being tendered.

How will Dynex determine which shares to accept of a series of
Preferred Stock if such series is oversubscribed?

If more shares of any series of Preferred Stock are tendered than we
are offering to acquire (regardless of which form of consideration the tendering
shareholders elect to receive), we will accept shares of such series that are
validly tendered on a pro-rata basis, based on the number of shares tendered.
Furthermore, if, after giving effect to this prorationing, one form of
consideration that we are offering is oversubscribed, Dynex will accept shares
of such series that are validly tendered for such consideration on a pro-rata
basis. In that instance, and assuming an undersubscription for the other type of
consideration, you will have the option (but are not required) to elect to
receive, by checking the "Oversubscription Allocation" box on the Letter of
Transmittal, the other consideration for the excess shares you tendered in lieu
of having your excess shares returned.

If you validly tender shares of your Preferred Stock but fail to elect
properly in your Letter of Transmittal the form of consideration which you wish
to receive in the Offer, you will be deemed to have elected to receive cash for
such tendered shares pursuant to Option 1 described in the Offer.



-4-

Will the Company's officers and directors be participating in the
Offer?

Certain members of the Board of Directors have informed the Company
that they will participate in the Offer. At least one Director has indicated
that he will tender a portion of the shares of Preferred Stock which he owns
under Option 2. No executive officer of Dynex owns any Preferred Stock.

Are there any conditions to the Offer?

The Offer is subject to certain conditions, including the absence of
court and government actions prohibiting the Offer, general market conditions,
the condition of our business, and the Indenture under which the Senior Notes
will be issued being qualified under the Trust Indenture Act. See "The
Offer--Conditions to the Offer."

How do I tender my Preferred Stock?

If you wish to tender your shares of Preferred Stock in the Offer:

o You must deliver the share certificate(s) representing your
Preferred Stock, a properly completed and duly executed Letter of
Transmittal for such shares and other documents required by the
Letter of Transmittal to the Exchange Agent at the address set
forth in the section entitled "Available Information" and
appearing on the back cover of this Offering Circular prior to
5:00 p.m., New York City time, on Tuesday, February 11, 2003;

o If your shares of Preferred Stock are held in street name - that
is, through a broker, dealer or other nominee - you must contact
that institution to tender your shares of Preferred Stock. The
Exchange Agent must receive a confirmation of receipt of your
shares by book-entry transfer and a properly completed and duly
executed Letter of Transmittal for such shares;

o You must comply with The Depository Trust Company's Automated
Tender Offer Program; or

o If you cannot provide the Exchange Agent with all required
documents by the Expiration Time of the Offer, you may obtain
additional time to submit any missing items by submitting a
Notice of Guaranteed Delivery to the Exchange Agent. See "The
Offer--How to Tender." However, for your tender to be valid, the
Exchange Agent must receive the missing items within three Nasdaq
trading days of the date the Exchange Agent received your Notice
of Guaranteed Delivery.

Further, because the Senior Notes issued pursuant to this Offer will be issued
in book-entry form only, if you desire to tender shares of Preferred Stock for
Senior Notes, or elect to receive Senior Notes in the event of an
oversubscription for cash consideration, you must have or establish an account
with, and tender those shares through, a broker, dealer, bank or other financial
institution that either clears through or maintains a custodial relationship
with a direct or indirect participant in the book entry and transfer system of
the DTC.

Contact the Information Agent for assistance. See "The Offer--How to Tender."

Will I be able to withdraw shares of Preferred Stock that I tender into
the Offer?

You can withdraw tenders of shares of Preferred Stock pursuant to the
Offer at any time prior to 5:00 p.m. on Tuesday, February 11, 2003, the
expiration time of the Offer, or such later expiration time as we specify if we


-5-

extend the Offer. Unless we have previously accepted the shares you have
tendered, you may also withdraw your shares after March 11, 2003. Except for
these rights of withdrawal, all tenders are irrevocable. See "The
Offer--Withdrawal Rights."

How will I be notified if Dynex extends the Offer?

We will issue a press release by 9:00 a.m., New York City time, no
later than the business day after the previous scheduled expiration time if we
decide to extend the Offer. See "The Offer--Expiration Time, Extensions,
Termination and Amendments."

When will I receive cash and/or Senior Notes in exchange for my
Preferred Stock tendered?

Subject to the satisfaction or waiver of all conditions to the Offer,
and assuming we have not previously elected to terminate or amend the Offer, we
will accept shares that are properly tendered and not withdrawn prior to the
expiration of the Offer at 5:00 p.m., New York City time, on February 11, 2003,
or such later expiration time as we specify if we extend the Offer. As soon as
practicable following the expiration time of the Offer, in accordance with your
election, either cash, without interest, or Senior Notes, or a combination
thereof, will be delivered for your shares, in the manner described in this
Offering Circular (subject to any required prorationing), up to the maximum
aggregate amount we are offering to acquire. Payment of cash and issuance of the
Senior Notes is expected to occur no later than February 28, 2003 (the "Closing
Date"). See "The Offer--Acceptance of Shares of Preferred Stock for Exchange;
Delivery of Senior Notes to be Exchanged."

What are the principal terms of the Senior Notes I will receive in
exchange for my Preferred Stock?

The Senior Notes will be unsecured obligations of Dynex. The Senior
Notes mature February 28, 2005 and bear interest at 9.50% per annum on the
outstanding principal balance. Interest shall accrue on the Senior Notes
commencing on the Closing Date. Principal and interest will be paid quarterly in
eight equal installments. A principal payment of $3.125 (or such lesser
principal amount as is then outstanding) per each $25 of principal amount on
each Senior Note will be made on each quarterly payment date on such Senior Note
until such Senior Note is paid in full. Dynex will have the right to prepay the
Senior Notes in whole or in part, including all interest accrued thereon,
without penalty. Dynex also will have the right to purchase the Senior Notes in
the open market. The Senior Notes will be issued under an Indenture between
Dynex and Wachovia Bank, N.A., as trustee. The terms of the Senior Notes
Indenture are governed by certain provisions contained in the Trust Indenture
Act. See "Description of Senior Notes."

Will the Senior Notes be listed for trading on a securities exchange?

We intend to apply for listing of the Senior Notes for trading on the
American Stock Exchange. However, there is no assurance that the Senior Notes
will be listed on the American Stock Exchange or that a liquid trading market
will develop for the Senior Notes. If a trading market does develop, there can
be no assurance as to any price at which the Senior Notes will trade. The Senior
Notes will be issued only in book-entry form. Generally, the Senior Notes that
you receive in the Offer will be freely tradable, unless you are considered an
affiliate of ours, as that term is defined in the Securities Act of 1933, as
amended (the "Securities Act"). See "Risk Factors--By Exchanging Preferred Stock
for the Senior Notes, You Will Lose Rights Associated with Your Preferred
Stock."

Will I be paid any dividends with respect to my Preferred Stock?

You will not receive any dividends with respect to the shares of
Preferred Stock that are tendered, including dividends in arrears that have
accumulated to date which will be cancelled.



-6-

How will Dynex pay for the shares?

We expect to fund the acquisition of the shares of Preferred Stock
tendered under the cash option of the Offer, and the payment of related fees and
expenses, from available cash. Purchases of Preferred Stock tendered for Senior
Notes will be funded through the issuance of the Senior Notes. In addition, to
the extent that we pay any cash in connection with tenders for Senior Notes
(because Senior Notes will only be issued in denominations of $25 or in integral
multiples of $25 and cash consideration will be paid for amounts in excess of
the nearest $25 not to exceed $24.99), we expect to fund such cash payments from
available cash.

How will Dynex pay the interest and repay the principal on the Senior
Notes?

We expect to pay the interest and repay the principal on the Senior
Notes from cash flow generated by our investment portfolio. For the quarter
ended December 31, 2002, our investment portfolio produced a cash flow of
approximately $13,000,000 (unaudited).

Will the Offer affect trading of the Preferred Stock on the Nasdaq
National Market?

We expect that following the Offer our Preferred Stock will continue to
be quoted on Nasdaq, although we cannot assure you that a liquid market to trade
our Preferred Stock will exist.

Will the Senior Notes be registered with the Securities and Exchange
Commission?

In making the Offer, we are relying on the exemption from the
registration requirements of the Securities Act contained in Section 3(a)(9) of
that Act for the Senior Notes. Under that exemption, if the shares of Preferred
Stock you tender are freely tradable, the Senior Notes you will receive in the
Offer will be freely tradable. If the shares of Preferred Stock you tender in
the Offer are restricted, the Senior Notes you receive will be restricted to the
same degree. See "The Offer--Exemption from Registration Requirements."

Has Dynex or its Board of Directors adopted a position on the Offer?

Our Board of Directors has approved the making of this Offer. However,
neither we nor our directors make any recommendation as to whether you should
tender shares pursuant to this Offer. You must make the decision whether to
tender shares and, if so, how many shares to tender and what consideration to
tender those shares for.

Will I have to pay brokerage commissions if I tender my shares?

If you are a registered shareholder and you tender your shares directly
to the Exchange Agent, you will not incur any brokerage commissions. If you hold
shares through a broker or bank, we urge you to consult your broker or bank to
determine whether any transaction costs are applicable.

Will I have to pay a stock transfer tax if I tender my shares?

If you instruct the Exchange Agent in the related Letter of Transmittal
to make the payment for the shares to the registered holder, you will not incur
any stock transfer tax.

Who will serve as the Exchange Agent in connection with the Offer?

Wachovia Bank, N.A., will serve as the Exchange Agent for the Offer.
See "The Offer--Exchange Agent" and the information set forth on the back cover
of this Offering Circular.



-7-

Who will serve as the Information Agent in connection with the Offer?

MacKenzie Partners, Inc. will serve as Information Agent in connection
with the Offer. The Information Agent's telephone number is (212) 929-5500 or
(800) 322-2885 (toll free). See "The Offer--Information Agent" and the
information set forth on the back cover of this Offering Circular. The
Information Agent can help answer your questions.

What are the tax consequences if I tender my Preferred Stock?

The exchange of shares of Preferred Stock for cash, Senior Notes or
cash and Senior Notes by a tendering shareholder will be a taxable event treated
for United States federal income tax purposes as either (i) a sale or exchange
of the shareholder's shares or (ii) a deemed distribution of property by us with
respect to such shares (which the Company expects will not result in ordinary
income to the shareholder). Stated interest on the Senior Notes will be taxable
as ordinary income to holders of Senior Notes at the time such amounts are
received or accrued in accordance with the holder's method of accounting. See
"Certain United States Federal Income Tax Consequences" for a discussion of
certain federal income tax consequences associated with the Offer and the
ownership of Senior Notes, and "Risk Factors--Certain United States Federal
Income Tax Risks Associated with the Offer."

What if I decide not to tender shares of my Preferred Stock?

We expect that any shares of your Preferred Stock which you do not
tender in the Offer will continue to be quoted on Nasdaq. However, following the
completion of the Offer, we cannot assure you that a liquid market to trade our
Preferred Stock will exist, nor can we assure you that your shares of Preferred
Stock will not decline in price as quoted on Nasdaq. In addition, until the
Senior Notes have been fully repaid, the Indenture effectively prohibits us from
engaging in any future tender offers with respect to our Preferred Stock and
from making any distributions with respect to the Preferred Stock other than
distributions required for us to maintain our status as a real estate investment
trust ("REIT").


-8-

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION

This summary historical and pro forma financial information should be
read in conjunction with our unaudited condensed consolidated financial
statements set forth in our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2002 which reflect all adjustments which, in the opinion of
management, are necessary to a fair statement of results for all interim periods
presented, our audited consolidated financial statements set forth in our Annual
Report on Form 10-K, as amended, for the fiscal year ended December 31, 2001,
and the sections of such Forms 10-Q and 10-K captioned "Management's Discussion
and Analysis of Financial Condition and Results of Operations," each of which is
incorporated herein by reference and enclosed with this Offering Circular.

The following summary historical financial information is derived from
our audited consolidated financial statements for the years ended December 31,
2001 and 2000, and the unaudited consolidated financial statements for the nine
months ended September 30, 2002 and 2001, which are incorporated by reference
into this Offering Circular.

(amounts in thousands except share data)


- -----------------------------------------------------------------------------------------------------------------------------
Nine Months Ended
September 30, Year Ended December 31
- -----------------------------------------------------------------------------------------------------------------------------

2002 2001 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------

Total interest income $ 130,230 $ 174,387 $ 222,760 $ 291,160
Total interest and related expense 97,636 139,133 174,678 259,673
Provision for losses (16,292) (22,075) (19,672) (29,110)
Net interest margin 16,302 13,179 28,410 2,377
Net gain (loss) on sales, write-downs, and impairment (9,151) 1,544 (20,954) (84,039)
charges (3)
Trading losses (3,307) (2,881) (3,091) -
Other income (expense) 688 39 104 (428)
General and administrative expenses (6,744) (6,777) (10,526) (8,712)
Extraordinary item - gain (loss) on extinguishment of debt 230 1,835 2,972 -
- -----------------------------------------------------------------------------------------------------------------------------
Net (loss) income $ (1,982) $ 6,939 $ (3,085) $ (91,863)
- -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common shareholders $ (9,171) $ 11,379 $ 6,246 $ (104,774)
- -----------------------------------------------------------------------------------------------------------------------------

Income (loss) per common share before extraordinary item:
Basic and Diluted(1) $ (0.86) $ 0.83 $ 0.29 $ (9.15)

Net income (loss) per common share:
Basic and Diluted (1) $ (0.84) $ 0.99 $ 0.55 $ (9.15)





-9-

- ------------------------------------------------------------------------------------------------------------------------

September 30, December 31
- ------------------------------------------------------------------------------------------------------------------------
2002 2001 2001 2000
- ------------------------------------------------------------------------------------------------------------------------

Investments (2) $2,323,553 $2,662,135 $2,549,579 $3,193,234
Total assets 2,337,620 2,695,033 2,569,859 3,239,921
Non-recourse debt 2,098,202 2,384,670 2,264,213 2,856,728
Recourse debt 94 64,964 58,134 134,168
Total liabilities 2,103,478 2,452,308 2,327,749 3,002,465

Shareholders' equity 234,142 242,726 242,110 237,456
Number of common shares outstanding 10,873,903 11,446,206 10,873,853 11,446,206
Average number of common shares 10,873,903 11,446,167 11,430,471 11,445,236
Book value per common share (1) $ 9.77 $ 10.31 $ 11.06 $ 7.39
- ------------------------------------------------------------------------------------------------------------------------


(1) Inclusive of the liquidation preference on the Company's preferred stock.
(2) Investments classified as available for sale are shown at fair value.
(3) Net loss on sales, write-downs, and impairment charges for the year ended
December 31, 2000 include several adjustments related largely to
non-recurring items. See Footnote 14 to the consolidated financial
statements included in the Annual Report on Form 10-K, as amended, for the
year ended December 31, 2001, and Footnote 12 to the unaudited
consolidated financial statements included in the Quarterly Report on Form
10-Q for the quarter ended September 30, 2002.


The following unaudited pro forma condensed consolidated balance sheet
data as of September 30, 2002 gives pro forma effect to this Offer, assuming the
maximum number of shares are tendered for cash and Senior Notes at the prices
offered herein, as if the payment of such cash and exchange of such Senior Notes
had occurred on September 30, 2002. The unaudited condensed consolidated
statement of operations data for the year ended December 31, 2001 and the nine
months ended September 30, 2002 gives pro forma effect to this Offer, assuming
the maximum number of shares are tendered for cash and Senior Notes at the
prices offered herein, as if the payment of such cash and exchange of such
Senior Notes was effective as of January 1, 2001, the beginning of Dynex' 2001
fiscal year. The unaudited pro forma condensed consolidated statements of
operations data for the year ended December 31, 2001 and the nine months ended
September 30, 2002 also assumes that the Company was free to make this Offer as
of January 1, 2001 without restriction, and further assumes that no repayments
of principal on the Senior Notes occurs during the pro forma periods presented.

The pro forma adjustments are based upon available information and
certain assumptions that we believe are reasonable under the circumstances. The
summary unaudited pro forma financial information is not necessarily indicative
of what our results would have been if the exchange of the Senior Notes and
payment of cash, assuming the maximum number of shares tendered at the exchange
prices offered herein in this Offering, actually had occurred as of the dates
indicated or of what our future operating results will be.


-10-


UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of September 30, 2002
(amounts in thousands except share data)

- ---------------------------------------------------------------------------------------------------------------
Pro Forma
Historical Adjustments Pro Forma
- ---------------------------------------------------------------------------------------------------------------

Collateral for collateralized bonds $2,247,276 $2,247,276
Other investments, securities and loans 76,277 76,277
Cash and other assets 14,067 ($20,000) (1) (5,933)
- ---------------------------------------------------------------------------------------------------------------
Total assets 2,337,620 (20,000) 2,317,620
- ---------------------------------------------------------------------------------------------------------------
Non-recourse debt 2,098,202 2,098,202
Recourse debt 94 30,000 (2) 30,094
Accrued expenses and other liabilities 5,182 5,182
- ---------------------------------------------------------------------------------------------------------------
Total liabilities 2,103,478 30,000 2,133,478
- ---------------------------------------------------------------------------------------------------------------
Shareholders' equity 234,142 (50,000) (3) 184,142
- ---------------------------------------------------------------------------------------------------------------
Total liabilities and Shareholders' equity $2,337,620 ($20,000) $2,317,620
- ---------------------------------------------------------------------------------------------------------------
(1) Payment of cash consideration for Preferred Stock tendered.
(2) Issuance of Senior Notes for Preferred Stock tendered.
(3) Reduction for aggregate purchase price for Preferred Stock tendered and subsequently retired.



-11-


UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2002
(amounts in thousands except share data)

- ---------------------------------------------------------------------------------------------------------------
Pro Forma
Historical Adjustments Pro Forma
- ---------------------------------------------------------------------------------------------------------------

Interest income:
Collateral for collateralized bonds $129,066 $129,066
Other investments, securities, and loans 1,164 (228) (1) 936
- ---------------------------------------------------------------------------------------------------------------
130,230 (228) 130,002
- ---------------------------------------------------------------------------------------------------------------
Interest expense:
Non-recourse debt 95,040 95,040
Recourse debt 2,596 2,138 (2) 4,734
- ---------------------------------------------------------------------------------------------------------------
97,636 2,138 99,774
- ---------------------------------------------------------------------------------------------------------------
Net interest margin before provision for losses 32,594 (2,366) 30,228
Provision for losses (16,292) (16,292)
- ---------------------------------------------------------------------------------------------------------------
Net interest margin 16,302 (2,366) 13,936
Net loss on sales, write-downs and impairment (9,151) (9,151)
charges
Trading losses (3,307) (3,307)
Other income 688 688
General an administrative expenses (6,744) (6,744)
- ---------------------------------------------------------------------------------------------------------------
Loss before extraordinary items (2,212) (2,366) (4,578)
Extraordinary item - gain on extinguishment of
debt 230 230
- ---------------------------------------------------------------------------------------------------------------
Net loss (1,982) (2,366) (4,348)
Preferred stock charges (7,189) 3,524 (3) (3,665)
- ---------------------------------------------------------------------------------------------------------------
Net loss applicable to common shareholders ($9,171) $1,158 ($8,013)
===============================================================================================================
Loss per common share before extraordinary item:
Basic and Diluted $ (0.86) $ (0.76)
Loss per common share:
Basic and Diluted $ (0.84) $ (0.74)
- ---------------------------------------------------------------------------------------------------------------

(1) Reduction in interest income at average effective investment yield for reduction in cash of $20,000.
(2) Interest expense for the nine months ended September 30, 2002 for the Senior Notes issued for Preferred
Stock tendered.
(3) Reduction for dividend charges associated with Preferred Stock tendered and subsequently retired.


-12-


UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 2001
(amounts in thousands except share data)

- ----------------------------------------------------------------------------------------------------------------
Pro Forma
Historical Adjustments Pro Forma
- ----------------------------------------------------------------------------------------------------------------

Interest income:
Collateral for collateralized bonds $215,018 $215,018
Other investments, securities, and loans 7,742 (800) (1) 6,942
- ----------------------------------------------------------------------------------------------------------------
222,760 (800) 221,960
- ----------------------------------------------------------------------------------------------------------------
Interest expense:
Non-recourse debt 167,098 167,098
Recourse debt 7,580 2,850 (2) 10,430
- ----------------------------------------------------------------------------------------------------------------
174,678 2,850 177,528
- ----------------------------------------------------------------------------------------------------------------
Net interest margin before provision for losses 48,082 (3,650) 44,432
Provision for losses (19,672) (19,672)
- ----------------------------------------------------------------------------------------------------------------
Net interest margin 28,410 (3,650) 24,760
Net loss on sales, write-downs and impairment (20,954) (20,954)
charges
Trading losses (3,091) (3,091)
Other income 104 104
General an administrative expenses (10,526) (10,526)
- ----------------------------------------------------------------------------------------------------------------
Loss before extraordinary items (6,057) (3,650) (9,707)
Extraordinary item - gain on extinguishment of 2,972 2,972
debt
- ----------------------------------------------------------------------------------------------------------------
Net loss (3,085) (3,650) (6,735)
Preferred stock benefit 9,331 4,699 (3) 14,030
- ----------------------------------------------------------------------------------------------------------------
Net income applicable to common shareholders $6,246 $1,049 $7,295
================================================================================================================
Net income per common share before extraordinary item:
Basic and Diluted $0.29 $0.38
Net income per common share:
Basic and Diluted $0.55 $0.64
- ----------------------------------------------------------------------------------------------------------------

(1) Reduction in interest income at estimated average effective investment yield for reduction in cash of
$20,000.
(2) Interest expense for the year ended December 31, 2001 on the Senior Notes issued for Preferred Stock
tendered.
(3) Reduction for dividend charges associated with Preferred Stock tendered and subsequently retired.



USE OF PROCEEDS

We will not receive any cash proceeds from the Offer. All shares of
Preferred Stock that are properly tendered and accepted by us will be retired
and cancelled.

-13-

RISK FACTORS

Before deciding to tender your securities, you should consider
carefully the risks described in this Offering Circular, as well as other
information we include or incorporate by reference in this Offering Circular,
and the additional information in the reports that we file with the Commission.
The risks and uncertainties described below are not the only ones we face or the
only ones that may exist with respect to the Offer. Additional risks and
uncertainties that we do not presently know about, that we currently believe are
immaterial or which are similar to those faced by other companies in our
industry or business in general, may also adversely impact our business.

Risks Particular to Dynex
- -------------------------

Our Business Is Affected By General Economic Conditions

We are affected by general economic conditions. The risk of defaults,
delinquencies, foreclosures and credit losses could increase during an economic
slowdown or recession, which may be accompanied by declining real estate values.
This could have an adverse effect on our financial performance and the
performance on our securitized loan pools. For example, any material decline in
real estate values reduces the ability of borrowers to use home equity to
support borrowings and increases the loan-to-value ratios of loans previously
made, thereby weakening collateral coverage and increasing the possibility of a
loss in the event of default.

Our Income Is Dependent On Our Ability To Manage Interest Rate Spreads and
Changes in Interest Rates May Affect our Investment Portfolio

Our income depends on our ability to earn greater interest on our
investments than the interest cost to finance these investments. Interest rates
in the markets we serve generally rise or fall with interest rates as a whole. A
majority of the loans we currently pledge as collateral for collateralized bonds
are fixed-rate. We currently finance these fixed-rate assets through
non-recourse debt, approximately $280,000,000 of which is variable rate. In
addition, a significant amount of the investments we hold are adjustable-rate
collateral for collateralized bonds. These investments are financed through
non-recourse variable-rate long-term collateralized bonds. The net interest
spread for these investments could decrease during a period of rapidly rising
short-term interest rates, since the investments generally have interest rates
which reset on a delayed basis and have periodic interest rate caps; the related
borrowings have no delayed resets or such interest rate caps. Our variable-rate
collateralized bonds are substantially based on the one-month London InterBank
Offered Rate ("LIBOR") and interest-rates reset monthly, while the associated
assets are principally six-month LIBOR or one-year Constant Maturity Treasury
("CMT") based and interest-rates generally reset every six to twelve months.

Our Investment Portfolio Is Subject To Credit Risk

Credit risk is the risk of loss from the failure of a borrower (or the
proceeds from the liquidation of the underlying collateral) to fully repay the
principal balance and interest due on a loan. A borrower's ability to repay, or
the value of the underlying collateral, could be negatively influenced by
economic and market conditions. The Company has credit risk principally by
virtue of its investment in collateral for collateralized bonds, which credit
risk is generally limited to our net investment in the collateralized bond
structure (also known as over-collateralization) and subordinated securities
that it may retain from the securitization. We provide reserves for expected
losses and record impairment charges for other than temporary declines in value
based on the current performance of the respective pool of loans; however, if
losses are experienced more rapidly than we had provided for in our reserves, we
may be required to provide for additional reserves for these losses.



-14-

An Increase In Defaults By Borrowers Could Adversely Impact Our Business

Defaults by borrowers on loans we hold may have an adverse impact on
our financial performance, if actual credit losses differ materially from our
estimates. The allowance for losses is calculated on the basis of historical
experience and management's best estimates. Actual default rates or loss
severity may differ from our estimate as a result of economic conditions. In
particular, the default rate and loss severity on our portfolio of manufactured
housing loans has been higher than initially estimated. Actual defaults on
adjustable rate mortgage loans may increase during a rising interest rate
environment.

An Increase In Prepayments By Borrowers Could Adversely Impact Our Business

Prepayments by borrowers on loans securitized by the Company may have
an adverse impact on the Company's financial performance, including a reduction
in the Company's overall cash flow from its investment portfolio and a reduction
in its overall investment portfolio. Prepayments are expected to increase during
a declining interest rate or flat yield curve environment. The Company's
exposure to rapid prepayments is primarily the result of (i) the faster
amortization of premium on the investments and, to the extent applicable, the
amortization of bond discount; and (ii) the replacement of investments in the
investment portfolio with lower yield securities.

Our Business Is Dependent Upon Third-Party Servicers

Third-party servicers service the majority of our investment portfolio.
To the extent that these servicers are financially impaired, the performance of
our investment portfolio may deteriorate, and defaults and credit losses may be
greater than estimated.

We May Invest in a New Business Strategy

We intend to explore various new business strategies, including the
possible acquisition of a depository institution. The pursuit of any strategy is
subject to the outcome of our investigation, but it is the Company's belief that
a new business strategy may be the best use of the Company's available capital
on a go-forward basis after the completion of this Offer. In addition, we have
no experience in operating a depository institution and no business plan has
been prepared for such a strategy. Consequently, there can be no assurance that
the acquisition of a depository institution would result in any benefit to the
Company.

Regulatory Changes Could Affect Our Business

The Company's businesses as of December 31, 2002 are not subject to any
material federal or state regulation or licensing requirements. However, changes
in existing laws and regulations or in the interpretation thereof, or the
introduction of new laws and regulations, could adversely affect the Company and
the performance of the Company's securitized loan pools or its ability to
collect on its delinquent property tax receivables.

Risks Particular To The Offer
- -----------------------------

The Offer Will Increase Our Leverage And Debt Service Obligations, Which May
Adversely Effect Continuing Operations

Following the Offer, we will be more leveraged and have additional debt
service obligations in addition to operating expenses and planned capital
expenditures. At September 30, 2002, as adjusted to give effect to the issuance
of the maximum $30,000,000 principal amount of the Senior Notes, our total
recourse indebtedness would have been approximately $30,094,000. Assuming the


-15-

issuance of the maximum $30,000,000 principal amount of the Senior Notes
pursuant to the Offer, we would incur additional debt service obligations of
approximately $13,120,000 in 2003, $16,246,000 in 2004 and $3,839,000 in 2005.

Increased levels of indebtedness may have several important effects on
our future operations, including, without limitation, (i) a substantial portion
of our cash flow from operations must be dedicated to the payment of interest
and principal on its indebtedness, reducing the funds available for operations
and for capital expenditures, (ii) our leveraged position will increase our
vulnerability to adverse changes in general economic, industry and competitive
conditions, and (iii) our ability to obtain additional financing for working
capital, capital expenditures, acquisitions, general corporate and other
purposes may be limited. Our ability to meet debt service obligations and to
reduce total indebtedness will be dependent upon our future performance, which
will be subject to general economic, industry and competitive conditions and to
financial, business and other factors affecting operations, or ability to raise
additional equity, many of which are beyond our control. If we are unable to
generate sufficient cash flow from operations in the future to service debt, we
may be required, among other things, to seek additional financing in the debt or
equity markets, to refinance or restructure all or a portion of our
indebtedness, including the Senior Notes, to sell selected assets, or to reduce
or delay planned capital expenditures and growth or business strategies. There
can be no assurance that any such measures would be sufficient to enable us to
service our debt, or that any of these measures could be effected on
satisfactory terms, if at all.

If we fail to pay any required payment of interest or principal with
respect to the Senior Notes on a timely basis, such failure will constitute a
default under the terms of the Indenture. An event of default under the
Indenture also may trigger an event of default under certain other obligations,
if any should exist at that time. As of the date of this Offer, no such
obligations exist. As a result, the incurrence of additional debt resulting from
the Offer will increase the risk of possible default with respect to future
obligations. The Indenture does not contain restrictions on our ability to incur
additional indebtedness.

The Offer Will Reduce Our Amount of Cash and Cash Equivalents

At December 31, 2002, our cash and cash equivalents were approximately
$15,000,000 (unaudited). If the Offer to purchase Preferred Stock for cash is
fully subscribed, we will pay out $20,000,000 in cash to tendering shareholders.
In addition, we will pay out additional cash to the extent that we are required
to pay cash to tendering shareholders in connection with tenders for Senior
Notes (because Senior Notes will only be issued in denominations of $25 or in
integral multiples of $25 and cash consideration will be paid for amounts in
excess of the nearest $25 not to exceed $24.99). As a result, our ability to
internally finance working capital, capital expenditures, acquisitions, general
corporate and other purposes may be impaired. In addition, if the maximum
principal amount of the Senior Notes is issued, we will pay principal payments
in the amount of $3,750,000 quarterly until the Senior Notes are fully paid off.
If we are unable to generate sufficient cash flow from operations in the future
to service our debt and other liabilities, we may be required, among other
things, to seek additional financing in the debt or equity markets, to refinance
or restructure all or a portion of our indebtedness, including the Senior Notes,
to sell selected assets, or to reduce or delay planned capital expenditures and
growth or business strategies. There can be no assurance that any such measures
would be sufficient to enable us to meet our obligations, or that any of these
measures could be effected on satisfactory terms, if at all.

By Tendering Your Preferred Stock For The Senior Notes, You Will Lose Rights
Associated With Your Preferred Stock

To the extent that shares of your Preferred Stock you tender are
accepted by us, you will be relinquishing rights available to you as a
shareholder. If your Preferred Stock is validly tendered and accepted for
exchange you will lose the right to share in any capital appreciation of our
Preferred Stock, will not be entitled to vote upon any matters submitted to our
shareholders for which you might otherwise be eligible to vote, and will no
longer be entitled to dividends paid, if any, on our Preferred Stock. In
addition, while we intend to apply for the listing of the Senior Notes for
trading on the American Stock Exchange, there is no assurance that such


-16-

application will be accepted. Therefore, there is no assurance that a liquid
trading market will develop for the Senior Notes. If a trading market does
develop, it is likely that trading in the Senior Notes will be thin and the
liquidity of your investment in Dynex may be reduced.

The Market May View The Offer Unfavorably, Which May Adversely Effect The Market
Price Of The Preferred Stock And The Senior Notes

The Offer will reduce our shareholders' equity and increase our
indebtedness, thereby increasing our debt to equity ratio and debt service
obligations. The market may regard these results unfavorably and the price of
our Common Stock and Preferred Stock may be adversely affected. To the extent
that the market does not regard the Offer as favorable, the market price, if
any, of the Senior Notes also could be adversely affected. Dynex has been
informed by Nasdaq that the shares of each series of Preferred Stock not
tendered in the Offer will continue to be eligible to be included on the Nasdaq
National Market immediately after the closing of the Offer. There can be no
assurance, however, that each series will continue to qualify for inclusion on
the Nasdaq National Market as continued inclusion requires the maintenance of
price, float and other standards.

The Senior Notes May Be Prepaid By Dynex, Which Could Prevent You From Realizing
Interest Income Associated With The Senior Notes

The Senior Notes are subject to redemption at our option in whole at
any time or in part from time to time without penalty or premium upon notice to
the holders of the Senior Notes. As a result, holders of the Senior Notes will
be subject to a risk of prepayment at a time when interest rates may be
generally declining. In such case, holders of Senior Notes will no longer have
the right to receive interest and may be forced to reinvest the redemption
proceeds in securities with a lower rate of interest.

The Offer Could Be Deemed A Fraudulent Conveyance by a Court of Law, Which Could
Result In Such Court Voiding All Or A Portion of Our Obligations To Holders Of
The Senior Notes

Various fraudulent conveyance laws enacted for the protection of
creditors may apply to the issuance of the Senior Notes. Under federal or state
fraudulent transfer laws, if a court were to find that, at the time the Senior
Notes were issued, we (i) issued the Senior Notes with the intent of hindering,
delaying or defrauding current or future creditors or (ii) (A) received less
than fair consideration or reasonably equivalent value for incurring the
indebtedness represented by the Senior Notes and (B) (1) were insolvent or were
rendered insolvent or contemplated insolvency by reason of the issuance of the
Senior Notes, (2) were engaged, or about to engage, in a business or transaction
for which our assets or capital were unreasonably small or (3) intended to
incur, or believed (or should have believed) we would incur, debts beyond our
ability to pay as such debts mature (as all of the foregoing terms are defined
in or interpreted under such fraudulent transfer statutes), such court could
void all or a portion of our obligations to the holders of the Senior Notes, or
void or subordinate our obligations to the holders of the Senior Notes, and take
other action detrimental to the holders of the Senior Notes, including in
certain circumstances, invalidating the Senior Notes. In that event, repayment
on the Senior Notes may not be recovered by the holders of the Senior Notes.

The definition of insolvency for purposes of the foregoing
consideration varies among jurisdictions depending upon the federal or state law
that is being applied in any such proceeding. Generally, however, we would be
considered insolvent at the time we incur the indebtedness constituting the
Senior Notes, if (i) the fair market value (or fair saleable value) of our
assets is less than the amount required to pay our total existing debts and
liabilities (including the probable liability on contingent liabilities) as they
become absolute or matured or (ii) we were incurring debts beyond our ability to
pay as such debts mature. Based upon financial and other information, we
believes that we are solvent and will continue to be solvent after issuing the


-17-

Senior Notes, will have sufficient capital for carrying on our business after
such issuance and will be able to pay our debts as they mature. There can be no
assurance, however, that a court passing on such standards would agree with the
Company. There can also be no assurance as to what standard a court would apply
in order to determine whether we were "insolvent" as of the date the Senior
Notes were issued, or that, regardless of the method of valuation, a court would
not determine that we were insolvent on that date or otherwise agree with us
with respect to the above standards.

The Offer Is Subject To Certain Contingencies Which May Prevent Its Consummation

The consummation of the Offer is subject to certain conditions that are
not within our control. For example, the Offer requires qualification of the
Indenture under the Trust Indenture Act. The consummation of the Offer is also
conditioned on, among other things, there being no material adverse changes in
our business, no pending or threatened action by a governmental body challenging
the Offer and no general suspension of trading in the securities markets. The
Company expects the Trust Indenture to qualify under the Trust Indenture Act.

Certain United States Federal Income Tax Risks Associated With The Offer

Tax Consequences of Offer

The exchange of shares of Preferred Stock for cash, Senior Notes or
cash and Senior Notes by a tendering shareholder pursuant to the Offer will be a
taxable event treated for United States federal income tax purposes as either
(1) a sale or exchange of the shareholder's shares or (2) a deemed distribution
of property by the Company with respect to such shares.

Sale or exchange treatment will result if a tendering shareholder
satisfies any of three tests under Section 302 of the Internal Revenue Code (the
"Code") which measure reductions in a shareholder's overall equity interest. If
treated as a sale or exchange, a shareholder should recognize gain or loss in an
amount equal to the difference between (a) the amount of any cash and the fair
market value of the Senior Notes received, and (b) the shareholder's adjusted
tax basis of the shares exchanged pursuant to the Offer.

If none of the Section 302 tests is satisfied, then to the extent of
the Company's current or accumulated "earnings and profits" (as determined for
federal income tax purposes), a tendering shareholder will be treated as having
received a dividend taxable as ordinary income in an amount equal to the amount
of any cash and the fair market value of the Senior Notes received without
reduction for the adjusted tax basis of the shares tendered and accepted by the
Company pursuant to the Offer. Dynex does not expect to report any accumulated
or current "earnings and profits" for 2003. To the extent, if any, that the
amount of any cash and the fair market value of the Senior Notes exceeds the
Company's current and accumulated earnings and profits (as determined for
federal income tax purposes), the excess will be treated first as a tax-free
return of such shareholder's tax basis in the shares exchanged for Senior Notes
and thereafter as capital gain. Corporate shareholders receiving a dividend must
assess the applicability of the dividends-received deduction to the extent
applicable and the impact of Section 1059 of the Code governing "extraordinary
dividends."

The Company cannot predict whether or to what extent the Offer will be
oversubscribed. If the Offer is oversubscribed, pro-ration of the tenders
pursuant to the Offer will cause the Company to accept fewer shares than are
tendered. Therefore, a shareholder can be given no assurance that a sufficient
number of such shareholder's shares will be exchanged for cash, Senior Notes or
cash and Senior Notes pursuant to the Offer to ensure that such exchange will
satisfy one or more of the Section 302 tests and be treated as a sale, rather
than as a dividend, for United States federal income tax purposes.

To the extent that a tendering shareholder does not receive a
sufficient amount of cash pursuant to the Offer to satisfy any tax liability in
connection with the exchange of shares of Preferred Stock for cash, Senior Notes


-18-

or cash and Senior Notes, a shareholder will need to use other cash resources of
the shareholder (including possible dispositions of the Senior Notes) to satisfy
any tax liability arising from an exchange of Preferred Stock for Senior Notes.

See "Certain United States Federal Income Tax Consequences"--"Certain
Federal Income Tax Consequences to Tendering Shareholders"--"Characterization of
the Exchange" for the circumstances in which a sale or exchange treatment would
apply as well as other relevant rules.

Interest on Senior Notes - General

Depending upon a shareholder's particular circumstances, the tax
consequences of holding Senior Notes may be less advantageous than the
consequences of holding shares of Preferred Stock because, for example, interest
payments on the Senior Notes will not be eligible for any dividends-received
deduction that might otherwise be available to corporate shareholders.

Withholding for Non-United States Holders.

Even if a Non-United States Holder has provided the required
certification to avoid backup withholding, the Exchange Agent may withhold
United States federal income taxes equal to 31% of the gross payments payable to
a Non-United States Holder or his agent unless the Exchange Agent determines
that a reduced rate of withholding is available under a tax treaty or that an
exemption from withholding is applicable. To obtain a reduced rate of
withholding under a tax treaty, a Non-United States Holder must deliver to the
Exchange Agent before the payment a properly completed and executed IRS Form
W-8BEN (or successor form). To obtain an exemption from withholding on the
grounds that the gross proceeds paid pursuant to the offer are effectively
connected with the conduct of a trade or business within the United States, a
Non-United States Holder must deliver to the Exchange Agent a properly completed
and executed IRS Form W-8ECI (or successor form).

A Non-United States Holder may be eligible to obtain a refund of all or
a portion of any tax withheld if the Non-United States holder is qualified for a
sale or exchange treatment or is otherwise able to establish that no tax or a
reduced amount of tax is due.

SHAREHOLDERS CONTEMPLATING AN EXCHANGE OF SHARES FOR NOTES PURSUANT TO THE OFFER
ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE SPECIFIC FEDERAL,
STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF EXCHANGES MADE BY THEM
PURSUANT TO THE OFFER AS WELL AS THE SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES ASSOCIATED WITH THE OWNERSHIP OF ANY SENIOR NOTES
RECEIVABLE IN CONNECTION WITH THE OFFER.

Forward Looking Statements

This Offering Circular contains certain forward looking statements.
Additional written or oral forward looking statements may be made by the Company
from time to time in filings with the Commission or otherwise. Such statements
may include, but not be limited to, estimates of the value of the Company's
Preferred Stock, expectations as to future revenues and other results of
operations, capital expenditures, plans for future operations, financing needs
or plans, the Company's ability to service its debt obligations, and plans
relating to products or services of the Company as well as assumptions relating
to the foregoing. The words "believe," "expect," "anticipate," "estimate,"
"project," and similar expressions identify forward looking statements. Forward
looking statements are inherently subject to risks and uncertainties, some of
which cannot be predicted or quantified. Future events and actual results could
differ materially from those set forth in, contemplated by, or underlying the
forward looking statements. Statements in this Offering Circular, including
those contained in the section entitled "Risk Factors," and in the section
entitled "Purposes and Effect of the Offer," describe factors, among others,


-19-

that could contribute to or cause such differences. The Company undertakes no
obligation to update any forward looking statements. Sections 27A(b)(2)(C) of
the Securities Act and 21E(b)(2)(C) of the Exchange Act expressly state that the
safe harbor for forward looking statements does not apply to statements made in
connection with a tender offer such as this Offer. As such, forward looking
statements made in connection with the Offer will not be eligible for the safe
harbor protection.

RATIO OF EARNINGS TO FIXED CHARGES

The following table sets forth Dynex' ratio of earnings to fixed
charges on a historical basis for each of the five fiscal years ended December
31, 1997 through December 31, 2002 and the nine-months ended September 30, 2002.


- ---------------------------------------------------------------------------------------------------------------------

Nine Months
ended
September 30
Year Ended December 31,
---------------- ----------------------------------------------------------------

2002 2001 2000 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------


Ratio of earnings to fixed 0.07:1 0.56:1 (3.18):1 (0.23):1 1.20:1 1.82:1
charges (1)(2)(3)
- ---------------------------------------------------------------------------------------------------------------------


(1) For purposes of computing the ratios, "earnings" consists of net income
(loss) plus interest and debt expense and excludes fixed charges related to
the collateralized bonds issued by the Company which are non-recourse to
the Company. This sum is divided by fixed charges, which includes total
interest and debt expense, to determine the ratio of available earnings to
fixed charges.
(2) That ratio of earnings to fixed charges is below 1:1 in 2002, 2001, 2000
and 1999 due to non-cash charges associated with provision for losses and
impairment and other charges. The shortfall for the ratio of earnings to
fixed charges relative to a ratio of 1:1 was $1,985,000, $3,085,000,
$91,863,000, and $75,135,000 for 2002, 2001, 2000 and 1999, respectively.
(3) The ratio of earnings to fixed charges on a pro forma basis, assuming the
Senior Notes were issued effective as of January 1, 1997, was 0.04:1 for
the nine months ended September 30, 2002, 0.40:1 for 2001, (2.81):1 for
2000, (0.22):1 for 1999, 1.16:1 for1998 and 1.76:1 for 1997, respectively.
The shortfall for the ratio of earnings to fixed charges relative to a
ratio of 1:1 was $4,120,000, $5,935,000, $94,713,000, and $77,985,000 for
2002, 2001, 2000 and 1999, respectively.


-20-

THE OFFER

General

We invite our shareholders to tender shares of our Preferred Stock to
us under one of the three options set forth below. Tendering holders of
Preferred Stock will not receive any dividends with respect to their shares,
including unpaid dividends accumulated to date which will be cancelled. Shares
of Preferred Stock must be tendered on the terms and subject to the conditions
set forth in this Offer and in the related Letters of Transmittal included
herewith.

We are offering to acquire up to 492,425 shares (or such lesser number
as are properly tendered) of Series A Preferred Stock, up to 662,944 shares (or
such lesser number as are properly tendered) of Series B Preferred Stock, and up
to 683,703 shares (or such lesser number as are properly tendered) of Series C
Preferred Stock.

Upon the terms of and subject conditions of the Offer, you can choose
to receive the following for your shares of Preferred Stock:

Option 1 (for consideration in Cash)

o $24.00 in cash for each share of Series A Preferred Stock you
tender, up to an aggregate maximum of $4,866,312 in cash for all
shares of Series A Preferred Stock tendered for cash in the Offer
and up to an aggregate maximum of 202,763 shares of Series A
Preferred Stock;

o $24.50 in cash for each share of Series B Preferred Stock you
tender, up to an aggregate maximum of $6,687,937 in cash for all
shares of Series B Preferred Stock tendered for cash in the Offer
and up to an aggregate maximum of 272,977 shares of Series B
Preferred Stock; and

o $30.00 in cash for each share of Series C Preferred Stock you
tender, up to an aggregate maximum of $8,445,750 in cash for all
shares of Series C Preferred Stock tendered for cash in the Offer
and up to an aggregate maximum of 281,525 shares of Series C
Preferred Stock;

Under this Option 1 (Cash), the per share cash amount to be
received for each share of Preferred Stock tendered in the Offer
is equal to 100% of the original issue price of such share of
Preferred Stock;

or

Option 2 (for consideration in Senior Notes)

o $25.20 in principal amount of our 9.50% Senior Notes due February
28, 2005 for each share of Series A Preferred Stock you tender,
up to $7,299,475 in aggregate maximum principal amount of Senior
Notes for all shares of Series A Preferred Stock tendered for
Senior Notes in the Offer and up to an aggregate maximum of
289,662 shares of Series A Preferred Stock;

o $25.725 in principal amount of the Senior Notes for each share of
Series B Preferred Stock you tender, up to $10,031,900 in
aggregate maximum principal amount of Senior Notes for all shares
of Series B Preferred Stock tendered in the Offer for Senior
Notes and up to an aggregate maximum of 389,967 shares of Series
B Preferred Stock; and



-21-

o $31.50 in principal amount of the Senior Notes for each share of
Series C Preferred Stock you tender, up to $12,668,600 in
aggregate maximum principal amount of Senior Notes for all shares
of Series C Preferred Stock tendered in the Offer for Senior
Notes and up to an aggregate maximum of 402,178 shares of Series
C Preferred Stock;

Under this Option 2 (Senior Notes), the per share principal
amount to be received for each share of Preferred Stock tendered
in the Offer is equal to 105% of the original issue price of such
share of Preferred Stock. The Senior Notes will be issued in
denominations of $25 or integral multiples thereof. In cases
where the consideration for shares of each series you tender is
not divisible, in the aggregate, by the $25 denomination, you
will receive cash consideration for the amount in excess of the
nearest $25 not to exceed $24.99. For a more detailed description
of the terms of the Senior Notes being offered, please see
"Description of Senior Notes;" or

Option 3 (for a combination of consideration in Cash and Senior Notes)

A combination of cash and Senior Notes in amounts which you
designate in your Letter of Transmittal. Under this Option 3,
with respect to the shares of each series of Preferred Stock you
tender, you will designate the number of such tendered shares of
such series for which you choose to receive cash (which cash
shall be subject to Option 1) and you will designate the number
of such tendered shares of such series for which you choose to
receive Senior Notes (which Senior Notes shall be subject to
Option 2).

The number of shares being tendered for in the Offer is equal to
approximately 49% of the shares of each series of our Preferred Stock currently
outstanding.

The Offer for the Preferred Stock provides preferred shareholders who
elect to tender a premium over the market prices for the preferred stocks as of
January 2, 2003, and provides greater liquidity for the holders of our Preferred
Stock at such price levels. Under Option 1 (Cash) and Option 2 (Senior Notes)
described above, the exchange price for the Series A Preferred Stock represented
a premium of 6.67% and 12.00%, respectively, above the market price as of
January 2, 2003, the exchange price for the Series B Preferred Stock represented
a premium of 10.11% and 15.62%, respectively, above the market price as of
January 2, 2003, and the exchange price for the Series C Preferred Stock
represented a premium of 7.14% and 12.50%, respectively, above the market price
as of January 2, 2003.

THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE "THE
OFFER--CONDITIONS TO THE OFFER."

Shareholders tendering Preferred Stock will not be obligated to pay
brokerage commissions, solicitation fees, or, upon the terms and subject to the
conditions of the Offer, stock transfer taxes on the acceptance of shares of
Preferred Stock by Dynex. However, any tendering shareholder or other payee
required to complete a Letter of Transmittal who fails to complete fully and
sign the box captioned "Substitute Form W-9" included in the Letter of
Transmittal may be subject to a required federal backup withholding tax of 31%
of the gross proceeds paid to the shareholder or other payee pursuant to the
Offer. See "Certain United States Federal Income Tax Consequences." Dynex will
pay all charges and expenses of Exchange Agent and the Information Agent
incurred in connection with the Offer.

Tendering holders of Preferred Stock will not receive any dividends
with respect to such shares, including unpaid dividends accumulated to date
which will be cancelled. There can be no assurance that holders that do not
tender their shares will receive any dividends in the future.


-22-

Tenders pursuant to the Offer may be withdrawn at any time prior to
Tuesday, February 11, 2003, at 5:00 p.m., New York City time, the expiration
time of the Offer (including any extensions), and, if not yet accepted for
payment, after March 11, 2003.

OUR BOARD OF DIRECTORS HAS APPROVED THE MAKING OF THE OFFER. YOU MUST,
HOWEVER, MAKE YOUR OWN DECISION WHETHER TO TENDER SHARES AND, IF SO, HOW MANY
SHARES TO TENDER. NEITHER WE NOR OUR BOARD OF DIRECTORS MAKE ANY RECOMMENDATION
TO YOU WITH RESPECT TO THE OFFER, AND NO PERSON HAS BEEN AUTHORIZED BY US OR OUR
BOARD OF DIRECTORS TO MAKE ANY SUCH RECOMMENDATION.

YOU SHOULD EVALUATE CAREFULLY ALL OF THE INFORMATION CONTAINED OR
REFERRED TO IN THIS DOCUMENT AND MAKE YOUR OWN DECISION WHETHER TO TENDER SHARES
PURSUANT TO THE OFFER. YOU ARE URGED TO CONSULT A TAX ADVISOR CONCERNING ANY
FEDERAL, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF A SALE OF PREFERRED STOCK
PURSUANT TO THE OFFER.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THIS TRANSACTION OR DETERMINED IF THIS
DOCUMENT IS ACCURATE OR COMPLETE.

Any shareholder of record desiring to tender all or any portion of his,
her or its shares should complete and sign the applicable Letter of Transmittal
or a facsimile thereof in accordance with the instructions in the applicable
Letter of Transmittal, mail or deliver it with any required signature guarantee
and any other required documents to the Exchange Agent and either mail or
deliver the stock certificates for such shares of Preferred Stock to the
Exchange Agent (with all such other documents). A shareholder having shares
registered in the name of a broker or a dealer, commercial bank, trust company
or other nominee (each, a "Nominee") must contact that Nominee if such
shareholder desires to tender such shares. Nominees may also tender shares in
accordance with the Automated Tender Offer Program procedures of The Depository
Trust Company. Shareholders who desire to tender shares of Preferred Stock and
whose certificates for such shares are not immediately available or whose other
required documentation cannot be delivered to the Exchange Agent by the
Expiration Time should tender such shares by following the procedures for
guaranteed delivery set forth in the section entitled "The Offer--How to
Tender." In addition, because the Senior Notes issued pursuant to this Offer
will be issued in book-entry form only, if you desire to tender shares of
Preferred Stock for Senior Notes, or elect to receive Senior Notes in the event
of an oversubscription for cash consideration, you must have or establish an
account with, and tender those shares through, a broker, dealer, bank or other
financial institution that either clears through or maintains a custodial
relationship with a direct or indirect participant in the book entry and
transfer system of DTC. See "The Offer--How to Tender--Tender Procedure for
Shareholders Tendering for Senior Notes."

The Series A Preferred Stock is listed for trading on the Nasdaq
National Market under the symbol "DXCPP." Dynex announced its intention to make
the Offer after the close of the Nasdaq National Market on January 2, 2003. As
of January 2, 2003 (the last trading day ending prior to such announcement), the
closing per share sales price of the Series A Preferred Stock, as reported on
the Nasdaq National Market, was $22.50. The Series B Preferred Stock is listed
for trading on the Nasdaq National Market under the symbol "DXCPO." As of
January 2, 2003, the closing per share sales price of the Series B Preferred
Stock, as reported on the Nasdaq National Market, was $22.25. The Series C
Preferred Stock is listed for trading on the Nasdaq National Market under the
symbol "DXCPN." As of January 2, 2003, the closing per share sales price of the
Series C Preferred Stock, as reported on the Nasdaq National Market, was $28.00.
SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES. SEE
"PRICE RANGE OF PREFERRED STOCK."

-23-

Dynex Capital, Inc. was incorporated on December 18, 1987 in Virginia
and commenced operations in February 1988. Dynex is a financial services company
which invests in a portfolio of securities and investments backed principally by
single family mortgage loans, commercial mortgage loans, manufactured housing
installment loans and delinquent property tax receivables. Currently, the
Company's business operations primarily consists of managing its investment
portfolio (which may include the sale of investments and/or the call and
re-securitization of securities previously issued by Dynex or its affiliates),
reinvesting the cash flow from its investment portfolio, and managing the
collections on delinquent property tax receivables. During 2000 and 2001, Dynex
incurred losses before any charges or benefits on its Preferred Stocks of
approximately $91,863,000 and $3,085,000, respectively. During the nine months
ended September 30, 2002, Dynex reported a net loss of $1,982,000 before any
charges or benefits related to its Preferred Stocks. See "Business."

Shareholders who tender for Senior Notes (and shareholders who elect to
receive Senior Notes pursuant to the terms of this Offer in the event of an
oversubscription of cash) will receive Senior Notes with the following rights
compared to those associated with the ownership of Preferred Stock.


Preferred Stock Senior Notes

Equity; specified liquidation preference senior to that Debt; right to receive a specified principal amount
of common shareholders but junior to that of debtholders with a claim on our assets senior to holders of equity,
and creditors, plus right to share in future capital plus the right to receive interest, but no right to
appreciation, if any; capital appreciation;


No interest payable on Preferred Stock; however, holders Interest payable at a rate of 9.50% per annum, payable
of Preferred Stock are entitled to cumulative cash quarterly in cash in eight equal installments until
dividends prior to any payment of dividends on our redemption or maturity; principal repayments received
common stock; we are in arrears in the payment of on a quarterly basis (subject to adjustment for
dividends to holders of our Preferred Stock; redemptions and purchases);

Right to convert your shares to common stock; No right of conversion;

Voting rights on certain matters submitted to No voting rights; and
shareholders; and

Listed on The Nasdaq Stock Market and are subject to an We intend to apply to list the Senior Notes for trading
established trading market, although the public float is on the American Stock Exchange; however, even if the
relatively low and the historic trading activity has Senior Notes are listed on the American Stock Exchange
been thin. there is no assurance that a liquid trading market in
the Senior Notes will develop.


The foregoing table is set forth for comparative purposes only and does
not take into account all factors relating to a comparison of the shares of
Preferred Stock to the Senior Notes, nor does it take into account any factors
relating to the tax consequences of accepting the Offer. For a more complete
description of the Senior Notes and the Preferred Stock, see "Description of
Senior Notes" and "Description of Capital Stock."
See also "Certain United States Federal Income Tax Consequences."


-24-

Proration if Shares of Series of Preferred Stock Tendered Exceed
Maximum; Limitations on Cash and Senior Notes Consideration

We will accept up to an aggregate of 492,425 shares of Series A
Preferred Stock, up to an aggregate of 662,944 shares of Series B Preferred
Stock, and up to an aggregate of 683,703 shares of Series C Preferred Stock.
This represents approximately 49% of the shares of each series of our Preferred
Stock outstanding as of December 31, 2002. If the number of shares validly
tendered and not properly withdrawn prior to the Expiration Time is less than or
equal to an aggregate 492,425 shares in the case of Series A Preferred Stock,
less than or equal to 662,944 shares of its Series B Preferred Stock, or less
than or equal to 683,703 shares of its Series C Preferred Stock (or such greater
number of shares as Dynex may elect to accept in accordance with the Offer),
Dynex will, upon the terms and subject to the conditions of the Offer, accept
all shares of such series so tendered.

If more shares of any series of Preferred Stock are tendered than we
are offering to acquire (regardless of which form of consideration the tendering
shareholders elect to receive), we will accept shares of such series that are
validly tendered and not properly withdrawn prior to the expiration time of the
Offer on a pro-rata basis, disregarding fractions that arise as a result of such
pro-rationing, according to the number of shares of such series tendered by each
holder of such series of Preferred Stock prior to the expiration time of the
Offer. Thus, with respect to each oversubscribed series of Preferred Stock, we
will accept from each holder tendering shares of such series that number of
shares of such series equal to the total number of shares of such series
tendered by such tendering holder multiplied by a fraction, the numerator of
which is the total number of shares of such series sought by us in the Offer and
the denominator of which is the total number of shares of such series tendered
by all tendering holders. For purposes of the foregoing proration, shares
tendered for cash and shares tendered for Senior Notes will be accepted based on
the same pro rata percentage. Notwithstanding the foregoing, we reserve the
right, in our sole discretion, to elect to purchase any and all of the excess
shares tendered; and so long as the excess number accepted by us does not exceed
two percent (2%) of the issued and outstanding shares of such series of
Preferred Stock, no extension of the Offer period and no further notice to the
shareholders will be required or given. If we elect to accept excess tendered
shares of a series, but less than all of the tendered shares of a series, then
the shares of such series tendered shall be accepted on a pro-rata basis, as
described above.

Of the shares of each series of Preferred Stock that we are offering to
acquire, we are only offering to pay a limited amount of cash for such shares
and issue a limited aggregate maximum principal amount of our Senior Notes in
exchange for such shares, as described elsewhere in this Offering Circular. With
respect to tendered shares of each series of Preferred Stock that are accepted
by us (after any proration that we may make in the event that more shares of
such series are tendered than we are offering to acquire, as described above),
if there is an oversubscription for cash and an undersubscription for Senior
Notes, or vice versa, all holders whose tendered shares of such series of
Preferred Stock are accepted by us and who elected the oversubscribed
consideration will receive a portion of the oversubscribed consideration on a
pro-rata basis, disregarding fractions that arise as a result of such
pro-rationing, according to the number of shares of such series of Preferred
Stock that were tendered for such oversubscribed consideration and accepted by
us. Thus, if the cash or Senior Notes consideration that we are offering with
respect to any series of Preferred Stock is oversubscribed, all holders whose
tendered shares of such series are accepted by us and who elected the
oversubscribed consideration will receive a portion of such oversubscribed
consideration in exchange for that number of shares of such series equal to the
total number of shares of such series tendered by such tendering holder for such
oversubscribed consideration and accepted by us multiplied by a fraction, the
numerator of which is the total number of shares of such series sought by us in
the Offer for exchange for such oversubscribed consideration and the denominator
of which is the total number of shares of such series tendered for such
oversubscribed consideration by all tendering holders and accepted by us.

Further, in the event that the consideration which you DID select is
oversubscribed, you have the right to have the shares you tender and which we
accept but which are not exchanged for the consideration that you selected for


-25-

such shares (because of the oversubscription of the consideration you selected)
automatically tendered for the consideration which you DID NOT select, AT YOUR
OPTION AND IN LIEU OF RECEIVING BACK YOUR PORTION OF THE EXCESS SHARES TENDERED
THAT ARE NOT EXCHANGED AS A RESULT OF THE OVERSUBSCRIPTION, by noting your
desire to receive such consideration by checking the "Oversubscription
Allocation" box on the Letter of Transmittal. If you so note this by checking
the appropriate box on the Letter of Transmittal, your shares will FIRST be
tendered under for the consideration that you selected, and, in the event that
such consideration is oversubscribed, that portion of the excess shares you
tendered and which are not exchanged for such oversubscribed consideration will
be automatically tendered for the other consideration.

If you validly tender shares of your Preferred Stock but fail to elect
properly in your Letter of Transmittal the form of consideration which you wish
to receive in the Offer, you will be deemed to have elected to receive cash for
such tendered shares pursuant to Option 1 described in the Offer.

As described under "Certain United States Federal Income Tax
Consequences," the number of shares of a series that Dynex will accept from a
shareholder pursuant to the Offer may affect the United States federal income
tax consequences to the tendering shareholder and, therefore may be relevant to
a shareholder's decision whether or not to tender shares.

Executive Officer and Director Participation

Certain members of the Board of Directors have informed the Company
that they will participate in the Offer. At least one Director has indicated
that he will tender a portion of his shares of Preferred Stock pursuant to
Option 2. No executive officer of Dynex owns any Preferred Stock.

Expiration Time, Extensions, Termination and Amendments

The Offer will terminate at 5:00 p.m., New York City time, on Tuesday,
February 11, 2003, unless extended by the Company in its sole discretion. During
any extension of the Offer, all shares of Preferred Stock previously tendered
and not yet exchanged will remain subject to the Offer (subject to withdrawal
rights specified herein) and may be accepted for exchange by the Company. The
later of 5:00 p.m., New York City time, on Tuesday, February 11, 2003, or the
latest time and date to which the Offer may be extended by Dynex, is referred to
herein as the "Expiration Time." The Company expressly reserves the right, at
any time or from time to time, to extend the period of time for which the Offer
is to remain open by giving oral or written notice to the Exchange Agent of such
extension prior to 9:00 a.m., New York City time, on the business day after the
previously scheduled Expiration Time. We will issue a press release by 9:00
a.m., New York City time, no later than the business day after the previous
scheduled expiration time if we decide to extend the Offer.

Dynex expressly reserves the right, in its sole discretion, at any time
and from time to time, and regardless of whether or not any of the events set
forth herein under "The Offer--Conditions to the Offer" shall have occurred or
shall be deemed by Dynex to have occurred, to extend the period of time during
which the Offer is open and thereby delay acceptance for payment of, and payment
for, and issuance of Senior Notes for, any shares by giving oral or written
notice of such extension to the Exchange Agent and making a public announcement
thereof. Dynex also expressly reserves the right, in its sole discretion, to
terminate the Offer and not accept for payment or pay for, or issue Senior Notes
for, any shares not previously accepted for payment or paid for, or with respect
to which Senior Notes were issued or, subject to applicable law, to postpone
payment for shares upon the occurrence of any of the conditions specified herein
under "The Offer--Conditions to the Offer" by giving oral or written notice of
such termination or postponement to the Exchange Agent and making a public
announcement thereof. Dynex' reservation of the right to delay payment for
shares which it has accepted for payment is limited by Rule 13e-4(f)(5)
promulgated under the Exchange Act, which requires that Dynex must pay the
consideration offered or return the shares tendered promptly after termination
or withdrawal of an Offer.



-26-

Subject to compliance with applicable law, Dynex further reserves the
right, in its sole discretion, and regardless of whether any of the events set
forth herein under "The Offer--Conditions to the Offer" shall have occurred or
shall be deemed by Dynex to have occurred, to amend the Offer in any respect
(including, without limitation, by decreasing or increasing the consideration
offered in the Offer to holders of shares or by decreasing or increasing the
number of shares being sought in the Offer). Amendments to the Offer may be made
at any time and from time to time by public announcement thereof. In the case of
an extension, such announcement will be issued no later than 9:00 a.m., New York
City time, on the next business day after the last previously scheduled or
announced Expiration Time. Any material change to the terms of the Offer will be
disseminated promptly to shareholders in a manner reasonably designed to inform
shareholders of such change. Without limiting the manner in which Dynex may
choose to inform shareholders, except as required by applicable law, Dynex shall
have no obligation to publish, advertise or otherwise communicate any such
change other than by making a release to the Dow Jones News Service. If Dynex
materially changes the terms of the Offer or the information concerning the
Offer, or if it waives a material condition of the Offer, Dynex will extend the
Offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(3) promulgated
under the Exchange Act. Under these rules, the minimum period during which an
offer must remain open following material changes in the terms of the Offer or
information concerning the Offer will depend on the facts and circumstances,
including the relative materiality of such terms or information. If (i) Dynex
increases or decreases the price to be paid for shares, increases or decreases
the number of shares being sought in the Offer or, in the event of an increase
in the number of shares being sought, such increase exceeds 2% of the number of
outstanding shares of a series of Preferred Stock, and (ii) the Offer is
scheduled to expire at any time earlier than the expiration of a period ending
on the tenth business day from, and including, the date that such notice of an
increase or decrease is first published, sent or given in the manner specified
herein, the Offer will be extended until the expiration of such period of ten
business days. For the purposes of the Offer, a "business day" means any day
other than a Saturday, Sunday or Federal holiday and consists of the time period
from 12:01 a.m. through 12:00 Midnight, New York City time.

How to Tender

A SHAREHOLDER WHOSE SHARES ARE REGISTERED IN THE NAME OF A NOMINEE MUST
CONTACT THAT NOMINEE FOR INFORMATION ON HOW TO TENDER SHARES. ALL OTHER
SHAREHOLDERS MUST COMPLY WITH THE PROCEDURES SET FORTH BELOW.

Tender Procedures for Shareholders of Record. A Letter of Transmittal
for the respective series is provided for use by shareholders of record
tendering shares. To properly tender shares pursuant to the Offer, a shareholder
of record must (i) complete and duly execute the Letter of Transmittal for the
respective series (or facsimile thereof), in accordance with the instructions
included within the Letter of Transmittal (together with a signature guarantee,
if required, as well as any other documents required by the Letter of
Transmittal) and deliver the same to the Exchange Agent at its address set forth
on the back cover of this Offer which material must be received by the Exchange
Agent prior to the Expiration Time, and (ii) either (A) deliver the stock
certificate or certificates evidencing the tendered shares to the Exchange Agent
at its address set forth on the back cover of this Offer, which certificate(s)
must also be received by the Exchange Agent prior to the Expiration Time, or (B)
comply with the guaranteed delivery procedures described below.

Tender Procedures for Nominees. The Exchange Agent will establish an
account with respect to the shares of each series subject to this Offer, for
purposes of the Offer, at The Depository Trust Company (the "Book-Entry Transfer
Facility") within two business days after the date of this Offer. Any Nominee
that is a participant in the Book-Entry Transfer Facility's system may tender
shares in accordance with the Book-Entry Transfer Facility's Automated Tender
Offer Program ("ATOP") to the extent it is available to such participants for
the shares they wish to tender by making book-entry delivery of the shares by
causing the Book-Entry Transfer Facility to transfer shares into the Exchange
Agent's account in accordance with the Book-Entry Transfer Facility's procedures
for transfer. A shareholder tendering through ATOP must expressly acknowledge
that the shareholder has received and agreed to be bound by the Letter of
Transmittal and that the Letter of Transmittal may be enforced against such


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shareholder. In order to tender shares by means of ATOP, the procedures for ATOP
delivery must be duly and timely completed prior to the Expiration Time.
Alternatively, Nominees may also complete the Letter of Transmittal and deliver
shares as provided under "The Offer--How to Tender--Tender Procedures for
Shareholders of Record" above.

Tender Procedure for Shareholders Tendering for Senior Notes: The
Senior Notes issued pursuant to this Offer will be issued in book-entry form
only. See "Description of Senior Notes - Global Note; Book Entry Form" for a
description of the book-entry nature of the Senior Notes. The Senior Notes will
be issued solely in global form and be registered in the name of Cede & Company,
Inc., the nominee of DTC. Consequently, shareholders who wish to tender any
shares for Senior Notes, or who elect to receive Senior Notes in the instance of
an oversubscription for cash consideration, must have or establish an account
with, and tender those shares through, a broker, dealer, bank or other financial
institution that either clears through or maintains a custodial relationship
with a direct or indirect participant in the book entry and transfer system of
DTC in order to be eligible to receive the Senior Notes. The DTC participant
will then tender the shares on behalf of the shareholder using the procedures
set forth above in "How to Tender-Tender Procedures for Nominees."

DELIVERY OF THE LETTER OF TRANSMITTAL FOR A SERIES OF PREFERRED STOCK
AND ANY OTHER REQUIRED DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.

Signature Guarantees and Method of Delivery. No signature guarantee on
the Letter of Transmittal is required: (i) if the Letter of Transmittal is
signed by the shareholder(s) of record of the shares (which term, for purposes
of this section, shall include any participant in the Book-Entry Transfer
Facility) whose name appears on a security position listing as the owner of the
shares tendered therewith and such holder has not completed either the box
entitled "Special Delivery Instructions" or the box entitled "Special Payment
Instructions" on the Letter of Transmittal; or (ii) if shares are tendered for
the account of a bank, broker, dealer, credit union, savings association or
other entity which is a member in good standing of the Securities Transfer
Agents Medallion Program or a bank, broker, dealer, credit union, savings
association or other entity which is an "eligible guarantor institution," as
such term is defined in Rule 17Ad-15 under the Exchange Act (each of the
foregoing constituting an "Eligible Institution"). See Instruction 1 of the
Letter of Transmittal. If a certificate is registered in the name of a person
other than the person executing a Letter of Transmittal, or if payment is to be
made to a person other than the shareholder of record, then the certificate must
be endorsed or accompanied by an appropriate stock power, in either case, signed
exactly as the name of the shareholder of record appears on the certificate,
with the signature guaranteed by an Eligible Institution.

In all cases, payment for shares tendered and accepted for payment
pursuant to the Offer will be made only after timely receipt by the Exchange
Agent of certificates for such shares (or a timely confirmation of the
book-entry transfer of the shares into the Exchange Agent's account at the
Book-Entry Transfer Facility), a properly completed and duly executed Letter of
Transmittal (or a manually signed facsimile thereof) (unless such tender is made
through ATOP) and any other documents required by the Letter of Transmittal or
ATOP.

THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING CERTIFICATES FOR
SHARES, THE LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS, IS AT THE
ELECTION AND RISK OF THE TENDERING SHAREHOLDER. IF DELIVERY IS BY MAIL, THEN
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.

Guaranteed Delivery. If a shareholder desires to tender shares of
Preferred Stock pursuant to the Offer and the shareholder's share certificates
are not immediately available or cannot be delivered to the Exchange Agent prior


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to the Expiration time (or the procedure for book-entry transfer cannot be
completed on a timely basis) or if time will not permit all required documents
to reach the Exchange Agent prior to the Expiration time, the shares may
nevertheless be tendered, provided that all of the following conditions are
satisfied:

(a) the tender is made by or through an Eligible Institution;

(b) the Exchange Agent receives by hand, mail, overnight
courier, telegram or facsimile transmission, at or prior to the Expiration Time,
a properly completed and duly executed Notice of Guaranteed Delivery
substantially in the form Dynex has provided with this Offer, including (where
required) a signature guarantee by an Eligible Institution in the form set forth
in such Notice of Guaranteed Delivery; and

(c) the certificates for all tendered shares of Preferred
Stock, in proper form for transfer (or confirmation of book-entry transfer of
such shares into the Exchange Agent's account at the Book-Entry Transfer
Facility), together with a properly completed and duly executed Letter of
Transmittal for such series (or a manually signed facsimile thereof) and any
required signature guarantees or other documents required by the Letter of
Transmittal, are received by the Exchange Agent within three Nasdaq National
Market trading days after the date of receipt by the Exchange Agent of the
Notice of Guaranteed Delivery.

Return of Tendered and Unaccepted Shares of Preferred Stock. If any
tendered shares of Preferred Stock are not accepted, or if fewer than all shares
evidenced by a shareholder's certificates are tendered, certificates for
unaccepted shares will be returned promptly after the expiration or termination
of the Offer or, in the case of shares tendered by book-entry transfer at the
Book-Entry Transfer Facility, the shares will be credited to the appropriate
account maintained by the tendering shareholder at the Book-Entry Transfer
Facility, in each case without expense to the shareholder.

Determination of Validity; Rejection of Shares of Preferred Stock;
Waiver of Defects; No Obligation to Give Notice of Defects. All questions as to
the number of shares of Preferred Stock to be accepted and the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of shares will be determined by Dynex, in its sole discretion, and its
determination shall be final and binding on all parties. Dynex reserves the
absolute right to reject any or all tenders of any shares that it determines are
not in proper form or the acceptance for payment of or payment for which may, in
the opinion of Dynex' counsel, be unlawful. Dynex also reserves the absolute
right to waive any of the conditions of the Offer or any defect or irregularity
in any tender with respect to any particular shares or any particular
shareholder and Dynex' interpretation of the terms of the Offer will be final
and binding on all parties. No tender of shares will be deemed to have been
properly made until all defects or irregularities have been cured by the
tendering shareholder or waived by Dynex. None of Dynex, the Exchange Agent, the
Information Agent or any other person will be obligated to give notice of any
defects or irregularities in tenders, nor will any of them incur any liability
for failure to give any notice.

Tendering Shareholder's Representation and Warranty; Dynex Acceptance
Constitutes an Agreement. A tender of shares pursuant to any of the procedures
described above will constitute the tendering shareholder's acceptance of the
terms and conditions of the Offer, as well as the tendering shareholder's
representation and warranty to Dynex that (a) the shareholder has a net long
position in the shares of the series of Preferred Stock tendered or equivalent
securities at least equal to the number of shares tendered, within the meaning
of Rule 14e-4 promulgated by Commission under the Exchange Act and (b) such
tender of shares complies with Rule 14e-4. It is a violation of Rule 14e-4 for a
person, directly or indirectly, to tender shares for that person's own account
unless, at the time of tender and at the end of the proration period (including
any extensions thereof), the person so tendering (i) has a net long position
equal to or greater than the amount of (x) shares of the series of Preferred
Stock tendered or (y) other securities convertible into or exchangeable or


-29-

exercisable for the shares of the series tendered and will acquire the shares of
the series of Preferred Stock for tender by conversion, exchange or exercise and
(ii) will deliver or cause to be delivered the shares of the series tendered in
accordance with the terms of the Offer. Rule 14e-4 provides a similar
restriction applicable to the tender or guarantee of a tender on behalf of
another person. Dynex' acceptance for payment of shares tendered pursuant to the
Offer will constitute a binding agreement between the tendering shareholder and
Dynex upon the terms and conditions of the Offer.

Lost or Destroyed Certificates. Shareholders whose certificates for
part or all of their shares have been lost, stolen, misplaced or destroyed may
contact the Exchange Agent at (888) 422-8979, for instructions as to the
documents which will be required to be submitted together with the respective
Letters of Transmittal in order to receive certificate(s) representing the
shares. A bond may be required to be posted by the shareholder to secure against
the risk that the certificates may be subsequently recirculated. Shareholders
are urged to contact the Exchange Agent immediately in order to permit timely
processing of this documentation and to determine if the posting of a bond is
required.

CERTIFICATES FOR SHARES, TOGETHER WITH A PROPERLY COMPLETED LETTER OF
TRANSMITTAL FOR SUCH SERIES OF PREFERRED STOCK AND ANY OTHER DOCUMENTS REQUIRED
BY THE LETTER OF TRANSMITTAL, MUST BE DELIVERED TO THE EXCHANGE AGENT AND NOT TO
DYNEX. ANY SUCH DOCUMENTS DELIVERED TO DYNEX WILL NOT BE FORWARDED TO THE
EXCHANGE AGENT AND THEREFORE WILL NOT BE DEEMED TO BE PROPERLY TENDERED.

Withdrawal Rights

Except as otherwise provided in this Section, tenders made pursuant to
the Offer are irrevocable. Shares of Preferred Stock tendered pursuant to this
Offer may be withdrawn:

1. at any time prior to the Expiration Time; or

2. if not yet accepted for payment, after March 11, 2003.

For a withdrawal to be effective, the Exchange Agent must receive a
notice of withdrawal in written, telegraphic or facsimile form in a timely
manner at the appropriate address set forth on the back cover of this Offer and
as set forth herein. Any such notice of withdrawal must specify the name of the
person having tendered the shares to be withdrawn, the number of shares
tendered, the number of shares to be withdrawn, and, if certificates
representing such shares have been delivered to the Exchange Agent, the name of
the shareholder of record of such shares, as set forth in such certificates. If
the certificates have been delivered to the Exchange Agent, the tendering holder
of Preferred Stock must also submit the serial numbers of the particular
certificates for the shares to be withdrawn, and the signature on the
shareholder's notice of withdrawal must be guaranteed by an Eligible
Institution, as described previously (except in the case of shares tendered for
the account of an Eligible Institution). If shares have been tendered pursuant
to the ATOP (book-entry transfer) procedures set forth "The Offer--How to
Tender," the notice of withdrawal also must specify the name and the number of
the account at the Book-Entry Transfer Facility to be credited with the
withdrawn shares and must otherwise comply with such Book-Entry Transfer
Facility's procedures.

All questions as to the form and validity (including the time of
receipt) of notices of withdrawal will be determined by Dynex in its sole
discretion, and its determination shall be final and binding on all parties.
None of Dynex, the Information Agent or the Exchange Agent or any other person
is or will be obligated to give notice of any defects or irregularities in any
notice of withdrawal, and none of them will incur any liability for failure to
give any such notice.

Withdrawals may not be rescinded, and shares properly withdrawn shall
not be deemed to be duly tendered for purposes of the Offer. Withdrawn shares,
however, may be re-tendered before the Expiration Time by again following the
procedures described under "The Offer--How to Tender."



-30-

If Dynex extends the Offer, is delayed in its purchase of Preferred
Stock or is unable to accept shares pursuant to the Offer for any reason, then,
without prejudice to Dynex rights under the Offer, the Exchange Agent may,
subject to applicable law, retain tendered shares on behalf of Dynex, and such
shares may not be withdrawn except to the extent tendering shareholders are
entitled to withdrawal rights as described herein.

Acceptance of Shares of Preferred Stock for Exchange; Delivery of Cash
and Senior Notes to be Exchanged

Upon the terms and subject to the conditions of the Offer, promptly
following the Expiration Time, Dynex will accept for exchange shares properly
tendered prior to the Expiration Time. Dynex shall pay the cash and issue the
Senior Notes for shares of Preferred Stock that are properly tendered and not
properly withdrawn (subject to the proration provisions and the other terms and
conditions of the Offer and any required prorationing) only when, as and if it
gives oral or written notice to the Exchange Agent of its acceptance of shares
for exchange pursuant to the Offer. That notice, subject to the provisions of
the Offer, may be given at any time after the Expiration Time.

Upon the terms and subject to the conditions of the Offer, promptly
following the Expiration Time, Dynex will accept up to an aggregate of 492,425
shares of its Series A Preferred Stock, up to an aggregate 662,944 shares of its
Series B Preferred Stock, and up to an aggregate 683,703 shares of its Series C
Preferred Stock (subject to increase or decrease as provided in this Offering
Circular) properly tendered or such lesser number of shares as are properly
tendered and not properly withdrawn.

Dynex will pay for shares purchased pursuant to the Offer by depositing
the aggregate exchange price with the Exchange Agent, which will act as agent
for the tendering shareholders for the purpose of receiving payment from Dynex
and transmitting payment to the tendering shareholders. The Exchange Agent will
pay the shareholders tendering for cash (other than The Depository Trust
Company, which will be paid by wire transfer) for all purchased shares by check
in the manner described in this Offering Circular promptly after the Expiration
Time. The Senior Notes will be issued to DTC in the name of its nominee, Cede &
Co., Inc., and the accounts of its participants appropriately credited. Payment
of cash and issuance of the Senior Notes is expected to occur no later than the
Closing Date. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE BE PAID
BY DYNEX BY REASON OF ANY DELAY IN MAKING PAYMENT. Certificates for all tendered
shares not purchased, including shares not purchased due to proration, will be
returned promptly after the Expiration Time or termination of the Offer to the
tendering shareholder (or, in the case of shares tendered by book-entry
transfer, will be credited to the account maintained with the Book-Entry
Transfer Facility by the participant who so delivered the shares), without
expense to the tendering shareholder. In addition, if certain events occur,
Dynex may not be obligated to purchase any shares in the Offer. See "The
Offer--Conditions to the Offer."

Dynex will pay all stock transfer taxes, if any, payable on the
transfer to it of shares acquired pursuant to the Offer by shareholders of
record. However, if the Senior Notes are to be registered in the name of any
person other than the shareholder of record, or if tendered certificates are
registered in the name of any person other than the person signing the
respective Letters of Transmittal, the amount of any stock transfer taxes
(whether imposed on the shareholder of record or such other person) payable on
account of the transfer to such person will be deducted from the exchange price
(i.e., the cash paid or the principal amount of the Senior Notes issued in the
Offer), unless satisfactory evidence of the payment of such taxes or exemption
therefrom is submitted. See Instruction 6 of the Letter of Transmittal.

ANY TENDERING SHAREHOLDER OF RECORD (OR OTHER PAYEE) WHO FAILS TO
COMPLETE FULLY AND SIGN THE "SUBSTITUTE FORM W-9" INCLUDED AS PART OF THE
RESPECTIVE LETTER OF TRANSMITTAL MAY BE SUBJECT TO REQUIRED BACK-UP FEDERAL
INCOME TAX WITHHOLDING OF 31% OF THE GROSS PROCEEDS PAID TO SUCH SHAREHOLDER OR


-31-

OTHER PAYEE PURSUANT TO THE OFFER. SEE "CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES."

Denominations

The Senior Notes will be issued only in denominations of $25 and
integral multiples thereof and we will issue cash in lieu of issuing Senior
Notes in denominations less than $25.

Conditions to the Offer

An application has been filed with the Commission for qualification of
the Indenture under which the Senior Notes will be issued under the Trust
Indenture Act. The Offer is conditioned upon the Indenture being qualified under
the Trust Indenture Act. In addition, notwithstanding any term of the Offer,
prior to the Expiration Time, Dynex may, at its option, terminate or amend the
Offer or may postpone the acceptance for payment of, or the purchase of and the
payment for, or the issuance of Senior Notes for, shares tendered pursuant to
the Offer, subject to Rule 13e-4(f) promulgated under the Exchange Act, if at
any time prior to the Expiration Time any of the following events has occurred
(or shall have been determined by Dynex to have occurred) and, in Dynex'
judgment and in any such case and regardless of the circumstances giving rise
thereto (including any action or omission to act by Dynex) makes it inadvisable
to proceed with the Offer or with such acceptance for payment:

(a) there shall have been threatened, instituted or pending
any action or proceeding by any government or governmental, regulatory or
administrative agency, authority or tribunal or any other person, domestic or
foreign, before any court, authority, agency or tribunal that directly or
indirectly (i) challenges the making of the Offer, the acquisition of some or
all of the shares pursuant to the Offer or otherwise relates in any manner to
the Offer, or (ii) in Dynex' reasonable judgment, could (A) materially and
adversely affect the business, condition (financial or otherwise), assets,
income, operations or prospects of Dynex and its subsidiaries, taken as a whole,
or otherwise materially impair in any way the contemplated future conduct of the
business of Dynex or any of its subsidiaries or materially impair the
contemplated benefits of the Offer to Dynex, (B) make the acceptance for payment
of, or payment for, some or all of the tendered shares illegal or otherwise
restrict or prohibit consummation of the Offer or (C) delay or restrict the
ability of Dynex, or render Dynex unable, to accept for payment or pay for or
issue Senior Notes for some or all of the tendered shares;

(b) there shall have been any action threatened, pending or
taken, or approval withheld, or any statute, rule, regulation, judgment, order
or injunction threatened, proposed, sought, promulgated, enacted, entered,
amended, enforced or deemed to be applicable to the Offer or Dynex or any of its
subsidiaries, by any court or any authority, agency or tribunal that, in Dynex
reasonable judgment, would or might directly or indirectly result in any of the
consequences referred to in clauses (i) or (ii) of paragraph (a) above;

(c) there shall have occurred (i) any general suspension of
trading in, or limitation on prices for, securities on any national securities
exchange or in the over-the-counter market, (ii) the declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States, (iii) the commencement of a war, armed hostilities or other
international or national calamity directly or indirectly involving the United
States, (iv) any limitation (whether or not mandatory) by any government or
governmental, regulatory or administrative agency, authority or tribunal on, or
any event that, in Dynex' reasonable judgment, might affect, the extension of
credit by banks or other lending institutions in the United States, (v) any
significant decrease in the market price of the Preferred Stock or any change in
the general political, market, economic or financial conditions in the United
States or abroad that could, in the reasonable judgment of Dynex, have a
material adverse effect on Dynex' business, condition (financial or otherwise),
assets, income, operations or prospects or the trading in the Preferred Stock,
(vi) in the case of any of the foregoing existing at the time of the


-32-

commencement of the Offer, a material acceleration or worsening thereof, or
(vii) any decline in either the Dow Jones Industrial Average or the Standard and
Poor's Index of 500 Industrial Companies by an amount in excess of 10% measured
from the close of business on January 2, 2003;

(d) a tender or exchange offer for any or all of the shares of
any class of capital stock of Dynex (other than the Offer), or any merger,
business combination or other similar transaction with or involving Dynex or any
subsidiary, shall have been proposed, announced or made by any person;

(e) (i) any person, entity or "group" (as that term is used in
Section 13(d)(3) of the Exchange Act) shall have acquired or proposed to acquire
beneficial ownership of more than 5% of the outstanding shares of any class of
capital stock (other than any such person, entity or group who has a Schedule
13G on file with the Commission as of January 2, 2003 relating to share
ownership in Dynex and does not acquire beneficial ownership of an additional 2%
or more of any class of capital stock or effect a change in filing status to
Schedule 13D or (ii) any person, entity or group shall have filed a Notification
and Report Form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, or shall have made a public announcement reflecting an intent to
acquire Dynex or any of its subsidiaries or any of their respective assets or
securities otherwise than in connection with a transaction authorized by the
Board;

(f) any change or changes shall have occurred in the business,
condition (financial or otherwise), assets, income, operations, prospects or
stock ownership of Dynex or its subsidiaries that, in Dynex reasonable judgment,
is or may be material to Dynex or its subsidiaries; or

(g) Dynex determines that the consummation of the Offer and
the acquisition of shares of a series of Preferred Stock may cause such series
of Preferred Stock to be delisted from the Nasdaq National Market or to be
eligible for deregistration under the Exchange Act or adversely affects Dynex
ability to qualify as a real estate investment trust.

Any determination by Dynex concerning any events described in this
section and any related judgment or decision by Dynex regarding the
inadvisability of proceeding with the acquisition of, or the payment for, or the
issuance of Senior Notes for, any shares tendered shall be final and binding
upon all parties. The foregoing conditions are for the sole benefit of Dynex and
may be asserted by Dynex in circumstances giving rise to those conditions or may
be waived by Dynex in whole or in part. Dynex' failure at any time to exercise
any of the foregoing shall not be deemed a waiver of any such right, and each
such right shall be deemed an ongoing right that may be asserted at any time and
from time to time. All conditions to the Offer, other than receipt of any
necessary government approvals, will be satisfied or waived prior to the
Expiration Time.

Source and Amount of Funds.

The cash to be paid in connection with this Offer for validly tendered
shares of Preferred Stock, as well as for the costs and expenses of this Offer,
will come from cash on hand, or funds generated in the ordinary course of
business. At December 31, 2002, our cash and cash equivalents were approximately
$15,000,000 (unaudited). We expect to pay the interest and repay the principal
on the Senior Notes from cash flow generated by our investment portfolio. For
the quarter ended December 31, 2002, our investment portfolio produced a cash
flow of approximately $13,000,000 (unaudited).

Exchange Agent

The name and address of the Exchange Agent are set forth on the back
cover of this Offering Circular.



-33-

Information Agent

The name and address of the Information Agent are set forth on the back
cover of this Offering Circular.

LETTERS OF TRANSMITTAL AND CERTIFICATES REPRESENTING THE SHARES SHOULD NOT BE
SENT TO THE INFORMATION AGENT. See "The Offer--How to Tender."

No Financial Advisor

No financial advisor has been retained to render, and no financial
advisor has rendered, an opinion as to the fairness of the Offer to holders of
the Company's Preferred Stock or to solicit exchanges of Preferred Stock for
Senior Notes.

Exemption from Registration Requirements

The shares of Preferred Stock to be included in the Offer are being
offered pursuant to an exemption from the registration requirements of the
Securities Act under Section 3(a)(9) of the Securities Act. Section 3(a)(9)
provides for an exemption from registration for any security exchanged by an
issuer with its existing security holders exclusively where no commission or
other remuneration is paid or given directly or indirectly for soliciting such
exchange. When securities are exchanged for other securities of an issuer under
Section 3(a)(9), the securities received in essence assume the character of the
exchanged securities for purposes of the Securities Act. Accordingly, if
tendering shareholders tender shares of Preferred Stock that are "restricted
securities" within the meaning of Rule 144 under the Securities Act, the Senior
Notes tendering shareholders will receive in the Offer will not be freely
tradable and any resale would have to comply with applicable exemptions under
the securities laws, including without limitation, Rule 144(k) under the
Securities Act. If the shares of Preferred Stock tendering shareholders tender
are not so "restricted," the Senior Notes that tendering shareholders receive
will be freely tradable.

Certain Legal Matters; Regulatory Approvals

Dynex is not aware of any license or regulatory permit material to
Dynex business that is reasonably likely to be adversely affected by Dynex
acquisition of shares of Preferred Stock as contemplated herein or of any
approval or other action by any government or governmental, administrative or
regulatory authority, agency, or tribunal, domestic or foreign, that would be
required for the acquisition or ownership of shares by Dynex as contemplated
herein. Should any such approval or other action be required, Dynex presently
contemplates that such approval or other action will be sought or taken. Dynex
is unable to predict whether it will be required to delay the acceptance for
payment of or payment for shares tendered pursuant to the Offer pending the
outcome of any such matter. There can be no assurance that any such approval or
other action, if needed, would be obtained or would be obtained without
substantial conditions or that the failure to obtain any such approval or other
action might not result in adverse consequences to Dynex business. Dynex'
obligations under the Offer to accept for payment, and pay for and issue Senior
Notes for, shares are subject to certain conditions. See "The Offer--Conditions
to the Offer."

Miscellaneous Matters

Dynex is not aware of any jurisdiction in which the making of the Offer
is not in compliance with applicable law. If Dynex becomes aware of any
jurisdiction where the making of the Offer or the acceptance or purchase of the
shares is not in compliance with any valid applicable law, Dynex will make a
good faith effort to comply with such law. If, after such good faith effort,
Dynex cannot comply with such law, the Offer will not be made to (nor will
tenders be accepted from or on behalf of) the holders of shares residing in such
jurisdiction. In any jurisdiction where the securities, blue sky or other laws
require the Offer to be made by a licensed broker or dealer, the Offer shall be
deemed to be made on Dynex behalf by one or more registered brokers or dealers
licensed under the laws of the jurisdiction.


-34-

Pursuant to Rule 13e-4 promulgated under the Exchange Act, Dynex has
filed with the Commission an Issuer Tender Offer Statement on Schedule TO which
contains additional information with respect to the Offer. The Schedule TO,
including the Exhibits and any amendments thereto, may be examined, and copies
may be obtained at the same places and in the same manner as is set forth under
"Available Information."

Payment of Expenses

The Offer is being made by the Company in reliance on the exemption
from the registration requirements of the Securities Act of 1933, as amended,
afforded by Section 3(a)(9) thereof. Therefore, the Company will not pay any
commission or other remuneration to any broker, dealer, salesman or other person
for soliciting tenders of the Preferred Stock. However, regular employees of the
Company (who will not be additionally compensated therefor) may solicit tenders
and will answer inquiries concerning the Offer.

Dynex has retained MacKenzie Partners, Inc. to act as Information Agent
and Wachovia Bank, N.A. to act as Exchange Agent in connection with the Offer.
The Information Agent may contact holders of shares by mail, telephone,
facsimile, telex, telegraph and personal interviews and may request Nominees to
forward materials relating to the Offer to beneficial owners. The Information
Agent and the Exchange Agent will each receive reasonable and customary
compensation for their respective services.

No fees or commissions will be payable by Dynex to brokers, dealers or
other persons (other than fees to the Information Agent as described above) for
soliciting tenders of shares pursuant to the Offer. A shareholder holding shares
through a Nominee is urged to consult such Nominee to determine whether
transaction costs are applicable if such shareholder tenders shares through such
Nominee and not directly to the Exchange Agent. Dynex will, however, upon
request, reimburse Nominees for customary mailing and handling expenses incurred
by them in forwarding the Offer and related materials to the beneficial owners
of shares held by them as a nominee or in a fiduciary capacity. No Nominee has
been authorized to act as the agent of Dynex, the Information Agent or the
Exchange Agent for purposes of the Offer. Dynex will pay or cause to be paid all
stock transfer taxes, if any, on its purchase of shares except as otherwise
provided under "The Offer--Acceptance of Shares of Preferred Stock for Exchange;
Delivery of Senior Notes to be Exchanged" or Instruction 6 in the Letter of
Transmittal.


-35-


PURPOSES AND EFFECTS OF THE OFFER

Our Board of Directors believes the Offer gives holders of each series
of Preferred Stock desiring to sell their shares of Preferred Stock the
opportunity to liquidate a portion (or all if no proration applies) of their
holdings of the Preferred Stock at respective exchange prices representing a
premium to the current market price of each series of Preferred Stock, as set
forth in the table below based on the closing price of each series of Preferred
Stock on January 2, 2003, the last trading day ending before the announcement of
the Offer.

Option 1 Option 2 Closing Price Option 1 Option 2
Cash Senior Notes January 2, 2003 Premium Premium
Price/Share Price/Share

Series A Preferred Stock $24.00 $25.200 $22.50 6.67% 12.00%
Series B Preferred Stock $24.50 $25.725 $22.25 10.11% 15.62%
Series C Preferred Stock $30.00 $31.500 $28.00 7.14% 12.50%




In addition, our Board believes the Offer should provide greater
liquidity for holders of the Preferred Stock at the price levels represented by
the respective exchange prices. The table below sets forth (i) the recent
monthly trading volume of each series of Preferred Stock on the Nasdaq National
Market during the months of October, November, and December 2002, and (ii) the
percentage of the number of shares outstanding represented by the annualized
volume (based upon such three month period). In the aggregate, if the Offer is
fully subscribed, the shares of Preferred Stock to be purchased pursuant to the
Offer represents approximately 320% of such annualized trading volume.


Trading Volume 2002 Annualized as %
October November December Total of Shares Outstanding
Series A Preferred Stock 25,800 3,135 13,580 42,515 17.1%
Series B Preferred Stock 23,945 9,593 22,425 55,963 16.2%
Series C Preferred Stock 20,768 9,870 14,510 45,148 13.1%
-------------------------------------------------------------------------------
Total: 70,513 22,598 50,515 143,626 15.3%




While giving holders of Preferred Stock desiring such liquidity the
opportunity to sell their Preferred Stock at a premium to the market prices as
described above, the Offer also permits us to purchase shares of Preferred Stock
tendered pursuant to the Offer at a substantial discount from the liquidation
preference provided for in the articles of amendment governing the terms of the
Preferred Stock. In the event of liquidation, the holders of all series of
Preferred Stock will be entitled to receive out of our assets, prior to any such
distribution to our common shareholders, the issue price per share of the series
in cash, plus any accrued and unpaid dividends.

Assuming that the Offer is fully subscribed, on a pro-forma basis, as
of September 30, 2002, total shareholders' equity would have declined from
$234,142,578 to $184,142,578; the aggregate liquidation preference of the Series
A Preferred Stock would have declined from $30,773,019 to $15,497,972; the
aggregate liquidation preference of the Series B Preferred Stock would have
declined from $43,456,567 to $22,560,685; the aggregate liquidation preference
of the Series C Preferred Stock would have declined from $53,624,663 to
$27,124,868; the aggregate liquidation preference for all series of Preferred
Stock will decline from $127,854,248 to $65,183,525; and the book value per
common share inclusive of accrued and unpaid preferred dividends, will increase
from $9.77 to $10.99 per share.


-36-

In addition, the retirement of the tendered shares of the Preferred
Stock at a discount to their respective full liquidation preferences will
improve the ratio of net assets available to satisfy the liquidation preference
of the shares of Preferred Stock that are not tendered in the Offer.

The Offer provides to shareholders the opportunity to dispose of those
shares at a premium to the market prices as of January 2, 2003 and without the
usual transaction costs associated with open market sales, where those shares
are tendered by the shareholder of record directly to the Exchange Agent. The
Offer also may provide such shareholders greater liquidity for their Preferred
Stock than otherwise what is generally available in the market. A shareholder
whose shares are held through a Nominee should contact such Nominee to determine
whether any transaction costs apply to any sales of Preferred Stock pursuant to
the Offer. In addition, the Offer gives shareholders the opportunity to dispose
of their Preferred Stock at prices greater than the market prices prevailing
prior to the announcement of the Offer. Shareholders are urged to obtain current
market quotations for their shares. See "Price Range of Preferred Stock." The
Offer also allows shareholders to dispose of a portion of their shares while
retaining a continued equity interest in Dynex.

In determining whether to tender shares pursuant to the Offer,
shareholders should consider the possibility that they may be able to sell their
shares in the future on the Nasdaq National Market or otherwise, including in
connection with any subsequent tender offer or any subsequent sale, merger or
liquidation of Dynex (none of which is currently contemplated), at a net price
higher than the respective exchange prices. See "Price Range of Preferred
Stock." Dynex can give no assurance, however, as to the price at which a
shareholder may be able to sell non-tendered shares in the future.

THE BOARD HAS APPROVED THE OFFER AND BELIEVES THAT IT PROVIDES HOLDERS
OF PREFERRED STOCK DESIRING TO DISPOSE OF SOME OR ALL OF THEIR SHARES A
REASONABLE OPPORTUNITY TO DO SO AT A PREMIUM TO THE CLOSING PRICE OF THE
RESPECTIVE SERIES OF PREFERRED STOCK ON JANUARY 2, 2003. YOU MUST, HOWEVER, MAKE
YOUR OWN DECISION WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO
TENDER. NONE OF DYNEX OR ITS BOARD MAKES ANY RECOMMENDATION TO YOU WITH RESPECT
TO THE OFFER, AND NO PERSON HAS BEEN AUTHORIZED BY DYNEX OR ITS BOARD TO MAKE
ANY SUCH RECOMMENDATIONS. CERTAIN MEMBERS OF THE BOARD OF DIRECTORS OF DYNEX
HAVE INFORMED DYNEX THAT THEY WILL PARTICIPATE IN THE OFFER.

Shares of Preferred Stock that Dynex acquires under the Offer will be
cancelled. At the present time, Dynex has no plans for the issuance of
additional shares of Preferred Stock.

Except as otherwise disclosed in this document, Dynex has no plans,
proposals or negotiations that relate to or would result in:

o any extraordinary transaction, such as a merger, reorganization
or liquidation, involving Dynex or any of its subsidiaries;

o any purchase, sale or transfer of a material amount of assets of
Dynex or any of its subsidiaries;

o any change in the present policy to pay dividends only out of
taxable income, or, if applicable, as required to maintain its
status as a real estate investment trust;

o any class of equity securities of Dynex being delisted from a
national securities exchange;

o any class of equity securities of Dynex becoming eligible for
termination of registration under Section 12(g)(4) of the
Exchange Act;



-37-

o any change in the present board of directors or management of
Dynex, including, but not limited to, any plans or proposals to
change the number or the term of directors or to fill any
existing vacancies on the board of directors or to change any
material term of the employment contract of any executive
officer;

o any other material change in Dynex corporate structure or
business;

o the suspension of Dynex obligation to file reports under the
Exchange Act; the acquisition by any person of additional
securities of Dynex or the disposition of securities of Dynex; or

o any change in Dynex articles of incorporation and bylaws or other
governing instruments or other actions which could impede the
acquisition of control of Dynex.

Dynex has offered for sale its interest in certain subordinated
collateralized bonds the Company retained from a securitization of commercial
mortgage loans by its subsidiary Commercial Capital Access One. The subordinated
collateralized bonds being offered are from Series 2 of CCA One. As the bonds
being offered for sale are subordinated bonds, the Company has also offered for
sale its entire ownership in Series 2, which, if sold, would result in the
de-consolidation of Series 2. Accordingly, if Series 2 is de-consolidated, the
carrying value of collateral for collateralized bonds would decline by
approximately $296,194,000 and the carrying value of collateralized bonds would
decline by approximately $290,668,000. To date, no acceptable offers for the
subordinated bonds in Series 2 have been received.

Dynex has received and may continue to receive proposals from third
parties regarding the possible sale of Dynex, and/or the infusion of capital
into Dynex in the form of either a subordinated debt instrument or a new series
of preferred stock. To the extent Dynex were to be sold to a third party, it
could be at prices for the Preferred Stock that exceed the amounts offered
hereunder. Further, Dynex could agree to an investment from a third party in the
form of subordinated debt or preferred stock, the proceeds of which could be
used for future tenders on Preferred Stock at prices higher than offered herein.

For holders of a series of Preferred Stock who do not tender shares of
such series, there is no assurance that the price of such series of Preferred
Stock will not trade below the price currently being offered by Dynex pursuant
to the Offer. For holders of a series of Preferred Stock who do tender, there is
no assurance that the trading price of such series of Preferred Stock will not
increase as a result of the Offer and at some point exceed the respective
purchase price offered in the Offer. Dynex believes that there will still be a
sufficient number of shares outstanding and publicly traded following the Offer
to ensure a continued trading market in the shares of each series. The shares of
each series are registered under the Exchange Act, which requires, among other
things, that Dynex furnish certain information to its holders of Preferred Stock
and to the Commission and comply with the Commission's proxy rules in connection
with meetings of holders of the Preferred Stock.


-38-


CAPITALIZATION

The following table sets forth our capitalization at September 30, 2002
and pro forma information to give effect to the payment of cash pursuant to the
Offer and the exchange of Senior Notes, assuming the maximum number of shares
tendered, as if such tender and exchange had occurred on September 30, 2002 at
the prices offered herein in this Offering.


September 30, 2002
---------------------------------------------
(dollars in thousands, except share data) Actual As Adjusted
------------------- -----------------
Total Debt:

Non-recourse debt - collateralized bonds............................. $ 2,098,202 $ 2,098,202
Recourse debt........................................................ 94 94
Senior Notes......................................................... - 30,000
------------------- -----------------
Total debt......................................................... $ 2,098,296 $ 2,128,296
------------------- -----------------


Shareholders' Equity:
Preferred Stock, par value $.01 per share,
50,000,000 shares authorized;
9.75% Cumulative Convertible Series A,
992,038 and 499,612 shares issued and outstanding $ 22,658 $11,411
($30,773 and $15,498 aggregate liquidation preference)
9.55% Cumulative Convertible Series B,
1,378,707 and 715,763 shares issued and outstanding 16,755
($43,456 and $22,561 aggregate liquidation preference) 32,273
9.73% Cumulative Convertible Series C
1,383,532 and 699,829 shares issued and outstanding 39,655 20,059
($53,625 and $27,125 aggregate liquidation preference)
Common stock, par value $.01 per share, 100,000,000 shares
authorized; 10,873,903 issued and outstanding .................. 109 109
Additional paid in capital........................................... 364,743 361,104
Net unrealized gain on investments available-for-sale................ (19,612) (19,612)
Accumulated deficit.................................................. (205,684) (205,684)
------------------- -----------------
Total shareholders' equity......................................... 234,142 184,142
------------------- -----------------
Total capitalization............................................. $2,332,438 $2,312,438
=================== =================




-39-


PRICE RANGE OF PREFERRED STOCK

Our shares of Preferred Stock are listed for trading on the Nasdaq
National Market under the symbol "DXCPP" for the Series A Preferred Stock,
"DXCPO" for the Series B Preferred Stock, and "DXCPN" for the Series C Preferred
Stock. The following table sets forth for the calendar quarters indicated the
range of the high and low sale prices for each series of Preferred Stock on the
Nasdaq National Market since the first quarter of 2000.

STOCK PRICES
SERIES A SERIES B SERIES C
HIGH LOW HIGH LOW HIGH LOW
2000

1st Quarter $ 14.25 $ 7.00 $ 14.88 $ 6.88 $ 16.75 $ 8.81
2nd Quarter 9.00 3.00 9.00 2.44 11.25 3.50
3rd Quarter 9.50 4.40 10.00 4.50 11.50 4.88
4th Quarter 10.00 5.25 9.75 6.25 11.00 7.06

2001
1st Quarter $ 12.25 $ 6.63 $ 12.31 $ 7.00 $ 13.25 $ 7.81
2nd Quarter 12.90 10.15 12.60 9.93 15.55 12.05
3rd Quarter 14.20 11.40 14.40 11.89 18.00 13.97
4th Quarter 16.90 15.90 17.09 16.20 21.10 20.00

2002
1st Quarter $ 18.80 $ 15.63 $ 19.00 $ 15.85 $ 23.00 $ 20.00
2nd Quarter 22.75 18.46 22.75 18.40 28.25 22.50
3rd Quarter 22.25 20.50 22.46 21.00 28.00 24.60
4th Quarter 22.50 20.41 22.25 20.50 28.00 25.70


On January 2, 2003, the last trading day ending prior to the
announcement of the Offer, the closing per share sales price of the Series A
Preferred Stock, as reported on the Nasdaq National Market, was $22.50. As of
January 2, 2003, the exchange price of $24.00 per share for cash or $25.20 per
share for Senior Notes for the Series A Preferred Stock represented a premium of
6.67% and 12.00%, respectively, above the market price. As of January 2, 2003,
the closing per share sales price of the Series B Preferred Stock was $22.25. As
of January 2, 2003, the exchange price of $24.50 per share for cash or $25.725
per share for Senior Notes for the Series B Preferred Stock represented a
premium of 10.11% and 15.62%, respectively, above the market price. As of
January 2, 2003, the closing per share sales price of the Series C Preferred
Stock was $28.00. As of January 2, 2003, the exchange price of $30.00 per share
for cash or $31.50 per share for Senior Notes for the Series C Preferred Stock
represented a premium of 7.14% and 12.50%, respectively, above the market price.
YOU SHOULD OBTAIN CURRENT QUOTATIONS OF THE MARKET PRICE OF THE SHARES AND
CONSULT AN INDEPENDENT FINANCIAL ADVISOR.



-40-

DIVIDENDS

Dividends on the Preferred Stock are cumulative and equal, per share,
to the greater of (i) the per quarter base rate of $0.585 for Series A Preferred
Stock and Series B Preferred Stock, and $0.73 for Series C Preferred Stock, or
(ii) one-half times the per share quarterly dividend declared on our common
stock. During the first two quarters of 1999, we declared dividends in the
aggregate amount of $1.17 per share on our shares of Series A Preferred Stock
and Series B Preferred Stock, and $1.46 per share on our shares of Series C
Preferred Stock. During 2000, we did not declare any dividends. During the
second quarter of 2001, we declared dividends of $0.2925 per share on our shares
of Series A Preferred Stock and Series B Preferred Stock, and $0.3649 per share
on our shares of Series C Preferred Stock. During the third quarter of 2002, we
declared dividends of $0.2925 per share on our shares of Series A Preferred
Stock and Series B Preferred Stock, and $0.3651 per share on our shares of
Series C Preferred Stock. The second quarter 2001 dividend and the third quarter
2002 dividend were both declared in order for us to maintain our status as a
real estate investment trust. We have not declared a dividend on any shares of
our Preferred Stock since the third quarter of 2002.

As of September 30, 2002, the total amount of dividends in arrears on
the Series A Preferred Stock was $6,964,107 ($7.02 per Series A Preferred Stock
share), on the Series B Preferred Stock $9,678,245 ($7.02 per Series B Preferred
Stock share), and on the Series C Preferred Stock $12,118,703 ($8.76 per Series
C Preferred Stock share). The aggregate amount of the tender offers for the
Preferred Stock is approximately $20,000,000 in cash and approximately
$30,000,000 in principal amount of Senior Notes.


-41-

BUSINESS

General

We are a financial services company, which invests in a portfolio of
securities and investments backed principally by single family mortgage loans,
commercial mortgage loans, and manufactured housing installment loans. These
loans have been pooled and pledged (i.e., securitized) as collateral for
collateralized bonds ("collateralized bonds") which provided long-term,
non-recourse, financing for these loans while limiting the Company's overall
credit, interest rate and liquidity risk. We also invest in and service pools of
delinquent property tax receivables. We have elected to be treated as a REIT for
federal income tax purposes under the Internal Revenue Code of 1986, as amended,
and, as such, must distribute substantially all of our taxable income to
shareholders. Provided that we meet all of the prescribed Internal Revenue Code
requirements for a REIT, we will generally not be subject to federal income tax.

We are actively managing our current investment portfolio, and are
actively servicing our delinquent property tax portfolios. We are not generating
additional investments other than through the "call" of adjustable-rate and
fixed-rate single-family mortgage pass-through securities previously issued and
sold by the Company. We own the right to call these securities, at our option,
once the outstanding balance of such securities reaches a call "trigger,"
generally either 10% or less of the original amount issued or a specified date.
The aggregate callable balance of such securities at the time of the projected
call is approximately $131,751,000, relating to 10 securities. These securities
are estimated to reach their call "triggers" over the ensuing 24-months. We have
the right to call these securities at par, and may or may not elect to call one
or more of these securities when eligible based on the value of the underlying
securities. During the year ended December 31, 2002, we initiated the call of
seventeen securities with a balance of $163,785,000. We also own the right to
purchase or redeem generally by class the collateralized bonds on our balance
sheet once the outstanding balance of such bonds reaches 35% or less of the
original amount issued or a specified date. We may or may not elect to call
these collateralized bonds, depending on the current interest-rate environment
at the time of the call and the performance of the underlying loans. If we elect
not to call the collateralized bonds as they become eligible, the coupon on the
bonds will increase. Collateralized bonds which are expected to be callable in
the three-year period ending December 31, 2005, approximating $550,000,000 at
the anticipated call date, will increase in coupon on a weighted-average basis
of 0.54% per annum if not called by the Company.

Our investment portfolio continues to generate reasonable cash flow,
and we have been evaluating various new business alternatives to re-deploy this
cash flow in an effort to improve shareholder value, including the possible
acquisition of a depository institution. Although our Board of Directors has not
yet concluded its evaluation as to a new business strategy for the Company, our
Board has determined that it should evaluate alternatives with respect to the
Preferred Stock as part of the process. The pursuit of any strategy is subject
to the outcome of our Board's evaluation, but it is the Company's belief that a
new business strategy may be the best use of the Company's available capital on
a go-forward basis after the completion of this Offer. In particular, the Board
is assessing whether various alternatives related to the Preferred Stock would
be beneficial to our shareholders when considering the associated risks and
potential returns in light of other strategic alternatives. With respect to the
possible acquisition of a depository institution as previously disclosed, it is
the Board's view that it would likely seek some resolution of the Preferred
Stock dividends in arrears before we would move forward with an acquisition of a
depository institution, although no assurance can be given that any resolution
could be attained.

This "Business" section should be read in conjunction with the
"Business" sections contained in our 2001 Annual Report on Form 10-K and our
Third Quarter 2002 Quarterly Report on Form 10-Q, which are incorporated by
reference and enclosed with this Offering Circular. If any statement contained
in the 10-K or the 10-Q enclosed with this Offering Circular is modified or
superseded by a statement in this Offering Circular, or any amended filings to
this Offering Circular, such statement contained in the enclosed 10-K or 10-Q
will be deemed for the purposes of this Offering Circular, or any amended
filing, to have been modified or superseded by the statement in this Offering
Circular, or the amended filing, and the statement contained in the enclosed
10-K or the 10-Q is incorporated by reference herein only as modified or to the
extent it is not superseded.

-42-

MANAGEMENT OF DYNEX

Our executive officer and his position is as follows:

Name Age Position(s) Held

Stephen J. Benedetti 40 Executive Vice President, Chief
Financial Officer and Secretary

The position of President is currently vacant. Please see our Notice
and Proxy Statement dated April 29, 2002 enclosed herewith, for a description of
our management and Board of Directors, related party transactions, and
compensation provided to such persons. Executive officers serve at the
discretion of the Company's Board of Directors.


-43-

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 100,000,000 shares of common
stock, par value $0.01 per share and 50,000,000 shares of preferred stock, par
value $0.01 per share. The relative rights of our common stock and Preferred
Stock are defined by our Amended Articles of Incorporation as well as by our
Amended By-laws and the Virginia Stock Corporation Act. Set forth below is
summary of the relative rights of our common stock and Preferred Stock.

COMMON STOCK

Subject to the rights of holders of any series of Preferred Stock which
may from time to time be issued, holders of common stock are entitled to one
vote per share on matters acted upon at any shareholders' meeting, including the
election of directors, and to dividends when, as and if declared by the board of
directors out of funds legally available therefor. We have not paid any
dividends on our common stock since 1998. There is no cumulative voting and the
common stock is not redeemable. In the event of any liquidation, dissolution or
winding up of Dynex, each holder of common stock is entitled to share ratably in
all of our assets remaining after the payment of liabilities and any amounts
required to be paid to holders of preferred stock, if any. Holders of common
stock have no preemptive or conversion rights and are not subject to further
calls or assessments by Dynex. All shares of common stock now outstanding are be
fully paid and non-assessable. The common stock is traded on the New York Stock
Exchange under the ticker symbol "DX." As of January 2, 2003, there were
approximately 3,662 holders of record of common stock and we have issued and
outstanding 10,873,903 shares of common stock. This number was derived from our
shareholder records, and does not include beneficial owners of the our common
stock whose shares are held in the names of various dealers, clearing agencies,
banks, brokers and other fiduciaries.

PREFERRED STOCK

Our Board of Directors is authorized to issue shares of preferred stock
in one or more series and to determine the voting rights, preferences as to
dividends, and the liquidation, conversion, redemption and other rights of each
series. The issuance of a series with voting and conversion rights may adversely
affect the voting power of the holders of common stock. As of the close of
business January 2, 2003, we have issued and outstanding 992,038 shares of
Series A Preferred Stock, 1,378,707 shares of Series B Preferred Stock and
1,383,532 shares of Series C Preferred Stock.

The Series A Preferred Stock is listed and traded on the Nasdaq
National Market under the symbol "DXCPP." As of January 2, 2003 (the last
trading day ending prior to the announcement of the Offer), the closing per
share sales price of the Series A Preferred Stock, as reported on the Nasdaq
National Market, was $22.50. Shareholders are encouraged to obtain current
market quotations of the Series A Preferred Stock. The 492,425 shares of Series
A Preferred Stock that Dynex is offering to accept in this Offer represented
approximately 49.6% of the outstanding Series A Preferred Stock as of January 2,
2003, the most recent practicable date prior to the announcement of the Offer.

The Series B Preferred Stock is listed and traded on the Nasdaq
National Market under the symbol "DXCPO." As of January 2, 2003 (the last
trading day ending prior to the announcement of the Offer), the closing per
share sales price of the Series B Preferred Stock, as reported on the Nasdaq
National Market, was $22.25. Shareholders are encouraged to obtain current
market quotations of the Series B Preferred Stock. The 662,944 shares of Series
B Preferred Stock that Dynex is offering to accept in this Offer represented
approximately 48.1% of the outstanding Series B Preferred Stock as of January 2,
2003, the most recent practicable date prior to the announcement of the Offer.

The Series C Preferred Stock is listed and traded on the Nasdaq
National Market under the symbol "DXCPN." As of January 2, 2003 (the last
trading day ending prior to the announcement of the Offer), the closing per
share sales price of the Series C Preferred Stock, as reported on the Nasdaq
National Market, was $28.00. Shareholders are encouraged to obtain current


-44-

market quotations of the Series C Preferred Stock. The 683,703 shares of Series
C Preferred Stock that Dynex is offering to accept in this Offer represented
approximately 49.4% of the outstanding Series C Preferred Stock as of January 2,
2003, the most recent practicable date prior to the announcement of the Offer.

For a description of dividends with respect to the Preferred Stock, see
"Dividends."

Shares of Series A Preferred Stock, Series B Preferred Stock and Series
C Preferred Stock are convertible at any time at the option of the holder. Two
shares of Preferred Stock are convertible into one share of common stock. In
April 2002, one holder of Series B Preferred Stock converted 100 shares of
Series B Preferred Stock into 50 shares of Dynex common stock. No other shares
of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred
Stock were converted during 2002 or 2001.

Each series is redeemable by us at any time, in whole or in part at a
rate of (i) two shares of preferred stock for one share of common stock, plus
accrued and unpaid dividends, provided that for 20 trading days within any
period of 30 consecutive trading days, the closing price of the common stock
equals or exceeds two times the issue price, or (ii) for cash at the issue
price, plus any accrued and unpaid dividends.

In the event of liquidation, the holders of all series of Preferred
Stock will be entitled to receive out of our assets, prior to any such
distribution to our common shareholders, the issue price per share of the series
in cash, plus any accrued and unpaid dividends. As of September 30, 2002 and
December 31, 2001, the total liquidation preference on the Preferred Stock was
$127,854,248 and $121,866,547 respectively, and the total amount of dividends in
arrears on Preferred Stock were $28,761,055 and $22,770,904 respectively.

In 2001, we completed two separate tender offers for our Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock,
resulting in the purchase of 1,307,118 shares of our Preferred Stock, consisting
of 317,023 shares of Series A Preferred Stock, 533,627 shares of Series B
Preferred Stock and 456,468 shares of Series C Preferred Stock, for an aggregate
purchase price of $19,998,368 and which had an aggregate issue price of
$34,376,454, a book value of $32,819,259 and including dividends in arrears, a
liquidation preference of $40,854,027.

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EXECUTIVE OFFICER AND DIRECTOR BENEFICIAL OWNERSHIP

Listed in the following table and the notes thereto is certain
information with respect to the beneficial ownership of Preferred Stock as of
December 31, 2002, by each director and executive officer of Dynex owning any
Preferred Stock and by all such directors and executive officers as a group.
Unless otherwise specified in the table, the business address for each of the
following persons is 4551 Cox Road, Suite 300, Glen Allen, Virginia 23060.

- -----------------------------------------------------------------------------------------------------------------------
No. of No. of No. of
Name of Beneficial Shares of Percent of Shares of Percent of Shares of Percent of
Owner Series A Series A Series B Series B Series C Series C Preferred
Preferred Preferred Preferred Preferred Preferred
- -----------------------------------------------------------------------------------------------------------------------


Leon A. Felman, 0 0.00% 0 0.00% 28,470 2.06%
Director (1)

Barry Igdaloff, 62,000 6.25% 61,000 4.42% 52,500 3.79%
Director(2)
Eric P. Von der 0 0.00% 27,500 1.99% 42,500 3.07%
Porten, Director(3)

All Directors as a 62,000 6.25% 88,500 6.42% 123,470 8.92%
group
- -----------------------------------------------------------------------------------------------------------------------


(1) Includes 11,670 shares of Series C Preferred Stock owned of record by
Homebaker Brand Profit Sharing Plan, of which Mr. Felman is the trustee;
11,310 shares of Series C Preferred Stock owned of record by The Leon A.
Felman Keogh Profit Sharing Plan, of which Mr. Felman is the trustee; 350
shares of Series C Preferred Stock owned of record by The Felman Family
Trust, of which Mr. Felman is the trustee; and 980 shares of Series C
Preferred Stock owned of record by HLF Corporation, of which Mr. Felman is
an officer.

(2) Includes 41,600 shares of Series A Preferred Stock, 34,700 shares of Series
B Preferred Stock and 10,100 shares of Series C Preferred Stock owned by
clients of Rose Capital of which Mr. Igdaloff is the sole proprietor.

(3) Includes 27,500 shares of Series B Preferred Stock and 42,500 shares of
Series C Preferred Stock owned of record by Leeward Capital, L.P. Mr. Von
der Porten is the managing member of Leeward Investments, LLC, the general
partner of Leeward Capital, L.P.
- --------------------------------------------------------------------------------

To the best knowledge of Dynex, no executive officer or director has effected
any transaction in the Preferred Stock during the past 60 days.


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DESCRIPTION OF SENIOR NOTES

The Senior Notes are to be issued under an Indenture, to be dated as of
the Closing Date, between us and Wachovia Bank, N.A., as trustee. A copy of the
Senior Note Indenture is available from us upon request and is on file with the
Commission. The following summaries of certain provisions of the Senior Notes
and the Indenture do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all the provisions of the Senior
Notes and the Indenture, including the definitions therein of certain terms
which are not otherwise defined in this Offering Circular. Wherever particular
provisions or defined terms of the Senior Note Indenture (or of the form of
Senior Notes which is a part thereof) are referred to, such provisions or
defined terms are incorporated herein by reference in their entirety.

GENERAL

The Senior Notes will represent general unsecured senior obligations of
the Company and have no conversion rights. The Senior Notes will be limited to
$30,000,000 aggregate principal amount, will be issued in book entry form only,
in denominations of $25.00 in original principal amount or any integral multiple
thereof and will mature on February 28, 2005, unless earlier redeemed at the
option of the Company or repurchased at the option of the Senior Note holder
upon a change of control.

The Senior Notes bear interest from the Closing Date, at an annual rate
of 9.50% on the outstanding principal balance. Payments of principal on the
Senior Notes in the amount of $3.125 (or such lesser principal amount as is then
outstanding) per each $25 of principal amount on each Senior Note will be made
each quarter until paid in full. Payments of principal and interest will be made
quarterly in arrears in cash on each of February 28, May 31, August 31 and
November 31, commencing May 31, 2003, to holders of record at the close of
business on the preceding February 15, May 15, August 15 and November 15,
respectively. Payments of principal will be made at the office of the Senior
Notes Trustee in Richmond, Virginia. Interest will be computed on the basis of a
360-day year composed of twelve 30-day months. The Senior Notes are unrated.

GLOBAL NOTE; BOOK ENTRY FORM

The Senior Notes will be issued solely in global form. A recipient of
Senior Notes pursuant to this Offer will receive a beneficial interest in an
unrestricted global note. The global note will be issued to DTC, and registered
in the name of Cede as DTC's nominee, and shall be deposited with Wachovia Bank,
N.A., as custodian for Cede. Upon issuance of the global note, DTC will credit,
on its book-entry registration and transfer systems, the respective principal
amounts of the Senior Notes represented by that global note to the accounts of
institutions or persons, commonly known as participants, that have accounts with
DTC or its nominee. Ownership of beneficial interests in the global note will be
limited to participants or persons that may hold beneficial interests through
participants. Owners of beneficial interests in the global note will not receive
certificates representing their ownership interests in the Senior Notes, except
in the event use of the book-entry system for the Senior Notes is discontinued.
Except as set forth below, the record ownership of the global note may be
transferred, in whole or in part, only to another nominee of DTC or to a
successor of DTC or its nominee.

Payment of principal and interest on and the redemption and repurchase
price of the global note will be made to Cede, the nominee for DTC, as
registered owner of the global note, by wire transfer of immediately available
funds on each principal and interest payment date, each redemption date and each
repurchase date, as applicable. None of the Company, the trustee or any paying
agent will have any responsibility or liability for:

o any aspect of the records relating to or payments made on account
of beneficial ownership interests in the global note; or



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o for maintaining, supervising or reviewing any records relating to
such beneficial ownership interest.

We have been informed by DTC that, with respect to any payment of
principal of or interest on, or the redemption or repurchase price of, the
global note, DTC's practice is, upon receipt of payment, to credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount represented by the global note as shown on the
records of DTC. Payments by participants to owners of beneficial interests in
the principal amount represented by the global note held through such
participants will be the responsibility of such participants, as is now the case
with securities held for the accounts of customers registered in "street name."

Transfers between participants will be effected in the ordinary way in
accordance with DTC rules and will be settled in immediately available funds.
Because DTC can only act on behalf of participants, who in turn act on behalf of
persons who hold interests through them and certain banks, the ability of a
person having a beneficial interest in the principal amount represented by the
global note to pledge such interest to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
interest, may be affected by the lack of a physical certificate evidencing such
interest.

Neither the Company nor the trustee (or any registrar or paying agent
under the Indenture) will have responsibility for the performance of DTC or its
participants or persons who hold interests through the participants of their
respective obligations under the rules and procedures governing their
operations. DTC has advised us that it will take any action permitted to be
taken by a holder of Senior Notes (including, without limitation, the
presentation of Senior Notes for exchange as described below) only at the
direction of one or more participants to whose account with DTC interests in the
global note are credited, and only in respect of the principal amount of the
Senior Notes represented by the global note as to which such participant or
participants has or have given such direction.

DTC has advised us as follows:

o DTC is a limited purpose trust company organized under the laws
of the State of New York;

o DTC is a member of the Federal Reserve System;

o DTC is a "clearing corporation" within the meaning of the New
York Uniform Commercial Code; and

o DTC is a "clearing agency" registered pursuant to the provisions
of Section 17A of the Exchange Act.

DTC holds securities for its participants and facilitates the clearance
and settlement of securities transactions between participants through
electronic book-entry changes to accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. DTC is owned by a number of its participants
and by the New York Stock Exchange, Inc., the American Stock Exchange, LLC and
the National Association of Securities Dealers, Inc. Indirect access to the DTC
system is available to others such as banks, securities brokers and dealers and
trust companies that clear through, or maintain a custodial relationship with, a
participant, either directly or indirectly. The Rules applicable to DTC and its
participants and indirect participants are on file with the Commission.

Although DTC may agree to the foregoing procedures in order to
facilitate transfers of interests in the global note among participants, they
are under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. If DTC is at any time unwilling


-48-

or unable to continue as depositary and a successor depositary is not appointed
by the Company within 90 days, we will cause the Senior Notes to be issued in
definitive form in exchange for the global note.

REGISTRATION AND TRANSFER

This Offer is being extended to you in reliance on the exemption from
registration provided by Section 3(a)(9) of the Securities Act. As a result, the
Senior Notes we issue to you in exchange for your Preferred Stock will have
similar characteristics to the Preferred Stock with respect to transfer to third
parties. If your shares of Preferred Stock are freely tradable, then the Senior
Notes you receive in the exchange can be transferred freely.

CHANGE OF CONTROL

Upon the occurrence of a Change of Control (as defined below), each
holder of Senior Notes shall have the right to require that we repurchase such
holder's Senior Notes in whole or in part at a purchase price in cash in an
amount equal to 101% of the outstanding principal amount, together with accrued
and unpaid interest to the date of purchase, pursuant to an offer (the "Change
of Control Offer") made in accordance with the procedures described below and
the other provisions in the Indenture.

The term "Change in Control" shall mean an event or series of events in
which (i) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act) acquires "beneficial ownership" (as determined in
accordance with Rule 13d-3 under the Exchange Act), directly or indirectly, of
more than 50% of the total Voting Stock (as defined below) of the Company
whether by purchase, tender, merger or otherwise; provided, however, that any
such person or group shall not be deemed to be the beneficial owner of, or to
beneficially own, any Voting Stock tendered in a tender offer until such
tendered Voting Stock is accepted for purchase under the tender offer; or (ii)
all or substantially all of the assets of the Company are sold, exchanged or
otherwise is transferred to such person or group (other than any pledges or
transfers made in connection with such acquisition of our assets).

"Voting Stock" means stock of the class or classes pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees of
a corporation (irrespective whether or not at the time stock of any other class
or classes shall have or might have voting power by reason of the happening of
any contingency).

Within 30 days following any Change of Control, we shall send by
first-class mail, postage prepaid, to the trustee and to each holder of Senior
Notes, at such holder's address appearing in the note register, a notice
stating, among other things, that a Change of Control has occurred, the
repurchase price, the repurchase date, which shall be a business day no earlier
than 30 days nor later than 60 days from the date such notice is mailed (or such
later date as is necessary to comply with the requirements of the Securities
Exchange Act of 1934, as amended), and certain other procedures that a holder of
Senior Notes must follow to accept a Change of Control Offer or to withdraw such
acceptance. We will comply, to the extent applicable, with the requirements of
Rule 13e-4 and Rule 14e-1 under the Exchange Act and other securities laws or
regulations, to the extent such laws are applicable, in connection with the
repurchase of the Senior Notes as described above. Future indebtedness may
contain prohibitions of certain events which would constitute a Change of
Control or require us to offer to repurchase such indebtedness upon a Change of
Control. Moreover, the exercise by the holders of Senior Notes of their right to
require the Company to purchase the Senior Notes could cause a default under
such indebtedness, even if the Change of Control itself does not, due to the
financial effect of such purchase on the Company. Finally, our ability to pay
cash to holders of Senior Notes upon a purchase may be limited by the Company's
then existing financial resources. There can be no assurance that sufficient
funds will be available when necessary to make any required purchases.
Furthermore, the Change of Control provisions may in certain circumstances make
more difficult or discourage a takeover of the Company and the removal of the
incumbent.



-49-

MERGER, CONSOLIDATION AND SALE OF ASSETS

The Indenture prohibits us from consolidating with or merging with or
into, or conveying, transferring or leasing all or substantially all our assets
(determined on a consolidated basis), to any person unless: (i) either the
Company is the resulting, surviving or transferee person (the "Successor
Company") or the Successor Company is a person organized and existing under the
laws of the United States or any state thereof or the District of Columbia, and
the Successor Company (if not the Company) expressly assumes by a supplemental
Indenture, executed and delivered to the trustee, in form satisfactory to the
trustee, all the obligations of the Company under the Senior Note Indenture and
the Senior Notes, (ii) immediately after giving effect to such transaction no
Event of Default (as defined below) has happened and is continuing and (iii) the
Company delivers to the trustee an officers' certificate and an opinion of
counsel, each stating that such consolidation, merger or transfer and such
supplemental Indenture (if any) comply with the Indenture.

RESTRICTIONS AND LIMITATIONS

The terms of the indenture for the Senior Notes contain certain
financial covenants which prohibit us from engaging in certain activities while
the Senior Notes are outstanding. For example, the terms of the Indenture
prohibits us from, directly or indirectly, making any Restricted Payments,
unless:

(a) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Restricted Payment; and

(b) the aggregate amount of all such Restricted Payments does not
exceed the sum of (i) the cumulative real estate investment trust taxable income
of the Company earned for the tax years ended after December 31, 2001, as
determined by Section 857(b)(2) of the Code, without giving effect to the
dividends paid deduction defined in Section 561 of the Code and (ii) $1 million.

The provisions of this covenant do not prohibit any distribution that
is necessary to maintain our status as a real estate investment trust under the
Code.

As a result of the Restricted Payments provisions, the Indenture also
effectively prohibits us from engaging in any future tender offers with respect
to our Preferred Stock until the Senior Notes have been fully repaid.

In addition, under the terms of the Indenture, we and any of our
subsidiaries is prohibited from conducting any business or entering into any
transactions or series of transactions with or for the benefit of any of our
Affiliates (each, an "Affiliate Transaction"), except in good faith and on terms
that are, in the aggregate, no less favorable to the Company, as the case may
be, than those that could have been obtained in a comparable transaction on an
arm's-length basis from a person or entity who is not such an Affiliate.

For purposes of this section of the Offering Circular, the term
"Restricted Payment" means any of the following: (i) the declaration or payment
of any dividend or any other distribution on the Capital Stock of the Company or
any payment made to the direct or indirect holders (in all their capacities as
such) of Capital Stock of the Company (other than dividends or distributions
payable solely in capital stock (other than Disqualified Stock) or in options,
warrants or other rights to purchase capital stock (other than Disqualified
Stock); (ii) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company or (iii) the making of any principal
payment on, or the purchase, defeasance, repurchase, redemption or other
acquisition or retirement for value, prior to any scheduled maturity, scheduled
repayment or scheduled sinking fund payment, of any indebtedness existing on the


-50-

issue date of the Senior Notes which is subordinated in right of payment to the
Senior Notes (other than indebtedness acquired in anticipation of satisfying a
sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of acquisition).

In addition, all Affiliate Transactions (and each series of related
Affiliate Transactions which are a part of a common plan) involving aggregate
payments or other market value in excess of $3 million, are required to be
approved unanimously by the Board of Directors of the Company, with such
approval being evidenced by a board resolution stating that such directors have,
in good faith, determined that such transactions or related transactions comply
with the foregoing provision; and if the Company or any subsidiary of the
Company enters into an Affiliate Transaction (or a series of related Affiliate
Transactions which are part of a common plan) involving aggregate payments or
market value in excess of $5 million, the Company or such subsidiary is
required, prior to the consummation thereof, to obtain a favorable opinion as to
the fairness of such transaction or related transactions from an independent
financial advisor and file the same with the Trustee; provided that this
sentence shall not be applicable with respect to sales or purchases of products
or services by the Company or from its Affiliates in the ordinary course of
business on terms similar to those that could have been obtained in a comparable
transaction on an arms-length basis from a Person who is not such an Affiliate.
Notwithstanding the foregoing, the restrictions set forth in this covenant shall
not apply to (i) customary directors' fees and (ii) customary fees or
transactions by and among the Company and its wholly owned subsidiaries.

For purposes of this section of the Offering Circular, the term
"Affiliate" shall mean an "affiliate" as defined in Rule 144(a) as promulgated
under the Securities Act.

For purposes of this section of the Offering Circular, the term
"Capital Stock" of any person shall mean any and all shares, interests,
participations or other equivalents (however designated) of such person's
corporate stock or any and all equivalent ownership interests in a person (other
than a corporation) whether now outstanding or issued after the date hereof.

For purposes of this section of the Offering Circular, the term
"Disqualified Stock" means, with respect to any Person, any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is exchangeable for indebtedness, or is redeemable at the option of the holder
thereof, in whole or in part on or prior to the stated maturity.

EVENTS OF DEFAULT AND REMEDIES

An Event of Default is defined in the Indenture as being, among other
things: default in payment of the principal on the Senior Notes when due, at
maturity, upon redemption or otherwise, including failure by the Company to
purchase the Senior Notes when required as described under "Description of
Senior Notes--Change of Control" (whether or not such payment shall be
prohibited by the subordination provisions of the Indenture); default for 30
days in payment of any installment of interest on the Senior Notes; default by
the Company for 90 days after notice in the observance or performance of any
other covenants in the Indenture; failure to pay certain indebtedness for money
borrowed under any mortgage, indenture, or instrument aggregating $25 million or
more; final judgments or decrees entered into by a court of competent
jurisdiction against the Company, which have not been vacated, discharged,
satisfied or stayed pending appeal within 60 days of entry, involving
liabilities of $40 million or more after deducting the portion of such
liabilities accepted by an insurance company; or certain events involving
bankruptcy, insolvency or reorganization of the Company. The Indenture provides
that the trustee may withhold notice to the holders of Senior Notes of any
default (except in payment of principal or interest with respect to the Senior
Notes) if the trustee, in good faith, considers it in the interest of the
holders of the Senior Notes to do so.



-51-

The Senior Note Indenture provides that if an Event of Default (other
than an Event of Default with respect to certain events, including bankruptcy,
insolvency or reorganization of the Company) shall have occurred and be
continuing, the trustee or the holders of not less than 25% in principal amount
of the Senior Notes then outstanding may declare the principal on the Senior
Notes to be due and payable immediately, but if the Company shall pay or deposit
with the trustee a sum sufficient to pay all matured installments of interest on
all Senior Notes and the principal on all Senior Notes that have become due
other than by acceleration and certain expenses and fees of the trustee and if
all defaults (except the nonpayment of interest on and principal of any Senior
Notes which shall have become due by acceleration) shall have been cured or
waived and certain other conditions are met, such declaration may be canceled
and past defaults may be waived by the holders of a majority in principal amount
of the Senior Notes then outstanding.

The holders of a majority in principal amount of the Senior Notes then
outstanding shall have the right to direct the time, method and place of
conducting any proceedings for any remedy available to the trustee, subject to
certain limitations specified in the Indenture. The Indenture provides that,
subject to the duty of the trustee following an Event of Default to act with the
required standard of care, the trustee will not be under an obligation to
exercise any of its rights or powers under the Indenture at the request or
direction of any of the holders, unless the trustee receives satisfactory
indemnity against any associated costs, liability or expense.

SATISFACTION AND DISCHARGE; DEFEASANCE

The Senior Note Indenture will cease to be of further effect as to all
outstanding Senior Notes (except as to (i) rights of the holders of Senior Notes
to receive payments of principal and interest on, the Senior Notes, (ii) our
right of optional redemption, (iii) rights of registration of transfer and
exchange, (iv) substitution of apparently mutilated, defaced, destroyed, lost or
stolen Senior Notes, (v) rights, obligations and immunities of the trustee under
the Indenture and (vi) rights of the holders of Senior Notes as beneficiaries of
the Indenture with respect to the property so deposited with the trustee payable
to all or any of them) if (A) we will have paid or caused to be paid the
principal and interest on the Senior Notes as and when the same will have become
due and payable or (B) all outstanding Senior Notes (except lost, stolen or
destroyed Senior Notes which have been replaced or paid) have been delivered to
the trustee for cancellation or (C) (x) the Senior Notes not previously
delivered to the trustee for cancellation will have become due and payable or
are by their terms to become due and payable within one year or are to be called
for redemption under arrangements satisfactory to the trustee upon delivery of
notice and (y) we will have irrevocably deposited with the trustee, as trust
funds, cash, in an amount sufficient to pay principal of and interest on the
outstanding Senior Notes, to maturity or redemption, as the case may be. Such
trust may only be established if such deposit will not result in a breach or
violation of, or constitute a default under, any agreement or instrument
pursuant to which we are a party or by which we are bound and we have delivered
to the trustee an officers' certificate and an opinion of counsel, each stating
that all conditions related to such defeasance have been complied with.

The Senior Note Indenture will also cease to be in effect (except as
described in clauses (i) through (vi) in the immediately preceding paragraph)
and the indebtedness on all outstanding Senior Notes will be discharged on the
123rd day after the irrevocable deposit by the Company with the trustee, in
trust, specifically pledged as security for, and dedicated solely to, the
benefit of the holders of the Senior Notes, of cash, U.S. Government Obligations
(as defined in the Indenture) or a combination thereof, in an amount sufficient,
in the opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the trustee, to pay
the principal and interest on the Senior Notes then outstanding in accordance
with the terms of the Indenture and the Senior Notes ("legal defeasance"). Such
legal defeasance may only be effected if (i) no Event of Default has occurred or
is continuing, (ii) such deposit will not result in a breach or violation of, or
constitute a default under, any agreement or instrument to which the Company is
a party or by which it is bound, (iii) the Company has delivered to the trustee
an opinion of counsel stating that (A) the Company has received from, or there
has been published by, the Internal Revenue Service a ruling or (B) since the
date of the Indenture, there has been a change in the applicable federal income
tax law, in either case to the effect that, based thereon, the holders of the
Senior Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit, defeasance and discharge by the Company


-52-

and will be subject to federal income tax on the same amount and in the same
manner and at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred, (iv) the Company has delivered to the
trustee an opinion of counsel to the effect that after the 123rd day following
the deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally and (v) the Company has delivered to the trustee an officers
certificate and an opinion of counsel stating that all conditions related to the
defeasance have been complied with. The Company may also be released from its
obligations under the covenants described above captioned "Description of Senior
Notes--Change of Control" and "Description of Senior Notes -Merger,
Consolidation and Sale of Assets" with respect to the Senior Notes outstanding
on the 123rd day after the irrevocable deposit by the Company with the trustee,
in trust, specifically pledged as security for, and dedicated solely to, the
benefit of the holders of the Senior Notes, of cash, U.S. Government Obligations
or a combination thereof, in an amount sufficient in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the trustee, to pay the principal and
interest on the Senior Notes then outstanding in accordance with the terms of
the Indenture and the Senior Notes ("covenant defeasance").

Such covenant defeasance may only be effected if (i) no Event of
Default has occurred or is continuing (ii) such deposit will not result in a
breach or violation of, or constitute a default under, any agreement or
instrument to which the Company is a party or by which it is bound, (iii) the
Company has delivered to the trustee an officers' certificate and an opinion of
counsel to the effect that the holders of the Senior Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such deposit
and covenant defeasance by the Company and will be subject to federal income tax
on the same amount, in the same manner and at the same times as would have been
the case if such deposit and covenant defeasance had not occurred, (iv) the
Company has delivered to the trustee an opinion of counsel to the effect that
after the 123rd day following the deposit, the trust funds will not be subject
to the effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally and (v) the Company has
delivered to the trustee an officers' certificate and an opinion of counsel
stating that all conditions related to the covenant defeasance have been
complied with.

Following such covenant defeasance, the Company will no longer be
required to comply with the obligations described above under "Merger,
Consolidation and Sale of Assets" and "Restrictions and Limitations" and will
have no obligation to repurchase the Senior Notes pursuant to the provisions
described under "Description of Senior Notes -Change of Control."

MODIFICATIONS OF THE INDENTURE

The Senior Note Indenture contains provisions permitting the Company
and the trustee, with the consent of the holders of not less than a majority in
principal amount of the Senior Notes at the time outstanding, to modify the
Indenture or any supplemental Indenture or the rights of the holders of the
Senior Notes, except that no such modification shall (i) extend the fixed
maturity or due date for principal installments thereunder, of any Senior Note
or due date for principal installments thereunder, reduce the rate or extend the
time of payment of interest thereon, reduce the principal amount thereof, reduce
any amount payable upon redemption thereof, change the obligation of the Company
to repurchase the Senior Notes, at the option of the holder, upon the happening
of a Change of Control, impair or affect the right of a holder to institute suit
for the payment thereof, change the currency in which the Senior Notes are
payable, without the consent of the holder of each Senior Note so affected or
(ii) reduce the aforesaid percentage of the Senior Notes, without the consent of
the holders of all of the Senior Notes then outstanding. The Company and the
trustee may amend or supplement the Indenture without notice to or consent of
any holder in order to provide for the issuance of Senior Notes in coupon form,
to correct or supplement any inconsistent or deficient provision in the
Indenture, to comply with the provisions of the Trust Indenture Act of 1939 or
to appoint a successor trustee.




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CONCERNING THE TRUSTEE

Wachovia Bank, N.A., the trustee under the Senior Note Indenture, has
been appointed by the Company as the paying agent, registrar and custodian with
regard to the Senior Notes. The trustee and/or its affiliates may in the future
provide banking and other services to us in the ordinary course of their
respective businesses. Under the Indenture, each holder or former holder of a
Senior Note agrees to indemnify the Company and the trustee against any
liability that may result from the transfer, exchange or assignment of such
holder's or former holder's Senior Note in violation of any provision of the
Indenture or applicable United States federal or state securities laws.


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LEGAL PROCEEDINGS

Dynex is subject to lawsuits or claims which arise in the ordinary
course of its business. Below is set forth a description of all material
outstanding litigation relating to Dynex.

GLS Capital, Inc. ("GLS"), a subsidiary of the Company, together with
the County of Allegheny, Pennsylvania ("Allegheny County"), were defendants in a
lawsuit in the Commonwealth Court of Pennsylvania (the "Commonwealth Court"),
the appellate court of the state of Pennsylvania, wherein the plaintiffs
challenged the right of Allegheny County and GLS to collect certain interest,
costs and expenses related to delinquent property tax receivables in Allegheny
County. This lawsuit was related to the purchase by GLS of delinquent property
tax receivables from Allegheny County in 1997, 1998, and 1999 for approximately
$58.3 million. In July 2001, the Commonwealth Court issued a ruling that
addressed, among other things, (i) the right of the Company to charge to the
delinquent taxpayer a rate of interest of 12% versus 10% on the collection of
its delinquent property tax receivables, (ii) the charging of attorney's fees to
the delinquent taxpayer for the collection of such tax receivables, and (iii)
the charging to the delinquent taxpayer of certain other fees and costs. The
Commonwealth Court remanded for further consideration to the lower court items
(i) and (iii) above, and ruled that neither Allegheny County nor GLS had the
right to charge attorney's fees to the delinquent taxpayer related to the
collection of such tax receivables. In October 2001, GLS along with Allegheny
County filed an Application for Extraordinary Jurisdiction appealing the
Commonwealth Court's ruling. No damages have been claimed in the action;
however, the decision if it remains as issued by the Commonwealth Court and
pending the further consideration of items (i) and (iii) above by the lower
court, may impact the ultimate amount recoverable on the delinquent property tax
receivables, including attorney fees incurred in the collection process.

The Company and Dynex Commercial, Inc. ("DCI"), formerly an affiliate
of the Company, are defendants in state court in Dallas County, Texas in the
matter of Basic Capital Management et al ("BCM") versus Dynex Commercial, Inc.
et al. The suit was filed in April 1999 originally against DCI, and in March
2000, BCM amended the complaint and added the Company. The current complaint
alleges that, among other things, DCI and the Company failed to fund tenant
improvement or other advances allegedly required on various loans made by DCI to
BCM, which loans were subsequently acquired by the Company; that DCI breached an
alleged $160 million "master" loan commitment entered into in February 1998 and
a second alleged loan commitment of approximately $9 million; that DCI and the
Company made negligent misrepresentations in connection with the alleged $160
million commitment; and that DCI and the Company fraudulently induced BCM into
canceling the alleged $160 million master loan commitment in January 1999.
Plaintiff BCM is seeking damages approximating $40 million, including
approximately $36.5 million for DCI's breach of the alleged $160 million master
loan commitment, approximately $1.6 million for alleged failure to make
additional tenant improvement advances, and approximately $1.9 million for DCI's
not funding the alleged $9 million commitment. DCI and the Company are
vigorously defending the claims on several grounds. The Company was not a party
to the alleged $160 million master commitment or the alleged $9 million
commitment. The Company has filed a counterclaim for damages approximating $11
million against BCM. Commencement of the trial of the case in Dallas, Texas is
anticipated in 2003.

In November 2002, the Company received notice of a Second Amended
Complaint filed in the First Judicial District, Jefferson County, Mississippi in
the matter of Barbara Buie and Elizabeth Thompson versus East Automotive Group,
World Rental Car Sale of Mississippi, AutoBond Acceptance Corporation, Dynex
Capital, Inc. and John Does # 1-5. The Second Amended Complaint represents a
re-filing of the First Amended Complaint against the Company which was dismissed
by the Court without prejudice in August 2001. The Second Amended Complaint in
reference to the Company alleges that Plaintiffs were the beneficiaries of a
contract entered into between AutoBond Acceptance Corporation and the Company,
and alleges that the Company breached such contract and that such breach caused
them to suffer economic loss. The Plaintiffs are seeking compensatory damages of
$1 million and punitive damages of $1 million. Defendants East Automotive Group


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and World Rental Car Sale of Mississippi have also filed cross complaints
against the Company. The Company intends to defend itself vigorously against the
allegations made in these lawsuits, and believes that the ultimate resolution of
such lawsuits will not have a material impact on its financial position.

Although no assurance can be given with respect to the ultimate outcome
of the above litigation, the Company believes the resolution of these lawsuits,
or any other claims against the Company, will not have a material effect on the
Company's consolidated balance sheet, but could materially affect consolidated
results of operations in a given year.


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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

General

The following discussion summarizes certain United States federal
income tax consequences associated with the Offer and the ownership of Senior
Notes. The discussion is intended only as a summary and does not purport to be a
complete analysis of all potential tax considerations that may be relevant in
connection with the Offer. The discussion is based upon the Internal Revenue
Code of 1986, as amended to the date hereof (the "Code"), existing and proposed
United States Treasury regulations promulgated thereunder, current
administrative pronouncements and judicial decisions, changes to any of which
could materially affect the continued validity of the discussion herein and
could be made on a retroactive basis. No rulings will be sought from the
Internal Revenue Service with respect to the treatment of the Offer and no
assurance may be given that contrary positions may not be taken by the Internal
Revenue Service or by a court of law.

Scope

The discussion relating to shareholders who participate in the Offer
addresses only shareholders who hold shares of Preferred Stock as capital assets
within the meaning of Section 1221 of the Code, and does not address all of the
tax consequences that may be relevant to particular shareholders in light of
their personal circumstances, or to certain types of shareholders (such as
certain financial institutions, brokers, dealers or traders in securities or
commodities, insurance companies, "S" Corporations, expatriates, tax-exempt
organizations, persons who acquired shares of Preferred Stock as compensation
and persons who hold such shares as a position in a "straddle" or as a part of a
"hedging" or "conversion" transaction for United States federal income tax
purposes). In the context of the discussion pertaining to the Senior Notes, the
discussion describes certain United States federal income tax consequences
applicable only to original holders of the Senior Notes and who hold Senior
Notes as capital assets. The discussion does not include any description of the
tax laws of any state, local, or non-U.S. government that may be applicable to a
particular shareholder. As used herein, a "United States Holder" means (i) a
citizen or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States, any
State or any political subdivision thereof, (iii) an estate the income of which
is subject to United States federal income taxation regardless of its source, or
(iv) a trust if (A) a court within the United States is able to exercise primary
supervision of the administration of the trust and (B) one or more United States
Holders have the authority to control all substantial decisions of the trust. As
used herein, a "Non-United States Holder" is a holder of shares other than a
United States Holder.

THE SUMMARY DISCUSSION SET FORTH HEREIN IS INCLUDED FOR GENERAL
INFORMATION ONLY. THE TAX CONSEQUENCES OF AN EXCHANGE OF SHARES FOR CASH, SENIOR
NOTES OR CASH AND SENIOR NOTES PURSUANT TO THE OFFER MAY VARY DEPENDING UPON,
AMONG OTHER THINGS, THE PARTICULAR SITUATION AND CIRCUMSTANCES OF THE TENDERING
SHAREHOLDER. ALL SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO
DETERMINE THE SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES
OF EXCHANGES MADE BY THEM PURSUANT TO THE OFFER, INCLUDING THE EFFECT OF THE
STOCK OWNERSHIP ATTRIBUTION RULES DESCRIBED HEREIN.

Certain Federal Income Tax Consequences to Tendering Shareholders;
Characterization of the Exchange

An exchange of shares of Preferred Stock for cash, Senior Notes or cash
and Senior Notes by a shareholder pursuant to the Offer will be a taxable
transaction for United States federal income tax purposes. The United States
federal income tax consequences of such exchange to a shareholder may vary
depending upon the shareholder's particular facts and circumstances. Depending
on such facts and circumstances, the exchange for cash, Senior Notes or cash and
Senior Notes will be treated as either a sale or a distribution for United
States federal income tax purposes.



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Under Section 302 of the Code, an exchange of shares of Preferred Stock
for cash, Senior Notes or cash and Senior Notes pursuant to the Offer will be
treated as a "sale or exchange" of such shares of Preferred Stock for United
States federal income tax purposes (rather than as a deemed distribution by the
Company with respect to shares continued to be held (or deemed to be held) by
the tendering shareholder) if the receipt of Senior Notes upon such exchange (i)
is "substantially disproportionate" with respect to the shareholder, (ii)
results in a "complete termination" of the shareholder's interest in the
Company, or (iii) is "not essentially equivalent to a dividend" with respect to
the shareholder. These tests (the "Section 302 Tests") are explained more fully
below. See "Section 302 Tests" below.

If any of the Section 302 Tests is satisfied and the exchange of the
tendered shares of Preferred Stock for cash, Senior Notes or cash and Senior
Notes is, therefore, treated as a "sale or exchange" of such shares for United
States federal income tax purposes, the tendering shareholder will recognize
capital gain or loss equal to the difference between (a) the amount of any cash
and the fair market value of the Senior Notes received by the shareholder and
(b) the shareholder's adjusted tax basis in the shares of Preferred Stock
exchanged pursuant to the Offer. Such capital gain or loss will generally be
long-term capital gain or loss if the tendering shareholder held the tendered
shares for more than 12 months. Under current law, any such gain or loss
recognized by individuals, trusts or estates will be subject to a maximum 20
percent federal tax rate if the shares have been held for more than 12 months.
If none of the Section 302 Tests is satisfied, then, to the extent of the
Company's current and accumulated earnings and profits (as determined for United
States federal income tax purposes), the Company believes the tendering
shareholder will generally be treated as having received a dividend taxable as
ordinary income in an amount equal to the amount of any cash and the fair market
value of the Senior Notes (determined as of the date of the exchange) received
by the shareholder pursuant to the Offer (without reduction for the adjusted tax
basis of the shares tendered pursuant to the Offer). Under current Treasury
Regulations, no loss would be recognized by the tendering shareholder, and
(subject to reduction as described below for corporate shareholders eligible for
the dividends-received deduction), the tendering shareholder's adjusted tax
basis in the shares exchanged pursuant to the Offer will be added to such
shareholder's adjusted tax basis in the shareholder's remaining shares, if any;
however, if a tendering shareholder does not retain any shares, such shareholder
may lose tax basis entirely. Under Regulations recently proposed by the IRS
which are not binding upon you or the IRS, the basis, after required
adjustments, of the tendering shareholder's redeemed shares would be treated as
a loss recognized on a disposition of the redeemed shares on the closing date of
the Offer. Such loss would not be recognized by the shareholder until one of the
302 Tests is satisfied, although the character and source of such loss will be
determined as of the closing date of the Offer. As these Regulations are only
proposed Regulations, you are encouraged to consult your tax advisor regarding
their status and applicability. If the exchange of shares by a shareholder is
not treated as a sale or exchange for federal income tax purposes, the amount
(if any) by which any cash and the fair market value of the Senior Notes exceeds
the current or accumulated earnings and profits of the Company (as determined
for federal income tax purposes) will be treated, first, as a nontaxable return
of capital to the extent of the shareholder's basis in the shares, and
thereafter, as taxable capital gain.

Dynex does not expect to report any accumulated or current "earnings
and profits" for 2003.

TO THE EXTENT THAT A TENDERING SHAREHOLDER DOES NOT RECEIVE ANY CASH
PURSUANT TO THE OFFER OR DOES NOT RECEIVE A SUFFICIENT AMOUNT OF CASH PURSUANT
TO THE OFFER TO SATISFY ANY TAX LIABILITY IN CONNECTION WITH THE EXCHANGE OF
SHARES PREFERRED STOCK FOR SENIOR NOTES, A SHAREHOLDER WILL NEED TO USE OTHER
CASH RESOURCES OF THE SHAREHOLDER (INCLUDING POSSIBLE DISPOSITIONS OF THE SENIOR
NOTES) TO SATISFY ANY TAX LIABILITIES ARISING FROM AN EXCHANGE OF SHARES FOR
SENIOR NOTES.



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Constructive Ownership of Stock

In determining whether any of the Section 302 Tests is satisfied, a
shareholder must take into account not only the shares which are actually owned
by the shareholder, but also shares which are constructively owned by the
shareholder by reason of the attribution rules contained in Section 318 of the
Code. Under Section 318 of the Code, a shareholder may be treated as owning (i)
shares that are actually owned, and in some cases constructively owned, by
certain related individuals or entities in which the shareholder owns an
interest, or, in the case of shareholders that are entities, by certain
individuals or entities that own an interest in the shareholder and (ii) shares
which the shareholder has the right to acquire by exercise of an option or a
conversion right contained in another instrument held by the shareholder.

Section 302 Tests

One of the following tests must be satisfied in order for the exchange
of shares for Senior Notes pursuant to the Offer to be treated as a sale or
exchange for United States federal income tax purposes.

a. Substantially Disproportionate Test. The exchange of shares
for cash, Senior Notes or cash and Senior Notes by a shareholder will
be "substantially disproportionate" if the percentage of the
outstanding shares actually and constructively owned by the shareholder
immediately following the exchange of shares pursuant to the Offer
(treating as not being outstanding all shares exchanged pursuant to the
Offer) is less than 80% of the percentage of the outstanding shares
actually and constructively owned by such shareholder immediately
before the exchange of shares pursuant to the Offer (treating as
outstanding all shares exchanged pursuant to the Offer). Shareholders
should consult their own tax advisors with respect to the application
of the "substantially disproportionate" test to their particular
situation and circumstances.

b. Complete Termination Test. The exchange of shares for cash,
Senior Notes or cash and Senior Notes will be a "complete termination"
of a shareholder's interest in the Company if either (i) all of the
shares actually and constructively owned by the shareholder are
exchanged pursuant to the Offer or (ii) all of the shares actually
owned by the shareholder are exchanged pursuant to the Offer and, with
respect to the shares constructively owned by the shareholder which are
not exchanged pursuant to the Offer, the shareholder is eligible to
waive (and effectively waives) constructive ownership of all such
shares under procedures described in Section 302(c) of the Code.
Shareholders considering making such a waiver should do so in
consultation with their own tax advisors.

c. Not Essentially Equivalent to a Dividend Test. A
shareholder may satisfy the "not essentially equivalent to a dividend"
test if the shareholder's exchange of shares pursuant to the Offer
results in a "meaningful reduction" in the shareholder's proportionate
interest in the Company. Whether the receipt of cash, Senior Notes or
cash and Senior Notes by a shareholder who exchanges shares pursuant to
the Offer will be "not essentially equivalent to a dividend" will
depend upon the shareholder's particular facts and circumstances. The
Internal Revenue Service has indicated in published revenue rulings
that even a small reduction in the proportionate interest of a small
minority shareholder in a publicly held corporation who exercises no
control over corporate affairs may constitute such a "meaningful
reduction." The Internal Revenue Service held, for example, in Rev.
Rul. 76-385, 1976-2 C.B. 92, that a reduction in the percentage
ownership interest of a shareholder in a publicly held corporation from
.0001118% to .0001081% (a reduction of only 3.3% in the shareholder's
prior percentage ownership interest) would constitute a "meaningful
reduction." Shareholders expecting to rely on the "not essentially
equivalent to a dividend" test should consult their own tax advisors as
to its application to their particular situation and circumstances.



-59-

The Company cannot predict whether or to what extent the Offer will be
oversubscribed. If the Offer is oversubscribed, proration of the tenders
pursuant to the Offer will cause the Company to accept fewer shares than are
tendered. Therefore, a shareholder can be given no assurance that a sufficient
number of such shareholder's shares will be exchanged pursuant to the Offer to
ensure that such exchange will satisfy one or more of the Section 302 Tests and
be treated as a sale or exchange rather than as a dividend, for United States
federal income tax purposes pursuant to the rules discussed above.

Contemporaneous dispositions or acquisitions of shares by a shareholder
or related individuals or entities may be deemed to be part of a single
integrated transaction which will be taken into account in determining whether
any of the Section 302 Tests has been satisfied in connection with shares
exchanged for cash, Senior Notes or cash and Senior Notes pursuant to the Offer.
Thus, for example, if a shareholder sells shares to persons other than the
Company at or about the time such shareholder also exchanges shares for cash,
Senior Notes or cash and Senior Notes pursuant to the Offer, and the various
sales effected by the shareholder are part of an overall plan to reduce or
terminate such shareholder's proportionate interest in the Company, then the
sales to persons other than the Company may, for United States federal income
tax purposes, be integrated with the shareholder's exchange of shares pursuant
to the Offer and, if integrated, should be taken into account in determining
whether the holder satisfies any of the Section 302 Tests described above.

SHAREHOLDERS CONTEMPLATING AN EXCHANGE OF SHARES FOR CASH, SENIOR NOTES OR CASH
AND SENIOR NOTES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE
SECTION 302 TESTS, INCLUDING THE EFFECT OF THE ATTRIBUTION RULES AND THE
POSSIBILITY THAT A SUBSTANTIALLY CONTEMPORANEOUS SALE OF SHARES TO PERSONS OTHER
THAN THE COMPANY MAY ASSIST IN SATISFYING ONE OR MORE OF THE SECTION 302 TESTS,
AS WELL AS THE SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF EXCHANGES MADE BY THEM PURSUANT TO THE OFFER.

Corporate Shareholder Dividend Treatment

If an exchange of shares of Preferred Stock for cash, Senior Notes or
cash and Senior Notes pursuant to the Offer by a corporate shareholder is
treated as a dividend, the corporate shareholder (other than an S corporation)
may be entitled to claim the dividends-received deduction under Section 243 of
the Code (generally 70%, but 80% under certain circumstances) with respect to
the gross dividend, subject to applicable limitations. With respect to specific
limitations on claiming the dividends-received deduction, corporate shareholders
should consider the effect of Section 246(c) of the Code, which disallows the
dividends-received deduction with respect to any dividend on any share of stock
that is held for 45 days or less during the 90-day period beginning on the date
which is 45 days before the date on which such share becomes ex-dividend with
respect to such dividend. For this purpose, the length of time a taxpayer is
deemed to have held stock may be reduced by periods during which the taxpayer's
risk of loss with respect to the stock is diminished by reason of the existence
of certain options or other hedging transactions. Additionally, corporate
shareholders that have incurred indebtedness directly attributable to an
investment in shares should consider the effect of Section 246A of the Code
which reduces the dividends-received deduction by a percentage generally
computed based on the amount of such indebtedness and the shareholder's total
adjusted tax basis in the shares.

In addition, any amount received by a corporate shareholder pursuant to
the Offer that is treated as a dividend may constitute an "extraordinary
dividend" under Section 1059 of the Code. Accordingly, a corporate shareholder
may be required under Section 1059(a) of the Code to reduce its adjusted tax
basis (but not below zero) in its shares by the non-taxed portion of the
extraordinary dividend (i.e., the portion of the dividend for which a deduction
is allowed), and, if such portion exceeds the shareholder's adjusted tax basis
in its shares, to treat the excess as gain from the sale of such shares in the
year in which the dividend is received. These basis reductions and gain
recognition rules would be applied by taking into account only the shareholder's
adjusted tax basis in the shares that were exchanged, without regard to other
shares that the shareholder may continue to own.


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CORPORATE SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE
APPLICATION OF SECTIONS 243, 246(c) AND 1059 OF THE CODE TO THE OFFER AND ANY
DIVIDENDS WHICH MAY BE TREATED AS PAID WITH RESPECT TO SHARES EXCHANGED PURSUANT
TO THE OFFER.

Certain Federal Income Tax Consequences to Prospective United States
Holders of Senior Notes; Interest on the Senior Notes--General

With respect to shareholders who exchange shares of Preferred Stock for
Senior Notes or cash and Senior Notes in the Offer, stated interest on the
Senior Notes will be taxable as ordinary interest income at the time such
amounts are accrued or received in accordance with the holder's method of
accounting for United States federal income tax purposes.

Depending upon a shareholder's particular circumstances, the tax
consequences of holding Senior Notes may be less advantageous than the
consequences of holding shares of Preferred Stock because, for example, interest
payments on the Senior Notes will not be eligible for any dividends-received
deduction that might otherwise be available to corporate shareholders, if
dividends were issued with respect to the shares.

Redemption or Sale of Senior Notes

Generally, any redemption (including the payment of the principal on
the Senior Notes) or sale of the Senior Notes by a holder will result in taxable
gain or loss equal to the difference between the sum of the amount of cash and
the fair market value of the other property received (except to the extent
attributable to accrued but previously untaxed interest) and the holder's
adjusted tax basis in the Senior Notes. Except to the extent attributable to
accrued but previously untaxed interest, such gain or loss (if any) will
generally be long-term capital gain or loss if the holder's holding period for
the Senior Notes exceeds twelve months and if the Senior Note is held as a
capital asset by the holder.

Backup Withholding

United States Federal Income Tax Backup Withholding. Under the United
States federal income tax backup withholding rules, 31% of the gross proceeds
payable to a shareholder or other payee pursuant to the Offer must be withheld
and remitted to the United States Internal Revenue Service ("IRS"), unless the
shareholder or other payee provides his or her taxpayer identification number
(employer identification number or social security number) to the Exchange Agent
(as payor) and certifies under penalties of perjury that the number is correct
or unless another exemption applies. Therefore, each tendering shareholder
should complete and sign the Substitute Form W-9 included as part of the Letter
of Transmittal so as to provide the information and certification necessary to
avoid backup withholding unless the shareholder otherwise establishes to the
satisfaction of the Exchange Agent that the shareholder is not subject to backup
withholding. If the Exchange Agent is not provided with the correct taxpayer
identification number, a United States Holder may be subject to penalties
imposed by the IRS. If withholding results in an overpayment of taxes, a refund
may be obtained. Certain "exempt recipients" (including, among others, all
corporations and certain Non-United States Holders) are not subject to these
backup withholding and information reporting requirements. In order for a
Non-United States Holder to qualify as an exempt recipient, that shareholder
must submit the appropriate and applicable version of an IRS Form W-8, signed
under penalties of perjury, attesting to that shareholder's exempt status. These
statements can be obtained from the Exchange Agent.

TO PREVENT UNITED STATES FEDERAL INCOME TAX BACKUP WITHHOLDING EQUAL TO 31% OF
THE GROSS PAYMENTS MADE TO SHAREHOLDERS FOR SHARES EXCHANGED PURSUANT TO THE
OFFER, EACH SHAREHOLDER WHO DOES NOT OTHERWISE ESTABLISH AN EXEMPTION FROM THE
BACKUP WITHHOLDING MUST PROVIDE THE EXCHANGE AGENT WITH THE SHAREHOLDER'S
CORRECT TAXPAYER IDENTIFICATION NUMBER AND PROVIDE OTHER INFORMATION BY
COMPLETING THE SUBSTITUTE FORM W-9 INCLUDED AS PART OF THE LETTER OF


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TRANSMITTAL. NON-UNITED STATES HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS
REGARDING THE APPLICATION OF UNITED STATES FEDERAL INCOME TAX WITHHOLDING,
INCLUDING ELIGIBILITY FOR A WITHHOLDING TAX REDUCTION OR EXEMPTION, AND THE
REFUND PROCEDURE.

Certain Federal Income Tax Consequences to Prospective Non-United
States Holders of Senior Notes

If the exchange of shares for Senior Notes or cash and Senior Notes by
a Non-United States Holder in the Offer is characterized as a sale (as opposed
to a dividend), the holder generally will not be subject to United States
federal income tax and, therefore, may be entitled to a refund of the tax
withheld by the Exchange Agent on any gain with respect to the exchange unless:

o the gain is effectively connected with a trade or business of the
Non-United States Holder in the United States and, if certain tax
treaties apply, is attributable to a permanent establishment in
the United States maintained by such holder; or

o in the case of a non-resident alien individual who holds the
shares as a capital asset, the individual is present in the
United States for 183 days or more in the taxable year of the
disposition and certain other conditions are met.

Payment of Interest

The 30% United States federal withholding tax will not apply to any
payment to a Non-United States Holder of interest (including OID) on a Senior
Note provided that:

o such holder does not actually or constructively own 10% or more
of the total combined voting power of all classes of the
Company's stock that are entitled to vote within the meaning of
section 871(h)(3) of the Code;

o such holder is not a controlled foreign corporation that is
related to the Company through stock ownership;

o such holder is not a bank whose receipt of interest on a Senior
Note is described in section 881(c)(3)(A) of the Code; and

o (a) such holder provides its name and address, and certifies,
under penalties of perjury, that such holder is not a United
States person (which certification may be made on an Internal
Revenue Service Form W-8BEN) or (b) a securities clearing
organization, bank, or other financial institution that holds
customers' securities in the ordinary course of its business
holds the Senior Note on such holder's behalf and certifies,
under penalties of perjury, that it has received IRS Form W-8BEN
from the holder or from another qualifying financial institution
intermediary, and provides a copy of the IRS Form W-8BEN. If the
Senior Notes are held by or through certain foreign
intermediaries or certain foreign partnerships, such foreign
intermediaries or partnerships must also satisfy the
certification requirements of applicable Treasury Regulations.

If a Non-United States Holder cannot satisfy the requirements described
above, payments of interest (including OID) will be subject to the 30% United
States federal withholding tax, unless such holder provides the Company with a
properly executed (1) IRS Form W-8BEN claiming an exemption from or reduction in
withholding under the benefit of an applicable tax treaty or (2) IRS Form W-8ECI


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stating that interest paid on the Senior Note is not subject to withholding tax
because it is effectively connected with such holder's conduct of a trade or
business in the United States.

If a Non-United States Holder is engaged in a trade or business in the
United States and interest on a Senior Note is effectively connected with the
conduct of that trade or business, such holder will be required to pay United
States federal income tax on that interest (including OID) on a net income basis
(although exempt from the 30% withholding tax provided the certification
requirement described above is met) in the same manner as if such holder were a
United States person as defined under the Internal Revenue Code, except as
otherwise provided by an applicable tax treaty. In addition, if such holder is a
foreign corporation, such holder may be subject to a branch profits tax equal to
30% (or lower applicable treaty rate) of the holder's earnings and profits for
the taxable year, subject to adjustments, that are effectively connected with
such holder's conduct of a trade or business in the United States. For this
purpose, interest will be included in the earnings and profits of such foreign
corporation.

Sale, Exchange or Other Taxable Disposition of Senior Notes

Any gain realized upon the sale, exchange or other taxable disposition
of a Senior Note (except with respect to accrued and unpaid interest (including
OID), which would be taxable) generally will not be subject to United States
federal income tax unless:

o that gain is effectively connected with a Non-United States
Holder's conduct of a trade or business in the United States;

o the Non-United States Holder is an individual who is present in
the United States for 183 days or more in the taxable year of
that disposition, and certain other conditions are met; or

o the Non-United States Holder is subject to Code provisions
applicable to certain United States expatriates.

A holder described in the first bullet point above will be required to
pay United States federal income tax on the net gain derived from the sale,
except as otherwise required by an applicable tax treaty, and if such holder is
a foreign corporation, it may also be required to pay a branch profits tax. A
holder described in the second bullet point above will be subject to United
States federal income tax on the gain derived from the sale, which may be offset
by United States source capital losses, even though the holder is not considered
a resident of the United States.

Information Reporting and Backup Withholding

The amount of interest paid to a Non-United States Holder on the Senior
Note and the amount of tax withheld, if any, will generally be reported to such
holder and the IRS. A Non-United States Holder will generally not be subject to
backup withholding with respect to payments that the Company makes to such
holder provided that such holder has made appropriate certifications as to the
holder's foreign status, or such holder otherwise establish an exemption.

Non-United States Holders will generally not be subject to backup
withholding or information reporting with respect to any payment of the proceeds
of the sale of a Senior Note effected outside the United States by a foreign
office of a foreign "broker" (as defined in applicable Treasury Regulation),
provided that such broker:

o derives less than 50% of its gross income for certain periods
from the conduct of a trade or business in the United States,

o is not a controlled foreign corporation for United States federal
income tax purposes, and



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o is not a foreign partnership that, at any time during its taxable
year, has 50% or more of its income or capital interests owned by
United States persons or is engaged in the conduct of a United
States trade or business.

Non-United States Holders will be subject to information reporting, but
not backup withholding, with respect to any payment of the proceeds of a sale of
a note effected outside the United States by a foreign office of any other
broker unless such broker has documentary evidence in its records that such
holder is not a United States person and certain other conditions are met, or
such holder otherwise establishes an exemption. Non-United States Holders will
be subject to backup withholding and information reporting with respect to any
payment of the proceeds of a sale of a Senior Note effected by the United States
office of a broker unless such holder properly certifies under penalties of
perjury as to such holder's foreign status and certain other conditions are met
or such holder otherwise establishes an exemption.

Currently applicable Treasury Regulations establish reliance standards
with regard to the certification requirements described above.

Any amounts withheld under the backup withholding rules will be allowed
as a refund or a credit against a Non-United States Holder's United States
federal income tax liability provided the required information is properly
furnished to the IRS on a timely basis.

THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. YOU
ARE URGED TO CONSULT WITH YOUR TAX ADVISOR TO DETERMINE THE PARTICULAR TAX
CONSEQUENCES TO YOU OF THE EXCHANGE OFFER, INCLUDING THE APPLICABILITY AND
EFFECT OF STATE, LOCAL AND FOREIGN LAWS.

Tax Consequences to Company

The Company will recognize no gain or loss in connection with the
acquisition of shares in exchange for Senior Notes.


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The Exchange Agent for the Offer is:

WACHOVIA BANK, N.A.



By overnight delivery or express By mail to:
mail to:
Wachovia Bank, N.A. Wachovia Bank, N.A.
c/o Alpine Fiduciary Services c/o Alpine Fiduciary Services
Corporate Actions Department Corporate Actions Department
P.O. Box 2065 P.O. Box 2065
South Hackensack, NJ 07606-9974 South Hackensack, NJ 07606-9974


Telephone Number: (888) 422-8979
Facsimile Number: (704) 590-7628

Any questions, requests for assistance, or requests for additional copies of
this Exchange Offer, the Letter of Transmittal or the Notice of Guaranteed
Delivery should be directed to the Information Agent at the following address
and telephone numbers:

The Information Agent for the Offer is:

MACKENZIE PARTNERS INC.

105 Madison Avenue
New York, New York 10016
(212) 929-5500 (Call Collect)
or
Call Toll-Free (800) 322-2885

Email: proxy@mackenziepartners.com



You may also contact your broker, dealer, commercial bank or trust company or
any other nominee for assistance concerning this Offer.