I said that Penn state is one of my top three choices, though one of them I'm unlikely to get into, and the other is Rutgers, from whom (at that time) I had yet to hear from. Also if I get into Rutgers, I'm probably going there (all else equal). I estimated that there'd be a 50-50 chance of me going to Penn State, and based on all this he ended the conversation saying that he will probably nominate me for the fellowship.
Basically, just be straightforward. Even if you're not perfectly honest, your personal rankings and thoughts are constantly subject to change, and they know that, so as long as you're not evasive (which they'll no doubt interpret as being bad for them, and hence for you), I don't think you can go wrong.
If they're relatively low on your personal rankings, but you feel that your chances at getting into your preferred places are not great, you should definitely mention that too.