MORTGAGE ASSOCIATION   The Federal National Mortgage Association ("Fannie Mae") is a GSE chartered by the Congress of the United States in 1938 to develop a sec- ondary market for residential mortgages. Fannie Mae buys home loans from banks and other mortgage lenders in the primary market and either holds the mortgages until they mature or issues securities backed by pools of these mortgages. In addition to promoting a liquid second- ary market for mortgages, Fannie Mae is charged with providing access to mortgage finance for low-income families and underserved segments of the economy. Fannie Maes housing mission is overseen by the U.S. Department of Housing and Urban Development (HUD), and its safety and soundness is overseen by the Office of Federal Housing Enterprise Oversight (OFHEO). Although it is controversial, Fannie Mae main- tains a direct line of credit with the U.S. Treasury.   Discount Notes Fannie Mae issues short-term debt for following three reasons: (1) to fund purchases of mortgages; (2) to raise working capital; and (3) for asset-lia- bility management purposes. Fannie Mae issued $782.95 billion in dis- count notes in 2000 and $512.53 billion in the first half of 2001. Discount notes are unsecured general obligations issued at a discount from their face value and mature at their face value. They are issued in book-entry form through the Federal Reserve banks. Discount notes have original maturities that range from overnight to 360 days with the excep- tion of 3-, 6-month, and 1-year maturities. These maturities are available through Fannie Maes Benchmark Billsprogram discussed shortly. Discount notes are offered every business day via daily posting by Fannie Maes selling group of discount note dealers. Exhibit 4.2 lists the Fannie Mae discount note dealers as of October 2000. These dealer firms make a market in these discount notes and the secondary market is well-developed. Investors may choose among cash-, regular-, or skip- day settlements.   Benchmark Bills Fannie Mae introduced the Benchmark Billsprogram in early November 1999 as an important component of its discount note program. Bench- mark Bills, like discount notes, are unsecured general obligations issued in book-entry form as discount instruments and are payable at par on their maturity date. However, unlike discount notes, Benchmark Bills are issued at regularly scheduled weekly auctions where the size of the issu- ance is announced in advance. When the program was launched, Bench-