<PAGE>
[LETTERHEAD]
FILE NO. 1-3431
REGULATION BW
RULE 3
September 23, 1997
VIA EDGAR
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
Pursuant to Rule 3 of Regulation BW, please find attached (i) a
Report dated September 23, 1997 of the International Bank for Reconstruction
and Development (the "Bank") with respect to one or more proposed issues of
debt securities of the Bank, and (ii) a Supplemental Report dated September
23, 1997 of the Bank with respect to the Bank's Short-Term Notes.
Sincerely yours,
Scott B. White
Chief Counsel, Finance
Attachments
<PAGE>
FILE NO. 1-3431
REGULATION BW
RULE 3
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, D.C. 20549
REPORT OF
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
With respect to one or more proposed issues
of debt securities of the Bank
Filed pursuant to Rule 3 of Regulation BW
Dated: September 23, 1997
<PAGE>
The following information is being filed pursuant to Rule 3 of Regulation
BW with respect to one or more proposed issues of debt securities of the
International Bank for Reconstruction and Development. As authorized by Rule
4 of Regulation BW, certain information is to be provided in the form of an
Information Statement, attached as Exhibit A. Certain information specified
in Schedule A to Regulation BW is not available at the date of this Report.
Items 1-6. Not yet known. This information will be included in the
prospectus for a particular issue.
Item 7. Exhibit
-------
Exhibit A: Information Statement dated September 15, 1997.
<PAGE>
INFORMATION STATEMENT
INTERNATIONAL BANK FOR RECONSTRUCTION
AND DEVELOPMENT
[WORLD BANK LOGO]
The Bank intends from time to time to issue its notes and bonds with
maturities and on terms determined by market conditions at the time of sale. The
notes and bonds may be sold to dealers or underwriters, who may resell them, or
they may be sold by the Bank directly or through agents.
The specific currency, aggregate principal amount, maturity, interest rate
or method for determining such rate, interest payment dates, if any, purchase
price to be paid to the Bank, any terms for redemption or other special terms,
form and denomination of such notes and bonds, information as to stock exchange
listing and the names of the dealers, underwriters or agents in connection with
the sale of such notes and bonds being offered at a particular time, as well as
any other information that may be required, will be set forth in a prospectus or
supplemental information statement.
AVAILABILITY OF INFORMATION
This Information Statement will be filed with the U.S. Securities and
Exchange Commission electronically through the EDGAR system and will be
available at the Internet address: http://www.sec.gov/ edgarhp.htm.
Upon request, the Bank will provide additional copies of this Information
Statement without charge. Written or telephone requests should be directed to
the Bank's main office at 1818 H Street, N.W., Washington, D.C. 20433,
Attention: Treasury Finance Department, tel: (202) 458-8800, or to the following
regional offices of the Bank: 66 Avenue d'Iena, 75116 Paris, France, tel: (331)
40-69-30-09; New Zealand House, 15th Floor, Haymarket, London SW1 Y4TE, England,
tel: (44171) 930-8511; and Fukoku Seimei Building 10F, 2-2-2 Uchisaiwai-cho,
Chiyoda-ku, Tokyo 100, Japan, tel: (813) 3597-6662.
RECIPIENTS OF THIS INFORMATION STATEMENT SHOULD RETAIN IT FOR FUTURE
REFERENCE, SINCE IT IS INTENDED THAT EACH PROSPECTUS AND ANY SUPPLEMENTAL
INFORMATION STATEMENT ISSUED AFTER THE DATE HEREOF WILL REFER TO THIS
INFORMATION STATEMENT FOR A DESCRIPTION OF THE BANK AND ITS FINANCIAL CONDITION,
UNTIL A SUBSEQUENT INFORMATION STATEMENT IS FILED.
September 15, 1997
<PAGE>
SUMMARY INFORMATION
AS OF JUNE 30, 1997, UNLESS OTHERWISE INDICATED
The International Bank for Reconstruction and Development (the Bank) is an
international organization established in 1945 and owned by its member
countries. The Bank's main goals are to promote economic development and to
reduce poverty. It pursues these goals primarily by providing loans and related
technical assistance for specific projects. It also finances programs of
economic reform in developing member countries. The five largest of the Bank's
180 shareholders are the United States (with 17.0% of the total voting power),
Japan (6.0%), Germany (4.7%), France (4.5%) and the United Kingdom (4.5%).
The financial strength of the Bank is based on the support it receives from
its shareholders and on its array of financial policies and practices.
Shareholder support for the Bank is reflected in the capital backing it has
received from its members and in the record of its member country borrowers in
meeting their debt service obligations to the Bank. The Bank's financial
policies and practices have led it to build reserves, to diversify its funding
sources, to hold a large portfolio of liquid investments and to limit market and
credit risk. In this environment, the Bank has achieved consistent
profitability, earning profits every year since 1948. Net income for the fiscal
year ended June 30, 1997 was $1.3 billion, which represented a return of 1.04%
on average earning assets.
EQUITY AND BORROWINGS
EQUITY. The Bank's shareholders have subscribed to $182.4 billion of
capital, $11.0 billion of which has been paid in and the remainder of which is
callable if needed. The callable portion may be called only to meet the Bank's
obligations for borrowings or guarantees; it may not be used for making loans.
The Bank's equity also included $16.2 billion of retained earnings.
BORROWINGS. The Bank diversifies its borrowings by currency, country, source
and maturity to provide flexibility and cost-effectiveness in funding. It has
borrowed in all of the world's major capital markets, as well as directly from
member governments and central banks. The Bank's outstanding borrowings of $96.7
billion were denominated in 26 currencies or currency units and included $7.7
billion of short-term borrowings.
ASSETS
LOANS. Most of the Bank's assets are loans, which totaled $105.8 billion
outstanding. According to its Articles of Agreement, the Bank may only make
loans directly to, or guaranteed by, a member country. The Bank's Articles also
limit the total amount of loans and guarantees the Bank can extend. Projects
financed by Bank loans are required to meet the Bank's standards for technical,
economic, financial, institutional and environmental soundness; and loans are
made only for countries deemed creditworthy. The Bank does not reschedule
interest or principal payments on its loans, and it has never written off a
loan.
Loans in nonaccrual status totaled 2.2% of the Bank's loan portfolio, and
represented loans made to or guaranteed by seven countries. The Bank's
accumulated loan loss provision was equivalent to 3.0% of its total loans
outstanding.
LIQUID INVESTMENTS. The Bank holds a portfolio of liquid investments to help
ensure that it can meet its financial commitments and to retain flexibility in
timing its market borrowings. Its liquid investments totaled $18.1 billion, of
which $1.3 billion was classified as held-to-maturity. Beginning July 1, 1997,
the Bank's policy is to hold liquid balances that meet or exceed a specified
minimum amount at all times during a fiscal year. The minimum amount is
equivalent to the highest six months of the Bank's expected debt service
obligations plus one-half of net loan disbursements, as projected for that year.
For fiscal year 1998, the minimum amount has been set at $17.3 billion.
RISK MANAGEMENT
The Bank seeks to avoid exchange risks by matching its liabilities in
various currencies with assets in those same currencies and by matching the
currency composition of its reserves to that of its outstanding loans. The Bank
also limits its interest rate risk in its loans and in its liquidity portfolio.
The Bank uses derivatives, including currency and interest rate swaps, in
connection with its operations in order to reduce borrowing costs, improve
investment returns and better manage balance sheet risks. The principal amount
payable under outstanding currency swaps totaled $29.7 billion, and the notional
principal amount of outstanding interest rate swaps totaled $34.0 billion. The
credit exposures on swaps are controlled through specified credit-rating
requirements for counterparties, and increasingly through netting and
collateralization arrangements.
THE ABOVE INFORMATION IS QUALIFIED BY THE DETAILED INFORMATION
AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS INFORMATION STATEMENT.
2
<PAGE>
SELECTED FINANCIAL DATA
EXPRESSED IN MILLIONS OF U.S. DOLLARS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
BALANCE SHEET DATA:
Total assets..................................................................... $ 161,945 $ 152,004 $ 168,579
Cash and liquid investments(1)................................................... 18,107 15,898 18,274
Loans:
Outstanding.................................................................... 105,805 110,246 123,499
Undisbursed.................................................................... 51,576 54,520 55,954
Accumulated provision for loan losses............................................ 3,210 3,340 3,740
Borrowings(2):
Short-term..................................................................... 7,648 4,328 3,898
Medium- and long-term.......................................................... 89,031 92,391 104,392
Equity:
Paid-in capital and other equity............................................... 27,228 28,300 30,461
Callable capital............................................................... 171,378 169,636 165,580
INCOME STATEMENT DATA:
Total Income..................................................................... 8,125 8,720 9,362
Net Income(3).................................................................... 1,285 1,187 1,354
RETURN, COST AND RATIO ANALYSIS:
Net income as a percentage of average earning assets............................. 1.04% 0.91% 1.00%
Return on:
Average outstanding loans(4)................................................... 6.75 6.92 7.12
Average investments............................................................ 5.00 4.43 5.69
Average earning assets(5)...................................................... 6.51 6.62 6.94
Cost (after swaps) of:
Average borrowings outstanding during the fiscal year(6)....................... 6.14 6.44 6.62
Short-term................................................................... 5.23 5.55 5.92
Medium- and long-term........................................................ 6.20 6.48 6.64
Average borrowings and other funds available during the fiscal year(7)......... 4.90 5.15 5.35
Cash and liquid investments as a percentage of borrowings outstanding--end of the
fiscal year.................................................................... 18.60 16.20 16.38
Outstanding loans, participations and callable guarantees as a percentage of
subscribed capital, reserves and surplus--end of the fiscal year(8)............ 53.32 54.88 62.15
Reserves-to-loans................................................................ 14.0 14.1 14.3
Average life (years) of:
Loans outstanding--end of the fiscal year...................................... 5.4 5.4 5.3
Medium- and long-term borrowings outstanding--end of the fiscal year........... 5.3 5.3 5.6
</TABLE>
- ---------
(1) Including investments classified as held-to-maturity; net of commitments for
settlement and cash collateral received.
(2) Outstanding borrowings during the fiscal year, before swaps and net of
premium/discount.
(3) For fiscal year 1997, expense recognition for the Staff Retirement Plan
(SRP) and the Bank's actual funding of the SRP differed for the first time.
For financial accounting purposes, the Bank recognized SRP income of $63
million. The Bank's contribution to the SRP as employer was $49 million.
(4) Income from loans expressed as a percentage of average outstanding loans.
(5) Income from loans and investments as a percentage of average investments and
outstanding loans.
(6) Borrowing expense as a percentage of average borrowings outstanding.
(7) Borrowing expense as a percentage of average total funds available to the
Bank. Total funds include: borrowed funds after swaps, capital available for
lending, retained earnings and cumulative translation adjustment.
(8) Under the Articles, as applied, the total amount outstanding of callable
guarantees, participations in loans and direct loans made by the Bank may
not be increased to an amount exceeding 100% of the sum of subscribed
capital, reserves and surplus.
THE ABOVE INFORMATION IS QUALIFIED BY THE DETAILED INFORMATION
AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS INFORMATION STATEMENT.
3
<PAGE>
THE BANK
The World Bank, officially known as the International Bank for
Reconstruction and Development (the Bank), is an international organization
which was established under the Articles of Agreement (the Articles) signed by
the governments of its member countries, and it has been operating since 1946.
Its main office is located at 1818 H Street, N.W., Washington, D.C. 20433.
The Bank's principal purpose is to promote the economic development of its
member countries in the interest of fostering the long-term growth of
international trade and improved standards of living. Its principal activity is
providing loans and related technical assistance for specific projects and for
programs of economic reform in developing member countries.
One hundred eighty countries are members of the Bank. A list of the members,
including the voting power of each and the amount of the subscription of each to
the Bank's capital stock, is set forth in Financial Statements--Statement of
Subscriptions to Capital Stock and Voting Power.
The activities of the Bank are complemented by those of three affiliated
international organizations-- the International Finance Corporation (IFC), the
International Development Association (IDA) and the Multilateral Investment
Guarantee Agency (MIGA)--which are legally separate and distinct entities for
whose obligations the Bank is not liable. (See "Affiliated Organizations--IFC,
IDA, MIGA".)
EQUITY
The authorized capital of the Bank was $188,007 million, of which $182,426
million had been subscribed. (See Notes to Financial Statements--Valuation of
Capital Stock.). Of the subscribed capital, $11,048 million had been paid in and
$171,378 million was callable. Of the paid-in capital, $7,785 million was
available for lending and $3,263 million was not available for lending. The
terms of payment of the Bank's capital and the restrictions on its use that are
derived from the Articles and from resolutions of the Bank's Board of Governors
are:
(a) $2,317 million of the Bank's capital was initially paid in gold or
U.S. dollars or was converted by the subscribing members into U.S. dollars.
This amount may, under the Articles, be freely used by the Bank in any of
its operations.
(b) $8,731 million of the Bank's capital was paid in the currencies of
the subscribing members. Under the Articles, this amount is subject to
maintenance-of-value obligations and may be lent only with the consent of
the member whose currency is involved. In accordance with such consents,
$5,299 million of this amount has been used in the Bank's lending
operations. (See Notes to Financial Statements--Maintenance of Value.)
(c) $145,940 million of the Bank's capital may, under the Articles, be
called only when required to meet obligations of the Bank for funds borrowed
or on loans guaranteed by it. This amount is thus not available for use by
the Bank in making loans. Payment on any such call may be made, at the
option of the particular member, either in gold, in U.S. dollars or in the
currency required to discharge the obligations of the Bank for which the
call is made.
(d) $25,438 million of the Bank's capital is to be called only when
required to meet obligations of the Bank for funds borrowed or on loans
guaranteed by it, pursuant to resolutions of the Board of Governors of the
Bank (though such conditions are not required by the Articles.) Of this
amount, 10% would be payable in gold or U.S. dollars and 90% in the
currencies of the subscribing members. While these resolutions are not
legally binding on future Boards of Governors, they do record an
understanding among members that this amount will not be called for use by
the Bank in its lending activities or for administrative purposes.
4
<PAGE>
No call has ever been made on the Bank's callable capital. The callable
capital is a resource that the Bank must use if and to the extent necessary to
meet obligations of the Bank for funds borrowed or on any loans which have been
guaranteed by it. Any calls on unpaid subscriptions are required to be uniform,
but the obligations of the members of the Bank to make payment on such calls are
independent of each other. A failure of one or more members to make payment on
such a call would not excuse any other member from its obligation to make
payment. If the amount received on a call is insufficient to meet the
obligations of the Bank for which the call is made, the Bank has the right and
is bound to make further calls until the amounts received are sufficient to meet
such obligations. However, no member may be required on any such call or calls
to pay more than the unpaid balance of its capital subscription.
Of the uncalled capital, $98,793 million (57.6%) was callable from the
member countries of the Bank that are also members of the Development Assistance
Committee of the Organization for Economic Cooperation and Development. This
amount was equal to 101.5% of the Bank's outstanding borrowings after swaps. The
capital subscriptions of those countries and the callable amounts are set out
below:
<TABLE>
<CAPTION>
TOTAL UNCALLED
CAPITAL PORTION OF
MEMBER COUNTRY((1)) SUBSCRIPTION SUBSCRIPTION
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
EXPRESSED IN MILLIONS
OF U.S. DOLLARS
United States..................................................... $ 31,965 $ 29,966
Japan............................................................. 11,312 10,608
Germany........................................................... 8,734 8,191
France............................................................ 8,372 7,851
United Kingdom.................................................... 8,372 7,832
Italy............................................................. 5,404 5,069
Canada............................................................ 5,404 5,069
Netherlands....................................................... 4,283 4,018
Belgium........................................................... 3,496 3,281
Switzerland....................................................... 3,210 3,012
Australia......................................................... 2,951 2,769
Spain............................................................. 2,857 2,682
Sweden............................................................ 1,806 1,696
Austria........................................................... 1,335 1,254
Denmark........................................................... 1,237 1,162
Norway............................................................ 1,204 1,132
Finland........................................................... 1,033 971
New Zealand....................................................... 873 821
Portugal.......................................................... 659 620
Ireland........................................................... 636 599
Luxembourg........................................................ 199 190
------------ ------------
Total......................................................... $ 105,342 $ 98,793
------------ ------------
------------ ------------
</TABLE>
- ---------
(1) Details regarding the capital subscriptions of all members of the Bank as of
June 30, 1997 may be found in the Financial Statements--Statement of
Subscriptions to Capital Stock and Voting Power.
The United States is the Bank's largest shareholder. Under the Bretton Woods
Agreements Act, the Par Value Modification Act and other U.S. legislation, the
Secretary of the U.S. Treasury is authorized to pay up to $7,663 million of the
uncalled portion of the subscription of the United States, if it were called by
the Bank, without any requirement of further congressional action. The balance
of the uncalled portion of the U.S. subscription, $22,303 million, has been
authorized by the U.S. Congress but not appropriated. Further congressional
action would be required to enable the Secretary of the Treasury to pay any
portion of this balance. The General Counsel of the U.S. Department of the
Treasury has rendered an opinion that
5
<PAGE>
the entire uncalled portion of the U.S. subscription is an obligation backed by
the full faith and credit of the United States, notwithstanding that
congressional appropriations have not been obtained with respect to certain
portions of the subscription.
INCOME
The following table includes information on the Bank's income for the five
fiscal years ended June 30, 1997. This table should be read in conjunction with
the Financial Statements and related notes. (See Index to Financial Statements.)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<CAPTION>
EXPRESSED IN MILLIONS OF U.S. DOLLARS
<S> <C> <C> <C> <C> <C>
Income
Income from loans(1)........................................... $ 7,235 $ 7,922 $ 8,187 $ 7,822 $ 8,081
Income from investments........................................ 825 721 1,104 671 1,268
Income from securities purchased under resale agreements....... 53 66 61 86 84
Other income................................................... 12 11 10 11 9
--------- --------- --------- --------- ---------
Total Income............................................. 8,125 8,720 9,362 8,590 9,442
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Expenses
Borrowing expenses............................................. 5,952 6,570 6,944 6,646 6,862
Administrative expenses........................................ 651 733 842 731 679
Provision for loan losses...................................... 63 42 12 -- 578
Interest on securities sold under agreements to repurchase and
payable for cash collateral received......................... 44 67 83 46 81
Other expenses................................................. 10 8 8 6 6
--------- --------- --------- --------- ---------
Total Expenses........................................... 6,720 7,420 7,889 7,429 8,206
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Operating Income................................................. 1,405 1,300 1,473 1,161 1,236
Less contributions to special programs......................... 120 113 119 110 106
--------- --------- --------- --------- ---------
Net Income(2).................................................... $ 1,285 $ 1,187 $ 1,354 $ 1,051 $ 1,130
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ---------
(1) The combined effect of interest waivers and commitment fee waivers was to
reduce net income by $485 million for fiscal year ended June 30, 1997, $521
million for fiscal year ended June 30, 1996, $484 million for fiscal year
ended June 30, 1995, $463 million for fiscal year June 30, 1994 and $485
million for fiscal year ended June 30, 1993.
(2) On July 31, 1997, the Executive Directors allocated $500 million of the net
income earned in the fiscal year ended June 30, 1997 to the General Reserve,
and an additional $112 million, representing the difference between actual
funding of the Staff Retirement Plan (SRP) and SRP accounting expenses for
fiscal year 1997, to a pension reserve. The Executive Directors also
recommended to the Board of Governors that: (a) an amount equivalent to $304
million in Special Drawing Rights as of June 30, 1997 be transferred out of
fiscal year 1997 net income as an immediate grant to IDA, (b) $250 million
be transferred out of fiscal year 1997 net income as an immediate grant to
the HIPC Debt Initiative Trust Fund and (c) any excess of fiscal year 1997
net income over $1,166 million be retained as surplus.
The Bank has earned a profit in each year since 1948. Net income as a
percentage of average earning assets was 1.04% for the fiscal year ended June
30, 1997 and 0.91% for the fiscal year ended June 30, 1996.
On July 31, 1997, the Executive Directors approved a target
reserves-to-loans ratio of 14.2% for fiscal year-end 1998, plus additional
reserves of 1% of the projected balance of outstanding fixed-rate single
currency loans at the end of fiscal year 1998. The Executive Directors also
approved maintaining the target range of 13% to 15% for the reserves-to-loans
ratio. The reserves-to-loans ratio at June 30, 1997 equaled
6
<PAGE>
14.0%. The target ratio is subject to annual review. For allocations of net
income to the General Reserve, see note (2) to the table immediately above.
The Bank and the International Monetary Fund (IMF) have endorsed an
initiative for addressing the debt problems of a group of countries identified
as heavily indebted poor countries (HIPCs) to ensure that reform efforts of
these countries will not be put at risk by continued high external debt burdens.
Under the initiative, creditors are to provide enhanced debt relief for those
countries that demonstrated good policy performance over an extended period in
order to bring their debt service burdens to sustainable levels. The HIPC Debt
Initiative Trust Fund was established on November 7, 1996 to help beneficiaries
service their debt--including IDA debt, but not Bank debt. IDA may also make
selective use of grants in the future for this purpose in place of normal
development credits. For certain countries that have unusually heavy debt
service to the Bank but that are not expected to require enhanced debt relief to
achieve debt sustainability, IDA may also consider providing supplemental IDA
credits as a proportion of such Bank debt service, provided the countries meet
certain policy performance criteria. During the fiscal year ended June 30, 1997,
$500 million from the Bank's surplus was transferred to the HIPC Debt Initiative
Trust Fund pursuant to action by the Board of Governors.
On March 31, 1997, the Executive Directors approved a medium-term framework
for the Bank's future direction and resource needs, to enable it to increase its
development impact in a cost-effective manner. The net administrative costs of
the initiative, including associated staff redundancy costs, are estimated at
about $205 million (in 1997 dollars) and are expected to be recognized over a
period of four fiscal years, including $6 million in net costs in the fiscal
year ended June 30, 1997.
BORROWINGS
The Bank diversifies its sources of funding by offering its securities to
private and official investors globally on terms acceptable to the Bank.
Official investors are governments, central banks and other governmental
institutions. The Bank's borrowings were denominated in 26 currencies or
currency units. In connection with its borrowing and liability management
operations, the Bank undertakes a substantial volume of currency and interest
rate swap transactions. (See "Risk Management--Derivatives".)
The Bank's short-term borrowings outstanding totaled $7.7 billion (7.9% of
total debt). On September 2, 1997, to provide flexibility in the timing of
medium- and long-term borrowings without altering the Bank's overall risk
profile, the Executive Directors approved the lifting of the guideline limiting
short-term debt to 10% of the Bank's total outstanding debt.
The following tables provide information on the Bank's new medium- and
long-term borrowings during the fiscal years 1995 through 1997:
MEDIUM- AND LONG-TERM BORROWINGS
EXPRESSED IN MILLIONS OF U.S. DOLLARS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Total new borrowings(1)...................................... $ 21,911 $ 10,394 $ 10,880
Less:
Prepayments and repurchases................................ 1,972 221 661
Maturities................................................. 12,118 9,922 10,916
--------- --------- ---------
Net borrowings............................................... $ 7,821 $ 251 $ (697)
--------- --------- ---------
--------- --------- ---------
</TABLE>
-----------------------
(1) These figures represent principal amounts at face value.
7
<PAGE>
MEDIUM- AND LONG-TERM BORROWINGS
AVERAGE COST
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cost (after swaps)...................................................... 5.01 5.28 6.31
New fixed-rate borrowings........................................... 3.84 5.73 6.32
New variable-rate borrowings........................................ 5.21 4.69 5.92
</TABLE>
Under the Articles, the Bank may borrow only with the approval of the member
in whose markets the funds are raised and the member in whose currency the
borrowing is denominated, and only if each such member agrees that the proceeds
may be exchanged for the currency of any other member without restriction.
From time to time, the Bank may purchase its outstanding securities both
during the period of distribution of any of its securities and thereafter. Such
purchases may be made in the open market or in individually negotiated
transactions.
The following table shows the Bank's outstanding borrowings on an after-swap
basis:
BORROWINGS((1))
EXPRESSED IN MILLIONS OF U.S. DOLLARS
<TABLE>
<S> <C> <C>
Short-term
Payable in:
U.S. dollars....................................... $ 7,200
Deutsche mark...................................... 394
Japanese yen....................................... 88
---------
Sub-total........................................ 7,682
Add--Net unamortized premium....................... 9 $ 7,691
---------
Medium- and long-term
Payable in:
U.S. dollars....................................... 33,693
Japanese yen....................................... 25,464
Deutsche mark...................................... 24,248
Swiss francs....................................... 3,508
Other currencies................................... 2,732
---------
Sub-total........................................ 89,645
Less--Net unamortized discount..................... (1) 89,644
--------- ---------
Total............................................ $ 97,335
---------
---------
</TABLE>
- ---------
(1) See also Notes to Financial Statements--Note D.
8
<PAGE>
LOANS AND GUARANTEES
The Bank provides loans and guarantees. From its establishment to June 30,
1997, the Bank had approved loans totaling $302 billion to borrowers in 129
countries. (This total includes loans to IFC, see "Affiliated
Organizations--IFC, IDA, MIGA".) The loans held by the Bank (including loans
approved but not yet effective) as of June 30, 1997 totaled $157.4 billion, of
which $105.8 billion was disbursed and $51.6 billion was undisbursed. Cumulative
loan repayments as of June 30, 1997, based on exchange rates at the time of
disbursement, were $110.7 billion.
Under the Articles, as applied, the total amount outstanding of callable
guarantees, participations in loans and direct loans made by the Bank may not be
increased to exceed the statutory lending limit (the sum of the Bank's
subscribed capital, reserves and surplus.) Outstanding loans and callable
guarantees totaled $106.0 billion, or 53% of the statutory lending limit. The
Executive Directors have issued guidelines pursuant to which all guarantees
issued by the Bank are included in the calculation of this ratio from the time
those guarantees first become callable.
In 1991, the Executive Directors decided that discussions on an additional
capital increase would be initiated if the Bank's lending commitments during any
fiscal year reach 80% of the sustainable level of lending (the level that in the
Bank's judgment could be sustained without the need for additional capital). The
Bank's lending commitments for the fiscal year ended June 30, 1997 were $14.5
billion, or 51.1% of the sustainable level of lending.
The Bank's lending operations have conformed generally to five principles
derived from the Articles. These principles, taken together, seek to ensure that
Bank loans are made to member countries for financially and economically sound
purposes to which those countries have assigned high priority, and that funds
lent are utilized as intended. The five principles are:
(a) The Bank makes loans to governments, governmental authorities or
private enterprises in the territories of member countries. A loan that is
not made directly to the member in whose territories the project is located
must be guaranteed as to principal, interest and other charges by the member
or its central bank or a comparable agency of the member acceptable to the
Bank. A guarantee by the member itself has been obtained in all such cases
to date. (See, however, "Affiliated Organizations-- IFC, IDA, MIGA"
regarding loans to IFC.)
(b) The Bank's loans are designed to promote the use of resources for
productive purposes in its member countries. Projects financed by Bank loans
are required to meet Bank's standards for technical, economic, financial,
institutional and environmental soundness.
(c) In making loans, the Bank must act prudently and pay due regard to
the prospects of repayment. Decisions to make loans are based upon, among
other things, studies by the Bank of a country's economic structure,
including assessments of its resources and ability to generate sufficient
foreign exchange to meet debt service obligations.
(d) The Bank must be satisfied that in the prevailing market conditions
(taking into account the member's overall external financing requirements)
the borrower would be unable to obtain financing under conditions which, in
the opinion of the Bank, are reasonable for the borrower. The Bank is
intended to promote private investment, not to compete with it.
(e) The use of loan proceeds is supervised. The Bank makes arrangements
to ensure that funds lent are used only for authorized purposes and, where
relevant, with due attention to considerations of cost-effectiveness. This
policy is enforced primarily by requiring borrowers (i) to submit
documentation establishing, to the Bank's satisfaction, that the
expenditures financed with the proceeds of loans are made in conformity with
the applicable lending agreements and (ii) to procure goods and services
through procedures, including international competitive bidding, which the
Bank judges to be likely to lead to cost-efficient procurement.
9
<PAGE>
Within the scope permitted by the Articles, these policies must necessarily
be developed and adjusted in the light of experience and changing conditions.
Until recently the Bank had been using an internal guideline, flexibly
applied, to determine the ceiling for its lending to individual countries. On
January 28, 1997, the Executive Directors approved a new approach to portfolio
concentration under which the Bank's exposure to its largest borrowing country
is restricted to the lower of an equitable access limit or a concentration risk
limit. The equitable access limit is equal to 10% of the Bank's subscribed
capital, reserves and unallocated surplus. The concentration risk limit is based
on the adequacy of the Bank's equity capital (usable paid-in capital, reserves
and unallocated surplus) relative to its exposure to its largest borrowing
country. The concentration risk limit is set taking into account not only
current exposure but also that projected over the ensuing three- to five-year
period. The limit is determined by the Executive Directors each year at the time
(typically in late July or August) they consider the Bank's reserves adequacy
and the allocation of the Bank's net income for the preceding fiscal year. On
July 31, 1997, the Executive Directors set the concentration risk limit at the
equivalent of $13.5 billion (using June 30, 1997 exchange rates.) The equitable
access limit was $19.9 billion. The Bank's exposure (including the present value
of guarantees) to its largest borrowing country was $12.2 billion.
The Bank keeps under continuous review the creditworthiness of its member
countries as borrowers and adjusts its overall country programs and lending
operations to reflect the results of these reviews. The poorer countries, which
have the least flexibility to adapt to adverse conditions, borrow mainly from
IDA. IDA was established in 1960, as a separate and distinct entity for whose
obligations the Bank is not liable, to provide funds on highly concessionary
terms to these countries. (See "Affiliated Organizations--IFC, IDA, MIGA".)
Under an IDA program established in 1988, supplementary IDA credits are
provided to countries that are no longer able to borrow on Bank terms, have
outstanding Bank loans approved prior to that date and have in place an
IDA-supported structural adjustment program. Such supplementary IDA credits are
allocated to IDA-eligible countries that meet specific conditions, in proportion
to each country's interest payments due that year on such Bank loans. Country
eligibility requirements include not being more than 60 days overdue on
debt-service payments to the Bank and not having had a Bank loan approved within
the last twelve months. IDA had approved credits of $1,526 million under this
program from its inception, of which $1,435 million had been disbursed. (See
Notes to Financial Statements--Note C.)
10
<PAGE>
PROJECT LENDING
The process of identifying and appraising a project, and of approving and
disbursing a project loan, often extends over seven to ten years. It takes, on
average, more than two years to identify and appraise a project before it is
presented to the Executive Directors for approval. The appraisal of projects is
carried out by the Bank's operational staff (engineers, financial analysts,
economists and other sector and country specialists.) After approval of the loan
agreement and any associated agreements (such as a guarantee agreement), an
additional period averaging eight months elapses before the Bank declares the
loan agreement effective. Loan effectiveness depends on the satisfaction of
legal requirements designed to ensure that domestic loan approval or
ratification requirements have been met and, in some cases, the fulfillment of
other conditions concerning the efficient implementation of the project. Since
loan disbursements under project loans are made on the basis of project
expenditures, the disbursement period frequently extends over six to nine years.
During this period of project implementation, Bank staff with experience in the
sector or the country involved periodically visit project sites to review
progress, to monitor compliance with the Bank's policies and to assist in
resolving any problems that may arise. Subsequent to completion, the project is
evaluated to determine the extent to which its major objectives were met.
Similar appraisal, approval, supervision and evaluation procedures apply in the
case of Bank structural and sectoral adjustment and other non-project loans, but
such loans are usually disbursed more quickly than project loans.
A summary statement of the Bank's loans is set forth in Financial
Statements--Summary Statement of Loans. A breakdown by sector of the Bank's
outstanding loans and loans approved in each of the last three fiscal years is
as follows (in millions):
<TABLE>
<CAPTION>
TOTAL LOANS
OUTSTANDING AS OF LOANS APPROVED
FISCAL YEARS ENDED JUNE 30,
JUNE 30, ----------------------------------------------------------------
SECTORS 1997 1997 1996 1995
- ------------------------------------------ -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Agriculture............................... $ 13,220 13% $ 2,811 19% $ 1,414 10% $ 853 5%
Education................................. 4,681 4 762 5 921 6 1,281 8
Electric Power and Other Energy........... 14,586 14 1,613 11 2,459 17 1,803 11
Environment............................... 1,118 1 23 * 535 4 755 4
Finance................................... 9,463 9 994 7 1,199 8 2,935 17
Health, Population and Nutrition.......... 1,939 2 246 2 1,495 10 451 3
Industry.................................. 7,445 7 145 1 217 2 175 1
Mining and Other Extractive............... 1,438 1 300 2 571 4 -- --
Multi-Sector.............................. 18,506 18 1,373 9 906 6 2,295 14
Oil and Gas............................... 4,317 4 114 1 30 * 462 3
Public Sector Management.................. 4,007 4 730 5 1,036 7 636 4
Social.................................... 990 1 1,304 9 440 3 644 4
Telecommunications and Informatics........ 1,340 1 -- -- 35 * 325 2
Transportation............................ 13,087 12 3,085 21 2,237 15 2,099 12
Urban Development......................... 5,587 5 646 5 632 4 1,466 9
Water Supply and Sanitation............... 3,482 3 380 3 529 4 672 4
--------- --- --------- --- --------- --- --------- ---
Total(1)**................................ $ 105,206 100% $ 14,525 100% $ 14,656 100% $ 16,853 100%
--------- --- --------- --- --------- --- --------- ---
--------- --- --------- --- --------- --- --------- ---
</TABLE>
- ---------
(1) Excludes loans to the IFC.
* Indicates amounts less than 0.5%.
** May differ from sum of individual figures shown because of rounding.
ADJUSTMENT AND DEBT REDUCTION LENDING
Most Bank loans are for specific projects. In addition, the Bank also makes
structural adjustment and sectoral adjustment loans which are designed to
support the introduction of basic changes in economic, financial and other
policies of key importance for the economic development of member countries.
Structural adjustment loans support general reforms of policies and
institutions, while sectoral adjustment loans are made to achieve structural
adjustment for a particular sector. Changes supported through adjustment efforts
normally include a greater reliance on market forces, reduction of government
price interventions and subsidies, limitation on the role of the public sector
in industrial and agricultural
11
<PAGE>
production, improvement in the business environment, and a more open trading
system to stimulate competition and improve resource allocation.
Current operating guidelines provide that adjustment loans will not
significantly exceed 25% of total Bank lending in any fiscal year without a
reexamination of this area by the Executive Directors. A breakdown of the Bank's
adjustment lending approved in the fiscal year ended June 30, 1997, and in each
of the two preceding fiscal years is as follows (in millions):
<TABLE>
<CAPTION>
AS A % OF AS A % OF
INSTRUMENT 1997 TOTAL LOANS 1996 TOTAL LOANS 1995
- ------------------------------------------------------ --------- --------------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Rehabilitation loans(1)............................... $ 70 -- $ -- -- $ 1,260
Sectoral adjustment loans............................. 2,590 18 2,450 17 1,230
Structural adjustment loans........................... 1,295 9 350 2 1,390
--------- --- --------- --- ---------
Total................................................. $ 3,955 27 $ 2,800 19 $ 3,880
--------- --- --------- --- ---------
--------- --- --------- --- ---------
<CAPTION>
AS A % OF
INSTRUMENT TOTAL LOANS
- ------------------------------------------------------ ---------------
<S> <C>
Rehabilitation loans(1)............................... 7
Sectoral adjustment loans............................. 7
Structural adjustment loans........................... 8
--
Total................................................. 22
--
--
</TABLE>
- ---------
(1) Loans that have provided support for economic adjustment of transition
economies.
In 1989, the Executive Directors approved guidelines governing the use of
Bank resources to support reduction of commercial debt and debt service by the
Bank's developing country members. The Bank has approved loans for commercial
debt and debt service reduction totaling $2.7 billion. In the fiscal year ended
June 30, 1997, the Bank's commitments for this purpose were $183 million ($30
million--June 30, 1996).
FINANCIAL TERMS OF LOANS
The Bank does not differentiate among borrowers with respect to the lending
spread of 50 basis points that it charges on its outstanding loans. In addition,
all loans carry a commitment charge of 75 basis points per annum on undisbursed
amounts.
On July 31, 1997, the Executive Directors approved a one-year waiver of 25
basis points of interest owed by all eligible borrowers for all payment periods
commencing in the fiscal year ending June 30, 1998. A similar waiver was in
effect for each of the last six fiscal years. A borrower is eligible for an
interest waiver if it has serviced all Bank loans within 30 days of due dates
that occurred during the six months preceding the waiver date. On July 31, 1997,
the Executive Directors also approved a one-year waiver of 50 basis points of
the commitment charge owed on undisbursed portions of loans made to or
guaranteed by members. A similar waiver was in effect for each of the last eight
fiscal years.
The Bank offers new loans with three types of financial terms: currency pool
loans, LIBOR-based single currency loans and fixed-rate single currency loans.
Single currency loans were first offered in 1993 as a pilot program and, since
June 1995, have been available as a standard product to eligible borrowers. All
loans carry a three- to five-year grace period for principal and amortize over a
period that in most cases ranges from 12 to 20 years.
CURRENCY POOL LOANS. The currency composition of currency pool loans is
determined on the basis of a pool, which provides a currency composition that is
the same for all loans in the pool. Pursuant to a policy established by the
Executive Directors in 1989 and confirmed in June 1996, at least 90% of this
pool is in fixed currency ratios of one U.S. dollar to 125 Japanese yen to two
Deutsche mark equivalent. These targeted currency ratios are next expected to be
reviewed by the Executive Directors in 2001.
The lending rate on these loans is variable, adjusted every six months to
reflect the semester average interest cost of outstanding borrowings allocated
to fund these loans, weighted by the average composition of the pool. The Bank
adds its standard spread of 50 basis points to that average interest cost. For
interest payment periods that commence on dates from July 1, 1997 to December
31, 1997, the applicable lending rate is 6.54%.
12
<PAGE>
SINGLE CURRENCY LOANS. The Bank currently offers single currency loans in
U.S. dollars, Japanese yen, Deutsche mark, French francs, pounds sterling, Swiss
francs and Netherlands guilders and will consider borrower requests for such
loans in other currencies.
LIBOR-based single currency loans carry a lending rate that is reset
semi-annually. The lending rate consists of a base rate, which is the prevailing
six-month interbank offered rate for the applicable currency on the loan's rate
reset date, plus a spread. The spread consists of (a)the Bank's average cost
margin for funding allocated to these loans relative to the base rate, and (b)
the Bank's standard spread of 50 basis points.
Fixed-rate single currency loans carry lending rates that are set on
semi-annual rate fixing dates and that apply to all amounts disbursed during the
preceding six months. The lending rate consists of a base rate, which reflects
market interest rates for the applicable currency on the rate-fixing date for
the equivalent loan maturity, plus a spread. The spread consists of (a) the
Bank's funding cost margin relative to the base rate for these loans, (b) a risk
premium to compensate the Bank for market risks it incurs in funding these loans
and (c) the Bank's standard spread of 50 basis points.
LOAN CONVERSION OPTIONS. Since September 1996, the Bank has offered its
borrowers the option to convert undisbursed currency pool loan amounts to single
currency loan terms. As of July 31, 1997, $6.4 billion of undisbursed currency
pool loans had been converted to single currency loan terms. Borrowers also have
the option to convert disbursed currency pool loan amounts (and undisbursed
amounts not converted to single currency loans) to new single currency pool
terms. Borrowers selecting single currency pool terms have their choice of four
different pools (U.S. dollars, Japanese yen, Deutsche mark or Swiss francs).
Conversion to single currency pool terms is being implemented on specified
conversion dates-- July 1, 1997, January 1, 1998 or July 1, 1998--depending upon
when the conversion request is approved by the Bank. Each single currency pool
will be a multi-currency pool at inception, but will be transformed to reach a
level of at least 90 percent in the designated currency by July 1, 1999 and will
be maintained at or above that level thereafter. On July 1, 1997, $9.8 billion
of outstanding currency pool loans were converted to single currency pool terms.
LOAN PRODUCTS
EXPRESSED IN MILLIONS OF U.S. DOLLARS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995
--------------------------- --------------------------- ---------------------------
<CAPTION>
PRINCIPAL AS A % OF PRINCIPAL AS A % OF PRINCIPAL AS A % OF
BALANCE TOTAL LOANS BALANCE TOTAL LOANS BALANCE TOTAL LOANS
---------- --------------- ---------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Adjustable-rate currency pool loans
Outstanding............................. $ 91,842 87 $ 96,856 88 $ 106,137 86
Undisbursed............................. 27,422 53 44,786 82 52,267 93
LIBOR-based single currency loans
Outstanding............................. 4,493 4 957 1 234 *
Undisbursed............................. 19,144 37 7,387 14 2,041 4
Fixed-rate single currency loans
Outstanding............................. 2,563 2 1,307 1 -- --
Undisbursed............................. 5,007 10 2,335 4 1,500 3
Other loans
Outstanding............................. 6,907 7 11,126 10 17,128 14
Undisbursed............................. 3 * 12 * 146 *
---------- --- ---------- --- ---------- ---
Total loans
Outstanding............................. $ 105,805 100 $ 110,246 100 $ 123,499 100
---------- --- ---------- --- ---------- ---
---------- --- ---------- --- ---------- ---
Undisbursed............................. $ 51,576 100 $ 54,520 100 $ 55,954 100
---------- --- ---------- --- ---------- ---
---------- --- ---------- --- ---------- ---
</TABLE>
- ---------
* Indicates amounts less than 0.5%.
13
<PAGE>
GUARANTEES
The Bank issues partial guarantees as a catalyst to support debt financing
from private investors. Such guarantees may be for a part of the debt financing
(partial credit guarantees) or may cover specific risks of non-performance of
sovereign contractual obligations in respect of a private sector project
financed by such debt (partial risk guarantees). Any payments made by the Bank
under a called guarantee would result in a repayment obligation to the Bank from
the relevant member country under an indemnity agreement between the Bank and
the member country. The Bank's exposure on its guarantees (i.e., the present
value in terms of their first call date) was $1,168 million; the face value of
such guarantees was $1,594 million, of which $149 million was subject to call.
The Bank retains a fee of 25 basis points per annum on its exposure on
guarantees.
OVERDUE AND NON-PERFORMING LOANS
It is the Bank's policy that if a payment of principal, interest or other
charges with respect to a Bank loan or IDA credit becomes 30 days overdue, no
new loans to that member country, or to any other borrower in that country, will
be presented to the Executive Directors for approval, nor will any previously
approved loan be signed, until payment for all amounts 30 days overdue or longer
has been received. In addition, if such payments become 60 days overdue,
disbursements on all loans to or guaranteed by that member country are suspended
until all overdue amounts have been paid. Where the member country is not the
borrower, the time period for suspension of approval and signing of new loans to
or guaranteed by the member country is 45 days and the time period for
suspension of disbursements is 60 days. As of September 1, 1997, disbursements
have been suspended on Bank loans and IDA credits to or guaranteed by two
countries (in addition to those in nonaccrual status). As of such date, overdue
principal and accrued interest charges on their Bank loans amounted to $8.2
million.
It is the policy of the Bank to place in nonaccrual status all loans made to
or guaranteed by a member of the Bank, if principal, interest or other charges
with respect to any such loan are overdue by more than six months, unless the
Bank's management determines that the overdue amount will be collected in the
immediate future. Interest and other charges on nonaccruing loans are included
in income only to the extent that payments have actually been received by the
Bank. After a country clears its arrears with the Bank, if collectibility risk
is considered to be particularly high or if its arrears are cleared through
refinancing/rescheduling (as occurred in 1996 in the special case of Bosnia and
Herzegovina), its loans will not automatically emerge from nonaccrual status,
even though its eligibility for new loans would be restored. A decision on the
restoration of accrual status is made on a case-by-case basis after a suitable
period of payment performance following arrears clearance. (See Notes to the
Financial Statements-- Loans).
The Bank determines the loan loss provision based on an assessment of
collectibility risk in the total loan portfolio, including loans in nonaccrual
status. The accumulated loan loss provision was $3.2 billion (approximately 3%
of the overall portfolio). For the fiscal year ending June 30, 1998, the
accumulated loan loss provision will be maintained at approximately 3% of the
sum of total loans outstanding plus the present value of callable guarantees.
The adequacy of the provisioning rate and the accumulated provision for loan
losses are reviewed before the end of each fiscal year and as circumstances
warrant.
Loans made to or guaranteed by six member countries of the Bank (Bosnia and
Herzegovina, Democratic Republic of Congo, Iraq, Liberia, Sudan and Syrian Arab
Republic) and one other country-- the Federal Republic of Yugoslavia (Serbia and
Montenegro)--were in nonaccrual status. The aggregate principal balance
outstanding on these loans was $2,360 million, of which $1,314 million was
overdue. Overdue interest and other charges on loans in nonaccrual totaled $893
million ($808 million as of June 30, 1996, $864 million as of June 30, 1995), of
which $146 million had been excluded from net income for the fiscal year ended
June 30, 1997 ($188 million--June 30, 1996, $156 million--June 30, 1995). On
September 2, 1997, the Bank received a payment of $263 million from the Syrian
Arab Republic, which was applied to overdue principal.
14
<PAGE>
It is the Bank's practice not to reschedule interest or principal payments
on its loans or participate in debt rescheduling agreements with respect to its
loans. In exceptional cases, however, such as when implementation of a financed
project has been delayed, the loan amortization schedule may be modified to
avoid substantial repayments prior to project completion. Moreover, from time to
time the Bank incurs losses on its loans resulting from the difference between
the present value of payments for interest and charges made according to a
loan's contractual terms and the present value of the loan's then-expected
future cash flows, discounted at the same contractual rate. Those losses are
largely due to the Bank's practice of not charging interest on overdue interest
payments. In fiscal year 1996, the Bank adopted Statement of Financial
Accounting Standards 114, entitled "Accounting by Creditors for Impairment of a
Loan", which prescribes that such losses be taken into account in the
determination of the adequacy of the accumulated provision for loan losses. (See
Notes to Financial Statements--Note C.)
The Bank has never written off any of its outstanding loans and retains the
expectation that each of its loans will be repaid and, consequently, has no
expectation of writing off outstanding loans in the future. The Bank maintains a
dialogue with every borrower whose loans experience significant payment delays,
including each of the members whose loans are currently in nonaccrual status.
For details concerning Bank loans in nonaccrual status and the provisions for
losses on loans, see Notes to Financial Statements-- Note C.
In 1991, the Executive Directors adopted a policy to assist members with
protracted arrears to the Bank in mobilizing sufficient resources to clear their
arrears and to support a sustainable growth-oriented adjustment program over the
medium term. Under this policy, the Bank will develop a lending strategy and
will process loans, but not sign or disburse such loans, during a pre-clearance
performance period with respect to members that (a) agree to and implement a
medium-term, growth-oriented structural adjustment program agreed with the Bank,
(b) undertake a stabilization program endorsed or financially supported by the
IMF, (c) agree to a financing plan to clear arrears fully to the Bank in the
context of the structural adjustment program and (d) make debt service payments
on a current basis on Bank loans during the performance period. The signing,
effectiveness and disbursement of such loans will not take place until the
member's arrears to the Bank have been fully cleared. An exception was made in
the case of Peru, permitting Bank loans to be signed prior to full arrears
clearance in 1993 so that the loans could be submitted to the Peruvian Congress
for approval in accordance with Peruvian law.
OTHER ACTIVITIES
In addition to its financial operations, the Bank has furnished technical
assistance to its member countries, both in connection with and independently of
loan operations. Such assistance has taken a variety of forms, including the
assignment of qualified professionals to survey development possibilities of
member countries, to analyze their fiscal, economic and other development
problems, to assist member countries in drawing up development programs, to
appraise projects suitable for investment and to assist member countries in
improving their asset and liability management techniques. To assist the
developing countries, the Bank has also established an Economic Development
Institute, which provides courses and other training activities regarding
economic policy, development and administration for selected groups of
government officials, and has made contributions for research and other
developmental activities. Furthermore, the Bank has on a number of occasions, at
the request of members concerned, lent its good offices in connection with the
settlement of international economic and financial disputes. Additionally, the
Bank, alone or jointly with IDA, administers, on behalf of donors, funds
restricted for specific uses. These funds are placed in trust and are not
included in the assets of the Bank. (See Notes to Financial Statements-- Note
H.)
15
<PAGE>
LIQUID INVESTMENTS
In April 1997, the Executive Directors approved a new approach to
maintaining and managing the Bank's liquid assets. Beginning July 1, 1997, the
Bank's policy is to keep liquid asset holdings at or above a specified minimum.
That minimum is equivalent to the highest six months of debt service plus
one-half of net loan disbursements as projected for the fiscal year, and has
been set at $17.3 billion for fiscal year 1998. The Bank will also hold liquid
assets over the specified minimum to provide flexibility in timing its borrowing
transactions and to meet working capital needs.
The Bank's cash and liquid investments amounted to $18.1 billion (including
$1.3 billion classified as held-to-maturity); this amount was equivalent to
approximately 18.6% of the Bank's outstanding borrowings after swaps. The Bank's
liquid investments are held principally in obligations of governments and other
official entities, time deposits and other unconditional obligations of banks
and financial institutions, and futures and options contracts pertaining to such
obligations. The annualized financial returns on average investments in the
Bank's trading portfolio for the fiscal year ended June 30, 1997 were 4.73%
(4.11%--June 30, 1996, 5.56% June 30, 1995). The returns on its held-to-maturity
portfolio for the fiscal year ended June 30, 1997 were 8.31% (8.35%--June 30,
1996, 8.11%--June 30, 1995). The returns for the Bank's trading portfolio
include interest, net realized and unrealized gains or losses, fees for
securities loaned and net sale prices under resale agreements as a percentage of
average liquid investments and exclude investment securities agreed to be
purchased and collateral held in connection with securities loaned. The returns
for its held-to-maturity portfolio reflect interest earned. (See Notes to
Financial Statements--Note B.)
RISK MANAGEMENT
CURRENCY AND INTEREST RATE RISK
In order to minimize exchange-rate risk in a multicurrency environment, the
Bank matches its borrowing obligations in any one currency (after swap
activities) with assets in the same currency, as prescribed by the Articles,
primarily by holding or lending the proceeds of its borrowings in the same
currencies in which they were borrowed. In addition, the Bank's policy is to
minimize the exchange rate sensitivity of its reserves-to-loans ratio. It
carries out this policy by undertaking currency conversions periodically to
match the currency composition of its reserves to that of the outstanding loans.
With respect to paid-in capital, the Bank does not convert one currency into
another except for small amounts required to meet certain obligations and
operational needs of the Bank. (See Notes to Financial Statements-- Summary of
Significant Accounting and Related Policies--Translation of Currencies.)
The Bank also limits its interest rate risk. Most of its outstanding loans
are structured as interest-cost pass-through products, with the Bank adding a
fixed spread to its cost of allocated funding to set the lending rate. (See
"Loans and Guarantees--Financial Terms of Loan".) Potential interest rate
exposures on the other currently offered loan products are closely managed by
using derivatives to match the duration of the loans to their underlying
funding. The interest rate risk on the Bank's liquidity portfolio is constrained
by duration-mismatch limits imposed by the Executive Directors, supplemented by
management approved risk limits.
DERIVATIVES
The Bank uses derivative instruments in connection with its borrowing
operations and asset/liability management activities and in connection with its
liquidity management. In general, the Bank uses derivative instruments such as
currency and interest rate swaps, swap spread-locks (in which the Bank agrees
with a counterparty on a spread to be added to the specific reference rate which
will apply to a future interest rate swap), foreign exchange forwards,
exchange-traded futures, options and deferred and anticipatory rate setting
contracts. Notes D and E to the Financial Statements provide details of the
16
<PAGE>
outstanding principal and notional principal amounts of derivative financial
instruments as of June 30, 1997.
The Bank uses derivative instruments in connection with its borrowing
operations and asset-liability management for several purposes. One purpose is
to take advantage of arbitrage opportunities across capital markets to reduce
funding costs below the levels that would be achievable through direct
borrowings in the currencies in which the Bank's assets are held. The Bank
borrows wherever it believes opportunities are most attractive and swaps those
borrowings into the currency or interest-rate basis suitable for funding its
loan portfolio. Derivatives that are included in the terms of its structured
borrowings are hedged to produce conventional fixed- or LIBOR-based funding
using structured swaps, swaptions and interest rate caps or floors. Another
purpose for which the Bank uses derivatives is to delink the time at which the
Bank's borrowing costs are fixed from the timing of the actual market
borrowings, in order to preserve flexibility for borrowing transactions to be
launched at opportune times. In addition, the Bank's use of derivatives in
connection with asset-liability management is designed to establish an
appropriate match between the liability and the loan and liquidity portfolios in
terms of their currency and interest rate characteristics. However, some
residual market risk may arise, as a result of cash flow or timing mismatches.
Internal operating guidelines are designed to limit the scope of such
mismatches.
The main risk to the Bank from these over-the-counter derivatives is credit
risk. Credit risk is controlled through application of eligibility criteria,
volume limits for transactions with individual counterparties, and through the
use of mark-to-market collateral arrangements. The following table gives details
of the Bank's estimated credit exposure--by counterparty rating category--on its
swaps.
ESTIMATED SWAP CREDIT EXPOSURE BY COUNTERPARTY RATING AS OF JUNE 30, 1997
EXPRESSED IN MILLIONS OF U.S. DOLLARS
<TABLE>
<CAPTION>
NOTIONAL CURRENT EXPOSURE(3)
PRINCIPAL -----------------------------
PRINCIPAL INTEREST GROSS
CURRENCY SWAPS- RATE POSITIVE GROSS NEGATIVE NET
RATING CATEGORY(1) RECEIVABLES SWAPS(2) RECEIVABLES (PAYABLES) EXPOSURE(4)
- ------------------------------------ --------------- ------------ ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
AAA................................. $ 11,335 $ 18,927 $ 777 $ (861) $ 212
AA.................................. 14,763 14,075 671 (862) 350
A................................... 2,610 913 107 (253) 93
BBB................................. 323 50 93 (49) 0
------- ------------ ------ ------- -----
Total......................... $ 29,031 $ 33,965 $ 1,648 $ (2,025) $ 655
------- ------------ ------ ------- -----
------- ------------ ------ ------- -----
</TABLE>
- ---------
(1) As determined by the Bank, based on ratings by Moody's Investors Services,
Standard and Poor's, Thomson BankWatch Inc. and IBCA Limited.
(2) Includes swaptions.
(3) Based on the market value of each swap transaction in accordance with
internal Bank valuation methodology; does not take into account the effects
of netting provisions in master swap agreements or the effects of
mark-to-market collateral and offset arrangements.
(4) The remaining exposure after taking into account the rights of set-off and
collateral held under qualifying master netting and collateral agreements
with various counterparties.
17
<PAGE>
The Bank also uses derivative products in its liquidity management for
hedging purposes within a liquidity strategy whose objective is to optimize
returns. The use of those instruments to support that strategy allows the Bank
to take advantage of profitable trading opportunities. In addition, the Bank
uses derivatives as a proxy for cash securities. The derivative instruments used
for liquidity management include short-term, over-the-counter foreign exchange
forwards, and exchange-traded futures and options on fixed-income instruments;
currency and interest rate swaps are also authorized for use. Short-term foreign
exchange forwards are used with offsetting spot foreign exchange transactions to
take advantage of currency-hedged investment opportunities across different
markets. They do not pose currency risk to the Bank, and the credit risk is
controlled and monitored by the Bank. Exchange-traded futures and options are
used mainly to take advantage of opportunities for trading spreads or
differentials between different instruments. Futures are also used as a proxy
for cash instruments. The Bank only trades contracts listed on certain
internally approved futures and options exchanges. Furthermore, the Bank applies
eligibility criteria and exposure limits with regard to brokers and clearing
agents for these contracts.
The liquid investment portfolio's overall duration limits designed to
control market risk are calculated with reference to the size of the base or
unleveraged portfolio, effectively prohibiting the use of derivatives
transactions to establish risk positions in excess of the level achievable
solely through cash transactions.
AFFILIATED ORGANIZATIONS--IFC, IDA, MIGA
The activities of the Bank are complemented by those of three affiliated
international organizations, IFC, IDA and MIGA, which work closely with the Bank
in achieving common objectives. Membership in these organizations is open only
to members of the Bank. Each of these organizations is legally and financially
independent from the Bank, with separate assets and liabilities, and the Bank is
not liable for their respective obligations. Executive Directors of the Bank
serve EX OFFICIO on the Board of Directors of IFC and as Executive Directors of
IDA if they represent at least one country which is a member of these
organizations. As of June 30, 1997, all of the Bank's Executive Directors also
had been elected to serve on MIGA's Board of Directors, and they constituted the
entire Board. The President of the Bank is also the President of IFC, IDA and
MIGA. IDA and the Bank have the same staff. While IFC and MIGA share some staff
members with the Bank, each employs its own management and staff. For
information on fees that IFC, IDA and MIGA pay the Bank for services and
management, see Notes to Financial Statements-- Note G.
18
<PAGE>
IFC's purpose is to encourage the growth of productive private enterprises
in its member countries through loans and equity investments in such
enterprises, without a government's guarantee. One hundred seventy-two countries
are members of IFC. Under its Articles, the Bank is permitted to make loans to
IFC without guarantee by a member, subject to the limitation that the Bank may
not lend IFC any amount which would increase IFC's total outstanding debt beyond
a certain threshold, which at June 30, 1997 equaled $19,470 million. At that
date, IFC's total outstanding debt was $10,123 million, of which $599 million
was due to the Bank, and undrawn lending commitments from the Bank to IFC were
$3 million.
IDA's purpose is to promote economic development in the less developed areas
of the world included in IDA's membership by providing financing on
concessionary terms. IDA is financed by capital subscriptions and contributions
from its members and may not borrow from the Bank. Under a statement of policy
of the Bank's Board of Governors, the Bank may make grants to IDA only out of
net income that (a) accrued during the fiscal year in respect of which the
transfer is made and (b) is not needed for allocation to reserves or otherwise
required to be retained in the Bank's business. Grants may also be made out of
net income previously transferred to surplus, upon the approval of the Board of
Governors. Such grants total $5,431 million to date, and the entire amount of
these grants had been paid to IDA. For additional information on transfers of
the Bank's net income to IDA, see Notes to Financial Statements-- Note F.
MIGA was established to encourage the flow of investments for productive
purposes by providing guarantees against noncommercial risks for foreign
investment in its developing member countries. The Bank may not lend to MIGA.
ADMINISTRATION OF THE BANK
The Bank's administration is composed of the Board of Governors, the
Executive Directors, the President, other officers and staff.
All the powers of the Bank are vested in the Board of Governors which
consists of a Governor and an Alternate Governor appointed by each member of the
Bank, who exercise the voting power to which that member is entitled. Each
member is entitled to 250 votes plus one vote for each share held. The Board of
Governors holds regular annual meetings.
There are 24 Executive Directors. Five of these are appointed, one by each
of the five members having the largest number of shares of capital stock at the
time of such appointment (the United States, Japan, Germany, France and the
United Kingdom), and 19 are elected by the Governors representing the other
members. The Board of Governors has delegated to the Executive Directors
authority to exercise all the powers of the Bank except those reserved to the
Governors under the Articles. The Executive Directors function as a board, and
each Executive Director is entitled to cast the number of votes of the member or
members by which such person is appointed or elected.
19
<PAGE>
The following is an alphabetical list of the Executive Directors of the Bank
and the member countries by which they were appointed or elected:
<TABLE>
<S> <C>
Khalid M. Al-Saad............. Bahrain, Arab Republic of Egypt, Jordan, Kuwait, Lebanon,
Libya, Maldives, Oman, Qatar, Syrian Arab Republic, United
Arab Emirates, Republic of Yemen
Khalid H. Alyahya............. Saudi Arabia
Juanita D. Amatong............ Brazil, Colombia, Dominican Republic, Ecuador, Haiti,
Philippines, Suriname, Trinidad and Tobago
Marc-Antoine Autheman......... France
Ali Bourhane.................. Benin, Burkina Faso, Cameroon, Cape Verde, Central African
Republic, Chad, Comoros, Cote d'Ivoire, Democratic Republic
of Congo, Djibouti, Equatorial Guinea, Gabon, Guinea,
Guinea-Bissau, Madagascar, Mali, Mauritania, Mauritius,
Niger, Republic of Congo, Rwanda, Sao Tome and Principe,
Senegal, Somalia (informally), Togo
Kacim Brachemi................ Afghanistan, Algeria, Ghana, Islamic Republic of Iran, Iraq,
Morocco, Pakistan, Tunisia
Andrei Bugrov................. Russian Federation
Juan Cariaga.................. Argentina, Bolivia, Chile, Paraguay, Peru, Uruguay
Joaquim R. Carvalho........... Angola, Botswana, Burundi, Eritrea, Ethiopia, The Gambia,
Kenya, Lesotho, Liberia, Malawi, Mozambique, Namibia,
Nigeria, Seychelles, Sierra Leone, South Africa, Sudan,
Swaziland, Tanzania, Uganda, Zambia, Zimbabwe
Enzo Del Bufalo............... Costa Rica, El Salvador, Guatemala, Honduras, Mexico,
Nicaragua, Panama, Spain, Venezuela
Jean-Daniel Gerber............ Azerbaijan, Kyrgyz Republic, Poland, Switzerland,
Tajikistan, Turkmenistan, Uzbekistan
Leonard Good.................. Antigua and Barbuda, The Bahamas, Barbados, Belize, Canada,
Dominica, Grenada, Guyana, Ireland, Jamaica, St. Kitts and
Nevis, St. Lucia, St. Vincent and the Grenadines
Luc Hubloue................... Austria, Belarus, Belgium, Czech Republic, Hungary,
Kazakhstan, Luxembourg, Slovak Republic, Slovenia, Turkey
Jannes Hutagalung............. Brunei Darussalam, Fiji, Indonesia, Lao People's Democratic
Republic, Malaysia, Myanmar, Nepal, Singapore, Thailand,
Tonga, Vietnam
Young-Hoi Lee................. Australia, Cambodia, Kiribati, Republic of Korea, Marshall
Islands, Federated States of Micronesia, Mongolia, New
Zealand, Papua New Guinea, Solomon Islands, Vanuatu, Samoa
Yong Li....................... China
Ilkka Niemi................... Denmark, Estonia, Finland, Iceland, Latvia, Lithuania,
Norway, Sweden
Atsuo Nishihara............... Japan
Gus O'Donnell................. United Kingdom
Franco Passacantando.......... Albania, Greece, Italy, Malta, Portugal
Jan Piercy.................... United States
Helmut Schaffer............... Germany
Surendra Singh................ Bangladesh, Bhutan, India, Sri Lanka
Pieter Stek................... Armenia, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus,
Georgia, Israel, former Yugoslav Republic of Macedonia,
Moldova, Netherlands, Romania, Ukraine
</TABLE>
20
<PAGE>
The President is selected by the Executive Directors. Subject to their
direction on questions of policy, the President is responsible for the conduct
of the ordinary business of the Bank and for the organization, appointment and
dismissal of its officers and staff.
The following is a list of the principal officers of the Bank:
<TABLE>
<S> <C>
President.......................................................... James D. Wolfensohn
Managing Director, Finance and Resource Mobilization............... Jessica P. Einhorn
Managing Director, Operations...................................... Gautam S. Kaji(1)
Managing Director, Operations...................................... Caio K. Koch-Weser
Managing Director, Corporate Planning and Resource Management...... Sven Sandstrom
Vice President and Head, Poverty Reduction and Economic Management
Network.......................................................... Masood Ahmed
Vice President, Strategy and Resource Management................... Mark Baird
Vice President, Human Resources.................................... Dorothy Hamachi Berry
Vice President, Latin America and the Caribbean Regional Office Shahid Javed Burki
Vice President and Head, Human Development Network................. David de Ferranti
Vice President, Middle East and North Africa Regional Office....... Kemal Dervis
Vice President, Resource Mobilization and Cofinancing.............. Hiroo Fukui
Vice President, Europe and Central Asia Regional Office............ Johannes F. Linn
Vice President, Africa Regional Office............................. Callisto E. Madavo
Vice President, External Affairs................................... Mark Malloch Brown
Chief Information Officer.......................................... Mohamed Muhsin
Vice President and Controller...................................... Jules W. Muis
Vice President, South Asia Regional Office......................... Mieko Nishimizu
Vice President and Treasurer....................................... Gary L. Perlin
Director-General, Operations Evaluation............................ Robert Picciotto
Vice President and Head, Finance, Private Sector and Infrastructure
Network.......................................................... Jean-Francois Rischard
Vice President, Africa Regional Office............................. Jean-Louis Sarbib
Vice President and Head, Environmentally and Socially Sustainable
Development Network.............................................. Ismail Serageldin
Vice President, East Asia and Pacific Regional Office.............. Jean-Michel Severino
Senior Vice President and General Counsel.......................... Ibrahim F. I. Shihata
Senior Vice President, Development Economics, and Chief
Economist........................................................ Joseph E. Stiglitz
Vice President, Financial Policy and Risk Management............... Brian Wilson
Vice President and Secretary....................................... ZHANG Shengman
</TABLE>
- ---------
(1) Mr. Kaji has announced he will be leaving the Bank effective November 30,
1997.
THE ARTICLES OF AGREEMENT
The Articles constitute the Bank's governing charter. They establish the
status, privileges and immunities of the Bank, prescribe the Bank's purposes,
capital structure and organization, authorize the operations in which it may
engage and impose limitations on the conduct of those operations. The Articles
also contain, among other things, provisions with respect to the admission of
additional members, the increase of the authorized capital stock of the Bank,
the terms and conditions under which the Bank may make or guarantee loans, the
use of currencies held by the Bank, the distribution of net income of the Bank
to its members, the withdrawal and suspension of members, and the suspension of
operations of the Bank.
The Articles provide that they may be amended (except for certain provisions
the amendment of which requires acceptance by all members) by consent of
three-fifths of the members having 85% of the total voting power. The Articles
further provide that questions of interpretation of provisions of the Articles
arising between any member and the Bank or between members of the Bank shall be
decided by
21
<PAGE>
the Executive Directors. Their decisions may be referred by any member to the
Board of Governors, whose decision is final. Pending the result of such
reference, the Bank may act on the basis of the decision of the Executive
Directors.
The Articles and the decisions made by the Executive Directors on questions
of interpretation may be obtained from the Bank.
LEGAL STATUS, PRIVILEGES AND IMMUNITIES
The Articles contain provisions which accord to the Bank, in the territories
of each of its members, legal status and certain privileges and immunities. The
following is a summary of the more important of these provisions.
The Bank has full juridical personality with capacity to make contracts, to
acquire and dispose of property and to sue and be sued. Actions may be brought
against the Bank in a court of competent jurisdiction in territories of any
member in which the Bank has an office, has appointed an agent for accepting
service or notice of process or has issued or guaranteed securities, but no
actions against the Bank may be brought by its members or persons acting for or
deriving claims from its members.
The Governors and Executive Directors, and their Alternates, and the
officers and employees of the Bank are immune from legal process for acts
performed by them in their official capacity, except when the Bank waives such
immunity.
The archives of the Bank are inviolable. The assets of the Bank are immune
from seizure, attachment or execution prior to delivery of final judgment
against the Bank.
The Bank, its assets, property and income, and its operations and
transactions authorized by the Articles, are immune from all taxation and from
all customs duties. The Bank is also immune from liability for the collection or
payment of any tax or duty.
The securities issued by the Bank and the interest thereon are not exempt
from taxation generally.
Under the Articles, securities issued by the Bank and the interest thereon
are not subject to any tax by a member (a) which tax discriminates against such
securities solely because they are issued by the Bank, or (b) if the sole
jurisdictional basis for the tax is the place or currency in which such
securities are issued, made payable or paid, or the location of any office or
place of business maintained by the Bank. Also, under the Articles, the Bank is
not under any obligation to withhold or pay any tax on any interest on such
securities.
FISCAL YEAR, EXTERNAL AUDITORS, ANNOUNCEMENTS AND ALLOCATION OF
NET INCOME
FISCAL YEAR
The Bank's fiscal year runs from July 1 to June 30.
EXTERNAL AUDITORS
The Bank appointed Deloitte Touche Tohmatsu International as its external
auditors, beginning with fiscal year 1998. The selection was made on the basis
of an international competitive bidding process following a decision by the
Executive Directors that, as a matter of principle, the Bank should periodically
rotate its external auditors, commencing with fiscal year 1998.
ANNOUNCEMENTS
Pursuant to the Articles, the Bank publishes an annual report containing its
audited financial statements and distributes quarterly financial statements to
its members.
ALLOCATION OF NET INCOME
The Board of Governors determines annually what part of the Bank's net
income, after making provisions for reserves, shall be allocated to surplus and
what part, if any, shall be distributed. Since its inception, the Bank has
neither declared nor paid any dividend to its member countries. However, the
Bank has periodically transferred as a grant a portion of its net income to IDA
or to other uses that promote the purposes of the Bank. (See Notes to Financial
Statements--Note F.)
22
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants.......................................................................... 24
Balance Sheet --June 30, 1997, June 30, 1996 and June 30, 1995............................................. 25
Statement of Income for the three fiscal years ended June 30, 1997......................................... 27
Statement of Changes in Retained Earnings for the three fiscal years ended June 30, 1997................... 28
Statement of Changes in Cumulative Translation Adjustment for the three fiscal years ended June 30, 1997... 28
Statement of Cash Flows for the three fiscal years ended June 30, 1997..................................... 29
Summary Statement of Loans--June 30, 1997.................................................................. 30
Statement of Subscriptions to Capital Stock and Voting Power--June 30, 1997................................ 33
Notes to Financial Statements.............................................................................. 37
</TABLE>
INFORMATION CONCERNING CERTAIN EVENTS THAT OCCURRED SUBSEQUENT TO JUNE 30,
1997 IS NOT REFLECTED IN THE FINANCIAL STATEMENTS BUT IS INCLUDED ELSEWHERE IN
THIS INFORMATION STATEMENT.
23
<PAGE>
[LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
President and Board of Governors
International Bank for Reconstruction
and Development
In our opinion, the financial statements listed on page 23 present fairly,
in all material respects, in terms of United States dollars, the financial
position of the International Bank for Reconstruction and Development at June
30, 1997, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended June 30, 1997, in conformity
with generally accepted accounting principles in the United States and with
International Accounting Standards. These financial statements are the
responsibility of management of the International Bank for Reconstruction and
Development; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards, including International
Standards on Auditing, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made be management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
[SIG]
July 28, 1997
24
<PAGE>
- --------------------------------------------------------------------------------
BALANCE SHEET
June 30, 1997, June 30, 1996 and June 30, 1995
EXPRESSED IN MILLIONS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
DUE FROM BANKS
Unrestricted currencies.............................................. $ 26 $ 27 $ 40
Currencies subject to restrictions--Note A........................... 615 612 549
--------- --------- ---------
641 639 589
--------- --------- ---------
INVESTMENTS--Notes B and E
Trading.............................................................. 17,229 15,001 19,821
Held-to-maturity..................................................... 1,279 1,169 1,203
--------- --------- ---------
18,508 16,170 21,024
--------- --------- ---------
SECURITIES PURCHASED UNDER RESALE AGREEMENTS--Note B................... 97 1,282 246
NONNEGOTIABLE, NONINTEREST-BEARING DEMAND OBLIGATIONS ON ACCOUNT OF
SUBSCRIBED CAPITAL................................................... 1,902 1,765 1,610
AMOUNTS RECEIVABLE TO MAINTAIN VALUE OF CURRENCY HOLDINGS.............. 574 732 1,106
OTHER RECEIVABLES
Amounts receivable from currency swaps--Notes D and E................ 29,031 18,010 16,735
Amounts receivable from investment securities traded................. 29 2,365 1,762
Amounts receivable from covered forwards--Notes B and E.............. 4,571 204 1,307
Accrued income on loans.............................................. 1,932 2,127 2,538
Accrued interest on investments...................................... 143 92 159
--------- --------- ---------
35,706 22,798 22,501
--------- --------- ---------
LOANS OUTSTANDING (see Summary Statement of Loans, Notes C and E)
Total loans.......................................................... 157,381 164,766 179,453
Less undisbursed balance............................................. 51,576 54,520 55,954
--------- --------- ---------
Loans outstanding.................................................. 105,805 110,246 123,499
Less accumulated provision for loan losses........................... 3,210 3,340 3,740
--------- --------- ---------
Loans outstanding net of accumulated provision..................... 102,595 106,906 119,759
--------- --------- ---------
OTHER ASSETS
Unamortized issuance costs of borrowings............................. 492 412 485
Miscellaneous--Notes I and J......................................... 1,430 1,300 1,259
--------- --------- ---------
1,922 1,712 1,744
--------- --------- ---------
TOTAL ASSETS........................................................... $ 161,945 $ 152,004 $ 168,579
--------- --------- ---------
--------- --------- ---------
</TABLE>
25
<PAGE>
- --------------------------------------------------------------------------------
BALANCE SHEET
June 30, 1997, June 30, 1996 and June 30, 1995
EXPRESSED IN MILLIONS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
LIABILITIES
BORROWINGS-- Notes D and E
Short-term........................................................... $ 7,648 $ 4,328 $ 3,898
Medium- and long-term................................................ 89,031 92,391 104,392
--------- --------- ---------
96,679 96,719 108,290
--------- --------- ---------
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS AND PAYABLE FOR CASH
COLLATERAL RECEIVED--Note B.......................................... 294 2,439 2,567
AMOUNTS PAYABLE TO MAINTAIN VALUE OF CURRENCY HOLDINGS................. 4 4 24
OTHER LIABILITIES
Amounts payable for currency swaps--Notes D and E.................... 29,687 19,427 19,985
Amounts payable for investment securities purchased.................. 135 1,508 2,231
Amounts payable for covered forwards--Notes B and E.................. 4,694 202 1,306
Accrued charges on borrowings........................................ 2,167 2,352 2,857
Payable for Board of Governors-approved transfers--Note F............ 201 205 135
Accounts payable and miscellaneous liabilities....................... 856 848 723
--------- --------- ---------
37,740 24,542 27,237
--------- --------- ---------
TOTAL LIABILITIES...................................................... 134,717 123,704 138,118
--------- --------- ---------
EQUITY
CAPITAL STOCK (see Statement of Subscriptions to Capital Stock and
Voting Power, Note A)
Authorized capital (1,558,478 shares--June 30, 1997 and June 30,
1996)
Subscribed capital (1,512,211 shares--June 30, 1997; 1,497,325
shares--
June 30, 1996)................................................... 182,426 180,630 176,438
Less uncalled portion of subscriptions............................. 171,378 169,636 165,580
--------- --------- ---------
11,048 10,994 10,858
DEFERRED AMOUNTS TO MAINTAIN VALUE OF CURRENCY HOLDINGS................ (106) 136 770
PAYMENTS ON ACCOUNT OF PENDING SUBSCRIPTIONS--Note A................... 7 15 23
RETAINED EARNINGS (see Statement of Changes in Retained Earnings, Note
F)................................................................... 16,194 16,099 15,502
CUMULATIVE TRANSLATION ADJUSTMENT (see Statement of Changes in
Cumulative Translation Adjustment)................................... 85 1,056 3,308
--------- --------- ---------
TOTAL EQUITY........................................................... 27,228 28,300 30,461
--------- --------- ---------
TOTAL LIABILITIES AND EQUITY........................................... $ 161,945 $ 152,004 $ 168,579
--------- --------- ---------
--------- --------- ---------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
26
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF INCOME
For the fiscal years ended June 30, 1997, June 30, 1996 and June 30, 1995
EXPRESSED IN MILLIONS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
INCOME
Income from loans--Note C
Interest................................................................. $ 7,122 $ 7,804 $ 8,069
Commitment charges....................................................... 113 118 118
Income from investments--Note B
Trading
Interest............................................................... 718 673 881
Net gains/(losses)
Realized............................................................. 47 31 (23)
Unrealized........................................................... (43) (83) 168
Held-to-maturity
Interest............................................................... 103 100 78
Income from securities purchased under resale agreements--Note B........... 53 66 61
Other income............................................................... 12 11 10
--------- --------- ---------
Total income............................................................. 8,125 8,720 9,362
--------- --------- ---------
EXPENSES
Borrowing expenses--Note D
Interest................................................................. 5,827 6,455 6,832
Prepayment costs......................................................... 16 9 7
Amortization of issuance and other borrowing costs....................... 109 106 105
Interest on securities sold under agreements to repurchase and payable for
cash collateral received--Note B......................................... 44 67 83
Administrative expenses--Notes G, H, I and J............................... 651 733 842
Provision for loan losses--Note C.......................................... 63 42 12
Other expenses............................................................. 10 8 8
--------- --------- ---------
Total expenses........................................................... 6,720 7,420 7,889
--------- --------- ---------
OPERATING INCOME............................................................. 1,405 1,300 1,473
Less contributions to special programs--Note G............................... 120 113 119
--------- --------- ---------
NET INCOME................................................................... $ 1,285 $ 1,187 $ 1,354
--------- --------- ---------
--------- --------- ---------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
27
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN RETAINED EARNINGS
For the fiscal years ended June 30, 1997, June 30, 1996 and June 30, 1995
EXPRESSED IN MILLIONS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Retained earnings at beginning of the fiscal year......................... $ 16,099 $ 15,502 $ 14,468
Board of Governors-approved transfers to/for--Note F
International Development Association................................. (600) (250) (300)
Debt Reduction Facility for IDA-Only Countries........................ -- (100) --
Trust Fund for Gaza and West Bank..................................... (90) (90) --
Emergency Assistance for Rwanda....................................... -- -- (20)
Trust Fund for Bosnia and Herzegovina................................. -- (150) --
Heavily Indebted Poor Countries Debt Initiative Trust Fund............ (500) -- --
Net income for the fiscal year.......................................... 1,285 1,187 1,354
--------- --------- ---------
Retained earnings at end of the fiscal year............................... $ 16,194 $ 16,099 $ 15,502
--------- --------- ---------
--------- --------- ---------
</TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN CUMULATIVE TRANSLATION ADJUSTMENT
For the fiscal years ended June 30, 1997, June 30, 1996 and June 30, 1995
EXPRESSED IN MILLIONS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cumulative translation adjustment at beginning of the fiscal year............ $ 1,056 $ 3,308 $ 1,394
Translation adjustment for the fiscal year................................. (971) (2,252) 1,914
--------- --------- ---------
Cumulative translation adjustment at end of the fiscal year.................. $ 85 $ 1,056 $ 3,308
--------- --------- ---------
--------- --------- ---------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
28
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
For the fiscal years ended June 30, 1997, June 30, 1996 and June 30, 1995
EXPRESSED IN MILLIONS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from lending and investing activities
Loans
Disbursements.................................................................. $ (14,009) $ (13,321) $ (12,803)
Principal repayments........................................................... 10,710 11,494 11,301
Principal prepayments.......................................................... 1,311 812 625
Investments: Held-to-maturity
Purchases...................................................................... (8,911) (5,417) (8,160)
Maturities..................................................................... 8,895 5,422 6,952
--------- --------- ---------
Net cash used in lending and investing activities.......................... (2,004) (1,010) (2,085)
--------- --------- ---------
Cash flows from Board of Governors-approved transfers to
International Development Association............................................ (599) (250) (1,427)
Debt Reduction Facility for IDA-Only Countries................................... (1) (86) (25)
Trust Fund for Gaza and West Bank, Trust Fund for Bosnia and Herzegovina, and for
Emergency Assistance for Rwanda................................................ (91) (179) (45)
Heavily Indebted Poor Countries Debt Initiative Trust Fund....................... (500) -- --
--------- --------- ---------
Net cash used in Board of Governors-approved transfers..................... (1,191) (515) (1,497)
--------- --------- ---------
Cash flows from financing activities
Medium- and long-term borrowings
New issues..................................................................... 14,928 9,851 9,979
Retirements.................................................................... (14,137) (10,330) (11,579)
Net short-term borrowings........................................................ 3,277 340 563
Net currency swaps............................................................... (266) (649) (413)
Net capital stock transactions................................................... 71 111 107
--------- --------- ---------
Net cash provided by (used in) financing activities........................ 3,873 (677) (1,343)
--------- --------- ---------
Cash flows from operating activities
Net income....................................................................... 1,285 1,187 1,354
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization.................................................. 541 399 281
Provision for loan losses...................................................... 63 42 12
Changes in other assets and liabilities
Decrease (increase) in accrued income on loans and investments............... 18 176 (59)
Increase in miscellaneous assets............................................. (153) (80) (98)
Decrease in accrued charges on borrowings.................................... (49) (214) (186)
Increase (decrease) in accounts payable and miscellaneous liabilities........ 35 (18) 109
--------- --------- ---------
Net cash provided by operating activities.................................. 1,740 1,492 1,413
--------- --------- ---------
Effect of exchange rate changes on unrestricted cash and liquid investments........ (319) (1,632) 1,489
--------- --------- ---------
Net increase (decrease) in unrestricted cash and liquid investments................ 2,099 (2,342) (2,023)
Unrestricted cash and liquid investments at beginning of the fiscal year........... 14,730 17,072 19,095
--------- --------- ---------
Unrestricted cash and liquid investments at end of the fiscal year................. $ 16,829 $ 14,730 $ 17,072
--------- --------- ---------
--------- --------- ---------
Composed of
Investments held in trading portfolio............................................ $ 17,229 $ 15,001 $ 19,821
Unrestricted currencies.......................................................... 26 27 40
Net (payable) receivable for investment securities traded/purchased.............. (106) 857 (469)
Net (payable) receivable from covered forwards................................... (123) 2 1
Net payable for securities purchased/sold under resale/repurchase agreements and
payable for cash collateral received............................................. (197) (1,157) (2,321)
--------- --------- ---------
$ 16,829 $ 14,730 $ 17,072
--------- --------- ---------
--------- --------- ---------
Supplemental disclosure
Increase (decrease) in ending balances resulting from exchange rate fluctuations
Loans outstanding.............................................................. $ (6,429) $ (14,436) $ 13,331
Investments: Held-to-maturity.................................................. 94 (29) (5)
Borrowings..................................................................... (4,701) (11,731) 10,269
Currency swaps................................................................. (495) (1,184) 1,553
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
29
<PAGE>
- --------------------------------------------------------------------------------
Summary Statement of Loans
June 30, 1997
EXPRESSED IN MILLIONS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LOANS UNDISBURSED PERCENTAGE
APPROVED BALANCE OF OF TOTAL
TOTAL BUT NOT YET EFFECTIVE LOANS LOANS
BORROWER OR GUARANTOR LOANS EFFECTIVE(1) LOANS(2) OUTSTANDING OUTSTANDING
- ------------------------------------------- --------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Algeria.................................... $ 2,624 $ 89 $ 720 $ 1,815 1.72
Argentina.................................. 8,483 1,259 1,852 5,372 5.08
Armenia.................................... 11 -- 1 10 0.01
Bahamas, The............................... 8 -- -- 8 0.01
Bangladesh................................. 43 -- -- 43 0.04
Barbados................................... 32 -- 18 14 0.01
Belarus.................................... 158 -- 36 122 0.12
Belize..................................... 56 7 14 35 0.03
Bolivia.................................... 48 -- -- 48 0.05
Bosnia and Herzegovina..................... 579 -- -- 579 0.55
Botswana................................... 58 -- -- 58 0.05
Brazil..................................... 9,529 943 2,691 5,895 5.57
Bulgaria................................... 768 40 263 465 0.44
Cameroon................................... 475 -- 8 467 0.44
Chile...................................... 1,434 -- 404 1,030 0.97
China...................................... 16,765 2,181 6,647 7,937 7.50
Colombia................................... 2,813 15 819 1,979 1.87
Congo, Democratic Republic of.............. 84 -- -- 84 0.08
Congo, Republic of......................... 77 -- 1 76 0.07
Costa Rica................................. 287 -- 62 225 0.21
Cote d'Ivoire.............................. 1,191 -- 2 1,189 1.12
Croatia.................................... 544 135 185 224 0.21
Cyprus..................................... 89 -- 27 62 0.06
Czech Republic............................. 519 -- 101 418 0.40
Dominica................................... 4 -- 4 -- --
Dominican Republic......................... 376 112 37 227 0.21
Ecuador.................................... 1,255 21 322 912 0.86
Egypt, Arab Republic of.................... 1,257 20 262 975 0.92
El Salvador................................ 473 -- 191 282 0.27
Estonia.................................... 117 -- 50 67 0.06
Fiji....................................... 45 -- 11 34 0.03
Gabon...................................... 113 10 18 85 0.08
Ghana...................................... 35 -- -- 35 0.03
Grenada.................................... 4 -- 4 -- --
Guatemala.................................. 274 46 32 196 0.19
Guyana..................................... 23 -- -- 23 0.02
Honduras................................... 311 -- -- 311 0.29
Hungary.................................... 2,172 60 604 1,508 1.43
India...................................... 12,560 575 3,102 8,883 8.40
Indonesia.................................. 15,269 284 4,444 10,541 9.96
Iran, Islamic Republic of.................. 795 -- 384 411 0.39
Iraq....................................... 44 -- -- 44 0.04
Jamaica.................................... 656 -- 179 477 0.45
Jordan..................................... 940 -- 168 772 0.73
Kazakhstan................................. 917 17 412 488 0.46
</TABLE>
30
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY STATEMENT OF LOANS (Continued)
June 30, 1997
EXPRESSED IN MILLIONS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LOANS UNDISBURSED PERCENTAGE
APPROVED BALANCE OF OF TOTAL
TOTAL BUT NOT YET EFFECTIVE LOANS LOANS
BORROWER OR GUARANTOR LOANS EFFECTIVE(1) LOANS(2) OUTSTANDING OUTSTANDING
- ------------------------------------------- --------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Kenya...................................... $ 257 $ -- $ -- $ 257 0.24
Korea, Republic of......................... 2,083 -- 434 1,649 1.56
Latvia..................................... 233 38 89 106 0.10
Lebanon.................................... 597 53 407 137 0.13
Lesotho.................................... 87 -- 29 58 0.05
Liberia.................................... 141 -- -- 141 0.13
Lithuania.................................. 267 4 156 107 0.10
Macedonia, former Yugoslav Republic of..... 111 -- 38 73 0.07
Madagascar................................. 4 -- -- 4 *
Malawi..................................... 39 -- -- 39 0.04
Malaysia................................... 947 -- 126 821 0.78
Mauritania................................. 7 -- -- 7 0.01
Mauritius.................................. 182 -- 61 121 0.11
Mexico..................................... 15,341 960 2,669 11,712 11.07
Moldova.................................... 237 17 82 138 0.13
Morocco.................................... 4,488 90 881 3,517 3.32
Nicaragua.................................. 30 -- -- 30 0.03
Nigeria.................................... 2,917 -- 352 2,565 2.42
Oman....................................... 16 -- -- 16 0.02
Pakistan................................... 3,958 -- 1,019 2,939 2.78
Panama..................................... 368 50 98 220 0.21
Papua New Guinea........................... 353 -- 70 283 0.27
Paraguay................................... 369 -- 233 136 0.13
Peru....................................... 2,756 -- 876 1,880 1.78
Philippines................................ 5,653 230 1,009 4,414 4.17
Poland..................................... 2,830 -- 678 2,152 2.03
Portugal................................... 18 -- 2 16 0.02
Romania.................................... 2,467 548 839 1,080 1.02
Russian Federation......................... 7,778 316 3,787 3,675 3.47
St. Kitts and Nevis........................ 3 -- 2 1 *
St. Lucia.................................. 10 -- 6 4 *
St. Vincent and the Grenadines............. 3 -- 2 * *
Senegal.................................... 18 -- -- 18 0.02
Seychelles................................. 6 -- 2 4 *
Sierra Leone............................... 2 -- -- 2 *
Slovak Republic............................ 270 -- 28 242 0.23
Slovenia................................... 212 43 27 142 0.13
South Africa............................... 46 46 -- -- --
Sri Lanka.................................. 35 -- -- 35 0.03
Sudan...................................... 6 -- -- 6 0.01
Swaziland.................................. 37 -- 25 12 0.01
Syrian Arab Republic....................... 360 -- -- 360 0.34
Tanzania................................... 45 -- -- 45 0.04
Thailand................................... 2,495 288 705 1,502 1.42
Trinidad and Tobago........................ 158 -- 81 77 0.07
</TABLE>
31
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY STATEMENT OF LOANS (Continued)
June 30, 1997
EXPRESSED IN MILLIONS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LOANS UNDISBURSED PERCENTAGE
APPROVED BALANCE OF OF TOTAL
TOTAL BUT NOT YET EFFECTIVE LOANS LOANS
BORROWER OR GUARANTOR LOANS EFFECTIVE(1) LOANS(2) OUTSTANDING OUTSTANDING
- ------------------------------------------- --------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Tunisia.................................... $ 2,273 $ 162 $ 567 $ 1,544 1.46
Turkey..................................... 5,100 15 1,218 3,867 3.65
Turkmenistan............................... 89 65 20 4 *
Ukraine.................................... 1,937 88 845 1,004 0.95
Uruguay.................................... 717 201 88 428 0.40
Uzbekistan................................. 230 -- 79 151 0.14
Venezuela.................................. 1,998 -- 691 1,307 1.24
Yugoslavia, Federal Republic of (Serbia/
Montenegro)(3)........................... 1,146 -- -- 1,146 1.08
Zambia..................................... 78 -- -- 78 0.07
Zimbabwe................................... 622 -- 122 500 0.47
--------- ----------- ----------- ----------- ------
Subtotal(5)................................ 156,744 9,027 42,519 105,198 99.42
Caribbean Development Bank(4).............. 35 -- 27 8 0.01
International Finance Corporation.......... 602 -- 3 599 0.57
--------- ----------- ----------- ----------- ------
Total--June 30, 1997(5).................... $ 157,381 $ 9,027 $ 42,549 $ 105,805 100.00
--------- ----------- ----------- ----------- ------
--------- ----------- ----------- ----------- ------
Total--June 30, 1996....................... $ 164,766 $ 9,500 $ 45,020 $ 110,246
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
* Indicates amount less than $0.5 million or less than 0.005 percent.
NOTES
1. Loans totaling $6,417 million ($5,170 million--June 30, 1996) have been
approved by IBRD, but the related agreements have not been signed. Loan
agreements totaling $2,610 million ($4,330 million--June 30, 1996) have
been signed, but the loans do not become effective and disbursements
thereunder do not start until the borrowers and guarantors, if any, take
certain actions and furnish certain documents to IBRD.
2. Of the undisbursed balance, IBRD has entered into irrevocable commitments to
disburse $1,937 million ($2,258 million-- June 30, 1996).
3. See Notes to Financial Statements--Notes A and C.
4. These loans are for the benefit of The Bahamas, Barbados, Grenada, Guyana,
Jamaica, Trinidad and Tobago, and territories of the United Kingdom
(Associated States and Dependencies) in the Caribbean Region, who are
severally liable as guarantors to the extent of subloans made in their
territories.
5. May differ from the sum of individual figures shown due to rounding.
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
32
<PAGE>
- --------------------------------------------------------------------------------
Statement of Subscriptions to
Capital Stock and Voting Power
June 30, 1997
EXPRESSED IN MILLIONS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUBSCRIPTIONS VOTING POWER
------------------------------------------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PERCENTAGE AMOUNTS NUMBER PERCENTAGE
OF TOTAL AMOUNTS SUBJECT OF OF
MEMBER SHARES TOTAL AMOUNTS PAID IN(1) TO CALL(1) VOTES TOTAL
- ------------------------------------- --------- ----------- ----------- ----------- ----------- --------- -----------
Afghanistan.......................... 300 0.02 $ 36.2 $ 3.6 $ 32.6 550 0.04
Albania.............................. 830 0.05 100.1 3.6 96.5 1,080 0.07
Algeria.............................. 9,252 0.61 1,116.1 67.1 1,049.0 9,502 0.61
Angola............................... 2,676 0.18 322.8 17.5 305.4 2,926 0.19
Antigua and Barbuda.................. 520 0.03 62.7 1.3 61.5 770 0.05
Argentina............................ 17,911 1.18 2,160.7 132.2 2,028.4 18,161 1.17
Armenia.............................. 1,139 0.08 137.4 5.9 131.5 1,389 0.09
Australia............................ 24,464 1.62 2,951.2 181.8 2,769.5 24,714 1.59
Austria.............................. 11,063 0.73 1,334.6 80.7 1,253.9 11,313 0.73
Azerbaijan........................... 1,646 0.11 198.6 9.7 188.8 1,896 0.12
Bahamas, The......................... 1,071 0.07 129.2 5.4 123.8 1,321 0.08
Bahrain.............................. 1,103 0.07 133.1 5.7 127.4 1,353 0.09
Bangladesh........................... 4,854 0.32 585.6 33.9 551.6 5,104 0.33
Barbados............................. 948 0.06 114.4 4.5 109.9 1,198 0.08
Belarus.............................. 3,323 0.22 400.9 22.3 378.5 3,573 0.23
Belgium.............................. 28,983 1.92 3,496.4 215.8 3,280.6 29,233 1.88
Belize............................... 586 0.04 70.7 1.8 68.9 836 0.05
Benin................................ 868 0.06 104.7 3.9 100.8 1,118 0.07
Bhutan............................... 479 0.03 57.8 1.0 56.8 729 0.05
Bolivia.............................. 1,785 0.12 215.3 10.8 204.5 2,035 0.13
Bosnia and Herzegovina............... 549 0.04 66.2 5.8 60.4 799 0.05
Botswana............................. 615 0.04 74.2 2.0 72.2 865 0.06
Brazil............................... 24,946 1.65 3,009.4 185.1 2,824.2 25,196 1.62
Brunei Darussalam.................... 2,373 0.16 286.3 15.2 271.1 2,623 0.17
Bulgaria............................. 5,215 0.34 629.1 36.5 592.6 5,465 0.35
Burkina Faso......................... 868 0.06 104.7 3.9 100.8 1,118 0.07
Burundi.............................. 716 0.05 86.4 3.0 83.4 966 0.06
Cambodia............................. 214 0.01 25.8 2.6 23.2 464 0.03
Cameroon............................. 1,527 0.10 184.2 9.0 175.2 1,777 0.11
Canada............................... 44,795 2.96 5,403.8 334.9 5,068.9 45,045 2.89
Cape Verde........................... 508 0.03 61.3 1.2 60.1 758 0.05
Central African Republic............. 862 0.06 104.0 3.9 100.1 1,112 0.07
Chad................................. 862 0.06 104.0 3.9 100.1 1,112 0.07
Chile................................ 6,931 0.46 836.1 49.6 786.6 7,181 0.46
China................................ 44,799 2.96 5,404.3 335.0 5,069.3 45,049 2.89
Colombia............................. 6,352 0.42 766.3 45.2 721.1 6,602 0.42
Comoros.............................. 282 0.02 34.0 0.3 33.7 532 0.03
Congo, Democratic Republic of........ 2,643 0.17 318.8 25.4 293.5 2,893 0.19
Congo, Republic of................... 927 0.06 111.8 4.3 107.5 1,177 0.08
Costa Rica........................... 233 0.02 28.1 1.9 26.2 483 0.03
Cote d'Ivoire........................ 2,516 0.17 303.5 16.4 287.1 2,766 0.18
Croatia.............................. 2,293 0.15 276.6 17.3 259.3 2,543 0.16
Cyprus............................... 1,461 0.10 176.2 8.4 167.9 1,711 0.11
Czech Republic....................... 6,308 0.42 761.0 45.9 715.0 6,558 0.42
Denmark.............................. 10,251 0.68 1,236.6 74.6 1,162.0 10,501 0.67
Djibouti............................. 559 0.04 67.4 1.6 65.9 809 0.05
Dominica............................. 504 0.03 60.8 1.1 59.7 754 0.05
</TABLE>
33
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF SUBSCRIPTIONS TO
CAPITAL STOCK AND VOTING POWER (Continued)
June 30, 1997
EXPRESSED IN MILLIONS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUBSCRIPTIONS VOTING POWER
------------------------------------------------------------- ----------------------
PERCENTAGE AMOUNTS NUMBER PERCENTAGE
OF TOTAL AMOUNTS SUBJECT OF OF
MEMBER SHARES TOTAL AMOUNTS PAID IN(1) TO CALL(1) VOTES TOTAL
- ------------------------------------- --------- ----------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Dominican Republic................... 2,092 0.14 $ 252.4 $ 13.1 $ 239.3 2,342 0.15
Ecuador.............................. 2,771 0.18 334.3 18.2 316.1 3,021 0.19
Egypt, Arab Republic of.............. 7,108 0.47 857.5 50.9 806.6 7,358 0.47
El Salvador.......................... 141 0.01 17.0 1.7 15.3 391 0.03
Equatorial Guinea.................... 715 0.05 86.3 2.7 83.5 965 0.06
Eritrea.............................. 593 0.04 71.5 1.8 69.7 843 0.05
Estonia.............................. 923 0.06 111.3 4.3 107.1 1,173 0.08
Ethiopia............................. 978 0.06 118.0 4.7 113.3 1,228 0.08
Fiji................................. 987 0.07 119.1 4.8 114.3 1,237 0.08
Finland.............................. 8,560 0.57 1,032.6 61.9 970.8 8,810 0.57
France............................... 69,397 4.59 8,371.7 520.4 7,851.3 69,647 4.47
Gabon................................ 987 0.07 119.1 5.1 113.9 1,237 0.08
Gambia, The.......................... 543 0.04 65.5 1.5 64.0 793 0.05
Georgia.............................. 1,584 0.10 191.1 9.3 181.8 1,834 0.12
Germany.............................. 72,399 4.79 8,733.9 542.9 8,190.9 72,649 4.67
Ghana................................ 1,525 0.10 184.0 12.7 171.2 1,775 0.11
Greece............................... 1,684 0.11 203.1 14.1 189.1 1,934 0.12
Grenada.............................. 531 0.04 64.1 1.4 62.7 781 0.05
Guatemala............................ 2,001 0.13 241.4 12.4 229.0 2,251 0.14
Guinea............................... 1,292 0.09 155.9 7.1 148.8 1,542 0.10
Guinea-Bissau........................ 540 0.04 65.1 1.4 63.7 790 0.05
Guyana............................... 1,058 0.07 127.6 5.3 122.3 1,308 0.08
Haiti................................ 1,067 0.07 128.7 5.4 123.3 1,317 0.08
Honduras............................. 641 0.04 77.3 2.3 75.0 891 0.06
Hungary.............................. 8,050 0.53 971.1 58.0 913.1 8,300 0.53
Iceland.............................. 1,258 0.08 151.8 6.8 144.9 1,508 0.10
India................................ 44,795 2.96 5,403.8 333.7 5,070.1 45,045 2.89
Indonesia............................ 14,981 0.99 1,807.2 110.3 1,697.0 15,231 0.98
Iran, Islamic Republic of............ 23,686 1.57 2,857.4 175.8 2,681.5 23,936 1.54
Iraq................................. 2,808 0.19 338.7 27.1 311.6 3,058 0.20
Ireland.............................. 5,271 0.35 635.9 37.1 598.8 5,521 0.35
Israel............................... 4,750 0.31 573.0 33.2 539.8 5,000 0.32
Italy................................ 44,795 2.96 5,403.8 334.8 5,069.0 45,045 2.89
Jamaica.............................. 2,578 0.17 311.0 16.8 294.2 2,828 0.18
Japan................................ 93,770 6.20 11,311.9 703.5 10,608.5 94,020 6.04
Jordan............................... 1,388 0.09 167.4 7.8 159.6 1,638 0.11
Kazakhstan........................... 2,985 0.20 360.1 19.8 340.3 3,235 0.21
Kenya................................ 2,461 0.16 296.9 15.9 281.0 2,711 0.17
Kiribati............................. 465 0.03 56.1 0.9 55.2 715 0.05
Korea, Republic of................... 9,372 0.62 1,130.6 67.9 1,062.7 9,622 0.62
Kuwait............................... 13,280 0.88 1,602.0 97.4 1,504.6 13,530 0.87
Kyrgyz Republic...................... 1,107 0.07 133.5 5.7 127.9 1,357 0.09
Lao People's Democratic Republic..... 178 0.01 21.5 1.5 20.0 428 0.03
Latvia............................... 1,384 0.09 167.0 7.8 159.2 1,634 0.10
Lebanon.............................. 340 0.02 41.0 1.1 39.9 590 0.04
Lesotho.............................. 663 0.04 80.0 2.3 77.6 913 0.06
Liberia.............................. 463 0.03 55.9 2.6 53.3 713 0.05
</TABLE>
34
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF SUBSCRIPTIONS TO
CAPITAL STOCK AND VOTING POWER (Continued)
June 30, 1997
EXPRESSED IN MILLIONS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUBSCRIPTIONS VOTING POWER
------------------------------------------------------------- ----------------------
PERCENTAGE AMOUNTS NUMBER PERCENTAGE
OF TOTAL AMOUNTS SUBJECT OF OF
MEMBER SHARES TOTAL AMOUNTS PAID IN(1) TO CALL(1) VOTES TOTAL
- ------------------------------------- --------- ----------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Libya................................ 7,840 0.52 $ 945.8 $ 57.0 $ 888.8 8,090 0.52
Lithuania............................ 1,507 0.10 181.8 8.7 173.1 1,757 0.11
Luxembourg........................... 1,652 0.11 199.3 9.8 189.5 1,902 0.12
Macedonia, former Yugoslav Republic
of................................. 427 0.03 51.5 3.2 48.3 677 0.04
Madagascar........................... 1,422 0.09 171.5 8.1 163.5 1,672 0.11
Malawi............................... 1,094 0.07 132.0 5.6 126.4 1,344 0.09
Malaysia............................. 8,244 0.55 994.5 59.5 935.0 8,494 0.55
Maldives............................. 469 0.03 56.6 0.9 55.7 719 0.05
Mali................................. 1,162 0.08 140.2 6.1 134.1 1,412 0.09
Malta................................ 1,074 0.07 129.6 5.4 124.1 1,324 0.09
Marshall Islands..................... 469 0.03 56.6 0.9 55.7 719 0.05
Mauritania........................... 900 0.06 108.6 4.1 104.4 1,150 0.07
Mauritius............................ 1,242 0.08 149.8 6.7 143.1 1,492 0.10
Mexico............................... 18,804 1.24 2,268.4 139.0 2,129.4 19,054 1.22
Micronesia, Federated States of...... 479 0.03 57.8 1.0 56.8 729 0.05
Moldova.............................. 1,368 0.09 165.0 7.6 157.4 1,618 0.10
Mongolia............................. 466 0.03 56.2 2.3 53.9 716 0.05
Morocco.............................. 4,973 0.33 599.9 34.8 565.1 5,223 0.34
Mozambique........................... 930 0.06 112.2 4.8 107.4 1,180 0.08
Myanmar.............................. 2,484 0.16 299.7 16.1 283.6 2,734 0.18
Namibia.............................. 1,523 0.10 183.7 8.8 174.9 1,773 0.11
Nepal................................ 968 0.06 116.8 4.6 112.1 1,218 0.08
Netherlands.......................... 35,503 2.35 4,282.9 264.8 4,018.1 35,753 2.30
New Zealand.......................... 7,236 0.48 872.9 51.9 821.0 7,486 0.48
Nicaragua............................ 608 0.04 73.3 2.1 71.3 858 0.06
Niger................................ 852 0.06 102.8 3.8 99.0 1,102 0.07
Nigeria.............................. 12,655 0.84 1,526.6 92.7 1,433.9 12,905 0.83
Norway............................... 9,982 0.66 1,204.2 72.6 1,131.6 10,232 0.66
Oman................................. 1,561 0.10 188.3 9.1 179.2 1,811 0.12
Pakistan............................. 9,339 0.62 1,126.6 67.8 1,058.9 9,589 0.62
Panama............................... 385 0.03 46.4 3.2 43.2 635 0.04
Papua New Guinea..................... 1,294 0.09 156.1 7.1 149.0 1,544 0.10
Paraguay............................. 1,229 0.08 148.3 6.6 141.6 1,479 0.09
Peru................................. 5,331 0.35 643.1 37.5 605.6 5,581 0.36
Philippines.......................... 6,844 0.45 825.6 48.9 776.7 7,094 0.46
Poland............................... 10,908 0.72 1,315.9 79.6 1,236.3 11,158 0.72
Portugal............................. 5,460 0.36 658.7 38.5 620.2 5,710 0.37
Qatar................................ 1,096 0.07 132.2 9.0 123.3 1,346 0.09
Romania.............................. 4,011 0.27 483.9 30.5 453.4 4,261 0.27
Russian Federation................... 44,795 2.96 5,403.8 333.9 5,070.0 45,045 2.89
Rwanda............................... 1,046 0.07 126.2 5.2 120.9 1,296 0.08
St. Kitts and Nevis.................. 275 0.02 33.2 0.3 32.9 525 0.03
St. Lucia............................ 552 0.04 66.6 1.5 65.1 802 0.05
St. Vincent and the Grenadines....... 278 0.02 33.5 0.3 33.2 528 0.03
Sao Tome and Principe................ 495 0.03 59.7 1.1 58.6 745 0.05
Saudi Arabia......................... 44,795 2.96 5,403.8 335.0 5,068.9 45,045 2.89
Senegal.............................. 2,072 0.14 250.0 13.0 237.0 2,322 0.15
</TABLE>
35
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF SUBSCRIPTIONS TO
CAPITAL STOCK AND VOTING POWER (Continued)
June 30, 1997
EXPRESSED IN MILLIONS OF U.S. DOLLARS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUBSCRIPTIONS VOTING POWER
------------------------------------------------------------- ----------------------
PERCENTAGE AMOUNTS NUMBER PERCENTAGE
OF TOTAL AMOUNTS SUBJECT OF OF
MEMBER SHARES TOTAL AMOUNTS PAID IN(1) TO CALL(1) VOTES TOTAL
- ------------------------------------- --------- ----------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Seychelles........................... 263 0.02 $ 31.7 $ 0.2 $ 31.6 513 0.03
Sierra Leone......................... 718 0.05 86.6 3.0 83.6 968 0.06
Singapore............................ 320 0.02 38.6 3.9 34.7 570 0.04
Slovak Republic...................... 3,216 0.21 388.0 23.0 365.0 3,466 0.22
Slovenia............................. 1,261 0.08 152.1 9.5 142.6 1,511 0.10
Solomon Islands...................... 513 0.03 61.9 1.2 60.7 763 0.05
Somalia.............................. 552 0.04 66.6 3.3 63.3 802 0.05
South Africa......................... 13,462 0.89 1,624.0 98.8 1,525.2 13,712 0.88
Spain................................ 23,686 1.57 2,857.4 175.6 2,681.7 23,936 1.54
Sri Lanka............................ 3,817 0.25 460.5 26.1 434.3 4,067 0.26
Sudan................................ 850 0.06 102.5 7.2 95.3 1,100 0.07
Suriname............................. 412 0.03 49.7 2.0 47.7 662 0.04
Swaziland............................ 440 0.03 53.1 2.0 51.1 690 0.04
Sweden............................... 14,974 0.99 1,806.4 110.2 1,696.2 15,224 0.98
Switzerland.......................... 26,606 1.76 3,209.6 197.2 3,012.4 26,856 1.72
Syrian Arab Republic................. 2,202 0.15 265.6 14.0 251.7 2,452 0.16
Tajikistan........................... 1,060 0.07 127.9 5.3 122.5 1,310 0.08
Tanzania............................. 1,295 0.09 156.2 10.0 146.2 1,545 0.10
Thailand............................. 6,349 0.42 765.9 45.2 720.7 6,599 0.42
Togo................................. 1,105 0.07 133.3 5.7 127.6 1,355 0.09
Tonga................................ 494 0.03 59.6 1.1 58.5 744 0.05
Trinidad and Tobago.................. 2,664 0.18 321.4 17.6 303.7 2,914 0.19
Tunisia.............................. 719 0.05 86.7 5.7 81.1 969 0.06
Turkey............................... 7,379 0.49 890.2 52.9 837.2 7,629 0.49
Turkmenistan......................... 526 0.03 63.5 2.9 60.5 776 0.05
Uganda............................... 617 0.04 74.4 4.4 70.1 867 0.06
Ukraine.............................. 10,908 0.72 1,315.9 79.3 1,236.6 11,158 0.72
United Arab Emirates................. 2,385 0.16 287.7 22.6 265.1 2,635 0.17
United Kingdom....................... 69,397 4.59 8,371.7 539.5 7,832.2 69,647 4.47
United States........................ 264,969 17.52 31,964.5 1,998.4 29,966.2 265,219 17.03
Uruguay.............................. 2,812 0.19 339.2 18.6 320.7 3,062 0.20
Uzbekistan........................... 2,493 0.16 300.7 16.1 284.7 2,743 0.18
Vanuatu.............................. 586 0.04 70.7 1.8 68.9 836 0.05
Venezuela............................ 20,361 1.35 2,456.2 150.8 2,305.5 20,611 1.32
Vietnam.............................. 968 0.06 116.8 8.1 108.7 1,218 0.08
Western Samoa........................ 531 0.04 64.1 1.4 62.7 781 0.05
Yemen, Republic of................... 2,212 0.15 266.8 14.0 252.8 2,462 0.16
Zambia............................... 2,810 0.19 339.0 20.0 319.0 3,060 0.20
Zimbabwe............................. 3,325 0.22 401.1 22.4 378.7 3,575 0.23
--------- ----------- ----------- ----------- ----------- --------- -----------
Total--June 30, 1997(2).............. 1,512,211 100.00 $ 182,426 $ 11,048 $ 171,378 1,557,211 100.00
--------- ----------- ----------- ----------- ----------- --------- -----------
--------- ----------- ----------- ----------- ----------- --------- -----------
Total--June 30, 1996................. 1,497,325 100.00 $ 180,630 $ 10,994 $ 169,636 1,542,325
--------- ----------- ----------- ----------- ----------- ---------
--------- ----------- ----------- ----------- ----------- ---------
</TABLE>
NOTES
1. See Notes to Financial Statements--Note A.
2. May differ from the sum of individual figures shown due to rounding.
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
36
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Notes to Financial Statements
- --------------------------------------------------------------------------------
PURPOSE AND AFFILIATED ORGANIZATIONS
The International Bank for Reconstruction and Development (IBRD) is an
international organization which commenced operations in 1946. The principal
purpose of IBRD is to promote economic development in its member countries,
primarily by providing loans and related technical assistance for specific
projects and for programs of economic reform in developing member countries. The
activities of IBRD are complemented by those of three affiliated organizations,
the International Development Association (IDA), the International Finance
Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA). Each
of these organizations is legally and financially independent from IBRD, with
separate assets and liabilities, and IBRD is not liable for their respective
obligations. IDA's purpose is to promote economic development in the less
developed areas of the world included in IDA's membership by providing financing
on concessionary terms. IFC's purpose is to encourage the growth of productive
private enterprises in its member countries through loans and equity investments
in such enterprises without a member's guarantee. MIGA was established to
encourage the flow of investments for productive purposes among member countries
and, in particular, to developing member countries by providing guarantees
against noncommercial risks for foreign investment in its developing member
countries.
SUMMARY OF SIGNIFICANT ACCOUNTING AND RELATED POLICIES
IBRD's financial statements are prepared in conformity with the accounting
principles generally accepted in the United States and with International
Accounting Standards.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from these estimates. Significant judgments have been used
in the computation of estimated and fair values of loans and borrowings, the
adequacy of the Accumulated Provision for Loan Losses, determination of net
periodic pension cost, and the present value of obligations under the Staff
Retirement and Retired Staff Benefits Plans.
During the first quarter of fiscal year 1997, IBRD adopted prospectively the
Statement of Financial Accounting Standards No. 121, entitled "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
of", which prescribes that long-lived assets and certain intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. This accounting standard
does not apply to financial instruments. The adoption of this standard had no
material impact on IBRD's financial statements.
During the fourth quarter of fiscal year 1997, IBRD adopted International
Accounting Standards (IAS) No. 32 entitled "Financial Instruments: Disclosure
and Presentation". IAS No. 32 specifies the disclosure of certain information on
various risk elements associated with financial instruments. These disclosures
are contained in Notes B, C, and D.
In 1996 the Financial Accounting Standards Board issued the Statement of
Financial Accounting Standards No. 125, entitled "Accounting for Transfers of
Assets and Servicing of Financial Assets and
37
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
Extinguishments of Liabilities", which requires new accounting and reporting
standards for transfers of assets, securitizations, collateral, and servicing of
receivables and other financial assets, and extinguishments of liabilities.
While the standard is effective for fiscal year 1997, the provisions which would
impact IBRD relating to transfers involving repurchase/resale agreements,
collateral agreements and securities lending for transfers of financial assets
will not be effective until the beginning of 1998. The adoption of this standard
is expected to have no material impact on IBRD's financial statements.
Certain reclassifications of the prior year's information have been made to
conform to the current period's presentation.
TRANSLATION OF CURRENCIES: IBRD's financial statements are expressed in terms of
U.S. dollars solely for the purpose of summarizing IBRD's financial position and
the results of its operations for the convenience of its members and other
interested parties.
IBRD is an international organization which conducts its operations in the
currencies of all of its members. IBRD's resources are derived from its capital,
borrowings, and accumulated earnings in those various currencies. IBRD has a
number of general policies aimed at minimizing exchange-rate risk in a
multicurrency environment. IBRD matches its borrowing obligations in any one
currency (after swaps) with assets in the same currency, as prescribed by its
Articles of Agreement, primarily by holding or lending the proceeds of its
borrowings (after swaps) in the same currencies in which they are borrowed. In
addition, IBRD periodically undertakes currency conversions to more closely
match the currencies underlying its Retained Earnings with those of the
outstanding loans.
Assets and liabilities are translated at market exchange rates at the end of the
period. Income and expenses are translated at the market exchange rates on the
dates on which they are recognized or at average market exchange rates in effect
during each month. Translation adjustments are charged or credited to Equity.
VALUATION OF CAPITAL STOCK: In the Articles of Agreement, the capital stock of
IBRD is expressed in terms of "U.S. dollars of the weight and fineness in effect
on July 1, 1944" (1944 dollars). Following the abolition of gold as a common
denominator of the monetary system and the repeal of the provision of the U.S.
law defining the par value of the U.S. dollar in terms of gold, the pre-existing
basis for translating 1944 dollars into current dollars or into any other
currency disappeared. The Executive Directors of IBRD have decided, until such
time as the relevant provisions of the Articles of Agreement are amended, that
the words "U.S. dollars of the weight and fineness in effect on July 1, 1944" in
Article II, Section 2(a) of the Articles of Agreement of IBRD are interpreted to
mean the Special Drawing Right (SDR) introduced by the International Monetary
Fund, as the SDR was valued in terms of U.S. dollars immediately before the
introduction of the basket method of valuing the SDR on July 1, 1974, such value
being $1.20635 for one SDR.
MAINTENANCE OF VALUE: Article II, Section 9 of the Articles of Agreement
provides for maintenance of the value, at the time of subscription, of such
restricted currencies (see Note A), requiring (1) the member to make additional
payments to IBRD in the event that the par value of its currency is reduced or
the foreign exchange value of its currency has, in the opinion of IBRD,
depreciated to a significant extent in its territories and (2) IBRD to reimburse
the member in the event that the par value of its currency is increased.
38
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
Since currencies no longer have par values, maintenance of value amounts are
determined by measuring the foreign exchange value of a member's currency
against the standard of value of IBRD capital based on the 1974 SDR. Members are
required to make payments to IBRD if their currencies depreciate significantly
relative to the standard of value. Furthermore, the Executive Directors have
adopted a policy of reimbursing members whose currencies appreciate
significantly in terms of the standard of value.
The net maintenance of value amounts relating to restricted currencies out on
loan are included in Deferred Amounts to Maintain Value of Currency Holdings and
shown as a component of Equity since maintenance of value becomes effective only
as such currencies are repaid to IBRD.
RETAINED EARNINGS: Retained Earnings consists of allocated amounts (Special
Reserve, General Reserve, and Surplus) and unallocated Net Income.
The Special Reserve consists of loan commissions set aside pursuant to Article
IV, Section 6 of the Articles of Agreement, which are to be held in liquid
assets. These assets may be used only for the purpose of meeting liabilities of
IBRD on its borrowings and guarantees in the event of defaults on loans made,
participated in, or guaranteed by IBRD. The Special Reserve assets are included
under Investments held in the Trading portfolio, comprising obligations of the
United States Government, its agencies, and other official entities. The
allocation of such commissions to the Special Reserve was discontinued in 1964
with respect to subsequent loans and no further additions are being made to it.
The General Reserve consists of earnings from prior fiscal years which, in the
judgment of the Executive Directors, should be retained in IBRD's operations.
Surplus consists of earnings from prior fiscal years which are retained by IBRD
until a further decision is made on their disposition or the conditions of
transfer for specified uses have been met.
Unallocated Net Income consists of earnings in the current fiscal year.
Commencing in 1950, a portion or all of the unallocated Net Income has been
allocated to the General Reserve. The Board of Governors, consisting of one
Governor appointed by each member, periodically approves transfers out of
unallocated Net Income and Surplus, components of Retained Earnings, after an
assessment by the Executive Directors of IBRD's reserve needs, to various
entities for development purposes consistent with IBRD's Articles of Agreement.
LOANS: All of IBRD's loans are made to or guaranteed by members, except loans to
IFC. The majority of IBRD's loans have repayment obligations in various
currencies determined on the basis of a currency pooling system, which is
designed to equalize exchange-rate risks among borrowers. IBRD also offers
single currency loans. Except for certain loans which were converted to the
currency pooling system, loans negotiated prior to July 1980 and all single
currency loans are repayable in the currencies disbursed.
Incremental direct costs associated with originating loans are expensed as
incurred as such amounts are considered immaterial.
IBRD's policy is to not reschedule interest or principal payments on its loans
or participate in debt rescheduling agreements with respect to its loans. In
exceptional cases, however, such as when implementation of a financed project
has been delayed, the loan amortization schedule may be modified to avoid
substantial repayments prior to project completion. In addition, in the special
case of Bosnia and Herzegovina, IBRD has refinanced/rescheduled, through three
new IBRD consolidation loans, certain
39
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
loans made to the former Socialist Federal Republic of Yugoslavia (SFRY) for
which Bosnia and Herzegovina has accepted liability. IBRD's special treatment in
this case was based on the following criteria: the country (i) has emerged from
a current or former member of IBRD, (ii) is assuming responsibility for a share
of the debt of that member, (iii) has limited creditworthiness for servicing the
debt that it assumes, because of a major armed conflict in its territory
involving extensive destruction of physical assets, and (iv) can improve
significantly its repayment capacity through refinancing/rescheduling, if
appropriate supporting measures are taken. At the balance sheet dates no other
country met these criteria.
Delays in receiving loan payments result in present value losses to IBRD since
it does not charge fees or additional interest on any overdue interest or loan
charges. These present value losses are equal to the difference between the
present value of payments for interest and charges made according to the related
loan's contractual terms and the present value of their expected future cash
flows discounted at the loan's contractual interest rates. Such present value
losses are considered in the determination of the Accumulated Provision for Loan
Losses.
It is the policy of IBRD to place in nonaccrual status all loans made to or
guaranteed by a member of IBRD if principal, interest, or other charges with
respect to any such loan are overdue by more than six months, unless IBRD
management determines that the overdue amount will be collected in the immediate
future. In addition, if development credits made by IDA to a member government
are placed in nonaccrual status, all loans made to or guaranteed by that member
government will also be placed in nonaccrual status by IBRD. On the date a
member's loans are placed in nonaccrual status, unpaid interest and other
charges accrued on loans outstanding to the member are deducted from the income
of the current period. Interest and other charges on nonaccruing loans are
included in income only to the extent that payments have actually been received
by IBRD. If collectibility risk is considered to be particularly high at the
time of arrears clearance or if IBRD refinances/reschedules nonaccruing loans to
a member so that no debt-service payments remain overdue, the member's loans may
not automatically emerge from nonaccrual status, even though the member's
eligibility for new loans may have been restored. The previously overdue
interest and other charges are not recognized as income in the period the
refinancing/rescheduling occurs. A decision on the restoration of accrual status
is made on a case-by-case basis after a suitable period of payment performance
has passed from the time of arrears clearance.
IBRD determines the Accumulated Provision for Loan Losses based on an assessment
of collectibility risk in the total loan and callable guarantees portfolio,
including loans in nonaccrual status. The accumulated provision is periodically
adjusted based on a review of the prevailing circumstances. Adjustments to the
accumulated provision are recorded as a charge or credit to income. In the
context of determining the adequacy of the Accumulated Provision for Loan
Losses, IBRD considers the present value of expected cash flows relative to the
contractual cash flows for loans in making the required assessment.
INVESTMENTS: Investment securities are classified based on IBRD management's
intention on the date of purchase. Securities which management has the intention
and ability to hold until maturity are included in the Held-to-maturity
portfolio and reported at amortized cost. All other investment securities are
held in a Trading portfolio and classified as an element of liquidity in the
Statement of Cash Flows due to their nature and IBRD's policies governing the
level and use of such investments. Investment securities and
40
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
related financial instruments held in IBRD's Trading portfolio are carried and
reported at market value. Unrecognized gains and losses for financial
instruments held in the Trading portfolio are included in income. Derivative
instruments are used in liquidity management to take advantage of profitable
trading opportunities and as a proxy for cash securities. These instruments
include short-term, over-the-counter foreign exchange forwards and
exchange-traded futures and options on fixed income instruments. These
derivatives are carried at market value. From time to time, IBRD enters into
forward contracts for the sale or purchase of investment securities; these
transactions are recorded at the time of commitment.
SECURITIES PURCHASED UNDER RESALE AGREEMENTS AND SECURITIES SOLD UNDER
REPURCHASE AGREEMENTS: Securities purchased under resale agreements and
securities sold under repurchase agreements are treated as securities lending
and borrowing transactions and are carried at historical cost.
BORROWINGS: To ensure funds are available for lending and liquidity purposes,
IBRD borrows in the worldwide capital markets offering its securities to private
and governmental buyers. IBRD issues short-term and medium- and long-term debt
instruments denominated in various currencies with both fixed and adjustable
interest rates. Borrowings are carried on the balance sheet at their par value
(face value) adjusted for any unamortized premiums or discounts. Issuance costs
associated with a bond offering are deferred and amortized over the period
during which the related indebtedness is outstanding. The unamortized balance of
the issuance costs is included in Other Assets on the balance sheet, and the
issuance costs amortization is presented as a separate element under Borrowing
Expenses on the income statement. Amortization of discounts and premiums is
included in interest under Borrowing Expenses on the income statement.
IBRD uses derivatives in its borrowing and liability management activities to
create synthetic debt instruments to take advantage of cost saving opportunities
across capital markets and lower its funding costs, to delink the time at which
its borrowing costs are fixed from the timing of the actual market borrowings,
and to establish an appropriate match between the currency and interest rate
characteristics of its assets and liabilities. These instruments include
currency and interest rate swaps, swap spread-locks, foreign exchange forwards,
exchange-traded futures, options and deferred and anticipatory rate setting
contracts. These derivatives are used to modify the interest rate and/or
currency characteristics of the borrowing portfolio and are linked to the
related borrowings at inception and remain so throughout the terms of their
contracts. The interest component of these derivatives is recognized as an
adjustment to the borrowing cost over the life of the derivative contract and
included in Interest under Borrowing Expenses on the income statement. Upon
termination, the change in the derivative's market value is recorded as an
adjustment to the carrying value of the underlying borrowing and recognized as
an adjustment of the borrowing cost over the remaining life of the borrowing. In
instances where the underlying borrowing is prepaid, the change in the
associated derivative's market value is recognized immediately as an adjustment
to the cost of the underlying borrowing instrument and accordingly into income.
Currency swap payables and receivables are recorded on a historical cost basis
and are separate items on the balance sheet. The notional principal on interest
rate swaps is treated as an off-balance sheet item.
FAIR VALUE DISCLOSURES: Financial instruments for which market quotations are
available have been valued at the prevailing market value. Financial instruments
for which market quotations are not readily available have been valued using
methodologies and assumptions that necessarily require the use of subjective
judgments. Accordingly, the actual value at which such financial instruments
could be exchanged in a current transaction or whether they are actually
exchangeable is not determinable.
41
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- ---------------------------------------------------------
NOTE A--CAPITAL STOCK, RESTRICTED CURRENCIES, MAINTENANCE OF VALUE AND
MEMBERSHIP
CAPITAL STOCK: At June 30, 1997, IBRD's capital comprised 1,558,478
(1,558,478--June 30, 1996) authorized shares, of which 1,512,211
(1,497,325--June 30, 1996) shares had been subscribed. Each share has a par
value of 0.1 million 1974 SDRs, valued at the rate of $1.20635 per 1974 SDR. Of
the subscribed capital, $11,048 million ($10,994 million--June 30, 1996) has
been paid in, and the remaining $171,378 million ($169,636 million--June 30,
1996) is subject to call only when required to meet the obligations of IBRD
created by borrowing or guaranteeing loans. As to $145,940 million ($144,504
million--June 30, 1996) the restriction on calls is imposed by the Articles of
Agreement and as to $25,438 million ($25,132 million-- June 30, 1996) by
resolutions of the Board of Governors.
RESTRICTED CURRENCIES: The portion of capital subscriptions paid in to IBRD is
divided into two parts: (1) $1,105 million ($1,100 million--June 30, 1996)
initially paid in gold or U.S. dollars and (2) $9,943 million ($9,894
million--June 30, 1996) paid in cash or noninterest-bearing demand obligations
denominated either in the currencies of the respective members or in U.S.
dollars. The amounts mentioned in (1) above, and (i) $777 million ($777
million--June 30, 1996) which were repurchased by members with U.S. dollars, and
(ii) $435 million ($419 million--June 30, 1996) which were the proceeds from
encashments of U.S. dollar-denominated notes which are included in the amounts
mentioned in (2) above, are freely usable by IBRD in any of its operations. The
portion of the amounts paid in U.S. dollar-denominated notes are encashed by
IBRD in accordance with the schedules agreed between the members and IBRD. The
remaining amounts paid in the currencies of the members, referred to as
restricted currencies, are usable by IBRD in its lending operations only with
the consent of the respective members, and for administrative expenses. The
equivalent of $5,299 million ($5,522 million--June 30, 1996) has been used for
lending purposes, with such consent.
MEMBERSHIP: In February 1993 IBRD's Executive Directors decided that the SFRY
had ceased to be a member of IBRD and that the Republic of Bosnia and
Herzegovina (now called Bosnia and Herzegovina), the Republic of Croatia, the
former Yugoslav Republic of Macedonia, the Republic of Slovenia and the Federal
Republic of Yugoslavia (Serbia and Montenegro) (FRY) are authorized to succeed
to the SFRY's membership when certain requirements are met, including entering
into a final agreement with IBRD on IBRD's loans made to or guaranteed by the
SFRY which the particular successor Republic would assume. Four of the five
successor Republics--Bosnia and Herzegovina, the Republic of Croatia, the
Republic of Slovenia and the former Yugoslav Republic of Macedonia--have become
members of IBRD. The paid-in portion of the SFRY's subscribed capital allocated
to the FRY is included under Payments on Account of Pending Subscriptions until
the requirements of succession are met.
NOTE B--INVESTMENTS
As part of its overall portfolio management strategy, IBRD invests in government
and agency obligations, time deposits and related financial instruments with
off-balance sheet risk including futures, forward contracts, covered forward
contracts, options and short sales.
On April 18, 1997, the Executive Directors approved changes in IBRD's general
investment authority to permit IBRD to invest in marketable bonds, notes, and
other debt obligations or securities (including
42
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- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- ---------------------------------------------------------
asset-backed securities) issued or unconditionally guaranteed by corporate
entities or trusts. Such obligations or securities require a credit rating of
AAA. IBRD was also authorized to enter into currency swaps for liquid asset
management purposes.
GOVERNMENT AND AGENCY OBLIGATIONS: These obligations include marketable bonds,
notes and other obligations. Obligations issued or unconditionally guaranteed by
governments of countries require a minimum credit rating of AA, if denominated
in a currency other than the home currency of the issuer, otherwise no rating is
required. Obligations issued by an agency or instrumentality of a government of
a country, a multilateral organization or any other official entity require a
minimum credit rating of AA.
TIME DEPOSITS: Time deposits include certificates of deposit, bankers'
acceptances, and other obligations issued or unconditionally guaranteed by banks
and other financial institutions.
FUTURES AND FORWARDS: Futures and forward contracts are contracts for delayed
delivery of securities or money market instruments in which the seller agrees to
make delivery at a specified future date of a specified instrument, at a
specified price or yield. Futures contracts are traded on regulated United
States and international exchanges. IBRD generally closes out most open
positions in futures contracts prior to maturity. Therefore, cash receipts or
payments are mostly limited to the change in market value of the futures
contracts. Futures contracts generally entail daily settlement of the net cash
margin.
OPTIONS: Options are contracts that allow the holder of the option the right,
but not the obligation to purchase or sell a financial instrument at a specified
price within a specified period of time from or to the seller of the option. The
purchaser of an option pays a premium at the outset to the seller of the option,
who then bears the risk of an unfavorable change in the price of the financial
instrument underlying the option. IBRD only invests in exchange-traded options.
The initial price of an option contract is equal to the premium paid by the
purchaser and is significantly less than the contract or notional amount. IBRD
does not write uncovered option contracts.
REPURCHASE AND RESALE AGREEMENTS AND SECURITIES LOANS: Repurchase agreements
are contracts under which a party sells securities and simultaneously agrees to
repurchase the same securities at a specified future date at a fixed price. The
reverse of this transaction is called a resale agreement. Securities loans are
contracts under which securities are lent for a specified period of time at a
fixed price.
SHORT SALES: Short sales are sales of securities not held in IBRD's portfolio
at the time of the sale. IBRD must purchase the security at a later date and
bears the risk that the market value of the security will move adversely between
the time of the sale and the time the security must be delivered.
COVERED FORWARDS: Covered forwards are agreements in which cash in one currency
is converted into a different currency and, simultaneously, a forward exchange
agreement is executed providing for a future exchange of the two currencies in
order to recover the currency converted.
43
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- ---------------------------------------------------------
LIQUID PORTFOLIO: A summary of IBRD's position in trading and other liquid
portfolio instruments at June 30, 1997 and June 30, 1996 is as follows:
<TABLE>
<CAPTION>
IN MILLIONS OF U.S. DOLLARS EQUIVALENT
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DEUTSCHE MARK JAPANESE YEN OTHER
U.S. DOLLARS CURRENCIES
-------------------- -------------------- -------------------- ---------
1997 1996 1997 1996 1997 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
TRADING:
Government and agency obligations:
Carrying value............................. 642 524 -- 1,119 2,873 3,536 20
Average balance during fiscal year......... 429 879 324 2,738 2,237 3,473 182
Net gains (losses) for the fiscal year..... (2) 19 (2) (45) (13) (41) 10
Average yield (%).......................... 3.22 4.60 -- 1.35 5.92 5.03 3.52
Average maturity (years)................... 2.03 5.10 -- 2.94 5.35 3.80 0.19
Time deposits:
Carrying value............................. 1,311 1,041 3,569 1,775 7,664 5,822 1,149
Average balance during fiscal year......... 578 411 2,126 1,562 6,847 3,793 1,055
Net gains (losses) for the fiscal year..... -- -- -- -- -- -- --
Average yield (%).......................... 3.11 3.38 0.49 0.50 5.91 5.52 3.76
Average maturity (years)................... 0.23 0.02 0.20 0.07 0.13 0.01 0.17
Futures and forwards:
Carrying value............................. 1 1 * 3 -- -- --
Average balance during fiscal year......... 1 1 2 3 -- -- *
Net gains (losses) for the fiscal year..... (*) (2) 1 (3) 11 15 *
Options:
Carrying value............................. -- -- * * * (*) --
Average balance during fiscal year......... -- -- * * * * *
Net gains (losses) for the fiscal year..... (*) (*) (*) (*) (1) (2) *
TOTAL TRADING INVESTMENTS***
Carrying value............................... 1,954 1,566 3,569 2,897 10,537 9,358 1,169
Average balance during fiscal year........... 1,008 1,291 2,452 4,303 9,084 7,266 1,237
Net gains (losses) for the fiscal year....... (2) 17 (*) (48) (3) (28) 10
REPURCHASE AGREEMENTS AND SECURITIES LOANS:
Carrying value............................... -- -- -- -- (294) (2,394) --
Average balance during fiscal year........... (34) (142) -- -- (716) (1,406) (80)
Average yield (%)............................ -- -- -- -- 5.73 5.20 --
Average maturity (years)..................... -- -- -- -- 0.02 0.02 --
RESALE AGREEMENTS:
Carrying value............................... 2 571 -- -- 95 655 --
Average balance during fiscal year........... 305 463 -- -- 721 775 92
Average yield (%)............................ 2.90 3.49 -- -- 5.46 5.17 --
Average maturity (years)..................... 0.02 0.01 -- -- 0.06 0.03 --
SHORT SALES:
Carrying value............................... -- (25) -- -- (92) (54) --
Average balance during fiscal year........... (42) (44) -- (5) (134) (133) (15)
NET COVERED FORWARDS:
Carrying value............................... (908) 60 (3,226) (91) 4,571 (17) (560)
Average balance during fiscal year........... (198) 162 (694) (88) 1,047 (423) (142)
Average yield (%)............................ 3.10 3.33 0.48 0.43 5.78 5.40 3.69
Average maturity (years)..................... 0.33 0.01 0.21 0.04 0.24 0.02 0.27
<CAPTION>
IN M
<S> <C> <C> <C>
- -----------------------------------------------
ALL
CURRENCIES
--------------------
1996 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
TRADING:
Government and agency obligations:
Carrying value............................. 238 3,535 5,417
Average balance during fiscal year......... 257 3,172 7,347
Net gains (losses) for the fiscal year..... 7 (7) (60)
Average yield (%).......................... 4.82 5.40 4.12
Average maturity (years)................... 8.40 4.71 3.87
Time deposits:
Carrying value............................. 942 13,693 9,580
Average balance during fiscal year......... 1,035 10,606 6,801
Net gains (losses) for the fiscal year..... (*) -- (*)
Average yield (%).......................... 3.96 4.05 4.21
Average maturity (years)................... 0.02 0.16 0.03
Futures and forwards:
Carrying value............................. * 1 4
Average balance during fiscal year......... * 3 4
Net gains (losses) for the fiscal year..... (*) 12 10
Options:
Carrying value............................. * * *
Average balance during fiscal year......... * * *
Net gains (losses) for the fiscal year..... (*) (1) (2)
TOTAL TRADING INVESTMENTS***
Carrying value............................... 1,180 17,229 15,001
Average balance during fiscal year........... 1,292 13,781 14,152
Net gains (losses) for the fiscal year....... 7 4 (52)
REPURCHASE AGREEMENTS AND SECURITIES LOANS:
Carrying value............................... (45) (294) (2,439)
Average balance during fiscal year........... (27) (830) (1,575)
Average yield (%)............................ 4.06 5.73 5.18
Average maturity (years)..................... 0.02 0.02 0.02
RESALE AGREEMENTS:
Carrying value............................... 56 97 1,282
Average balance during fiscal year........... 68 1,118 1,306
Average yield (%)............................ 4.40 5.41 4.39
Average maturity (years)..................... ** 0.06 0.02
SHORT SALES:
Carrying value............................... (*) (92) (79)
Average balance during fiscal year........... (12) (191) (194)
NET COVERED FORWARDS:
Carrying value............................... 50 (123) 2
Average balance during fiscal year........... 348 13 (1)
Average yield (%)............................ 3.17 3.55 3.69
Average maturity (years)..................... 0.01 0.24 0.02
</TABLE>
- --------------------------------------------------------------------------------
* Less than $0.5 million.
** Less than 0.005 years.
*** May differ from the sum of individual figures due to rounding.
44
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- ---------------------------------------------------------
HELD-TO-MATURITY PORTFOLIO: The carrying and fair values of investment
securities in the Held-to-maturity portfolio at June 30, 1997 and June 30, 1996
are as follows:
<TABLE>
<CAPTION>
IN MILLIONS
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
1997
-------------------------------------------------------------
AVERAGE GROSS GROSS
CARRYING YIELD UNREALIZED UNREALIZED FAIR
VALUE (%) GAINS LOSSES VALUE
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Government and agency obligations............ $ 1,140 8.74 $ 110 $ -- $ 1,250
Time deposits................................ 139 6.38 -- -- 139
----------- --- ----- ----- ---------
Total........................................ $ 1,279 8.49 $ 110 $ -- $ 1,389
----------- --- ----- ----- ---------
----------- --- ----- ----- ---------
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
IN MILLIONS
- ------------------------------------------------------------------------------------------------------------
1996
-------------------------------------------------------------
AVERAGE GROSS GROSS
CARRYING YIELD UNREALIZED UNREALIZED FAIR
VALUE (%) GAINS LOSSES VALUE
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Government and agency obligations............ $ 1,055 8.74 $ 56 $ -- $ 1,111
Time deposits................................ 114 5.81 -- -- 114
----------- --- ----- ----- ---------
Total........................................ $ 1,169 8.46 $ 56 $ -- $ 1,225
----------- --- ----- ----- ---------
----------- --- ----- ----- ---------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
At June 30, 1997 and June 30, 1996, the Held-to-maturity portfolio comprised
investments in pounds sterling only. The annualized rate of return on average
investments in the Held-to-maturity portfolio held during the fiscal year ended
June 30, 1997 was 8.31 percent (8.35 percent June 30, 1996).
The expected maturities of investment securities in the Held-to-maturity
portfolio at June 30, 1997 and June 30, 1996 are summarized below:
<TABLE>
<CAPTION>
IN MILLIONS
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
<CAPTION>
1997
-----------------------------------
NET
CARRYING FAIR UNREALIZED
VALUE VALUE GAINS
----------- --------- -----------
<S> <C> <C> <C>
July 1, 1997 through June 30, 1998................................ $ 139 $ 139 $ --
July 1, 1998 through June 30, 2002................................ 172 177 5
July 1, 2002 through June 30, 2007................................ 255 277 22
Thereafter........................................................ 713 796 83
----------- --------- -----
Total............................................................. $ 1,279 $ 1,389 $ 110
----------- --------- -----
----------- --------- -----
- -------------------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- ---------------------------------------------------------
<TABLE>
<CAPTION>
IN MILLIONS
- -------------------------------------------------------------------------------------------------------
1996
-----------------------------------
NET
CARRYING FAIR UNREALIZED
VALUE VALUE GAINS
----------- --------- -----------
<S> <C> <C> <C>
July 1, 1996 through June 30, 1997................................ $ 114 $ 114 $ --
July 1,1997 through June 30, 2001................................. 162 170 8
July 1, 2001 through June 30, 2006................................ 236 252 16
Thereafter........................................................ 657 689 32
----------- --------- -----
Total............................................................. $ 1,169 $ 1,225 $ 56
----------- --------- -----
----------- --------- -----
- -------------------------------------------------------------------------------------------------------
</TABLE>
NOTE C LOANS, COFINANCING AND GUARANTEES
MULTICURRENCY LOANS
FIXED RATE LOANS: On loans negotiated prior to July 1982, IBRD charges interest
at fixed rates.
ADJUSTABLE RATE LOANS: In 1982 IBRD mitigated its interest rate risk by moving
from fixed rate to adjustable rate lending. This rate, reset twice a year, is
based on IBRD's own cost of qualified borrowings plus a 50 basis point spread,
resulting in a pass-through of its average borrowing costs to those members that
benefit from IBRD loans.
AVERAGE MATURITY: IBRD maintains a targeted currency composition in its
multicurrency loans. The present target ratio is one U.S. dollar for every 125
Japanese yen and two Deutsche mark equivalents (consisting of Deutsche mark,
Netherlands guilders and Swiss francs). These five major currencies comprise at
least 90 percent of the multicurrency loans' U.S. dollar equivalent value, with
the remainder in other currencies. This ratio has been maintained since 1991,
and is reviewed periodically. The composition of the multicurrency loans is
affected by the selection of currencies for disbursements on those loans and by
the currencies selected for the billing of the principal repayments. Along with
the selection of disbursement currencies, IBRD manages the selection of
repayment currencies to maintain the alignment of the multicurrency
loans' composition with the target ratio. The selection of currencies for
repayment billing by IBRD precludes the determination of average maturity
information for multicurrency loans by individual currency. Accordingly, IBRD
only discloses the maturity periods for its multicurrency loans on a combined
U.S. dollars equivalent basis.
SINGLE CURRENCY LOANS
FIXED RATE LOANS: IBRD introduced fixed rate single currency loans in 1995. The
rates charged on fixed rate single currency loans are set on semi-annual rate
fixing dates for loan amounts disbursed during the preceding six-month period
and remain fixed for such disbursed amounts until they are repaid. For the
interim period from the date each disbursement is made until its rate fixing
date, interest accrues at a variable rate equal to the rate on LIBOR-based
single currency loans (PIBOR-based for French franc denominated loans)
applicable for such interim period. The fixed lending rate comprises a base rate
reflecting medium- to long-term market rates on the rate fixing date, plus a
total spread consisting of
46
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- ---------------------------------------------------------
(a) IBRD's funding cost margin for these loans, (b) a risk premium (intended to
compensate IBRD for market risks incurred in funding these loans), and (c) a
spread of 50 basis points.
LIBOR-BASED LOANS: IBRD introduced LIBOR-based single currency loans in 1993.
The rates charged on LIBOR-based single currency loans are a direct pass-through
of IBRD's cost of funding for these loans, and are reset semi-annually. They
comprise a base rate equal to the six-month reference interbank offered rate for
the applicable currency on the rate reset date and a total spread consisting of
(a) IBRD's average funding cost margin for these loans and (b) a spread of 50
basis points.
Since September 1, 1996, IBRD has offered its borrowers, in addition to its loan
products, the option to convert undisbursed multicurrency pool loan amounts to
single currency loan terms. Further, borrowers have the option to convert
disbursed and undisbursed multicurrency pool loan amounts to new single currency
pool loans. Borrowers selecting single currency pool loans have their choice of
four different pools (U. S. dollars, Japanese yen, Deutsche mark or Swiss
francs). Each single currency pool will be a multicurrency pool at inception,
but will be adjusted to reach a level of at least 90 percent in the designated
currency by July 1, 1999 and will be maintained at or above that level
thereafter. The rates that will be charged on single currency pool loans will be
variable based on the average cost of outstanding borrowings allocated to fund
loans in each individual single currency pool plus a 50 basis point spread.
Conversions to the new single currency pool terms will be implemented on one of
three conversion dates (July 1, 1997, January 1, 1998 or July 1, 1998),
depending upon the date the conversion request is approved by IBRD. At June 30,
1997, borrowers had requested and IBRD had converted $6,412 million of
undisbursed multicurrency pool loan amounts to single currency loan terms and
$5,764 million remained to be converted at that date. At June 30, 1997,
borrowers had requested that $9,794 million of outstanding multicurrency pool
loan amounts and $71 million of undisbursed multicurrency pool loan amounts be
converted to single currency pool loan terms on July 1, 1997.
WAIVERS OF LOAN INTEREST AND CHARGES
On August 1, 1996, IBRD's Executive Directors approved a one-year interest
waiver of 25 basis points on disbursed and outstanding loans for all payment
periods commencing in the fiscal year ending June 30, 1997 for all eligible
borrowers. A similar waiver of 25 basis points was in effect for the fiscal year
ended June 30, 1996. In fiscal year 1995 IBRD's Executive Directors approved a
one-time 10 basis point interest waiver, for two consecutive six-month interest
periods, on currency pool loans which a borrower converts from loan interest
rate terms in effect between 1982 and 1989 to interest rate terms in effect
since 1989. For the fiscal year ended June 30, 1997, the combined effect of
these waivers was to reduce Net Income by $259 million ($286 million--June 30,
1996, $251 million--June 30, 1995).
Further, on August 1, 1996, the Executive Directors approved a one-year
commitment fee waiver of 50 basis points on undisbursed loans to all borrowers
for all payment periods commencing in the fiscal year ending June 30, 1997. A
similar waiver of 50 basis points was in effect for the fiscal year ended June
30, 1996. For the fiscal year ended June 30, 1997, the effect of the commitment
fee waiver was to reduce Net Income by $226 million ($235 million--June 30,
1996, $233 million--June 30, 1995).
47
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- ---------------------------------------------------------
A summary of IBRD's outstanding loans by currency and product at June 30, 1997
and June 30, 1996 follows:
<TABLE>
<CAPTION>
IN MILLIONS OF U.S. DOLLARS EQUIVALENT
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1997
----------------------------------------------------------------------------
TOTAL
MULTICURRENCY LOANS SINGLE CURRENCY LOANS LOANS
------------------------ --------------------------------------- ---------
WEIGHTED WEIGHTED AVERAGE
RATE AVERAGE * AVERAGE MATURITY
CURRENCY TYPE AMOUNT RATE (%) AMOUNT RATE (%)* (YEARS) AMOUNT
- -------------------------------------- ----------- --------- ------------- ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Deutsche mark Fixed $ 1,937 8.77 $ -- -- -- $ 1,937
Adjustable 27,269 6.70 83 3.48 7.07 27,352
Japanese yen Fixed 1,954 8.87 -- -- -- 1,954
Adjustable 30,154 6.70 5 0.81 3.51 30,159
Netherlands guilders Fixed 179 8.42 -- -- -- 179
Adjustable 1,155 6.70 -- -- -- 1,155
Swiss francs Fixed 1,064 8.02 -- -- -- 1,064
Adjustable 3,438 6.70 -- -- -- 3,438
U.S. dollars Fixed 1,578 8.78 2,315 7.03 6.63 3,893
Adjustable 27,848 6.70 4,515 6.01 8.99 32,363
Others Fixed 154 9.11 133 6.35 7.17 287
Adjustable 2,020 6.70 4 3.53 7.80 2,024
--------- --- ----------- --- --- ---------
Loans outstanding Fixed 6,866 8.68 2,448 6.99 6.66 9,314
Adjustable 91,884 6.70 4,607 5.96 8.95 96,491
--------- --- ----------- --- --- ---------
Total $ 98,750 6.84 $ 7,055 6.32 8.16 105,805
--------- --- ----------- --- ---
--------- --- ----------- --- ---
Less accumulated provision for loan losses 3,210
---------
Loans outstanding net of accumulated provision $ 102,595
---------
---------
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
IN MILLIONS OF U.S. DOLLARS EQUIVALENT
<S> <C>
- --------------------------------------
WEIGHTED
AVERAGE
CURRENCY RATE (%)*
- -------------------------------------- -------------
<S> <C>
Deutsche mark 8.77
6.69
Japanese yen 8.87
6.70
Netherlands guilders 8.42
6.70
Swiss francs 8.02
6.70
U.S. dollars 7.74
6.60
Others 7.83
6.69
---
Loans outstanding 8.24
6.66
---
6.80
---
---
Less accumulated provision for loan lo
Loans outstanding net of accumulated p
- --------------------------------------
</TABLE>
* Excludes effects of any waivers of loan interest.
48
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- ---------------------------------------------------------
<TABLE>
<CAPTION>
IN MILLIONS OF U.S. DOLLARS EQUIVALENT
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1996
----------------------------------------------------------------------------
TOTAL
MULTICURRENCY LOANS SINGLE CURRENCY LOANS LOANS
------------------------ --------------------------------------- ---------
WEIGHTED WEIGHTED AVERAGE
RATE AVERAGE AVERAGE MATURITY
CURRENCY TYPE AMOUNT RATE (%)* AMOUNT RATE (%)* (YEARS) AMOUNT
- ------------------------------------- ----------- --------- ------------- ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Deutsche mark Fixed $ 3,111 8.68 $ -- -- -- $ 3,111
Adjustable 26,838 6.98 -- -- -- 26,838
Japanese yen Fixed 3,093 8.88 -- -- -- 3,093
Adjustable 31,259 6.98 -- -- -- 31,259
Netherlands guilders Fixed 325 8.58 -- -- -- 325
Adjustable 1,845 6.98 -- -- -- 1,845
Swiss francs Fixed 1,989 8.18 -- -- -- 1,989
Adjustable 7,029 6.98 -- -- -- 7,029
U. S. dollars Fixed 2,266 8.85 1,119 6.79 7.17 3,385
Adjustable 27,640 6.98 1,096 5.66 10.11 28,736
Others Fixed 255 9.16 42 7.29 7.20 297
Adjustable 2,331 6.98 8 5.07 7.80 2,339
--------- --- ----------- --- ----- ---------
Loans outstanding Fixed 11,039 8.69 1,161 6.81 7.17 12,200
Adjustable 96,942 6.98 1,104 5.66 10.09 98,046
--------- --- ----------- --- ----- ---------
Total $ 107,981 7.15 $ 2,265 6.25 8.59 110,246
--------- --- ----------- --- -----
--------- --- ----------- --- -----
Less accumulated provision for loan losses
3,340
---------
Loans outstanding net of accumulated provision
$ 106,906
---------
---------
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
IN MILLIONS OF U.S. DOLLARS EQUIVALEN
<S> <C>
- -------------------------------------
WEIGHTED
AVERAGE
CURRENCY RATE (%)*
- ------------------------------------- -------------
<S> <C>
Deutsche mark 8.68
6.98
Japanese yen 8.88
6.98
Netherlands guilders 8.58
6.98
Swiss francs 8.18
6.98
U. S. dollars 8.17
6.93
Others 8.89
6.97
---
Loans outstanding 8.51
6.96
---
7.13
---
---
Less accumulated provision for loan l
Loans outstanding net of accumulated
- -------------------------------------
</TABLE>
* Excludes effects of any waivers of loan interest.
The maturity structure of IBRD's loans outstanding, by product, at June 30, 1997
and June 30, 1996 is as follows:
<TABLE>
<CAPTION>
IN MILLIONS
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1997
----------------------------------------------------------------------
MULTICURRENCY LOANS SINGLE CURRENCY LOANS
ALL LOANS
---------------------- ---------------------- ----------------------
RATE
PERIOD TYPE: FIXED ADJUSTABLE FIXED ADJUSTABLE FIXED ADJUSTABLE
- --------------------------------------------- --------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
July 1, 1997 through June 30, 1998........... $ 2,844 $ 9,150 $ -- $ 4 $ 2,844 $ 9,154
July 1, 1998 through June 30, 2002........... 3,675 37,141 773 774 4,448 37,915
July 1, 2002 through June 30, 2007........... 335 33,585 1,365 2,283 1,700 35,868
Thereafter................................... 12 12,008 310 1,546 322 13,554
--------- ----------- --------- ----------- --------- -----------
Loans outstanding............................ $ 6,866 $ 91,884 $ 2,448 $ 4,607 $ 9,314 $ 96,491
--------- ----------- --------- ----------- --------- -----------
--------- ----------- --------- ----------- --------- -----------
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
IN MILLIONS
<S> <C>
- ---------------------------------------------
PERIOD TOTAL
- --------------------------------------------- ---------
<S> <C>
July 1, 1997 through June 30, 1998........... $ 11,998
July 1, 1998 through June 30, 2002........... 42,363
July 1, 2002 through June 30, 2007........... 37,568
Thereafter................................... 13,876
---------
Loans outstanding............................ $ 105,805
---------
---------
- ---------------------------------------------
</TABLE>
49
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- ---------------------------------------------------------
<TABLE>
<CAPTION>
IN MILLIONS
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1996
----------------------------------------------------------------------
SINGLE CURRENCY LOANS
MULTICURRENCY LOANS ALL LOANS
---------------------- ---------------------- ----------------------
RATE
PERIOD TYPE: FIXED ADJUSTABLE FIXED ADJUSTABLE FIXED ADJUSTABLE
- ------------------------------------------ --------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
July 1, 1996 through June 30, 1997........ $ 3,837 $ 8,868 $ -- $ -- $ 3,837 $ 8,868
July 1, 1997 through June 30, 2001........ 6,437 38,825 302 245 6,739 39,070
July 1, 2001 through June 30, 2006........ 734 35,281 646 433 1,380 35,714
Thereafter................................ 31 13,968 213 426 244 14,394
--------- ----------- --------- ----------- --------- -----------
Loans outstanding......................... $ 11,039 $ 96,942 $ 1,161 $ 1,104 $ 12,200 $ 98,046
--------- ----------- --------- ----------- --------- -----------
--------- ----------- --------- ----------- --------- -----------
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
IN MILLIONS
<S> <C>
- ------------------------------------------
PERIOD TOTAL
- ------------------------------------------ ---------
<S> <C>
July 1, 1996 through June 30, 1997........ $ 12,705
July 1, 1997 through June 30, 2001........ 45,809
July 1, 2001 through June 30, 2006........ 37,094
Thereafter................................ 14,638
---------
Loans outstanding......................... $ 110,246
---------
---------
- ------------------------------------------
</TABLE>
ESTIMATED VALUE OF LOANS
All of IBRD's loans are made to or guaranteed by countries that are members of
IBRD, except for those loans made to IFC. IBRD does not currently sell its
loans, nor is there a market of loans comparable to those made by IBRD.
MULTICURRENCY LOANS: The estimated value of fixed rate loans negotiated prior
to July 1982 has been based on discounted future cash flows using the rate at
which IBRD could undertake borrowings of comparable maturities at June 30, 1997
plus a 50 basis point spread. The estimated value of adjustable rate
multicurrency loans is based on the relationship of the fair value to the
carrying value of the underlying qualified borrowings, since the interest rate
for such loans is based on the interest rate of the qualified borrowings.
SINGLE CURRENCY LOANS: The estimated value of fixed rate single currency loans
has been based on discounted future cash flows using the rate at which IBRD
could make similar loans of comparable maturities at June 30, 1997. The
estimated value of LIBOR-based single currency loans has been based on the
relationship of the fair value to the carrying value of the underlying
borrowings funding these loans.
The following table reflects the carrying and estimated values of the loan
portfolio based on current borrowing rates net of the Accumulated Provision for
Loan Losses at June 30, 1997 and June 30, 1996:
<TABLE>
<CAPTION>
IN MILLIONS
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
<CAPTION>
1997 1996
-------------------- --------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE VALUE VALUE VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Multicurrency loans
Fixed......................... $ 6,866 $ 7,655 $ 11,039 $ 12,383
Adjustable.................... 91,884 99,775 96,942 103,080
Single currency
loans
Fixed......................... 2,448 2,497 1,161 1,067
Adjustable.................... 4,607 4,844 1,104 1,108
--------- --------- --------- ---------
Total loans
Fixed......................... 9,314 10,152 12,200 13,450
Adjustable.................... 96,491 104,619 98,046 104,188
--------- --------- --------- ---------
105,805 114,771 110,246 117,638
Less accumulated provision for loan losses......... 3,210 3,210 3,340 3,340
--------- --------- --------- ---------
Loans outstanding net of accumulated provision..... $ 102,595 $ 111,561 $ 106,906 $ 114,298
--------- --------- --------- ---------
--------- --------- --------- ---------
- -------------------------------------------------------------------------------------------------
</TABLE>
50
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- ---------------------------------------------------------
COFINANCING AND GUARANTEES
IBRD has taken direct participations in, or provided partial guarantees of,
loans syndicated by other financial institutions for projects or programs also
financed by IBRD through regular loans. IBRD also has provided partial
guarantees of securities issued by an entity eligible for IBRD loans. IBRD's
partial guarantees of bond issues are included in the guarantees amount
mentioned below. IBRD's direct participations in syndicated loans are included
in the reported loan balances.
Guarantees of loan principal of $1,593 million at June 30, 1997 ($1,537
million--June 30, 1996) were not included in reported loan balances. At June 30,
1997, $148 million of these guarantees were subject to call ($122 million--June
30, 1996). IBRD has partially guaranteed the timely payment of interest amounts
on certain loans that have been sold. At June 30, 1997, these guarantees,
approximating $1 million ($1 million--June 30, 1996), were subject to call.
STATUTORY LENDING LIMIT
Under the Articles of Agreement, the total amount outstanding of callable
guarantees, participations in loans, and direct loans made by IBRD may not be
increased to an amount exceeding 100 percent of the sum of Subscribed Capital,
reserves, and surplus. At June 30, 1997 and June 30, 1996, the status of the
statutory lending limit is as follows:
<TABLE>
<CAPTION>
IN MILLIONS
<S> <C> <C>
- ------------------------------------------------------------------------------------
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Statutory lending limit
Subscribed capital........................................ $ 182,426 $ 180,630
Retained earnings......................................... 16,194 16,099
Cumulative translation adjustment......................... 85 1,056
--------- ---------
$ 198,705 $ 197,785
--------- ---------
--------- ---------
Loans and guarantees outstanding
Loans outstanding......................................... $ 105,805 $ 110,246
Principal guarantees callable............................. 148 122
Interest guarantees callable.............................. 1 1
--------- ---------
$ 105,954 $ 110,369
--------- ---------
--------- ---------
Loans and guarantees outstanding as a percentage of statutory
lending limit............................................... 53% 56%
- ------------------------------------------------------------------------------------
</TABLE>
OVERDUE AMOUNTS
At June 30, 1997, no loans payable to IBRD other than those referred to in the
following paragraphs were overdue by more than three months.
At June 30, 1997, the loans made to or guaranteed by certain member countries
and the FRY with an aggregate principal balance outstanding of $2,360 million
($2,520 million--June 30, 1996), of which $1,314 million ($1,227 million--June
30, 1996) was overdue, were in nonaccrual status. At such date, overdue interest
and other charges in respect of these loans totaled $893 million ($808
million--June 30, 1996). If these loans had not been in nonaccrual status,
income from loans for the fiscal year ended June 30, 1997 would have been higher
by $146 million ($188 million--June 30, 1996, $156 million--June 30, 1995).
51
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- ---------------------------------------------------------
A summary of countries with loans or guarantees in nonaccrual status follows:
<TABLE>
<CAPTION>
IN MILLIONS
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
<CAPTION>
1997
----------------------------------------------
PRINCIPAL PRINCIPAL AND NONACCRUAL
BORROWER OUTSTANDING CHARGES OVERDUE SINCE
- ------------------------------------------------------- ----------- --------------- ----------------
<S> <C> <C> <C>
WITH OVERDUES
Congo, Democratic Republic of........................ $ 84 $ 72 November 1993
Iraq................................................. 44 68 December 1990
Liberia.............................................. 141 252 June 1987
Sudan................................................ 6 4 January 1994
Syrian Arab Republic................................. 360 513 February 1987
Yugoslavia, Federal Republic of (Serbia/
Montenegro)........................................ 1,146 1,298 September 1992
----------- ------
Total................................................ 1,781 2,207
WITHOUT OVERDUES
Bosnia and Herzegovina............................... 579 -- September 1992
----------- ------
TOTAL.................................................. $ 2,360 $ 2,207
----------- ------
----------- ------
<CAPTION>
- -------------------------------------------------------------------------------------------------------
</TABLE>
In connection with the cessation of the membership of the SFRY discussed in Note
A, in February 1993 IBRD reached an agreement with the FRY for the apportionment
and service of debt due to IBRD on loans made to or guaranteed by the SFRY and
assumed by the FRY, which confirmed a February 1992 interim agreement between
the SFRY (then consisting of the Republics of Bosnia and Herzegovina, Macedonia,
Montenegro and Serbia) and IBRD pertaining, among other things, to such loans.
As of the date hereof, no debt-service payments have been received by IBRD from
the FRY.
In June 1996 the accumulated arrears on loans to the former SFRY assumed by
Bosnia and Herzegovina were cleared through three new consolidation loans
extended by IBRD. These new loans consolidated all outstanding principal and
overdue interest on the loans assumed by Bosnia and Herzegovina. This resulted
in an increase in loans outstanding of $168 million and the deferral of the
recognition of the related interest income. The first consolidation loan was a
currency pool loan of $29 million carrying IBRD's adjustable lending rate for
such loans at the time, 6.98 percent, plus 41 basis points. The second
consolidation loan was also a currency pool loan in the amount of $285 million
carrying IBRD's adjustable lending rate for such loans at the time, 6.98
percent, plus 4 basis points. The third consolidation loan was a U. S. dollar
LIBOR-based single currency loan of $307 million carrying IBRD's lending rate
for such loans at the time, 5.38 percent. All three consolidation loans have a
final maturity of 30 years, which includes a five-year grace period. The
consolidation loans aggregated the existing assumed loans which had final
maturities ranging from April 1, 1992 to May 15, 2001 and a combined
weighted-average interest rate of 7.95 percent.
The average recorded investment in nonaccruing loans during the fiscal year
ended June 30, 1997 was $2,430 million ($2,466 million--June 30, 1996).
During the fiscal years ended June 30, 1997, June 30, 1996 and June 30, 1995, no
loans came out of nonaccrual status.
ACCUMULATED PROVISION FOR LOAN LOSSES
IBRD has never suffered a loss on any of its loans, with the exception of losses
resulting from the difference between the present value of payments for interest
and charges made according to the related
52
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- ---------------------------------------------------------
loan's contractual terms and the present value of their expected future cash
flows discounted at the loan's contractual rates. Certain borrowers have found
it difficult to make timely payments for protracted periods, resulting in their
loans being placed in nonaccrual status. Several borrowers have emerged from
nonaccrual status after a period of time by bringing up-to-date all principal
payments and all overdue service payments, including interest and other charges.
In an attempt to recognize the risk inherent in these and any other potential
overdue payments, IBRD maintains a provision for loan losses.
An analysis of the changes to the Accumulated Provision for Loan Losses for the
fiscal years ended June 30, 1997 and June 30, 1996 appears below:
<TABLE>
<CAPTION>
IN MILLIONS
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Balance, beginning of the fiscal year......................................... $ 3,340 $ 3,740
Provision for loan losses..................................................... 63 42
Translation adjustment........................................................ (193) (442)
--------- ---------
Balance, end of the fiscal year............................................... $ 3,210 $ 3,340
--------- ---------
--------- ---------
- ----------------------------------------------------------------------------------------------------
</TABLE>
IBRD has endorsed a multilateral initiative for addressing the debt problems of
a group of countries identified as heavily indebted poor countries (HIPCs) to
ensure that the reform efforts of these countries will not be put at risk by
unsustainable external debt burdens. Under this initiative, creditors are to
provide enhanced debt relief for those countries that demonstrated good policy
performance over an extended period to bring their debt burdens to sustainable
levels. On November 7, 1996, the HIPC Debt Initiative Trust Fund was
established, constituted by funds to be contributed by creditors of HIPCs, to
assist eligible beneficiary countries reduce their overall debt burden. The HIPC
Debt Initiative Trust Fund is administered by IDA. IBRD has taken the situation
of these countries into account in its review of the adequacy of the Accumulated
Provision for Loan Losses.
FIFTH DIMENSION PROGRAM
Under IDA's Fifth Dimension program established in September 1988, a portion of
principal repayments to IDA are allocated on an annual basis to provide
supplementary IDA credits to IDA-eligible countries that are no longer able to
borrow on IBRD terms, but have outstanding IBRD loans approved prior to
September 1988 and have in place an IDA-supported structural adjustment program.
Such supplementary IDA credits are allocated to countries that meet specified
conditions, in proportion to each country's interest payments due that year on
its pre-September 1988 IBRD loans. To be eligible for such IDA supplemental
credits, a member country must meet IDA's eligibility criteria for lending, must
be ineligible for IBRD lending and must not have had an IBRD loan approved
within the last twelve months. To receive a supplemental credit from the
program, a member country cannot be more than 60 days overdue on its
debt-service payments to IBRD or IDA. At June 30, 1997, IDA had approved credits
of $1,526 million ($1,379 million--June 30, 1996) under this program from
inception, of which $1,435 million ($1,327 million--June 30, 1996) had been
disbursed to the eligible countries.
53
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- ---------------------------------------------------------
NOTE D--BORROWINGS
Providing liquidity and minimizing the cost of funds are key objectives to
IBRD's overall borrowing strategy. IBRD uses swaps in its borrowing strategy to
lower the overall cost of its borrowings for those members who benefit from IBRD
loans. IBRD undertakes swap transactions with a list of authorized
counterparties. Credit limits have been established for each counterparty.
CURRENCY SWAPS: Currency swaps are agreements comprised of a conversion of the
proceeds of a borrowing into a different currency and a forward exchange
agreement providing for a schedule of future exchanges of the two currencies in
order to recover the currency converted. The combination of a borrowing and a
currency swap produces the financial equivalent of substituting a borrowing in
the currency obtained in the initial conversion for the original borrowing.
INTEREST RATE SWAPS: Interest rate swaps are agreements which transform a fixed
rate payment obligation in a particular currency into a floating rate obligation
in that currency or vice-versa.
FORWARD INTEREST RATE SWAPS: A forward interest rate swap is an agreement under
which the cash flow exchanges of the underlying interest rate swaps would begin
to take effect from a specified date.
SWAPTIONS: A swaption is an option that gives the holder the right to enter
into an interest rate or currency swap at a certain future date.
DEFERRED RATE SETTING (DRS) AGREEMENTS: DRS allows an entity to fix the
effective interest cost of all or a portion of debt issues over a specified
period of time after the issue date of the respective debt issues. IBRD enters
into DRS agreements in conjunction with some of its bond issues. The agreements
provide for payments to be made to or by IBRD reflecting gain or loss on one or
more government securities or related financial instruments. The potential
credit loss to IBRD from nonperformance is limited to any amounts due, but
unsettled, from the financial intermediary. However, periodic mark-to-market
settlements on these agreements limit this risk. At June 30, 1997 and June 30,
1996, the effective interest cost of all principal amounts had been fixed.
54
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- ------------------------------------------------------------------
A summary of IBRD's borrowings portfolio at June 30, 1997 and June 30, 1996
follows:
MEDIUM- AND LONG-TERM BORROWINGS AND SWAPS AT JUNE 30, 1997
<TABLE>
<CAPTION>
IN MILLIONS OF U.S. DOLLARS EQUIVALENT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
INTEREST
RATE
CURRENCY SWAP
DIRECT BORROWINGS SWAP AGREEMENTS AGREEMENTS
------------------------------------- ------------------------------------- -----------
WGTD. WGTD. NOTIONAL
AVG. AVERAGE AMOUNT AVG. AVERAGE AMOUNT
RATE COST MATURITY PAYABLE COST MATURITY PAYABLE
CURRENCY TYPE AMOUNT (%) (YEARS) (RECEIVABLE) (%) (YEARS) (RECEIVABLE)
- --------------------------- ---------- ----------- ----- ----------- ----------- ----- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deutsche mark Fixed $ 12,468 6.58 5.43 $ 3,071 7.47 2.33 $ 6,800
(393) 5.93 14.05 (2,878)
Adjustable 203 7.54 6.12 8,921 3.05 2.98 2,936
(22) 5.58 0.99 (6,858)
Japanese yen Fixed 24,501 5.15 4.48 529 5.63 2.39 2,148
(1,251) 5.99 6.07 (3,123)
Adjustable 1,223 1.83 2.66 506 0.05 1.20 3,123
(44) 4.45 14.98 (2,148)
Netherlands guilders Fixed 1,873 7.25 3.28 80 6.31 0.19 --
(1,123) 7.62 2.05
Swiss francs Fixed 3,916 6.02 5.63 1,862 5.20 2.94 780
(3,050) 5.79 2.84
Adjustable -- -- -- 780 0.74 2.70 (780)
U. S. dollars Fixed 23,725 7.49 6.63 178 8.98 2.99 6,095
(1,023) 9.19 3.12 (10,518)
Adjustable 1,213 5.14 3.59 12,111 5.49 6.26 10,646
(2,511) 5.57 2.31 (6,223)
Others Fixed 18,112 8.71 4.80 157 8.34 2.09 113
(16,029) 8.59 4.43 (424)
Adjustable 1,798 5.92 4.95 13 10.85 0.32 424
(2,149) 5.61 5.08 (113)
----------- --- --- ----------- -----------
Total Fixed 84,595 6.86 5.32 5,877 15,936
(22,869) (16,943)
Adjustable 4,437 4.65 4.00 22,331 17,129
(4,726) (16,122)
----------- --- --- ----------- -----------
Principal at face value 89,032 6.75 5.25 613 --
Net unamortized discounts (1)
----------- --- --- ----------- -----------
Total $ 89,031 6.75 5.25 $ 613 $ --
----------- --- --- ----------- -----------
----------- --- --- ----------- -----------
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
IN MILLIONS OF U.S. DOLLARS
<S> <C> <C> <C> <C> <C>
- ---------------------------
NET CURRENCY OBLIGATIONS
---------------------------------------
WGTD. WGTD.
AVG. AVERAGE AMOUNT AVG. AVERAGE
COST MATURITY PAYABLE COST MATURITY*
CURRENCY (%) (YEARS) (RECEIVABLE) (%) (YEARS)
- --------------------------- ----- ----------- ----------- ----- -------------
<S> <C> <C> <C> <C> <C>
Deutsche mark 6.93 2.74 $ 22,339 6.81 4.19
5.25 4.48 (3,271) 5.33 5.63
3.24 4.53 12,060 3.17 3.41
3.35 2.78 (6,880) 3.35 2.77
Japanese yen 3.60 1.87 27,178 5.04 4.23
3.02 4.39 (4,374) 3.85 4.86
0.57 4.39 4,852 0.83 3.62
1.34 1.87 (2,192) 1.41 2.13
Netherlands guilders -- -- 1,953 7.21 3.15
(1,123) 7.62 2.05
Swiss francs 7.11 2.77 6,558 5.91 4.52
(3,050) 5.79 2.84
1.73 2.77 780 0.74 2.70
(780) 1.73 2.77
U. S. dollars 6.81 3.67 29,998 7.36 6.01
6.29 5.69 (11,541) 6.55 5.46
5.77 5.64 23,970 5.59 5.85
5.78 3.62 (8,734) 5.72 3.24
Others 5.77 7.17 18,382 8.68 4.79
7.12 5.73 (16,453) 8.55 4.46
3.35 5.73 2,235 5.46 5.07
3.46 7.17 (2,262) 5.50 5.18
----------- --- ---
Total 106,408 6.79 4.82
(39,812) 6.95 4.70
43,897 4.31 4.83
(20,848) 4.31 3.16
----------- --- ---
Principal at face value 89,645 6.07 5.26
Net unamortized discounts (1)
----------- --- ---
Total $ 89,644 6.07 5.26
----------- --- ---
----------- --- ---
- ---------------------------
</TABLE>
* At June 30, 1997 the average repricing period of the net currency
obligations for adjustable rate borrowings is four months.
55
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- ------------------------------------------------------------------
MEDIUM- AND LONG-TERM BORROWINGS AND SWAPS AT JUNE 30, 1996
<TABLE>
<CAPTION>
IN MILLIONS OF U.S. DOLLARS EQUIVALENT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
INTEREST
RATE
CURRENCY SWAP
DIRECT BORROWINGS SWAP AGREEMENTS AGREEMENTS
------------------------------------- ------------------------------------- -----------
WGTD. WGTD. NOTIONAL
AVG. AVERAGE AMOUNT AVG. AVERAGE AMOUNT
RATE COST MATURITY PAYABLE COST MATURITY PAYABLE
CURRENCY TYPE AMOUNT (%) (YEARS) (RECEIVABLE) (%) (YEARS) (RECEIVABLE)
- --------------------------- ---------- ----------- ----- ----------- ----------- ----- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deutsche mark Fixed $ 14,287 6.71 5.58 $ 2,000 7.75 2.51 $ 8,544
(2,134)
Adjustable 229 7.54 7.12 9,919 2.93 3.53 2,199
(8,609)
Japanese yen Fixed 29,466 5.24 4.78 335 5.51 2.21 1,329
(964) 6.12 8.07 (2,528)
Adjustable 1,232 2.04 3.21 71 0.03 1.59 2,528
(92) 0.25 0.48 (1,329)
Netherlands guilders Fixed 2,837 7.23 3.33 91 6.31 1.19 --
(1,447) 7.70 2.77
Swiss francs Fixed 4,996 6.04 6.28 2,523 5.19 3.39 892
(873) 6.47 3.46
Adjustable -- -- -- 892 0.84 3.70
(892)
U.S. dollars Fixed 23,305 7.84 6.91 178 8.98 3.99 4,002
(1,198) 9.02 3.73 (6,211)
Adjustable 1,453 4.90 3.87 3,344 5.06 4.49 6,449
(848) 4.94 4.66 (4,240)
Others Fixed 13,180 9.30 3.72 36
(10,904) 9.25 2.97 (287)
Adjustable 1,419 6.38 4.62 417
(1,610) 5.97 4.51 (166)
----------- --- ----------- ----------- -----------
Total Fixed 88,071 6.90 5.36 5,127 14,803
(15,386) (11,160)
Adjustable 4,333 4.70 4.10 14,226 11,593
(2,550) (15,236)
----------- --- ----------- ----------- -----------
Principal at face value 92,404 1,417 --
Net unamortized discounts (13)
----------- --- ----------- ----------- -----------
Total $ 92,391 6.80 5.29 $ 1,417 $ --
----------- --- ----------- ----------- -----------
----------- --- ----------- ----------- -----------
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
IN MILLIONS OF U.S. DOLLARS
<S> <C> <C> <C> <C> <C>
- ---------------------------
NET CURRENCY OBLIGATIONS
---------------------------------------
WGTD. WGTD.
AVG. AVERAGE AMOUNT AVG. AVERAGE
COST MATURITY PAYABLE COST MATURITY*
CURRENCY (%) (YEARS) (RECEIVABLE) (%) (YEARS)
- --------------------------- ----- ----------- ----------- ----- -------------
<S> <C> <C> <C> <C> <C>
Deutsche mark 7.08 3.41 $ 24,831 6.92 4.59
5.26 5.51 (2,134) 5.26 5.51
3.37 5.57 12,347 3.09 3.96
3.47 3.45 (8,609) 3.47 3.45
Japanese yen 5.49 3.15 31,130 5.26 4.68
2.64 5.72 (3,492) 3.59 6.36
0.67 5.72 3,831 1.09 4.83
2.09 3.15 (1,421) 1.97 2.97
Netherlands guilders -- -- 2,928 7.20 3.26
(1,447) 7.70 2.77
Swiss francs 7.11 3.77 8,411 5.90 5.15
(873) 6.47 3.46
892 0.84 3.70
2.08 3.77 (892) 2.08 3.77
U.S. dollars 7.10 3.72 27,485 7.74 6.43
6.45 7.50 (7,409) 6.87 6.89
5.55 7.27 11,246 5.32 6.00
5.53 3.58 (5,088) 5.43 3.76
Others 6.62 7.20 13,216 9.29 3.73
7.43 4.37 (11,191) 9.21 3.01
5.24 4.57 1,836 6.12 4.61
8.74 5.47 (1,776) 6.22 4.60
----------- --- ---
Total 108,001 6.87 4.98
(26,546) 7.33 4.74
30,152 3.79 4.87
(17,786) 4.12 3.59
----------- --- ---
Principal at face value 93,821
Net unamortized discounts (13)
----------- --- ---
Total $ 93,808 6.26 5.29
----------- --- ---
----------- --- ---
- ---------------------------
</TABLE>
56
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- ------------------------------------------------------------------
SHORT-TERM BORROWINGS AND SWAPS AT JUNE 30, 1997 AND JUNE 30, 1996
<TABLE>
<CAPTION>
IN MILLIONS OF U. S. DOLLARS EQUIVALENT
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1997 1996
------------------------------------------------------------------- -------------
INTEREST
CURRENCY RATE WGTD.
SWAP SWAP NET AVG.
RATE PRINCIPAL PAYABLE PAYABLE CURRENCY COST PRINCIPAL
CURRENCY TYPE OUTSTANDING (RECEIVABLE) (RECEIVABLE) OBLIGATIONS* (%) OUTSTANDING
- -------------------------- ---------- ------------- ----------- ------------- ----------- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHORT-TERM NOTES
U.S. dollars Fixed $ 3,015 $ -- $ -- $ 3,015 5.68 $ 1,369
GLOBAL MULTICURRENCY NOTES
Czech koruny Fixed 220 -- -- 220 10.88 54
(220) -- (220) 10.88
Deutsche mark Fixed -- -- -- -- -- --
Adjustable -- 394 -- 394 2.80 --
Italian lire Fixed 148 -- -- 148 6.80 20
(148) -- (148) 6.80
Japanese yen Fixed 95 88 -- 183 3.16 --
(95) -- (95) 5.93 --
New Zealand dollars Fixed 137 -- -- 137 7.96 --
(137) -- (137) 7.96
Slovak koruny Fixed 67 -- -- 67 12.65 --
(67) -- (67) 12.65 --
U. S. dollars Fixed 1,100 120 -- 1,220 4.93 300
(900) (900) 4.65 --
Adjustable -- 877 900 1,777 5.52 --
(112) -- (112) 5.40 --
South African rand Fixed 657 -- -- 657 15.07 --
(657) -- (657) 15.07 --
CENTRAL BANK FACILITY
U.S. dollars Adjustable 2,200 -- -- 2,200 5.14 2,586
------ ----------- ----- ----------- ----- ------
TOTAL Fixed 5,439 208 -- 5,647 6.90 1,743
(1,324) (900) (2,224) 8.99 --
Adjustable 2,200 1,271 900 4,371 5.09 2,586
(112) (112) 5.40
------ ----------- ----- ----------- ----- ------
Principal at face value 7,639 43 -- 7,682 5.28 4,329
Net unamortized premiums (discounts) 9 9 (1)
------ ----------- ----- ----------- ----- ------
Total $ 7,648 $ 43 $ -- $ 7,691 5.28 $ 4,328
------ ----------- ----- ----------- ----- ------
------ ----------- ----- ----------- ----- ------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
IN MILLIONS OF U. S. DOLLA
<S> <C> <C> <C> <C>
- --------------------------
INTEREST
CURRENCY RATE WGTD.
SWAP SWAP NET AVG.
PAYABLE PAYABLE CURRENCY COST
CURRENCY (RECEIVABLE) (RECEIVABLE) OBLIGATIONS (%)
- -------------------------- ------------- ------------- ----------- -----
<S> <C> <C> <C> <C>
SHORT-TERM NOTES
U.S. dollars $ -- $ -- $ 1,369 5.46
GLOBAL MULTICURRENCY NOTES
Czech koruny -- -- 54 10.91
(54) -- (54) 10.91
Deutsche mark 20 -- 20 3.09
54 -- 54 3.05
Italian lire -- -- 20 8.62
(20) -- (20) 8.62
Japanese yen -- -- -- --
-- -- -- --
New Zealand dollars -- -- -- --
Slovak koruny -- -- -- --
-- -- -- --
U. S. dollars -- -- 300 5.52
-- -- -- --
-- -- -- --
-- -- -- --
South African rand -- -- -- --
-- -- -- --
CENTRAL BANK FACILITY
U.S. dollars -- -- 2,586 5.47
----- ----- ----------- -----
TOTAL 20 -- 1,763 5.65
(74) -- (74) 10.29
54 -- 2,640 5.42
----- ----- ----------- -----
Principal at face value -- -- 4,329 5.43
Net unamortized premiums ( (1)
----- ----- ----------- -----
Total $ -- $ -- $ 4,328 5.43
----- ----- ----------- -----
----- ----- ----------- -----
- --------------------------
</TABLE>
*** At June 30, 1997 the average repricing period of the net currency
obligations for short-term borrowings is three months.
57
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- ---------------------------------------------------------
The maturity structure of IBRD's Medium-and Long-term borrowings outstanding at
June 30, 1997 and June 30, 1996 is as follows:
<TABLE>
<CAPTION>
IN MILLIONS
<S> <C>
- ----------------------------------------------------------------------------------------------------
<CAPTION>
PERIOD 1997
- ----------------------------------------------------------------------------------------- ---------
<S> <C>
July 1, 1997 through June 30, 1998....................................................... $ 13,185
July 1, 1998 through June 30, 1999....................................................... 9,492
July 1, 1999 through June 30, 2000....................................................... 17,430
July 1, 2000 through June 30, 2001....................................................... 8,173
July 1, 2001 through June 30, 2002....................................................... 9,498
July 1, 2002 through June 30, 2007....................................................... 21,806
Thereafter............................................................................... 9,448
---------
Total.................................................................................... $ 89,032
---------
---------
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
IN MILLIONS
<S> <C>
- ----------------------------------------------------------------------------------------------------
<CAPTION>
PERIOD 1996
- ----------------------------------------------------------------------------------------- ---------
<S> <C>
July 1, 1996 through June 30, 1997....................................................... $ 12,467
July 1, 1997 through June 30, 1998....................................................... 13,949
July 1, 1998 through June 30, 1999....................................................... 9,526
July 1, 1999 through June 30, 2000....................................................... 14,262
July 1, 2000 through June 30, 2001....................................................... 7,529
July 1, 2001 through June 30, 2006....................................................... 25,886
Thereafter............................................................................... 8,785
---------
Total.................................................................................... $ 92,404
---------
---------
- ----------------------------------------------------------------------------------------------------
</TABLE>
The following table reflects the carrying and estimated fair values of the
borrowings portfolio at June 30, 1997 and June 30, 1996:
<TABLE>
<CAPTION>
IN MILLIONS
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
1997 1996
------------------------ ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Short-term........................................... $ 7,648 $ 7,699 $ 4,328 $ 4,371
Medium- and long-term................................ 89,031 96,310 92,391 99,250
Swaps
Currency
Payable.......................................... 29,687 30,098 19,427 19,841
Receivable....................................... (29,031) (30,375) (18,010) (19,203)
Interest rate...................................... -- 654 -- 1,064
Swaptions.......................................... -- 1 -- 1
----------- ----------- ----------- -----------
Total................................................ $ 97,335 $ 104,387 $ 98,136 $ 105,324
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The estimated fair values are based on quoted market prices where such prices
are available. Where no quoted market price is available, the fair value is
estimated based on the cost at which IBRD could currently undertake borrowings
with similar terms and remaining maturities, using the secondary market yield
curve. The fair value of swaps represents the estimated cost of replacing these
contracts on that date.
58
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- ---------------------------------------------------------
NOTE E--CREDIT RISK
COUNTRY CREDIT RISK: This risk includes potential losses arising from
protracted arrears on payments from borrowers. IBRD manages country credit risk
through individual country exposure limits according to creditworthiness. These
exposure limits are tied to performance on macroeconomic and structural
policies. In addition, IBRD establishes absolute limits on the share of
outstanding loans to any individual borrower. The country credit risk is further
managed by financial incentives such as pricing loans using IBRD's own cost of
borrowing and partial interest charge waivers conditioned on timely payment that
give borrowers self-interest in IBRD's continued strong intermediation capacity.
Collectibility risk is covered by the Accumulated Provision for Loan Losses.
IBRD also uses a simulation model to assess the adequacy of its reserves in the
case a major borrower, or group of borrowers, stops servicing its loans for an
extended period of time.
COMMERCIAL CREDIT RISK: For the purpose of risk management, IBRD is party to a
variety of financial instruments, certain of which involve elements of credit
risk in excess of the amount recorded on the balance sheet. Credit risk exposure
represents the maximum potential accounting loss due to possible nonperformance
by obligors and counterparties under the terms of the contracts. Additionally,
the nature of the instruments involve contract value and notional principal
amounts that are not reflected in the basic financial statements. For both on-
and off-balance sheet securities, IBRD limits trading to a list of authorized
dealers and counterparties. Credit risk is controlled through application of
eligibility criteria and volume limits for transactions with individual
counterparties and through the expanding use of mark-to-market collateral
arrangements for swap transactions. IBRD may also accept collateral in the form
of cash or other approved liquid securities from individual counterparties in
order to mitigate its credit exposure.
The contract value/notional amounts and credit risk exposure, as applicable, of
these financial instruments at June 30, 1997 and June 30, 1996 are given below:
<TABLE>
<CAPTION>
IN MILLIONS
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
INVESTMENTS--TRADING PORTFOLIO
Futures and forwards
-Long position............................................................... $ 6,620 $ 1,499
-Short position.............................................................. 6,675 5,875
-Credit exposure due to potential nonperformance by counterparties........... 1 2
Options
-Long position............................................................... 134 679
-Short position.............................................................. -- 429
Covered forwards
-Credit exposure due to potential nonperformance by counterparties........... 36 2
BORROWINGS PORTFOLIO
Currency swaps
-Credit exposure due to potential nonperformance by counterparties........... 1,255 728
Interest rate swaps
-Notional principal.......................................................... 33,965 26,396
-Credit exposure due to potential nonperformance by counterparties........... 393 96
Swaptions
-Notional principal.......................................................... 74 30
-Credit exposure due to potential nonperformance by counterparties -- --
- -----------------------------------------------------------------------------------------------------
</TABLE>
59
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- ---------------------------------------------------------
NOTE F--RETAINED EARNINGS, ALLOCATIONS AND TRANSFERS
RETAINED EARNINGS: Retained Earnings comprises the following elements at June
30, 1997 and June 30, 1996:
<TABLE>
<CAPTION>
IN MILLIONS
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Special reserve................................................................ $ 293 $ 293
General reserve................................................................ 14,159 13,909
Surplus........................................................................ 457 710
Unallocated net income......................................................... 1,285 1,187
--------- ---------
Total.......................................................................... $ 16,194 $ 16,099
--------- ---------
--------- ---------
- -----------------------------------------------------------------------------------------------------
</TABLE>
On August 1, 1996, the Executive Directors allocated $250 million of the net
income earned in the fiscal year ended June 30, 1996 to the General Reserve. On
October 3, 1996, the Board of Governors approved the following transfers, out of
unallocated Net Income: an amount equivalent to $300 million in SDRs (valued at
June 30, 1996) to IDA, by way of grant, and $637 million to Surplus. On the same
day, the Board of Governors approved the following transfers, by way of grant,
out of Surplus: an amount equivalent to $300 million in SDRs (valued at June 30,
1996) to IDA and amounts up to $500 million to the Heavily Indebted Poor
Countries (HIPC) Debt Initiative Trust Fund or other arrangements in support of
the HIPC Debt Initiative when other creditors of the eligible beneficiary
countries are determined by IBRD to have agreed to meet their share of the costs
envisaged within the framework of the initiative. On February 3, 1997, the Board
of Governors approved a transfer from Surplus, by way of grant, of $90 million
to the Trust Fund for Gaza and West Bank.
TRANSFERS TO INTERNATIONAL DEVELOPMENT ASSOCIATION: The Board of Governors had
approved aggregate transfers through June 30, 1996 to IDA totaling $4,831
million from unallocated Net Income. On October 3, 1996, the Board of Governors
approved a transfer to IDA, by way of grant, of $300 million in an equivalent
amount in SDRs out of unallocated Net Income. On the same day, the Board of
Governors approved a transfer, by way of grant, out of Surplus of $300 million
in an equivalent amount in SDRs. At June 30, 1997, there was no payable to IDA.
TRANSFERS TO DEBT REDUCTION FACILITY FOR IDA-ONLY COUNTRIES: The Board of
Governors had approved aggregate transfers through June 30, 1996 to the Debt
Reduction Facility for IDA-Only Countries (DRF) totaling $300 million. At June
30, 1997, $118 million ($119 million June 30, 1996) remained payable.
TRANSFER TO TRUST FUND FOR GAZA AND WEST BANK: The Board of Governors had
approved aggregate transfers through June 30, 1996 to the Trust Fund for Gaza
and West Bank (TFG), totaling $140 million. On February 3, 1997, the Board of
Governors approved a transfer from Surplus, by way of grant, of $90 million. At
June 30, 1997, $83 million ($70 million June 30, 1996) remained payable.
TRANSFER TO TRUST FUND FOR BOSNIA AND HERZEGOVINA: In February 1996 the Board
of Governors approved a transfer from Surplus, by way of grant, of $150 million
to a trust fund administered by IDA to finance an emergency reconstruction
program in Bosnia and Herzegovina. At June 30, 1997, there was no payable to the
Trust Fund. At June 30, 1996, $16 million remained payable.
60
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- ---------------------------------------------------------
TRANSFERS TO THE HEAVILY INDEBTED POOR COUNTRIES DEBT INITIATIVE TRUST FUND: On
October 3, 1996, the Board of Governors approved a transfer from Surplus, by way
of grant, of amounts up to $500 million to the HIPC Debt Initiative Trust Fund
contingent upon IBRD's determination that the other creditors of the eligible
beneficiary countries have agreed to meet their share of the costs envisaged
under the HIPC Debt Initiative. On May 5, 1997, upon management's determination
that creditors holding a substantial portion of the debts of countries eligible
under the HIPC Debt Initiative have agreed to meet their share of the costs
envisaged under the Initiative, IBRD's Executive Directors approved the transfer
of the $500 million that had been set aside in Surplus for the HIPC Debt
Initiative Trust Fund. At June 30, 1997, there was no payable to the HIPC Debt
Initiative Trust Fund.
NOTE G--ADMINISTRATIVE EXPENSES AND CONTRIBUTIONS TO SPECIAL PROGRAMS
In fiscal year 1995 the Executive Directors authorized expenditures for costs
associated with planned staff reductions. The total cost of this program was
$112 million, of which $45 million was charged to IDA. At June 30, 1997, $64
million ($26 million June 30, 1996) has been charged against the accrual of $112
million. This accrual included costs associated with job search assistance,
training, outplacement consulting, pension plan contributions, medical insurance
contributions and related tax allowances.
On March 31, 1997, the Executive Directors approved a multiyear program of
institutional renewal to improve IBRD's and IDA's business processes, products
and services, strengthen their human resources through more skilled and better
trained staff, and achieve a higher level of development effectiveness.
Implementation of this program is expected to result in costs associated with
staff reductions during the fiscal years 1997 through 1999. At June 30, 1997, 57
staff had been identified for separation at a cost of $10 million. Included in
the total charge of $10 million are costs associated with outplacement
consulting, job search assistance, training, medical insurance plan
contributions and related tax allowances. Of the total charge of $10 million, $4
million has been charged to IDA for fiscal year 1997 consistent with normal cost
apportionment procedures applied in the calculation of the management fee.
Administrative Expenses for the fiscal year ended June 30, 1997 are net of the
management fee of $416 million ($508 million--June 30, 1996, $571 million--June
30, 1995) charged to IDA and $108 million ($102 million--June 30, 1996, $111
million--June 30, 1995) charged to reimbursable programs. Included in the
amounts charged to reimbursable programs are allocated charges of $21 million
($22 million--June 30, 1996, $21 million--June 30, 1995) charged to IFC and $1
million ($1 million--June 30, 1996 and June 30, 1995) charged to MIGA.
Contributions to special programs represent grants for agricultural research,
the control of onchocerciasis, and other developmental activities.
NOTE H--TRUST FUNDS
IBRD, alone or jointly with IDA, administers on behalf of donors, including
members, their agencies and other entities, funds restricted for specific uses
which include the cofinancing of IBRD lending projects, debt reduction
operations, technical assistance for borrowers including feasibility studies and
project preparation, global and regional programs and research and training
programs. These funds are placed in
61
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- ---------------------------------------------------------
trust and are not included in the assets of IBRD. The distribution of trust fund
assets by executing agent at June 30, 1997 and June 30, 1996 is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997 1996
------------------------ ------------------------
<CAPTION>
TOTAL TOTAL
FIDUCIARY FIDUCIARY
ASSETS NUMBER OF ASSETS NUMBER OF
(IN TRUST FUND (IN TRUST FUND
MILLIONS) ACCOUNTS MILLIONS) ACCOUNTS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
IBRD executed........................... $ 552 1,622 $ 548 1,314
Recipient executed...................... 1,513 1,236 1,308 935
----------- ----- ----------- -----
Total................................... $ 2,065 2,858 $ 1,856 2,249
----------- ----- ----------- -----
----------- ----- ----------- -----
- --------------------------------------------------------------------------------------------
</TABLE>
The responsibilities of IBRD under these arrangements vary and range from
services normally provided under its own lending projects to full project
implementation including procurement of goods and services. During the fiscal
year ended June 30, 1997, IBRD received $15 million ($15 million--June 30, 1996,
$19 million--June 30, 1995) as fees for administering trust funds. These fees
have been recorded as a reduction of administrative expenses.
NOTE I--STAFF RETIREMENT PLAN
IBRD has a defined benefit retirement plan (the Plan) covering substantially all
of its staff. The Plan also covers substantially all the staff of IFC and MIGA.
Under the Plan, benefits are based on the years of contributory service and the
highest three-year average of pensionable remuneration as defined in the Plan,
with the staff contributing a fixed percentage of pensionable remuneration, and
IBRD contributing the remainder of the actuarially-determined cost of future
Plan benefits. The actuarial present values of Plan obligations throughout the
fiscal year are determined at the beginning of the fiscal year by the Plan's
actuary. All contributions to the Plan and all other assets and income held for
the purposes of the Plan are held by IBRD separately from the other assets and
income of IBRD, IDA, IFC and MIGA and can be used only for the benefit of the
participants in the Plan and their beneficiaries, until all liabilities to them
have been paid or provided for. Plan assets consist primarily of equity and
fixed income securities, with smaller holdings of cash, real estate and other
investments.
Net periodic pension cost for IBRD participants for the fiscal years ended June
30, 1997, June 30, 1996 and June 30, 1995 consisted of the following components:
<TABLE>
<CAPTION>
IN MILLIONS
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost--benefits earned during the fiscal year....................... $ 189 $ 216 $ 186
Interest cost on projected benefit obligation.............................. 342 360 348
Actual return on plan assets............................................... (1,472) (917) (428)
Net amortization and deferral.............................................. 842 437 (3)
--------- --------- ---------
Net periodic pension (income) cost......................................... $ (99) $ 96 $ 103
--------- --------- ---------
--------- --------- ---------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
IBRD has re-evaluated the economic assumptions underlying its pension expense
methodology. Based on changes arising from this re-evaluation and changes in the
Plan assets at their fair value, IBRD recorded $63 million in pension income for
the fiscal year ending June 30, 1997 versus pension expense of $60
62
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- ---------------------------------------------------------
million for the fiscal year ended June 30, 1996. For the fiscal year ended June
30, 1997, the employers' cash contribution for all participants in the Plan was
$94 million, of which $49 million is attributable to IBRD and is included in
Miscellaneous Assets on the balance sheet. For the fiscal year ended June 30,
1997, the management fee charged to IDA was reduced by $36 million representing
the portion of the pension income allocated to IDA. For the fiscal year ended
June 30, 1996, a pension expense of $36 million ($38 million--June 30, 1995) was
included in the management fee charged to IDA.
The following table sets forth the Plan's funded status at June 30, 1997 and
June 30, 1996:
<TABLE>
<CAPTION>
IN MILLIONS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations
Accumulated benefit obligation
Vested...................................................................... $ (3,760) $ (3,543)
Nonvested................................................................... (49) (36)
--------- ---------
Subtotal.................................................................. (3,809) (3,579)
Effect of projected compensation levels....................................... (1,783) (1,718)
--------- ---------
Projected benefit obligation................................................ (5,592) (5,297)
Plan assets at fair value....................................................... 8,698 7,033
--------- ---------
Plan assets in excess of projected benefit obligation........................... 3,106 1,736
Remaining unrecognized net transition asset..................................... (78) (91)
Unrecognized prior service cost................................................. 66 74
Unrecognized net gain from past experience different from that assumed and from
changes in assumptions........................................................ (2,881) (1,719)
--------- ---------
Prepaid pension cost............................................................ $ 213 $ --
--------- ---------
--------- ---------
- ------------------------------------------------------------------------------------------------------
</TABLE>
Of the $213 million prepaid at June 30, 1997 ($nil at June 30, 1996), $184
million is attributable to IBRD ($nil at June 30, 1996) and is included in
Miscellaneous Assets on the balance sheet. The remainder has been attributed to
IFC and MIGA.
The weighted-average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.5 percent (7.5 percent--June 30,
1996). The effect of projected compensation levels was calculated based on a
scale that provides for a decreasing rate of salary increase depending on age,
beginning with 11.0 percent (13.3 percent--June 30, 1996) at age 20 and
decreasing to 5.5 percent (6.8 percent--June 30, 1996) at age 64. The expected
long-term rate of return on assets was 9 percent (9 percent--June 30, 1996).
NOTE J--RETIRED STAFF BENEFITS PLAN
IBRD has a Retired Staff Benefits Plan (RSBP) that provides certain health care
and life insurance benefits to retirees. All staff who are enrolled in the
insurance programs while in active service and who meet certain requirements are
eligible for benefits when they reach early or normal retirement age while
working for IBRD. The RSBP also covers the staff of IFC and MIGA.
Retirees contribute a level amount toward life insurance based on the amount of
coverage. Retiree contributions toward health care are based on length of
service and age at retirement. IBRD annually
63
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- ---------------------------------------------------------
contributes the remainder of the actuarially-determined cost for future
benefits. The actuarial present values of RSBP obligations throughout the fiscal
year are determined at the beginning of the fiscal year by the RSBP's actuary.
All contributions to the RSBP and all other assets and income held for purposes
of the RSBP are held by IBRD separately from the other assets and income of
IBRD, IDA, IFC, and MIGA and can be used only for the benefit of the
participants in the RSBP and their beneficiaries until all liabilities to them
have been paid or provided for. RSBP assets consist primarily of fixed income
and equity securities.
Net periodic postretirement benefits cost for IBRD participants for the fiscal
years ended June 30, 1997, June 30, 1996 and June 30, 1995 consisted of the
following components:
<TABLE>
<CAPTION>
IN MILLIONS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Service cost--benefits earned during the fiscal year................... $ 38 $ 32 $ 28
Interest cost on accumulated postretirement benefit obligation......... 47 45 48
Actual return on plan assets........................................... (200) (130) (40)
--- --- ---
Net amortization and deferral.......................................... 139 87 1
--- --- ---
Net periodic postretirement benefits cost.............................. $ 24 $ 34 $ 37
--- --- ---
--- --- ---
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The portion of this cost that relates to IBRD and is included in Administrative
Expenses for the fiscal year ended June 30, 1997 is $15 million ($22
million--June 30, 1996, $23 million--June 30, 1995). The balance has been
included in the management fee charged to IDA.
The following table sets forth the RSBP's funded status at June 30, 1997 and
June 30, 1996:
<TABLE>
<CAPTION>
IN MILLIONS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees...................................................................... $ (320) $ (293)
Fully eligible active plan participants....................................... (142) (128)
Other active plan participants................................................ (277) (285)
--------- ---------
(739) (706)
Plan assets at fair value....................................................... 1,177 937
--------- ---------
Plan assets in excess of accumulated postretirement benefit obligation.......... 438 231
Unrecognized prior service costs................................................ (10) (12)
Unrecognized net loss from past experience different from that assumed and from
changes in assumptions........................................................ (99) (107)
--------- ---------
Prepaid postretirement benefit cost............................................. $ 329 $ 326
--------- ---------
--------- ---------
- ------------------------------------------------------------------------------------------------------
</TABLE>
Of the $329 million prepaid at June 30, 1997 ($326 million--June 30, 1996), $296
million is attributable to IBRD ($295 million--June 30, 1996) and is included in
Miscellaneous Assets on the balance sheet. The remainder has been attributed to
IFC and MIGA.
For June 30, 1997, the accumulated plan benefit obligation (APBO) was determined
using health care cost trend rates of 13.7 percent to 10.8 percent, decreasing
gradually to 5.5 percent in 2009 and thereafter. The health care cost trend
rates used for June 30, 1996 were 14.4 percent to 11.2 percent decreasing
gradually to 5.5 percent in 2010 and thereafter.
64
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- ---------------------------------------------------------
The health care cost trend rates assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rates by one percentage point would increase the APBO at June 30, 1997 by $139
million and the net periodic postretirement benefit cost for the fiscal year
then ended by $21 million.
The weighted average discount rate used in determining the APBO was 7.5 percent
(8 percent--June 30, 1996). The expected long-term rate of return on plan assets
was 7.5 percent (8 percent--June 30, 1996).
65
<PAGE>
INFORMATION STATEMENT
INTERNATIONAL BANK FOR RECONSTRUCTION
AND DEVELOPMENT
[World Bank Logo]
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS INFORMATION STATEMENT, ANY SUPPLEMENTAL
INFORMATION STATEMENT OR ANY PROSPECTUS; AND ANY INFORMATION OR REPRESENTATION
NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
BANK OR BY ANY DEALER, UNDERWRITER OR AGENT OF THE BANK. NEITHER THIS
INFORMATION STATEMENT NOR ANY SUPPLEMENTAL INFORMATION STATEMENT OR PROSPECTUS
CONSTITUTES AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY SECURITIES IN
ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION IN SUCH JURISDICTION.
------------------------
EXCEPT AS OTHERWISE INDICATED, IN THIS INFORMATION STATEMENT (1) ALL AMOUNTS
ARE STATED IN CURRENT UNITED STATES DOLLARS TRANSLATED AS INDICATED IN THE NOTES
TO FINANCIAL STATEMENTS -- TRANSLATION OF CURRENCIES AND (2) ALL INFORMATION IS
GIVEN AS OF JUNE 30, 1997.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Availability of Information................................................................. 1
Summary Information......................................................................... 2
Selected Financial Data..................................................................... 3
The Bank.................................................................................... 4
Equity...................................................................................... 4
Income...................................................................................... 6
Borrowings.................................................................................. 7
Loans and Guarantees........................................................................ 9
Liquid Investments.......................................................................... 16
Risk Management............................................................................. 16
Affiliated Organizations-IFC, IDA, MIGA..................................................... 18
Administration of the Bank.................................................................. 19
The Articles of Agreement................................................................... 21
Legal Status, Privileges and Immunities..................................................... 22
Fiscal Year, External Auditors, Announcements and Allocation of Net Income.................. 22
Index to Financial Statements............................................................... 23
</TABLE>
<PAGE>
FILE NO. 1-3431
REGULATION BW
RULE 3
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, D.C. 20549
SUPPLEMENTAL REPORT OF
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
With respect to its
Short-Term Notes
Filed pursuant to Rule 3 of Regulation BW
Dated: September 23, 1997
<PAGE>
The following information regarding the Short-Term Notes (the "Notes") of
International Bank for Reconstruction and Development (the "Bank") is being
filed pursuant to Rule 3 of Regulation BW. As authorized by Rule 4 of
Regulation BW, certain information is to be provided in the form of a
Supplemental Information Statement, attached as Exhibit A (the "Supplemental
Information Statement").
Item 1. Description of Obligations
- See Supplemental Information Statement.
- Short-Term Notes, to be offered on a continuous basis at a
discount and with maturities of 360 days or less.
- Federal Reserve Bank of New York, 33 Liberty Street, New
York, is the Fiscal Agent.
Item 2. Distribution of Obligations
- See Supplemental Information Statement, cover page.
- The Notes will be offered on a continuous basis with
pricing, distribution and commission arrangements as set out
in the Selling Group Agreements dated September 27, 1981, as
amended, between the Bank and each of the dealers listed on
the cover page of the Supplemental Information Statement
(the "Selling Group Agreements").
Item 3. Distribution Spread
- See Supplemental Information Statement, cover page.
- See Selling Group Agreements, page 5.
Item 4. Discounts and Commissions to Sub-Underwriters and Dealers
- See Item 2.
Item 5. Other Expenses of Distribution
- As the Notes will be offered on a continuous basis, precise
expense amounts are not known. Approximate annual printing
costs are $1,250. The fiscal agency fees charged to the Bank
for services rendered by the Fiscal Agent with respect to
all of the Bank's domestic borrowings is currently about
$330,000 on an annualized basis. While the precise amount
of such fiscal agency fees attributable to the Short-Term
Notes is not determinable, the Bank estimates that between 5
and 10 percent of such fees should be so allocated.
<PAGE>
Item 6. Application of Proceeds
- See Supplemental Information Statement, page 3.
Item 7. Exhibit
- Exhibit A: Supplemental Information Statement dated
September 15, 1997.
- See also the Bank's Information Statement dated September
15, 1997, filed as Exhibit A to the Bank's Report dated
September 23, 1997 with respect to one or more proposed
issues of debt securities of the Bank.
<PAGE>
SUPPLEMENTAL INFORMATION STATEMENT
INTERNATIONAL BANK FOR RECONSTRUCTION
AND DEVELOPMENT
[ BANK LOGO]]
DISCOUNT NOTES
The World Bank, officially known as the International Bank for
Reconstruction and Development (the Bank), intends to offer on a continuous
basis notes (Discount Notes) represented by certificates, in bearer form only,
or in uncertificated form (Bookentry Discount Notes) with maturities of 360 days
or less at a discount and, in the case of Discount Notes in certificated form
only, on an interest-bearing basis. The Discount Notes are offered through a
group of dealers consisting of Credit Suisse First Boston; Goldman, Sachs & Co.;
Lehman Brothers Inc.; and Merrill Lynch Government Securities Inc. (the
Dealers). The Discount Notes may be offered in the United States and Eurodollar
markets. The Dealers will not accept any customer's order for Discount Notes to
be issued by the Bank for less than $50,000 aggregate face amount per maturity
date. Bookentry Discount Notes are available in denominations of $5,000 and
integral multiples thereof. Discount Notes in certificated form are available in
denominations of $5,000, $25,000, $100,000 and $1,000,000. The maturities of
Discount Notes offered by the Bank and the discount rate for various maturities
will be established from time to time by the Bank. Information as to the
maturities available and such discount rates (as well as the corresponding
interest rates for Discount Notes to be sold on an interest-bearing basis) may
be obtained from the Dealers.
Each of the Dealers has undertaken to the Bank to use its best efforts to
maintain a secondary market for the Discount Notes.
The Federal Reserve Bank of New York acts as Fiscal Agent of the Bank with
respect to Discount Notes pursuant to a Fiscal Agency Agreement. On original
issuance, all Discount Notes will be issued through the office of the Fiscal
Agent in New York. Bookentry Discount Notes will be held by Holding Institutions
designated by the Dealers including Morgan Guaranty Trust Company of New York
and The Chase Manhattan Bank as depositaries for Morgan Guaranty Trust Company
of New York, Brussels branch, as operator of the Euroclear System, and Cedel
Bank S.A., respectively. After original issuance, all Bookentry Discount Notes
will continue to be held by such Holding Institutions unless a purchaser
arranges for the transfer of its Bookentry Bonds to another Holding Institution.
There will be no conversions from Bookentry Discount Notes to Discount Notes in
certificated form or vice versa. Payment of the purchase price for Discount
Notes and payment of Discount Notes at maturity are to be made in immediately
available funds to accounts of Holding Institutions.
The Discount Notes will not be obligations of any government.
The validity and the terms and conditions of the Discount Notes will be
governed by the law of the State of New York.
September 15, 1997
<PAGE>
BOOKENTRY SYSTEM
The Federal Reserve Bank of New York will take delivery of and hold
Bookentry Discount Notes as record owner and custodian, but only for other
Federal Reserve Banks and Holding Institutions located in the Second Federal
Reserve District. Holding Institutions located in other Federal Reserve
Districts can hold Bookentry Discount Notes through their respective Federal
Reserve Bank or Branch. A Holding Institution is a depository institution that
has an appropriate bookentry account with a Federal Reserve Bank or Branch.
Transfers of Bookentry Discount Notes between Holding Institutions can be made
through the Federal Reserve Communications System.
The aggregate holdings of Bookentry Discount Notes of each Holding
Institution will be reflected in the bookentry account of such Holding
Institution with its Federal Reserve Bank or Branch. Each Holding Institution,
and each other intermediate holder in the chain to the ultimate beneficial
owner, will have the responsibility of establishing and maintaining accounts for
its customers having interests in Bookentry Discount Notes. Federal Reserve
Banks will be responsible only for maintaining the bookentry accounts of Holding
Institutions, effecting transfers on their books and ensuring that payments from
the Bank, through the Federal Reserve Bank of New York, are credited to
appropriate Holding Institutions. With respect to Bookentry Discount Notes,
Federal Reserve Banks will act only on the instructions of Holding Institutions
for which they maintain such Bookentry Discount Notes. The Federal Reserve Banks
will not record pledges of Bookentry Discount Notes.
The Bank will not impose fees in respect of Bookentry Discount Notes.
However, owners of Bookentry Discount Notes may incur fees payable in respect of
the maintenance and operation of the bookentry accounts in which such Bookentry
Discount Notes are held.
UNITED STATES MEMBERSHIP IN THE BANK
The United States became a shareholder of the Bank pursuant to an Act of
Congress (Bretton Woods Agreements Act, 22 U.S.C. SectionSection 286 et seq.).
The United States is the Bank's largest shareholder, having 17.52% of its shares
and 17.03% of the total voting power at June 30, 1997. The United States is
represented on the Bank's Board of Governors by the Secretary of the Treasury.
The United States also selects one of the Bank's 24 Executive Directors, who is
appointed by the President of the United States with the advice and consent of
the Senate. The Bank is an instrumentality of its member governments including
the United States Government.
ELIGIBILITY FOR INVESTMENT
The Discount Notes may be accepted as security at their face amount for all
fiduciary, trust, and public funds, the investment or deposit of which are under
the authority and control of the United States or any officers thereof (31
C.F.R. Section 202.6(b)(2)). The Discount Notes are also acceptable as
collateral for Treasury tax and loan accounts at their face amount (31 C.F.R.
Section 203.14(d)(2)).
The Discount Notes are eligible as security for advances for periods not
exceeding 90 days by Federal Reserve Banks to member banks (12 U.S.C. Section
347). National banks and state member banks of the Federal Reserve System may,
under Federal law, deal in the Discount Notes without limitation and may hold
Discount Notes for their own account subject to a limit of 10% of their
unimpaired capital and surplus (12 U.S.C. Section 24 (Seventh)). Surplus and
reserve funds of Federal Home Loan Banks may be invested in the Discount Notes
if obligations of the Bank are eligible investments for fiduciary and trust
funds under the laws of the state where the Federal Home Loan Bank is located
(12 U.S.C. SectionSection 1431(h) and 1436(a)). The Discount Notes are eligible
for purchase by federally chartered savings associations in an amount not
exceeding 30% of association assets (12 U.S.C. Section 1464(c)(2)(D)). Under the
laws of many states, the Discount Notes and other obligations of the Bank are
legal investments for fiduciary and trust funds, savings banks and insurance
companies.
APPROVAL OF THE UNITED STATES GOVERNMENT
As required by its Articles of Agreement, the Bank has obtained the approval
of the United States Government to the raising of funds in or outside the United
States through the issuance of the Discount Notes.
STATUS UNDER SECURITIES ACTS
Under the provisions of Section 15(a) of the Bretton Woods Agreements Act,
as amended, the Discount Notes are exempted securities within the meaning of
Section 3(a)(2) of the Securities Act of 1933, as amended, and Section 3(a)(12)
of the Securities Exchange Act of 1934, as amended.
2
<PAGE>
LEGAL MATTERS
The legality of the Discount Notes has been passed upon by the Vice
President and General Counsel of the Bank and by Brown & Wood, counsel for the
Dealers, who, with respect to certain matters, have relied upon the opinion of
the counsel of the Bank.
USE OF PROCEEDS
The net proceeds to the Bank from the sale of Discount Notes will be used in
the general operations of the Bank.
TAX MATTERS
The following is a summary of the provisions of the Articles affecting the
taxation of Discount Notes and of certain anticipated United States Federal
income, withholding and estate tax consequences resulting from the ownership of
Discount Notes. This is a limited summary based upon certain generally
applicable United States Federal income, withholding and estate tax laws as now
in effect and as currently interpreted and does not include any description of
the tax laws of any state, local or foreign government that may apply. It is not
intended as tax advice to any person, and all persons considering the purchase
of Discount Notes should consult their own tax counsel or other expert.
Discount Notes and the interest and original issue discount ("OID") thereon
generally will be subject to taxation, including United States Federal income
and estate taxation. Under the Internal Revenue Code of 1986, as amended (the
"Code"), a United States citizen or resident alien individual, as well as a
United States domestic corporation, trust or estate, will be taxable on the
interest and OID accrued or received with respect to Discount Notes depending on
such taxpayer's method of accounting and any special rules applicable to such
taxpayer. Accrual-basis taxpayers generally will be required to include OID in
income ratably over the period in which a Discount Note is held, under methods
provided in the Code. For cash-basis taxpayers generally, OID will not be
subject to ratable inclusion, but gain on the sale or redemption of Discount
Notes will be treated as ordinary income to the extent of the OID attributable
to the period during which the selling taxpayer held such Discount Notes.
The United States Treasury Department has issued to the Bank rulings dated
May 4, 1988 and May 5, 1989 (the "Rulings") regarding certain United States tax
consequences under the Code of the receipt of interest on securities issued by
the Bank. The Rulings provide that interest paid by the Bank on such securities,
including accrued OID, constitutes income from sources outside the United
States.
Under the Rulings, the Bank's payments of interest and original issue
discount ordinarily would not be subject to United States Federal income tax, if
paid to a nonresident alien individual (or foreign partnership, estate or trust)
or to a foreign corporation, whether or not such person is engaged in trade or
business in the United States. However, absent any special statutory or treaty
exception, such payments would be subject to United States Federal income tax
if: (a) such payments are derived by such person in the active conduct of a
banking, financing or similar business within the United States or are received
by a corporation the principal business of which is trading in stock or
securities for its own account, and in either case such payments are
attributable to an office or other fixed place of business of such person within
the United States; or (b) such person is a foreign corporation taxable as an
insurance company carrying on a United States insurance business and such
payments are attributable to its United States business.
The Bank's Articles provide that the Bank's securities and interest, if any,
thereon are not subject to any tax by a member (a) which tax discriminates
against the securities solely because they are issued by the Bank or (b) if the
sole jurisdictional basis for the tax is the place or currency in which the
securities are issued, made payable or paid, or the location of any office or
place of business maintained by the Bank. The imposition of United States
Federal income tax in the manner described above is not inconsistent with the
Bank's Articles.
Under its Articles, the Bank is not under any obligation to withhold or pay
any taxes on any interest on the securities it issues. The Rulings accordingly
determined that neither the Bank nor an agent appointed by it for the purpose of
paying interest on securities issued by the Bank is required to withhold tax on
interest paid by the Bank. Payments of interest and accrued OID on Discount
Notes will be made by the Fiscal Agent without deduction in respect of any such
tax.
Furthermore, the Bank is not subject to the reporting requirements that are
imposed by United States tax law with respect to certain payments of interest
and principal and accruals of OID on debt obligations. Neither the Bank
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nor the Fiscal Agent is required to implement backup withholding with respect to
such payments and accruals, as confirmed by temporary regulations issued by the
Internal Revenue Service. However, the Fiscal Agent may file information returns
with the Internal Revenue Service with respect to payments of interest and
principal and accruals of OID within the United States to certain non-corporate
United States persons as if such returns were required of it.
In addition, brokers, trustees, custodians and other intermediaries within
the United States are subject to the reporting and backup withholding
requirements with respect to certain payments of interest and principal and
accruals of OID on Discount Notes held for the account of certain non-corporate
United States persons. Foreign persons holding Discount Notes within the United
States through such intermediaries may be required to establish their status in
order to avoid information reporting and backup withholding of tax by such
intermediaries in respect of payments and accruals on such Discount Notes.
In the case of United States Federal estate tax, the Rulings determined
that, unless an applicable death tax convention with a foreign country provides
otherwise, securities of the Bank are deemed to be situated outside the United
States for purposes of the United States Federal estate tax and are not
includable in the value of the gross estate for purposes of such tax in the case
of the estate of a nonresident of the United States who is not a citizen of the
United States.
AVAILABILITY OF INFORMATION AND INCORPORATION BY REFERENCE
The Bank is subject to certain informational requirements of Regulation BW,
promulgated by the Securities and Exchange Commission (the Commission) under
Section 15(a) of the Bretton Woods Agreements Act, and in accordance therewith
files its regular quarterly financial statements, the annual report of the Bank
to its Board of Governors and other information with the Commission.
In addition the Bank periodically files with the Commission an information
statement which describes the Bank, its capital, operations, administration,
Articles of Agreement, legal status and certain features of its debt securities
(the "Information Statement"). Each Information Statement also includes the
Bank's latest audited financial statements and its latest unaudited quarterly
financial statements, if any. The current Information Statement dated September
15, 1997 contains the Bank's audited financial statements as of June 30, 1997.
The Information Statement dated September 15, 1997 and any Information
Statement and any quarterly or annual financial statements filed by the Bank
pursuant to Regulation BW subsequent to September 15, 1997 and prior to the
termination of the offering of Discount Notes under this Supplemental
Information Statement shall be deemed to be incorporated by reference into this
Supplemental Information Statement and to be a part hereof. Both the Information
Statement dated September 15, 1997 and this Supplemental Information statement
will be filed with the commission electronically through the EDGAR System and
will be available at the Internet address: http:// www.sec.gov/edgarhp.htm. Upon
request, the Bank will provide without charge copies of the Information
Statement and any quarterly or annual financial statements incorporated herein
by reference. Written or telephone requests should be directed to the World
Bank, 1818 H Street, N.W., Washington, D.C. 20433, ATTENTION: Treasury Finance
Department, (202) 458-8800.
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