NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORP /DC/, 10-K, 1995-08-29

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORP /DC/
10-K, 1995-08-29
MISCELLANEOUS BUSINESS CREDIT INSTITUTION

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 Fee Required $250.00
For the fiscal year ended May 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-7102

NATIONAL RURAL UTILITIES COOPERATIVE
FINANCE CORPORATION
(Exact name of registrant as specified in its charter)

DISTRICT OF COLUMBIA
(State or other jurisdiction of incorporation or organization)

52-0891669
(I.R.S. Employer Identification Number)
WOODLAND PARK
2201 COOPERATIVE WAY, HERNDON, VA 22071
(Address of principal executive offices)
(Registrant's telephone number, including area code, is 703-709-6700)

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange
Title of each class on which registered

9% Collateral Trust Bonds, Series O, Due 2016 New York Stock Exchange
91/2% Collateral Trust Bonds, Series T, Due 1997 New York Stock Exchange
81/2% Collateral Trust Bonds, Series U, Due 1998 New York Stock Exchange
9% Collateral Trust Bonds, Series V, Due 2021 New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained to the best of the registrant's knowledge in definitive proxy or
information statements incorporated by reference in Part IV of this Form 10-K
or any amendment to this Form 10-K.

Yes X No .

The Registrant has no common or voting stock.

DOCUMENTS INCORPORATED BY REFERENCE:

None

<PAGE>2
TABLE OF CONTENTS

Part No. Item No. Page

I. 1. Business 1
Members 1
Loans and Guarantees 2
General 2
Loan and Guarantee Policies 6
Long-Term Loans to Utility Members 6
Intermediate-Term Loans to Utility Members 8
Short-Term Loans to Utility Members 8
Loans to Telecommunication Borrowers 8
Loans to Associate Members 9
RUS Guaranteed Loans 10
Guarantees of Pollution Control Facility
and Utility Property Financings 10
Guarantees of Lease Transactions 11
Guarantees of Tax Benefit Transfers 11
Other 11
CFC Financing Factors 11
Tax Status 15
Investment Policy 15
Other Sources of Loans to CFC Members 15
Employees 15
Rural Electric and Telehone Systems 16
General 16
The RUS Program 16
Distribution Systems 17
Power Supply Systems 17
Telephone Systems 18
Regulation and Competition 18
Financial Information 19
Composite Financial Statements 21
2. Properties 25
3. Legal Proceedings 25
4. Submission of Matters to a Vote of
Security Holders 25
II. 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 26
6. Selected Financial Data 26
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 27
8. Financial Statements and Supplementary Data 39
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 39
III.10.Directors and Executive Officers of the Registrant 39
405. Compliance with Section 16(a) of the Exchange Act 43
11. Executive Compensation 43
12. Security Ownership of Certain Beneficial Owners
and Management 45
13. Certain Relationships and Related Transactions 46
IV.14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 46

<PAGE>3
PART I

Item 1. Business.

National Rural Utilities Cooperative Finance Corporation (the "Company" or
"CFC") was incorporated as a private, not-for-profit cooperative association
under the laws of the District of Columbia in April 1969. The principal
purpose of CFC is to provide its members with a source of financing to
supplement the loan programs of the Rural Utilities Service ("RUS") of the
United States Department of Agriculture. CFC makes loans primarily to its
rural utility system members ("Utility Members") to enable them to acquire,
construct and operate electric distribution, generation, transmission and
related facilities. Most CFC long-term loans to Utility Members have been
made in conjunction with concurrent loans from RUS and are secured equally
and ratably with RUS's loans by a single mortgage. CFC also provides
guarantees for tax-exempt financings of pollution control facilities and other
properties constructed or acquired by its members, and, in addition, provides
guarantees of taxable debt in connection with certain lease and other
transactions of its members.

CFC's 1,046 members as of May 31, 1995, included 903 rural electric utility
members, virtually all of which are consumer-owned cooperatives, 72 service
members and 71 associate members. The Utility Members included 838
distribution systems and 65 generation and transmission ("Power Supply")
systems operating in 46 states and U.S. territories. At December 31, 1993,
CFC's member rural electric systems provided service to about 70% of the
contiguous continental land territory of the United States, serving
approximately 12.4 million consumers, representing an estimated 32.5 million
ultimate users of electricity, and owned approximately $62.6 billion (before
depreciation of $17.9 billion) in total utility plant.

Rural Telephone Finance Cooperative ("RTFC") was incorporated as a taxable
cooperative association in the State of South Dakota in September 1987. RTFC
is a controlled affiliate of CFC and was created for the purpose of providing
financing to its rural telecommunication members and affiliates. RTFC's
bylaws and voting members' agreement require that the majority of RTFC's
Board of Directors be elected from individuals designated by CFC. CFC is the
sole source of funding for RTFC. See Note 1 to Combined Financial
Statements for summary financial information relating to RTFC at May 31,
1995. As of that date, RTFC had 388 members.

Guaranty Funding Cooperative ("GFC") was organized in December 1991 as a
taxable cooperative association owned by its member rural electric systems and
CFC to provide a source of funds for members to refinance their RUS guaranteed
debt previously held by the Federal Financing Bank of the United States
Treasury ("FFB"). GFC is a controlled affiliate of CFC (the majority of its
directors are appointed by CFC). All loans from GFC are guaranteed by
RUS. CFC is the sole source of funding for GFC. See Note 1 to Combined
Financial Statements for summary financial information relating to GFC at
May 31, 1995. As of May 31, 1995, GFC had four members.

Except as indicated, financial information presented herein includes CFC, RTFC
and GFC on a combined basis.

National Cooperative Services Corporation ("NCSC") was organized in 1981 as a
taxable cooperative, owned and operated by its member rural electric
distribution systems, to provide specialized financing and services to the
cooperative rural electric industry that CFC could not otherwise provide due to
competitive, regulatory or other reasons. NCSC has an independent Board of
Directors, with CFC providing all management services through a contractual
arrangement. CFC is the source for essentially all of NCSC's financing
capabilities through direct loans or, predominantly, providing credit
enhancements (guarantees) of debt issued by NCSC in the public and private
credit markets. NCSC's financial statements are not combined or consolidated
with CFC's.

Members

CFC currently has five classes of members: Class A_cooperative or nonprofit
distribution systems; Class B_cooperative or nonprofit power supply systems
which are federations of Class A or other Class B members; Class C_statewide
and regional associations which are wholly-owned or controlled by Class A or
Class B members; Class D_national associations of cooperatives; and Associate
Members_nonprofit groups or entities organized on a cooperative basis which
are owned, controlled or operated by Class A, B or C members and which
provide nonelectric services primarily for the benefit of ultimate consumers.
Associate Members are not entitled to vote at any meeting of the members and
are not eligible to be represented on CFC's Board of Directors.

<PAGE>4

Membership in RTFC is limited to CFC and commercial or cooperative corporations
eligible to receive loans or other assistance from RUS and which are engaged
(or plan to be engaged) in providing telephone or telecommunication services
to ultimate users and affiliates of such corporations.

Membership in GFC is limited to CFC and cooperative or nonprofit Utility
Member systems who have refinanced all or a portion of their FFB debt
through CFC.

Set forth below is a table showing by state or U.S. territory, at May 31, 1995,
the total number of CFC, RTFC and GFC members (memberships in each other
have been eliminated and corporations which belong to more than one of CFC,
RTFC and GFC have been counted only once), the percentage of loans and the
percentage of loans and guarantees outstanding.

<TABLE> Number Loan and Number Loan and
<CAPTION> of Loan Guarantee of Loan Guarantee
members % % members % %
<S> <C> <C> <C> <S> <C> <C> <C>
Alabama 32 2.0% 2.2% Nevada 5 0.1% 0.1%
Alaska 28 1.6% 1.2% New Hampshire 5 0.4% 0.3%
American Samoa 1 0.0% 0.0% New Jersey 1 0.1% 0.1%
Arizona 20 1.1% 1.5% New Mexico 18 1.6% 1.1%
Arkansas 27 3.3% 5.1% New York 14 0.2% 0.1%
California 10 0.2% 0.2% North Carolina 45 3.5% 3.8%
Colorado 32 4.1% 4.2% North Dakota 30 0.2% 0.1%
Delaware 1 0.2% 0.2% Ohio 34 1.3% 0.9%
DC 7 1.3% 1.0% Oklahoma 53 3.6% 3.4%
Florida 20 4.6% 6.8% Oregon 36 2.0% 1.5%
Georgia 65 7.4% 5.4% Pennsylvania 21 1.2% 1.1%
Guam 1 0.0% 0.0% South Carolina 36 3.9% 3.4%
Idaho 15 0.6% 0.4% South Dakota 51 0.6% 0.5%
Illinoi 50 6.8% 4.9% Tennessee 22 0.8% 0.6%
Indiana 55 1.6% 2.5% Texas 114 10.5% 9.0%
Iowa 96 2.1% 1.6% Utah 6 2.2% 5.0%
Kansas 49 3.5% 3.0% Vermont 9 1.0% 0.7%
Kentucky 35 2.5% 3.7% Virgin Islands 1 0.7% 0.6%
Louisiana 15 1.8% 1.3% Virginia 19 2.5% 1.8%
Maine 10 0.9% 0.7% Washington 21 1.1% 0.8%
Maryland 2 1.1% 1.2% West Virginia 3 0.0% 0.0%
Massachusetts 1 0.0% 0.0% Wisconsin 50 1.3% 1.1%
Michigan 23 1.1% 0.8% Wyoming 18 1.5% 1.1%
Minnesota 69 3.3% 4.2% Sub-Total 1,434 100.0% 100.0%
Mississippi 23 2.6% 2.7% Add Duplicates 4
Missouri 66 3.6% 6.3% Total Members 1,438
Montana 38 2.1% 1.5%
Nebraska 31 0.3% 0.3%

</TABLE>
Loans and Guarantees

General

CFC provides its Utility Members with a source of financing to supplement the
loan programs of RUS. CFC provides the majority of total non-RUS direct
funding and guarantees obtained by members. CFC's interest rates on loans
to its members are set to reflect the cost of its funds allocated to such
loans, operating and other expenses and a reasonable margin (see "Loan and
Guarantee Policies").

Substantially all long-term and some intermediate-term loans are secured,
while substantially all short-term loans are unsecured. Long-term loans
generally have maturities of up to 35 years. Fixed rate long-term loans
generally provide for a fixed interest rate for terms of one to 30 years (but
not beyond the maturity of the loan).

<PAGE>5

Upon expiration of the term, the borrower may select another fixed rate term
of one to 30 years or a variable rate. Variable rate long-term loans have an
interest rate which varies monthly as determined by CFC. Intermediate- and
short-term loans are made for terms not exceeding 60 months. CFC adjusts
the rate monthly on outstanding short- and intermediate-term loans. On
notification to borrowers, CFC may adjust the rate semimonthly.
Telecommunication loans are secured long-term fixed or variable rate loans
with maturities generally not exceeding 15 years and short-term unsecured
loans. CFC has also provided guarantees for tax-exempt financings of pollution
control facilities and utility properties constructed or acquired by its
members and for members' obligations under certain lease transactions
(see "Loan and Guarantee Policies").

Set forth below is a table showing loans outstanding to borrowers as of May 31,
1995, 1994 and 1993, and the weighted average interest rates thereon and loans
committed but unadvanced to borrowers at May 31, 1995.

<TABLE>
<CAPTION> Loans committed
Loans outstanding and weighted average interest but unadvanced
rates thereon at May 31, at May 31, 1995(A)(B)
(Dollar Amounts In Thousands) 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C>
Long-term fixed rate secured loans(C):
Distribution Systems (D) $1,645,551 7.68% $1,502,454 7.69% $1,604,275 8.14% $10,389
Power Supply Systems (D) 253,208 7.68% 273,186 7.56% 179,384 7.80% 1,214
Service Organizations (D)(E) 81,521 9.27% 94,104 9.53% 90,090 9.85% 2,600
Associate Members 1,569 10.25% 1,606 10.25% 1,628 10.25% 0
Telecommunication Organizations 141,144 8.98% 119,600 9.16% 130,552 9.33% 0
Total long-term fixed rate
secured loans 2,122,993 7.83% 1,990,950 7.85% 2,005,929 8.27% 14,203

Long-term variable rate secured loans (F):
Distribution Systems 2,553,590 6.50% 2,172,799 4.65% 1,975,784 4.63% 730,453
Power Supply Systems 191,967 6.50% 170,683 4.65% 178,095 4.63% 512,598
Service Organizations (E) 53,332 6.50% 39,487 4.65% 43,014 4.63% 67,887
Associate Members 42,561 6.20% 29,089 4.45% 26,098 4.38% 39,959
Telecommunication Organizations 704,427 6.64% 499,506 4.92% 288,234 4.75% 130,627
Total long-term variable rate
secured loans 3,545,877 6.52% 2,911,564 4.69% 2,511,225 4.64% 1,481,524

Refinancing variable rate loans guaranteed by
RUS:
Power Supply Systems 429,129 7.27% 533,545 4.87% 297,724 3.94% 0

Intermediate-term secured loans:
Distribution Systems 4,176 6.85% 4,112 4.90% 320 4.75% 2,300
Power Supply Systems 40,237 6.85% 21,316 4.90% 28,496 4.75% 158,759
Service Organizations 11,429 6.85% 2,099 4.90% 496 4.75% 3,705
Telecommunication Organizations 0 0 0 0 0 0 0
Total intermediate-term secured
loans 55,842 6.85% 27,527 4.90% 29,312 4.75% 164,764

Intermediate-term unsecured loans:
Distribution Systems 11,392 6.50% 13,046 4.90% 10,873 4.75% 17,693
Power Supply Systems 47,443 6.50% 84,515 4.90% 0 0 3,856
Service Organizations 0 0 0 0 11 4.75% 0
Telecommunication Organizations 3,255 7.54% 1,265 5.05% 0 0 2,370
Total intermediate-term unsecured
loans 62,090 6.56% 98,826 4.90% 10,884 4.75% 23,919

Short-term loans (G):
Distribution Systems 445,962 6.85% 276,373 4.90% 151,941 4.75% 2,032,220
Power Supply Systems 10,267 6.85% 14,048 4.90% 14,157 4.75% 1,042,205
Service Organizations 25,653 6.85% 11,812 4.90% 11,873 4.75% 46,787
Associate Members 7,651 6.85% 3,084 4.90% 1,856 4.75% 13,524
Telecommunication Organizations 34,637 7.60% 31,176 5.65% 21,370 5.50% 198,636
Total short-term loans 524,170 6.90% 336,493 4.97% 201,197 4.83% 3,333,372
Nonperforming loans(H):
Distribution Systems 1,830 7.21% 1,933 8.27% 11,164 10.20% 0
Power Supply Systems 25,811 6.57% 27,948 4.75% 29,584 4.75% 0
Associate Members 0 0 12,961 9.00% 12,963 9.00% 0
Telecommunication Organizations 0 0 2,098 6.13% 2,117 9.00% 0
Total nonperforming loans 27,641 6.61% 44,940 6.19% 55,828 6.99% 0

</TABLE>

Loans committed
Loans outstanding and weighted average interest but unadvanced
rates thereon at May 31, t May 31, 1995(A) (B)
(Dollar Amounts In Thousands) 1995 1994 1993

<S> <C> <C> <C> <C> <C> <C> <C>
Restructured loans(I):
Distribution Systems $ 2,654 18.37% $ 2,667 18.37% $ 0 0 $ 0
Power Supply Systems 180,521 9.01% 160,873 8.32% 149,685 7.86% 20,000
Service Organizations 1,803 6.50% 1,833 4.62% 2,000 4.63% 0
Associate Members 0 0 2,666 4.46% 2,666 4.46% 0
Telecommunication Organizations 0 0 0 0 18,592 4.77% 0
Total restructured loans 184,978 9.12% 165,373 8.44% 172,943 7.43% 20,000
Total loans 6,952,720 7.01% 6,109,218 5.87% 5,285,042 6.10% 5,037,782
Less: Allowance for loan and
guarantee losses 205,596 188,196 172,571

Net loans $6,747,124 $5,921,022 $5,112,471 $5,037,782

</TABLE>
(A) The interest rates in effect at August 1, 1995, for loans to electric
members were 7.35% for long-term loans with a seven-year fixed rate term,
6.40% on variable rate long-term loans and 6.60% on intermediate- and
short-term loans. The rates in effect at August 1, 1995, on loans to
associate members were 7.65% for long-term loans with a seven-year fixed
rate term loans, 6.40% on long-term variable rate loans and 6.60% on
short-term loans. The rates in effect at August 1, 1995, on loans to
telecommunication organizations were 7.80% for long-term loans with a
seven-year fixed rate term, 6.55% on long-term variable rate loans, 6.80%
on intermediate-term loans and 7.15% on short-term loans.

(B) Unadvanced commitments include loans approved by CFC for which loan
contracts have not yet been executed or for which loan contracts have been
executed, but funds have not been advanced. Long-term unadvanced loan
commitments that do not have an interest rate associated with the
commitment have been listed under the variable rate. Rates, fixed or
variable, will be set at the time of advance, on the amount of the
advance.

(D) During calendar year 1996, $134.5 million of such outstanding fixed rate
loans, which currently have a weighted average interest rate of 7.96% per
annum, will become subject to rate adjustment. During the first quarter
of calendar year 1995, long-term fixed rate loans totaling $26.2 million
had their interest rates adjusted. These loans will be eligible to
readjust their interest rate again during the first quarter of calendar
year 1996 to the lowest long-term fixed rate offered during 1995 for the
term selected. At January 1 and May 31, 1995, the seven-year long-term
fixed rate was 8.80% and 7.20%, respectively.

(E) CFC had loans outstanding to NCSC in each of the periods shown. Long-term
fixed rate loans outstanding to NCSC as of May 31, 1995, 1994 and 1993,
were $48.5 million, $47.8 million and $49.0 million, respectively. In
addition, as of May 31, 1995 and 1994, CFC had unadvanced long-term fixed
rate and long-term variable rate loan commitments to NCSC in the amounts
of $12.3 million and $14.7 million, respectively.

(F) Included in long-term variable rate secured loans are $41.4 million, $3.5
million and $2.5 million of unsecured loans at May 31, 1995, 1994 and 1993.

(G) All short-term loans are unsecured, except for $30.9 million, $18.2 million
and $31.6 million of loans outstanding at May 31, 1995, 1994 and 1993 that
are secured.

(H) The rates on nonperforming loans are the weighted average of the stated
rates on such loans as of the dates shown and do not necessarily relate
to the interest recognized by CFC from such loans.

(I) The rates on restructured loans are the weighted average of the effective
rates (based on the present value of scheduled future cashflows) as of the
dates shown and do not necessarily relate to the interest recognized by CFC
on such loans.

<PAGE>7

Set forth below are the weighted average interest rates earned by CFC
(recognized in the case of nonperforming and restructured loans) on all
loans outstanding during the fiscal years ended May 31.
<TABLE>
<CAPTION>
INTEREST RATES EARNED ON LOANS
1995 1994 1993
<S> <C> <C> <C>
Long-term fixed rate 8.63% 8.63% 9.15%
Long-term variable rate 5.90% 4.08% 4.99%
Telecommunication organizations 6.70% 5.58% 6.32%
Refinancing loans guaranteed by RUS 6.07% 4.01% 4.09%
Intermediate-term 6.19% 4.41% 4.93%
Short-term 6.29% 4.38% 5.08%
Associate members 5.40% 4.21% 4.74%
Nonperforming 1.56% 1.19% 1.26%
Restructured 1.92% 2.33% 1.92%
All loans 6.72% 5.66% 6.54%
</TABLE>
At May 31, 1995, CFC's ten largest exposures, which were all Power Supply
members, had outstanding loans from CFC totaling $381.8 million (excluding
$380.0 million of loans guaranteed by RUS), which represented approximately
5.5% of CFC's total loans outstanding. As of May 31, 1995, outstanding CFC
guarantees for these same ten borrowers totaled $2,051.8 million which
represented 79.3% of CFC's total guarantees outstanding, including guarantees
of the maximum amounts of lease obligations at such date. On that date, no
member had outstanding loans and guarantees in excess of 10% of the aggregate
amount of CFC's outstanding loans and guarantees; however, one of the ten
largest borrowers, Deseret Generation & Transmission Co-operative ("Deseret"),
was in financial difficulty (see Note 10 to Combined Financial Statements).
At May 31, 1995, loans outstanding to Deseret (excluding loans guaranteed by
RUS) accounted for 1.9% of total loans outstanding and guarantees outstanding
to Deseret accounted for 12.5% of total guarantees outstanding. Total loans
and guarantees outstanding to Deseret equaled 26.6% of total Members' Equity,
Members' Subordinated Certificates and the allowance for loan and guarantee
losses.

Set forth below is a table showing CFC's guarantees as of the dates indicated.
Substantially all guarantees have been provided on behalf of Power Supply
members.
<TABLE>
<CAPTION> May 31,
1995 1994 1993
(Dollar Amounts In Thousands)
<S> <C> <C> <C>
Long-term tax-exempt bonds $1,496,930* $1,494,200* $1,576,230*
Debt portions of leveraged lease transactions 568,662 646,472 700,841
Indemnifications of tax benefit transfers 389,755 414,512 436,860
Other guarantees 119,575 100,643 99,800
Total $2,574,922 $2,655,827 $2,813,731

</TABLE>
* Includes $1,200.1 million, $1,214.6 million and $1,120.8 million at May 31,
1995, 1994 and 1993, respectively, of adjustable rate pollution control
bonds which can be tendered for purchase at specified times at the option of
the holders (in the case of $376.7 million, $382.9 million and $358.6
million of such bonds outstanding at May 31, 1995, 1994 and 1993,
respectively, at any time on seven days' notice, in the case of $254.5
million, $289.5 million and $233.2 million outstanding at May 31, 1995, 1994
and 1993, respectively, at any time on a minimum of one day's notice and in
the case of the remainder on a five-week or semiannual basis). CFC has
agreed to purchase any such bonds that cannot be remarketed. Since the
inception of the program CFC has not been required to purchase any such
bonds.

<PAGE>8

Loan Contingencies

CFC maintains a loan and guarantee loss allowance to cover losses that may be
incurred in the course of lending or extending credit enhancements. The
allowance is periodically evaluated by management with the Board of Directors.

CFC classifies a loan as nonperforming if interest or principal payments are
contractually past due 90 days or more, repayment in accordance with the
original terms is not expected due to court order or ultimate repayment is
otherwise not expected. Loans in which the original terms have been modified
as a result of a borrower's financial difficulties are classified as
restructured. Interest income on nonperforming loans is recognized on a cash
basis as long as CFC believes the collateral value supports the outstanding
principal balance.

Loan and Guarantee Policies

Long-Term Loans to Utility Members

CFC makes long-term loans to both distribution and power supply members.
CFC's financial tests for determining the eligibility of a Utility Member
initially to receive a long-term loan historically included two ratios, the
Times Interest Earned Ratio ("TIER") and the Debt Coverage Ratio ("DSC").
TIER is the ratio of (x) net margins and patronage capital as defined under
"The Rural Electric Systems_Financial Information" plus interest on long-term
debt (including all interest charged to construction) to (y) interest on
long-term debt (including all interest charged to construction). DSC is the
ratio of (x) net margins and patronage capital plus interest on long-term debt
(including all interest charged to construction) plus depreciation and
amortization expense to (y) long-term debt service obligations. In applying
the tests, obligations under contracts providing for payment whether or not
the purchaser in fact receives electric power from the seller, guarantees and
other contingent obligations are not considered debt, nor is interest on the
proposed CFC loan given effect. In determining the eligibility of a member
for a long-term loan, each of the above ratios is averaged for the best two of
three calendar years preceding the date of determination, resulting in the
"Average TIER" and "Average DSC".

Under CFC's historical lending policy, a member distribution system with an
Average TIER and an Average DSC of at least 1.50 and 1.25, respectively, was
generally eligible for a long-term mortgage loan from CFC. Under new lending
criteria, established in early 1994, distribution systems must instead
generally achieve an Average Modified DSC (as described herein) of 1.35.
The new DSC (also called the "Modified DSC" or "MDSC") calculation is the
ratio of (x) operating margins and patronage capital plus interest on long-term
debt (including all interest charged to construction) plus depreciation and
amortization expense plus Non-operating Margins-Interest plus cash received
in respect of generation and transmission and other capital credits to (y)
long-term debt service obligations. Distribution systems will also be
required to have achieved a 20% ratio of equity to total assets at the end of
the preceding calendar year (the "Equity" test) to be eligible collateral for
pledging under the 1994 Collateral Trust Bond Indenture. The average MDSC is
computed using the average of the best two of three calendar years' ratios
preceding the date of determination. The borrower is required to maintain
these ratios at or above the minimum loan eligibility requirements as long as
there is a balance outstanding on the loan.

Under present RUS policy, a system which meets the RUS concurrent mortgage
requirement for Average TIER and Average DSC, 1.50 and 1.25, respectively,
will generally be required to borrow a portion of its financial requirements
from a supplemental lender. The extent of the supplemental loan required
generally reflects the revenue productivity of the borrower's investment in
plant, as measured by the ratio of its investment in plant to its operating
revenues (the "plant-revenue ratio"). RUS regulations, however, permit
borrowers which meet certain rate disparity, consumer income or extremely high
rate tests to qualify for 100% RUS loans. Further, the Administrator of RUS
has the authority to approve 100% RUS loans according to new qualifications
established in 1993, or at his/her discretion on a case-by-case basis.

It is anticipated that many CFC loans to distribution systems will continue to
be made in conjunction with loans by RUS. However, in addition to making
concurrent loans, CFC's loan policy permits it to make 100% loans to member
systems which meet the applicable minimum borrowing requirements. As of May
31, 1995, CFC had a total of $1,112.6 million in long-term loans committed and
outstanding to 46 Utility Members which did not have long-term RUS loans
outstanding. These systems have either prepaid their RUS loans or have never
incurred any RUS debt.

<PAGE>9

Under CFC policy, a member Power Supply system having Average TIER and Average
DSC of at least 1.0 in each case is eligible for a long-term loan from CFC.
Loans have been made both for additions to or acquisition of existing power
supply facilities and in connection with the construction of new power supply
projects. Loans have also been made in connection with the termination costs
associated with certain plant construction for cancelled power supply projects.
However, most loans to CFC member Power Supply systems for new generating
plants and transmission facilities have been made by other lenders (principally
the FFB, which has typically offered rates lower than CFC's) under repayment
guarantees from RUS, with RUS's rights as guarantor secured by a mortgage on
the system's properties.

Under the RUS mortgage, distribution borrowers are required to design their
rates to cover all operating expenses, including all payments in respect of
principal and interest on notes when due, provide and maintain reasonable
working capital and to maintain a TIER of not less than 1.5 and a DSC of not
less than 1.25.

CFC has made and may continue to approve long-term secured loans to borrowers
which fall below CFC's loan eligibility requirements. Such loans are made on
a case-by-case basis, based upon the submission by the borrower of, among
other things, a long-range financial forecast which indicates that the
borrower will, in future years, meet the applicable minimum borrowing
requirements. During the past five years, such loans accounted for 4.2% of
the total dollar amount of loans approved. While certain borrowers may not
meet the minimum eligibility requirements at the time of loan approval, such
borrowers may meet the minimum eligibility requirements by the time the loan
is fully advanced.

The rate charged for long-term fixed rate mortgage loans is designed to reflect
CFC's estimated overall cost of fixed rate capital allocated to its fixed rate
mortgage loans (including Capital Term and other Subordinated Certificates,
Collateral Trust Bonds, Medium-Term Notes, variable rate borrowings supported
by Interest Rate Exchange Agreements and Members' Equity) plus increments
estimated to cover general and administrative expenses, a provision for loan
and guarantee losses and a reasonable margin.

Long-term fixed rate loans provide for a fixed interest rate of periods for
one to 30 years. Upon expiration of the interest rate period, the borrower
may select another fixed rate term of one to 30 years (but not beyond the
maturity of the loan) or in certain instances may repay the loan or convert
to another interest rate program.

The rate on long-term fixed rate loans is set at the time of advance. In the
event that there is more than one advance, each advance will receive the fixed
rate in effect at the time of advance for the selected maturity period.
Long-term fixed rate loans approved prior to May 31, 1984 had the fixed rate
set at the time the loan was approved. Long-term fixed rate loans approved
between May 31, 1984 and December 31, 1987 bear the applicable fixed rate in
effect at the time of the first advance.

CFC also makes long-term loans with variable interest rates. Such loans are
funded primarily from available short-term sources, and the rate is adjusted
monthly to reflect CFC's cost of capital raised to fund these loans plus
increments estimated to cover general and administrative expenses, a provision
for loan and guarantee losses and the maintenance of a reasonable margin.

A borrower may convert a long-term loan from the variable rate to a fixed
rate at any time with no fee. Some fixed rate loans may be converted to
variable rate loans at any time, subject to the payment of a conversion fee
and in certain cases regulatory approval.

Prepayment of concurrent loans, where permitted by CFC and RUS, or otherwise
agreed to by CFC and RUS, will be apportioned pro-rata between RUS and CFC
based on the respective balances of their concurrent loans outstanding as of
the date of prepayment. Prior to January 1, 1994, no fee was required on the
prepayment of a standard seven-year fixed rate loan that was prepaid during a
repricing cycle. Now all prepayments except those required to maintain the
original RUS/CFC concurrent loan proportions will be subject to a prepayment
fee.

Until December 1993, most long-term borrowers were required to purchase from
CFC subordinated loan capital term certificates in an amount up to 7% of the
loan amount. These certificates amortize along with the loan. For all loans
advanced after December 1993, distribution systems may be required to purchase
subordinated loan capital term certificates in an amount up to 3% of the loan
amount or may not be required to purchase any certificates depending upon the
borrower's leverage ratio with CFC (the ratio of the outstanding and available
loan funds to subordinated certificates and allocated but unretired patronage
capital), including the new loan. Power Supply members are required to
purchase the certificates in amounts up to 10% of the loan amount.

<PAGE>10

CFC long-term loans made in conjunction with concurrent RUS loans are generally
for terms of 35 years and under present policy are payable, after a short
period during which interest only is payable, in level quarterly installments
which include both accrued interest and a portion of the principal.
Substantially all of CFC's present long-term mortgage loans to Utility Members
are secured by a first mortgage lien upon all property (other than office
equipment and vehicles) at any time owned by the borrower and future revenues.
In the case of members whose property is already subject to a mortgage to RUS,
RUS approval of the loan is required, even in the case of a 100% CFC loan, in
order to accommodate RUS's mortgage lien so that CFC may share ratably in the
security provided by the mortgaged property. CFC and RUS are then mortgagees
in common, entitled to the security in proportion to the unpaid principal
amounts of their respective loans. Mortgages do not require that the value of
the mortgaged property be equal to the obligations secured thereby.

Events of default under the long-term mortgages include default in the payment
of the mortgage notes, default (continuing after grace periods in some cases)
in the performance of the covenants in the loan agreements or the mortgages,
and events of bankruptcy and insolvency. Under common mortgages securing
long-term CFC loans to distribution system members, RUS has the sole right to
exercise remedies on behalf of all holders of mortgage notes for 30 days after
default. If RUS does not act within 30 days or if RUS is not legally entitled
to act on behalf of all noteholders, CFC may exercise remedies. Under common
mortgages securing long-term CFC loans to, or guarantee reimbursement
obligations of, power supply members, RUS retains substantial control over the
exercise of mortgage remedies.

Intermediate-Term Loans to Utility Members

Intermediate-term loans are made to members for terms of up to five years.
The interest rates on intermediate-term loans are adjusted monthly (and may be
adjusted semimonthly) to cover CFC's cost of capital raised to fund these
loans plus increments estimated to cover general and administrative expenses,
a provision for loan and guarantee losses and the maintenance of a reasonable
margin. Intermediate-term loans that are classified as secured are secured by
a first mortgage lien upon all property (other than office equipment and
vehicles) at any time owned by the borrower and future revenues. Borrowers
are generally not required to purchase additional subordinated certificates
in CFC in conjunction with an intermediate-term loan.

Short-Term Loans to Utility Members

CFC makes short-term line of credit loans to its member distribution systems
in amounts based on the system's monthly operation and maintenance expenses
and prior year's additions to plant. Power Supply systems are eligible for
lines of credit in amounts up to a maximum of $50 million, based on the
system's quarterly operation and maintenance expenses. Loans made to
distribution and Power Supply systems under such lines of credit are generally
unsecured; are for a term not exceeding 12 months for Power Supply systems and
not exceeding 60 months for distribution systems; and may be prepaid without
premium and reborrowed in whole or in part during such term. Short-term loans
with terms greater than 12 months are required to be paid down to a zero
balance for five consecutive business days during each 12-month period.

The interest rates on short-term line of credit loans are adjusted monthly
(and may be adjusted semimonthly) to cover CFC's cost of capital raised to
fund these loans plus increments estimated to cover general and administrative
expenses, a provision for loan and guarantee losses and the maintenance of a
reasonable margin. Borrowers are not required to purchase additional
subordinated certificates in CFC in conjunction with a short-term loan.

Loans to Telecommunication Borrowers

RTFC makes long-term loans to rural telecommunication companies for the
acquisition of telecommunication systems and the construction or upgrade of
telephone, cellular and cable television systems as well as other legitimate
corporate purposes.

<PAGE>11

Under RTFC policy, a telephone system with an Average DSC and an Average TIER
of 1.25 and 1.50, respectively, is eligible for a long-term mortgage loan from
RTFC. A cable television system with an Average DSC of 1.25 is eligible for a
long-term mortgage loan. A cellular telephone system is eligible for a long-
term mortgage loan if it can demonstrate the ability to achieve an Average DSC
of 1.10 by the fifth year of operations, and maintain that requirement annually
thereafter.

Security for RTFC long-term loans made to RUS borrowers consists of a first
mortgage lien on the assets and revenues of the system on a pari passu basis
with RUS. Security from non-RUS borrowers is considered on a case-by-case
basis but generally a loan will not exceed 80% of the estimated initial value
of the collateral. Long-term loans are made to RTFC borrowers for terms
generally up to 15 years and amortized quarterly over the life of the loan.
Borrowers with long-term loans approved after May 31, 1995 or with approved
long-term loans that had not been advanced by May 31, 1995 will be required to
purchase Subordinated Certificates from RTFC in amounts equal to 5% of the
loan amount. Prior to May 31, 1995, borrowers were required to purchase
Subordinated Certificates in amounts equal to 5% or 10% of the long-term loan
amount, depending on the borrower classification.

The interest rate on long-term loans can be fixed for the full term of the
loan or for a predetermined period. Alternatively, the borrower may elect a
variable rate which is adjusted monthly (and may be adjusted semimonthly). A
long-term variable rate loan may be converted to a fixed rate at any time. A
long-term fixed rate loan may be converted to a variable rate without payment
of a fee on a rate adjustment date, or at any other time upon payment of a
fee, which is calculated to ensure that RTFC is made whole on the funding
placed for that loan.

RTFC provides intermediate-term equipment financing for periods up to five
years. These loans are provided on an unsecured basis and are used to finance
the purchase price and installation costs of central office equipment, support
assets and other communication products. Intermediate-term equipment
financing loans are generally made to operating telephone companies with an
equity level of at least 25% of total assets and which have achieved a DSC
ratio for each of the previous two calendar years of at least 1.75.

RTFC also provides short-term financing to telecommunication systems for
periods up to 60 months. These short-term loans are typically in the form of
a revolving line of credit which requires the borrower to pay off the balance
for five consecutive business days at least once during each 12-month period.
These loans are provided on an unsecured basis and are used primarily for
normal cash management. Lines of credit are available to telecommunication
systems generally in amounts not to exceed the greater of five percent of total
assets or 25% of equity in excess of 35% of total assets. Borrowers are not
required to purchase Subordinated Certificates in RTFC as a condition to
receiving a line of credit.

RTFC interest rates on all loans are set to cover the cost of funds, plus an
increment estimated to cover general and administrative expenses, a provision
for loan losses and the maintenance of a reasonable margin.

RTFC obtains funding for its loans through back-to-back borrowing from CFC,
which in turn has a security interest in all RTFC's loans.

Loans to Associate Members

CFC also makes loans to Associate Members, which are non-profit or cooperative
organizations owned, controlled or operated by a CFC Class A, B or C Member or
by CFC (sponsor) and engaged primarily in furnishing nonelectric services
within the sponsor's service area. Long-term loans are available to Associate
Members for periods of one to 35 years and are secured by the assets financed
or by a guarantee from a Utility Member, or both. The rate on these loans, to
the extent funding sources are available, may be fixed for the full term of
the loan or for a predetermined period. Alternatively, the borrower may elect
a variable rate which is adjusted monthly (and may be adjusted semimonthly).
Associate Members with long-term loans approved after May 31, 1995 or with
approved long-term loans that had not been advanced by May 31, 1995 will be
required to purchase a Subordinated Certificate equal to 5% of the loan amount.
Prior to May 31, 1995, an Associate Member was required to purchase a
Subordinated Certificate equal to 10% of the long-term loan amount.

<PAGE>12

CFC also provides short-term loans to Associate Members for periods of up to 60
months. The short-term loans are generally revolving lines of credit which
may require the borrower to pay off the balance for five consecutive business
days during each 12-month period. Borrowers are not required to purchase a
subordinated certificate as a condition to receiving a short-term loan.
Short-term interest rates are set monthly (and may be adjusted semimonthly).
These loans are generally unsecured but are guaranteed by an operating
distribution or power supply member of CFC.

Associate Member interest rates are set to cover the cost of funds plus an
increment estimated to cover general and administrative expenses, a provision
for loan losses and a reasonable margin.

RUS Guaranteed Loans

In connection with legislation which allowed certain systems to prepay existing
borrowings from FFB without prepayment penalties or fees, CFC established a
program under which it made long-term loans to members for the purpose of
prepaying these loans. Each note evidencing such a loan was issued to a trust
which in turn issued certificates evidencing its ownership to CFC. The
principal and interest payments on these notes are 100% guaranteed by RUS.
Under RUS regulations, the note rate may not exceed the rate borne by the
system's prepaid borrowings from the FFB adjusted to reflect savings accrued
since prepayment of the note compared with the rate on the prepaid borrowing.
The systems are required to pay service fees to CFC in connection with these
transactions. Most of these loans that have not been sold in public offerings
have been transferred to GFC ($429.1 million outstanding at May 31, 1995.)
In addition, CFC services $681.1 million of these loans, held by the trustee,
which have been sold in public offerings.

Guarantees of Pollution Control Facility and Utility Property Financings

CFC has guaranteed debt issued in connection with the construction or
acquisition by CFC members of pollution control, solid waste disposal,
industrial development and electric distribution facilities. Such debt is
issued by governmental authorities and the interest thereon is exempt from
Federal income taxation. The proceeds of the offering are made available to
the member system, which in turn is obligated to pay the governmental authority
amounts sufficient to service the debt. The debt, which is guaranteed by CFC,
may include short- and long-term obligations.

In the event of a default by a system for nonpayment of debt service, CFC is
obligated to pay any required amounts under its guarantee and the bond issue
will not be accelerated so long as CFC performs under its guarantee. The
system is required to repay, on demand, any amount advanced by CFC pursuant to
its guarantee. This repayment obligation is secured by a common mortgage with
RUS on all the system's assets, but CFC may not exercise remedies thereunder
for up to two years following default. However, if the debt is accelerated
because of a determination that the interest thereon is not tax-exempt, the
system's obligation to reimburse CFC for any guarantee payments will be treated
as a long-term loan.

In connection with these transactions, the systems generally must purchase
from CFC unsecured Subordinated Certificates in an amount up to 12% of the
principal amount guaranteed and maturing at the final maturity of the related
debt (but not less than 20 years). These certificates generally bear interest
at the greater of the 34-year FFB interest rate, the interest rate on the
longest maturity of the debt being guaranteed or 90% of the rate on the loan
from CFC used to purchase the certificate. In addition, if a debt service
reserve fund is created by CFC to secure the debt being issued, the system
must buy an additional subordinated certificate, maturing at the time of the
final maturity of the debt, in the amount of such reserve. No interest is
paid on such certificate, but any earnings from investments held by the
trustee of such debt service reserve funds will be credited against the
system's debt service obligations. The system is also required to pay to CFC
initial and/or on-going servicing fees in connection with these transactions.

Certain guaranteed long-term debt bears interest at variable rates which are
adjusted at intervals of one to 270 days, weekly, each five weeks or
semi-annually to a level expected to permit their resale or auction at par.
At the option of the member on whose behalf it is issued and provided funding
sources are available, rates on such debt may

<PAGE>13

be fixed until maturity. Holders have the right to tender for purchase at
par the debt when it bears interest at a variable rate and CFC has committed
to purchase debt so tendered if it cannot otherwise be remarketed. While CFC
holds the securities, the cooperative will pay interest to CFC at its
intermediate-term loan rate.

Guarantees of Lease Transactions

CFC has a program of lending to or guaranteeing debt issued by NCSC in
connection with leveraged lease transactions. In such transactions, NCSC has
lent money to an industrial or financial company (a "Lessor") for the purchase
of a power plant (or an undivided interest therein) or utility equipment which
was then leased to a CFC member ("the Lessee") under a lease requiring the
Lessee to pay amounts sufficient to permit the owner of the property to service
the loan. The loans were made on a non-recourse basis to the Lessor but were
secured by the property leased and the owner's rights as Lessor. NCSC
borrowed the funds it lent either under a CFC guarantee or on an interim basis
directly from CFC and purchased from CFC a Subordinated Certificate in an
amount up to 12% of the amount CFC guaranteed or lent. The Subordinated
Certificates generally bear interest at a rate equal to the FFB rate for
34-year loans or 90% of CFC's loan rate and are repaid proportionally as the
amount guaranteed decreases. NCSC is also obligated to pay administrative
and/or guarantee fees to CFC in connection with these transactions. Such fees
are reimbursed to NCSC by the Lessee in each transaction.

Guarantees of Tax Benefit Transfers

CFC has also guaranteed members' obligations to indemnify against loss of tax
benefits in certain tax benefit transfers that occurred in 1981 and 1982. A
member's obligation to reimburse CFC for any guarantee payments would be
treated as a long-term loan, secured on a pari passu basis with RUS by a first
lien on substantially all the member's property to the extent of any cash
received by the member at the outset of the transaction. The remainder would
be treated as an intermediate-term loan secured by a subordinated mortgage on
substantially all of the member's property. Due to changes in Federal tax law
in 1982, no further guarantees of this nature have occurred since 1982 and no
more are anticipated. In connection with these transactions, the members
purchased from CFC an unsecured Subordinated Certificate in an amount up to 12%
of the amount guaranteed.

Other

CFC may provide other loans and guarantees as requested by its members. Such
loans and guarantees will generally be made on a secured basis with interest
rates and guarantee fees set to cover CFC's cost of capital, general and
administrative expenses, a provision for loan and guarantee losses and
maintenance of a reasonable margin. In connection with these transactions,
the system generally must purchase from CFC an unsecured Subordinated
Certificate in an amount up to 12% of the amount guaranteed or lent.

CFC Financing Factors

Funding for the Company's loan programs are derived from Members' Equity
(net margins, retained as allocated but unreturned patronage capital), from
the sale of its Subordinated Certificates (see Note 3 to Combined Financial
Statements), Collateral Trust Bonds, Medium-Term Notes, Commercial Paper and
Bank Bid Notes. CFC's ability to obtain short- and long-term funds from
external sources as needed depends on such factors as its reputation in the
investment community, its financial condition and that of its members, the
depth and liquidity of the markets in which it participates, market factors
outside of its control, its ability to conduct its operations to meet or
exceed the financial standards of performance expected by investment markets
and credit rating agencies and the continued support of its members.

Each year CFC allocates its net margins (operating margin plus nonoperating
income) among its members in proportion to interest earned by CFC from such
members within various loan pools. These allocations are evidenced by
Patronage Capital Certificates which bear no interest or dividends and hav
e no stated maturity. These amounts are available for use in CFC's operations
pending their retirement. CFC's current policy is to retire Patronage Capital
Certificates representing 70% of the prior year's allocation during the
following year and the remaining 30% after 15 years, if permitted by CFC's
contractual obligations and to the extent that the Board of Directors in its
discretion may determine from time to time that the financial condition of CFC
will not be impaired as a result. RTFC's current policy is to retire 70% of
current year's margins within 8r months of the end of the fiscal year with the
remainder to be retired at the discretion of RTFC's Board of Directors. GFC's
current policy is to retire 100% of current year's margins shortly after the
end of the fiscal year.

<PAGE>14

As a condition of membership, CFC members have subscribed to Capital Term
Certificates, which like CFC's other Subordinated Certificates are unsecured
subordinated obligations of CFC. They generally mature 100 years after
issuance and bear interest at the rate of 5% per annum. The purchase of
Subordinated Certificates may also be required as a condition of each long-term
loan and certain intermediate-term loans made by CFC to its members
(Subordinated Certificates issued in connection with loans made prior to June
1, 1983, earn 3% annually, and Subordinated Certificates for loans approved on
or after that date are noninterest-bearing). Subordinated Certificates,
bearing interest at various rates, are also required to be purchased in
connection with CFC guarantees of member debt. The maturity of Subordinated
Certificates purchased in connection with loans and guarantees generally
coincides with the maturity of the related loan or guaranteed debt.
Membership certificates and loan and guarantee certificates represented 52%
and 48%, respectively, of total Subordinated Certificates outstanding at May
31, 1995.

To fund a portion of its long-term fixed rate loan program, CFC issues
intermediate- and long-term senior secured Collateral Trust Bonds and senior
unsecured Medium-Term Notes with differing maturities, interest rates and
redemption provisions. The Collateral Trust Bonds are secured by pledges of
eligible mortgage notes with a principal amount at least equal to the total
amount of bonds outstanding. If certain minimum eligibility ratios are not
maintained, the mortgage notes affected must be replaced with other eligible
collateral. In addition, variable rate funding supported by an equal amount
of interest rate exchange agreements is used to fund long-term fixed rate
loans (see Note 5 to Combined Financial Statements).

The Company issues Commercial Paper through dealers and directly to members
and other eligible nonmember investors to provide funds for short-,
intermediate- and long-term variable rate loans to members, including RUS
guaranteed loans, and temporarily to fund long-term fixed rate loans to
members prior to funding with long-term debt. Commercial Paper could also be
used to fund purchases of tax-exempt securities which CFC may be obligated to
purchase pursuant to its commitment to act as standby purchaser. In addition,
CFC may issue Commercial Paper in excess of its own funding needs in order to
provide its members an investment vehicle for their excess funds; CFC uses the
proceeds from such issuances to purchase short-term obligations of other
issuers. Commercial Paper outstanding at May 31, 1995, 1994 and 1993, net of
discount related to the issuance of dealer Commercial Paper, was approximately
$3,892.6 million, $3,429.0 million and $2,198.6 million, respectively. The
outstanding Commercial Paper at May 31, 1995, 1994 and 1993 had average
maturities of 68 days, 36 days and 46 days, respectively. The amount of
such outstanding Commercial Paper sold directly by CFC to its members and
eligible nonmembers as a percentage of total outstanding Commercial Paper
was 29% as of May 31, 1995 versus 31% at May 31, 1994.

CFC also issues short-term Bank Bid Notes to fund its variable rate loans.
These bid notes are unsecured loan obligations. Bid note facilities are
uncommitted lines of credit for which CFC does not pay a fee. The amount of
Bank Bid Notes outstanding as of May 31, 1995, 1994 and 1993 was $350.0
million, $ 209.0 million and $ 335.0 million, respectively.

As of May 31, 1995, CFC had two revolving credit agreements totaling $4,050.0
million with 55 banks, including Morgan Guaranty Trust Company of New York as
Arranger,Administrative Agent and Co-Syndication Agent and the Bank of Nova
Scotia as Co-Syndication Agent. These credit facilities were arranged
principally to provide liquidity support for CFC's outstanding Commercial
Paper and the adjustable or floating/fixed rate bonds which CFC has guaranteed
for the benefit of its members.

Under the respective revolving credit agreements, CFC can borrow up to
$2,430.0 million until February 28, 2000 (the "five-year facility"), and an
additional $1,620.0 million until February 27, 1996 (the "364-day facility").
Any amounts outstanding will be due on those dates. In connection with the
five-year facility, CFC pays a per annum facility/commitment fee of .125 of
1%. The per annum facility fee for the 364-day facility is .10 of 1%. If
CFC's short-term ratings decline, these fees may be increased by no more than
.1125 of 1%. Borrowings under both agreements will be at one or more rates
as defined in the agreements, as selected by CFC.

<PAGE> 15

for the preceding fiscal year. The credit agreements prohibit CFC from
incurring senior debt (including guarantees but excluding indebtedness
incurred to fund RUS guaranteed loans) in an amount in excess of ten times
the sum of Members' Equity and subordinated debt and restrict, with certain
exceptions, the creation by CFC of liens on its assets and contain certain
other conditions to borrowing. The agreements also prohibit CFC from pledging
collateral in excess of 150% of the principal amount of Collateral Trust Bonds
outstanding. Provided that CFC is in compliance with these financial
covenants (including that CFC has no material contingent or other liability or
material litigation that was not disclosed by or reserved against in its most
recent annual financial statements) and is not in default, CFC may borrow
under the agreements until the termination date. As of May 31, 1995 CFC was
in compliance with all covenants and conditions.

As of May 31, 1995 there were no borrowings outstanding under the revolving
credit agreements. On the basis of the five-year facility, at May 31, 1995,
CFC classified $2,430.0 million of its notes payable outstanding as long-term
debt. CFC expects to maintain more than $2,430.0 million of notes payable
outstanding during the next 12 months. If necessary, CFC can refinance such
notes payable on a long-term basis by borrowing under the five-year facility,
subject to the conditions therein.

Interest rates charged on loans by CFC include the cost of funds incurred by
CFC plus increments estimated to cover general and administrative expenses, a
provision for loan and guarantee losses and to provide margins in amounts
considered by CFC to be consistent with sound financial practice. While
interest rates are set to cover estimated costs and to provide reasonable
margins, CFC does not always match the maturity of its borrowings to those of
its loans. CFC generally finances its long-term loans to members through
borrowings having shorter maturities than the loans; however, CFC generally
finances its fixed rate loans with funds whose maturities coincide with, or
exceed, the rate adjustment cycle of the loan.

<PAGE>16

Set forth below is a table showing CFC's outstanding borrowings and the
weighted average interest rates thereon as of the dates shown:
<TABLE>
<CAPTION>

Amounts Outstanding at May 31,
(Dollar Amounts In Thousands) 1995 1994 1993
<S> <C> <C> <C>
Long- and intermediate-term debt: (A)
9 3/8% Series Q Bonds, Due 1995(B) 0 0 149,800
9 5/8% Series R Bonds, Due 1996(B) 0 0 99,600
9.85% Series S Bonds, Due 1996(B) 0 0 99,700
9.5% Series T Bonds, Due 1997 150,000 150,000 149,800
8.5% Series U Bonds, Due 1998 149,800 149,800 149,800
7.40% Series A Bonds, Due 2007 (B) 0 2,819 6,319
Floating Rate Series E-2 Bonds,
Due 2010 2,189 2,253 2,279
9% Series O Bonds, Due 2016 82,289 87,400 91,600
9% Series V Bonds, Due 2021 150,000 150,000 149,800
Floating Rate Series 1994A, Due 1996 150,000 0 0
Medium-Term Notes and weighted
average interest rates 573,637 (7.23%) 472,208 (6.99%) 456,538 (7.29%)
Total long-and intermediate-term
debt and weighted average interest
rates (C) 1,257,915 (D) (7.90%) 1,014,480 (8.06%) 1,355,236 (8.56%)
Members' Subordinated Certificates,
including advance payments and
weighted average interest rates (E) 1,096,466 (4.36%) 1,086,529 (4.46%) 1,066,755 (4.58%)
Total long- and intermediate-term
debt and Members' Subordinated
Certificates and weighted average
interest rates $2,354,381 (6.25%) $2,101,009 (6.20%) $2,421,991 (6.81%)
Short-term debt(F) and weighted
average interest rates(G) $4,242,570 (6.11%) $3,637,975 (4.23%) $2,533,624 (3.14%)
Total debt and weighted average
interest rates at May 31 $6,596,951 (6.16%) $5,738,984 (4.95%) $4,955,615 (4.93%)

</TABLE>
(A) Net of $1.1 million, $ 0.2 million and $ 1.5 million principal amount of
bonds held in treasury at May 31, 1995, 1994 and 1993, respectively, all
of which was purchased in connection with CFC's deferred compensation
program.
(B) The Series Q Collateral Trust Bonds were called on June 16, 1993, at par.
The Series R Collateral Trust Bonds were called on February 2, 1994, at
par. The Series S Collateral Trust Bonds were called on April 18, 1994,
at par. The Series A Collateral Trust Bonds were called on December 1,
1994, at par.

(C) Excludes $2,430.0 million, $2,030.0 million and $ 2,030.0 million of
Commercial Paper classified as long-term debt as of May 31, 1995, 1994
and 1993, respectively (see Note 4 to Combined Financial Statements).

(D) Total long- and intermediate-term debt includes $262.7 million which will
be due or is expected to be redeemed during fiscal year 1996.

(E) Excluding $114.1 million, $ 107.1 million and $ 116.5 million of Debt
Service Reserve Certificates, and $24.3 million, $ 29.3 million and
$ 32.4 million of subscribed but unissued Subordinated Certificates as of
May 31, 1995, 1994 and 1993, respectively, since such funds are not
generally available for investing in earning assets.

(F) Net of discount; includes $2,430.0 million, $2,030.0 million and $ 2,030.0
million of Commercial Paper classified as long-term debt as of May 31,
1995, 1994 and 1993, respectively. Includes $350.0 million, $ 209.0
million and $ 335.0 million of Bank Bid Notes at May 31, 1995, 1994 and
1993, respectively (see Note 4 to Combined Financial Statements).

(G) Average interest rates are weighted on the basis of amounts of outstanding
borrowings without adjustment for bank credit compensation arrangements
for short-term borrowings.

<PAGE>17

Set forth below are the weighted average costs incurred by CFC on its
short-term borrowings (Commercial Paper and Bank Bid Notes) and on its
long-term borrowings (Collateral Trust Bonds, Medium-Term Notes and interest
rate swaps) for the period shown.
<TABLE>
<CAPTION>
Years ended May 31,
1995 1994 1993
<S> <C> <C> <C>
Short-term borrowings 5.59% 3.67% 3.61%
Long-term borrowings 8.15% 8.63% 8.92%
Total short- and long-term borrowings 6.15% 5.14% 5.80%
</TABLE>
Tax Status

In 1969, CFC obtained a ruling from the Internal Revenue Service (the "IRS")
recognizing CFC's exemption from the payment of Federal income taxes under
Section 501(c)(4) of the Internal Revenue Code. Such exempt status could be
removed as a result of changes in legislation or in administrative policy or
as a result of changes in CFC's business. CFC believes that its operations
have not changed materially from those described to the IRS. CFC's affiliates
RTFC and GFC are taxable Subchapter T corporations.

Investment Policy

Surplus funds are invested pursuant to policies adopted by CFC's Board of
Directors. Under present policy, surplus funds may be invested in direct
obligations of or obligations guaranteed by the United States or agencies
thereof, the World Bank, or certain high quality Commercial Paper,
obligations of foreign governments, Eurodollar deposits, bankers' acceptances,
bank letters of credit, certificates of deposit or working capital acceptances.
The policy also permits investments in certain types of repurchase agreements
with highly rated financial institutions, whereby the assets consist of
eligible securities listed above set aside in a segregated account. CFC
typically has two types of funds available for investment: (1) the debt
service reserve funds held by the Collateral Trust Bond Trustee under the
Collateral Trust Bond Indenture between CFC and Chemical Bank ("1972
Indenture"), used to make bond interest and sinking fund payments; and
(2) member loan payments and Commercial Paper investments in excess of the
daily cash funding requirements. Debt service reserve funds are invested with
maturities scheduled to coincide with interest and sinking fund payment dates.

Other Sources of Loans to CFC Members

In addition to CFC, there are other lending sources which supplement RUS
financing. At May 31, 1995, CFC had long-term mortgage loans committed or
outstanding to distribution systems totaling approximately $4,940.0 million,
and to CFC's knowledge other lenders, excluding RUS, had loans, at May 31,
1995, totaling approximately $702.2 million. At May 31, 1995, CFC had
committed or outstanding long-term mortgage loans for power supply projects
totaling approximately $1,388.1 million, of which $429.1 million was fully
guaranteed by RUS, and to CFC's knowledge other lenders, excluding RUS and
FFB, had such loans committed or outstanding for power supply projects in a
total amount of approximately $4,570.1 million.

Employees

At May 31, 1995, CFC had 134 employees, including engineering, financial and
legal personnel, management specialists, loan examiners, accountants and
support staff. CFC believes that its relations with its employees are good.

<PAGE>18

THE RURAL ELECTRIC AND TELEPHONE SYSTEMS

General

CFC's 903 rural electric Utility Members as of May 31, 1995, were drawn from
the approximately 930 (at December 31, 1993) rural electric utility systems
(the "systems") which were eligible for RUS loans. A large proportion of the
eligible systems are members of CFC and information regarding these systems is
available in the Annual Statistical Reports of RUS (the "RUS Reports"),
therefore commentary in this section is based on information about the systems
generally, rather than CFC members alone (see Note on page 20). However, the
Composite Financial Statements on pages 21 to 25 relate only to CFC Utility
Members. At December 31, 1993 and for the year then ended, CFC's members
accounted for approximately 98% of the total utility plant, 93% of the total
equity, 97% of the net margins and 93% of the total number of systems covered
by RUS Reports, and CFC believes that its members are representative of the
systems as a whole.

Although generally stable retail rates have been the historical pattern for
RUS borrowers, in the 1970's and early 1980's rising costs of fuel, material,
labor, capital and wholesale power required rate increases by most of the
distribution systems. Increases in costs have also resulted in rate increases
by the power supply systems. Virtually all power contracts between power
supply systems and their member distribution systems provide for rate
increases to cover increased costs of supplying power, although in certain
cases such increases must be approved by regulatory agencies. During the last
five years, costs and rates have generally been stable.

The RUS Program

Since the enactment of the Rural Electrification Act in 1936, RUS has financed
the construction of electric generating plants, transmission facilities and
distribution systems in order to provide electricity to persons in rural areas
who were without central station service. Principally through the
organization of systems under the RUS loan program in 46 states and U.S.
territories, the percentage of farms and residences in rural areas of the
United States receiving central station electric service increased from 11% in
1934 to almost 99% currently. Rural electric systems serve 11% of all
consumers of electricity in the United States and its territories. They
account for approximately 8% of total sales of electricity and about 7% of
energy generation and generating capacity.

In 1949, the Act was amended to allow RUS to lend for the purpose of furnishing
and improving rural telephone service. At December 31, 1993, 883 of RUS's 940
telephone borowers provided service to 5.6 million subscribers throughout the
United States and its territories (reporting information was not available for
the remaining 57 borrowers).

The Rural Electrification Act provides for RUS to make insured loans and to
provide other forms of financial assistance to borrowers. RUS is authorized
to make direct loans, at below market rates, to systems which are eligible to
borrow from it. RUS is also authorized to guarantee loans which have been
used mainly to provide financing for construction of Bulk Power Supply
Projects. Guaranteed loans bear interest at a rate agreed upon by the
borrower and the lender (which generally has been the FFB). For telephone
borrowers, RUS also provides financing through the Rural Telephone Bank
(the "RTB"). The RTB is a government corporation providing financing at rates
reflecting its cost of capital. RUS exercises a high degree of financial and
technical supervision over borrowers' operations. Its loans and guarantees
are generally secured by a mortgage on substantially all of the system's
property and revenues.

Legislation has been proposed which would provide funding of $590 million for
the RUS insured loan program for electric borrowers for FY 1995 and $370
million for the telephone borrowers through RUS and the RTB. In addition,
funding of $300 million was proposed for the RUS guaranteed electric loan
program and funding of $120 million was proposed for the RUS guaranteed
telephone loan program.

Legislation has been enacted which allows RUS electric borrowers to prepay
their loans to RUS at a discount based on the government's cost of funds at
the time of prepayment. If a borrower chooses to prepay its notes, it becomes
ineligible for future RUS lending for a period of ten years, except in certain
specified instances. Regulations regarding the note buy-out, relating to
computation of discount and certain issues concerning potential taxes on gains,
were adopted on March 22, 1994. As of May 31, 1995, 34 borrowers have either
fully prepaid or partially prepaid their RUS notes, under the provisions
adopted in 1994, in the total amount of $437.3 million.

<PAGE>19

Distribution Systems

Distribution systems are local utilities distributing electric power, generally
purchased from wholesale sources, to consumers in their service areas.
Virtually all are locally-managed cooperative, non-profit associations, and
most have been in operation for at least 40 years. At December 31, 1993, the
approximate number of consumers served by RUS electric borrowers was 12.4
million, representing an estimated 32.5 million ultimate users. Aggregate
operating revenues of the distribution systems from sales of electric energy
for the year ended December 31, 1993, totaled $15.1 billion, of which 66% was
derived from the sales of electricity to residential consumers (farm and
non-farm), 30% from such sales to commercial and industrial consumers and the
remainder from sales to various other consumers.

The composite TIER of CFC member distribution systems increased to 2.54 in
1993 from 2.19 in 1992. The composite DSC ratio increased to 2.44 in 1993
from 2.07 in 1992. Composite equity as a percent of total assets for member
distribution systems increased from 39.44% at December 31, 1992 to 40.83% at
December 31, 1993.

The cost of purchased wholesale power in 1993 amounted to 65.95% of the total
revenues of the distribution systems. Information from RUS concerning the
amount of energy generated and purchased by RUS borrowers including
distribution systems during the 12 months ended December 31, 1993 (1994 data
is not available) indicates that 20.1% was purchased from power companies
including investor-owned utilities and industrial and manufacturing
corporations, 52.8% from rural electric power supply systems and other
distribution systems having generating facilities, 19.4% from Federal agencies
and 7.7% from publicly-owned power suppliers, such as municipal systems.

Wholesale power supply contracts ordinarily guarantee neither an uninterrupted
supply nor a constant cost of power. Contracts with RUS-financed Power Supply
systems (which generally require the distribution system to purchase all its
power requirements from the Power Supply system) provide for rate increases to
pass along increases in sellers' costs (subject in certain cases to regulatory
approval). The wholesale power contracts permit the Power Supply system,
subject to approval by RUS and, in certain circumstances, regulatory agencies,
to establish rates to its members so as to produce revenues sufficient, with
revenues from all other sources, to meet the costs of operation and maintenance
(including, without limitation, replacements, insurance, taxes and
administrative and general overhead expenses) of all generating, transmission
and related facilities, to pay the cost of any power and energy purchased for
resale, to pay the costs of generation and transmission, to make all payments
on account of all indebtedness and leases of the Power Supply system and to
provide for the establishment and maintenance of reasonable reserves. The
rates under the wholesale power contracts are required to be reviewed by the
Board of Directors of the Power Supply system at least annually.

Power contracts with investor-owned utilities and Power Supply systems which
do not borrow from RUS generally have rates subject to regulation by the
Federal Energy Regulatory Commission. Contracts with Federal agencies
generally permit rate changes by the selling agency (subject, in some cases,
to Federal regulatory approval). In the case of many distribution systems,
only one power supplier is within a feasible distance to provide wholesale
electricity.

Power Supply Systems

Power Supply systems are utilities which purchase or generate electric power
and provide it wholesale to distribution systems for delivery to the ultimate
retail consumer. Of the 62 operating Power Supply systems financed in whole
or in part by RUS or CFC at December 31, 1994, 61 were cooperatives owned
directly or indirectly by groups of distribution systems and one was government
owned. Of this number, 39 had generating capacity of at least 100,000
kilowatts, and eight had no generating capacity. Six of the eight systems
with no generating capacity operated transmission lines to supply certain
distribution systems, one has applied for RUS financing for its first
transmission facility and one is currently building its first transmission
facilities. Certain other Power Supply systems had been formed but did not
yet own generating or transmission facilities. At December 31, 1994, the 55
Power Supply systems reporting to RUS owned 145 generating plants with a total
generating capacity of approximately 29,597,000 kilowatts, or approximately
4.3% of the nation's estimated electric generating capacity, and served 716

<PAGE>20

RUS distribution system borrowers (representing an average for the year of
approximately 8.5 million consumers). Certain of the Power Supply systems
which own generating plants lease these facilities to others and purchase
their power requirements from the lessee-operators.

Of the Power Supply systems' total generating capacity in place as of December
31, 1994, steam plants accounted for 94.2% (including nuclear capacity
representing approximately 10.2% of such total generating capacity), internal
combustion plants accounted for 5.5% and hydroelectric plants accounted for
0.3%. RUS loans and loan guarantees as of December 31, 1994, have provided
funds for the installation of over 34,031,000 kilowatts, of which nuclear is
approximately 3,806,000 kilowatts, or 11.2% of the total, of which 1,279,000
kilowatts have officially been cancelled, or 3.8% of the total.

The high level of growth in demand for electricity experienced in the 1970's
was not expected to decline in the 1980's and the Power Supply systems
continued their construction programs in anticipation of continued growth in
demand. During the 1980's, however, slower growth in power requirements of
the systems reduced the need for additional generating capacity in most areas
of the country. Thus, many areas are now experiencing a surplus of generating
capacity and, as a result, some Power Supply systems have significant amounts
of fixed costs for power plant investment not fully supported by increased
revenues (see Note 10 to Combined Financial Statements for further information
concerning certain CFC members experiencing this problem).

While the level of funds needed for new generating units is expected to be low
over the next few years, the need for transmission and capital additions will
continue to generate substantial long-term capital requirements. The Power
Supply systems are expected to continue to seek to satisfy these requirements
primarily through the RUS loan guarantee program.

Telephone Systems

As of December 31, 1993, (complete data at December 31, 1994 was not yet
available) there were 883 telephone systems that were RUS borrowers. The 883
telephone systems included 243 cooperative, not-for-profit organizations and
640 commercial, for-profit organizations. These organizations provided
telephone service to approximately 5.6 million consumers and owned
approximately 886,000 miles of telephone lines. Total assets at December 31,
1993 were $13.3 billion, with a composite TIER of 4.15 and composite equity
ratio of 43.6%. The telephone systems operate in all fifty states and seven
U.S. territories.

The RTB was created by a 1971 amendment to the Rural Electrification Act (the
"Act") to serve as a source of supplemental financing for rural telephone
systems. To initially capitalize the RTB, between 1971 and 1991, the
government purchased $592 million in Class A stock of the RTB. RTB borrowers
who are required to purchase class B stock in an amount equal to five percent
of the amount of each loan have, as of June 30, 1995, invested $524 million.
In addition, borrowers and other eligible entities have purchased $112 million
in Class C stock of the RTB.

The Act provides that the RTB is to redeem and retire the government's Class A
stock as soon as practicable after September 30, 1995, but not to the extent
that the bank's board determines that such retirement would impair the
operation of the RTB. The minimum amount of Class A stock to be retired each
year after September 30, 1995 is the amount of the Class B stock that is
issued. Language in the United States Government Fiscal Year 1996 House
Agriculture Appropriations Bill would limit the amount of Class A stock that
can be redeemed in fiscal year 1996 to five percent of the amount of Class A
stock outstanding. The Senate has not yet passed its bill, but is likely to
adopt the House provision or retain the statutory minimum.

Regulation and Competition

The degree of regulation of rural electric systems by state authorities varies
from state to state. The retail rates of rural electric systems are regulated
in 16 states (in which there are 248 systems). Distribution systems in these
states account for 28% of the total operating revenues and patronage capital
of all distribution systems nationwide. State agencies, principally public
utility commissions, of 19 states regulate those states' 276 systems as to the
issuance of long-term debt securities. In five states (in which there are 51
systems) state agencies regulate, to varying degrees, the issuance of
short-term debt securities. Since 1967, the Federal Power Commission and its
successor, the Federal Energy Regulatory Commission ("FERC"), which regulates
interstate sales of energy at wholesale, have taken the position that it lacks
jurisdiction to regulate cooperative rural electric systems which are current
borrowers from RUS. However, rural electric cooperatives that pay off their
RUS debt or never incur RUS debt may be regulated by FERC

<PAGE>21

with respect to financing and/or rates. At present, four Power Supply systems
and one distribution system are regulated by FERC.

Varying degrees of territorial protection against competing utility systems are
provided to distribution systems in 41 states (in which over 92% of the
distribution systems are located). Changes in administrative or legislative
policy in several states, or Federal legislation, may result in more or in
less territorial protection for the distribution systems.

In addition to competition from other utility systems, some distribution
systems have expressed increasing concern about the loss of desirable suburban
service areas as a result of annexation by expanding municipal or franchised
investor-owned utility systems, regardless of the degree of territorial
protection otherwise provided by applicable law. The systems are also subject
to competition from alternate sources of energy such as bottled gas, natural
gas, fuel oil, diesel generation, wood stoves and self-generation.

The systems, in common with the electric power industry generally, may incur
substantial capital expenditures and increases in operating costs in order to
meet the requirements of both present and future Federal, state and local
standards relating to safety and environmental quality control. These include
possible requirements for burying distribution lines and meeting air and water
quality standards.

On November 15, 1990, amendments to the Clean Air Act of 1970 (the
"Amendments"), designed to cause utilities and others to reduce emissions,
became law. The Amendments contain a range of compliance options and a
phase-in period which will help mitigate the immediate costs of implementation.
Many of CFC's member systems already comply with the provisions of the
Amendments. CFC is currently monitoring the overall impact of the Amendments
on individual member systems, which must implement compliance plans and
operating or equipment modifications for Phase I of the Act (1995), and for
those affected in Phase II of the Act (2000). Compliance plans for member
systems with units affected in Phase I primarily involve fuel switching to
low-sulfur coal. The trading of emission allowances may also be an economical
alternative in Phase II. Some member systems originally believed to be
affected by the Amendments have developed strategies designed to minimize the
Amendment's impact. At this time, it is not anticipated that the Amendments
will have a material adverse impact on the quality of CFC's loan portfolio.

FERC has released notice of proposed rulemaking (the "MegaNOPR") to solicit
comments on pending policy changes aimed at increasing access to the nation's
electric transmission lines. The proposed changes would require utilities
with power transmission lines to grant access at a set fee to anyone seeking
to use those lines. The avowed purpose of this initiative is to promote
competition in bulk power markets.

The impact of such regulations, if adopted, on the rural electric systems
would depend upon the final rules regarding many issues, including (1) the
pricing of the tariffs filed by FERC regulated public utilities, and the
pancaking (adding of tariffs for systems crossed) effect of wheeling over
several systems; (2) how existing contracts are handled; (3) the definition
and recoverability of "stranded costs" imposed on departing customers;
(4) practical limits placed on access; (5) the owner's obligation to upgrade
its transmission system to accomodate service and RUS interpretation of RE
Act beneficiary use of the cooperative's facilities' ; and (6) reciprocity
requirements (i.e., to offer service as a condition of requesting service),
and affiliated organization issues (would a G&T's obligation extend to its
distribution members).

Section 211 of the Federal Power Act as amended by the Energy Policy Act of
1992 classifies any cooperative with significant transmission assets as a
"transmitting utility". Under the provisions of this Act, FERC has the
authority to order such cooperatives to wheel power for unaffiliated entities.
Under sections 205 and 206 of the Federal Power Act, cooperatives that pay off
their RUS debt are treated as "public utilities". FERC is proceeding under
the legal theory that, under these sections, it can order "public utilities"
to provide open access.

All telephone systems are regulated by the Federal Communications Commission
(the "FCC") with respect to long distance access rates. Most states also
regulate local rates.

Financial Information

The systems differ from investor-owned utilities in that the vast majority
are cooperative, non-profit organizations operating under policies which
provide that rates should be established so as to minimize rates over the
long-term.
<PAGE>22

Revenues in excess of operating costs and expenses are referred to as "net
margins and patronage capital" and are treated as equity capital furnished by
the systems' consumers. This "capital" is transferred to a balance sheet
account designated as "patronage capital", and is usually allocated to
consumers in proportion to their patronage. Such capital is not refunded to
them for a period of years during which time it is available to the system to
be used for proper corporate purposes. Subject to their applicable contractual
obligations, the systems may refund such capital to their members when doing
so will not impair the systems' financial condition. In the terminology of the
Uniform System of Accounts prescribed by RUS for its borrowers, "operating
revenues and patronage capital" refers to all utility operating income received
during a given period.

Similar to the practice followed by investor-owned utilities pursuant to FERC
procedures and as prescribed by RUS, the systems capitalize as a cost of
construction the interest charges on borrowed funds ("interest charged to
construction") and the estimated unearned interest attributable to internally-
generated funds ("allowance for funds used during construction") used in the
construction of generation, and to a lesser extent transmission and
distribution facilities. This accounting policy, which increases net margins
by the amounts of these actual and imputed interest charges, is based on the
premise that the cost of financing construction is an expenditure serving to
increase the productive capacity and value of the utility's assets and thus
should be included in the cost of the assets constructed and recovered over
the life of the assets. In the case of Power Supply systems, RUS has included
in its direct loans and guarantees of loans amounts sufficient to meet the
estimated interest charges during construction. If the foregoing accounting
policy were not followed, utilities would presumably request regulatory
permission, if applicable, to increase their rates to cover such costs. The
amounts of interest charged to construction and allowance for funds used
during construction capitalized by distribution systems are relatively
insignificant. Because Power Supply systems generally expend substantial
amounts on long-term construction projects, the application of this accounting
policy may result in substantially lower interest expense and in substantially
higher net margins for such systems during construction than would be the case
if such a policy were not followed.

On the following pages are tables providing composite statements of revenues,
expenses and patronage capital of the distribution systems which were members
of CFC and the Power Supply systems which were members of CFC during the five
years ended December 31, 1993, and their respective composite balance sheets
at the end of each such year. Complete RUS data for the year ended December
31, 1994 was not available prior to the filing of this report.

NOTE: Statistical information in the RUS Reports has not been examined
by CFC's independent public accountants, and the number and geographical
dispersion of the systems have made impractical an independent investigation
by CFC of the statistical information available from RUS. The RUS Reports are
based upon financialstatements submitted to RUS, subject to year-end audit
adjustments, by reporting RUS borrowers and do not, with minor exceptions,
take into account current data for certain systems, primarily those which are
not active RUS borrowers. As of December 31, 1993, 163 RUS borrowers had
repaid their RUS loans in full and were accordingly not subject to RUS
reporting requirements.

<PAGE>23
<TABLE>
<CAPTION>
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
COMPOSITE STATEMENTS OF REVENUES, EXPENSES AND PATRONAGE CAPITAL
AS REPORTED BY CFC MEMBER DISTRIBUTION SYSTEMS

The following are unaudited figures which are based
upon financial statements submitted to RUS or to
CFC by CFC Member Distribution Systems

Years Ended December 31,
(Dollar Amounts In Thousands) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Operating revenues and patronage capital $15,072,400 $13,921,515 $13,446,544 $12,819,204 $12,303,951
Operating deductions:
Cost of power (1) 9,882,450 9,211,421 8,979,920 8,558,404 8,363,149
Distribution expense (operations) 366,148 346,183 327,787 307,649 289,525
Distribution expense (maintenance) 643,390 589,722 558,291 528,746 496,245
Administrative and general expenses (2) 1,398,749 1,287,224 1,215,158 1,137,154 1,060,641
Depreciation and amortization expense 879,957 828,966 775,049 724,951 676,706
Taxes 396,024 365,473 337,898 313,403 299,542
Total 13,566,718 12,628,989 12,194,103 11,570,307 11,185,808
Utility operating margins 1,505,682 1,292,526 1,252,441 1,248,897 1,118,143
Non-operating margins 110,612 157,912 175,993 201,798 202,183
Power supply capital credits (3) 274,250 219,638 201,708 163,580 135,394
Total 1,890,544 1,670,076 1,630,142 1,614,275 1,455,720
Interest on long-term debt (4) 730,078 749,594 763,070 741,465 691,738
Other deductions 36,644 27,841 18,953 22,607 20,396
Total 766,722 777,435 782,023 764,072 712,134
Net margins and patronage capital $1,123,822 $ 892,641 $ 848,119 $ 850,203 $ 743,586
TIER (5) 2.54 2.19 2.11 2.15 2.07
DSC (6) 2.44 2.07 2.13 2.16 2.09
MDSC (7) 2.21 1.99 2.06 2.05 2.03
Number of systems included 825 821 819 820 822

(1) Includes cost of purchased power, power production and transmission
expense, separately listed in the applicable RUS Report.
(2) Includes sales expenses, consumer accounts and customer service and
informational expense as well as other administrative and general
expenses, separately listed in the applicable RUS Report.
(3) Represents net margins of Power Supply systems and other associated
organizations allocated to their member distribution systems and added in
determining net margins and patronage capital of distribution systems
under RUS accounting practices. Cash distributions of this credit have
rarely been made by the Power Supply systems and such other organizations
to their members.
(4) Interest on long-term debt is net of interest charged to construction,
which is stated separately as a credit in RUS Reports. For a description
of the reasons for, and the effect on net margins and patronage capital
of, the accounting policies governing interest charged to construction and
allowance for funds used during construction, see "Financial
Information". CFC believes that amounts incurred by distribution systems
for interest charged to construction and allowance for funds used during
construction are immaterial relative to their total interest on long-term
debt and net margins and patronage capital.
(5) Determined by adding interest on long-term debt (in each year including
all interest charged to construction) and net margins and patronage
capital and dividing the total by interest on long-term debt (in each year
including all interest charged to construction).
(6) The ratio of (x) net margins and patronage capital plus interest on
long-term debt (including all interest charged to construction) plus
depreciation and amortization to (y) long-term debt service obligations.
(7) Modified DSC ("MDSC") calculation is the ratio of (x) operating margins
and patronage capital plus interest on long-term debt (including all
interest charged to construction) plus depreciation and amortization
expense plus Non-operating Margins-Interest plus cash received in respect
of generation and transmission and other capital credits to (y) long-term
debt service obligations.
</TABLE>

<PAGE>24
<TABLE>
<CAPTION>
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
COMPOSITE BALANCE SHEETS
AS REPORTED BY CFC MEMBER DISTRIBUTION SYSTEMS

The following are unaudited figures which are based
upon financial statements submitted to RUS or to
CFC by CFC Member Distribution Systems

At December 31,
(Dollar Amounts In Thousands) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Assets and other debits:
Utility plant:
Utility plant in service $29,172,898 $27,502,596 $25,846,550 $24,370,100 $22,754,138
Construction work in progress 697,329 619,764 615,425 623,356 650,533
Total utility plant 29,870,227 28,122,360 26,461,975 24,993,456 23,404,671
Less: accumulated provision for
depreciation and amortization 7,992,325 7,401,028 6,812,221 6,330,979 5,879,089
Net utility plant 21,877,902 20,721,332 19,649,754 18,662,477 17,525,582
Investments in associated organizations (1) 2,847,260 2,585,621 2,405,290 2,255,370 2,123,391
Current and accrued assets 3,733,893 3,611,874 3,624,025 3,585,399 3,362,784
Other property and investments 366,452 343,734 323,445 311,937 248,245
Deferred debits 463,194 439,529 342,855 287,294 263,002
Total assets and other debits $29,288,701 $27,702,090 $26,345,369 $25,102,477 $23,523,004

Liabilities and other credits:
Net worth:
Memberships $ 100,689 $ 98,450 $ 93,207 $ 91,827 $ 88,972
Patronage capital and other equities (2) 11,859,273 10,826,559 9,966,135 9,275,621 8,460,725
Total net worth 11,959,962 10,925,009 10,059,342 9,367,448 8,549,697
Long-term debt (3) 14,569,363 14,303,024 13,958,473 13,461,363 12,681,327
Current and accrued liabilities 2,066,601 1,898,868 1,755,336 1,734,385 1,741,832
Deferred credits 598,997 555,618 554,149 521,339 534,176
Miscellaneous operating reserves 93,778 19,571 18,069 17,942 15,972

Total liabilities and other credits $29,288,701 $27,702,090 $26,345,369 $25,102,477 $23,523,004

Equity Percentage (4) 40.8% 39.4% 38.2% 37.3% 36.4%
Number of systems included 825 821 819 820 822

</TABLE>
(1) Includes investments in service organizations, power supply capital
credits and investments in CFC.

(2) Includes non-refundable donations or contributions in cash, services or
property from states, municipalities, other government agencies,
individuals and others for construction purposes separately listed in the
applicable RUS Report.

(3) Principally debt to RUS and includes $3,607,159, $3,536,794, $3,435,994,
$3,283,689, and $3,018,608 for the years 1993, 1992, 1991, 1990 and 1989,
respectively, due to CFC.

(4) Determined by dividing total net worth by total assets and other debits.

<PAGE>25
<TABLE>
<CAPTION>
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
COMPOSITE STATEMENTS OF REVENUES, EXPENSES AND PATRONAGE CAPITAL
AS REPORTED BY CFC MEMBER POWER SUPPLY SYSTEMS

The following are unaudited figures which are based
upon financial statements submitted to RUS or to
CFC by CFC Member Power Supply Systems

Years Ended December 31,
(Dollar Amounts In Thousands) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Operating revenues and patronage capital $9,976,560 $ 9,111,434 $ 8,615,165 $ 8,553,618 $ 8,589,575
Operating deductions:
Cost of power (1) 6,606,419 5,855,131 5,541,332 5,461,628 5,436,747
Transmission expense (operations) 14,391 12,959 11,445 9,451 8,109
Transmission expense (maintenance) 11,081 11,300 11,315 10,611 8,425
Administrative and general expenses (2) 333,278 390,521 363,646 338,256 312,364
Depreciation and amortization expenses 902,810 872,657 819,586 821,943 796,955
Taxes 223,122 233,420 239,588 182,279 233,891
Total 8,091,101 7,375,988 6,986,912 6,824,168 6,796,491
Utility operating margins 1,885,459 1,735,446 1,628,253 1,729,450 1,793,084
Non-operating margins 328,958 280,810 329,419 328,349 305,067
Power supply capital credits (3) 47,838 30,771 28,405 12,452 19,259
Total 2,262,255 2,047,027 1,986,077 2,070,251 2,117,410
Interest on long-term debt (4) 2,014,794 2,075,939 1,999,107 1,968,531 1,839,641
Other deductions 184,902 137,344 42,862 203,548 330,870
Total 2,199,696 2,213,283 2,041,969 2,172,079 2,170,511
Net margins and patronage $ 62,559 $(166,256) $ (55,892) $(101,828) $ (53,101)
TIER (5) .98 .92 .97 .95 .97
DSC (6) 1.03 1.05 1.06 1.05 1.08
Number of systems included (7) 50 50 49 50 51

</TABLE>
(1) Includes cost of purchased power, power production and transmission
expense, separately listed in the applicable RUS Report.
(2) Includes sales expenses and consumer accounts expense and consumer
service and informational expense as well as other administrative and
general expenses, separately listed in the applicable RUS Report.
(3) Certain Power Supply systems purchase wholesale power from other Power
Supply systems of which they are members. Power supply capital credits
represent net margins of Power Supply systems allocated to member Power
Supply systems on the books of the selling Power Supply systems. This
item has been added in determining net margins and patronage capital of
the purchasing Power Supply systems under RUS accounting practices. Cash
distributions of this credit have rarely been made by the selling Power
Supply systems to their members. This item also includes net margins of
associated organizations allocated to CFC Power Supply members and added
in determining net margins and patronage capital of the CFC member
systems under RUS accounting practices.
(4) Interest on long-term debt is net of interest charged to construction.
Allowance for funds used during construction has been included in non-
operating margins. For a description of the reasons for, and the effect
on net margins and patronage capital of, the accounting policies governing
interest charged to construction and allowance for funds used during
construction, see "Financial Information". According to unpublished
information furnished by RUS, interest charged to construction and
allowance for funds used during construction for CFC power supply members
in the years 1989-1993 were as follows:

<PAGE>26
<TABLE>
<CAPTION>
Allowance for
Interest Charged Funds used
(Dollar Amounts In Thousands) to Construction During Construction Total
<S> <C> <C> <C>
1993 $ 49,237 $8,621 $ 57,858
1992 $ 54,093 $4,396 $ 58,489
1991 $ 49,495 $5,241 $ 54,736
1990 $ 55,670 $6,615 $ 62,285
1989 $100,380 $6,761 $107,141

</TABLE>
(5) Determined by adding interest on long-term debt (in each year including
all interest charged to construction) and net margins and patronage
capital and dividing the total by interest on long-term debt (in each year
including all interest charged to construction). The TIER calculation
includes the operating results of six systems which currently fail to make
debt service payments or are operating under a Debt Restructure Agreement,
without which the composite TIER would have been 1.20, 1.15, 1.15, 1.08
and 1.10 for the years ended December 31, 1993, 1992, 1991, 1990 and 1989,
respectively.
(6) The ratio of (x) net margins and patronage capital plus interest on
long-term debt (including all interest charged to construction) plus
depreciation and amortization to (y) long-term debt service obligations
(including all interest charged to construction). The DSC calculation
includes the operating results of six systems which currently fail to
make debt service payments or are operating under a Debt Restructure
Agreement. Without these systems, the composite DSC would have been
1.21, 1.22, 1.26, 1.21 and 1.21 for the years ended December 31, 1993,
1992, 1991, 1990 and 1989, respectively.
(7) Thirteen CFC Power Supply system members are not required to report to
RUS since they are not currently borrowers from RUS. These systems are
either in developmental stages or act as coordinating agents for their
members. Their inclusion would not have a material effect on this data.
In addition, RUS has determined not to include data for Wabash Valley
Power Association ("Wabash") and Colorado-Ute in their composite
statements due to Wabash's ongoing bankruptcy and the liquidation of
Colorado-Ute (see Note 10 to Combined Financial Statements).

<PAGE>27
<TABLE>
<CAPTION>
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
COMPOSITE BALANCE SHEETS
AS REPORTED BY CFC MEMBER POWER SUPPLY SYSTEMS

The following are unaudited figures which are based
upon financial statements submitted to RUS or to
CFC by CFC Member Power Supply Systems

At December 31,
(Dollar Amounts In Thousands) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Assets and other debits:
Utility plant:
Utility plant in service $32,240,926 $31,375,391 $29,433,524 $29,421,761 $29,777,550
Construction work in progress 1,469,882 1,324,432 911,262 695,229 891,907
Total utility plant 33,710,808 32,699,823 30,344,786 30,116,990 30,669,457
Less: accumulated provision for
depreciation and amortization 9,936,528 8,983,913 7,786,074 7,032,102 6,277,677
Net utility plant 23,774,280 23,715,910 22,558,712 23,084,888 24,391,780
Investments in associated organizations(1) 992,921 865,162 740,554 654,419 661,338
Current and accrued assets 4,284,613 4,076,841 4,239,802 4,094,006 4,399,010
Other property and investments 1,899,809 1,717,451 1,503,526 1,447,443 1,121,803
Deferred Debits 4,078,879 1,879,607 1,445,868 2,236,808 2,303,752
Total assets and other debits $35,030,502 $32,254,971 $30,488,462 $31,517,564 $32,877,683
Liabilities and other credits:
Net worth:
Memberships $ 252 $ 246 $ 244 $ 250 $ 248
Patronage capital and other equities 432,095 315,793 593,505 544,872 690,481
Total net worth 432,347 316,039 593,749 545,122 690,729
Long-term debt (2) 28,528,640 28,838,255 27,060,357 27,989,365 25,671,597
Current and accrued liabilities 1,185,182 1,531,722 1,391,762 1,492,713 5,117,204
Deferred credits 1,849,906 1,071,393 1,344,641 1,113,545 1,035,989
Miscellaneous operating reserves 3,034,427 497,562 97,953 376,819 362,164
Total liabilities and other credits $35,030,502 $32,254,971 $30,488,462 $31,517,564 $32,877,683
Number of systems included (3) 50 50 49 50 51

</TABLE>
(1) Includes investments in service organizations, power supply capital
credits and investments in CFC.

(2) Principally debt to RUS or debt guaranteed by RUS and loaned by FFB.

(3) Twelve CFC Power Supply system members are not required to report to
RUS since they are not currently borrowers from RUS. These systems are
either in developmental stages or act as coordinating agents for their
members. Their inclusion would not have a material effect on these data.

Item 2. Properties.

CFC owns and operates a headquarters facility in Fairfax County, Virginia.
This facility consists of a six-story office building with separate parking
garage situated on four acres of land. The company also owns an additional
31.5 acres of unimproved land adjacent to the building. There are no plans at
this time for future use of either parcel of land.

Item 3. Legal Proceedings.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

<PAGE>28
PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

Inapplicable.

Item 6. Selected Financial Data.

The following is a summary of selected financial data for each of the five
years ended May 31, 1995.
<TABLE>
<CAPTION>
(Dollar Amounts In Thousands) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
For the year ended May 31:
Operating income $ 440,109 $ 324,682 $ 336,387 $402,255 $428,974
Operating margin $ 41,803 $ 29,159 $ 38,352 $ 42,809 $ 28,564
Nonoperating income 3,409 4,029 3,296 2,744 3,883
Gain on sale of building 0 0 0 0 15,858
Extraordinary loss (A) 0 0 (3,161) (1,398) (2,800)
Net margins $ 45,212 $ 33,188 $ 38,487 $ 44,155 $ 45,505
Fixed charge coverage ratio (A) 1.13 1.13 1.16 1.14 1.14

As of May 31:
Assets $7,080,789 $6,224,296 $5,464,144 $5,401,473 $5,139,624
Long-term debt (B) $3,423,031 $2,841,220 $3,095,488 $2,971,074 $3,204,357
Members' subordinated certificates $1,234,715 $1,222,858 $1,215,547 $1,221,095 $1,181,010
Members' equity $ 270,221 $ 260,968 $ 258,299 $ 246,320 $ 243,491
Leverage ratio (C) 5.13 4.63 4.41 4.44 4.43

</TABLE>
(A) During the years ended May 31, 1993, 1992 and 1991 CFC paid premiums
totaling $3.2 million, $1.4 million, and $2.8 million respectively, in
connection with the prepayment of Collateral Trust Bonds. Margins used
to compute the fixed charge coverage ratio represent net margins before
extraordinary loss plus fixed charges. The fixed charges used in the
computation of the fixed charge coverage ratio consist of interest and
amortization of bond discount and bond issuance expenses.

(B) Includes commercial paper reclassified as long-term debt and excludes
$262.7 million, $200.8 million, $286.8 million, $494.5 million and $109.6
million in long-term debt that comes due, matures and/or will be redeemed
early during fiscal years 1996, 1995, 1994, 1993 and 1992, respectively
(see Note 5 to Combined Financial Statements).

(C) In accordance with CFC's revolving credit agreements, the leverage ratio
is calculated by dividing debt and guarantees outstanding, excluding debt
used to fund loans guaranteed by the U.S. Government, by the total of
Members' Subordinated Certificates and Members' Equity.

CFC has had outstanding guarantees for its members' indebtedness in each of
the fiscal years shown above. Members' interest expense on such indebtedness
was approximately $128.3 million for the year ended May 31, 1995.

The Company does not have outstanding any common stock and does not pay
dividends. Under current policies, CFC retires Patronage Capital Certificates,
which represent annual allocations of CFC's net margins, 70% during the next
fiscal year and expects to retire the remaining 30% after 15 years with due
regard for CFC's financial condition.

<PAGE>29

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.

Overview

The following discussion and analysis is designed to provide a better
understanding of the Company's combined financial condition and results of
operations and as such should be read in conjunction with the Combined
Financial Statements, including the notes thereto.

CFC was formed in 1969 by rural electric cooperatives to provide them with a
source of funds to supplement the financing provided by RUS. The Company was
organized as a cooperative in which each member receives one vote. Under CFC's
bylaws, the Board of Directors must be comprised of 22 individuals who are
either general managers or directors of members. CFC was granted tax-exempt
status under Section 501(c)(4) of the Internal Revenue Code.

In 1987, RTFC was formed by CFC to provide a source of funds for the rural
telephone industry. Like CFC, RTFC is a cooperative. However, RTFC's bylaws
and voting members' agreement require that the majority of RTFC's Board of
Directors be elected from individuals designated by CFC. The remaining board
positions are filled by individuals nominated by the other RTFC members.
Because CFC has control of the RTFC Board, RTFC's financial condition and
results of operations are combined with those of CFC. (Unless stated otherwise,
all references to CFC refer to the combined results of CFC, RTFC and all
other CFC controlled affiliates.)

The principal concept of CFC is to provide a mechanism through which the rural
electric cooperatives can achieve better access to the debt markets. Each
rural electric cooperative which joins CFC agrees to purchase subordinated
subscription certificates from CFC as described below.

CFC's operations consist of providing loans, financial guarantees and other
financial services to its rural electric, telephone and other related
organizations. In connection with any long-term loan or guarantee made by CFC
to or on behalf of one of its members, CFC generally requires that the member
make an additional investment in CFC by purchasing loan or guarantee
certificates. Like the original subscription certificates, the loan and
guarantee certificates are unsecured and subordinate to other debt.

The subscription and loan and guarantee certificates (together, "Subordinated
Certificates") along with related patronage capital provide CFC's base
capitalization. On a regular basis, CFC obtains debt financing in the market
by issuing long-term fixed rate or variable rate Collateral Trust Bonds,
intermediate-term fixed or variable rate Medium-Term Notes, Commercial Paper
and Bank Bid Notes. In addition, CFC obtains debt financing from its
membership and other qualified investors through the direct sale of its
Commercial Paper and Medium-Term Notes.

CFC's primary objective as a cooperative is to provide its members with the
lowest possible loan and guarantee rates. Therefore, CFC marks up its funding
costs only to the extent necessary to cover its operating expenses and a
provision for loan and guarantee losses and to provide for margins sufficient
to preserve interest coverage in light of CFC's financing objectives. To the
extent members contribute to CFC's base capital with Subordinated Certificates
carrying below-market interest rates, CFC can offer proportionally lower
interest rates on its loans to members.

CFC is required by the cooperative laws under which it is incorporated to
allocate its earnings to its members in proportion to the members'
contributions to those earnings. CFC thus allocates its net margins based on
each member's participation in loan programs during the year.

CFC's performance is closely tied to the performance of its member rural
electric and telephone utility systems due to the near 100% concentration of
its loan and guarantee portfolio in those industries. The following provides
an analysis of both CFC's performance and a discussion of the quality of CFC's
loan and guarantee portfolio.

<PAGE>30
Financial Condition

At May 31, 1995, CFC had $7.1 billion in total assets. Approximately $6.7
billion or 95% of these assets consisted of loans made to CFC's members. The
remaining $0.4 billion consisted of other assets to support CFC's operations.
Except as required for the debt service account and unless excess cash is
invested overnight, generally CFC does not use funds to invest in debt or
equity securities.

At May 31, 1995, 85% of CFC's loan portfolio consisted of 35-year long-term
secured amortizing loans, including long-term loans classified as nonperforming
and restructured. The remaining 15% consisted of short- and intermediate-term
secured and unsecured lines of credit and long-term loans guaranteed by the
United States Government. Approximately 32% or $2.3 billion in long-term loans
carry a fixed rate of interest. All other loans, including $3.6 billion in
long-term loans, are subject to interest rate adjustment monthly or
semimonthly.

In addition to its loans, CFC had provided approximately $2.6 billion in
guarantees for its members at May 31, 1995. These guarantees relate primarily
to tax-exempt financed pollution control equipment and to leveraged lease
transactions for equipment and plant.

At May 31, 1995, CFC had also committed to lend an additional amount of
approximately $5.0 billion to its members. Most unadvanced loan commitments
contain a material adverse change clause. As many of these commitments are
provided for operational back-up liquidity, CFC does not anticipate funding
the majority of the commitments outstanding.

CFC funds its assets through the sale of Subordinated Certificates, retained
equity and other debt instruments. As discussed previously, Subordinated
Certificates include both original membership subscription certificates and
loan and guarantee certificates, all of which are subordinate to other CFC
debt. At May 31, 1995, subscription certificates totaled $637 million. These
certificates generally mature in 70 to 100 years and generally pay interest at
5.0%. At May 31, 1995, loan certificates totaled $326 million and carried a
weighted average interest rate of 1.1%. At May 31, 1995, guarantee
certificates totaled $272 million and carried a weighted average interest rate
of 4.7%. Both the loan certificates and guarantee certificates are long-term
instruments which generally amortize at a rate equivalent to that of the loan
or guarantee to which they relate. On a combined basis, Subordinated
Certificates carried a weighted average interest rate of 4.4%. The issuance
of zero percent loan certificates is expected to exceed the issuance of 5.0%
subscription certificates. Therefore, management expects this average
interest rate to decline over time.

CFC's net margins are allocated each year to CFC's member borrowers. Prior to
fiscal year 1994, CFC's policy was to retire net margins on a first-in,
first-out seven year cycle. Fiscal year 1994 net margins were retired 50% in
the next fiscal year, with the remaining 50% to be held for 15 years. During
fiscal year 1995, CFC adjusted its retirement policy to return 70% of net
margins in the next fiscal year and hold the remaining 30% for 15 years.
During the next 14 years, CFC will retire the existing six years of unretired
allocations representing net margins for fiscal years 1988 to 1993. The
unretired allocations (members' equity) do not earn interest and are junior to
all debt instruments, including Subordinated Certificates. At May 31, 1995,
CFC had $270 million in retained equity. Subordinated Certificates, in
conjunction with retained members' equity, supply CFC's base capitalization.

CFC enters the capital markets through the issuance of Collateral Trust Bonds,
Medium-Term Notes, Commercial Paper and Bank Bid Notes. At May 31, 1995, CFC
had $532 million in fixed rate long-term Collateral Trust Bonds and $150
million in variable rate Collateral Trust Bonds outstanding. Under its
Collateral Trust Bond Indentures, CFC must pledge as collateral mortgage
notes from its borrowers evidencing loans equal in principal amount to at
least 100% of the outstanding Bonds. At May 31, 1995, CFC had pledged $790
million in mortgage notes. During fiscal year 1994, CFC effected the early
redemption of $350 million in Collateral Trust Bonds, at par. In February
1994, CFC had entered into a new Collateral Trust Bond Indenture, with First
Bank National Association as trustee ("1994 Indenture"), under which future
series of Collateral Trust Bonds will be issued. Virtually all Collateral
Trust Bonds were offered to outside investors in underwritten public offerings.

<PAGE>31

At May 31, 1995, CFC had $574 million outstanding in Medium-Term Notes.
Medium-Term Notes are issued for terms of 270 days to 30 years and are
unsecured obligations of CFC. Medium-Term Notes outstanding to CFC's members
totaled $367 million at May 31, 1995. The remaining $207 million were sold to
outside investors.

At May 31, 1995, CFC had $3,893 million outstanding in Commercial Paper with a
weighted average maturity of 65 days. Commercial Paper notes are issued with
maturities up to 270 days and are unsecured obligations of CFC. Commercial
Paper outstanding to CFC's members totaled $1,110 million at May 31, 1995.
The remaining $2,783 million was sold to outside investors.

In addition, CFC obtains funds from various banking institutions under Bank Bid
Note arrangements, similar to bank lines of credit. The notes are issued for
terms up to three months and are unsecured obligations of CFC. At May 31,
1995, CFC had $350 million outstanding in Bank Bid Notes.

During the year, total assets increased by $856 million. Net loan balances
increased by $826 million or 14%. Gross loans increased by a total of $843
million, partially offset by an increase in the allowance for loan and
guarantee losses of $17 million, over the prior year. As a percentage of the
portfolio, long-term loans (excluding loans guaranteed by RUS) represented 85%
at May 31, 1995, compared to 84% at May 31, 1994. Long-term fixed rate loans
represented 38% and 41% of the total long-term loans at May 31, 1995 and 1994.
Loans converting from the fixed rate to the variable rate or selecting a
variable rate upon the expiration of the current fixed interest rate period
totaled $117 million for the year ended May 31, 1995, less than one half of
the $257 million of such loans that underwent conversion and repricing for the
year ended May 31, 1994. The loans moving from the fixed rate to a variable
rate were partially offset by $75 million and $222 million of variable rate
loans that converted to a fixed rate for the years ended May 31, 1995 and
1994, respectively. This resulted in a net change of $42 million and $35
million from the fixed rate to the variable rate for the years ended May 31,
1995 and 1994, respectively.

The increase in total loans outstanding at May 31, 1995, was primarily due to
an increase of $634 million in long-term variable rate loans, an increase of
$132 million in long-term fixed rate loans and an increase of $188 million in
short-term loans, partially offset by a decrease of $104 million in RUS
guaranteed loans and a decrease of $8 million in intermediate-term loans. The
increase in long-term variable rate loans was due to an increase of $429
million in loans outstanding primarily to electric systems for RUS note
buyouts, and to an increase of $205 million to telecommunication systems
primarily for the acquisition of local exchange telecommunication properties.
The increase in long-term fixed rate loans was due to an increase of $110
million in loans outstanding primarily to electric systems for RUS note
buyouts, and to an increase of $22 million in loans outstanding to
telecommunication systems. The increase in short-term loans was due to the
renewal of lines of credit extended to electric systems. The decrease in RUS
guaranteed loans was due to CFC's resale of its interest in two of the the
trusts and to regular principal repayments.

During the year, CFC substantially increased its short-term debt outstanding
to fund the increase in variable rate loans outstanding. Notes Payable, which
consists of Commercial Paper and Bank Bid Notes, increased $605 million. This
increase was a result of CFC match-funding as to rate the additional variable
rate loans originated during the year. At May 31, 1995, CFC's short-term debt
consisted of $2,783 million in dealer Commercial Paper, $1,050 million in
Commercial Paper issued to CFC's members, $60 million in Commercial Paper
issued to certain nonmembers and $350 million in Bank Bid Notes. The
Commercial Paper sold to CFC's members and certain nonmembers increased by
$48 million, the amount of Bank Bid Notes outstanding increased by $141
million and Commercial Paper sold through CFC's dealers increased by $415
million from the prior year. CFC's short-term debt had a weighted average
maturity of 65 days at May 31, 1995, an increase from 36 days at May 31,
1994. Long-term debt consists in part of Collateral Trust Bonds and Medium-
Term Notes. As described in the footnotes to the Combined Financial
Statements, CFC reclassifies a portion of its short-term debt as long-term, as
it has the ability (subject to certain conditions) to refinance this short-
term debt on a long-term basis under its revolving credit agreements. CFC
renegotiated its revolving credit agreements during the fourth quarter of
fiscal year 1995 and was able to reclassify $2,430 million and $2,030 million
in short-term debt as long-term at May 31, 1995 and 1994, respectively.

<PAGE>32

During fiscal year 1995, long-term debt outstanding increased by $244 million.
In September 1994, CFC issued $150 million in Series 1994A variable rate
Collateral Trust Bonds due September 1996. The issuance of the 1994A bonds
less required sinking fund payments resulted in an increase of $142 million in
Collateral Trust Bonds outstanding at May 31, 1995, compared to the prior year.
Medium-Term Notes outstanding increased by $102 million over the prior year.

Deferred income decreased by $16 million, due to the recognition of conversion
fees into income during fiscal year 1995. CFC will amortize the remaining $19
million of deferred fees into income over the next two years.

Subordinated Certificates and members' equity increased by $21 million to
$1,505 million at May 31, 1995, compared to $1,484 million at May 31, 1994.
Due to recent policy changes, significant increases in Subordinated
Certificates and members' equity are not anticipated. During fiscal year 1995,
CFC adopted policy changes that reduce the amount of Subordinated Certificates
required to be purchased as a precondition to receiving a loan advance and
increased the amount of allocated net margins to be retired in the next
fiscal year from 50% to 70%.

Off-balance sheet, CFC experienced a decrease of $150 million in loan
commitments. This decrease was due to the advance of funds during fiscal
year 1995 for telecommunication acquisitions. Guarantees outstanding
decreased by $81 million due to scheduled principal repayments.

CFC's leverage ratio increased during the year from 4.63 at May 31, 1994, to
5.13 at May 31, 1995. The ratio is calculated after excluding all debt
associated with the funding of the RUS guaranteed loans. Subordinated
Certificates are treated as equity in the calculation of the leverage ratio.
This increase was primarily due to an increase in loans outstanding to members
financed by the issuance of short-term debt, Collateral Trust Bonds and
Medium-Term Notes. There were no other significant changes in CFC's financial
condition. CFC contemplates that its leverage ratio will continue to increase
as it borrows more to accommodate its members' financing requirements. CFC
believes the leverage ratio will be maintained within a range comparable to
that of finance companies which have received comparable ratings from major
rating agencies.

Margin Analysis

Fiscal Year 1995 versus 1994 Results

CFC uses an interest coverage ratio, instead of the dollar amount of gross or
net margins, as a primary performance indicator, since CFC's net margins are
subject to fluctuations as interest rates change. During the year ended
May 31, 1995, CFC achieved a Times Interest Earned Ratio ("TIER") of 1.13.
This was equal to the prior fiscal year's TIER of 1.13 . Management has
established a 1.10 TIER as its minimum operating objective.

For the year ended May 31, 1995, operating income totaled $440 million, an
increase of $115 million over the prior year. Operating income includes
interest earned on loans and conversion fees. The increase in operating
income was due to the general increase in interest rates. This increase
reflected a positive rate variance of $74 million and a positive volume
variance of $41 million.

For the year ended May 31, 1995, cost of funds totaled $361 million, an
increase of $98 million from the prior year. Included in cost of funds is
interest expense on CFC's Subordinated Certificates and other debt
instruments offset by interest earnings on debt service investments. The
increase in cost of funds was due to the effects of increases in general
market interest rates on CFC's variable rate debt instruments. This increase
reflected a positive rate variance of $67 million and a positive volume
variance of $31 million.

For the year ended May 31, 1995, gross margins totaled $79 million. This
represented an increase from the prior fiscal year of $17 million. This
increase was primarily a result of the general increase in interest rates and
to the increase in loans outstanding.

General and administrative expenses increased by $3 million over the prior
year. This increase is a result of one-time expenses associated with the
changeover from a mainframe computer environment to a client server computer
environment, accelerated write-off of deferred expenses and a major office
renovation. During fiscal year 1995, CFC also added $17 million to its loan
and guarantee loss allowance, an increase of $2 million over the prior year.
Total expenses were $37 million, an increase of $5 million over the prior year.

<PAGE>33

Nonoperating income includes guarantee fee income and any other gains and
losses. Nonoperating income decreased by $1 million, from $4 million for the
year ended May 31, 1994 to $3 million for the year ended May 31, 1995.

Overall, CFC's net margins increased $12 million from $33 million for the year
ended May 31, 1994 to $45 million for the year ended May 31, 1995. As
described earlier, this increase was a result of an increasing interest rate
environment and an increase in loans outstanding. CFC's achieved TIER of 1.13
represents no change from the prior year's achieved TIER.

Fiscal Year 1994 versus 1993 Results

For the year ended May 31, 1994, operating income totaled $325 million, a
decrease of $12 million from the year ended May 31, 1993. The decrease was
due to a negative rate variance of $37 million partially offset by a positive
volume variance of $25 million.

For the year ended May 31, 1994, cost of funds totaled $263 million, a
decrease of $2 million from the prior year. The decrease was due to a
negative rate variance of $8 million partially offset by a positive volume
variance of $6 million.

For the year ended May 31, 1994, gross margins totaled $61 million. This
represented a decrease from the prior year of $10 million. This decrease was
a result of the lower interest rate environment. The margins necessary to
meet a desired interest coverage ratio are lower in a declining interest rate
environment.

During the year ended May 31, 1994, general and administrative expenses
decreased by $1.0. In addition, CFC added $15 million to its allowance for
loan and guarantee losses during the year, approximately the same amount as
the prior year.

During the year ended May 31, 1994, CFC retired three Collateral Trust Bond
series totaling $350 million, all at par.

Overall, CFC's net margins decreased $5 million from $38 million for the year
ended May 31, 1993 to $33 million for the year ended May 31, 1994. Again,
this decrease was a result of a declining interest rate environment. CFC
achieved a TIER of 1.13, a decrease from the TIER of 1.16 achieved the prior
year.

The following is a summary of CFC's operating results as a percentage of
average loans outstanding for the last three fiscal years ending May 31,
1995, 1994 and 1993.
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Interest on loans 6.72% 5.66% 6.54%
Less: Cost of funds 5.51% 4.58% 5.16%
Gross operating margin 1.21% 1.08% 1.38%
General and administrative expenses 0.30% 0.29% 0.34%
Provision for loan and guarantee losses 0.26% 0.27% 0.29%
Total expenses 0.56% 0.56% 0.63%
Operating margin 0.65% 0.52% 0.75%
Nonoperating income (1) 0.05% 0.07% 0.00%
Net margins 0.70% 0.59% 0.75%
TIER 1.13 1.13 1.16

</TABLE>
(1) Nonoperating income includes the extraordinary losses in fiscal year 1993
resulting from the prepayment of debt.

<PAGE>34
Loan and Guarantee Portfolio Assessment

Portfolio Diversity

CFC and its combined affiliates make loans and provide financial guarantees to
their qualified members. The combined memberships include rural electric
distribution systems, rural electric generation and transmission systems,
telecommunication systems, statewide rural electric and telecommunication
associations, and associate organizations.

The following chart summarizes loans and guarantees outstanding by member
class at May 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION> Percentage of Total
1995 1994 1993
<S> <C> <C> <C>
Distribution Systems 49.08% 45.52% 46.56%
Power Supply Systems 38.87% 44.34% 44.87%
Service Organizations 1.82% 2.15% 2.32%
Telecommunication Organizations 9.27% 7.46% 5.69%
Associate Members 0.96% 0.53% 0.56%
Total 100.00% 100.00% 100.00%
</TABLE>
CFC's members are distributed throughout the United States and its territories,
including 46 states, the District of Columbia, Guam, Samoa and the U.S. Virgin
Islands. At May 31, 1995, 1994 and 1993 no state or territory had over 9.1%,
8.2%, and 8.8%, respectively, of total loans and guarantees outstanding.

CFC believes that the risk of lending to a single industry is mitigated
somewhat by the fact that many of CFC's borrowers as utilities do not have
immediate competition in the sale of their services and the fact that the
services members provide are essential to consumers.

Credit Concentration

In addition to the geographic diversity of the portfolio, CFC limits its
exposure to any one single borrower. The majority of the largest single
exposures are concentrated in the Power Supply systems due to their large
plant and equipment requirements. At May 31, 1995, the total exposure
outstanding to any one borrower did not exceed 4.8% of total loans excluding
loans guaranteed by RUS and guarantees outstanding and the total loans and
guarantees outstanding to the members in any one state or territory did not
exceed 9.1%. At May 31, 1995, CFC had $1,754 million in loans outstanding,
excluding loans guaranteed by RUS, and $2,511 million in guarantees
outstanding to its largest 40 borrowers, representing 25% of total loans
outstanding and 97% of total guarantees outstanding. Credit exposure to the
largest 40 borrowers represented 45% of total credit exposure at May 31, 1995,
compared to 47% at May 31, 1994. CFC's ten largest credit exposures
represented 26% and 29% of total exposure at May 31, 1995 and 1994,
respectively.

Security Provisions

Except when providing lines of credit, CFC typically lends to its members on a
secured basis. At May 31, 1995, approximately 6.55% of CFC's total loans and
guarantees were unsecured obligations of CFC borrowers. CFC's long-term loans
are typically secured pro-rata with other secured lenders, if any (primarily
RUS), by all assets and future revenues of the borrower. Short-term loans are
generally unsecured lines of credit. Guarantees are secured on a pro-rata
basis with other secured creditors, by all assets and future revenues of the
borrower or by the underlying financed asset. In addition to the collateral
received, CFC also requires that its borrowers set rates designed to achieve
certain financial ratios.

<PAGE>35
Portfolio Quality

The following table summarizes the key composite operating results of CFC's
two main borrower types, distribution and power supply systems, which together
comprise 87.9% and 89.9% of CFC's total loan and guarantee portfolio at
May 31, 1995 and 1994 (the table has not been weighted based on CFC's
outstanding loans and guarantees to the borrowers):
<TABLE>
<CAPTION> CFC Distribution Member Borrowers
Composite Results

1993 1992 1991
<S> <C> <C> <C>
TIER 2.54 2.19 2.11
DSC 2.44 2.07 2.13
Equity percentage 40.83% 39.44% 38.18%

CFC Power Supply Member Borrowers
Composite Results

1993 1992 1991

TIER 1.20 1.14 1.15
DSC 1.21 1.23 1.26
Equity percentage 9.68% 8.03% 9.25%

</TABLE>
NOTE: The power supply composite results have been presented without the
operating results of six systems experiencing financial difficulties. CFC
had credit exposure to four of the six borrowers (see footnote 10 to the
combined financial statements for a detailed description of these borrowers).

Most CFC power supply borrowers sell the majority of their power under
all-power-requirements contracts with their member distribution systems.
These contracts allow, subject to regulatory requirements, for the recovery
of all costs at the power supply level. Due to the contractual connection
between the power supply and distribution systems, total combined system
equity (power supply equity plus the equity at its affiliated distribution
systems) has typically been maintained at the distribution level.

As with CFC, to the extent distribution systems can fund their assets with
retained Members' Equity (i.e., unretired capital credits), overall funding
costs for plant and equipment are reduced. Distribution systems can, in turn,
pass these savings on to their member/consumers in the form of lower utility
rates.

The effectiveness of the all-power-requirements contract is dependent on the
individual systems' right and ability (legal as well as economic) to establish
rates to cover all costs. The boards of directors of most of CFC's power
supply and distribution members have the authority to establish binding rates
for their consumer members. Some states regulate rate setting and can
therefore override the system's internal rate setting procedures. However,
most CFC members are not externally rate regulated. CFC has 838 distribution
members of which 590 are not regulated. Of the remaining 248 distribution
systems, 166 are regulated only on a streamlined basis. At the power supply
level, 44 of 65 members are not rate regulated.

During the past few years, Power Supply members have been increasing their
equity levels. Under recently changed RUS underwriting standards, in order to
qualify for additional RUS loan funds, Power Supply systems may be required to
maintain, or demonstrate an ability to reach, a 20% of assets equity level, or
they must obtain guarantees from their affiliated distribution systems.

<PAGE>36

Nonperforming and Restructured Loans

CFC classifies a borrower as nonperforming when any one of the following
criteria are met: (1) principal or interest payments on any loan to the
borrower are past due 90 days or more, (2) the borrower is operating under
protection of the bankruptcy court, or (3) for some other reason, management
does not expect the timely repayment of principal or interest. Once a
borrower is classified as nonperforming, interest on its loans is recognized
on a cash basis. Alternatively, CFC may choose to apply all cash received to
the reduction of principal, thereby forgoing interest income recognition. At
May 31, 1995, nonperforming loans totaled $27.6 million, a decrease of $17.3
million over the prior year-end. The decrease was due to the repayment of
loans from two borrowers out of proceeds from the sale of the systems' assets.
CFC did not write off any amounts on the settlement of these loans. At May
31, 1995, nonperforming loans represented 0.3% of total loans and guarantees
outstanding.

Loans classified as restructured are loans for which agreements have been
executed that change the original terms of the loan, generally a change to the
originally scheduled cashflows. At May 31, 1995, restructured loans totaled
$185.0 million, an increase of $19.6 million from the prior year. Restructured
loans in the amount of $131.1 million, $111.5 million and $100.3 million were
not accruing interest income at May 31, 1995, 1994 and 1993, respectively.

The majority of CFC's problem loan situations began prior to the past five
years as a result of excess capacity or cancelled capacity additions after
the plant and equipment construction cycle of the mid-1980s. Since 1986, when
power supply construction-in-progress represented 16.3% of total power supply
plant, power supply members have reduced the level of plant additions. At the
end of the calendar year 1992, construction-in-progress represented 2.8% of
total power supply plant (see Note 10 to Combined Financial Statements for a
more complete discussion of certain loan and guarantee contingencies).
<TABLE>
<CAPTION>
NONPERFORMING AND RESTRUCTURED ASSETS
(Dollar Amounts In Millions)
As of May 31,
1995 1994 1993
<S> <C> <C> <C>
Nonperforming loans $ 27.6 $ 44.9 $ 55.8
Percent of loans and guarantees outstanding 0.29% 0.51% 0.69%

Restructured loans $185.0 $165.4 $172.9
Percent of loans and guarantees outstanding 1.94% 1.89% 2.14%
</TABLE>
Allowance for Loan and Guarantee Losses

CFC maintains an allowance for potential loan and guarantee losses which is
periodically reviewed by management for adequacy. In performing this
assessment, management considers various factors including an analysis of the
financial strength of CFC's borrowers, delinquencies, loan charge-off history,
underlying collateral, and economic and industry conditions. At May 31, 1995,
the allowance for loan and guarantee losses totaled $205.6 million, an
increase of $17.4 million from the prior year-end. The allowance represented
744.9% of nonperforming loans and 2.2% of total loans and guarantees
outstanding at year-end.

Since its inception in 1969, CFC has charged off loan balances in the total
amount of $28.4 million, net of recoveries.

Management believes that the allowance for loan and guarantee losses is
adequate to cover any portfolio losses which have occurred or may occur.

<PAGE>37
The following chart presents a summary of the allowance for loan and guarantee
losses at May 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN AND GUARANTEE LOSSES
(Dollar Amounts In Thousands)
Year Ended May 31,
1995 1994 1993
<S> <C> <C> <C>
Beginning balance $188,196 $172,571 $157,571
Provision for loan and guarantee losses 17,400 15,625 15,000
Ending balance $205,596 $188,196 $172,571

As a percentage of loans and guarantees outstanding 2.16% 2.15% 2.13%
</TABLE>
Asset/Liability Management

A key element of CFC's funding operations is the monitoring and management of
interest rate and liquidity risk. This process involves controlling asset and
liability volumes, repricing terms and maturity schedules to stabilize gross
operating margins and retain liquidity.

Interest Rate Risk

CFC is subject to interest rate risk to the extent CFC's loans are subject to
interest rate adjustment at different times than the liabilities which fund
those assets. Therefore, CFC's interest rate risk management policy involves
the close matching of asset and liability repricing terms within a range of
5% of gross assets (total assets plus the loan and guarantee loss allowance
which is netted against gross loans on the balance sheet). CFC measures the
matching of funds to assets by comparing the amount of fixed rate assets
repricing or amortizing to the total fixed rate debt maturing over the next
year. At May 31, 1995 CFC had $193 million in fixed rate assets amortizing or
repricing and $66 million in fixed rate liabilities maturing during fiscal
year 1996. The difference, $127 million, represents the amount of CFC's
assets that are not considered match-funded as to rate. CFC's difference of
$127 million at May 31, 1995 represents 1.8% of total assets. CFC funds
variable rate assets which reprice monthly with short-term liabilities,
primarily Commercial Paper and Bank Bid Notes, both of which are primarily
issued with original maturities under 90 days. CFC funds fixed rate loans
with fixed rate Collateral Trust Bonds, Medium-Term Notes, Subordinated
Certificates and Members' Equity. With the exception of Subordinated
Certificates, which are generally issued at rates below CFC's long-term cost
of funding and with extended maturities, CFC's liabilities have average
maturities that closely match the repricing terms of CFC's fixed interest
rate loans. CFC also uses Commercial Paper supported by interest rate
exchange agreements to fund its fixed rate portfolio of loans.

Certain of CFC's Collateral Trust Bonds and Medium-Term Notes were issued with
early redemption provisions. To the extent borrowers are allowed to convert
their fixed rate loans to a variable interest rate and to the extent it is
beneficial, CFC takes advantage of these early redemption privileges. However,
because conversions can take place at different intervals from early
redemptions, CFC charges conversion fees designed to compensate for any
additional interest rate risk assumed by the Company.

<PAGE>38
<TABLE>
<CAPTION>
Interest-Rate Gap Analysis
(Fixed Assets/Liabilities)
As of May 31, 1995

(Dollar Amounts In Millions)

Over 1 yr. Over 3 yrs. Over 5 yrs. Over 10 yrs.
Less than but less but less but less but less Over
1 year than 3 yrs. than 5 yrs. than 10 yrs. than 20 yrs. 20 yrs. Total
<S> <C> <C> <C>
Assets:
Loan Amortization
and repricing $192.6 $405.5 $506.0 $501.0 $420.0 $104.3 $2,129.6

Total Assets $192.6 $405.5 $506.0 $501.0 $420.2 $104.3 $2,129.6

Liabilities and Equity:
Long-Term Debt $ 59.2 $652.3 $ 30.5 $ 60.0 $ 33.6 $150.0 $ 985.6
Subordinated Certificates 6.9 14.5 255.7 420.5 232.4 56.4 986.4
Equity 0 0 158.3 20.5 52.0 0 230.8

Total Liabilities and Equity $ 66.1 $666.8 $444.5 $501.0 $318.0 $206.4 $2,202.8

Gap * $126.5 $(261.3) $ 61.5 $ 0.0 $102.2 $(102.1) $ (73.2)
Cumulative Gap $126.5 $(134.8) $(73.3) $(73.3) $ 28.9 $ (73.2)
Cumulative Gap as a %
of Total Assets 1.79% 1.90% 1.03% 1.03% 0.41% 1.03%

* Loan amortization/repricing over/(under) debt maturities
</TABLE>
Liquidity

CFC is subject to liquidity risk, which includes market factors beyond its
control, to the extent cash repayments on its assets are insufficient to cover
the cash requirements on maturing liabilities and other sources of funds with
which to make debt repayments are not available. For the most part, CFC funds
its long-term loans with much shorter term maturity debt instruments. As a
result, CFC has to manage its liquidity risk by ensuring that other sources of
funding are available to make debt maturity payments. CFC accomplishes this
in four ways. First, CFC maintains revolving credit agreements which (subject
to certain conditions) allow CFC to borrow funds on terms of up to five years.
Second, CFC has maintained investment grade ratings, facilitating access to
the capital markets. Third, CFC maintains shelf registrations for both
Collateral Trust Bonds and Medium-Term Notes either of which (absent market
disruptions and assuming CFC remains creditworthy) could be issued at fixed
or variable rates in sufficient amounts to fund the next 18 to 24 months,
funding requirements. Fourth, CFC obtains much of its funding directly from
its members and believes this funding is more stable than funding obtained
from outside sources.

CFC's long- and short-term debt and guarantees receive ratings from three of
the major credit rating agencies, Moody's Investors Service ("Moody's"),
Standard and Poor Corporation ("S&P") and Fitch Investors Service ("Fitch").

During May 1994, S&P and Fitch upgraded CFC's ratings on Collateral Trust
Bonds from AA- to AA and the ratings on Medium-Term Notes, guaranteed lease
debt and guaranteed bonds from A+ to AA-. CFC's short-term debt and guarantee
ratings from these agencies were reaffirmed at the highest level A-1+ by S&P
and F-1+ by Fitch. Moody's reaffirmed CFC's current ratings, and lists CFC's
ratings outlook as positive. The following table presents CFC's current
credit ratings at year-end.

Moody's Standard & Poor's Fitch
Investors Service Corporation Investors Service
<S> <C> <C> <C>
Direct

Collateral Trust Bonds Aa3 AA AA
Medium-Term Notes A1 AA- AA-
Commercial Paper P1 A-1+ F-1+

Guarantees

Leveraged Lease Debt A1 AA- AA-
Pooled Bonds Aa3 AA- AA-
Other Bonds A1 AA- AA-
Short-Term P1 A-1+ F-1+
</TABLE>
The ratings listed above have the meaning as defined by each of the respective
rating agencies and are not recommendations to buy, sell or hold securities
and are subject to revision or withdrawal at any time by the rating
organizations.

At May 31, 1995 and 1994, CFC's members provided 41.7% and 44.3% of total
capitalization as follows:
<TABLE>
<CAPTION>
MEMBERSHIP CONTRIBUTIONS TO TOTAL CAPITALIZATION

As of May 31,
(Dollar Amounts In Thousands) % of % of
1995 Total 1994 Total
<S> <C> <C> <C> <C>
Commercial Paper $1,049,474 27.0% $ 999,549 29.2%
Long-term debt (primarily Medium-Term Notes) 366,662 29.2% 233,983 23.1%
Subordinated Certificates 1,234,715 100.0% 1,222,858 100.0%
Members' Equity 270,221 100.0% 260,968 100.0%
Total $2,921,072 $2,717,358
Percentage of total capitalization 41.7% 44.3%
</TABLE>
The total amount of member investments increased by $203.7 million or 7.5%.
The total member investment as a percentage of total capitalization decreased
due to the increase in nonmember debt required to fund the increase in loans
outstanding. Total capitalization at May 31, 1995 was $7,003.2 million, an
increase of $869.3 million over the total capitalization of $6,133.9 million
at May 31, 1994. When the loan and guarantee loss allowance is added to both
membership contributions and to total capitalization the percentages of
membership investments to total capitalization are 43.4% and 46.0% at May 31,
1995 and 1994, respectively.

<PAGE>40
Historical Results

The following chart provides CFC's key operating results over the last six
years.
<TABLE>
<CAPTION>

SELECTED KEY FINANCIAL DATA
(Dollar Amounts In Thousands)
1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
As of May 31:
Net loans $6,747,124 $5,921,022 $5,112,471 $5,003,095 $4,827,497 $4,628,329
Total liabilities $5,575,853 $4,740,470 $3,990,298 $3,933,682 $3,715,123 $3,546,772
Total Subordinated Certificates and Members' Equity $1,504,936 $1,483,826 $1,473,846 $1,467,791 $1,424,501 $1,417,194
Guarantees $2,574,922 $2,655,827 $2,813,731 $2,876,074 $2,884,393 $2,837,117
Leverage ratio (1) 5.13 4.63 4.41 4.44 4.43 4.29
Debt/Equity (2) 3.01 2.52 2.24 2.24 2.19 2.12
For the period ended May 31:
Gross margins $78,771 $ 61,452 $ 70,975 $ 87,392 $ 79,020 $ 69,979
Net margins $45,212 $ 33,188 $ 38,487 $ 44,155 $ 45,505 $ 39,273
TIER (3) 1.13 1.13 1.16 1.14 1.14 1.11

</TABLE>
(1) The leverage ratio is calculated by dividing debt and guarantees
outstanding, excluding debt used to fund loans guaranteed by RUS, by the
total of Members' Subordinated Certificates and Members' Equity.
(2) The debt/equity ratio is calculated by dividing debt outstanding,
excluding debt used to fund loans guaranteed by RUS, by the total of
Members' Subordinated Certificates, Members' Equity and the loan and
guarantee loss allowance.
(3) TIER is calculated by dividing net margins before extraordinary items
plus the cost of funds by the cost of funds.

Financial and Industry Outlook

During the coming year, management expects CFC's borrowers to continue to
utilize the variable interest rate programs to a greater extent than the fixed
interest rate program. This is due primarily to the positive interest yield
curve and due partly to CFC's borrowers diversifying the interest terms on
their long-term debt. As the demand for variable interest rate loans
increases, either through conversions from the fixed interest rate program or
through new loan advances, CFC will continue to match fund these loans as to
rate with variable interest rate debt instruments and will continue to redeem,
to the extent possible and economically beneficial, its fixed interest rate
debt instruments. These fixed rate loans at the borrower level typically
represent a small portion of the borrower's overall capitalization.

On March 22, 1994 the final regulations regarding the prepayment of RUS notes
at a discount were adopted. As of May 31, 1994, no members had prepaid their
loans under these regulations. During fiscal year 1995, CFC advanced
approximately $370 million to borrowers for the purpose of prepaying their RUS
loans. At May 31, 1995, RUS had applications for an additional $394 million
of note buyouts. To date CFC has made 94% of the loan advances for RUS note
buyouts. Future volume of RUS note prepayments will depend on a number of
factors including interest rates, tax consequences and possible acquisition or
other business opportunities available to the members. CFC does not expect
large volumes of prepayment requests to be made at any one time, but believes
that there will be a steady stream of activity.

During 1994, two large telecommunications companies, GTE and U.S. West, were
in the process of divesting properties in various areas of the country.
During fiscal years 1994 and 1995, CFC extended approximately $600 million in
loan commitments, through RTFC, to telecommunications members that had
submitted bids on these properties. The increase in telephone loans
outstanding as of May 31, 1995 was due to the advance of loans for the
acquisition of these properties. To date a total of $364.0 million has been
advanced to RTFC members that had their bids for property accepted by GTE,
U.S. West and other independent telecommunication companies. Loan activity to
telecommunications members should continue strong through the next fiscal
year, as the remaining telecommunication properties are acquired. The level
of growth experienced during fiscal years 1994, 1995 and expected in fiscal
year 1996 is due to the telecommunication members taking advantage of specific
opportunities and should not be seen as a continuing trend.

<PAGE>41

As discussed previously, RUS has proposed to amend its lending requirements
for power supply systems, requiring them to either increase their equity
levels or obtain guarantees from their affiliated distribution systems. To
the extent these systems require capital and this capital is unavailable from
RUS, some might be able to enter the public debt markets without the assistance
of a financial intermediary. As a result, management believes that RUS's new
requirements may reduce CFC's potential lending and guarantee volume with CFC's
larger, more creditworthy power supply members.

The amount of loan funds available from RUS to its borrowers is dependent upon
the size of the congressionally allocated subsidy for RUS's revolving loan
fund and the current interest rates. As interest rates rise, a larger portion
of the subsidy is required to buy down the interest rate, reducing the total
amount of funding available for new loans. As the level of loan funds
available decreases, borrowers will be required to seek out additional sources
for loan funds.

Item 8. Financial Statements and Supplementary Data.

The Combined Financial Statements, Auditors' Report and Combined Quarterly
Financial Results are included on pages 50 through 77 (see Note 12 to Combined
Financial Statements for a summary of the quarterly results of CFC's
operations).

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

None.
<TABLE>
<CAPTION>
PART III
Item 10. Directors and Executive Officers of the Registrant.

(a) Directors
Director Date present
Name Age since term expires
<S> <C> <C> <C>
J. Chris Cariker (President of CFC) 41 1991 1997
Garry Bye (Vice President of CFC) 52 1991 1997
Ralph L. Loveless (Secretary-Treasurer of CFC) 55 1990 1996
John C. Anderson 58 1990 1996
Robert J. Bauman 50 1992 1998
Bill Bertram 49 1990 1996
Harold I. Dycus 62 1991 1997
Glenn English 54 1994 1997
Nadine Griffin 63 1992 1998
Benson Ham 61 1995 1998
Ralph Harmeyer 64 1993 1996
Gordon J. Hudson 59 1991 1997
David Hutchens 56 1995 1998
George W. Kline 66 1993 1996
Paul J. Liess 57 1993 1996
Robert H. McClurg 65 1995 1998
R. Layne Morrill 55 1995 1998
Gerard P. Paolucci 60 1994 1997
Terry Pitchford 51 1991 1997
Henry Umscheid 62 1995 1998
Robert O. Williams 62 1994 1997
Eldwin Wixson 63 1995 1998
</TABLE>
<PAGE>42
<TABLE>
<CAPTION>
(b) Executive Officers
Held present
Title Name Age office since
<S> <C> <C> <C>
President and Director J. Chris Cariker 41 1995
Vice President and Director Garry Bye 52 1995
Secretary-Treasurer and Director Ralph L. Loveless 55 1995
Governor and Chief Executive Officer Sheldon C. Petersen 42 1995
Senior Vice President and General Counsel John Jay List 48 1980
Senior Vice President of Member Services Richard B. Bulman 53 1984
Senior Vice President and Chief Financial Officer Steven L. Lilly 45 1994
Senior Vice President for Strategic Services David J. Hedberg 44 1995
</TABLE>
The President, Vice President and Secretary-Treasurer are elected annually by
the Board of Directors at its first meeting following CFC's annual membership
meeting, each to serve a term of one year; the Governor serves at the pleasure
of the Board of Directors; and the other Executive Officers serve at the
pleasure of the Governor.

Inapplicable.

(d) Family Relationships.

No family relationship exists between any director or executive officer and
any other director or executive officer of the registrant.

(e) (1) and (2) Business Experience and Directorships.

In accordance with Article IV of CFC's Bylaws, each candidate for election to
the Board of Directors must be a trustee, director or manager of a member of
CFC.

Mr. Cariker has been General Manager of Cookson Hills Electric Cooperative,
Stigler, OK, since 1982. He is a Director of the Oklahoma Association of
Electric Cooperatives and a Director of the Haskell County Development
Authority. He is also an alternate trustee for KAMO Electric Cooperative.

Mr. Bye has been General Manager of East Central Electric Association, Braham,
MN, since 1985. He has been a Director for RTFC since February 1994 and Vice
President since February 1995. He is a former member of the North Dakota House
of Representatives. He is also a member, and former chairman, of the Minnesota
State Board of Electricity and is presently Chairman of the Minnesota Rural
Electric Association's Government Affairs Committee.

Mr. Loveless has been the Executive Vice President and General Manager of
Meriwether Lewis Electric Cooperative, Centerville, TN, since 1987. He
served as Assistant General Manager of Meriwether Lewis Electric Cooperative
from 1985 to 1987. He is a member of the Board of Directors and the
Legislative and Tax Committee of the Tennessee Electric Cooperative
Association.

Mr. Anderson has been President and CEO of Southside Electric Cooperative,
Crewe, VA and a Director of Old Dominion Electric Cooperative, Glen Allen, VA
since 1982. He has been a member of the Virginia, Maryland & Delaware
Association of Electric Cooperatives since 1982. He was Chairman of the NRECA
Cooperative Research Committee from 1982 to February 1990. He was elected to
the Board of Directors of Vedcorp, an economic development corporation, and
elected to the Crewe, VA, Industrial Development Committee, in May 1991. Mr.
Anderson was appointed to the Southside Virginia Business and Education
Commission in 1992.

Mr. Bauman has been the General Manager of Butler County Rural Electric
Cooperative, Allison, IA, since 1984. He is a member of the Iowa Association
of Business and Industry's Economic Development Committee and a Board member
of Cooperative Development Services, Madison, WI.

Mr. Bertram has been a farmer in Valley City, ND, since 1964. He has been a
Director of North Dakota Association of Rural Electric Cooperatives, Mandan,
ND, since 1988 and Secretary of Cass County Electric Cooperative, Inc.,
Kindred, ND, since 1986.
<PAGE> 43
Mr. Dycus has been a partner and co-owner of Dycus, Bradley & Draves, P.C., a
regional public accounting firm, since 1973. He has been a Director of
Egyptian Electric Cooperative, Steeleville, IL, since 1976 and a Director of
Southern Illinois Power Cooperative since 1981.

Mr. English has been Executive Vice President and General Manager of NRECA,
Washington, D.C., since February 1994. He served in the House of
Representatives from 1975 to 1994. He served on the House Agriculture
Committee from 1975 to 1994, and was Chairman of the House Agricultural
Subcommittee on Environment Credit and Rural Development in 1989.

Mrs. Griffin has been a Director of D.S.& O. Rural Electric Cooperative
Association, Abilene, KS, since 1987. She is a member of the National Rural
Electric Women's Association, and has been a Rural Electric Director for 15
years. She is presently serving as a member of the Board of Directors of the
Kansas City Board of Trade. She served as a member of the Kansas Wheat
Commission and is a member of the Kansas Association of Wheat Growers. She
has been a member of the KEPCO Executive Committee and a former chair on the
KEPCO Power Supply Planning and Operation Committee. She also serves as a
member of the Board of Directors of KARL, Inc. (Kansas Agriculture and Rural
Leadership Program).

Mr. Ham has been a Director of Central Georgia Electric Membership Cooperative,
Jackson, GA, since 1983. He has also been the managing partner in the law
firm of Ham, Jenkins, Wilson & Wangerin, since 1991. He is a partner in
Sleepy Creek Farms, a commercial cow-calf operation established in 1983. He
also served for ten years in the Georgia Legislature. He is currently a
member of the Monroe County Economic Development Authority. He has served, as
President, on the Flint Judicial Circuit Bar Association from 1962 to 1963 and
has served on the Board of Governors of the Georgia Bar Association.

Mr. Harmeyer has been a Director of the Indiana Statewide Association of Rural
Electric Cooperatives, Indianapolis, IN, since 1976. He has also been a
Director for Decatur County REMC, Greensburg, IN, since 1958. He is a past
member of CFC's nominating committee. He was a Director of the Indiana Rural
Cooperative Federal Credit Union from 1978 to 1981. He has been Chairman of
Harmeyer Farms, Inc., since 1985. He is Chairman of the Napoleon State Bank
and a past Board Chairman of the Ripley County Farm Bureau Co-op and the Ripley
County Soil & Water Conservation Board. He is a past delegate for Milk
Marketing, Inc.

Mr. Hudson has owned and operated the Leonard Paul Store, a general store,
since 1978. He has sold real estate in the Priest Lake, ID area since 1989.
He has been President of Northern Lights, Inc., Sandpoint, ID, since 1984.

Mr. Hutchens has been Executive Director of Alaska Rural Electric Cooperative
Association, Anchorage, AK, since January 1979. He was Chairman of Ruralite
Services, Inc. from April 1993 to April 1995 and a past President of the Rural
Electric Statewide Managers Association. He was an instructor at Hardin-Simmons
University during 1962 and an Oklahoma State Legislator from 1964 to 1970 .

Mr. Kline has been a Director of Trico Electric Cooperative, Tucson, AZ, since
1988. He has been Vice President of Grand Canyon State Electric Cooperative
Association, since 1992. He was a part-time Magistrate for the town of
Marana, AZ, from 1983 to 1993.

Mr. Liess has been General Manager of Twin Valleys Rural Public Power District,
Cambridge, NE, since 1978. He has been an alternate Director of the Nebraska
Rural Electric Association ("NREA") and the Nebraska Electric Generation and
Transmission Cooperative, Inc., since 1979. He has been chairman of the
Nebraska ACRE Board since 1991 and Vice-Chairman of the NREA Credit Union
Board since 1989. He is a member and one of five original founders of Five
District Joint Venture, developers of Rural Power Manager Software. Mr.
Liess has been a member of the Board of Governors of the Central Community
College since 1989. He is a member of the Board of Directors of the Central
Plains Technical and Business Development Center and Chairman of the Cambridge
Economic Development Board.

Mr. Morrill has been a Director, and currently Secretary-Treasurer, of White
River Valley Electric Cooperative, Inc., Branson, MO, since 1976. He is also
a Director of KAMO Electric Cooperative. He has been President of Shepherd of
the Hills Realty Co., Inc., since 1967 and President of Shepherd of the Hills
Properties Inc., since 1967. He is also been a Director of the Bank of
Kimberling City and of Rural Missouri Cable T.V. Inc. He has been President
of the Kimberling City Water Company since 1982.

<PAGE>44
Mr. McClurg has been a Director of NRECA, Washington, DC since 1982 and
President since 1995. He has been a Director of Wyoming Rural Electric
Association since 1974 and a Director of the Tri-State G&T, Denver, CO, since
1990. He is a former Director of Central Bank and Trust.

Mr. Paolucci has been General Manager of Morrow Electric Cooperative, Mount
Gilead, OH, Inc., since 1977. He has been President of Astrostar, Inc. since
it was established in 1986. In addition he is presently Chairman of the
United Utility Supply Cooperative Corporation and has served as its Vice
Chairman. He has also served as Trustee for Buckeye Power, Inc. since 1983.

Mr. Pitchford has owned and operated a farm in Columbia, AL, since 1971. He
has been a Director of Pea River Electric Cooperative, Ozark, AL, since 1987.

Mr. Umscheid has been General Manager of Bluebonnet Electric Cooperative,
Giddings, TX, since 1965. He has been President of Texas VI Satellite, Inc.,
since 1988. He has been a Director of the First National Bank of Giddings
since 1981. He is also a past President of the Texas Electric Cooperative
Statewide Association.

Mr. Williams has been Executive Vice President and General Manager of York
Electric Cooperative, York, SC, since 1974. He has been a trustee for both
the Saluda River Electric Cooperative, Laurens, SC, and the Electric
Cooperatives of South Carolina since 1974. He was a trustee for the South
Carolina State Development Board from 1991 to 1993 and a trustee for the York
Technical College Foundation Board from 1983 to 1991.

Mr. Wixson has been a Director of New Hampshire Electric Cooperative, Inc.,
Plymouth, NH, since June 1986 and President since June 1992. Mr. Wixson has
been a professor of mathematics at Plymouth State College, of the University
System of New Hampshire, since 1966 and Interim Dean from July 1994 to June
1995. He also has been Chair of the Board of Directors of the Community
Guaranty Savings Bank since 1988 and served as a Director of the Speare
Memorial Hospital. Previously, he was the principal-controlling partner of
the Plymouth Pharmacy from 1979 to 1982 and was a Maine dairy farmer from 1956
to 1963.

Mr. Petersen joined CFC in August 1983 as an Area Representative. He became
the Director of Policy Development and Internal Audit in January 1990, then
Director of Credit Analysis in November 1990 and Corporate Secretary on June
1, 1992. He became Assistant to the Governor on May 1, 1993. He became
Assistant to the Governor and Acting Administrative Officer on June 1, 1994.
He became Governor and CEO on March 1, 1995.

Mr. List joined CFC as a staff attorney in February 1972. He served as
Corporate Counsel from June 1980 until 1991 and served as General Counsel until
May 1992. He became Senior Vice President and General Counsel on June 1, 1992.

Mr. Bulman joined the CFC staff as Power Supply Officer in March 1980. He has
served as Loan Officer since June 1, 1984. He became Senior Vice President
and Loan Officer on June 1, 1992. He became Senior Vice President of Member
Services on June 1, 1995.

Mr. Lilly joined CFC as a Senior Financial Consultant in October 1983. He
became Director of Special Finance in June 1985 and Director of Corporate
Finance in June 1986. He became Treasurer and Principal Finance Officer on
June 1, 1993. He became Senior Vice President and Chief Financial Officer on
January 1, 1994.

Mr. Hedberg joined CFC as Director of Rates and Special Projects in 1981. He
became Senior Vice President of Strategic Services on June 1, 1995

(f) Involvement in Certain Legal Proceedings.

None to the knowledge of CFC.

(g) Promoters and control persons.

Inapplicable.

<PAGE> 45
Item 405. Compliance with Section 16 (a) of the Exchange Act.

Inapplicable.

Item 11. Executive Compensation

The Summary Compensation Table below sets forth the aggregate renumeration
for services in all capacities to CFC, on an accrual basis, for the three
years ended May 31, 1995, 1994 and 1993 to the named executive officers.
The named executive officers include the CEO and the next four most highly
compensated executive officers serving at May 31, 1995, with salary and
bonus for fiscal year 1995 in excess of $100,000.
<TABLE>
<CAPTION> Summary Compensation Table

Annual Compensation Long-Term Compensation
Awards Payouts
Other Restricted Options/ All
Annual Stock SARs LTIP Other
Name and Principal Position Year Salary Bonus Comp (1) Award(2) (#)(2) Payouts(2) Comp(3)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles B. Gill (4) 1995 $311,549 $5,990 - - - - $168,450
Governor and Chief 1994 286,021 20,702 - - - - 144,419
Executive Officer 1993 284,833 5,433 - - - - 115,063

Sheldon C. Petersen (5) 1995 155,257 1,911 - - - - 51,715
Governor and Chief
Executive Officer

Richard B. Bulman 1995 173,179 3,243 - - - - 18,274
Senior Vice President of 1994 167,184 3,073 - - - - 16,115
Member Services 1993 154,071 5,941 - - - - 6,769

John J. List 1995 149,621 2,574 - - - - 9,876
Senior Vice President and 1994 144,405 2,515 - - - - 10,101
General Counsel 1993 138,256 2,505 - - - - 9,489

Steven L. Lilly 1995 169,331 3,173 - - - - 12,336
Senior Vice President and 1994 138,884 2,006 - - - - 9,460
Chief Financial Officer 1993 107,696 1,906 - - - - 8,055

David J. Hedberg 1995 109,548 1,901 - - - - 9,588
Senior Vice President for
Strategic Services

</TABLE>

(1) Reportable perquisites and other personal benefits do not exceed $50,000
or 10% of salary and bonus. All other items reportable under this column
are not applicable to CFC.
(2) Not applicable to CFC.
(3) Amounts for fiscal years, 1995, 1994 and 1993 include $99,321, $90,292 and
$63,750 related to an employment contract described under "Employment
Contracts and Termination of Employment and Change-In-Control
Arrangements", $62,899, $48,147 and $45,616 related to leave accruals and
$6,230, $5,980 and $5,697 related to CFC contributions to savings plan for
Mr. Gill; $30,000 related to an employment contract described under
"Employment Contracts and Termination of Employment and Change-in-Control
Arrangements", $19,039 related to leave accruals and $2,676 related to CFC
contributions to savings plan for Mr. Petersen; $14,811, $12,771 and
$3,688 related to leave accruals and $3,463, $3,344 and $3,081 related
to CFC contributions to savings plan for Mr. Bulman; $6,886, $7,213 and
$6,724 related to leave accruals and $2,990, $2,888 and $2,765 related
to CFC contributions to savings plan for Mr. List; $8,949, $6,682 and
$5,901 related to leave accruals and $3,387, $2,778 and $2,154 related to
CFC contributions to savings plan for Mr. Lilly; $7,303 related to leave
accruals and $2,285 related to CFC contributions to savings plan for Mr.
Hedberg.
(4) Charles B. Gill served as Governor and CEO through February 28, 1995.
(5) Sheldon C. Petersen has served as Governor and CEO from March 1, 1995.

<PAGE> 46
Defined Benefit or Actuarial Plan Disclosure

NRECA maintains the Retirement and Security Program entitling CFC employees to
receive, under a 50% joint and surviving spouse annuity, 1.90% of the average
of their five highest base salaries during their last ten years of employment,
multiplied by the number of years of participation in the program. As of May
31, 1995, the number of years of service credited and the compensation covered
under the program, respectively, for the officers listed above was as follows:
Charles B. Gill-22 years 2 months, $281,350; Steven L. Lilly-11 years 8
months, $120,812; John Jay List-22 years 3 months, $137,124; Richard B.
Bulman-15 years 2 months, $155,893; Sheldon C. Petersen-11 years 5 months,
$93,949; David J. Hedberg-13 years, $94,008.
<TABLE>
<CAPTION> Pension Plan Table
Years of Services
Average base salary 5 10 15 20 25 30
<S> <C> <C> <C> <C> <C> <C>
$100,000 $ 9,500 $19,000 $28,500 $ 38,000 $ 47,500 $ 57,000
125,000 11,875 23,750 35,625 47,500 59,375 71,250
150,000 14,250 28,500 42,750 57,000 71,250 85,500
175,000 16,625 33,250 49,875 66,500 83,125 99,750
200,000 19,000 38,000 57,000 76,000 95,000 114,000
225,000 21,375 42,750 64,125 85,500 106,875 118,800 *
250,000 23,750 47,500 71,250 95,000 118,750 118,800 *
275,000 26,125 52,250 78,375 104,500 118,800* 118,800 *
</TABLE>
*The Tax Reform Act of 1984 places a cap on maximum salary used to compute
retirement benefits and maximum yearly benefit. For calendar year 1995, the
salary cap is $150,000 (the cap represents the amount of salary for 1995 that
may be used in the computation of the average base salary) and benefits cap is
$118,800.

The Budget Reconciliation Act of 1993 has set a limit of $150,000 on the
compensation to be used in the calculation of pension benefits. In order to
restore potential lost benefits, CFC has set up a Pension Restoration Plan.
Under the plan, the amount that NRECA invoices CFC will continue to be based
on the full compensation paid to each employee. Upon the retirement of a
covered employee, NRECA will calculate the retirement and security benefit to
be paid with consideration of the compensation limits and will pay the maximum
benefit thereunder. NRECA will also calculate the retirement and security
benefit that would have been available without consideration of the
compensation limits and CFC will pay the difference. NRECA will then give CFC
a credit against future retirement and security contribution liabilities in
the amount paid by CFC to the covered employee.

CFC will pay such additional benefits to the covered employee through a
Severance Pay Plan and a Deferred Pay Restoration Plan. Under the Severance
Pay Plan, the employee is paid an amount equal to the lost pension benefits
but not to exceed twice the employee's annual compensation for the prior year.
The benefit must be paid within 24 months of termination of employment. To
the extent that the Severance Pay Plan cannot pay all of the lost pension
benefits, the remainder will be paid under a Deferred Compensation Plan, which
will be paid out in a lump sum or in installments of up to 60 months.

Compensation of Directors

No director received any renumeration as an officer or director of CFC.
Directors are reimbursed for travel expenses and receive a daily per diem to
cover meals and lodging for their attendance at all Board of Directors
functions.

Employment Contracts and Termination of Employment and Change-In-Control
Arrangements

Under a supplemental benefit agreement entered into as of April 1, 1989, and
amended as of April 1, 1993, CFC agreed to employ Mr. Gill, and Mr. Gill
agreed to remain as a CFC employee, for six years commencing April 1, 1989,
at no less than his present compensation (as of April 1, 1993). CFC has agreed
to pay Mr. Gill, after his normal retirement date in 2000 or such other date
as agreed to by the Board of Directors, or earlier death or disability, a sum
ranging from $17,500 commencing in 1983 to $32,500 beginning in 1986 for each
year he is employed by CFC (or in the case of death or disability, for each
year he would have been so employed (since 1983) until such date, subject, in
the case of disability, to certain offsets or other payments) with interest at
the rate of 10% per annum until payment. The agreement also provides to Mr.
Gill eight weeks of paid vacation per year, which will accrue and be paid if
unused. Mr. Gill retired as of April 1,

<PAGE> 47
1995. The Board has agreed that this date will be treated as his normal
retirement date under the supplemental benefit agreement. It is anticipated
that the accumulated amounts will be paid out in two installments, the first
of which will be in January 2000.

Under a supplemental benefit agreement entered into as of February 26, 1995,
CFC has agreed that on March 1, 1995 and on each succeeding January 1 for as
long as Mr. Petersen shall be employed by CFC, CFC shall credit the sum of
$30,000 to a bookkeeping account for Mr. Petersen. CFC also agrees that on
December 31, 1995 and each December 31 thereafter, interest will be credited
to the account in an amount equal to the balance of the amount multiplied by
the then current 20-year Medium-Term Note interest rate offered by CFC. The
amount credited to the account will be paid to Mr. Petersen in a lump sum no
later than January 15 of the year following his scheduled retirement date.
In the event of Mr. Petersen's death or disability, CFC shall pay to Mr.
Petersen or his beneficiary the total amount in the account on the January 1
following his death or disability. No benefits will be paid if Mr. Petersen
is terminated for cause or due to reason other than death or disability does
not continue his employment at CFC until his retirement date.

Compensation Committee Interlocks and Insider Participation

During the year ended May 31, 1995 the following directors and former directors
of CFC served as members on the Operating Review and Audit Committee of the
Board of Directors (which functions as the Board's compensation committee):

Bill McGinnis (Former Director and Former President of CFC)

Robert J. Bauman

David E. Piper (Former Director of CFC)

Bill Bertram

J. Chris Cariker ( President of CFC)

Garry Bye (Vice President of CFC)

Harold I. Dycus

Ralph L. Loveless (Secretary-Treasurer of CFC)

Terry Pitchford

Johnnie R. Austin (Former Director of CFC)

Other than those mentioned above, there were no compensation committee
interlocks or insider participation related to executive compensation.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

Inapplicable.

<PAGE> 48
Item 13. Certain Relationships and Related Transactions.

(a), (b) and (c) At May 31, 1995, CFC had commitments for long- and
intermediate-term loans aggregating $246 million and $184 million,
respectively, and committed lines of credit aggregating $348 million, to
member systems, excluding NCSC, RTFC and GFC, of which executive officers or
directors of CFC are members, employees, officers or directors. At May 31,
1995, $231 million and $33 million of advances were outstanding with respect
to such long- and intermediate-term loans, respectively, and $80 million was
outstanding under such lines of credit. At May 31, 1995, CFC had guaranteed
$171 million of contractual obligations of such members. CFC had commitments
to NCSC for long-term loans of $12 million and CFC had outstanding guarantees
of certain contractual obligations in the amount of $688 million at May 31,
1995, on behalf of NCSC. At May 31, 1995, advances outstanding with respect
to such long-term loans were $48 million for NCSC. Such loans and guarantees
were made in the ordinary course of CFC's business on the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transaction with other members and did not involve more than normal risk of
uncollectibility or present other unfavorable features. It is anticipated
that, consistent with its loan and guarantee policies in effect from time to
time, additional loans and guarantees will be made by CFC to member systems
and trade and service organizations of which officers or directors of CFC are
members, employees, officers or directors. In light of its cooperative nature,
pursuant to which CFC was established for the very purpose of extending
financing to its members (from whose ranks its directors must be drawn), CFC
is of the view that no purpose would be served by including detaile
d information with respect to specific loans and guarantees to members with
which any of its directors are affiliated.

(d) Inapplicable.

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a) Documents filed as a part of this report.

1. Financial statements
Page
Report of Independent Public Accountants 50
Combined Balance Sheets 51
Combined Statements of Income, Expenses and Net Margins 53
Combined Statements of Changes in Members' Equity 54
Combined Statements of Cash Flows 55
Notes to Combined Financial Statements 56

2. Financial statement schedules
Page
Note 12 to Combined Financial Statements "Combined Quarterly
Financial Results" 77

All other schedules are omitted because they are not required or inapplicable
or the information is included in the financial statements or notes thereto.

<PAGE> 49
3. Exhibits

3.1 - Articles of Incorporation. Incorporated by reference to Exhibit
3.1 to Registration Statement No. 2-46018, filed October 12, 1972.
3.2 - Bylaws. Incorporated by reference to Exhibit 3.2 to CFC's annual
report on Form 10-K for the year ended May 31, 1988, filed July
27, 1988.
3.3 - Amendments to Bylaws as approved by CFC's Board of Directors and
members on February 11, 1993, and a copy of the Bylaws as
amended. Incorporated by reference to Exhibit 3.3 to CFC's
annual report on Form 10-K for the year ended May 31, 1993, filed
August 18, 1993.
3.4 - Amendments to Bylaws as approved by CFC's Board of Directors and
members on February 28, 1995, and a copy of the Bylaws as amended.
4.1 - Form of Capital Term Certificate. Incorporated by reference to
Exhibit 4.3 Registration Statement No. 2-46018 filed October
12, 1972.
4.2 - Indenture dated as of February 15, 1994, between the Registrant
and First Bank National Association, trustee. Incorporated by
reference to Exhibit 4.3 from the report on Form 8-K filed by CFC
on June 14, 1994.
4.3 - Revolving Credit Agreements dated February 28, 1995.
Incorporated by reference to exhibit 4.3 from CFC's quarterly
report on Form 10-Q filed April 3, 1995.
- Registrant agrees to furnish to the Commission a copy of all
other instruments defining the rights of holders of its long-term
debt upon request.

Management Contracts and Compensatory Plans and Arrangements.

10.1 - Plan Document for CFC deferred compensation program.
Incorporated by reference to Exhibit 10 to Registration Statement
No. 2-70355, filed December 23, 1980.
10.2 - Supplemental Benefit Agreement between CFC and Charles B. Gill
dated January 11, 1983, as amended. Incorporated by reference
to Exhibit 10.2 to CFC's annual report on Form 10-K for the
year ended May 31, 1983.
10.3 - Second Amendment to Supplemental Benefit Agreement between CFC
and Charles B. Gill dated May 29, 1986. Incorporated by
reference to Exhibit 10.3 to CFC's annual report on Form 10-K for
the year ended May 31, 1986.
10.4 - Third Amendment to Supplemental Benefit Agreement between CFC
and Charles B. Gill dated April 1, 1989. Incorporated by
reference to Exhibit 10.4 to CFC's annual report on Form 10-K
for the year ended May 31, 1989.
10.5 - Fourth Amendment to Supplemental Benefit Agreement between CFC
and Charles B. Gill dated April 1, 1993. Incorporated by
reference to Exhibit 10.5 to CFC's annual report on Form 10-K
for the year ended May 31, 1993.
10.6 - Fifth Amendment to Supplemental Benefit Agreement between CFC
and Charles B. Gill dated May 26, 1994. Incorporated by
reference to Exhibit 10.6 to CFC's annual report on Form 10-K
for the year ended May 31, 1994.
10.7 - Supplemental Benefits Agreement between CFC and Sheldon C.
Petersen, dated as of February 26, 1995.
12 - Computations of ratio of margins to fixed charges.
23 - Consent of Arthur Andersen LLP
27 - Financial Data Schedules

(b) Reports on Form 8-K.

No reports on Form 8-K were filed during the last quarter of
fiscal year 1995.

<PAGE> 50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in
the County of Fairfax, Commonwealth of Virginia, on the th day of
August, 1995.

NATIONAL RURAL UTILITIES COOPERATIVE
FINANCE CORPORATION

By: /s/ Sheldon C. Petersen
Sheldon C. Petersen
Governor and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the date indicated.

Signature Title Date

/s/ SHELDON C. PETERSEN Governor and Chief Executive
Sheldon C. Petersen Officer

/s/ STEVEN L. LILLY Senior Vice President and
Steven L. Lilly Chief Financial Officer

/s/ ANGELO M SALERA Controller (Principal
Angelo M. Salera Accounting Officer)

/s/ J. CHRIS CARIKER President and Director
J. Chris Cariker

/s/ GARRY BYE Vice President and Director
Garry Bye

/s/ RALPH L. LOVELESS Secretary-Treasurer and
Ralph L. Loveless Director August , 1995

/s/ JOHN C. ANDERSON Director
John C. Anderson

/s/ ROBERT J. BAUMAN Director
Robert J. Bauman

/s/ BILL BERTRAM Director
Bill Bertram

/s/ HAROLD I. DYCUS Director
Harold I. Dycus

/s/ GLENN ENGLISH Director
Glenn English

Signature Title Date

/s/ NADINE GRIFFIN Director
Nadine Griffin

/s/ BENSON HAM Director
Benson Ham

/s/ RALPH HARMEYER Director
Ralph Harmeyer

/s/ GORDON J. HUDSON Director
Gordon J. Hudson

/s/ DAVID HUTCHENS Director
David Hutchens

/s/ PAUL J. LIESS Director August , 1995
Paul J. Liess

/s/ ROBERT H. McCLURG Director
Robert H. McClurg

/s/ R. LAYNE MORRILL Director
R. Layne Morrill

/s/ GERARD P. PAOLUCCI Director
Gerard P. Paolucci

/s/ GEORGE W. KLINE Director
George W. Kline

/s/ TERRY PITCHFORD Director
Terry Pitchford

/s/ HENRY UMSCHEID Director
Henry Umscheid

/s/ ROBERT O. WILLIAMS Director
Robert O. Williams

/s/ ELDWIN WIXSON Director
Eldwin Wixson

<PAGE> 52
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of

NATIONAL RURAL UTILITIES COOPERATIVE
FINANCE CORPORATION:

We have audited the accompanying combined balance sheets of National Rural
Utilities Cooperative Finance Corporation (a not-for-profit corporation under
the District of Columbia Cooperative Association Act) and other related
entities as discussed in Note 1 as of May 31, 1995 and 1994, and the related
combined statements of income, expenses and net margins, changes in members'
equity and cash flows for each of the three years in the period ended May 31,
1995. These financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of National Rural Utilities
Cooperative Finance Corporation and other related entities as of May 31, 1995
and 1994, and the results of their operations and their cash flows for each of
the three years in the period ended May 31, 1995, in conformity with generally
accepted accounting principles.

ARTHUR ANDERSEN LLP

Washington, D. C.
July 19, 1995

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

COMBINED BALANCE SHEETS

(Dollar Amounts In Thousands)

May 31, 1995 and 1994

ASSETS

1995 1994
<S> <C> <C>
CASH $ 26,309 $ 22,168

MARKETABLE SECURITIES 30,000 0

DEBT SERVICE INVESTMENTS 32,740 33,668

LOANS TO MEMBERS, net 6,747,124 5,921,022

RECEIVABLES 87,638 90,160

FIXED ASSETS, net 36,807 38,718

DEBT SERVICE RESERVE FUNDS 114,094 107,095

OTHER ASSETS 6,077 11,465

$7,080,789 $6,224,296

The accompanying notes are an integral part of these combined financial
statements.

</TABLE>

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

COMBINED BALANCE SHEETS

(Dollar Amounts In Thousands)

May 31, 1995 and 1994

LIABILITIES AND MEMBERS' EQUITY

1995 1994
<S> <C> <C>
NOTES PAYABLE, due within one year $1,812,570 $1,607,975

ACCOUNTS PAYABLE 16,705 18,529

ACCRUED INTEREST PAYABLE 39,343 35,597

LONG-TERM DEBT 3,685,682 3,042,068

OTHER LIABILITIES 21,553 36,301

COMMITMENTS, GUARANTEES AND CONTINGENCIES

MEMBERS' SUBORDINATED CERTIFICATES:
Membership Subscription Certificates 637,129 640,520
Loan and Guarantee Certificates 597,586 582,338

Total Members' Subordinated Certificates 1,234,715 1,222,858

MEMBERS' EQUITY 270,221 260,968

Total Members' Subordinated Certificates
and Members' Equity 1,504,936 1,483,826

$7,080,789 $6,224,296

The accompanying notes are an integral part of these combined financial
statements.

</TABLE>

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

COMBINED STATEMENTS OF INCOME, EXPENSES AND NET MARGINS

(Dollar Amounts In Thousands)

For the Years Ended May 31, 1995, 1994 and 1993

1995 1994 1993

<S> <C> <C> <C>
OPERATING INCOME-Interest on loans to members $440,109 $324,682 $336,387
Less-Cost of funds 361,338 263,230 265,412

Gross operating margin 78,771 61,452 70,975

EXPENSES:
General, administrative and loan processing 19,568 16,668 17,623
Provision for loan and guarantee losses 17,400 15,625 15,000

Total expenses 36,968 32,293 32,623

Operating margin 41,803 29,159 38,352

NONOPERATING INCOME 3,409 4,029 3,296

NET MARGINS BEFORE EXTRAORDINARY LOSS 45,212 33,188 41,648

EXTRAORDINARY LOSS 0 0 (3,161)

NET MARGINS $ 45,212 $ 33,188 $ 38,487

The accompanying notes are an integral part of these combined financial statements.

</TABLE>

<PAGE> 56
<TABLE>
<CAPTION>
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

COMBINED STATEMENTS OF CHANGES IN MEMBERS' EQUITY

(Dollar Amounts In Thousands)

For the Years Ended May 31, 1995, 1994 and 1993

Patronage
Capital Allocated
General
Education Unallocated Reserve
Total Memberships Fund Margins Fund Other
<S> <C> <C> <C> <C> <C> <C>
Balance as of May 31, 1992 $246,328 $ 1,181 $ 289 $ 2,289 $ 483 $242,086
Retirement of Patronage Capital (26,864) 0 0 0 (373) (26,491)
Net Margins - Allocated 38,487 0 23 1 378 38,085
Other 348 66 0 (1) 0 283

Balance as of May 31, 1993 258,299 1,247 312 2,289 488 253,963
Retirement of Patronage Capital (29,459) 0 0 0 (295) (29,164)
Net Margins - Allocated 33,188 0 13 0 302 32,873
Other (1,060) 92 0 0 0 (1,152)

Balance as of May 31, 1994 260,968 1,339 325 2,289 495 256,520
Retirement of Patronage Capital (34,184) 0 0 0 (177) (34,007)
Net Margins - Allocated 45,212 0 50 0 180 44,982
Other (1,775) 44 0 0 0 (1,819)

Balance as of May 31, 1995 $270,221 $ 1,383 $ 375 $ 2,289 $ 498 $265,676

The accompanying notes are an integral part of these combined financial statements.

</TABLE>

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

COMBINED STATEMENTS OF CASH FLOWS

(Dollar Amounts In Thousands)

For the Years Ended May 31, 1995, 1994 and 1993

1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net margins $ 45,212 $ 33,188 $ 38,487
Add (deduct):
Provision for loan and guarantee losses 17,400 15,625 15,000
Depreciation 2,359 1,553 1,522
Amortization (15,940) (15,915) (10,402)
Add (deduct) changes in accrual accounts:
Receivables (2,880) (4,263) (10,955)
Accounts payable (1,824) 613 4,696
Accrued interest payable 3,746 (12,225) (7,699)
Other 6,002 15,975 42,531

Net cash flows provided by operating activities 54,075 34,551 73,180

CASH FLOWS FROM INVESTING ACTIVITIES:
Advances made on loans (3,619,998) (2,382,839) (1,456,959)
Principal collected on loans 2,776,496 1,558,662 1,332,584
Investment in fixed assets (448) (8,494) (4,884)

Net cash flows used in investing activities (843,950) (832,671) (129,259)

CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable, net 604,595 1,104,351 389,809
Marketable Securities (30,000) 0 0
Debt service investments, net 928 11,944 55,127
Proceeds from issuance of long-term debt 476,233 172,293 158,245
Payments for retirement of long-term debt (232,798) (512,849) (522,077)
Proceeds from issuance of Members' Subordinated Certificates 30,156 34,088 32,087
Payments for retirement of Members' Subordinated Certificates (19,603) (15,868) (21,342)
Payments for retirement of patronage capital (35,495) (29,121) (26,632)

Net cash flows provided by financing activities 794,016 764,838 65,217

NET CASH FLOWS 4,141 (33,282) 9,138
BEGINNING CASH 22,168 55,450 46,312
ENDING CASH $ 26,309 $ 22,168 $ 55,450

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during year for interest expense $ 360,308 $ 269,959 $ 275,950

The accompanying notes are an integral part of these combined financial statements.
</TABLE>

<PAGE> 58

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS

May 31, 1995, 1994 and 1993

(1) General Information and Accounting Policies

(a) General Information

National Rural Utilities Cooperative Finance Corporation (the "Company" or
"CFC") was incorporated as a private, not-for-profit cooperative association
under the laws of the District of Columbia in April 1969. The principal
purpose of CFC is to provide its members with a source of financing to
supplement the loan programs of the Rural Utilities Service ("RUS") of the
United States Department of Agriculture. CFC makes loans primarily to its
rural utility system members ("Utility Members") to enable them to acquire,
construct and operate electric distribution, generation, transmission and
related facilities. Most CFC long-term loans to Utility Members are made in
conjunction with concurrent loans from RUS and are secured equally and ratably
with RUS's loans by a single mortgage. CFC also provides guarantees for
tax-exempt financings of pollution control facilities and other properties
constructed or acquired by its members and, in addition, provides guarantees
of taxable debt in connection with certain lease and other transactions of its
members. CFC is exempt from payment of Federal income taxes under Section
501(c)(4) of the Internal Revenue Code.

CFC's 1,046 members as of May 31, 1995, included 903 Utility Members,
virtually all of which are consumer-owned cooperatives, 72 service members and
71 associate members. The Utility Members included 838 distribution systems
and 65 generation and transmission ("Power Supply") systems operating in 46
states and U.S. territories. At December 31, 1993, CFC's member systems
served approximately 12.4 million consumers, representing service to an
estimated 32.5 million ultimate users of electricity, and owned approximately
$62.6 billion (before depreciation of $17.9 billion) in total utility plant.

Rural Telephone Finance Cooperative ("RTFC") was incorporated as a private
cooperative association in the state of South Dakota in September 1987. RTFC
is a controlled affiliate of CFC and was created for the purpose of providing
and/or arranging financing for its rural telecommunication members and
affiliates. RTFC's bylaws require that the majority of RTFC's Board of
Directors be elected from individuals designated by CFC. CFC is the sole
source of funding for RTFC. As of May 31, 1995, RTFC had 388 members. RTFC
is a taxable entity under Subchapter T of the Internal Revenue Code and
accordingly takes deductions for allocations of net margins to its patrons.

Guaranty Funding Cooperative ("GFC") was incorporated as a private cooperative
association in the state of South Dakota in December 1991. GFC is a
controlled affiliate of CFC and was created for the purpose of providing a
source of funds for its members to refinance their RUS guaranteed debt
previously held by the Federal Financing Bank. All trust certificates held by
GFC were transferred to GFC by CFC and are guaranteed by the RUS. CFC is the
sole source of funding for GFC. GFC had four members other than CFC at
May 31, 1995. GFC is a taxable entity under Subchapter T of the Internal
Revenue Code and accordingly takes deductions for allocations of net margins
to its patrons.

(b) Principles of Combination

The accompanying financial statements include the combined accounts of CFC,
RTFC and GFC, after elimination of all material intercompany accounts and
transactions. CFC has a $1,000 membership interest in both RTFC and GFC.
CFC exercises control over RTFC and GFC through majority representation on
their Boards of Directors. CFC manages the affairs of RTFC through a
long-term management agreement. CFC services the loans for GFC for which it
collects a servicing fee.

As of May 31, 1995, CFC had committed to lend RTFC up to a total of $2.4
billion to fund loans to its members and their affiliates. As of the same
date, RTFC had outstanding loans and unadvanced loan commitments totaling
$1,215.1 million. RTFC's net margins are allocated to RTFC borrowers.
Summary financial information relating to RTFC included in the combined
financial statements is presented below:

<PAGE> 59
<TABLE>
<CAPTION> NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

As of May 31: 1995 1994
(Dollar Amounts In Thousands)
<S> <C> <C> <C>
Outstanding loans to members and their affiliates $883,463 $653,644
Total assets 985,381 743,761
Notes payable to CFC 883,463 653,644
Total liabilities 892,717 663,810
Members' Equity (1) and Subordinated Certificates 92,664 79,951

For the years ended May 31: 1995 1994 1993
(Dollar Amounts In Thousands)

Operating income $54,639 $28,825 $28,183
Net margins (2) 2,110 4,545 1,506

</TABLE>
(1) The transfer of RTFC equity is governed by the South Dakota Cooperative
Association Act which provides that net margins shall be distributed and
paid to patrons. However, reserves may be created and credited to
patrons in proportion to total patronage. CFC has been the sole funding
source for RTFC's loans to its members. As CFC is not a borrower of RTFC
and is not expected to be in the foreseeable future, RTFC's net margins
would not be available to CFC in the form of patronage capital.

(2) RTFC's net margins for fiscal year 1995 will be adjusted for the
allocation of patronage capital by CFC.

As of May 31, 1995, CFC had loaned GFC $421.7 million to fund the purchase of
RUS guaranteed trust certificates from CFC. Summary financial information
relating to GFC included in the combined financial statements is presented
below:
<TABLE>
<CAPTION>
As of May 31: 1995 1994
(Dollar Amounts In Thousands)
<S> <C> <C> <C>
Outstanding loans to members $421,665 $524,081
Total assets 442,878 540,913
Notes payable to CFC 427,875 531,302
Total liabilities 440,410 539,521
Members' Equity 2,468 1,392

For the years ended May 31: 1995 1994 1993
(Dollar Amounts In Thousands)

Operating income $ 28,494 $ 16,667 $11,233
Net margins (1) 3,235 1,831 902
</TABLE>
(1) The transfer of GFC equity is governed by the South Dakota Cooperative
Association Act which provides that net margins shall be distributed and
paid to patrons. However, reserves may be created and credited to
patrons in proportion to total patronage. CFC has been the sole funding
source for GFC's loans to its members. As CFC is not a borrower of GFC
and is not expected to be in the foreseeable future, GFC's net margins
would not be available to CFC in the form of patronage capital.

Unless stated otherwise, references to CFC relate to CFC, RTFC and GFC on a
combined basis.

<PAGE> 60

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

Bond discount and bond issuance costs are amortized using the effective
interest method over the life of each bond issue.

(d) Nonperforming Loans

It is CFC's policy to classify a loan as nonperforming when it meets any of
the following criteria:

(i) Interest or principal payments are contractually past due 90 days or
more,

(ii) As a result of court proceedings, repayment in accordance with the
original terms is not anticipated, or

(iii) For other reasons, timely repayment is not expected.

(e) Allowance for Loan and Guarantee Losses

CFC maintains an allowance for loan and guarantee losses at a level believed
to be adequate in relation to the quality and size of its loans and guarantees
outstanding. It is CFC's policy to review periodically its loans and
guarantees and to make adjustments to the allowance as necessary. The
allowance is based on estimates, and accordingly, actual loan and guarantee
losses may differ from the allowance amount.

Activity in the allowance account is summarized as follows for the years
ended May 31:
<TABLE>
<CAPTION>
1995 1994 1993
(Dollar Amounts In Thousands)
<S> <C> <C> <C>
Balance at beginning of year $188,196 $172,571 $157,571
Provision for loan and guarantee losses 17,400 15,625 15,000
Balance at end of year $205,596 $188,196 $172,571
</TABLE>
(f) Fixed Assets

Buildings, aircraft, furniture and fixtures and related equipment are stated
at cost less accumulated depreciation and amortization of $7.7 million and
$5.4 million as of May 31, 1995 and 1994, respectively. Depreciation and
amortization expenses ($2.4 million, $1.6 million and $1.5 million in fiscal
years 1995, 1994 and 1993, respectively) are computed primarily on the
straight-line method over estimated useful lives ranging from 2 to 40 years.

(g) Recognition of Fee Income

In connection with its various loan, guarantee and other financing programs,
CFC may be entitled to receive certain fees. Such fees are generally designed
to compensate CFC for expenses associated with the related transactions.
CFC recognizes the income from such fees periodically over the term during
which it incurs the related expenses.

<PAGE> 61

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

(h) Financial Instruments with Off-Balance Sheet Risk

In the normal course of business, CFC is a party to financial instruments with
off-balance sheet risk both to meet the financing needs of its member
borrowers and to reduce its own exposure to fluctuations in interest rates.
These financial instruments include commitments to extend credit, standby
letters of credit, guarantees of members' obligations and interest rate
exchange agreements. Those instruments involve, to varying degrees, elements
of credit and interest rate risk in excess of the amounts recognized in the
combined balance sheets.

(i) Accounting by Creditors for Impairment of a Loan

In May 1993, the Financial Accounting Standards Board (the "FASB") released
Statement No. 114 "Accounting by Creditors for Impairment of a Loan." The
statement requires that impaired loans be measured based on the present value
of expected future cash flows discounted at the loan's effective interest
rate, observable market value or the fair value of the collateral. In October
1994, the FASB released Statement No. 118, "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures". The statement
amends FASB Statement No. 114 by eliminating the interest income recognition
provisions and changing the disclosure requirements. Both statements are
required to be implemented in fiscal years beginning after December 15, 1994
and will apply to loans that are, or become impaired, based on the provisions
of FASB Statement No. 114, or that have certain restructuring agreements
executed on, or after the implementation date. CFC has elected not to
implement these statements early and management has not yet determined the
impact on the financial statements.

(j) Employers' Accounting for Postemployment Benefits

CFC has implemented FASB Statement No. 112, "Employers' Accounting for
Postemployment Benefits." The statement requires accrual accounting for
employee benefits that are paid after the termination of active employment but
prior to retirement. The implementation of this statement did not have a
material impact on CFC's financial statements.

(k) Accounting for Certain Investments in Debt and Equity Securities

CFC has implemented FASB Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The CFC investments covered by
this statement, at May 31, 1995, include the marketable securities and the
debt service investments. These items have been recorded at amortized cost,
due to the company's intent and ability to hold all investments to maturity.

(l) Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments

In October 1994, the FASB released Statement No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments."
This statement requires disclosure about the amounts, nature and terms of
derivative financial instruments. The statement must be implemented for
fiscal years ending after December 15, 1994. CFC has implemented this
statement as of May 31, 1995. CFC is neither a dealer nor a trader in
derivative financial instruments. CFC uses interest rate exchange agreements
to help manage its interest rate risk.

(m) Memberships

Members are charged a one-time membership fee based on member class. CFC
Distribution System members (Class A), Power Supply System members (Class B),
national associations of cooperatives (Class D) and Associate members (Class E)
all pay a $1,000 membership fee. CFC Service Organization members (Class C)
pay a $200 membership fee. RTFC voting members pay a $1,000 membership fee
and non-voting members pay a $100 membership fee. All GFC members pay a
$1,000 membership fee.

<PAGE> 62
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

(n) Reclassifications

Certain reclassifications of prior year amounts have been made to conform
with fiscal year 1995 presentation.

(2) Loans and Commitments

Loans to members bear interest at rates determined from time to time by the
Board of Directors on the basis of CFC's cost of funds, operating expenses,
provision for loan and guarantee losses and the maintenance of reasonable
margin levels. In keeping with its not-for-profit, cooperative character,
CFC's policy is to set interest rates at the lowest levels it considers to be
consistent with sound financial management. Loans outstanding to members,
weighted average interest rates thereon and unadvanced commitments are
summarized by loan type as follows as of May 31:
<TABLE>
<CAPTION> 1995 1994
Weighted Weighted
(Dollar Amounts In Thousands) Average Average
Loans Interest Unadvanced Loans Interest Unadvanced
Outstanding Rates Commitments(A) Outstanding Rates Commitments(A)
<S> <C> <C> <C> <C> <C> <C>
Long-term fixed rate secured loans (B):
Distribution Systems $1,645,551 7.68% $ 10,389 $1,502,454 7.69% $ 12,089
Power Supply Systems 253,208 7.68% 1,214 273,186 7.56% 9,705
Service Organizations (C) 81,521 9.27% 2,600 94,104 9.53% 11,461
Associate Members 1,569 10.25% 0 1,606 10.25% 0
Telecommunication Organizations 141,144 8.98% 0 119,600 9.16% 0
Total long-term fixed rate secured loans 2,122,993 7.83% 14,203 1,990,950 7.85% 33,255

Long-term variable rate secured loans (D):
Distribution Systems 2,553,590 6.50% 730,453 2,172,799 4.65% 807,848
Power Supply Systems 191,967 6.50% 512,598 170,683 4.65% 436,147
Service Organizations (C) 53,332 6.50% 67,887 39,487 4.65% 64,828
Associate Members 42,561 6.20% 39,959 29,089 4.45% 47,412
Telecommunication Organizations 704,427 6.64% 130,627 499,506 4.92% 366,269
Total long-term variable rate secured loans 3,545,877 6.52% 1,481,524 2,911,564 4.69% 1,722,504

Refinancing variable rate loans
guaranteed by RUS:
Power Supply Systems 429,129 7.27% 0 533,545 4.87% 0

Intermediate-term secured loans:
Distribution Systems 4,176 6.85% 2,300 4,112 4.90% 2,000
Power Supply Systems 40,237 6.85% 158,759 21,316 4.90% 234,391
Service Organizations 11,429 6.85% 3,705 2,099 4.90% 5,541
Telecommunication Organizations 0 0 0 0 0 0
Total intermediate-term secured loans 55,842 6.85% 164,764 27,527 4.90% 241,932

Intermediate-term unsecured loans:
Distribution Systems 11,392 6.50% 17,693 13,046 4.90% 10,695
Power Supply Systems 47,443 6.50% 3,856 84,515 4.90% 22,376
Service Organizations 0 0 0 0 0 70
Telecommunication Organizations 3,255 7.54% 2,370 1,265 5.05% 1,303
Total intermediate-term unsecured loans 62,090 6.56% 23,919 98,826 4.90% 34,444

Short-term loans (E):
Distribution Systems 445,962 6.85% 2,032,220 276,373 4.90% 1,943,335
Power Supply Systems 10,267 6.85% 1,042,205 14,048 4.90% 962,224
Service Organizations 25,653 6.85% 46,787 11,812 4.90% 66,463
Associate Members 7,651 6.85% 13,524 3,084 4.90% 16,201
Telecommunication Organizations 34,637 7.60% 198,636 31,176 5.65% 114,172
Total short-term loans 524,170 6.90% 3,333,372 336,493 4.97% 3,102,395

Nonperforming loans (F):
Distribution Systems 1,830 7.21% 0 1,933 8.27% 0
Power Supply Systems 25,811 6.57% 0 27,948 4.75% 0
Associate Members 0 0 0 12,961 9.00% 0
Telecommunication Organizations 0 0 0 2,098 6.13% 0
Total nonperforming loans 27,641 6.61% 0 44,940 6.19% 0

</TABLE>

<PAGE> 63
<TABLE>
<CAPTION> NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

1995 1994
Weighted Weighted
(Dollar Amounts In Thousands) Average Average
Loans Interest Unadvanced Loans Interest Unadvanced
Outstanding Rates Commitments(A) Outstanding Rates Commitments(A)
<S> <C> <C> <C> <C> <C> <C>
Restructured loans (G):
Distribution Systems $ 2,654 18.37% $ 0 $ 2,667 18.37% $ 3,000
Power Supply Systems 180,521 9.01% 20,000 160,873 8.32% 50,000
Service Organizations 1,803 6.50% 0 1,833 4.62% 0
Associate Members 0 0 0 0 0 0
Telecommunication Organizations 0 0 0 0 0 0
Total restructured loans 184,978 9.12% 20,000 165,373 8.44% 53,000

Total loans 6,952,720 7.01% 5,037,782 6,109,218 5.87% 5,187,530

Less: Allowance for Loan and Guarantee Losses 205,596 0 188,196 0

Net loans $6,747,124 $5,037,782 $5,921,022 $5,187,530

</TABLE>
(A) Unadvanced commitments include loans approved by CFC for which loan
contracts have not yet been executed and for which loan contracts have been
executed, but funds have not been advanced. CFC may require additional
information to assure itself that all conditions for advance of funds have
been fully met and that there has been no material change in the member's
condition as represented in the documents supplied to CFC. Since commitments
may expire without being fully drawn upon, the total amounts reported as
commitments do not necessarily represent future cash requirements. Collateral
and security requirements for lending on commitments are identical to those
for advanced loans. Long-term unadvanced commitments that do not have an
interest rate associated with the commitment have been listed under the
variable rate. Rates, fixed or variable, are set at the time of the advance
on the amount of the advance.

(B) Generally, long-term fixed rate secured loans provide for a fixed
interest rate for terms of one to 30 years. Upon expiration of the term,
the borrower may select another fixed rate term of one to 30 years (but
not beyond maturity of the loan) or a variable rate. The borrower may
select either option or may repay to CFC the principal then outstanding
together with interest due thereon and other sums, if required. Included
in long-term fixed rate secured loans are $30.4 million of unsecured
loans at May 31, 1995.

(C) CFC had loans outstanding to National Cooperative Services Corporation
("NCSC") in each of the periods shown. Long-term fixed rate loans
outstanding to NCSC as of May 31, 1995 and 1994, were $48.5 million and
$47.8 million, respectively. In addition, as of May 31, 1995 and 1994,
CFC had unadvanced loan commitments to NCSC in the amount of $12.3
million and $14.7 million, respectively.

(D) Included in long-term variable rate secured loans are $41.4 million and
$3.5 million of unsecured loans to one borrower at May 31, 1995 and 1994.

(E) All short-term loans are unsecured, except for $30.9 million and $18.2
million of loans outstanding at May 31, 1995 and 1994 that are secured.

(F) The rates on nonperforming loans are the weighted average of the stated
rates on such loans as of the dates shown and do not necessarily relate
to the interest recognized by CFC from such loans.

(G) The rates on restructured loans are the weighted average of the effective
rates (based on present values of scheduled future cash flows) as of
the dates shown and do not necessarily relate to the interest recognized
by CFC from such loans.

<PAGE> 64
<TABLE>
<CAPTION> NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

Loans outstanding, by state or U.S. territory, are summarized below:

(Dollar Amounts In Thousands)

May 31, May 31,
State 1995 1994 State 1995 1994
<S> <C> <C> <S> <C> <C>
Alabama $136,143 $115,355 Nevada $ 7,495 $ 7,709
Alaska 110,753 73,195 New Hampshire 31,576 8,787
Arizona 79,590 62,188 New Jersey 5,564 4,109
Arkansas 226,798 204,666 New Mexico 109,505 103,055
California 17,358 17,906 New York 10,843 13,202
Colorado 286,242 249,381 North Carolina 241,349 267,782
Delaware 17,201 17,492 North Dakota 13,800 10,916
District of Columbia 92,656 63,843 Ohio 87,321 68,895
Florida 320,177 317,421 Oklahoma 251,804 220,346
Georgia 515,767 415,393 Oregon 142,404 113,600
Idaho 41,856 37,202 Pennsylvania 83,100 80,272
Illinois 470,160 555,531 South Carolina 273,099 251,520
Indiana 109,180 101,190 South Dakota 42,831 41,072
Iowa 143,016 129,454 Tennessee 58,730 55,681
Kansas 240,366 215,717 Texas 727,320 580,375
Kentucky 171,736 157,051 Utah 149,752 131,285
Louisiana 125,088 124,877 Vermont 66,724 11,674
Maine 65,540 2,914 Virgin Islands 52,081 56,114
Maryland 77,588 65,779 Virginia 170,400 174,607
Michigan 74,255 55,969 Washington 77,320 76,991
Minnesota 230,301 180,370 West Virginia 1,038 1,051
Mississippi 183,239 186,869 Wisconsin 92,354 79,811
Missouri 248,846 219,121 Wyoming 102,569 23,572
Montana 146,572 136,812 Total $6,952,720 $6,109,218
Nebraska 23,313 21,096

</TABLE>
Weighted average interest rates earned (recognized in the case of
nonperforming and restructured loans) on all loans outstanding are summarized
below:
<TABLE>
<CAPTION> For the year ended May 31,
1995 1994 1993
<S> <C> <C> <C>
Long-term fixed rate 8.63% 8.63% 9.15%
Long-term variable rate 5.90% 4.08% 4.99%
Telecommunication organizations 6.70% 5.58% 6.32%
Refinancing loans guaranteed by RUS 6.07% 4.01% 4.09%
Intermediate-term 6.19% 4.41% 4.93%
Short-term 6.29% 4.38% 5.08%
Associate members 5.40% 4.21% 4.74%
Nonperforming 1.56% 1.19% 1.26%
Restructured 1.92% 2.33% 1.92%
All loans 6.72% 5.66% 6.54%

</TABLE>

<PAGE> 65

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

Long-term fixed rate loans outstanding at May 31, 1995 which will be subject
to adjustment of their interest rates during the next five calendar years are
summarized as follows (due to principal repayments, amounts subject to
interest rate adjustment may be lower at the actual time of interest rate
adjustment):
<TABLE>
<CAPTION> Weighted
(Dollar Amounts In Thousands) Average
Interest Amounts
Rate Outstanding
<S> <C> <C>
1996 7.96% $134,531
1997 9.07% 140,178
1998 8.19% 165,408
1999 7.54% 306,040
2000 6.74% 133,833
$879,990
</TABLE>
During the first quarter of calendar year 1995, long-term fixed rate loans
totaling $26.2 million had their interest rates adjusted. These loans will
be eligible to readjust their interest rates again during the first quarter of
calendar year 1996 to the lowest long-term fixed rate offered during 1995 for
the term selected. At January 1 and May 31, 1995, the standard long-term
fixed rates were 8.80% and 7.20%, respectively.

On most long-term secured loans, level quarterly payments are required with
respect to principal and interest in amounts sufficient to repay the loan
principal, generally over a period ending approximately 35 years from the date
of the secured promissory note. Fiscal year 1995 repayments of principal on
long-term loans outstanding are expected to be a relatively minor amount of
such outstanding loans.

CFC evaluates each borrower's creditworthiness on a case-by-case basis. It is
generally CFC's policy to require collateral for all long-term and some
intermediate-term loans. Such collateral usually consists of a first mortgage
lien on the borrower's total system, including plant and equipment, and a
pledge of future revenues. The loan and security documents also contain
various provisions with respect to the mortgaging of the borrower's property,
the maintenance of certain earnings and debt service coverage ratios,
maintenance of adequate insurance coverage and certain other restrictive
covenants.

Under common mortgages securing long-term CFC loans to Distribution System
members, RUS has the sole right to act within 30 days or, if RUS is not
legally entitled to act on behalf of all noteholders, CFC may exercise
remedies. Under common mortgages securing long-term CFC loans to, or
guarantee reimbursement obligations of, Power Supply members, RUS retains
substantial control over the exercise of mortgage remedies.

As of May 31, 1995 and 1994, mortgage notes representing approximately $789.9
million and $717.8 million, respectively, of outstanding long-term loans to
members were pledged as collateral to secure CFC's Collateral Trust Bonds.

CFC has received no guarantee of its loans from RUS; however, "Refinancing
loans guaranteed by RUS" represents loans made by CFC and transferred to its
affiliate GFC to fund the prepayment of members' Federal Financing Bank debt,
effected through grantor trusts which each hold a note from the member, the
repayment of which has been guaranteed by RUS. Each trust issues Trust
Certificates which represent an undivided interest in the trust assets. GFC,
as holder of Trust Certificates, is financing these loans from funds provided
by CFC at a variable rate until fixed rate funding is obtained through the
public markets.

CFC sets the variable interest rates monthly on outstanding short- and
intermediate-term loans. On notification to borrowers, CFC may adjust the
interest rate semimonthly. Under CFC policy, the maximum interest rate which
may be charged on short-term loans is the prevailing bank prime rate plus 1%
per annum; on intermediate-

<PAGE> 66

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS - (Contined)

term loans, the prevailing bank prime rate plus 1.5% per annum; and on RTFC
short-term loans, the prevailing bank prime rate plus 3% per annum.

At May 31, 1995, 1994 and 1993, nonperforming loans in the amount of $27.6
million, $44.9 million and $55.8 million, respectively, were on a nonaccrual
basis with respect to recognition of interest income. The effect of not
accruing interest on nonperforming loans was a decrease in interest income of
$2.1 million, $1.5 million and $1.1 million for the years ended May 31, 1995,
1994 and 1993, respectively. Income recognized on these loans totaled $0.7
million, $0.5 million and $0.5 million, respectively.

At May 31, 1995, 1994 and 1993, the total amount of restructured debt was
$185.0 million, $165.4 million and $172.9 million, respectively. CFC elected
to apply all principal and interest payments received against principal
outstanding on restructured debt of $131.1 million, $111.5 million and $100.3
million, respectively. The interest income that would have been recorded
under the original terms of the debt, assuming the debt had been outstanding
for the period, was $12.5 million, $8.4 million and $8.8 million, for the
years ended May 31, 1995, 1994 and 1993, respectively. The interest income
actually recorded for restructured debt was $3.5 million, $4.0 million and
$2.9 million, respectively. At May 31, 1995 and 1994, CFC had committed to
lend $20.0 million and $53.0 million, respectively, to borrowers performing
under restructured terms.

(3) Members' Subordinated Certificates

Membership Subscription Certificates

To join CFC and to establish eligibility to borrow, CFC members (other than
associate members and service organizations) are required to execute
agreements to subscribe to certain Subordinated Certificates. Such
certificates are interest-bearing, unsecured, subordinated debt of CFC. CFC
is authorized to issue subscription certificates without limitation as to the
total principal amount.

Generally, Membership Subscription Certificates mature in the years 2070
through 2090 and bear interest at 3% or 5% per annum.

New members joining CFC are required to purchase Membership Subscription
Certificates in an amount equal to 5% of each loan advance up to a maximum
amount based on their operating results. The maturity dates and interest
rates payable on such Certificates vary in accordance with applicable CFC
policy.

In certain cases, the Board of Directors has approved alternative deferred
payment arrangements for purchase of subscription certificates. These
deferred payments are evidenced by noninterest-bearing, unsecured notes from
the member and are shown as receivables.

Loan and Guarantee Certificates

Members obtaining long-term loans, certain intermediate-term loans or
guarantees from CFC or RTFC are generally required to purchase additional
Subordinated Certificates with each such loan or guarantee. These
certificates are unsecured, subordinated debt of CFC and RTFC.

Certificates currently purchased in conjunction with loans are noninterest-
bearing and are generally repaid periodically over the life of the loan in
relation to the loan principal balance outstanding. Such certificate purchase
requirements, if any, range from 1% to 12% of the loan amount depending on the
membership classification of the borrower and the borrower's leverage ratio,
including the new loan, with CFC, for utility systems.

The maturity dates and the interest rates payable on certificates purchased in
conjunction with CFC's guarantee program vary in accordance with applicable
CFC policy. In addition, members may also be required to purchase
noninterest-bearing Subordinated Certificates in connection with CFC's
guarantee of long-term tax-exempt bonds (see Note 8). These certificates have
varying maturities but none is greater than the longest maturity of the
guaranteed obligation. Proceeds from the sale of such certificates are
pledged by CFC to the debt service reserve

<PAGE> 67

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

fund established in connection with the bond issue, and any earnings from the
investments of the fund inure solely to the benefit of the members for whose
benefit the bonds are issued.

Information with respect to Members' Subordinated Certificates at May 31, is
as follows:
<TABLE>
<CAPTION>
(Dollar Amounts In Thousands) 1995 1994
<S> <C> <C>
Membership Subscription Certificates:
Number of subscribing members 903 899

Issued and outstanding:
3% and 5% certificates maturing 2020 through 209 $ 630,249 $ 628,583
Subscribed and unissued 6,880 11,937

Total Membership Subscription Certificates 637,129 640,520

Loan and Guarantee Certificates:
Issued and outstanding:
3% certificates maturing through 2040 140,911 141,481
5.74% to 13.70% certificates maturing through 2018 137,905 143,468
Noninterest-bearing certificates maturing through 2029 301,354 279,978
Subscribed and unissued 17,416 17,411

Total Loan and Guarantee Certificates 597,586 582,338

Total Members' Subordinated Certificates $1,234,715 $1,222,858

</TABLE>
CFC estimates the amount of Subscription and Loan and Guarantee Certificates
that will be repaid during the next five fiscal years will total approximately
2.65% of certificates outstanding. The weighted average interest rate paid on
all subordinated certificates was 4.36%, 4.46% and 4.58% as of May 31, 1995,
1994 and 1993, respectively. These rates do not include $114.1 million,
$107.1 million and $116.5 million of debt service reserve certificates and
$24.3 million, $29.3 million and $32.4 million of subscribed but unissued
subordinated certificates at May 31, 1995, 1994 and 1993, respectively.

<PAGE> 68

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continue)

(4) Notes Payable and Credit Arrangements
<TABLE>
<CAPTION>
Notes payable due within one year as of May 31, and weighted average interest
rates thereon, are summarized as follows:
1995 1994
Weighted Weighted
Average Average
Amounts Interest Amounts Interest
(Dollar Amounts In Thousands) Outstanding Rates Outstanding Rates
<S> <C> <C> <C> <C>
Commercial paper, sold through dealer, net of
discounts of $23,981 and $3,320, respectively $2,783,018 6.13% $ 2,367,763 4.28%
Commercial paper sold by CFC directly to members, at par 1,049,474 6.06% 999,549 4.13%
Commercial paper sold by CFC directly to nonmembers,
at par 60,078 6.06% 61,663 4.01%

3,892,570 6.11% 3,428,975 4.23%

Bank bid notes 350,000 6.11% 209,000 4.30%
4,242,570 6.11% 3,637,975 4.23%

Notes payable supported by revolving credit agreements,
classified as long-term debt (see Note 5) (2,430,000) 6.11% (2,030,000) 4.23%

$1,812,570 6.11% $ 1,607,975 4.23%
</TABLE>

Other information with regard to notes payable due within one year at May 31,
is as follows:
<TABLE>
<CAPTION>
(Dollar Amounts In Thousands) 1995 1994 1993
<S> <C> <C> <C>
Original maturity range of notes outstanding at
year-end 1 to 261 days 1 to 269 days 1 to 232 days
Weighted average maturity of notes outstanding
at year-end 65 days 36 days 46 days
Average amount outstanding during the year $3,895,274 $2,954,783 $2,279,304
Maximum amount outstanding at any month-end during
the year $4,242,570 $3,637,975 $2,533,624
Weighted average interest rate paid for the year,
without effect of compensating balances and
commitment fees 5.44% 3.48% 3.36%
Weighted average effective interest rate paid for the
year, including effect of compensating balances
and commitment fees 5.59% 3.67% 3.61%
</TABLE>
CFC issues short-term bid notes which are unsecured obligations of CFC and do
not require back-up bank lines for liquidity purposes. Bid note facilities
are uncommitted lines of credit for which CFC does not pay a fee. The
commitments are generally subject to termination at the discretion of the
individual banks.

<PAGE> 69

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

As of May 31, 1995, CFC had two revolving credit agreements totaling $4,050.0
million with 55 banks, including Morgan Guaranty Trust Company of New York as
Arranger, Administrative Agent and Co-Syndication Agent and the Bank of Nova
Scotia as Co-Syndication Agent. These credit facilities were arranged
principally to provide liquidity support for CFC's outstanding commercial
paper and the adjustable or floating/fixed rate bonds which CFC has guaranteed
and agreed to purchase for the benefit of its members (see Note 8).

The revolving credit agreements require CFC among other things to maintain
Members' Equity and Members' Subordinated Certificates of at least $1,345.0
million (increased each fiscal year by 90% of net margins not distributed to
members) and an average fixed charge coverage ratio over the six most recent
fiscal quarters of at least 1.025 and prohibits the retirement of patronage
capital unless CFC has achieved a fixed charge coverage ratio of 1.05 for the
preceding fiscal year. The credit agreements prohibit CFC from incurring
senior debt (including guarantees but excluding indebtedness incurred to fund
RUS guaranteed loans) in an amount in excess of ten times the sum of Members'
Equity and subordinated debt and restrict, with certain exceptions, the
creation by CFC of liens on its assets and contain certain other conditions
to borrowing. The agreement also prohibits CFC from pledging collateral in
excess of 150% of the principal amount of Collateral Trust Bonds outstanding.
Provided that CFC is in compliance with these financial covenants (including
that CFC has no material contingent or other liability or material litigation
not disclosed by or reserved against in its most recent annual financial
statements) and is not in default, CFC may borrow under the agreements until
the termination date. As of May 31, 1995, CFC was in compliance with all
covenants and conditions.

As of May 31, 1995, there were no borrowings outstanding under the revolving
credit agreements. At May 31, 1995, CFC classified $2,430.0 million of its
notes payable outstanding as long-term debt. CFC expects to maintain more
than $2,430.0 million of notes payable outstanding during the next 12 months.
If necessary, CFC can refinance such notes payable on a long-term basis by
borrowing under the five-year facility, subject to the conditions therein.

<PAGE> 70

NATIONAL RURAL UTILTIIES COOPERATIVE FINANCE CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

(5) Long-Term Debt

The following is a summary of long-term debt as of May 31:
<TABLE>
<CAPTION>
(Dollar Amounts In Thousands)
1995 1994
<S> <C> <C>
Notes payable supported by revolving credit agreement
(see Note 4) $2,430,000 $2,030,000
Medium-Term Notes, sold through dealer 206,975 238,225
Medium-Term Notes, sold directly to members 366,662 233,983
573,637 472,208

Collateral Trust Bonds:
Floating Rate, Series 1994A, due 1996 (1) 150,000 0
9.5%, Series T, due 1997 (2) 150,000 150,000
8.5%, Series U, due 1998 (2) 150,000 150,000
7.40%, Series A, due 2007 (2) 0 2,819
Floating Rate, Series E-2, due 2010 (2) 2,189 2,253
9%, Series O, due 2016 (2) 83,200 87,400
9%, Series V, due 2021 (2) 150,000 150,000
685,389 542,472
Less: Collateral Trust Bonds held in treasury 1,111 200
Unamortized bond discount 2,233 2,412
Total Collateral Trust Bonds 682,045 539,860
Total long-term debt $3,685,682 $3,042,068

(1) Issued under the 1994 indenture.
(2) Issued under the 1972 indenture.
</TABLE>
The weighted average interest rate on Medium-Term Notes and Collateral Trust
Bonds was 7.90%, 8.06% and 8.56% as of May 31, 1995, 1994 and 1993. These
rates do not include notes payable supported by the revolving credit agreement.

The principal amount of Medium-Term Notes and Collateral Trust Bonds maturing
(including any sinking fund requirements) in each of the five fiscal years
following May 31, 1995, is as follows:

(Dollar Amounts In Thousands)

1996 $262,651
1997 392,650
1998 179,635
1999 15,845
2000 14,681

Under the 1972 Indenture for Collateral Trust Bonds, CFC is required to
maintain funds in a debt service investment account equivalent to principal
and interest payments due on the bonds over the next 12 months. At May 31,
1995 and 1994, CFC had $32.7 million and $33.7 million of such funds invested
in bank certificates of deposit and marketable securities, respectively.

<PAGE> 71

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

The outstanding Collateral Trust Bonds are secured by the pledge of mortgage
notes taken by CFC in connection with long-term secured loans made to those
members fulfilling specified criteria as set forth in the indenture. Medium-
Term Notes are unsecured obligations of CFC.

The following table lists the notional principal amounts and the weighted
average interest rates paid by CFC under interest rate exchange agreements at
May 31, 1995 and 1994:
<TABLE>
<CAPTION>
(Dollar Amounts in Thousands)
Maturity Interest Rate Paid Notional Principal Amount
Date 1995 1994 1995 1994
<S> <C> <C> <C> <C>
August 1996 (1) 8.40% 8.40% $ 30,000 $ 30,000
September 1996 (2) 5.90% 0 150,000 0
February 1997 (1) 9.34% 9.34% 35,000 35,000
February 1997 (1) 9.33% 9.33% 40,000 40,000
February 1997 (1) 9.36% 9.36% 25,000 25,000
February 1988 (2) 5.57% 0 50,000 0

Total $330,000 $ 130,000

(1) Under these agreements, CFC pays a fixed rate of interest and receives
interest based on a variable rate.
(2 Under these agreements, CFC pays a variable rate of interest and receives
a variable rate of interest.
</TABLE>
CFC's objective in using interest rate exchange agreements in which it pays a
fixed rate of interest and receives a variable rate of interest is to fix the
interest rate on a portion of its commercial paper. CFC then uses commercial
paper, in an amount equal to the notional principal value of the interest rate
exchange agreements, to fund a portion of its long-term fixed rate loan
portfolio. During fiscal year 1995, CFC received a weighted average rate of
5.58%, 5.55%, 5.56% and 5.56% on the interest rate exchange agreements
maturing August 1996, February 1997, February 1997 and February 1997,
respectively. The net difference between the rate paid by CFC and the rate
received is included in the cost of funds.

CFC's objective in using interest rate exchange agreements in which it pays
and receives a variable rate of interest is to change the variable rate on a
notional amount of debt from a LIBOR rate index to a commercial paper rate
index. The variable rate Collateral Trust Bonds and Medium-Term Notes are
issued based on a LIBOR rate index, while CFC sets its variable rate loan
interest rates based on a commercial paper rate. During fiscal 1995, CFC
received a weighted average rate of 5.82% and 6.31% on the interest rate
exchange agreements maturing in September 1996 and February 1998, respectively.
The net difference between the rate paid by CFC and the rate received is
included in the cost of funds.

CFC is exposed on these interest rate swap agreements to interest rate risk if
the counterparty to the interest rate swap agreement does not perform to the
agreement's terms. CFC's policy is to enter swap agreements only with
financial institutions with at least a AA long-term credit rating.

<PAGE> 72

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

(6) Employee Benefits

CFC is a participant in the National Rural Electric Cooperative Association
("NRECA") Retirement and Security Program. This program is available to all
qualified CFC employees. Under the program, participating employees are
entitled to receive, under a 50% joint and surviving spouse annuity, 1.90% of
the average of their five highest base salaries during their last ten years of
employment, multiplied by the number of years of participation in the program.
A moratorium on contributions had been in effect since July 1, 1987, when the
plan reached the full funding limitation. In November 1994, the moratorium
on funding was lifted. CFC contributed a total of $549,000 from November
1994 through April 1995, at which time the funding moratorium was again placed
in effect. Funding requirements are charged to general and administrative
expenses as billed on a monthly basis. This is a multi-employer plan,
available to all member cooperatives of NRECA, and therefore, the projected
benefit obligation and plan assets are not determined or allocated separately
by individual employer.

CFC recognizes in current year margins any expected payouts for post
retirement benefits (other than pensions) as a result of current service.
Postretirement benefits include, but are not limited to, health and welfare
benefits provided after retirement. While CFC allows retired employees to
participate in its medical and life insurance plans, the retirees must do so
at their own expense. Any liability which may be incurred by allowing retired
employees to remain on CFC's medical and life insurance plans is not material
to CFC's financial condition, results of operations or cashflows.

CFC offers a 401(k) defined contribution savings program to all employees that
have completed a minimum of 1,000 hours of service, in either the first 12
consecutive months or first full calendar year of employment. Employee
contributions for calendar year 1995 are tax deductible up to $9,240, the
limit set by IRS regulations. Employees may contribute additional amounts to
the program on an after-tax basis subject to the limitations established b
y section 415 of the IRC. The Company will contribute an amount equal to 2%
of an employee's salary each year for all employees participating in the
program. During the year ended May 31, 1995, the Company contributed a total
of $140,900 under the program.

(7) Retirement of Patronage Capital

Patronage capital in the amount of $35.5 million was retired during fiscal
year 1995. This amount consists of $30.9 million retired to CFC Members,
excluding RTFC, $2.3 million retired to RTFC Members, $1.8 million retired
to GFC Members and $0.5 million retired as part of the repayment of loans by
two nonperforming borrowers.

It is anticipated that CFC will retire patronage capital representing
one-sixth of the fiscal years 1988, 1989 and 1990 allocations and 70% of the
fiscal year 1995 allocation in August 1995. Management anticipates that
70% of RTFC's margins for fiscal year 1995 will be retired in January 1996,
and that 100% of GFC's margins for fiscal year 1995 will be retired in the
second quarter of fiscal year 1996. Future retirements of patronage capital
will be made as determined by the companies' respective Boards of Directors
with due regard for their individual financial conditions.
<PAGE> 73
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

During fiscal year 1995, CFC changed its patronage capital retirement policy
to increase the amount of the current year allocations to be retired from 50%
to 70%.

(8) Guarantees

As of May 31, 1995 and 1994, CFC had outstanding guarantees of the following
contractual obligations of its members (see Note 1(e) for a description of
CFC's allowance for loan and guarantee losses and Note 3 for a discussion of
requirements to purchase Members' Subordinated Certificates in connection with
these guarantees):
<TABLE>
<CAPTION>
(Dollar Amounts In Thousands)
1995 1994
<S> <C> <C>
Long-term tax exempt bonds (A) $1,496,930 $1,494,200
Debt portions of leveraged lease transactions (B) 568,662 646,472
Indemnifications of tax benefit transfers (C) 389,755 414,512
Other guarantees (D) 119,575 100,643

Total $2,574,922 $2,655,827

</TABLE>
(A) CFC has unconditionally guaranteed to the holders or to trustees for the
benefit of holders of these bonds the full principal, premium, if any,
and interest on each bond when due. In addition, CFC has agreed to make
up, at certain times, deficiencies in the debt service reserve funds for
certain of these issues of bonds. In the event of a default by a system
for nonpayment of debt service, CFC is obligated to pay any required
amounts under its guarantee, which will prevent the acceleration of the
bond issue. The system is required to repay, on demand, any amount
advanced by CFC pursuant to its guarantee. This repayment obligation is
secured by a common mortgage with RUS on all of the system's assets, but
CFC may not exercise remedies thereunder for up to two years. However,
if the debt is accelerated because of a determination that the interest
thereon is not tax-exempt, the system's obligation to reimburse CFC for
any guarantee payments will be treated as a long-term loan.

Of the amounts shown, $1,200.1 million and $ 1,214.6 million as of May 31,
1995 and 1994, respectively, are adjustable or floating/fixed rate bonds.
The floating interest rate on such bonds may be converted to a fixed rate
as specified in the indenture for each bond offering. During the variable
rate period (including at the time of conversion to a fixed rate), CFC has
unconditionally agreed to purchase bonds tendered or called for redemption
if such bonds have not previously been sold to other purchasers by the
remarketing agents.

(B) CFC has guaranteed debt issued by NCSC in connection with leveraged lease
transactions. The amounts shown represent loans from NCSC to a trust for
the benefit of an industrial or financial company for the purchase of a
power plant or utility equipment which was subsequently leased to a CFC
member. The loans are secured by the property leased and the owner's
rights as lessor. NCSC borrowed the funds for these loans either under a
CFC guarantee or directly from CFC.

(C) CFC has unconditionally guaranteed to lessors certain indemnity payments
which may be required to be made by the lessees in connection with tax
benefit transfers. The amount shown represent CFC's maximum potential
liability at May 31, 1995 and 1994. However, the amounts of such
guarantees vary over the lives of the leases. A member's obligation to
reimburse CFC for any guarantee payments would be treated as a long-term
loan, secured pari passu with the RUS by a first lien on substantially
all of the member's property to the extent of any cash received by the
member at the outset of the transaction. The remainder would be treated
as an intermediate-term loan secured by a subordinated mortgage on
substantially all of the member's property. Due to changes in Federal
tax law, no further guarantees of this nature are anticipated.

<PAGE> 74

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

(D) At May 31, 1995 and 1994, CFC had unconditionally guaranteed commercial
paper issued by NCSC in the amount of $34.9 million and $ 34.8
million, respectively.

Guarantees outstanding, by state, are summarized as follows:
<TABLE>
<CAPTION>
(Dollar Amounts In Thousands)
May 31, May 31,
State 1995 1994 State 1995 1994
<S> <C> <C> <S> <C> <C>
Alabama $ 74,605 $ 77,320 Nebraska $ 3,855 $ 4,765
Arizona 61,360 31,660 North Carolina 122,350 124,450
Arkansas 262,574 268,425 Oklahoma 70,208 76,906
Colorado 115,193 115,299 Oregon 5,180 5,280
Florida 328,458 395,457 Pennsylvania 15,426 16,270
Indiana 131,904 133,300 South Carolina 48,265 54,155
Iowa 12,775 13,505 Texas 125,623 106,502
Kansas 42,528 43,208 Utah 322,840 336,584
Kentucky 183,300 187,400 Virginia 4,550 4,650
Maryland 34,898 34,830 Wisconsin 8,850 9,290
Minnesota 172,768 175,946 Total $2,574,922 $2,655,827
Mississippi 74,135 76,275
Missouri 353,277 364,350
</TABLE>
CFC uses the same credit policies and monitoring procedures in providing
guarantees as it does for loans and commitments.

(9) Fair Value of Financial Instruments

The following disclosure of the estimated fair value of financial instruments
is made in accordance with FASB Statement No. 107, "Disclosure about Fair
Value of Financial Instruments." Whenever possible, the estimated fair value
amounts have been determined using quoted market information as of May 31,
1995, along with other valuation methodologies which are summarized below.
However, the estimated fair value information presented is not necessarily
indicative of amounts CFC could realize currently in a market sale as such
amounts have not been revalued since year end. Therefore, current estimates
of fair value may differ significantly from the amounts presented. With the
exception of redeeming Collateral Trust Bonds under early redemption
provisions and allowing borrowers to prepay their loans, CFC has held all
financial instruments to maturity. Below is a summary of significant
methodologies used in estimating fair value amounts and a schedule of fair
values at May 31, 1995.

Cash and Cash Equivalents

Includes cash and marketable securities with remaining maturities of less than
90 days, which are valued at cost.

Debt Service Investments

The fair value of debt service investments is estimated based on published
bid prices or dealer quotes or is estimated using quoted market prices for
similar securities when no market quote is available. Debt service
investments purchased with original maturities of less than or equal to 90
days are valued at the carrying value which is a reasonable estimate of fair
value.

<PAGE> 75

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

Loans to Members

Fair values are estimated by discounting the future cash flows using the
current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities. Loans with different
risk characteristics, specifically nonperforming and restructured loans, are
valued using a discount rate commensurate with the risk involved. Loans with
original interest rate repricing maturities of less than or equal to 90 days
are valued at cost which approximates fair value.

Debt Service Reserve Funds

Fair value of debt service reserve funds is estimated at cost as all gains and
losses on the underlying securities inure directly to the benefit or detriment
of the CFC member and not to CFC.

Notes Payable

Notes payable consist of commercial paper and bank bid notes. The fair value
of commercial paper and bid notes with maturities greater than 90 days is
estimated based on quoted market rates with similar maturities for commercial
paper and on bid prices from the various banking institutions for bid notes.
The fair value of commercial paper and bank bid notes with maturities less
than or equal to 90 days are valued at carrying value which is a reasonable
estimate of fair value.

Long-Term Debt

Long-term debt consists of Collateral Trust Bonds and Medium-Term Notes. The
fair value of long-term debt is estimated based on published bid prices or
dealer quotes or is estimated using quoted market prices for similar
securities when no market quote is available.

Subordinated Certificates

As it is impracticable to develop a discount rate that measures fair value,
Subordinated Certificates have not been valued. Subordinated Certificates are
extended long-term obligations to CFC; many have maturities of 70 to 100
years. These certificates are issued to CFC's members as a condition of
membership or as a condition of obtaining loan funds or guarantees and are
non-transferable. As these certificates were issued not only for their future
payment stream but also as a condition to receiving future loan funds, there
is no ready market from which to obtain fair value rates.

Interest Rate Exchange Agreements

The fair value is estimated as the amount CFC would receive or pay to
terminate the agreement, taking into account the current market rate of
interest and the current creditworthiness of the exchange counterparties.

Commitments

The fair value is estimated as the carrying value, or zero. Extensions of
credit under these commitments, if exercised, would result in loans priced at
market rates.

<PAGE> 76
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

Guarantees

CFC charges guarantee fees based on the specifics of each individual
transaction. The demand for CFC guarantees has been small in the last few
years. In addition, there is no other company that provides guarantees to
rural electric utility companies from which to obtain market fee information.
As a result, it is impracticable to supply fair value information related to
guarantee fees.

Carrying and fair values as of May 31, 1995 and 1994 are presented as follows:
<TABLE>
<CAPTION>
(Dollar Amounts In Thousands) 1995 1994
Carrying Fair Carrying Fair
Value Value Value Value
<S> <C> <C> <C>
Assets:
Cash and Cash Equivalents $ 56,309 $ 56,309 $ 22,168 $ 22,168
Debt Service Investments 32,740 32,740 33,668 33,668
Loans to Members, net 6,747,124 6,810,007 5,921,022 5,863,472
Debt Service Reserve Funds 114,094 114,094 107,095 107,095

Liabilities:
Notes Payable (1) 4,242,570 4,242,859 3,637,975 3,637,975
Long-Term Debt (1) 1,255,682 1,355,463 1,012,068 1,065,200
Members' Subordinated Certificates 1,234,715 1,234,715 1,222,858 1,222,858

Off-Balance Sheet Instruments:
Interest Rate Exchange Agreements 0 (11,196) 0 (9,189)
Commitments 0 0 0 0
Guarantees 0 0 0 0

(1) Prior to reclassification of notes payable supported by the revolving credit agreements.
</TABLE>
(10) Contingencies

(a) On May 23, 1985, Wabash Valley Power Association, Inc. ("WVPA") filed a
voluntary petition for reorganization under Chapter 11 of the U.S.
Bankruptcy Code in connection with the cancelled Marble Hill plant
construction.

On August 7, 1991, the Bankruptcy Court confirmed WVPA's reorganization
plan pending approval of rates as contemplated in the plan.

On June 22, 1994, the U.S. District Court affirmed (over RUS's objection)
the Wabash plan of reorganization. RUS appealed the decision to the U.S.
Court of Appeals. Under the Wabash plan, CFC would realize an estimated
total loss of approximately $12 million ($8.6 million of which has been
written off to date), after the offset of subordinated capital term
certificates (without taking into account interest since the petition
date). CFC and RUS have agreed to distribute all proceeds from Wabash in
compliance with provisions under a shared mortgage. Upon resolution of
the bankruptcy, there will be a final accounting of proceeds received by
RUS and CFC since the petition date. At this time, CFC anticipates that
this final accounting will result in CFC making a net payment to RUS.
The estimated loss under the Wabash plan does not include the amount CFC
is obligated to pay to RUS, representing RUS's share of the debt service
payments made by Wabash on the CFC guaranteed bonds, since the petition
date.

<PAGE> 77

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

In May 1993, CFC advanced $24.4 million in variable interest rate secured
loans to WVPA, which was used to effect an early redemption of tax-exempt
bonds guaranteed by CFC. As WVPA is in bankruptcy, CFC has classified
these loans as nonperforming and, therefore, does not accrue interest
income on the loans. As of May 31, 1995, CFC had $20.9 million in
loans outstanding to Wabash.

Based on WVPA's preliminary reorganization plan, management believes that
CFC has adequately reserved for any potential loss.

(b) Deseret Generation & Transmission Co-operative ("Deseret") and its major
creditors entered into an Agreement Restructuring Obligations ("ARO")
that restructured Deseret's debt obligations to RUS, CFC and certain
other creditors, including certain lease payments due on the Bonanza
Power Plant. The ARO, which closed in January 1991 with an effective
date of January 1, 1989, provides for the reduction of Deseret's debt
service and rental obligations on the Bonanza Power Plant until 1996 when
large sales of power were intended to commence. Under the ARO, CFC
expected to fund Deseret's cash flow shortfalls totaling $117 million
and expected a maximum exposure of $439 million in 1996. At May 31,
1995, CFC had funded $113.5 million of the shortfall. CFC's current
exposure of $454.0 million is greater than the expected maximum from the
ARO because it loaned Deseret funds to permit the early redemption, at a
premium, of two high interest rate bond issues.

Under the assumptions which formed the basis of the ARO, CFC expects to
fund Deseret's cash flow shortfalls until at least 1996 under its various
guarantees of debt obligations. Deseret's ability to generate enough cash
flow to service its current debt and rental payments as well as to begin
repayment of the shortfall funded by CFC thereafter depends on whether it
is able to make the large power sales on which the ARO is premised. Due
to changes in power demands of Deseret's distribution system members and
the resulting reduction in power available for sale at higher prices to
nonmembers, as well as an inability, so far, to complete the intended
power sales, Deseret's cash flow projections have undergone revision
since the closing of the ARO. As a result of these changes, Deseret is
expected to be unable to satisfy its payment obligations under the ARO,
and the ARO is expected to be amended some time in the future. If the
parties cannot agree on an amendment, the ARO could be terminated and
Deseret's creditors would be free to pursue remedies on their defaulted
obligations.

Deseret sought proposals from other parties regarding asset and/or power
purchases from Deseret. CFC continues to evaluate these proposals and
Deseret's plans to address the anticipated payment default under the ARO.

CFC has placed all loans to Deseret on a nonaccrual basis with respect to
interest income recognition. CFC does not anticipate interest income
recognition on the outstanding loans until such time that Deseret's power
sales produce cash flows sufficient to service all debt.

As part of a separate agreement, in conjunction with the ARO, CFC will be
obligated to repay out of payments by Deseret $25.9 million (plus
interest) received from a party to the Bonanza Lease transaction to cover
shortfalls in the July 1989, January 1990 and July 1990 lease payments
which were funded by that party. This amount would be repaid if the
available annual cash flow were to exceed the debt repayment requirements
as defined in the ARO (i.e., CFC was no longer required to fund a
shortfall).

<PAGE> 78

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

As of May 31, 1995, CFC had approximately $454.0 million in current credit
exposure to Deseret consisting of $131.1 million in secured loans and
$322.9 million in guarantees by CFC of various direct and indirect
obligations of Deseret. CFC's guarantees include $8.7 million in tax-
benefit indemnifications and $29.9 million relating to mining equipment
for a coal supplier of Deseret. The remainder of CFC's guarantee is for
semiannual debt service payments on $284.3 million of bonds issued in a
$655 million leverage lease financing of a generating station in 1985.
Under the ARO, CFC has also provided Deseret a $20.0 million five-year
priority secured line of credit. At May 31, 1995, there was no balance
outstanding under this line of credit which expires in January 1996. CFC
has no plans to renew this facility.

CFC believes that, given the underlying collateral value and the terms of
the ARO, it has adequately reserved for any potential loss on its loans
and guarantees to Deseret.

(c) As a consequence of high costs associated with its involvement with the
Clinton Nuclear Station, Soyland Power Cooperative ("Soyland") charged
costs for wholesale power which resulted in its member's retail rates
being uncompetitive. This situation resulted in revenues which were
inadequate to service its debt. Soyland, RUS and CFC entered into a debt
restructuring agreement, dated as of December 15, 1993, which
restructured Soyland's indebtedness to RUS. As part of this agreement,
CFC agreed to extend additional credit to Soyland in the form of a $30
million revolving credit facility and a $30 million loan for capital
additions. The revolving credit loan and the capital additions loan have
priority in payment over the existing RUS loans and the prior CFC loan.

At May 31, 1995, CFC had $49.4 million in outstanding long-term loans
to Soyland which were secured equally and ratably with the RUS on all
assets and future revenues of Soyland. In addition, CFC had $12.8
million in super-secured lines of credit outstanding to Soyland. These
lines of credit are to be paid before all other secured debt. CFC also
had $282.9 million in loans to Soyland which are 100% guaranteed by the
U.S. Government.

Soyland has presented the details of a third party offer to purchase most
of Soyland's assets for an amount substantially less than the combined RUS
and CFC debt. The proceeds from any sale of Soyland's assets will be
first applied against the CFC super-secured loans, with any remaining
proceeds split pro-rata between CFC and RUS based on total debt
outstanding to Soyland. The proposal is being reviewed by RUS and CFC.

CFC believes that, given the underlying collateral value of its secured
loans to Soyland, it has adequately reserved for any potential loss on
its loans.

(d) At May 31, 1995, two other borrowers were in payment default to CFC on
secured and unsecured loans totaling $6.7 million. At May 31, 1994,
four borrowers were in payment default to CFC on secured and unsecured
loans totaling $22.0 million. The two borrowers in payment default at
May 31, 1995 were also in default at May 31, 1994.

(11) Extraordinary Loss

During the years ended May 31, 1995 and 1994, CFC did not incur any
prepayment penalties related to the early retirement of Collateral Trust
Bonds. During the year ended May 31, 1993, CFC paid a prepayment
penalty of $3.2 million for the early retirement of Collateral Trust
Bonds.

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

(12) Combined Quarterly Financial Results (Unaudited)

Summarized results of operations for the four quarters of fiscal
years 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Fiscal Year 1995
(Dollar Amounts In Thousands) Quarters Ended Total
August 31 November 30 February 28 May 31 Year
<S> <C> <C> <C> <C> <C>
Operating income $97,985 $104,513 $116,210 $121,401 $440,109
Operating margin 13,940 13,437 14,101 325 41,803
Nonoperating income 511 1,071 916 911 3,409
Net margins 14,451 14,508 15,017 1,236 45,212
</TABLE>
<TABLE>
<CAPTION> Fiscal Year 1994
Quarters Ended Total
August 31 November 30 February 28 May 31 Year
<S> <C> <C> <C> <C> <C>
Operating income $ 80,496 $ 82,110 $83,317 $78,759 $324,682
Operating margin 11,257 11,950 1,963 3,989 29,159
Nonoperating income 1,899 513 1,056 561 4,029
Net margins 13,156 12,463 3,019 4,550 33,188

</TABLE>
NOTE: During fiscal year 1995, CFC made 12 monthly provisions for loan and
guarantee losses of $0.625 million and one special provision of $9.9
million during the fourth quarter. During fiscal year 1994, CFC made
nine monthly provisions for loan and guarantee losses of $0.625
million and one special provision of $10.0 million during the third
quarter

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the May 31,
1995, Form 10-K and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-END> MAY-31-1995
<CASH> 26,309
<SECURITIES> 30,000
<RECEIVABLES> 87,638
<ALLOWANCES> 0
<INVENTORY> 6,747,124
<CURRENT-ASSETS> 6,923,811
<PP&E> 44,467
<DEPRECIATION> 7,660
<TOTAL-ASSETS> 7,080,789
<CURRENT-LIABILITIES> 1,890,171
<BONDS> 3,685,682
<COMMON> 0
0
0
<OTHER-SE> 1,504,936
<TOTAL-LIABILITY-AND-EQUITY> 7,080,789
<SALES> 440,110
<TOTAL-REVENUES> 443,518
<CGS> 361,338
<TOTAL-COSTS> 361,338
<OTHER-EXPENSES> 17,746
<LOSS-PROVISION> 17,400
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 45,212
<INCOME-TAX> 0
<INCOME-CONTINUING> 45,212
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,212
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>

<PAGE> 1
BYLAWS
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
(As amended March 25, 1970; February 29, 1972; February 27, 1973;
February 1, 1983; February 3, 1987; February 9, 1988; February 11, 1992; and
February 28, 1995)

ARTICLE I - Purposes and Powers
Section l. Purposes. The purposes of National Rural
Utilities Cooperative Finance Corporation (hereinafter called the
Association) shall be as stated in its Articles of Incorporation.

Section 2. Powers. (a) For the accomplishment of its purposes, the powers
of this Association shall be those conferred upon it by section 29-804 of the
District of Columbia Cooperative Association Act (hereinafter referred to as
the Act).

(b) The Association shall engage only in those activities directly related
to carrying out its purposes as stated in its Articles of Incorporation, and
shall at no time furnish services, other than financing services, provided to,
or engage in activities, other than financing activities, conducted for its
Class A, Class B, and Class C members by a Class D member.

ARTICLE II - Members and Membership
Section 1. Eligibility for Membership. The original subscribers to
membership shall constitute the initial membership of the Association, and
they are designated charter members without payment of membership fee.
Charter memberships shall terminate when members have been admitted to
membership from all eleven districts established in Article IV, Section 3 of
these Bylaws. Other than the charter members, membership in the Association
shall be limited to the following classes:

(a) Class A. Cooperative or nonprofit corporations, public corporations,
utility districts, and other public bodies, which have received or are
eligible to receive a loan or commitment for a loan from the Rural
Electrification Administration, and which are engaged or planning to engage
in the furnishing of utility services to their members and patrons for their
use as ultimate consumers.

(b) Class B. Cooperative or nonprofit corporations which are federations of
Class A members or of other Class B members, or both, or which are owned and
controlled by Class A members or by other Class B members, or both, and which
are engaged or planning to engage in the furnishing of utility services
primarily to Class A members or other Class B members.

(c) Class C. Statewide and regional associations which are wholly-owned or
controlled by Class A members or Class B members, or both, or which are
wholly-owned subsidiaries of a CFC member, and which do not furnish utility
services but which supply other forms of service to their members.

(d) Class D. National associations of cooperatives which are Class A, Class
B, and Class C members, provided said national associations have, at the time
of admission to membership in this Association, members domiciled in at least
80 percent of the states of the United States.

(e) Associate Member. Nonprofit groups or entities organized on a
cooperative basis, which are owned, controlled, or operated by Class A, B, or
C members or the Association, and which are engaged or planning to engage in
the furnishing of non-electric services, including without limitation
telecommunication services, primarily for the benefit of ultimate consumers.
Anything in these bylaws (including without limitation the provisions of
Article III, Section 5) to the contrary notwithstanding, no Associate Member
shall be entitled to vote at any meeting of the members, whether district or
annual, or to be counted for purposes of determining whether the requisite
number of members is present to constitute a quorum at any meeting or has
requested the call of a special meeting. Trustees, directors, and managers of
Associate Members shall not by virtue of any of these offices be eligible for
election to the Board of Directors.

Section 2. Method and Terms of Admission to Membership.
(a) An applicant for membership shall make application therefor on a form
which shall be specified by the Board of Directors, and shall forward said
application to the Secretary accompanied by payment for the membership fee
which shall be $1,000.00 for organizations classified as Class A, Class B,
Class D, and Associate Members in Article II, Section 1, and $200.00 for
organizations classified as Class C in Article II, Section 1 of these Bylaws.

(b) The Secretary shall present each application with the required
accompanying documents and payment of membership fee to the Board of Directors
for approval; and upon determination that the applicant has fully complied
with the eligibility and other requirements for these Bylaws, the applicant
may be admitted to membership. A certificate of membership, in form as
specified by the Board of Directors and complying with the requirements of
the Act, shall be issued to the applicant upon admission to membership and
the applicant shall have all the rights, privileges, duties, and
responsibilities of membership from and after the date of such issuance.

Section 3. Property Rights of Members; Non-Liability for Debts of
the Association. The property rights of all members shall be equal; they
shall be entitled to the return of the par value of their membership
certificates when and as provided by law, and in the Articles of Incorporation
and these Bylaws. The property of the members of the Association shall be
exempt from execution for the debts of the Association and no member shall be
liable or responsible for any debts or liabilities of the Association.

Section 4. Transfer of Membership"Withdrawal. (a) Membership in the
Association and certificates representing such membership shall not be
transferable, except that, in case of a merger or consolidation of a member
with another corporation, membership may be vested in the successor
corporation, provided the latter is eligible to membership.

(b) Withdrawal from membership and retirement of membership certificates may
be accomplished in the manner prescribed in section 29-826 of the Act. For
the purpose of said section and other sections of the Act referring to the
par value of a member's holdings, the par value of membership certificates
which constitute such holdings shall be the amount of the membership fee
prescribed for the applicable class of membership in Article II, Section 2,
Subsection (a) of these Bylaws.

Section 5. Effect of Termination of Membership. Termination of membership in
any manner shall operate as a release of all right, title, and interest of the
member in the property and assets of the Association; provided, however, that
such termination of membership shall not release the member from debts or
liabilities of such member to the Association.

ARTICLE III - Meetings of Members
Section 1. Annual Meeting. The annual meeting of the members shall be held
on the tenth day of January of each year at such time and place as shall be
designated by the Board of Directors in the notice of the meeting, for the
purpose of electing directors, passing upon reports covering the previous
fiscal year, and transacting such other business as may come before the
meeting. If the day fixed for the annual meeting shall be a legal holiday,
such meeting shall be held on the next succeeding business day. In the event
that the national welfare or the best interest or convenience of the
Association shall, in the judgment of the Board of Directors, demand a
postponement or advancement of the annual meeting, such annual meeting may be
postponed for a period not exceeding 180 days, or advanced not more that 90
days, by the Board of Directors, and all members shall be notified of the
postponement or advancement, and the date fixed for the postponed or advanced
annual meeting, and such annual meeting when so held in accordance with such
notice shall be and constitute the regular annual meeting of members in as
full, complete, and
<PAGE> 2
ample a manner as though held on the date herein specified. Failure to hold
the annual meeting at the designated time shall not work a forfeiture or
dissolution of the Association.

Section 2. Special Meetings. Special meetings of the members may be called
by the President, by the Board of Directors, or upon a written request signed
by at least ten per cent (10%) of all the members and it shall thereupon be
the duty of the Secretary to cause notice of such meeting to be given as
hereinafter provided. Special meetings of the members may be held at any
place specified in the notice of the special meeting.

Section 3. Notice of Members' Meetings. Written or printed notice stating
the place, day, and hour of the meeting and, in case of a special meeting the
purpose or purposes for which the meeting is called, shall be delivered not
less than forty-five (45) days nor more than sixty (60) days before the date
of the meeting, either personally or by mail, by or at the direction of the
Secretary, or by the persons calling the meeting, to each member. If mailed,
such notice shall be deemed to be delivered when deposited in the United
States mail, in a sealed envelope, addressed to the member at his or its
address as it appears on the records of the Association, with postage thereon
prepaid. The failure of any member to receive notice of an annual or special
meeting of the members shall not invalidate any action which may be taken by
the members at any such meeting.

Section 4. Quorum. The presence of representatives of at least ten percent
(10%) of the total number of members of the Association shall constitute a
quorum for the transaction of business at all meetings of the members. Any
representative before participating in the meeting shall submit an instrument
in writing, executed by the President or Vice President, and the Secretary of
the member represented by him, certifying that he has been selected to
represent such member, or certifying that he is the President of such member,
and authorized to cast the vote of such member in accordance with the
provisions of Section 5 of Article III of these Bylaws. In the event that
less than a quorum as herein provided shall be present at any regular or
special meeting, a majority of those present may adjourn the meeting from time
to time without further notice.

Section 5. Voting. Each member shall be entitled to one vote and no more
upon each matter submitted to a vote at all meetings of the members. In the
event the representative of a member is absent, or is unable or refuses to
act, the alternate designated by such member shall act in his stead and shall
cast the vote of such member. However, if both the representative and
alternate of such member shall fail to act, then the President of such member
may represent and cast the vote of such member as provided in Article III,
Section 6 of these Bylaws. No individual may represent more than one member
and proxy voting is prohibited in all meetings.

Section 6. Member Representatives and Alternates. Each member admitted to
membership pursuant to Article II, Section 2 of these Bylaws shall be entitled
to select either by vote of its membership or its Board of Directors one of its
members, directors, or employees to act as the representative, and one such
person to act as the alternate, of such member at the meetings of the
Association. Such representative or alternate when so selected and upon said
member having qualified as provided in Section 2 of Article II of these Bylaws
shall continue to be the representative or alternate, respectively, of such
member until he shall resign or the member shall have selected a successor
representative or alternate and shall have so notified the Secretary of the
Association in writing by an instrument executed in the name of the member
through its legally authorized officers.

In the event any member shall fail to select a representative or alternate as
herein provided or the representative or alternate selected by such member
shall be unable to serve or for any cause fail to so serve, the President of
the member shall serve as its representative and cast its vote.

Section 7. Order of Business. The order of business at the annual meeting of
the members, and so far as applicable and possible at all other meetings of
the members, shall be essentially as follows:

1. Enrollment and determination of a quorum.
2. Reading of the notice of the meeting and proof of the mailing thereof, or
of the waiver or waivers of notice of the meeting, as the case may be.
3. Reading of unapproved minutes of previous meetings of the members and the
taking of necessary action thereon.
4. Presentation and consideration of reports of officers, directors, and
committees.
5. Election of directors.
6. Unfinished business.
7. New business.
8. Adjournment.

ARTICLE IV - Directors
Section 1. Number and General Powers. The business and affairs of the
Association shall be managed by a Board of twenty-two Directors, which shall
exercise all of the powers of the Association except such as are by law, the
Articles of Incorporation, or these Bylaws conferred upon or reserved to the
members.

Section 2. First Board of Directors. (a) The persons named in the Articles
of Incorporation of the Association as members of the First Board of Directors
shall compose the board until they are succeeded by a board elected by members
of the Association other than its charter members, or until their successors
shall have been otherwise elected and shall have qualified.

(b) In the event that applicants for Class A, Class B, Class C, and Class D
membership shall not have been admitted into membership in the Association by
July 1, 1970, in lieu of the nominating and election procedures prescribed in
this Article, the First Board of Directors shall make such provision as the
board shall deem appropriate for the nomination and election of the first
elected Board of Directors and the selection of nominating committees in each
district, to be conducted at the first regular annual meeting of members, or
at a special meeting of members duly called for such purposes, after members,
other than charter members, shall have been admitted to membership in all
eleven districts. Thereafter, the procedures prescribed in this Article for
the nomination and election of directors shall be followed.

Section 3. Districts. (a) There shall be eleven districts as follows:

No. 1: Maine, Vermont, New Hampshire, Massachusetts, New York, Connecticut,
Rhode Island, New Jersey, Pennsylvania, Delaware, Maryland, District
of Columbia, Virginia, and North Carolina.

No. 2: South Carolina, Georgia, Florida, and all territories, possessions,
and commonwealths of the United States bordering upon or in the
Atlantic Ocean.

No. 3: Kentucky, Tennessee, Mississippi, and Alabama.

No. 4: Michigan, Indiana, Ohio, and West Virginia.

No. 5: Wisconsin, Iowa, and Illinois.

No. 6: North Dakota, South Dakota, and Minnesota.

No. 7: Wyoming, Nebraska, Colorado, and Kansas.

No. 8: Oklahoma, Missouri, Arkansas, and Louisiana.

No. 9: Washington, Montana, Idaho, Oregon, Nevada, California, Utah, Alaska,
Hawaii, and all territories, possessions, and commonwealths of the
United States bordering upon or in the Pacific Ocean, except the
Panama Canal Zone.

No. 10: Arizona, New Mexico, and Texas.

No. 11: Class D Member

(b) Each district shall be represented by two board members.

(c) In Districts Nos. 1 to 10, inclusive, one of the two positions on the
Board of Directors in each district shall be designated Position D and the
other Position M. No person shall be eligible to become or remain a
<PAGE> 3
Position D director who is not a trustee or director of a member organization
within the district; and no person shall be eligible to become or remain a
Position M director who is not a manager of a member organization within the
district. A person who is both a manager and a trustee or director of member
organizations shall not be eligible to become or remain a Position D director.

(d) At all stages of the nominating and election process prescribed in this
Article IV, there shall be clearly stated in all notices and petitions and on
all ballots the designation of the position to which a candidate is to be
elected.

(e) The two directors in each of Districts Nos. 1 to 10, inclusive, shall not
represent members from the same state, except where only one state within the
district has members.

(f) Other than the Class D Member, in the event a member conducts operations
in more than one state or district, it shall be deemed to be a member within
the state or district in which its principal headquarters is located.

Section 4. District Meetings. The Board of Directors each year shall call a
separate meeting of the members in each of Districts Nos. 1 to 10, inclusive,
as established by Section 3 of this Article, for the purpose of electing a
nominating committee, or electing a director or both, as the case may be, and
of formulating proposed resolutions and recommendations for submission to the
annual meeting. Such district meeting shall be held during the period July 1
to December 31 of each calendar year at such place within or without said
district as shall be designated by the Board of Directors. Notice of such
meeting shall be given in accordance with the provisions of Article III,
Section 3 and shall specify the persons to act as chairman and secretary of
the meeting and the business to come before the meeting, including the names
of any director candidates to be voted upon and such information about the
director candidates as has been submitted.

The Board of Directors shall designate one of the directors from such district
to act as chairman and the other director from such district to act as
secretary of the meeting, or in the absence of either, the members present
shall elect a chairman or secretary, as required.

The presence of representatives of at least ten percent (10%) of the total
number of members of the Association in each district shall constitute a
quorum for the transaction of business at each district meeting.

Section 5. Nominations and Elections. (a) All candidates for election to
the Board of Directors from Districts Nos. 1 to 10, inclusive, shall be
nominated and elected in the following manner:

(1) At the district meeting next before that at which candidates are to be
elected to a position on the board from such district, a nominating committee
shall be elected composed of one person from each state within the district,
each of which persons must be a trustee, director, or manager of a member.

(2) The Board of Directors in its call for a district meeting, as provided
in Section 4 of this Article, shall specify the method of electing the
nominating committee.

(3) The nominating committee shall, at least 90 days before the district
meeting at which candidates for the Board are to be elected, submit to the
Secretary of this Association the names of two or more nominees for each
position for which an election is to be held, together with a statement as to
each nominee's back-ground, qualifications, availability, and eligibility to
serve, if elected.

In the event a nominating committee has not been elected, or fails to select
at least two nominees for each position for which an election is to be held or
otherwise fails to comply with the provisions of this Section 5, the Board of
Directors shall, on behalf of the nominating committee, name the nominees or
as many nominees as shall be necessary to complete a full slate, and said
nominations made by the Board of Directors, together with nominations made by
petition, if any, in accordance with subsection (a) (4) of this Section 5,
shall be voted upon at the district meeting held pursuant to subsection (a)
(6) of this Section 5.

(4) In addition to the nominees named by the nominating committee, other
nominations may be made by petition of one-fourth of the members within the
district and submitted to the Secretary of the Association at least 20 days
prior to the district meeting together with a statement of the nominee's
back-ground, qualifications, availability, and eligibility to serve, if
elected.

(5) No nominations from the floor shall be permitted at district meetings.

(6) At the district meeting next before the annual meeting at which the term
of a director representing such district is due to expire, the members within
the district shall elect a director to such position on the Board of Directors
who shall fill such position immediately after the next ensuing annual
meeting. Voting shall be by written ballot and each member within the
district shall be entitled to one vote. The ballots shall be furnished by the
Secretary of the Association and shall contain the names of all eligible
nominees and the member which each represents. The nominee receiving the
highest number of votes shall be elected. In the event of a tie vote, another
vote shall be taken immediately with only the names of those tied with the
highest number of votes appearing on the ballot.

(b) One candidate for each position in District No. 11, the term of which is
due to expire, shall be elected by the members of District No. 11 and the
Class D member shall determine the method of election. The person elected
shall fill the position immediately.

Section 6. Tenure of Office. (a) At the first meeting of the board elected
at the annual meeting held in 1971, the directors shall be divided by lot into
three classes, two consisting of seven directors each, the third of eight
directors. The directors of the first class shall hold office for a term of
one year; the directors of the second class shall hold office for a term of
two years; the directors of the third class shall hold office for a term of
three years.

(b) Upon the expiration of each of said terms, directors elected thereafter
shall serve for terms of three years or until their successors shall have been
elected and shall have qualified.

(c) No director elected to represent Districts Nos. 1 to 10, inclusive, shall
be elected to serve more than two consecutive full three-year terms.

(d) When a vacancy occurs on the Board of Directors, the remaining directors
may by a majority vote elect a successor director to fill the vacant position,
to hold office until the next succeeding district meeting. At such next
meeting, a successor director shall be elected by the members in the district
to fill the vacant position, to hold office for the balance of the term for
said position; and in connection with this election, the Board of Directors
shall make such provision as the board shall deem appropriate for the
nomination of the candidates to be voted on by the members in the district.
If the vacancy is in District No. 11 any successor director elected by the
board or by the members in the district pursuant to this subsection (d) must
be a person whose name is on a list of one or more nominees certified by the
Class D member of District No. 11.

Section 7. Qualifications. (a) No person shall be eligible to become or
remain a director of the Association who is not a director or trustee, or a
manager, of a member, or who, except with respect to directors representing
District No. 11, is a member of the governing board, or a director of any
other organization of members which has national membership consisting of
organizations which hold Class A, Class B, or Class C memberships in this
Association.

(b) Upon establishment of the fact that a director is holding the office of
director of this Association in violation of this section of the Bylaws, the
board shall remove such board member from office, and declare this office
vacant.

(c) Nothing contained in this section shall affect in any manner whatsoever
the validity of any action taken at any meeting of the board.
<PAGE> 4
Section 8. Meetings. (a) A regular meeting of the board shall be held
within 30 days after the annual meeting of members. Regular meetings of the
board shall also be held at such times and places within or without the
District of Columbia as designated by the board. Such regular meetings may be
held without notice other than in the resolution of the board fixing the time
and place thereof.

(b) Special meetings of the board may be called by the President or by any
seven directors, and it shall thereupon be the duty of the Secretary to cause
notice of such meeting to be given as hereinafter provided. The President or
directors calling the meeting shall fix the time and place for the holding of
the meeting.

(c) Written notice of the time, place, and purpose of any special meeting of
the board shall be delivered to each director by mail, or upon a default in
duty by the Secretary, by the President, or the directors calling the meeting.
Such notice shall be deemed to be delivered when deposited in the United
States mail addressed to the director at his address as it appears on the
records of the Association, with postage prepaid, at least ten days before the
date set for this meeting.

Section 9. Quorum. A majority of the Board of Directors shall consitute a
quorum for the transaction of business at any meeting; provided that if less
than a majority are present at said meeting, a majority of those present may
adjourn the meeting from time to time without further notice.

Section 10. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the
Board of Directors.

Section 11. Compensation. Directors shall not receive any salary for their
services as such, except that members of the Association may by resolution
authorize a fixed sum for each day or portion thereof spent on Association
business. As authorized by the board, directors may be reimbursed for
expenses actually and necessarily incurred in attending meetings of the board
and in carrying out board business, or granted a reasonable per diem allowance
by the board in lieu of detailed accounting for expenses.

ARTICLE V - Committees
The Board of Directors, in addition to other powers and authorities granted to
it by law and these Bylaws, shall appoint such committees as it may deem proper
and define the duties and prescribe the authority which such committees may
exercise.

ARTICLE VI - Officers
Section 1. Number. The officers of the Association shall be a President,
Vice President, Secretary-Treasurer, and such other officers as may be
determined from time to time by the Board of Directors.

Section 2. Election and Term of Office. The officers shall be elected
annually by the Board of Directors at the first meeting of the Board of
Directors held after each annual meeting of the members, but no later than
thirty days thereafter. The President, Vice President, and Secretary-
Treasurer must be members of the Board of Directors.

Each officer shall hold office until the organization meeting of the Board of
Directors held during or following the next succeeding annual meeting of the
members, or until his successor shall have been duly elected and shall have
qualified, subject to the provisions of these Bylaws with respect to the
removal of officers.

The incumbent Board of Directors serving for the ensuing year shall determine
whether the election of officers shall be during, or subsequent to the
adjournment of, the next annual members meeting. In lieu of such
determination, the President shall specify in the agenda the time that the
election of officers shall be conducted by the Board.

Section 3. Removal. Any officer or agent elected or appointed by the Board
of Directors may be removed by a majority of the full Board of Directors
whenever in its judgment the best interests of the Association would be served
thereby.

Section 4. Vacancies. Except as otherwise provided in these Bylaws, a vacancy
in any office may be filled by the Board of Directors for the unexpired
portion of the term.

Section 5. President. The President shall:

(a) preside at all meetings of the members and of the Board of Directors;

(b) sign with the Secretary certificates of membership, the issuance of
which shall have been authorized by resolution of the Board of Directors, and
may sign any deeds, mortgages, deeds of trust, notes, bonds, contracts,
certificates, or other instruments authorized by the Board of Directors to be
executed, except in cases in which the signing and execution thereof shall be
delegated by the Board of Directors or by these Bylaws to some other officer
or agent of the Associa-tion, or shall be required by law to be otherwise
signed or executed from time to time.

(c) in general perform all duties incident to the office of President and
such other duties as may be prescribed by the Board of Directors from time to
time.

Section 6. Vice President. In the absence of the President or in the event
of his inability or refusal to act, the Vice President shall perform the
duties of the President, and, when so acting, shall have the powers of and be
subject to all the restrictions upon the President and shall perform such
other duties as from time to time may be assigned to him by the Board of
Directors.

Section 7. Secretary-Treasurer. The Secretary-Treasurer shall:

(a) keep the minutes of the meetings of the members and the meetings of the
Board of Directors in one or more books provided for that purpose;

(b) see that all notices are duly given in accordance with these Bylaws or
as required by law, including all notices of meetings required to be held by
these Bylaws;

(c) be custodian of the corporate records and of the seal of the Association
and see that the seal of the Association is affixed to all certificates of
membership prior to the issuance thereof and to all documents, the execution
of which on behalf of the Association under its seal is duly authorized in
accor-dance with the provisions of these Bylaws;

(d) keep a register of the post office address of each member which shall be
furnished to the Secretary by such member;

(e) sign, with the President, certificates of membership, the issuance of
which shall have been authorized by resolution of the Board of Directors;

(f) have general charge of the books of the Association in which a record of
the members is kept;

(g) keep on file at all times a complete copy of the Bylaws of the
Association containing all amendments thereto, which copy shall always be
open to the inspection of any member, and at the expense of the Association
forward a copy of the Bylaws and of all amendments thereto to each member;

(h) have charge and custody of and be responsible for all funds and
securities of the Association;

(i) receive and give receipt for monies due and payable to the Association
from any source whatsoever, and deposit all such monies in the name of the
Association in such bank or banks as shall be selected in accordance with the
provisions of these Bylaws; and
<PAGE> 5
(j) in general perform all the duties incident to the office of the
Secretary-Treasurer and such other duties as from time to time may be assigned
to him by the Board of Directors.

Section 8. Governor. The Board of Directors shall appoint a Governor to
serve as the chief executive officer of the Association. The Governor shall
be responsible for carrying out the policies of the Association and, except as
to matters specifically reserved to the Board of Directors and the officers in
these Bylaws or by law, shall supervise the conduct of the day-to-day business
of the Association. The Governor may sign or countersign any deeds,
mortgages, deeds of trust, notes, bonds, contracts, certificates, or other
instruments authorized by the Board of Directors to be executed except in
cases in which such signing or countersigning shall be delegated by the Board
of Directors or by these Bylaws to some other officer or agent of the
Association or shall be required by law to be otherwise signed or
countersigned.

Section 9. Bonds of Officers. The Board of Directors shall require the
Secretary-Treasurer or any other officer or employee of the Association
charged with responsibility for the custody of any of its funds or property
to give bond, the premium for which shall be paid by the Association, in such
sum and with such surety as the Board of Directors shall determine.

Section 10. Reports. The officers of the Association shall submit at each
annual meeting of the members reports covering the business of the Association
for the previous fiscal year and showing the condition of the Association at
the close of such fiscal year.

ARTICLE VII - Removal of Directors and Officers
A director or officer may be removed with or without cause, by a vote of
two-thirds of the members voting at a regular or special meeting. The
director or officer involved shall have an opportunity to be heard at said
meeting. A vacancy caused by any such removal shall be filled by the vote
provided in the Bylaws for election of directors or officers, as the case may
be.

ARTICLE VIII - Contracts, Checks, and Deposits
Section 1. Contracts. Except as otherwise provided in these Bylaws, the
Board of Directors may authorize any officer or officers, agent or agents to
enter into any contract or execute and deliver any instrument in the name and
on behalf of the Association, and such authority may be general or confined to
specific instances.

Section 2. Checks, Drafts, Etc. All checks, drafts, or other orders for the
payment of money, and all notes or other evidences of indebtedness issued in
the name of the Association shall be signed by such officer or officers, agent
or agents, or employee or employees of the Association and in such manner as
shall from time to time be determined by resolution of the Board of Directors.

Section 3. Deposits. All funds of the Association shall be deposited from
time to time to the credit of the Association in such bank or banks as the
Board of Directors may select.

ARTICLE IX - Waiver of Notice
Any member, director, or officer may waive, in writing, before or after the
meeting, any notice of meetings required to be given by these Bylaws.

ARTICLE X - Irregularities in Notice
Irregularities in the giving of any notice or the holding of any meeting
provided for in these Bylaws shall not invalidate any action taken at such
meeting.

ARTICLE XI - Allocation and Distribution of Net Savings
Section 1. Nonprofit Operation. The Association shall at all times be
operated on a cooperative nonprofit basis for the primary and mutual benefit
of its patrons. No interest or dividends shall be paid or payable on its
certificates of membership.

All net savings, representing the excess of revenues over operating costs and
expenses, shall be received by the Association with the understanding that
they are furnished by its patrons as capital and that the Association is
obligated to pay by credits to a capital account and the reserve funds set up
in Section 2 of this Article for each patron all such amounts in excess of
operating costs and expenses, to patrons in proportion to their patronage.

Section 2. Reserve Funds. At the close of each fiscal year, not less than
ten percent (10%) of the net savings of the Association as determined by the
Board of Directors shall be placed in a reserve fund until such time as the
fund shall equal at least fifty percent (50%) of the capital paid-up. The
amounts so placed in the reserve fund may be used in the general conduct of
the Association business and shall be allocated on the books of the
Association to patrons in proportion to their patronage, or in lieu of such
allocation, the books and records of the Association shall afford a means for
doing so.

Such reserves against bad debts and losses, and other reserves, shall be
established as in the judgment of the Board of Directors are sufficient to
assure the solvency of the Association and the achievement of its purposes,
and to meet its obligations as they mature.

Section 3. Educational Fund. At the close of each fiscal year at least
1/4 of 1 per centum of the net savings of the Association, or such higher per
centum as may be set by the Board of Directors, shall be placed in an
educational fund to be used in teaching patrons the principles of cooperation.

Section 4. Patronage Capital Certificates. The books and records of the
Association shall be set up and kept in such a manner that at the end of each
fiscal year the amount of patronage capital, if any, in the form of net
savings so furnished by each patron is clearly reflected and credited in an
appropriate record to the capital account of each patron. The Association may
issue Patronage Capital Certificates, in form prescribed by the Board of
Directors, which shall reflect the amount of patronage so credited to the
patron's account. No dividends or interest shall be payable on such
certificates. All such amounts credited to the capital account of any patron
shall have the same status as though they had been paid to the patron in cash
in pursuance of a legal obligation to do so and the patron had then furnished
the Association corresponding amounts for capital.

All other amounts received by the Association from its operations in excess of
costs and expenses shall, insofar as permitted by law, be (a) used to offset
any losses incurred during the current or any prior fiscal year, and (b) to
the extent not needed for that purpose, allocated to its patrons on a
patronage basis and any amount so allocated shall be included as a part of the
capital credited to the accounts of patrons, as herein provided, or in lieu of
such allocation, the books and records of the Association shall afford a means
for doing so.

In the event of dissolution of the Association, outstanding Patronage Capital
Certificates, if any, or the amounts of patronage capital reflected on the
books and records of the Association shall be retired without priority on a
pro rata basis in accordance with the provisions of Article IX of the Articles
of Incorporation. If, at any time prior to dissolution, the Board of
Directors shall determine that the financial condition of the Association will
not be impaired thereby the capital then credited to patrons' accounts and the
Patronage Capital Certificates evidencing same, if any, may be retired in full
or in part. After February 11, 1992, the Board of Directors shall determine
the method, basis, priority, and order of retirement, if any, for all amounts
thereafter furnished as capital.

Capital credited to the account of each patron and Patronage Capital
Certificates, if any, are not assignable or transferable except as the Board
of Directors, acting under policies of general application, shall determine
otherwise.

The patrons of the Association, by dealing with the Association,
acknowledge that the terms and conditions of the Articles of Incorporation and
Bylaws shall constitute and be a contract between the Association and each
patron, and both the Association and the patron are bound by such contract as
fully as though each patron had individually signed a separate instrument
containing such terms and provisions.

<PAGE> 6
ARTICLE XII - Seal
The corporate seal of the Association shall be in the form of a circle and
shall have inscribed theron the name of the Association and the words
Corporate Seal, District of Columbia."

ARTICLE XIII - Miscellaneous
Section 1. Fiscal Year. The dates when the fiscal year of the Association
shall begin and end shall be fixed by the Board of Directors.

Section 2. Books; Auditing. The Board of Directors shall cause to be
established and maintained a complete accounting system. The board shall
after the close of each fiscal year cause to be made by a Certified Public
Accountant a full and complete audit of the accounts, books, and financial
condition of the Association as of the end of such fiscal year. A written
report of the audit, conforming with the requirements of Section 29-833 of the
Act shall be submitted to the annual meeting of the members of the Association.

Section 3. Annual Report. An annual report shall be prepared and filed as
required by Section 29-834 of the Act and a copy thereof shall be kept on file
at the principal office of the Association.

Section 4. Rules of Order. The conduct of the meetings of this Association
and its committees shall be governed by the latest available revision of
Robert's Rules of Order except as such rules may be inconsistent with these
Bylaws.

Section 5. Waiver of Notice of Meetings. Whenever any notice is required to
be given of any meeting by law or by the provisions of these Bylaws, a waiver
thereof in writing signed by the person or persons or on behalf of the
organization or organizations entitled to receive such notice, whether before
or after the date and time stated therein, shall be equivalent and have the
same effect as the giving of such notice. Presence without objection at a
meeting of a person or on behalf of an organization entitled to notice of the
meeting shall also constitute waiver of notice.

ARTICLE XIV - Indemnification and Bond
Section 1. Authorization. The Association shall indemnify and hold harmless
any director, officer, employee, or agent from and against any expenses,
judgments, fines, settlements, attorneys' fees, and other amounts actually and
reasonably incurred in connection with any action, suit, or proceeding,
whether threatened, pending, or completed, civil, criminal, administrative, or
investigative, other than an action by or in the right of the Association by
reason of the fact that such director, officer, employee, or agent was a
director, officer, employee, or agent of the Association, to the full extent
permitted by applicable law, if such director, officer, employee, or agent
acted in good faith and in a manner such person reasonably believed to be in
the best interest of the Association and, in the case of a criminal
proceeding, not to be unlawful. The termination of any action, suit, or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which such person
reasonably believed to be in the best interest of the Association and, in the
case of a criminal proceeding, not to be unlawful.

Section 2. Procedure. Any indemnification under this Article shall be made
by the Association only as authorized in a specific case upon a determination
that indemnification is proper in the circumstances because the director,
officer, employee, or agent has met the applicable standard of conduct set
forth in this Article XIV. Such determination shall be made by the Board of
Directors by a majority vote of a quorum consisting of directors who are not
parties to such action, suit, or proceeding. If such a quorum is not
obtainable, such determination shall be made by independent legal counsel.

Section 3. Advance Payments. The Association may advance to its directors,
officers, employees, and agents expenses incurred in defending any proceeding
prior to the final disposition thereof in the manner permitted by applicable
law upon receipt of an undertaking by or on behalf of such director, officer,
employee, or agent for whom funds are being advanced that such director,
officer, employee, or agent repay such amount provided, however, that such
repayment need not be made if it shall be ultimately determined that such
person is entitled to be indemnified by the Association as required in this
Article or as authorized by law.

Section 4. Other Rights to Indemnification. The right of indemnification
hereby given shall not be exclusive of any other rights such director,
officer, employee, or agent may have whether by law or under any agreement,
insurance policy, or otherwise.

ARTICLE XV - Amendments
These Bylaws may be altered, amended, or repealed by the affirmative vote of
not less than two-thirds (2/3) of the members present and voting at any
regular or special meeting provided that at such regular or special meeting
notice of such meeting shall have contained a copy of the proposed alteration,
amendment, or repeal. After any alteration, amendment, or repeal of these
Bylaws has been adopted, all members shall be notified of such action as soon
as is conveniently possible.

It shall require the affirmative vote of two-thirds (2/3) or more of all
members in each of the 11 districts to amend, alter, or repeal Section 2(b) of
Article I or this sentence of these Bylaws.

<PAGE> 1
SUPPLEMENTAL BENEFIT AGREEMENT

This Agreement is entered into on February 26, 1995, between NATIONAL RURAL
UTILITIES COOPERATIVE FINANCE CORPORATION, a cooperative organized and
existing under the laws of the District of Columbia (herein called "CFC") and
SHELDON C. PETERSEN, referred to as "Mr. Petersen."

RECITALS

1.1 The Board of Directors of CFC has selected Mr. Petersen to become
Governor and Chief Executive Officer of CFC effective March 1. 1995.

1.2 Since CFC is a cooperative and not a business corporation operated
for profit, Mr. Petersen is unable to participate in CFC's growth and value
through the purchase of stock certificates and, thus, enjoy the advantages
available to executive employees of investor-owned corporations engaged in
the same or similar industry.

1.3 CFC desires to retain the services of Mr. Petersen for an extended
period of time.

1.4 Mr. Petersen is willing to accede to the Board's desires and the
Board's intent to provide certain amounts of future payments to Mr. Petersen
or his beneficiary hereunder that are in addition to Mr. Petersen's regular
compensation from CFC and to further Mr. Petersen's retirement needs, all in
accordance with the provisions and conditions set forth in this Agreement.

PROVISIONS

In consideration of the promises, covenants, agreements, benefits and
detriments of the parties, and for other good and valuable consideration, the
receipt of which is hereby acknowledged, CFC and Mr. Petersen covenant and
agree as follows:

2.1 Beginning on March 1, 1995, Mr. Petersen agrees to continue in the
employ of CFC as Governor and Chief Executive officer, to serve CFC faithfully
and to the best of his ability, under the direction of the Board of Directors
of CFC, to devote his time, energy and skill during regular business hours and
other hours as may be required to carry out the duties and responsibilities of
his employment, and to perform from time to time all services and to act in
whatever capacity as the Board of Directors shall direct.
<PAGE> 2
2.2 Mr. Petersen' s salary during the period of employment with CFC as
Governor and Chief Executive Officer shall be in amounts as shall be from time
to time fixed and determined by the Board of Directors of CFC, and his duties
and responsibilities also shall be from time to time fixed and determined by
the Board of Directors of CFC.

2.3 CFC agrees that, on March 1, 1995, and on each succeeding January
1, on which Mr. Petersen is employed by CFC as the Governor and Chief
Executive Officer through and including his retirement date in accordance with
CFC's policies (the "Retirement Date"), CFC shall credit the sum of Thirty
Thousand Dollars ($30,000) to a bookkeeping account (the "Account"). CFC
agrees that on December 31, 1995, and on each December 31 thereafter, through
and including the December 31 next subsequent to the Retirement Date, CFC will
credit the accumulated amount in the Account with an earnings credit in the
nature of interest. This earnings credit will be credited to the Account on
each December 31 and will be determined by multiplying the amount then
credited to the Account times a rate of interest equal to CFC's effective cost
for 20-year maturity Medium Term Notes as of such December 31.

2.4 CFC agrees that the total amount credited to the Account shall be
paid to Mr. Petersen, or his Designated Beneficiary (as defined in Section
2.5 hereof) in a lump sum no later than January 15th of the year following the
Retirement Date.

2.5 For purposes hereof, Mr. Petersen's Designated Beneficiary is his
wife, Donita Petersen, or any other person or persons designated by Mr.
Petersen in a written instrument, signed by Mr. Petersen and delivered to CFC,
to be the beneficiary of payments to be made by CFC hereunder upon the death
of Mr. Petersen if such person survives Mr. Petersen. Any Designated
Beneficiary may be changed by Mr. Petersen at any time or times by a written
instrument signed by Mr. Petersen and delivered to CFC. If no Designated
Beneficiary survives Mr. Petersen, the Designated Beneficiary shall be the
estate of Mr. Petersen.

2.7 If Mr. Petersen dies or becomes totally disabled (as defined in
this paragraph) while employed by CFC, CFC shall pay to Mr. Petersen, or his
Designated Beneficiary, the total amount in the Account on the January 1 next
following the date of his death or such total disability, as the case may be.
"Total disability" as used in this paragraph means that Mr. Petersen is unable
to perform the duties imposed upon him as the Governor and Chief Executive
Officer of CFC in a competent manner, whether the disability is caused by
physical or mental disability.

2.8 No benefits shall be payable to Mr. Petersen or any
Designated Beneficiary hereunder unless Mr. Petersen continues in
the employ of CFC until the Retirement Date, dies or suffers total
disability (as defined in paragraph 2.7 hereof) while in the employ
of CFC, except that in the event that CFC terminates the employment of Mr.
Petersen for any reason other than malfeasance by him, then
<PAGE> 3
CFC shall pay to Mr. Petersen, or his Designated Beneficiary, the total amount
credited to the Account on the termination date, or such sooner date as may
result from his death or total disability as provided for herein.

2.9 In order to enable CFC to meet its obligations hereunder, CFC may,
but shall not be obligated to, reserve cash or purchase insurance or annuity
contracts or other assets. In the event that CFC does reserve cash or
purchase any contracts or assets, CFC shall be doing so solely for its own
benefit and it is understood and agreed that CFC shall not be regarded as a
trustee or fiduciary for the benefit of Mr. Petersen or any Designated
Beneficiary hereunder and shall not be subject to any standard of care or
other fiduciary obligations required of a trustee or other fiduciary. Mr.
Petersen shall have no beneficial interest in any such funds, contracts or
assets, and the same shall not be available to Mr. Petersen in any manner.
Since CFC is not required to reserve any funds or acquire any contracts or
assets, and since any funds that may be reserved or any contracts or assets
that may be purchased may be used by CFC for any purpose and shall be subject
to the claims of CFC's creditors, it is understood and agreed that Mr.
Petersen shall rely entirely upon CFC's unsecured contractual obligations
hereunder.

2.10 This Agreement is separate and distinct from the Deferred
Compensation Program of CFC and any benefits that may be payable by CFC to
Mr. Petersen or his Designated Beneficiary pursuant to this Agreement shall
be paid in addition to any benefits payable under the Deferred Compensation
Program of CFC.

2.11 In the event that at any time subsequent to the execution of this
Agreement, it is determined that the provisions of this Agreement and/or its
continuation will jeopardize the continuation or tax qualification of any
employee benefit program administered by CFC, then in that event this
Agreement shall be terminated. Except with respect to the total amount then
credited to the Account, no payment under this Agreement shall be required
which would further jeopardize the continuation or tax qualification of any
existing employee benefit program which is maintained by CFC.

2.12 If any payment, computation or activity is required to be made on a
day which is not a day on which CFC is open for conducting its regular
business (herein a "Business Day"), then such payment, computation or activity
shall be done on the following Business Day.

2.13 This Agreement shall be binding upon the parties hereto, their
heirs, personal representatives, successors and assigns. This Agreement may
be executed in duplicate counterparts, each of which, when executed and
delivered, shall be an original, but both counterparts shall, when together,
constitute one and the same instrument.

<PAGE> 4
This Agreement is signed on February 26, 1995, by Mr. Petersen and by
National Rural Utilities Cooperative Finance Corporation, by its President and
Secretary-Treasurer, impressed with its corporate seal, and attested by its
Secretary-Treasurer, all as duly authorized by its Board of Directors.

NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
(Seal)
Attest:

By: /s/GARRY BYE By: /s/ BILL MCGINNIS
Secretary-Treasurer President

/s/ SHELDON C. PETERSEN
Sheldon C. Petersen

<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K into the Company's previously filed
Registration Statement No. 33-35261, Registration Statement No. 33-50463 and
Registration Statement No. 33-56065.

ARTHUR ANDERSEN LLP

Washington, D.C.
August 29, 1995