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REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
(Exact name of registrant as specified in charter)
DISTRICT OF COLUMBIA 52-089-1669
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2201 COOPERATIVE WAY
HERNDON, VIRGINIA 20171-3025
(703) 709-6700
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
JOHN JAY LIST, GENERAL COUNSEL
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
2201 COOPERATIVE WAY
HERNDON, VIRGINIA 20171-3025
(703) 709-6700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
MARK L. WEISSLER THOMAS R. BROME
MILBANK, TWEED, HADLEY & MCCLOY CRAVATH, SWAINE & MOORE
1 CHASE MANHATTAN PLAZA 825 EIGHTH AVENUE
NEW YORK, NEW YORK 10005 NEW YORK, NEW YORK 10019
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time to
time after the effective date of this registration statement as determined by
market conditions.
IF THE ONLY SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED PURSUANT
TO DIVIDEND OR INTEREST REINVESTMENT PLANS, PLEASE CHECK THE FOLLOWING BOX. [ ]
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON A
DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933, OTHER THAN SECURITIES OFFERED ONLY IN CONNECTION WITH DIVIDEND OR INTEREST
REINVESTMENT PLANS, PLEASE CHECK THE FOLLOWING BOX. [X]
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING PURSUANT
TO RULE 462(b) UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING BOX AND LIST
THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE
REGISTRATION STATEMENT FOR THE SAME OFFERING. [ ]
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(c) UNDER
THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING. [ ]
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX. [ ]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH MAXIMUM MAXIMUM AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE
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<S> <C> <C> <C> <C>
Debt Securities and/or Warrants to
Purchase Debt Securities............ $500,000,000 100% $500,000,000 $147,500
</TABLE>
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(1) Expressed as the principal amount of Debt Securities, or in the case of
Original Issue Discount Securities, the offering price thereof.
(2) Estimated solely for purposes of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
PURSUANT TO RULE 429 OF THE COMMISSION UNDER THE SECURITIES ACT OF 1933,
THE WITHIN PROSPECTUS RELATES TO DEBT SECURITIES REGISTERED HEREBY AND TO DEBT
SECURITIES PREVIOUSLY REGISTERED BY REGISTRATION STATEMENT NO. 333-38839.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PRELIMINARY, SUBJECT TO COMPLETION, MARCH 10, 1998
PROSPECTUS
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
DEBT SECURITIES AND/OR WARRANTS
TO PURCHASE DEBT SECURITIES
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National Rural Utilities Cooperative Finance Corporation ("CFC" or the
"Company") intends to issue from time to time debt securities (the "Securities")
each of which will be a direct, unsecured obligation of the Company and which
will be offered to the public on terms determined by market conditions at the
time of sale, and/or Warrants to purchase Securities (the "Warrants"). The
Company may sell Securities and Warrants for proceeds up to $608,962,000, or the
equivalent thereof if any of the Securities or Warrants are denominated in a
foreign currency or a currency unit, (i) directly to purchasers, (ii) through
agents designated from time to time which initially are Lehman Brothers Inc. and
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, or
(iii) through underwriters or a group of underwriters which may include Lehman
Brothers Inc. and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
The Securities may be issued in registered form without coupons, in a form
registered as to principal only with or without coupons, in bearer form with or
without coupons or any combination thereof. In addition, all or a portion of the
Securities may be issued in temporary or definitive global form. Securities in
bearer form are offered only to non-United States persons and to offices located
outside the United States of certain United States financial institutions. See
"Limitations on Issuance of Bearer Securities".
The Securities and Warrants may be sold for U.S. dollars, foreign
currencies or foreign currency units, and the principal (including any premium)
and any interest on the Securities may be payable in U.S. dollars, foreign
currencies or foreign currency units. The Securities may be issued in one or
more series with the same or various maturities at or above par or with an
original issue discount. The specific designation, aggregate principal amount,
currency, currencies or currency unit or units in which the principal, premium,
if any, or interest, if any, is payable, authorized denominations, purchase
price, maturity, rate (or method of calculation) and time of payment of any
interest, any redemption terms, any listing on a securities exchange, or other
specific terms of the Securities in respect of which this Prospectus is being
delivered ("Offered Securities") are set forth in the accompanying Prospectus
Supplement and in a supplement thereto relating to the specific Offered
Securities (together, the "Prospectus Supplement"), together with the terms of
offering of the Offered Securities. With regard to the Warrants, if any, in
respect of which this Prospectus is being delivered, the Prospectus Supplement
sets forth a description of the Offered Securities for which each Warrant is
exercisable and the offering price, if any, exercise price, duration and other
terms of such Warrant. Warrants may be sold in units with Securities or in
separate offerings, as specified in a Prospectus Supplement.
For a discussion of certain United States Federal income tax consequences,
see "United States Taxation".
A discussion of certain other United States Federal tax matters applicable
to the Offered Securities may be set forth in the Prospectus Supplement relating
to the Offered Securities.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF SECURITIES OR
WARRANTS UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
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THE DATE OF THIS PROSPECTUS IS MARCH , 1998
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CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES,
INCLUDING PURCHASES OF SECURITIES TO COVER SOME OR ALL OF A SHORT POSITION IN
THE SECURITIES MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF DISTRIBUTION".
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information can be
inspected at the public reference facilities of the Commission, Judiciary Plaza,
450 Fifth Street, N.W., Room 1024, Washington, DC 20549, as well as at the
Regional Offices of the Commission at 7 World Trade Center, Suite 1300, New
York, NY 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, IL 60661-2511. Copies can also be obtained by mail from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, DC 20549 at the prescribed rates or through the Commission's
website (http://www.sec.gov). In addition, certain of the Company's securities
are listed on, and reports and other information concerning the Company can also
be inspected at, the New York Stock Exchange, 20 Broad Street, 7th Floor, New
York, NY 10005.
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DOCUMENTS INCORPORATED BY REFERENCE
The following documents heretofore filed by the Company with the Commission
pursuant to the Exchange Act are incorporated by reference in this Prospectus.
1. The Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1997.
2. The Company's Quarterly Report on Form 10-Q for the quarters ended
August 31, 1997 and November 30, 1997.
3. The Company's Current Reports on Form 8-K dated June 11, 1997,
September 17, 1997, October 7, 1997, December 4, 1997, January 15,
1998 and February 9, 1998.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the offering
of the Securities, shall be deemed to be incorporated in this Prospectus by
reference and to be a part hereof from the respective date of filing of each
such document. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will furnish without charge upon written or oral request by any
person, including any beneficial owner, to whom this Prospectus is delivered a
copy of any or all of the documents referred to above which have been or may be
incorporated in this Prospectus by reference, other than exhibits to such
documents unless such exhibits are specifically incorporated by reference into
the information that this Prospectus incorporates. Requests for such copies
should be directed to Steven L. Lilly, Senior Vice President and Chief Financial
Officer, National Rural Utilities Cooperative Finance Corporation, Woodland
Park, 2201 Cooperative Way, Herndon, VA 20171-3025. Telephone requests may be
directed to (703) 709-6700.
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN AS CONTAINED IN THIS PROSPECTUS OR THE PROSPECTUS
SUPPLEMENT IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND THE
PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS AND THE
PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS AND THE PROSPECTUS SUPPLEMENT NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF, OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SINCE ITS DATE.
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THE COMPANY
National Rural Utilities Cooperative Finance Corporation ("CFC" or the
"Company") was incorporated as a private, not-for-profit cooperative association
under the laws of the District of Columbia in 1969. The principal purpose of CFC
is to provide its members with a source of financing to supplement the loan
program of the Rural Utilities Service ("RUS") (formerly the Rural
Electrification Administration) 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. CFC also makes
loans to service organization members ("Service Members") to finance office
buildings, equipment, related facilities and services provided by them to the
rural utility systems. CFC has also provided guarantees for tax-exempt financing
of pollution control facilities and other properties constructed or acquired by
its members, and in addition has provided loans or guarantees through National
Cooperative Services Corporation ("NCSC") in connection with certain lease
transactions of its members. Also, through Rural Telephone Finance Cooperative
("RTFC"), a controlled affiliate of CFC established in 1987, CFC provides
financing to rural telephone and telecommunications companies and their
affiliates. In addition, through Guaranty Funding Cooperative ("GFC"), a
controlled affiliate of CFC established in 1991, CFC provides financing for
members to refinance their debt to the Federal Financing Bank of the United
States Treasury ("FFB"). CFC's offices are located at Woodland Park, 2201
Cooperative Way, Herndon, VA 20171-3025 and its telephone number is (703)
709-6700.
CFC's 1,052 members as of May 31, 1997 included 907 Utility Members,
virtually all of which are consumer-owned cooperatives, 74 Service Members and
71 associate members. The Utility Members included 841 distribution systems and
66 generation and transmission ("power supply") systems operating in 46 states
and U.S. territories. At December 31, 1996, CFC's member systems served
approximately 13.2 million consumers, representing service to an estimated 31.9
million ultimate users of electricity, and owned approximately $69.2 billion
(before depreciation of $21.7 billion) in total utility plant.
CFC's long-term loans to Utility Members generally have 35-year maturities.
They are made primarily in conjunction with concurrent RUS loans and are
generally secured ratably with RUS's loans by a common mortgage on substantially
all the Utility Member's property (including revenues). Interest rates on these
loans are either fixed or variable. Fixed rates are offered weekly based on
CFC's overall cost of long-term capital and may be obtained for any period from
one to 35 years. Variable rates are adjusted monthly in line with changes in
CFC's cost of short-term funds.
CFC makes short-term line-of-credit loans and intermediate-term loans with
up to five-year maturities. Short-term line-of-credit and intermediate-term
loans are made on either a secured or an unsecured basis. Rates on these loans
may be adjusted semi-monthly in line with changes in CFC's short-term cost of
funds. The intermediate-term loans are generally made to power supply systems in
connection with the planning and construction of new generating plants and
transmission facilities.
CFC also makes loans to telecommunication systems through RTFC. Such loans
are long-term fixed or variable rate loans with maturities not exceeding 15
years and short-term loans.
CFC's guarantees are senior obligations ranking on a par with its other
senior debt. Even if the system defaults in payment of the guaranteed
obligations, the debt cannot be accelerated as long as CFC pays the debt service
under its guarantee as due. The system is generally obligated to reimburse CFC
on demand for amounts paid on the guarantee, and this obligation is usually
secured by a mortgage (often joint with RUS) on the system's property or, in the
case of a lease transaction, on the leased property. Holders of $1,043.2 million
of the guaranteed pollution control debt (at May 31, 1997) had the right at
certain times to tender their bonds for remarketing, and, if they cannot
otherwise be remarketed, CFC has committed to purchase bonds so tendered.
By policy, 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. At May 31, 1997, the allowance was $233.2 million.
At May 31, 1997, CFC's ten largest borrowers, which were primarily power supply
members, had outstanding loans totaling $1,198.7 million (excluding $2.8 million
of loans guaranteed by RUS), which represented approximately 13.5% of CFC's
total loans outstanding. As of May 31, 1997, outstanding guarantees for these
same ten largest borrowers totaled $1,261.7 million, which represented 59.3% of
CFC's total guarantees
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outstanding, including guarantees of the maximum amounts of lease obligations at
such date. On that date, no member had loans and guarantees outstanding 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 operating under a restructuring agreement. At May
31, 1997, Deseret (excluding loans guaranteed by RUS) accounted for 4.1% of
loans outstanding. Guarantees outstanding for Deseret accounted for 13.7% of
total guarantees outstanding. Total loans and guarantees outstanding to and for
Deseret accounted for 38.1% of total Members' Equity, Members' Subordinated
Certificates and the allowance for loan and guarantee losses.
CFC fixed charge coverage ratio was as follows for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
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1997 1996 1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C> <C>
1.12 1.12 1.12 1.12 1.13 1.13 1.16
</TABLE>
Margins used to compute the fixed charge coverage ratio represent net
margins before extraordinary loss resulting from redemption premiums on bonds
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.
USE OF PROCEEDS
Except as may be otherwise provided in a Prospectus Supplement, the net
proceeds from the sale of the Securities will be added to the general funds of
the Company and will be available for making loans to members, the repayment of
short-term borrowings, the refinancing of existing long-term debt and for other
corporate purposes. The Company expects to incur additional indebtedness from
time to time, the amount and terms of which will depend upon the volume of its
business, general market conditions and other factors.
DESCRIPTION OF SECURITIES
The following description of the Securities summarizes certain general
terms and provisions of the Securities to which any Prospectus Supplement may
relate. The particular terms of the Securities and the extent, if any, to which
such general provisions may apply to any series of Securities will be described
in the Prospectus Supplement relating to such series.
The Securities are to be issued under an Indenture dated as of December 15,
1987, as supplemented by a First Supplemental Indenture dated as of October 1,
1990 between the Company and Harris Trust and Savings Bank, as successor Trustee
(as so supplemented, the "Indenture"). The Indenture does not limit the
aggregate principal amount of Securities which may be issued thereunder.
The statements under this heading are subject to the detailed provisions of
the Indenture and the Securities. Whenever particular provisions of the
Indenture and the Securities or terms defined therein are referred to, such
provisions or definitions are incorporated by reference herein as a part of the
statements made and the statements are qualified in their entirety by such
reference.
GENERAL
The Securities may be issued in fully registered form without coupons
("Registered Securities"), or in a form registered as to principal only with or
without coupons or in bearer form with or without coupons ("Bearer Securities")
or any combination thereof. Securities may also be issued in temporary or
definitive global bearer form. Unless otherwise specified in the Prospectus
Supplement accompanying the Offered Securities, the Securities will be only
Registered Securities. The Securities denominated in U.S. dollars will be
issued, unless otherwise set forth in the Prospectus Supplement accompanying the
Offered Securities, in denominations of $1,000 or an integral multiple thereof
for Registered Securities, and in denominations of $5,000 or an integral
multiple thereof for Bearer Securities.
The Securities will be direct, unsecured obligations of the Company.
If any of the Securities are sold for any foreign currency or currency unit
or if principal of (or premium, if any) or any interest on any of the Securities
is payable in any foreign currency or currency unit, the restrictions,
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elections, tax consequences, specific terms and other information with respect
to such issue of Securities and such foreign currency or currency unit will be
set forth in the Prospectus Supplement relating thereto.
The Securities may be issued in one or more series with the same or various
maturities at or above par or with an original issue discount. Offered
Securities bearing no interest or interest at a rate which at the time of
issuance is below market rates ("Original Issue Discount Securities") will be
sold at a discount (which may be substantial) below their stated principal
amount. See "United States Taxation--U.S. Holders--Original Issue Discount" for
a discussion of certain Federal income tax considerations with respect to any
such Original Issue Discount Securities.
Reference is made to the Prospectus Supplement for the following terms of
the Offered Securities: (i) the title and the limit, if any, on the aggregate
principal amount of Offered Securities; (ii) the percentage of their principal
amount at which the Offered Securities will be sold; (iii) the date or dates on
which the Offered Securities will mature; (iv) the rate or rates (which may be
fixed or variable) per annum, if any, at which the Offered Securities will bear
interest or the method of determining such rate or rates; (v) the date or dates
from which such interest, if any, shall accrue and the date or dates at which
such interest, if any, will be payable; (vi) the place where the principal of
(and premium, if any) and the interest, if any, on the Offered Securities will
be payable; (vii) the terms for redemption for early payment, if any, including
any mandatory or optional sinking fund or analogous provision; (viii) the
principal amount of the Offered Securities which are Original Issue Discount
Securities payable upon declaration of acceleration of the maturity of the
Offered Securities; (ix) the means of satisfaction and discharge of the
Indenture with respect to the Offered Securities; (x) any deletions or
modifications of or additions to the Events of Default or covenants of the
Company; (xi) the currency, currencies or currency unit or units for which the
Offered Securities may be purchased and the currency, currencies or currency
unit or units in which the payment of principal of (and premium, if any) and
interest, if any, on such Offered Securities will be made and, if the Company or
the Holders of Offered Securities may elect for such payment in a currency,
currencies or currency unit or units other than that in which the Offered
Securities are stated to be payable, then the period or periods within which,
and the terms and conditions upon which, such election may be made and, if the
amount of such payments may be determined with reference to an index based on a
currency, currencies or currency unit or units, other than that in which the
Offered Securities are stated to be payable, then the manner in which such
amounts shall be determined; (xii) whether the Offered Securities will be issued
in registered form without coupons, in a form registered as to principal only
with or without coupons, in bearer form with or without coupons, including
temporary and definitive global form, or any combination thereof and the
circumstances, if any, upon which such Offered Securities may be exchanged for
Offered Securities issued in a different form; (xiii) whether and under what
circumstances the Company will pay additional amounts to any Holder of Offered
Securities who is not a United States person (as defined under "United States
Taxation") in respect of any tax, assessment or governmental charge required to
be withheld or deducted and, if so, whether the Company will have the option to
redeem rather than pay additional amounts; (xiv) whether the covenants described
below under "Restriction on Indebtedness" will not apply to the Offered
Securities; and (xv) any other terms of the Offered Securities not inconsistent
with the Indenture. (Section 301)
EXCHANGE, REGISTRATION AND TRANSFER
Unless otherwise specified in the applicable Prospectus Supplement,
Registered Securities of any series will be exchangeable for other Registered
Securities of the same series and of a like aggregate principal amount and tenor
of different authorized denominations. In addition, if Securities of any series
are issuable as both Registered Securities and Bearer Securities, at the option
of the Holder upon request confirmed in writing, and subject to the terms of the
Indenture, Bearer Securities (with all unmatured coupons, except as provided
below, and all matured coupons in default) of such series will be exchangeable
into Registered Securities of the same series of any authorized denominations
and of a like aggregate principal amount and tenor. Bearer Securities with
coupons appertaining thereto surrendered in exchange for Registered Securities
between a Regular Record Date or a Special Record Date and the relevant date for
payment of interest must be surrendered without the coupon relating to such date
for payment of interest and interest will not be payable in respect of the
Registered Security issued in exchange for such Bearer Security, but will be
payable only to the Holder of such coupon when due in accordance with the terms
of the Indenture. Bearer Securities will not be issued in exchange for
Registered Securities. No
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service charge will be made for any registration of transfer or exchange of the
Securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge in connection therewith. (Section 305)
Unless otherwise specified in the applicable Prospectus Supplement,
Securities may be presented for exchange as provided above, and Registered
Securities may be presented for registration of transfer (with the form of
transfer endorsed thereon duly executed), at the office of the Security
Registrar or at the office of any transfer agent designated by the Company for
such purpose with respect to any series of Securities and referred to in an
applicable Prospectus Supplement. Such transfer or exchange will be effected
upon the Security Registrar or such transfer agent, as the case may be, being
satisfied with the documents of title and identity of the person making the
request. The Company has appointed Bank of Montreal Trust Company as Security
Registrar. (Section 305) If a Prospectus Supplement refers to any transfer
agents (in addition to the Security Registrar) initially designated by the
Company with respect to any series of Securities, the Company may at any time
rescind the designation of any such transfer agent or approve a change in the
location through which any such transfer agent acts, except that, if Securities
of a series are issuable solely as Registered Securities, the Company will be
required to maintain a transfer agent in each Place of Payment for such series
and, if Securities of a series are issuable as Bearer Securities, the Company
will be required to maintain (in addition to the Security Registrar) a transfer
agent in a Place of Payment for such series. The Company may at any time
designate additional transfer agents with respect to any series of Securities.
(Section 1002)
In the event of any redemption in part, the Company will not be required
to: (i) issue, register the transfer of or exchange Securities of any series
during a period beginning at the opening of business 15 days before any
selection of Securities of that series to be redeemed and ending at the close of
business on (a) if Securities of the series are issuable only as Registered
Securities, the day of mailing of the relevant notice of redemption and (b) if
Securities of the series are issuable only as Bearer Securities, the day of the
first publication of the relevant notice of redemption or, if Securities of the
series are also issuable as Registered Securities and there is no publication,
the day of mailing of the relevant notice of redemption; (ii) register the
transfer of or exchange any Registered Security, or portion thereof, called for
redemption, except the unredeemed portion of any Registered Security being
redeemed in part; or (iii) exchange any Bearer Security called for redemption,
except to exchange such Bearer Security for a Registered Security of that series
and like tenor which is simultaneously surrendered for redemption. (Section 305)
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of (and premium, if any) and any interest on Registered Securities
will be made at the office of such Paying Agent or Paying Agents as the Company
may designate from time to time, except that at the option of the Company
payment of any interest may be made by check mailed to the address of the Person
entitled thereto as such address shall appear in the Security Register. (Section
301) Unless otherwise indicated in an applicable Prospectus Supplement, payment
of any installment of interest on Registered Securities will be made to the
Person in whose name such Registered Security is registered at the close of
business on the Regular Record Date for such interest. (Section 307)
Unless otherwise indicated in an applicable Prospectus Supplement, the
office of Bank of Montreal Trust Company in the Borough of Manhattan, The City
of New York will be designated as the Company's sole Paying Agent for payments
with respect to Offered Securities that are issuable solely as Registered
Securities and as the Company's Paying Agent in the Borough of Manhattan, The
City of New York, for payments with respect to Offered Securities. Any Paying
Agents outside the United States and any other Paying Agents in the United
States initially designated by the Company for the Offered Securities will be
named in an applicable Prospectus Supplement. The Company may at any time
designate additional Paying Agents or rescind the designation of any Paying
Agent or approve a change in the office through which any Paying Agent acts,
except that, unless otherwise indicated in an applicable Prospectus Supplement,
if Securities of a series are issuable solely as Registered Securities, the
Company will be required to maintain a Paying Agent in each Place of Payment for
such series and, if Securities of a series are issuable as Bearer Securities,
the Company will be required to maintain (i) a Paying Agent in the Borough of
Manhattan, The City of New York, for payments with respect to any
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Registered Securities of the series (and for payments with respect to Bearer
Securities of the series in certain circumstances) and (ii) a Paying Agent in a
Place of Payment located outside the United States where Bearer Securities of
such series and any coupons appertaining thereto may be presented and
surrendered for payment. (Section 1002)
All moneys paid by the Company to a Paying Agent for the payment of
principal of (and premium, if any) or any interest on any Security or coupon
that remains unclaimed at the end of two years after such principal, premium or
interest shall have become due and payable will be repaid to the Company and the
Holder of such Security or coupon will thereafter, as an unsecured general
creditor, look only to the Company for payment thereof. (Section 1003)
RESTRICTION ON INDEBTEDNESS
The Company may not incur any Superior Indebtedness (as defined below) or
make any optional prepayment on any Capital Term Certificate if, as a result,
the principal amount of Superior Indebtedness outstanding, less a principal
amount thereof equal to the principal amount of Government or Government Insured
Obligations (as defined in the Indenture) held by the Company, thereafter or on
any future date would exceed 20 times the sum of the Members' equity in the
Company at the time of determination plus the principal amount of Capital Term
Certificates outstanding at the time of determination or at such given future
date, as the case may be. The principal amounts of Superior Indebtedness and
Capital Term Certificates to be outstanding on any future given date will be
computed after giving effect to maturities and sinking fund requirements.
(Section 1007) "Superior Indebtedness" means all indebtedness of the Company
(including all guarantees by the Company of indebtedness of others) except
Capital Term Certificates. A "Capital Term Certificate" is defined for the
purposes of the Indenture as a note of the Company substantially in the form of
the capital term certificates of the Company outstanding on the date of the
Indenture and any other indebtedness having substantially similar provisions as
to subordination. As of November 30, 1997, the Company had $10,059.6 million
outstanding of Superior Indebtedness and within the restrictions of the
Indenture was permitted to have outstanding an additional $23,331.9 million of
Superior Indebtedness.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indenture provides that the Company, without the consent of the Holders
of any of the Outstanding Securities, may consolidate with or merge into any
other corporation or transfer its assets substantially as an entirety to any
Person provided that: (i) the successor is a corporation organized under the
laws of any domestic jurisdiction; (ii) the successor corporation assumes the
Company's obligations under the Indenture and the Securities issued thereunder;
(iii) immediately after giving effect to the transaction, no Event of Default
(as defined below under "Events of Default, Notice and Waiver") and no event
that, after notice or lapse of time, or both, would become an Event of Default,
shall have occurred and be continuing; and (iv) certain other conditions are
met. (Section 801)
MODIFICATION OF THE INDENTURE
The Indenture provides that the Company and the Trustee may, without the
consent of any Holders of Securities, enter into supplemental indentures for the
purposes, among other things, of adding to the Company's covenants, adding
additional Events of Default, establishing the form or terms of Securities of
any series, changing or eliminating any restriction on the manner or place of
payment of principal of or interest on Bearer Securities or, provided such
action shall not adversely affect the interests of the Holders of any series of
Securities in any material respect, curing ambiguities or inconsistencies in the
Indenture or making other provisions with respect to matters arising under the
Indenture. (Section 901)
The Indenture contains provisions permitting the Company, with the consent
of the Holders of not less than a majority in principal amount of the
Outstanding Securities of all affected series (acting as one class), to execute
supplemental indentures adding any provisions to or changing or eliminating any
of the provisions of the Indenture or modifying the rights of the Holders of the
Securities of such series, except that no such supplemental indenture may,
without the consent of the Holders of all the Outstanding Securities affected
thereby, among other
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things: (i) change the maturity of the principal of, or any installment of
principal of or interest on, any of the Securities; (ii) reduce the principal
amount thereof (or any premium thereon) or the rate of interest, if any,
thereon; (iii) reduce the amount of the principal of Original Issue Discount
Securities payable on any acceleration of maturity; (iv) change the currency,
currencies or currency unit or units in which any of the Securities or any
premium or interest thereon is payable; (v) change any obligation of the Company
to maintain an office or agency in the places and for the purposes required by
the Indenture; (vi) impair the right to institute suit for the enforcement of
any payment on or after the applicable maturity date; (vii) reduce the
percentage in principal amount of the Outstanding Securities of any series, the
consent of the Holders of which is required for any such supplemental indenture
or for any waiver of compliance with certain provisions of, or of certain
defaults under, the Indenture; or (viii) with certain exceptions, to modify the
provisions for the waivers of certain covenants and defaults and any of the
foregoing provisions. (Section 902)
WAIVER OF CERTAIN COVENANTS
The Indenture provides that the Company may omit to comply with certain
restrictive covenants (including that described above under "Restriction on
Indebtedness") if the Holders of not less than a majority in principal amount of
all series of Outstanding Securities affected thereby (acting as one class)
waive compliance with such restrictive covenants. (Section 1009)
EVENTS OF DEFAULT, NOTICE AND WAIVER
An Event of Default in respect of any series of Securities (unless it is
either inapplicable to a particular series or has been modified or deleted with
respect to any particular series) is defined in the Indenture to be: (i) a
default for 30 days in the payment of any installment of interest upon any of
the Securities of such series when due; (ii) a default in the payment of
principal of (or premium, if any, on) any of the Securities of such series when
due; (iii) a default in the deposit of any sinking fund payment when the same
becomes due by the terms of the Securities of such series; (iv) a default in the
performance, or breach, of the covenant of the Company described above under
"Restrictions on Indebtedness" which shall not have been remedied for a period
of 60 days after such default has become known to an officer of the Company; (v)
a default by the Company in the performance, or breach, of any of its other
covenants or warranties in the Indenture which shall not have been remedied for
a period of 60 days after notice from the Trustee thereunder or the Holders of
not less than 25% in principal amount of the Outstanding Securities of such
series; (vi) certain events of bankruptcy, insolvency or reorganization of the
Company; and (vii) such other events as may be specified for each series.
(Section 501)
The Indenture provides that if an Event of Default specified therein in
respect of any series of Outstanding Securities shall have happened and be
continuing, either the Trustee or the Holders of not less than 25% in principal
amount of the Outstanding Securities of such series may declare the principal
(or, if such Securities are Original Issue Discount Securities, such portion of
the principal amount as may be specified by the terms of such Securities) of all
of the Outstanding Securities of such series to be immediately due and payable.
(Section 502)
The Indenture provides that the Holders of not less than a majority in
principal amount of the Outstanding Securities of any series may direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred on the Trustee, with
respect to the Securities of such series, provided that such Trustee may act in
any way that is not inconsistent with such directions and may decline to act if
any such direction is contrary to law or to the Indenture or would involve such
Trustee in personal liability. (Section 507)
The Indenture provides that the Holders of not less than a majority in
principal amount of the Outstanding Securities of any series may on behalf of
the Holders of all of the Outstanding Securities of such series waive any past
default with respect to such series and its consequences, except a default (i)
in the payment of the principal of (or premium, if any) or any interest on any
of the Securities of such series or (ii) in respect of a covenant or provision
which, under the terms of the Indenture, cannot be modified or amended without
the consent of the Holders of all of the Outstanding Securities of such series
affected thereby. (Section 508)
The Indenture contains provisions entitling the Trustee, subject to the
duty during an Event of Default in respect of any series of Securities to act
with the required standard of care, to be indemnified by the Holders of the
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Securities of such series before proceeding to exercise any right or power at
the request of the Holders of the Securities of such series. (Sections 601 and
603)
The Indenture provides that the Trustee will, within 90 days after the
occurrence of a default in respect of any series of Securities, give to the
Holders of the Securities of such series notice of all uncured and unwaived
defaults known to it; provided, however, that, except in the case of a default
in the payment of the principal of (or premium, if any) or any interest on, or
any sinking fund or purchase fund installment with respect to, any of the
Securities of such series, the Trustee will be protected in withholding such
notice if it in good faith determines that the withholding of such notice is in
the interest of the Holders of the Securities of such series; and provided,
further, that such notice shall not be given until at least 60 days after the
occurrence of an Event of Default regarding the performance, or breach, of any
covenant or warranty of the Company other than for the payment of the principal
of (or premium, if any) or any interest on, or any sinking fund installment with
respect to, any of the Securities of such series. The term default for the
purpose of this provision only means any event that is, or after notice or lapse
of time, or both, would become, an Event of Default with respect to the
Securities of such series. (Section 602)
The Indenture requires the Company to file annually with the Trustee a
certificate, executed by two officers of the Company, indicating whether the
Company is in default under the Indenture. (Section 1008)
MEETINGS
The Indenture contains provisions for convening meetings of the Holders of
Securities of a series if Securities of that series are issuable as Bearer
Securities. (Section 1201) A meeting may be called at any time by the Trustee,
and also, upon request, by the Company or the Holders of at least 10% in
principal amount of the Outstanding Securities of such series, in any such case
upon notice given in accordance with "Notices" below. (Section 1202) Persons
entitled to vote a majority in principal amount of the Outstanding Securities of
a series shall constitute a quorum at a meeting of Holders of Securities of such
series, except that in the absence of a quorum, a meeting, called by the Company
or the Trustee shall be adjourned for a period of not less than 10 days, and in
the absence of a quorum at any such adjourned meeting, the meeting shall be
further adjourned for a period of not less than 10 days, at which further
adjourned meeting persons entitled to vote 25% in aggregate principal amount of
the Outstanding Securities of such series shall constitute a quorum. Except for
any consent which must be given by the Holder of each Outstanding Security
affected thereby, as described above under "Modification of the Indenture", and
subject to the provisions described in the last sentence under this subheading,
any resolution presented at a meeting or adjourned meeting duly reconvened at
which a quorum is present may be adopted by the affirmative vote of the lesser
of (i) the Holders of a majority in principal amount of the Outstanding
Securities of that series and (ii) 66 2/3% in aggregate principal amount of
Outstanding Securities of such series represented and voting at the meeting;
provided, however, that any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action which may be
made, given or taken by the Holders of a specified percentage, which is less
than a majority, in principal amount of Outstanding Securities of a series may
be adopted at a meeting or adjourned meeting duly reconvened at which a quorum
is present by the affirmative vote of the lesser of (i) the Holders of such
specified percentage in principal amount of the Outstanding Securities of that
series and (ii) a majority in principal amount of Outstanding Securities of such
series represented and voting at the meeting. Any resolution passed or decision
taken at any meeting of Holders of Securities of any series duly held in
accordance with the Indenture will be binding on all Holders of Securities of
that series and the related coupons. With respect to any consent, waiver or
other action which the Indenture expressly provides may be given by the Holders
of a specified percentage of Outstanding Securities of all series affected
thereby (acting as one class), only the principal amount of Outstanding
Securities of any series represented at a meeting or adjourned meeting duly
reconvened at which a quorum is present as aforesaid and voting in favor of such
action shall be counted for purposes of calculating the aggregate principal
amount of Outstanding Securities of all series affected thereby favoring such
action. (Section 1204)
NOTICES
Except as otherwise provided in the Indenture, notices to Holders of Bearer
Securities will be given by publication at least once in a daily newspaper in
The City of New York and London and in such other city or
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cities as may be specified in such Bearer Securities and will be mailed to such
Persons whose names and addresses were previously filed with the Trustee, within
the time prescribed for the giving of such notice. Notices to Holders of
Registered Securities will be given by mail to the address of such Holders as
they appear in the Security Register. (Section 106)
TITLE
Title to any Bearer Security (including any Bearer Security in temporary or
definitive global bearer form) and any coupons appertaining thereto will pass by
delivery. The Company, the Trustee and any agent of the Company or the Trustee
may treat the bearer of any Bearer Security and the bearer of any coupon and the
registered owner of any Registered Security as the absolute owner thereof
(whether or not such Security or coupon shall be overdue and notwithstanding any
notice to the contrary) for the purpose of making payment and for all other
purposes. (Section 308)
REPLACEMENT OF SECURITIES AND COUPONS
Any mutilated Security and any Security with a mutilated coupon
appertaining thereto will be replaced by the Company at the expense of the
Holder upon surrender of such mutilated Security or Security with a mutilated
coupon to the Trustee. Securities or coupons that become destroyed, stolen or
lost will be replaced by the Company at the expense of the Holder upon delivery
to the Trustee of evidence of the destruction, loss or theft thereof
satisfactory to the Company and the Trustee; in the case of any coupon which
becomes destroyed, stolen or lost, such coupon will be replaced (upon surrender
to the Trustee of the Security with all appurtenant coupons not destroyed,
stolen or lost) by issuance of a new Security in exchange for the Security to
which such coupon appertains. In the case of a destroyed, lost or stolen
Security or coupon an indemnity satisfactory to the Trustee and the Company may
be required at the expense of the Holder of such Security or coupon before a
replacement Security will be issued. (Section 306)
SATISFACTION AND DISCHARGE; DEFEASANCE
At the request of the Company, the Indenture will cease to be in effect as
to the Company (except for certain obligations to register the transfer or
exchange of Securities and hold moneys for payment in trust) with respect to the
Securities when all such Securities have been cancelled by the Trustee, or, in
the case of Securities and coupons not delivered to the Trustee for
cancellation, (i) such Securities or coupons have become due and payable, will
become due and payable at their stated maturity within one year, or are to be
called for redemption within one year, and, in each case, the Company has
deposited with the Trustee, in trust, money, and, in the case of Securities and
coupons denominated in U.S. dollars, U.S. Government Obligations (as defined in
the Indenture) or, in the case of Securities and coupons denominated in a
foreign currency, Foreign Government Securities (as defined in the Indenture),
which through the payment of interest thereon and principal thereof in
accordance with their terms will provide money in an amount sufficient to pay in
the currency, currencies or currency units or units in which the Offered
Securities are payable all the principal of, and interest on, the Offered
Securities on the dates such payments are due in accordance with the terms of
the Offered Securities, or (ii) such Securities or coupons are deemed paid and
discharged in the manner described in the next paragraph. (Section 401)
Unless the Prospectus Supplement relating to the Offered Securities
provides otherwise, the Company at its option (a) will be Discharged (as such
term is defined in the Indenture) from any and all obligations in respect of the
Offered Securities (except for certain obligations to register the transfer or
exchange of Securities, replace stolen, lost or mutilated Securities and
coupons, maintain paying agencies and hold moneys for payment in trust) or (b)
need not comply with certain restrictive covenants of the Indenture (including
those described above under "Restriction on Indebtedness"), in each case after
the Company deposits with the Trustee, in trust, money, and, in the case of
Securities and coupons denominated in U.S. dollars, U.S. Government Obligations
or, in the case of Securities and coupons denominated in a foreign currency,
Foreign Government Securities, which through the payment of interest thereon and
principal thereof in accordance with their terms will provide money in an amount
sufficient to pay in the currency, currencies or currency unit or units in which
the Offered Securities are payable all the principal of, and interest on, the
Offered Securities on the dates such payments are
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due in accordance with the terms of the Offered Securities. Among the conditions
to the Company's exercising any such option, the Company is required to deliver
to the Trustee an opinion of counsel to the effect that the deposit and related
defeasance would not cause the Holders of the Offered Securities to recognize
income, gain or loss for United States federal income tax purposes and that the
Holders will be subject to United States federal income tax in the same amounts,
in the same manner and at the same times as would have been the case if such
deposit and related defeasance has not occurred. (Section 403)
At the request of the Company, the Trustee will deliver or pay to the
Company any U.S. Government Obligations, Foreign Government Securities or money
deposited, for the purposes described in the preceding two paragraphs, with the
Trustee by the Company and which, in the opinion of a nationally-recognized firm
of independent public accountants, are in excess of the amount thereof which
would then have been required to be deposited for such purposes. In addition,
the Trustee, in exchange for, simultaneously, other U.S. Government Obligations,
Foreign Government Securities or money, will deliver or pay to the Company, at
the Company's request, U.S. Government Obligations, Foreign Government
Securities or money deposited with the Trustee for the purposes described in the
preceding two paragraphs, provided that, in the opinion of a
nationally-recognized firm of independent public accountants, immediately after
such exchange the obligations, securities or money then held by the Trustee will
be in such amount as would then have been required to be deposited with the
Trustee for such purposes. (Section 403)
GOVERNING LAW
The Indenture, the Securities and the coupons will be governed by, and
construed in accordance with, the laws of the State of New York. (Section 113)
THE TRUSTEE
Harris Trust and Savings Bank, Chicago, Illinois is the Trustee under the
Indenture.
DESCRIPTION OF WARRANTS
The following statements with respect to the Warrants are summaries of, and
subject to, the detailed provisions of one or more separate Warrant Agreements
(each a "Warrant Agreement") between the Company and one or more banking
institutions or trust companies as Warrant Agents (each a "Warrant Agent"). A
form of Warrant Agreement will be filed as an exhibit to the Registration
Statement prior to the issuance of any Warrant.
GENERAL
Warrants, evidenced by Warrant Certificates (the "Warrant Certificates"),
may be issued under a Warrant Agreement independently or together with any
Offered Securities and may be attached to or separate from such Offered
Securities. If Warrants are offered, the Prospectus Supplement will describe the
terms of the Warrants, including the following: (i) the offering price, if any,
including the currency, currencies or currency unit or units in which such price
will be payable; (ii) the designation, aggregate principal amount and terms of
the Offered Securities purchasable upon exercise of the Warrants; (iii) if
applicable, the designation and terms of the Offered Securities with which the
Warrants are issued and the number of Warrants issued with each such Offered
Security; (iv) if applicable, the date on and after which the Warrants and the
related Offered Securities will be separately transferable; (v) the principal
amount of Offered Securities purchasable upon exercise of one Warrant and the
price or prices at which, and the currency, currencies or currency unit or units
in which such principal amount of Offered Securities may be purchased upon
exercise; (vi) the date on which the right to exercise the Warrants shall
commence and the date on which such right shall expire; (vii) United States
Federal income tax consequences; (viii) whether the Warrants represented by the
Warrant Certificates will be issued in registered or unregistered form or both;
and (ix) any other terms of the Warrants.
Warrant Certificates, if any, may be exchanged for new Warrant Certificates
of different denominations and may (if in registered form) be presented for
registration of transfer at the corporate trust office of the Warrant
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Agent, which will be listed in the Prospectus Supplement, or at such other
office as may be set forth therein. Warrantholders do not have any of the rights
of Holders of Offered Securities (except to the extent that the consent of
Warrantholders may be required for certain modifications of the terms of the
Indenture) and are not entitled to payments of principal (or premium, if any),
or interest, if any, on such Offered Securities.
EXERCISE OF WARRANTS
Warrants may be exercised by surrendering the Warrant Certificate, if any,
at the corporate trust office or other designated office of the Warrant Agent,
with the form of election to purchase on the reverse side of the Warrant
Certificate, if any, properly completed and executed, and by payment in full of
the exercise price, as set forth in the Prospectus Supplement. Upon exercise of
Warrants, the Warrant Agent will, as soon as practicable, deliver the Offered
Securities issuable upon the exercise of the Warrants in authorized
denominations in accordance with the instructions of the exercising
Warrantholder and at the sole cost and risk of such holder. If less than all of
the Warrants evidenced by the Warrant Certificate, if any, are exercised, a new
Warrant Certificate will be issued for the remaining amount of unexercised
Warrants, if sufficient time exists prior to the expiration date.
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES
Under U.S. federal tax laws, certain limitations on offers, sales and
delivery apply to Bearer Securities. These limitations, as well as additional
information regarding the U.S. federal income tax consequences in respect of a
Bearer Security, will be set forth in any Prospectus Supplement providing for
the issuance of Bearer Securities.
UNITED STATES TAXATION
The following is a summary of the principal U.S. federal income tax
consequences of the acquisition, ownership and disposition of Registered
Securities. The summary reflects present law, which is subject to prospective
and retroactive changes. It is not intended as tax advice, and it does not
describe all of the tax considerations that may be relevant to a prospective
purchaser. The summary addresses only original purchasers of the Securities that
hold the Securities as capital assets. It does not address U.S. federal income
tax issues relevant to purchasers subject to special rules, such as banks,
securities dealers, life insurance companies, controlled foreign corporations,
persons holding Securities in connection with a hedge or as a position in a
"straddle" or persons having a functional currency other than the U.S. dollar.
The summary does not consider the tax consequences of Securities with terms
other than those described in this Prospectus. PROSPECTIVE PURCHASERS ARE URGED
TO CONSULT THEIR TAX ADVISERS ABOUT THE TAX CONSEQUENCES OF AN INVESTMENT IN THE
SECURITIES UNDER THE LAWS OF THE UNITED STATES AND OTHER JURISDICTIONS WHERE
PURCHASERS ARE SUBJECT TO TAXATION.
For the purposes of this discussion, "U.S. Holder" means (i) a beneficial
owner of the Securities that is a citizen or resident of the United States, a
corporation, or partnership organized in or under the laws of the United States
or any political subdivision thereof, a trust subject to the control of a United
States person and the primary supervision of a United States Court, or an estate
the income of which is subject to U.S. federal income taxation regardless of its
source or (ii) any other beneficial owner as to which income from the Securities
is effectively connected with the conduct of a trade or business within the
United States. The term "Non-U.S. Holder" refers to any beneficial owner of the
Securities other than a U.S. Holder.
U.S. HOLDERS
PAYMENTS OF INTEREST
Interest on a Security generally will be taxable to a U.S. Holder as
ordinary interest income at the time of receipt or accrual in accordance with
the U.S. Holder's method of accounting for U.S. federal income tax purposes.
Special rules for the interest on Securities with original issue discount are
described below.
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ORIGINAL ISSUE DISCOUNT
The following is a summary of the U.S. federal income tax consequences to
U.S. Holders of the purchase, ownership and disposition of Securities issued
with original issue discount ("OID"). The following summary is based on sections
1271 through 1273 and section 1275 of the U.S. Internal Revenue Code of 1986, as
amended (the "Code"), and on certain final regulations of the U.S. Department of
Treasury (the "OID Regulations") interpreting these provisions.
General. A U.S. Holder of a Security issued at a discount with a maturity
of more than one year after the date of issue must include OID in income over
the term of the Security. The U.S. Holder generally must include in gross income
for the taxable year the sum of the daily portions of OID that accrue on the
Security for each day during the year on which such holder held the Security.
Accordingly, a U.S. Holder will be required to include amounts attributable to
OID in income before receiving cash attributable to that income.
A Security has OID for U.S. federal income tax purposes to the extent that
the Security's stated redemption price at maturity exceeds its issue price. The
issue price of a Security is the initial offering price at which a substantial
amount of the Securities is sold to the public (excluding bond houses, brokers
or similar persons). The stated redemption price of a Security is the total of
all payments due on the Security other than payments of "qualified stated
interest." A Security is not treated as issued at a discount, however, if the
discount is less than 1/4 of 1 percent of the Security's stated redemption price
at maturity multiplied by the number of complete years to maturity ("de minimis
original issue discount"). If a Security bears interest for any accrual period
at a rate below the rate for the remaining term of the Security (e.g., a
Security with a "teaser rate") the Security's stated redemption price at
maturity, for purposes of determining whether the Security has de minimis
original issue discount, is treated as equal to the Security's issue price plus
the greater of the amount of foregone interest on such security or any "true"
discount on such Security (i.e., the excess of the Security's stored principal
amount over its issue price).
Qualified stated interest is interest that is payable unconditionally in
cash or in property (other than debt of the issuer) at least annually at either
(a) a single fixed rate that appropriately takes into account the length of the
interval between payments or (b) certain variable rates.
To determine the daily portions of original issue discount, original issue
discount accruing during an accrual period is divided by the number of days in
the period. Except as described below under "Variable Rate Securities," the
amount of original discount accruing during an accrual period is determined by
using a constant yield to maturity method. The accrued amount for any period is
the excess of (i) the product of the Security's adjusted issue price at the
beginning of the accrual period and its yield to maturity (determined on the
basis of compounding at the close of each accrual period and appropriately
adjusted for the length of the accrual period) over (ii) the amount of any
qualified stated interest payments allocable to the accrual period. The adjusted
issue price of a Security at the beginning of any accrual period generally
equals the issue price of the Security increased by the aggregate amount of
original issue discount that accrued on that Security in all prior accrual
periods and reduced by the amount of payments in prior accrual periods other
than payments of qualified stated interest.
A U.S. Holder of a Security issued at a discount that purchases the
Security for more than the Security's adjusted issue price but less than or
equal to the Security's stated redemption price at maturity may reduce the daily
portions of original issue discount includible in gross income by daily portions
of the acquisition premium paid for the Security.
Variable Rate Securities. Special rules apply to the U.S. Holder of a
Security that bears interest at certain types of variable rates (a "Variable
Rate Security"). For these purposes, a Variable Rate Security is one that bears
interest at the current values of (i) one or more "qualified floating rates,"
(ii) a single fixed rate followed by one or more qualified floating rates, (iii)
a single "objective rate" or (iv) a single fixed rate and an objective rate that
is a qualified inverse floating rate. A qualified floating rate is any floating
rate the variations in which reasonably can be expected to measure
contemporaneous variations in the cost of newly-borrowed funds (e.g., LIBOR).
Although a multiple of a qualified floating rate will generally not itself
constitute a qualified floating rate, a variable rate is a qualified floating
rate if it is equal to either (i) the product of a qualified floating rate and a
fixed multiple rate that is greater than 0.65 but not more than 1.35 or (ii) the
product of a qualified floating rate and a fixed
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multiple rate that is greater than 0.65 but not more than 1.35, increased or
decreased by a fixed rate. In addition, under the OID Regulations, two or more
qualified floating rates with values within 25 basis points of each other (as
determined on the Variable Rate Security's issue date) will be treated as a
single qualified floating rate. Notwithstanding the foregoing, a variable rate
that would otherwise constitute a qualified floating rate but which is subject
to one or more restrictions such as a maximum or minimum numerical limitation
(i.e., a cap or floor) may, under certain circumstances, fail to be treated as a
qualified floating rate under the OID Regulations unless such cap or floor is
fixed throughout the term of the Security. An objective rate is a rate, other
than a qualified floating rate, that is determined using a single fixed formula
and that is based on objective financial or economic information outside of the
issuer's control. A rate will not be considered an objective rate, however, if
it is reasonably expected that the average value of the rate during the first
half of the Security's term will be either significantly less than or
significantly greater than the average value of the rate during the final half
of the Security's term. A qualified inverse floating rate is a fixed rate minus
a qualified floating rate whose variations can reasonably be expected to
inversely reflect contemporaneous variations in the cost of newly borrowed
funds. A fixed rate for an initial period of one year or less followed by a
qualified floating rate or an objective rate together constitute a single
qualified floating objective rate if the value of the qualified floating rate or
objective rate on the issue date is intended to approximate the fixed rate.
In general, to compute the accrual of OID on a Variable Rate Security, the
OID Regulations convert the Variable Rate Security into a fixed rate debt
instrument and then apply the general rules discussed above to the deemed fixed
rate debt instrument. If a Variable Rate Security provides for stated interest
at either a single qualified floating rate or objective rate that is
unconditionally payable at least annually, (a) all stated interest with respect
to the Variable Rate Security is treated as qualified stated interest and (b)
the amount of OID, if any, is determined under the rules applicable to fixed
rate debt instruments discussed above by assuming that the Variable Rate is a
fixed rate equal to (i) in the case of a qualified floating rate or qualified
inverse floating rate, the value, as of the issue date of the Variable Rate
Security, of the qualified floating rate or the qualified inverse floating rate,
or (ii) in the case of an objective rate (other than a qualified inverse
floating rate), a fixed rate that reflects the yield that is reasonably expected
for the Variable Rate Security.
If the Variable Rate Security does not provide for stated interest as
described in the preceding paragraph, to determine the amounts of interest and
OID accruals, an "equivalent fixed rate debt instrument" must be constructed.
The equivalent fixed rate debt instrument has terms that are identical to those
provided under the Variable Rate Security, except that the equivalent fixed rate
debt instrument provides for fixed rate substitutes in lieu of the qualified
floating rates or objective rate provided under the Variable Rate Security. The
fixed rate substitute (a) for each qualified floating rate is the value of each
such rate as of the issue date of the Variable Rate Security (with appropriate
adjustment for any differences in intervals between interest adjustment dates),
(b) for a qualified inverse floating rate is the value of the qualified inverse
floating rate as of the issue date of the Variable Rate Security and (c) for an
objective rate (other than a qualified inverse floating rate) is a fixed rate
that reflects the yield that is reasonably expected for the Variable Rate
Security. The amounts of qualified stated interest and OID, if any, are
determined for the equivalent fixed rate debt instrument under the rules
applicable to fixed rate debt instruments as described above and are taken into
account as if the holder of the Security held the equivalent fixed rate debt
instrument. Qualified stated interest or OID allocable to an accrual period is
increased (or decreased) if the interest actually accrued or paid during an
accrual period exceeds (or is less than) the interest assumed to be accrued or
paid during the accrual period under the equivalent fixed rate debt instrument.
This increase or decrease is an adjustment to qualified stated interest of the
accrual period if the equivalent fixed rate debt instrument provides for
qualified stated interest and the increase or decrease is reflected in the
amount actually paid during the accrual period. Otherwise, this increase or
decrease is an adjustment to OID for the accrual period. If the Variable Rate
Security provides for interest at a qualified floating rate or qualified inverse
floating rate and also provides for stated interest at a single fixed rate
(other than a single fixed rate for an initial period of one year or less that
is intended to approximate the value of the qualified floating or objective
rate), in constructing the equivalent fixed rate debt instrument, such a
Variable Rate Security is treated as if it provided for a qualified floating
rate (or qualified inverse floating rate, as the case may be) instead of the
fixed rate, which qualified floating (or inverse floating) rate is such that the
Variable Rate Security would have a fair market value as of its issue date that
is approximately the same as the fair market value of an otherwise identical
debt instrument that provides for either the qualified floating rate or the
qualified inverse floating rate rather than the fixed rate.
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<PAGE> 16
The foregoing rules do not apply, and a Security is treated as a Contingent
Payment Security (defined below), if its issue price exceeds the total of
noncontingent principal payments by more than the lesser of (i) the product of
.015, the total noncontingent principal payments and the number of complete
years to maturity (or a lesser amount if principal is payable in installments)
and (ii) 15 percent of the total noncontingent principal payments.
Optional Redemption. For purposes of determining the yield and maturity of
a Security, the Company will be presumed to exercise any right to redeem a
Security before its stated maturity or to extend the maturity of a Security if
exercise would reduce the yield on the Security. Likewise, the holder will be
presumed to exercise any right to require the redemption of a Security or to
extend the maturity of the Security if exercise would increase the yield on the
Security. If the Security is not actually redeemed on the date when the option
was presumed to have been exercised, the Security will be treated only for
purposes of determining yield as having been reissued at a price equal to that
Security's adjusted issue price on that date.
Short-Term Securities. U.S. Holders that do not use the accrual method of
accounting for tax purposes generally will not be required to recognize original
issue discount on Securities maturing within one year of original issuance until
they receive payments on the Securities. Taxpayers on the accrual method,
regulated investment companies, common trust funds, and certain others, however,
must accrue original issue discount on such short-term Securities on a
straight-line basis unless they elect to accrue the discount on a constant yield
basis with daily compounding. The original issue discount on a short-term
Security is the amount by which the total principal and interest payments on the
Security exceed its issue price. U.S. Holders may elect to include discount on
such short-term Securities into income based on acquisition discount rather than
original issue discount. Acquisition discount is the excess of a Security's
stated redemption price at maturity over the U.S. Holder's basis in the
Security.
Gain recognized on the sale or exchange of a short-term Security by a U.S.
Holder that has not accrued discount on the Security will be ordinary income to
the extent attributable to accrued interest and original issue discount. Such a
holder also must defer deductions for net interest expense on any borrowing
attributable to the short-term Security to the extent that the expense does not
exceed accrued but unrecognized interest and original issue discount (or
acquisition discount) on the Security.
ANTI-ABUSE RULE
The Internal Revenue Service can apply or depart from the rules contained
in the OID Regulations as necessary or appropriate to achieve a reasonable
result where a principal purpose in structuring a Security or applying the
otherwise applicable rules is to achieve a result that is unreasonable in light
of the purposes of the applicable statutes (which generally are intended to
achieve the clear reflection of income for both sellers and purchasers of the
Securities).
MARKET DISCOUNT
A U.S. Holder that purchases a Security at a market discount generally will
be required to treat payments other than qualified stated interest payments as
ordinary income to the extent of the accrued market discount and to treat gain
on the sale of the Security as ordinary income to the extent of the accrued
market discount not previously included in income. See "Sale or Exchange of
Securities" below. Market discount is the amount by which the stated redemption
price at maturity (or, in the case of a Security with OID, the revised issue
price) exceeds the purchaser's basis in the Security immediately after
acquisition. A Security is not treated as purchased at a market discount,
however, if the discount is less than 1/4 of 1 percent of the stated redemption
price at maturity (or the revised issue price) multiplied by the number of
complete years remaining to maturity ("de minimis market discount"). (The
revised issue price of a Security is its initial issue price increased by the
amount of OID includible in the gross income of previous holders.) Market
discount on a Security will accrue, at the election of the holder, either
ratably or at a constant yield to maturity. The U.S. Holder may elect to take
market discount into income as it accrues. Such election applies to all debt
instruments acquired in the tax year the election is made and thereafter, and
may not be revoked without the consent of the Internal Revenue Service. Under
certain circumstances, the U.S. Holder may be required to defer deductions for
interest expense attributable to debt incurred or continued to purchase a
Security with market discount.
15
<PAGE> 17
PREMIUM
A U.S. Holder that purchases a Security for more than its stated redemption
price at maturity may elect to amortize the bond premium. If a U.S. Holder makes
such an election, the amount of interest on the Security otherwise to be
included in the U.S. Holder's income will be reduced each year by the amount of
amortizable bond premium allocable to such year on a constant yield to maturity
basis (except to the extent regulations may provide otherwise). Amortized bond
premium will reduce the U.S. Holder's basis in the Security. If the Security may
be optionally redeemed after the U.S. Holder acquires it at a price in excess of
its stated redemption price at maturity, special rules would apply which could
result in a deferral of the amortization of some premium until later in the term
of the Security. An election to amortize bond premium will apply to certain
other debt instruments that the U.S. Holder acquired at a premium, and the
election may have different tax consequences depending on when the debt
instruments were issued or acquired.
INTEREST ELECTION
A U.S. Holder may elect, in the taxable year in which the U.S. Holder
acquires a Security, to treat all interest on any Security as OID and calculate
the amount includible in gross income under the constant yield method described
above. For purposes of this election, interest includes stated interest,
acquisition discount, OID, de minimis OID, market discount, de minimis market
discount and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium. If a U.S. Holder makes this election for a Security with
market discount or amortizable bond premium, the election is treated as an
election under the market discount or amortizable bond premium provisions,
described above, and the electing U.S. Holder will be required to amortize bond
premium or include market discount in income currently for all of its other debt
instruments with market discount or amortizable bond premium acquired during
such tax year and in any subsequent tax year. The election, once made, may not
be revoked without the consent of the Internal Revenue Service. U.S. Holders
should consult with their own tax advisers before making this election.
SALE OR EXCHANGE OF SECURITIES
Except to the extent that gain or loss is attributable to accrued but
unpaid interest or accrued market discount, a U.S. Holder generally will
recognize capital gain or loss upon a sale, exchange or complete retirement of a
Security equal to the difference between the amount realized and the U.S.
Holder's adjusted basis in the Security. The gain or loss generally will be
long-term if the Security has been held for more than one year, although the 20%
preferential capital gains rate applicable for non-corporate holders only
applies if the Securities have been held for more than 18 months. The adjusted
basis of a Security generally will equal its initial cost increased by any
original issue discount, market discount or acquisition discount with respect to
the Security previously included in the U.S. Holder's gross income and reduced
by the payments previously received on the Security, other than payments of
qualified stated interest, and by any amortized premium.
The tax consequences of the partial redemption of a Security will depend
upon the price at which the U.S. Holder purchased the Security. A U.S. Holder
that purchased a Security at a de minimis market discount or purchased a
Security for more than its revised issue price, but less than its principal
amount, will recognize capital gain equal to the difference between the
principal prepayment and the U.S. Holder's adjusted basis in the prepaid portion
of the Security. If a U.S. Holder purchased a Security at a market discount, (i)
the principal prepayment will be included in ordinary income to the extent of
the accrued market discount (and it is possible that amounts allocable to
unaccrued market discount will be recognized as capital gain) and (ii) any
principal prepayment exceeding the revised issue price allocable to the prepaid
portion of the Security will be capital gain. If a U.S. Holder purchased a
Security for more than its stated principal amount and has not elected to
amortize bond premium, the U.S. Holder will recognize a capital loss equal to
any amount by which the U.S. Holder's adjusted basis in the prepaid portion of
the Security exceeds the amount of the principal prepayment. If the U.S. Holder
has elected to amortize bond premium, all or part of such excess might be
deductible as amortizable bond premium rather than as capital loss. Any capital
gain or loss will be long-term if the Security has been held for more than one
year, although the 20% preferential capital gains rate applicable for
non-corporate holders only applies if the Securities have been held for more
than 18 months. It is possible that capital gain realized by holders of one or
more classes of Securities could be considered gain realized upon the
disposition of property that was part of a
16
<PAGE> 18
"conversion transaction." A "conversion transaction" is any transaction in which
substantially all of the expected return is attributable to the time value of
the U.S. Holder's net investment, if (i) the U.S. Holder entered the contract to
sell the Security substantially contemporaneously with acquiring the Security,
(ii) the Security is part of a straddle, (iii) the Security is marketed or sold
as producing capital gains, or (iv) the transaction is specified in certain
Treasury regulations. If the sale or other disposition of the Security is part
of a conversion transaction, all or any portion of the gain realized upon the
sale or other disposition of the Securities would be treated as ordinary income
instead of capital gain.
FOREIGN CURRENCY SECURITIES
The tax treatment of Securities the interest or principal on which may be
determined by reference to one or more foreign currencies will depend on the
application of special rules to the particular terms of the Securities. The tax
considerations relevant to such Securities will be described in an applicable
Prospectus Supplement, and each prospective purchaser should consult its tax
adviser about such matters.
CONTINGENT PAYMENT SECURITIES
The OID Regulations contain special rules for determining the timing and
amount of OID to be accrued in respect of Securities providing for one or more
contingent payments ("Contingent Payment Securities"). For this purpose, a
Security is not a Contingent Payment Security if it (i) is a Variable Rate
Security, (ii) provides for alternate payment schedules upon the occurrence of
contingencies if certain other requirements are met or (iii) is a foreign
currency debt instrument. Under the OID Regulations, U.S. Holders generally
would be required to take contingent interest payments on Contingent Payment
Securities into income on a yield to maturity basis in accordance with a
schedule of projected payments provided by the Company to U.S. Holders and would
make annual adjustments to income to account for the difference between actual
payments received and projected payment amounts accrued. Additional disclosure
will be provided for in a Prospectus Supplement in connection with any offering
of Contingent Payment Securities. Prospective purchasers should consult their
own tax advisers regarding the OID Regulations in connection with ownership of a
Security that provides for contingent payments.
NON-U.S. HOLDERS
Interest received by a Non-U.S. Holder is exempt from U.S. federal income
tax unless the holder actually or constructively owns at least 10% of the total
combined voting power of the Company's stock or the holder is for U.S. income
tax purposes a controlled foreign corporation related to the Company through
stock ownership or is a bank receiving interest described in Section
881(c)(3)(A) of the Code. However, "contingent interest" paid to a Non-U.S.
Holder will be subject to a 30% tax (unless an applicable tax treaty eliminates
or reduces the rate of the tax and the Non-U.S. Holder complies with the
requirements for obtaining that reduction or elimination of the tax). For this
purpose, contingent interest is an amount of interest determined by reference to
(i) receipts, sales, or other cash flows of the Company or a related person,
(ii) income or profits of the Company or a related person, (iii) any change in
the value of any property of the Company or a related person, or (iv) any
dividend, partnership distribution, or similar payment made by the Company or a
related person. To qualify for that exemption, a Non-U.S. Holder must provide a
statement signed under penalties of perjury certifying that the holder is not a
U.S. person for U.S. tax purposes and providing the holder's name and address.
In addition, the Treasury Department has recently issued regulations regarding
the withholding and information reporting rules. In general, the new regulations
do not alter the substantive withholding and information reporting requirements
but unify current certification procedures and forms and clarify reliance
standards. However, the regulations would require in the case of Securities held
by a foreign partnership that the certification requirement described above be
provided by the partners rather than by the foreign partnership unless the
partnership meets certain requirements and is authorized as a "withholding
foreign partnership" by the IRS. A look-through rule would apply in the case of
tiered partnerships. The regulations also generally require a Non-U.S. Holder to
provide a taxpayer identification number in order to claim a reduced rate of
withholding pursuant to a treaty. The regulations are generally effective for
payments made after December 31, 1998, subject to certain transition rules. In
particular, valid withholding certificates that are held on December 31, 1998,
generally remain valid until the
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<PAGE> 19
earlier of December 31, 1999, or the due date of the expiration of the
certificate under rules currently in effect. Further, certificates dated prior
to January 1, 1998, that were valid as of January 1, 1998, remain valid until
the end of 1998. Gain from the sale or other disposition of a Security by a
Non-U.S. Holder is not subject to U.S. federal income tax unless the Non-U.S.
Holder is an individual who is present in the United States for at least 183
days during the taxable year of the disposition and certain other conditions are
met.
Securities held by a Non-U.S. Holder will not be subject to the U.S.
federal estate tax unless the holder actually or constructively owns at least
10% of the total combined voting power of the Company's stock.
INFORMATION REPORTING AND BACKUP WITHHOLDING
A 31% backup withholding of federal income tax and certain information
reporting requirements may apply to certain payments made on the Securities and
to the proceeds from the disposition of a Security if the holder is not a
corporation, a financial institution or otherwise entitled to an exemption. U.S.
Holders that provide a correct taxpayer identification number and Non-U.S.
Holders that provide the statement described above to establish an exemption
from withholding tax generally are exempt from backup withholding. Amounts
withheld under the backup withholding rules can be claimed as a refund or taken
as a credit against the holder's U.S. federal income tax liability on a properly
filed annual income tax return.
PLAN OF DISTRIBUTION
The Company may sell the Securities and/or Warrants being offered hereby
(i) directly to purchasers, (ii) through agents or (iii) through underwriters or
a group of underwriters which may include Lehman Brothers Inc. and/or Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Offers to purchase Offered Securities and/or Warrants may be solicited
directly by the Company or by agents designated by the Company from time to
time. Unless otherwise indicated in the Prospectus Supplement, any such agent
will be acting on a best-efforts basis for the period of its appointment. Agents
may be entitled under agreements which may be entered into with the Company to
indemnification by the Company against certain civil liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Act").
If an underwriter or underwriters are utilized in the sale, the Company
will enter into an underwriting agreement with such underwriters at the time of
sale to them and the names of the underwriters and the terms of the transaction
will be set forth in the Supplement, which will be used by the underwriters to
make resales of the Offered Securities and/or Warrants in respect of which this
Prospectus is delivered to the public. The underwriters may be entitled, under
the underwriting agreement, to indemnification by the Company against certain
liabilities, including liabilities under the Act.
The agents and underwriters may be deemed to be underwriters and any
discounts, commissions or concessions received by them from the Company or any
profit on the resale of Offered Securities and/or Warrants by them may be deemed
to be underwriting discounts and commissions under the Act. Any such person who
may be deemed to be an underwriter and any such compensation received from the
Company will be described in the Prospectus Supplement.
If so indicated in the Prospectus Supplement, the Company will authorize
agents and underwriters to solicit offers by certain institutions to purchase
Offered Securities and/or Warrants from the Company at the public offering price
set forth in the Prospectus Supplement pursuant to delayed delivery contracts
("Contracts") providing for payment and delivery on the date stated in the
Prospectus Supplement. Each Contract will be for an amount not less than, and
unless the Company otherwise agrees the aggregate principal amount of Offered
Securities and/or Warrants sold pursuant to Contracts will be not less nor more
than, the respective amounts stated in the Prospectus Supplement. Institutions
with whom Contracts, when authorized, may be made include commercial and savings
banks, insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions, but will in all cases be
subject to the approval of the Company. Contracts will not be subject to any
conditions except that the purchase by an institution of the Offered Securities
and/or Warrants covered by its Contract shall not at the time of delivery be
prohibited under the laws of any jurisdiction in the United States to which such
institution is subject. A commission indicated in the
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<PAGE> 20
Prospectus Supplement will be granted to agents and underwriters soliciting
purchases of Offered Securities pursuant to Contract accepted by the Company.
Agents and underwriters will have no responsibility in respect of the delivery
or performance of Contracts.
The place and time of delivery for the Offered Securities and Warrants in
respect of which this Prospectus is delivered are set forth in the Supplement.
Each underwriter, dealer and agent participating in the distribution of any
Offered Securities which are issuable in bearer form will agree that it will not
offer, sell or deliver, directly or indirectly, Offered Securities in bearer
form in the United States or its possessions or to United States persons (other
than qualifying financial institutions) in connection with the original issuance
of the Offered Securities. See "Limitations on Issuance of Bearer Securities".
The Offered Securities may not be offered or sold directly or indirectly in
Great Britain other than to persons whose ordinary business it is to buy or sell
shares or debentures (except in circumstances which do not constitute an offer
to the public within the meaning of the Companies Act of 1985), and this
Prospectus and any Prospectus Supplement or any other offering material relating
to the Offered Securities may not be distributed in or from Great Britain other
than to persons whose business involves the acquisition and disposal, or the
holding, of securities whether as principal or as agent.
All Offered Securities will be a new issue of securities with no
established trading market. Any underwriters to whom Offered Securities are sold
by the Company for public offering and sale may make a market in such Offered
Securities, but such underwriters will not be obligated to do so and may
discontinue any market making at any time without notice. No assurance can be
given as to the liquidity of the trading market for any Offered Securities.
Certain of the underwriters or agents and their associates may engage in
transactions with and perform services for the Company in the ordinary course of
business.
In connection with the offering made hereby, the Agents may purchase and
sell the Securities in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover short
positions created by the Agents in connection with the offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the Securities, and short
positions created by the Agents involve the sale by the Agents of a greater
aggregate principal amount of Securities than they are required to purchase from
the Company. The Agents also may impose a penalty bid, whereby selling
concessions allowed to broker-dealers in respect of the Securities sold in the
offering may be reclaimed by the Agents if such Securities are repurchased by
the Agents in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Securities,
which may be higher than the price that might otherwise prevail in the open
market; and these activities, if commenced, may be discontinued at any time.
These transactions may be effected in the over-the-counter market or otherwise.
LEGAL OPINIONS
The validity of the Securities offered hereby will be passed upon for the
Company by Milbank, Tweed, Hadley & McCloy, 1 Chase Manhattan Plaza, New York,
New York, and for the agents or underwriters, if any, by Cravath, Swaine &
Moore, Worldwide Plaza, 825 Eighth Avenue, New York, New York.
EXPERTS
The audited financial statements included in the Company's Annual Report on
Form 10-K for the year ended May 31, 1997 incorporated by reference in this
Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
incorporated herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
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<PAGE> 21
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with the issuance and distribution of the
securities covered hereby, other than underwriting commissions, are, subject to
further contingencies, estimated to be as follows:
<TABLE>
<S> <C>
Registration Statement Filing Fee........................... $147,500
Printing.................................................... 100,000
Legal Fees and Expenses..................................... 100,000
Blue Sky Fees and Expenses.................................. 15,000
Accounting Fees............................................. 13,000
Fees of Trustee............................................. 15,000
Fees of Rating Agencies..................................... 100,000
Miscellaneous............................................... 10,000
--------
Total............................................. $500,500
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 29-1104(9) of the District of Columbia Cooperative Association Act
provides that an association such as the Registrant shall have the capacity "to
exercise . . . any power granted to ordinary business corporations, save those
powers inconsistent with this chapter." Section 29-304(16) of the District of
Columbia Business Corporation Act permits any corporation:
"To indemnify any and all of its directors or officers or former
directors or officers or any person who may have served at its request as a
director or officer of another corporation in which it owns shares of
capital stock or of which it is a creditor against expenses actually and
necessarily incurred by them in connection with the defense of any action,
suit, or proceeding in which they, or any of them, are made parties, or a
party, by reason of being or having been directors or officers or a
director or officer of the corporation, or of such other corporation,
except in relation to matters as to which any such director or officer or
former director or officer or person shall be adjudged in such action,
suit, or proceeding to be liable for negligence or misconduct in the
performance of duty. Such indemnification shall not be deemed exclusive of
any other rights to which those indemnified may be entitled, under any
bylaw, agreement, vote of stockholders, or otherwise."
The Board of Directors of CFC has resolved to indemnify all CFC directors,
officers and employees in accordance with the terms of the first sentence of the
above Section. The Bylaws of CFC also provide for indemnification of all CFC
directors, officers and employees as set forth above.
II-1
<PAGE> 22
ITEM 16. LIST OF EXHIBITS
<TABLE>
<S> <C>
1.1 -- Debt Securities and/or Warrants to Purchase Debt Securities
Underwriting Agreement Basic Provisions has been filed as
exhibit 1.1 to Post-Effective Amendment No. 1 to
Registration No. 33-2194 filed December 18, 1987 and is
incorporated herein by reference. An Underwriting Agreement
with respect to each particular offering of Securities
registered hereunder will be filed as an exhibit to a
current report on Form 8-K and incorporated herein by
reference.
1.2 -- Agency Agreement dated April 13, 1995 between the Company
and the agents named therein, relating to distribution of
the Company's Medium-Term Notes, Series C, within the United
States. Incorporated by reference to Exhibit 1.1 to the
current report on Form 8-K filed by the Company on April 13,
1995.
1.3 -- A form of Placement Agency Agreement between the Company and
the agents named therein relating to the distribution, if
any, of the Company's Medium-Term Notes outside the United
States will be filed as an exhibit to a current report on
Form 8-K and incorporated herein by reference prior to the
use of such agreement.
4.1 -- Indenture between the Company and Chemical Bank, as Trustee.
Incorporated by reference to Exhibit 4.1 to Amendment No. 1
to Registration Statement on Form S-3 filed on October 12,
1990 (Registration No. 33-34927).
4.2 -- First Supplemental Indenture between the Company and
Chemical Bank, as Trustee. Incorporated by reference to
Exhibit 4.2 to Registration Statement on Form S-3 filed on
April 5, 1995 (Registration No. 33-58445).
4.3 -- Instrument of Resignation, Appointment and Acceptance among
the Company, Chemical Bank, Harris Trust and Savings Bank
and Harris Trust Company of New York dated as of October 1,
1993. Incorporated by reference to Exhibit 4.3 to
Registration Statement on Form S-3 filed on October 1, 1993
(Registration No. 33-50463).
4.4 -- A form of Fixed Rate Medium-Term Note (for offerings within
the United States) has been filed as Exhibit 4.4 to
Registration Statement No. 33-58445 filed on April 5, 1995
and is incorporated herein by reference.
4.5 -- A form of Floating Rate Medium-Term Note (for offerings
within the United States) has been filed as Exhibit 4.5 to
Registration Statement No. 33-58445 filed on April 5, 1995
and is incorporated herein by reference.
4.6 -- A form of Fixed or Floating Rate Registered Medium-Term Note
(for offerings outside the United States) will be filed as
an exhibit to a current report on Form 8-K and incorporated
herein by reference prior to the issuance of any such Note.
4.7 -- A form of Fixed or Floating Rate Bearer Medium-Term Note
(for offerings outside the United States) will be filed as
an exhibit to a current report on Form 8-K and incorporated
herein by reference prior to the issuance of any such Note.
4.8 -- A form of Temporary Global Bearer Fixed or Floating Rate
Medium-Term Note (for offerings outside the United States)
will be filed as an exhibit to a current report on Form 8-K
and incorporated herein by reference prior to the issuance
of any such Note.
4.9 -- A form of Definitive Global Bearer Fixed or Floating Rate
Medium-Term Note (for offerings outside the United States)
will be filed as an exhibit to a current report on Form 8-K
and incorporated herein by reference prior to the issuance
of any such Note.
4.10 -- A form of Warrant Agreement between the Company and one or
more banking institutions or trust companies as Warrant
Agents will be filed as an exhibit to a current report on
Form 8-K and incorporated herein by reference prior to the
issuance of any Warrants.
5 -- Opinion and consent of Milbank, Tweed, Hadley & McCloy. An
opinion and consent of Milbank, Tweed, Hadley & McCloy
respecting Warrants will be filed as an exhibit to a current
report on Form 8-K and incorporated herein by reference
prior to the issuance of any Warrants.
8 -- Opinion of Milbank, Tweed, Hadley & McCloy. Included as part
of Exhibit 5.
12 -- Schedule of computation of ratio of margins to fixed
charges.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Milbank, Tweed, Hadley & McCloy. Included as part
of Exhibit 5.
24 -- Power of Attorney (included on signature pages).
25 -- Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of Harris Trust and Savings Bank, as Trustee has
been filed as Exhibit 25 to Registration Statement No.
33-58445 filed on April 5, 1995 and is incorporated herein
by reference.
</TABLE>
II-2
<PAGE> 23
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement (other than
as provided in the proviso and instructions to Item 512(a) of Regulation
S-K):
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 15 above or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in such Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-3
<PAGE> 24
THE REGISTRANT AND EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY
AUTHORIZES EACH OF SHELDON C. PETERSEN, STEVEN L. LILLY AND JOHN JAY LIST (THE
"AGENTS") TO FILE ONE OR MORE AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS)
TO THE REGISTRATION STATEMENT WHICH AMENDMENTS MAY MAKE SUCH CHANGES IN THE
REGISTRATION STATEMENT AS SUCH AGENT DEEMS APPROPRIATE AND THE REGISTRANT AND
EACH SUCH PERSON HEREBY APPOINTS EACH SUCH AGENT AS ATTORNEY-IN-FACT TO EXECUTE
IN THE NAME AND ON BEHALF OF THE REGISTRANT AND EACH SUCH PERSON, INDIVIDUALLY
AND IN EACH CAPACITY STATED BELOW, ANY SUCH AMENDMENTS TO THE REGISTRATION
STATEMENT.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT OR AMENDMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE COUNTY OF FAIRFAX, COMMONWEALTH OF VIRGINIA, ON THE 10TH
DAY OF MARCH, 1998.
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 ACT OF 1933, THIS REPORT HAS
BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES
INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ SHELDON C. PETERSEN Governor and Chief
- ------------------------------------------------ Executive Officer
SHELDON C. PETERSEN
/s/ STEVEN L. LILLY Senior Vice President and
- ------------------------------------------------ Chief Financial Officer
STEVEN L. LILLY (Principal Financial Officer)
/s/ ANGELO M. SALERA Controller (Principal
- ------------------------------------------------ Accounting Officer)
ANGELO M. SALERA
/s/ PAUL J. LIESS President and Director March 10, 1998
- ------------------------------------------------
PAUL J. LIESS
/s/ ELDWIN WIXSON Vice President and
- ------------------------------------------------ Director
ELDWIN WIXSON
/s/ BENSON HAM Secretary-Treasurer and Director
- ------------------------------------------------
BENSON HAM
</TABLE>
II-4
<PAGE> 25
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Director
- ------------------------------------------------
JAMES O. BAKER
/s/ ROBERT J. BAUMAN Director
- ------------------------------------------------
ROBERT J. BAUMAN
Director
- ------------------------------------------------
GLENN ENGLISH
/s/ ALDEN J. FLAKOLL Director
- ------------------------------------------------
ALDEN J. FLAKOLL
/s/ NADINE GRIFFIN Director
- ------------------------------------------------
NADINE GRIFFIN
/s/ WADE R. HENSEL Director
- ------------------------------------------------
WADE R. HENSEL
/s/ GEORGE W. KLINE Director
- ------------------------------------------------
GEORGE W. KLINE
/s/ KENNETH KRUEGER Director March 10, 1998
- ------------------------------------------------
KENNETH KRUEGER
/s/ STEVEN R. LOUDER Director
- ------------------------------------------------
STEVEN R. LOUDER
/s/ EUGENE MEIER Director
- ------------------------------------------------
EUGENE MEIER
/s/ R. LAYNE MORRILL Director
- ------------------------------------------------
R. LAYNE MORRILL
/s/ ROBERT J. OCCHI Director
- ------------------------------------------------
ROBERT J. OCCHI
/s/ MICHAEL PIGOTT Director
- ------------------------------------------------
MICHAEL PIGOTT
/s/ R.B. SLOAN Director
- ------------------------------------------------
R.B. SLOAN
/s/ THOMAS W. STEVENSON Director
- ------------------------------------------------
THOMAS W. STEVENSON
/s/ CLIFFORD G. STEWART Director
- ------------------------------------------------
CLIFFORD G. STEWART
/s/ ROBERT STROUP Director
- ------------------------------------------------
ROBERT STROUP
/s/ ROBERT C. WADE Director
- ------------------------------------------------
ROBERT C. WADE
/s/ ROBERT O. WILLIAMS Director
- ------------------------------------------------
ROBERT O. WILLIAMS
</TABLE>
II-5
<PAGE> 26
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBITS PAGE
- ------- -------- ------------
<C> <S> <C> <C>
1.1 -- Debt Securities and/or Warrants to Purchase Debt Securities
Underwriting Agreement Basic Provisions has been filed as
exhibit 1.1 to Post-Effective Amendment No. 1 to
Registration No. 33-2194 filed December 18, 1987 and is
incorporated herein by reference. An Underwriting Agreement
with respect to each particular offering of Securities
registered hereunder will be filed as an exhibit to a
current report on Form 8-K and incorporated herein by
reference. .................................................
1.2 -- Agency Agreement dated April 13, 1995 between the Company
and the agents named therein, relating to distribution of
the Company's Medium-Term Notes, Series C, within the United
States. Incorporated by reference to Exhibit 1.1 to the
current report on Form 8-K filed by the Company on April 13,
1995. ......................................................
1.3 -- A form of Placement Agency Agreement between the Company and
the agents named therein relating to the distribution, if
any, of the Company's Medium-Term Notes outside the United
States will be filed as an exhibit to a current report on
Form 8-K and incorporated herein by reference prior to the
use of such agreement. .....................................
4.1 -- Indenture between the Company and Chemical Bank, as Trustee.
Incorporated by reference to Exhibit 4.1 to Amendment No. 1
to Registration Statement on Form S-3 filed on October 12,
1990 (Registration No. 33-34927). ..........................
4.2 -- First Supplemental Indenture between the Company and
Chemical Bank, as Trustee. Incorporated by reference to
Exhibit 4.2 to Registration Statement on Form S-3 filed on
April 5, 1995 (Registration No. 33-58445). .................
4.3 -- Instrument of Resignation, Appointment and Acceptance among
the Company, Chemical Bank, Harris Trust and Savings Bank
and Harris Trust Company of New York dated as of October 1,
1993. Incorporated by reference to Exhibit 4.3 to
Registration Statement on Form S-3 filed on October 1, 1993
(Registration No. 33-50463). ...............................
4.4 -- A form of Fixed Rate Medium-Term Note (for offerings within
the United States) has been filed as Exhibit 4.4 to
Registration Statement No. 33-58445 filed on April 5, 1995
and is incorporated herein by reference. ...................
4.5 -- A form of Floating Rate Medium-Term Note (for offerings
within the United States) has been filed as Exhibit 4.5 to
Registration Statement No. 33-58445 filed on April 5, 1995
and is incorporated herein by reference. ...................
4.6 -- A form of Fixed or Floating Rate Registered Medium-Term Note
(for offerings outside the United States) will be filed as
an exhibit to a current report on Form 8-K and incorporated
herein by reference prior to the issuance of any such
Note. ......................................................
4.7 -- A form of Fixed or Floating Rate Bearer Medium-Term Note
(for offerings outside the United States) will be filed as
an exhibit to a current report on Form 8-K and incorporated
herein by reference prior to the issuance of any such
Note. ......................................................
4.8 -- A form of Temporary Global Bearer Fixed or Floating Rate
Medium-Term Note (for offerings outside the United States)
will be filed as an exhibit to a current report on Form 8-K
and incorporated herein by reference prior to the issuance
of any such Note. ..........................................
4.9 -- A form of Definitive Global Bearer Fixed or Floating Rate
Medium-Term Note (for offerings outside the United States)
will be filed as an exhibit to a current report on Form 8-K
and incorporated herein by reference prior to the issuance
of any such Note. ..........................................
4.10 -- A form of Warrant Agreement between the Company and one or
more banking institutions or trust companies as Warrant
Agents will be filed as an exhibit to a current report on
Form 8-K and incorporated herein by reference prior to the
issuance of any Warrants. ..................................
5 -- Opinion and consent of Milbank, Tweed, Hadley & McCloy. An
opinion and consent of Milbank, Tweed, Hadley & McCloy
respecting Warrants will be filed as an exhibit to a current
report on Form 8-K and incorporated herein by reference
prior to the issuance of any Warrants. .....................
8 -- Opinion of Milbank, Tweed, Hadley & McCloy. Included as part
of Exhibit 5. ..............................................
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBITS PAGE
- ------- -------- ------------
<C> <S> <C> <C>
12 -- Schedule of computation of ratio of margins to fixed
charges. ...................................................
23.1 -- Consent of Arthur Andersen LLP. ............................
23.2 -- Consent of Milbank, Tweed, Hadley & McCloy. Included as part
of Exhibit 5. ..............................................
24 -- Power of Attorney (included on signature pages). ...........
25 -- Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of Harris Trust and Savings Bank, as Trustee has
been filed as Exhibit 25 to Registration Statement No.
33-58445 filed on April 5, 1995 and is incorporated herein
by reference. ..............................................
</TABLE>
<PAGE> 1
EXHIBIT 5
March , 1998
National Rural Utilities Cooperative
Finance Corporation
2201 Cooperative Way
Herndon, Virginia 20171-3025
Dear Sirs:
We have acted as counsel for National Rural Utilities Cooperative Finance
Corporation (the "Company") in connection with the proposed public offering from
time to time, directly to purchasers or through agents or underwriters to be
designated from time to time, of debt securities (the "Debt Securities") and/or
Warrants to Purchase Debt Securities of the Company, such Debt Securities to be
issued under an Indenture dated as of December 15, 1987, as supplemented by a
First Supplemental Indenture dated as of October 1, 1990 (as so supplemented,
the "Indenture"), between the Company and Harris Trust and Savings Bank, as
successor Trustee, as contemplated in the Company's Registration Statement filed
on Form S-3 on the date hereof pursuant to Rule 415 under the Securities Act of
1933 (the "Registration Statement"). We submit this opinion for use as Exhibits
5 and 8 to the Registration Statement and hereby consent to the use of this
opinion in the Registration Statement and to the use of our name under the
caption "Legal Opinions" in the Prospectus.
We have investigated the corporate status of the Company and have examined
the corporate proceedings authorizing the creation and issuance of the Debt
Securities.
Based upon the foregoing, and having regard to legal considerations that we
deem relevant, we are of the opinion that the Debt Securities, when duly
authorized and executed by the Company and authenticated by or on behalf of the
Trustee pursuant to the terms of the Indenture, and issued for value in
accordance with the terms of the Indenture and applicable resolutions of the
Board of Directors of the Company, will be the validly issued, binding
obligations of the Company.
In our opinion, the discussions under the caption "United States Taxation"
in the Prospectus included as part of the Registration Statement are correct in
all material respects.
Very truly yours,
Milbank, Tweed, Hadley & McCloy
<PAGE> 1
EXHIBIT 12
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
COMPUTATION OF RATIO OF MARGINS TO FIXED CHARGES
(DOLLAR AMOUNTS IN THOUSANDS)
FOR THE PERIODS ENDED
<TABLE>
<CAPTION>
NOVEMBER 30, MAY 31,
------------------- ----------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net margins before
extraordinary loss........... $ 29,742 $ 26,423 $ 54,736 $ 50,621 $ 45,212 $ 33,188 $ 41,648
Add: Fixed charges............. 258,406 229,749 475,729 426,079 361,338 263,230 265,412
-------- -------- -------- -------- -------- -------- --------
Margins available for fixed
charges...................... $288,148 $256,172 $530,465 $476,700 $406,550 $296,418 $307,060
======== ======== ======== ======== ======== ======== ========
Fixed charges:
Interest on all debt
(including amortization of
discount and issuance
costs)..................... $258,406 $229,749 $475,729 $426,079 $361,338 $263,230 $265,412
-------- -------- -------- -------- -------- -------- --------
Total fixed charges... $258,406 $229,749 $475,729 $426,079 $361,338 $263,230 $265,412
======== ======== ======== ======== ======== ======== ========
Ratio of margins to fixed
charges...................... 1.12 1.12 1.12 1.12 1.13 1.13 1.16
======== ======== ======== ======== ======== ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement of our report dated July 21, 1997
included in National Rural Utilities Cooperative Finance Corporation's Form 10-K
for the year ended May 31, 1997 and to all references to our Firm included in
this Registration Statement.
ARTHUR ANDERSEN LLP
Washington, D.C.
March 10, 1998
