<PAGE> 1
REGISTRATION NO. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DISTRICT OF COLUMBIA 52-089-1669
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
2201 COOPERATIVE WAY
HERNDON, VIRGINIA 22071
(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 22071
(703) 709-6700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
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
</TABLE>
------------------------
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 OF 1933, 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 OF 1933, 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
<TABLE>
<CAPTION>
============================================================================================================
TITLE OF EACH CLASS OF SECURITIES TO BE PROPOSED MAXIMUM AGGREGATE
REGISTERED OFFERING PRICE* AMOUNT OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Debt Securities............................ $250,000,000 $73,750
============================================================================================================
</TABLE>
* Estimated solely for the purpose 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 THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
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 JURISDICTION IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
JURISDICTION.
PRELIMINARY, SUBJECT TO COMPLETION, DATED MAY 28, 1998
PROSPECTUS
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
DEBT SECURITIES
------------------------
National Rural Utilities Cooperative Finance Corporation ("CFC" or the
"Company") intends to issue in one or more series from time to time up to
$300,000,000 aggregate principal amount of debt securities (the "Debt
Securities"). The Debt Securities of each series will be offered to the public
on terms determined by market conditions at the time of sale. The Company may
sell Debt Securities (i) directly to purchasers, (ii) through agents designated
from time to time or (iii) through underwriters or a group of underwriters which
may include Lehman Brothers Inc.
The specific designation, aggregate principal amount, authorized
denominations, purchase price, maturity, premium, if any, 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 Debt Securities
in respect of which this Prospectus is being delivered ("Offered Debt
Securities") are set forth in the accompanying Prospectus Supplement or in a
supplement thereto relating to the specific Offered Debt Securities (together,
the "Prospectus Supplement"), together with the terms of offering of the Offered
Debt Securities.
The Prospectus Supplement relating to the Offered Debt Securities will also
contain information concerning certain U.S. federal income tax considerations,
if applicable to the Offered Debt Securities.
------------------------
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.
------------------------
This Prospectus may not be used to consummate sales of Debt Securities
unless accompanied by a Prospectus Supplement.
------------------------
The date of this Prospectus is June , 1998
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF SUCH DEBT SECURITIES,
INCLUDING PURCHASES OF DEBT SECURITIES TO COVER SOME OR ALL OF A SHORT POSITION
IN THE DEBT SECURITIES MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF
PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF DISTRIBUTION."
------------------------
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.
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 Reports on Form 10-Q for the quarters ended
August 31, 1997, November 30, 1997 and February 28, 1998.
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, February
9, 1998 and April 4, 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 Bonds, 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. Telephone requests may be
directed to (703) 709-6700.
---------------------
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.
2
<PAGE> 4
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 April 1969. The principal purpose
of CFC is to provide its members with a source of financing to supplement the
loan programs of the Rural Utilities Service ("RUS") (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
certain 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 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 30 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
3
<PAGE> 5
for these same ten largest borrowers totaled $1,261.7 million, which represented
59.3% of CFC's total guarantees outstanding, including guarantees of the maximum
amounts of lease obligations at such date. On that date, no member had 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 (See "THE RURAL ELECTRIC SYSTEMS--Power Supply
Systems"). At May 31, 1997, loans outstanding to Deseret (excluding loans
guaranteed by RUS) accounted for 4.1% of total loans outstanding. Guarantees
outstanding for Deseret accounted for 13.7% of total guarantees outstanding.
Total loans and guarantees outstanding to and for Deseret equalled 38.1% of
total Members' Equity, Members' Subordinated Certificates and the allowance for
loan and guarantee losses.
4
<PAGE> 6
Set forth below is a table showing loans outstanding to borrowers as of the
dates shown, and the weighted average interest rates thereon and loans committed
but unadvanced to borrowers at May 31, 1997.
<TABLE>
<CAPTION>
LOANS COMMITTED
BUT UNADVANCED AT
LOANS OUTSTANDING AND WEIGHTED AVERAGE INTEREST MAY 31, 1997
RATES THEREON AT MAY 31, (A) (B)
----------------------------------------------------------------------- -----------------
1997 1996 1995
---- ---- ----
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Long-term fixed rate secured
loans(C):
Distribution Systems(D)........... $2,503,890 7.20% $2,380,587 7.29% $1,645,551 7.68% $ 46,657
Power Supply Systems(D)........... 239,381 7.54% 247,556 7.71% 253,208 7.68% 1,214
Telecommunication Organizations... 148,566 8.53% 134,497 8.66% 141,144 8.98% --
Service Organizations(D)(E)....... 82,634 8.62% 77,205 8.03% 81,521 9.27% 3,170
Associate Members................. 1,512 10.25% 1,542 10.25% 1,569 10.25% --
---------- ---------- ---------- ----------
Total long-term fixed rate
secured loans............. 2,975,983 7.33% 2,841,387 7.41% 2,122,993 7.83% 51,041
---------- ---------- ---------- ----------
Long-term variable rate secured
loans(F):
Distribution Systems.............. 3,209,472 6.55% 2,717,494 6.45% 2,553,590 6.50% 1,185,303
Power Supply Systems.............. 281,368 6.55% 202,249 6.45% 191,967 6.50% 798,984
Telecommunication Organizations... 875,135 6.65% 764,911 6.55% 704,427 6.64% 237,170
Service Organizations(E).......... 54,802 6.55% 46,376 6.45% 53,332 6.50% 86,229
Associate Members................. 48,186 6.29% 47,541 6.19% 42,561 6.20% 13,666
---------- ---------- ---------- ----------
Total long-term variable
rate secured loans........ 4,468,963 6.57% 3,778,571 6.47% 3,545,877 6.52% 2,321,352
---------- ---------- ---------- ----------
Refinancing variable rate loans
guaranteed by RUS:
Power Supply Systems.............. 137,984 6.49% 416,637 6.47% 429,129 7.27% --
---------- ---------- ---------- ----------
Intermediate-term secured loans:
Distribution Systems.............. 12,530 6.70% 4,831 6.60% 4,176 6.85% 2,609
Power Supply Systems.............. 198,985 6.70% 53,614 6.60% 40,237 6.85% 196,385
Service Organizations............. 14,592 6.70% 27,652 6.60% 11,429 6.85% 2,884
---------- ---------- ---------- ----------
Total intermediate-term
secured loans............. 226,107 6.70% 86,097 6.60% 55,842 6.85% 201,878
---------- ---------- ---------- ----------
Intermediate-term unsecured loans:
Distribution Systems.............. 72,860 6.70% 16,019 6.45% 11,392 6.50% 37,687
Power Supply Systems.............. 43,129 6.70% 28,957 6.45% 47,443 6.50% 124,405
Telecommunication Organizations... 13,683 7.25% 12,048 6.80% 3,255 7.54% 9,387
---------- ---------- ---------- ----------
Total intermediate-term
unsecured loans........... 129,672 6.76% 57,024 6.52% 62,090 6.56% 171,479
---------- ---------- ---------- ----------
Short-term loans(G):
Distribution Systems.............. 473,639 6.70% 409,664 6.60% 445,962 6.85% 2,436,785
Power Supply Systems.............. 25,051 6.70% 25,763 6.60% 10,267 6.85% 913,371
Telecommunication Organizations... 61,779 7.25% 63,813 7.15% 34,637 7.60% 478,807
Service Organizations............. 27,420 6.70% 23,467 6.60% 25,653 6.85% 93,346
Associate Members................. 13,417 6.70% 9,240 6.60% 7,651 6.85% 19,308
---------- ---------- ---------- ----------
Total short-term loans...... 601,306 6.76% 531,947 6.67% 524,170 6.90% 3,941,617
---------- ---------- ---------- ----------
Nonperforming loans(H):
Distribution Systems.............. 1,705 7.21% 1,739 7.20% 1,830 7.21% --
Power Supply Systems.............. 7,723 6.64% 23,555 6.48% 25,811 6.57% --
---------- ---------- ---------- ----------
Total nonperforming loans... 9,428 6.75% 25,294 6.53% 27,641 6.61% --
---------- ---------- ---------- ----------
Restructured loans(I):
Distribution Systems.............. -- -- 2,576 18.37% 2,654 18.37% --
Power Supply Systems.............. 361,961 8.32% 205,074 9.13% 180,521 9.01% --
Service Organizations............. -- -- 1,711 6.45% 1,803 6.50% --
---------- ---------- ---------- ----------
Total restructured loans.... 361,961 8.32% 209,361 9.22% 184,978 9.12% --
---------- ---------- ---------- ----------
Total loans................. 8,911,404 6.81% 7,946,318 6.85% 6,952,720 7.01% 6,687,367
---------- ---------- ---------- ----------
Less: Allowance for loan and
guarantee losses.................. 233,208 218,047 205,596 --
---------- ---------- ---------- ----------
Net loans................... $8,678,196 $7,728,271 $6,747,124 $6,687,367
========== ========== ========== ==========
</TABLE>
- ---------------
(A) The interest rates in effect at May 1, 1998, for loans to electric members
were 6.95% for long-term loans with a seven-year fixed rate term, 6.55% on
variable rate long-term loans and 6.70% on intermediate- and short-term
loans. The rates in effect at May 1, 1998, on loans to telecommunication
organizations were 7.30% for long-term loans with a seven-year fixed rate,
6.65% on long-term variable rate loans, 6.90% on intermediate-term loans and
7.25% on short-term loans. The rates in effect at May 1, 1998, on loans to
associate members were 7.20% for long-term loans with a seven-year fixed
rate term, 6.55% on long-term variable rate loans and 6.70% on short-term
loans.
(B) Unadvanced commitments include loans approved by CFC for which loan
contracts have not yet been executed or for which loan contracts have been
executed, but funds have not been advanced. Since commitments may expire
without being fully drawn upon, the total amounts reported as commitments
do not necessarily represent future cash requirements. Collateral and
5
<PAGE> 7
security requirements for commitments are identical to those for advanced
loans. Long-term unadvanced loan commitments that do not have an interest
rate associated with the commitment have been listed under the variable
rate. Rates, fixed or variable, will be set at the time of advance, on the
amount of the advance.
(C) Includes $38.4 million, $198.3 million and $30.4 million of unsecured loans
at May 31, 1997, 1996 and 1995.
(D) During calendar year 1998, $172.1 million of such outstanding fixed rate
loans, which currently have a weighted average interest rate of 8.17% per
annum, will become subject to rate adjustment. During the first quarter of
calendar year 1997, long-term fixed rate loans totaling $41.3 million had
their interest rates adjusted. These loans will be eligible to readjust
their interest rate again during the first quarter of calendar year 1998
to the lowest long-term fixed rate offered during 1997 for the term
selected. During calendar year 1997, the lowest seven-year long-term fixed
rate was 6.95%.
(E) CFC had loans outstanding to NCSC in each of the periods shown. Long-term
fixed rate loans outstanding to NCSC as of May 31, 1997, 1996 and 1995,
were $29.2 million, $31.8 million and $48.5 million, respectively. In
addition, as of May 31, 1997, 1996 and 1995, CFC had unadvanced long-term
loan commitments to NCSC in the amounts of $15.4 million, $15.4 million and
$12.3 million, respectively.
(F) Includes $112.4 million, $84.6 million and $41.4 million of unsecured loans
at May 31, 1997, 1996 and 1995.
(G) Includes $99.1 million, $92.7 million and $30.9 million of secured
loans at May 31, 1997, 1996 and 1995.
(H) The rates on nonperforming loans are the weighted average of the
stated rates on such loans as of the dates shown and do not necessarily
relate to the interest recognized by CFC from such loans.
(I) The rates on restructured loans are the weighted average of the effective
rates (based on the present value of scheduled future cashflows) as of the
dates shown and do not necessarily relate to the interest recognized by CFC
on such loans.
Set forth below is a table showing CFC's guarantees as of the dates
indicated. Substantially all these guarantees have been given on behalf of Power
Supply members.
CFC MEMBER GUARANTEES
<TABLE>
<CAPTION>
MAY 31,
------------------------------------
1997 1996 1995
---- ---- ----
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Long-term tax-exempt bonds.............................. $1,190,925* $1,317,655* $1,496,930*
Debt portions of leveraged lease transactions........... 418,916 432,516 568,662
Indemnifications of tax benefit transfers............... 338,264 363,702 389,755
Other guarantees........................................ 132,566 135,567 119,575
---------- ---------- ----------
Total.................................... $2,080,671 $2,249,440 $2,574,922
========== ========== ==========
</TABLE>
- ---------------
* Includes $1,043.2 million, $1,168.9 million and $1,200.1 million at May 31,
1997, 1996 and 1995, respectively, of adjustable rate pollution control bonds
which can be tendered for purchase at specified times at the option of the
holders (in the case of $260.7 million, $370.1 million and $376.7 million of
such bonds outstanding at May 31, 1997, 1996 and 1995, respectively, at any
time on seven days' notice, in the case of $242.3 million, $248.8 million and
$254.5 million outstanding at May 31, 1997, 1996 and 1995, respectively, at
any time on a minimum of one day's notice and in the case of the remainder on
a five-week or semiannual basis). CFC has agreed to purchase any such bonds
that cannot be remarketed. Since the inception of the program CFC has not been
required to purchase any such bonds.
6
<PAGE> 8
Set forth below are the weighted average interest rates earned by CFC
(recognized in the case of non-performing and restructured loans) on all loans
outstanding for the fiscal year ended May 31 of the year indicated.
INTEREST RATES EARNED ON LOANS
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Long-term fixed rate......................... 7.65% 7.92% 8.63%
Long-term variable rate...................... 6.25% 6.30% 5.90%
Telecommunication organizations.............. 6.73% 6.86% 6.70%
Refinancing loans guaranteed by RUS.......... 6.36% 6.75% 6.07%
Intermediate-term............................ 7.08% 6.57% 6.19%
Short-term................................... 6.40% 6.49% 6.29%
Associate members............................ 6.42% 6.46% 5.40%
Non-performing............................... 0.00% 0.25% 1.56%
Restructured................................. 0.56% 1.49% 1.92%
All loans..................... 6.58% 6.77% 6.72%
</TABLE>
Borrowed funds for CFC's programs are derived primarily from the sale to
its members of its Subordinated Certificates, the sale of Collateral Trust Bonds
and Medium-Term Notes and the sale of its commercial paper and bank bid notes.
Set forth below is a table showing CFC's outstanding borrowings and the interest
rates thereon as of the dates shown.
CFC BORROWINGS
<TABLE>
<CAPTION>
AMOUNTS OUTSTANDING AT MAY 31,
---------------------------------------------------------------------
1997 1996 1995
---- ---- ----
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Long- and intermediate-term debt:(A)
Floating Rate Series 1994A, Due 1996(2)...... $ -- $ 150,000 $ 150,000
9 1/2% Series T Bonds, Due 1997(1)........... -- 150,000 150,000
8 1/2% Series U Bonds, Due 1998(B)(1)........ 149,800 149,800 149,800
Variable Rate Collateral Trust Bonds, Due
1999(2).................................... 150,000 -- --
6.45% Collateral Trust Bonds, Due 2001(2).... 100,000 100,000 --
6.75% Collateral Trust Bonds, Due 2001(2).... 100,000 -- --
6.50% Collateral Trust Bonds, Due 2002(2).... 100,000 100,000 --
5.95% Collateral Trust Bonds, Due 2003(2).... 100,000 100,000 --
6.65% Collateral Trust Bonds, Due 2005(2).... 50,000 50,000 --
7.30% Collateral Trust Bonds, Due 2006(2).... 100,000 -- --
7.20% Collateral Trust Bonds, Due 2015(2).... 50,000 50,000 --
Floating Rate Series E-2 Bonds, Due
2010(1).................................... 2,142 2,178 2,189
9% Series O Bonds, Due 2016(C)(1)............ -- -- 82,289
9% Series V Bonds, Due 2021(1)............... 150,000 150,000 150,000
7.35% Collateral Trust Bonds, Due 2026(2).... 100,000 -- --
Medium-Term Notes and weighted
average interest rates..................... 615,396 (6.30%) 604,252 (6.68%) 573,637 (7.23%)
---------- ---------- ----------
Total long- and intermediate-term
debt and weighted average interest
rates(D)(E)............................ 1,767,338 (6.82%) 1,606,230 (7.20%) 1,257,915 (7.90%)
Quarterly Income Capital Securities.......... 125,000 (8.00%) -- --
Members' Subordinated Certificates,
including advance payments and
weighted average interest rates(F)......... 1,069,158 (4.29%) 1,073,924 (4.29%) 1,096,466 (4.36%)
---------- ---------- ----------
Total long- and intermediate-term
debt and Members' Subordinated
Certificates and weighted average
interest rates......................... $2,961,496 (5.96%) $2,680,154 (6.03%) $2,354,381 (6.25%)
========== ========== ==========
Short-term debt(G) and weighted
average interest rates(H).................... $5,607,372 (5.64%) $4,901,570 (5.41)% $4,242,570 (6.11%)
========== ========== ==========
Total debt and weighted average
interest rates at May 31..................... $8,568,868 (5.75%) $7,581,724 (5.63%) $6,596,951 (6.16%)
========== ========== ==========
</TABLE>
- ---------------
(1) Collateral Trust Bonds issued under the 1972 Indenture.
(2) Collateral Trust Bonds issued under the 1994 Indenture.
7
<PAGE> 9
(A) Net of $0.2 million, $0.2 million and $1.1 million principal amount of bonds
held in Treasury at May 31, 1997, 1996 and 1995, respectively, all of which
were purchased in connection with CFC's deferred compensation program.
(B) Collateral Trust Bonds maturing during fiscal year 1998 have been
reclassified to short-term debt in the balance sheet.
(C) The Series O Collateral Trust Bonds were called on March 16, 1996.
(D) Excludes $2,250.0 million, $2,730.0 million and $2,430.0 million of
Commercial Paper classified as long-term debt as of May 31, 1997, 1996 and
1995, respectively.
(E) Total long- and intermediate-term debt at May 31, 1997, includes $368.7
million which will be due or is expected to be redeemed during fiscal year
1998.
(F) Excluding $103.5 million, $102.5 million and $114.1 million of Debt Service
Reserve Certificates, and $39.8 million, $31.4 million and $24.3 million of
subscribed but unissued Subordinated Certificates, as of May 31, 1997, 1996
and 1995, respectively, since such funds are not generally available for
investing in earning assets.
(G) Net of discount; includes $2,250.0 million, $2,730.0 million and $2,430.0
million of Commercial Paper classified as long-term debt as of May 31, 1997,
1996 and 1995, respectively. Includes $115.0 million, $183.5 million and
$350.0 million of Bank Bid Notes at May 31, 1997, 1996 and 1995,
respectively.
(H) Average interest rates are weighted on the basis of amounts of outstanding
borrowings without adjustment for bank credit compensation arrangements for
short-term borrowings and without adjustment for Collateral Trust Bonds due
within one year and reclassified as notes payable.
Set forth below are the weighted average interest costs incurred by CFC on
its short-term borrowings (Commercial Paper and Bank Bid Notes) and long-term
borrowings (Collateral Trust Bonds, medium-term notes and interest rate swaps)
for the periods shown.
INTEREST COSTS ON CFC BORROWINGS
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Short-term borrowings............................... 5.54% 5.83% 5.59%
Long-term borrowings................................ 7.36% 7.99% 8.15%
All borrowings................................. 5.99% 6.33% 6.15%
</TABLE>
Due to its non-profit character, CFC does not seek to maximize its
operating margins, but rather to achieve margins only to the extent considered
by CFC to be consistent with sound financial practice. CFC is exempt from the
payment of Federal income taxes.
USE OF PROCEEDS
Except as may be otherwise provided in a Prospectus Supplement, the net
proceeds from the sale of the Bonds 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.
8
<PAGE> 10
SUMMARY FINANCIAL INFORMATION
The following is a summary of selected financial data for each of the five
years ended May 31, 1997.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
For the year ended May 31:
Operating income................. $ 564,439 $ 505,073 $ 440,109 $ 324,682 $ 336,387
========== ========== ========== ========== ==========
Operating margin................. $ 51,530 $ 46,857 $ 41,803 $ 29,159 $ 38,352
Nonoperating income.............. 3,206 3,764 3,409 4,029 3,296
Extraordinary loss(A)............ -- (1,580) -- -- (3,161)
---------- ---------- ---------- ---------- ----------
Net margins...................... $ 54,736 $ 49,041 $ 45,212 $ 33,188 $ 38,487
========== ========== ========== ========== ==========
Fixed charge coverage ratio(A)... 1.12 1.12 1.13 1.13 1.16
========== ========== ========== ========== ==========
As of May 31:
Assets........................... $9,057,495 $8,054,089 $7,080,789 $6,224,296 $5,464,144
========== ========== ========== ========== ==========
Long-term debt(B)................ $3,596,231 $3,682,421 $3,423,031 $2,841,220 $3,095,488
========== ========== ========== ========== ==========
Quarterly Income Capital
Securities..................... $ 125,000 $ -- $ -- $ -- $ --
========== ========== ========== ========== ==========
Members' Subordinated
Certificates................... $1,212,486 $1,207,684 $1,234,715 $1,222,858 $1,215,547
========== ========== ========== ========== ==========
Members' Equity.................. $ 271,594 $ 269,641 $ 270,221 $ 260,968 $ 258,299
========== ========== ========== ========== ==========
Leverage ratio(C)................ 5.84 5.69 5.13 4.63 4.41
========== ========== ========== ========== ==========
Debt to equity ratio(D).......... 3.97 3.63 3.01 2.52 2.24
========== ========== ========== ========== ==========
</TABLE>
- ---------------
(A) Extraordinary loss for the years ended May 31, 1996 and 1993, represents
premiums in connection with the prepayment of Collateral Trust Bonds.
Margins used to compute the fixed charge coverage ratio represent net
margins before extraordinary loss plus fixed charges. The fixed charges used
in the computation of the fixed charge coverage ratio consist of interest
and amortization of bond discount and bond issuance expenses.
(B) Includes commercial paper reclassified as long-term debt and excludes $268.7
million, $351.5 million, $262.7 million, $200.8 million and $286.8 million
in long-term debt that comes due, matures and/or will be redeemed early
during fiscal years 1998, 1997, 1996, 1995 and 1994, respectively.
(C) In accordance with CFC's revolving credit agreements, the leverage ratio is
calculated by dividing debt and guarantees outstanding, excluding Quarterly
Income Capital Securities and debt used to fund loans guaranteed by the U.S.
Government, by the total of Quarterly Income Capital Securities, Members'
Subordinated Certificates and Members' Equity.
(D) The debt to equity ratio is calculated by dividing debt outstanding,
excluding Quarterly Income Capital Securities and debt used to fund loans
guaranteed by RUS, by the total of Quarterly Income Capital Securities,
members' subordinated certificates, members' equity and the loan and
guarantee loss allowance.
CFC has had outstanding guarantees for its members' indebtedness in each of
the fiscal years shown above. Members' interest expense on such indebtedness was
approximately $90.8 million for the year ended May 31, 1997.
The Company does not have outstanding any common stock and does not pay
dividends. Under current policies, CFC retires Patronage Capital Certificates,
which represent annual allocations of CFC's net margins, 70% during the next
fiscal year, and expects to retire the remaining 30% after 15 years with due
regard for CFC's financial condition.
9
<PAGE> 11
CAPITALIZATION
The following table shows the capitalization of the Company as of February
28, 1998.
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
SENIOR DEBT:
Short-term Debt(A)........................................ $ 3,519,469
Long-term Debt(A)......................................... 4,885,406
----------
Total Senior Debt(B).............................. 8,404,875
----------
SUBORDINATED DEBT AND MEMBERS' EQUITY:
Deferrable Subordinated Debt(C)........................... 200,000
Members' Subordinated Certificates(D)..................... 1,228,981
Members' Equity(E)........................................ 265,526
----------
Total Capitalization.............................. $10,099,382
==========
</TABLE>
- ------------
(A) Short-term indebtedness is used to fund the Company's short-, intermediate-
and long-term variable rate loans, as well as its long-term fixed rate loans
on a temporary basis. It generally consists of commercial paper with
maturities of up to nine months. To support its own commercial paper and its
obligations with respect to tax-exempt debt issued on behalf of members, the
Company had at February 28, 1998, bank revolving credit agreements providing
for borrowings aggregating up to $5,197.5 million. The Company's ability to
borrow under the revolving credit agreements is subject to continued
satisfaction of certain conditions, including the maintenance of Members'
Equity and Members' Subordinated Certificates of at least $1,349.9 million
increased each fiscal year after 1994 by 90% of net margins not distributed
to members and an average fixed charge coverage ratio over the six most
recent fiscal quarters of at least 1.025. The revolving credit agreements
also require a fixed charge coverage ratio of 1.05 for the preceding fiscal
year as a condition to the retirement of patronage capital and prohibit the
Company from pledging collateral in excess of 150% of the principal amount
of collateral trust bonds outstanding. Commercial Paper in the amount of
$2,345.0 million, which is supported by a five-year revolving credit
agreement, is shown as long-term debt. Long-term debt also includes the
Company's outstanding Collateral Trust Bonds and Medium-Term Notes.
(B) At February 28, 1998, the Company had outstanding guarantees of tax-exempt
securities issued on behalf of members in the aggregate amount of
$1,153.5 million. Guaranteed tax-exempt securities include $1,022.1 million
of long-term adjustable or floating/fixed rate pollution control bonds
which are required to be remarketed at the option of the holders. The
Company has agreed to purchase any such bonds that cannot be remarketed. At
February 28, 1998, the Company had guaranteed its members' obligations in
connection with certain lease transactions and other debt in the amount of
$891.5 million.
(C) As of February 28, 1998, CFC had issued a total of $200.0 million of
Deferrable Subordinated Debt in the form of Quarterly Income Capital
Securities ("QUICS"). QUICS are subordinate and junior in right of payment
to senior indebtedness. CFC has the right at any time and from time to time
during the term of the QUICS to defer the payment of interest for up to 20
consecutive quarters.
(D) Subordinated Certificates are subordinated obligations purchased by members
as a condition of membership and in connection with the Company's extension
of long-term credit to them. Those issued as a condition of membership
($644.8 million at February 28, 1998) generally mature 100 years from
issuance and bear interest at 5% per annum. The others either mature 46 to
50 years from issuance, or mature at the same time as, or amortize
proportionately with, the credit extended, and either are non-interest
bearing or bear interest at varying rates.
(E) The Company allocates its net margins among its members in proportion to
interest earned by the Company from such members. The Company intends to
return the amounts so allocated to its members 70% in the following year and
the remaining 30% after 15 years with due regard for the Company's financial
condition. The unretired allocations for fiscal years 1988-1993 are being
retired over the 15-year period from 1994 through 2008. The current policy
of RTFC is to retire 70% of current year's margins with 8 1/2 months of the
end of the fiscal year with the remainder to be retired at the discretion of
RTFC's Board of Directors. The current policy of GFC is to retire 100% of
current year's margins shortly after the end of the fiscal year.
10
<PAGE> 12
THE RURAL ELECTRIC AND TELEPHONE SYSTEMS
GENERAL
The majority of the systems reporting to RUS at December 31, 1996, are
members of CFC and information regarding these systems is available in the
Annual Statistical Reports of RUS ("RUS Reports"), therefore commentary in this
section is based on information about the systems generally, rather than CFC
members alone (see Note on page 16). However, the Composite Financial Statements
on pages 17 to 19 relate only to CFC Utility Members.
Although generally stable retail rates have been the historical pattern of
RUS borrowers, in the 1970's and early 1980's rising costs of fuel, material,
labor, capital and wholesale power required rate increases by most of the
distribution systems. Increases in costs have also resulted in rate increases by
the power supply systems. Virtually all power contracts between power supply
systems and their member distribution systems provide for rate increases to
cover increased costs of supplying power, although in certain cases such
increases must be approved by regulatory agencies. During the last five years,
costs and rates have generally been stable.
THE RUS PROGRAM
Since the enactment of the Rural Electrification Act of 1936 (the "Act"),
RUS has financed the construction of electric generating plants, transmission
facilities and distribution systems in order to provide electricity to persons
in rural areas who were without central station service. Principally through the
organization of systems under the RUS loan program in 46 states and U.S.
territories, the percentage of farms and residences in rural areas of the United
States receiving central station electric service increased from 11% in 1934 to
almost 99% currently. Rural electric systems serve 11% of all consumers of
electricity in the United States and its territories. They account for
approximately 8% of total sales of electricity and about 7% of energy generation
and generating capacity.
In 1949, the Act was amended to allow RUS to lend for the purpose of
furnishing and improving rural telephone service. At December 31, 1996, 833 of
RUS's 876 telephone borrowers provided service to 5.4 million subscribers
throughout the United States and its territories (reporting information was not
available for the remaining 43 borrowers).
For fiscal year 1997, both the House and Senate Agriculture Appropriation
Committees have approved RUS electric insured loan levels of $524 million, of
which $69 million would be at the 5% rate and $455 million would be at municipal
rates. An additional $300 million would be available in loan guarantees.
Proposed electric funding levels for fiscal year 1998 are $525 million for loans
and $300 million for guarantees. These levels must be approved by both Congress
and the President. The loan levels may be further adjusted based on the loan
subsidies appropriated and the gap between the rate on these loans and the
government cost of money on October 1, 1997.
The Act provides for RUS to make insured loans and to provide other forms
of financial assistance to borrowers. RUS is authorized to make direct loans, at
below market rates, to systems which are eligible to borrow from it. RUS is also
authorized to guarantee loans which have been used mainly to provide financing
for construction of Bulk Power Supply Projects. Guaranteed loans bear interest
at a rate agreed upon by the borrower and the lender (which generally has been
the FFB). For telephone borrowers, RUS also provides financing through the Rural
Telephone Bank ("RTB"). The RTB is a government corporation providing financing
at rates reflecting its cost of capital. RUS exercises a high degree of
financial and technical supervision over borrowers' operations. Its loans and
guarantees are generally secured by a mortgage on substantially all the system's
property and revenues.
Legislation enacted in 1994 allows RUS electric borrowers to prepay their
loans to RUS at a discount based on the government's cost of funds at the time
of prepayment. If a borrower chooses to prepay its notes, it becomes ineligible
for future RUS loans for a period of ten years, but remains eligible for RUS
loan guarantees. As of February 28, 1998, 129 borrowers had either fully prepaid
or partially prepaid their RUS notes under these provisions, in the total amount
of $2,269.9 million. A total of 100 of these borrowers have selected CFC to
refinance a total of $2,086.9 million of this amount.
11
<PAGE> 13
DISTRIBUTION SYSTEMS
Distribution systems are local utilities distributing electric power,
generally purchased from wholesale sources, to consumers in their service areas.
Virtually all are locally-managed cooperative, non-profit associations, and most
have been in operation for at least 40 years. At December 31, 1996, the
approximate number of consumers served by RUS electric borrowers was 13.2
million, representing an estimated 31.9 million ultimate users. Aggregate
operating revenues of the distribution systems from sales of electric energy for
the year ended December 31, 1996 totaled $15.0 billion, of which 64% was derived
from the sales of electricity to residential consumers (farm and non-farm), 29%
from such sales to commercial and industrial consumers and the remainder from
sales to various other consumers.
The composite TIER of CFC member distribution systems increased from 2.42
in 1995 to 2.44 in 1996. The composite DSC ratio increased from 2.40 in 1995 to
2.42 in 1996. The composite MDSC ratio increased from 2.28 in 1995 to 2.30 in
1996. Composite equity as a percent of total assets for member distribution
systems increased from 41.7% at December 31, 1995 to 42.5% at December 31, 1996.
TIER, DSC and MDSC are defined in notes (3), (4) and (5) on page 17 hereof.
Wholesale power supply contracts ordinarily guarantee neither an
uninterrupted supply nor a constant cost of power. Contracts with RUS-financed
power supply systems (which generally require the distribution system to
purchase all its power requirements from the power supply system) provide for
rate increases to pass along increases in sellers' costs (subject in certain
cases to regulatory approval). The wholesale power contracts permit the power
supply system, subject to approval by RUS, and, in certain circumstances,
regulatory agencies, to establish rates to its members so as to produce revenues
sufficient, with revenues from all other sources, to meet the costs of operation
and maintenance (including, without limitation, replacements, insurance, taxes
and administrative and general overhead expenses) of all generating,
transmission and related facilities, to pay the cost of any power and energy
purchased for resale, to pay the costs of generation and transmission, to make
all payments on account of all indebtedness and leases of the power supply
system and to provide for the establishment and maintenance of reasonable
reserves. The rates under the wholesale power contracts are required to be
reviewed by the Board of Directors of the power supply system at least annually.
Power contracts with investor-owned utilities and power supply systems
which do not borrow from RUS generally have rates subject to regulation by the
Federal Energy Regulatory Commission ("FERC"). Contracts with Federal agencies
generally permit rate changes by the selling agency (subject, in some cases, to
Federal regulatory approval). In the case of many distribution systems, only one
power supplier is within a feasible distance to provide wholesale electricity.
POWER SUPPLY SYSTEMS
Power supply systems are utilities which purchase or generate electric
power and provide it wholesale to distribution systems for delivery to the
ultimate retail consumer. Of the 63 operating power supply systems financed in
whole or in part by RUS or CFC at December 31, 1996, 62 were cooperatives owned
directly or indirectly by groups of distribution systems and one was government
owned. Of this number, 39 had generating capacity of at least 100 megawatts, and
nine had no generating capacity. Seven of the nine systems with no generating
capacity operated transmission lines to supply certain distribution systems, and
one is currently building its first transmission facilities. Certain other power
supply systems had been formed but did not yet own generating or transmission
facilities.
At December 31, 1996, the 53 power supply systems reporting to RUS owned
interests in 145 generating plants representing generating capacity of
approximately 29,034 megawatts, or approximately 4.3% of the nation's estimated
electric generating capacity, and served 689 RUS distribution system borrowers
(representing an average for the year of approximately 8.5 million consumers).
Certain of the power supply systems which own generating plants lease these
facilities to others and purchase their power requirements from the
lessee-operators. Of the power supply systems' total generating capacity in
place as of December 31, 1996, steam plants accounted for 94.1% (including
nuclear capacity representing approximately 10.0% of such total generating
capacity), internal combustion plants accounted for 5.5% and hydroelectric
plants accounted for 0.4%. RUS loans and loan guarantees as of December 31,
1996, have provided funds for the installation of over 34,000 megawatts
12
<PAGE> 14
(including nuclear capacity of approximately 3,806 megawatts, or 11.2% of the
total) of which 1,279 megawatts or 3.8% of the total have officially been
cancelled.
The high level of growth in demand for electricity experienced in the
1970's was not expected to decline in the 1980's and the power supply systems
continued their construction programs in anticipation of continued growth in
demand. During the 1980's, however, slower growth in power requirements of the
systems reduced the need for additional generating capacity in most areas of the
country. Thus, many areas are now experiencing a surplus of generating capacity
and, as a result, some power supply systems have significant amounts of fixed
costs for power plant investment not fully supported by increased revenues.
While the level of funds needed for new generating units is expected to be
low over the next few years, the need for transmission and capital additions
will continue to generate substantial long-term capital requirements. The power
supply systems are expected to continue to seek to satisfy these requirements
primarily through the RUS loan guarantee program.
Deseret and its major creditors entered into an Agreement Restructuring
Obligations ("ARO") that restructured Deseret's debt obligations to RUS, CFC and
certain other creditors, including certain lease payments due on the Bonanza
Power Plant, in January 1991, with an effective date of January 1, 1989.
Deseret failed to make the payments required under the ARO during 1995. The
creditors were unable to agree on the terms of a negotiated settlement and thus
the ARO was terminated as of February 29, 1996. CFC filed a foreclosure action
against the owner of the Bonanza Plant in State Court in Utah on March 21, 1996.
In this action, CFC has not terminated the lease or sought removal of Deseret as
the plant operator. One of the defendants in the foreclosure action has recently
filed amended counterclaims against CFC. These amended counterclaims allege
breaches of contract and fiduciary duties, fraudulent concealment, tortious
interference with contract and conspiracy. These amended counterclaims also seek
rescission or equitable subordination of CFC's interest in the Bonanza Plant.
All of the parties to the lawsuit participated in a nonbinding mediation
session, but no settlement was reached. CFC is proceeding with litigation. A new
judge has been assigned to the case effective March 14, 1998. Trial has been set
for October 1998 in Vernal, Utah.
On October 16, 1996, Deseret and CFC entered into an Obligations
Restructuring Agreement (the "ORA") for the purpose of restructuring Deseret's
debt with CFC. Pursuant to the terms of the ORA, Deseret is required to make
quarterly minimum payments to CFC through December 31, 2025. In addition to the
quarterly minimum payments, Deseret is required to pay to CFC certain
percentages of its excess cash flow and proceeds from the disposition of assets.
If Deseret performs all of its obligations under the ORA and no event of default
then exists thereunder, then on December 31, 2025, CFC has agreed to forgive any
amounts owed by Deseret to CFC. To date, Deseret has made all required payments
under the ORA.
On March 20, 1998, the City of Riverside, CA ("Riverside") commenced an
action against Deseret in the United States District Court for the Central
District of California. Riverside is seeking (i) a declaratory judgment from the
court that the Power Sales Agreement dated October 6, 1992 (the "Power Sales
Agreement") between Deseret and Riverside terminated on March 31, 1998 and (ii)
unspecified damages against Deseret. On March 31, 1998, Deseret sought
injunctive relief from a Utah State Court. The Utah State Court has granted a
temporary restraining order that enjoins Riverside from terminating the Power
Sales Agreement. The Utah proceeding has been removed to the United States
District Court for the District of Utah. The temporary restraining order remains
in effect until the earlier of April 17, 1998 or the date on which a preliminary
injunction hearing is held before the Utah federal court.
The Power Sales Agreement requires Deseret to supply up to 52 MW to
Riverside through December 31, 2009. This contract represents approximately 10%
of Deseret's revenues. The impact of this action on Deseret's ability to make
the payments required under the ORA has not yet been determined. A factor
mitigating any impact is Deseret's contract with PacifiCorp, under which
PacifiCorp has agreed to purchase all excess capacity.
In October 1996, CFC acquired all of Deseret's indebtedness in the
outstanding principal amount of $740 million from RUS for the sum of $238.5
million (the "RUS Debt"). As a result of the purchase, CFC holds a majority of
Deseret's outstanding secured debt. The member systems of Deseret purchased from
CFC, for $55 million, a participation interest in the RUS Debt. CFC provided
long-term financing to the members of
13
<PAGE> 15
Deseret as follows: (i) $32.5 million in the aggregate to finance the buyout by
the members of their respective RUS debt (the "Note Buyout Loans"), and (ii)
$55.0 million in the aggregate to finance the members' purchase of participation
interests in the RUS Debt acquired by CFC (the "Participation Loans"). The Note
Buyout Loans and the Participation Loans are secured by the assets and revenues
of the respective member systems. Under the participation agreement the Deseret
members will receive a share of the minimum quarterly payments that Deseret
makes to CFC which the members will use to service their Participation Loans.
Each member of Deseret has the option to put its loan and its participation
interest in the RUS Debt back to CFC at any time after twelve years, provided
that no event of default exists under the ORA and under such member's
Participation Loan.
From January 1, 1989 through February 28, 1998, CFC has funded $185.2
million in cashflow shortfalls related to Deseret's debt service and rental
obligations. As of February 28, 1998, CFC had approximately $654.1 million in
current credit exposure to Deseret consisting of $337.3 million in secured loans
and $316.8 million in guarantees by CFC of various direct and indirect
obligations of Deseret. The secured loans to Deseret are on nonaccrual status
with respect to interest income. All payments received from Deseret are applied
against principal outstanding. CFC's guarantees include $4.1 million in
tax-benefit indemnifications and $54.6 million relating to mining equipment
leased to a coal supplier of Deseret. The remainder of CFC's guarantee is for
semi-annual debt service payments on $258.1 million of bonds issued in a $655
million leveraged lease financing of the Bonanza Plant in 1985.
CFC believes that, given its analysis of Deseret's cashflow projections, it
has adequately reserved for any potential loss on its loans and guarantees to
Deseret and its affiliates.
TELEPHONE SYSTEMS
As of December 31, 1996, there were 876 telephone systems that were RUS
borrowers (RUS had collected financial data on 833). The 833 telephone systems
included 238 cooperative, not-for-profit organizations and 595 commercial,
for-profit organizations. These organizations provided telephone service to
approximately 5.4 million subscribers and owned approximately 865,602 miles of
telephone lines. Total assets at December 31, 1996 were $14.5 billion, with a
composite TIER of 4.58 and composite equity ratio of 49.2%. The telephone
systems operate in all fifty states and seven U.S. territories.
The RTB was created by a 1971 amendment to the Act to serve as a source of
supplemental financing for rural telephone systems. To initially capitalize the
RTB, between 1971 and 1991 the government purchased $592 million in Class A
stock of the RTB. RTB borrowers, who are required to purchase Class B stock in
an amount equal to five percent of the amount of each loan, have, as of December
31, 1997, invested $94.4 million and have received patronage capital in the form
of Class B stock totalling $554.5 million. In addition, borrowers and other
eligible entities have purchased $191.2 million in Class C stock of the RTB.
The Act provides that the RTB is to redeem and retire the government's
Class A stock as soon as practicable after September 30, 1995, but not to the
extent that the bank's board determines that such retirement would impair the
operation of the RTB. The minimum amount of Class A stock to be retired each
year after September 30, 1995 is the amount of the Class B stock that is issued.
Language in the United States Government Fiscal Year 1997 House Agriculture
Appropriations Bill limits the amount of Class A stock that can be redeemed in
fiscal year 1997 to five percent of the amount of Class A stock outstanding.
REGULATION AND COMPETITION
The degree of regulation of rural electric systems by state authorities
varies from state to state. The retail rates of rural electric systems are
regulated in 16 states (in which there are 257 systems). Distribution systems in
these states account for 32% of the total operating revenues and patronage
capital of all distribution systems nationwide. State agencies, principally
public utility commissions, of 19 states regulate those states' 293 systems as
to the issuance of long-term debt securities. In five states (in which there are
53 systems) state agencies regulate, to varying degrees, the issuance of
short-term debt securities. Since 1967, the Federal Power Commission and its
successor, FERC, which regulates interstate sales of energy at wholesale, have
taken the position that it lacks jurisdiction to regulate cooperative rural
electric systems which are current borrowers from RUS. However, rural
14
<PAGE> 16
electric cooperatives that pay off their RUS debt or never incur RUS debt may be
regulated by FERC with respect to financing and/or rates.
In addition to competition from other utility systems, some distribution
systems have expressed increasing concern about the loss of desirable suburban
service areas as a result of annexation by expanding municipal or franchised
investor-owned utility systems, regardless of the degree of territorial
protection otherwise provided by applicable law. The systems are also subject to
competition from alternate sources of energy such as bottled gas, natural gas,
fuel oil, diesel generation, wood stoves and self-generation.
The systems, in common with the electric power industry generally, may
incur substantial capital expenditures and increases in operating costs in order
to meet the requirements of both present and future Federal, state and local
standards relating to safety and environmental quality control. These include
possible requirements for burying distribution lines, and meeting air and water
pollution standards.
On April 24, 1996, the FERC issued Orders 888 and 889. Order 888 provides
for competitive wholesale power sales by requiring jurisdictional public
utilities (including investor-owned electric utilities and cooperatives that are
not RUS borrowers) that own, control, or operate transmission facilities to file
non-discriminatory open access transmission tariffs that provide others with
transmission service comparable to the service they provide themselves. The
reciprocity provision associated with Order 888 also provides comparable access
to transmission facilities of non-jurisdictional utilities (including RUS
borrowers and municipal and other publicly owned electric utilities) that use
jurisdictional utilities' transmission systems. The order further provides for
the recovery of stranded costs from departing wholesale customers with
agreements dated prior to July 11, 1994. After that date, stranded costs must be
agreed upon in the service agreement. Order 889 provides for a real time
electronic information system referred to as the Open Access Same-Time
Information System. It also addresses standards of conduct to ensure that
transmission owners and their affiliates do not have an unfair competitive
advantage by using transmission to sell power. Presently, many of the issues
surrounding the implementation of Orders 888 and 889 remain unresolved. These
issues are anticipated to be resolved in part by litigation on a case by case
basis before the FERC and through the appellate process. Due to the uncertainty
of this litigation, CFC is unable to estimate the ultimate impact of these
orders on its member systems. However, open access transmission as a national
policy has long been sought by electric cooperatives so that investor-owned
utilities cannot use their ownership of transmission to the disadvantage of the
cooperatives.
Section 211 of the Federal Power Act as amended by the Energy Policy Act of
1992 classifies any cooperative with significant transmission assets as a
"transmitting utility" for purposes of this section. Under the provisions of
this Act, FERC has the authority to order such cooperatives to provide open
access for unaffiliated entities. This provision also authorizes FERC to require
investor-owned and other utilities to provide the same open access transmission
for the benefit of cooperatives. Electric cooperatives have strongly supported
section 211 for this reason.
All telephone systems are regulated by the Federal Communications
Commission with respect to long distance access rates. Most states also regulate
local rates.
The Telecommunications Act of 1996 opened the local exchange market to
competition. The Telecommunications Act contains numerous provisions designed to
assure the continued viability of the rural telecommunications companies.
Currently, the large and small Local Exchange Carriers ("LEC") and their
potential competitors are arguing before the FCC and in the courts about how to
fairly translate the provisions of the Telecommunications Act into the rules and
regulations under which the new telecommunications industry will operate.
Due to the Telecommunications Act, competition will eventually come to the
rural areas. The cost of competing with an established LEC may limit the
majority of the competition to the larger local exchanges located adjacent to
suburban areas and to rural areas containing large customers. The majority of
CFC's telecommunications borrowers are well established in their service areas,
with no significant competition at present.
The impact of the Telecommunications Act on CFC's telecommunications
borrowers can not yet be determined.
15
<PAGE> 17
FINANCIAL INFORMATION
The systems differ from investor-owned utilities in that the vast majority
are cooperative, non-profit organizations operating under policies which provide
that rates should be established so as to minimize rates over the long-term.
Revenues in excess of operating costs and expenses are referred to as "net
margins and patronage capital" and are treated as equity capital furnished by
the systems' consumers. This "capital" is transferred to a balance sheet account
designated as "patronage capital," and is usually allocated to consumers in
proportion to their patronage. Such capital is not refunded to them for a period
of years during which time it is available to the system to be used for proper
corporate purposes. Subject to their applicable contractual obligations, the
systems may refund such capital to their members when doing so will not impair
the systems' financial condition. In the terminology of the Uniform System of
Accounts prescribed by RUS for its borrowers, "operating revenues and patronage
capital" refers to all utility operating income received during a given period.
Similar to the practice followed by investor-owned utilities pursuant to
FERC procedures and as prescribed by RUS, the systems capitalize as a cost of
construction the interest charges on borrowed funds ("interest charged to
construction") and the estimated unearned interest attributable to
internally-generated funds ("allowance for funds used during construction") used
in the construction of generation, and to a lesser extent transmission and
distribution facilities. This accounting policy, which increases net margins by
the amounts of these actual and imputed interest charges, is based on the
premise that the cost of financing construction is an expenditure serving to
increase the productive capacity and value of the utility's assets and thus
should be included in the cost of the assets constructed and recovered over the
life of the assets. In the case of power supply systems, RUS has included in its
direct loans and guarantees of loans amounts sufficient to meet the estimated
interest charges during construction. If the foregoing accounting policy were
not followed, utilities would presumably request regulatory permission, if
applicable, to increase their rates to cover such costs. The amounts of interest
charged to construction and allowance for funds used during construction
capitalized by distribution systems are relatively insignificant. Because Power
Supply systems generally expend substantial amounts on long-term construction
projects, the application of this accounting policy may result in substantially
lower interest expense and in substantially higher net margins for such systems
during construction than would be the case if such a policy were not followed.
On the following pages are tables providing composite statements of
revenues, expenses and patronage capital of the distribution systems which were
members of CFC and the power supply systems which were members of CFC during the
five years ended December 31, 1996, the most recent year for which composite
financial information is available, and their respective composite balance
sheets as at the end of each such year.
- ---------------
NOTE: Statistical information in the RUS Reports has not been examined by
CFC's independent public accountants, and the number and geographical dispersion
of the systems have made impractical an independent investigation by CFC of the
statistical information available from RUS. The RUS Reports are based upon
financial statements submitted to RUS, subject to year-end audit adjustments, by
reporting RUS borrowers and do not, with minor exceptions, take into account
current data for certain systems, primarily those which are not active RUS
borrowers.
16
<PAGE> 18
COMPOSITE SUMMARY FINANCIAL INFORMATION AS REPORTED BY
CFC MEMBER DISTRIBUTION SYSTEMS
THE FOLLOWING ARE UNAUDITED FIGURES WHICH ARE BASED UPON FINANCIAL STATEMENTS
SUBMITTED TO RUS OR TO CFC BY CFC MEMBER DISTRIBUTION SYSTEMS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Operating revenue and patronage
capital................................ $17,028,087 $16,253,957 $15,603,853 $15,072,400 $13,921,515
----------- ----------- ----------- ----------- -----------
Operating deductions..................... 15,330,997 14,672,169 14,126,839 13,566,718 12,628,989
----------- ----------- ----------- ----------- -----------
Utility operating margins................ 1,697,090 1,581,788 1,477,014 1,505,682 1,292,526
Non-operating margins and capital
credits(1)............................. 463,111 426,959 395,166 384,862 377,550
Interest on long-term debt and other
deductions(2).......................... (912,787) (879,969) (805,323) (766,722) (777,435)
----------- ----------- ----------- ----------- -----------
Net margins and patronage capital........ $ 1,247,414 $ 1,128,776 $ 1,066,857 $ 1,123,822 $ 892,641
=========== =========== =========== =========== ===========
TIER(3).................................. 2.44 2.42 2.42 2.54 2.19
DSC(4)................................... 2.42 2.40 2.26 2.44 2.07
MDSC(5).................................. 2.30 2.28 2.09 2.21 1.99
Number of systems included............... 832 824 828 825 821
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Assets and other debits:
Net utility plant.................... $26,470,506 $24,777,794 $23,329,493 $21,877,902 $20,721,332
Other assets......................... 8,466,621 8,195,805 7,770,998 7,410,799 6,980,758
----------- ----------- ----------- ----------- -----------
Total assets and other debits... $34,937,127 $32,973,599 $31,100,491 $29,288,701 $27,702,090
=========== =========== =========== =========== ===========
Liabilities and other credits:
Total net worth...................... $14,836,929 $13,761,742 $12,918,484 $11,959,962 $10,925,009
Other liabilities and credits........ 20,100,198 19,211,857 18,182,007 17,328,739 16,777,081
----------- ----------- ----------- ----------- -----------
Total liabilities and other
credits....................... $34,937,127 $32,973,599 $31,100,491 $29,288,701 $27,702,090
=========== =========== =========== =========== ===========
Number of systems included............... 832 824 828 825 821
</TABLE>
- ---------------
(1) Represents net margins of power supply systems and other associated
organizations allocated to their member distribution systems and added in
determining net margins and patronage capital of distribution systems under
RUS accounting practices. Cash distributions of this credit have rarely been
made by the power supply systems and such other organizations to their
members.
(2) Interest on long-term debt is net of interest charged to construction, which
is stated separately as a credit in RUS Reports. For a description of the
reasons for, and the effect on net margins and patronage capital of, the
accounting policies governing interest charged to construction and allowance
for funds used during construction, see "Financial Information". CFC
believes that amounts incurred by distribution systems for interest charged
to construction and allowance for funds used during construction are
immaterial relative to their total interest on long-term debt and net
margins and patronage capital.
(3) The ratio of (x) interest on long-term debt (in each year including all
interest charged to construction) and net margins and patronage capital to
(y) interest on long-term debt (in each year including all interest charged
to construction).
(4) The ratio of (x) net margins and patronage capital plus interest on
long-term debt (including all interest charged to construction) plus
depreciation and amortization to (y) long-term debt service obligations.
(5) Modified DSC ("MDSC") is the ratio of (x) operating margins and patronage
capital plus interest on long-term debt (including all interest charged to
construction) plus depreciation and amortization expense plus Non-operating
margins-interest plus cash received in respect of generation and
transmission and other capital credits to (y) long-term debt service
obligations.
17
<PAGE> 19
COMPOSITE SUMMARY FINANCIAL INFORMATION AS REPORTED BY
CFC MEMBER POWER SUPPLY SYSTEMS
THE FOLLOWING ARE UNAUDITED FIGURES WHICH ARE BASED UPON FINANCIAL STATEMENTS
SUBMITTED TO RUS OR TO CFC BY CFC MEMBER POWER SUPPLY SYSTEMS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Operating revenue and patronage
capital................................ $10,585,875 $10,182,928 $ 9,972,873 $ 9,976,560 $ 9,111,434
----------- ----------- ----------- ----------- -----------
Operating deductions..................... 9,121,759 8,703,236 8,393,817 8,191,101 7,375,988
----------- ----------- ----------- ----------- -----------
Utility operating margins................ 1,464,116 1,479,692 1,579,056 1,785,459 1,735,446
Non-operating margins and
capital credits(1)..................... 549,464 302,864 253,534 376,796 311,581
Interest on long-term debt and
other deductions(2).................... (3,038,119) (1,565,846) (1,987,438) (2,199,696) (2,213,283)
----------- ----------- ----------- ----------- -----------
Net margins and patronage capital........ $(1,024,539) $ 216,710 $ (154,848) $ (37,441) $ (166,256)
=========== =========== =========== =========== ===========
TIER(3).................................. .29 1.15 .93 .98 .92
DSC(4)................................... .69 1.02 1.01 1.03 1.05
Number of systems included(5)............ 54 53 53 50 50
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Assets and other debits:
Net utility plant.................... $21,048,036 $23,527,287 $23,781,497 $23,774,280 $23,715,910
Other assets......................... 10,800,356 11,308,776 11,095,752 11,256,222 8,539,061
----------- ----------- ----------- ----------- -----------
Total assets and other debits... $31,848,392 $34,836,063 34,877,249 $35,030,502 $32,254,971
=========== =========== =========== =========== ===========
Liabilities and other credits:
Total net worth...................... $ (645,857) $ 498,006 $ 246,584 $ 432,347 $ 316,039
Other liabilities and credits........ 32,494,249 34,338,057 34,630,665 34,598,155 31,938,932
----------- ----------- ----------- ----------- -----------
Total liabilities and other
credits....................... $31,848,392 $34,836,063 $34,877,249 $35,030,502 $32,254,971
=========== =========== =========== =========== ===========
Number of systems included(5)............ 54 53 53 50 50
</TABLE>
- ---------------
(1) Certain power supply systems purchase wholesale power from other power
supply systems of which they are members. Power supply capital credits
represent net margins of power supply systems allocated to member power
supply systems on the books of the selling power supply systems. This item
has been added in determining net margins and patronage capital of the
purchasing power supply systems under RUS accounting practices. Cash
distributions of this credit have rarely been made by the selling power
supply systems to their members. Includes also net margins of associated
organizations allocated to CFC power supply members and added in determining
net margins and patronage capital of the CFC member systems under RUS
accounting practices.
(2) Interest on long-term debt is net of interest charged to construction.
Allowance for funds used during construction has been included in
non-operating margins. For a description of the reasons for, and the effect
on net margins and patronage capital of, the accounting policies governing
interest charged to construction and allowance for funds used during
construction. See "--Financial Information". According to unpub-
18
<PAGE> 20
lished information furnished by RUS, interest charged to construction and
allowance for funds used during construction for CFC power supply members in
the years 1992-1996 were as follows:
<TABLE>
<CAPTION>
INTEREST ALLOWANCE FOR
CHARGED FUNDS USED
TO CONSTRUCTION DURING CONSTRUCTION TOTAL
--------------- ------------------- -----
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
1996 $13,434 $11,620 $25,054
1995 68,400 11,018 79,418
1994 46,773 8,913 55,686
1993 49,237 8,621 57,858
1992 54,093 4,396 58,489
</TABLE>
(3) Determined by adding interest on long-term debt (in each year including all
interest charged to construction) and net margins and patronage capital and
dividing the total by interest on long-term debt (in each year including all
interest charged to construction). This is the basis for computing TIER used
by CFC for purposes of determining loan eligibility. The TIER calculation
includes the operating results of six systems which currently fail to make
debt service payments or are operating under a debt restructure agreement,
without which the composite TIER would have been 1.21, 1.23, 1.31, 1.20 and
1.15 for the years ended December 31, 1996, 1995, 1994, 1993 and 1992,
respectively.
(4) The ratio of (x) net margins and patronage capital plus interest on
long-term debt (including all interest charged to construction) plus
depreciation and amortization to (y) long-term debt service obligations. The
DSC calculation includes the operating results of six systems which
currently fail to make debt service payments or are operating under a debt
restructure agreement. Without these systems, the composite DSC would have
been 1.20, 1.22, 1.24, 1.21 and 1.22 for the years ended December 31, 1996,
1995, 1994, 1993 and 1992, respectively.
(5) Thirteen CFC power supply system members are not required to report to RUS
since they are not currently borrowers from RUS. These systems, with the
exception of Old Dominion Electric Cooperative, are either in developmental
stages or act as coordinating agents for their members. Their inclusion
would not have a material effect on these data.
DESCRIPTION OF DEBT SECURITIES
GENERAL
The Debt Securities may be issued in one or more new series under an
Indenture or Indentures (the "Indenture") between CFC and Harris Trust and
Savings Bank, or other trustee to be named, as Trustee (each, a "Trustee"). The
statements herein concerning (i) the Indenture, (ii) one or more supplemental
indentures, board resolutions or officer's certificates establishing the Debt
Securities and (iii) the Debt Securities (the forms of each of which are filed,
or will be filed, as exhibits to the Registration Statement of which this
Prospectus forms a part, or as an exhibit to a Current Report on Form 8-K to be
incorporated by reference in this Prospectus) are merely an outline and do not
purport to be complete. Such statements make use of the terms defined in the
Indenture and are qualified in their entirety by express reference to the
sections of the Indenture cited herein. The Debt Securities will be unsecured
and subordinated obligations of CFC.
Reference is made to the Prospectus Supplement relating to any particular
issue of Offered Debt Securities for the following terms: (1) the title of such
Debt Securities; (2) any limit on the aggregate principal amount of such Debt
Securities or the series of which they are a part; (3) the date or dates on
which the principal of any of such Debt Securities will be payable; (4) the rate
or rates (which may be fixed or variable) and/or the method of determination of
such rate or rates at which any of such Debt Securities will bear interest, if
any, the date or dates from which any such interest will accrue, the Interest
Payment Dates on which any such interest will be payable and the Regular Record
Date for any such interest payable on any Interest Payment Date; (5) the place
or places where (i) the principal of, premium, if any, and interest on any of
such Debt Securities will be payable,
19
<PAGE> 21
(ii) registration of transfer of such Debt Securities may be effected, (iii)
exchanges of such Debt Securities may be effected and (iv) notices and demands
to or upon CFC in respect of such Debt Securities may be served; the Security
Registrar for such Debt Securities and, if such is the case, that the principal
of such Debt Securities shall be payable without presentment or surrender
thereof; (6) the period or periods within which, or the date or dates on which,
the price or prices at which and the terms and conditions upon which any of such
Debt Securities may be redeemed, in whole or in part, at the option of CFC; (7)
the obligation or obligations, if any, of CFC to redeem or purchase any of such
Debt Securities pursuant to any sinking fund or other mandatory redemption
provisions or at the option of the Holder thereof, and the period or periods
within which, or the date or dates on which, the price or prices at which and
the terms and conditions upon which any of such Debt Securities shall be
redeemed or purchased, in whole or in part, pursuant to such obligation, and
applicable exceptions to the requirements of a notice of redemption in the case
of mandatory redemption or redemption at the option of the Holder; (8) the
denominations in which any of such Debt Securities will be issuable, if other
than denominations of $1,000 and any integral multiple thereof; (9) if the
amount payable in respect of principal of or any premium or interest on any of
such Debt Securities may be determined with reference to an index or other fact
or event ascertainable outside the Indenture, the manner in which such amounts
will be determined; (10) if other than the currency of the United States, the
currency or currencies, including composite currencies in which the principal of
or any premium or interest on any of such Debt Securities will be payable; (11)
if the principal of or any premium or interest on any of such Debt Securities is
to be payable, at the election of CFC or the Holder thereof, in a coin or
currency other than in which such Debt Securities are stated to be payable, the
period or periods within which and the terms and conditions upon which, such
election is to be made; (12) if other than the principal amount thereof, the
portion of the principal amount of any of such Debt Securities which shall be
payable upon declaration of acceleration of the Maturity thereof; (13) if the
principal of or premium or interest on such Debt Securities are to be payable,
or are to be payable at the election of CFC or a Holder thereof, in securities
or other property, the type and amount of such securities or other property, or
the formulary or other method or other means by which such amount shall be
determined, and the period or periods within which, and the terms and conditions
upon which, any such election may be made; (14) the terms, if any, pursuant to
which such Debt Securities may be converted into or exchanged for securities of
CFC or any other Person; (15) the obligations or instruments, if any, which
shall be considered to be Eligible Obligations in respect of such Debt
Securities denominated in a currency other than Dollars or in a composite
currency, and any additional or alternative provisions for the reinstatement of
CFC's indebtedness in respect of such Debt Securities after the satisfaction and
discharge thereof; (16) if such Debt Securities are to be issued in global form,
(i) any limitations on the rights of the Holder or Holders of such Debt
Securities to transfer or exchange the same or to obtain the registration of
transfer thereof, (ii) any limitations on the rights of the Holder or Holders
thereof to obtain certificates therefor in definitive form in lieu of temporary
form and (iii) any and all other matters incidental to such Debt Securities;
(17) if such Debt Securities are to be issuable as bearer securities; (18) any
limitations on the rights of the Holders of such Debt Securities to transfer or
exchange such Debt Securities or to obtain the registration of transfer thereof,
and if a service charge will be made for the registration of transfer or
exchange of such Debt Securities, the amount or terms thereof; (19) any
exceptions to the provisions governing payments due on legal holidays or any
variations in the definition of Business Day with respect to such Debt
Securities; (20) any addition to the Events of Default applicable to any of such
Debt Securities and any addition to the covenants of CFC for the benefit of the
Holders of such Debt Securities; and (21) any other terms of such Debt
Securities of such series, or any Tranche thereof, not inconsistent with the
provisions of the Indenture. (Section 301)
Debt Securities may be sold at a substantial discount below their principal
amount. Certain special United States federal income tax considerations (if any)
applicable to Debt Securities sold at an original issue discount may be
described in the applicable Prospectus Supplement. In addition, certain special
United States federal income tax or other considerations (if any) applicable to
any Debt Securities which are denominated in a currency or currency unit other
than Dollars may be described in the applicable Prospectus Supplement.
Except as may otherwise be described in the Prospectus Supplement, the
covenants contained in the Indenture would not afford Holders of Debt Securities
protection in the event of a highly-leveraged transaction involving CFC.
20
<PAGE> 22
SUBORDINATION
The Debt Securities will be subordinate and junior in right of payment to
all Senior Indebtedness of CFC.
No payment of principal of (including redemption and sinking fund
payments), premium, if any, or interest on, the Debt Securities may be made if
any Senior Indebtedness is not paid when due, or a default (other than a payment
default) has occurred with respect to the Senior Indebtedness permitting the
holders to accelerate the maturity thereof and such default has not been cured
or waived and has not ceased to exist. Upon (i) any acceleration of the
principal amount due on the Debt Securities or (ii) any distribution of assets
of CFC to creditors upon any dissolution, winding-up, liquidation or
reorganization, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all principal of, and premium, if any, and
interest due or to become due on, all Senior Indebtedness must be paid in full
before the Holders of the Debt Securities are entitled to receive or retain any
payment. (Article 15) The rights of the Holders of the Debt Securities will be
subrogated to the rights of the Holders of Senior Indebtedness to receive
payments or distributions applicable to Senior Indebtedness until all amounts
owing on the Debt Securities are paid in full. (Article 15)
The term "Senior Indebtedness" is defined in the Indenture to mean (a) all
indebtedness heretofore or hereafter incurred by CFC for money borrowed unless
by its terms it is provided that such indebtedness is not Senior Indebtedness,
(b) all other indebtedness hereafter incurred by the CFC which by its terms
provides that such indebtedness is Senior Indebtedness, (c) all guarantees,
endorsements and other contingent obligations in respect of, or obligations to
purchase or otherwise acquire or service, indebtedness or obligations of others,
and (d) any amendments, modifications, deferrals, renewals or extensions of any
such Senior Indebtedness heretofore or hereafter issued in evidence of or
exchange of such Senior Indebtedness.
The Indenture does not limit the aggregate amount of Senior Indebtedness
that CFC may issue. As of February 28, 1998, outstanding Senior Indebtedness of
CFC aggregated approximately $10.4 billion, including contingent guarantees of
$2.0 billion.
FORM, EXCHANGE AND TRANSFER
Unless otherwise specified in the applicable Prospectus Supplement, the
Debt Securities of each series will be issuable only in fully registered form
without coupons and in denominations of $1,000 and any integral multiple
thereof. (Sections 201 and 302)
At the option of the Holder, subject to the terms of the Indenture and the
limitations applicable to global securities, Debt Securities of any series will
be exchangeable for other Debt Securities of the same series, of any authorized
denomination and of like tenor and aggregate principal amount. (Section 305)
Subject to the terms of the Indenture and the limitations applicable to
global securities, Debt Securities may be presented for exchange as provided
above or for registration of transfer (duly endorsed or accompanied by a duly
executed instrument of transfer) at the office of the Security Registrar or at
the office of any transfer agent designated by CFC for such purpose. CFC may
designate itself the Security Registrar. No service charge will be made for any
registration of transfer or exchange of Debt Securities, but CFC may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith. 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 or the person making the
request. (Section 305) Any transfer agent (in addition to the Security
Registrar) initially designated by CFC for any Debt Securities will be named in
the applicable Prospectus Supplement. CFC may at any time designate additional
transfer agents or rescind the designation of any transfer agent or approve a
change in the office through which any transfer agent acts, except that CFC will
be required to maintain a transfer agent in each Place of Payment for the Debt
Securities of each series. (Section 602)
CFC will not be required to (i) issue, register the transfer of, or
exchange any Debt Security or any Tranche thereof during a period beginning at
the opening of business 15 days before the day of mailing of a notice of
redemption of any such Debt Security called for redemption and ending at the
close of business on the day of such mailing or (ii) register the transfer of or
exchange any Debt Security so selected for redemption, in whole or in part,
except the unredeemed portion of any such Debt Security being redeemed in part.
(Section 305)
21
<PAGE> 23
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of interest on a Debt Security on any Interest Payment Date will be made to the
person in whose name such Debt Security (or one or more Predecessor Securities)
is registered at the close of business on the Regular Record Date for such
interest. (Section 307)
Unless otherwise indicated in the applicable Prospectus Supplement,
principal of and any premium and interest on the Debt Securities of a particular
series will be payable at the office of such Paying Agent or Paying Agents as
CFC may designate for such purpose from time to time. Unless otherwise indicated
in the applicable Prospectus Supplement, the corporate trust office of the
Trustee in New York City will be designated as CFC's sole Paying Agent for
payments with respect to Debt Securities of each series. Any other Paying Agents
initially designated by CFC for the Debt Securities of a particular series will
be named in the applicable Prospectus Supplement. CFC 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
CFC will be required to maintain a Paying Agent in each Place of Payment for the
Debt Securities of a particular series. (Section 602)
All moneys paid by CFC to a Paying Agent for the payment of the principal
of or any premium or interest on any Debt Security which remain unclaimed at the
end of two years after such principal, premium or interest has become due and
payable will be repaid to CFC, and the Holder of such Debt Security thereafter
may look only to CFC for payment thereof. (Section 603)
REDEMPTION
Any terms for the optional or mandatory redemption of Debt Securities will
be set forth in the applicable Prospectus Supplement or a supplement thereto.
Except as shall otherwise be provided in the applicable Prospectus Supplement
with respect to Debt Securities that are redeemable at the option of the Holder,
Debt Securities will be redeemable only upon notice by mail not less than 30 nor
more than 60 days prior to the date fixed for redemption, and, if less than all
the Debt Securities of a series, or any Tranche thereof, are to be redeemed, the
particular Debt Securities to be redeemed will be selected by such method as
shall be provided for any particular series, or in the absence of any such
provision, by such method of random selection as the Security Registrar deems
fair and appropriate. (Section 403 and 404)
Any notice of redemption at the option of CFC may state that such
redemption will be conditional upon receipt by the Paying Agent or Agents, on or
prior to the dated fixed for such redemption, of money sufficient to pay the
principal of and premium, if any, and interest, if any, on such Debt Securities
and that if such money has not been so received, such notice will be of no force
and effect and CFC will not be required to redeem such Debt Securities. (Section
404)
CONSOLIDATION, MERGER, AND SALE OF ASSETS
CFC may not consolidate with or merge into any other person or convey,
transfer or lease its properties and assets substantially as an entirety to any
Person, unless (i) the corporation formed by such consolidation or into which
CFC is merged or the Person which acquires by conveyance or transfer, or which
leases, the property and assets of CFC substantially as an entirety shall be a
Person organized and validly existing under the laws of any domestic
jurisdiction and such Person expressly assumes CFC's obligations on the Debt
Securities and under the Indenture, (ii) immediately after giving effect to the
transaction, no Event of Default, and no event which, after notice or lapse of
time or both, would become an Event of Default, shall have occurred and be
continuing, and (iii) CFC will have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel as provided in the Indenture. (Section
1101)
EVENTS OF DEFAULT
Each of the following will constitute an Event of Default under the
Indenture with respect to Debt Securities of any series: (a) failure to pay any
interest on any Debt Securities of such series within 60 days after the same
becomes due and payable; (b) failure to pay principal or premium, if any, on any
Debt Security of such
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<PAGE> 24
series within three Business Days after the same becomes due and payable; (c)
failure to perform or breach of any other covenant or warranty of CFC in the
Indenture (other than a covenant or warranty of CFC in the indenture solely for
the benefit of one or more series of Debt Securities other than such series) for
60 days after written notice to CFC by the Trustee, or to CFC and the Trustee by
the Holders of at least 33% in principal amount of the Debt Securities of such
series outstanding under the Indenture as provided in the Indenture; (d) certain
events of bankruptcy, insolvency or reorganization; and (e) any other Event of
Default specified in the applicable Prospectus Supplement with respect to Debt
Securities of particular series. (Section 801)
No Event of Default with respect to the Debt Securities necessarily
constitutes an Event of Default with respect to the Debt Securities of any other
series issued under the Indenture.
If an Event of Default with respect to any series of Debt Securities occurs
and is continuing, then either the Trustee or the Holders of not less than 33%
in principal amount of the Outstanding Debt Securities of such series may
declare the principal amount (or if the Debt Securities of such series are
discount notes or similar Debt Securities, such portion of the principal amount
may be specified in the applicable Prospectus Supplement) of all of the Debt
Securities of such series to be due and payable immediately; provided, however,
that if an Event of Default occurs and is continuing with respect to more than
one series of Debt Securities, the Trustee or the Holders of not less than 33%
in aggregate principal amount of the Outstanding Debt Securities of all such
series, considered as one class, may make such declaration of acceleration and
not the Holders of the Debt Securities of any one of such series.
At any time after the declaration of acceleration with respect to the Debt
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained, the Event or Events of Default
giving rise to such declaration of acceleration will, without further act, be
deemed to have been waived, and such declaration and its consequences will,
without further act, be deemed to have been rescinded and annulled, if
(a) CFC has paid or deposited with the Trustee a sum sufficient to pay
(1) all overdue interest on all Debt Securities of such series;
(2) the principal of and premium, if any, on any Debt Securities of
such series which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate or rates prescribed
therefor in such Debt Securities;
(3) interest upon overdue interest at the rate or rates prescribed
therefor in such Debt Securities, to the extent that payment of such
interest is lawful; and
(4) all amounts due to the Trustee under the Indenture;
(b) any other Event or Events of Default with respect to the Debt
Securities of such series, other than the nonpayment of the principal of
the Debt Securities of such series which has become due solely by such
declaration of acceleration, have been cured or waived as provided in the
Indenture. (Section 802)
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders, unless such Holders
shall have offered to the Trustee reasonable indemnity. (Section 903) Subject to
such provisions for the indemnification of the Trustee, the Holders of a
majority in principal amount of the Outstanding Debt Securities of any series
will have the right to 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 Debt Securities of that
series. (Section 812)
No Holder of a Debt Security of any series will have any right to institute
any proceeding with respect to the Indenture, or for the appointment of a
receiver or a trustee, or for any other remedy thereunder, unless (i) such
Holder has previously given to the Trustee written notice of a continuing Event
of Default with respect to the Debt Securities of such series, (ii) the Holders
of not less than 33 1/3% in aggregate principal amount of the Outstanding Debt
Securities of such series have made written request to the Trustee, and such
Holder or Holders
23
<PAGE> 25
have offered reasonable indemnity to the Trustee to institute such proceeding as
trustee and (iii) the Trustee has failed to institute such proceeding, and has
not received from the Holders of a majority in aggregate principal amount of the
Outstanding Debt Securities of that series a direction inconsistent with such
request, within 60 days after such notice, request and offer. (Section 807)
However, such limitations do not apply to a suit instituted by a Holder of a
Debt Security for the enforcement of payment of the principal of or any premium
or interest on such Debt Security on or after the applicable due date specified
in such Debt Security. (Section 808)
CFC will be required to furnish to the Trustee annually a statement by an
appropriate officer as to such officer's knowledge of CFC's compliance with all
conditions and covenants under the Indenture, such compliance to be determined
without regard to any period of grace or requirement of notice under the
Indenture. (Section 605)
MODIFICATION AND WAIVER
Without the consent of any Holder of Debt Securities, CFC and the Trustee
may enter into one or more supplemental indentures for any of the following
purposes: (a) to evidence the assumption by any permitted successor to CFC of
the covenants of CFC in the Indenture and the Debt Securities; or (b) to add one
or more covenants of CFC or other provisions for the benefit of the Holders of
all or any series of Outstanding Debt Securities or to surrender any right or
power conferred upon CFC by the Indenture; or (c) to add any additional Events
of Default with respect to all or any series of Outstanding Debt Securities; or
(d) to change or eliminate any provision of the Indenture or to add any new
provision to the Indenture, provided that if such change, elimination or
addition will adversely affect the interests of the Holders of Debt Securities
of any series in any material respect, such change, elimination or addition will
become effective with respect to such series only when there is no Debt Security
of such series remaining Outstanding under the Indenture; or (e) to provide
collateral security for the Debt Securities; or (f) to establish the form or
terms of Debt Securities of any series as permitted by the Indenture; or (g) to
evidence and provide for the acceptance of appointment of a successor Trustee
under the Indenture with respect to the Debt Securities of one or more series
and to add to or change any of the provisions of the Indenture as shall be
necessary to provide for or to facilitate the administration of the trusts under
the Indenture by more than one trustee; or (h) to provide for the procedures
required to permit the utilization of a noncertificated system of registration
for any series of Debt Securities; or (i) to change any place where (1) the
principal of and premium, if any, and interest, if any, on any Debt Securities
shall be payable, (2) any Debt Securities may be surrendered for registration of
transfer or exchange and (3) notices and demands to or upon CFC in respect of
Debt Securities and the Indenture may be served; or (j) to cure any ambiguity or
inconsistency or to make or change any other provisions with respect to matters
and questions arising under the Indenture, provided such changes or additions
shall not adversely affect the interests of the Holders of Debt Securities of
any series in any material respect. (Section 1201)
The Holders of not less than a majority in aggregate principal amount of
the Outstanding Debt Securities of any series may waive compliance by CFC with
certain restrictive provisions of the Indenture. (Section 606) The Holders of a
majority in principal amount of the Outstanding Debt Securities of any series
may waive any past default under the Indenture, except a default in the payment
of principal, premium or interest and certain covenants and provisions of the
Indenture that cannot be modified or be amended without the consent of the
Holder of each Outstanding Debt Security of such series affected. (Section 813)
Without limiting the generality of the foregoing, if the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"), is amended after the date
of the Indenture in such a way as to require changes to the Indenture or the
incorporation therein of additional provisions or so as to permit changes to, or
the elimination of, provisions which, at the date of the Indenture or at any
time thereafter, were required by the Trust Indenture Act to be contained in the
Indenture, the Indenture will be deemed to have been amended so as to conform to
such amendment or to effect such changes or elimination, and CFC and the Trustee
may, without the consent of any Holders, enter into one or more supplemental
indentures to evidence or effect such amendment. (Section 1201)
Except as provided above, the consent of the Holders of not less than a
majority in aggregate principal amount of the Debt Securities of all series then
Outstanding, considered as one class, is required for the purpose of adding any
provisions to, or changing in any manner, or eliminating any of the provisions
of, the Indenture
24
<PAGE> 26
pursuant to one or more supplemental indentures; provided, however, that if less
than all of the series of Debt Securities Outstanding are directly affected by a
proposed supplemental indenture, then the consent only of the Holders of a
majority in aggregate principal amount of Outstanding Debt Securities of all
series so directly affected, considered as one class, will be required; and
provided, further, that if the Debt Securities of any series have been issued in
more than one Tranche and if the proposed supplemental indenture directly
affects the rights of the Holders of one or more, but less than all, such
Tranches, then the consent only of the Holders of a majority in aggregate
principal amount of the Outstanding Debt Securities of all Tranches so directly
affected, considered as one class, will be required; and provided further, that
no such amendment or modification may (a) change the Stated Maturity of the
principal of, or any installment of principal of or interest on, any Debt
Security, or reduce the principal amount thereof or the rate of interest thereon
(or the amount of any installment of interest thereon) or change the method of
calculating such rate or reduce any premium payable upon the redemption thereof,
or reduce the amount of the principal of any Discount Security that would be due
and payable upon a declaration of acceleration of Maturity or change the coin or
currency (or other property) in which any Debt Security or any premium or the
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity of any Debt
Security (or, in the case of redemption, on or after the redemption date)
without, in any such case, the consent of the Holder of such Debt Security, (b)
reduce the percentage in principal amount of the Outstanding Debt Securities of
any series, or any Tranche thereof, the consent of the Holders of which is
required for any such supplemental indenture, or the consent of the Holders of
which is required for any waiver of compliance with any provision of the
Indenture or any default thereunder and its consequences, or reduce the
requirements for quorum or voting, without, in any such case, the consent of the
Holder of each Outstanding Debt Security of such series or Tranche, or (c)
modify certain of the provisions of the Indenture relating to supplemental
indentures, waivers of certain covenants and waivers of past defaults with
respect to the Debt Securities of any series, or any Tranche thereof, without
the consent of the Holder of each Outstanding Debt Security affected thereby. A
supplemental indenture which changes or eliminates any covenant or other
provision of the Indenture which has expressly been included solely for the
benefit of one or more particular series of Debt Securities or one or more
Tranches thereof, or modifies the rights of the Holders of Debt Securities of
such series or Tranches with respect to such covenant or other provision, will
be deemed not to affect the rights under the Indenture of the Holders of the
Debt Securities of any other series or Tranche. (See Section 1202)
The Indenture provides that in determining whether the Holders of the
requisite principal amount of the Outstanding Debt Securities have given or
taken any direction, notice, consent, waiver or other action under the Indenture
as of any date, (i) Debt Securities owned by CFC or any other obligor upon the
securities or any Affiliate of CFC or of such other obligor (unless CFC, such
Affiliate or such obligor owns all Securities Outstanding under the Indenture,
or all Outstanding Securities of each such series and each such Tranche, as the
case may be, determined without regard to this clause (i)) shall be disregarded
and deemed not to be Outstanding; (ii) the principal amount of a Discount
Security that shall be deemed to be Outstanding for such purposes shall be the
amount of the principal thereof that would be due and payable as of the date of
such determination upon a declaration of acceleration of the Maturity thereof as
provided in the Indenture; and (iii) the principal amount of a Debt Security
denominated in one or more foreign currencies or a composite currency that will
be deemed to be Outstanding will be the Dollar equivalent, determined as of such
date in the manner prescribed for such Debt Security, of the principal amount of
such Debt Security (or, in the case of a Debt Security described in clause (ii)
above, of the amount described in such clause). (Section 101)
If CFC shall solicit from Holders any request, demand, authorization,
direction, notice, consent, election, waiver or other Act, CFC may, at its
option, by Board Resolution, fix in advance a record date for the determination
of Holders entitled to give such request, demand, authorization, direction,
notice, consent, election, waiver or other Act, but CFC shall have no obligation
to do so. If such a record date is fixed, such request, demand, authorization,
direction, notice, consent, election, waiver or other Act may be given before or
after such record date, but only the Holders of record at the close of business
on the record date shall be deemed to be Holders for the purposes of determining
whether Holders of the requisite proportion of the Outstanding Securities have
authorized or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other Act, and for that purpose the
Outstanding Securities shall be computed as of the record date. Any request,
demand, authorization, direction, notice, consent, election, waiver or other Act
of a Holder shall bind
25
<PAGE> 27
every future Holder of the same Security and the Holder of every Security issued
upon the registration of transfer thereof or in exchange therefor or in lieu
thereof in respect of anything done, omitted or suffered to be done by the
Trustee or the Company in reliance thereon, whether or not notation of such
action is made upon such Security. (Section 104)
DEFEASANCE
Unless otherwise indicated in the applicable Prospectus Supplement, any
Debt Security, or any portion of the principal amount thereof, will be deemed to
have been paid for purposes of the Indenture, and, at CFC's election, the entire
indebtedness of CFC in respect thereof will be deemed to have been satisfied and
discharged, if there has been irrevocably deposited with the Trustee or any
Paying Agent (other than CFC), in trust: (a) money in an amount which will be
sufficient, or (b) Eligible Obligations (as described below), which do not
contain provisions permitting the redemption or other prepayment thereof at the
option of the issuer thereof, the principal of and the interest on which when
due, without any regard to reinvestment thereof, will provide monies which,
together with money, if any, deposited with or held by the Trustee or such
Paying Agent, will be sufficient, or (c) a combination of (a) and (b) which will
be sufficient, to pay when due the principal of and premium, if any, and
interest, if any, due and to become due on such Debt Security or Securities or
portions thereof. (Section 701) For this purpose, unless otherwise indicated in
the applicable Prospectus Supplement, Eligible Obligations include direct
obligations of, or obligations unconditionally guaranteed by, the United States,
entitled to the benefit of the full faith and credit thereof, and certificates,
depositary receipts or other instruments which evidence a direct ownership
interest in such obligations or in any specific interest or principal payments
due in respect thereof. Among the conditions to CFC's making the election to
have its entire indebtedness deemed satisfied and discharged, CFC 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 Debt 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.
RESIGNATION OF TRUSTEE
The Trustee may resign at any time by giving written notice thereof to CFC
or may be removed at any time by Act of the Holders of a majority in principal
amount of Debt Securities then Outstanding delivered to the Trustee and CFC. No
resignation or removal of the Trustee and no appointment of a successor trustee
will become effective until the acceptance of appointment by a successor trustee
in accordance with the requirements of the Indenture. So long as no Event of
Default or event which, after notice or lapse of time, or both, would become an
Event of Default has occurred and is continuing and except with respect to a
Trustee appointed by Act of the Holders, if CFC has delivered to the Trustee a
resolution of its Board of Directors appointing a successor trustee and such
successor has accepted such appointment in accordance with the terms of the
Indenture, the Trustee will be deemed to have resigned and the successor will be
deemed to have been appointed as trustee in accordance with the Indenture.
(Section 910)
NOTICES
Notices to Holders of Debt Securities will be given by mail to the
addresses of such Holders as they may appear in the Security Register. (Section
106)
TITLE
CFC, the Trustee and any agent of CFC or the Trustee may treat the Person
in whose name a Debt Security is registered as the absolute owner thereof
(whether or not such Debt Security may be overdue) for the purpose of making
payment and for all other purposes. (Section 308)
GOVERNING LAW
The Indenture and the Debt Securities will be governed by, and construed in
accordance with, the law of the State of New York. (Section 112)
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<PAGE> 28
REGARDING THE TRUSTEE
The Trustee under the Indenture is Harris Trust and Savings Bank.
GLOBAL SECURITIES
The Depository Trust Company ("DTC") may act as securities depository for
some or all of the Debt Securities of any series. These Debt Securities will be
issued in fully-registered form in the name of Cede & Co. (DTC's partnership
nominee). One or more fully-registered certificates will be issued as Global
Securities for the Debt Securities in the aggregate principal amount of the Debt
Securities, and will be deposited with, or held for the benefit of, DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934. DTC holds securities that its participants ("Direct Participants")
deposit with DTC. DTC also facilitates the settlement among Direct Participants
of securities transactions, such as transfers and pledges, in deposited
securities through electronic computerized book-entry changes in Direct
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations, and certain other
organizations. DTC is owned by a number of its Direct Participants and by the
New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks, and
trust companies that clear through or maintain a custodial relationship with a
Direct Participant, either directly or indirectly ("Indirect Participants" and
together with Direct Participants, "Participants"). The Rules applicable to DTC
and its Participants are on file with the Securities and Exchange Commission.
Purchases of the Debt Securities under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Debt Securities
on DTC's records. The ownership interest of each actual purchaser of the Debt
Securities ("Beneficial Owner") is in turn to be recorded on the Participants'
records. Beneficial Owners will not receive written confirmation from DTC of
their purchases, but Beneficial Owners are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Participant through which the Beneficial
Owner entered into the transaction. Transfers of ownership interests in the Debt
Securities are to be accomplished by entries made on the books of Participants
acting on behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in the Debt Securities,
except in the event that use of the book-entry system for the Debt Securities is
discontinued.
To facilitate subsequent transfers, all the Debt Securities deposited by
Direct Participants with DTC are registered in the name of DTC's partnership
nominee, Cede & Co. The deposit of the Debt Securities with DTC and their
registration in the name of Cede & Co. effect no change in beneficial ownership.
DTC has no knowledge of the actual Beneficial Owners of the Debt Securities;
DTC's records reflect only the identity of the Direct Participants to whose
accounts such Debt Securities are credited, which may or may not be the
Beneficial Owners. The Participants will remain responsible for keeping account
of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the Debt
Securities. Under its usual procedures, DTC would mail an Omnibus Proxy to CFC
as soon as possible after the record date. The Omnibus Proxy assigns Cede &
Co.'s consenting or voting rights to those Direct Participants to whose accounts
the Debt Securities are credited on the record date (identified in a listing
attached to the Omnibus Proxy).
Principal and interest payments on the Debt Securities will be made to DTC.
DTC's practice is to credit Direct Participants' accounts on the payable date in
accordance with their respective holdings shown on DTC's
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<PAGE> 29
records unless DTC has reason to believe that it will not receive payment on the
payable date. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is the case with securities
held for the accounts of customers in bearer form or registered in "street
name", and will be the responsibility of such Participant and not of DTC, CFC or
the Trustee, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of principal and interest to DTC is the
responsibility of CFC or the Trustee, disbursement of such payments to Direct
Participants shall be the responsibility of DTC, and disbursements of such
payments to the Beneficial Owners shall be the responsibility of Participants.
DTC may discontinue providing its services as securities depository with
respect to the Debt Securities at any time by giving reasonable notice to CFC or
the Trustee. Under such circumstances, in the event that a successor securities
depository is not obtained, the Debt Securities certificates are required to be
printed and delivered.
CFC may decide to discontinue use of the system of book-entry transfers
through DTC (or a successor securities depository). In that event, the Debt
Securities certificates will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that CFC believes to be reliable (including DTC),
but CFC takes no responsibility for the accuracy thereof.
Neither CFC, the Trustee nor any Underwriter (as defined herein) will have
any responsibility or obligation to Participants, or the persons for whom they
act as nominees, with respect to the accuracy of the records of DTC, its nominee
or any Participant with respect to any ownership interest in the Debt
Securities, or payments to, or the providing of notice for, Participants or
Beneficial Owners.
PLAN OF DISTRIBUTION
Debt Securities of any series may be purchased to be reoffered to the
public through underwriting syndicates led by Lehman Brothers Inc. or other
underwriters (the "Underwriters"). The Underwriters with respect to an
underwritten offering of Debt Securities will be named in the Prospectus
Supplement relating to such offering. Unless otherwise set forth in the
Prospectus Supplement, the obligations of the Underwriters to purchase Debt
Securities will be subject to certain conditions precedent and each of the
Underwriters with respect to a sale of Debt Securities will be obligated to
purchase all of its Debt Securities if any are purchased. The initial public
offering price and any discounts or concessions allowed or reallowed or paid to
dealers set forth in the Prospectus Supplement may be changed from time to time.
The place and time of delivery for the Offered Debt Securities in respect
of which this Prospectus is delivered will be set forth in the Prospectus
Supplement.
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 an offering of Debt Securities, the Underwriters may
purchase and sell Debt Securities in the open market. These transactions may
include over-allotment and stabilizing transactions and purchases to cover short
positions created by the Underwriters in connection with an offering of Debt
Securities. Stabilizing transactions consist of certain bids or purchases for
the purpose of preventing or retarding a decline in the market price of Debt
Securities, and short positions created by the Underwriters involve the sale by
the Underwriters of a greater aggregate principal amount of Debt Securities than
they are required to purchase from the Company. The Underwriters may also impose
a penalty bid, whereby selling concessions allowed to broker-dealers in respect
of the Debt Securities sold in an offering thereof may be reclaimed by the
Underwriters if such Debt Securities are repurchased by the Underwriters in
stabilizing or covering transactions. These activities may stabilize, maintain
or otherwise affect the market price of the Debt Securities, which may be higher
than the price that might otherwise prevail in the open market; these
activities, if commenced, may be discontinued at any time. These transactions
may be effected in the over-the-counter market or otherwise.
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<PAGE> 30
LEGAL OPINIONS
The validity of the Debt 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
giving said reports.
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<PAGE> 31
PART II
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 as follows:
<TABLE>
<S> <C>
Registration Statement Filing Fee........................... $ 73,750
Printing.................................................... 50,000
Legal Fees and Expenses..................................... 200,000
Blue Sky Fees and Expenses.................................. 10,000
Accounting Fees............................................. 13,000
Fees of Trustee............................................. 10,000
Fees of Rating Agencies..................................... 150,000
Miscellaneous............................................... 24,000
--------
Total............................................. $530,750
========
</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
Section 29-304(16). The Bylaws of CFC also provide for indemnification of all
CFC directors, officers and employees as set forth above.
ITEM 16. LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C> <C>
1 -- Form of Underwriting Agreement to be used in connection with
Debt Securities. Incorporated by reference to Exhibit 1 to
Registration Statement No. 33-64231 filed on November 14,
1995.
4.1 -- Form of Indenture relating to Debt Securities. Incorporated
by reference to Exhibit 4.1 to Registration Statement No.
33-64231 filed on November 14, 1995.
5 -- Opinion and consent of Milbank, Tweed, Hadley & McCloy.
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 of this
Registration Statement).
25 -- Form T-1 Statement of Eligibility and Qualification under
the Trust Indenture Act of 1939 of Mellon Bank, N.A., as
Trustee. Incorporated by reference to Exhibit 25 to
Registration Statement No. 33-64231 filed on November 14,
1995.
</TABLE>
II-1
<PAGE> 32
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 this registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(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 this registration
statement;
provided, however, that the undertakings set forth in paragraphs (i) and
(ii) above do not apply if the information required to be included in a
post-effective amendment by these paragraphs is contained in periodic
reports filed by the registrant pursuant to Section 13 or section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in
this 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 this registration statement
shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(5) That, for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
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 foregoing provisions, 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 the 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-2
<PAGE> 33
THE REGISTRANT AND EACH PERSON WHOSE ORIGINAL 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 AND ANY REGISTRATION STATEMENT OF THE
REGISTRANT RELATING TO DEBT SECURITIES FILED AFTER THE DATE HEREOF PURSUANT TO
RULE 462(b) UNDER THE SECURITIES ACT OF 1933, AS AMENDED, WHICH AMENDMENTS AND
REGISTRATION STATEMENT 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 AND ANY SUCH
ADDITIONAL 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 28TH
DAY OF MAY, 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
REGISTRATION STATEMENT OR AMENDMENT 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
/s/ ANGELO M. SALERA Controller (Principal
- ------------------------------------------------ Accounting Officer)
ANGELO M. SALERA
/s/ PAUL J. LIESS President and Director
- ------------------------------------------------
PAUL J. LIESS
/s/ ELDWIN WIXSON Vice President and Director May 28, 1998
- ------------------------------------------------
ELDWIN WIXSON
/s/ BENSON HAM Secretary-Treasurer and
- ------------------------------------------------ Director
BENSON HAM
/s/ JAMES O. BAKER Director
- ------------------------------------------------
JAMES O. BAKER
/s/ GLENN ENGLISH Director
- ------------------------------------------------
GLENN ENGLISH
/s/ ALDEN J. FLAKOLL Director
- ------------------------------------------------
ALDEN J. FLAKOLL
/s/ WADE R. HENSEL Director
- ------------------------------------------------
WADE R. HENSEL
/s/ GEORGE W. KLINE Director
- ------------------------------------------------
GEORGE W. KLINE
</TABLE>
II-3
<PAGE> 34
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ KENNETH KRUEGER Director
- ------------------------------------------------
KENNETH KRUEGER
/s/ STEPHEN LOUDER Director
- ------------------------------------------------
STEPHEN 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/ TIMOTHY REEVES Director May 28, 1998
- ------------------------------------------------
TIMOTHY REEVES
/s/ BRIAN SCHLAGEL Director
- ------------------------------------------------
BRIAN SCHLAGEL
/s/ R.B. SLOAN Director
- ------------------------------------------------
R.B. SLOAN
/s/ THOMAS W. STEVENSON Director
- ------------------------------------------------
THOMAS W. STEVENSON
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-4
<PAGE> 35
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBITS PAGE
- ------- -------- ------------
<S> <C> <C> <C>
1 -- Form of Underwriting Agreement to be used in connection with
Debt Securities. Incorporated by reference to Exhibit 1 to
Registration Statement No. 33-64231 filed on November 14,
1995. ......................................................
4.1 -- Form of Indenture relating to Debt Securities. Incorporated
by reference to Exhibit 4.1 to Registration Statement No.
33-64231 filed on November 14, 1995.........................
5 -- Opinion and consent of Milbank, Tweed, Hadley & McCloy......
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 of this
Registration Statement).....................................
25 -- Form T-1 Statement of Eligibility and Qualification under
the Trust Indenture Act of 1939 of Mellon Bank, N.A., as
Trustee. Incorporated by reference to Exhibit 25 to
Registration Statement No. 33-64231 filed on November 14,
1995. ......................................................
</TABLE>
<PAGE> 1
EXHIBIT 5
May 28, 1998
National Rural Utilities Cooperative
Finance Corporation
2201 Cooperative Way
Herndon, Virginia 20171
Dear Sirs:
We have acted as special counsel for National Rural Utilities Cooperative
Finance Corporation (the "Company") in connection with the proposed issuance in
one or more Series from time to time, directly to purchasers or through agents
or underwriters to be designated from time to time, of Collateral Trust Bonds
(the "Bonds"), such Bonds to be issued under an Indenture dated as of February
15, 1994 (the "Indenture"), between the Company and First Bank National
Association, as 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 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 Bonds.
Based upon the foregoing, and having regard to legal considerations that we
deem relevant, we are of the opinion that the Bonds, 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.
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 NINE MONTHS ENDED FEBRUARY 28, 1998 AND 1997 AND THE
YEARS ENDED MAY 31, 1997, 1996, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1998 1997 1997 1996 1995 1994 1993
------------ ------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net margins before
extraordinary
loss............... $ 45,631 $ 41,965 $ 54,736 $ 50,621 $ 45,212 $ 33,188 $ 41,648
Add: Fixed charges... 396,446 352,068 475,729 426,079 361,338 263,230 265,412
-------- -------- -------- -------- -------- -------- --------
Margins available for
fixed charges...... $442,077 $394,033 $530,465 $476,700 $406,550 $296,418 $307,060
======== ======== ======== ======== ======== ======== ========
Fixed charges:
Interest on all
debt (including
amortization of
discount and
issuance
costs).......... $396,446 $352,068 $475,729 $426,079 $361,338 $263,230 $265,412
-------- -------- -------- -------- -------- -------- --------
Total fixed
charges... $396,446 $352,068 $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.
May 26, 1998
