<PAGE> 1
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
(Exact name of registrant as specified in 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)
2201 COOPERATIVE WAY
HERNDON, VIRGINIA 20171
(703) 709-6700
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
JOHN JAY LIST, GENERAL COUNSEL
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
2201 COOPERATIVE WAY
HERNDON, VIRGINIA 20171
(703) 709-6700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
MARK L. WEISSLER THOMAS R. BROME
MILBANK, TWEED, HADLEY & MCCLOY CRAVATH, SWAINE & MOORE
1 CHASE MANHATTAN PLAZA 825 EIGHTH AVENUE
NEW YORK, NEW YORK 10005 NEW YORK, NEW YORK 10019
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time to
time after the effective date of this registration statement as determined by
market conditions.
IF THE ONLY SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED
PURSUANT TO DIVIDEND OR INTEREST REINVESTMENT PLANS, PLEASE CHECK THE FOLLOWING
BOX. [ ]
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON
A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933, OTHER THAN SECURITIES OFFERED ONLY IN CONNECTION WITH DIVIDEND OR INTEREST
REINVESTMENT PLANS, PLEASE CHECK THE FOLLOWING BOX. [X]
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING
PURSUANT TO RULE 462(b) UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING BOX
AND LIST THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER
EFFECTIVE REGISTRATION STATEMENT FOR THE SAME OFFERING. [ ]
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(c)
UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING. [ ]
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Collateral Trust Bonds..................... $500,000,000 100% $500,000,000 $147,500
=============================================================================================================================
</TABLE>
(1) Expressed as the principal amount of Collateral Trust Bonds.
(2) Estimated solely for purposes of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS
SUBJECT TO COMPLETION, OCTOBER 19, 1998
#CFC LOGO#
National Rural Utilities
Cooperative Finance Corporation
$500,000,000
Collateral Trust Bonds
------------------------
CFC plans to issue from time to time up to $500,000,000 of Collateral Trust
Bonds. We will provide the specific terms of these securities in supplements to
this Prospectus. The Bonds may be offered to domestic and foreign investors
through:
- - direct sale by CFC, or
- - agents designated by CFC, or
- - underwriters or a group of underwriters.
Investors may have tax consequences related to the purchase and sale of these
Bonds. Please review the United States Taxation section on page 11 of this
Prospectus.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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This Prospectus may not be used to consummate sales of Bonds unless accompanied
by a Prospectus Supplement.
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THE DATE OF THIS PROSPECTUS IS OCTOBER , 1998
<PAGE> 3
AVAILABLE INFORMATION
CFC 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 office
of the Commission, Judiciary Plaza, 450 Fifth Street, N.W., 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 Citicorp 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 web site (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, New York, NY 10005.
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DOCUMENTS INCORPORATED BY REFERENCE
The following documents heretofore filed by the Company with the Commission
pursuant to the Exchange Act are incorporated by reference in this Prospectus.
1. The Company's Annual Report on Form 10-K for the fiscal year ended May
31, 1998.
2. The Company's Quarterly Report on Form 10-Q for the quarter ended August
31, 1998.
3. The Company's Current Reports on Form 8-K dated June 22, 1998 and August
28, 1998.
All documents subsequently filed by CFC 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.
CFC 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.
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS. NO ONE HAS BEEN AUTHORIZED TO PROVIDE YOU WITH DIFFERENT
INFORMATION. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT COVER OF
THE DOCUMENT. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE
THE OFFER IS NOT PERMITTED.
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<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, 1998 included 903 Utility Members, virtually
all of which are consumer-owned cooperatives, 75 Service Members and 74
associate members. The Utility Members included 835 distribution systems and 68
generation and transmission ("power supply") systems operating in 46 states and
U.S. territories.
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 daily based on CFC's
overall cost of long-term capital and may be obtained for any period from one
year through the life of the loan. 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 up to 20 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 $1,017.8 million of the
guaranteed pollution control debt (at May 31, 1998) 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 losses at a level believed to be
adequate in relation to the quality and size of its loans and guarantees
outstanding. At May 31, 1998, the allowance was $250.1 million. At May 31, 1998,
CFC's ten largest borrowers, which were primarily power supply members, had
outstanding loans totaling $1,397.1 million which represented approximately
13.3% of CFC's total loans outstanding. As of May 31, 1998, outstanding
guarantees for these same ten largest borrowers totaled $976.2 million, which
represented 46.9% of CFC's total guarantees outstanding, including guarantees of
the
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<PAGE> 5
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, 1998, loans outstanding to Deseret
(excluding loans guaranteed by RUS) accounted for 3.1% of total loans
outstanding. Guarantees outstanding for Deseret accounted for 15.2% of total
guarantees outstanding. Total loans and guarantees outstanding to and for
Deseret equalled 36.7% of total Members' Equity, Members' Subordinated
Certificates and the allowance for loan losses.
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.
SUMMARY FINANCIAL INFORMATION
The following is a summary of selected financial data for each of the five years
ended May 31, 1998.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
For the year ended May 31:
Operating income................ $ 637,573 $ 564,439 $ 505,073 $ 440,109 $ 324,682
=========== ========== ========== ========== ==========
Operating margin................ $ 54,411 $ 51,530 $ 46,857 $ 41,803 $ 29,159
Nonoperating income............. 2,611 3,206 3,764 3,409 4,029
Gain on sale of land............ 5,194 -- -- -- --
Extraordinary loss(A)........... -- -- (1,580) -- --
----------- ---------- ---------- ---------- ----------
Net margins..................... $ 62,216 $ 54,736 $ 49,041 $ 45,212 $ 33,188
=========== ========== ========== ========== ==========
Fixed charge coverage
ratio(A)...................... 1.12 1.12 1.12 1.13 1.13
=========== ========== ========== ========== ==========
As of May 31:
Assets.......................... $10,682,888 $9,057,494 $8,054,089 $7,080,789 $6,224,296
=========== ========== ========== ========== ==========
Long-term debt(B)............... $ 4,697,296 $3,596,231 $3,682,421 $3,423,031 $2,841,220
=========== ========== ========== ========== ==========
Quarterly Income Capital
Securities.................... $ 200,000 $ 125,000 $ -- $ -- $ --
=========== ========== ========== ========== ==========
Members' Subordinated
Certificates.................. $ 1,229,166 $1,212,486 $1,207,684 $1,234,715 $1,222,858
=========== ========== ========== ========== ==========
Members' Equity................. $ 279,278 $ 271,594 $ 269,641 $ 270,221 $ 260,968
=========== ========== ========== ========== ==========
Leverage ratio(C)............... 6.37 5.84 5.69 5.13 4.63
=========== ========== ========== ========== ==========
Debt to equity ratio(D)......... 4.51 3.97 3.63 3.01 2.52
=========== ========== ========== ========== ==========
</TABLE>
- ---------------
(A) Extraordinary loss for the year ended May 31, 1996, represents the premium
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 $327.3
million, $268.7 million, $351.5 million, $262.7 million and $200.8 million
in long-term debt that comes due, matures and/or will be redeemed early
during fiscal years 1999, 1998, 1997, 1996 and 1995, respectively.
(C) In accordance with CFC's revolving credit agreements, the leverage ratio is
calculated by dividing debt and guarantees outstanding, excluding and
Quarterly Income Capital Securities and debt used to fund
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<PAGE> 6
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 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, 1998.
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.
CAPITALIZATION
The following table shows the capitalization of CFC as of August 31, 1998.
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
SENIOR DEBT:
Short-term Debt(A)........................................ $ 3,779,955
Long-term Debt(A)......................................... 5,460,652
-----------
Total Senior Debt(B).............................. 9,240,607
-----------
SUBORDINATED DEBT AND MEMBERS' EQUITY:
Quarterly Income Capital Securities(C).................... 400,000
Members' Subordinated Certificates(D)..................... 1,241,046
Members' Equity(E)........................................ 239,955
-----------
Total Capitalization.............................. $11,121,608
===========
</TABLE>
- ------------
(A) Short-term indebtedness is used to fund CFC'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, CFC
had at August 31, 1998, bank revolving credit agreements providing for
borrowings aggregating up to $5,217.5 million. CFC'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 $1,356.7 million increased
each fiscal year by 90% of net margins not distributed to members and an
average fixed charge coverage ratio over the six most recent fiscal quarters
of at least 1.025. 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 CFC 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 CFC's outstanding Collateral
Trust Bonds and Medium-Term Notes.
(B) At August 31, 1998, CFC had outstanding guarantees of tax-exempt securities
issued on behalf of members in the aggregate amount of $1,142.0 million.
Guaranteed tax-exempt securities include $1,012.9 million of long-term
adjustable or floating/fixed rate pollution control bonds which are required
to be remarketed at the option of the holders. CFC has agreed to purchase
any such bonds that cannot be remarketed. At August 31, 1998, CFC had
guaranteed its members' obligations in connection with certain lease
transactions and other debt in the amount of $880.2 million.
(C) As of August 31, 1998, CFC had issued a total of $400.0 million 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.
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<PAGE> 7
(D) Subordinated Certificates are subordinated obligations purchased by members
as a condition of membership and in connection with CFC's extension of
long-term credit to them. Those issued as a condition of membership ($644.8
million at August 31, 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) CFC allocates its net margins among its members in proportion to interest
earned by CFC from such members. CFC 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 CFC'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.
DESCRIPTION OF BONDS
The Bonds are to be issued under an indenture dated as of February 15, 1994
(said Indenture, as supplemented from time to time, being herein called the
"Indenture"), between CFC and First Bank National Association, as Trustee (the
"Trustee"), which Indenture is an exhibit to the Registration Statement of which
this Prospectus is a part. The following summaries of certain provisions of the
Indenture do not purport to be complete, and, where particular provisions of the
Indenture are referred to, such provisions, including definitions of certain
terms, are incorporated by reference as a part of such summaries, which are
qualified in their entirety by such reference. Section references in this
Description of Bonds are to sections of the Indenture.
CFC may maintain banking relationships in the ordinary course of business with
First Bank National Association, including the making of investments through,
and borrowings from, said bank.
The Indenture provides that additional debt securities may be issued thereunder
without limitation as to aggregate principal amount except as described below
under "Security," as authorized from time to time by CFC's Board of Directors.
(Sections 2.01, 2.02 and 2.03) Bonds issued at any time under the Indenture are
referred to herein collectively as "Collateral Trust Bonds," which term does not
include Series E-2 and Series V Collateral Trust Bonds, which bonds were issued
under a prior indenture. The terms of Bonds of any series will be set forth in
or pursuant to a Board resolution or supplemental indenture adopted or entered
into prior to the time of the issuance thereof. (Sections 2.03 and 13.01) The
Bonds will rank and be secured equally and ratably with each other.
GENERAL
Reference is made to the Prospectus Supplement for the following terms of the
Bonds with respect to which this Prospectus is delivered: (i) the title of such
Bonds; (ii) any limit upon the aggregate principal amount of such Bonds; (iii)
the persons to whom interest on such Bonds shall be payable, if other than the
persons in whose names such Bonds are registered; (iv) the date or dates on
which the principal of such Bonds is payable or the method by which such date or
dates shall be determined; (v) the rate or rates, if any, at which such Bonds
shall bear interest or any method by which such rate or rates shall be
determined; (vi) the date or dates from which such interest, if any, shall
accrue and the date or dates on which such interest, if any, shall be payable;
(vii) the place or places at which the principal of and premium, if any, and
interest, if any, on such Bonds shall be payable and registration of transfer or
exchanges of such Bonds may be effected, and the registrar for such Bonds;
(viii) the terms and conditions upon which such Bonds may be redeemed, including
any sinking fund or other mandatory redemption provisions; (ix) the
denominations in which such Bonds shall be issuable if other than denominations
of $1,000 and any integral multiple thereof; (x) the coin or currency in which
payment of the principal of and premium, if any, and interest, if any, on such
Bonds shall be payable (if other than the coin or currency in which such Bonds
are denominated), and, if the principal of or premium, if any, or interest, if
any, on such Bonds are to be payable, at the election of the Company or a
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<PAGE> 8
holder thereof, in a coin or currency other than that in which such Bonds are
denominated, the period or periods within which, and the terms and conditions
upon which, such election may be made, and if denominated or payable in any coin
or currency, including composite currencies, other then U.S. dollars, the method
by which such Bonds shall be valued; (xi) if the principal of or premium, if
any, or interest, if any, on such Bonds are to be payable in securities or other
property at the election of the Company or a holder thereof, the type and amount
of such securities or other property, or the method by which such amount shall
be determined, and the periods within which, and the terms and conditions upon
which, any such election may be made; (xii) if the amount payable in respect of
principal of or premium, if any, or interest, if any, on such Bonds may be
determined with reference to an index, the manner in which such amounts shall be
determined; (xiii) if other than the principal amount thereof, the portion of
the principal amount of such Bonds, or any tranche thereof, which shall be
payable upon declaration of the acceleration of the maturity thereof; (xiv) the
terms, if any, pursuant to which such Bonds may be converted into or exchanged
for shares of capital stock or other securities of the Company or any other
person; (xv) if such Bonds are to be issued in global form, the depositary with
respect to such global bond or bonds and any limitations on the rights of the
holder or holders of such bonds to transfer or exchange the same or to obtain
the registration of transfer thereof or to obtain certificates therefor in
definitive form in lieu of temporary form; (xvi) if such Bonds are to be
issuable as bearer securities, any and all matters incidental thereto; (xvii)
the right, if any, of the Company to limit or discharge the indenture as to such
Bonds; (xviii) whether and under what circumstances the Company will pay
additional amounts on such Bonds held by a Person who is not a U.S. person in
respect of any tax, assessment or governmental charge withheld or deducted and,
if so, whether and on what terms the Company will have the option to redeem such
Bonds rather than pay such additional amounts; and (xix) any other terms of such
Bonds not inconsistent with the Indenture. (Section 2.03)
The Bonds may be issued in registered form without coupons, in a form registered
as to principal only with or without coupons, in bearer form with or without
coupons or any combination thereof. In addition, all or a portion of the Bonds
may be issued in temporary or definitive global form. Bonds in bearer form are
offered only to non-United States persons and to offices located outside the
United States of certain United States financial institutions. See "LIMITATIONS
ON ISSUANCE OF BEARER BONDS."
The Bonds may be sold for U.S. dollars, foreign currencies or foreign currency
units, and the principal (including any premium) and any interest on the Bonds
may be payable in U.S. dollars, foreign currencies or foreign currency units.
The Bonds may be issued in one or more series with the same or various
maturities at or above par or with an original issue discount. The specific
designation, aggregate principal amount, currency, currencies or currency unit
or units in which the principal, premium, if any, or interest, if any, is
payable, authorized denominations, purchase price, maturity, rate (or method of
calculation) and time of payment of any interest, any redemption terms, any
listing on a securities exchange, or other specific terms of the Bonds in
respect of which this Prospectus is being delivered ("Offered Bonds") are set
forth in the accompanying Prospectus Supplement or in a supplement thereto
relating to the specific Offered Bonds, together with the terms of offering of
the Offered Bonds.
SECURITY
The Bonds will be secured, equally with outstanding Collateral Trust Bonds, by
the pledge with the Trustee of Eligible Collateral having an Allowable Amount of
at least 100% of the principal amount of Collateral Trust Bonds outstanding. The
Indenture provides that Eligible Collateral shall consist of cash, Eligible
Mortgage Notes of Distribution System Members and Permitted Investments. The
"Allowable Amount" of cash is 100% thereof, the "Allowable Amount" of Eligible
Mortgage Notes is the amount advanced thereon and not repaid and the "Allowable
Amount" of Permitted Investments is their cost to CFC (exclusive of accrued
interest and brokerage commissions), except that the "Allowable Amount" of
Permitted Investments traded on a national securities exchange or in any
over-the-counter market is their fair market value as determined by CFC. For
purposes of the Indenture and as used in describing the Bonds herein, a "Member"
is any person which is a member or patron of CFC; and a "Distribution System
Member" is a Member 50% or more of whose gross operating revenues are derived
from sales of electricity to ultimate consumers. (Sections 1.01 and 3.01)
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As a condition to the authentication and delivery of Bonds (or, for certain
series of Bonds, prior only to the first issuance thereof and if such
certification has not been made as of a date 90 days prior to the authentication
and delivery of such Bonds) or to the withdrawal of Collateral, and in any event
at least once a year, CFC must certify to the Trustee that:
(1) the Allowable Amount of Eligible Collateral pledged under the
Indenture is at least equal to 100% of the aggregate principal amount of
Collateral Trust Bonds to be outstanding;
(2) each Eligible Mortgage Note included in the Eligible Collateral so
certified is an Eligible Mortgage Note of a Distribution System Member
having an Equity Ratio of at least 20% and an Average Coverage Ratio of at
least 1.35; and
(3) the aggregate Allowable Amount of all Eligible Mortgage Notes of
any one Distribution System Member so certified does not exceed 10% of the
aggregate Allowable Amount of all Eligible Collateral so certified.
(Sections 3.01, 6.01 and 7.13)
CFC is also entitled to the authentication and delivery of Collateral Trust
Bonds on the basis of the retirement of outstanding Collateral Trust Bonds at
their final maturity or by redemption at the option of CFC. (Sections 3.02 and
3.03)
The Indenture provides that Collateral Trust Bonds of one or more other series
may be issued thereunder without limitation as to aggregate principal amount,
subject to the restriction described under "Restriction on Indebtedness", so
long as the Allowable Amount of Eligible Collateral pledged under the Indenture
is at least equal to the aggregate principal amount of Collateral Trust Bonds to
be outstanding and meets the other requirements set forth herein. (Sections 2.03
and 13.01) "Eligible Mortgage Note" means a note or bond of a Distribution
System Member which is secured by a Mortgage under which no default exists with
respect to the covenants required by the Indenture to be contained in a Mortgage
(as described below), unless consented to by the mortgagees to the extent
permitted in the Mortgage and the Indenture, and under which no "event of
default" as defined in the Mortgage shall have occurred and shall have resulted
in the exercise of remedies. (Section 1.01)
"Equity Ratio" is determined by dividing the sum of the Member's equities and
margins at the end of the particular year by the Member's total assets and other
debts at such date; and "Coverage Ratio" is determined by dividing the sum of
the Member's patronage capital and operating margins, non-operating
margins-interest, cash received in respect of power supply systems and other
capital credits, depreciation and amortization expense and interest expense with
respect to long-term debt by the Member's long-term debt service obligations in
respect of such year (but in the event any portion of such Member's long-term
debt is refinanced during such year the long-term debt service obligations
during such year in respect thereof will be based upon the larger of (x) an
annualization of such obligations with respect to the refinancing debt during
the portion of the year such refinancing debt is outstanding and (y) the
long-term debt service obligations during the following year on such refinancing
debt). These terms are determined in accordance with the system of accounting
used for REA reporting or if such Member is not required to maintain its
accounts in accordance with such system, then in accordance with generally
accepted accounting principles, except that the Indenture requires that interest
expense and long-term debt service obligations include 33 1/3% of the amount by
which (x) rental payments by such Member with regard to certain property having
an initial cost greater than $250,000 exceed (y) 2% of such Member's equities
and margins, each in respect of such year. For RUS reporting purposes and for
purposes of CFC's calculation of borrowers' ratios, obligations under take-
or-pay power contracts, guaranties and other contingent obligations are not
considered debt of a Member. "Average Coverage Ratios" are computed by averaging
the best two of the three calendar years preceding the date of determination.
(Section 1.01) The effect of these provisions is to exclude from the computation
of the Coverage Ratio capital credits except to the extent received by the
Member in the form of cash.
The Indenture requires that each Mortgage securing an Eligible Mortgage Note be
a first mortgage on the property then owned or thereafter acquired by the Member
issuing the Note (or, in the case of certain public agency borrowers, on such
Member's revenues), subject to usual exceptions in mortgages of utility
companies, and that, if the Mortgage is a common mortgage with RUS or any other
lender, the mortgagees be secured
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equally and ratably. (Section 1.01 and Schedule I) There are no requirements in
the Indenture as to the value of the property subject to the lien of a Mortgage.
The Indenture provides that, unless an Event of Default under the Indenture
exists, and other than certain limited duties specified in the Indenture, the
Trustee shall have no duties or responsibilities with regard to any Mortgage and
no responsibilities with regard to the value of any property subject thereto.
(Section 4.03)
"Permitted Investments" are defined to include certain obligations of or
guaranteed by the United States and of states and municipalities and agencies
thereof which are rated AA (or equivalent) or better by at least two nationally
recognized statistical rating agencies and which mature not more than two years
after purchase, certificates of deposit or time deposits of a bank or trust
company having at least $500,000,000 of capital and surplus and maturing not
more than two years after purchase and commercial paper of bank holding
companies or other corporate issuers (other than CFC) generally rated in the
highest category by at least two nationally recognized statistical rating
agencies and maturing not more than one year after purchase. (Section 5.03)
EXERCISE OF RIGHTS
Until the occurrence of an Event of Default under the Indenture, CFC retains the
right to control the exercise of rights and powers under Eligible Mortgage Notes
and Mortgages pledged under the Indenture. (Section 15.01) Mortgages which also
secure notes issued to RUS provide that RUS will have the exclusive right for an
initial 30-day period to initiate and control enforcement proceedings on behalf
of the holders of all the notes secured by the particular Mortgage, including
those held by the Trustee.
RESTRICTION ON INDEBTEDNESS
CFC may not incur any Superior Indebtedness or make any optional prepayment on
any Capital Term Certificate if, as a result, the principal amount of Superior
Indebtedness outstanding thereafter or on any future date, less the principal
amount of a Government or Government Insured Obligations held by CFC on the
determination date, would exceed 20 times the sum of the Members' equity in CFC
at the time of determination plus the principal amount of Capital Term
Certificates outstanding at the time of determination or at such given future
date, as the case may be. The principal amounts of Superior Indebtedness and
Capital Term Certificates to be outstanding on any future given date will be
computed after giving effect to maturities and sinking fund requirements.
(Section 7.11) "Superior Indebtedness" means all indebtedness of CFC (including
all guarantees by CFC of indebtedness of others) except Capital Term
Certificates. (Section 1.01). A "Capital Term Certificate" is defined for the
purposes of the Indenture as a note of CFC substantially in the form of the
capital term certificates of CFC outstanding on the date of the Indenture and
any other indebtedness having substantially similar provisions as to
subordination. (Section 1.01). "Government or Government Insured Obligations"
means obligations held by CFC which relate to the RUS or successor programs and
which are obligations of the United States or any agency thereof or which are
guaranteed or insured by the United States government or any agency thereof.
(Section 7.11) As of August 31, 1998, CFC had $11,247.8 million outstanding of
Superior Indebtedness and within the restrictions of the Indenture was permitted
to have outstanding an additional $26,372.2 million of Superior Indebtedness.
Unless an Event of Default shall occur, CFC will be entitled to receive and
retain all payments on account of principal, premium and interest on the
Eligible Mortgage Notes and Permitted Investments on deposit with the Trustee.
(Section 4.02)
MODIFICATIONS
Modifications of the provisions of the Indenture may be made with the consent of
the holders of not less than a majority in aggregate principal amount of the
then outstanding Collateral Trust Bonds, but, without the consent of the holder
of each Collateral Trust Bond affected thereby, no such modification shall (i)
effect a reduction, or an extension of the stated time of payment, of the
principal of or interest on any Collateral Trust Bond or of any premium payable
on redemption, (ii) permit the creation of any prior or equal lien on the
securities or other property pledged under the Indenture (except as expressly
permitted) or deprive the holder of any Collateral Trust Bond (except as
expressly permitted) of the lien created by the Indenture or
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(iii) reduce the above-stated percentage of holders of Collateral Trust Bonds
whose consent is required to modify the Indenture or the percentage of holders
of Collateral Trust Bonds whose consent is required for any waiver under the
Indenture. (Section 13.02)
The Indenture provides that the Company and the Trustee may, without the consent
of any holders of Collateral Trust Bonds, enter into supplemental indentures for
the purposes, among other things, of adding to the Company's covenants,
establishing the form or terms of Bonds of any series, changing or eliminating
any restriction on the manner or place of payment of principal of or interest on
Bearer Bonds or, provided such action shall not adversely affect the interests
of the holders of any series of Bonds in any material respect, curing
ambiguities or inconsistencies in the Indenture or making other provisions with
respect to matters arising under the Indenture. (Section 13.01)
WAIVER OF CERTAIN COVENANTS
The Indenture provides that the Company may omit to comply with certain
restrictive covenants (including that described above under "Restriction on
Indebtedness") if the holders of not less than a majority in principal amount of
all series of Collateral Trust Bonds at the time outstanding affected thereby
(acting as one class) waive compliance with such restrictive covenants. (Section
7.16)
EVENTS OF DEFAULT
The Indenture provides that the following constitute "Events of Default"
thereunder: (i) default in the payment of interest on any Bonds continuing for
30 days; (ii) default in the payment of the principal of (or, premium, if any,
on) any Bonds at their maturity or upon redemption; (iii) default in the making
of any sinking fund payment on any Bonds which provide for mandatory sinking
fund payments; (iv) default in the performance of specified covenants in the
Indenture for 60 days after such default is known to any officer of CFC,
including the restriction on indebtedness and the covenant to maintain Eligible
Collateral outlined above; (v) failure to perform any other covenant in the
Indenture for 60 days after notice from the Trustee to the Company or from
holders of at least 25% in principal amount of Bonds outstanding to the Trustee
and (vi) specified events of bankruptcy, reorganization or insolvency. (Section
9.01)
CFC is required to file with the Trustee annually a written statement as to
CFC's compliance with the conditions and covenants under the Indenture. (Section
7.15) In case an Event of Default should occur and be continuing, the Trustee or
the holders of at least 25% in principal amount of the Bonds then outstanding
may declare the principal of the Bonds to be due and payable. Each declaration
may, under certain circumstances, be rescinded by the holders of a majority in
principal amount of the Bonds at the time outstanding. (Section 9.02)
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
shall be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Bonds, unless
such holders shall have offered to the Trustee reasonable security or indemnity.
Subject to such provisions for indemnification and certain limitations contained
in the Indenture, the holders of a majority in principal amount of the Bonds at
the time outstanding shall 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. The Trustee is not
required to expend or risk its own funds or incur financial liability if it has
reasonable ground for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
(Sections 9.08, 10.01 and 10.03)
The Indenture provides that upon receipt by the Trustee of notice of an Event of
Default, declaring an acceleration or directing the time, method or place of
conducting a proceeding at law if an Event of Default has occurred and is
continuing, the Trustee shall, with respect to any series of Bonds represented
by a global bond or bonds, and may, with respect to any other series of Bonds,
establish a record dated for the purpose of determining holders of outstanding
Bonds of such series entitled to join in such notice. (Section 9.01)
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SATISFACTION AND DISCHARGE; DEFEASANCE
At the request of the Company, the Indenture will cease to be in effect as to
the Company (except for certain obligations to register the transfer or exchange
of Bonds and hold moneys for payment in trust) with respect to the Bonds when
(i) the principal of and interest on Bonds and coupons, if any, have been paid
and/or the Company has deposited with the Trustee, in trust, money and U.S.
Government Obligations (as defined in the Indenture), which through the payment
of interest thereon and principal thereof in accordance with their terms will
provide money in an amount sufficient to pay all the principal of, and interest
on, the Bonds in accordance with the terms of the Bonds, or (ii) such Bonds or
coupons are deemed paid and discharged in the manner described in the next
paragraph. (Section 14.01)
Unless the Prospectus Supplement relating to the Offered Bonds provides
otherwise, the Company at its option (a) will be Discharged (as such term is
defined in the Indenture) from any and all obligations in respect of the Offered
Bonds (except for certain obligations to register the transfer or exchange of
Bonds, replace stolen, lost or mutilated Bonds and coupons, maintain paying
agencies and hold moneys for payment in trust) or (b) need not comply with
certain restrictive covenants of the Indenture (including those described above
under "Restriction on Indebtedness"), in each case after the Company deposits
with the Trustee, in trust, money, and, in the case of Bonds and coupons
denominated in a foreign currency, Foreign Government Securities, as defined in
the Indenture, which through the payment of interest thereon and principal
thereof in accordance with their terms will provide money in an amount
sufficient to pay in the currency, currencies or currency unit or units in which
the Offered Bonds are payable all the principal of, and interest on, the Offered
Bonds on the dates such payments are due in accordance with the terms of the
Offered Bonds. Among the conditions to the Company's exercising any such option,
the Company is required to deliver to the Trustee an opinion of counsel to the
effect that the deposit and related defeasance would not cause the holders of
the Offered Bonds to recognize income, gain or loss for United States federal
income tax purposes and that the holders will be subject to United States
federal income tax in the same amounts, in the same manner and at the same times
as would have been the case if such deposit and related defeasance has not
occurred. (Section 14.02)
At the request of the Company, the Trustee will deliver or pay to the Company
any U.S. Government Obligations, Foreign Government Securities or money
deposited, for the purposes described in the preceding two paragraphs, with the
Trustee by the Company and which, in the opinion of a nationally-recognized firm
of independent public accountants, are in excess of the amount thereof which
would then have been required to be deposited for such purposes. In addition,
the Trustee, in exchange for, simultaneously, other U.S. Government Obligations,
Foreign Government Securities or money, will deliver or pay to the Company, at
the Company's request, U.S Government Obligations, Foreign Government Securities
or money deposited with the Trustee for the purposes described in the preceding
two paragraphs, provided that, in the opinion of a nationally-recognized firm of
independent public accountants, immediately after such exchange the obligations,
securities or money then held by the Trustee will be in such amount as would
then have been required to be deposited with the Trustee for such purposes.
(Section 14.02)
LIMITATIONS ON ISSUANCE OF BEARER BONDS
Under U.S. federal tax laws, certain limitations on offers, sales and delivery
apply to Bearer Bonds. These limitations, as well as additional information
regarding the U.S. federal income tax consequences in respect of a Bearer Bond,
will be set forth in any Prospectus Supplement providing for the issuance of
Bearer Bonds.
UNITED STATES TAXATION
The following is a summary of the principal U.S. federal income tax consequences
of the acquisition, ownership and disposition of Registered Bonds. The summary
reflects present law, which is subject to prospective and retroactive changes.
It is not intended as tax advice, and it does not describe all of the tax
considerations that may be relevant to a prospective purchaser. The summary
addresses only original purchasers of the Bonds that hold the Bonds as capital
assets. It does not address U.S. federal income tax
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issues relevant to purchasers subject to special rules, such as banks,
securities dealers, life insurance companies, controlled foreign corporations,
persons holding Bonds in connection with a hedge or as a position in a
"straddle" or persons having a functional currency other than the U.S. dollar.
The summary does not consider the tax consequences of Bonds with terms other
than those described in this Prospectus. PROSPECTIVE PURCHASERS ARE URGED TO
CONSULT THEIR TAX ADVISERS ABOUT THE TAX CONSEQUENCES OF AN INVESTMENT IN THE
BONDS UNDER THE LAWS OF THE UNITED STATES AND OTHER JURISDICTIONS WHERE
PURCHASERS ARE SUBJECT TO TAXATION.
For the purposes of this discussion, "U.S. Holder" means (i) a beneficial owner
of the Bonds that is a citizen or resident of the United States, a corporation
or partnership organized in or under the laws of the United States or any
political subdivision thereof, a trust subject to the control of a United States
person and the primary supervision of a United States court, or an estate the
income of which is subject to U.S. federal income taxation regardless of its
source or (ii) any other beneficial owner as to which income from the Bonds is
effectively connected with the conduct of a trade or business within the United
States. The term "Non-U.S. Holder" refers to any beneficial owner of the Bonds
other than a U.S. Holder.
U.S. HOLDERS
PAYMENTS OF INTEREST
Interest on a Bond generally will be taxable to a U.S. Holder as ordinary
interest income at the time of receipt or accrual in accordance with the U.S.
Holder's method of accounting for U.S. federal income tax purposes. Special
rules for the interest on Bonds with original issue discount are described
below.
ORIGINAL ISSUE DISCOUNT
The following is a summary of the U.S. federal income tax consequences to U.S.
Holders of the purchase, ownership and disposition of Bonds issued with original
issue discount ("OID"). The following summary is based on sections 1271 through
1273 and section 1275 of the U.S. Internal Revenue Code of 1986, as amended (the
"Code"), and on certain final regulations of the U.S. Department of Treasury
issued in 1994 and 1996 (the "OID Regulations") interpreting these provisions.
General. A U.S. Holder of a Bond issued at a discount with a maturity of more
than one year after the date of issue must include OID in income over the term
of the Bond. The U.S. Holder generally must include in gross income for the
taxable year the sum of the daily portions of OID that accrue on the Bond for
each day during the year in which such holder held the Bond. Accordingly, a U.S.
Holder will be required to include amounts attributable to OID in income before
receiving cash attributable to that income.
A Bond has OID for U.S. federal income tax purposes to the extent that the
Bond's stated redemption price at maturity exceeds its issue price. The issue
price of a Bond is the initial offering price at which a substantial amount of
the Bonds is sold to the public (excluding bond houses, brokers or similar
persons). The stated redemption price of a Bond is the total of all payments due
on the Bond other than payments of "qualified stated interest." A Bond is not
treated as issued at a discount, however, if the discount is less than 1/4 of 1
percent of the Bond's stated redemption price at maturity multiplied by the
number of complete years to maturity ("de minimis OID"). A Bond that bears
interest for any accrual period at a rate below the rate for the remaining term
of the Bond (e.g., a Bond with a "teaser rate") also will not be treated as
issued at a discount solely on account of that feature if the foregone interest
is less than 1/4 of 1 percent of the Bond's adjusted stated redemption price
multiplied by the number of complete years to maturity.
Qualified stated interest is interest that is payable unconditionally in cash or
in property (other than debt of the issuer) at least annually at either (a) a
single fixed rate that appropriately takes into account the length of the
interval between payments or (b) certain variable rates.
To determine the daily portions of OID, OID accruing during an accrual period is
divided by the number of days in the period. Except as described below under
"Variable Rate Bonds", the amount of OID accruing during an accrual period is
determined by using a constant yield to maturity method. The accrued amount for
any period is the excess of (i) the product of the Bond's adjusted issue price
at the beginning of the accrual
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period and its yield to maturity (determined on the basis of compounding at the
close of each accrual period and appropriately adjusted for the length of the
accrual period) over (ii) the amount of any qualified stated interest payments
allocable to the accrual period. The adjusted issue price of a Bond at the
beginning of any accrual period generally equals the issue price of the Bond
increased by the aggregate amount of OID that accrued on that Bond in all prior
accrual periods and reduced by the amount of payments in prior accrual periods
other than payments of qualified stated interest.
A U.S. Holder of a Bond issued at a discount that purchases the Bond for more
than the Bond's adjusted issue price but less than or equal to the Bond's stated
redemption price at maturity may reduce the daily portions of OID includible in
gross income by daily portions of the acquisition premium paid for the Bond.
Variable Rate Bonds. Special rules apply to the U.S. Holder of a Bond that
bears interest at certain types of variable rates (a "Variable Rate Bond"). For
these purposes, a Variable Rate Bond is one that bears interest at the current
values of (i) one or more "qualified floating rates," (ii) a single fixed rate
followed by one or more qualified floating rates, (iii) a single "objective
rate" or (iv) a single fixed rate and an objective rate that is a qualified
inverse floating rate. A qualified floating rate is any floating rate the
variations in which reasonably can be expected to measure contemporaneous
variations in the cost of newly-borrowed funds (e.g., LIBOR). Although a
multiple of a qualified floating rate will generally not itself constitute a
qualified floating rate, a variable rate is a qualified floating rate if it is
equal to either (i) the product of a qualified floating rate and a fixed
multiple rate that is greater than 0.65 but not more than 1.35 or (ii) the
product of a qualified floating rate and a fixed multiple rate that is greater
than 0.65 but not more than 1.35, increased or decreased by a fixed rate. In
addition, under the OID Regulations, two or more qualified floating rates with
values within 25 basis points of each other (as determined on the Variable Rate
Bond's issue date) will be treated as a single qualified floating rate.
Notwithstanding the foregoing, a variable rate that would otherwise constitute a
qualified floating rate but which is subject to one or more restrictions such as
a maximum or minimum numerical limitation (i.e., a cap or floor) may, under
certain circumstances, fail to be treated as a qualified floating rate under the
OID Regulations unless such cap or floor is fixed throughout the term of the
Bond. An objective rate is any rate, other than a qualified floating rate, that
is determined using a single fixed formula and that is based on objective
financial or economic information. A rate will not be considered an objective
rate, however, if it is reasonably expected that the average value of the rate
during the first half of the Bond's term will be either significantly less than
or significantly greater than the average value of the rate during the final
half of the Bond's term. A qualified inverse floating rate is a fixed rate minus
a qualified floating rate whose variations can reasonably be expected to
inversely reflect contemporaneous variations in the qualified floating rate. A
fixed rate for an initial period of less than one year followed by a qualified
floating rate or an objective rate together constitute a single qualified
floating rate or objective rate if the value of the qualified floating rate or
objective rate on the issue date is intended to approximate the fixed rate.
In general, to compute the accrual of OID on a Variable Rate Bond, the OID
Regulations convert the Variable Rate Bond into a fixed rate debt instrument and
then apply the general rules discussed above to the deemed fixed rate debt
instrument. If a Variable Rate Bond provides for stated interest at either a
single qualified floating rate or objective rate that is unconditionally payable
at least annually, (a) all stated interest with respect to the Variable Rate
Bond is treated as qualified stated interest and (b) the amount of qualified
stated interest and the amount of OID, if any, that accrues during an accrual
period is determined under the rules applicable to fixed rate debt instruments
discussed above by assuming that the variable rate is a fixed rate equal to (i)
in the case of a qualified floating rate or qualified inverse floating rate, the
value, as of the issue date of the Variable Rate Bond, of the qualified floating
rate or the qualified inverse floating rate, or (ii) in the case of an objective
rate (other than a qualified inverse floating rate), a fixed rate that reflects
the yield that is reasonably expected for the Variable Rate Bond.
If the Variable Rate Bond does not provide for stated interest as described in
the preceding paragraph, to determine the amounts of interest and OID accruals
an "equivalent fixed rate debt instrument" must be constructed. The equivalent
fixed rate debt instrument has terms that are identical to those provided under
the Variable Rate Bond, except that the equivalent fixed rate debt instrument
provides for fixed rate substitutes in lieu of the qualified floating rates or
objective rate provided under the Variable Rate Bond. The fixed rate substitute
(a) for each qualified floating rate is the value of each such rate as of the
issue date of
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the Variable Rate Bond (with appropriate adjustment for any differences in
intervals between interest adjustment dates), (b) for a qualified inverse
floating rate is the value of the qualified inverse floating rate as of the
issue date of the Variable Rate Bond and (c) for an objective rate (other than a
qualified inverse floating rate) is a fixed rate that reflects the yield that is
reasonably expected for the Variable Rate Bond. The amounts of qualified stated
interest and OID, if any, are determined for the equivalent fixed rate debt
instrument under the rules applicable to fixed rate debt instruments as
described above and are taken into account as if the holder of the Bond held the
equivalent fixed rate debt instrument. Qualified stated interest or OID
allocable to an accrual period is increased (or decreased) if the interest
actually accrued or paid during an accrual period exceeds (or is less than) the
interest assumed to be accrued or paid during the accrual period under the
equivalent fixed rate debt instrument. This increase or decrease is an
adjustment to qualified stated interest for the accrual period if the equivalent
fixed rate debt instrument provides for qualified stated interest and the
increase or decrease is reflected in the amount actually paid during the accrual
period. Otherwise, this increase or decrease is an adjustment to OID for the
accrual period. If the Variable Rate Bond provides for interest at a qualified
floating rate or qualified inverse floating rate and also provides for stated
interest at a single fixed rate (other than a single fixed rate for an initial
period of less than one year that is intended to approximate the value of the
qualified floating or objective rate), in constructing the equivalent fixed rate
debt instrument, such a Variable Rate Bond is treated as if it provided for a
qualified floating rate (or qualified inverse floating rate, as the case may be)
instead of the fixed rate, which qualified floating (or inverse floating) rate
is such that the Variable Rate Bond would have the same fair market value as of
its issue date. The foregoing rules do not apply, and a Bond is treated as a
Contingent Payment Bond (defined below), if its issue price exceeds the total of
noncontingent principal payments by more than the lesser of (i) the product of
.015, the total noncontingent principal payments and the number of complete
years to maturity (or a lesser amount if principal is payable in installments)
or (ii) 15 percent of the total noncontingent principal payments.
Optional Redemption. For purposes of determining the yield and maturity of a
Bond, the Company will be presumed to exercise any right to redeem a Bond before
its stated maturity or to extend the maturity of a Bond if exercise would reduce
the yield on the Bond. Likewise, the U.S. Holder will be presumed to exercise
any right to require the redemption of a Bond or to extend the maturity of the
Bond if exercise would increase the yield on the Bond. If the Bond is not
actually redeemed on the date when the option was presumed to have been
exercised, the Bond will be treated only for the purposes of determining OID as
having been reissued at a price equal to that Bond's adjusted issue price on
that date.
Short-Term Bonds. U.S. Holders that do not use the accrual method of accounting
for tax purposes generally will not be required to recognize OID on Bonds
maturing within one year of original issuance until they receive payments on the
Bonds. Taxpayers on the accrual method, regulated investment companies, common
trust funds, and certain others, however, must accrue OID on such short-term
Bonds on a straight-line basis unless they elect to accrue the discount on a
constant yield basis with daily compounding. The OID on a short-term Bond is the
amount by which the total principal and interest payments on the Bond exceed its
issue price. U.S. Holders may elect to include discount on such short-term Bonds
into income based on acquisition discount rather than OID. Acquisition discount
is the excess of a Bond's stated redemption price at maturity over the U.S.
Holder's basis in the Bond.
Gain recognized on the sale or exchange of a short-term Bond by a U.S. Holder
that has not accrued discount on the Bond will be ordinary income to the extent
attributable to accrued interest and OID. Such a holder also must defer
deductions for net interest expense on any borrowing attributable to the
short-term Bond to the extent that the expense does not exceed accrued but
unrecognized interest and OID (or acquisition discount) on the Bond.
ANTI-ABUSE RULE
The Internal Revenue Service can apply or depart from the rules contained in the
OID Regulations as necessary or appropriate to achieve a reasonable result where
a principal purpose in structuring a Bond or applying the otherwise applicable
rules is to achieve a result that is unreasonable in light of the purposes of
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<PAGE> 16
the applicable statutes (which generally are intended to achieve the clear
reflection of income for both sellers and purchasers of the Bonds).
MARKET DISCOUNT
A U.S. Holder that purchases a Bond at a market discount generally will be
required to treat payments other than qualified stated interest payments as
ordinary income to the extent of the accrued market discount and to treat gain
on the sale of the Bond as ordinary income to the extent of the accrued market
discount not previously included in income. See "Sale or Exchange of Bonds"
below. Market discount is the amount by which the stated redemption price at
maturity (or, in the case of a Bond with OID, the revised issue price) exceeds
the purchaser's basis in the Bond immediately after acquisition. A Bond is not
treated as purchased at a market discount, however, if the discount is less than
1/4 of 1 percent of the stated redemption price at maturity (or the revised
issue price) multiplied by the number of complete years remaining to maturity
("de minimis market discount"). (The revised issue price of a Bond is its
initial issue price increased by the amount of OID includible in the gross
income of previous holders.) Market discount on a Bond will accrue, at the
election of the holder, either ratably or at a constant yield to maturity. The
U.S. Holder may elect to take market discount into income as it accrues. Such
election applies to all debt instruments acquired in the tax year the election
is made and thereafter, and may not be revoked without the consent of the
Internal Revenue Service. Under certain circumstances, the U.S. Holder may be
required to defer deductions for interest expense attributable to debt incurred
or continued to purchase a Bond with market discount.
PREMIUM
A U.S. Holder that purchases a Bond for more than its stated redemption price at
maturity may elect to amortize the bond premium. If a U.S. Holder makes such an
election, the amount of interest on the Bond otherwise to be included in the
U.S. Holder's income will be reduced each year by the amount of amortizable bond
premium allocable to such year on a constant yield to maturity basis (except to
the extent regulations may provide otherwise). Amortized bond premium will
reduce the U.S. Holder's basis in the Bond. If the Bond may be optionally
redeemed after the U.S. Holder acquires it at a price in excess of its stated
redemption price at maturity, special rules would apply which could result in a
deferral of the amortization of some Bond premium until later in the term of the
Bond. An election to amortize bond premium will apply to certain other debt
instruments that the U.S. Holder acquired at a premium, and the election may
have different tax consequences depending on when the debt instruments were
issued or acquired. A U.S. Holder should consult its tax adviser before making
an election to amortize bond premium.
INTEREST ELECTION
A U.S. Holder may elect, in the taxable year in which the U.S. Holder acquires a
Bond, to treat all interest on any Bond as OID and calculate the amount
includible in gross income under the constant yield method described above. For
purposes of this election, interest includes stated interest, acquisition
discount, OID, de minimis OID, market discount, de minimis market discount and
unstated interest, as adjusted by any amortizable bond premium or acquisition
premium. If a U.S. Holder makes this election for a Bond with market discount or
amortizable bond premium, the election is treated as an election under the
market discount or amortizable bond premium provisions, described above, and the
electing U.S. Holder will be required to amortize bond premium or include market
discount in income currently for all of its other debt instruments with market
discount or amortizable bond premium acquired during such tax year and in any
subsequent tax year. The election, once made, may not be revoked without the
consent of the Internal Revenue Service. U.S. Holders should consult with their
own tax advisers before making this election.
SALE OR EXCHANGE OF BONDS
Except to the extent that gain or loss is attributable to accrued but unpaid
interest or accrued market discount, a U.S. Holder generally will recognize
capital gain or loss upon a sale, exchange or complete retirement of a Bond
equal to the difference between the amount realized and the U.S. Holder's
adjusted basis in the Bond. The gain or loss generally will be long-term if the
Bond has been held for more than one year,
15
<PAGE> 17
although the preferential 20% rate applicable to individuals applies only in the
case of a Bond held for more than 18 months. The adjusted basis of a Bond
generally will equal its initial cost increased by any original issue discount,
market discount or acquisition discount with respect to the Bond previously
included in the U.S. Holder's gross income and reduced by the payments
previously received on the Bond, other than payments of qualified stated
interest, and by any amortized premium.
The tax consequences of the partial redemption of a Bond will depend upon the
price at which the U.S. Holder purchased the Bond. A U.S. Holder that purchased
a Bond at a de minimis market discount or purchased a Bond for more than its
revised issue price, but less than its principal amount, will recognize capital
gain equal to the difference between the principal prepayment and the U.S.
Holder's adjusted basis in the prepaid portion of the Bond. If a U.S. Holder
purchased a Bond at a market discount, (i) the principal prepayment will be
included in ordinary income to the extent of the accrued market discount (and it
is possible that amounts allocable to unaccrued market discount allocable to the
prepaid portion of the Bond will be recognized as capital gain) and (ii) any
principal prepayment exceeding the revised issue price allocable to the prepaid
portion of the Bond will be capital gain. If a U.S. Holder purchased a Bond for
more than its stated principal amount and has not elected to amortize bond
premium, the U.S. Holder will recognize a capital loss equal to any amount by
which the U.S. Holder's adjusted basis in the prepaid portion of the Bond
exceeds the amount of the principal prepayment. If the U.S. Holder has elected
to amortize bond premium, all or part of such excess might be deductible as
amortizable bond premium rather than as capital loss. Any capital gain or loss
will be long-term if the Bond has been held for more than one year, although the
preferential 20% rate applicable to individuals applies only in the case of a
Bond held for more than 18 months. It is possible that capital gain realized by
holders of one or more classes of Bonds could be considered gain realized upon
the disposition of property that was part of a "conversion transaction." A
"conversion transaction" is any transaction in which substantially all of the
expected return is attributable to the time value of the U.S. Holder's net
investment, if (i) the U.S. Holder entered the contract to sell the Bond
substantially contemporaneously with acquiring the Bond, (ii) the Bond is part
of a straddle, (iii) the Bond is marketed or sold as producing capital gains, or
(iv) the transaction is specified in certain Treasury regulations. If the sale
or other disposition of the Bond is part of a conversion transaction, all or any
portion of the gain realized upon the sale or other disposition of the Bonds
would be treated as ordinary income instead of capital gain.
FOREIGN CURRENCY BONDS
The tax treatment of Bonds the interest or principal on which may be determined
by reference to one or more foreign currencies will depend on the application of
special rules to the particular terms of the Bonds. The tax considerations
relevant to such Bonds will be described in an applicable Prospectus Supplement,
and each prospective purchaser should consult its tax adviser about such
matters.
CONTINGENT PAYMENT BONDS
The OID Regulations contain special rules for determining the timing and amount
of OID to be accrued in respect of Bonds providing for one or more contingent
payments ("Contingent Payment Bonds"). For this purpose, a Bond is not a
Contingent Payment Bond if it (i) is a Variable Rate Bond, (ii) provides for
alternate payment schedules upon the occurrence of contingencies or (iii) is a
foreign currency debt instrument. Under the OID Regulations, U.S. Holders
generally would be required to take contingent interest payments on Contingent
Payment Bonds into income on a yield to maturity basis in accordance with a
schedule of projected payments provided by the Company to U.S. Holders and would
make annual adjustments to income to account for the difference between actual
payments received and projected payment amounts accrued. Any gain recognized by
a U.S. Holder on the sale, exchange or retirement of a Contingent Payment Bond
is ordinary income. Any loss recognized by a U.S. Holder on the sale, exchange
or retirement of a Contingent Payment Bond is ordinary loss to the extent that
the U.S. Holder's total interest inclusions on the Contingent Payment Bond
exceed the total net negative adjustments the U.S. Holder took into account as
ordinary loss. Additional disclosure will be provided for in a Prospectus
Supplement in connection with any offering of Contingent Payment Bonds.
Prospective purchasers should consult their own tax advisers
16
<PAGE> 18
regarding the OID Regulations in connection with ownership of a Bond that
provides for contingent payments.
NON-U.S. HOLDERS
Interest received by a Non-U.S. Holder is exempt from U.S. federal income tax
unless the holder actually or constructively owns at least 10% of the total
combined voting power of the Company's stock or the holder is for U.S. income
tax purposes a controlled foreign corporation related to the Company through
stock ownership or is a bank receiving interest described in Section
881(c)(3)(A) of the Code. However, "contingent interest" paid to a Non-U.S.
Holder will be subject to a 30% tax (unless an applicable tax treaty eliminates
or reduces the rate of the tax and the Non-U.S. Holder complies with the
requirements for obtaining that reduction or elimination of the tax). For this
purpose, contingent interest is an amount of interest determined by reference to
(i) receipts, sales, or other cash flows of the Company or a related person,
(ii) income or profits of the Company or a related person, (iii) any change in
the value of any property of the Company or a related person, or (iv) any
dividend, partnership distribution, or similar payment made by the Company or a
related person. To qualify for that exemption, a Non-U.S. Holder must provide a
statement signed under penalties of perjury certifying that the holder is not a
U.S. person for U.S. tax purposes and providing the holder's name and address.
In addition, the Treasury Department has recently issued regulations regarding
the withholding and information reporting rules. In general, the new regulations
do not alter the substantive withholding and information reporting requirements
but unify current certification procedures and forms and clarify reliance
standards. However, the regulations would require in the case of Bonds held by a
foreign partnership that the certification requirement described above be
provided by the partners rather than by the foreign partnership unless the
partnership meets certain requirements and is authorized as a "withholding
foreign partnership" by the IRS. A look-through rule would apply in the case of
tiered partnerships. The regulations also generally require a Non-U.S. Holder to
provide a taxpayer identification number in order to claim a reduced rate of
withholding pursuant to a treaty. The regulations are generally effective for
payments made after December 31, 1999, subject to certain transition rules. In
particular, valid withholding certificates that are held on December 31, 1999,
generally remain valid until the earlier of December 31, 2000, or the due date
of the expiration of the certificate under rules currently in effect. Further,
certificates dated prior to January 1, 1998, that were valid as of January 1,
1998, remain valid until the end of 1998. Gain from the sale or other
disposition of a Bond by a Non-U.S. Holder is not subject to U.S. federal income
tax unless the Non-U.S. Holder is an individual who is present in the United
States for at least 183 days during the taxable year of the disposition and
certain other conditions are met.
Bonds held by a Non-U.S. Holder will not be subject to the U.S. federal estate
tax unless the holder actually or constructively owns at least 10% of the total
combined voting power of the Company's stock.
INFORMATION REPORTING AND BACKUP WITHHOLDING
A 31% backup withholding of federal income tax and certain information reporting
requirements may apply to certain payments made on the Bonds and to the proceeds
from the disposition of a Bond if the holder is not a corporation, a financial
institution or otherwise entitled to an exemption. U.S. Holders that provide a
correct taxpayer identification number and Non-U.S. Holders that provide the
statement described above to establish an exemption from withholding tax
generally are exempt from backup withholding. Amounts withheld under the backup
withholding rules can be claimed as a refund or taken as a credit against the
holder's U.S. federal income tax liability on a properly filed annual income tax
return.
PLAN OF DISTRIBUTION
Bonds 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
Bonds are named in the Prospectus Supplement relating to such offering. Unless
otherwise set forth in the Prospectus Supplement, the obligations of the
Underwriters to purchase Bonds will be subject to certain conditions precedent
and each of the Underwriters with respect to a sale of Bonds will
17
<PAGE> 19
be obligated to purchase all of its Bonds 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 Bonds in respect of which this
Prospectus is delivered are set forth in the Prospectus Supplement.
CFC has agreed to indemnify the Underwriters against certain civil liabilities,
including liabilities under the Securities Act of 1933, as amended.
Each Underwriter, dealer and agent participating in the distribution of any
Offered Bonds which are issuable in bearer form will agree that it will not
offer, sell or deliver, directly or indirectly, Offered Bonds in bearer form in
the United States or its possessions or to United States persons (other than
qualifying financial institutions) in connection with the original issuance of
the Offered Bonds. See "LIMITATIONS ON ISSUANCE OF BEARER BONDS".
The Offered Bonds may not be offered or sold directly or indirectly in Great
Britain other than to persons whose ordinary business it is to buy or sell
shares or debentures (except in circumstances which do not constitute an offer
to the public within the meaning of the Companies Act of 1985), and this
Prospectus and any Prospectus Supplement or any other offering material relating
to the Offered Bonds may not be distributed in or from Great Britain other than
to persons whose business involves the acquisition and disposal, or the holding,
of securities whether as principal or as agent.
Certain of the Underwriters or agents and their associates may engage in
transactions with and perform services for the Company in the ordinary course of
business.
In connection with the offering made hereby, the Underwriters may purchase and
sell the Bonds 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 the offering. Stabilizing transactions
consist of certain bids or purchases for the purpose of preventing or retarding
a decline in the market price of the Bonds, and short positions created by the
Underwriters involve the sale by the Underwriters of a greater aggregate
principal amount of Bonds than they are required to purchase from the Company.
The Underwriters also may impose a penalty bid, whereby selling concessions
allowed to broker-dealers in respect of the Bonds sold in the offering may be
reclaimed by the Underwriters if such Bonds are repurchased by the Underwriters
in stabilizing or covering transactions. These activities may stabilize,
maintain or otherwise affect the market price of the Bonds, which may be higher
than the price that might otherwise prevail in the open market; and these
activities, if commenced, may be discontinued at any time. These transactions
may be effected in the over-the-counter market or otherwise.
LEGAL OPINIONS
The validity of the Bonds 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, 1998, 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.
18
<PAGE> 20
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........................... $147,500
Printing.................................................... 100,000
Legal Fees and Expenses..................................... 100,000
Blue Sky Fees and Expenses.................................. 15,000
Accounting Fees............................................. 5,000
Fees of Trustee............................................. 15,000
Fees of Rating Agencies..................................... 100,000
Miscellaneous............................................... 10,000
--------
Total............................................. $492,500
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 29-1104(9) of the District of Columbia Cooperative Association Act
provides that an association such as the Registrant shall have the capacity "to
exercise...any power granted to ordinary business corporations, save those
powers inconsistent with this chapter." Section 29-304(16) of the District of
Columbia Business Corporation Act permits any corporation:
To indemnify any and all of its directors or officers or former directors or
officers or any person who may have served at its request as a director or
officer of another corporation in which it owns shares of capital stock or of
which it is a creditor against expenses actually and necessarily incurred by
them in connection with the defense of any action, suit, or proceeding in which
they, or any of them, are made parties, or a party, by reason of being or having
been directors or officers or a director or officer of the corporation, or of
such other corporation, except in relation to matters as to which any such
director or officer or former director or officer or person shall be adjudged in
such action, suit, or proceeding to be liable for negligence or misconduct in
the performance of duty. Such indemnification shall not be deemed exclusive of
any other rights to which those indemnified may be entitled, under any bylaw,
agreement, vote of stockholders, or otherwise.
The Board of Directors of CFC has resolved to indemnify all CFC directors,
officers and employees in accordance with the terms of the first sentence of
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>
<S> <C>
1 -- Form of Underwriting Agreement to be used in connection with
Bonds. Incorporated by reference to Exhibit 1 to the
Registration Statement on Form S-3 filed by the Company on
April 20, 1995 (Registration No. 33-56065).
4.1 -- Indenture, dated as of February 15, 1994, between the
Company and First Bank National Association, as Trustee.
Incorporated by reference to Exhibit 4 to Post-Effective
Amendment No. 1 to Registration Statement on Form S-3 filed
by the Company on February 15, 1994 (Registration No.
33-35261).
4.2 -- First Supplemental Indenture, dated as of September 16,
1994, between the Company and First Bank National
Association, as Trustee. Incorporated by reference to
Exhibit 4 to the current report on Form 8-K filed by the
Company on September 16, 1994.
5 -- Opinion and consent of Milbank, Tweed, Hadley & McCloy.
8 -- Opinion of Milbank, Tweed, Hadley & McCloy. Included as part
of Exhibit 5.
</TABLE>
II-1
<PAGE> 21
<TABLE>
<S> <C>
12 -- Schedule of computation of ratio of margins to fixed
charges.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Milbank, Tweed, Hadley & McCloy. Included as part
of Exhibit 5.
24 -- Power of Attorney (included on signature pages).
25 -- Form T-1 Statement of Eligibility and Qualification under
the Trust Indenture Act of 1939 of First Bank National
Association, as Trustee. Incorporated by reference to
Exhibit 25 to the Registration Statement on Form S-3 filed
by the Company on April 20, 1995 (Registration No.
33-56065).
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement (other than
as provided in the proviso and instructions to Item 512(a) of Regulation
S-K):
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 15 above or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in such Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-2
<PAGE> 22
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 WHICH AMENDMENTS MAY MAKE SUCH CHANGES IN THE
REGISTRATION STATEMENT AS SUCH AGENT DEEMS APPROPRIATE AND THE REGISTRANT AND
EACH SUCH PERSON HEREBY APPOINTS EACH SUCH AGENT AS ATTORNEY-IN-FACT TO EXECUTE
IN THE NAME AND ON BEHALF OF THE REGISTRANT AND EACH SUCH PERSON, INDIVIDUALLY
AND IN EACH CAPACITY STATED BELOW, ANY SUCH AMENDMENTS TO THE REGISTRATION
STATEMENT.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
COUNTY OF FAIRFAX, COMMONWEALTH OF VIRGINIA, ON THE 19TH DAY OF OCTOBER, 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 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/ STEVEN L. SLEPIAN Controller (Principal
- ------------------------------------------------ Accounting Officer)
STEVEN L. SLEPIAN
/s/ PAUL J. LIESS President and Director
- ------------------------------------------------
PAUL J. LIESS
/s/ ELDWIN WIXSON Vice President and Director
- ------------------------------------------------
ELDWIN WIXSON
/s/ BENSON HAM Secretary-Treasurer and Director
- ------------------------------------------------
BENSON HAM
/s/ JAMES O. BAKER Director
- ------------------------------------------------
JAMES O. BAKER
</TABLE>
October 19, 1998
II-3
<PAGE> 23
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
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
/s/ KENNETH KRUEGER Director
- ------------------------------------------------
KENNETH KRUEGER
/s/ STEPHEN R. LOUDER Director
- ------------------------------------------------
STEPHEN R. LOUDER
/s/ EUGENE MEIER Director
- ------------------------------------------------
EUGENE MEIER
Director
- ------------------------------------------------
R. LAYNE MORRILL
/s/ ROBERT J. OCCHI Director
- ------------------------------------------------
ROBERT J. OCCHI
/s/ MICHAEL PIGOTT Director
- ------------------------------------------------
MICHAEL PIGOTT
/s/ TIMOTHY REEVES Director
- ------------------------------------------------
TIMOTHY REEVES
/s/ BRIAN D. SCHLAGEL Director
- ------------------------------------------------
BRIAN D. SCHLAGEL
/s/ R.B. SLOAN Director
- ------------------------------------------------
R.B. SLOAN
/s/ THOMAS W. STEVENSON Director
- ------------------------------------------------
THOMAS W. STEVENSON
/s/ CLIFFORD G. STEWART Director
- ------------------------------------------------
CLIFFORD G. STEWART
/s/ ROBERT STROUP Director
- ------------------------------------------------
ROBERT STROUP
/s/ ROBERT C. WADE Director
- ------------------------------------------------
ROBERT C. WADE
/s/ ROBERT O. WILLIAMS Director
- ------------------------------------------------
ROBERT O. WILLIAMS
</TABLE>
October 19, 1998
II-4
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBITS PAGE
------- -------- ------------
<C> <S> <C>
1 -- Form of Underwriting Agreement to be used in connection
with Bonds. Incorporated by reference to Exhibit 1 to the
Registration Statement on Form S-3 filed by the Company
on April 20, 1995 (Registration No. 33-56065).
4.1 -- Indenture, dated as of February 15, 1994, between the
Company and First Bank National Association, as Trustee.
Incorporated by reference to Exhibit 4 to Post-Effective
Amendment No. 1 to Registration Statement on Form S-3
filed by the Company on February 15, 1994 (Registration
No. 33-35261).
4.2 -- First Supplemental Indenture, dated as of September 16,
1994, between the Company and First Bank National
Association, as Trustee. Incorporated by reference to
Exhibit 4 to the current report on Form 8-K filed by the
Company on September 16, 1994.
5 -- Opinion and consent of Milbank, Tweed, Hadley & McCloy.
8 -- Opinion of Milbank, Tweed, Hadley & McCloy. Included as
part of Exhibit 5.
12 -- Schedule of computation of ratio of margins to fixed
charges.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Milbank, Tweed, Hadley & McCloy. Included as
part of Exhibit 5.
24 -- Power of Attorney (included on signature pages).
25 -- Form T-1 Statement of Eligibility and Qualification under
the Trust Indenture Act of 1939 of First Bank National
Association, as Trustee. Incorporated by reference to
Exhibit 25 to the Registration Statement on Form S-3
filed by the Company on April 20, 1995 (Registration No.
33-56065).
</TABLE>
<PAGE> 1
EXHIBIT 5
October 19, 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 and 8 to the Registration Statement and hereby consent to the use of
this opinion in the Registration Statement and to the use of our name under the
caption "Legal Opinions" in the Prospectus.
We have investigated the corporate status of the Company and have examined the
corporate proceedings authorizing the creation and issuance of the 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.
In our opinion, the discussions under the caption "United States Taxation" in
the Prospectus included as part of the Registration Statement are correct in all
material respects.
Very truly yours,
Milbank, Tweed, Hadley & McCloy
<PAGE> 1
EXHIBIT 12
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
COMPUTATION OF RATIO OF MARGINS TO FIXED CHARGES
(DOLLAR AMOUNTS IN THOUSANDS)
YEARS ENDED MAY 31, 1998, 1997, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net margins before extraordinary loss..... $ 62,216 $ 54,736 $ 50,621 $ 45,212 $ 33,188
Add: Fixed charges........................ 540,535 475,729 426,079 361,338 263,230
-------- -------- -------- -------- --------
Margins available for fixed charges....... $602,751 $530,465 $476,700 $406,550 $296,418
======== ======== ======== ======== ========
Fixed charges:
Interest on all debt (including
amortization of discount and issuance
costs)............................... $540,535 $475,729 $426,079 $361,338 $263,230
-------- -------- -------- -------- --------
Total fixed charges............. $540,535 $475,729 $426,079 $361,338 $263,230
======== ======== ======== ======== ========
Ratio of margins to fixed charges......... 1.12 1.12 1.12 1.13 1.13
======== ======== ======== ======== ========
</TABLE>
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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 14, 1998
included in National Rural Utilities Cooperative Finance Corporation's Form 10-K
for the year ended May 31, 1998 and to all references to our Firm included in
this Registration Statement.
ARTHUR ANDERSEN LLP
Washington, D.C.
October 19, 1998
