<PAGE> 1
PROSPECTUS SUPPLEMENT
(To prospectus dated February 22, 2000)
[CFC LOGO]
$400,000,000
National Rural Utilities
Cooperative Finance Corporation
Member Subordinated Capital Securities
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Each note will mature on a date up to one hundred years from its date of
original issuance. Unless specified otherwise in the applicable pricing
supplement to this prospectus supplement, interest on member subordinated
capital securities will be paid on each April 1 and October 1 and at maturity.
Member subordinated capital securities may contain optional redemption
provisions or may obligate us to repay at the option of the holder. The pricing
supplement will describe the additional terms of each member subordinated
capital security. National Rural Utilities Cooperative Finance Corporation may
offer from time to time up to $400,000,000 of its member subordinated capital
securities.
<TABLE>
<CAPTION>
PER NOTE TOTAL
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<S> <C> <C>
Public offering price....................................... 100.0% $400,000,000
Agents' discounts and commissions........................... 0.0% 0
Proceeds to National Rural Utilities 100.0% $400,000,000
Cooperative Finance Corporation...........................
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if the
prospectus supplement or attached prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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May 2, 2000
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT
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PAGE
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<S> <C>
About This Prospectus Supplement; Pricing Supplements....... S-2
Investment Considerations................................... S-3
Description of the Member Subordinated Capital Securities... S-3
U.S. Taxation............................................... S-9
Plan of Distribution........................................ S-9
Legal Matters............................................... S-10
PROSPECTUS
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Where You Can Find More Information About National Rural
Utilities Cooperative Finance Corporation................. 2
CFC......................................................... 3
Use of Proceeds............................................. 4
Summary Financial Information............................... 5
Capitalization.............................................. 6
Description of Debt Securities.............................. 7
Plan of Distribution........................................ 15
Legal Opinions.............................................. 16
Experts..................................................... 16
</TABLE>
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You should rely only on the information contained or incorporated by
reference in this prospectus supplement, the attached prospectus or any attached
pricing supplement. We have authorized no one to provide you with different
information. You should not assume that the information contained in this
prospectus supplement, the attached prospectus or any attached pricing
supplement 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.
ABOUT THIS PROSPECTUS SUPPLEMENT; PRICING SUPPLEMENTS
National Rural Utilities Cooperative Finance Corporation ("CFC") may use
this prospectus supplement, together with the attached prospectus and an
attached pricing supplement, to offer CFC's member subordinated capital
securities, at various times. The total initial public offering price of notes
that may be offered by use of this prospectus supplement is $400,000,000.
This prospectus supplement sets forth terms of the member subordinated
capital securities that CFC may offer. It supplements the description of the
debt securities contained in the attached prospectus. If information in this
prospectus supplement is inconsistent with the prospectus, this prospectus
supplement will apply and will supersede that information in the prospectus.
Each time CFC issues member subordinated capital securities it will attach
a pricing supplement to this prospectus supplement. The pricing supplement will
contain the specific description of the member subordinated capital securities
being offered and the terms of the offering. The pricing supplement may also
add, update or change information in this prospectus supplement or the attached
prospectus. Any information in the pricing supplement, including any changes in
the method of calculating interest on any member subordinated capital security,
that is inconsistent with this prospectus supplement will apply and will
supersede that information in this prospectus supplement.
It is important for you to read and consider all information contained in
this prospectus supplement and the attached prospectus and pricing supplement in
making your investment decision. You should also read and consider the
information in the documents CFC has referred you to in "Where You Can Find More
Information About National Rural Utilities Cooperative Finance Corporation" on
page 2 of the attached prospectus.
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INVESTMENT CONSIDERATIONS
Prospective purchasers of member subordinated capital securities should
carefully review the information contained elsewhere in this prospectus
supplement and in the accompanying prospectus and should particularly consider
the following matters:
MEMBER SUBORDINATED CAPITAL SECURITIES ARE SUBORDINATE TO OTHER CFC DEBT
The obligations of CFC under the member subordinated capital securities are
subordinate and junior in right of payment to senior indebtedness of CFC. As of
February 29, 2000, outstanding senior indebtedness of CFC aggregated
approximately $16.0 billion, including contingent guarantees of $1.7 billion and
$0.4 billion of quarterly income capital securities issued to investors. There
are no terms in the member subordinated capital securities that limit CFC's
ability to incur additional indebtedness, including indebtedness that ranks
senior to the member subordinated capital securities.
CFC HAS THE OPTION TO EXTEND THE INTEREST PAYMENT PERIOD
CFC will have the right from time to time during the term of the member
subordinated capital securities to extend the interest payment period to a
period not exceeding 10 consecutive semi-annual interest payment periods. At the
end of an extension period, CFC must pay all interest then accrued and unpaid
together with interest at the same rate as specified for the member subordinated
capital securities to the extent permitted by applicable law. During any
extension period, CFC may not declare or pay any dividend or interest on, or
principal of, or redeem, purchase, acquire or make a liquidation payment with
respect to, any of its members' subordinated certificates, members' equity or
patronage capital. Therefore, CFC believes that the extension of an interest
payment period on the member subordinated capital securities is unlikely. Before
the end of any extension period, CFC may further extend the period, but the
extension period, together with all previous and further extensions, may not
exceed 10 consecutive semi-annual interest payment periods or extend beyond the
maturity of the member subordinated capital securities. Upon the termination of
an extension period and the payment of all amounts then due, CFC may select a
new extension period, subject to the above requirements.
Should an extension period occur, a holder of the member subordinated
capital securities will be required to accrue income as original issue discount
for U.S. federal income tax purposes even though interest is not being paid on a
current basis. See "U.S. Taxation."
Should CFC declare or make any payment on or redeem, purchase, acquire or
make a liquidation payment with respect to any of its members' subordinated
certificates, members' equity or patronage capital during an extension period,
this would constitute an immediate event of default under the terms of the
member subordinated capital securities. However, because of the terms of the
subordination provisions in CFC's members' subordinated certificates, CFC's
failure to pay interest on, or principal of, those certificates during an
extension period will not be a default under those securities.
MEMBER SUBORDINATED CAPITAL SECURITIES MAY BE SOLD OR TRANSFERRED ONLY TO OTHER
MEMBERS
The member subordinated capital securities will be sold only to CFC members
and may be resold only to other CFC members. There is a risk that holders will
not be able to resell the securities.
DESCRIPTION OF THE MEMBER SUBORDINATED CAPITAL SECURITIES
The following description of specific terms of the member subordinated
capital securities should be read together with the description of the general
terms and provisions of the debt securities set forth in the accompanying
prospectus under the caption "Description of Debt Securities." The following
summary does not purport to be complete and is subject in all respects to the
provisions of, and is qualified in its entirety by reference to, the description
in the accompanying prospectus and the indenture.
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PRINCIPAL AMOUNT AND MATURITY
The member subordinated capital securities will be issued as a series of
debt securities under the indenture. The member subordinated capital securities
will be limited in aggregate principal amount to $400 million. There is no limit
on the amount of additional securities similar to the member subordinated
capital securities that may be issued under the indenture.
The member subordinated capital securities will mature up to 100 years from
the date of issuance. In the event that the maturity date on the member
subordinated capital securities is not a business day, then payment of the
principal payable on such date will be made on the next succeeding day which is
a business day without any interest or other payment in respect of any such
delay. A "business day" is any day other than a day on which banking
institutions in New York City are authorized or obligated by law to close.
INTEREST AND INTEREST RATES
Each member subordinated capital security will bear interest from the date
of issue or from the most recent interest payment date at the fixed rate or
floating rate stated in the applicable pricing supplement. Interest will be
payable on each interest payment date and at maturity or at redemption. Interest
will be payable to the registered holder at the close of business on the regular
record date. Unless specified otherwise in the applicable pricing supplement,
the first payment of interest on any member subordinated capital security
originally issued between a regular record date and an interest payment date
will be made on the interest payment date following the next regular record
date.
CFC may change interest rates, or interest rate formulas, from time to
time, but no change will affect any member subordinated capital security already
issued. Unless otherwise indicated in the applicable supplement, the interest
payment dates and the regular record dates for fixed rate member subordinated
capital securities will be as described below under "Fixed Rate Member
Subordinated Capital Securities". Unless otherwise specified in the applicable
supplement, the interest payment dates for floating rate member subordinated
capital securities will be as described below under "Floating Rate Member
Subordinated Capital Securities."
FIXED RATE MEMBER SUBORDINATED CAPITAL SECURITIES
Each fixed rate member subordinated capital security will bear interest
from its date of issue at the annual rate stated in the applicable pricing
supplement. The interest payment dates for the fixed rate member subordinated
capital securities will be April 1 and October 1 of each year and the regular
record dates will be March 15 and September 15 of each year. Interest on fixed
rate member subordinated capital securities will be computed and paid on the
basis of a 360-day year of twelve 30-day months. Interest payments on fixed rate
member subordinated capital securities will equal the amount of interest accrued
from and including the prior interest payment date or from and including the
date of issue, but excluding the related interest payment date or maturity. If
any interest payment date or the maturity of a fixed rate member subordinated
capital security falls on a day that is not a business day, the related payment
of principal, premium or interest will be made on the next business day as if
made on the date the payment was due, and no interest will accrue on the amount
payable for the period from and after that interest payment date or maturity.
FLOATING RATE MEMBER SUBORDINATED CAPITAL SECURITIES
The interest rate on each floating rate member subordinated capital
security will equal the interest rate calculated by reference to the specified
interest rate formula in the applicable pricing supplement plus or minus any
spread and/or multiplied by any spread multiplier. The "spread" is the number of
basis points specified in the applicable pricing supplement as applying to the
interest rate for the member subordinated capital security and the "spread
multiplier" is the percentage specified in the applicable pricing supplement as
applying to the interest rate for the member subordinated capital security. The
interest payment dates for floating rate member subordinated capital securities
will be April 1 and October 1 and the record dates will be March 15 and
September 15 of each year. If any interest payment date or the maturity of a
fixed rate member subordinated capital security falls on a day that is not a
business day, the related payment of principal, premium or interest will be made
on the next business day as if made on the date the payment was due, and
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no interest will accrue on the amount payable for the period from and after that
interest payment date or maturity.
The applicable pricing supplement relating to a floating rate member
subordinated capital security will designate one or more interest rate bases for
the floating rate member subordinated capital security. The basis or bases will
be determined by reference to:
- the commercial paper rate, in which case the member subordinated capital
security will be a commercial paper rate member subordinated capital
security,
- LIBOR, in which case the member subordinated capital security will be a
LIBOR member subordinated capital security, or
- any other interest rate basis or formula as is set forth in the pricing
supplement.
The applicable pricing supplement for a floating rate member subordinated
capital security also will specify the spread and/or spread multiplier
applicable to each member subordinated capital security. In addition, the
pricing supplement may define or specify for each member subordinated capital
security the following terms, if applicable: calculation date, initial interest
rate, interest payment dates, regular record dates, interest determination dates
and interest reset dates with respect to the member subordinated capital
security.
The rate of interest on each floating rate member subordinated capital
security will be reset according to the index maturity, as specified in the
applicable pricing supplement. Unless otherwise specified in the applicable
pricing supplement, the interest reset date will be the first business day of
each month. However,
- the interest rate in effect from the date of issue to the first interest
reset date with respect to a floating rate member subordinated capital
security will be the initial interest rate (as set forth in the
applicable pricing supplement), and
- unless otherwise specified in an applicable pricing supplement, the
interest rate in effect for the ten calendar days immediately prior to
maturity, if applicable, will be that in effect on the tenth calendar day
preceding maturity.
If any interest reset date for any floating rate member subordinated
capital security would otherwise be a day that is not a business day for that
floating rate member subordinated capital security, the interest reset date for
that floating rate member subordinated capital security will be postponed to the
next business day. "Business day" means
- with respect to any member subordinated capital security, any day that is
not a Saturday or Sunday and that, in the City of New York, is not a day
on which banking institutions generally are authorized or obligated by or
pursuant to law, regulation or executive order to close, and
- with respect to LIBOR member subordinated capital securities only, any
day on which dealings in deposits in U.S. dollars are transacted in the
London interbank market.
The interest determination date pertaining to an interest reset date for a
commercial paper rate member subordinated capital security will be the second
business day before the interest reset date. The interest determination date
pertaining to an interest reset date for a LIBOR member subordinated capital
security will be the second London business day prior to that interest reset
date.
The interest rate on the floating rate member subordinated capital
securities will in no event be higher than the maximum rate permitted by
applicable law. Under present New York law, subject to certain exceptions, the
maximum rate of interest for any loan in an amount less than $250,000 is 16% per
annum, and for any loan in the amount of $250,000 or more but less than
$2,500,000 is 25% per annum on a simple interest basis. The limit may not apply
to floating rate member subordinated capital securities in which $2,500,000 or
more has been invested.
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Upon the request of the holder of any floating rate member subordinated
capital security, the calculation agent will provide the interest rate then in
effect. If it has been determined, the calculation agent will also provide the
interest rate which will become effective as a result of a determination made on
the most recent interest determination date with respect to that floating rate
member subordinated capital security. Unless otherwise provided in the
applicable supplement, CFC will be the calculation agent with respect to the
floating rate member subordinated capital securities. Unless otherwise specified
in the applicable pricing supplement, the calculation date, if applicable,
pertaining to any interest determination date will be the earlier of the tenth
calendar day after such interest determination date, or, if such day is not a
business day, the next succeeding business day or the business day preceding the
applicable interest payment date or maturity, as the case may be.
All percentages resulting from any calculation on floating rate member
subordinated capital securities will be rounded to the nearest one
hundred-thousandth of a percentage point, with five one millionths of a
percentage point rounded upwards (e.g., 9.876545% (or .09876545) would be
rounded to 9.87655% (or .0987655)), and all dollar amounts used in or resulting
from this calculation will be rounded to the nearest cent (with one-half cent or
unit being rounded upward).
Commercial Paper Rate
Unless otherwise indicated in the applicable pricing supplement,
"commercial paper rate" means, for any commercial paper interest determination
date, the money market yield of the rate on that date for commercial paper
having the index maturity designated in the applicable pricing supplement as
published by the Board of Governors of the Federal Reserve System in
"Statistical Release H.15(519), Selected Interest Rates" or any successor
publication selected by the calculation agent of the Board of Governors of the
Federal Reserve System ("H.15(519)") under the caption "Commercial
Paper -- Nonfinancial". The following procedures will be followed if the
commercial paper rate described above is not published by 9:00 a.m., New York
City time, on the calculation date pertaining to that commercial paper interest
determination date:
- the commercial paper rate will be the money market yield of the rate on
that commercial paper interest determination date for commercial paper
having the index maturity designated in the applicable supplement as
published in H.15 Daily Update available through the world wide web site
of the Board of Governors of the Federal Reserve System at
http://www.bog.frb.fedus/release/h15/update under the heading "Commercial
Paper--Nonfinancial";
- if that rate is not yet published by 3:00 p.m., New York City time, on
the calculation date pertaining to the commercial paper interest
determination date, then the commercial paper rate for the commercial
paper interest determination date will be calculated by the calculation
agent and will be the money market yield of the arithmetic mean of the
offered rates as of 11:00 a.m., New York City time, on such commercial
paper interest determination date of three leading dealers of commercial
paper in New York City selected by the calculation agent for commercial
paper having the index maturity designated in the applicable supplement
placed for an industrial issuer whose bond rating is "AA", or the
equivalent, from a nationally recognized rating agency;
- if the dealers selected by the calculation agent are not quoting as
mentioned above, the commercial paper rate will be the commercial paper
rate in effect on that commercial paper interest determination date.
"Money market yield" means a yield (expressed as a percentage rounded, if
necessary, to the next higher one hundred thousandth of a percentage point)
calculated in accordance with the following formula:
<TABLE>
<C> <C> <S>
D X 360
Money market yield = -------------- X 100
360 - (D X M)
</TABLE>
where "D" refers to the per annum rate for the commercial paper, quoted on a
bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the interest period for which interest is being calculated.
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LIBOR
Unless otherwise indicated in the applicable pricing supplement, "LIBOR"
will be determined by the calculation agent in accordance with the following
provisions:
- On each LIBOR interest determination date, LIBOR will be, as specified in
the applicable pricing supplement, either:
- the arithmetic mean of the offered rates for deposits in U.S. dollars
having the index maturity designated in the applicable supplement,
commencing on the second London business day immediately following
such LIBOR interest determination date, that appear on the Reuters
Screen LIBO page as of 11:00 a.m., London time, on such LIBOR interest
determination date, if at least two such offered rates appear on the
Reuters Screen LIBO page ("LIBOR Reuters"), or
- the rate for deposits in U.S. dollars having the index maturity
designated in the applicable supplement, commencing on the second
London Business Day immediately following such LIBOR interest
determination date, that appears on Telerate page 3750 as of 11:00
a.m., London time, on such LIBOR interest determination date ("LIBOR
Telerate"). "Reuters Screen LIBO page" means the display designated as
page "LIBO" on the Reuters Monitor Money Rates Service (or such other
page as may replace page LIBO on that service for the purpose of
displaying London interbank offered rates of major banks).
"Telerate page 3750" means the display designated as page "3750" on the
Telerate Service (or such other page as may replace the 3750 page on that
service or such other service or services as may be nominated by the British
Bankers' Association for the purpose of displaying London interbank offered
rates for U.S. dollar deposits). If neither LIBOR Reuters nor LIBOR Telerate is
specified in the applicable supplement, LIBOR will be determined as if LIBOR
Telerate had been specified. If fewer than two offered rates appear on the
Reuters Screen LIBO page, or if no rate appears on Telerate page 3750, as
applicable, LIBOR in respect of such LIBOR interest determination date will be
determined as if the parties had specified the rate described below:
- for a LIBOR interest determination date on which fewer than two offered
rates appear on the Reuters Screen LIBO page, as specified above, or on
which no rate appears on Telerate page 3750, as specified above, as
applicable, LIBOR will be determined on the basis of the rates at which
deposits in U.S. dollars having the index maturity designated in the
applicable pricing supplement are offered at approximately 11:00 a.m.,
London time, on that LIBOR interest determination date by four major
banks in the London interbank market selected by the calculation agent to
prime banks in the London interbank market, commencing on the second
London business day immediately following such LIBOR interest
determination date and in a principal amount equal to the amount of not
less than $1,000,000 that is representative for a single transaction in
such market at such time. The calculation agent will request the
principal London office of each of the reference banks to provide a
quotation of its rate. If at least two such quotations are provided,
LIBOR for that LIBOR interest determination date will be the arithmetic
mean of such quotations;
- if fewer than two quotations are provided as mentioned above, LIBOR for
that LIBOR Interest Determination Date will be the arithmetic mean of the
rates quoted at approximately 11:00 a.m., New York City time, on that
LIBOR interest determination date by three major banks in the City of New
York selected by the calculation agent for loans in U.S. dollars to
leading European banks having the index maturity designated in the
pricing supplement, commencing on the second London business day
immediately following that LIBOR interest determination date and in a
principal amount equal to an amount of not less than $1,000,000 that is
representative for a single transaction in that market at that time; or
- if the banks selected by the calculation agent are not quoting as
mentioned above, LIBOR for that LIBOR interest determination date will be
the interest rate otherwise in effect on that LIBOR interest
determination date.
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REDEMPTION
The member subordinated capital securities will be redeemable at the option
of CFC, in whole or in part, at any time after five years at 100% of the
principal amount to be redeemed together with accrued interest to the redemption
date.
The holder of member subordinated capital securities may require CFC to
repurchase the member subordinated capital securities on the date 44, 59, 69, 79
or 89 years after issuance, at 100% of the principal amount plus accrued
interest. To put the security back to CFC, the holder must notify CFC in
writing. CFC must receive the notice not less than 30 days and not more than 45
days before the put date. If the put date occurs during a period in which CFC
has elected to extend the interest payment period, the repurchase will be
delayed until the interest payment extension period has expired. A holder must
notify CFC of its intention to put the security back to CFC within the required
period before the specified repurchase date, even if an interest payment period
extension is in effect. A holder may cancel its put request at any time before
the end of the interest payment extension period. The request to cancel the put
must be received by CFC, in writing, not less than 30 days nor more than 45 days
before the end of the interest payment extension period.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
CFC will have the right from time to time during the term of the member
subordinated capital securities to extend the interest payment period to a
period not exceeding 10 consecutive semi-annual interest payment periods. During
an extension period, interest will continue to accrue, but will not be paid on
the regular interest payment date. At the end of an extension period, CFC must
pay all interest then accrued and unpaid together with interest thereon at the
same rate as specified for the member subordinated capital securities to the
extent permitted by applicable law. During an extension period CFC may not
declare or pay any dividend or interest on, or principal of, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of its
members' subordinated certificates, members' equity or patronage capital. Before
the end of any extension period, CFC may further extend the interest payment
period, but the extension period, together with all previous and further
extensions, may not exceed 10 consecutive semi-annual interest payment periods
or extend beyond the maturity of the member subordinated capital securities.
Upon the termination of an extension period and the payment of all amounts then
due, CFC may elect a new extension period, subject to the above requirements.
CFC will inform the holders of member subordinated capital securities of
its intent to extend the interest payment period in writing. The notice will be
given not less than 10 days and not more than 30 days before the first interest
payment to be postponed. The notice will indicate the length of the extension
period or the number of semi-annual interest payments that will be postponed.
ADDITIONAL EVENTS OF DEFAULT
In addition to the events of default described in the accompanying
prospectus, the following will constitute events of default under the indenture
with respect to the member subordinated capital securities:
- payment of interest or principal amortization on members' subordinated
certificates during an extension period,
- payment for the redemption of or liquidation of members' subordinated
certificates during an extension period,
- retirement of patronage capital to members during an extension period,
and
- failure to make payments of interest or principal on the member
subordinated capital securities, unless those payments were due during an
extension period.
Because of the terms of the subordination provisions in CFC's members'
subordinated certificates, CFC's failure to pay interest on, or principal of,
the certificates during an extension period will not be a default under the
certificates.
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SUBORDINATION
For the member subordinated capital securities, senior indebtedness will
include CFC's quarterly income capital securities.
The member subordinated capital securities will be senior to member
subordinated certificates and unretired patronage capital.
DEFEASANCE
The provisions described in the accompanying prospectus under the caption
"Description of Debt Securities--Defeasance" are applicable to the member
subordinated capital securities.
As set forth in that description, subject to conditions specified in the
indenture, the member subordinated capital securities will be deemed paid for
and the entire indebtedness of CFC in respect of the securities will be deemed
satisfied and discharged if there has been irrevocably deposited with the
trustee or any paying agent in trust sufficient cash or specified government
securities to fully satisfy all principal of and interest on the securities.
U.S. TAXATION
This section, which has been prepared by Hunton & Williams, special tax
counsel to CFC, is a summary of certain United States federal income tax
considerations that may be relevant to prospective purchasers of member
subordinated capital securities. This section is based upon current provisions
of the Internal Revenue Code of 1986, as amended, existing and proposed
regulations and current administrative rulings and court decisions, all of which
are subject to change. Subsequent changes may cause tax consequences to vary
substantially from the consequences described below.
No attempt has been made in the following discussion to comment on all
United States federal income tax matters affecting purchasers of member
subordinated capital securities. The discussion focuses on taxable CFC members
that purchase member subordinated capital securities in the initial offering.
Each prospective purchaser of member subordinated capital securities should
consult its own tax advisor in analyzing the federal, state and local tax
consequences of the purchase, ownership or disposition of member subordinated
capital securities.
The holders of member subordinated capital securities generally will
include the interest thereon in gross income in accordance with their usual
method of tax accounting. However, if CFC elects to defer the payment of
interest for one or more periods, as described in "Investment
Considerations--CFC Has the Option to Extend the Interest Payment Period," the
federal income tax rules governing original issue discount ("OID") will require
all such holders, including holders who use the cash method of tax accounting,
to accrue income during the extension periods even though they are not receiving
payments.
A holder generally will recognize gain or loss on the sale or retirement of
a member subordinated capital security equal to the difference between the
amount realized from its sale or retirement, excluding any portion attributable
to accrued interest, which is taxable as such, and the holder's tax basis in the
member subordinated capital security. The gain or loss will be capital gain or
loss, and will be long-term capital gain or loss if the holder has held the
member subordinated capital security for more than one year. The tax basis of a
member subordinated capital security generally will equal the amount paid for
it, increased by the amount of OID on the member subordinated capital security
and decreased by principal payments received on the member subordinated capital
security.
PLAN OF DISTRIBUTION
The notes are offered on a continuing basis by CFC on its own behalf
directly to its members. CFC will have the sole right to accept offers to
purchase members subordinated capital securities and may reject any such offer,
in whole or in part.
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Unless otherwise indicated in the pricing supplement, payment of the
purchase price of member subordinated capital securities will be required to be
made in immediately available funds to CFC.
CFC may create other series of securities under the indenture. The amount
of securities available for sale in the form of member subordinated capital
securities will be the total registered less any amount issued under the other
series.
LEGAL MATTERS
Statements as to U.S. taxation in this prospectus supplement under the
caption "U.S. Taxation" have been passed upon for CFC by Hunton & Williams,
special tax counsel to CFC, and are stated herein on their authority as experts.
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PROSPECTUS
[CFC LOGO]
National Rural Utilities
Cooperative Finance Corporation
$400,000,000
Debt Securities
------------------------
We plan to issue from time to time up to $400,000,000 of debt securities. We
will provide the specific terms of these debt securities in supplements to this
prospectus. You should read this prospectus and any supplements carefully.
------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these debt securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------
This prospectus may not be used to consummate sales of debt securities unless
accompanied by a prospectus supplement.
------------------------
The date of this prospectus is February 22, 2000
<PAGE> 12
WHERE YOU CAN FIND MORE INFORMATION ABOUT
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
National Rural Utilities Cooperative Finance Corporation ("CFC") files
annual, quarterly and current reports and other information with the SEC. You
may read and copy any document CFC files at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms. CFC's
SEC filings are also available to the public at the SEC's web site at
http://www.sec.gov.
The SEC allows the incorporation by reference of information filed in other
documents into this prospectus, which means that CFC can disclose information
important to you by referring you to those documents. The information
incorporated by reference is considered to be a part of this prospectus, and
later information filed with the SEC will update and supersede this information.
CFC incorporates by reference the documents listed below and any future filings
made with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 until this offering is completed:
- Annual Report on Form 10-K for the year ended May 31, 1999;
- Current Reports on Form 8-K dated June 10, 1999 and October 13,
1999;
- Quarterly Reports on Form 10-Q for the quarters ended August 31,
1999 and November 30, 1999.
You may request a copy of these filings, at no cost, by writing to or
telephoning us at the following address:
Steven L. Lilly
Senior Vice President and Chief Financial Officer
National Rural Utilities Cooperative Finance Corporation
Woodland Park, 2201 Cooperative Way
Herndon, VA 20171-3025
(703) 709-6700
---------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT. WE HAVE AUTHORIZED NO
ONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT 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 DEBT SECURITIES IN ANY STATE WHERE THE OFFER
IS NOT PERMITTED.
2
<PAGE> 13
CFC
CFC was incorporated as a private, not-for-profit cooperative association
under the laws of the District of Columbia in 1969. CFC's principal purpose is
to provide its members with a source of financing to supplement the loan program
of the Rural Utilities Service ("RUS") (formerly the Rural Electrification
Administration) of the United States Department of Agriculture. CFC makes loans
primarily to its rural utility system members to enable them to acquire,
construct and operate electric distribution, generation, transmission and
related facilities. CFC also makes loans to service organization 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 in connection with
certain lease transactions of its members. Also, through Rural Telephone Finance
Cooperative, 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, a controlled
affiliate of CFC established in 1991, CFC provides financing for members to
refinance their debt to the Federal Financing Bank of the United States
Treasury. CFC's offices are located at Woodland Park, 2201 Cooperative Way,
Herndon, VA 20171-3025 and its telephone number is (703) 709-6700.
CFC's 1,057 members as of May 31, 1999 included 908 utility members,
virtually all of which are consumer-owned cooperatives, 76 service members and
73 associate members. The utility members included 838 distribution systems and
70 generation and transmission systems operating in 48 states and U.S.
territories.
CFC's long-term loans to rural utility system members generally have
35-year maturities. Loans are made directly to members or in conjunction with
concurrent RUS loans. Loans made to members that do not also have RUS loans are
generally secured by a mortgage or substantially all the rural utility system
member's property, including revenues. Loans made to members that also have RUS
loans are generally secured ratably with RUS's loans by a common mortgage on
substantially all the rural utility system member's property, including
revenues. Interest rates on these loans are either fixed or variable. Fixed
rates are offered weekly based on the overall cost of long-term funds and may be
obtained for any period from one to 35 years. Variable rates are adjusted
monthly in line with changes in the cost of short-term funds.
CFC makes short-term line-of-credit loans and intermediate-term loans with
up to five-year maturities. These 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 the 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 Rural Telephone
Finance Cooperative. These loans are long-term fixed or variable rate loans with
maturities not exceeding 15 years and short-term loans.
At November 30, 1999, CFC had a total of $15,195.5 million of loans
outstanding and $1,777.9 million of guarantees outstanding.
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 $933.8 million
of the guaranteed pollution control debt at November 30, 1999 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 November 30, 1999, the allowance was $229.6 million. At November
30, 1999, CFC's ten largest borrowers had outstanding loans totaling
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<PAGE> 14
$3,053.9 million, which represented approximately 20.0% of CFC's total loans
outstanding. As of November 30, 1999, outstanding guarantees for these same ten
largest borrowers totaled $548.3 million, which represented 30.8% of CFC's total
guarantees outstanding, including guarantees of the maximum amounts of lease
obligations at such date. On that date, no member had loans and guarantees
outstanding in excess of 10% of the aggregate amount of CFC's outstanding loans
and guarantees; however, one of the ten largest borrowers, Deseret Generation &
Transmission Co-operative, was operating under a restructuring agreement. At May
31, 1999, loans outstanding to Deseret accounted for 4.2% of total loans
outstanding. Guarantees outstanding for Deseret accounted for 4.0% of total
guarantees outstanding.
CFC's fixed charge coverage ratio was as follows for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
- ----------------- ------------------------------------------------
1999 1998 1999 1998 1997 1996 1995
- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1.12 1.12 1.12 1.12 1.12 1.12 1.13
</TABLE>
Margins used to compute the fixed charge coverage ratio represent net
margins before extraordinary loss resulting from redemption premiums on bonds
plus fixed charges. The fixed charges used in the computation of the fixed
charge coverage ratio consist of interest and amortization of bond discount and
bond issuance expenses.
USE OF PROCEEDS
Unless otherwise specified in a prospectus supplement, CFC will add the net
proceeds from the sale of the debt securities to the general funds, which will
be used to make loans to members, repay short-term borrowings, refinance
existing long-term debt and for other corporate purposes. CFC 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.
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<PAGE> 15
SUMMARY FINANCIAL INFORMATION
The following is a summary of selected financial data for each of the five
years ended May 31, 1999.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
For the year ended May 31:
Operating income............... $ 790,803 $ 637,573 $ 564,439 $ 505,073 $ 440,109
=========== =========== ========== ========== ==========
Operating margin............... $ 74,717 $ 54,411 $ 51,530 $ 46,857 $ 41,803
Nonoperating income............ 1,722 2,611 3,206 3,764 3,409
Gain on sale of land........... -- 5,194 -- -- --
Extraordinary loss(A).......... -- -- -- (1,580) --
----------- ----------- ---------- ---------- ----------
Net margins.................... $ 76,439 $ 62,216 $ 54,736 $ 49,041 $ 45,212
=========== =========== ========== ========== ==========
Fixed charge coverage
ratio(A)..................... 1.12 1.12 1.12 1.12 1.13
=========== =========== ========== ========== ==========
As of May 31:
Assets......................... $13,925,252 $10,682,888 $9,057,495 $8,054,089 $7,080,789
=========== =========== ========== ========== ==========
Long-term debt(B).............. $ 6,891,122 $ 5,024,621 $3,596,231 $3,682,421 $3,423,031
=========== =========== ========== ========== ==========
Quarterly income capital
securities................... $ 400,000 $ 200,000 $ 125,000 $ -- $ --
=========== =========== ========== ========== ==========
Members' subordinated
certificates................. $ 1,239,816 $ 1,229,166 $1,212,486 $1,207,684 $1,234,715
=========== =========== ========== ========== ==========
Members' equity................ $ 296,481 $ 279,278 $ 271,594 $ 269,641 $ 270,221
=========== =========== ========== ========== ==========
Leverage ratio(C).............. 7.00 6.37 5.84 5.69 5.13
=========== =========== ========== ========== ==========
Debt to equity ratio(D)........ 5.52 4.51 3.97 3.63 3.01
=========== =========== ========== ========== ==========
</TABLE>
- ---------------
(A) Extraordinary loss for the year ended May 31, 1996 represents premiums in
connection with the prepayment of collateral trust bonds. Margins used to
compute the fixed charge coverage ratio represent net margins before
extraordinary loss plus fixed charges. The fixed charges used in the
computation of the fixed charge coverage ratio consist of interest and
amortization of bond discount and bond issuance expenses.
(B) Includes commercial paper reclassified as long-term debt and excludes $983.0
million, $327.3 million, $268.7 million, $351.5 million and $262.7 million
in long-term debt that comes due, matures and/or will be redeemed early
during fiscal years 2000, 1999, 1998, 1997 and 1996, respectively.
(C) In accordance with CFC's revolving credit agreements, the leverage ratio is
calculated by dividing debt and guarantees outstanding, excluding quarterly
income capital securities ("QUICS") and debt used to fund loans guaranteed
by the U.S. Government, by the total of QUICS, members' subordinated
certificates and members' equity.
(D) The debt to equity ratio is calculated by dividing debt outstanding,
excluding QUICS and debt used to fund loans guaranteed by RUS, by the total
of QUICS, members' subordinated certificates, members' equity and the loan
and guarantee loss allowance.
CFC has had outstanding guarantees for its members' indebtedness in each of
the fiscal years shown above. Members' interest expense on such indebtedness was
approximately $73.5 million for the year ended May 31, 1999.
CFC does not have outstanding any common stock and does not pay dividends.
Annually CFC allocates its net margin to its members in the form of patronage
capital certificates. Under current policies, CFC retires patronage capital
certificates 70% during the next fiscal year, and expects to retire the
remaining 30% after 15 years. All retirements of patronage capital certificates
are subject to approval by the Board of Directors, if permitted by CFC's
contractual obligations and to the extent that the Board of Directors in its
discretion may determine from time to time that the financial condition of CFC
will not be impaired as a result.
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<PAGE> 16
CAPITALIZATION
The following table shows the capitalization of CFC as of November 30,
1999.
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
Senior debt:
Short-term debt(A)........................................ $6,389,697
Long-term debt(A)......................................... 6,883,576
----------
Total senior debt(B).............................. 13,273,273
----------
Subordinated debt and members' equity:
Deferrable subordinated debt(C)........................... 400,000
Members' subordinated certificates(D)..................... 1,308,550
Members' equity(E)........................................ 274,538
----------
Total capitalization.............................. $15,256,361
==========
</TABLE>
- ------------
(A) At November 30, 1999, CFC 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 November 30, 1999, bank revolving credit
agreements providing for borrowings aggregating up to $5,492.5 million. CFC
may borrow under the revolving credit agreements only if it continues to
meet conditions, including maintenance of members' equity and members'
subordinated certificates of at least $1,373.9 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 $2,402.5 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 November 30, 1999 CFC had outstanding guarantees of tax-exempt securities
issued on be- half of members in the aggregate amount of $1,046.3 million.
Guaranteed tax-exempt securities include $933.8 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 November 30, 1999, CFC had
guaranteed its members' obligations in connection with certain lease
transactions and other debt in the amount of $731.6 million.
(C) As of November 30, 1999, CFC had issued a total of $400.0 million of
deferrable subordinated debt in the form of QUICS. QUICS are subordinate and
junior in right of payment to senior indebtedness. CFC has the right at any
time and from time to time during the term of the QUICS to defer the payment
of interest for up to 20 consecutive quarters.
(D) Subordinated certificates are subordinated obligations purchased by members
as a condition of membership and in connection with CFC's extension of
long-term credit to them. Those issued as a condition of membership, $642.0
million at November 30, 1999, 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 from such members. The current policy of CFC is 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 within 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.
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<PAGE> 17
DESCRIPTION OF DEBT SECURITIES
The following description summarizes the general terms and provisions that
may apply to the debt securities. Each prospectus supplement will state the
particular terms of the debt securities and the extent, if any, to which the
general provisions may apply to the debt securities included in the supplement.
GENERAL
The debt securities will be issued under an indenture between CFC and
Harris Trust and Savings Bank, or other trustee to be named, as trustee, dated
as of February 15, 1994. The statements in this prospectus concerning the
indenture, one or more supplemental indentures, board resolutions or officer's
certificates establishing the debt securities and the debt securities are merely
an outline and do not purport to be complete. The forms of the debt securities
are filed, or will be filed, as exhibits to the Registration Statement of which
this prospectus forms a part, or as an exhibit to a current report on Form 8-K
to be incorporated by reference in this prospectus. This description makes use
of the terms defined in the indenture and is qualified in its entirety by
reference to the indenture. The debt securities will be unsecured and
subordinated obligations of CFC.
Reference is made to the prospectus supplement and pricing supplement
relating to any particular issue of offered debt securities for the following
terms:
- the title and the limit on aggregate principal amount of such securities;
- the date or dates on which the debt securities will mature;
- the annual rate or rates, which may be fixed or variable, or the method
of determining any rate or rates at which the debt securities will bear
interest;
- the date or dates from which the interest shall accrue and the date or
dates at which interest will be payable;
- the place where payments may be made on the debt securities;
- any redemption or sinking fund terms;
- the denominations in which the debt securities will be issuable, if other
than $1,000 and any integral multiple thereof;
- if the amount payable in respect of principal of or any premium or
interest on any of such debt securities may be determined with reference
to an index or other fact or event ascertainable outside the indenture,
the manner in which the amounts will be determined;
- if other than the currency of the United States, the currency or
currencies, including composite currencies in which the principal of and
premium and interest on any debt securities will be payable;
- if other than the principal amount of the debt securities, the portion of
the principal amount of the debt securities payable upon declaration of
acceleration of the maturity;
- if the principal of or premium or interest on the debt securities are to
be payable in securities or other property, the type and amount of
securities or other property, or the method of determining the amount,
and the terms and conditions of the election;
- the terms, if any, on which debt securities may be converted into or
exchanged for securities of CFC or any other person;
- the obligations or instruments, if any, considered eligible obligations
in respect of debt securities denominated in a currency other than
dollars or in a composite currency, and any additional or alternative
provisions for the reinstatement of CFC's indebtedness in respect of the
debt securities after their satisfaction and discharge;
- whether the debt securities will be issued as registered securities, in a
form registered as to principal only with or without coupons, or as
bearer securities including temporary and definitive global form, or any
combination thereof and applicable exchange provisions;
7
<PAGE> 18
- any limitations on the rights of the holders of debt securities to
transfer or exchange or to obtain the registration of transfer of debt
securities, and the amount or terms of a service charge if any for the
registration of transfer or exchange of debt securities;
- any changes to the events of default or covenants described in this
prospectus; and
- any other terms of the debt securities, not inconsistent with the
provisions of the Indenture. (Section 301)
Debt securities may be sold at a substantial discount below their principal
amount. Special United States federal income tax considerations applicable to
debt securities sold at an original issue discount may be described in the
applicable prospectus supplement. In addition, special United States federal
income tax or other considerations applicable to any debt securities denominated
in a currency or currency unit other than dollars may be described in the
applicable prospectus supplement.
Except as otherwise described in the prospectus supplement, the covenants
contained in the indenture would not afford holders of debt securities
protection in the event of a highly-leveraged transaction involving CFC.
SUBORDINATION
The debt securities will be subordinate and junior in right of payment to
all senior indebtedness of CFC.
No payment of principal of, including redemption and sinking fund payments,
or premium or interest on, the debt securities may be made if any senior
indebtedness is not paid when due, or a default has occurred with respect to the
senior indebtedness permitting the holders to accelerate its maturity and the
default has not been cured or waived and has not ceased to exist. Upon any
acceleration of the principal amount due on the debt securities or any
distribution of assets of CFC to creditors upon any dissolution, winding-up,
liquidation or reorganization, whether voluntary or involuntary or in
bankruptcy, insolvency, receivership or other proceedings, all principal of, and
premium, if any, and interest due or to become due on, all senior indebtedness
must be paid in full before the holders of the debt securities are entitled to
receive or retain any payment. The holders of the debt securities will be
subrogated to the rights of the holders of senior indebtedness to receive
payments or distributions until all amounts owing on the debt securities are
paid in full. (Article 15)
The term "senior indebtedness" is defined in the indenture to mean
- all indebtedness heretofore or hereafter incurred by CFC for money
borrowed unless by its terms it is provided that such indebtedness is not
senior indebtedness,
- all other indebtedness hereafter incurred by the CFC which by its terms
provides that such indebtedness is senior indebtedness,
- all guarantees, endorsements and other contingent obligations in respect
of, or obligations to purchase or otherwise acquire or service,
indebtedness or obligations of others, and
- any amendments, modifications, deferrals, renewals or extensions of any
such senior indebtedness heretofore or hereafter issued in evidence of or
exchange of such senior indebtedness.
The indenture does not limit the aggregate amount of senior indebtedness
that CFC may issue. As of May 31, 1999, outstanding senior indebtedness of CFC
aggregated approximately $13.5 billion, including contingent guarantees of $1.7
billion.
FORM, EXCHANGE AND TRANSFER
Unless otherwise specified in the applicable prospectus supplement, the
debt securities will be issuable only in fully registered form without coupons
and in denominations of $1,000 and any integral multiple of $1,000. (Sections
201 and 302)
At the option of the holder, subject to the terms of the indenture and the
limitations applicable to global securities, debt securities of any series will
be exchangeable for other debt securities of the same series, of any authorized
denomination and of like tenor and aggregate principal amount. (Section 305)
8
<PAGE> 19
Subject to the terms of the indenture and the limitations applicable to
global securities, debt securities may be presented for exchange as provided
above or for registration of transfer, duly endorsed or accompanied by a duly
executed instrument of transfer, at the office of the security registrar or at
the office of any transfer agent designated by CFC for such purpose. CFC may
designate itself the security registrar. No service charge will be made for any
registration of transfer or exchange of debt securities, but CFC may require
payment of a sum sufficient to cover any applicable tax or other governmental
charge. The transfer or exchange will be effected upon the security registrar or
such transfer agent, as the case may be, being satisfied with the documents of
title and identity or the person making the request. (Section 305) Any transfer
agent in addition to the security registrar initially designated by CFC for any
debt securities will be named in the applicable prospectus supplement. CFC may
at any time designate additional transfer agents or rescind the designation of
any transfer agent or approve a change in the office through which any transfer
agent acts, but CFC will be required to maintain a transfer agent in each place
of payment for the debt securities of each series. (Section 602)
CFC will not be required to issue, register the transfer of, or exchange
any debt security or any tranche thereof during a period beginning at the
opening of business 15 days before the day of mailing of a notice of redemption
of any such debt security called for redemption and ending at the close of
business on the day of such mailing. CFC will not be required to register the
transfer of or exchange any debt security so selected for redemption, in whole
or in part, except the unredeemed portion of any such debt security being
redeemed in part. (Section 305)
PAYMENT AND PAYING AGENTS
Unless otherwise specified in an applicable prospectus supplement or
pricing supplement, payment of interest on a debt security on any interest
payment date will be made to the person in whose name such debt security or one
or more predecessor securities is registered at the close of business on the
regular record date for the payment. (Section 307)
Unless otherwise indicated in the applicable prospectus supplement or
pricing supplement, principal of and any premium and interest on the debt
securities of a particular series will be payable at the office of paying agents
CFC may designate from time to time. Unless otherwise indicated in the
applicable prospectus supplement or pricing supplement, Harris Trust Company of
New York in New York City, an affiliate of the trustee, will be designated as
CFC's sole paying agent for payments with respect to debt securities of each
series. Any other paying agents initially designated by CFC for the debt
securities of a particular series will be named in the applicable prospectus
supplement or pricing supplement. CFC may at any time designate additional
paying agents or rescind the designation of any paying agent or approve a change
in the office through which any paying agent acts, but CFC will be required to
maintain a paying agent in each place of payment for the debt securities of a
particular series. (Section 602)
All moneys paid by CFC to a paying agent for the payment of the principal,
premium or interest on any debt security that remains unclaimed at the end of
two years after becoming due and payable will be repaid to CFC. After that time,
the holder of the debt security will, as an unsecured general creditor, look
only to CFC for payment out of those repaid amounts. (Section 603)
REDEMPTION
Any terms for the optional or mandatory redemption of debt securities will
be set forth in the applicable prospectus supplement or a pricing supplement.
Unless otherwise provided in the applicable prospectus supplement with respect
to debt securities that are redeemable at the option of the holder, debt
securities will be redeemable only upon notice by mail not less than 30 nor more
than 60 days prior to the date fixed for redemption. If less than all the debt
securities of a series or tranche are to be redeemed, the particular debt
securities to be redeemed will be selected by a method of random selection that
the security registrar deems fair and appropriate. (Section 403 and 404)
Any notice of redemption at the option of CFC may state that the redemption
will be conditional upon receipt by the paying agent or agents, on or prior to
the dated fixed for such redemption, of money sufficient to pay the principal of
and premium, if any, and interest, if any, on such debt securities. The notice
may also
9
<PAGE> 20
state that if the money has not been received, the notice will be of no force
and effect and CFC will not be required to redeem such debt securities. (Section
404)
CONSOLIDATION, MERGER, AND SALE OF ASSETS
CFC may not consolidate with or merge into any other corporation or
transfer its assets substantially as an entirety to any person unless
- the successor is a corporation organized under the laws of any domestic
jurisdiction;
- the successor corporation assumes CFC's obligations on the debt
securities and under the Indenture;
- immediately after giving effect to the transaction, no event of default,
and no event that, after notice or lapse of time, or both, would become
an event of default, has occurred and is continuing; and
- CFC delivers to the trustee an officer's certificate and an opinion of
counsel as provided in the indenture. (Section 1101)
EVENTS OF DEFAULT
Each of the following will constitute an event of default under the
indenture with respect to debt securities of any series:
- failure to pay interest on any debt securities for 60 days after the
security becomes due and payable;
- failure to pay principal or premium, if any, on any debt security within
three business days after the security becomes due and payable;
- failure to perform or breach of any other covenant or warranty in the
indenture that continues for 60 days after written notice to CFC from the
trustee, or holders of at least 33% in principal amount of the debt
securities of the series;
- certain events of bankruptcy, insolvency or reorganization; and
- such other events as may be specified for each series.
No event of default with respect to one series of debt securities
necessarily constitutes an event of default with respect to another series debt
securities.
If an event of default with respect to any series of debt securities occurs
and is continuing, either the trustee or the holders of not less than 33% in
principal amount of the outstanding debt securities of the series may declare
the principal amount, or if the debt securities are discount notes or similar
debt securities, the portion of the principal amount specified by the terms of
the debt securities, of all of the debt securities of that series to be due and
payable immediately. However, if an event of default occurs and is continuing
with respect to more than one series of debt securities, the trustee or the
holders of not less than 33% in aggregate principal amount of the outstanding
debt securities of series, considered as one class, may make the declaration of
acceleration and not the holders of the debt securities of any one series.
At any time after a declaration of acceleration with respect to the debt
securities of any series and before a judgment or decree for payment of the
money due has been obtained, the events of default giving rise to the
declaration of acceleration will be deemed waived, and the declaration and its
consequences will be deemed rescinded and annulled, if
- CFC has paid or deposited with the trustee a sum sufficient to pay:
- all overdue interest on all debt securities of such series;
- the principal of and premium, if any, on any debt securities of such
series which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate or rates prescribed
therefor in such debt securities;
- interest upon overdue interest at the rate or rates prescribed
therefor in such debt securities, to the extent that payment of such
interest is lawful; and
- all amounts due to the trustee under the indenture; and
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<PAGE> 21
- any other events of default with respect to the debt securities of such
series, other than the nonpayment of the principal of the debt securities
of such series which has become due solely by such declaration of
acceleration, have been cured or waived as provided in the indenture.
(Section 802)
Subject to the provisions of the indenture relating to the duties of the
trustee in case an event of default shall occur and be continuing, the trustee
will be under no obligation to exercise any of its rights or powers under the
indenture at the request or direction of any of the holders, unless the holders
shall have offered to the trustee reasonable indemnity. (Section 903) Subject to
the provisions for the indemnification of the trustee, the holders of a majority
in principal amount of the outstanding debt securities of any series will have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the trustee, or exercising any trust or power conferred
on the trustee, with respect to the debt securities of that series. (Section
812)
No holder of a debt security of any series will have any right to institute
any proceeding with respect to the indenture, or for the appointment of a
receiver or a trustee, or for any other remedy, unless
- the holder has previously given to the trustee written notice of a
continuing event of default with respect to the debt securities of the
series,
- the holders of not less than 33 1/3% in aggregate principal amount of the
outstanding debt securities of the series have made written request to
the trustee, and the holder or holders have offered reasonable indemnity
to the trustee to institute the proceeding as trustee and
- the trustee has failed to institute the proceeding, and has not received
from the holders of a majority in aggregate principal amount of the
outstanding debt securities of that series a direction inconsistent with
the request, within 60 days after the notice, request and offer. (Section
807)
However, these limitations do not apply to a suit instituted by a holder of a
debt security for the enforcement of payment of the principal of or any premium
or interest on the debt security on or after the applicable due date specified
in the debt security. (Section 808)
CFC will be required to furnish to the trustee annually a statement by an
appropriate officer as to the officer's knowledge of CFC's compliance with all
conditions and covenants under the indenture, determined without regard to any
period of grace or requirement of notice under the indenture. (Section 605)
MODIFICATION AND WAIVER
Without the consent of any holder of debt securities, CFC and the trustee
may enter into one or more supplemental indentures for any of the following
purposes:
- to evidence the assumption by any permitted successor to CFC of the
covenants of CFC in the indenture and the debt securities,
- to add one or more covenants of CFC or other provisions for the benefit
of the holders of all or any series of outstanding debt securities or to
surrender any right or power conferred upon CFC by the indenture,
- to add any additional events of default with respect to all or any series
of outstanding debt securities,
- to change or eliminate any provision of the indenture or to add any new
provision to the indenture, but if the change, elimination or addition
will adversely affect the interests of the holders of debt securities of
any series in any material respect, the change, elimination or addition
will not become effective with respect to the series,
- to provide collateral security for the debt securities,
- to establish the form or terms of debt securities of any series as
permitted by the indenture,
- to provide for the acceptance of appointment of a successor trustee with
respect to the debt securities of one or more series and to add to or
change any of the provisions of the indenture as necessary or to
facilitate the administration of the trusts under the indenture by more
than one trustee,
- to provide for the procedures required to permit the utilization of a
noncertificated system of registration for any series of debt securities,
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- to change any place where
- the principal of and premium, if any, and interest, if any, on any
debt securities is payable,
- any debt securities may be surrendered for registration of transfer or
exchange and
- notices and demands to or upon CFC in respect of debt securities and
the indenture may be served,
- to cure any ambiguity or inconsistency or to make or change any other
provisions with respect to matters and questions arising under the
indenture, so long as the changes or additions will not adversely affect
the interests of the holders of debt securities of any series in any
material respect. (Section 1201)
The holders of not less than a majority in aggregate principal amount of
the outstanding debt securities of any series may waive compliance by CFC with
certain restrictive provisions of the indenture. (Section 606) The holders of a
majority in principal amount of the outstanding debt securities of any series
may waive any past default under the indenture, except a default in the payment
of principal, premium or interest and other covenants and provisions of the
indenture that can be modified or be amended only with the consent of the holder
of each outstanding debt security of the series affected. (Section 813)
If the Trust Indenture Act of 1939, as amended, is amended after the date
of the indenture to require changes to the indenture or the incorporation of
additional provisions or to permit changes to, or the elimination of, provisions
which, at the date of the indenture were required by the Trust Indenture Act to
be contained in the indenture, the indenture will be deemed amended so as to
conform to the amendment or to effect the changes or elimination. CFC and the
trustee may, without the consent of any holders, enter into one or more
supplemental indentures to evidence or effect the amendment. (Section 1201)
Except as provided above, the consent of the holders of not less than a
majority in aggregate principal amount of the debt securities of all series then
outstanding, considered as one class, is required to add any provisions to, or
change in any manner, or eliminate any of the provisions of, the indenture.
However, if less than all of the series of debt securities outstanding are
directly affected by a proposed supplemental indenture, then the consent only of
the holders of a majority in aggregate principal amount of outstanding debt
securities of all series so directly affected, considered as one class, will be
required. If the debt securities of any series have been issued in more than one
tranche and if the proposed supplemental indenture directly affects the rights
of the holders of one or more, but less than all, tranches, the consent only of
the holders of a majority in aggregate principal amount of the outstanding debt
securities of all tranches directly affected, considered as one class, will be
required. However, no amendment or modification may
- change the stated maturity of the principal of, or any installment of
principal of or interest on, any debt security, or reduce the principal
amount or the rate of interest or the amount of any installment of
interest or change the method of calculating such rate or reduce any
premium payable upon the redemption thereof, or reduce the amount of the
principal of any discount security that would be due and payable upon a
declaration of acceleration of maturity or change the coin or currency or
other property in which any debt security or any premium or the interest
thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the stated maturity of any
debt security or, in the case of redemption, on or after the redemption
date without, in any such case, the consent of the holder of the debt
security,
- reduce the percentage in principal amount of the outstanding debt
securities of any series, or any tranche, the consent of the holders of
which is required for any supplemental indenture, or the consent of the
holders of which is required for any waiver of compliance with any
provision of the indenture or any default and its consequences, or reduce
the requirements for quorum or voting, without, in any such case, the
consent of the holder of each outstanding debt security of the series or
tranche, or
- modify certain of the provisions of the indenture relating to
supplemental indentures, waivers of certain covenants and waivers of past
defaults with respect to the debt securities of any series, or any
tranche, without the consent of the holder of each outstanding debt
security affected.
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A supplemental indenture that changes or eliminates any provision of the
indenture expressly included solely for the benefit of a particular series of
debt securities or tranches, or modifies the rights of the holders of debt
securities of the series or tranches with respect to the provision, will be
deemed not to affect the rights under the indenture of the holders of the debt
securities of any other series or tranche. (Section 1202)
The indenture provides that in determining whether the holders of the
requisite principal amount of the outstanding debt securities have given or
taken any direction, notice, consent, waiver or other action under the Indenture
as of any date,
- debt securities owned by CFC or any other obligor upon the securities or
any affiliate of CFC or of the other obligor unless CFC, the affiliate or
obligor owns all securities outstanding under the indenture, or all
outstanding securities of each the series and the tranche, as the case
may be, determined without regard to this bullet point shall be
disregarded and deemed not outstanding;
- the principal amount of a discount security deemed outstanding shall be
the amount of the principal that would be due and payable as of the date
of determination upon a declaration of acceleration of the maturity as
provided in the indenture; and
- the principal amount of a debt security denominated in foreign currencies
or a composite currency deemed outstanding will be the dollar equivalent,
determined as of that date in the manner prescribed for that debt
security, of the principal amount of that debt security, or, in the case
of a debt security described in the second bullet point above, of the
amount described in that bullet point. (Section 101)
If CFC solicits from holders any request, demand, authorization, direction,
notice, consent, election, waiver or other act, CFC may, at its option, by board
resolution, fix in advance a record date for the determination of holders
entitled to give such request, demand, authorization, direction, notice,
consent, election, waiver or other act, but CFC shall have no obligation to do
so. If a record date is fixed, the request, demand, authorization, direction,
notice, consent, election, waiver or other act may be given before or after the
record date, but only the holders of record at the close of business on the
record date shall be deemed holders for the purposes of determining whether
holders of the requisite proportion of the outstanding securities have
authorized or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other act, and for that purpose the
outstanding securities shall be computed as of the record date. Any request,
demand, authorization, direction, notice, consent, election, waiver or other act
of a holder shall bind every future holder of the same security and the holder
of every security issued upon the registration of transfer or in exchange or in
lieu of the security in respect of anything done, omitted or suffered to be done
by the trustee or CFC in reliance thereon, whether or not notation is made upon
security. (Section 104)
DEFEASANCE
Unless otherwise indicated in the applicable prospectus supplement or
pricing supplement, any debt security, or any portion of the principal amount,
will be deemed paid for purposes of the indenture, and, at CFC's election, the
entire indebtedness of CFC in respect thereof will be deemed satisfied and
discharged, if there has been irrevocably deposited with the trustee or any
paying agent other than CFC in trust any of the following in an amount
sufficient to pay when due the principal of and premium, if any, and interest,
if any, due and to become due on the debt securities or portions thereof:
- money;
- eligible obligations;
- a combination of the above bullet points. (Section 701)
For this purpose, unless otherwise indicated in the applicable prospectus
supplement or pricing supplement, eligible obligations include direct
obligations of, or obligations unconditionally guaranteed by, the United States,
entitled to the benefit of its full faith and credit, and certificates,
depositary receipts or other instruments which evidence a direct ownership
interest in those obligations or in any specific interest or principal payments
due on them, in each case which do not contain provisions permitting the
redemption or other prepayment at the option of the issuer. Among the conditions
to CFC's making the election to have its entire indebtedness deemed satisfied
and discharged, CFC is required to deliver to the trustee an opinion of counsel
to the effect that the deposit and related defeasance would not cause the
holders of the debt securities
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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 the deposit and related defeasance had not occurred.
TITLE
CFC, the trustee and any agent of CFC or the trustee may treat the person
in whose name a debt security is registered as the absolute owner, whether or
not the debt security may be overdue, for the purpose of making payment and for
all other purposes. (Section 308)
GOVERNING LAW
The indenture and the debt securities will be governed by, and construed in
accordance with, the laws of the State of New York. (Section 112)
THE TRUSTEE
Harris Trust and Savings Bank, Chicago, Illinois is the trustee.
GLOBAL SECURITIES
The Depository Trust Company ("DTC") may act as securities depository for
some or all of the debt securities of any series. These debt securities will be
issued in fully-registered form in the name of Cede & Co. (DTC's partnership
nominee). One or more fully-registered certificates will be issued as global
securities for the debt securities in the aggregate principal amount of the debt
securities, and will be deposited with, or held for the benefit of, DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934. DTC holds securities that its participants deposit with DTC. DTC
also facilitates the settlement among direct participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in direct participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
Direct participants include securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations. DTC is owned
by a number of its direct participants and by the New York Stock Exchange, Inc.,
the American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks, and trust companies that clear through or
maintain a custodial relationship with a direct participant, either directly or
indirectly. The rules applicable to DTC and its participants are on file with
the Securities and Exchange Commission.
Purchases of the debt securities under the DTC system must be made by or
through direct participants, which will receive a credit for the debt securities
on DTC's records. The ownership interest of each actual purchaser of the debt
securities ("Beneficial Owner") is in turn to be recorded on the participants'
records. Beneficial owners will not receive written confirmation from DTC of
their purchases, but beneficial owners are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the participant through which the beneficial
owner entered into the transaction. Transfers of ownership interests in the debt
securities are to be accomplished by entries made on the books of participants
acting on behalf of beneficial owners. Beneficial owners will not receive
certificates representing their ownership interests in the debt securities,
except in the event that use of the book-entry system for the debt securities is
discontinued.
To facilitate subsequent transfers, all the debt securities deposited by
direct participants with DTC are registered in the name of DTC's partnership
nominee, Cede & Co. The deposit of the debt securities with DTC and their
registration in the name of Cede & Co. effect no change in beneficial ownership.
DTC has no knowledge of the actual beneficial owners of the debt securities;
DTC's records reflect only the identity of the direct participants to whose
accounts such debt securities are credited, which may or may not be the
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beneficial owners. The participants will remain responsible for keeping account
of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by
participants to beneficial owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the debt
securities. Under its usual procedures, DTC would mail an omnibus proxy to CFC
as soon as possible after the record date. The omnibus proxy assigns Cede &
Co.'s consenting or voting rights to those direct participants to whose accounts
the debt securities are credited on the record date (identified in a listing
attached to the omnibus proxy).
Principal and interest payments on the debt securities will be made to DTC.
DTC's practice is to credit direct participants' accounts on the payable date in
accordance with their respective holdings shown on DTC's records unless DTC has
reason to believe that it will not receive payment on the payable date. Payments
by participants to beneficial owners will be governed by standing instructions
and customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name", and will be the
responsibility of such participant and not of DTC, CFC or the Trustee, subject
to any statutory or regulatory requirements as may be in effect from time to
time. Payment of principal and interest to DTC is the responsibility of CFC or
the Trustee, disbursement of such payments to direct participants shall be the
responsibility of DTC, and disbursements of such payments to the beneficial
owners shall be the responsibility of participants.
DTC may discontinue providing its services as securities depository with
respect to the debt securities at any time by giving reasonable notice to CFC or
the Trustee. Under such circumstances, in the event that a successor securities
depository is not obtained, the debt securities certificates are required to be
printed and delivered.
CFC may decide to discontinue use of the system of book-entry transfers
through DTC (or a successor securities depository). In that event, the debt
securities certificates will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that CFC believes to be reliable (including DTC),
but CFC takes no responsibility for the accuracy thereof. According to DTC, the
foregoing information with respect to DTC has been provided to the financial
community for informational purposes only and is not intended to serve as a
representation, warranty, or contract modification of any kind.
Neither CFC, the Trustee nor any underwriter will have any responsibility
or obligation to participants, or the persons for whom they act as nominees,
with respect to the accuracy of the records of DTC, its nominee or any
participant with respect to any ownership interest in the debt securities, or
payments to, or the providing of notice for, participants or beneficial owners.
PLAN OF DISTRIBUTION
Debt securities of any series may be purchased to be reoffered to the
public through underwriting syndicates led by Lehman Brothers Inc. or other
underwriters. The underwriters with respect to an underwritten offering of debt
securities will be named in the prospectus supplement relating to the offering.
Unless otherwise set forth in the prospectus supplement, the obligations of the
underwriters to purchase debt securities will be subject to conditions precedent
and each of the underwriters with respect to a sale of debt securities will be
obligated to purchase all of its debt securities if any are purchased. The
initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers set forth in the prospectus supplement may be
changed from time to time.
The place and time of delivery for the offered debt securities in respect
of which this prospectus is delivered will be set forth in the prospectus
supplement.
Certain of the underwriters and their associates may engage in transactions
with and perform services for CFC in the ordinary course of business.
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In connection with an offering of debt securities, the underwriters may
purchase and sell debt securities in the open market. These transactions may
include over-allotment and stabilizing transactions and purchases to cover short
positions created by the underwriters in connection with the offering.
Stabilizing transactions consist of certain bids or purchases for the purpose of
preventing or retarding a decline in the market price of debt securities, and
short positions created by the underwriters involve the sale by the underwriters
of a greater aggregate principal amount of debt securities than they are
required to purchase from CFC. The underwriters may also impose a penalty bid,
under which selling concessions allowed to broker-dealers in respect of the debt
securities sold in the offering may be reclaimed by the underwriters if those
debt securities are repurchased by the underwriters in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the debt securities, which may be higher than the price that
might otherwise prevail in the open market. These activities, if commenced, may
be discontinued at any time. These transactions may be effected in the
over-the-counter market or otherwise.
LEGAL OPINIONS
The validity of the debt securities offered hereby will be passed upon for
CFC by Milbank, Tweed, Hadley & McCloy LLP, 1 Chase Manhattan Plaza, New York,
New York, and for the underwriters, if any, by Cravath, Swaine & Moore,
Worldwide Plaza, 825 Eighth Avenue, New York, New York.
EXPERTS
The audited financial statements included in CFC's Annual Report on Form
10-K for the year ended May 31, 1999, incorporated by reference in this
prospectus, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
incorporated herein in reliance upon the authority of said firm as experts in
giving said reports.
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[CFC LOGO]
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
$400,000,000
MEMBER SUBORDINATED CAPITAL SECURITIES
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PROSPECTUS SUPPLEMENT
May 2, 2000
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