2014-03-06T15:42:09-06:00 2013-05-31 135565207 KPMG LLP 1676 INTERNATIONAL DRIVE MCLEAN VA 22102 990 2012-06-01 520891669 NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION NATI 7034671800 20701 COOPERATIVE WAY DULLES VA 20166 J ANDREW DON 7034671800 2014-03-06 0 SCOTT SHERMAN P00451522 7032868000 2012 2015-11-30 17:44:51Z J ANDREW DON 20701 COOPERATIVE WAY DULLES VA 20166 1246514382 0 X WWW.NRUCFC.COOP X 1969 VA TAX EXEMPT COOPERATIVE ORGANIZATION PROVIDING FINANCING TO RURAL ELECTRIC COOPERATIVES 23 23 242 0 0 0 0 0 1240520159 1234946454 3888007 6372192 5069000 5128000 1249477166 1246446646 1378844 1290000 0 0 39879244 55593958 0 0 0 1090366164 970787391 1131624252 1027671349 117852914 218775297 19889857994 22015161447 19400559170 21209554141 489298824 805607306 X TO BRIDGE THE FINANCIAL NEEDS OF THE RURAL ELECTRIC NETWORK WITH THE EXPECTATIONS OF THE GLOBAL CAPITAL MARKETS, ONE COOPERATIVE AT A TIME. NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION ("CFC") IS A MEMBER-OWNED COOPERATIVE ASSOCIATION INCORPORATED UNDER THE LAWS OF THE DISTRICT OF COLUMBIA IN APRIL 1969. CFC'S PRINCIPAL PURPOSE IS TO PROVIDE ITS MEMBERS WITH FINANCING TO SUPPLEMENT THE LOAN PROGRAMS OF THE RURAL UTILITIES SERVICE ("RUS") OF THE UNITED STATES DEPARTMENT OF AGRICULTURE. CFC MAKES LOANS PRIMARILY TO ITS RURAL ELECTRIC MEMBERS SO THEY CAN ACQUIRE, CONSTRUCT AND OPERATE ELECTRIC DISTRIBUTION, GENERATION, TRANSMISSION AND RELATED FACILITIES. CFC ALSO PROVIDES ITS MEMBERS WITH CREDIT ENHANCEMENTS IN THE FORM OF LETTERS OF CREDIT AND GUARANTEES OF DEBT OBLIGATIONS. 0 0 924489005 1240074454 INTEREST EXPENSE - CFC PROVIDES LOANS TO ITS MEMBERS, RURAL ELECTRIC COOPERATIVES AND THEIR RELATED ORGANIZATIONS. CFC RAISES FUNDS IN THE CAPITAL MARKETS AND PAYS A RATE OF RETURN COMMENSURATE WITH CURRENT ECONOMIC CONDITIONS FOR THE USE OF THOSE FUNDS. THESE BORROWED FUNDS PERMIT CFC TO MEET THE BORROWING NEEDS OF ITS MEMBERS SO THEY CAN CONTINUE TO PROVIDE ELECTRIC AND POWER SERVICE TO THE CONSUMERS AND BUSINESSES IN THE RURAL TERRITORIES SERVICED BY THOSE MEMBERS/BORROWERS. CFC OPERATES IN SUCH MANNER TO ACHIEVE THE LOWEST COST OF FUNDING AVAILABLE TO IT AND PASSES THE COSTS AND RESULTING SAVINGS ALONG TO ITS BORROWERS. 10636230 LOSS ON EARLY EXTINGUISHEMENT OF DEBT - WE REDEEM OUTSTANDING DEBT EARLY FROM TIME TO TIME TO MANAGE LIQUIDITY AND INTEREST RATE RISK. WHEN WE REDEEM OUTSTANDING DEBT EARLY, WE MAY RECOGNIZE A GAIN OR LOSS RELATED TO THE DIFFERENCE BETWEEN THE AMOUNT PAID TO REDEEM THE DEBT AND THE NET BOOK VALUE OF THE EXTINGUISHED DEBT AS A COMPONENT OF NON-INTEREST EXPENSE IN THE GAIN (LOSS) ON EARLY EXTINGUISHMENT OF DEBT LINE ITEM.ON MARCH 1, 2013, WE REDEEMED $300 MILLION OF OUR $900 MILLION, 5.50 PERCENT, COLLATERAL TRUST BONDS DUE JULY 1, 2013 AT A PREMIUM. THE PREMIUM AND UNAMORTIZED ISSUANCE COSTS TOTALING $5.2 MILLION WERE RECORDED AS A LOSS ON EXTINGUISHMENT OF DEBT DURING THE FOURTH QUARTER OF THE YEAR ENDED MAY 31, 2013. ON MAY 24, 2013, WE REDEEMED ALL OF OUR $88 MILLION OF SERIES NRC 6.10 PERCENT SUBORDINATED DEFERRABLE DEBT DUE 2044 AND ALL OF OUR $98 MILLION OF SERIES NRU 5.95 PERCENT SUBORDINATED DEFERRABLE DEBT DUE 2045 AT PAR. WE RECORDED A $5.4 MILLION LOSS ON THE EXTINGUISHMENT OF DEBT DURING THE FOURTH QUARTER OF FISCAL YEAR 2013 FOR THE UNAMORTIZED ISSUANCE COSTS. 1290000 1290000 GRANTS - AS A COOPERATIVE FORMED UNDER THE LAWS OF THE DISTRICT OF COLUMBIA, CFC IS REQUIRED TO ALLOCATE A MINIMUM OF 1/4 OF 1% OF ITS NET EARNINGS TO AN EDUCATIONAL FUND. COOPERATIVES ARE REQUIRED BY THIS ACT TO MAKE GRANTS IN SUPPORT OF EDUCATING THE PUBLIC ABOUT COOPERATIVE PRINCIPLES. THE EDUCATIONAL FUND GRANTS MADE BY CFC ARE MAINLY TO STATEWIDE MEMBERSHIP ORGANIZATIONS THAT USE THESE GRANTS TO EDUCATE CUSTOMERS AND CITIZENS ABOUT COOPERATIVE PRINCIPLES. ADDITIONALLY, CFC MANAGES A VOLUNTARY FUND ESTABLISHED FOR THE PURPOSE OF ASSISTING COOPERATIVES IN DEFENDING THEIR COOPERATIVE TERRITORIES AND PROTECTING COOPERATIVE PRINCIPLES. 3678320 LOSS ON WHOLE LOAN SALE - CFC ACCOUNTS FOR THE SALE OF LOANS IN SECURITIZATION TRANSACTIONS BY DERECOGNIZING FINANCIAL ASSETS WHEN CONTROL HAS BEEN SURRENDERED. DEFERRED TRANSACTION COSTS AND UNAMORTIZED DEFERRED LOAN ORIGINATION COSTS RELATED TO THE LOANS SOLD ARE INCLUDED IN THE CALCULATION OF THE GAIN OR LOSS ON THE SALE.RESULTS OF FORECLOSED ASSETS - AS PART OF OUR NORMAL OPERATING ACTIVITIES AS A LENDER, WE MAY BE REQUIRED TO FORECLOSE ON ASSETS OR BUSINESS OPERATIONS OF BORROWERS WHO DEFAULT ON THEIR LOANS DUE TO US. OUR OBJECTIVE IS TO REHABILITATE THE FORECLOSED ASSETS OR BUSINESS OPERATIONS IN ORDER SELL THEM AT A PRICE THAT MAXIMIZES OUR RECOVERY ON THOSE DEFAULTED LOANS. THE INVESTMENT IN FORECLOSED ASSETS OR BUSINESS OPERATIONS DOES NOT REPRESENT A NEW OR SEPARATE LINE OF BUSINESS FOR CFC. THE RESULTS OF OPERATIONS OF FORECLOSED ASSETS REPRESENTS THE COMBINED OPERATING INCOME FROM CFC'S WHOLLY OWNED SUBSIDIARY CARIBBEAN ASSET HOLDINGS ("CAH") AND THE OPERATING LOSS FROM DENTON REALTY PARTNERS LP, RESPECTIVELY FOR THE YEAR ENDED MAY 31, 2013. DURING FISCAL YEAR 2013, THE OPERATING COMPANIES OF CFC'S WHOLLY OWNED SUBSIDIARY CAH, EARNED $598,000 IN INCOME FROM OPERATIONS WHICH ARE COMPRISED OF TELECOMMUNICATIONS AND CABLE TELEVISION SERVICES IN THE U.S. VIRGIN ISLANDS, BRITISH VIRGIN ISLANDS AND ST. MAARTEN. DENTON REALTY PARTNERS ("DRP") HOLDS ASSETS INCLUDING A LAND DEVELOPMENT LOAN, LIMITED PARTNERSHIP INTERESTS IN CERTAIN REAL ESTATE DEVELOPMENTS AND DEVELOPED LOTS AND LAND, RAW LAND AND UNDERGROUND MINERAL RIGHTS IN TEXAS. THESE FORECLOSED ASSETS ARE HELD BY TWO WHOLLY OWNED SUBSIDIARIES OF CFC. DURING THE YEAR, DRP EXPERIENCED LOSS FROM OPERATIONS OF $1,495,000. 3678320 940093555 0 0 0 0 0 0 0 0 0 1 0 0 0 1 0 0 1 0 1 1 0 0 0 0 0 0 1 0 1 0 0 0 0 0 0 0 1 0 0 0 0 1 1 1 1 0 1 83 0 1 242 1 0 1 VI 0 0 0 0 0 0 0 0 X 23 23 0 0 0 0 1 1 0 1 1 0 0 1 1 1 1 1 1 1 0 1 1 AZ GA X ROBERT GEIER 7034671800 20701 COOPERATIVE WAY DULLES VA 20166 CHRISTOPHER L HAMON 29.00 X 42450 0 0 CURTIS NOLAN 16.00 X 36150 0 0 DELBERT MARVIN CRANFORD 27.00 X 151344 0 0 DWIGHT ROSSOW 20.00 X 37950 0 0 FRED BROG 30.00 X 45000 0 0 FREDERICK C ANDERSON 20.00 X 42600 0 0 GLENN W MILLER 20.00 X 43800 0 0 J DAVID WASSON JR 3.00 X 10300 0 0 JIM L DOERSTLER 23.00 X 42600 0 0 JIMMY EWING JR 21.00 X 42750 0 0 KIRK A THOMPSON 19.00 X 50850 0 0 LYLE KORVER 18.00 X 42750 0 0 MICHAEL J GUIDRY 17.00 X 23100 0 0 MIKE CAMPBELL 20.00 X 31950 0 0 R GRANT CLAWSON 31.00 X 46200 0 0 R WAYNE STRATTON 13.00 X 43200 0 0 RANDY D RENTH 19.00 X 42750 0 0 RAPHAEL BRUMBELOE 18.00 X 41850 0 0 SCOTT W HANDY 21.00 X 41400 0 0 WALTER K CROOK 25.00 X 41100 0 0 WILLIAM A KOPACZ 27.00 X 42600 0 0 BURNS E MERCER 16.00 X X 46800 0 0 JOEL CUNNINGHAM 28.00 X X 44600 0 0 RAY BEAVERS 15.00 X X 42450 0 0 SHELDON C PETERSEN 60.00 5.00 X 1495903 0 126295 RICHARD E LAROCHELLE 60.00 0.00 X 762273 0 120330 JOHN T EVANS 53.00 5.00 X 661223 0 77230 JOHN J LIST 58.50 1.50 X 543384 0 99591 STEVEN L LILLY 30.00 30.00 X 577689 0 75732 LAWRENCE ZAWALICK 55.00 3.00 X 718115 0 107172 JONATHON ANDREW DON 60.00 1.00 X 406873 0 136217 JOHN M BORAK 60.00 4.00 X 320353 0 98935 JOHN F SUTER 50.00 1.00 X 256378 0 117280 STEVEN M KETTLER 70.00 0.00 X 256671 0 88441 LAWRENCE SAUNDERS 50.00 0.00 X 361320 0 15119 AMY S LUONGO 50.00 0.00 X 192150 0 29731 JOEL ALLEN 45.00 0.00 X 254826 0 106131 KRISHNA MURTHY 45.00 0.00 X 273622 0 162561 ROBERTA B ARONSON 50.00 0.00 X 339651 0 116549 MICHAEL H CARR 50.00 0.00 X 295091 0 80745 ROBERT E GEIER JR 50.00 5.00 X 262792 0 115322 ALLYN J AMATO 48.00 2.00 X 261221 0 88593 9316079 0 1761974 125 0 1 0 SAPIENT CORPORATION PO BOX 414715 BOSTON MA 022414715 IT CONSULTANTS 2466334 FULBRIGHT & JAWORSKI LLP 2200 ROSS AVENUE ST 2800 DALLAS TX 752012784 LAWYER 1676193 HOGAN LOVELLS US LLP 555 THIRTEENTH STREET NW WASHINGTON DC 200041109 LAWYER 1513205 DELOITTE & TOUCHE LLP PO BOX 7247-6446 PHILADELPHIA PA 191706446 AUDITOR 1242900 THE WHITING TURNER CONTRACTING 14900 CONFERENCE CENTER DR STE 55 CHANTILLY VA 20151 BUILDING CONTRACTOR 931001 14 INTEREST FROM PSA 522200 933455231 933455231 DERIVATVE CASH SETTLEMENTS 522200 186772432 186772432 RECOVERY FOR LOAN LOSSES 522200 70090686 70090686 OTHER INCOME-LOAN FEES 522200 39603159 39603159 RECOVERY OF GUARANTEE LIABILITY 522200 4772000 4772000 252946 252946 1234946454 6324875 6324875 115053 67736 47317 47317 47317 MANAGEMENT FEES 522200 5128000 5128000 5128000 1246446646 1240074454 0 6372192 1290000 1290000 9081906 9081906 24795770 24795770 17624542 17624542 2289053 2289053 1802687 1802687 2646399 2646399 1230137 1230137 1603788 1603788 552185 552185 1884241 1884241 3250900 3250900 2188961 2188961 2537791 2537791 1961542 1961542 924489005 924489005 5380820 5380820 588025 588025 LOSS ON EARLY EXTINGUIS 10636230 10636230 BANK FEES 2578178 2578178 FORECLOSED ASSETS 897192 897192 WHOLE LOAN SALE 202950 202950 8159047 8159047 1027671349 940093555 87577794 0 33610197 32199515 152766733 139435477 184965093 174789132 18739092967 20216670396 5157001 5324416 124007774 19500215 102770437 104507559 59045008 731632425 223476219 261472115 388974339 349130412 19889857994 22015161447 3423217407 4216006876 26131431 25717236 8027405108 7562218876 7261695854 8916952110 662109370 488659043 19400559170 21209554141 X 995400 973000 0 0 488303424 804634306 489298824 805607306 19889857994 22015161447 X 218775297 97533185 X X 0 1 X 1 0 14031828 24646052 38677880 53257542 4115709 49141833 143880 101915 41965 31928472 15282591 16645881 104507559 GUARANTEE LIABILITY 24196625 OTHER ACCRUED EXPENSES 9134273 CREDIT LOSSES ALLOWANCE 95000 MEMB APP FEES-MEMBERSHIP APPL 7000 DERIVATIVE LIABILITY 455226145 488659043 CENTRAL AMERICA AND THE CARIBBEAN - 1 5 INVESTMENTS 248049210 1 5 0 0 1 5 248049210 0 248049210 0 0 1 0 0 0 CFC FOLLOWS U.S. GAAP ACCOUNTING. AMOUNTS REPORTED IN PART I, COLUMN (F) REPRESENTS THE CARRYING VALUE, NET OF EARNINGS AND/OR IMPAIRMENT CHARGES OF CFC'S INVESTMENT IN ORGANIZATIONS IN FOREIGN COUNTRIES AS OF THE END OF THE TAX YEAR AND DO NOT REFLECT EXPENDITURES MADE BY CFC INTO THESE COUNTRIES. 1 ALASKA POWER ASSOCIATION 703 WEST TUDOR ROAD SUITE 200 ANCHORAGE AK 995036650 920069880 501 (C)(6) 12000 EDUCATION FUND GRANT ALASKA POWER ASSN. MEMBER PARTICIPATION IN YOUTH LEADERSHIP PROGRAMS. ALABAMA RURAL ELECTRIC ASSOCIATION OF COOPERATIVES PO BOX 244014 MONTGOMERY AL 361244014 630264081 501 (C)(6) 14400 EDUCATION FUND GRANT FOR THE 2013 AREA SUMMER CONFERENCE ARKANSAS ELECTRIC COOPERATIVES INC PO BOX 194208 LITTLE ROCK AR 72219 710219756 501 (C)(12) 12400 EDUCATION FUND GRANT ORIENTATION TO COOPERATIVE PRINCIPLES AND LEADERSHIP GRAND CANYON STATE ELECTRIC COOPERATIVE ASSOCIATION 120 NORTH 44TH STREET PHOENIX AZ 85034 866056759 501 (C)(6) 12000 EDUCATION FUND GRANT WASHINGTON YOUTH TOUR GOLDEN STATE POWER COOPERATIVE 14619 HAMLIN STREET VAN NUYS CA 91411 680441905 501 (C)(6) 5600 EDUCATION FUND GRANT ENERGY COOPERATIVE DEVELOPMENT AND EDUCATION COLORADO RURAL ELECTRIC ASSOCIATION 5400 NORTH WASHINGTON STREET DENVER CO 80216 840411220 501 (C)(6) 14400 EDUCATION FUND GRANT DIRECTOR EDUCATION COURSES AND EMPLOYEE EDUCATION COURSES FLORIDA ELECTRIC COOPERATIVES ASSOCIATION INC 2916 APALACHEE PARKWAY TALLAHASSEE FL 32301 590633990 501 (C)(6) 10800 EDUCATION FUND GRANT FECA 2013 SUMMER LEADERSHIP CONFERENCE GEORGIA ELECTRIC MEMBERSHIP CORPORATION PO BOX 1707 TUCKER GA 300851707 580530279 501 (C)(6) 24400 EDUCATION FUND GRANT ELECTRIC COOPERATIVES OF GEORGIA EXHIBIT AT THE 2013 SUNBELT AGRICULTURAL EXPOSITION KAUAI ISLAND UTILITY CO-OP 4463 PAHEE STREET LIHUE HI 96766 990346113 501(C)(12) 8800 EDUCATION FUND GRANT KIUC ENERGY CURRICULUM PROGRAM IOWA ASSOCIATION OF ELECTRIC COOPERATIVES 8525 DOUGLAS AVE SUITE 48 DES MOINES IA 50322 420662488 501 (C)(6) 24000 EDUCATION FUND GRANT "LIVING WITH ENERGY IN IOWA" ARTICLES/COMMUNICATIONS PROGRAMS IDAHO COOPERATIVE UTILITIES ASSOCIATION INC PO BOX 1898 BOISE ID 837011898 820502739 501 (C)(6) 10400 EDUCATION FUND GRANT ICUA YOUTH RALLY & THE ICUA MEMBERS CONFERENCE INDIANA STATEWIDE ASSOCIATION OF RURAL ELECTRIC COOPERATIVES INC PO BOX 24517 INDIANAPOLIS IN 46224 351499808 501 (C)(6) 24400 EDUCATION FUND GRANT EMPLOYEE TRAINING, BOARD DEVELOPMENT AND MEMBER EDUCATION KANSAS ELECTRIC COOPERATIVES INC PO BOX 4267 TOPEKA KS 666044267 480541902 501 (C)(12) 17600 EDUCATION FUND GRANT FOR "BACK TO BASICS" PROGRAM KENTUCKY ASSOCATION OF ELECTRIC COOPERATIVES PO BOX 32170 LOUISVILLE KY 40232 610420165 501(C)(6) 28800 EDUCATION FUND GRANT INCORPORATING COOP. EDUC. INTO THE KY AGRICULTURAL LEADERSHIP PROGRAM (KALP) THE ASSOCIATION OF LOUISIANA ELECTRIC COOPERATIVES INC 10725 AIRLINE HIGHWAY BATON ROUGE LA 708164299 720400467 501 (C)(6) 8800 EDUCATION FUND GRANT LA ELECT. COOP'S YOUTH TOUR MICHIGAN ELECTRIC COOPERATIVE ASSOCIATION 2859 W JOLLY ROAD OKEMOS MI 488641182 382214287 501 (C)(6) 9600 EDUCATION FUND GRANT YOUTH LEADERSHIP SUMMIT AND RURAL ELECTRIC YOUTH TOUR TO WASHINGTON, DC MINNESOTA RURAL ELECTRIC ASSOCIATION 11640 - 73RD AVENUE NORTH MAPLE GROVE MN 55369 410417193 501 (C)(6) 23600 EDUCATION FUND GRANT 2013 NRECA BOARD LEADERSHIP COURSES ASSOCIATION OF MISSOURI ELECTRIC COOPERATIVES PO BOX 1645 JEFFERSON CITY MO 65102 430631824 501 (C)(6) 26400 EDUCATION FUND GRANT MO COOP. YOUTH CONFERENCE & LEADERSHIP EXPERIENCE & YOUTH TOUR ELECTRIC POWER ASSOCIATIONS OF MISSISSIPPI PO BOX 3300 RIDGELAND MS 391583300 640200697 501 (C)(6) 14000 EDUCATION FUND GRANT COOPERATIVE YOUTH LEADERSHIP WORKSHOP MONTANA ELECTRIC COOPERATIVES' ASSOCIATION PO BOX 1306 GREAT FALLS MT 59403 810229220 501 (C)(6) 15200 EDUCATION FUND GRANT THE TODAY'S MEMBERS PROGRAM NATIONAL RURAL ELECTRIC COOPERATIVE ASSOCIATION 4301 WILSON BOULEVARD ARLINGTON VA 222031860 530116145 501 (C)(6) 131866 EDUCATION FUND GRANT FOR OPERATION AND CAPITAL EXPENDITURES ASSOCIATED WITH COOPERATIVE.COM WEBSITE NORTH CAROLINA ASSOCIATION OF ELECTRIC COOPERATIVES INC PO BOX 27306 RALEIGH NC 27611 561189186 501 (C)(6) 16000 EDUCATION FUND GRANT BRIGHT IDEAS EDUCATION GRANT PROGRAM NORTH DAKOTA ASSOCIATION OF RURAL ELECTRIC COOPERATIVES P O BOX 727 MANDAN ND 585540727 450231058 501 (C)(6) 12000 EDUCATION FUND GRANT 2013 NDAREC MENU OF EDUCATION PROGRAMS NEBRASKA RURAL ELECTRIC ASSOCIATION PO BOX 82048 LINCOLN NE 68501 470394033 501 (C)(6) 17600 EDUCATION FUND GRANT NEBRASKA RURAL ELECT. WASHINGTON YOUTH TOUR NEW MEXICO RURAL ELECTRIC COOPERATIVE ASSOCIATION INC 614 DON GASPAR AVENUE SANTA FE NM 87501 850155370 501 (C)(6) 10400 EDUCATION FUND GRANT "DIRECTOR DUTIES & LIABILITIES" AND "UNDERSTANDING THE ELECTRIC BUSINESS" NEVADA RURAL ELECTRIC ASSOCIATION PO BOX 365 WELLS NV 89835 880237046 501 (C)(6) 6400 EDUCATION FUND GRANT BUILDING A GRASSROOTS PROGRAM NEW YORK STATE RURAL ELECTRIC COOPERATIVE ASSOCIATION INC 9 WILSON AVENUE HARTWICK NY 14810 161264464 501 (C)(6) 5600 EDUCATION FUND GRANT STUDENT PARTICIPATION - NRECA LEG. CONFERENCE NORTHEAST ASSOCIATION OF ELECTRIC COOPERATIVES INC 9 WILSON AVENUE BATH NY 148101633 222153529 501 (C)(12) 15200 EDUCATION FUND GRANT CONTINUING EDUCATION-DIRECTORS AND EMPLOYEES OHIO RURAL ELECTRIC COOPERATIVES PO BOX 26036 COLUMBUS OH 432260036 510174617 501 (C)(6) 20000 EDUCATION FUND GRANT CHILDREN OF MEMBERS SCHOLARSHIP PROGRAM OKLAHOMA ASSOCIATION OF ELECTRIC COOPERATIVES INCORPORATED PO BOX 54309 OKLAHOMA CITY OK 731541309 730556236 501 (C)(6) 16800 EDUCATION FUND GRANT 50TH ANNIVERSARY YOUTH TOUR REUNION OREGON RURAL ELECTRIC COOPERATIVE ASSOCIATION 1750 LIBERTY ST SE SALEM OR 97302 930593238 501 (C)(6) 14800 EDUCATION FUND GRANT LEGISLATOR EDUCATION PENNSYLVANIA RURAL ELECTRIC ASSOCIATION PO BOX 1266 HARRISBURG PA 171081266 236291530 501 (C)(6) 17600 EDUCATION FUND GRANT PREA COMMUNICATIONS WORKSHOP THE ELECTRIC COOPERATIVES OF SOUTH CAROLINA INC 808 KNOX ABBOTT DRIVE CAYCE SC 29033 570308664 501 (C)(6) 13600 EDUCATION FUND GRANT NRECA TRAINING COURSES SOUTH DAKOTA RURAL ELECTRIC ASSOCIATION INC PO BOX 1138 PIERRE SD 57501 460231254 501 (C)(12) 15600 EDUCATION FUND GRANT 2012 YOUTH EXCURSION THE GLEN ENGLISH FOUNDATION NRECA 4301 WILSON BLVD ARLINGTON VA 222031860 461424031 501 (C)(3) 25000 EDUCATION FUND GRANT PURPOSE OF THE FOUNDATION IS TO DEVELOP FUTURE LEADERS FOR THE ELECTRIC COOPERATIVE PROGRAM TENNESSEE ELECTRIC COOPERATIVE ASSOCIATION PO BOX 100912 NASHVILLE TN 37224 620461379 501 (C)(6) 13200 EDUCATION FUND GRANT YOUTH LEADERSHIP SUMMIT TEXAS ELECTRIC COOPERATIVES INC 1122 COLORADO ST STE 2400 AUSTIN TX 787012167 741007829 277 38800 EDUCATION FUND GRANT LOCAL PAGES EDITORS EDUCATION PROGRAM UTAH RURAL ELECTRIC ASSOCIATION 10714 SOUTH JORDAN GATEWAY SOUTH JORDAN UT 84095 870402010 501 (C)(6) 8000 EDUCATION FUND GRANT LEGISLATOR EDUCATION / UREA YOUTH LEADERSHIP CHALLENGE VIRGINIA MARYLAND & DELAWARE ASSOCIATION OF ELECTRIC COOPERATIVES PO BOX 2340 GLEN ALLEN VA 230582340 540553861 501 (C)(6) 36800 EDUCATION FUND GRANT CREDENTIAL COOP. DIRECTOR (CCD) TRAINING & BOARD LEADERSHIP CERT (BLC) TRAINING WASHINGTON RURAL ELECTRIC COOPERATIVE ASSOCIATION PO BOX 7219 OLYMPIA WA 985077219 911236389 501 (C)(6) 11600 EDUCATION FUND GRANT 2013 WRECA ANNUAL MEETING - PRESENTATIONS AND DISCUSSION ABOUT COOP MANAGEMENT AND GOVERNANCE ISSUES. COOPERATIVE NETWORK ELECTRIC DIVISION 1 SOUTH PINCKNEY STREET MADISON WI 537032869 391128018 501(C)(6) 18000 EDUCATION FUND GRANT 2014 WECA YOUTH LEADERSHIP CONGRESS WYOMING RURAL ELECTRIC ASSOCIATION 2312 CAREY AVENUE CHEYENNE WY 820013627 830207211 501 (C)(12) 9200 EDUCATION FUND GRANT SUPPORT OF THE LINEMAN SCHOLARSHIP AND SPONSORHSIP OF YOUTH TOUR TODD-WADENA ELECTRIC COOPERATIVE PO BOX 431 WADENA MN 56482 410579258 501 (C)(6) 14813 INTEGRITY FUND GRANT PROTECT AGAINST TERRITORIAL THREAT PIONEER ELECTRIC COOPERATIVE PO BOX 468 GREENVILLE AL 36037 630033945 501 (C)(6) 42052 INTEGRITY FUND GRANT WITHDRAWAL AMICALOLA ELECTRIC MEMBERSHIP CORPORATION 544 HIGHWAY 515 SOUTH JASPER GA 30143 580140201 501 (C)(6) 26529 INTEGRITY FUND GRANT PROTECT AGAINST TERRITORIAL THREAT SOUTHEASTERN ELECTRIC COOPERATIVE PO BOX 388 MARION SD 570430388 460454373 501 (C)(6) 6299 INTEGRITY FUND GRANT PROTECT AGAINST TERRITORIAL THREAT NORTHERN RIO ARRIBA ELECTRIC COOPERATIVE PO BOX 217 CHAMA NM 87520 850098999 501 (C)(6) 150449 INTEGRITY FUND GRANT PROTECT AGAINST TERRITORIAL THREAT WRIGHT-HENNEPIN COOPERATIVE ELECTRIC ASSOCIATION PO BOX 330 ROCKFORD MN 553730330 410621437 501 (C)(6) 82000 INTEGRITY FUND GRANT PROTECT AGAINST TERRITORIAL THREAT RUSK COUNTY ELECTRIC COOPERATIVE PO BOX 1169 HENDERSON TX 756531169 750535849 501 (C)(6) 165104 INTEGRITY FUND GRANT PROTECT AGAINST TERRITORIAL THREAT CUIVRE RIVER ELECTRIC COOPERATIVE PO BOX 160 TROY MO 63379 430233223 501 (C)(6) 5513 INTEGRITY FUND GRANT PROTECT SERVICE AREA 0 50 PROCEDURE FOR MONITORING GRANTS IN THE U.S.: PART I, LINE 2: SCHEDULE I, PART I, LINE 2: INTEGRITY FUND IN ORDER TO BE APPROVED FOR A GRANT FROM THE INTEGRITY FUND, A RURAL ELECTRIC SYSTEM MUST ESTABLISH THAT A SIGNIFICANT PORTION OF ITS SERVICE TERRITORY, OR PRESENT OR ANTICIPATED CONSUMERS, OR ITS FACILITIES FACE A THREAT OF ACQUISITION BY A COMPETING UTILITY, OR THE SYSTEM FACES A THREAT TO ITS RIGHT. A RURAL ELECTRIC SYSTEM MUST SUBMIT COPIES OF PAID INVOICES SUPPORTING THE REQUESTED AMOUNT FOR EACH DISBURSEMENT FROM THE GRANT. IN ADDITION, A COVER LETTER MUST ACCOMPANY EACH REQUEST, SAYING THAT MANAGEMENT HAS REVIEWED THE DISBURSEMENT REQUEST AND STATING THAT (1) TRUE AND CORRECT COPIES OF PAID INVOICES SUPPORTING THE AMOUNT OF THIS REQUEST ARE BEING SUBMITTED, (2) SUCH COSTS HAVE BEEN INCURRED AND PAID BY THE RURAL ELECTRIC COOPERATIVE IN CONNECTION WITH THE PURPOSE FOR WHICH THE INTEGRITY FUND GRANT WAS APPROVED, AND (3) THE EXPENSES ARE REIMBURSABLE UNDER THE TERMS AND CONDITIONS OF THE INTEGRITY FUND. EDUCATION FUND EACH STATEWIDE ASSOCIATION SUBMITS AN APPLICATION FORM DESCRIBING THE PROGRAM FOR WHICH THE GRANT WILL BE USED. EARLIER IN THE YEAR, THEY SUBMIT A MEMBERSHIP LIST OF THE ASSOCIATION VERIFIED BY THE GENERAL MANAGER. CFC USES THAT LIST AS WELL AS ITS OWN MEMBERSHIP LIST TO CALCULATE HOW MUCH EACH ASSOCIATION IS ALLOTTED DURING THE FISCAL YEAR. OUR FORMULA IS BASED UPON THE NUMBER OF SYSTEMS WITHIN AN ASSOCIATION, THE TOTAL NUMBER OF CO-OPS WHICH ARE MEMBERS OF CFC AND OF THE ASSOCIATION, AND THE NUMBER OF CO-OPS THAT ARE 100% CFC BORROWERS. THE SENIOR VICE PRESIDENT OF CFC'S CORPORATE RELATIONS GROUP APPROVES THE APPLICATIONS MADE BY THE ASSOCIATIONS. THE CHECKS ARE DISBURSED PUBLICLY BEFORE THE ASSOCIATION'S BOARD OF DIRECTORS OR AT THE ASSOCIATION'S ANNUAL MEETINGS TO PROVIDE ENERGY SERVICES TO CONSUMERS. X X X 0 0 X X X X X 0 1 0 0 0 0 0 1 0 DELBERT MARVIN CRANFORD 151344 0 0 0 0 0 0 0 0 0 151344 0 0 0 SHELDON C PETERSEN 1264028 0 156721 0 75154 0 140423 0 24358 0 1660684 0 0 0 RICHARD E LAROCHELLE 621745 0 93661 0 46867 0 105852 0 15309 0 883434 0 0 0 JOHN T EVANS 513002 0 100125 0 48096 0 62624 0 25369 0 749216 0 0 0 JOHN J LIST 403407 0 88727 0 51250 0 86858 0 26874 0 657116 0 0 0 STEVEN L LILLY 490697 0 80727 0 6265 0 87835 0 28166 0 693690 0 0 0 LAWRENCE ZAWALICK 617805 0 61300 0 39010 0 106557 0 12792 0 837464 0 0 0 JONATHON ANDREW DON 331456 0 58890 0 16527 0 119723 0 26345 0 552941 0 0 0 JOHN M BORAK 216591 0 56947 0 46815 0 74144 0 22080 0 416577 0 0 0 JOHN F SUTER 196498 0 36680 0 23200 0 100787 0 26566 0 383731 0 0 0 STEVEN M KETTLER 199623 0 33360 0 23688 0 71947 0 25827 0 354445 0 0 0 LAWRENCE SAUNDERS 198800 0 9000 0 153520 0 0 0 23675 0 384995 0 0 0 AMY S LUONGO 151748 0 23080 0 17322 0 28644 0 2513 0 223307 0 0 0 JOEL ALLEN 203393 0 33640 0 17793 0 89803 0 27381 0 372010 0 0 0 KRISHNA MURTHY 188425 0 42209 0 42988 0 130361 0 26230 0 430213 0 0 0 ROBERTA B ARONSON 268285 0 47319 0 24047 0 102030 0 20271 0 461952 0 0 0 MICHAEL H CARR 220873 0 49720 0 24498 0 64252 0 26967 0 386310 0 0 0 ROBERT E GEIER JR 208647 0 36416 0 17729 0 123077 0 11214 0 397083 0 0 0 ALLYN J AMATO 202152 0 34975 0 24094 0 80255 0 13329 0 354805 0 0 0 PART I, LINE 1A THE PERQUISITES PROVIDED TO THE CEO ARE LIMITED TO AN ANNUAL AUTOMOBILE ALLOWANCE AS WELL AS AN ANNUAL SPOUSAL AIR TRAVEL ALLOWANCE. ADDITIONALLY, THE CEO RECEIVES AN ANNUAL EXECUTIVE PHYSICAL PAID FOR BY CFC. ONE KEY EMPLOYEE LISTED IN PART VII, SECTION A RECEIVED A GROSS UP PAYMENT REPRESENTING A TEMPORARY HOUSING ALLOWANCE AND TAXABLE RELOCATION REIMBURSEMENT FOR PERSONAL USE DUE TO A RELOCATION TO HEADQUARTERS. THESE PAYMENTS WERE TREATED AS TAXABLE COMPENSATION. PART I, LINE 1B THESE PAYMENTS WERE TREATED AS TAXABLE COMPENSATION. TO PROVIDE THE ANNUAL AUTOMOBILE AND SPOUSAL AIR TRAVEL PERQUISITES IN AN EFFICIENT FASHION, THE BOARD AUTHORIZES AN ANNUAL ALLOWANCE RATHER THAN PROVIDING UNLIMITED REIMBURSEMENT OR USE OF A COMPANY-OWNED VEHICLE. THE AMOUNT OF EACH ALLOWANCE IS AUTHORIZED ANNUALLY BY THE BOARD AND IS DETERMINED BASED ON THE ESTIMATED COST FOR OPERATION AND MAINTENANCE OF AN AUTOMOBILE AND THE ANTICIPATED COST OF AIR TRAVEL BY THE CEO'S SPOUSE. THESE PAYMENTS WERE TREATED AS TAXABLE COMPENSATION. CFC DOES NOT HAVE A FORMAL POLICY REGARDING PAYMENTS OR REIMBURSMENT OF THESE EXPENSES. THE PAYMENT FOR THE GROSS-UP, TAXABLE HOUSING AND RELOCATION ALLOWANCE WAS MADE IN ACCORDANCE WITH A WRITTEN RELOCATION AGREEMENT. PART I, LINE 4B CFC OFFERS A PENSION RESTORATION PLAN WHICH IS A COMPONENT OF THE RETIREMENT SECURITY PLAN TO OFFICERS OF THE COMPANY. THE PENSION RESTORATION PLAN, WHICH IS A 457(F) PLAN, RESTORES THE VALUE OF THE RETIREMENT SECURITY PLAN FOR EACH OFFICER TO THE LEVEL IT WOULD BE IF THE IRS LIMITS ON ANNUAL PAY AND ANNUAL ANNUITY BENEFITS WERE NOT IN PLACE. THE BENEFIT AND PAYOUT FORMULA UNDER THIS RESTORATION COMPONENT OF THE RETIREMENT SECURITY PLAN IS SIMILAR TO THAT UNDER THE QUALIFIED PLAN COMPONENT. HOWEVER, EACH OF THE NAMED EXECUTIVE OFFICERS HAS SATISFIED THE PROVISIONS ESTABLISHED TO RECEIVE THE BENEFIT FROM THIS PLAN. SINCE THERE IS NO LONGER A RISK OF FORFEITURE OF THE BENEFIT UNDER THE PENSION RESTORATION PLAN, DISTRIBUTIONS ARE MADE FROM THE PLAN TO EACH NAMED EXECUTIVE OFFICER ANNUALLY. FOR 2012 THE FOLLOWING DISTRIBUTIONS WERE MADE: JOHN BORAK $ 3,111 JOHN EVANS $ 42,159 RICHARD LAROCHELLE $244,715 STEVEN LILLY $ 37,514 JOHN LIST $ 48,366 SHELDON PETERSEN $489,898 LAWRENCE ZAWALICK $339,974 PART I, LINE 7 CFC'S SHORT-TERM CASH INCENTIVE PROGRAM IS A ONE-YEAR CASH INCENTIVE THAT IS TIED TO THE ANNUAL PERFORMANCE OF THE ORGANIZATION AS A WHOLE. WE BELIEVE THAT BY PAYING A SHORT-TERM INCENTIVE TIED TO THE ACHIEVEMENT OF ANNUAL OPERATING GOALS, ALL EMPLOYEES, INCLUDING NAMED EXECUTIVE OFFICERS, WILL FOCUS THEIR EFFORTS ON THE MOST IMPORTANT STRATEGIC OBJECTIVES WHICH HELP US TO FULFILL OUR MISSION TO OUR MEMBERS AND OUR OBLIGATIONS TO THE FINANCIAL MARKETS. THE SHORT-TERM INCENTIVE PROGRAM PROVIDES ANNUAL CASH INCENTIVE OPPORTUNITIES BASED UPON THE LEVEL OF THE POSITION WITHIN OUR BASE PAY STRUCTURE, RANGING FROM 15 PERCENT 25 PERCENT OF BASE PAY. EXECUTIVE OFFICERS ARE ELIGIBLE TO RECEIVE SHORT-TERM CASH INCENTIVE COMPENSATION UP TO 25 PERCENT OF THEIR BASE PAY. KEY EMPLOYEES AND HIGHLY COMPENSATED EMPLOYEES ARE ELIGIBLE TO RECEIVE SHORT-TERM CASH INCENTIVE COMPENSATION UP TO 20 PERCENT OF THEIR BASE PAY. THE LONG-TERM INCENTIVE PROGRAM IS A THREE-YEAR PLAN THAT IS TIED TO CFC'S LONG-TERM STRATEGIC OBJECTIVES. THE LONG-TERM INCENTIVE PROGRAM WAS IMPLEMENTED TO CREATE DYNAMIC TENSION BETWEEN SHORT-TERM OBJECTIVES AND LONG-TERM GOALS. EXECUTIVE OFFICERS, KEY EMPLOYEES AND HIGHLY COMPENSATED EMPLOYEES ARE ELIGIBLE TO PARTICIPATE IN THE PLAN AND RECEIVE PERFORMANCE UNITS THAT ARE CALCULATED AT 20% - 25% OF BASE PAY. THE VALUE OF THE PERFORMANCE UNITS WILL RANGE FROM $0 TO $150 PER PERFORMANCE UNIT ACCORDING TO THE LEVEL OF NATIONAL RURAL'S SECURED DEBT RATINGS BY THE RATING AGENCIES. NATIONAL COOPERATIVE SERVICES CORPORATION MEMBER/BORROWER W/ CFC'S CEO AS BOARD MEMBER 184198 INTEREST EARNED ON INVESTMENTS/ CERTIFICATES 0 NATIONAL COOPERATIVE SERVICES CORPORATION MEMBER/BORROWER W/ CFC'S CEO AS BOARD MEMBER 35656 GUARANTEE FEES 0 NATIONAL COOPERATIVE SERVICES CORPORATION MEMBER/BORROWER W/ CFC'S CEO AS BOARD MEMBER 3210000 MANAGEMENT FEES 0 NATIONAL COOPERATIVE SERVICES CORPORATION MEMBER/BORROWER W/ CFC'S CEO AS BOARD MEMBER 16712851 INTEREST EARNED ON LOANS. 0 FORM 990, PART VI, SECTION A, LINE 6 NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION IS A NON-STOCK, MEMBERSHIP ORGANIZATION. AS OF MAY 31, 2013, THERE WERE 1,025 MEMBERS AND ASSOCIATES. MEMBERSHIP INCLUDED: CLASS A. THERE WERE 837 CLASS A MEMBERS - COOPERATIVE OR NONPROFIT CORPORATIONS, PUBLIC CORPORATIONS, UTILITY DISTRICTS, AND OTHER PUBLIC BODIES, WHICH HAVE RECEIVED OR ARE ELIGIBLE TO RECEIVE A LOAN OR COMMITMENT FOR A LOAN FROM THE RURAL UTILITIES SERVICE OR ANY SUCCESSOR AGENCY, AND WHICH ARE ENGAGED OR PLANNING TO ENGAGE IN THE FURNISHING OF UTILITY SERVICES TO THEIR MEMBERS AND PATRONS FOR THEIR USE AS ULTIMATE CONSUMERS. CLASS B. THERE WERE 71 CLASS B MEMBERS - COOPERATIVE OR NONPROFIT CORPORATIONS WHICH ARE FEDERATIONS OF CLASS A MEMBERS OR OF OTHER CLASS B MEMBERS, OR BOTH, OR WHICH ARE OWNED AND CONTROLLED BY CLASS A MEMBERS OR BY OTHER CLASS B MEMBERS, OR BOTH, AND WHICH ARE ENGAGED OR PLANNING TO ENGAGE IN THE FURNISHING OF UTILITY SERVICES PRIMARILY TO CLASS A MEMBERS OR OTHER CLASS B MEMBERS. CLASS C. THERE WERE 65 CLASS C MEMBERS - STATEWIDE AND REGIONAL ASSOCIATIONS WHICH ARE WHOLLY-OWNED OR CONTROLLED BY CLASS A MEMBERS OR CLASS B MEMBERS, OR BOTH, OR WHICH ARE WHOLLY-OWNED SUBSIDIARIES OF A CFC MEMBER, AND WHICH DO NOT FURNISH UTILITY SERVICES BUT WHICH SUPPLY OTHER FORMS OF SERVICE TO THEIR MEMBERS. CLASS D THERE WAS 1 CLASS D MEMBER. CLASS D MEMBERS ARE NATIONAL ASSOCIATIONS OF COOPERATIVES COMPRISED OF CLASS A, CLASS B AND CLASS C MEMBERS. IN ORDER TO BE ELIGIBLE FOR MEMBERSHIP TO CFC, A NATIONAL ASSOCIATION MUST HAVE, AT THE TIME OF ADMISSION TO CFC, MEMBER COOPERATIVES DOMICILED IN AT LEAST 80% OF THE STATES OF THE UNITED STATES. IN ADDITION TO MEMBERS, ASSOCIATES (NUMBERING 51) ARE NOT-FOR-PROFIT ENTITIES ORGANIZED ON A COOPERATIVE BASIS WHICH ARE OWNED, CONTROLLED OR OPERATED BY CLASS A, B OR C MEMBERS AND WHICH PROVIDE NON-ELECTRIC SERVICES PRIMARILY FOR THE BENEFIT OF CONSUMERS. ASSOCIATES ARE NOT ENTITLED TO VOTE AT ANY MEETING OF THE MEMBERS AND ARE NOT ELIGIBLE TO BE REPRESENTED ON OUR BOARD OF DIRECTORS. FORM 990, PART VI, SECTION A, LINE 7A THE DIRECTORS THAT COMPRISE CFC'S BOARD OF DIRECTORS ARE DIVIDED INTO THREE CLASSES; TWO CONSISTING OF SEVEN DIRECTORS EACH AND THE THIRD OF EIGHT DIRECTORS. IF THE BOARD OF DIRECTORS IN ITS DISCRETION SO DETERMINES, THEN THERE MAY BE ONE ADDITIONAL AT-LARGE DIRECTOR ELECTED TO SERVE ON THE BOARD OF DIRECTORS OF CFC FROM TIME TO TIME. DIRECTORS IN EACH CLASS SERVE FOR TERMS OF THREE YEARS AND THE EXPIRATION OF EACH CLASS OF DIRECTORS' TERMS OCCUR IN DIFFERENT YEARS. UPON EXPIRATION OF THE TERM OF A DIRECTOR, MEMBERS FROM THAT DIRECTOR'S REGION ELECT A DIRECTOR TO REPRESENT THEM ON CFC'S BOARD. ELECTIONS FOR THOSE DIRECTORS WHOSE TERMS ARE EXPIRING ARE HELD ANNUALLY. A DIRECTOR MAY NOT BE ELECTED TO SERVE MORE THAN TWO CONSECUTIVE TERMS ON THE CFC BOARD. FORM 990, PART VI, SECTION B, LINE 11 THE BOARD OF DIRECTORS OF NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION ("CFC") REVIEWED THE 2012 FORM 990 FOR FISCAL YEAR ENDED MAY 31, 2013 AT A REGULARLY SCHEDULED BOARD MEETING PRIOR TO FILING THE FORM 990 WITH THE INTERNAL REVENUE SERVICE. A DRAFT OF THE FORM 990 WAS PREPARED BY CFC STAFF, REVIEWED BY INTERNAL COUNSEL AND SENIOR MANAGEMENT, REVIEWED BY EXTERNAL TAX ADVISORS, KPMG LLP, AND PRESENTED TO THE BOARD FOR REVIEW. A DETAILED PRESENTATION ABOUT THE FORM 990 WAS MADE BY CFC STAFF TO THE BOARD AT A REGULARLY SCHEDULED BOARD MEETING. FORM 990, PART VI, SECTION B, LINE 12C CONFLICTS OF INTERESTS ARE ADDRESSED BY CFC THROUGH ITS RELATED PERSON TRANSACTIONS AND RELATED CREDITS POLICY (THE "POLICY"). CFC ESTABLISHED THE POLICY IN MAY 2007, AS AMENDED FROM TIME TO TIME, TO FACILITATE DISCLOSURE WITH RESPECT TO TRANSACTIONS IN WHICH ITS EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES HAVE A SUBSTANTIAL INTEREST. A RELATED PERSON TRANSACTION IS DEFINED AS ANY TRANSACTION IN WHICH (I) CFC WAS, IS, OR PROPOSES TO BE A PARTICIPANT, (II) THE AMOUNT INVOLVED EXCEEDS $120,000 AND (III) A RELATED PERSON HAS OR WILL HAVE A DIRECT OR INDIRECT MATERIAL INTEREST IN QUESTION. THE POLICY APPLIES TO ALL EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES OF CFC ("COVERED EMPLOYEES") AND REQUIRES SIMILAR DISCLOSURE TO THAT REQUIRED BY ITEM 404 OF REGULATION S-K OF THE SECURITIES ACT OF 1933, AS AMENDED. THE POLICY IS CONSISTENTLY MONITORED AND ENFORCED AT EACH REGULARLY SCHEDULED MEETING OF CFC'S BOARD. PURSUANT TO THE POLICY, EACH COVERED EMPLOYEE THAT IS AWARE OF A POTENTIAL CONFLICT OF INTEREST BETWEEN THEMSELVES AND CFC IS REQUIRED TO COMPLETE A RELATED PERSON DISCLOSURE NOTICE AT EACH BOARD MEETING DESCRIBING SUCH CONFLICT. OUTSIDE OF REGULARLY SCHEDULED BOARD MEETINGS, COVERED EMPLOYEES ARE REQUIRED TO COMPLETE RELATED PERSON DISCLOSURE NOTICES WHENEVER THEY BECOME AWARE OF A POTENTIAL CONFLICT OF INTEREST. THE RELATED PERSON DISCLOSURE NOTICE REQUIRES A DESCRIPTION OF THE PARTIES INVOLVED IN THE TRANSACTION, THE APPROXIMATE DOLLAR AMOUNT OF THE TRANSACTION, AS WELL AS AN UPDATE WITH RESPECT TO THE TIMING AND STATUS OF THE TRANSACTION. UPON RECEIPT OF A RELATED PERSON DISCLOSURE NOTICE, CFC'S GENERAL COUNSEL IS RESPONSIBLE FOR THE REVIEW, APPROVAL AND RATIFICATION OF ANY RELATED PERSON TRANSACTION. THOSE RELATED PERSON TRANSACTIONS INVOLVING A SUBSTANTIAL INTEREST OF CFC'S GENERAL COUNSEL ARE REQUIRED TO BE REFERRED TO THE BOARD FOR REVIEW, APPROVAL AND RATIFICATION. IN REVIEWING AND APPROVING RELATED PERSON TRANSACTIONS, THE GENERAL COUNSEL, AND WHEN APPLICABLE, THE BOARD, MUST TAKE INTO ACCOUNT THE BUSINESS PURPOSE OF THE TRANSACTION, WHETHER THE TRANSACTION IS ENTERED INTO ON AN ARMS-LENGTH BASIS ON TERMS FAIR TO CFC AND WHETHER SUCH TRANSACTION WOULD VIOLATE CFC'S CODE OF ETHICS. DIRECTOR COMPENSATION ARRANGEMENTS, EXECUTIVE OFFICER COMPENSATION ARRANGEMENTS AND KEY EMPLOYEE COMPENSATION ARRANGEMENTS ARE EACH EXCLUDED FROM THE DEFINITION OF RELATED PERSON TRANSACTIONS, AS WELL AS TRANSACTIONS IN WHICH THE RELATED PERSON'S INTEREST ARISES ONLY FROM THE PERSON'S POSITION AS A DIRECTOR OF ANOTHER ENTITY THAT IS A PARTY TO THE TRANSACTIONS. FINALLY, RELATED CREDITS ARE ALSO EXCLUDED FROM THE DEFINITION OF A RELATED PERSON TRANSACTION. A RELATED CREDIT IS DEFINED AS THE EXTENSION OF CREDIT TO OR FOR THE BENEFIT OF COVERED EMPLOYEES (DEFINED AS RELATED PERSONS UNDER THE POLICY) OR RELATED ENTITIES THAT ARE MADE ON SUBSTANTIALLY THE SAME TERMS AND FOLLOW THE UNDERWRITING PROCEDURES THAT ARE NO LESS STRINGENT THAN THOSE PREVAILING AT THE TIME FOR COMPARABLE TRANSACTIONS GENERALLY OFFERED BY CFC. THE POLICY PROHIBITS CFC FROM EXTENDING CREDIT IN THE FORM OF A PERSONAL LOAN TO A RELATED PERSON. RELATED ENTITIES INCLUDE CFC'S MEMBER COOPERATIVES AS WELL AS ANY COOPERATIVE, PARTNERSHIP, CORPORATION, LIMITED LIABILITY COMPANY OR TRUST FOR WHICH A RELATED PERSON SERVES AS AN OFFICER, DIRECTOR, EMPLOYEE OR IN ANY OTHER FIDUCIARY CAPACITY OR WHICH IS CONTROLLED BY A RELATED PERSON. THE BOARD HAS DELEGATED TO THE CEO, WITH AUTHORITY TO REDELEGATE TO SUCH OFFICER OF CFC AS THE CEO DEEMS APPROPRIATE, THE AUTHORITY TO APPROVE ALL RELATED CREDITS IN AN AMOUNT EQUAL TO OR LESS THAN $250,000 AND EMERGENCY AND CERTAIN OTHER LINES OF CREDIT. RELATED CREDITS IN EXCESS OF $250,000 MUST BE APPROVED BY THE BOARD. ALL RELATED PERSONS ARE REQUIRED TO ABSTAIN FROM PARTICIPATING, DIRECTLY OR INDIRECTLY, IN THE CREDIT APPROVAL PROCESS INVOLVING A RELATED CREDIT. ADDITIONALLY, ALL RELATED PERSON ARE REQUIRED TO LEAVE THE BOARD MEETING WHILE THE RELATED CREDIT IS BEING CONSIDERED AND DISCUSSED AND RELATED PERSONS ARE NOT PROVIDED WITH ANY WRITTEN MATERIALS PERTAINING TO SUCH RELATED CREDIT. FORM 990, PART VI, SECTION B, LINE 15A CFC'S EXECUTIVE COMPENSATION COMMITTEE (THE "COMMITTEE"), WHICH IS COMPRISED OF CFC EXECUTIVE COMMITTEE BOARD MEMBERS, DETERMINES AND APPROVES THE COMPENSATION OF CFC'S GOVERNOR AND CHIEF EXECUTIVE OFFICER (THE "CEO"). THE COMMITTEE ANNUALLY REVIEWS AND APPROVES APPROPRIATE CORPORATE GOALS AND OBJECTIVES RELATED TO THE CEO'S COMPENSATION AND EVALUATES PERFORMANCE IN LIGHT OF THOSE GOALS AND OBJECTIVES. THE CEO'S COMPENSATION IS COMPRISED OF BASE PAY, SHORT AND LONG TERM INCENTIVE COMPENSATION AND PERQUISITES. IN FISCAL YEAR 2013, AN INDEPENDENT COMPENSATION CONSULTANT WAS ENGAGED BY THE COMPENSATION COMMITTEE TO CONDUCT A COMPENSATION SURVEY AND PROVIDE COMPENSATION DATA FOR THE CEO POSITION USING PEER ORGANIZATIONS IDENTIFIED BY THE INDEPENDENT CONSULTANT THROUGH DISCUSSION WITH THE COMPENSATION COMMITTEE. THE INDEPENDENT CONSULTANT INCLUDED COMPANIES IN THE COMPENSATION COMPARISON GROUP THAT WERE SIMILAR TO CFC IN ASSET SIZE, INDUSTRY AND BUSINESS DESCRIPTION. THE GROUP INCLUDED FINANCIAL INSTITUTIONS THAT ARE PRIVATE MARKET, COMMERCIAL AND/OR MISSION-DRIVEN LENDERS, OFFERING FULL SERVICE FINANCING, INVESTMENT AND RELATED SERVICES. THE COMPANIES TARGETED AS PEER COMPANIES INCLUDED TWO MEMBERS OF THE FARM CREDIT SYSTEM AND 12 REGIONAL BANKS OR FINANCIAL SERVICES COMPANIES. THESE COMPANIES WERE CHOSEN BECAUSE THEIR BUSINESSES ARE SIMILAR TO CFC'S. ALTHOUGH CFC IS NOT FOCUSED ON PROFITS LIKE THE INSTITUTIONS IN THE PEER GROUP, THE COMPENSATION COMMITTEE BELIEVES THAT THESE COMPANIES EMPLOY EXECUTIVES THAT HAVE SKILLS AND EXPERTISE CONSISTENT WITH WHAT CFC WOULD SEEK IF IT HAD TO REPLACE THE CEO. THE TARGETED COMPANIES HAD ASSETS RANGING FROM APPROXIMATELY 50 PERCENT TO 200 PERCENT OF CFC'S DECEMBER 2011 TOTAL ASSETS OF $20,430 MILLION, AND INCLUDED SIX COMPANIES WITH GREATER TOTAL ASSETS THAN CFC'S. THE COMPARATOR GROUP CONSISTED OF FINANCIAL SERVICES ORGANIZATIONS NEW YORK COMMUNITY BANCORP, INC., ASTORIA FINANCIAL CORP., NELNET, INC., WEBSTER FINANCIAL CORP., FLAGSTAR BANCORP, PEOPLE'S UNITED FINANCIAL CORP., WASHINGTON FEDERAL INC., HUDSON CITY BANCORP INC., FIRST NIAGARA FINANCIAL GROUP, TFS FINANCIAL CORPORATION, EVERBANK FINANCIAL CORPORATION AND FEDERAL AGRICULTURAL MORTGAGE CORPORATION, AS WELL AS TWO FARM CREDIT SYSTEM PEERS. HUDSON CITY BANCORP INC.'S 2011 ASSETS ARE OUTSIDE OF THE NORMAL TARGETED ASSET RANGE, AND THEY HAVE AGREED TO A MERGER BY M&T BANK CORP. MERCER US RECOMMENDED THAT THIS COMPANY REMAIN IN THE PEER GROUP FOR THIS YEAR AND WILL REEVALUATE THE PEER GROUP FOR NEXT YEAR'S ANALYSIS. MERCER US ALSO RECOMMENDED ADDING EVERBANK FINANCIAL CORPORATION TO THE PEER GROUP THIS YEAR DUE TO THEIR CLOSE FIT WITH THE CRITERIA FOR PEER GROUP INCLUSION. THE INDEPENDENT CONSULTANT LED THE COMPENSATION COMMITTEE THROUGH AN ASSESSMENT OF CEO COMPENSATION DATA AT THE COMPARISON GROUP COMPANIES USING BOTH A ONE-YEAR AND A THREE-YEAR COMPENSATION ANALYSIS. THE INDEPENDENT CONSULTANT'S DATA INCLUDED BOTH ACTUAL COMPENSATION AND TARGET COMPENSATION BASED ON INFORMATION OBTAINED FROM EACH COMPARATOR GROUP COMPANY'S MOST RECENT ANNUAL REPORT OR PROXY STATEMENT. THE ELEMENTS OF COMPENSATION REVIEWED INCLUDE: CURRENT BASE SALARY AS WELL AS ANY ADDITIONAL BONUS, INCENTIVES OR SPECIAL AWARDS. THE COMPENSATION COMMITTEE REVIEWED TOTAL COMPENSATION DATA FOR THE COMPARATOR GROUP FOR INFORMATIONAL PURPOSES AND USED THIS DATA SOLELY TO DETERMINE THE COMPETITIVENESS OF OUR CEO BASE PAY. AFTER REVIEWING THE PERFORMANCE OF THE ORGANIZATION AND THE EVALUATION OF THE CEO'S PERFORMANCE BY EACH BOARD MEMBER, IT WAS THE ASSESSMENT OF THE COMMITTEE THAT THE CEO AND THE ORGANIZATION PERFORMED EXTREMELY WELL DURING ANOTHER CHALLENGING BUSINESS YEAR. IN FACT, THE BUSINESS RESULTS EXCEEDED COMPANY TARGETS FOR NEARLY ALL KEY METRICS OF PERFORMANCE AND THE CEO CONTINUED TO DEMONSTRATE OUTSTANDING LEADERSHIP. HOWEVER, AT THE REQUEST OF THE CEO, GIVEN THE CONTINUED ECONOMIC AND COMPETITIVE BUSINESS CHALLENGES FACING THE ORGANIZATION, THE COMMITTEE DID NOT INCREASE THE CEO'S COMPENSATION FOR CALENDAR YEAR 2013. CFC'S SHORT-TERM CASH INCENTIVE PROGRAM IS A ONE-YEAR CASH INCENTIVE THAT IS TIED TO THE ANNUAL PERFORMANCE OF THE ORGANIZATION AS A WHOLE. CORPORATE PERFORMANCE IS MEASURED USING A BALANCED SCORECARD APPROVED BY THE BOARD OF DIRECTORS PRIOR TO THE START OF THE FISCAL YEAR. THE BALANCED SCORECARD IS A PERFORMANCE MANAGEMENT TOOL THAT ARTICULATES THE CORPORATE STRATEGY INTO SPECIFIC, QUANTIFIABLE, MEASURABLE GOALS. THE SCORECARD IS DIVIDED INTO FOUR QUADRANTS, REFLECTING CRUCIAL AREAS OF BUSINESS PERFORMANCE. SPECIFIC GOALS ARE ESTABLISHED WITHIN THOSE QUADRANTS TO FOCUS ALL EMPLOYEES ON THE TARGET RESULTS AND MEASURES THAT MUST BE ACHIEVED IF WE ARE TO SUCCEED AT REALIZING OUR STRATEGIC PLAN. THE INTENT IS TO ALIGN ORGANIZATIONAL, DEPARTMENTAL AND INDIVIDUAL INITIATIVES TO ACHIEVE A COMMON SET OF GOALS. EVERY EMPLOYEE PARTICIPATES IN THE SHORT-TERM INCENTIVE PROGRAM, AND THE CORPORATE STRATEGIC GOALS ARE THE SAME FOR ALL EMPLOYEES, INCLUDING THE NAMED EXECUTIVE OFFICERS. THE BOARD OF DIRECTORS ESTABLISHES CORPORATE GOALS AND MEASURES THAT THEY BELIEVE ARE ACHIEVABLE ONLY IF EACH INDIVIDUAL PERFORMS WELL IN HIS OR HER ROLE AND CFC MEETS ITS INTERNAL BUSINESS PLAN GOALS. THE SHORT-TERM INCENTIVE PROGRAM PROVIDES ANNUAL CASH INCENTIVE OPPORTUNITIES BASED UPON THE LEVEL OF THE POSITION WITHIN CFC'S BASE PAY STRUCTURE, RANGING FROM 15% - 25% OF BASE PAY. THE CEO IS ELIGIBLE FOR AN ANNUAL INCENTIVE OPPORTUNITY AT 25% OF HIS BASE PAY. THE LONG-TERM INCENTIVE PROGRAM IS A THREE-YEAR PLAN THAT IS TIED TO CFC'S LONG-TERM STRATEGIC OBJECTIVES. THE MEASURE FOR ALL ACTIVE LONG-TERM INCENTIVE PLANS IS THE ACHIEVEMENT OF BOND RATING TARGETS FOR CFC'S SENIOR SECURED DEBT BY RATING AGENCIES: STANDARD & POOR'S CORPORATION AND MOODY'S INVESTORS SERVICE. ELIGIBLE PARTICIPANTS IN THE PLAN CYCLE WILL RECEIVE PERFORMANCE UNITS THAT ARE CALCULATED AT 15% - 25% OF BASE PAY, DIVIDED BY THE TARGET OBJECTIVE, CURRENTLY $100. THE CEO'S PERFORMANCE UNITS ARE CALCULATED AT 25% OF HIS BASE PAY DIVIDED BY THE TARGET OBJECTIVE. THE COMMITTEE ALSO CONSIDERS PERQUISITES FOR THE CEO IN CONNECTION WITH ITS ANNUAL REVIEW OF THE CEO'S TOTAL COMPENSATION PACKAGE DESCRIBED ABOVE. THE PERQUISITES PROVIDED TO CFC'S CEO ARE LIMITED TO AN ANNUAL AUTOMOBILE ALLOWANCE AS WELL AS AN ANNUAL SPOUSAL AIR TRAVEL ALLOWANCE. TO PROVIDE THESE PERQUISITES IN AN EFFICIENT FASHION, THE BOARD AUTHORIZES AN ANNUAL ALLOWANCE RATHER THAN PROVIDING UNLIMITED REIMBURSEMENT OR USE OF A COMPANY-OWNED VEHICLE. THE AMOUNT OF EACH ALLOWANCE IS AUTHORIZED ANNUALLY BY THE BOARD AND IS DETERMINED BASED ON THE ESTIMATED COST FOR OPERATION AND MAINTENANCE OF AN AUTOMOBILE AND THE ANTICIPATED COST OF AIR TRAVEL BY THE CEO'S SPOUSE. ADDITIONALLY, CFC'S CEO RECEIVES AN ANNUAL EXECUTIVE PHYSICAL PAID FOR BY CFC. THE COMMITTEE DESIGNATES THE POWER TO REVIEW AND APPROVE ALL EMPLOYEE COMPENSATION TO THE CEO, WHO EXERCISES HIS JUDGMENT TO SET THE ANNUAL BASE PAY FOR THE OTHER NAMED EXECUTIVE OFFICERS AND KEY EMPLOYEES, AS WELL AS EACH EMPLOYEE BASED ON GENERAL MARKET DATA, OVERALL PERFORMANCE AND LEADERSHIP ACCOMPLISHMENTS. IN DETERMINING THE BASE COMPENSATION PAID TO CFC'S EXECUTIVE OFFICERS AND KEY EMPLOYEES, THE CEO REVIEWED NATIONAL, CREDIBLE COMPENSATION SURVEYS FOR FINANCIAL SERVICES ORGANIZATIONS OF SIMILAR ASSET SIZE TO OBTAIN A GENERAL UNDERSTANDING OF CURRENT COMPENSATION PRACTICES AND TO ENSURE THAT THE BASE PAY COMPONENT IS COMPETITIVE, MEANING GENERALLY WITHIN THE 50TH PERCENTILE OF COMPARATIVE PAY FOR SIMILAR POSITIONS. THE CEO DID NOT REVIEW OR CONSIDER THE UNDERLYING ORGANIZATIONS COMPRISING THE SURVEY INFORMATION, BUT INSTEAD CONSIDERED ONLY THE AGGREGATE COMPENSATION DATA. EACH EXECUTIVE OFFICER AND KEY EMPLOYEE IS ELIGIBLE TO PARTICIPATE IN CFC'S SHORT TERM AND LONG TERM INCENTIVE PLANS AS DESCRIBED ABOVE WITH RESPECT TO CFC'S CEO. CFC DOES NOT PROVIDE SIGNIFICANT PERQUISITES OR PERSONAL BENEFITS TO ITS EXECUTIVE OFFICERS OR KEY EMPLOYEES. FORM 990, PART VI, SECTION C, LINE 19 CFC'S BYLAWS, AS AMENDED, AND ANNUAL AND PERIODIC FINANCIAL STATEMENTS ARE AVAILABLE TO THE PUBLIC THROUGH THE SECURITIES AND EXCHANGE COMMISSION'S ("SEC") WEBSITE. CFC'S ARTICLES OF INCORPORATION AND BYLAWS, AS AMENDED, ARE ALSO AVAILABLE ON CFC'S WEBSITE AT WWW.NRUCFC.COOP. CFC'S CONFLICT OF INTEREST POLICY, TITLED THE RELATED PERSONS TRANSACTIONS AND RELATED CREDITS POLICY, IS AVAILABLE ON CFC'S WEBSITE AT WWW.NRUCFC.COOP. CFC'S BYLAWS ARE FILED AS EXHIBIT 3.2 TO THE FORM 10-Q FOR THE QUARTER ENDED FEBRUARY 28, 2011, FILED ON APRIL 13, 2011. CFC'S ANNUAL AND PERIODIC FINANCIAL STATEMENTS ARE PERIODICALLY FILED WITH THE SEC ON FORM 10-K AND FORM 10-Q. CFC'S ARTICLES OF INCORPORATION ARE FILED AS EXHIBIT 3.1 TO REGISTRATION STATEMENT NO. 2-46018, FILED ON OCTOBER 12, 1972, HOWEVER, THIS FILING IS NOT CURRENTLY PUBLICLY AVAILABLE. CHANGES IN NET ASSETS OR FUND BALANCES: FORM 990, PART XI, LINE 9: PATRONAGE CAPITAL DISTRIBUTION -35,805,354. MEMBERSHIP FEES -22,400. OTHER COMPREHENSIVE INCOME -817,613. EDUCATION FUND -14,000. DERIVATIVE FORWARD VALUE 133,694,254. INTEGRITY FUND 498,334. ROUNDING DIFFERENCE -36. ORGANIZATION'S FINANCIAL STATEMENTS AUDITED BY INDEPENDENT ACCOUNTANTS. FORM 990, PART XI, LINE 2C WHILE THERE IS NO A SEPARATE AUDIT PERFORMED OF THE CFC FINANCIAL STATEMENTS, THE CFC FINANCIAL STATEMENTS ARE CONSOLIDATED WITH THE STATEMENTS OF NATIONAL COOPERATIVE SERVICES CORPORATION AND RURAL TELEPHONE FINANCE COOPERATIVE. THE CONSOLIDATED FINANCIAL STATEMENTS ARE AUDITED. CFC'S AUDIT COMMITTEE IS SOLELY RESPONSIBLE FOR THE NOMINATION, APPROVAL, COMPENSATION, EVALUATION AND DISCHARGE OF THE INDEPENDENT PUBLIC ACCOUNTANTS. THE INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS REPORT DIRECTLY TO THE AUDIT COMMITTEE AND THE AUDIT COMMITTEE IS RESPONSIBLE FOR THE RESOLUTION OF DISAGREEMENTS BETWEEN MANAGEMENT AND THE INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS. CONSISTENT WITH SECURITIES AND EXCHANGE COMMISSION REQUIREMENTS, THE AUDIT COMMITTEE HAS ADOPTED A POLICY TO PRE-APPROVE ALL AUDIT AND PERMISSIBLE NON-AUDIT SERVICES PROVIDED BY THE INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS. THE POLICY PROVIDES THAT PRE-APPROVAL IS NOT REQUIRED FOR CERTAIN PERMISSIBLE NON-AUDIT SERVICES OF A DE MINIMIS AMOUNT. THE COMMITTEE MEETS WITH OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, INTERNAL AUDITORS, CHIEF EXECUTIVE OFFICER AND FINANCIAL MANAGEMENT EXECUTIVES TO REVIEW THE SCOPE AND RESULTS OF AUDITS AND RECOMMENDATIONS MADE BY THOSE PERSONS WITH RESPECT TO INTERNAL AND EXTERNAL ACCOUNTING CONTROLS AND SPECIFIC ACCOUNTING AND FINANCIAL REPORTING ISSUES AND TO ASSESS CORPORATE RISK. THE BOARD HAS ADOPTED A WRITTEN CHARTER FOR THE AUDIT COMMITTEE WHICH MAY BE FOUND ON OUR WEBSITE, WWW.NRUCFC.COOP. THE PROCESS HAS NOT CHANGED FROM THE PRIOR PERIOD. POLICY OR PROCEDURE REGARDING JOINT VENTURE ARRANGEMENTS FORM 990, PART VI, QUESTION 16B AS A LENDER, CFC, FROM TIME TO TIME, MAY HAVE TO FORECLOSE ON THE ASSETS OF A BORROWER. AS PART OF SUCH ACTIONS, THE COMPANY MAY RECEIVE INTERESTS IN JOINT VENTURES WITH TAXABLE ENTITIES. CFC TAKES SUCH INTERESTS ONLY IN THE INTEREST OF MAXIMIZING ITS RECOVERY ON THE LOAN RECEIVABLE. CFC DOES NOT ENTER INTO JOINT VENTURES WITH TAXABLE ENTITIES AS PART OF ITS CORE LENDING BUSINESS. TO DATE, THE COMPANY'S INVESTMENT IN THESE JOINT VENTURES HAS BEEN NOMINAL. CFC HAS DEVELOPED A WRITTEN POLICY THAT REQUIRES THE COMPANY TO EVALUATE ITS PARTICIPATION IN JOINT VENTURE ARRANGEMENTS AND TAKE STEPS TO SAFEGUARD THE COMPANY'S 501(C)(4) TAX EXEMPT STATUS. 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