2012-03-22T08:17:54-05:00 2011-05-31 DELOITTE TAX LLP 1750 TYSONS BOULEVARD MCLEAN VA 22102 990 2010-06-01 520891669 NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION NATI 7034671800 20701 COOPERATIVE WAY DULLES VA 20166 STEVEN L LILLY 7034671800 2012-03-22 0 7032511000 2010 2016-02-24 21:20:13Z X STEVEN L LILLY 20701 COOPERATIVE WAY DULLES VA 20166 1404815399 0 X WWW.NRUCFC.COOP X 1969 VA TAX EXEMPT COOPERATIVE ORGANIZATION PROVIDING FINANCING TO RURAL ELECTRIC COOPERATIVES 23 23 230 0 0 0 0 0 1417317555 1395981969 5240574 3855863 4789858 4934676 1427347987 1404772508 1630237 2123427 0 0 39415105 43368134 0 0 0 1273737792 1184302428 1314783134 1229793989 112564853 174978519 19887235419 20128724345 19304447985 19447065976 582787434 681658369 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 1139993391 1400898946 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. 12028252 17699 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 LOSSES FROM CFC'S WHOLLY OWNED SUBSIDIARY CARIBBEAN ASSET HOLDINGS ("CAH") AND DENTON REALTY PARTNERS LP, RESPECTIVELY FOR THE YEAR ENDED MAY 31, 2011. DURING FISCAL YEAR 2011, CFC'S WHOLLY OWNED SUBSIDIARY CAH OBTAINED 100% OF THE EQUITY INTERESTS IN OPERATING ENTITIES LOCATED IN THE CARIBBEAN THROUGH FORECLOSURE IN SATISFACTION OF A BANKRUPTCY SETTLEMENT OF A BORROWER WHOSE WAS IN DEFAULT TO US. THE CAH OPERATING COMPANIES EXPERIENCED $11,903,220 IN LOSSES 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 LOST 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 $125,032. 3927591 LOSS ON EARLY EXTINGUISHMENT 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 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. THE $3,927,591 OF LOSS ON EARLY EXTINGUISHMENT OF DEBT RELATES TO THE REDEMPTION OF $125 MILLION IN PRINCIPAL AMOUNT OF SUBORDINATED DEFERRABLE NOTES DURING THE SECOND QUARTER ENDED NOVEMBER 30, 2010 WHEREBY THE AMOUNT PAID TO REDEEM THE DEBT EXCEEDED ITS NET BOOK VALUE RESULTING IN A LOSS. 2297525 2123427 GRANTS - AS A COOPERATIVE FORMED UNDER THE LAWS OF THE DISTRICT OF COLUMBIA, CFC IS REQUIRED TO ALLOCATE A PERCENTAGE OF ITS NET EARNINGS TO AN EDUCATIONAL FUND. COOPERATIVES ARE REQUIRED BY THIS ACT TO EDUCATE THE PUBLIC ABOUT COOPERATIVE PRINCIPLES. THE EDUCATION 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.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. 2297525 2123427 1158246759 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 0 1 0 1 90 0 1 230 1 0 0 0 0 0 0 0 0 0 0 X 23 23 0 0 1 0 1 1 0 1 1 0 0 1 1 1 1 1 1 1 1 1 1 AZ GA X ROBERT GEIER 7034671800 20701 COOPERATIVE WAY DULLES VA 20166 FREDERICK C ANDERSON 7.60 X 34700 0 0 RAY BEAVERS 7.10 X 32900 0 0 FRED BROG 13.80 X 36000 0 0 RAPHAEL BRUMBELOE 7.10 X 37650 0 0 DELBERT MARVIN CRANFORD 10.20 X 34250 0 0 WALTER K CROOK 5.10 X 36900 0 0 JOEL CUNNINGHAM 10.90 X 37050 0 0 JAMES DOERSTLER 9.00 X 38400 0 0 JOSEPH EWING JR 5.50 X 37350 0 0 MICHAEL J GUIDRY 6.50 X 24000 0 0 CHRISTOPHER L HAMON 13.60 X 37350 0 0 SCOTT W HANDY 15.40 X 36750 0 0 JIM C HERRON 12.50 X 33650 0 0 WILLIAM A KOPACZ 9.80 X 38250 0 0 LYLE KORVER 7.20 X 32600 0 0 REUBEN B MCBRIDE 15.90 X 38700 0 0 BURNS MERCER 6.20 X 38400 0 0 GLENN MILLER 7.40 X 37200 0 0 RANDY D RENTH 15.80 X 37350 0 0 DWIGHT ROSSOW 9.90 X 38250 0 0 R WAYNE STRATTON 3.70 X 37700 0 0 J DAVID WASSON JR 6.70 X 37500 0 0 FRANCIS WOLSKI 3.90 X 32600 0 0 CURTIS NOLAN 1.00 X 0 0 0 GRANT CLAWSON 1.00 X 0 0 0 KIRK THOMPSON 1.00 X 0 0 0 MARTIN A HILLERT JR 3.30 X 8450 0 0 DARRYL SCHRIVER 2.50 X 8450 0 0 SHELDON PETERSEN 65.00 X 1280863 0 110039 JOHN LIST 60.00 X 598959 0 94979 STEVEN LILLY 60.00 X 601638 0 105729 RICHARD LAROCHELLE 60.00 X 669279 0 105329 JOHN EVANS 55.00 X 600664 0 100881 JOHN BORAK 60.00 X 322616 0 95745 LAWRENCE ZAWALICK 55.00 X 375844 0 92178 JONATHON ANDREW DON 55.00 X 261075 0 79293 KRISHNA MURTHY 50.00 X 269296 0 136744 JOHN SUTER 50.00 X 239242 0 105041 ROBERTA ARONSON 50.00 X 301848 0 92499 MICHAEL CARR 45.00 X 279247 0 72416 JOSEPH SIEKIERSKI 40.00 X 247709 0 68870 ALLYN AMATO 48.00 X 242831 0 70483 ROBERT GEIER 55.00 X 241617 0 84579 LYNN MIDGETTE 50.00 X 584450 0 12755 7959578 0 1427560 131 1 1 0 THE WHITING TURNER CONTRACTING COMPANY 14900 CONFERENCE CENTER DRIVE STE CHANTILLY VA 20151 NEW BUILDING CONTRACTORS 13911293 HOGAN & LOVELLS LLP 555 THIRTEENTH STREET NW WASHINGTON DC 200041109 LEGAL 2149476 DELOITTE & TOUCHE LLP PO BOX 277694 ATLANTA GA 303847894 AUDITORS 1564100 IDEA INTEGRATION PO BOX 1020220 ATLANTA GA 303680220 IS CONTRACTORS 1040813 KISHIMOTO GORDON DALAYA PC 1300 WILSON BLVD STE 250 ROSSLYN VA 22209 ARCHITECTURAL CONSULTING 677421 19 INTEREST FROM PSA 522200 1286982206 1286982206 RECOVERY FOR LOAN LOSS 522200 82971287 82971287 OP INC-FEES -RELATED 522200 25150664 25150664 RECOVERY OF GUARANTEE 522200 673000 673000 REIMBURSED EXPENSES 522200 187113 187113 17699 17699 1395981969 3829771 3829771 68983 42891 26092 26092 26092 MANAGEMENT FEES 522200 4934676 4934676 4934676 1404772508 1400916645 0 3855863 2123427 2123427 7672284 7672284 23954521 23954521 5471373 5471373 4574876 4574876 1695080 1695080 7756121 7756121 1231461 1231461 1372910 1372910 479173 479173 472533 472533 2771855 2771855 3592614 3592614 1966173 1966173 1363530 1363530 1139993391 1139993391 2231164 2231164 490982 490982 RESULTS OF FORECLOSED A 12028252 12028252 LOSS ON EARLY EXTINGUIS 3927591 3927591 MISCELLANEOUS 1608343 1608343 REAL ESTATE TAX 1114136 1114136 OTHER EXEPENSES 837620 837620 1064579 174098 890481 1229793989 1158246759 71547230 0 57549415 56803036 469495112 233288109 158711042 149072455 18562998141 18807705402 4074452 5404039 102720719 13926412 55681984 88794307 58607370 58600825 42251874 280811395 477866029 448244777 19887235419 20128724345 2312569167 2478771144 15625092 17687268 7056444679 6924035316 9434296799 9547017269 485512248 479554979 19304447985 19447065976 X 991400 994400 0 0 581796034 680663969 582787434 681658369 19887235419 20128724345 X 174978519 -76107584 X X 0 1 1 X 0 14230510 22539745 36770255 35032348 35032348 22322737 10490197 11832540 8595379 3436215 5159164 88794307 DERIVATIVE LIABILITY -SFAS133 457590319 GUARANTEE LIABILITY 21955660 MEMB APP FEES-MEMBERSHIP APPL 9000 479554979 CENTRAL AMERICA AND THE CARIBBEAN 1 5 INVESTMENTS 246643013 5 0 5 246643013 0 246643013 1 0 1 0 0 0 OTHER INFORMATION SCHEDULE F, PART V CFC FOLLOWS U.S. GAAP ACCOUNTING. OTHER INFORMATION SCHEDULE F, PART V AMOUNTS REPORTED IN PART I, COLUMN (F) REPRESENT THE FAIR MARKET VALUE 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 ALABAMA RURAL ELECTRIC ASSOCIATION OF COOPERATIVES PO BOX 244014 MONTGOMERY AL 361244014 630264081 501 (C)(6) 14400 DIRECTOR TRAINING CONFERENCE ASSOCIATION OF MISSOURI ELECTRIC COOPERATIVES PO BOX 1645 JEFFERSON CITY MO 65102 430631824 501 (C)(6) 25600 COOPERATIVE YOUTH LEADERSHIP CONFERENCE AND WASHINGTON YOUTH TOUR COLORADO RURAL ELECTRIC ASSOCIATION 5400 NORTH WASHINGTON STREET DENVER CO 80216 840411220 501 (C)(6) 14000 DIRECTOR AND EMPLOYEE TRAINING ELECTRIC POWER ASSOCIATIONS OF MISSISSIPPI PO BOX 3300 RIDGELAND MS 391583300 640200697 501 (C)(6) 14800 COOPERATIVE YOUTH LEADERSHIP WORKSHOP FLORIDA ELECTRIC COOPERATIVES ASSOCIATION INC 2916 APALACHEE PARKWAY TALLAHASSEE FL 32301 590633990 501 (C)(6) 21200 LEADERSHIP CONFERENCE FOR DIRECTORS & MANAGERIAL STAFF GEORGIA ELECTRIC MEMBERSHIP CORPORATION PO BOX 1707 TUCKER GA 300851707 580530279 501 (C)(6) 22800 EDUCATION BOOTH AT SUNBELT AGRICULTURAL EXPOSITION GOLDEN STATE POWER COOPERATIVE 14619 HAMLIN STREET VAN NUYS CA 91411 680441905 501 (C)(6) 5200 ASSISTANCE TO START-UP CO-OPS WITH SEMINARS AND SPEAKERS GRAND CANYON STATE ELECTRIC COOPERATIVE ASSOCIATION 120 NORTH 44TH STREET PHOENIX AZ 85034 866056759 501 (C)(6) 11200 COOPERATIVE YOUTH LEADERSHIP CONFERENCE AND WASHINGTON YOUTH TOUR INDIANA STATEWIDE ASSOCIATION OF RURAL ELECTRIC COOPERATIVES INC PO BOX 24517 INDIANAPOLIS IN 46224 351499808 501 (C)(6) 24800 TRAINING PROGRAMS FOR EMPLOYEES AND CO-OP BOARD MEMBERS KANSAS ELECTRIC COOPERATIVES INC PO BOX 4267 TOPEKA KS 666044267 480541902 501 (C)(12) 16400 INFORMATIONAL PUBLICATION FOR DISTRIBUTION TO CO-OP MEMBERS AND PUBLIC KENTUCKY ASSOCIATION OF ELECTRIC COOPERATIVES INC PO BOX 32170 LOUISVILLE KY 40232 610420165 277 28000 KAEC WEBSITE MICHIGAN ELECTRIC COOPERATIVE ASSOCIATION 2859 W JOLLY ROAD OKEMOS MI 488641182 382214287 501 (C)(6) 39115 YOUTH TOUR TO WASHINGTON AND MICHIGAN ELECTRIC TEEN DAYS SUMMER CAMP MINNESOTA RURAL ELECTRIC ASSOCIATION 11640 - 73RD AVENUE NORTH MAPLE GROVE MN 55369 410417193 501 (C)(6) 24400 TRAINING AND EDUCATION FOR NEW COOPERATIVE BOARD MEMBERS MONTANA ELECTRIC COOPERATIVES' ASSOCIATION PO BOX 1306 GREAT FALLS MT 59403 810229220 501 (C)(6) 14800 RURAL ELECTRIC YOUTH TOUR PROGRAM NATIONAL RURAL ELECTRIC COOPERATIVE ASSOCIATION 4301 WILSON BOULEVARD ARLINGTON VA 222031860 530116145 501 (C)(6) 269872 FOR OPERATION AND CAPITAL EXPENDITURES ASSOCIATED WITH COOPERATIVE.COM WEB SITE NEBRASKA RURAL ELECTRIC ASSOCIATION PO BOX 82048 LINCOLN NE 68501 470394033 501 (C)(6) 16800 YOUTH ENERGY CAMP NEVADA RURAL ELECTRIC ASSOCIATION PO BOX 365 WELLS NV 89835 880237046 501 (C)(6) 7200 TRAINING ON "HOW TO INFLUENCE NEVADA'S LEGISLATIVE OR REGULATORY BODIES" NEW MEXICO RURAL ELECTRIC COOPERATIVE ASSOCIATION INC 614 DON GASPAR AVENUE SANTA FE NM 87501 850155370 501 (C)(6) 10400 TRAINING TO ORGANIZE CO-OP MEMBERS FOR GRASSROOTS ACTION NEW YORK STATE RURAL ELECTRIC COOPERATIVE ASSOCIATION INC 9 WILSON AVENUE HARTWICK NY 14810 161264464 501 (C)(6) 5600 RURAL ELECTRIC YOUTH TOUR TO WASHINGTON NORTH CAROLINA ASSOCIATION OF ELECTRIC COOPERATIVES INC PO BOX 27306 RALEIGH NC 27611 561189186 501 (C) 15600 BRIGHT IDEAS PROGRAM -- CLASSROOM SUPPORT FOR TEACHERS NORTH DAKOTA ASSOCIATION OF RURAL ELECTRIC COOPERATIVES P O BOX 727 MANDAN ND 585540727 450231058 501 (C) 11200 NEW DIRECTOR AND NEW EMPLOYEE ORIENTATION NORTHEAST ASSOCIATION OF ELECTRIC COOPERATIVES INC 9 WILSON AVENUE BATH NY 148101633 222153529 501 (C)(12) 14800 EDUCATION/TRAINING FOR DIRECTORS & EMPLOYEES OHIO RURAL ELECTRIC COOPERATIVES PO BOX 26036 COLUMBUS OH 432260036 510174617 501 (C)(6) 19600 BOOKLET PUBLICATION, DIRECTOR & EMPLOYEE TRAINING, SCHOLARSHIPS OKLAHOMA ASSOCIATION OF ELECTRIC COOPERATIVES INCORPORATED PO BOX 54309 OKLAHOMA CITY OK 731541309 730556236 501 (C)(6) 17200 REGIONAL ENERGY EFFICIENCY WORKSHOPS OREGON RURAL ELECTRIC COOPERATIVE ASSOCIATION 1750 LIBERTY ST SE SALEM OR 97302 930593238 501 (C)(6) 13600 URBAN LEGISLATORS' TOUR OF CO-OPS PENNSYLVANIA RURAL ELECTRIC ASSOCIATION PO BOX 1266 HARRISBURG PA 171081266 236291530 501 (C)(6) 16800 COOPERATIVE COMMUNICATION WORKSHOP SOUTH DAKOTA RURAL ELECTRIC ASSOCIATION INC PO BOX 1138 PIERRE SD 57501 460231254 501 (C)(12) 15600 CO-OP YOUTH CONFERENCE TENNESSEE ELECTRIC COOPERATIVE ASSOCIATION PO BOX 100912 NASHVILLE TN 37224 620461379 501 (C)(6) 13200 YOUTH LEADERSHIP CONFERENCE TEXAS ELECTRIC COOPERATIVES INC 1122 COLORADO ST STE 2400 AUSTIN TX 787012167 741007829 277 40400 COMMUNICATIONS WORKSHOP THE ASSOCIATION OF LOUISIANA ELECTRIC COOPERATIVES INC 10725 AIRLINE HIGHWAY BATON ROUGE LA 708164299 720400467 501 (C)(6) 8400 RURAL ELECTRIC YOUTH TOUR TO WASHINGTON UTAH RURAL ELECTRIC ASSOCIATION 10714 SOUTH JORDAN GATEWAY SOUTH JORDAN UT 84095 870402010 501 (C)(6) 8000 YOUTH LEADERSHIP CONFERENCE VIRGINIA MARYLAND & DELAWARE ASSOCIATION OF ELECTRIC COOPERATIVES PO BOX 2340 GLEN ALLEN VA 230582340 540553861 501 (C)(6) 18400 SUPERVISORY LEADERSHIP CERTIFICATION PROGRAM WASHINGTON RURAL ELECTRIC COOPERATIVE ASSOCIATION PO BOX 7219 OLYMPIA WA 985077219 911236389 501 (C)(6) 10800 ANNUAL MEETING PROGRAM WISCONSIN ELECTRIC COOPERATIVE ASSOCIATION 131 WEST WILSON STREET MADISON WI 537033269 391163563 501 (C)(6) 18400 YOUTH LEADERSHIP CONFERENCE WYOMING RURAL ELECTRIC ASSOCIATION 2312 CAREY AVENUE CHEYENNE WY 820013627 830207211 501 (C)(12) 8800 LINEMAN TRAINING SCHOLARSHIPS, PUBLICATION OF ENERGY SHARE, WASHINGTON YOUTH TOUR CADDO ELECTRIC COOPERATIVE 14043 STATE HIGHWAY 152 BINGER OK 73009 730169405 501 (C)(12) 62022 INTEGRITY FUND GRANT TO SUPPORT MEMBER'S RIGHT TO PROVIDE SERVICE IN A DISPUTE WITH ANOTHER ENTITY. CARROLL ELECTRIC COOPERATIVE 920 HIGHWAY 62 SPUR BERRYVILLE AR 72616 710027635 501 (C)(12) 73099 INTEGRITY FUND GRANT TO SUPPORT MEMBER FROM BEING ACQUIRED BY ANOTHER ENTITY. CHARLES MIX ELECTRIC ASSOCIATION 440 LAKE STREET LAKE ANDES SD 57356 460212103 501 (C)(12) 11238 INTEGRITY FUND GRANT TO SUPPORT MEMBER'S RIGHT TO PROVIDE SERVICE IN A DISPUTE WITH ANOTHER ENTITY. CHERRYLAND ELECTRIC COOPERATIVE PO BOX 298 GRAWN MI 49637 380416525 501 (C)(12) 15047 INTEGRITY FUND GRANT TO SUPPORT MEMBER'S RIGHT TO PROVIDE SERVICE IN A DISPUTE WITH ANOTHER ENTITY. RED RIVER VALLEY CO-OP POWER 109 2ND AVENUE EAST HALSTAD MN 56548 410497361 501 (C)(12) 138781 INTEGRITY FUND GRANT TO SUPPORT MEMBER'S RIGHT TO PROVIDE SERVICE IN A DISPUTE WITH ANOTHER ENTITY. ROCK ENERGY COOPERATIVE PO BOX 1758 JANESVILLE WI 53547 390574424 501 (C)(12) 105179 INTEGRITY FUND GRANT TO SUPPORT MEMBER'S RIGHT TO PROVIDE SERVICE IN A DISPUTE WITH ANOTHER ENTITY. RUSK COUNTY ELECTRIC COOPERATIVE 3162 HIGHWAY 43 E HENDERSON TX 75652 750535849 501 (C)(12) 246414 INTEGRITY FUND GRANT TO SUPPORT MEMBER'S RIGHT TO PROVIDE SERVICE IN A DISPUTE WITH ANOTHER ENTITY. SANTEE ELECTRIC COOPERATIVE 424 SUMTER HIGHWAY KINGSTREE SC 29556 570240935 501 (C)(12) 67734 INTEGRITY FUND GRANT TO SUPPORT MEMBER'S RIGHT TO PROVIDE SERVICE IN A DISPUTE WITH ANOTHER ENTITY. ST CROIX ELECTRIC COOPERATIVE 1925 RIDGEWAY STREET HAMMOND WI 54015 390585072 501 (C)(12) 27129 INTEGRITY FUND GRANT TO SUPPORT MEMBER'S RIGHT TO PROVIDE SERVICE IN A DISPUTE WITH ANOTHER ENTITY. SUMTER ELECTRIC MEMBERSHIP CORP PO BOX 1048 AMERICUS GA 317091048 580452284 501 (C)(12) 63122 INTEGRITY FUND GRANT TO SUPPORT MEMBER'S RIGHT TO PROVIDE SERVICE IN A DISPUTE WITH ANOTHER ENTITY. THE ASSOCIATION OF LOUISIANA ELECTRIC COOPERATIVES INC 10725 AIRLINE HIGHWAY BATON ROUGE LA 708164299 720400467 501 (C)(6) 40096 INTEGRITY FUND GRANT TO SUPPORT MEMBER'S RIGHT TO DEFEND AGAINST THE SALE OF A COOPERATIVE. THE ELECTRIC COOPERATIVES OF SOUTH CAROLINA INC 808 KNOX ABBOTT DRIVE CAYCE SC 29033 570308664 501 (C) 375000 INTEGRITY FUND GRANT TO SUPPORT MEMBER FROM BEING ACQUIRED BY ANOTHER ENTITY. UNITED COOPERATIVE SERVICES 3309 N MAIN STREET CLEBURNE TX 76033 752871400 501 (C)(12) 34546 INTEGRITY FUND GRANT TO SUPPORT MEMBER'S RIGHT TO PROVIDE SERVICE IN A DISPUTE WITH ANOTHER ENTITY. WAYNE-WHITE COUNTIES ELECTRIC COOPERATIVE ROUTES 15 45 WEST FAIRFIELD IL 62837 370574965 501(C)12 21834 INTEGRITY FUND GRANT TO SUPPORT MEMBER'S RIGHT TO PROVIDE SERVICE IN A DISPUTE WITH ANOTHER ENTITY. 0 53 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 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 THE CORPORATE RELATIONS GROUP, CFC, APPROVES THE APPLICATIONS MADE BY THE ASSOCIATIONS. THE CHECKS ARE DISBURSED PUBLICLY BEFORE THE ASSOCIATION BOARD OF DIRECTORS OR AT THE ASSOCIATION'S ANNUAL MEETINGS TO PROVIDE ENERGY SERVICES TO CONSUMERS. X 1 0 X X X X X X 1 1 0 0 0 0 0 1 0 SHELDON PETERSEN 1037364 0 158812 0 84687 0 112242 0 22340 0 1415445 0 0 0 JOHN LIST 463886 0 84511 0 50562 0 79907 0 23808 0 702674 0 0 0 STEVEN LILLY 503537 0 84511 0 13590 0 115020 0 23794 0 740452 0 0 0 RICHARD LAROCHELLE 534828 0 84511 0 49940 0 81060 0 14355 0 764694 0 0 0 JOHN EVANS 462368 0 84511 0 53785 0 88462 0 22408 0 711534 0 0 0 JOHN BORAK 217873 0 54177 0 50566 0 70251 0 18296 0 411163 0 0 0 LAWRENCE ZAWALICK 271225 0 61583 0 43036 0 85757 0 10273 0 471874 0 0 0 JONATHON ANDREW DON 217059 0 34480 0 9536 0 64927 0 24722 0 350724 0 0 0 KRISHNA MURTHY 185366 0 38419 0 45511 0 125682 0 9254 0 404232 0 0 0 JOHN SUTER 177210 0 35229 0 26803 0 90675 0 23199 0 353116 0 0 0 ROBERTA ARONSON 241764 0 43216 0 16868 0 78133 0 25989 0 405970 0 0 0 MICHAEL CARR 211972 0 40715 0 26560 0 57356 0 26210 0 362813 0 0 0 JOSEPH SIEKIERSKI 184519 0 35530 0 27660 0 95197 0 13293 0 356199 0 0 0 ALLYN AMATO 193943 0 35020 0 13868 0 64329 0 10890 0 318050 0 0 0 ROBERT GEIER 187463 0 34157 0 19997 0 91421 0 10063 0 343101 0 0 0 LYNN MIDGETTE 515912 0 38028 0 30510 0 12760 0 13424 0 610634 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. 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. PART I, LINES 4A-B CFC OFFERED A VOLUNTARY EARLY RETIREMENT PROGRAM TO A SELECT GROUP OF EMPLOYEES. SELECT EMPLOYEES THAT ELECTED TO RETIRE FROM CFC UNDER THE PROGRAM EFFECTIVE AUGUST 31, 2010 RECEIVED A CASH PAYMENT FROM THE ORGANIZATION. CFC ALSO 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 WILL BE MADE FROM THE PLAN TO EACH NAMED EXECUTIVE OFFICER ANNUALLY. FOR 2010 THE FOLLOWING DISTRIBUTIONS WERE MADE: JOHN BORAK $ 3,692 JOHN EVANS $ 90,647 RICHARD LAROCHELLE $ 175,782 STEVEN LILLY $ 108,844 JOHN LIST $ 108,985 SHELDON PETERSEN $ 318,815 LAWRENCE ZAWALICK $ 16,364 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 RURAL TELECOMMUNICATIONS COOPERATIVE MEMBER/BORROWER W/ COMMON BOARD MEMBER 170000 INTEREST EARNED ON INVESTMENTS/CERTIFICATES 0 NATIONAL COOPERATIVE SERVICES CORPORATION INC MEMBER/BORROWER W/ COMMON BOARD MEMBER 1801578 INTEREST EARNED ON INVESTMENTS/ CERTIFICATES 0 NATIONAL COOPERATIVE SERVICES CORPORATION INC MEMBER/BORROWER W/ COMMON BOARD MEMBER 1427329 GUARANTEE FEES 0 NATIONAL COOPERATIVE SERVICES CORPORATION INC MEMBER/BORROWER W/ COMMON BOARD MEMBER 2440435 MANAGEMENT FEES 0 NATIONAL COOPERATIVE SERVICES CORPORATION INC MEMBER/BORROWER W/ COMMON BOARD MEMBER 7672050 INTEREST EARNED ON LOANS. 0 NATIONAL RURAL TELECOMMUNICATIONS COOPERATIVE MEMBER/BORROWER W/ COMMON BOARD MEMBER 6326 COMMITMENT AND GUARANTEE FEES 0 FORM 990, PART VI, SECTION A, LINE 4 CFC MEMBERS APPROVED AMENDMENTS TO THE ORGANIZATION'S BYLAWS AT CFC'S ANNUAL MEETING HELD ON MARCH 7, 2011. THE BYLAW AMENDMENTS ALLOW MEMBERS TO VOTE IN PERSON AT CFC MEETINGS OR BY MAIL BALLOT. THE AMENDMENTS SPECIFY THE PROCESS FOR MAIL BALLOTING AND CHANGE THE MAILING SCHEDULE FOR MEMBER NOTIFICATIONS ACCORDINGLY. SINCE IT WOULD BE TOO CUMBERSOME TO CONDUCT A SECOND ROUND OF VOTING BY MAIL IN THE EVENT OF A TIE VOTE, THE BYLAW AMENDMENTS PROVIDE THAT IN THE EVENT OF A TIE VOTE IN DIRECTOR ELECTIONS, THE WINNING CANDIDATE WOULD BE SELECTED BY "DRAWING LOTS" VIA A METHOD DETERMINED BY THE INDIVIDUAL PRESIDING OVER THE MEETING. CFC IS INCORPORATED UNDER THE DISTRICT OF COLUMBIA COOPERATIVE ACT (THE "ACT"). THE ACT CURRENTLY ALLOWS FOR A MAIL BALLOT PROCESS BY U.S. POSTAL SERVICE ONLY. IF THE ACT IS EVER REVISED TO ALLOW FOR ELECTRONIC VOTING, THE BYLAWS, AS AMENDED, WOULD PERMIT THE CFC BOARD TO AUTHORIZE ELECTRONIC VOTING IN ACCORDANCE WITH THE ACT. FORM 990, PART VI, SECTION A, LINE 6 NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION IS A NON-STOCK, MEMBERSHIP ORGANIZATION. AS OF MAY 31, 2011, THERE WERE 1,030 MEMBERS AND ASSOCIATES. MEMBERSHIP INCLUDED: CLASS A. THERE WERE 834 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 66 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 58) 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 2010 FORM 990 FOR FISCAL YEAR ENDED MAY 31, 2011 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, DELOITTE TAX 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, ANY EMERGENCY LINES OF CREDIT, ANY RELATED CREDIT SECURED BY CASH OR CASH EQUIVALENT, ALL RELATED CREDITS THAT ARE USED TO REFINANCE RUS 5% LOANS, AND ALL LINE OF CREDIT LOANS THAT ARE USED SOLELY AS SUPPORT FOR CFC'S CORPORATE CREDIT CARD PROGRAM. 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 15 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 2011, 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 INTERVIEWS 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 THREE MEMBERS OF THE FARM CREDIT SYSTEM AND 10 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 DEMANDS OF ITS ROLE AS A LENDING INSTITUTION DICTATE THAT ANY SEARCH FOR A NEW CEO FROM OUTSIDE CFC FOCUS PRIMARILY ON THE FINANCIAL SERVICES SECTOR RATHER THAN THE NOT-FOR-PROFIT SECTOR. 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 2009 TOTAL ASSETS OF $20,140 MILLION, AND INCLUDED EIGHT COMPANIES WITH GREATER TOTAL ASSETS THAN CFC'S. THE COMPARATOR GROUP CONSISTED OF FINANCIAL SERVICES ORGANIZATIONS NEW YORK COMMUNITY BANCORP, INC., STUDENT LOAN CORP., ASTORIA FINANCIAL CORP., NELNET, INC., WEBSTER FINANCIAL CORP., FLAGSTAR BANCORP, PEOPLE'S UNITED FINANCIAL CORP., WASHINGTON FEDERAL INC., TFS FINANCIAL CORP. AND HUDSON CITY BANCORP INC., AS WELL AS THREE FARM CREDIT SYSTEM PEERS. ALTHOUGH HUDSON CITY BANCORP INC.'S 2009 ASSETS ARE OUTSIDE OF THE NORMAL TARGETED ASSET RANGE, THE INDEPENDENT CONSULTANT RECOMMENDED THAT THIS COMPANY REMAIN IN THE PEER GROUP. 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 VOLATILE BUSINESS YEAR. THE COMMITTEE ALSO TOOK INTO CONSIDERATION THE INFORMATION PROVIDED BY THE INDEPENDENT CONSULTANT, INDICATING THAT EXECUTIVE PAY INCREASES WERE PROJECTED TO AVERAGE ABOUT 3 PERCENT FOR CALENDAR YEAR 2011. THEREFORE, IN RECOGNITION OF HIS STRONG PERFORMANCE AND LEADERSHIP, THE COMPENSATION COMMITTEE INCREASED THE CEO'S BASE PAY TO $790,000, EFFECTIVE JANUARY 1, 2011. 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 PERCENT-25 PERCENT 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 DELEGATES 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 OF COMPENSATION FOR THE OTHER NAMED EXECUTIVE OFFICERS AND KEY EMPLOYEES 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. THE CEO EXERCISED HIS JUDGMENT TO SET THE ANNUAL BASE PAY FOR THE OTHER NAMED EXECUTIVE OFFICERS AND KEY EMPLOYEES BASED ON GENERAL MARKET DATA, OVERALL PERFORMANCE AND LEADERSHIP ACCOMPLISHMENTS. EFFECTIVE JUNE 1, 2010, THE ROLE OF MR. EVANS, SENIOR VICE PRESIDENT, OPERATIONS, WAS CHANGED TO EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER, RECOGNIZING THE INCREASING RESPONSIBILITIES AND LEADERSHIP THAT MR. EVANS HOLDS WITHIN THE ORGANIZATION. ALSO EFFECTIVE JUNE 1, 2010, MR. J. ANDREW DON WAS PROMOTED TO SENIOR VICE PRESIDENT & TREASURER, MAKING HIM A SENIOR VICE PRESIDENT OF THE COMPANY. MESSRS EVAN AND DON'S BASE SALARY REFLECTS THE COMPENSATION ASSESSMENT OF THEIR NEW POSITIONS AS WELL AS THEIR OUTSTANDING PERFORMANCE. 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 ALSO 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 5: PATRONAGE CAPITAL DISTRIBUTION -51,396,335. MEMBERSHIP FEES 3,000. OTHER COMPREHENSIVE INCOME 1,754,135. DERIVATIVE FORWARD VALUE -23,697,677. FAIR VALUE ADJ. FORECLOSED ASSETS -3,960,658. INTEGRITY FUND 1,310,353. ACCUMULATED DEFICIT -CFC ADVANTGE -70,402. EDUCATION FUND -32,301. DRP-K1 -17,699. TOTAL TO FORM 990, PART XI, LINE 5: -76,107,584. ORGANIZATION'S FINANCIAL STATEMENTS AUDITED BY INDEPENDENT ACCOUNTANTS. FORM 990, PART XI, LINE 2C WHILE THERE IS NO A SEPERATE 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 PART VI., SECTION B., QUESTION 16. 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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