10-Q

N

FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

x     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended February 29, 2008

OR

o     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From          To

Commission File Number 1-7102

NATIONAL RURAL UTILITIES COOPERATIVE

FINANCE CORPORATION

(Exact name of registrant as specified in its charter)

DISTRICT OF COLUMBIA

(State or other jurisdiction of incorporation or organization)

52-0891669

(I.R.S. Employer Identification Number)

2201 COOPERATIVE WAY, HERNDON, VA 20171

(Address of principal executive offices)

Registrant's telephone number, including area code, is 703-709-6700.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨                 Accelerated filer ¨            Non-accelerated filer x            Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨  No x.

The Registrant is a cooperative and consequently, does not issue any equity capital stock.

1

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements.

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

 CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

  (in thousands)

  A S S E T S

	February 29, 2008			May 31, 2007
Cash and cash equivalents	$	237,741		$	304,107
Restricted cash		17,738			2,032
Loans to members		18,665,439			18,131,873
Less: Allowance for loan losses		(497,260	)		(561,663	)
Loans to members, net		18,168,179			17,570,210
Accrued interest and other receivables		291,732			291,637
Fixed assets, net		20,794			4,555
Debt service reserve funds		54,993			54,993
Bond issuance costs, net		40,074			45,611
Foreclosed assets		57,651			66,329
Derivative assets		347,857			222,774
Other assets		22,919			12,933
	$	19,259,678		$	18,575,181
See accompanying notes.

2

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

 CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands)

L I A B I L I T I E S   A N D   E Q U I T Y

	February 29, 2008		May 31, 2007
Short-term debt	$	6,439,129	$	4,427,123
Accrued interest payable		314,834		281,458
Long-term debt		9,732,902		11,295,219
Deferred income		23,915		27,990
Guarantee liability		13,658		18,929
Other liabilities		38,739		27,611
Derivative liabilities		370,761		71,934
Subordinated deferrable debt		311,440		311,440
Members' subordinated certificates:
Membership subordinated certificates		649,461		649,424
Loan and guarantee subordinated certificates		771,424		732,023
Total members' subordinated certificates		1,420,885		1,381,447
Commitments and contingencies
Minority interest		12,086		21,989
Equity:
Retained equity		569,712		697,837
Accumulated other comprehensive income		11,617		12,204
Total equity		581,329		710,041
	$	19,259,678	$	18,575,181
See accompanying notes.

3

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

 (UNAUDITED)

(in thousands)

For the Three and Nine Months Ended February 29, 2008 and February 28, 2007

	Three months ended						Nine months ended
	February 29, 2008			February 28, 2007 (As restated)*			February 29, 2008			February 28, 2007 (As restated)*
Interest income	$	266,576		$	264,873		$	797,817		$	789,806
Interest expense		(233,468	)		(247,441	)		(720,810	)		(752,036	)
Net interest income		33,108			17,432			77,007			37,770
Recovery of loan losses		33,599			-			47,900			-
Net interest income after recovery of loan losses		66,707			17,432			124,907			37,770
Non-interest income:
Rental and other income		367			417			1,070			1,042
Derivative cash settlements		10,463			44,442			30,299			76,190
Results of operations of foreclosed assets		2,401			1,896			6,217			7,887
Total non-interest income		13,231			46,755			37,586			85,119
Non-interest expense:
Salaries and employee benefits		(9,398	)		(8,461	)		(27,049	)		(25,222	)
Other general and administrative expenses		(5,862	)		(3,177	)		(16,278	)		(11,921	)
Recovery of (provision for) guarantee liability		1,000			-			4,300			(400	)
Market adjustment on foreclosed assets		(5,840	)		-			(5,840	)		-
Derivative forward value		(64,266	)		(4,189	)		(173,278	)		(120,779	)
Foreign currency adjustments		-			1,886			-			(15,413	)
Loss on sale of loans		(158	)		(1,550	)		(676	)		(1,550	)
Total non-interest expense		(84,524	)		(15,491	)		(218,821	)		(175,285	)
(Loss) income prior to income taxes and minority interest		(4,586	)		48,696			(56,328	)		(52,396	)
Income taxes		2,175			(627	)		6,186			573
(Loss) income prior to minority interest		(2,411	)		48,069			(50,142	)		(51,823	)
Minority interest		2,088			566			8,211			1,244
Net (loss) income	$	(323	)	$	48,635		$	(41,931	)	$	(50,579	)
See accompanying notes.
*See Note 1(j)

4

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)

(in thousands)

For the Nine Months Ended February 29, 2008 and February 28, 2007

																						Patronage Capital
					Accumulated																	Allocated
					Other			Subtotal												Members'		General
					Comprehensive			Retained			Membership			Unallocated			Education			Capital		Reserve
			Total		Income (Loss)			Equity			Fees			Net Income			Fund			Reserve		Fund			Other
	Nine months ended February 29, 2008:
	Balance as of May 31, 2007	$	710,041		$	12,204		$	697,837		$	997		$	131,528		$	1,406		$	158,308	$	498	$		405,100
	Patronage capital retirement		(85,494	)		-			(85,494	)		-			-			-			-		-			(85,494	)
	Loss prior to income taxes and         minority interest		(56,328	)		-			(56,328	)		-			(56,328	)		-			-		-			-
	Other comprehensive loss		(587	)		(587	)		-			-			-			-			-		-			-
	Income taxes		6,186			-			6,186			-			6,186			-			-		-			-
	Minority interest		8,211			-			8,211			-			8,211			-			-		-			-
	Other		(700	)		-			(700	)		(3	)		-			(697	)		40		-			(40	)
	Balance as of February 29, 2008	$	581,329		$	11,617		$	569,712		$	994		$	89,597		$	709		$	158,348	$	498	$		319,566
	Nine months ended February 28, 2007:
	Balance as of May 31, 2006	$	784,408		$	13,208		$	771,200		$	994		$	225,849		$	1,281		$	156,844	$	497	$		385,735
	Patronage capital retirement		(84,247	)		-			(84,247	)		-			-			-			-		-			(84,247	)
	Loss prior to income taxes and         minority interest (As restated)*		(52,396	)		-			(52,396	)		-			(52,396	)		-			-		-			-
	Other comprehensive loss		(753	)		(753	)		-			-			-			-			-		-			-
	Income taxes		573			-			573			-			573			-			-		-			-
	Minority interest		1,244			-			1,244			-			1,244			-			-		-			-
	Other		(590	)		-			(590	)		(1	)		-			(589	)		-		-			-
	Balance as of February 28, 2007 (As restated)*	$	648,239		$	12,455		$	635,784		$	993		$	175,270		$	692		$	156,844	$	497	$		301,488
See accompanying notes.
*See Note 1(j)

5

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

For the Nine Months Ended February 29, 2008 and February 28, 2007

		February 29, 2008			February 28, 2007 (As restated)*
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(41,931	)	$	(50,579	)
Add (deduct):
Amortization of deferred income			(5,769	)		(10,377	)
Amortization of bond issuance costs and deferred charges			14,048			14,096
Depreciation			1,698			1,643
Recovery of loan losses			(47,900	)		-
(Recovery of) provision for guarantee liability			(4,300	)		400
Results of operations of foreclosed assets			(6,217	)		(7,887	)
Market adjustment on foreclosed assets			5,840			-
Derivative forward value			173,278			120,779
Foreign currency adjustments			-			15,413
Loss on sale of loans			676			1,550
Changes in operating assets and liabilities:
	Accrued interest and other receivables		(12,684	)		(26,057	)
	Accrued interest payable		33,375			82,262
	Other		2,469			(8,871	)
Net cash provided by operating activities			112,583			132,372
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances made on loans			(6,018,988	)		(5,245,383	)
Principal collected on loans			5,388,629			5,411,973
Net investment in fixed assets			(16,426	)		(380	)
Net cash provided by foreclosed assets			9,055			62,831
Net proceeds from sale of foreclosed assets			-			487
Net proceeds from sale of loans			73,972			364,100
Change in restricted cash			(15,706	)		-
Net cash (used in) provided by investing activities			(579,464	)		593,628
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayments of) issuances of short-term debt, net			347,544			(266,334	)
Proceeds from issuance of long-term debt, net			1,566,151			863,808
Payments for retirement of long-term debt			(1,293,720	)		(592,485	)
Payments for retirement of subordinated deferrable debt			(175,000	)		(150,000	)
Proceeds from issuance of members' subordinated certificates			58,714			27,089
Payments for retirement of members' subordinated certificates			(16,025	)		(27,886	)
Payments for retirement of patronage capital			(77,378	)		(74,094	)
Payments for retirement of RTFC patronage capital			(9,771	)		(12,414	)
Net cash provided by (used in) financing activities			400,515			(232,316	)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS			(66,366	)		493,684
BEGINNING CASH AND CASH EQUIVALENTS			304,107			260,338
ENDING CASH AND CASH EQUIVALENTS		$	237,741		$	754,022
See accompanying notes.
*See Note 1(j)

6

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

 (UNAUDITED)

(in thousands)

For the Nine Months Ended February 29, 2008 and February 28, 2007

		February 29, 2008		February 28, 2007 (As restated)*
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	673,387	$	655,678
Cash paid for income taxes		1,088		1,149
See accompanying notes.
*See Note 1(j)

7

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(1) General Information and Accounting Policies

(a)           General Information

National Rural Utilities Cooperative Finance Corporation ("National Rural" or "the Company") is a private, not-for-profit cooperative association incorporated under the laws of the District of Columbia in April 1969.  The principal purpose of National Rural is to provide its members with a source of financing to supplement the loan programs of the Rural Utilities Service ("RUS") of the United States Department of Agriculture.  National Rural makes loans to its rural utility system members ("utility members") to enable them to acquire, construct and operate electric distribution, generation, transmission and related facilities.  National Rural also provides its members with credit enhancements in the form of letters of credit and guarantees of debt obligations.  National Rural is exempt from payment of federal income taxes under the provisions of Section 501(c)(4) of the Internal Revenue Code.  National Rural is a not-for-profit member-owned finance cooperative, thus its objective is not to maximize its net income, but to offer its members low cost financial products and services consistent with sound financial management.

Rural Telephone Finance Cooperative ("RTFC") was incorporated as a private not-for-profit cooperative association in the state of South Dakota in September 1987.  In February 2005, RTFC reincorporated as a not-for-profit cooperative association in the District of Columbia.  The principal purpose of RTFC is to provide and arrange financing for its rural telecommunications members and their affiliates.  RTFC's results of operations and financial condition are consolidated with those of National Rural in the accompanying financial statements.  RTFC is headquartered with National Rural in Herndon, Virginia.  RTFC is a taxable cooperative that pays income tax based on its net income, excluding net income allocated to its members, as allowed by law under Subchapter T of the Internal Revenue Code.

National Cooperative Services Corporation ("NCSC") was incorporated in 1981 in the District of Columbia as a private non-profit cooperative association.  The principal purpose of NCSC is to provide financing to the for-profit or non-profit entities that are owned, operated or controlled by or provide substantial benefit to, members of National Rural.  NCSC also markets, through its cooperative members, a consumer loan program for home improvements and an affinity credit card program.  NCSC's membership consists of National Rural and distribution systems that are members of National Rural or are eligible for such membership.  NCSC's results of operations and financial condition are consolidated with those of National Rural in the accompanying financial statements.  NCSC is headquartered with National Rural in Herndon, Virginia.  NCSC is a taxable corporation.

The Company's consolidated membership was 1,540 as of February 29, 2008 including 899 utility members, the majority of which are consumer-owned electric cooperatives, 511 telecommunications members, 66 service members and 64 associates in 49 states, the District of Columbia and two U.S. territories.  The utility members included 830 distribution systems and 69 generation and transmission ("power supply") systems.  Memberships among National Rural, RTFC and NCSC have been eliminated in consolidation.  All references to members within this document include members and associates.

In the opinion of management, the accompanying consolidated financial statements contain all adjustments (which consist only of normal recurring accruals) necessary for a fair statement of the Company's results for the interim periods presented.

These interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2007.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires management to make estimates and assumptions that affect the assets, liabilities, revenues and expenses reported in the financial statements, as well as amounts included in the notes thereto, including discussion and disclosure of contingent liabilities.  While the Company uses its best estimates and judgments based on the known facts at the date of the financial statements, actual results could differ from these estimates as future events occur.

The Company does not believe it is vulnerable to the risk of a near term severe impact as a result of any concentrations of its activities.

8

(b)   Principles of Consolidation

The accompanying financial statements include the consolidated accounts of National Rural, RTFC and NCSC and certain entities controlled by National Rural and created to hold foreclosed assets and effect loan securitization transactions, after elimination of all material intercompany accounts and transactions.  Financial Accounting Standards Board ("FASB") Interpretation No. ("FIN") 46(R), Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin ("ARB") No. 51, requires National Rural to consolidate the financial results of RTFC and NCSC.  National Rural is the primary beneficiary of variable interests in RTFC and NCSC due to its exposure to absorbing the majority of expected losses.

National Rural is the sole lender to and manages the lending and financial affairs of RTFC through a management agreement in effect through December 1, 2016.  Under a guarantee agreement, RTFC pays National Rural a fee in exchange for which National Rural reimburses RTFC for loan losses.  All loans that require RTFC board approval also require National Rural approval.  National Rural is not a member of RTFC and does not elect directors to the RTFC board.  RTFC is an associate member of National Rural.

National Rural is the primary source of funding to and manages the lending and financial affairs of NCSC through a management agreement which is automatically renewable on an annual basis unless terminated by either party.  NCSC funds its programs either through loans from National Rural or commercial paper and long-term notes issued by NCSC and guaranteed by National Rural.  In connection with these guarantees, NCSC must pay a guarantee fee and purchase from National Rural interest-bearing subordinated term certificates in proportion to the related guarantee.  Under a guarantee agreement, NCSC pays National Rural a fee in exchange for which National Rural reimburses NCSC for loan losses, excluding losses in the consumer loan program.  All loans that require NCSC board approval also require National Rural approval.  National Rural controls the nomination process for one out of 11 NCSC directors.  The full membership of NCSC elects directors on the basis of one vote for each member.  NCSC is a service organization member of National Rural.

RTFC and NCSC creditors have no recourse against National Rural in the event of default by RTFC and NCSC, unless there is a guarantee agreement under which National Rural has guaranteed NCSC or RTFC debt obligations to a third party.  At February 29, 2008, National Rural had guaranteed $280 million of NCSC debt and derivative instruments with third parties.  The maturities for NCSC debt guaranteed by National Rural run through 2031.  As of February 29, 2008, National Rural's maximum potential exposure totaled $298 million related to guarantees of NCSC debt and derivatives.  Guarantees related to NCSC debt and derivative instruments are not included in Note 12 at February 29, 2008 as the debt and derivatives are reported on the consolidated balance sheet.  At February 29, 2008, National Rural had no guarantees of RTFC debt to third party creditors.  All National Rural loans to RTFC and NCSC are secured by all assets and revenues of RTFC and NCSC.  At February 29, 2008, RTFC had total assets of $1,921 million including loans outstanding to members of $1,727 million and NCSC had total assets of $465 million including loans outstanding of $417 million.  At February 29, 2008 and May 31, 2007, National Rural had committed to lend RTFC up to $4 billion of which $2 billion was outstanding at February 29, 2008.  At February 29, 2008 and May 31, 2007, National Rural had committed to provide credit to NCSC of up to $1 billion.  At February 29, 2008, National Rural had provided a total of $461 million of credit to NCSC, representing $181 million of outstanding loans and $280 million of credit enhancements.

National Rural established limited liability corporations and partnerships to hold foreclosed assets and effect loan securitization transactions.  National Rural has full ownership and control of all such companies and thus consolidates their financial results.  National Rural presents the companies formed to hold foreclosed assets in one line on the consolidated balance sheets and the consolidated statements of operations.  A full consolidation is presented for the company formed to effect loan securitization transactions.

Unless stated otherwise, references to the Company relate to the consolidation of National Rural, RTFC, NCSC and certain entities controlled by National Rural and created to hold foreclosed assets and effect loan securitization transactions.

In accordance with ARB 51, the Company presents the amount of subsidiary equity controlled by unrelated parties as minority interest on the consolidated balance sheet and the subsidiary earnings controlled by unrelated parties as minority interest on the consolidated statement of operations

(c)           Restricted Cash

Restricted cash represents cash and cash equivalents for which use is contractually restricted.  Restricted cash is disclosed separately on the balance sheet. At February 29, 2008, the Company has four different contractual restrictions on the use of certain cash.  Three of the restricted cash accounts totaling $16 million are related to the issuance of the Clean Renewable Energy Bonds (“CREBs”) in February 2008.  The fourth restricted cash account represents cash pledged as collateral for collateral trust bonds issued under the Company’s 1972 indenture.  At May 31, 2007, the $2 million of cash pledged as collateral under the 1972 indenture was the only restricted cash, which was classified in other assets due to immateriality.

9

Restricted cash at February 29, 2008 represents:

·   cash proceeds from the issuance of CREBs that may only be used for the funding of CREBs loan advances to participating members to reimburse them for costs related to qualifying projects;

·   cash proceeds from the issuance of CREBs that may only be used to reimburse the Company for the costs of issuing the CREBs;

·   cash from principal payments from members on CREBs loans that may only be used to make debt service payments to bond investors; and

·   cash held as collateral for the Company’s collateral trust bonds issued under the 1972 indenture.

The Company uses the proceeds from the issuance of CREBs to make loans to borrowers for the construction, refinancing, and reimbursement of capital expenditures related to qualified projects.  These funds may be invested by the Company.  The interest earned is restricted and may only be used to fund qualifying projects.

The Company also uses the proceeds from the issuance of CREBs to cover all costs associated with the issuance of the CREBs.  These funds are held by the trustee and may only be released to the Company to cover the cost of issuance.  The Company must submit invoices to support the issuance cost for which it is seeking reimbursement.  These funds may be invested by the Company.  The interest earned is restricted and may only be used to cover issuance expenses and to fund qualifying projects.

The Company collects principal and interest payments from borrowers quarterly.  The Company may withdraw the interest collected on CREBs loans at any time.  The principal collected on CREBs loans may only be used to repay principal to bond investors. These funds may be invested by the Company.  The interest earned is not restricted and may be withdrawn by the Company at any time.

At February 29, 2008 and May 31, 2007, $2 million of cash was pledged to secure the Company’s collateral trust bonds under the 1972 indenture.  This cash is classified in restricted cash because the funds are on deposit with the Company’s collateral trust bond trustee. These funds may be invested by the Company.  The interest earned is not restricted and may be withdrawn by the Company at any time.

The restricted cash may be invested by the Company.  Interest earned on the Company’s restricted cash is not restricted.  Interest earned on restricted cash accounts is presented as an operating activity in the statement of cash flows.  Changes in the principal balances of restricted cash accounts are reported as investing activities in the statement of cash flows.

(d)           Allowance for Loan Losses

The Company maintains an allowance for loan losses at a level estimated by management to adequately provide for probable losses inherent in the loan portfolio, which are estimated based upon a review of the loan portfolio, past loss experience, specific problem loans, economic conditions and other pertinent factors which, in management's judgment, deserve current recognition in estimating loan losses. On a quarterly basis, the Company prepares an analysis of the adequacy of the loan loss allowance and makes adjustments to the allowance as necessary.  The allowance is based on estimates and, accordingly, actual loan losses may differ from the allowance amount.

Management makes recommendations of loans to be written off to the board of directors of National Rural.  In making its recommendation to write off all or a portion of a loan balance, management considers various factors including cash flow analysis and collateral securing the borrower's loans.

Activity in the loan loss allowance account is summarized below:

	For the nine months ended and as of							Year ended and as of
(in thousands)	February 29, 2008				February 28, 2007			May 31, 2007
Balance at beginning of period	$	561,663		$		611,443		$	611,443
Recovery of loan losses		(47,900	)			-			(6,922	)
Write-offs		(16,827	)			(397	)		(44,668	)
Recoveries of prior write-offs		324				320			1,810
Balance at end of period	$	497,260		$		611,366		$	561,663

10

(e)           Interest Income

Interest income includes the following:

	For the three months ended				For the nine months ended
(in thousands)	February 29, 2008		February 28, 2007		February 29, 2008		February 28, 2007
Interest on long-term fixed rate loans (1)	$	220,117	$	208,262	$	649,860	$	619,889
Interest on long-term variable rate loans (1)		20,785		28,028		68,024		90,199
Interest on short-term loans (1)		20,224		17,761		59,816		53,691
Interest on investments (2)		1,832		2,626		6,668		6,075
Conversion fees (3)		1,587		2,412		5,096		7,366
Make-whole and prepayment fees (4)		533		3,368		2,287		4,193
Commitment and guarantee fees (5)		822		1,658		3,742		7,127
Other fees		676		758		2,324		1,266
Total interest income	$	266,576	$	264,873	$	797,817	$	789,806

(1) Represents interest income on loans to members.

(2) Represents interest income on the investment of cash.

(3) Conversion fees are deferred and recognized using the interest method over the remaining original loan interest rate pricing term, except for a small portion of the total fee charged to cover administrative costs related to the conversion which is recognized immediately.

(4) Make-whole and prepayment fees are charged for the early repayment of principal and recognized when collected.

(5) Commitment fees for RTFC loan commitments are, in most cases, refundable on a prorata basis according to the amount of the loan commitment that is advanced.  Such refundable fees are deferred and then recognized on a prorata basis based on the portion of the loan that is not advanced prior to the expiration of the commitment.  Commitment fees on National Rural loan commitments are not refundable and are billed and recognized based on the unused portion of committed lines of credit.  Guarantee fees are charged based on the amount, type and term of the guarantee.  Guarantee fees are deferred and amortized using the straight-line method into interest income over the life of the guarantee.

Deferred income on the consolidated balance sheets is comprised primarily of deferred conversion fees totaling $21 million and $25 million at February 29, 2008 and May 31, 2007, respectively.

(f)           Interest Expense

Interest expense includes the following:

	For the three months ended				For the nine months ended
(in thousands)	February 29, 2008		February 28, 2007		February 29, 2008		February 28, 2007
Interest expense - commercial paper and bid notes  (1)	$	30,639	$	38,758	$	102,117	$	134,760
Interest expense - medium-term notes (1)		82,555		93,876		249,422		282,050
Interest expense - collateral trust bonds (1)		61,213		56,069		189,968		156,629
Interest expense - subordinated deferrable debt (1)		4,916		8,153		14,747		24,936
Interest expense - subordinated certificates (1)		12,297		11,755		36,451		35,671
Interest expense - long-term private debt (1)		34,359		29,180		100,102		89,484
Debt issuance costs (2)		2,328		5,230		7,625		9,332
Commitment and guarantee fees (3)		4,602		3,967		13,277		11,981
Loss on extinguishment of debt (4)		-		-		5,509		4,806
Other fees		559		453		1,592		2,387
Total interest expense	$	233,468	$	247,441	$	720,810	$	752,036

(1) Represents interest expense and the amortization of discounts on debt.

(2) Includes amortization of all deferred charges related to debt issuance, principally underwriter's fees, legal fees, printing costs and comfort letter fees. Amortization is calculated on the effective interest method.  Also includes issuance costs related to dealer commercial paper.

(3) Includes various fees related to funding activities, including fees paid to banks participating in the Company's revolving credit agreements and fees paid under bond guarantee agreements with RUS as part of the Rural Economic Development Loan and Grant ("REDLG") program. Fees are recognized as incurred or amortized on a straight-line basis over the life of the respective agreement.

(4) Represents the loss on the early retirement of debt including the write-off of unamortized discount, premium and issuance costs.

The Company does not include indirect costs, if any, related to funding activities in interest expense.

(g)           Comprehensive Income

Comprehensive income includes the Company's net income, as well as other comprehensive income related to derivatives.  Comprehensive income is calculated as follows:

	For the three months ended						For the nine months ended
(in thousands)	February 29, 2008			February 28, 2007			February 29, 2008			February 28, 2007
Net (loss) income	$	(323	)	$	48,635		$	(41,931	)	$	(50,579	)
Other comprehensive income:
Reclassification adjustment for
realized gain on derivatives		(256	)		(251	)		(587	)		(753	)
Comprehensive (loss) income	$	(579	)	$	48,384		$	(42,518	)	$	(51,332	)

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(h)           Reclassifications

Certain reclassifications of prior period amounts have been made to conform to the current reporting format.  The May 31, 2007 balance of deferred loan origination costs totaling $4 million was reclassified from other assets to loans to members on the consolidated balance sheet to conform with the February 29, 2008 presentation.  The May 31, 2007 balance of cash held as collateral totaling $2 million was reclassified from other assets to restricted cash on the consolidated balance sheet to conform with the February 29, 2008 presentation.

(i)           New Accounting Pronouncements

On June 1, 2007, the Company adopted Statement of Financial Accounting Standard (“SFAS”) 155, Accounting for Certain Hybrid Financial Instruments – an amendment of SFAS 133 and 140. SFAS 155 permits fair value measurement of any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. SFAS 155 also clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS 133, Accounting for Derivative Instruments and Hedging Activities, as amended.  It establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation. SFAS 155 also clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006.  The Company’s adoption of SFAS 155 did not have a material impact on the Company's financial position or results of operations.

On June 1, 2007, the Company adopted SFAS 156, Accounting for Servicing of Financial Assets.  SFAS 156 requires the initial measurement of all separately recognized servicing assets and liabilities at fair value and permits, but does not require, the subsequent measurement of servicing assets and liabilities at fair value. SFAS 156 is effective as of the beginning of the first fiscal year that begins after September 15, 2006.  The Company’s adoption of SFAS 156 did not have a material impact on the Company's financial position or results of operations.

On June 1, 2007, the Company adopted FIN No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of SFAS 109.  FIN 48 clarifies the accounting for income taxes by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  FIN 48 is effective for fiscal years beginning after December 15, 2006.  The Company’s adoption of FIN 48 did not have a material impact on the Company's financial position or results of operations.  The Company classifies interest and penalties assessed as tax expense.

In September 2006, the FASB issued SFAS 157, Fair Value Measurements. SFAS 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS 157 is effective as of the beginning of the first fiscal year that begins after November 15, 2007. The Company's adoption of SFAS 157 as of June 1, 2008 is not expected to have a material impact on the Company's financial position or results of operations.

In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities. The fair value option established by SFAS 159 permits entities to choose to measure eligible financial instruments at fair value. The unrealized gains and losses on items for which the fair value option has been elected should be reported in earnings. The decision to elect the fair value option is determined on an instrument by instrument basis and is irrevocable. Assets and liabilities measured at fair value pursuant to the fair value option should be reported separately in the balance sheet from those instruments measured using other measurement attributes. SFAS 159 is effective as of the beginning of the first fiscal year that begins after November 15, 2007.  As part of the Company's adoption of SFAS 159 as of June 1, 2008, it does not plan to choose the option to measure eligible financial instruments at fair value and therefore the adoption of SFAS 159 is not expected to have a material impact on the Company's financial position or results of operations.

In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB 51.  This statement amends ARB 51, Consolidated Financial Statements, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also amends certain of ARB 51’s consolidation procedures for consistency with the requirements of SFAS 141, Business Combinations.  Noncontrolling interests shall be reclassified to equity, consolidated net income shall be adjusted to include net income attributable to noncontrolling interests and consolidated comprehensive income shall be adjusted to include comprehensive income attributable to the noncontrolling interests.  This statement is effective for fiscal years beginning on or after December 15, 2008.  The Company’s adoption of SFAS 160 on June 1, 2009 is not expected to have a material impact on the Company’s financial position or results of operations.

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In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging Activities. This statement requires enhanced disclosures about an entity’s derivative and hedging activities.  The statement is effective for fiscal years beginning after November 15, 2008.  The Company’s adoption of SFAS 161 is not expected to have a material impact on the Company’s financial position or results of operations.

(j)           Restatement

Subsequent to the issuance of the May 31, 2006 consolidated financial statements, the Company’s management identified an error in the recording of interest expense on foreign denominated debt and the cash settlement income from foreign currency exchange agreements, as well as the related accrued interest payable and accrued interest receivable.  The Company was using the agreed upon foreign exchange rate from the foreign currency exchange agreement rather than the average spot foreign currency exchange rate during the income statement period to convert the interest expense on the foreign denominated debt and foreign exchange agreement income to U.S. dollars.  The Company was also using the agreed upon foreign exchange rate from the foreign currency exchange agreement rather than the spot foreign currency exchange rate at the end of the balance sheet period to convert the accrued interest payable and accrued interest receivable to U.S. dollars. The interest expense on the foreign denominated debt and the cash settlement income from the foreign currency exchange agreement are equal and offsetting amounts, as the Company uses the amount received under the exchange agreement to pay the interest expense on the foreign denominated debt.  The amounts for the accrued interest payable and accrued interest receivable are also offsetting.  As a result of this error, interest expense and cash settlement income were understated by $3 million and $10 million for the three and nine months ended February 28, 2007, respectively.  The Company subtracts the net accrual from the last settlement date on its derivatives at each period end in the calculation of the related fair value, so the error in the calculation of the income receivable on the foreign exchange agreements also impacted the fair value of the derivatives recorded as a derivative asset.  Thus, this correction also impacts the change in the fair value of the derivatives reported in the derivative forward value line on the consolidated statement of operations.  The derivative forward value loss line was understated by $4 million and $11 million for the three and nine months ended February 28, 2007, respectively.  The net income line was overstated by $4 million for the three months ended February 28, 2007 and the net loss line was understated by $11 million for the nine months ended February 28, 2007.  There is no impact on cash flows from operating activities or the total change in cash in the consolidated statements of cash flows.

A summary of the effects of the restatement on the consolidated statements of operations for the three and nine months ended February 28, 2007 is as follows:

		For the three months ended February 28, 2007
(in thousands)		As previously reported		Adjustment			As restated
Interest expense	$	(243,969	)	$	(3,472	)	$	(247,441	)
Net interest income		20,904			(3,472	)		17,432
Net interest income after recovery of loan losses		20,904			(3,472	)		17,432
Derivative cash settlements		40,970			3,472			44,442
Total non-interest income		43,283			3,472			46,755
Derivative forward value		(583	)		(3,606	)		(4,189	)
Total non-interest expense		(11,885	)		(3,606	)		(15,491	)
Income prior to income taxes and minority interest		52,302			(3,606	)		48,696
Income prior to minority interest		51,675			(3,606	)		48,069
Net income		52,241			(3,606	)		48,635

		For the nine months ended February 28, 2007
(in thousands)		As previously reported		Adjustment			As restated
Interest expense	$	(741,685	)	$	(10,351	)	$	(752,036	)
Net interest income		48,121			(10,351	)		37,770
Net interest income after recovery of loan losses		48,121			(10,351	)		37,770
Derivative cash settlements		65,839			10,351			76,190
Total non-interest income		74,768			10,351			85,119
Derivative forward value		(110,117	)		(10,662	)		(120,779	)
Total non-interest expense		(164,623	)		(10,662	)		(175,285	)
Loss prior to income taxes and minority interest		(41,734	)		(10,662	)		(52,396	)
Loss prior to minority interest		(41,161	)		(10,662	)		(51,823	)
Net loss		(39,917	)		(10,662	)		(50,579	)

13

(2) Loans and Commitments

Loans outstanding to members and unadvanced commitments by loan type and by segment are summarized as follows:

	February 29, 2008					May 31, 2007
	Loans			Unadvanced		Loans			Unadvanced
(in thousands)	Outstanding			Commitments (1)		Outstanding			Commitments (1)
Total by loan type (2):
Long-term fixed rate loans	$	14,851,196		$	-	$	14,663,340		$	-
Long-term variable rate loans		1,978,068			5,577,717		1,993,534			5,703,313
Loans guaranteed by RUS		251,135			491		255,903			491
Short-term loans		1,580,813			7,416,504		1,215,430			7,200,156
Total loans outstanding		18,661,212			12,994,712		18,128,207			12,903,960
Deferred origination fees		4,227			-		3,666			-
Less: Allowance for loan losses		(497,260	)		-		(561,663	)		-
Net loans	$	18,168,179		$	12,994,712	$	17,570,210		$	12,903,960
Total by segment:
National Rural:
Distribution	$	13,213,526		$	9,120,408	$	12,827,772		$	9,176,686
Power supply		3,198,956			2,960,783		2,858,040			2,798,124
Statewide and associate		104,258			129,415		119,478			139,156
National Rural total		16,516,740			12,210,606		15,805,290			12,113,966
RTFC		1,727,344			488,081		1,860,379			473,762
NCSC		417,128			296,025		462,538			316,232
Total loans outstanding	$	18,661,212		$	12,994,712	$	18,128,207		$	12,903,960

	February 29, 2008				May 31, 2007
(in thousands)	Loans		Unadvanced		Loans		Unadvanced
Non-performing and restructured loans (2):	Outstanding		Commitments (1)		Outstanding		Commitments (1)
Non-performing loans (3):
RTFC:
Long-term fixed rate loans	$	219,853	$	-	$	212,984	$	-
Long-term variable rate loans		253,480		2,160		261,081		-
Short-term loans		31,042		-		27,799		418
Total non-performing loans	$	504,375	$	2,160	$	501,864	$	418
Restructured loans (3):
National Rural:
Long-term fixed rate loans	$	52,420	$	-	$	52,420	$	-
Long-term variable rate loans		526,365		186,673		544,697		186,673
Short-term loans		-		12,500		-		12,500
National Rural total restructured loans		578,785		199,173		597,117		199,173
RTFC:
Long-term fixed rate loans		5,710		-		6,188		-
Total restructured loans	$	584,495	$	199,173	$	603,305	$	199,173

(1) Unadvanced loan commitments include loans for which loan contracts have been approved and executed, but funds have not been advanced.  Additional information may be required to assure that all conditions for advance of funds have been fully met and that there has been no material change in the member's condition as represented in the supporting documents.  Since commitments may expire without being fully drawn upon and a significant amount of the commitments are for standby liquidity purposes, the total unadvanced loan commitments do not necessarily represent future cash requirements.  Collateral and security requirements for advances on commitments are identical to those on initial loan approval.  As the interest rate on unadvanced commitments is not set, long-term unadvanced loan commitments have been classified in this chart as variable rate unadvanced commitments.  However, at the time of the advance, the borrower may select a fixed or a variable rate.

(2) Included in total by loan type chart above.

(3) Loans are classified as long-term or short-term based on their original maturity.

Loan origination costs are deferred and amortized using the straight-line method, which approximates the interest method, over the life of the loan as a reduction to interest income.

Loan Security

The Company evaluates each borrower's creditworthiness on a case-by-case basis.  It is generally the Company's policy to require collateral for long-term loans.  Such collateral usually consists of a first mortgage lien on the borrower's total system, including plant and equipment, and a pledge of future revenues.  The loan and security documents also contain various

14

provisions with respect to the mortgaging of the borrower's property and debt service coverage ratios, maintenance of adequate insurance coverage as well as certain other restrictive covenants.

The following tables summarize the Company's secured and unsecured loans outstanding by loan program and by segment

(Dollar amounts in thousands)			February 29, 2008						May 31, 2007
Total by loan program:			Secured	%		Unsecured	%		Secured	%		Unsecured	%
	Long-term fixed rate loans	$	14,430,587	97%	$	420,609	3%	$	14,180,956	97%	$	482,384	3%
	Long-term variable rate loans		1,837,562	93%		140,506	7%		1,865,821	94%		127,713	6%
	Loans guaranteed by RUS		251,135	100%		-	-		255,903	100%		-	-
	Short-term loans		164,613	10%		1,416,200	90%		191,231	16%		1,024,199	84%
	Total loans	$	16,683,897	89%	$	1,977,315	11%	$	16,493,911	91%	$	1,634,296	9%
	Total by segment:
	National Rural	$	14,826,254	90%	$	1,690,486	10%	$	14,462,448	92%	$	1,342,842	8%
	RTFC		1,497,634	87%		229,710	13%		1,630,079	88%		230,300	12%
	NCSC		360,009	86%		57,119	14%		401,384	87%		61,154	13%
	Total loans	$	16,683,897	89%	$	1,977,315	11%	$	16,493,911	91%	$	1,634,296	9%

Pledging of Loans

As of February 29, 2008 and May 31, 2007, distribution system mortgage notes related to outstanding long-term loans totaling $4,593 million and $5,797 million, respectively, and RUS guaranteed loans qualifying as permitted investments totaling $216 million and $219 million, respectively, were pledged as collateral to secure National Rural's collateral trust bonds under the 1994 indenture totaling $4,015 million and $5,020 million, respectively.  Under the 2007 indenture, distribution system mortgage notes related to outstanding long-term loans totaling $935 million as of February 29, 2008 were pledged as collateral to secure National Rural's collateral trust bonds totaling $700 million.  In addition, $2 million of cash was pledged to secure $2 million of collateral trust bonds outstanding under the 1972 indenture at February 29, 2008 and May 31, 2007.

As of February 29, 2008 and May 31, 2007, distribution system mortgage notes totaling $577 million and $592 million, respectively, were pledged as collateral to secure National Rural's notes to the Federal Agricultural Mortgage Corporation ("Farmer Mac") totaling $500 million.

In addition to the loans pledged as collateral at February 29, 2008 and May 31, 2007, National Rural had $3,204 million and $2,765 million, respectively, of mortgage notes on deposit with the trustee for the $2.5 billion and $2 billion, respectively, of notes payable to the Federal Financing Bank ("FFB") of the United States Treasury as part of the REDLG program (see Note 6).  The $2.5 billion of notes payable to the FFB contain a rating trigger related to the Company's senior secured credit ratings from Standard & Poor's Corporation, Moody's Investors Service and Fitch Ratings. A rating trigger event exists if the Company's senior secured debt does not have at least two of the following ratings: (i) A- or higher from Standard & Poor's Corporation, (ii) A3 or higher from Moody's Investors Service, (iii) A- or higher from Fitch Ratings and (iv) an equivalent rating from a successor rating agency to any of the above rating agencies.  If the Company's senior secured credit ratings fall below the levels listed above, the mortgage notes on deposit at that time, which totaled $3,204 million at February 29, 2008, would be pledged as collateral rather than held on deposit.  At February 29, 2008, the Company’s senior secured debt ratings were above the rating trigger threshold.

A total of $1.5 billion of notes payable to the FFB has a second trigger event related to a financial expert to the Company's board of directors.  A rating trigger event will exist if the financial expert position (as defined by Section 407 of the Sarbanes-Oxley Act of 2002) remains vacant for more than 90 consecutive days.  If the Company does not satisfy the financial expert rating trigger, the mortgage notes on deposit at that time, which totaled $1,848 million at February 29, 2008, would be pledged as collateral rather than held on deposit.  The financial expert position on National Rural’s board of directors has been filled since March 2007.

(3)           Loan Securitizations

The Company accounts for the sale of loans in securitization transactions according to the provisions of SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, as amended.  The Company derecognizes financial assets when control has been surrendered.  The Company has no retained interest in securitized loans.  The Company services the loans in return for a market fee and therefore does not record a servicing asset or liability.  The Company recognizes the service fee on an accrual basis over the period for which servicing activity is provided.  Deferred transactions costs and unamortized deferred loan origination costs related to the loans sold are expensed as part of the calculation of the gain or loss on the sale.

15

On August 10, 2007, the Company entered into an agreement to sell $74 million of distribution mortgage loans to Farmer Mac for $74 million.  The distribution mortgage loans were sold at 100% of the outstanding principal balance on that date.  A total of $40 million of the distribution mortgage loans were transferred on August 10, 2007 and the remaining $34 million were transferred on January 2, 2008.  The transaction qualifies for sale treatment under SFAS 140.

The Company recorded a loss on sale of loans totaling $0.7 million related to costs associated with the transaction and unamortized deferred loan origination costs for the loans sold.  The Company does not hold any continuing interest in the loans sold and has no obligation to repurchase loans from the purchaser.  The holders of the certificates of beneficial interest issued by the purchaser have no claim against the Company or any of the Company’s assets in the event of a default on the loans held by the purchaser.

The Company will service the loans for the purchaser in exchange for a fee of 30 basis points of the outstanding loan principal.  The Company considers the 30 basis point fee to be a market fee based on market quotes from other providers.  As a result, the Company has not recorded a servicing asset or liability.  The servicing fee has a payment priority over any other disbursement made by the trust holding the assets.

During the three and nine months ended February 29, 2008, the Company recognized $0.3 million and $0.9 million, respectively, in servicing fees on all loan securitization transactions.

(4)         Foreclosed Assets

Assets received in satisfaction of loan receivables are recorded at the lower of cost or market and classified on the consolidated balance sheets as foreclosed assets.  At February 29, 2008 and May 31, 2007, the balance of foreclosed assets included real estate developer notes receivable and limited partnership interests in certain real estate developments.

At February 29, 2008, the Company determined that there was a reduction of $6 million to the market value of one of the land development loans held as a foreclosed asset.  The reduction to the market value was primarily as a result of the slow down in lot sales due to residential home market weakness.

The activity for foreclosed assets is summarized below:

	Nine months ended						Year ended
(in thousands)	February 29, 2008			February 28, 2007			May 31, 2007
Beginning balance	$	66,329		$	120,889		$	120,889
Results of operations		6,217			7,887			9,758
Net cash provided by foreclosed assets		(9,055	)		(62,831	)		(63,831	)
Market adjustment		(5,840	)		-			-
Sale of foreclosed assets		-			(487	)		(487	)
Ending balance of foreclosed assets	$	57,651		$	65,458		$	66,329

(5)         Short-Term Debt and Credit Arrangements

The following is a summary of short-term debt outstanding:

(in thousands)	February 29, 2008		May 31, 2007
Short-term debt:
Commercial paper sold through dealers, net of discounts	$	1,479,506	$	1,017,879
Commercial paper sold directly to members, at par		1,113,316		1,383,090
Commercial paper sold directly to non-members, at par		141,582		133,087
Total commercial paper		2,734,404		2,534,056
Daily liquidity fund sold directly to members, at par		297,759		250,563
Bank bid notes		200,000		100,000
Subtotal short-term debt		3,232,163		2,884,619
Long-term debt maturing within one year:
Medium-term notes sold through dealers		595,748		133,801
Medium-term notes sold to members		281,437		231,158
Secured collateral trust bonds		1,824,993		999,560
Secured notes payable		500,000		-
Subordinated deferrable debt (1)		-		175,000
Unsecured notes payable		4,788		2,985
Total long-term debt maturing within one year		3,206,966		1,542,504
Total short-term debt	$	6,439,129	$	4,427,123
(1) Redeemed in June 2007.

16

National Rural issues commercial paper for periods of one to 270 days.  National Rural also enters into short-term bank bid note agreements, which are unsecured obligations of National Rural and do not require backup bank lines for liquidity purposes.  Bank bid note facilities are uncommitted lines of credit for which National Rural does not pay a fee.  The commitments are generally subject to termination at the discretion of the individual banks.

Revolving Credit Agreements

The following is a summary of the amounts available under the Company's revolving credit agreements:

(Dollar amounts in thousands)		February 29, 2008		May 31, 2007	Termination Date	Facility fee per annum (1)
364-day agreement (2)	$	1,125,000	$	1,125,000	March 14, 2008	0.05 of 1%
Five-year agreement		1,125,000		1,125,000	March 16, 2012	0.06 of 1%
Five-year agreement		1,025,000		1,025,000	March 22, 2011	0.06 of 1%
Total	$	3,275,000	$	3,275,000

(1) Facility fee determined by National Rural's senior unsecured credit ratings based on the pricing schedules put in place at the initiation of the related agreement.

(2) Any amount outstanding under these agreements may be converted to a one-year term loan at the end of the revolving credit periods.  If converted to a term loan, the fee on the outstanding principal amount of the term loan is 0.10 of 1% per annum.

Upfront fees of between 0.03 and 0.05 of 1% were paid to the banks based on their commitment level to the five-year agreements in place at February 29, 2008, totaling in aggregate $1 million, which will be amortized on a straight-line basis over the life of the agreements.  No upfront fees were paid to the banks for their commitment to the 364-day facility.  Each agreement contains a provision under which if borrowings exceed 50% of total commitments, a utilization fee must be paid on the outstanding balance.  The utilization fees are 0.05 of 1% for all three agreements in place at February 29, 2008.

At February 29, 2008 and May 31, 2007, the Company was in compliance with all covenants and conditions under its revolving credit agreements in place at that time and there were no borrowings outstanding under such agreements.

For the purpose of calculating the required financial covenants contained in its revolving credit agreements, the Company adjusts net income, senior debt and total equity to exclude the non-cash adjustments related to SFAS 133 and SFAS 52, Foreign Currency Translation.  The adjusted times interest earned ratio ("TIER"), as defined by the agreements, represents the interest expense adjusted to include the derivative cash settlements, plus minority interest net income, plus net income prior to the cumulative effect of change in accounting principle and dividing that total by the interest expense adjusted to include the derivative cash settlements.  In addition to the non-cash adjustments related to SFAS 133 and 52, senior debt also excludes RUS guaranteed loans, subordinated deferrable debt, members' subordinated certificates and minority interest.  Total equity is adjusted to include subordinated deferrable debt, members' subordinated certificates and minority interest.  Senior debt includes guarantees; however, it excludes:

·   guarantees for members where the long-term unsecured debt of the member is rated at least BBB+ by Standard & Poor's Corporation or Baa1 by Moody's Investors Service; and

·   the payment of principal and interest by the member on the guaranteed indebtedness if covered by insurance or reinsurance provided by an insurer having an insurance financial strength rating of AAA by Standard & Poor's Corporation or a financial strength rating of Aaa by Moody's Investors Service.

The following represents the Company's required and actual financial ratios under the revolving credit agreements at or for the periods ended February 29, 2008 and May 31, 2007:

		Actual
	Requirement	February 29, 2008	May 31, 2007
Minimum average adjusted TIER over the six most recent fiscal quarters	1.025	1.16	1.09
Minimum adjusted TIER at fiscal year end (1)	1.05	1.12	1.12
Maximum ratio of senior debt to total equity	10.00	7.26	6.65

(1) The Company must meet this requirement in order to retire patronage capital.  The adjusted TIER reported at February 29, 2008 is the amount from the prior year end, the last measurement date for this ratio.

The revolving credit agreements do not contain a material adverse change clause or ratings triggers that limit the banks' obligations to fund under the terms of the agreements, but National Rural must be in compliance with their other requirements, including financial ratios, in order to draw down on the facilities.

Subsequent to the end of the quarter, the 364-day revolving credit agreement in place at February 29, 2008 totaling $1,125 million was replaced on March 14, 2008 with a new 364-day agreement totaling $1,500 million expiring on March 13, 2009.  Any amount outstanding under the new 364-day agreement may be converted to a one-year term loan at the end of the revolving credit period with a 0.10 of 1% per annum fee on the outstanding principal amount of the term loan.  The facility fee for the 364-day facility is 0.05 of 1% per annum based on the pricing schedule in place at March 14, 2008.  Upfront fees of $147,000 were paid to the banks

17

based on their commitment level to the 364-day agreement.  The agreement contains a provision under which if borrowings exceed 50% of total commitments, a utilization fee of 0.05 of 1% must be paid on the outstanding balance.  National Rural's five-year agreement totaling $1,025 million is still in effect and expires on March 22, 2011.  National Rural's five-year agreement totaling $1,125 million is still in effect and expires on March 16, 2012.  The total committed credit available under these three current facilities was $3,650 million at March 14, 2008.

(6)         Long-Term Debt

The following is a summary of long-term debt outstanding:

(in thousands)	February 29, 2008			May 31, 2007
Unsecured long-term debt:
Medium-term notes, sold through dealers	$	4,216,284		$	4,676,176
Medium-term notes, sold directly to members		76,632			76,464
Subtotal		4,292,916			4,752,640
Unamortized discount		(5,984	)		(7,408	)
Total unsecured medium-term notes		4,286,932			4,745,232
Unsecured notes payable		2,559,612			2,032,630
Total unsecured long-term debt		6,846,544			6,777,862
Secured long-term debt:
Collateral trust bonds		2,891,927			4,021,953
Unamortized discount		(5,569	)		(4,596	)
Total secured collateral trust bonds		2,886,358			4,017,357
Secured notes payable		-			500,000
Total secured long-term debt		2,886,358			4,517,357
Total long-term debt	$	9,732,902		$	11,295,219

Medium-term notes are unsecured obligations of National Rural.  Collateral trust bonds are secured by the pledge of mortgage notes or eligible securities in an amount at least equal to the principal balance of the bonds outstanding.  See Note 2 for additional information on the collateral pledged to secure the Company's collateral trust bonds.

Unsecured Notes Payable

At February 29, 2008 and May 31, 2007, National Rural had outstanding a total of $2.5 billion and $2 billion, respectively, under a bond purchase agreement with the FFB and a bond guarantee agreement with RUS as part of the funding mechanism for the REDLG program.  On August 7, 2007, National Rural received the advance of the remaining $500 million under the REDLG program.  The $500 million advance has a July 2027 maturity date.  As part of the REDLG program, National Rural will pay to RUS a fee of 30 basis points per annum on the total amount borrowed.  At February 29, 2008, the $2.5 billion of unsecured notes payable issued as part of the REDLG program require National Rural to place on deposit mortgage notes in an amount at least equal to the principal balance of the notes outstanding.  See Note 2 for additional information on the mortgage notes held on deposit.

Secured Notes Payable

At May 31, 2007, the Company had outstanding a total of $500 million of 4.656% notes to Farmer Mac due in 2008.  See Note 2 for additional information on the collateral pledged to secure the Company's notes payable.  Based on the July 29, 2008 maturity, this debt was reclassified to short-term debt during the quarter ended August 31, 2007.

(7)         Subordinated Deferrable Debt

The following table is a summary of subordinated deferrable debt outstanding:

(Dollar amounts in thousands)	February 29, 2008		May 31, 2007
6.75% due 2043 (1)	$	125,000	$	125,000
6.10% due 2044 (2)		88,201		88,201
5.95% due 2045 (3)		98,239		98,239
Total	$	311,440	$	311,440

(1) The 6.75% subordinated deferrable securities due 2043 are callable by the Company at par starting on February 15, 2008.

(2) The 6.10% subordinated deferrable securities due 2044 are callable by the Company at par starting on February 1, 2009.

(3) The 5.95% subordinated deferrable securities due 2045 are callable by the Company at par starting on February 15, 2010.

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(8)         Derivative Financial Instruments

The Company is neither a dealer nor a trader in derivative financial instruments.  The Company utilizes derivatives such as interest rate and cross currency interest rate exchange agreements to mitigate interest rate risk and foreign currency exchange risk.

Consistent with SFAS 133, as amended, the Company records derivative instruments on the consolidated balance sheet as either an asset or liability measured at fair value.  Changes in the fair value of derivative instruments are recognized in the derivative forward value line item of the consolidated statement of operations unless specific hedge accounting criteria are met.  Net settlements paid and received for derivative instruments that qualify for hedge accounting are recorded in interest expense.  Net settlements related to derivative instruments that do not qualify for hedge accounting are recorded as derivative cash settlements in the consolidated statement of operations.  The Company formally documents, designates, and assesses the effectiveness of transactions that receive hedge accounting.

Interest Rate Exchange Agreements

Generally, the Company's interest rate exchange agreements do not qualify for hedge accounting under SFAS 133.  At February 29, 2008 and May 31, 2007, the Company did not have any interest rate exchange agreements that were accounted for using hedge accounting.

The Company was a party to the following interest rate exchange agreements:

		Notional Amounts Outstanding
(in thousands)		February 29, 2008		May 31, 2007
Pay fixed and receive variable	$	7,700,865	$	7,276,473
Pay variable and receive fixed		5,256,440		5,256,440
Total interest rate exchange agreements	$	12,957,305	$	12,532,913

The Company classifies cash activity associated with derivatives as an operating activity in the consolidated statements of cash flows.

Interest rate exchange agreements had the following impact on the Company:

	Three months ended		Nine months ended
(in thousands)	February 29, 2008	February 28, 2007	February 29, 2008	February 28, 2007

Statement of Operations Impact
Agreements that do not qualify for hedge accounting:
Derivative cash settlements	$	10,463		$	41,527		$	30,299		$	67,529
Derivative forward value		(64,266	)		(770	)		(173,278	)		(127,318	)
Total (loss) gain on interest rate exchange agreements	$	(53,803	)	$	40,757		$	(142,979	)	$	(59,789	)
Comprehensive Income Impact
Amortization of transition adjustment	$	(256	)	$	(251	)	$	(587	)	$	(753	)
Total comprehensive loss	$	(256	)	$	(251	)	$	(587	)	$	(753	)

A transition adjustment of $62 million was recorded as an other comprehensive loss on June 1, 2001, the date the Company implemented SFAS 133.  The transition adjustment will be amortized into earnings over the remaining life of the related interest rate exchange agreements.  Approximately $0.8 million of the transition adjustment is expected to be amortized to income over the next twelve months and will continue through April 2029.

Cross Currency Interest Rate Exchange Agreements

There were no cross currency interest rate exchange agreements outstanding at February 29, 2008 and May 31, 2007.  As of February 28, 2007, the Company was a party to cross currency interest rate exchange agreements with a total notional amount of $434 million related to medium-term notes denominated in foreign currencies in which the Company received Euros and paid U.S. dollars.  These cross currency interest rate exchange agreements did not qualify for hedge accounting.  Generally, the Company’s cross currency interest rate exchange agreements do not qualify for hedge accounting under SFAS 133.

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Cross currency interest rate exchange agreements had the following impact on the Company:

	Three months ended		Nine months ended
(in thousands)	February 29, 2008	February 28, 2007	February 29, 2008	February 28, 2007

Statement of Operations Impact
Agreements that do not qualify for hedge accounting
Derivative cash settlements	$	-	$	2,915		$	-	$	8,661
Derivative forward value		-		(3,419	)		-		6,539
Total (loss) gain on interest rate exchange agreements	$	-	$	(504	)	$	-	$	15,200

Rating Triggers

The Company has certain interest rate exchange agreements that contain a provision called a rating trigger.  Under a rating trigger, if the credit rating for either counterparty falls to the level specified in the agreement, the other counterparty may, but is not obligated to, terminate the agreement.  If either counterparty terminates the agreement, a net payment may be due from one counterparty to the other based on the fair value of the underlying derivative instrument.  Rating triggers are not separate financial instruments and are not separate derivatives under SFAS 133.  The rating triggers contained in certain of the Company's derivative contracts are based on its senior unsecured credit rating from Standard & Poor's Corporation and Moody's Investors Service.

At February 29, 2008, the Company had the following notional amount and fair values associated with exchange agreements that contain rating triggers.  For the purpose of the presentation, the Company has grouped the rating triggers into two categories, (1) ratings from Moody's Investors Service falls to Baa1 or from Standard & Poor's Corporation falls to BBB+ and (2) ratings from Moody's Investors Service falls below Baa1 or from Standard & Poor's Corporation falls below BBB+.

(in thousands)		Notional Amount		Required Company Payment		Amount Company Would Collect		Net Total
Rating Level:
Fall to Baa1/BBB+	$	1,739,419	$	(45,283)	$	82,534	$	37,251
Fall below Baa1/BBB+		7,183,620		(203,636)		136,855		(66,781	)
Total	$	8,923,039	$	(248,919)	$	219,389	$	(29,530	)

Additionally, if ratings from Moody's Investors Service fall below Baa2 or from Standard & Poor's Corporation fall below BBB, the Company would be required to pledge collateral equal to the net obligation, or net fair value, of the related exchange agreements due to the affected counterparty, if any.  At February 29, 2008, the net obligation totaled $18 million for the $718 million notional amount of exchange agreements subject to this rating trigger.

(9)         Members' Subordinated Certificates

Membership Subordinated Certificates

National Rural's members are required to purchase membership certificates as a condition of membership.  Such certificates are interest-bearing, unsecured, subordinated debt of National Rural.  Members may purchase the certificates over time as a percentage of the amount they borrow from National Rural.  RTFC and NCSC members are not required to purchase membership certificates as a condition of membership.  National Rural membership certificates typically have an original maturity of 100 years and pay interest at 5% semi-annually.  The weighted average maturity for all membership subordinated certificates outstanding at February 29, 2008 and May 31, 2007 was 68 years and 69 years, respectively.

Loan and Guarantee Subordinated Certificates

Members obtaining long-term loans, certain short-term loans or guarantees are generally required to purchase additional loan or guarantee subordinated certificates with each such loan or guarantee based on the members' debt to equity ratio with National Rural.  These certificates are unsecured, subordinated debt of the Company.

Certificates currently purchased in conjunction with long-term loans are generally non-interest bearing.  National Rural's policy regarding the purchase of loan subordinated certificates requires members with a debt to equity ratio with National Rural in excess of the limit in the policy to purchase a non-amortizing/non-interest bearing subordinated certificate in the amount of 2% for distribution systems and 7% for power supply systems.  National Rural associates and RTFC members are required to purchase loan subordinated certificates of 10% of each long-term loan advance.  For non-standard credit facilities, the borrower is required to purchase interest bearing certificates in amounts determined appropriate by National Rural based on the circumstances of the transaction.

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The maturity dates and the interest rates payable on guarantee subordinated certificates purchased in conjunction with National Rural's guarantee program vary in accordance with applicable National Rural policy.  Members may be required to purchase non-interest-bearing debt service reserve subordinated certificates in connection with National Rural's guarantee of long-term tax-exempt bonds (see Note 12).  National Rural pledges proceeds from the sale of such certificates to the debt service reserve fund established in connection with the bond issue and any earnings from the investments of the fund inure solely to the benefit of the members for whom the bonds are issued.  These certificates have varying maturities not exceeding the longest maturity of the guaranteed obligation.

(10)           Minority Interest

At February 29, 2008 and May 31, 2007, the Company reported minority interests of $12 million and $22 million, respectively, on the consolidated balance sheets.  Minority interest represents 100% of RTFC and NCSC equity as the members of RTFC and NCSC own or control 100% of the interest in their respective companies.  

During the nine months ended February 29, 2008, NCSC’s net loss of $10.1 million exceeded its equity balance by $1.6 million, which eliminated the minority interest equity in NCSC.  In accordance with ARB 51, Consolidated Financial Statements, National Rural is required to absorb the $1.6 million NCSC excess loss.  NCSC’s losses during the nine months ended February 29, 2008 were primarily due to its $18 million in derivative forward value losses.  NCSC’s equity balance included in minority interest on the consolidated balance sheets was $8.6 million at May 31, 2007.

Minority interest at February 29, 2008 also decreased due to the retirement of $2 million of patronage capital to RTFC members in January 2008.

(11)           Equity

National Rural is required by the District of Columbia cooperative law to have a methodology to allocate its net earnings to its members.  National Rural maintains the current year net earnings as unallocated through the end of its fiscal year.  Subsequent to the end of the fiscal year, National Rural's board of directors allocates its net earnings to members in the form of patronage capital and to board approved reserves.  Currently, National Rural has two such board approved reserves, the education fund and the members' capital reserve.  National Rural allocates a small portion, less than 1%, of net earnings annually to the education fund.  The allocation to the education fund must be at least 0.25% of net earnings as required by National Rural's bylaws.  Funds from the education fund are disbursed annually to fund cooperative education in the service territories of each state.  The board of directors determines the amount of net earnings that is allocated to the members' capital reserve, if any.  The members' capital reserve represents earnings that are held by National Rural to increase equity retention.  The net earnings held in the members' capital reserve have not been allocated to any member, but may be allocated to individual members in the future as patronage capital if authorized by National Rural's board of directors.  All remaining net earnings are allocated to National Rural's members in the form of patronage capital.  National Rural bases the amount of net earnings allocated to each member on the members' patronage of the National Rural lending programs in the year that the net earnings were earned.  There is no impact on National Rural's total equity as a result of allocating net earnings to members in the form of patronage capital or to board approved reserves.  National Rural's board of directors has annually voted to retire a portion of the patronage capital allocated to members in prior years.  National Rural's total equity is reduced by the amount of patronage capital retired to members and by amounts disbursed from board approved reserves.  National Rural adjusts the net earnings it allocates to members and board approved reserves to exclude the non-cash impacts of SFAS 133 and 52.

In July 2007, National Rural's board of directors authorized the allocation of the fiscal year 2007 adjusted net earnings as follows: $1 million to the education fund and $104 million to members in the form of patronage capital.  The board of directors also authorized the allocation of $1 million to the members' capital reserve.  In July 2007, National Rural's board of directors authorized the retirement of allocated net earnings totaling $86 million, representing 70% of the fiscal year 2007 allocation and one-ninth of the fiscal years 1991, 1992 and 1993 allocated net earnings.  This amount was returned to members in cash in September 2007.  Future allocations and retirements of net earnings will be made annually as determined by National Rural's board of directors with due regard for National Rural's financial condition.  The board of directors for National Rural has the authority to change the policy for allocating and retiring net earnings at any time, subject to applicable cooperative law.

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At February 29, 2008 and May 31, 2007, equity included the following components:

(in thousands)	February 29, 2008			May 31, 2007
Membership fees	$	994		$	997
Education fund		709			1,406
Members' capital reserve		158,348			158,308
Allocated net income		320,064			405,598
Unallocated net income (1)		113,440			(23	)
Total members' equity		593,555			566,286
Prior years cumulative derivative forward
value and foreign currency adjustments		131,551			225,849
Current period derivative forward value (2)		(155,394	)		(79,744	)
Current period foreign currency adjustments		-			(14,554	)
Total retained equity		569,712			697,837
Accumulated other comprehensive income		11,617			12,204
Total equity	$	581,329		$	710,041

(1) Excludes derivative forward value and foreign currency adjustments.  Unallocated net income at February 29, 2008 includes National Rural’s obligation to absorb NCSC losses in excess of their equity balance totaling $1.6 million.

(2) Represents the derivative forward value loss recorded by National Rural for the period.

(12)         Guarantees

The Company guarantees certain contractual obligations of its members so that they may obtain various forms of financing.  With the exception of letters of credit, the underlying obligations may not be accelerated so long as the Company performs under its guarantee. At February 29, 2008 and May 31, 2007, the Company had recorded a guarantee liability totaling $14 million and $19 million, respectively, which represents the contingent and non-contingent exposure related to guarantees of members' debt obligations. The contingent guarantee liability at February 29, 2008 and May 31, 2007 totaled $9 million and $13 million, respectively, based on management's estimate of exposure to losses within the guarantee portfolio. The Company uses factors such as internal risk rating, remaining term of guarantee, corporate bond default probabilities and estimated recovery rates in estimating its contingent exposure.  The remaining balance of the total guarantee liability of $5 million and $6 million, respectively, at February 29, 2008 and May 31, 2007 relates to the Company's non-contingent obligation to stand ready to perform over the term of its guarantees that it has entered into or modified since January 1, 2003 in accordance with FIN No. 45, Guarantor's Accounting and Disclosure Requirement for Guarantees, Including Indirect Guarantees of Indebtedness of Others (an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34).  The non-contingent obligation is estimated based on guarantee fees collectible over the life of the guarantee.  The fees are deferred and amortized using the straight-line method into interest income over the term of the guarantees.

Activity in the guarantee liability account is summarized below:

		For the nine months ended						Year ended
(in thousands)		February 29, 2008			February 28, 2007			May 31, 2007
Beginning balance	$	18,929		$	16,750		$	16,750
Net change in non-contingent liability		(971	)		1,527			3,879
(Recovery of) provision for contingent guarantee losses		(4,300	)		400			(1,700	)
Ending balance	$	13,658		$	18,677		$	18,929
Liability as a percentage of total guarantees		1.29	%		1.58	%		1.76	%

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The following chart summarizes total guarantees by type and segment:

(in thousands)	February 29, 2008			May 31, 2007
Total by type:
Long-term tax exempt bonds(1)	$	499,605	$	526,185
Indemnifications of tax benefit transfers (2)		97,393		107,741
Letters of credit (3)		381,436		365,766
Other guarantees (4)		80,415		74,682
Total	$	1,058,849	$	1,074,374
Total by segment:
National Rural:
Distribution	$	203,591	$	211,320
Power supply		763,226		797,009
Statewide and associate		23,655		25,359
National Rural total		990,472		1,033,688
RTFC		260		-
NCSC		68,117		40,686
Total	$	1,058,849	$	1,074,374

(1) The maturities for this type of guarantee run through 2037.  National Rural has guaranteed debt issued in connection with the construction or acquisition of pollution control, solid waste disposal, industrial development and electric distribution facilities. National Rural has unconditionally guaranteed to the holders or to trustees for the benefit of holders of these bonds the full principal, premium, if any, and interest on each bond when due.  National Rural has debt service reserve funds in the amount of $55 million at February 29, 2008 and May 31, 2007 on deposit with the bond trustee that can only be used for the purpose of covering any deficiencies in the bond principal, premium or interest payments.  The member systems have agreed to make up deficiencies in the debt service reserve funds for certain of these issues of bonds.  In the event of default by a system for non-payment of debt service, National Rural is obligated to pay any required amounts under its guarantees, which will prevent the acceleration of the bond issue.  The system is required to repay, on demand, any amount advanced by National Rural and interest thereon pursuant to the documents evidencing the system's reimbursement obligation.

Of the amounts shown above, $261 million and $277 million as of February 29, 2008 and May 31, 2007, respectively, are adjustable or floating/fixed rate bonds that may be converted to a fixed rate as specified in the indenture for each bond offering.  During the variable rate period (including at the time of conversion to a fixed rate), National Rural has unconditionally agreed to purchase bonds tendered or put for redemption if the remarketing agents have not previously sold such bonds to other purchasers.  National Rural's maximum potential exposure includes guaranteed principal and interest related to the bonds.  In addition to these tax-exempt bonds, National Rural was the guarantor, but not liquidity provider, for $224 million of tax-exempt bonds that were in the auction rate mode at February 29, 2008 and May 31, 2007.  National Rural is unable to determine the maximum amount of interest that it could be required to pay related to the adjustable, floating and auction rate bonds.  As of February 29, 2008, National Rural's maximum potential exposure for the $15 million of fixed rate tax-exempt bonds is $22 million.  Many of these bonds have a call provision that in the event of a default would allow National Rural to trigger the call provision.  This would limit National Rural's exposure to future interest payments on these bonds.  National Rural's maximum potential exposure is secured by a mortgage lien on all of the system's assets and future revenues.  However, if the debt is accelerated because of a determination that the interest thereon is not tax-exempt, the system's obligation to reimburse National Rural for any guarantee payments will be treated as a long-term loan.

(2) The maturities for this type of guarantee run through 2015.  National Rural has unconditionally guaranteed to lessors certain indemnity payments, which may be required to be made by the lessees in connection with tax benefit transfers.  In the event of default by a system for non-payment of indemnity payments, National Rural is obligated to pay any required amounts under its guarantees, which will prevent the acceleration of the indemnity payments.  The member is required to repay any amount advanced by National Rural and interest thereon pursuant to the documents evidencing the system's reimbursement obligation.  The amounts shown represent National Rural's maximum potential exposure for guaranteed indemnity payments.  A member's obligation to reimburse National Rural for any guarantee payments would be treated as a long-term loan to the extent of any cash received by the member at the outset of the transaction.  This amount is secured by a mortgage lien on substantially all of the system's assets and future revenues.  The remainder would be treated as a short-term loan secured by a subordinated mortgage on substantially all of the member's property.  Due to changes in federal tax law, no further guarantees of this nature are anticipated.

(3)The maturities for this type of guarantee run through 2017.  Additionally, letters of credit totaling $6 million at February 29, 2008 have a term of one year and automatically extend for a period of one year unless the Company cancels the agreement within 120 days of maturity (in which case, the beneficiary may draw on the letter of credit).  The Company issues irrevocable letters of credit to support members' obligations to energy marketers and other third parties and to the Rural Business and Cooperative Development Service with issuance fees as may be determined from time to time.  Each letter of credit issued is supported by a reimbursement agreement with the member on whose behalf the letter of credit was issued.  In the event a beneficiary draws on a letter of credit, the agreement generally requires the member to reimburse the Company within one year from the date of the draw.  Interest would accrue from the date of the draw at the line of credit variable rate of interest in effect on such date.  The agreement also requires the member to pay, as applicable, a late payment charge and all costs of collection, including reasonable attorneys' fees.  As of February 29, 2008, the Company's maximum potential exposure is $381 million, of which $239 million is secured.  When taking into consideration reimbursement obligation agreements that National Rural has in place with other lenders, National Rural's maximum potential exposure related to $49 million of letters of credit would be reduced to $14 million in the event of default.  Security provisions include a mortgage lien on substantially all of the system's assets, future revenues, and the system's commercial paper invested at the Company. In addition to the letters of credit listed in the table, under master letter of credit facilities, the Company may be required to issue up to an additional $402 million in letters of credit to third parties for the benefit of its members at February 29, 2008.  At May 31, 2007, this amount was $339 million.

(4) The maturities for this type of guarantee run through 2025.  National Rural provides other guarantees for its members.  In the event of default by a system for non-payment of the obligation, National Rural must pay any required amounts under its guarantees, which will prevent the acceleration of the obligation.  Such guarantees may be made on a secured or unsecured basis with guarantee fees set to cover National Rural's general and administrative expenses, a provision for losses and a reasonable margin.  The member is required to repay any amount advanced by National Rural and interest thereon pursuant to the documents evidencing the system's reimbursement obligation.  Of National Rural's maximum potential exposure for guaranteed principal and interest totaling $80 million at February 29, 2008, $3 million is secured by a mortgage lien on all of the system's assets and future revenues and the remaining $77 million is unsecured.

National Rural uses the same credit policies and monitoring procedures in providing guarantees as it does for loans and commitments.

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At February 29, 2008 and May 31, 2007, National Rural had a total of $219 million and $221 million of guarantees, respectively, representing 21% of total guarantees at each date under which its right of recovery from its members was not secured.

(13)           Restructured /Non-performing Loans and Contingencies

The Company had the following loans outstanding classified as non-performing and restructured:

(in thousands)		February 29, 2008		May 31, 2007		February 28, 2007
Non-performing loans	$	504,375	$	501,864	$	541,510
Restructured loans		584,495		603,305		609,570
Total	$	1,088,870	$	1,105,169	$	1,151,080

(a) At February 29, 2008, May 31, 2007 and February 28, 2007, all loans classified as non-performing were on non-accrual status with respect to the recognition of interest income.  At February 29, 2008 and May 31, 2007, $526 million and $545 million, respectively, of restructured loans were on non-accrual status with respect to the recognition of interest income.  At February 28, 2007, there were $551 million of restructured loans on non-accrual status.  A total of $1 million and $3 million of interest income was accrued on restructured loans during the three and nine months, respectively, ended February 29, 2008 and February 28, 2007.

Interest income was reduced as follows as a result of holding loans on non-accrual status:

	Three months ended				Nine months ended
(in thousands)	February 29, 2008			February 28, 2007	February 29, 2008		February 28, 2007
Non-performing loans	$	8,166	$	10,297	$	25,893	$	31,200
Restructured loans		8,168		9,828		26,479		29,640
Total	$	16,334	$	20,125	$	52,372	$	60,840

(b) The Company classified $1,083 million and $1,099 million of loans as impaired pursuant to the provisions of SFAS 114, Accounting by Creditors for Impairment of a Loan - an Amendment of SFAS 5 and SFAS 15, as amended, at February 29, 2008 and May 31, 2007, respectively.  The Company reserved $317 million and $397 million of the loan loss allowance for such impaired loans at February 29, 2008 and May 31, 2007, respectively.  The amount included in the loan loss allowance for such loans was based on a comparison of the present value of the expected future cash flow associated with the loan discounted at the original contract interest rate and/or the estimated fair value of the collateral securing the loan to the recorded investment in the loan.  Impaired loans may be on accrual or non-accrual status with respect to the recognition of interest income based on a review of the terms of the restructure agreement and borrower performance.  The Company accrued a total of $1 million and $3 million of interest income on impaired loans for the three and nine months ended February 29, 2008, respectively.  The Company accrued a total of $1 million and $3 million of interest income on impaired loans for the three and nine months ended February 28, 2007, respectively.  The average recorded investment in impaired loans for the nine months ended February 29, 2008 and February 28, 2007 was $1,088 million and $1,150 million, respectively.

The Company updates impairment calculations on a quarterly basis.  Since a borrower's original contract rate may include a variable rate component, calculated impairment could vary with changes to the Company's variable rate, independent of a borrower's underlying financial performance or condition.  In addition, the calculated impairment for a borrower will fluctuate based on changes to certain assumptions.  Changes to assumptions include, but are not limited to the following:

·   court rulings,

·   changes to collateral values, and

·   changes to expected future cash flows both as to timing and amount.

(c) At February 29, 2008 and May 31, 2007, National Rural had a total of $526 million and $545 million, respectively, of restructured loans outstanding to Denton County Electric Cooperative, d/b/a CoServ Electric ("CoServ"), a large electric distribution cooperative located in Denton County, Texas, that provides retail electric service to residential and business customers.  All restructured loans have been on non-accrual status since January 1, 2001.  In addition, a total of $20 million was outstanding under the capital expenditure loan facility which was classified as a performing loan at both February 29, 2008 and May 31, 2007.  Total loans to CoServ at February 29, 2008 and May 31, 2007 represented 2.8% and 2.9% respectively, of the Company's total loans and guarantees outstanding.

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Under the terms of a bankruptcy settlement, National Rural restructured its loans to CoServ.  CoServ is scheduled to make quarterly payments to National Rural through December 2037.  As part of the restructuring, National Rural may be obligated to provide up to $204 million of senior secured capital expenditure loans to CoServ for electric distribution infrastructure through December 2012.  When CoServ requests capital expenditure loans from National Rural, these loans are provided at the standard terms offered to all borrowers and require debt service payments in addition to the quarterly payments that CoServ is required to make to National Rural.  As of February 29, 2008, a total of $20 million was outstanding to CoServ under this loan facility.  To date, CoServ has made all payments required under the restructure agreement and capital expenditure loan facility. Under the terms of the restructure agreement, CoServ has the option to prepay the loan for $415 million plus an interest payment true up on or after December 13, 2007 and for $405 million plus an interest payment true up on or after December 13, 2008.  National Rural has received no notice from CoServ that it intends to prepay the loan.

CoServ and National Rural have no claims related to any of the legal actions asserted prior to or during the bankruptcy proceedings.  National Rural's legal claim against CoServ is limited to CoServ's performance under the terms of the bankruptcy settlement.

Based on its analysis, the Company believes that it is adequately reserved for its exposure to CoServ at February 29, 2008.

(d) VarTec Telecom, Inc. ("VarTec") was a telecommunications company and RTFC borrower located in Dallas, Texas.  The Company was VarTec's principal senior secured creditor.

VarTec and 16 of its U.S.-based affiliates, which were guarantors of VarTec's debt to RTFC, filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code on November 1, 2004 in Dallas, Texas.  The cases were converted in 2006 to Chapter 7 proceedings, administered by a Chapter 7 trustee.

Non-performing loans at May 31, 2007 included $9 million to VarTec.  On June 4, 2007, the Bankruptcy Court approval of a settlement of litigation against the Company became final, pursuant to which (a) all claims against the Company were dismissed with prejudice and fully released, (b) a portion of the proceeds from the collateral that had been provisionally applied to the Company’s secured debt was reallocated to VarTec creditors, including the Company, and (c) an administrative debtor-in-possession (“DIP”) financing facility owed by the VarTec bankruptcy estates to the Company was reduced to $6 million.  The Company’s remaining DIP and unsecured claims will share in further recoveries by the bankruptcy estates.  As a result of the settlement of the litigation, the Company wrote off $44 million of pre-petition debt during the fourth quarter of fiscal year 2007 and wrote off $17 million in the first quarter of fiscal year 2008.

On December 26, 2007, the Company received $3 million, which is a share of the settlement proceeds from the VarTec estates’ litigation against certain former directors and officers.  At February 29, 2008, the Company had a receivable for $3 million, which has a payment priority from the bankruptcy estates; in addition, the Company will share in recoveries that are in excess of the amount required to repay the DIP financing and cover expenses of the estates.

(e) Innovative Communication Corporation ("ICC") is a diversified telecommunications company and RTFC borrower headquartered in St. Croix, United States Virgin Islands ("USVI").  In the USVI, through its subsidiary Virgin Islands Telephone Corporation d/b/a Innovative Telephone ("Vitelco"), ICC provides cellular, wireline local and long-distance telephone, cable television, and Internet access services.  Through other subsidiaries, ICC provides telecommunications, cable television, and Internet access services in the eastern and southern Caribbean and mainland France.

As of February 29, 2008 and May 31, 2007, RTFC had $498 million and $493 million, respectively, in loans outstanding to ICC.  Loans outstanding to ICC continue to increase due to accrued legal costs associated with ongoing litigation to recover the outstanding loan balance.  All loans to ICC have been on non-accrual status since February 1, 2005.  ICC has not made debt service payments to the Company since June 2005.

RTFC is the primary secured lender to ICC.  RTFC's collateral for the loans includes (i) a series of mortgages, security agreements, financing statements, pledges and guaranties creating liens in favor of RTFC on substantially all of the assets and voting stock of ICC, (ii) a direct pledge of 100% of the voting stock of ICC's USVI local exchange carrier subsidiary, Vitelco, (iii) secured guaranties, mortgages and direct and indirect stock pledges encumbering the assets and ownership interests in substantially all of ICC's other operating subsidiaries and certain of its parent entities, including ICC's immediate parent, Emerging Communication, Inc., a Delaware corporation ("Emcom") and Emcom's parent, Innovative Communication Company LLC, a Delaware limited liability company ("ICC-LLC"), and (iv) a personal guaranty of the loans from ICC's indirect majority shareholder and chairman, Jeffrey Prosser ("Prosser").

Beginning on June 1, 2004, RTFC filed a series of lawsuits against ICC, Prosser and others for failure to comply with the terms of ICC's loan agreement with RTFC dated August 27, 2001 as amended on April 4, 2003 (hereinafter, the "RTFC Lawsuits").  In response to the RTFC Lawsuits, ICC, Vitelco and Prosser denied liability and asserted claims, by way of

25

counterclaim and by filing its own lawsuits against RTFC, National Rural and certain of RTFC's officers, seeking various remedies, including reformation of the loan agreement, injunctive relief, and damages.  The remedies were based on various theories including a claim that RTFC breached an alleged funding obligation for the settlement of litigation brought by Emcom shareholders (the "Greenlight Entities") against ICC-LLC, ICC and some of ICC's directors, and a claim that Emcom and ICC-LLC were entitled to contribution from RTFC and National Rural in connection with judgments that the Greenlight Entities had been awarded (the "ICC Claims," together with the RTFC Lawsuits, the "Loan Litigation").  Venue of the Loan Litigation ultimately was fixed in the United States District Court for the District of the Virgin Islands.

On February 10, 2006, Greenlight filed petitions for involuntary bankruptcy against Prosser, Emcom and ICC-LLC in the United States Bankruptcy Court for the District of Delaware, later transferred to the United States District Court for the Virgin Islands, Bankruptcy Division.  RTFC appeared in the proceedings as a party-in-interest in accordance with the provisions of the United States Bankruptcy Code.

On April 26, 2006, RTFC reached a settlement of the Loan Litigation with ICC, Vitelco, ICC-LLC, Emcom, their directors and Prosser, individually.  Under the settlement, RTFC obtained entry of judgments in the District Court for the District of the Virgin Islands against ICC for approximately $525 million and Prosser for approximately $100 million.  RTFC also obtained dismissals with prejudice of all counterclaims, affirmative defenses and other lawsuits alleging wrongful acts by RTFC, certain of its officers, and National Rural. Various parties also reached agreement for ICC to satisfy the RTFC judgments in the third quarter of calendar year 2006, subject to certain terms and conditions, however, on July 31, 2006, certain of the parties obligated to satisfy the RTFC judgments under the agreement filed voluntary bankruptcy proceedings, as described below, in order to obtain additional time to satisfy the judgments.

On July 31, 2006, ICC-LLC, Emcom and Prosser, individually, each filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code, now pending  in the United States District Court for the Virgin Islands, Division of St. Thomas and St. John, Bankruptcy Division.  Each of the debtors is obligated to RTFC for certain obligations of ICC, including court judgments.  On February 13, 2007, the Bankruptcy Court ordered the appointment of a Chapter 11 trustee for the ICC-LLC and Emcom bankruptcy estates and an examiner for Prosser’s bankruptcy estate.

On August 2, 2007, the Bankruptcy Court entered an order declaring that the debtors could not satisfy the RTFC judgments at a discount.  Prosser, individually, has filed a notice of appeal of the order; none of the other debtors has sought review of the order.

On September 7, 2007, the Bankruptcy Court entered an order authorizing the Chapter 11 trustee for the Emcom bankruptcy estate to exercise control over the common stock of ICC, including authority to vote the stock to, among other things, facilitate a refinancing or sale of ICC and its assets.

On September 21, 2007, the United States District Court for the Virgin Islands, Bankruptcy Division, in response to an involuntary petition filed by the Greenlight Entities, entered an order for relief under Chapter 11 of the United States Bankruptcy Code thereby placing ICC in its own bankruptcy proceeding.  In response to a motion by RTFC, the Bankruptcy Court ordered appointment of a Chapter 11 trustee on October 3, 2007.  Certain parties have moved for reconsideration of and/or appealed one or more orders of the Bankruptcy Court and have requested a stay pending ruling by the District Court.  RTFC believes both that the moving parties have no standing and that the motions to reconsider and appeal have no merit.  Pending the appeal, the Chapter 11 trustee of ICC has assumed ownership and control of ICC, including its subsidiaries, and has begun to marshal RTFC collateral and other assets for disposition and eventual payment in respect of RTFC’s claims and the claims of other parties-in-interest.  On January 2, 2008, the Chapter 11 trustee of ICC filed a motion seeking authority to sell substantially all of ICC’s assets, including stock in ICC’s operating subsidiaries.  The Court has entered an order approving certain sale motions presented on February 1, 2008.

In response to a motion by the Greenlight Entities, joined by RTFC, the Bankruptcy Court converted Prosser’s individual Chapter 11 bankruptcy to a Chapter 7 liquidation on October 3, 2007.  Prosser has filed a notice of appeal of the conversion order.  RTFC believes that the appeal has no merit.  Pending the appeal, the Chapter 7 trustee has advised that he intends to marshal Prosser’s non-exempt assets for disposition and eventual payment in respect of creditor claims.  On December 3, 2007, the Chapter 7 trustee of Prosser’s estate filed a motion to approve sale procedures and for authority to sell Prosser’s controlling shares in the Virgin Islands Community Bank Corp.  The sale has closed, with net proceeds of approximately $2.2 million.

In most cases, the sale (as part of the reorganization process) of ICC or any of its subsidiaries engaged in a regulated telecommunications or cable television business, or of the regulated assets of ICC or its subsidiaries, will require the prior consent of the respective regulators in the United States (including the Federal Communications Commission and the U.S. Virgin Islands Public Services Commission), the British Virgin Islands, France and its Caribbean territories, and the Netherlands Antilles.  In certain limited cases, only a post-transaction notification will be required.

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Based on its analysis, the Company believes that it is adequately reserved for its exposure to ICC at February 29, 2008.

(f) Pioneer Electric Cooperative, Inc. ("Pioneer") is an electric distribution cooperative located in Greenville, Alabama.  Pioneer had also invested in a propane gas operation, which it has sold.  Pioneer has experienced deterioration in its financial condition as a result of losses in the gas operation.  At February 29, 2008 and May 31, 2007, National Rural had a total of $52 million in loans outstanding to Pioneer.  Pioneer was current with respect to all debt service payments at February 29, 2008.  All loans to Pioneer remain on accrual status with respect to the recognition of interest income.  National Rural is the principal creditor to Pioneer.

On March 9, 2006, National Rural and Pioneer agreed on the terms of a debt modification that resulted in the loans being classified as restructured.  Under the amended agreement, National Rural extended the maturity of the outstanding loans and granted a two-year deferral of principal payments.  In addition, National Rural agreed to make available a line of credit for general corporate purposes.  The restructured loans are secured by first liens on substantially all of the assets and revenues of Pioneer.

Based on its analysis, the Company believes that it is adequately reserved for its exposure to Pioneer at February 29, 2008.

(14) Segment Information

The Company's consolidated financial statements include the financial results of National Rural, RTFC and NCSC.  Financial statements are produced for each of the three companies and are the primary reports that management reviews in evaluating performance.  The National Rural segment includes the consolidation of entities controlled by National Rural and created to hold foreclosed assets and effect loan securitization transactions and intercompany transaction elimination entries.  The segment presentation for the nine months ended February 29, 2008 and February 28, 2007 reflect the operating results of each of the three companies as a separate segment.

National Rural is the sole lender to RTFC and the primary source of funding for NCSC.  NCSC also obtains funding from third parties with a National Rural guarantee.  Thus, National Rural takes all of the risk related to the funding of the loans to RTFC and NCSC, and in return, National Rural earns net interest income on the loans to RTFC and NCSC.

Pursuant to guarantee agreements, National Rural has agreed to indemnify RTFC and NCSC for loan losses, with the exception of the NCSC consumer loan program.  Thus, National Rural maintains the majority of the total consolidated loan loss allowance.  A small loan loss allowance is maintained by NCSC to cover its consumer loan exposure.

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The following chart contains the consolidating statement of operations for the nine months ended February 29, 2008 and consolidating balance sheet information as of February 29, 2008.

(in thousands)	National Rural			RTFC			NCSC			Consolidated
Statement of Operations:
Interest income	$	702,284		$	69,152		$	26,381		$	797,817
Interest expense		(633,472	)		(65,041	)		(22,297	)		(720,810	)
Net interest income		68,812			4,111			4,084			77,007
Recovery of loan losses		47,777			-			123			47,900
Net interest income after recovery of loan losses		116,589			4,111			4,207			124,907
Non-interest income:
Rental and other income		604			-			466			1,070
Derivative cash settlements		30,572			-			(273	)		30,299
Results of operations of foreclosed assets		6,217			-			-			6,217
Total non-interest income		37,393			-			193			37,586
Non-interest expense:
General and administrative expenses		(36,719	)		(3,792	)		(2,816	)		(43,327	)
Recovery of guarantee liability		4,300			-			-			4,300
Market adjustment on foreclosed assets		(5,840	)		-			-			(5,840	)
Derivative forward value		(155,395	)		-			(17,883	)		(173,278	)
Loss on sale of loans		(676	)		-			-			(676	)
Total non-interest expense		(194,330	)		(3,792	)		(20,699	)		(218,821	)
(Loss) income prior to income taxes and minority
interest		(40,348	)		319			(16,299	)		(56,328	)
Income taxes		-			(1	)		6,187			6,186
Net (loss) income per segment reporting	$	(40,348	)	$	318		$	(10,112	)	$	(50,142	)
Reconciliation of net loss:
Net loss per segment reporting										$	(50,142	)
Minority interest, net of income taxes											8,211
Net loss per consolidated statement of operations										$	(41,931	)
Assets:
Total loans	$	16,516,740		$	1,727,344		$	417,128		$	18,661,212
Deferred origination fees		4,227			-			-			4,227
Less:  Allowance for loan losses		(496,891	)		-			(369	)		(497,260	)
Loans to members, net		16,024,076			1,727,344			416,759			18,168,179
Other assets		849,970			193,518			48,011			1,091,499
Total assets	$	16,874,046		$	1,920,862		$	464,770		$	19,259,678

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The following chart contains the consolidating statement of operations for the nine months ended February 28, 2007 and consolidating balance sheet information at February 28, 2007.

(in thousands)	National Rural			RTFC			NCSC			Consolidated
Statement of Operations:
Interest income	$	685,758		$	81,070		$	22,978		$	789,806
Interest expense		(656,005	)		(76,110	)		(19,921	)		(752,036	)
Net interest income		29,753			4,960			3,057			37,770
Provision for loan losses		-			-			-			-
Net interest income after provision for loan losses		29,753			4,960			3,057			37,770
Non-interest income:
Rental and other income		570			-			472			1,042
Derivative cash settlements		75,927			-			263			76,190
Results of operations of foreclosed assets		7,887			-			-			7,887
Total non-interest income		84,384			-			735			85,119
Non-interest expense:
General and administrative expenses		(30,698	)		(4,007	)		(2,438	)		(37,143	)
Provision for guarantee liability		(400	)		-			-			(400	)
Derivative forward value		(116,654	)		-			(4,125	)		(120,779	)
Foreign currency adjustments		(15,413	)		-			-			(15,413	)
Loss on sale of loans		(1,550	)		-			-			(1,550	)
Total non-interest expense		(164,715	)		(4,007	)		(6,563	)		(175,285	)
(Loss) income prior to income taxes and minority interest		(50,578	)		953			(2,771	)		(52,396	)
Income taxes		-			(479	)		1,052			573
Net (loss) income per segment reporting	$	(50,578	)	$	474		$	(1,719	)	$	(51,823	)
Reconciliation of net loss:
Net loss per segment reporting										$	(51,823	)
Minority interest											1,244
Net loss per consolidated statement of operations										$	(50,579	)
Assets:
Loans to members	$	15,556,390		$	1,929,552		$	342,646		$	17,828,588
Deferred origination fees		3,353			-			-			3,353
Less:  Allowance for loan losses		(610,778	)		-			(588	)		(611,366	)
Loans to members, net		14,948,965			1,929,552			342,058			17,220,575
Other assets		1,466,705			221,327			32,437			1,720,469
Total assets	$	16,415,670		$	2,150,879		$	374,495		$	18,941,044

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The following chart contains the consolidating statement of operations for the three months ended February 29, 2008.

(in thousands)	National Rural			RTFC			NCSC			Consolidated
Statement of Operations:
Interest income	$	236,494		$	21,786		$	8,296		$	266,576
Interest expense		(206,308	)		(20,490	)		(6,670	)		(233,468	)
Net interest income		30,186			1,296			1,626			33,108
Recovery of loan losses		33,476			-			123			33,599
Net interest income after recovery of loan losses		63,662			1,296			1,749			66,707
Non-interest income:
Rental and other income		215			-			152			367
Derivative cash settlements		10,893			-			(430	)		10,463
Results of operations of foreclosed assets		2,401			-			-			2,401
Total non-interest income		13,509			-			(278	)		13,231
Non-interest expense:
General and administrative expenses		(12,865	)		(1,413	)		(982	)		(15,260	)
Recovery of guarantee liability		1,000			-			-			1,000
Market adjustment on foreclosed assets		(5,840	)		-			-			(5,840	)
Derivative forward value		(58,048	)		-			(6,218	)		(64,266	)
Loss on whole loan sale		(158	)		-			-			(158	)
Total non-interest expense		(75,911	)		(1,413	)		(7,200	)		(84,524	)
Income (loss) prior to income taxes and minority interest		1,260			(117	)		(5,729	)		(4,586	)
Income taxes		-			-			2,175			2,175
Net income (loss) per segment reporting	$	1,260		$	(117	)	$	(3,554	)	$	(2,411	)
Reconciliation of net loss:
Net loss per segment reporting										$	(2,411	)
Minority interest											2,088
Net loss per consolidated statement of operations										$	(323	)

The following chart contains the consolidating statement of operations for the three months ended February 28, 2007.

(in thousands)	National Rural			RTFC			NCSC			Consolidated
Statement of Operations:
Interest income	$	231,519		$	25,668		$	7,686		$	264,873
Interest expense		(217,047	)		(24,056	)		(6,338	)		(247,441	)
Net interest income		14,472			1,612			1,348			17,432
Provision for loan losses		-			-			-			-
Net interest income after provision for loan losses		14,472			1,612			1,348			17,432
Non-interest income:
Rental and other income		263			-			154			417
Derivative cash settlements		44,371			-			71			44,442
Results of operations of foreclosed assets		1,896			-			-			1,896
Total non-interest income		46,530			-			225			46,755
Non-interest expense:
General and administrative expenses		(9,438	)		(1,467	)		(733	)		(11,638	)
Provision for guarantee liability		-			-			-			-
Derivative forward value		(3,264	)		-			(925	)		(4,189	)
Foreign currency adjustments		1,886			-			-			1,886
Loss on sale of loans		(1,550	)		-			-			(1,550	)
Total non-interest expense		(12,366	)		(1,467	)		(1,658	)		(15,491	)
Income (loss) prior to income taxes and minority      interest		48,636			145			(85	)		48,696
Income taxes		-			(659	)		32			(627	)
Net income (loss) per segment reporting	$	48,636		$	(514	)	$	(53	)	$	48,069
Reconciliation of net income:
Net income per segment reporting										$	48,069
Minority interest											566
Net income per consolidated statement of operations										$	48,635

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(15)           Subsequent Events

In March 2008, the Company sold to Farmer Mac $400 million of floating rate debt due in 2013 and secured by the pledge of National Rural distribution system mortgage notes.

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Item 2.               Management's Discussion and Analysis of Financial Condition and Results of Operations.

Unless stated otherwise, references to the Company relate to the consolidation of National Rural Utilities Cooperative Finance Corporation ("National Rural" or "the Company"), Rural Telephone Finance Cooperative ("RTFC"), National Cooperative Services Corporation ("NCSC") and certain entities controlled by National Rural and created to hold foreclosed assets and effect loan securitization transactions.  The following discussion and analysis is designed to provide a better understanding of the Company's consolidated financial condition and results of operations and as such should be read in conjunction with the consolidated financial statements, including the notes thereto. National Rural refers to its financial measures that are not in accordance with generally accepted accounting principles ("GAAP") as "adjusted" throughout this document.  See "Non-GAAP Financial Measures" for further explanation of why the Non-GAAP measures are useful and for a reconciliation to GAAP amounts.

This Form 10-Q contains forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Exchange Act of 1934, as amended.  Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identified by our use of words such as "intend," "plan," "may," "should," "will," "project," "estimate," "anticipate," "believe," "expect," "continue," "potential," "opportunity," and similar expressions, whether in the negative or affirmative. All statements that address expectations or projections about the future, including statements about loan growth, the adequacy of the loan loss allowance, net income growth, leverage and debt to equity ratios, and borrower financial performance are forward-looking statements.  Although we believe that the expectations reflected in our forward-looking statements are based on reasonable assumptions, actual results and performance could differ materially from those set forth in the forward-looking statements.  Factors that could cause future results to vary from current expectations include, but are not limited to, general economic conditions, legislative changes, governmental monetary and fiscal policies, changes in tax policies, changes in interest rates, demand for our loan products, changes in the quality or composition of our loan and investment portfolios, changes in accounting principles, policies or guidelines, and other economic and governmental factors affecting our operations.  Some of these and other factors are discussed in our annual and quarterly reports previously filed with the Securities and Exchange Commission ("SEC").  Except as required by law, we undertake no obligation to update or publicly release any revisions to forward-looking statements to reflect events, circumstances or changes in expectations after the date on which the statement is made.

The information contained in this section should be read in conjunction with our consolidated financial statements and related notes and the information contained elsewhere in this Form 10-Q, in addition to Part I, Item 1A, Risk Factors in the Company's Form 10-K for the year ended May 31, 2007.

Restatement

Subsequent to the issuance of the May 31, 2006 consolidated financial statements, the Company’s management identified an error in the recording of interest expense on foreign denominated debt and the cash settlement income from foreign currency exchange agreements, as well as the related accrued interest payable and accrued interest receivable.  The Company was using the agreed upon foreign exchange rate from the foreign currency exchange agreement rather than the average spot foreign currency exchange rate during the income statement period to convert the interest expense on the foreign denominated debt and foreign exchange agreement income to U.S. dollars.  The Company was also using the agreed upon foreign exchange rate from the foreign currency exchange agreement rather than the spot foreign currency exchange rate at the end of the balance sheet period to convert the accrued interest payable and accrued interest receivable to U.S. dollars.  The interest expense on the foreign denominated debt and the cash settlement income from the foreign currency exchange agreement are equal and offsetting amounts, as the Company uses the amount received under the exchange agreement to pay the interest expense on the foreign denominated debt.  The amounts for the accrued interest payable and accrued interest receivable are also offsetting.  As a result of this error, interest expense and cash settlement income were understated by $3 million and $10 million for the three and nine months ended February 28, 2007, respectively.  The Company subtracts the net accrual from the last settlement date on its derivatives at each period end in the calculation of the related fair value, so the error in the calculation of the income receivable on the foreign exchange agreements also impacted the fair value of the derivatives recorded as a derivative asset.  Thus, this correction also impacts the change in the fair value of the derivatives reported in the derivative forward value line on the consolidated statement of operations.  The derivative forward value loss line was understated by $4 million and $11 million for the three and nine months ended February 28, 2007, respectively.  The net income line was overstated by $4 million for the three months ended February 28, 2007 and the net loss line was understated by $11 million for the nine months ended February 28, 2007.  There is no impact on cash flows from operating activities or the total change in cash in the consolidated statements of cash flows.

The Company has revised this Management’s Discussion and Analysis for the effects of the restatement.

Overview

In this report the Company will provide analysis on its results of operations, financial condition, liquidity and market risk.  The Company will also provide analysis of trends and significant transactions completed in the period covered by the report.

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The Company provides financial products to its rural electric and telecommunications members at a low cost in relation to the financial performance and strength required to maintain strong credit ratings.  The Company's access to the capital markets at levels that allow it to keep cost to the members low is dependent on maintaining strong credit ratings.  See page 57 for detail on the current ratings for the Company's public debt.

Financial Overview

Results of Operations

The Company uses a times interest earned ratio (“TIER”) instead of the dollar amount of net interest income or net income as its primary performance indicator, since its net income in dollar terms is subject to fluctuation as interest rates change.  TIER is a measure of the Company's ability to cover the interest expense on its debt obligations.  TIER is calculated by dividing the sum of interest expense and the net income (loss) prior to the cumulative effect of change in accounting principle by the interest expense.

For the nine months ended February 29, 2008, the Company reported a net loss of $42 million compared to a net loss of $51 million for the prior year period; thus, the TIER calculation for both periods results in a value below 1.00.  For the nine months ended February 29, 2008, the Company reported an adjusted net income of $123 million and adjusted TIER of 1.18, compared to an adjusted net income of $84 million and adjusted TIER of 1.12 for the prior year period.  The $39 million increase in the adjusted net income during the nine months ended February 29, 2008 was primarily due to the recovery of loan losses resulting from the decrease in calculated impairments due to lower variable rates and payments received on impaired loans.  We calculate adjusted net income by excluding the impact of derivatives and foreign currency adjustments and including minority interest.  We calculate adjusted TIER by using adjusted net income and including all derivative cash settlements in the interest expense.   See "Non-GAAP Financial Measures" for more information on the adjustments the Company makes to its financial results for the purposes of its own analysis and covenant compliance.

During the nine months ended February 29, 2008, the Company's earnings were impacted by the level of loans on non-accrual status.  Holding loans on non-accrual status resulted in a reduction of $52 million and $61 million to reported interest income for the nine months ended February 29, 2008 and 2007, respectively.  During fiscal year 2008, the Company expects the outstanding balance on the current loans on non-accrual status to decrease due to loan write-offs and principal repayments.  The Company wrote off $17 million related to VarTec Telecom, Inc. (“VarTec”) during the first quarter of fiscal year 2008.   In addition, it is expected that Denton County Electric Cooperative, Inc. d/b/a CoServ Electric (“CoServ”) will make scheduled quarterly payments totaling $25 million in fiscal year 2008, which will all be applied as a reduction to principal.

The reduction to the amount of loans on non-accrual status should result in an increase to the adjusted net interest income yield over the remainder of fiscal year 2008.  Changes to the Company's variable interest rates may mirror changes to the federal funds rate.  The calculated impairment on the Company's loans increases or decreases with the increases and decreases to the Company's variable interest rates.  Based on the current balance of impaired loans at February 29, 2008, an increase or decrease of 25 basis points to the Company's variable interest rates results in an increase or decrease of approximately $9 million, respectively, to the calculated impairment on loans irrespective of a change in the credit fundamentals of the impaired borrower.  On April 1, 2008, National Rural lowered variable interest rates by 40 basis points which will result in a reduction of approximately $15 million to the calculated impairment on loans.

Financial Condition

At February 29, 2008, the Company's total loans outstanding increased by $533 million or 3% from May 31, 2007.  At February 29, 2008, National Rural loans outstanding increased by $711 million, RTFC loans outstanding decreased by $133 million, and NCSC loans outstanding decreased by $45 million compared to May 31, 2007.  National Rural loans outstanding increased due to net advances of $785 million offset by the sale of $74 million of National Rural distribution loans at par in loan securitization transactions during the nine months ended February 29, 2008.  National Rural expects to continue such loan sales on a periodic basis.  RUS recently suspended a low-interest lending program for rural electric cooperatives seeking federal assistance to build new coal-fired power plants.  The lack of RUS funding for new coal-fired power plants contributed to an increase in National Rural’s power supply loans at February 29, 2008.  See further discussion in “Results of Operations”.

The Company expects that the balance of the loan portfolio will remain relatively stable during the remainder of fiscal year 2008.  Loans from the Federal Financing Bank ("FFB"), a division of the U.S. Treasury Department, with a Rural Utilities Service (“RUS”) guarantee, represent a lower cost option for rural electric utilities compared to the Company.  The Company anticipates that the majority of its electric loan growth will come from distribution system borrowers that have fully prepaid their RUS loans and choose not to return to the government loan program, from distribution system borrowers that do not want to wait the 12 to 24 months it may take RUS to fund the loan, and from power supply systems.  The Company anticipates that the RTFC loan balance will continue to slowly decline due to long-term loan amortization, the strong liquidity position of rural telecommunication companies and a general slowdown in merger and acquisition activities.

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On December 26, 2007, the President of the United States signed the Appropriations Act for Fiscal Year 2008 which set the fiscal year 2008 RUS electric and telephone loan program levels.  Electric funding levels for fiscal year 2008 are $6.5 billion for FFB loans and $100 million for five percent loans.  Telephone funding levels for fiscal year 2008 are $145 million for five percent loans, $250 million for FFB loans, $295 million for treasury rate loans and $300 million for broadband loans.

During the nine months ended February 29, 2008, short-term debt increased by $2,012 million and long-term debt decreased by $1,562 million primarily due to an increase of $1,664 million to the amount of long-term debt that will mature in the next twelve months.  Holders of $2,140 million of the Company’s extendible debt elected not to extend the maturity during the nine months ended February 29, 2008.  As a result, $1,845 million of extendible debt was reclassified from long-term debt to short-term debt based on maturity dates ranging from August 2008 through February 2009.  The remaining $295 million of extendible debt will mature in fiscal year 2010.  Additionally, $500 million of secured notes payable was reclassified to short-term debt based on the July 2008 maturity of the debt.

The decrease in long-term debt was offset by the issuance of $700 million of 5.45% collateral trust bonds due 2018 in January 2008 and an additional $500 million borrowed under the Rural Economic Development Loan and Grant (“REDLG”) program in August 2007.

Total equity decreased $129 million from May 31, 2007 to February 29, 2008 due to the board authorized patronage capital retirement totaling $86 million and a net loss of $42 million for the nine months ended February 29, 2008.  Under GAAP, the Company's reported equity balance fluctuates based on the impact of future expected changes to interest rates on the fair value of its interest rate exchange agreements.  As a result, it is difficult to predict the future changes in the Company's reported GAAP equity due to the uncertainty of the movement in future interest rates.  In its internal analysis and for purposes of covenant compliance under its credit agreements, the Company adjusts equity to exclude the non-cash impacts of Statement of Financial Accounting Standards (“SFAS”) 133, Accounting for Derivative Instruments and Hedging Activities and SFAS 52, Foreign Currency Translation.

Liquidity

At February 29, 2008, the Company had $3,232 million of commercial paper, daily liquidity fund and bank bid notes and $3,207 million of medium-term notes, collateral trust bonds and long-term notes payable scheduled to mature during the next twelve months.  Members held commercial paper (including the daily liquidity fund) which totaled $1,411 million or approximately 47% of the total commercial paper outstanding at February 29, 2008.  Commercial paper issued through dealers and bank bid notes totaled $1,680 million and represented 9% of total debt outstanding at February 29, 2008.  The Company intends to maintain the balance of dealer commercial paper and bank bid notes at 15% or less of total debt outstanding during the remainder of fiscal year 2008.  During the next twelve months, the Company plans to refinance the $3,207 million of medium-term notes, collateral trust bonds and long-term notes payable and fund new loan growth by issuing a combination of commercial paper, medium-term notes, collateral trust bonds and other debt.

National Rural uses member loan repayments, capital market debt issuance, private debt issuance, member investments, and net income to fund its operations.  In addition, the Company maintains both short-term and long-term bank lines in the form of revolving credit agreements with its bank group.  Members pay a small membership fee and are typically required to purchase subordinated certificates as a condition to receiving a long-term loan advance and as a condition of membership.  National Rural has a need for funding to make loan advances to its members, to make interest payments on its public and private debt and to make payments of principal on its maturing debt.  To facilitate open access to the capital markets, National Rural is a regular issuer of debt, maintains strong credit ratings and has shelf registration statements on file with the SEC.  The Company qualifies as a well-known seasoned issuer under SEC rules.

At February 29, 2008, the Company was the guarantor and liquidity provider for $261 million of tax-exempt bonds issued for its member cooperatives.  A total of $133 million of such tax-exempt bonds were in flexible and weekly mode, which reprice every seven to thirty-five days.  A total of $51 million of such tax-exempt bonds reprice semi-annually.  A total of $77 million of such bonds were in unit price mode and reprice approximately every 30 days.  National Rural has not been required to purchase any of the bonds in its role as liquidity provider.  In addition to these tax-exempt bonds, National Rural was the guarantor, but not liquidity provider, for $224 million of tax-exempt bonds that were in the auction rate mode.  National Rural has not been required to perform under the guarantee of its members’ tax-exempt bonds.

New Accounting Pronouncements

On June 1, 2007, the Company adopted SFAS 155, Accounting for Certain Hybrid Financial Instruments – an amendment of SFAS 133 and 140. SFAS 155 permits fair value measurement of any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. SFAS 155 also clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS 133. It establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation. SFAS 155 also clarifies that concentrations of credit risk in the form of

34

subordination are not embedded derivatives. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006.  The Company’s adoption of SFAS 155 did not have a material impact on the Company's financial position or results of operations.

On June 1, 2007, the Company adopted SFAS 156, Accounting for Servicing of Financial Assets.  SFAS 156 requires the initial measurement of all separately recognized servicing assets and liabilities at fair value and permits, but does not require, the subsequent measurement of servicing assets and liabilities at fair value. SFAS 156 is effective as of the beginning of the first fiscal year that begins after September 15, 2006.  The Company’s adoption of SFAS 156 did not have a material impact on the Company's financial position or results of operations.

On June 1, 2007, the Company adopted FIN No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of SFAS 109.  FIN 48 clarifies the accounting for income taxes by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  FIN 48 is effective for fiscal years beginning after December 15, 2006.  The Company’s adoption of FIN 48 did not have a material impact on the Company's financial position or results of operations.

In September 2006, the FASB issued SFAS 157, Fair Value Measurements. SFAS 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS 157 is effective as of the beginning of the first fiscal year that begins after November 15, 2007. The Company's adoption of SFAS 157 as of June 1, 2008 is not expected to have a material impact on the Company's financial position or results of operations.

In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities. The fair value option established by SFAS 159 permits entities to choose to measure eligible financial instruments at fair value. The unrealized gains and losses on items for which the fair value option has been elected should be reported in earnings. The decision to elect the fair value option is determined on an instrument by instrument basis and is irrevocable. Assets and liabilities measured at fair value pursuant to the fair value option should be reported separately in the balance sheet from those instruments measured using other measurement attributes. SFAS 159 is effective as of the beginning of the first fiscal year that begins after November 15, 2007.  As part of the Company's adoption of SFAS 159 as of June 1, 2008, it does not plan to choose the option to measure eligible financial instruments at fair value and therefore the adoption of SFAS 159 is not expected to have a material impact on the Company's financial position or results of operations.

In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB 51.  This statement amends ARB 51, Consolidated Financial Statements, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also amends certain of ARB 51’s consolidation procedures for consistency with the requirements of SFAS 141, Business Combinations.  Noncontrolling interests shall be reclassified to equity, consolidated net income shall be adjusted to include net income attributable to noncontrolling interests and consolidated comprehensive income shall be adjusted to include comprehensive income attributable to the noncontrolling interests.  This statement is effective for fiscal years beginning on or after December 15, 2008.  The Company’s adoption of SFAS 160 on June 1, 2009 is not expected to have a material impact on the Company’s financial position or results of operations.

In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging Activities. This statement requires enhanced disclosures about an entity’s derivative and hedging activities.  The statement is effective for fiscal years beginning after November 15, 2008.  The Company’s adoption of SFAS 161 is not expected to have a material impact on the Company’s financial position or results of operations.

35

Results of Operations

Nine Months Ended February 29, 2008 versus February 28, 2007

The following chart presents the results of operations for the nine months ended February 29, 2008 versus February 28, 2007.

	For the nine months ended
(Dollar amounts in thousands)	February 29, 2008			February 28,  2007			Increase/ (Decrease)
Interest income	$	797,817		$	789,806		$	8,011
Interest expense		(720,810	)		(752,036	)		31,226
Net interest income		77,007			37,770			39,237
Recovery of loan losses		47,900			-			47,900
Net interest income after recovery of loan losses		124,907			37,770			87,137
Non-interest income:
Rental and other income		1,070			1,042			28
Derivative cash settlements		30,299			76,190			(45,891	)
Results of operations of foreclosed assets		6,217			7,887			(1,670	)
Total non-interest income		37,586			85,119			(47,533	)
Non-interest expense:
Salaries and employee benefits		(27,049	)		(25,222	)		(1,827	)
Other general and administrative expenses		(16,278	)		(11,921	)		(4,357	)
Recovery of guarantee liability		4,300			(400	)		4,700
Market adjustment on foreclosed assets		(5,840	)		-			(5,840	)
Derivative forward value		(173,278	)		(120,779	)		(52,499	)
Foreign currency adjustments		-			(15,413	)		15,413
Loss on sale of loans		(676	)		(1,550	)		874
Total non-interest expense		(218,821	)		(175,285	)		(43,536	)
Loss prior to income taxes and minority interest		(56,328	)		(52,396	)		(3,932	)
Income taxes		6,186			573			5,613
Minority interest, net of income taxes		8,211			1,244			6,967
Net loss	$	(41,931	)	$	(50,579	)	$	8,648
TIER (1)		-			-
Adjusted TIER (2)		1.18			1.12

(1) For the nine months ended February 29, 2008 and February 28, 2007, the Company reported a net loss of $42 million and $51 million, respectively; thus, the TIER calculation results in a value below 1.00.

(2) Adjusted to exclude the impact of the derivative forward value and foreign currency adjustments from net income, to include minority interest in net income and to include all derivative cash settlements in the interest expense.  See "Non-GAAP Financial Measures" for further explanation and a reconciliation of these adjustments.

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The following chart summarizes the Company's operating results expressed as an annualized percentage of average loans outstanding.

	For the nine months ended
	February 29, 2008			February 28, 2007			Increase/ (Decrease)
Interest income		5.82	%		5.79	%		0.03	%
Interest expense		(5.26	)%		(5.51	)%		0.25	%
Net interest income		0.56	%		0.28	%		0.28	%
Recovery of loan losses		0.35	%		-			0.35	%
Net interest income after recovery of loan losses		0.91	%		0.28	%		0.63	%
Non-interest income:
Rental and other income		0.01	%		0.01	%		-
Derivative cash settlements		0.22	%		0.55	%		(0.33	)%
Results of operations of foreclosed assets		0.04	%		0.06	%		(0.02	)%
Total non-interest income		0.27	%		0.62	%		(0.35	)%
Non-interest expense:
Salaries and employee benefits		(0.20	)%		(0.18	)%		(0.02	)%
Other general and administrative expenses		(0.12	)%		(0.09	)%		(0.03	)%
Recovery of guarantee liability		0.03	%		-			0.03	%
Market adjustment on foreclosed assets		(0.04	)%		-			(0.04	)%
Derivative forward value		(1.26	)%		(0.89	)%		(0.37	)%
Foreign currency adjustments		-			(0.12	)%		0.12	%
Loss on sale of loans		-			(0.01	)%		0.01	%
Total non-interest expense		(1.59	)%		(1.29	)%		(0.30	)%
Loss prior to income taxes and minority interest		(0.41	)%		(0.39	)%		(0.02	)%
Income taxes		0.04	%		0.01	%		0.03	%
Minority interest, net of income taxes		0.06	%		0.01	%		0.05	%
Net loss		(0.31	)%		(0.37	)%		0.06	%
Adjusted net interest income (1)		0.78	%		0.83	%		(0.05	)%
Adjusted loss prior to income taxes and minority interest (2)		0.85	%		0.62	%		0.23	%

(1) Adjusted to include derivative cash settlements in the interest expense.  See "Non-GAAP Financial Measures" for further explanation and a reconciliation of these adjustments.

(2) Adjusted to exclude derivative forward value and foreign currency adjustments.  See "Non-GAAP Financial Measures" for further explanation and a reconciliation of these adjustments.

National Rural's net interest income will increase or decrease due to changes in loan volume and the rates that it receives on its loans and pays on its sources of funding.  National Rural's loan volume substantially determines its funding needs. The following Volume Rate Variance Table provides a breakout of the change to interest income, interest expense and net interest income due to changes in loan volume versus changes to interest rates.  For comparability purposes, average daily loan volume is used as the denominator in calculating interest income yield, interest expense rates and net interest income yield.

Management calculates an adjusted net interest expense, which includes all derivative cash settlements.  The following table also includes a breakout of the change to derivative cash settlements due to changes in the average notional amount of its derivative portfolio versus changes to the net difference between the average rate paid and the average rate received. See "Non-GAAP Financial Measures" for further explanation of the adjustment the Company makes in its financial analysis to include all derivative cash settlements in its interest expense.

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Volume Rate Variance Table

(Dollar amounts in millions)

	For the nine months ended
	February 29, 2008										February 28, 2007									Change due to
	Average Loan  Balance			Income / (Cost)				Rate			Average Loan Balance		Income / (Cost)				Rate			Volume (1)				Rate (2)				Total
Interest income
National Rural		$	15,991		$	702			5.85	%	$	15,832		$	686			5.79	%		$	9			$	7			$	16
RTFC			1,810			69			5.09	%		2,018			81			5.37	%			(8	)			(4	)			(12	)
NCSC			453			27			7.75	%		385			23			7.97	%			4				-				4
Total		$	18,254		$	798			5.82	%	$	18,235		$	790			5.79	%		$	5			$	3			$	8
Interest expense
National Rural		$	15,991		$	(633	)		(5.28	)%	$	15,832		$	(656	)		(5.54	)%		$	(9	)		$	32			$	23
RTFC			1,810			(65	)		(4.79	)%		2,018			(76	)		(5.04	)%			8				3				11
NCSC			453			(23	)		(6.55	)%		385			(20	)		(6.91	)%			(4	)			1				(3	)
Total		$	18,254		$	(721	)		(5.26	)%	$	18,235		$	(752	)		(5.51	)%		$	(5	)		$	36			$	31
Net interest income
National Rural		$	15,991		$	69			0.57	%	$	15,832		$	30			0.25	%		$	-			$	39			$	39
RTFC			1,810			4			0.30	%		2,018			5			0.33	%			-				(1	)			(1	)
NCSC			453			4			1.20	%		385			3			1.06	%			-				1				1
Total		$	18,254		$	77			0.56	%	$	18,235		$	38			0.28	%		$	-			$	39			$	39
Derivative cash settlements (3)
National Rural		$	12,888		$	30			0.31	%	$	12,635		$	76			0.80	%		$	1			$	(47	)		$	(46	)
NCSC			206			-			-			93			-			-				1				(1	)			-
Total		$	13,094		$	30			0.31	%	$	12,728		$	76			0.80	%		$	2			$	(48	)		$	(46	)
Adjusted interest expense (4)
Total		$	18,254		$	(691	)		(5.04	)%	$	18,235		$	(676	)		(4.96	)%		$	(3	)		$	(12	)		$	(15	)

(1) Variance due to volume is calculated using the following formula: [(current period average balance - prior year period average balance) x prior year period average rate].

(2) Variance due to rate is calculated using the following formula: [(current period average rate - prior year period average rate) x current period average balance].

(3) For derivative cash settlements, average loan balance represents the average notional amount of derivative contracts outstanding and the rate represents the net difference between the average rate paid and the average rate received for cash settlements during the period.

(4) See "Non-GAAP Financial Measures" for further explanation of the adjustment the Company makes in its financial analysis to include the derivative cash settlements in its interest expense.

Interest Income

Total interest income reported on the consolidated statements of operations and shown in the chart above is summarized as follows by income type and as a percentage of average loans outstanding:

	For the nine months ended
	February 29, 2008				February 28, 2007
(Dollar amounts in thousands)		Amount	Rate			Amount	Rate		Increase/ (Decrease)
Interest on long-term fixed rate loans (1)	$	649,860			$	619,889			$	29,971
Interest on long-term variable rate loans (1)		68,024				90,199				(22,175	)
Interest on short-term loans (1)		59,816				53,691				6,125
Total interest income on loans		777,700	5.67	%		763,779	5.60	%		13,921
Interest on investments (2)		6,668	0.05	%		6,075	0.04	%		593
Conversion fees (3)		5,096	0.04	%		7,366	0.06	%		(2,270	)
Make-whole and prepayment fees (4)		2,287	0.02	%		4,193	0.03	%		(1,906	)
Commitment and guarantee fees (5)		3,742	0.03	%		7,127	0.05	%		(3,385	)
Other fees		2,324	0.01	%		1,266	0.01	%		1,058
Total interest income	$	797,817	5.82	%	$	789,806	5.79	%	$	8,011

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(1) Represents interest income on loans to members.

(2) Represents interest income on the investment of cash.

(3) Conversion fees are deferred and recognized using the interest method over the remaining original loan interest rate pricing term, except for a small portion of the total fee charged to cover administrative costs related to the conversion which is recognized immediately.

(4) Make-whole and prepayment fees are charged for the early repayment of principal and are recognized when collected.

(5) Commitment fees for RTFC loan commitments are, in most cases, refundable on a prorata basis according to the amount of the loan commitment that is advanced.  Such refundable fees are deferred and then recognized on a prorata basis based on the portion of the loan that is not advanced prior to the expiration of the commitment.  Commitment fees on National Rural loan commitments are not refundable and are billed and recognized based on the unused portion of committed lines of credit.  Guarantee fees are charged based on the amount, type and term of the guarantee.  Guarantee fees are deferred and amortized using the straight-line method into interest income over the life of the guarantee.

The $8 million or 1% increase to the total interest income for the nine months ended February 29, 2008 as compared to the prior year period was due to the repricing of fixed rate loans at higher interest rates and higher loan volume.  Interest rates for approximately $846 million of National Rural long-term fixed rate loans were repriced in January 2007 with 89% selecting a new fixed rate.  The weighted average interest rate of long-term loans subject to repricing in January 2007 was approximately 4.72%, which is significantly lower than the National Rural fixed interest rates available to members at that time of between 6.95% and 7.30% (depending on the term selected).  The repricing of long-term fixed rate loans in January 2008 also had a slight impact on the interest income for the nine months ended February 29, 2008.  Interest rates for approximately $703 million of National Rural long-term fixed rate loans were repriced in January 2008 with 85% selecting a new fixed rate.  The weighted average interest rate of long-term loans subject to repricing in January 2008 was approximately 5.37%, which is lower than the National Rural fixed interest rates available to members at that time of between 5.65% and 7.25% (depending on the term selected).  The increase in National Rural and NCSC loan volume was partly offset by the decrease in RTFC loan volume.

For the nine months ended February 29, 2008, the Company had a reduction to interest income of $52 million due to non-accrual loans compared to a reduction of $61 million for the prior year period.  The impact on National Rural interest income of non-accrual loans was a reduction of $26 million and $30 million, respectively, for the nine months ended February 29, 2008 and February 28, 2007.  The impact on RTFC interest income of non-accrual loans was a reduction of $26 million and $31 million, respectively, for the nine months ended February 29, 2008 and February 28, 2007.  The impact of non-accrual loans on interest income is included in the rate variance in the chart above.

Interest Expense

Total interest expense reported on the consolidated statements of operations and shown in the chart above is summarized as follows by expense type and as a percentage of average loans outstanding:

	For the nine months ended
	February 29, 2008				February 28, 2007
(Dollar amounts in thousands)		Amount	Rate			Amount	Rate		Increase/ (Decrease)
Interest expense - commercial paper and bid notes(1)	$	102,117			$	134,760			$	(32,643	)
Interest expense - medium-term notes (1)		249,422				282,050				(32,628	)
Interest expense - collateral trust bonds (1)		189,968				156,629				33,339
Interest expense - subordinated deferrable debt (1)		14,747				24,936				(10,189	)
Interest expense - subordinated certificates (1)		36,451				35,671				780
Interest expense - long-term private debt(1)		100,102				89,484				10,618
Total interest expense on debt		692,807	5.05	%		723,530	5.30	%		(30,723	)
Debt issuance costs (2)		7,625	0.06	%		9,332	0.07	%		(1,707	)
Commitment and guarantee fees (3)		13,277	0.10	%		11,981	0.09	%		1,296
Loss on extinguishment of debt (4)		5,509	0.04	%		4,806	0.03	%		703
Other fees		1,592	0.01	%		2,387	0.02	%		(795	)
Total interest expense	$	720,810	5.26	%	$	752,036	5.51	%	$	(31,226	)

(1) Represents interest expense and the amortization of discounts on debt.

(2) Includes amortization of all deferred charges related to debt issuance, principally underwriter's fees, legal fees, printing costs and comfort letter fees. Amortization is calculated on the effective interest method.  Also includes issuance costs related to dealer commercial paper.

(3) Includes various fees related to funding activities, including fees paid to banks participating in the Company's revolving credit agreements and fees paid under bond guarantee agreements with RUS as part of the REDLG program.  Fees are recognized as incurred or amortized on a straight-line basis over the life of the respective agreement.

(4) Represents the loss on the early retirement of debt including the write-off of unamortized discount, premium and issuance costs.

The $31 million decrease to total interest expense for the nine months ended February 29, 2008 as compared to the prior year period was due to lower interest expense on commercial paper and variable rate long-term debt as a result of a 225 basis point decrease in the federal funds rate from the rate in effect at February 28, 2007.  The $500 million borrowed under the REDLG program in August 2007 represents a lower cost compared to the Company's other forms of long-term debt as a result of the guarantee of repayment by the RUS.  In addition, the $175 million of 7.40% subordinated deferrable debt redeemed in June

39

2007 resulted in a 39 basis point decrease in the weighted average cost of subordinated deferrable debt.  The Company redeemed these securities at par and recorded a charge of $6 million in interest expense for the unamortized issuance costs in the first quarter of fiscal year 2008.

The adjusted interest expense, which includes all derivative cash settlements, for the nine months ended February 29, 2008 increased by $15 million compared to the prior year period due to the $31 million decrease to interest expense noted above offset by the $46 million decrease in derivative cash settlements described below.  See "Non-GAAP Financial Measures" for further explanation of the adjustment the Company makes in its financial analysis to include all derivative cash settlements in its interest expense.

Net Interest Income

The change in the line items described above resulted in an increase in net interest income of $39 million for the nine months ended February 29, 2008 compared to the prior year period.  The adjusted net interest income, which includes all derivative cash settlements, for the nine months ended February 29, 2008 was $107 million, a decrease of $7 million from the prior year period.  See "Non-GAAP Financial Measures" for further explanation of the adjustment the Company makes in its financial analysis to include all derivative cash settlements in its interest expense, and therefore net interest income.

Recovery of Loan Losses

The $48 million recovery for loan losses for the nine months ended February 29, 2008 resulted from the decrease in calculated impairments due to lower variable rates and payments received on impaired loans.

Non-interest Income

Non-interest income decreased by $48 million for the nine months ended February 29, 2008 compared to the prior year period primarily due to decreases in cash settlements and income from the operations of foreclosed assets.  The $46 million decrease in cash settlements for the nine months ended February 29, 2008 compared to the prior year period is primarily due to a $31 million payment received during the prior year period for the termination of two exchange agreements.  Income from the operation of foreclosed assets decreased by $2 million for the nine months ended February 29, 2008 compared to the prior year period due to a lower outstanding balance in foreclosed assets.  At February 29, 2008, the foreclosed assets are comprised of real estate developer notes receivable and limited partnership interests in certain real estate developments.

Non-interest Expense

Non-interest expense increased by $44 million for the nine months ended February 29, 2008 compared to the prior year period.

Salaries and employee benefits increased by $2 million for the nine months ended February 29, 2008 as compared to the prior year period primarily due to additional headcount and higher medical insurance rates paid by the Company.  The Company had eight additional employee positions filled at February 29, 2008 as compared to the prior year period end.

General and administrative expenses increased by $4 million for the nine months ended February 29, 2008 compared to the prior year period because of the increased expenditures for the acceleration of information systems projects and the write-off of site work expenses on property the Company had under contract, but the seller was unable to meet the conditions to close the sale.  Increased membership meeting expenses, marketing and audit fees also contributed to the increased general and administrative expenses for the nine months ended February 29, 2008.

The $4 million recovery of guarantee liability was the result of a decrease in the outstanding balance, weighted average maturity and weighted average risk rating of guarantees outstanding.

At February 29, 2008, the Company determined that there was a reduction of $6 million to the market value of one of the land development loans held as a foreclosed asset.  The reduction to the market value was primarily as a result of the slow down in lot sales due to residential home market weakness.

The $52 million increase in the derivative forward value during the nine months ended February 29, 2008 compared to the prior year period is due to changes in the estimate of future interest rates over the remaining life of the derivative contracts.

There was no foreign denominated debt outstanding during the nine months ended February 29, 2008, therefore resulting in no foreign currency adjustments compared to $15 million in the prior year period.  During the nine months ended February 28, 2007, the Company had medium-term notes denominated in Euros and Australian dollars totaling $434 million and $282 million, respectively.  As a result of issuing debt in foreign currencies, the Company must adjust the value of the debt reported on the consolidated balance sheets for changes in foreign currency exchange rates since the date of issuance.  To the extent that the current exchange rate is different than the exchange rate at the time of issuance, there will be a change in the value of the foreign denominated debt. The adjustment to the value of the debt is reported on the consolidated statements of operations as

40

foreign currency adjustments.  At the time of issuance of all foreign denominated debt, the Company enters into a cross currency or cross currency interest rate exchange agreement to fix the exchange rate on all principal and interest payments through maturity.

Minority Interest

During the nine months ended February 29, 2008, NCSC’s net loss exceeded its equity balance by $1.6 million, primarily due to NCSC’s $18 million in derivative forward value losses during the period.  In accordance with Accounting Research Bulletin (“ARB”) No. 51, Consolidated Financial Statements, National Rural is required to absorb the $1.6 million excess NCSC loss.  Minority interest for the nine months ended February 29, 2008 represents $0.3 million of year-to-date RTFC net income and $8.6 million of the $10.1 million year-to-date NCSC net loss.  Minority interest for the nine months ended February 28, 2007 represents the total year-to-date RTFC and NCSC net income since NCSC losses did not exceed its equity during that period.

Net Loss

The change in the line items described above result in a net loss of $42 million for the nine months ended February 29, 2008 compared to a net loss of $51 million for the prior year period.  The adjusted net income, which excludes the impact of the derivative forward value and foreign currency adjustments and adds back minority interest, was $123 million, compared to $84 million for the prior year period.  See “Non-GAAP Financial Measures” for the further explanation of the adjustments the Company makes in its financial analysis to net income.

Three Months Ended February 29, 2008 versus February 28, 2007

The following chart presents the results of operations for the three months ended February 29, 2008 versus February 28, 2007.

	For the three months ended
(Dollar amounts in thousands)	February 29, 2008			February 28, 2007			Increase/ (Decrease)
Interest income	$	266,576		$	264,873		$	1,703
Interest expense		(233,468	)		(247,441	)		13,973
Net interest income		33,108			17,432			15,676
Recovery of loan losses		33,599			-			33,599
Net interest income after recovery of loan losses		66,707			17,432			49,275
Non-interest income:
Rental and other income		367			417			(50	)
Derivative cash settlements		10,463			44,442			(33,979	)
Results of operations of foreclosed assets		2,401			1,896			505
Total non-interest income		13,231			46,755			(33,524	)
Non-interest expense:
Salaries and employee benefits		(9,398	)		(8,461	)		(937	)
Other general and administrative expenses		(5,862	)		(3,177	)		(2,685	)
Recovery of (provision for) guarantee liability		1,000			-			1,000
Market adjustment on foreclosed assets		(5,840	)		-			(5,840	)
Derivative forward value		(64,266	)		(4,189	)		(60,077	)
Foreign currency adjustments		-			1,886			(1,886	)
Loss on sale of loans		(158	)		(1,550	)		1,392
Total non-interest expense		(84,524	)		(15,491	)		(69,033	)
Loss prior to income taxes and minority interest		(4,586	)		48,696			(53,282	)
Income taxes		2,175			(627	)		2,802
Minority interest, net of income taxes		2,088			566			1,522
Net (loss) income	$	(323	)	$	48,635		$	(48,958	)
TIER (1)		-			1.20
Adjusted TIER (2)		1.28			1.25

(1) For the three months ended February 29, 2008, the Company reported a loss of $0.3 million; thus, the TIER calculation results in a value below 1.00.

(2) Adjusted to exclude the impact of the derivative forward value and foreign currency adjustments from net income, to include minority interest in net income and to include all derivative cash settlements in the interest expense.  See "Non-GAAP Financial Measures" for further explanation and a reconciliation of these adjustments.

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The following chart summarizes the Company's operating results expressed as an annualized percentage of average loans outstanding.

	For the three months ended
	February 29, 2008			February 28, 2007			Increase/ (Decrease)
Interest income		5.77	%		5.94	%		(0.17	)%
Interest expense		(5.05	)%		(5.55	)%		0.50	%
Net interest income		0.72	%		0.39	%		0.33	%
Recovery of loan losses		0.73	%		-			0.73	%
Net interest income after recovery of loan losses		1.45	%		0.39	%		1.06	%
Non-interest income:
Rental and other income		0.01	%		-			0.01	%
Derivative cash settlements		0.22	%		1.00	%		(0.78	)%
Results of operations of foreclosed assets		0.05	%		0.05	%		-
Total non-interest income		0.28	%		1.05	%		(0.77	)%
Non-interest expense:
Salaries and employee benefits		(0.20	)%		(0.18	)%		(0.02	)%
Other general and administrative expenses		(0.13	)%		(0.07	)%		(0.06	)%
Recovery of (provision for) guarantee liability		0.02	%		-			0.02	%
Market adjustment on foreclosed assets		(0.13	)%		-			(0.13	)%
Derivative forward value		(1.39	)%		(0.10	)%		(1.29	)%
Foreign currency adjustments		-			0.04	%		(0.04	)%
Loss on sale of loans		-			(0.04	)%		0.04	%
Total non-interest expense		(1.83	)%		(0.35	)%		(1.48	)%
(Loss) income prior to income taxes and minority interest		(0.10	)%		1.09	%		(1.19	)%
Income taxes		0.05	%		-			0.05	%
Minority interest, net of income taxes		0.04	%		-			0.04	%
Net (loss) income		(0.01	)%		1.09	%		(1.10	)%
Adjusted net interest income (1)		0.94	%		1.39	%		(0.45	)%
Adjusted income prior to income taxes and minority interest (2)		1.29	%		1.15	%		0.14	%

(1) Adjusted to include derivative cash settlements in the interest expense.  See "Non-GAAP Financial Measures" for further explanation and a reconciliation of these adjustments.

(2) Adjusted to exclude derivative forward value and foreign currency adjustments.  See "Non-GAAP Financial Measures" for further explanation and a reconciliation of these adjustments.

National Rural’s net interest income will increase or decrease due to changes in loan volume and the rate that it receives on its loans and pays on its sources of funding, respectively. National Rural’s loan volume substantially determines its funding needs. The following Volume Rate Variance Table provides a breakout of the change to interest income, interest expense and net interest income due to changes in loan volume versus changes to interest rates. The analysis is consistent with the

February 29, 2008 and February 28, 2007 consolidated statements of operations.  For comparability purposes, average daily loan volume is used as the denominator in calculating interest income yield, interest expense rates and net interest income yield.

Management calculates an adjusted net interest income, which includes all derivative cash settlements in interest expense. The following table also includes a breakout of the change to derivative cash settlements due to changes in the average notional amount of its derivative portfolio versus changes to the net difference between the average rate paid and the average rate received. See "Non-GAAP Financial Measures" for further explanation of the adjustment the Company makes in its financial analysis to include all derivative cash settlements in its interest expense.

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Volume Rate Variance Table
(Dollar amounts in millions)
	For the three months ended
	February 29, 2008							February 28, 2007							Change due to
	Average Loan Balance		Income / (Cost)		Rate			Average Loan Balance		Income / (Cost)		Rate			Volume (1)			Rate (2)			Total
Interest income
National Rural	$	16,339	$	236		5.81	%	$	15,754	$	232		5.96	%	$	10		$	(6	)	$	4
RTFC		1,769		22		4.94	%		1,966		26		5.29	%		(2	)		(2	)		(4	)
NCSC		435		9		7.65	%		360		7		8.67	%		2			-			2
Total	$	18,543	$	267		5.77	%	$	18,080	$	265		5.94	%	$	10		$	(8	)	$	2
Interest expense
National Rural	$	16,339	$	(206	)	(5.06	)%	$	15,754	$	(217	)	(5.59	)%	$	(10	)	$	21		$	11
RTFC		1,769		(20	)	(4.65	)%		1,966		(24	)	(4.96	)%		2			2			4
NCSC		435		(7	)	(6.15	)%		360		(6	)	(7.15	)%		(2	)		1			(1	)
Total	$	18,543	$	(233	)	(5.05	)%	$	18,080	$	(247	)	(5.55	)%	$	(10	)	$	24		$	14
Net interest income
National Rural	$	16,339	$	30		0.75	%	$	15,754	$	15		0.37	%	$	-		$	15		$	15
RTFC		1,769		2		0.29	%		1,966		2		0.33	%		-			-			-
NCSC		435		2		1.50	%		360		1		1.52	%		-			1			1
Total	$	18,543	$	34		0.72	%	$	18,080	$	18		0.39	%	$	-		$	16		$	16
Derivative cash settlements (3)
National Rural	$	13,094	$	10		0.32	%	$	12,636	$	44		1.42	%	$	2		$	(36	)	$	(34	)
NCSC		201		-		-			89		-		-			-			-			-
Total	$	13,295	$	10		0.32	%	$	12,725	$	44		1.42	%	$	2		$	(36	)	$	(34	)
Adjusted interest expense (4)
Total	$	18,543	$	(223)		(4.83	)%	$	18,080	$	(203	)	(4.55	)%	$	(8	)	$	(12	)	$	(20	)

(1) Variance due to volume is calculated using the following formula: ((current period average balance - prior year period average balance) x prior year period average rate).

(2) Variance due to rate is calculated using the following formula: ((current period average rate - prior year period average rate) x current period average balance).

(3) For derivative cash settlements, average loan balance represents the average notional amount of derivative contracts outstanding and the rate represents the net difference between the average rate paid and the average rate received for cash settlements during the period.

(4) See "Non-GAAP Financial Measures" for further explanation of the adjustment the Company makes in its financial analysis to include the derivative cash settlements in its interest expense.

Interest Income

Total interest income reported on the consolidated statements of operations and shown in the chart above includes the following as a percentage of average loans outstanding:

	For the three months ended
	February 29, 2008				February 28, 2007				Increase/
(Dollar amounts in thousands)		Amount	Rate			Amount	Rate		(Decrease)
Interest on long-term fixed rate loans (1)	$	220,117			$	208,262			$	11,855
Interest on long-term variable rate loans (1)		20,785				28,028				(7,243	)
Interest on short-term loans (1)		20,224				17,761				2,463
Total interest income on loans		261,126	5.65	%		254,051	5.70	%		7,075
Interest on investments (2)		1,832	0.04	%		2,626	0.07	%		(794	)
Conversion fees (3)		1,587	0.04	%		2,412	0.04	%		(825	)
Make-whole and prepayment fees (4)		533	0.01	%		3,368	0.07	%		(2,835	)
Commitment and guarantee fees (5)		822	0.02	%		1,658	0.04	%		(836	)
Other fees		676	0.01	%		758	0.02	%		(82	)
Total interest income	$	266,576	5.77	%	$	264,873	5.94	%	$	1,703

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(1) Represents interest income on loans to members.

(2) Represents interest income on the investment of cash.

(3) Conversion fees are deferred and recognized using the interest method over the remaining original loan interest rate pricing term, except for a small portion of the total fee charged to cover administrative costs related to the conversion which is recognized immediately.

(4) Make-whole and prepayment fees are charged for the early repayment of principal in full and recognized when collected.

(5) Commitment fees for RTFC loan commitments are, in most cases, refundable on a prorata basis according to the amount of the loan commitment that is advanced.  Such refundable fees are deferred and then recognized on a prorata basis based on the portion of the loan that is not advanced prior to the

expiration of the commitment.  Commitment fees on National Rural loan commitments are not refundable and are billed and recognized based on the unused portion of committed lines of credit.  Guarantee fees are charged based on the amount, type and term of the guarantee.  Guarantee fees are deferred and amortized using the straight-line method into interest income over the life of the guarantee.

The $2 million or 1% increase to the total interest income for the quarter ended February 29, 2008 as compared to the prior year period was due to higher loan volume and fixed rate loans that repriced at higher interest rates offset by lower variable rates.  Interest rates for approximately $703 million of National Rural long-term fixed rate loans were repriced in January 2008 with 85% selecting a new fixed rate.  The weighted average interest rate of long-term loans subject to repricing in January 2008 was approximately 5.37%, which is lower than the National Rural fixed interest rates available to members at that time of between 5.65% and 7.25% (depending on the term selected).  Lower variable rates were the result of the Company decreasing variable interest rates by approximately 200 basis points since February 28, 2007, of which 125 basis points occurred during the three months ended February 29, 2008.

For the quarter ended February 29, 2008, the Company had a reduction to interest income of $16 million due to non-accrual loans compared to a decrease of $20 million for the prior year period.  The impact on National Rural’s interest income of non-accrual loans was a reduction of $8 million for the quarter ended February 29, 2008 as compared to $10 million for the prior year period.  The impact of non-accrual loans on interest income is included in the rate variance in the chart above.  The $4 million decrease in RTFC interest income was due to the reduction in the balance of RTFC loans outstanding.  The impact on RTFC interest income of non-accrual loans was a reduction of $8 million and $10 million, respectively for the quarter ended February 29, 2008 and February 28, 2007.

Interest Expense

Total interest expense reported on the consolidated statements of operations and shown in the chart above includes the following as a percentage of average loans outstanding:

	For the three months ended
	February 29, 2008				February 28, 2007				Increase/
(Dollar amounts in thousands)		Amount	Rate			Amount	Rate		(Decrease)
Interest expense - commercial paper and bid notes(1)	$	30,639			$	38,758			$	(8,119	)
Interest expense - medium-term notes (1)		82,555				93,876				(11,321	)
Interest expense - collateral trust bonds (1)		61,213				56,069				5,144
Interest expense - subordinated deferrable debt (1)		4,916				8,153				(3,237	)
Interest expense - subordinated certificates (1)		12,297				11,755				542
Interest expense - long-term private debt(1)		34,359				29,180				5,179
Total interest expense on debt		225,979	4.89	%		237,791	5.33	%		(11,812	)
Debt issuance costs (2)		2,328	0.05	%		5,230	0.12	%		(2,902	)
Commitment and guarantee fees (3)		4,602	0.10	%		3,967	0.09	%		635
Other fees		559	0.01	%		453	0.01	%		106
Total interest expense	$	233,468	5.05	%	$	247,441	5.55	%	$	(13,973	)

(1) Represents interest expense and the amortization of discounts on debt.

(2) Includes amortization of all deferred charges related to debt issuance, principally underwriter's fees, legal fees, printing costs and comfort letter fees.

Amortization is calculated on the effective interest method.  Also includes issuance costs related to dealer commercial paper and debt issuance costs fully amortized as part of the early retirement of debt.

(3) Includes various fees related to funding activities, including fees paid to banks participating in the Company's revolving credit agreements and fees paid under bond guarantee agreements with RUS as part of the REDLG program.  Fees are recognized as incurred or amortized on a straight-line basis over the life of the respective agreement.

The $14 million decrease to total interest expense for the three months ended February 29, 2008 as compared to the prior year period was primarily due to lower interest expense on commercial paper and variable rate long-term debt as result of a 225 basis point decrease in the federal funds rate from the rate in effect at February 28, 2007.

The adjusted total interest expense, which includes all derivative cash settlements, for the quarter ended February 29, 2008 increased by $20 million compared to the prior year period due to the $14 million decrease to interest expense noted above offset by the $34 million decrease in derivative cash settlements described below.  See "Non-GAAP Financial Measures" for further explanation of the adjustment the Company makes in its financial analysis to include all derivative cash settlements in its interest expense.

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Net Interest Income

The change in the line items described above resulted in an increase in net interest income of $16 million for the quarter ended February 29, 2008 compared to the prior year period.  The adjusted net interest income, which includes all derivative cash settlements, for the quarter ended February 29, 2008 was $43 million, a decrease of $19 million from the prior year period.  See "Non-GAAP Financial Measures" for further explanation of the adjustment the Company makes in its financial analysis to include all derivative cash settlements in its interest expense, and therefore net interest income.

Recovery of Loan Losses

The $34 million recovery for loan losses for the quarter ended February 29, 2008 resulted from the decrease in calculated impairments due to lower variable rates and payments received on impaired loans.

Non-interest Income

Non-interest income decreased by $34 million for the quarter ended February 29, 2008 compared to the prior year period due primarily to a decrease in cash settlements.  The $34 million decrease in derivative cash settlements for the quarter ended February 29, 2008 is due to a $31 million payment received during the prior year period for the termination of two exchange agreements.

Non-interest Expense

Non-interest expense increased by $69 million for the quarter ended February 29, 2008 compared to the prior year period.

At February 29, 2008, the Company determined that there was a reduction of $6 million to the market value of one of the land development loans held as a foreclosed asset.  The reduction to the market value was primarily as a result of the slow down in lot sales due to residential home market weakness.

The $60 million increase in the derivative forward value expense during the quarter ended February 29, 2008 compared to the prior year period is due to changes in the estimate of future interest rates over the remaining life of the derivative contracts.

There was no foreign denominated debt outstanding during the quarter ended February 29, 2008, therefore resulting in no foreign currency adjustments compared to $2 million in the prior year period.  During the quarter ended February 28, 2007, the Company had medium-term notes denominated in Euros totaling $434 million.  As a result of issuing debt in foreign currencies, the Company must adjust the value of the debt reported on the consolidated balance sheets for changes in foreign currency exchange rates since the date of issuance.  To the extent that the current exchange rate is different than the exchange rate at the time of issuance, there will be a change in the value of the foreign denominated debt. The adjustment to the value of the debt is reported on the consolidated statements of operations as foreign currency adjustments.  At the time of issuance of all foreign denominated debt, the Company enters into a cross currency or cross currency interest rate exchange agreement to fix the exchange rate on all principal and interest payments through maturity.

Minority Interest

During the three months ended February 29, 2008, NCSC’s net loss exceeded its equity balance by $1.6 million, primarily due to NCSC’s $6 million in derivative forward value losses during the period.  In accordance with ARB 51, National Rural is required to absorb the $1.6 million excess NCSC loss.  Minority interest for the three months ended February 29, 2008 represents $0.1 million of RTFC net loss and $2 million of the $3.6 million NCSC net loss for the period.  Minority interest for the three months ended February 28, 2007 represents the total year-to-date RTFC and NCSC net income since NCSC losses did not exceed its equity during that period.

Net (Loss) Income

The change in the line items described above resulted in a net loss of $0.3 million for the quarter ended February 29, 2008 compared to net income of $49 million for the prior year period.  The adjusted net income, which excludes the impact of the derivative forward value and foreign currency adjustments and adds back minority interest, was $62 million compared to $50 million for the prior year period.  See "Non-GAAP Financial Measures" for further explanation of the adjustments the Company makes in its financial analysis to net income.

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Ratio of Earnings to Fixed Charges

The following chart provides the calculation of the ratio of earnings to fixed charges for the three and nine months ended February 29, 2008 and February 28, 2007.  The ratio of earnings to fixed charges is the same calculation as TIER.  See “Results of Operations” for discussion on TIER and adjustments that the Company makes to the TIER calculation.

			Three months ended							Nine months ended
(Dollar amounts in thousands)			February 29, 2008				February 28, 2007			February 29, 2008				February 28, 2007
	(Loss) income prior to cumulative effect of
	change in accounting principle	$		(323	)	$		48,635	$		(41,931	)	$		(50,579	)
	Add: fixed charges			233,468				247,441			720,810				752,036
	Earnings available for fixed charges	$		233,145		$		296,076	$		678,879		$		701,457
	Total fixed charges:
	Interest on all debt (including amortization of
	discount and issuance costs)	$		233,468		$		247,441	$		720,810		$		752,036
	Ratio of earnings to fixed charges (1)			-				1.20			-				-

(1) For the three and nine months ended February 29, 2008, earnings were insufficient to cover fixed charges by $0.3 million and $42 million, respectively.  For the nine months ended February 28, 2007, earnings were insufficient to cover fixed charges by $51 million.

Financial Condition

Loan and Guarantee Portfolio Assessment

Loan Programs

Loans to members bear interest at rates determined from time to time by the Company after considering its interest expense, operating expenses, provision for loan losses and the maintenance of reasonable earnings levels.  In keeping with its not-for-profit, cooperative charter, the Company's policy is to set interest rates at the lowest levels it considers to be consistent with sound financial management.

The following chart summarizes loans by type and by segment:

							Increase/
(Dollar amounts in thousands)	February 29, 2008			May 31, 2007			(Decrease)
Loans by type:
Long-term loans (1):
Long-term fixed rate loans	$	15,066,178	81%	$	14,881,046	82%		$	185,132
Long-term variable rate loans		2,014,221	11%		2,031,731	11%			(17,510	)
Total long-term loans		17,080,399	92%		16,912,777	93%			167,622
Short-term loans (2)		1,580,813	8%		1,215,430	7%			365,383
Total loans	$	18,661,212	100%	$	18,128,207	100%		$	533,005
National Rural:
Distribution	$	13,213,526	71%	$	12,827,772	71%		$	385,754
Power supply		3,198,956	17%		2,858,040	16%			340,916
Statewide and associate		104,258	1%		119,478	1%			(15,220	)
National Rural total		16,516,740	89%		15,805,290	88%			711,450
RTFC		1,727,344	9%		1,860,379	10%			(133,035	)
NCSC		417,128	2%		462,538	2%			(45,410	)
Total loans	$	18,661,212	100%	$	18,128,207	100%		$	533,005

(1) Includes loans classified as restructured and non-performing and RUS guaranteed loans.

(2) Consists of secured and unsecured short-term loans that are subject to interest rate adjustment monthly or semi-monthly.

The Company's loans outstanding increased by 3% during the nine months ended February 29, 2008. National Rural loans outstanding increased due to net advances of $785 million offset by the sale of $74 million of National Rural distribution loans in loan securitization transactions during the nine months ended February 29, 2008.  Long-term fixed rate loans at February 29, 2008 and May 31, 2007 represented 88% of total long-term loans.  Loans converting from a variable rate to a fixed rate for the nine months ended February 29, 2008 totaled $251 million, which was offset by $223 million of loans that converted from a fixed rate to a variable rate.  This resulted in a net conversion of $28 million from a variable rate to a fixed rate for the nine months ended February 29, 2008.  For the nine months ended February 28, 2007 loans converting from a variable rate to a fixed rate totaled $288 million, which was offset by $165 million of loans that converted from a fixed rate to a variable rate.  This resulted in a net conversion of $123 million from a variable rate to a fixed rate for the nine months ended February 28, 2007.

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The following chart summarizes loans and guarantees outstanding by segment:

(Dollar amounts in thousands)	February 29, 2008			May 31, 2007				Increase/ (Decrease)
National Rural:
Distribution	$	13,417,117	68%	$	13,039,092	68%	$		378,025
Power supply		3,962,182	20%		3,655,049	19%			307,133
Statewide and associate		127,913	1%		144,837	1%			(16,924	)
National Rural Total		17,507,212	89%		16,838,978	88%			668,234
RTFC		1,727,604	9%		1,860,379	10%			(132,775	)
NCSC		485,245	2%		503,224	2%			(17,979	)
Total	$	19,720,061	100%	$	19,202,581	100%	$		517,480

The following table summarizes the RTFC segment loans and guarantees outstanding:

(Dollar amounts in thousands)		February 29, 2008		May 31, 2007				Increase/ (Decrease)
Rural local exchange carriers	$	1,521,369	88%	$	1,630,246	88%	$		(108,877	)
Cable television providers		153,840	9%		154,738	8%			(898	)
Fiber optic network providers		16,772	1%		37,422	2%			(20,650	)
Competitive local exchange carriers		27,596	2%		21,039	1%			6,557
Wireless providers		3,922	-		3,609	-			313
Long distance carriers		-	-		9,069	1%			(9,069	)
Other		4,105	-		4,256	-			(151	)
Total	$	1,727,604	100%	$	1,860,379	100%	$		(132,775	)

The Company's members are widely dispersed throughout the United States and its territories, including 49 states, the District of Columbia and two U.S. territories.  At February 29, 2008 and May 31, 2007, loans outstanding to members in any one state or territory did not exceed 16% and 15%, respectively, of total loans outstanding.

Credit Concentration

National Rural, RTFC and NCSC each have policies that limit the amount of credit that can be extended to individual borrowers or a controlled group of borrowers.  The credit limitation policies set the limit on the total exposure and unsecured exposure to the borrower based on an assessment of the borrower's risk profile and the Company's internal risk rating system.  As a member owned cooperative, the Company makes best efforts to balance meeting the needs of its member/owners and mitigating the risk associated with concentrations of credit exposure.  The respective boards of directors must approve new credit requests from a borrower with a total exposure or unsecured exposure in excess of the limits in the policy.  Management of credit concentrations may include the use of syndicated credit agreements.

Total exposure, as defined by the policy, includes the following:

·   loans outstanding, excluding loans guaranteed by RUS,

·   the Company's guarantees of the borrower's obligations,

·   unadvanced loan commitments,

·   borrower guarantees to the Company of another borrower's debt, and

·   other indebtedness of any kind unless guaranteed by the U.S. government.

At February 29, 2008 and May 31, 2007, the total exposure outstanding to any one borrower or controlled group did not exceed 2.9% and 3.0%, respectively, of total loans and guarantees outstanding.  At February 29, 2008, the ten largest borrowers included four distribution systems, four power supply systems and two telecommunications systems.  At May 31, 2007, the ten largest borrowers included six distribution systems, two power supply systems and two telecommunication systems.

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The following chart shows the exposure to the ten largest borrowers as a percentage of total exposure by type and by segment:

		February 29, 2008		May 31, 2007				Increase/ (Decrease)
(Dollar amounts in thousands)		Amount	% of Total		Amount	% of Total
Total by type:
Loans	$	3,370,729		$	3,306,986		$		63,743
Guarantees		163,940			76,867				87,073
Total credit exposure to ten largest borrowers	$	3,534,669	18%	$	3,383,853	18%	$		150,816
Total by segment:
National Rural	$	2,810,864		$	2,691,060		$		119,804
RTFC		697,505			692,793				4,712
NCSC		26,300			-				26,300
Total credit exposure to ten largest borrowers	$	3,534,669	18%	$	3,383,853	18%	$		150,816

Security Provisions

Except when providing short-term loans, the Company typically lends to its members on a senior secured basis.  Long-term loans are typically secured on a parity with other secured lenders (primarily RUS), if any, by all assets and revenues of the borrower with exceptions typical in utility mortgages.  Short-term loans are generally unsecured lines of credit.  Guarantee reimbursement obligations are typically secured on a parity with other secured creditors by all assets and revenues of the borrower or by the underlying financed asset.  In addition to the collateral received, borrowers are also required to set rates designed to achieve certain financial ratios.

The following table summarizes the Company's unsecured credit exposure as a percentage of total exposure by type and by segment:

		February 29, 2008		May 31, 2007				Increase/ (Decrease)
(Dollar amounts in thousands)		Amount	% of Total		Amount	% of Total
Total by type:
Loans	$	1,977,315		$	1,634,296		$		343,019
Guarantees		219,436			220,983				(1,547	)
Total unsecured credit exposure	$	2,196,751	11%	$	1,855,279	10%	$		341,472
Total by segment:
National Rural	$	1,909,442		$	1,559,097		$		350,345
RTFC		229,970			230,300				(330	)
NCSC		57,339			65,882				(8,543	)
Total unsecured credit exposure	$	2,196,751	11%	$	1,855,279	10%	$		341,472

Non-performing Loans

A borrower is classified as non-performing when any one of the following criteria are met:

·   principal or interest payments on any loan to the borrower are past due 90 days or more,

·   as a result of court proceedings, repayment on the original terms is not anticipated, or

·   for some other reason, management does not expect the timely repayment of principal and interest.

Once a borrower is classified as non-performing, the Company typically places the loan on non-accrual status and reverses all accrued and unpaid interest back to the date of the last payment.  The Company generally applies all cash received during the non-accrual period to the reduction of principal, thereby foregoing interest income recognition.  At February 29, 2008 and May 31, 2007, the Company had non-performing loans outstanding in the amount of $504 million and $502 million, respectively.  All loans classified as non-performing were on a non-accrual status with respect to the recognition of interest income.

At February 29, 2008 and May 31, 2007, non-performing loans include $498 million and $493 million, respectively, to Innovative Communication Corporation (“ICC”).  Loans outstanding to ICC continue to increase due to accrued legal costs associated with ongoing litigation to recover the outstanding loan balance.  All loans to ICC have been on non-accrual status since February 1, 2005.  ICC has not made debt service payments to the Company since June 2005.  RTFC is the primary secured lender to ICC.

As part of a settlement agreement, RTFC obtained entry of judgments against ICC for approximately $525 million and ICC's indirect majority shareholder and chairman, Jeffrey Prosser ("Prosser") for approximately $100 million.  RTFC also obtained

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dismissals with prejudice of all counterclaims, affirmative defenses and other lawsuits alleging wrongful acts by RTFC, certain of its officers, and National Rural. Various parties also reached agreement for ICC to satisfy the RTFC judgments in the third quarter of calendar year 2006, subject to certain terms and conditions, however, on July 31, 2006, certain of the parties obligated to satisfy the RTFC judgments under the agreement filed voluntary bankruptcy proceedings, as described below, in order to obtain additional time to satisfy the judgments.

On July 31, 2006, ICC's immediate parent, Emerging Communication, Inc., a Delaware corporation ("Emcom"), Emcom's parent, Innovative Communication Company LLC, a Delaware limited liability company ("ICC-LLC") and Prosser, individually, each filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code, now pending in the United States District Court for the Virgin Islands, Division of St. Thomas and St. John, Bankruptcy Division.  Each of the debtors is obligated to RTFC for certain obligations of ICC, including court judgments.  On February 13, 2007, the Bankruptcy Court ordered the appointment of a Chapter 11 trustee for the ICC-LLC and Emcom bankruptcy estates and an examiner for Prosser’s bankruptcy estate.

On August 2, 2007, the Bankruptcy Court entered an order declaring that the debtors could not satisfy the RTFC judgments at a discount.  Prosser, individually, has filed a notice of appeal of the order; none of the other debtors has sought review of the order.

On September 7, 2007, the Bankruptcy Court entered an order authorizing the Chapter 11 trustee for the Emcom bankruptcy estate to exercise control over the common stock of ICC, including authority to vote the stock to, among other things, facilitate a refinancing or sale of ICC and its assets.

On September 21, 2007, the United States District Court for the Virgin Islands, Bankruptcy Division, in response to an involuntary petition filed by the Greenlight Entities, entered an order for relief under Chapter 11 of the United States Bankruptcy Code thereby placing ICC in its own bankruptcy proceeding.  In response to a motion by RTFC, the Bankruptcy Court ordered appointment of a Chapter 11 trustee for ICC on October 3, 2007.  Certain parties have moved for reconsideration of and/or appealed one or more orders of the Bankruptcy Court and have requested a stay pending ruling by the District Court.  RTFC believes both that the moving parties have no standing and that the motions to reconsider and appeal have no merit.  Pending the appeal, the Chapter 11 trustee of ICC has assumed ownership and control of ICC, including its subsidiaries, and has begun to marshal RTFC collateral and other assets for disposition and eventual payment in respect of RTFC’s claims and the claims of other parties-in-interest.  On January 2, 2008, the Chapter 11 trustee of ICC filed a motion seeking authority to sell substantially all of ICC’s assets, including stock in ICC’s operating subsidiaries.  The Court has entered an order approving certain sale motions presented on February 1, 2008.

In response to a motion by the Greenlight Entities, joined by RTFC, the Bankruptcy Court converted Prosser’s individual Chapter 11 bankruptcy to a Chapter 7 liquidation on October 3, 2007.  Prosser has filed a notice of appeal of the conversion order.  RTFC believes that the appeal has no merit.  Pending the appeal, the Chapter 7 trustee has advised that he intends to marshal Prosser’s non-exempt assets for disposition and eventual payment in respect of creditor claims.  On December 3, 2007, the Chapter 7 trustee of Prosser’s estate filed a motion to approve sale procedures and for authority to sell Prosser’s controlling shares in the Virgin Islands Community Bank Corp.  The sale has closed, with net proceeds of approximately $2.2 million.

In most cases, the sale (as part of the reorganization process) of ICC or any of its subsidiaries engaged in a regulated telecommunications or cable television business, or of the regulated assets of ICC or its subsidiaries, will require the prior consent of the respective regulators in the United States (including the Federal Communications Commission and the U.S. Virgin Islands Public Services Commission), the British Virgin Islands, France and its Caribbean territories, and the Netherlands Antilles.  In certain limited cases, only a post-transaction notification will be required.

For a more detailed description of the contingencies related to the non-performing loans outstanding to ICC, see Note 13 to the consolidated financial statements.  Based on its analysis, the Company believes that it is adequately reserved for its exposure to ICC at February 29, 2008.

VarTec was a telecommunications company and RTFC borrower located in Dallas, Texas.  The Company was VarTec's principal senior secured creditor.

VarTec and 16 of its U.S.-based affiliates, which were guarantors of VarTec's debt to RTFC, filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code on November 1, 2004 in Dallas, Texas.  The cases were converted in 2006 to Chapter 7 proceedings, administered by a Chapter 7 trustee.

Non-performing loans at May 31, 2007 included $9 million to VarTec.  On June 4, 2007, the Bankruptcy Court approval of a settlement of litigation against the Company became final, pursuant to which (a) all claims against the Company were

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dismissed with prejudice and fully released, (b) a portion of the proceeds from the collateral that had been provisionally applied to the Company’s secured debt was reallocated to VarTec creditors, including the Company, and (c) an administrative debtor-in-possession (“DIP”) financing facility owed by the VarTec bankruptcy estates to the Company was reduced to $6 million.  The Company’s remaining DIP and unsecured claims will share in further recoveries by the bankruptcy estates.  As a result of the settlement of the litigation, the Company wrote off $44 million of pre-petition debt during the fourth quarter of fiscal year 2007 and wrote off $17 million in the first quarter of fiscal year 2008.

On December 26, 2007, the Company received $3 million, which is a share of the settlement proceeds from the VarTec estates’ litigation against certain former directors and officers.  At February 29, 2008, the Company had a receivable for $3 million, which has a payment priority from the bankruptcy estates; in addition, the Company will share in recoveries that are in excess of the amount required to repay the DIP financing and cover expenses of the estates.

Restructured Loans

Loans classified as restructured are loans for which agreements have been executed that changed the original terms of the loan, generally a change to the originally scheduled cash flows.  The Company will make a determination on each restructured loan with regard to the accrual of interest income on the loan.  The initial decision is based on the terms of the restructure agreement and the anticipated performance of the borrower over the term of the agreement.  The Company will periodically review the decision to accrue or not to accrue interest income on restructured loans based on the borrower's past performance and current financial condition.

At February 29, 2008 and May 31, 2007, restructured loans totaled $584 million and $603 million, respectively.  A total of $526 million and $545 million of restructured loans were on non-accrual status with respect to the recognition of interest income at February 29, 2008 and May 31, 2007, respectively.  At February 28, 2007, there were $551 million of restructured loans on non-accrual status.

At February 29, 2008 and May 31, 2007, the Company had $526 million and $545 million, respectively, of restructured loans outstanding to CoServ. All restructured CoServ loans have been on non-accrual status since January 1, 2001.  In addition, a total of $20 million was outstanding under the capital expenditure loan facility which was classified as a performing loan at both February 29, 2008 and May 31, 2007.  Total loans to CoServ at February 29, 2008 and May 31, 2007 represented 2.8% and 2.9% of the Company's total loans and guarantees outstanding, respectively.

Under the terms of a bankruptcy settlement, National Rural restructured its loans to CoServ.  CoServ is scheduled to make quarterly payments to National Rural through December 2037.  As part of the restructuring, National Rural may be obligated to provide up to $204 million of senior secured capital expenditure loans to CoServ for electric distribution infrastructure through December 2012.  When CoServ requests capital expenditure loans from National Rural, these loans are provided at the standard terms offered to all borrowers and require debt service payments in addition to the quarterly payments that CoServ is required to make to National Rural.  As of February 29, 2008, a total of $20 million was outstanding to CoServ under this loan facility.  To date, CoServ has made all payments required under the restructure agreement and capital expenditure loan facility. Under the terms of the restructure agreement, CoServ has the option to prepay the loan for $415 million plus an interest payment true up on or after December 13, 2007 and for $405 million plus an interest payment true up on or after December 13, 2008.  National Rural has received no notice from CoServ that it intends to prepay the loan.

CoServ and National Rural have no claims related to any of the legal actions asserted prior to or during the bankruptcy proceedings.  National Rural's legal claim against CoServ is limited to CoServ's performance under the terms of the bankruptcy settlement.

Based on its analysis, the Company believes that it is adequately reserved for its exposure to CoServ at February 29, 2008.

Pioneer Electric Cooperative, Inc. ("Pioneer") is an electric distribution cooperative located in Greenville, Alabama.  Pioneer had also invested in a propane gas operation, which it has sold.  Pioneer had experienced deterioration in its financial condition as a result of losses in the gas operation.  At February 29, 2008 and May 31, 2007, National Rural had a total of $52 million in loans outstanding to Pioneer.  Pioneer was current with respect to all debt service payments at February 29, 2008.  National Rural is the principal creditor to Pioneer.

On March 9, 2006, National Rural and Pioneer agreed on the terms of a debt modification that resulted in the loans being classified as restructured.  Under the amended agreement, National Rural extended the maturity of the outstanding loans and granted a two-year deferral of principal payments.  In addition, National Rural agreed to make available a line of credit for general corporate purposes.  The restructured loans are secured by first liens on substantially all of the assets and revenues of Pioneer.  At this time, National Rural plans to maintain the loans to Pioneer on accrual status.

Based on its analysis, the Company believes that it is adequately reserved for its exposure to Pioneer at February 29, 2008.

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Loan Impairment

On a quarterly basis, the Company reviews all non-performing and restructured borrowers, as well as certain additional borrowers selected based on known facts and circumstances at the time of the review, to determine if the loans to the borrower are impaired and/or to update the impairment calculation.  The Company calculates an impairment for a borrower based on the expected future cash flow or the fair value of any collateral held by the Company as security for loans to the borrower.  In some cases, to estimate future cash flow, certain assumptions are required regarding, but not limited to, the following:

·   interest rates,

·   court rulings,

·   changes in collateral values,

·   changes in economic conditions in the area in which the cooperative operates, and

·   changes to the industry in which the cooperative operates.

As events related to the borrower take place and economic conditions and the Company's assumptions change, the impairment calculations will change.  The loan loss allowance specifically reserved to cover the calculated impairments is adjusted on a quarterly basis based on the most current information available. At February 29, 2008 and May 31, 2007, National Rural had impaired loans totaling $1,083 million and $1,099 million, respectively.  At February 29, 2008 and May 31, 2007, National Rural had specifically reserved a total of $317 million and $397 million, respectively, to cover impaired loans.

The following chart presents a summary of non-performing and restructured loans as a percentage of total loans and total loans and guarantees outstanding:

(Dollar amounts in thousands)	February 29, 2008			May 31, 2007
Non-performing loans	$	504,375		$	501,864
Percent of loans outstanding		2.70	%		2.77	%
Percent of loans and guarantees outstanding		2.56	%		2.61	%
Restructured loans	$	584,495		$	603,305
Percent of loans outstanding		3.13	%		3.33	%
Percent of loans and guarantees outstanding		2.96	%		3.14	%
Total non-performing and restructured loans	$	1,088,870		$	1,105,169
Percent of loans outstanding		5.83	%		6.10	%
Percent of loans and guarantees outstanding		5.52	%		5.75	%

Allowance for Loan Losses

The Company maintains an allowance for loan losses at a level estimated by management to provide adequately for probable losses inherent in the loan portfolio, which are estimated based upon a review of the loan portfolio, past loss experience, specific problem loans, economic conditions and other pertinent factors which, in management's judgment, deserve current recognition in estimating loan losses.  The Company reviews and adjusts the allowance on a quarterly basis to maintain it at a level to cover estimated probable losses in the portfolio.

Management makes recommendations to the board of directors of National Rural regarding write-offs of loan balances.  In making its recommendation to write off all or a portion of a loan balance, management considers various factors including cash flow analysis and the collateral securing the borrower's loans.  Since inception in 1969, write-offs totaled $211 million and recoveries totaled $34 million for a net write-off of $177 million.  For the period from June 1, 2002 to February 29, 2008, write-offs totaled $78 million and recoveries totaled $7 million for a net write-off of $71 million.

Management believes that the allowance for loan losses is adequate to cover estimated probable portfolio losses.

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Activity in the allowance for loan losses is summarized below:

	For the nine months ended and as of							For the year ended and as of
		February 29,			February 28,				May 31,
(Dollar amounts in thousands)		2008			2007				2007
Beginning balance	$	561,663		$	611,443		$		611,443
Recovery of loan losses		(47,900	)		-				(6,922	)
Net write-offs		(16,503	)		(77	)			(42,858	)
Ending balance	$	497,260		$	611,366		$		561,663
Loan loss allowance by segment:
National Rural	$	496,891		$	610,778		$		561,113
NCSC		369			588				550
Total	$	497,260		$	611,366		$		561,663
As a percentage of total loans outstanding		2.66	%		3.43	%			3.10	%
As a percentage of total non-performing loans outstanding		98.59	%		112.94	%			111.95	%
As a percentage of total restructured loans outstanding		85.08	%		100.16	%			93.20	%

National Rural has agreed to indemnify RTFC and NCSC for loan losses, with the exception of the NCSC consumer loans that are covered by the NCSC loan loss allowance.  Therefore, there is no loan loss allowance required at RTFC and only a small loan loss allowance is required at NCSC to cover the exposure to consumer loans.

The Company's loan loss allowance decreased $64 million from May 31, 2007 to February 29, 2008.  Within National Rural's loan loss allowance at February 29, 2008 as compared to the prior year end, there was a decrease in the calculated impairments of $80 million.  The decrease to the calculated impairments was primarily due to a settlement agreement with VarTec resulting in a loan write-off of $17 million, payments received on impaired loans and lower variable interest rates at February 29, 2008 as compared to May 31, 2007.

In addition to the general portfolio reserve, the Company maintains an additional reserve for borrowers with a total exposure in excess of 1.5% of its total loans and guarantees outstanding.  The additional reserve is based on the amount of exposure in excess of 1.5% of the Company's total exposure, and the borrower's internal risk rating.  At February 29, 2008, the Company lowered the total exposure threshold from 1.5% to 1.0%, which provides a better match to the Company’s top ten credit exposures.  At February 29, 2008, the Company increased the reserve for the additional risk related to large exposures by $18 million.

The allowance for all other loans decreased by $2 million.

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Liabilities, Minority Interest and Equity

Outstanding Debt

The following chart provides a breakout of debt outstanding:

(Dollar amounts in thousands)	February 29, 2008		May 31, 2007		Increase/ (Decrease)
Short-term debt:
Commercial paper (1)	$	3,032,163	$	2,784,619	$	247,544
Bank bid notes		200,000		100,000		100,000
Long-term debt with remaining maturities less than one year		3,206,966		1,367,504		1,839,462
Subordinated deferrable debt with remaining maturities less than one year		-		175,000		(175,000	)
Total short-term debt		6,439,129		4,427,123		2,012,006
Long-term debt:
Collateral trust bonds		2,886,358		4,017,357		(1,130,999	)
Notes payable		2,559,612		2,532,630		26,982
Medium-term notes		4,286,932		4,745,232		(458,300	)
Total long-term debt		9,732,902		11,295,219		(1,562,317	)
Subordinated deferrable debt		311,440		311,440		-
Members' subordinated certificates:
Membership certificates		649,461		649,424		37
Loan certificates		670,113		624,888		45,225
Guarantee certificates		101,311		107,135		(5,824	)
Total members' subordinated certificates		1,420,885		1,381,447		39,438
Total debt outstanding	$	17,904,356	$	17,415,229	$	489,127
Percentage of fixed rate debt (2)		84%		83%
Percentage of variable rate debt (3)		16%		17%
Percentage of long-term debt		64%		75%
Percentage of short-term debt		36%		25%

(1) Includes $298 million and $250 million related to the daily liquidity fund at February 29, 2008 and May 31, 2007, respectively.

(2) Includes variable rate debt that has been swapped to a fixed rate less any fixed rate debt that has been swapped to a variable rate.

(3) The rate on commercial paper notes does not change once the note has been issued.  However, the rates on new commercial paper notes change daily and commercial paper notes generally have maturities of less than 90 days.  Therefore, commercial paper notes are considered to be variable rate debt.  Also includes fixed rate debt that has been swapped to a variable rate less any variable rate debt that has been swapped to a fixed rate.

Total debt outstanding at February 29, 2008 increased as compared to May 31, 2007 due primarily to the increase of $533 million loans outstanding.  During the first nine months of fiscal year 2008, $1,595 million of extendible CTBs and $250 million of extendible MTNs were reclassified from long-term debt to short-term debt because investors elected not to extend the maturity of the debt.  In January 2008, the Company issued $700 million of 5.45% collateral trust bonds due February 2018.An additional $500 million was borrowed under FFB loan facilities with bond guarantee agreements with RUS as part of the funding mechanism for the REDLG program in August 2007.

The increase to members' subordinated certificates of $45 million for the nine months ended February 29, 2008 is primarily due to $60 million of new loan certificates related to the increase in loans outstanding offset by loan prepayments, normal amortization and maturities.

Minority Interest

At February 29, 2008 and May 31, 2007, the Company reported minority interests of $12 million and $22 million, respectively, on the consolidated balance sheets.  Minority interest represented 100% of RTFC and NCSC equity as the members of RTFC and NCSC own or control 100% of the interest in their respective companies.

During the nine months ended February 29, 2008, NCSC’s net loss of $10.1 million exceeded its equity balance by $1.6 million, which eliminated the minority interest equity in NCSC.  In accordance with ARB 51, National Rural is required to absorb the $1.6 million NCSC excess loss.  NCSC’s losses during the nine months ended February 29, 2008 were primarily due to its $18 million in derivative forward value losses.  Future NCSC earnings will be used to offset NCSC losses absorbed by National Rural.

Minority interest at February 29, 2008 also decreased due to the retirement of $2 million of patronage capital to RTFC members in January 2008.

NCSC’s equity balance included in minority interest on the consolidated balance sheets was $8.6 million at May 31, 2007.

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Equity

The following chart provides a breakout of the equity balances:

(in thousands)	February 29, 2008			May 31, 2007			Increase/ (Decrease)
Membership fees	$	994		$	997		$	(3	)
Education fund		709			1,406			(697	)
Members' capital reserve		158,348			158,308			40
Allocated net income		320,064			405,598			(85,534	)
Unallocated net income (1)		113,440			(23	)		113,463
Total members' equity		593,555			566,286			27,269
Prior years cumulative derivative forward
value and foreign currency adjustments		131,551			225,849			(94,298	)
Current period derivative forward value (2)		(155,394	)		(79,744	)		(75,650	)
Current period foreign currency adjustments		-			(14,554	)		14,554
Total retained equity		569,712			697,837			(128,125	)
Accumulated other comprehensive income		11,617			12,204			(587	)
Total equity	$	581,329		$	710,041		$	(128,712	)

(1) Excludes derivative forward value and foreign currency adjustments.  Unallocated net income at February 29, 2008 includes National Rural’s obligation to absorb NCSC losses in excess of their equity balance totaling $1.6 million.

(2) Represents the derivative forward value loss recorded by National Rural for the period.

Applicants are required to pay a one-time fee to become a member. The fee varies from two hundred dollars to one thousand dollars depending on the membership class.  National Rural is required by the District of Columbia cooperative law to have a methodology to allocate its net earnings to its members.  National Rural maintains the current year net earnings as unallocated through the end of its fiscal year.  Subsequent to the end of the fiscal year, National Rural's board of directors allocates its net earnings to its members in the form of patronage capital and to board approved reserves.  Currently, National Rural has two such board approved reserves, the education fund and the members' capital reserve.  National Rural adjusts the net earnings it allocates to its members and board approved reserves to exclude the non-cash impacts of SFAS 133 and 52.  National Rural allocates a small portion, less than 1%, of adjusted net earnings annually to the education fund as required by cooperative law.  Funds from the education fund are disbursed annually to the statewide cooperative organizations to fund the teaching of cooperative principles in the service territories of the cooperatives in each state.  The board of directors determines the amount of adjusted net earnings that is allocated to the members' capital reserve, if any.  The members' capital reserve represents earnings that are held by National Rural to increase equity retention.  The earnings held in the members' capital reserve have not been specifically allocated to any member, but may be allocated to individual members in the future as patronage capital if authorized by National Rural's board of directors.  All remaining adjusted net earnings are allocated to National Rural's members in the form of patronage capital.  National Rural bases the amount of adjusted net earnings allocated to each member on the members' patronage of the National Rural lending programs in the year that the adjusted net earnings was earned.  There is no impact on National Rural's total equity as a result of allocating earnings to members in the form of patronage capital or to board approved reserves.  National Rural annually retires a portion of the patronage capital allocated to members in prior years.  National Rural's total equity is reduced by the amount of patronage capital retired to its members and by amounts disbursed from board approved reserves.

At February 29, 2008, total equity decreased by $129 million from May 31, 2007 due to the board authorized patronage capital retirement and a net loss of $42 million.  In July 2007, National Rural's board of directors authorized the retirement of allocated net earnings totaling $86 million, representing 70% of the fiscal year 2007 allocation and one-ninth of the fiscal years 1991, 1992 and 1993 allocated net earnings.  This amount was returned to members in cash in September 2007.

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Contractual Obligations

The following table summarizes the long-term contractual obligations at February 29, 2008 and the scheduled reductions by fiscal year.

(in millions)											More than 5
Instrument	2008		2009		2010		2011		2012		Years		Total
Long-term debt due in less than one year	$	84	$	3,123	$	-	$	-	$	-	$	-	$	3,207
Long-term debt		-		33		1,824		539		1,546		5,791		9,733
Subordinated deferrable debt		-		-		-		-		-		311		311
Members' subordinated certificates (1)		1		10		36		23		9		1,061		1,140
Operating leases (2)		1		3		2		-		-		-		6
Contractual interest on long-term debt (3)		178		623		518		468		421		4,566		6,774
Total contractual obligations	$	264	$	3,792	$	2,380	$	1,030	$	1,976	$	11,729	$	21,171

(1) Excludes loan subordinated certificates totaling $281 million that amortize annually based on the outstanding balance of the related loan.  There are many items that impact the amortization of a loan, such as loan conversions, loan repricing at the end of an interest rate term and prepayments, thus an amortization schedule cannot be maintained for these certificates.  Over the past three years, annual amortization on these certificates has averaged $28 million.  In fiscal year 2007, amortization represented 12% of amortizing loan subordinated certificates outstanding.

(2) Represents the payment obligation related to the Company's lease of office space for its headquarters facility.  In September 2007, the Company exercised the option to extend the lease for an additional one-year period.  Assuming the Company exercises the option to extend the lease for an additional one-year period in fiscal year 2009, the future minimum lease payments for fiscal years 2010 and 2011 would increase to $4 million and $2 million, respectively.

(3) Represents the interest obligation on the Company's debt based on terms and conditions at February 29, 2008.

Off-Balance Sheet Obligations

Guarantees

The following chart provides a breakout of guarantees outstanding by type and by segment:

					Increase/
(in thousands)	February 29, 2008		May 31, 2007		(Decrease)
Total by type:
Long-term tax-exempt bonds	$	499,605	$	526,185	$	(26,580	)
Indemnifications of tax benefit transfers		97,393		107,741		(10,348	)
Letters of credit		381,436		365,766		15,670
Other guarantees		80,415		74,682		5,733
Total	$	1,058,849	$	1,074,374	$	(15,525	)
Total by segment:
National Rural	$	990,472	$	1,033,688	$	(43,216	)
RTFC		260		-		260
NCSC		68,117		40,686		27,431
Total	$	1,058,849	$	1,074,374	$	(15,525	)

The decrease in total guarantees outstanding at February 29, 2008 compared to May 31, 2007 is primarily due to the normal amortization on long-term tax-exempt bonds and tax benefit transfers offset by a $27 million increase to NCSC letters of credit outstanding.

At February 29, 2008 and May 31, 2007, the Company had recorded a guarantee liability totaling $14 million and $19 million, respectively, which represents the contingent and non-contingent exposure related to guarantees of members' debt obligations.

The following table summarizes the off-balance sheet obligations at February 29, 2008 and the related principal amortization and maturities by fiscal year.

(in thousands)				Principal Amortization and Maturities
		Outstanding																	Remaining
		Balance		2008			2009			2010			2011			2012			Years
	Guarantees (1)	$	1,058,849		$	11,207		$	250,435		$	157,296		$	146,293		$	101,306		$	392,312

(1) On a total of $261 million of tax-exempt bonds, National Rural has unconditionally agreed to purchase bonds tendered or called for redemption at any time if the remarketing agents have not sold such bonds to other purchasers.

55

Contingent Off-Balance Sheet Obligations

Unadvanced Loan Commitments

At February 29, 2008, the Company had unadvanced loan commitments totaling $12,995 million, an increase of $91 million compared to the balance of $12,904 million at May 31, 2007.  Unadvanced commitments are loans for which loan contracts have been approved and executed, but funds have not been advanced.  The majority of the short-term unadvanced commitments provide backup liquidity to the Company's borrowers; therefore, it does not anticipate funding most of these commitments.  Approximately 57% and 56% of the outstanding commitments at February 29, 2008 and May 31, 2007, respectively, were for short-term or line of credit loans.  Substantially all above mentioned credit commitments contain material adverse change clauses, thus for a borrower to qualify for the advance of funds, the Company must be satisfied that there has been no material change since the loan was approved.

Unadvanced loan commitments do not represent off-balance sheet liabilities and have not been included in the chart summarizing off-balance sheet obligations above.  The Company has no obligation to advance amounts to a borrower that does not meet the minimum conditions as determined by National Rural's credit underwriting policy in effect at the time the loan was approved.  If there has been a material adverse change in the borrower's financial condition or the borrower has not satisfied other terms in the agreement, the Company generally is not required to advance funds.  Therefore, unadvanced commitments are classified as contingent liabilities.

Ratio Analysis

Leverage Ratio

The leverage ratio is calculated by dividing the sum of total liabilities and guarantees outstanding by total equity.  Based on this formula, the leverage ratio at February 29, 2008 was 33.93, an increase from 26.64 at May 31, 2007.  The increase in the leverage ratio is due to a decrease of $129 million in total equity and an increase of $823 million to total liabilities offset by a decrease of $16 million in guarantees as discussed under the Liabilities, Minority Interest and Equity section and the Off-Balance Sheet Obligations section of "Financial Condition".

For the purpose of covenant compliance on its revolving credit agreements and for internal management purposes, the leverage ratio calculation is adjusted to exclude derivative liabilities, debt used to fund RUS guaranteed loans, subordinated deferrable debt and subordinated certificates from liabilities, uses members' equity rather than total equity and adds subordinated deferrable debt, subordinated certificates and minority interest to arrive at adjusted equity.  At February 29, 2008 and May 31, 2007, the adjusted leverage ratio was 7.43 and 6.81, respectively.  See "Non-GAAP Financial Measures" for further explanation and a reconciliation of the adjustments the Company makes in its leverage ratio calculation.

The increase in the adjusted leverage ratio is due to a decrease of $118 million in adjusted equity and an increase in adjusted liabilities of $665 million offset by a decrease in guarantees of $16 million as discussed under the Liabilities, Minority Interest and Equity section and the Off-Balance Sheet Obligations section of "Financial Condition".  In addition to the adjustments made to the leverage ratio in the "Non-GAAP Financial Measures" section, guarantees to member systems that have an investment grade rating from Moody's Investors Service and Standard & Poor's Corporation are excluded from the calculation of the leverage ratio under the terms of the revolving credit agreements.

Debt to Equity Ratio

The debt to equity ratio is calculated by dividing the sum of total liabilities outstanding by total equity.  The debt to equity ratio, based on this formula at February 29, 2008 was 32.11, an increase from 25.13 at May 31, 2007.  The increase in the debt to equity ratio is due to the decrease of $129 million to total equity and an increase of $823 million to total liabilities as discussed under the Liabilities, Minority Interest and Equity section of "Financial Condition".

For internal management purposes, the debt to equity ratio calculation is adjusted to exclude derivative liabilities, debt used to fund RUS guaranteed loans, subordinated deferrable debt and subordinated certificates from liabilities, uses members' equity rather than total equity and adds subordinated deferrable debt, subordinated certificates and minority interest to arrive at adjusted equity.  At February 29, 2008 and May 31, 2007, the adjusted debt to equity ratio was 6.98 and 6.37, respectively.  See "Non-GAAP Financial Measures" for further explanation and a reconciliation of the adjustments made to the debt to equity ratio calculation.  The increase in the adjusted debt to equity ratio is due to the decrease of $118 million in adjusted equity and an increase of $665 million in adjusted liabilities.

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Credit Ratings

The Company's long- and short-term debt and guarantees are rated by three of the major credit rating agencies registered with the SEC, Moody's Investors Service, Standard & Poor's Corporation and Fitch Ratings.  The following table presents the Company's credit ratings at February 29, 2008.

	Moody's Investors		Standard & Poor's
	Service		Corporation		Fitch Ratings
Direct:
Senior secured debt		A1		A+		A+
Senior unsecured debt		A2		A		A
Subordinated deferrable debt		A3		BBB+		A-
Commercial paper		P-1		A-1		F-1
Guarantees:
Pooled bonds		A1		A		A
Other bonds		A2		A		A
Short-term		P-1		A-1		F-1

The ratings listed above have the meaning as defined by each of the respective rating agencies, are not recommendations to buy, sell or hold securities and are subject to revision or withdrawal at any time by the rating organizations.

At February 29, 2008, Standard & Poor’s Corporation and Fitch Ratings had the Company’s ratings on positive outlook and Moody's Investors Service had the Company's ratings on stable outlook.

Liquidity and Capital Resources

The following section will discuss the Company's sources and uses of liquidity.  The Company's primary sources of liquidity include capital market debt issuance, private debt issuance, member loan principal repayments, member loan interest payments, a revolving bank line facility and member investments.  The Company's primary uses of liquidity include loan advances, interest payments on debt, principal repayments on debt and patronage capital retirements.  The Company believes that its sources of liquidity are adequate to cover the uses of liquidity.

Sources of Liquidity

Capital Market Debt Issuance

At February 29, 2008, the Company had effective registration statements for the issuance of $2,703 million of medium-term notes and $165 million of subordinated deferrable debt.  The Company qualifies as a well-known seasoned issuer under SEC rules and filed an automatic shelf registration statement for collateral trust bonds in October 2007.  This automatic shelf registration statement is effective for three years for an unlimited amount of collateral trust bonds.   The Company has Board authorization to issue up to $1 billion of commercial paper and $4 billion of medium-term notes in the European market.  The Company also has Board authorization to issue $1.9 billion of medium-term notes in the Australian market.  At February 29, 2008, the Company has not utilized any of the European or Australian market authorizations.  In addition, the Company has a commercial paper program under which it sells commercial paper to investors in the capital markets.  The Company limits the amount of commercial paper that can be sold to the amount of backup liquidity available under the Company's revolving credit agreement.  The Company also obtains short-term funding from the sale of floating rate demand notes under its daily liquidity fund program. The registration statement for the daily liquidity fund program is effective for a three-year period ending April 2010 for a total of $20 billion with a limitation on the aggregate principal amount outstanding at one time of $3 billion.

Private Debt Issuance

Beginning in fiscal year 2006, the Company made use of two sources of private debt issuance.  In July 2005, the Company issued $500 million of notes to Farmer Mac due in July 2008 and secured such issuance with the pledge of loans to distribution systems as collateral.  The Company is also authorized to borrow up to $2.5 billion under FFB loan facilities with bond guarantee agreements with RUS as part of the funding mechanism for the REDLG program, of which $2.5 billion was outstanding at February 29, 2008.  On August 7, 2007, National Rural received the remaining $500 million available under FFB loan facilities, as $2 billion of funding was outstanding at May 31, 2007.  National Rural is required to place on deposit mortgage notes in an amount at least equal to the principal balance of the notes outstanding.

On December 26, 2007, the President of the United States signed the Appropriations Act for Fiscal Year 2008which provides an additional $500 million in funding from the FFB with a guarantee of repayment by the RUS as part of the funding mechanism for REDLG.  The Company is not currently eligible to borrow that additional $500 million because of a limitation in current law based on the amount of loans the Company has issued on a concurrent basis with RUS.  If that limitation is removed in future legislation, the Company would be eligible to apply for the additional $500 million.

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In March 2008, the Company sold to Farmer Mac $400 million of floating rate debt due in 2013 and secured by the pledge of National Rural distribution system mortgage notes.

Member Loan Repayments

Scheduled repayments on long-term loans are expected to average $950 million a year for fiscal years 2008 to 2012.  There has been significant prepayment activity over the past two fiscal years in the telecommunications loan programs.  It is not anticipated that there will be significant loan prepayments over the next few years.

Member Loan Interest Payments

During the nine months ended February 29, 2008, interest income on the loan portfolio was $778 million, representing an average yield of 5.67% as compared to 5.60% for the nine months ended February 28, 2007.  At February 29, 2008, 81% of the total loans outstanding had a fixed rate of interest and 19% of loans outstanding had a variable rate of interest. At February 29, 2008, a total of 6% of loans outstanding were on a non-accrual basis with respect to the recognition of interest income.

Bank Revolving Credit Facility

The following is a summary of the amounts available under the Company's revolving credit agreements:

(Dollar amounts in thousands)		February 29, 2008		May 31, 2007	Termination Date	Facility fee per annum (1)
364-day agreement (2)	$	1,125,000	$	1,125,000	March 14, 2008	0.05 of 1%
Five-year agreement		1,125,000		1,125,000	March 16, 2012	0.06 of 1%
Five-year agreement		1,025,000		1,025,000	March 22, 2011	0.06 of 1%
Total	$	3,275,000	$	3,275,000

(1) Facility fee determined by National Rural's senior unsecured credit ratings based on the pricing schedules put in place at the initiation of the related agreement.

(2) Any amount outstanding under these agreements may be converted to a one-year term loan at the end of the revolving credit periods.  If converted to a term loan, the fee on the outstanding principal amount of the term loan is 0.10 of 1% per annum.

Upfront fees of between 0.03 and 0.05 of 1% were paid to the banks based on their commitment level to the five-year agreements in place at February 29, 2008, totaling in aggregate $1 million, which will be amortized on a straight-line basis over the life of the agreements.  No upfront fees were paid to the banks for their commitment to the 364-day facility.  Each agreement contains a provision under which if borrowings exceed 50% of total commitments, a utilization fee must be paid on the outstanding balance.  The utilization fees are 0.05 of 1% for all three agreements in place at February 29, 2008.

Effective February 29, 2008 and May 31, 2007, the Company was in compliance with all covenants and conditions under its revolving credit agreements in place at that time and there were no borrowings outstanding under such agreements.

For the purpose of calculating the required financial covenants contained in its revolving credit agreements, the Company adjusts net income, senior debt and total equity to exclude the non-cash adjustments related to SFAS 133 and 52.  The adjusted TIER, as defined by the agreements, represents the interest expense adjusted to include the derivative cash settlements, plus net income prior to the cumulative effect of change in accounting principle, plus minority interest net

income and dividing that total by the interest expense adjusted to include the derivative cash settlements.  In addition to the non-cash adjustments related to SFAS 133 and 52, senior debt also excludes RUS guaranteed loans, subordinated deferrable debt, members' subordinated certificates and minority interest.  Total equity is adjusted to include subordinated deferrable debt, members' subordinated certificates and minority interest.  Senior debt includes guarantees; however, it excludes:

·   guarantees for members where the long-term unsecured debt of the member is rated at least BBB+ by Standard & Poor's Corporation or Baa1 by Moody's Investors Service; and

·   the payment of principal and interest by the member on the guaranteed indebtedness if covered by insurance or reinsurance provided by an insurer having an insurance financial strength rating of AAA by Standard & Poor's Corporation or a financial strength rating of Aaa by Moody's Investors Service.

The following represents the Company's required and actual financial ratios under the revolving credit agreements at or for the periods ended February 29, 2008 and May 31, 2007:

		Actual
	Requirement	February 29, 2008	May 31, 2007
Minimum average adjusted TIER over the six most recent fiscal quarters	1.025	1.16	1.09
Minimum adjusted TIER at fiscal year end (1)	1.05	1.12	1.12
Maximum ratio of senior debt to total equity	10.00	7.26	6.65

(1) The Company must meet this requirement in order to retire patronage capital.  The adjusted TIER reported at February 29, 2008 is the amount from the prior year end, the last measurement date for this ratio.

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The revolving credit agreements do not contain a material adverse change clause or ratings triggers that limit the banks' obligations to fund under the terms of the agreements, but National Rural must be in compliance with their other requirements, including financial ratios, in order to draw down on the facilities.

Subsequent to the end of the quarter, the 364-day revolving credit agreement in place at February 29, 2008 totaling $1,125 million was replaced on March 14, 2008 with a new 364-day agreement totaling $1,500 million expiring on March 13, 2009.  Any amount outstanding under the new 364-day agreement may be converted to a one-year term loan at the end of the revolving credit period with a 0.10 of 1% per annum fee on the outstanding principal amount of the term loan.  The facility fee for the 364-day facility is 0.05 of 1% per annum based on the pricing schedule in place at March 14, 2008.  Upfront fees of $147,000 were paid to the banks based on their commitment level to the 364-day agreement.  The agreement contains a provision under which if borrowings exceed 50% of total commitments, a utilization fee of 0.05 of 1% must be paid on the outstanding balance.  National Rural's five-year agreement totaling $1,025 million is still in effect and expires on March 22, 2011.  National Rural's five-year agreement totaling $1,125 million is still in effect and expires on March 16, 2012.  The total committed credit available under these three current facilities was $3,650 million at March 14, 2008.

Member Investments

At February 29, 2008 and May 31, 2007, members funded 19.6% and 20.9%, respectively, of total assets as follows:

			February 29, 2008						May 31, 2007					Increase/
(Dollar amounts in thousands)			Amount			% of Total (1)			Amount			% of Total (1)		(Decrease)
	Commercial paper (2)	$		1,411,075			47%	$		1,633,653			59%		$	(222,578	)
	Medium-term notes			358,069			7%			307,622			6%			50,447
	Members' subordinated certificates			1,420,885			100%			1,381,447			100%			39,438
	Members' equity (3)			593,555			100%			566,286			100%			27,269
	Total	$		3,783,584				$		3,889,008					$	(105,424	)
	Percentage of total assets			19.6	%					20.9	%
	Percentage of total assets less derivative assets (3)			20.0	%					21.2	%

(1) Represents the percentage of each line item outstanding to National Rural members.

(2) Includes $298 million and $250 million related to the daily liquidity fund at February 29, 2008 and May 31, 2007, respectively.

(3) See "Non-GAAP Financial Measures" for further explanation and a reconciliation of the adjustments made to total capitalization and a breakout of members' equity.

Uses of Liquidity

Loan Advances

Loan advances are the result of new loans approved to members and from the unadvanced portion of loans that were approved prior to February 29, 2008.  At February 29, 2008, the Company had unadvanced loan commitments totaling $12,995 million.  The Company does not expect to advance the full amount of the unadvanced commitments at February 29, 2008.  Unadvanced commitments generally expire within five years of the first advance on a loan and the majority of short-term unadvanced commitments are used as backup liquidity for member operations.  Approximately 57% of the outstanding commitments at February 29, 2008 were for short-term or line of credit loans.  The Company anticipates that over the next twelve months, loan advances will be approximately equal to the scheduled loan repayments.

Interest Expense on Debt

For the nine months ended February 29, 2008, interest expense on debt was $693 million, representing 5.05% of the average loan volume for which the debt was used as funding.  The interest expense on debt represented 5.30% of the average loan volume for which the debt was used as funding for the nine months ended February 28, 2007.  At February 29, 2008, a total of 84% of outstanding debt had a fixed interest rate and 16% of outstanding debt had a variable interest rate.

Principal Repayments on Long-term Debt

The principal amount of medium-term notes, collateral trust bonds, long-term notes payable, subordinated deferrable debt and membership subordinated certificates maturing in each of the five fiscal years following February 29, 2008 and thereafter is as follows:

		Amount
(Dollar amounts in millions)		Maturing (1)
2008	$	85
2009		3,166
2010		1,860
2011		562
2012		1,555
Thereafter		7,163
Total	$	14,391

(1) Excludes loan subordinated certificates totaling $281 million that amortize annually based on the outstanding balance of the related loan.  There are many items that impact the amortization of a loan, such as loan conversions, loan repricing at the end of an interest rate term and prepayments thus, an amortization schedule cannot be maintained for these certificates.  Over the past three years, annual amortization on these certificates has averaged $28 million.  In fiscal year 2007, amortization represented 12% of amortizing loan subordinated certificates outstanding.

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Patronage Capital Retirements

The Company has made annual retirements of its allocated patronage capital in 27 of the last 28 years.  In July 2007, the National Rural board of directors approved the allocation of a total of $104 million from fiscal year 2007 net earnings to the National Rural members.  In September 2007, National Rural made a cash payment of $86 million to its members as retirement of 70% of the amount allocated for fiscal year 2007 and 1/9th of the amount allocated for fiscal years 1991, 1992 and 1993.

Market Risk

The Company's primary market risks are interest rate risk and liquidity risk.  The Company is also exposed to counterparty risk as a result of entering into interest rate exchange agreements.

Interest Rate Risk

The interest rate risk exposure is related to the funding of the fixed rate loan portfolio.  The Company does not match fund the majority of its fixed rate loans with a specific debt issuance at the time the loans are advanced.  The Company aggregates fixed rate loans until the volume reaches a level that will allow an economically efficient issuance of debt.  The Company uses fixed rate collateral trust bonds, medium-term notes, subordinated deferrable debt, members' subordinated certificates, members' equity and variable rate debt to fund fixed rate loans.  The Company allows borrowers flexibility in the selection of the period for which a fixed interest rate will be in effect.  Long-term loans typically have maturities of up to 35 years.  Borrowers may select fixed interest rates for periods of one year through the life of the loan.  To mitigate interest rate risk in the funding of fixed rate loans, the Company performs a monthly gap analysis, a comparison of fixed rate assets repricing or maturing by year to fixed rate liabilities and members' equity maturing by year (see chart on page 61).  The interest rate risk is deemed minimal on variable rate loans, since the loans may be repriced either monthly or semi-monthly to reflect the cost of the debt used to fund the loans.  At February 29, 2008 and May 31, 2007, 19%, and 18%, respectively, of loans carried variable interest rates.

Matched Funding Policy

To monitor interest rate risk in the funding of fixed rate loans, the Company performs a monthly gap analysis (see chart on page 61).  It is the Company's funding objective to manage the matched funding of asset and liability repricing terms within a range of 3% of total assets excluding derivative assets.  At February 29, 2008, the Company had $14,851 million of fixed rate assets amortizing or repricing, funded by $14,299 million of fixed rate liabilities maturing during the next 30 years and $424 million of members' equity and members' subordinated certificates, a portion of which does not have a scheduled maturity.  The difference of $128 million, or less than 1% of total assets and total assets excluding derivative assets, represents the fixed rate assets maturing during the next 30 years in excess of the fixed rate debt and equity.  Fixed rate loans are funded with fixed rate collateral trust bonds, medium-term notes, long-term notes payable, subordinated deferrable debt, members' subordinated certificates and members' equity.  With the exception of members' subordinated certificates, which are generally issued at rates below the Company's long-term cost of funding and with extended maturities, and commercial paper, the Company's liabilities have average maturities that closely match the repricing terms (but not the maturities) of its fixed interest rate loans.  The Company also uses commercial paper supported by interest rate exchange agreements to fund its portfolio of fixed rate loans.  Variable rate assets which reprice monthly or semi-monthly are funded with short-term liabilities, primarily commercial paper, collateral trust bonds, long-term notes payable and medium-term notes issued with a fixed rate and swapped to a variable rate, medium-term notes issued at a variable rate, subordinated certificates, members' equity and bank bid notes.  The schedule allows the Company to analyze the impact on the overall adjusted TIER of issuing a certain amount of debt at a fixed rate for various maturities, prior to issuance of the debt.  See "Non-GAAP Financial Measures" for further explanation and a reconciliation of the adjustments to TIER.

Certain of the Company's collateral trust bonds, subordinated deferrable debt and medium-term notes were issued with early redemption provisions.  To the extent borrowers are allowed to convert their fixed rate loans to a variable interest rate and to the extent it is beneficial, the Company takes advantage of these early redemption provisions.  However, because conversions and prepayments can take place at different intervals from early redemptions, the Company charges conversion fees designed to compensate for any additional interest rate risk it assumes.

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The following chart shows the scheduled amortization and repricing of fixed rate assets and liabilities outstanding at February 29, 2008.

INTEREST RATE GAP ANALYSIS

(Fixed Rate Assets/Liabilities)

As of February 29, 2008

	May 31,				June 1,				June 1,				June 1,				June 1,
	2008				2008 to				2010 to				2012 to				2017 to				Beyond
	or				May 31,				May 31,				May 31,				May 31,				June 1,
(Dollar amounts in millions)	prior				2010				2012				2017				2027				2027				Total
Assets:
Amortization and repricing		$	245			$	3,617			$	3,182			$	3,838			$	2,801			$	1,168			$	14,851
Total assets		$	245			$	3,617			$	3,182			$	3,838			$	2,801			$	1,168			$	14,851
Liabilities and members' equity:
Long-term debt		$	243			$	3,312			$	3,881			$	3,756			$	1,625			$	254			$	13,071
Subordinated certificates			6				47				82				70				243				780				1,228
Members' equity (1)			13				26				28				121				101				135				424
Total liabilities and members' equity		$	262			$	3,385			$	3,991			$	3,947			$	1,969			$	1,169			$	14,723
Gap (2)		$	(17	)		$	232			$	(809	)		$	(109	)		$	832			$	(1	)		$	128
Cumulative gap		$	(17	)		$	215			$	(594	)		$	(703	)		$	129			$	128
Cumulative gap as a % of total assets			(0.09	)%			1.12	%			(3.08	)%			(3.65	)%			0.67	%			0.66	%
Cumulative gap as a % of adjusted total assets (3)			(0.09	)%			1.14	%			(3.14	)%			(3.72	)%			0.68	%			0.68	%

(1) Includes the portion of the loan loss allowance and subordinated deferrable debt allocated to fund fixed rate assets.  See “Non-GAAP Financial Measures” for further explanation of why National Rural uses members’ equity in its analysis of the funding of its loan portfolio.

(2) Assets less liabilities and members’ equity.

(3) Adjusted total assets represents total assets in the consolidated balance sheet less derivative assets.

Use of Derivatives

At February 29, 2008 and May 31, 2007, the Company was a party to interest rate exchange agreements with a total notional amount of $12,957 million and $12,533 million, respectively.  The Company uses interest rate exchange agreements as part of its overall interest rate matching strategy.  Interest rate exchange agreements are used when they provide a lower cost of funding or minimize interest rate risk.  The Company will enter into interest rate exchange agreements only with highly rated financial institutions.  National Rural used interest rate exchange agreements to synthetically change the interest rate from a variable rate to a fixed rate on $7,701 million as of February 29, 2008 and $7,277 million as of May 31, 2007 of debt used to fund long-term fixed rate loans.  Interest rate exchange agreements were used to synthetically change the interest rates from

fixed to variable on $5,256 million of long-term debt as of February 29, 2008 and May 31, 2007.  The Company has not invested in derivative financial instruments for trading purposes in the past and does not anticipate doing so in the future.

At February 29, 2008 and May 31, 2007, there were no foreign currency exchange agreements outstanding.

Counterparty Risk

The Company is exposed to counterparty risk related to the performance of the parties with which it has entered into interest rate exchange agreements.  To mitigate this risk, the Company only enters into these agreements with financial institutions with investment grade ratings.  At February 29, 2008 and May 31, 2007, the Company was a party to interest rate exchange agreements with notional amounts totaling $12,957 million and $12,533 million, respectively.  To date, the Company has not experienced a failure of a counterparty to perform as required under any of these agreements.  At the time counterparties are selected to participate in the Company's exchange agreements, the counterparty must be a participant in one of its revolving credit agreements.  At February 29, 2008, the Company's interest rate exchange agreement counterparties had credit ratings ranging from AAA to A- as assigned by Standard & Poor's Corporation.

Foreign Currency Risk

The Company may issue commercial paper, medium-term notes or bonds denominated in foreign currencies.  At February 29, 2008 and May 31, 2007, there was no foreign denominated debt outstanding.  When the Company issues foreign denominated debt, it typically mitigates foreign currency risk by entering into an exchange agreement to lock in the exchange rate for all interest and principal payments through maturity.

Rating Triggers

The Company has certain interest rate exchange agreements that contain a condition that will allow one counterparty to terminate the agreement if the credit rating of the other counterparty drops to a certain level.   This condition is commonly called a rating trigger.  Under the rating trigger, if the credit rating for either counterparty falls to the level specified in the agreement, the other counterparty may, but is not obligated to, terminate the agreement.  If either counterparty terminates

61

the agreement, a net payment may be due from one counterparty to the other based on the fair value of the underlying derivative instrument.  Rating triggers are not separate financial instruments and are not separate derivatives under SFAS 133.

At February 29, 2008, the Company had the following notional amount and fair values associated with exchange agreements that contain rating triggers.  For the purpose of the presentation, the Company has grouped the rating triggers into two categories, (1) ratings from Moody's Investors Service falls to Baa1 or from Standard & Poor's Corporation falls to BBB+ and (2) ratings from Moody's Investors Service falls below Baa1 or from Standard & Poor's Corporation falls below BBB+.

(in thousands)		Notional Amount		Required Company Payment		Amount Company Would Collect		Net Total
Rating Level:
Fall to Baa1/BBB+	$	1,739,419	$	(45,283)	$	82,534	$	37,251
Fall below Baa1/BBB+		7,183,620		(203,636)		136,855		(66,781	)
Total	$	8,923,039	$	(248,919)	$	219,389	$	(29,530	)

See chart on page 57 for National Rural's senior unsecured credit ratings as of February 29, 2008.

Additionally, if ratings from Moody's Investors Service fall below Baa2 or from Standard & Poor's Corporation fall below BBB, the Company would be required to pledge collateral equal to the net obligation, or net fair value, of the related exchange agreements, due to the affected counterparty, if any.  At February 29, 2008, the net obligation totaled $18 million for the $718 million notional amount of exchange agreements subject to this rating trigger.

Liquidity Risk

The Company faces liquidity risk in the funding of its loan portfolio and refinancing its maturing obligations.  The Company offers long-term loans with maturities of up to 35 years and line of credit loans that are generally required to be paid down annually.  On long-term loans, the Company offers a variety of interest rate options including the ability to fix the interest rate for terms of one year through maturity.  At February 29, 2008, the Company had a total of $3,207 million of long-term debt maturing during the next twelve months.  The Company funds the loan portfolio with a variety of debt instruments and its members' equity.  The Company typically does not match fund each of its loans with a debt instrument of similar final maturity.  Debt instruments such as subordinated certificates have maturities that vary from the term of the associated loan or guarantee to 100 years and subordinated deferrable debt has been issued with maturities of up to 49 years.

The Company may issue collateral trust bonds and medium-term notes for periods of up to 30 years, but typically issues such debt instruments with maturities of 2, 3, 5, 7 and 10 years.  Debt instruments such as commercial paper and bank bid notes typically have maturities of 90 days or less. Therefore, the Company is at risk if it is not able to issue new debt instruments to replace debt that matures prior to the maturity of the loans for which they are used as funding.  Factors that mitigate liquidity risk include the Company maintenance of back-up liquidity through revolving credit agreements with domestic and foreign banks and a large volume of scheduled principal repayments received on an annual basis.  At February 29, 2008 and May 31, 2007, the Company had a total of $3,275 million in revolving credit agreements and bank lines of credit.  Subsequent to the end of the quarter, on March 14, 2008, the Company increased the total of its revolving credit agreements to $3,650 million.  In addition, the Company limits the amount of dealer commercial paper and bank bid notes outstanding in the funding of loans.  The Company's objective is to maintain the amount of dealer commercial paper and bank bid notes outstanding at 15% or less of total debt outstanding.  At February 29, 2008 and May 31, 2007, there was a total of $1,680 million and $1,118 million, respectively, of dealer commercial paper and bank bid notes outstanding, representing 9% and 6%, respectively, of the Company's total debt outstanding.

National Rural continues to see significant investment support from its members with $3.2 billion of commercial paper, daily liquidity fund, medium-term notes and subordinated certificate investments outstanding at February 29, 2008.  The member debt investments represented 18% of the total debt outstanding at February 29, 2008.  In addition, National Rural had a total of $3 billion of privately placed debt outstanding at February 29, 2008, $2.5 billion of which was guaranteed by the U.S. Government under the REDLG program.  National Rural borrowed the remaining $500 million authorized under the REDLG program during the nine months ended February 29, 2008, which limited the amount of long-term public debt required during the period.  The private placements of debt represented 17% of total debt outstanding at February 29, 2008.  National Rural did not experience any difficulty issuing its commercial paper in the capital markets, although there was a slight widening of the spread demanded by investors.  NCSC did experience some issues with the issuance of its commercial paper, which carries a guarantee from National Rural.  Due to the significant increase in spread demanded by investors, NCSC was limited to issuing very short maturities for a period of time during the nine months ended February 29, 2008.  The slightly higher spread paid on dealer commercial paper did not have a significant impact on National Rural's funding cost, as dealer commercial paper has represented 8% or less of total debt during this period.  At the time of this filing, neither National Rural or NCSC are experiencing any difficulties issuing commercial paper and current spreads are consistent with National Rural’s historic trading levels.

62

National Rural lends only to its electric and telephone utility members and their affiliates and thus, does not have any residential mortgage exposure.  National Rural's loan portfolio is heavily weighted by electric distribution systems, which provide an essential service to their customers in a defined service territory where, in many cases, there is no competition.

Holders of $2,140 million of the Company’s extendible debt elected not to extend the maturity during the nine months ended February 29, 2008.  As a result, $1,845 million of extendible debt was reclassified from long-term debt to short-term debt based on maturity dates ranging from August 2008 through February 2009.  The remaining $295 million of extendible debt will mature in fiscal year 2010.

At February 29, 2008, the Company was the guarantor and liquidity provider for $261 million of tax-exempt bonds issued for its member cooperatives.  A total of $133 million of such tax-exempt bonds were in flexible and weekly mode, which reprice every seven to thirty-five days.  A total of $51 million of such tax-exempt bonds reprice semi-annually.  A total of $77 million of such bonds were in unit price mode and reprice approximately every 30 days.  National Rural has not been required to purchase any of the bonds in its role as liquidity provider.  In addition to these tax-exempt bonds, National Rural was the guarantor, but not liquidity provider, for $224 million of tax-exempt bonds that were in the auction rate mode.  National Rural has not been required to perform under the guarantee of its members’ tax-exempt bonds.

For additional information of risks related to the Company's business, see Item 1A. "Risk Factors".

Non-GAAP Financial Measures

The Company makes certain adjustments to financial measures in assessing its financial performance that are not in accordance with GAAP.  These non-GAAP adjustments fall primarily into two categories:  (1) adjustments related to the calculation of the TIER ratio, and (2) adjustments related to the calculation of leverage and debt to equity ratios.  These adjustments reflect management's perspective on the Company's operations, and in several cases adjustments used to measure covenant compliance under its revolving credit agreements, and thus, the Company believes these are useful financial measures for investors.  The Company refers to its non-GAAP financial measures as "adjusted" throughout this document.

Adjustments to Net Income and the Calculation of the TIER Ratio

The following chart provides a reconciliation between interest expense, net interest income, income prior to income taxes and minority interest, and net income and these financial measures adjusted to exclude the impact of derivatives and foreign currency adjustments and to include minority interest in net income.  Refer to Non-GAAP Financial Measures in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Form 10-K for the year ended May 31, 2007 for an explanation of why these adjustments to net income and the calculation of the TIER ratio reflect management's perspective on the Company's operations and why the Company believes these are useful financial measures for investors.

	Three months ended		Nine months ended
(in thousands)	February 29, 2008	February 28, 2007	February 29, 2008	February 28, 2007

Interest expense	$	(233,468	)	$	(247,441	)	$	(720,810	)	$	(752,036	)
Adjusted to include:  Derivative cash settlements		10,463			44,442			30,299			76,190
Adjusted interest expense	$	(223,005	)	$	(202,999	)	$	(690,511	)	$	(675,846	)

Net interest income	$	33,108	$	17,432	$	77,007	$	37,770
Adjusted to include:  Derivative cash settlements		10,463		44,442		30,299		76,190
Adjusted net interest income	$	43,571	$	61,874	$	107,306	$	113,960

(Loss) income prior to income taxes and minority interest	$	(4,586	)	$	48,696		$	(56,328	)	$	(52,396	)
Adjusted to exclude: Derivative forward value		64,266			4,189			173,278			120,779
Foreign currency adjustments		-			(1,886	)		-			15,413
Adjusted income prior to income taxes and minority interest	$	59,680		$	50,999		$	116,950		$	83,796

Net (loss) income	$	(323	)	$	48,635		$	(41,931	)	$	(50,579	)
Adjusted to include:  Minority interest net income		(2,088	)		(566	)		(8,211	)		(1,244	)
Adjusted to exclude: Derivative forward value		64,266			4,189			173,278			120,779
Foreign currency adjustments		-			(1,886	)		-			15,413
Adjusted net income	$	61,855		$	50,372		$	123,136		$	84,369

63

TIER using GAAP financial measures is calculated as follows:

	Interest expense + net income prior to cumulative
TIER =	effect of change in accounting principle
	Interest expense

Adjusted TIER is calculated as follows:

Adjusted TIER =	Adjusted interest expense + adjusted net income
	Adjusted interest expense

The following chart provides the calculations for TIER and adjusted TIER.

	Three months ended				Nine months ended
	February 29, 2008		February 28, 2007		February 29, 2008		February 28, 2007
TIER (1)		-		1.20		-		-
Adjusted TIER		1.28		1.25		1.18		1.12

(1) For the three and nine months ended February 29, 2008, the Company reported a net loss of $0.3 million and $42 million, respectively.  For the nine months ended February 28, 2007, the Company reported a net loss of $51 million.  Thus, the TIER calculation for those periods result in a value below 1.00.

Adjustments to the Calculation of Leverage and Debt to Equity Ratios

The following chart provides a reconciliation between the liabilities and equity used to calculate the leverage and debt to equity ratios and these financial measures adjusted to exclude the non-cash impacts of derivatives and foreign currency adjustments, to subtract debt used to fund loans that are guaranteed by RUS from total liabilities, to subtract from total liabilities, and add to total equity, debt with equity characteristics and to include minority interest as equity.  Refer to Non-GAAP Financial Measures in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Form 10-K for the year ended May 31, 2007 for an explanation of why these adjustments to the calculation of leverage and debt to equity ratios reflect management's perspective on the Company's operations and why the Company believes these are useful financial measures for investors.

(in thousands)	February 29, 2008			May 31, 2007
Liabilities	$	18,666,263		$	17,843,151
Less:
Derivative liabilities		(370,761	)		(71,934	)
Debt used to fund loans guaranteed by RUS		(251,135	)		(255,903	)
Subordinated deferrable debt		(311,440	)		(486,440	)
Subordinated certificates		(1,420,885	)		(1,381,447	)
Adjusted liabilities	$	16,312,042		$	15,647,427
Total equity	$	581,329		$	710,041
Less:
Prior years cumulative derivative forward value and
foreign currency adjustments		(131,551	)		(225,849	)
Current period derivative forward value (1)		155,394			79,744
Current period foreign currency adjustments		-			14,554
Accumulated other comprehensive income		(11,617	)		(12,204	)
Subtotal members' equity		593,555			566,286
Plus:
Subordinated certificates		1,420,885			1,381,447
Subordinated deferrable debt		311,440			486,440
Minority interest		12,086			21,989
Adjusted equity	$	2,337,966		$	2,456,162
Guarantees	$	1,058,849		$	1,074,374

(1) Represents the derivative forward value loss recorded by National Rural for the period.

64

The leverage and debt to equity ratios using GAAP financial measures are calculated as follows:

Leverage ratio =	Liabilities + guarantees outstanding
	Total equity
Debt to equity ratio =	Liabilities
	Total equity

The adjusted leverage and adjusted debt to equity ratios are calculated as follows:
	Adjusted leverage ratio =	Adjusted liabilities + guarantees outstanding
		Adjusted equity
	Adjusted debt to equity ratio =	Adjusted liabilities
		Adjusted equity

The following chart provides the calculated ratios for leverage and debt to equity, as well as the adjusted ratio calculations.  The adjusted leverage ratio and the adjusted debt to equity ratio are the same calculation except for the addition of guarantees to adjusted liabilities in the adjusted leverage ratio.

	February 29, 2008		May 31, 2007
Leverage ratio		33.93		26.64
Adjusted leverage ratio		7.43		6.81
Debt to equity ratio		32.11		25.13
Adjusted debt to equity ratio		6.98		6.37

Item 3.                Quantitative and Qualitative Disclosures About Market Risk

See Market Risk discussion beginning on page 60.

Item 4.                Controls and Procedures

Senior management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company's disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 ("the Exchange Act").  At the end of the period covered by this report, based on this evaluation process, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures are effective.  There were no changes in the Company's internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

65

PART II.OTHER INFORMATION

Item 1A.             Risk Factors

Refer to Part I, Item 1A. Risk Factors in the Company's Form 10-K for the year ended May 31, 2007 for information regarding factors that could affect the Company's results of operations, financial condition and liquidity.  There have been no changes to the Company's risk factors during the quarter ended February 29, 2008.

Item 6.                 Exhibits

4.5	–	Revolving Credit Agreement dated as of March 14, 2008 for $1,500 million expiring on March 13, 2009.
4.21	–	Indenture for Clean Renewable Energy Bonds, Tax Credit Series dated as of January 1, 2008, between the Registrant and U.S. Bank Trust National Association.  The Indenture has been omitted and will be furnished supplementally to the Securities and Exchange Commission upon request.
4.22	–	Note Purchase Agreement dated as of March 27, 2008 for $400,000,000 between the Registrant and Federal Agricultural Mortgage Corporation.
4.23	–	Pledge Agreement dated as of March 27, 2008, between the Registrant, Federal Agricultural Mortgage Corporation and U.S. Bank Trust National Association.
4.24	–	Registration Rights Agreement dated as of March 27, 2008 between the Registrant and Federal Agricultural Mortgage Corporation.
4.25	–	Variable Rate Senior Note due 2013 dated as of March 27, 2008 from the Registrant to Federal Agricultural Mortgage Corporation.
31.1	–	Certification of the Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	–	Certification of the Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	–	Certification of the Chief Executive Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	–	Certification of the Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.

66

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

NATIONAL RURAL UTILITIES COOPERATIVE

     FINANCE CORPORATION

/s/ STEVEN L. LILLY

Steven L. Lilly

Chief Financial Officer

/s/ ROBERT E. GEIER

Robert E. Geier

Acting Controller

(Acting Principal Accounting Officer)

April 14, 2008

67

EX-4.5

Exhibit 4.5

Execution Draft

REVOLVING CREDIT AGREEMENT

dated as of

March 14, 2008

among

NATIONAL RURAL UTILITIES

COOPERATIVE FINANCE CORPORATION,

THE BANKS LISTED HEREIN,

DEUTSCHE BANK SECURITIES INC.,

UBS LOAN FINANCE LLC

and

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., NEW YORK BRANCH

as Co-Documentation Agents,

THE BANK OF NOVA SCOTIA,

as Administrative Agent

and

THE ROYAL BANK OF SCOTLAND PLC,

as Syndication Agent

THE ROYAL BANK OF SCOTLAND PLC

and

THE BANK OF NOVA SCOTIA,

as Co-Lead Arrangers and Joint Bookrunners

TABLE OF CONTENTS
	Page
ARTICLE 1
Definitions
Section 1.01.  Definitions	1
Section 1.02.  Accounting Terms and Determinations	14
Section 1.03.  Types of Borrowings	14
ARTICLE 2
The Credits
Section 2.01.  Commitments to Lend	14
Section 2.02.  Notice of Committed Borrowings	14
Section 2.03.  Money Market Borrowings	15
Section 2.04.  Notice to Banks; Funding of Loans	19
Section 2.05.  Notes	20
Section 2.06.  Maturity of Loans	20
Section 2.07.  Interest Rates	20
Section 2.08.  Method of Electing Interest Rates	22
Section 2.09.  Fees	24
Section 2.10.  Optional Termination or Reduction of Commitments	25
Section 2.11.  Mandatory Termination of Commitments	25
Section 2.12.  Optional Prepayments	25
Section 2.13.  General Provisions as to Payments	25
Section 2.14.  Funding Losses	26
Section 2.15.  Computation of Interest and Fees	26
Section 2.16.  Withholding Tax Exemption	27
Section 2.17.  Increase of Commitments	27
ARTICLE 3
Conditions
Section 3.01.  Effectiveness	28
Section 3.02.  Prior Credit Agreement	29
Section 3.03.  Borrowings	30
ARTICLE 4
Representations and Warranties
Section 4.01.  Corporate Existence, Power and Authority	31
Section 4.02.  Financial Statements	31
Section 4.03.  Litigation	32
Section 4.04.  Governmental Authorizations	33
Section 4.05.  Members’ Subordinated Certificates	33

i

Section 4.06.  No Violation of Agreements	33
Section 4.07.  No Event of Default under the Indentures	33
Section 4.08.  Compliance with ERISA	34
Section 4.09.  Compliance with Other Laws	34
Section 4.10.  Tax Status	34
Section 4.11.  Investment Company Act	34
Section 4.12.  Disclosure	34
Section 4.13.  Subsidiaries	35

Section 4.14.  Environmental Matters	35
ARTICLE 5
Covenants
Section 5.01.  Corporate Existence	35
Section 5.02.  Disposition of Assets, Merger, Character of Business, etc	36
Section 5.03.  Financial Information	36
Section 5.04.  Default Certificates	38
Section 5.05.  Notice of Litigation, Legislative Developments and Defaults	39
Section 5.06.  ERISA	39
Section 5.07.  Payment of Charges	39
Section 5.08.  Inspection of Books and Assets	40
Section 5.09.  Indebtedness	40
Section 5.10.  Liens	41
Section 5.11.  Maintenance of Insurance	42
Section 5.12.  Subsidiaries and Joint Ventures	42
Section 5.13.  Minimum TIER	43
Section 5.14.  Retirement of Patronage Capital	43
Section 5.15.  Use of Proceeds	43
ARTICLE 6
Defaults
Section 6.01.  Events of Defaults	44
Section 6.02.  Notice of Default	46
ARTICLE 7
The Administrative Agent
Section 7.01.  Appointment and Authorization	46
Section 7.02.  Administrative Agent and Affiliates	46
Section 7.03.  Action by Administrative Agent	46
Section 7.04.  Consultation with Experts	46
Section 7.05.  Liability of Administrative Agent	47
Section 7.06.  Indemnification	47
Section 7.07.  Credit Decision	47
Section 7.08.  Successor Administrative Agent	47
Section 7.09.  Co-Documentation Agents and Syndication Agent Not Liable	48

ii

ARTICLE 8
Change in Circumstances
Section 8.01.  Basis for Determining Interest Rate Inadequate or Unfair	48
Section 8.02.  Illegality	49
Section 8.03.  Increased Cost and Reduced Return	49
Section 8.04.  Base Rate Loans Substituted for Affected Euro-Dollar Loans	51
ARTICLE 9
Miscellaneous
Section 9.01.  Notices	51
Section 9.02.  No Waivers	52
Section 9.03.  Expenses; Documentary Taxes; Indemnification	52
Section 9.04.  Sharing of Set-offs	53
Section 9.05.  Amendments and Waivers	53
Section 9.06.  Successors and Assigns	54
Section 9.07.  Collateral	55
Section 9.08.  Governing Law	55
Section 9.09.  Counterparts; Integration	56
Section 9.10.  Several Obligations	56

Section 9.11.  Severability	56
Section 9.12.  Confidentiality	56
Section 9.13.  WAIVER OF JURY TRIAL	57
Section 9.14. USA Patriot Act	57

iii

Schedules

Agent Schedule

Commitment Schedule

Pricing Schedule

Schedule 5.03(a)                                                      Non-GAAP Subsidiaries

Exhibits

Exhibit A - Form of Note

Exhibit B-1 and B-2  - Forms of RUS Guarantee

Exhibit C - Money Market Quote Request

Exhibit D - Invitation for Money Market Quotes

Exhibit E - Money Market Quote

Exhibit F - Opinion of General Counsel for the Borrower

Annex A to Exhibit F  -  Subsidiaries and Joint Ventures

Exhibit G - Opinion of Special Counsel for the Administrative Agent

Exhibit H - Assignment and Assumption Agreement

iv

REVOLVING CREDIT AGREEMENT

REVOLVING CREDIT AGREEMENT dated as of March 14, 2008, among NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a not-for-profit cooperative association incorporated under the laws of the District of Columbia, as Borrower, the BANKS listed on the signature pages hereof, DEUTSCHE BANK SECURITIES INC., UBS LOAN FINANCE LLC and THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., New York Branch, as Co-Documentation Agents, THE ROYAL BANK OF SCOTLAND PLC, as Syndication Agent, and THE BANK OF NOVA SCOTIA, as Administrative Agent.

The parties hereto agree as follows:

ARTICLE 1

Definitions

Section 1.01.  Definitions.  The following terms, as used herein, have the following meanings:

“2007 Indenture” means the Indenture dated as of October 25, 2007 between the Borrower and U.S. Bank National Association, as trustee, as amended and supplemented from time to time, providing for the issuance in series of certain collateral trust bonds of the Borrower.

“1994 Indenture” means the Indenture dated as of February 15, 1994 and as amended as of September 16, 1994 between the Borrower and U.S. Bank National Association, as trustee, as amended and supplemented from time to time, providing for the issuance in series of certain collateral trust bonds of the Borrower.

“1972 Indenture” means the Seventeenth Supplemental Indenture dated as of March 1, 1987, amending and restating in full the Indenture dated as of December 1, 1972, by and between the Borrower and U.S. Bank Trust National Association, as trustee, as amended and supplemented from time to time, providing for the issuance in series of certain collateral trust bonds of the Borrower.

“Absolute Rate Auction” means a solicitation of Money Market Quotes setting forth Money Market Absolute Rates pursuant to Section 2.03.

“Adjusted London Interbank Offered Rate” has the meaning set forth in Section 2.07(b).

“Administrative Agent” means The Bank of Nova Scotia, in its capacity as administrative agent for the Banks hereunder, and its successors in such capacity.

“Administrative Questionnaire” means, with respect to each Bank, the administrative questionnaire in the form submitted to such Bank by the Administrative Agent and submitted to the Administrative Agent (with a copy to the Borrower) duly completed by such Bank.

“Agreement” means this Revolving Credit Agreement, as the same may be amended from time to time.

“Applicable Lending Office” means, with respect to any Bank, (i) in the case of its Base Rate Loans, its Domestic Lending Office, (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of its Money Market Loans, its Money Market Lending Office.

“Assignee” has the meaning set forth in Section 9.06(c).

“Bank” means each bank listed on the signature pages hereof, each Assignee which becomes a Bank pursuant to Section 9.06(c), and their respective successors.

“Base Rate” means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such day.

“Base Rate Loan” means a Committed Loan that bears interest at the Base Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election or the last sentence of Section 2.08(a) or Article 8.

“Bonds” means any bonds issued pursuant to any of the Indentures, as the context may require.

“Borrower” means the National Rural Utilities Cooperative Finance Corporation, a not-for-profit cooperative association incorporated under the laws of the District of Columbia, and its successors.

“Borrowing” has the meaning set forth in Section 1.03.

“Co-Documentation Agents” means Deutsche Bank Securities Inc., UBS Loan Finance LLC and The Bank of Tokyo-Mitsubishi UFJ, LTD., New York Branch, each in its capacity as co-documentation agent hereunder, and their successors in such capacity.

“Commitment” means (i) with respect to each Bank listed on the signature pages hereof, the amount set forth opposite the name of such Bank on the Commitment Schedule hereto and (ii) with respect to any Assignee that becomes a Bank pursuant to Section 9.06(c), the amount of the transferor Bank’s Commitment assigned to it pursuant to Section 9.06(c), in each case as such amount may from time to time be reduced pursuant to Sections 2.10 and 2.11; provided that, if the context so requires, the term “Commitment” means the

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obligation of a Bank to extend credit up to such amount to the Borrower hereunder.

“Committed Borrowing” means a Borrowing under Section 2.01.

“Committed Loan” means a Revolving Loan or a Term Loan; provided that, if any such loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Interest Rate Election, the term “Committed Loan” shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be.

“Commitment Termination Date” means March 13, 2009 or, if such day is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day.

“Consolidated Subsidiary” means at any date any Subsidiary and any other entity the accounts of which would be combined or consolidated with those of the Borrower in its combined or consolidated financial statements if such statements were prepared as of such date.

“Consolidated Subsidiary Member” has the meaning set forth in Section 5.03(b)(iii)(A).

“Default” means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both (as specified in Section 6.01) would, unless cured or waived, become an Event of Default.

“Derivative Cash Settlements” means, for any period, the line item “derivative cash settlements” as it appears on the statement of operations of the Borrower and its Consolidated Subsidiaries for such period delivered to the Banks pursuant to Section 5.03(b), calculated in accordance with generally accepted accounting principles as in effect from time to time.

“Derivatives Obligations” of any Person means all obligations of such Person in respect of any rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions.

“Determination Date” has the meaning set forth in Section 5.09.

“Domestic Business Day” means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close.

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“Domestic Lending Office” means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Administrative Agent.

“Effective Date” means the date this Agreement becomes effective in accordance with Section 3.01.

“Environmental Laws” means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and governmental restrictions relating to the environment, the effect of the environment on human health or to emissions, discharges or releases of pollutants, contaminants, Hazardous Substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, Hazardous Substances or wastes or the clean-up or other remediation thereof.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute.

“ERISA Group” means the Borrower, any Subsidiary and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any Subsidiary, are treated as a single employer under Section 414(b) or (c) of the Internal Revenue Code or, for purposes of Section 412 of the Internal Revenue Code, under Section 414(b), (c), (m) or (o) of the Internal Revenue Code.

“Euro-Dollar Business Day” means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London.

“Euro-Dollar Lending Office” means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower and the Administrative Agent.

“Euro-Dollar Loan” means a Committed Loan that bears interest at a Euro-Dollar Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election.

“Euro-Dollar Margin” means a rate per annum determined in accordance with the Pricing Schedule.

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“Euro-Dollar Rate” means, for any day, a rate per annum determined in accordance with Section 2.07(b).

“Euro-Dollar Reference Banks” means the principal London offices of The Bank of Nova Scotia and The Royal Bank of Scotland plc.

“Euro-Dollar Reserve Percentage” has the meaning set forth in Section 2.07(b).

“Event of Default” has the meaning set forth in Section 6.01.

“Facility Fee Rate” means a rate per annum determined in accordance with the Pricing Schedule.

“Federal Funds Rate” means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day; provided that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to The Bank of Nova Scotia on such day on such transactions as determined by the Administrative Agent.

“Fixed Rate Borrowing” means either a Euro-Dollar Borrowing or a  Money Market LIBOR Borrowing.

“Fixed Rate Loans” means Euro-Dollar Loans or Money Market Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate pursuant to Section 8.01) or any combination of the foregoing.

“Foreclosed Asset” has the meaning set forth in Section 5.12.

“Group of Loans” means, at any time, a group of Loans consisting of (i) all Committed Loans which are Base Rate Loans at such time or (ii) all Euro-Dollar Loans having the same Interest Period at such time; provided that if a Committed Loan of any particular Bank is converted to or made as a Base Rate Loan pursuant to Article 8, such Loan shall be included in the same Group or Groups of Loans from time to time as it would have been in if it had not been so converted or made.

“Guarantee” by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Indebtedness or lease payments of any other Person or otherwise in any manner assuring the holder of any Indebtedness of, or the obligee under any lease of, any other Person through an agreement, contingent or otherwise, to purchase Indebtedness or the

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property subject to such lease, or to purchase goods, supplies or services primarily for the purpose of enabling the debtor or obligor to make payment of the Indebtedness or under such lease or of assuring such Person against loss, or to supply funds to or in any other manner invest in the debtor or obligor, or otherwise; provided that the term “Guarantee” shall not include endorsements for collection or deposit in the ordinary course of business.  The term “Guarantee” when used as a verb has a correlative meaning.

“Guaranteed Portion” has the meaning set forth in the definition of RUS Guaranteed Loan.

“Hazardous Substances” means any toxic, radioactive, caustic or otherwise hazardous substance, including petroleum, its derivatives, by-products and other hydrocarbons, or any substance having any constituent elements displaying any of the foregoing characteristics.

“Indebtedness” with respect to any Person means:

(1)           all indebtedness which would appear as indebtedness on a balance sheet of such Person prepared in accordance with generally accepted accounting principles (i) for money borrowed, (ii) which is evidenced by securities sold for money or (iii) which constitutes purchase money indebtedness;

(2)           all indebtedness of others Guaranteed by such Person;

(3)           all indebtedness secured by any Lien upon property owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness; and

(4)           all indebtedness of such Person created or arising under any conditional sale or other title retention agreement (including any lease in the nature of a title retention agreement) with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession of such property), but only if such property is included as an asset on the balance sheet of such Person;

provided that, in computing the “Indebtedness” of such Person, there shall be excluded any particular indebtedness if, upon or prior to the maturity thereof, there shall have been deposited with the proper depositary in trust money (or evidences of such indebtedness) in the amount necessary to pay, redeem or satisfy such indebtedness, and thereafter such money and evidences of indebtedness so deposited shall not be included in any computation of the assets of such Person; and provided further that no provision of this definition shall be construed to include as “Indebtedness” of the Borrower or its Consolidated Subsidiaries any indebtedness by virtue of any agreement by the Borrower or its Consolidated Subsidiaries to advance or supply funds to Members or Consolidated Subsidiary Members.

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“Indenture” means either the 1972 Indenture, the 1994 Indenture, the 2007 Indenture or any other Indenture that provides for borrowing on terms not materially more disadvantageous to the Borrower’s unsecured creditors than the borrowings under the 1972 Indenture, the 1994 Indenture or the 2007 Indenture, and “Indentures” means all such Indentures.

“Interest Expense” means, for any period, the line item “interest expense” as it appears on the statement of operations of the Borrower and its Consolidated Subsidiaries for such period delivered to the Banks pursuant to Section 5.03(b), calculated in accordance with generally accepted accounting principles as in effect from time to time.

“Interest Period” means: (1) with respect to each Euro-Dollar Borrowing, the period commencing on the date of such Borrowing and ending one, two, three or six months thereafter, as the Borrower may elect in the applicable Notice of Borrowing; provided that:

(a)           any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day;

(b)           any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of a calendar month; and

(c)           any Interest Period of any Euro-Dollar Loan included in such Borrowing which would otherwise end after the Maturity Date shall, with respect to such Euro-Dollar Loan, end on such Maturity Date;

(2)           with respect to each Base Rate Borrowing, the period commencing on the date of such Borrowing and ending 30 days thereafter; provided that:

(a)           any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day; and

(b)           any Interest Period of any Base Rate Loan included in such Borrowing which would otherwise end after the Maturity Date shall, with respect to such Base Rate Loan, end on such Maturity Date;

(3)           with respect to each Money Market LIBOR Borrowing, the period commencing on the date of such Borrowing and ending any whole number of months thereafter (but not less than one month) as the Borrower may elect in the applicable Notice of Borrowing; provided that:

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(a)           any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day;

(b)           any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of a calendar month; and

(c)           any Interest Period which would otherwise end after the Commitment Termination Date shall end on the Commitment Termination Date; and

(4)           with respect to each Money Market Absolute Rate Borrowing, the period commencing on the date of such Borrowing and ending such number of days thereafter (but not less than 30 days) as the Borrower may elect in the applicable Notice of Borrowing; provided that:

(a)           any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day; and

(b)           any Interest Period which would otherwise end after the Commitment Termination Date shall end on the Commitment Termination Date.

“Internal Revenue Code” means the Internal Revenue Code of 1986, as amended, or any successor statute.

“Investments” has the meaning set forth in Section 5.12.

“Joint Venture” means any corporation, partnership, association, joint venture or other entity in which the Borrower, directly or indirectly through Subsidiaries or Joint Ventures, has an equity interest at the time of 10% or more but which is not a Subsidiary; provided that no Person whose only assets are RUS Guaranteed Loans and investments incidental thereto shall be deemed a Joint Venture.

“LIBOR Auction” means a solicitation of Money Market Quotes setting forth Money Market Margins based on the London Interbank Offered Rate pursuant to Section 2.03.

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset.  For the purposes of this Agreement, the Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the

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interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset.

“Loan” means a Base Rate Loan or a Euro-Dollar Loan or a Money Market Loan and “Loans” means Base Rate Loans or Euro-Dollar Loans or Money Market Loans or any combination of the foregoing.

“London Interbank Offered Rate” has the meaning set forth in Section 2.07(b).

“Maturity Date” means (i) with respect to any Revolving Loan, the Commitment Termination Date, (ii) with respect to any Term Loan, the first anniversary of the Commitment Termination Date, and (iii) with respect to any Money Market Loan, the last day of the Interest Period applicable thereto.

“Member” means any Person which is a member or a patron of the Borrower.

“Members’ Subordinated Certificate” means a note of the Borrower or its Consolidated Subsidiaries substantially in the form of the membership subordinated subscription certificates and the loan and guarantee subordinated certificates outstanding on the date of the execution and delivery of this Agreement and any other Indebtedness of the Borrower or its Consolidated Subsidiaries having substantially similar provisions as to subordination as those contained in said outstanding membership subordinated subscription certificates and loan and guarantee subordinated certificates.

“Money Market Absolute Rate” has the meaning set forth in Section 2.03(d).

“Money Market Absolute Rate Loan” means a loan to be made by a Bank pursuant to an Absolute Rate Auction.

“Money Market Lending Office” means, as to each Bank, its Domestic Lending Office or such other office, branch or affiliate of such Bank as it may hereafter designate as its Money Market Lending Office by notice to the Borrower and the Administrative Agent; provided that any Bank may from time to time by notice to the Borrower and the Administrative Agent designate separate Money Market Lending Offices for its Money Market LIBOR Loans, on the one hand, and its Money Market Absolute Rate Loans, on the other hand, in which case all references herein to the Money Market Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require.

“Money Market LIBOR Loan” means a loan to be made by a Bank pursuant to a LIBOR Auction (including such a loan bearing interest at the Prime Rate pursuant to Section 8.01(a)).

“Money Market Loan” means a Money Market LIBOR Loan or a Money Market Absolute Rate Loan.

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“Money Market Margin” has the meaning set forth in Section 2.03(d).

“Money Market Quote” means an offer by a Bank to make a Money Market Loan in accordance with Section 2.03.

“Moody’s” means Moody’s Investors Service, Inc., and its successors.

“Multiple Employer Plan” means a single employer plan, as defined in Section 4001 of ERISA and subject to Title IV of ERISA, which has two or more contributing sponsors, one of whom is the Borrower or a Subsidiary of the Borrower or any member of the ERISA Group, at least two of whom are not under common control, within the meaning of Section 4063 of ERISA.

“Net Income” means, for any period, the sum of (i) the line item “net income” on the consolidated statement of operations of the Borrower and its Consolidated Subsidiaries plus (ii) the line item “minority interest” on the consolidated statement of operations of the Borrower and its Consolidated Subsidiaries at the last day of such period, each as it appears in the financial statements for such period delivered to the Banks pursuant to Section 5.03(b), and each calculated in accordance with generally accepted accounting principles as in effect from time to time; provided that non-cash adjustments (whether positive or negative) required to be made pursuant to SFAS 133 and SFAS 52 on each such line item shall be excluded from the calculation thereof to the extent otherwise included therein.

“Notes” means promissory notes of the Borrower, substantially in the form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the Loans, and “Note” means any one of such promissory notes issued hereunder.

“Notice of Borrowing” means a Notice of Committed Borrowing or a Notice of Money Market Borrowing.

“Notice of Committed Borrowing” has the meaning set forth in Section 2.02.

“Notice of Interest Rate Election” has the meaning set forth in Section 2.08.

“Notice of Money Market Borrowing” has the meaning set forth in Section 2.03(f).

“Participant” has the meaning set forth in Section 9.06(b).

“Patronage Capital Certificates” means those certificates that evidence the portion of Net Income allocated by the Borrower among its Members in accordance with applicable cooperative principles.

“PBGC” means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

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“Person” means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

“Plan” means any multiemployer plan or single employer plan (including any Multiple Employer Plan), as defined in Section 4001 and subject to Title IV of ERISA, which is maintained or contributed to by, or at any time during the five calendar years preceding the date of this Agreement was maintained or contributed to by, the Borrower or a Subsidiary of the Borrower or any member of the ERISA Group.

“Pricing Schedule” means the Pricing Schedule attached hereto.

“Prime Rate” means the rate of interest published by the Wall Street Journal from time to time as its prime rate.

“Prior 364-Day Credit Agreement” means the 364-Day Revolving Credit Agreement dated as of March 16, 2007, among the Borrower, the banks named therein, ABN Amro Bank, N.V., The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, and The Royal Bank of Scotland plc, as Co-Documentation Agents, The Bank of Nova Scotia, as Syndication Agent, and JP Morgan Chase Bank, N.A., as Administrative Agent.

“Qualified Subordinated Indebtedness” means the Borrower’s (i) 6.75% Subordinated Deferrable Interest Notes Due 2043, (ii) 6.10% Subordinated Deferrable Interest Notes Due 2044, (iii) 5.95% Subordinated Deferrable Interest Notes Due 2045, and (iv) any other Indebtedness of the Borrower having substantially similar terms as to subordination as those contained in the instruments and documents relating to the foregoing Indebtedness or that would be junior to any of the foregoing; provided that such Indebtedness (a) will not mature prior to the Maturity Date and (b) does not require payments of principal prior to the Maturity Date, except pursuant to acceleration or at the option of the Borrower.

“REDLG Program Liens” means Liens on any asset of the Borrower required to be pledged as collateral to support obligations of the Borrower with respect to any government Guarantee provided pursuant to regulations issued under the Rural Electrification Act of 1936, 7 U.S.C. 901 et. seq., and the Farm Security and Rural Investment Act of 2002, Pub. L. 107-171, 116 Stat. 413 (“REDLG Obligations”) so long as such Guarantee supports long-term Indebtedness issued by the Borrower and permitted by Section 5.09.

“REDLG Obligations” has the meaning set forth in the definition of REDLG Program Liens.

“Regulation U” means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time.

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“Regulation X” means Regulation X of the Board of Governors of the Federal Reserve System, as in effect from time to time.

“Reportable Event” means an event described in Section 4043(c) of ERISA or regulations promulgated by the Department of Labor thereunder (with respect to which the 30 day notice requirement has not been waived by the PBGC).

“Required Banks” means at any time Banks having at least 51% of the sum of the aggregate amount of the unused Commitments and the aggregate principal outstanding amount of the Loans.

“Revolving Credit Period” means the period from and including the Effective Date to but excluding the Commitment Termination Date.

“Revolving Loan” means a loan made by a Bank pursuant to Section 2.01(a).

“RUS” means the Rural Utilities Service of the Department of Agriculture of the United States of America (as successor to the Rural Electrification Administration of the Department of Agriculture of the United States of America) or any other regulatory body which succeeds to its functions.

“RUS Guaranteed Loan” means any loan made by any Person, which loan (x) bears interest at least equal to such Person’s cost of funds and (y) is guaranteed, in whole or in part, as to principal and interest by the United States of America through the RUS pursuant to a guarantee, which guarantee contains provisions no less favorable to the holder thereof than the provisions set forth in the form of Exhibit B-1 or Exhibit B-2 hereto; and “Guaranteed Portion” of any RUS Guaranteed Loan means that portion of principal of, and interest on, such RUS Guaranteed Loan which is guaranteed by the United States of America through the RUS as provided in clause (y).

“S&P” means Standard and Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., and its successors.

“Securities and Exchange Commission” means the Securities and Exchange Commission or any other governmental authority succeeding to any or all of the functions of the Securities and Exchange Commission.

“SFAS 52” means Statement of Financial Accounting Standards No. 52 entitled “Foreign Currency Translations”, issued December, 1981 by the Financial Accounting Standards Board, as amended from time to time.

“SFAS 133” means Statement of Financial Accounting Standards No. 133 entitled “Accounting for Derivative Instruments and Hedging Activities”, issued June, 1998 by the Financial Accounting Standards Board as amended from time to time.

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“Special Purpose Subsidiary” has the meaning set forth in Section 5.12.

“Start-up Investments” has the meaning set forth in Section 5.12.

“Subsidiary” of any Person means (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person directly or indirectly through its Subsidiaries, and (ii) any other Person in which such Person directly or indirectly through Subsidiaries has more than a 50% voting and equity interest; provided that no Person whose only assets are RUS Guaranteed Loans and investments incidental thereto shall be deemed a Subsidiary.

“Superior Indebtedness” means all Indebtedness of the Borrower and its Consolidated Subsidiaries (other than Members’ Subordinated Certificates and Qualified Subordinated Indebtedness), but excluding (i) Indebtedness of the Borrower or any of its Consolidated Subsidiaries to the extent that the proceeds of such Indebtedness are used to fund Guaranteed Portions of RUS Guaranteed Loans and (ii) any indebtedness of any Member Guaranteed by the Borrower or any of its Consolidated Subsidiaries (“Guaranteed Indebtedness”), to the extent that either (x) the long-term unsecured debt of such Member is rated at least BBB+ by S&P or Baa1 by Moody’s or (y) the payment of principal and interest by the Borrower or any of its Consolidated Subsidiaries in respect of such Guaranteed Indebtedness is covered by insurance or reinsurance provided by an insurer having an insurance financial strength rating of AAA by S&P or a financial strength rating of Aaa by Moody’s.

“Syndication Agent” means The Royal Bank of Scotland plc, in its capacity as Syndication Agent hereunder, and its successors in such capacity.

“Term Loan” means a loan made pursuant to Section 2.01(b).

“TIER” means, for any period, the ratio of (x) Net Income plus Interest Expense plus Derivative Cash Settlements to (y) Interest Expense plus Derivative Cash Settlements, in each case for such period.

“Type” refers to whether a Loan is a Base Rate Loan, a Euro-Dollar Loan, a Money Market Absolute Rate Loan or a Money Market LIBOR Loan.

“Utilization” means, at any date, the percentage equivalent of a fraction (i) the numerator of which is the aggregate outstanding principal amount of Loans at such date and (ii) the denominator of which is the aggregate amount of the Commitments at such date; provided that if any Loans remain outstanding following the termination of the Commitments, Utilization will be deemed to be 100% of the principal amount then outstanding.

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Section 1.02.  Accounting Terms and Determinations.   Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Borrower’s independent public accountants) with the most recent audited financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Banks.

Section 1.03.  Types of Borrowings.  The term “Borrowing” denotes the aggregation of Loans of one or more Banks to be made to the Borrower pursuant to Article 2 on a single date and for a single Interest Period.  Borrowings are classified for purposes of this Agreement either by reference to the pricing of Loans comprising such Borrowing (e.g., a “Euro-Dollar Borrowing” is a Borrowing comprised of Euro-Dollar Loans) or by reference to the provisions of Article 2 under which participation therein is determined (i.e., a “Revolving  Borrowing” is a Borrowing under Section 2.01(a) in which all Banks participate in proportion to their Commitments, while a “Money Market Borrowing” is a Borrowing under Section 2.03 in which the Bank participants are determined on the basis of their bids in accordance therewith).

ARTICLE 2

The Credits

Section 2.01.  Commitments to Lend.  (a) Revolving Loans.  During the Revolving Credit Period each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make loans to the Borrower pursuant to this Section from time to time in amounts such that the aggregate principal amount of Revolving Loans by such Bank at any one time outstanding shall not exceed the amount of its Commitment.  Each Borrowing shall be in an aggregate principal amount of  $10,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing may be in the maximum aggregate amount available in accordance with Section 3.03(d)) and shall be made from the several Banks ratably in proportion to their respective Commitments.  Within the foregoing limits, the Borrower may borrow under this Section, repay or, to the extent permitted by Section 2.12, prepay Loans and reborrow at any time during the Revolving Credit Period under this Section.

(b)Term Loans.  Each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make a Term Loan to the Borrower on the Commitment Termination Date in an amount up to but not exceeding the amount of its Commitment.

Section 2.02.  Notice of Committed Borrowings.  The Borrower shall give the Administrative Agent notice (a “Notice of Committed Borrowing”) not later than 11:00 A.M. (New York City time) on (x) the date of such Borrowing, in the

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case of each Base Rate Borrowing, and (y) the third Euro-Dollar Business Day before such Borrowing, in the case of each Euro-Dollar Borrowing, specifying:

(a)the date of such Borrowing, which shall be a Domestic Business Day in the case of a Base Rate Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing,

(b)the aggregate amount of such Borrowing,

(c)whether the Loans comprising such Borrowing are to bear interest initially at the Base Rate or a Euro-Dollar Rate, and

(d)in the case of a Euro-Dollar Borrowing, the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period.

Notwithstanding the foregoing, no more than 15 Fixed Rate Borrowings  shall be outstanding at any one time, and any Borrowing which would exceed such limitation shall be made as a Base Rate Borrowing.

Section 2.03.  Money Market Borrowings.  (a) In addition to Committed Borrowings pursuant to Section 2.01, the Borrower may, as set forth in this Section, request the Banks during the Revolving Credit Period to make offers to make Money Market Loans to the Borrower.  The Banks may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section.

(b)Money Market Quote Request.  When the Borrower wishes to request offers to make Money Market Loans under this Section, it shall transmit to the Administrative Agent by telex or facsimile transmission a Money Market Quote Request substantially in the form of Exhibit C hereto so as to be received no later than 10:00 A.M. (New York City time) on (x) the fourth Euro-Dollar Business Day prior to the date of Borrowing proposed therein, in the case of a LIBOR Auction or (y) the Domestic Business Day next preceding the date of Borrowing proposed therein, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Administrative Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective) specifying:

(i)the proposed date of Borrowing, which shall be a Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic Business Day in the case of an Absolute Rate Auction,

(ii)the aggregate amount of such Borrowing, which shall be $10,000,000 or any larger multiple of $1,000,000,

(iii)the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period, and

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(iv)whether the Money Market Quotes requested are to set forth a Money Market Margin or a Money Market Absolute Rate.

The Borrower may request offers to make Money Market Loans for more than one Interest Period in a single Money Market Quote Request.  No Money Market Quote Request shall be given within four Euro-Dollar Business Days (or such other number of days as the Borrower and the Administrative Agent may agree) of any other Money Market Quote Request.

(c)Invitation for Money Market Quotes.  Promptly upon receipt of a Money Market Quote Request, the Administrative Agent shall send to the Banks by telex or facsimile transmission an Invitation for Money Market Quotes substantially in the form of Exhibit D hereto, which shall constitute an invitation by the Borrower to each Bank to submit Money Market Quotes offering to make the Money Market Loans to which such Money Market Quote Request relates in accordance with this Section.

(d)Submission and Contents of Money Market Quotes.  (i) Each Bank may submit a Money Market Quote containing an offer or offers to make Money Market Loans in response to any Invitation for Money Market Quotes.  Each Money Market Quote must comply with the requirements of this subsection (d) and must be submitted to the Administrative Agent by telex or facsimile transmission at its offices specified in or pursuant to Section 9.01 not later than (x) 9:30 A.M. (New York City time) on the third Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 9:30 A.M. (New York City time) on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Administrative Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective); provided that Money Market Quotes submitted by the Administrative Agent (or any affiliate of the Administrative Agent) in the capacity of a Bank may be submitted, and may only be submitted, if the Administrative Agent or such affiliate notifies the Borrower of the terms of the offer or offers contained therein not later than (x) 8:30 A.M. (New York City time) on the third Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 9:15 A.M. (New York City time) on the proposed date of Borrowing, in the case of an Absolute Rate Auction.  Subject to Articles 3 and 6, any Money Market Quote so made shall be irrevocable except with the written consent of the Administrative Agent given on the instructions of the Borrower.

(ii)Each Money Market Quote shall be in substantially the form of Exhibit E hereto and shall in any case specify:

(A)the proposed date of Borrowing,

(B)the principal amount of the Money Market Loan for which each such offer is being made, which principal amount

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(w) may be greater than or less than the Commitment of the quoting Bank, (x) must be $1,000,000 or any larger multiple thereof, (y) may not exceed the principal amount of Money Market Loans for which offers were requested and (z) may be subject to an aggregate limitation as to principal amount of Money Market Loans for which offers being made by such quoting Bank may be accepted,

(C)in the case of a LIBOR Auction, the margin above or below the applicable London Interbank Offered Rate (the “Money Market Margin”) offered for each such Money Market Loan, expressed as a percentage (rounded to the nearest 1/10,000th of 1%) to be added to or subtracted from such base rate,

(D)in the case of an Absolute Rate Auction, the rate of interest per annum (rounded to the nearest 1/10,000th of 1%) (the “Money Market Absolute Rate”) offered for each such Money Market Loan, and

(E)the identity of the quoting Bank.

A Money Market Quote may set forth up to five separate offers by the quoting Bank with respect to each Interest Period specified in the related Invitation for Money Market Quotes.

(iii)Any Money Market Quote shall be disregarded if it:

(A)is not substantially in conformity with Exhibit E hereto or does not specify all of the information required by subsection (d)(ii),

(B)contains qualifying, conditional or similar language,

(C)proposes terms other than or in addition to those set forth in the applicable Invitation for Money Market Quotes, or

(D)arrives after the time set forth in subsection (d)(i).

(e)Notice to Borrower.  The Administrative Agent shall promptly notify the Borrower of the terms (x) of any Money Market Quote submitted by a Bank that is in accordance with subsection (d) and (y) of any Money Market Quote that amends, modifies or is otherwise inconsistent with a previous Money Market Quote submitted by such Bank with respect to the same Money Market Quote Request.  Any such subsequent Money Market Quote shall be disregarded by the Administrative Agent unless such subsequent Money Market Quote is submitted solely to correct a manifest error in such former Money Market Quote.  The Administrative Agent’s notice to the Borrower shall specify (A) the

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aggregate principal amount of Money Market Loans for which offers have been received for each Interest Period specified in the related Money Market Quote Request, (B) the respective principal amounts and Money Market Margins or Money Market Absolute Rates, as the case may be, so offered and (C) if applicable, limitations on the aggregate principal amount of Money Market Loans for which offers in any single Money Market Quote may be accepted.

(f)Acceptance and Notice by Borrower.  Not later than 10:30 A.M. (New York City time) on (x) the third Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Administrative Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective), the Borrower shall notify the Administrative Agent of its acceptance or non-acceptance of the offers so notified to it pursuant to subsection (e).  In the case of acceptance, such notice (a “Notice of Money Market Borrowing”) shall specify the aggregate principal amount of offers for each Interest Period that are accepted.  The Borrower may accept any Money Market Quote in whole or in part; provided that:

(i)the aggregate principal amount of each Money Market Borrowing may not exceed the applicable amount set forth in the related Money Market Quote Request,

(ii)the aggregate principal amount of each Money Market Borrowing must be $10,000,000 or any larger multiple of $1,000,000,

(iii)acceptance of offers may only be made on the basis of ascending Money Market Margins or Money Market Absolute Rates, as the case may be, and

(iv)the Borrower may not accept any offer that is described in subsection (d)(iii) or that otherwise fails to comply with the requirements of this Agreement.

(g)Allocation by Agent.  If offers are made by two or more Banks with the same Money Market Margins or Money Market Absolute Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which such offers are accepted for the related Interest Period, the principal amount of Money Market Loans in respect of which such offers are accepted shall be allocated by the Administrative Agent among such Banks as nearly as possible (in such multiples, not greater than $100,000, as the Administrative Agent may deem appropriate) in proportion to the aggregate principal amounts of such offers.  Determinations by the Administrative Agent of the amounts of Money Market Loans shall be conclusive in the absence of manifest error.

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Section 2.04. Notice to Banks; Funding of Loans.  (a) Upon receipt of a Notice of Borrowing, the Administrative Agent shall promptly notify each Bank of the contents thereof and of such Bank’s share (if any) of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Borrower.

(b)Not later than 1:00 P.M. (New York City time) on the date of each Borrowing, each Bank participating therein shall (except as provided in subsection (c) of this Section) make available its share of such Borrowing, in Federal or other funds immediately available in New York City, to the Administrative Agent at its address specified in or pursuant to Section 9.01.  Unless the Administrative Agent determines that any applicable condition specified in Article 3 has not been satisfied, the Administrative Agent will make the funds so received from the Banks available to the Borrower at the Administrative Agent’s aforesaid address.

(c)If any Bank makes a new Loan hereunder on a day on which the Borrower is to repay all or any part of an outstanding Loan from such Bank, such Bank shall apply the proceeds of its new Loan to make such repayment and only an amount equal to the difference (if any) between the amount being borrowed and the amount being repaid shall be made available by such Bank to the Administrative Agent as provided in subsection (b), or remitted by the Borrower to the Administrative Agent as provided in Section 2.13, as the case may be.

(d)Unless the Administrative Agent shall have been notified by any Bank prior to the date of Borrowing (or prior to 1:00 P.M. (New York City time) on the date of Borrowing in the case of a Base Rate Borrowing) that such Bank does not intend to make available to the Administrative Agent such Bank’s portion of the Borrowing to be made on such date, the Administrative Agent may assume that such Bank has made such amount available to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount, subject to the provisions of subsection (c).  If such corresponding amount is not in fact made available to the Administrative Agent by such Bank, the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Bank.  If such Bank does not pay such corresponding amount forthwith upon the Administrative Agent’s demand therefor, the Administrative Agent shall promptly notify the Borrower and the Borrower shall promptly pay such corresponding amount to the Administrative Agent.  The Administrative Agent shall also be entitled to recover from such Bank or the Borrower interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Administrative Agent to the Borrower to the date such corresponding amount is recovered by the Administrative Agent, at a rate per annum equal to (x) in the case of a Bank, the Federal Funds Rate for each such day and (y) in the case of the Borrower, the then applicable rate for Base Rate Loans, Euro-Dollar Loans or Money Market Loans, as appropriate.  Nothing herein shall be deemed to relieve any Bank from its obligation to fulfill its Commitment hereunder or to prejudice any rights which the Borrower may have against any Bank as a result of any default by such Bank hereunder.  For purposes

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of this subsection (d), no amount paid to the Administrative Agent hereunder shall be considered to have been recovered by the Administrative Agent on the date of payment unless such amount shall have been received by the Administrative Agent by 2:30 P.M. (New York City time) on such date.

Section 2.05.  Notes.  (a) Any Bank may request that the Loans of such Bank be evidenced by a single Note payable to the order of such Bank for the account of its Applicable Lending Office in an amount equal to the aggregate unpaid principal amount of such Bank’s Loans.

(b)Each Bank that has requested that its Loans be evidenced by a Note may, by notice to the Borrower and the Administrative Agent, request that its Loans of a particular Type be evidenced by a separate Note in an amount equal to the aggregate unpaid principal amount of such Loans.  Each such Note shall be in substantially the form of Exhibit A hereto with appropriate modifications to reflect the fact that it evidences solely Loans of the relevant Type.  Each reference in this Agreement to the “Note” of such Bank shall be deemed to refer to and include any or all of such Notes, as the context may require.

(c)Upon receipt of each Bank’s Note pursuant to Section 3.01(b), the Administrative Agent shall forward such Note to such Bank.  Each Bank shall record the date, amount, type and maturity of each Loan made by it and the date and amount of each payment of principal made by the Borrower with respect thereto, and may, if such Bank so elects in connection with any transfer or enforcement of its Note, endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding; provided that the failure of any Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Notes.  Each Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and to attach to and make a part of its Note a continuation of any such schedule as and when required.

Section 2.06.  Maturity of Loans.  Each Loan hereunder shall mature, and the principal amount thereof shall be due and payable on the Maturity Date with respect to such Loan.

Section 2.07.  Interest Rates.  (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the Base Rate for such day.  Such interest shall be payable for each Interest Period on the last day thereof and, with respect to the principal amount of any Base Rate Loan that is prepaid or converted to a Euro-Dollar Loan, on the date of such prepayment or conversion.  Any overdue principal of or interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate Loans for such day.

(b)Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per

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annum equal to the sum of the Euro-Dollar Margin plus the applicable Adjusted London Interbank Offered Rate.  Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, three months after the first day thereof and, with respect to the principal amount of any Euro-Dollar Loan that is prepaid or converted to a Base Rate Loan, on the date of such prepayment or conversion.

The “Adjusted London Interbank Offered Rate” applicable to any Interest Period means a rate per annum equal to the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (i) the applicable London Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar Reserve Percentage.

The “London Interbank Offered Rate” applicable to any Interest Period means the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which deposits in dollars are offered to each of the Euro-Dollar Reference Banks in the London interbank market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference Bank to which such Interest Period is to apply and for a period of time comparable to such Interest Period.

“Euro-Dollar Reserve Percentage” means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of “Eurocurrency liabilities” (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents).  The Adjusted London Interbank Offered Rate shall be adjusted automatically on and as of the effective date of any change in the Euro-Dollar Reserve Percentage.

(c)Any overdue principal of or interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day from and including the date payment thereof was due to but excluding the date of actual payment, at a rate per annum equal to the sum of 2% plus the higher of (i) the sum of the Euro-Dollar Margin plus the Adjusted London Interbank Offered Rate applicable to such Loan and (ii) the Euro-Dollar Margin plus the quotient obtained (rounded upwards, if necessary, to the next higher 1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which one day (or, if such amount due remains unpaid more than three Euro-Dollar Business Days, then for such other period of time not longer than six months as the Administrative Agent may select) deposits in dollars in an amount approximately equal to such overdue payment due to each of the Euro-Dollar

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Reference Banks are offered to such Euro-Dollar Reference Bank in the London interbank market for the applicable period determined as provided above by (y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the circumstances described in clause (a) or (b) of Section 8.01 shall exist, at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day).

(d)Subject to Section 8.01(a), each Money Market LIBOR Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the sum of the London Interbank Offered Rate for such Interest Period (determined in accordance with Section 2.07(b) as if each Euro-Dollar Reference Bank were to participate in the related Money Market LIBOR Borrowing ratably in proportion to its Commitment) plus (or minus) the Money Market Margin quoted by the Bank making such Loan in accordance with Section 2.03.  Each Money Market Absolute Rate Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the Money Market Absolute Rate quoted by the Bank making such Loan in accordance with Section 2.03.  Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof.  Any overdue principal of or interest on any Money Market Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the Prime Rate for such day.

(e)The Administrative Agent shall determine each interest rate applicable to the Loans hereunder.  The Administrative Agent shall give prompt notice to the Borrower and the participating Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error.

(f)Each Euro-Dollar Reference Bank agrees to use its best efforts to furnish quotations to the Administrative Agent as contemplated by this Section.  If either Euro-Dollar Reference Bank does not furnish a timely quotation, the Administrative Agent shall determine the relevant interest rate on the basis of the quotation or quotations furnished by the remaining Euro-Dollar Reference Bank or, if none of such quotations is available on a timely basis, the provisions of Section 8.01 shall apply.

Section 2.08.  Method of Electing Interest Rates.  (a) The Loans included in each Committed Borrowing shall bear interest initially at the type of rate specified by the Borrower in the applicable Notice of Committed Borrowing.  Thereafter, the Borrower may from time to time elect to change or continue the type of interest rate borne by each Group of Loans (subject to Section 2.08(d) and the provisions of Article 8), as follows:

(i)if such Loans are Base Rate Loans, the Borrower may elect to convert such Loans to Euro-Dollar Loans as of any Euro-Dollar Business Day;

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(ii)if such Loans are Euro-Dollar Loans, the Borrower may elect to convert such Loans to Base Rate Loans as of any Domestic Business Day, subject to Section 2.14 if any such conversion is effective on any day other than the last day of an Interest Period applicable to such Loans, or may elect to continue such Loans as Euro-Dollar Loans, as of the end of any Interest Period applicable thereto, for an additional Interest Period.

Each such election shall be made by delivering a notice (a “Notice of Interest Rate Election”) to the Administrative Agent not later than 10:30 A.M. (New York City time) on the third Euro-Dollar Business Day before the conversion or continuation selected in such notice is to be effective.  A Notice of Interest Rate Election may, if it so specifies, apply to only a portion of the aggregate principal amount of the relevant Group of Loans; provided that (i) such portion is allocated ratably among the Loans comprising such Group and (ii) such portion, and the remaining portion to which such Notice does not apply, are each at least $10,000,000 (unless such portion is comprised of Base Rate Loans).  If no such notice is timely received before the end of an Interest Period for any Group of Euro-Dollar Loans, the Borrower shall be deemed to have elected that such Group of Loans be converted to Base Rate Loans at the end of such Interest Period.

(b)Each Notice of Interest Rate Election shall specify:

(i)the Group of Loans (or portion thereof) to which such notice applies;

(ii)the date on which the conversion or continuation selected in such notice is to be effective, which shall comply with the applicable clause of Section 2.08(a);

(iii)if the Loans comprising such Group are to be converted to Euro-Dollar Loans, the duration of the next succeeding Interest Period applicable thereto; and

(iv)if such Loans are to be continued as Euro-Dollar Loans for an additional Interest Period, the duration of such additional Interest Period.

Each Interest Period specified in a Notice of Interest Rate Election shall comply with the provisions of the definition of Interest Period.

(c)Promptly after receiving a Notice of Interest Rate Election from the Borrower pursuant to Section 2.08(a), the Administrative Agent shall notify each Bank of the contents thereof and such notice shall not thereafter be revocable by the Borrower.

(d)The Borrower shall not be entitled to elect to convert any Committed Loans to, or continue any Committed Loans for an additional Interest

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Period as, Euro-Dollar Loans if (i) the aggregate principal amount of any Group of Euro-Dollar Loans created or continued as a result of such election would be less than $10,000,000 or (ii) a Default shall have occurred and be continuing when the Borrower delivers notice of such election to the Administrative Agent.

(e)If any Committed Loan is converted to a different Type of Loan, the Borrower shall pay, on the date of such conversion, the interest accrued to such date on the principal amount being converted.

Section 2.09.  Fees.  (a) Facility Fee.  The Borrower shall pay to the Administrative Agent for the account of each Bank facility fees accruing at the Facility Fee Rate on the daily average amount of such Bank’s Commitment (whether used or unused), for the period from and including the Effective Date to but excluding the date such Bank’s Commitment is terminated; provided that, if such Bank continues to have any Committed Loans outstanding after its Commitment terminates, then such facility fee shall continue to accrue on the daily outstanding principal amount of such Bank’s Committed Loans from and including the date on which its Commitment terminates to but excluding the date on which such Bank ceases to have any Committed Loans outstanding.  Accrued facility fees shall be payable on each January 1, April 1, July 1, and October 1 and on the date the Commitment of such Bank is terminated (and, if later, on the date the Loans of such Bank shall be repaid in their entirety); provided that any facility fees accruing after the first anniversary of the Commitment Termination Date shall be payable on demand.

(b)Utilization Fee.  During any period when Utilization exceeds 50%, the Borrower shall pay to the Administrative Agent for the account of each Bank utilization fees at a rate of 0.050% per annum accruing on the average daily aggregate outstanding principal amount of the Loans of such Bank. Such utilization fees for each Loan shall be payable on each date on which interest is payable with respect to such Loan pursuant to Section 2.07, and on the date the Commitment of such Bank is terminated (and, if later, on the date the Loans of such Bank shall be repaid in their entirety); provided that any utilization fees accruing after the first anniversary of the Commitment Termination Date shall be payable on demand.

(c)Term-Out Fee.  The Borrower shall pay to the Administrative Agent for the account of each Bank ratably term-out fees at a rate of 0.100% per annum accruing on the daily aggregate outstanding principal amount of the Term Loan of such Bank, for the period from and including the Commitment Termination Date to but excluding the date the Term Loan of such Bank is repaid in full. Such term-out fees for each Loan shall be payable on each date on which interest is payable with respect to such Loan pursuant to Section 2.07 occurring after the Commitment Termination Date, and on the date the Term Loan of such Bank shall be repaid in its entirety; provided that any term-out fees accruing after the first anniversary of the Commitment Termination Date shall be payable on demand.

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(d)Agents’ Fees.  The Borrower shall pay to the Administrative Agent and the Syndication Agent, each for its own account, one or more fees in such amounts and at such times as has been previously agreed between the Borrower and each of them.

Section 2.10.  Optional Termination or Reduction of Commitments.  During the Revolving Credit Period, the Borrower may, upon at least three Domestic Business Days’ notice to the Administrative Agent (which notice the Administrative Agent will promptly deliver to the Banks), (i) terminate the Commitments at any time, if no Loans are outstanding at such time or (ii) ratably reduce from time to time by an aggregate amount of $10,000,000 or any larger multiple of $1,000,000, the aggregate amount of the Commitments in excess of the aggregate outstanding principal amount of the Loans.

Section 2.11.  Mandatory Termination of Commitments.  The Commitments shall terminate on the Commitment Termination Date.

Section 2.12.  Optional Prepayments.  (a) Subject in the case of Euro-Dollar Loans to Section 2.14, the Borrower may (i) upon at least one Domestic Business Day’s notice to the Administrative Agent, prepay any Group of Base Rate Loans (or any Money Market Borrowing bearing interest at the Base Rate pursuant to Section 8.01(a)) or (ii) upon at least three Euro-Dollar Business Days’ notice to the Administrative Agent, prepay any Group of Euro-Dollar Loans, in each case in whole at any time, or from time to time in part in amounts aggregating $10,000,000 or any larger multiple of $1,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment.  Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Group of Loans (or such Money Market Borrowing).

(b)Except as provided in Section 2.12(a), the Borrower may not prepay all or any portion of the principal amount of any Money Market Loan prior to the maturity thereof.

(c)Upon receipt of a notice of prepayment pursuant to this Section, the Administrative Agent shall promptly notify each Bank of the contents thereof and of such Bank’s ratable share (if any) of such prepayment and such notice shall not thereafter be revocable by the Borrower.

Section 2.13.  General Provisions as to Payments.  (a) The Borrower shall make each payment of principal of, and interest on, the Loans and of fees hereunder, not later than 1:00 P.M. (New York City time) on the date when due, in Federal or other funds immediately available in New York City, to the Administrative Agent at its address referred to in Section 9.01.  The Administrative Agent will promptly distribute to each Bank its ratable share of each such payment received by the Administrative Agent for the account of the Banks.  Whenever any payment of principal of, or interest on, the Base Rate Loans or of fees shall be due on a day which is not a Domestic Business Day, the

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date for payment thereof shall be extended to the next succeeding Domestic Business Day.  Whenever any payment of principal of, or interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day.  Whenever any payment of principal of, or interest on, the Money Market Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day.  If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time.

(b)Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank.  If and to the extent that the Borrower shall not have so made such payment, each Bank shall repay to the Administrative Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Administrative Agent, at the Federal Funds Rate.

Section 2.14.  Funding Losses.  If the Borrower makes any payment of principal with respect to any Fixed Rate Loan or any Fixed Rate Loan is converted to a different type of Loan (whether such payment or conversion is pursuant to Article 2, 6 or 8 or otherwise) on any day other than the last day of the Interest Period applicable thereto, or the end of an applicable period fixed pursuant to Section 2.07(c), or if the Borrower fails to borrow, prepay, convert or continue any Fixed Rate Loans after notice has been given to any Bank in accordance with Section 2.04(a), 2.08(c) or 2.12(c) the Borrower shall reimburse each Bank within 15 days after demand for any resulting loss or expense incurred by it (or by an existing or prospective Participant in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or conversion or failure to borrow, prepay, convert or continue; provided that such Bank shall have delivered to the Borrower a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error.

Section 2.15.  Computation of Interest and Fees.  Interest based on the Prime Rate and fees hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day).  All other interest shall be

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computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day).

Section 2.16.  Withholding Tax Exemption.  At least five Domestic Business Days prior to the first date on which interest or fees are payable hereunder for the account of any Bank, each Bank that is not incorporated under the laws of the United States of America or a state thereof agrees that it will deliver to each of the Borrower and the Administrative Agent two duly completed copies of (i) United States Internal Revenue Service Form W-8BEN (or any successor form), certifying that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which exempts such Bank from United States withholding tax or reduces the rate of withholding tax on payments received for the account of such Bank under this Agreement and the Notes, or (ii) United States Internal Revenue Service Form W-8ECI (or any successor form), certifying that the income receivable by such Bank under this Agreement and the Notes is effectively connected with the conduct of a trade or business in the United States.  Each Bank which so delivers a Form W-8BEN or W-8ECI further undertakes to deliver to each of the Borrower and the Administrative Agent two additional copies of such form (or a successor form) on or before the date that such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably requested by the Borrower or the Administrative Agent, in each case certifying to the effect set forth in clause (i) or (ii) above, as applicable, unless an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Bank from duly completing and delivering any such form with respect to it and such Bank advises the Borrower and the Administrative Agent that it is not capable of making the certifications set forth in clause (i) or (ii) above, as applicable.

Section 2.17.  Increase of Commitments.  (a)Upon at least 15 days’ prior notice to the Administrative Agent (which notice the Administrative Agent shall promptly transmit to each of the Banks), the Borrower shall have the right, subject to the terms and conditions set forth below, to increase the aggregate amount of the Commitments in multiples of $5,000,000; provided that the amount of such increase when added to the aggregate amount of all such prior increases in the Commitments hereunder (including by way of creating new Commitments), on or after the Effective Date, does not exceed $250,000,000.

(b)Any such increase in the Commitments hereunder shall apply, at the option of the Borrower, (x) to the Commitment of one or more Banks; provided that (i) the Administrative Agent and each Bank whose Commitment is to be increased shall consent to such increase, (ii) the amount set forth on the Commitment Schedule opposite the name of each Bank the Commitment of which is being so increased shall be amended to reflect the increased Commitment of such Bank and (iii) if any Committed Loans are outstanding at the time of such an increase, the Borrower will, notwithstanding anything to the contrary contained in this Agreement, on the date of such increase, incur and repay or prepay one or more Committed Loans from the Banks in such amounts so that after giving effect thereto the Committed Loans shall be outstanding on a pro rata basis (based on the Commitments of the Banks after giving effect to the changes made pursuant to this Section 2.17 on such date) from all the Banks or (y) to the creation of a new Commitment of one or more institutions not then a Bank hereunder; provided that (i) such institution becomes a party to this Agreement as a Bank by execution and delivery to the Borrower and the Administrative Agent of counterparts of this Agreement, (ii) the Commitment Schedule shall be amended to reflect the Commitment of such new Bank, (iii) if requested by such new Bank, the Borrower shall issue a Note to such new Bank in conformity with the provisions of Section 2.05, (iv) if any Committed Loans are outstanding at the time of the creation of such Commitment of such Bank, the Borrower will, notwithstanding anything to the

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contrary contained in this Agreement, on the date of the creation of such Commitment, incur and repay or prepay one or more Committed Loans from the Banks in such amounts so that after giving effect thereto the Committed Loans shall be outstanding on a pro rata basis (based on the Commitments of the Banks after giving effect to the changes made pursuant to this Section 2.17 on such date) from all the Banks and (v) if such institution is neither a banking institution nor an affiliate of a Bank, such institution must be consented to by the Administrative Agent.

(c)It is understood that any increase in the amount of the Commitments pursuant to this Section 2.17 shall not constitute an amendment of this Agreement or the Notes.

 ARTICLE 3

Conditions

Section 3.01.  Effectiveness.  This Agreement shall become effective on the date (the “Effective Date”) on which the Administrative Agent shall have received the following documents or other items, each dated the Effective Date unless otherwise indicated:

(a)receipt by the Administrative Agent of counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Administrative Agent in form satisfactory to it of telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party);

(b)receipt by the Administrative Agent for the account of each Bank that has requested a Note of a duly executed Note dated on or before the Effective Date complying with the provisions of Section 2.05;

(c)receipt by the Administrative Agent of an opinion of the General Counsel of the Borrower, substantially in the form of Exhibit F hereto and covering such additional matters relating to the transactions contemplated hereby

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as the Required Banks may reasonably request, such opinion to be in form and substance satisfactory to the Administrative Agent;

(d)receipt by the Administrative Agent of an opinion of Davis Polk & Wardwell, special counsel for the Administrative Agent, substantially in the form of Exhibit G hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request, such opinion to be in form and substance satisfactory to the Administrative Agent;

(e)receipt by the Administrative Agent of a certificate signed by the Chief Financial Officer or the Chief Executive Officer and an Assistant Secretary-Treasurer or the Controller of the Borrower to the effect that the conditions set forth in clauses (c) through (g), inclusive, of Section 3.03 have been satisfied as of the Effective Date and, in the case of clauses (c), (e) and (g), setting forth in reasonable detail the calculations required to establish such compliance;

(f)receipt by the Administrative Agent, with a copy for each Bank, of a certificate of an officer of the Borrower acceptable to the Administrative Agent stating that all consents, authorizations, notices and filings required or advisable in connection with this Agreement are in full force and effect, and the Administrative Agent shall have received evidence thereof reasonably satisfactory to it;

(g)evidence satisfactory to the Administrative Agent that arrangements have been made for payment in full of all amounts owed under the Prior 364-Day Credit Agreement;

(h)receipt by the Administrative Agent and the Syndication Agent (or their respective assigns) and by each Bank of all fees required to be paid in the respective amounts heretofore mutually agreed, and all expenses for which invoices have been presented, on or before the Effective Date; and

(i)receipt by the Administrative Agent of all documents the Required Banks may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of this Agreement and the Notes, and any other matters relevant hereto, all in form and substance satisfactory to the Administrative Agent.

The Administrative Agent shall promptly notify the Borrower and the  Banks of the Effective Date, and such notice shall be conclusive and binding on all parties hereto.

Section 3.02.  Prior Credit Agreement.  (a) On the Effective Date, the “Commitments” as defined in the Prior 364-Day Credit Agreement shall terminate, without further action by any party thereto, except that Sections 2.14, 7.05, 7.06, 8.03 and 9.03 of the Prior 364-Day Credit Agreement (and Section 2.13 and Article 9 of the Prior 364-Day Credit Agreement insofar as they relate to such foregoing Sections) shall survive such termination and any related payment of amounts owed under the Prior 364-Day Credit Agreement.

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(b)The Banks which are parties to the Prior 364-Day Credit Agreement, comprising the “Required Banks” as defined therein, hereby waive any requirement of notice of termination of the “Commitments” (as defined in the Prior 364-Day Credit Agreement) pursuant to Section 2.10 thereof and of prepayment of loans thereunder to the extent necessary to give effect to Section 3.01(g) and Section 3.02(a) hereof; provided that any such prepayment of Loans shall be subject to Section 2.14 of the Prior 364-Day Credit Agreement.

Section 3.03.  Borrowings.  The obligation of any Bank to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions, in each case at the time of such Borrowing and immediately thereafter:

(a)the fact that the Effective Date shall have occurred on or prior to March 31, 2008;

(b)receipt by the Administrative Agent of a Notice of Borrowing as required by Section 2.02 or 2.03, as the case may be;

(c)the fact that the Borrower is in compliance with Section 7.12(a) of the 1972 Indenture and Section 7.11 of the 1994 Indenture, as each Indenture is in effect as of the date hereof;

(d)the fact that the aggregate outstanding principal amount of the Loans will not exceed the aggregate amount of the Commitments;

(e)the fact that no Default shall have occurred and be continuing;

(f)the fact that the representations and warranties of the Borrower (in the case of a Borrowing, other than the representation set forth in Section 4.02(c)) contained in this Agreement shall be true (it being understood and agreed that the representation and warranty set forth in Section 4.12 shall be true and correct as to all information furnished prior to the making of the respective Loan); and

(g)the fact that (i) there shall be no collateral securing Bonds issued pursuant to any Indenture of a type other than the types of collateral permitted to secure Bonds issued pursuant to such Indenture as of the date hereof, (ii) the allowable amount of eligible collateral then pledged under any Indenture shall not exceed 150% of the aggregate principal amount of Bonds then outstanding under such Indenture and (iii) no collateral shall secure Bonds other than (A) eligible collateral under such Indenture, the allowable amount of which is included within the computation under subsection (ii) above or (B) collateral previously so pledged which ceases to be such eligible collateral not as a result of any acts or omissions to act of the Borrower (other than the declaration of an “event of default” as defined in a mortgage which results in the exercise of any right or remedy described in such mortgage).

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Each Borrowing hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing as to the facts specified in clauses (c), (d), (e), (f) and (g) of this Section 3.03.

ARTICLE 4

Representations and Warranties

The Borrower makes the following representations, warranties and agreements, which shall survive the execution and delivery of this Agreement and the Notes and the making of the Loans:

Section 4.01.  Corporate Existence, Power and Authority.  The Borrower is a cooperative association duly incorporated, validly existing and in good standing under the laws of the District of Columbia and has the corporate power and authority and all material governmental licenses, authorizations, consents and approvals required to own its property and assets and to transact the business in which it is engaged.  The Borrower is duly qualified or licensed as a foreign corporation in good standing in every jurisdiction in which the nature of the business in which it is engaged makes such qualification or licensing necessary, except in those jurisdictions in which the failure to be so qualified or licensed would not (after qualification, assuming that the Borrower could so qualify without the payment of any fee or penalty and retain the rights as they existed prior to such qualification all to an extent so that any fees or penalties required to be so paid or any rights not so retained would not, individually or in the aggregate, have a material adverse effect on the business or financial condition of the Borrower), individually or in the aggregate, have a material adverse effect upon the business or financial condition of the Borrower.  The Borrower has the corporate power and authority to execute, deliver and carry out the terms and provisions of this Agreement and the Notes.  This Agreement has been, and the Notes when executed and delivered will have been, duly and validly authorized, executed and delivered by the Borrower, and this Agreement constitutes a legal, valid and binding agreement of the Borrower, and the Notes, when executed and delivered by the Borrower in accordance with this Agreement, will constitute legal, valid and binding obligations of the Borrower, in each case enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors’ rights generally and by general principles of equity.

Section 4.02.  Financial Statements.  (a) The consolidated balance sheets of the Borrower and its Consolidated Subsidiaries as at May 31, 2007 and the related consolidated statements of operations, changes in equity and cash flows for the fiscal year ended May 31, 2007, including the related notes, accompanied by the opinion and report thereon of Deloitte & Touche LLP, independent public accountants, heretofore delivered to the Banks, present fairly in all material respects in accordance with generally accepted accounting principles (i) the consolidated financial position of the Borrower and its Consolidated Subsidiaries as at the date of said balance sheets and (ii) the consolidated results of the

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operations of the Borrower and its Consolidated Subsidiaries for said fiscal year.  The Borrower has no material liabilities (contingent or otherwise) of the type required to be disclosed in financial statements or footnotes which are not disclosed by or reserved against in the most recent audited financial statements or in the notes thereto other than (i) Indebtedness incurred and (ii) loan and guarantee commitments issued in each case by the Borrower in the ordinary course of business since the date of such financial statements.  All such financial statements have been prepared in accordance with generally accepted accounting principles applied on a basis consistent with prior periods, except as disclosed therein.  The same representations as are set forth in this Section 4.02 shall be deemed to have been made by the Borrower in respect of the most recent annual and quarterly financial statements of the Borrower and its Consolidated Subsidiaries (except that the annual opinion and report of Deloitte & Touche LLP may be replaced by an opinion and report of another nationally recognized firm of independent public accountants) furnished or required to be furnished to the Banks prior to or at the time of the making of each Loan hereunder, at the time the same are furnished or required to be furnished.

(b)The unaudited consolidated balance sheets of the Borrower and its Consolidated Subsidiaries as of November 30, 2007 and the related unaudited consolidated statements of operations, changes in equity and cash flows for the six months then ended, heretofore delivered to the Banks, present fairly in conformity with generally accepted accounting principles applied on a basis consistent with the financial statements referred to in subsection (a) of this Section 4.02, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and changes in financial position for such six-month period (subject to normal year-end adjustments).  The Borrower and its Consolidated Subsidiaries have no material liabilities (contingent or otherwise) of the type required to be disclosed in financial statements or footnotes which are not disclosed by or reserved against in such financial statements for such six-month period other than (i) Indebtedness incurred and (ii) loan and guarantee commitments issued in each case by the Borrower or its Consolidated Subsidiaries in the ordinary course of business since the date of such financial statements.

(c)Since November 30, 2007 there has been no material adverse change in the business, financial position, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole.

Section 4.03.  Litigation.  There are no actions, suits, proceedings or investigations pending or, to the Borrower’s knowledge, threatened by or before any court or any governmental authority, body or agency or any arbitration board which are reasonably likely to materially adversely affect the business, property, assets, financial position or results of operations of the Borrower or the authority or ability of the Borrower to perform its obligations under this Agreement or the Notes.

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Section 4.04.  Governmental Authorizations.  No material authorization, consent, approval or license of, or declaration, filing or registration with or exemption by, any governmental authority, body or agency is required in connection with the execution, delivery or performance by the Borrower of this Agreement or the Notes.  The Banks acknowledge that the Borrower will file this Agreement with the Securities and Exchange Commission after the Effective Date.

Section 4.05.  Members’ Subordinated Certificates.  The holders of the Borrower’s Members’ Subordinated Certificates are not and will not be entitled to receive any payments with respect to the principal thereof or interest thereon solely because of withdrawing or being expelled from membership in the Borrower.

Section 4.06.  No Violation of Agreements.  Neither the Borrower nor any Subsidiary is in default in any material respect under any material agreement or other material instrument to which it is a party or by which it is bound or its property or assets may be affected.  No event or condition exists which constitutes, or with the giving of notice or lapse of time or both would constitute, such a default under any such agreement or other instrument.  Neither the execution and delivery of this Agreement or the Notes, nor the consummation of any of the transactions herein or therein contemplated, nor compliance with the terms and provisions hereof or thereof, will contravene any material provision of law, statute, rule or regulation to which the Borrower is subject or any material judgment, decree, award, franchise, order or permit applicable to the Borrower, or will conflict or be inconsistent with, or will result in any breach of, any of the material terms, covenants, conditions or provisions of, or constitute (or with the giving of notice or lapse of time, or both, would constitute) a material default under (or condition or event entitling any Person to require, whether by purchase, redemption, acceleration or otherwise, the Borrower to perform any obligations prior to the scheduled maturity thereof), or result in the creation or imposition of any Lien upon any of the property or assets of the Borrower pursuant to the terms of, any indenture, mortgage, deed of trust, agreement or other instrument to which it may be subject, or violate any provision of the certificate of incorporation or by-laws of the Borrower.  Without limiting the generality of the foregoing, the Borrower is not a party to, or otherwise subject to any provision contained in, any instrument evidencing Indebtedness of the Borrower, any agreement or indenture relating thereto or any other material contract or agreement (including its certificate of incorporation and by-laws), which would be violated by the incurring of the Indebtedness to be evidenced by the Notes.

Section 4.07.  No Event of Default under the Indentures.  The Borrower has complied fully with all of the material provisions of each Indenture.  No Event of Default (within the meaning of such term as defined in each Indenture) and no event, act or condition (except for possible non-compliance by the Borrower with any immaterial provision of such Indenture which in itself is not such an Event of Default under such Indenture) which with notice or lapse of time, or both, would constitute such an Event of Default has occurred and is

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continuing under such Indenture.  The Borrowings by the Borrower contemplated by this Agreement will not cause such an Event of Default under, or the violation of any covenant contained in, any Indenture.

Section 4.08.  Compliance with ERISA.  The Plans (other than Plans consisting of multiemployer plans (as defined in Section 4001 of ERISA)) are in substantial compliance with ERISA other than any failure to comply that is not reasonably likely to have a material adverse effect on the business, operations, prospects, property, assets or financial position of the Borrower, no such Plan is insolvent or in reorganization other than an insolvency or reorganization that is not reasonably likely to have a material adverse effect on the business, operations, prospects, property, assets or financial position of the Borrower, and no such Plan has an accumulated or waived funding deficiency within the meaning of Section 412 of the Internal Revenue Code other than any accumulated or waived funding deficiency that is not reasonably likely to have a material adverse effect on the business, operations, prospects, property, assets or financial position of the Borrower.  No Plan consisting of a multiemployer plan (as defined in Section 4001 of ERISA) is in reorganization.  Neither the Borrower nor a Subsidiary of the Borrower nor any member of the ERISA Group has incurred any material liability (including any material contingent liability) to or on account of a Plan pursuant to Section 4062, 4063, 4064, 4201 or 4204 of ERISA, no proceedings have been instituted to terminate any Plan, and no condition exists which presents a material risk to the Borrower of incurring a material liability to or on account of a Plan pursuant to any of the foregoing Sections of ERISA.

Section 4.09.  Compliance with Other Laws.  The Borrower and each Subsidiary is in compliance, in all material respects, with all applicable requirements of law and all applicable rules and regulations of each Federal, State, municipal or other governmental department, agency or authority, domestic or foreign.

Section 4.10.  Tax Status.  The Borrower is exempt from payment of Federal income tax under Section 501(c)(4) of the Internal Revenue Code.

Section 4.11.  Investment Company Act.  The Borrower is not an “investment company” or a company “controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940, as amended.

Section 4.12.  Disclosure.  To the best of the Borrower’s knowledge, information and belief, neither this Agreement nor any document, certificate or financial statement furnished to any Bank by or on behalf of the Borrower in connection herewith (all such documents, certificates and financial statements, taken as a whole) contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements contained herein and therein not misleading.  There is no fact (other than facts of a general economic or political nature) known to the Borrower which in its judgment materially adversely affects or in the future is likely to (so far as is now known to the Borrower) have a material adverse effect upon the business, operations, prospects,

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property, assets or financial condition of the Borrower which has not been set forth in this Agreement or in other documents, certificates or financial statements furnished to the Banks by or on behalf of the Borrower in connection with the transactions contemplated hereby.

Section 4.13.  Subsidiaries.  Each of the Borrower’s corporate Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted.

Section 4.14.  Environmental Matters.  In the ordinary course of its business, the Borrower conducts reviews, to the extent appropriate given the nature of its business operations, of the effect of Environmental Laws on the business, operations and properties of the Borrower and its Subsidiaries, in the course of which it identifies and evaluates associated liabilities and costs (including, without limitation, any capital or operating expenditures required for clean-up or closure of properties presently or previously owned, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, including any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat, any costs or liabilities in connection with off-site disposal of wastes or Hazardous Substances, and any actual or potential liabilities to third parties, including employees, and any related costs and expenses).  On the basis of this review, the Borrower has reasonably concluded that such associated liabilities and costs, including the cost of compliance with Environmental Laws, are unlikely to have a material adverse effect on the business, financial condition, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole.

ARTICLE 5

Covenants

The Borrower agrees that, so long as any Bank has any Commitment hereunder or any amount payable under any Note or any fee payable pursuant to Section 2.09 or any other amount then due and payable hereunder remains unpaid:

Section 5.01.  Corporate Existence.  The Borrower, at its own cost and expense, will, and will cause each Subsidiary to, do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, material rights and franchises; provided, however, that neither the Borrower nor any Subsidiary shall be required to preserve any right or franchise or, in the case of a Subsidiary, its corporate existence, if its Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Borrower or such Subsidiary (provided that the termination of the corporate existence of a Subsidiary shall be permitted if the Board of Directors of the

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Borrower shall determine that its existence is not desirable in the conduct of the business of the Borrower) and that the loss thereof is not disadvantageous in any material respect to the Banks.

Section 5.02.  Disposition of Assets, Merger, Character of Business, etc.  The Borrower will not wind up or liquidate its business or sell, lease, transfer or otherwise dispose of all or substantially all of its assets as an entirety or in a series of related transactions and will not consolidate with or merge with or into any other Person other than a merger with a Subsidiary in which the Borrower is the surviving Person.  The Borrower will not engage in any business other than the business contemplated by its certificate of incorporation and by-laws, each as in effect on the Effective Date.

Section 5.03.  Financial Information.  (a) The Borrower will, and will cause each Subsidiary other than the Subsidiaries listed on Schedule 5.03(a) to, keep its books of account in accordance with generally accepted accounting principles.

(b)The Borrower will furnish to the Banks:

(i)as soon as available and in any event within 60 days after the close of each of the first three quarters of each fiscal year of the Borrower, as at the end of, and for the period commencing at the end of the previous fiscal year and ending with, such quarter, unaudited consolidated balance sheets of the Borrower and its Consolidated Subsidiaries and the related unaudited consolidated statements of operations, changes in equity and cash flow of the Borrower and its Consolidated Subsidiaries for such quarter and for the portion of the Borrower’s fiscal year ended at the end of such quarter, setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of the Borrower’s previous fiscal year, all in reasonable detail and certified (subject to normal year-end adjustments) as to fairness of presentation in accordance with generally accepted accounting principles in all material respects and consistency (except for changes concurred in by the Borrower’s independent public accountants) by the Chief Executive Officer, the Chief Financial Officer, an Assistant Secretary-Treasurer or the Controller of the Borrower;

(ii)as soon as practicable and in any event within the earlier of (i) two Domestic Business Days after filing with the Securities and Exchange Commission and (ii) 120 days after the close of each fiscal year of the Borrower, as at the end of and for the fiscal year just closed, consolidated balance sheets of the Borrower and its Consolidated Subsidiaries and the related consolidated statements of operations, changes in equity and cash flow for such fiscal year for the Borrower and its Consolidated Subsidiaries, all in reasonable detail and fully certified (without any qualification as to the scope of the audit) by Deloitte & Touche LLP or other independent public accountants of nationally

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 recognized standing selected by the Borrower, who shall have audited the books and accounts of the Borrower for such fiscal year;

(iii)together with the financial statements referred to in clauses (i) and (ii) above, a certificate signed by the Chief Executive Officer, the Chief Financial Officer, an Assistant Secretary-Treasurer or the Controller of the Borrower, in such detail as shall be reasonably satisfactory to the Required Banks,

(A)identifying (x) all Indebtedness outstanding as at the end of the fiscal period covered by such financial statements extended by the Borrower or its Consolidated Subsidiaries or by any other Person and Guaranteed by the Borrower or its Consolidated Subsidiaries to the ten Members or borrowers of any Consolidated Subsidiary (“Consolidated Subsidiary Members”), taken as a whole, with the largest amount of Indebtedness to (or Guaranteed by) the Borrower or its Consolidated Subsidiaries outstanding as at the end of the fiscal period covered by such financial statements (the “Largest Members”) as to which, to the knowledge and information of the Borrower or such Consolidated Subsidiary, the Member or Consolidated Subsidiary Member is in default (whether in the payment of the principal thereof or interest thereon or with respect to any material covenant or agreement contained in any instrument, mortgage or agreement evidencing or relating to such Indebtedness) and specifying whether such default has been waived by the Borrower or such Consolidated Subsidiary or such other Person and the nature and status of each such default not so waived and (y) the aggregate amount of all Indebtedness outstanding as of the end of the fiscal period covered by such financial statements as to which, to the knowledge and information of the Borrower or such Consolidated Subsidiary, Members or Consolidated Subsidiary Members other than the Largest Members are in default in the payment of the principal thereof or interest thereon or are in default with respect to any material covenant or agreement contained in any instrument, mortgage or agreement evidencing or relating to such Indebtedness and as to which the Borrower or such Consolidated Subsidiary has commenced the exercise of remedies in respect thereof,

(B)identifying the ten Members or Consolidated Subsidiary Members, taken as a whole, with the largest amount of Indebtedness to (or Guaranteed by) the Borrower or its Consolidated Subsidiaries outstanding as of the end of the fiscal period covered by such financial statements, together with the principal amount of such Indebtedness outstanding with respect to each such Member or Consolidated Subsidiary Member as of the end of such fiscal period, and

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(C)providing the aggregate principal amount of all loans which are RUS Guaranteed Loans and are outstanding as of the end of the fiscal period covered by such financial statements, provided that if such amount has previously been disclosed by the Borrower in its regular or periodical reports filed with, or furnished to, the Securities and Exchange Commission, then the certificate need only reference such report and the section of such report in which such information may be found;

(iv)with reasonable promptness, copies of all regular and periodical reports (including Current Reports on Form 8-K) filed with, or furnished to, the Securities and Exchange Commission;

(v)promptly after obtaining knowledge or receiving notice of a change (whether an increase or decrease) in any rating issued by S&P or Moody’s pertaining to any securities of, or guaranteed by, the Borrower or any of its Subsidiaries or affiliates, a notice setting forth such change; and

(vi)with reasonable promptness, such other information respecting the business, operations, prospects and financial condition of the Borrower or any of its Subsidiaries or any Joint Venture as any Bank may, from time to time, reasonably request, including, without limitation, with respect to the performance and observance by the Borrower of the covenants and conditions contained in this Agreement.

Section 5.04.  Default Certificates.  Concurrently with each financial statement delivered to the Banks pursuant to clauses (i) and (ii) of Section 5.03, the Borrower will furnish to the Banks a certificate signed by the Chief Executive Officer, the Chief Financial Officer, an Assistant Secretary-Treasurer or the Controller of the Borrower to the effect that the review of the activities of the Borrower during such year or the portion thereof covered by such financial statement and of the performance of the Borrower under this Agreement has been made under his supervision and that to the best of his knowledge, based on such review, there exists no event which constitutes a Default or an Event of Default under this Agreement or, if any such event exists, specifying the nature thereof, the period of its existence and what action the Borrower has taken and proposes to take with respect thereto, which certificate shall set forth the calculations or other data required to establish compliance with the provisions of Section 5.09 and Sections 5.12 through 5.14, inclusive, at the end of such fiscal quarter or fiscal year, as the case may be.  The Borrower further covenants that upon any such officer of the Borrower obtaining knowledge of any Default or Event of Default under this Agreement, it will forthwith, and in no event later than the close of business on the Domestic Business Day immediately after the day such knowledge is obtained, deliver to the Banks a statement of any officer referred to above specifying the nature and the period of existence thereof and what action the Borrower has taken and proposes to take with respect thereto.

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Section 5.05.  Notice of Litigation, Legislative Developments and Defaults.  The Borrower will promptly give written notice to each of the Banks of (i) any action, proceeding or claim of which the Borrower may have notice, which may be commenced against the Borrower or any Subsidiary in which the amount involved is $50,000,000 or more and is not covered in full by insurance or as to which any insurer has disclaimed liability; (ii) any dispute which may exist between the Borrower or any Subsidiary and any governmental body, which is likely to materially and adversely affect the normal business operation of the Borrower or the Borrower and its Subsidiaries taken as a whole or any of the material properties and assets of the Borrower or the Borrower and its Subsidiaries taken as a whole; (iii) any legislation enacted by any governmental body and any rulings and regulations promulgated by any governmental or regulatory bodies, known to the Borrower, affecting the Borrower or any Subsidiary or, if known to the Borrower, generally affecting the Borrower’s Members which is likely to materially and adversely affect the present or future operations of the Borrower, the Borrower and its Subsidiaries taken as a whole or the Borrower’s Members; and (iv) any default by the Borrower or any Subsidiary or event or condition known to the Borrower which with the giving of notice or lapse of time, or both, would constitute a default, with respect to any payment or payments in respect of Indebtedness of the Borrower or such Subsidiary aggregating in excess of $25,000,000 (whether in payment of principal thereof or interest thereon or with respect to any material covenant or agreement contained in any instrument, mortgage, deed of trust or agreement evidencing or relating to such Indebtedness or otherwise), provided that if any matter described in clauses (i) through (iv) of this Section has previously been disclosed by the Borrower in its regular or periodical reports filed with, or furnished to, the Securities and Exchange Commission, then no additional written notice shall be required under this Section.

Section 5.06.  ERISA.  As soon as possible and, in any event, within 10 days after the Borrower or a Subsidiary of the Borrower knows or has reason to know that a Reportable Event has occurred, that an accumulated funding deficiency has been incurred or an application may be or has been made to the Secretary of the Treasury for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code with respect to a Plan, that a Plan has been or may be terminated, that proceedings may be or have been instituted to terminate a Plan, or that the Borrower, a Subsidiary of the Borrower or any member of the ERISA Group will or may incur any liability in excess of $5,000,000 to or on account of a Plan under Section 4062, 4063, 4064, 4201 or 4204 of ERISA, the Borrower will deliver to each of the Banks a certificate of the Chief Financial Officer of the Borrower setting forth details as to such occurrence and action, if any, which the Borrower or such Subsidiary is required or proposes to take, together with any notices required to be filed by the Borrower, such Subsidiary, such member of the ERISA Group or the plan administrator with the PBGC with respect thereto.

Section 5.07.  Payment of Charges.  The Borrower will, and will cause each Subsidiary to, duly pay and discharge (i) all taxes, assessments and

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governmental charges or levies imposed upon or against it or its property or assets, prior to the date on which material penalties attach thereto, unless and to the extent only that such taxes, assessments and governmental charges or levies are being contested in good faith by appropriate proceedings; and (ii) all material lawful claims, including, without limitation, claims for labor, materials, supplies or services, which might or could, if unpaid, become a Lien upon such property or assets, unless and to the extent only that the validity or the amount thereof is being contested in good faith by appropriate proceedings.

Section 5.08.  Inspection of Books and Assets.  The Borrower will, and will cause each Subsidiary to, permit any representative of any Bank (or any agent or nominee of such Bank) to visit and inspect any of the property of the Borrower or such Subsidiary, to examine the books of record and account of the Borrower or such Subsidiary and to discuss the affairs, finances and accounts of the Borrower or such Subsidiary with the officers and independent public accountants of the Borrower or such Subsidiary, all at such reasonable times and as often as such Bank may reasonably request.

Section 5.09.  Indebtedness.  (a) The Borrower will not, and will not permit any of its Consolidated Subsidiaries (other than Rural Telephone Finance Cooperative and National Cooperative Services Corporation) to, incur, assume or Guarantee any Superior Indebtedness, or make any optional prepayment on any Members’ Subordinated Certificate; provided that (i) subject to the provisions of Section 5.12, any such Subsidiary may incur Superior Indebtedness owing to the Borrower or assume or Guarantee Indebtedness of any Person (other than the Borrower or any of its Subsidiaries) owing to the Borrower and (ii) the Borrower may incur, assume or Guarantee Superior Indebtedness or make optional prepayments on Members’ Subordinated Certificates if, after giving effect to any such action specified above in this clause (ii), (x) on the date of such incurrence, assumption or Guarantee or making of such optional prepayment (the “Determination Date”) the aggregate principal amount of Superior Indebtedness then outstanding would not exceed ten times the sum of (a) the aggregate principal amount of Members’ Subordinated Certificates outstanding on the Determination Date, (b) the aggregate amount of the line item “total equity” shown on the consolidated balance sheet of the Borrower and its Consolidated Subsidiaries on the Determination Date, (c) the aggregate amount of the line item “minority interest”

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shown on the consolidated balance sheet of the Borrower and its Consolidated Subsidiaries on the Determination Date and (d) the aggregate principal amount of Qualified Subordinated Indebtedness outstanding on the Determination Date and (y) on no given future date ending on the last day of each fiscal quarter would the aggregate principal amount of Superior Indebtedness outstanding on the Determination Date which will remain outstanding on such given future date exceed ten times the sum of (a) the aggregate principal amount of Members’ Subordinated Certificates outstanding on the Determination Date which will remain outstanding on such given future fiscal quarter-end date, (b) the aggregate amount of the line item “total equity” shown on the consolidated  balance sheet of the Borrower and its Consolidated Subsidiaries on the Determination Date, (c) the aggregate amount of the line item “minority interest” shown on the consolidated balance sheet of the Borrower and its Consolidated Subsidiaries on the Determination Date and (d) the aggregate principal amount of Qualified Subordinated Indebtedness outstanding on the Determination Date which will remain outstanding on such given future date; provided that the non-cash adjustments (whether positive or negative) required to be made pursuant to SFAS 133 and SFAS 52 shall be excluded from calculations under clause (ii) above to the extent otherwise included therein.  The respective principal amounts of Superior Indebtedness, Members’ Subordinated Certificates and Qualified Subordinated Indebtedness to be outstanding on such given future date shall be determined after giving effect to mandatory sinking fund payments, other mandatory prepayments and serial and other maturity payments required to be made on or prior to said given future date by the terms of such Superior Indebtedness, Members’ Subordinated Certificates, Qualified Subordinated Indebtedness or any indenture or other instrument pursuant to which they are respectively issued.

(b)If any Loan is outstanding hereunder, the Borrower will not take any action which would prevent it from then complying, or fail to take any action which would enable it then to comply, with the provisions of Section 3.03(g), assuming for this purpose only that the Borrower then intended to borrow from one or more of the Banks hereunder.

Section 5.10.  Liens.  The Borrower will not create or permit to exist any Lien on or with respect to any Indebtedness of any Member which is an asset of the Borrower, now existing or hereafter created, or on any notes, mortgages or other documents or instruments evidencing any such Indebtedness, and the Borrower will not permit any Consolidated Subsidiary to create or permit to exist any Lien on or with respect to any of such Subsidiary’s assets, except Liens (i) granted by the Borrower to the trustee pursuant to any Indenture, (ii) on any such Indebtedness granted by the Borrower or its Consolidated Subsidiary to secure any borrowing for the purpose of making loans to Member power supply systems or loans to Members for bulk power supply projects or loans to Members for the purpose of providing financing to telephone and related systems eligible to borrow from the RUS or loans to borrowers borrowing from National Cooperative Services Corporation or Rural Telephone Finance Cooperative, which borrowing or borrowings are on terms (except as to terms of interest, premium, if any, and amortization) not materially more disadvantageous to the Borrower’s unsecured creditors than the borrowings under any Indenture (it being understood that the Borrower can not pledge such assets to an extent greater than 150% of the aggregate principal amount of such Indebtedness); provided that Liens incurred in reliance on this subsection (ii) shall not secure amounts exceeding $500,000,000 in the aggregate at any one time outstanding, (iii) of current taxes not delinquent or a security for taxes being contested in good faith, (iv) other than in favor of the PBGC, created by or resulting from any legal proceedings (including legal proceedings instituted by the Borrower or any Subsidiary) which are being contested in good faith by appropriate proceedings, including appeals of judgments as to which a stay of execution shall have been issued, and adequate reserves shall have been established, (v) created by the Borrower to secure

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Guarantees by the Borrower of Indebtedness, the interest on which is excludable from the gross income of the recipient thereof for Federal income tax purposes as provided in Section 103(a) of the Internal Revenue Code or Section 103(a) of the Internal Revenue Code of 1954, as amended, (x) of a Member which is a state or political subdivision thereof or (y) of a state or political subdivision thereof incurred to benefit a Member for one of the purposes provided in Section 142(a)(2), (4), (5), (6), (8), (9), (10) or (12) of the Internal Revenue Code or Section 103(b)(4)(D), (E), (F), (G), (H) or (J) of the Internal Revenue Code of 1954, as amended, (vi) granted by any Subsidiary to the Borrower, (vii) REDLG Program Liens securing REDLG Obligations with respect to government Guarantees of Indebtedness of the Borrower in an aggregate principal or face amount not to exceed $3,000,000,000 at any one time outstanding, and (viii) on any such Indebtedness granted by the Borrower to secure any borrowings, which borrowings are on terms (except as to terms of interest, premium, if any, and amortization) not materially more disadvantageous to the Borrower’s unsecured creditors than the borrowings under any Indenture (it being understood that the Borrower can not pledge such assets to an extent greater than 150% of the aggregate principal amount of such Indebtedness); provided that Liens incurred in reliance on this subsection (viii) shall not secure amounts exceeding $1,000,000,000 in the aggregate at any one time outstanding.

Section 5.11.  Maintenance of Insurance.  The Borrower will maintain, and will cause each Subsidiary to maintain, insurance in such amounts, on such forms and with such companies as is necessary or appropriate for its business.

Section 5.12.  Subsidiaries and Joint Ventures.  The Borrower will not permit (a) the sum of (i) the amount of Indebtedness owing to the Borrower by all of its Subsidiaries and Joint Ventures plus (ii) the amount paid by the Borrower in respect of the stock, obligations or securities of or any other interest in such Subsidiaries and Joint Ventures plus (iii) any capital contributions by the Borrower to such Subsidiaries and Joint Ventures (the amounts referred to in paragraphs (i) through (iii), the “Investments”) plus (iv) the amount of assets (excluding Foreclosed Assets) otherwise sold or transferred by the Borrower to such Subsidiaries and Joint Ventures (other than sales at fair market value) minus (v) any Start-up Investments minus (vi) any Investment made in cash by the Borrower in any Special Purpose Subsidiary (up to a maximum amount not to exceed the lesser of (x) the amount necessary to provide such Special Purpose Subsidiary with sufficient working capital to conduct its business as contemplated hereby and (y) $150,000,000) to exceed at any time (b) 10% of the sum of (i) all accounts which, in accordance with generally accepted accounting principles, constitute equity in the Borrower and its Consolidated Subsidiaries at such time plus (ii) all Indebtedness of the Borrower shown on its balance sheet dated as of May 31, 2007 as Members’ Subordinated Certificates as such Indebtedness shall be reduced from time to time and any other Indebtedness of the Borrower incurred after May 31, 2007 having substantially similar provisions as to subordination as those contained in said outstanding certificates as such other Indebtedness shall be reduced from time to time, in each case at such time plus (iii) all “minority interest” shown on the consolidated statement of operations of

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the Borrower and its Consolidated Subsidiaries most recently delivered by the Borrower to the Banks pursuant to Section 4.02 or Section 5.03 plus (iv) all Qualified Subordinated Indebtedness outstanding at such time; provided that non-cash adjustments (whether positive or negative) required to be made pursuant to SFAS 133 and SFAS 52 shall be excluded from the calculation of the amounts specified in clauses (b)(i), (b)(ii), (b)(iii) and (b)(iv) to the extent otherwise included therein; provided further that, in addition to the foregoing, the Borrower may transfer assets with an aggregate fair market value of not more than $150,000,000 to a bankruptcy remote trust required to be established to support REDLG Obligations of the Borrower, and any such transfer shall be excluded from any calculation under clauses (a) and (b) above to the extent otherwise included therein.  For the purpose of this Section 5.12, “Foreclosed Asset” means (x) any property distributed or to be distributed to the Borrower with the authority of any Bankruptcy Court in connection with the bankruptcy of any of the Borrower’s debtors and (y) property received by the Borrower upon enforcement by the Borrower of its security interest (if any) in such property or in settlement of delinquent accounts or other overdue amounts owed to it by any of the Borrower’s debtors; “Special Purpose Subsidiary” means any domestic Subsidiary all of the shares of capital stock or other ownership interest of which are directly or indirectly owned by the Borrower, which Subsidiary is established for the sole purpose of, and whose sole business shall at all times be, holding Foreclosed Assets; and “Start-up Investments” means Investments made in a Special Purpose Subsidiary solely to finance such Special Purpose Subsidiary’s initial acquisition of Foreclosed Assets.

Section 5.13.  Minimum TIER.  The Borrower shall not permit, as of the last day of each fiscal quarter, the average of the TIERs for the six (6) immediately preceding fiscal quarters (including the fiscal quarter ending on such date) of the Borrower to be less than 1.025:1.00.

Section 5.14.  Retirement of Patronage Capital.  The Borrower shall not make, or permit any Subsidiaries of the Borrower to make, any payments to Members in respect of Patronage Capital Certificates unless (i) the TIER for the immediately preceding fiscal year for which financial statements have been delivered to the Banks pursuant to Section 5.03(b) equals or exceeds 1.05:1.00 and (ii) there exists (and would exist after giving effect to any such payment) no Default or Event of Default under this Agreement.

Section 5.15.  Use of Proceeds.  The proceeds of the Loans made hereunder may be used by the Borrower for general corporate purposes.  None of such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any “margin stock”, within the meaning of Regulation U.  Neither the Borrower nor any agent acting on its behalf has taken or will take any action which might cause this Agreement or the Notes to violate Regulation U or Regulation X.

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ARTICLE 6

Defaults

Section 6.01.  Events of Defaults.  If one or more of the following events (“Events of Default”) shall have occurred and be continuing:

(a)Principal and Interest.  The Borrower shall (i) fail to pay when due (whether upon stated maturity, by acceleration or otherwise) any principal of any Loan or (ii) fail, and such failure shall continue uncured for one or more Domestic Business Days, to pay when due (whether upon stated maturity, by acceleration or otherwise) any interest on any Loan;

(b)Other Amounts.  The  Borrower shall fail to pay when due any fee or other amount payable under this Agreement and such failure remains uncured for five (5) days after the due date thereof;

(c)Covenants Without Notice.  The Borrower shall fail to observe or perform any covenant or agreement on its part to be observed or performed which is set forth in Section 5.01, 5.02, 5.09, 5.10, 5.12, 5.13, 5.14 or 5.15;

(d)Covenants With 10 Days Grace.  The Borrower shall fail to observe or perform any covenant or agreement on its part to be observed or performed, which is set forth in the last sentence of Section 5.04, or in Section 5.05, 5.06, 5.07, 5.08, and such non-observance or non-performance shall continue unremedied for a period of more than 10 days;

(e)Other Covenants.  The Borrower shall fail to observe or perform any covenant, condition or agreement on its part to be observed or performed, other than as referred to in subsections (a), (b), (c) and (d) above, for a period of 30 days after written notice specifying such failure and requesting that it be remedied is given by any Bank to the Borrower and the other Banks; provided that, if the failure be such that it cannot be corrected within the applicable period, but can be corrected within a reasonable period of time thereafter, it shall not constitute a Default if corrective action is instituted by the Borrower within the applicable period and diligently pursued until the failure is corrected, but any such failure that is not so corrected within 45 days after such applicable period shall constitute a Default;

(f)Representations.  Any representation, warranty, certification or statement made or deemed to be made by the Borrower in this Agreement or in any certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect in any material respect when made or deemed to be made;

(g)Non-Payments of Indebtedness and/or Derivatives Obligations.  The Borrower or any Subsidiary of the Borrower shall fail to make any payment or payments aggregating for the Borrower and its Subsidiaries in excess of $50,000,000 in respect of Indebtedness and/or Derivatives Obligations of the Borrower or any Subsidiary (other than the Loans or any Indebtedness under this

44

Agreement) when due (whether upon stated maturity, by acceleration or otherwise) or within any applicable grace period;

(h)Defaults Under Other Agreements.  The Borrower or any Subsidiary shall fail to observe or perform within any applicable grace period any covenant or agreement contained in any agreement or instrument relating to any Indebtedness of the Borrower or any Subsidiary, aggregating for the Borrower and its Subsidiaries in excess of $50,000,000 if the effect of such failure is to accelerate, or to permit the holder of such Indebtedness or any other Person to accelerate, the maturity of such Indebtedness;

(i)Bankruptcy.  The Borrower or any Subsidiary shall generally not pay its debts as they become due, or shall admit in writing its inability to pay its debts generally or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower or any Subsidiary seeking to adjudicate it bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, conservation or proceeding in the nature thereof, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief or protection of debtors, or seeking the entry of an order for relief or the appointment of a receiver (including state regulatory authorities acting in a similar capacity), trustee, custodian or other similar official for it or for any substantial part of its property, and, in the case of any such proceeding instituted against it (but not instituted by it) shall remain undismissed or unstayed for a period of 60 days; or the Borrower or any Subsidiary shall take any action to authorize any of the actions set forth above in this subsection (i);

(j)ERISA.  A Plan shall fail to maintain the minimum funding standard required by Section 412 of the Internal Revenue Code for any plan year or a waiver of such standard is sought or granted under Section 412(d), or a Plan is, shall have been or is likely to be terminated or the subject of termination proceedings under Section 4042 of ERISA, or the Borrower or a Subsidiary of the Borrower or any member of the ERISA Group has incurred or is likely to incur a liability to or on account of a Plan under Section 4062, 4063, 4064, 4201 or 4204 of ERISA, and there shall result from any such event or events either a liability or a material risk of incurring a liability to the PBGC or a Plan, which in the opinion of the Required Banks, will have a material adverse effect upon the business, operations or the financial condition of the Borrower; or

(k)Money Judgment.  A final judgment or order for the payment of money in excess of $50,000,000 shall be rendered against the Borrower or any Subsidiary and such judgment or order shall continue unsatisfied and in effect for a period of 45 days during which execution shall not be effectively stayed or deferred (whether by action of a court, by agreement or otherwise);

then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, the Administrative Agent, upon the request of the Required Banks, shall by notice to the Borrower, take any or all of the following

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actions, without prejudice to the rights of the Administrative Agent, any Bank or the holder of any Note to enforce its claims against the Borrower:  (a) declare the Commitments terminated, whereupon the Commitment of each Bank shall forthwith terminate immediately and any fee payable pursuant to Section 2.09 shall forthwith become due and payable without any other notice of any kind; or (b) declare the principal of and accrued interest on the Loans, and all other obligations owing hereunder, to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; provided that, if an Event of Default specified in subsection (i) shall occur, the result which would occur upon the giving of written notice by the Administrative Agent to the Borrower, as specified in clauses (a) and (b) above, shall occur automatically without the giving of any such notice.

Section 6.02.  Notice of Default.  The Administrative Agent shall give notice to the Borrower under Section 6.01(e) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof.

               ARTICLE 7                 

The Administrative Agent

Section 7.01.  Appointment and Authorization.  Each Bank irrevocably appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the Notes as are delegated to the Administrative Agent by the terms hereof or thereof, together with all such powers as are reasonably incidental thereto.

Section 7.02.  Administrative Agent and Affiliates.  The Bank of Nova Scotia shall have the same rights and powers under this Agreement as any other Bank and may exercise or refrain from exercising the same as though it were not the Administrative Agent, and The Bank of Nova Scotia and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or affiliate of the Borrower as if it were not the Administrative Agent hereunder.

Section 7.03.  Action by Administrative Agent.  The obligations of the Administrative Agent hereunder are only those expressly set forth herein.  Without limiting the generality of the foregoing, the Administrative Agent shall not be required to take any action with respect to any Default, except as expressly provided in Article 6.

Section 7.04.  Consultation with Experts.  The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts.

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Section 7.05.  Liability of Administrative Agent.  Neither the Administrative Agent nor any of its affiliates nor any of their respective directors, officers, agents, or employees shall be liable for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Required Banks or (ii) in the absence of its own gross negligence or willful misconduct.  Neither the Administrative Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of the Borrower; (iii) the satisfaction of any condition specified in Article 3, except receipt of items required to be delivered to the Administrative Agent; or (iv) the validity, effectiveness or genuineness of this Agreement, the Notes or any other instrument or writing furnished in connection herewith.  The Administrative Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex or similar writing) reasonably believed by it to be genuine or to be signed by the proper party or parties.

Section 7.06.  Indemnification.  Each Bank shall, ratably in accordance with its Commitment, indemnify the Administrative Agent, its affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Borrower) against any cost, expense (including counsel fees and disbursements), claim, demand, loss, damages or liability (except such as result from such indemnitee’s gross negligence or willful misconduct) that such indemnitees may suffer or incur in connection with this Agreement or any action taken or omitted by such indemnitees hereunder.

Section 7.07.  Credit Decision.  Each Bank acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement.  Each Bank also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement.

Section 7.08.  Successor Administrative Agent.  The Administrative Agent may, and for so long as long as no Event of Default has occurred and is continuing, at the request of the Borrower, shall, resign at any time by giving written notice thereof to the Banks and the Borrower.  Upon any such resignation, the Borrower shall have the right, with the consent of the Required Banks, such consent not to be unreasonably withheld, to appoint a successor Administrative Agent.  If no successor Administrative Agent shall have been so appointed by the Borrower, and shall have accepted such appointment, within 15 days after the retiring Administrative Agent gives notice of resignation, then the retiring Administrative Agent may, on behalf of the Banks, appoint a successor

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Administrative Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $1,000,000,000.  Upon the acceptance of its appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder.  After any retiring Administrative Agent’s resignation hereunder as Administrative Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent.

Section 7.09.  Co-Documentation Agents and Syndication Agent Not Liable.  Nothing in this Agreement shall impose upon any Co-Documentation Agent or the Syndication Agent, each in such capacity, any duties or responsibilities whatsoever.

                 ARTICLE 8               

Change in Circumstances

Section 8.01.  Basis for Determining Interest Rate Inadequate or Unfair.  If on or prior to the first day of any Interest Period for any Fixed Rate Borrowing:

(a)the Administrative Agent is advised by the Euro-Dollar Reference Banks that deposits in dollars (in the applicable amounts) are not being offered to the Euro-Dollar Reference Banks in the relevant market for such Interest Period, or

(b)in the case of a Committed Borrowing, Banks having 50% or more of the aggregate amount of the Commitments advise the Administrative Agent that the Adjusted London Interbank Offered Rate, as determined by the Administrative Agent will not adequately and fairly reflect the cost to such Banks of funding their Euro-Dollar Loans for such Interest Period,

the Administrative Agent shall forthwith give notice thereof to the  Borrower and the Banks, whereupon until the Administrative Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, (i) the obligations of the Banks to make Euro-Dollar Loans or to continue or convert outstanding Loans as or into Euro-Dollar Loans shall be suspended and (ii) each outstanding Euro-Dollar Loan shall be converted into a Base Rate Loan on the last day of the then current Interest Period applicable thereto.  Unless the Borrower notifies the Administrative Agent at least two Domestic Business Days before the date of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, (i) if such Fixed Rate Borrowing is a Euro-Dollar Borrowing, such Borrowing shall instead be made as a Base Rate Borrowing and (ii) if such Fixed Rate Borrowing is a Money Market LIBOR Borrowing, the Money Market LIBOR Loans comprising such

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Borrowing shall bear interest for each day from and including the first day to but excluding the last day of the Interest Period applicable thereto at the Base Rate for such day.

Section 8.02.  Illegality.  If, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Euro-Dollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Bank shall so notify the Administrative Agent, the Administrative Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Administrative Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans or to convert outstanding Loans into Euro-Dollar Loans or continue outstanding Loans as Euro-Dollar Loans, shall be suspended.  Before giving any notice to the Administrative Agent pursuant to this Section, such Bank shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank.  If such Bank shall determine that it may not lawfully continue to maintain and fund any of its outstanding Euro-Dollar Loans to maturity and shall so specify in such notice, the Borrower shall immediately prepay in full the then outstanding principal amount of each such Euro-Dollar Loan, together with accrued interest thereon.  Concurrently with prepaying each such Euro-Dollar Loan, the Borrower shall borrow a Base Rate Loan in an equal principal amount from such Bank (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks), and such Bank shall make such a Base Rate Loan.

Section 8.03.  Increased Cost and Reduced Return.  (a) If on or after (x) the date hereof, in the case of any Committed Loan or any obligation to make Committed Loans or (y) the date of the related Money Market Quote, in the case of any Money Market Loan, the adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency:

(i)shall subject any Bank (or its Applicable Lending Office) to any tax, duty or other charge with respect to its Fixed Rate Loans, its Notes or its obligation to make Fixed Rate Loans, or shall change the basis of taxation of payments to any Bank (or its Applicable Lending Office) of the principal of or interest on its Fixed Rate Loans or any other amounts

49

due under this Agreement in respect of its Fixed Rate Loans or its obligation to make Fixed Rate Loans (except for changes in the rate of tax on the overall net income of such Bank or its Applicable Lending Office imposed by the jurisdiction in which such Bank’s principal executive office or Applicable Lending Office is located); or

(ii)shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding with respect to any Euro-Dollar Loan any such requirement included in an applicable Euro-Dollar Reserve Percentage), special deposit, insurance assessment or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its Applicable Lending Office) or the London interbank market any other condition affecting its Fixed Rate Loans, its Notes or its obligation to make Fixed Rate Loans; and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making or maintaining any Fixed Rate Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank (with a copy to the Administrative Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction (including any amount or amounts equal to any taxes on the overall net income of such Bank payable by such Bank with respect to the amount of payments required to be made pursuant to this Section 8.03(a)).

(b)If any Bank determines that the adoption of any applicable law, rule, regulation, guideline or request concerning capital adequacy, or any change therein, or any change in interpretation or administration thereof by any governmental authority, central bank or comparable agency (including, without limitation, any such adoption or change the effect of which would be, for purposes of capital adequacy requirements, to treat the Commitments hereunder as not constituting commitments with an original maturity of one year or less), occurring after the date hereof, will have the effect of increasing the amount of capital required or expected to be maintained by such Bank based on the existence of such Bank’s Commitment hereunder or its obligations hereunder, it will notify the Borrower.  This determination will be made on a Bank by Bank basis.  The Borrower will pay to each Bank on demand such additional amounts as are necessary to compensate for the increased cost to such Bank as a result of the event described in the first sentence of this Section 8.03(b).  In determining such amount, such Bank will act reasonably and in good faith and will use averaging and attribution methods which are reasonable, and such Bank will pass such costs on to the Borrower only if such costs are passed on in a similar manner by such Bank to similarly situated borrowers (which are parties to credit or loan documentation containing a provision similar to this Section 8.03(b)), as

50

determined by such Bank in its reasonable discretion.  Each Bank’s determination of compensation shall be conclusive if made in accordance with this provision.  Each Bank, upon determining that any increased costs will be payable pursuant to this Section 8.03(b), will give prompt written notice thereof to the Borrower, which notice shall show the basis for calculation of such increased costs, although the failure to give any such notice shall not release or diminish any of the Borrower’s obligations to pay increased costs pursuant to this Section 8.03(b).

(c)Each Bank will promptly notify the Borrower and the Administrative Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank.  A Bank claiming compensation under this Section shall furnish a certificate to the Borrower setting forth the additional amount or amounts to be paid to it hereunder, which shall be conclusive in the absence of manifest error.  In determining such amount, such Bank may use any reasonable averaging and attribution methods.

Section 8.04.  Base Rate Loans Substituted for Affected Euro-Dollar Loans.  If (i) the obligation of any Bank to make, or to continue or convert outstanding Loans as or to, Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03(a) and the Borrower shall, by at least five Euro-Dollar Business Days’ prior notice to such Bank through the Administrative Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer apply:

(a)all Loans which would otherwise be made by such Bank as Euro-Dollar Loans shall be made instead as Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks), and

(b)after each of its Euro-Dollar Loans has been repaid, all payments of principal which would otherwise be applied to repay such Euro-Dollar Loans shall be applied to repay its Base Rate Loans instead.

 ARTICLE 9

Miscellaneous

Section 9.01.  Notices.  (a) All notices, requests, directions, consents, approvals and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party (subject to subparagraph (b) below):  (x) in the case of the Borrower or the Administrative Agent, at its address or telex or telecopier number

51

set forth on the signature pages hereof, (y) in the case of any Bank, at its address or telex or telecopier number set forth in its Administrative Questionnaire or (z) in the case of any other party, such other address or telex or telecopier number as such party may hereafter specify for the purpose by notice to the Administrative Agent and the Borrower.  Each such notice, request, direction, consent, approval or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate answerback is received or (ii) if given by any other means, when delivered or received at the address specified in this Section; provided that notices to the Administrative Agent under Article 2 or Article 8 shall not be effective until received.

(b)Notices and other communications to the Banks hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Article 2 or Article 8 unless otherwise agreed by the Administrative Agent and the applicable Bank.  The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.

Section 9.02.  No Waivers.  No failure or delay by the Administrative Agent or any Bank in exercising any right, power or privilege hereunder or under any Note shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.  The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

Section 9.03.  Expenses; Documentary Taxes; Indemnification.  (a) The Borrower shall pay (i) all documented reasonable out-of-pocket expenses of the Administrative Agent, including reasonable fees and disbursements of special counsel for the Administrative Agent, in connection with the preparation of this Agreement, any waiver or consent hereunder or any amendment hereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs, all documented reasonable out-of-pocket expenses incurred by the Administrative Agent or any Bank, including reasonable fees and disbursements incurred by counsel or in-house counsel, in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom.  The Borrower shall indemnify each Bank against any transfer taxes, documentary taxes, assessments or charges made by any governmental authority by reason of the execution and delivery of this Agreement or the Notes and any and all liabilities with respect to or resulting from any delay or omission (unless solely attributable to such Bank) to pay such taxes.

(b)The Borrower agrees to indemnify each Bank, their respective affiliates and the respective directors, officers, agents, advisors and employees of the foregoing (each an “Indemnitee”) and hold each Indemnitee harmless from

52

and against any and all liabilities, losses, damages, costs, claims, demands and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by any Indemnitee (or by the Administrative Agent in connection with its actions as Agent hereunder) in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) relating to or arising out of this Agreement or any actual or proposed use of proceeds of Loans hereunder; provided that no Indemnitee shall have the right to be indemnified hereunder for its own gross negligence, willful misconduct or unlawful conduct as determined by a court of competent jurisdiction.

Section 9.04.  Sharing of Set-offs.  Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest then due with respect to any Loans made by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of principal and interest due with respect to any Loans made by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Loans held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Loans held by the Banks shall be shared by the Banks pro rata; provided that nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness under the Loans.  The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Loan, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation.

Section 9.05.  Amendments and Waivers.  Except as provided by Section 2.17, any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Banks (and, if the rights or duties of the Administrative Agent are affected thereby, by the Administrative Agent); provided that, no such amendment or waiver shall (i) increase or decrease the Commitment of any Bank (except for a ratable decrease in the Commitments of all Banks) or subject any Bank to any additional obligation without the written consent of such Bank, (ii) reduce the principal of or rate of interest on any Loan or any fees hereunder without the written consent of each Bank directly affected thereby, (iii) postpone the date fixed for any payment of principal of or interest on any Loan or any fees hereunder or for any reduction or termination of any Commitment without the written consent of each Bank directly affected thereby, (iv) change the percentage of the Commitments (other than in connection with any increase in Commitments pursuant to Section 2.17) or of the aggregate unpaid principal amount of the Notes without the written consent of each Bank directly affected thereby or (v) change any of the provisions of this Section 9.05 or the definition of “Required Banks” or

53

any other provision hereof specifying the number or percentage of Banks required to waive, amend or modify any rights hereunder, make any determination or grant any consent hereunder or take any other action under any provision of this Agreement without the written consent of each Bank.

Section 9.06.  Successors and Assigns.  (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks.

(b)Any Bank may at any time grant to one or more affiliates of such Bank, banks or other institutions (each a “Participant”) participating interests in its Commitment or any or all of its Loans.  In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Borrower and the Administrative Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrower and the Administrative Agent shall continue to deal solely and directly with such Bank in connection with such Bank’s rights and obligations under this Agreement.  Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii) or (iii) of Section 9.05 without the consent of the Participant.  Subject to the provisions of subsection (e), the Borrower agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits, and be bound by the obligations, of Article 8 with respect to its participating interest.  An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b).

(c)Any Bank may at any time assign to one or more banks or other institutions (each an “Assignee”) all, or a proportionate part (but not in any case in an amount less than $10,000,000, unless (x) such Assignee is another Bank or an affiliate of such transferor Bank or (y) such assignment is for all of such transferor Bank’s rights and obligations under this Agreement and the Notes) of all of its rights and obligations under this Agreement and the Notes, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit H hereto executed by such Assignee and such transferor Bank, with (and subject to) the subscribed consent of the Borrower and the Administrative Agent, such consents not to be unreasonably withheld; provided that (i) if an Assignee is another Bank or an affiliate of such transferor Bank, or (ii) in the case of an assignment by any Bank to one or more Assignees after the occurrence and during the continuance of an Event of Default, no such consent of the Borrower shall be required; and provided

54

further that such assignment may, but need not, include the rights of the transferor Bank in respect of outstanding Money Market Loans.  Upon execution and delivery of such an instrument and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required.  Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, the Administrative Agent and the Borrower shall make appropriate arrangements so that, if required, a new Note is issued to the Assignee.  In connection with any such assignment, the transferor Bank shall pay to the Administrative Agent an administrative fee for processing such assignment in the amount of $3,500.  If the Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall, prior to the first date on which interest or fees are payable hereunder for its account, deliver to the Borrower and the Administrative Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 2.16.

(d)Any Bank may at any time assign all or any portion of its rights under this Agreement and its Note to a Federal Reserve Bank.  No such assignment shall release the transferor Bank from its obligations hereunder.

(e)No Assignee, Participant or other transferee of any Bank’s rights shall be entitled to receive any greater payment under Section 8.03 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower’s prior written consent or by reason of the provisions of Section 8.02 or 8.03 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist.

Section 9.07.  Collateral.  Each of the Banks represents to the Administrative Agent and each of the other Banks that it in good faith is not relying upon any “margin stock” (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement.

Section 9.08.  Governing Law.  (a) This Agreement and each Note shall be governed by and construed in accordance with the laws of the State of New York.

(b)The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such

55

New York State or, to the extent permitted by law, in such Federal court.  Each of the parties hereto agrees, to the fullest extent permitted by law, that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.  Nothing in this Agreement shall affect any right that the Administrative Agent or any Bank may otherwise have to bring any action or proceeding relating to this Agreement against the Borrower or its properties in the courts of any jurisdiction.

(c)The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section.  Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(d)Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01.  Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.

Section 9.09.  Counterparts; Integration.  This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.  This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof.

Section 9.10.  Several Obligations.  The obligations of the Banks hereunder are several.  Neither the failure of any Bank to carry out its obligations hereunder nor of this Agreement to be duly authorized, executed and delivery by any Bank shall relieve any other Bank of its obligations hereunder (or affect the rights hereunder of such other Bank).  No Bank shall be responsible for the obligations of, or any action taken or omitted by, any other Bank hereunder.

Section 9.11.  Severability.  In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.

Section 9.12.  Confidentiality.  The Administrative Agent and each Bank represent that they will maintain the confidentiality of any written or oral information provided by or on behalf of the Borrower (hereinafter collectively called “Confidential Information”), subject to the Administrative Agent’s and each Bank’s (a) obligation to disclose any such Confidential Information pursuant to a request or order under applicable laws or regulations or from a regulatory

56

authority or pursuant to a subpoena or other legal process, (b) right to disclose any such Confidential Information to its bank examiners, auditors, counsel and other professional advisors, and its employees, officers and directors, and to other Banks (it being understood that such Persons shall be informed of the confidential nature of such information and instructed to keep it confidential), (c) right to disclose any such Confidential Information in connection with any litigation or dispute involving the Banks and the Borrower or any of its Subsidiaries and affiliates, (d) right to provide such information to Participants, prospective Participants to which sales of participating interests are permitted pursuant to Section 9.06(b) and prospective Assignees to which assignments of interests are permitted pursuant to Section 9.06(c) if such Participant, prospective Participant or prospective Assignee agrees in writing to maintain the confidentiality of such information on terms substantially similar to those of this Section as if it were a “Bank” party hereto, and (e) right to disclose Confidential Information to its affiliates if such affiliate agrees in writing to maintain the confidentiality of such information on terms substantially similar to those of this Section.  Notwithstanding the foregoing, any such information supplied to a Bank, Participant, prospective Participant or prospective Assignee under this Agreement shall cease to be Confidential Information if it is or becomes known to such Person by other than unauthorized disclosure, or if it becomes a matter of public knowledge other than as a result of a breach of this Section by such Person.

Section 9.13.  WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 9.14. USA Patriot Act.  Each Bank hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Bank to identify the Borrower in accordance with the Act.    

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION,
By	/s/ STEVEN L. LILLY
	Name: Steven L. Lilly
	Title: Senior Vice President, Chief Financial Officer and Assistant Secretary-Treasurer
	Address: 2201 Cooperative Way Herndon, Virginia 20171
	Attention: Steven L. Lilly
	Title: Senior Vice President, Chief Financial Officer and Assistant Secretary-Treasurer
	Telephone No.: (703) 709-6718
	Telephone No.: (703) 709-6718

THE BANK OF NOVA SCOTIA
By:	/s/ THANE RATTEW
Name:Thane Rattew
Title:Managing Director

THE ROYAL BANK OF SCOTLAND PLC, as Syndication Agent and as a Bank
By:	/s/ EMILY FREEDMAN
Name:Emily Freedman
Title:Vice President

LBS LOAN FINANCE, LLC. as a Bank
By:	/s/ IRJA R. OTSA
Name: Irja R Otsa
Title:Associate Director

By:	/s/ MARY E. EVANS
Name:Mary E. Evans
Title:Associate Director

DEUTSCHE BANK SECURJTIES INC, as Co-Documentation Agent
By:	/s/ MARCUS TARKINGTON
Name:Marcus Tarkington
Title:Director

By:	/s/ RAINER MEIER
Name:Rainer Meier
Title:Vice President

DEUTSCHE BANK AG NEW YORK BRANCH
By:	/s/ MARCUS TARKINGTON
Name:Marcus Tarkington
Title:Director

By:	/s/ RAINER MEIER
Name:Rainer Meier
Title:Vice President

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., NEW YORK BRANCH
By:	/s/ NICHOLAS R. BATTISTA
Name:Nicholas R. Battista
Title:Authorized Signatory

KEYBANK NATIONAL ASSOCIATION
By:	/s/ SHERRIE I. MANSON
Name:Sherrie I. Manson
Title:Senior Vice President

By:	/s/ JANINE SHUGAN
Name:Janine Shugan
Title:Authorized Signatory

JPMorgan Chase Bank, N.A.
By:	/s/ MICHEAL DEFORGE
Name:Micheal DeForge
Title:Executive Director

MERRILL LYNCH BANK USA
By:	/s/ DEREK BEFUS
Name: Derek Befus
Title:Vice President

HSBC BANK (USA). N.A.
By:	/s/ VINCE CLARK
Name: Vince Clark
Title:Senior Vice President

By:	/s/ RAYMOND VENTURA
Name: Raymond Ventura
Title:Deputy General Manager

By:	/s/ ERIC COSGROVE
Name: Eric Cosgrove
Title:Assistant Vice President U.S. Bank, N.A.

SUNTRUST BANK
By:	/s/ YANN PIRIO
Name: Yann Pirio
Title:Director

PNC BANK N.A.
By:	/s/ JOHN BERRY
Name: John Berry
Title:Vice President

COMERICA BANK
By:	/s/ RICK HAMPSON
Name: Rick Hampson
Title:Group Manager, SVP

AGENT SCHEDULE

Institution	Title
The Bank of Nova Scotia	Administrative Agent
The Royal Bank of Scotland plc	Syndication Agent
The Bank of Tokyo-Mitsubishi UFJ, LTD., New York Branch	Co-Documentation Agent
Deutsche Bank Securities Inc.	Co-Documentation Agent
UBS Loan Finance LLC	Co-Documentation Agent

Ex.A-1

COMMITMENT SCHEDULE

Institution	Commitment
The Bank of Nova Scotia	$200,000,000
The Royal Bank of Scotland	$183,630,000
Deutsche Bank Securities Inc.	$125,000,000
UBS Loan Finance LLC	$125,000,000
The Bank of Tokyo-Mitsubishi UFJ, LTD.	$110,000,000
KeyBank National Association	$110,000,000
Lehman Brothers Bank, FSB	$105,000,000
JPMorgan Chase Bank, N.A.	$100,000,000
Merrill Lynch Bank USA	$90,500,000
HSBC Bank USA, National Association	$77,500,000
Mizuho Corporate Bank, Ltd.	$75,000,000
U.S. Bank National Association	$75,000,000
SunTrust Bank	$50,000,000
PNC Bank, National Association	$42,750,000
Comerica Bank	$30,620,000
	$1,500,000,000

Ex.A-2

PRICING SCHEDULE

The “LIBOR Margin” and the “Facility Fee Rate” for the Borrower at any date are the respective percentages set forth below in the applicable row and column based upon the Status of the Borrower that exists on such date.

Status	Level I	Level II	Level III	Level IV	Level V	Level VI	Level VII
LIBOR Margin:	0.145%	0.160%	0.200%	0.240%	0.330%	0.410%	0.625%
Facility Fee Rate:	0.030%	0.040%	0.050%	0.060%	0.070%	0.090%	0.125%

For purposes of this Pricing Schedule, the following terms have the following meanings, subject to the concluding paragraph of this Pricing Schedule:

“Fitch” means Fitch Ratings Ltd.

“Level I Status” exists at any date if, at such date, the Borrower’s senior unsecured long-term debt is rated AA- or higher by S&P or Aa3 or higher by Moody’s or AA- or higher by Fitch.

“Level II Status” exists at any date if, at such date, (i) the Borrower’s senior unsecured long-term debt is rated A+ or higher by S&P or A1 or higher by Moody’s or A+ or higher by Fitch, and (ii) Level I Status does not exist.

“Level III Status” exists at any date if, at such date, (i) the Borrower’s senior unsecured long-term debt is rated A or higher by S&P or A2 or higher by Moody’s or A or higher by Fitch, and (ii) Level II Status does not exist.

“Level IV Status” exists at any date if, at such date, (i) the Borrower’s senior unsecured long-term debt is rated A- or higher by S&P or A3 or higher by Moody’s or A- or higher by Fitch, and (ii) Level III Status does not exist.

“Level V Status” exists at any date if, at such date, (i) the Borrower’s senior unsecured long-term debt is rated BBB+ or higher by S&P or Baa1 or higher by Moody’s or BBB+ or higher by Fitch, and (ii) Level IV Status does not exist.

“Level VI Status” exists at any date if, at such date, (i) the Borrower’s senior unsecured long-term debt is rated BBB or higher by S&P or Baa2 or higher by Moody’s or BBB or higher by Fitch, and (ii) Level V Status does not exist.

“Level VII Status” exists at any date if, at such date, no other Status applies.

Ex.A-3

“Moody’s” means Moody’s Investors Services, Inc.

“Rating Agencies” means each of S&P, Moody’s and Fitch.

“S&P” means Standard & Poor’s Rating Services.

“Status” refers to the determination of which of Level I Status, Level II Status, Level III Status, Level IV Status, Level V Status, Level VI or Level VII Status exists at any date.

The credit ratings to be utilized for purposes of this Pricing Schedule are those assigned to the senior unsecured long-term debt securities of the Borrower  without third-party credit enhancement (the “Borrower’s Unsecured Long-Term Debt”), and any ratings assigned to any other debt security of the Borrower shall be disregarded; provided that if at any date there is no such rating assigned by a particular Rating Agency, such Rating Agency’s rating of the Borrower’s Unsecured Long-Term Debt shall be deemed to be one notch below such Rating Agency’s rating of the senior secured debt of the Borrower at such date.  If two of the three Rating Agencies have assigned the same rating to the Borrower’s Unsecured Long-Term Debt (after giving effect to the proviso in the first sentence of this paragraph) and the third rating agency has assigned a different rating, the rating of the third Rating Agency shall be disregarded (e.g., A/A2/A+ results in Level III Status).  If each Rating Agency has assigned to the Borrower’s Unsecured Long-Term Debt a different rating, the intermediate rating shall be used (e.g., A/Baa1/BBB results in Level V Status).

Ex.A-4

SCHEDULE 5.03(a)

NON-GAAP SUBSIDIARIES

a.   Denton Realty Holdings, LLC, organized in the State of Delaware. Borrower owns 100% of the membership interests.

b.   Denton Realty Investors, LLC, organized in the State of Delaware. Borrower owns 100% of the membership interests.

c.   Denton Realty Partners, LP, organized in the State of Delaware. Denton Realty Holdings, LLC is the general partner and owns 0.5% of the partnership interests, and Denton Realty Investors, LLC is the limited partner and owns 99.5% of the partnership interests.

d.   CFC Advantage, LLC, organized in the State of Delaware. Borrower owns 100% of the membership interests.

Ex.A-5

EXHIBIT A

FORM OF NOTE

New York, New York                       [DATE]

For value received, National Rural Utilities Cooperative Finance Corporation, a not-for-profit cooperative association incorporated under the laws of the District of Columbia (the “Borrower”), promises to pay to the order of (the “Bank”), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Revolving Credit Agreement referred to below on the Maturity Date with respect to such Loan.  The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Revolving Credit Agreement.  All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of The Bank of Nova Scotia, c/o GWS Loan Operations, 720 King Street West, 2nd Floor, Toronto, Ontario, M5V 2T3, Attn: NYA Loan Operations.

All Loans made by the Bank, the respective types and maturities thereof and all repayments of the principal thereof shall be recorded by the Bank and, prior to any transfer hereof, appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding may be endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Revolving Credit Agreement.

This note is one of the Notes referred to in the 364-Day Revolving Credit Agreement dated as of March 14, 2008, among the Borrower, the Banks listed on the signature pages thereof, Deutsche Bank Securities Inc., UBS Loan Finance LLC and The Bank of Tokyo-Mitsubishi UFJ, LTD., New York Branch, as Co-Documentation Agents, The Royal Bank of Scotland plc, as Syndication Agent, and The Bank of Nova Scotia, as Administrative Agent (as the same may be amended from time to time, the “Revolving Credit Agreement”).  Terms defined in the Revolving Credit Agreement are used herein with the same meanings.  Reference is made to the Revolving Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof.

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

By:

Name:

Title:

Ex.A-1

Note (cont’d)

LOANS AND PAYMENTS OF PRINCIPAL

Date Amount of Loan Type of Loan Amount of Principal Repaid Maturity Date Notation Made By

Ex.A-2

EXHIBIT B-1

FORM OF RUS GUARANTEE

The United States of America acting through the Administrator of the Rural Utilities Service (“RUS”) hereby unconditionally guarantees to [name of Payee] the making of [__%] of the payments of principal and interest when and as due on this Note of _________ (the “Cooperative”) in accordance with the terms hereof and of the Loan Agreement referred to in this Note, until such principal and interest shall be indefeasibly paid in full (which includes interest accruing on such principal between the date of default under this Note and the payment in full of this Guarantee), irrespective of receipt by RUS of any sums or property from its enforcement of its remedies for the Cooperative default.  This Guarantee shall be incontestable except for fraud or misrepresentation of which the holder had actual knowledge at the time it became a holder.  RUS hereby waives diligence, presentment, demand, protest and notice of any kind, as well as any requirement that [name of Payee] exhaust any right or take any action against the Cooperative.

This Guarantee is issued pursuant to Title III of the Rural Electrification Act of 1936, as amended (7 U.S.C. '' 901, et seq.), and the Loan Guarantee and Servicing Agreement among RUS, the Cooperative, Bank One, NA and National Rural Utilities Cooperative Finance Corporation dated ___________, ____.

	UNITED STATES OF AMERICA
Date________________, ___	By:
	Name:
	Title:Administrator of Rural Electrification Administration

Ex.B-1

EXHIBIT B-2

FORM OF RUS GUARANTEE

The United States of America acting through the Administrator of the Rural Utilities Service (“RUS”) hereby unconditionally guarantees to the Payee the making of the payments of principal and Guaranteed Interest when and as due on the Note of _______________ (the “Cooperative”) dated _____ in the original principal amount of $ _____ (the “Note”), in accordance with the terms thereof and of the Loan Agreement and the Master Loan Guarantee and Servicing Agreement referred to in the Note, until such principal and Guaranteed Interest shall be indefeasibly paid in full (which includes interest accruing at the Guaranteed Interest Rate between the date of default under the Note and the payment in full of this Guarantee), irrespective of receipt by RUS of any sums or property from its enforcement of its remedies for the Cooperative’s default.  This Guarantee shall be incontestable except for fraud or misrepresentation of which the holder had actual knowledge at the time it became a holder.  RUS hereby waives diligence, presentment, demand, protest and notice of any kind (except the “Default Notice” required pursuant to Section 5.3(a) of the Master Loan Guarantee and Servicing Agreement), and acknowledges that the Payee does not have any right or obligation to exercise any right or take any action against the Cooperative.

This Guarantee is issued pursuant to the Rural Electrification Act of 1936, as amended (7 U.S.C. '' 901, et seq.) (the “Act”), and the Master Loan Guarantee and Servicing Agreement between RUS and National Rural Utilities Cooperative Finance Corporation dated as of February 16, 1999.

THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE UNITED STATES OF AMERICA, TO THE EXTENT APPLICABLE, AND OTHERWISE THE LAWS OF THE COMMONWEALTH OF VIRGINIA.

THE UNDERSIGNED, AS [ADMINISTRATOR] OF RUS, DOES HEREBY CERTIFY THAT I AM AUTHORIZED UNDER THE ACT AND 7 CFR PART 1700 TO DELIVER THIS GUARANTEE.

UNITED STATES OF AMERICA

By:

Name:

Title:[Administrator] of the Rural Utilities Service

Dated:__________________ RUS Loan No_______________________

Ex.B-2

EXHIBIT C

FORM OF MONEY MARKET QUOTE REQUEST

[Date]

To: The Bank of Nova Scotia (the “Administrative Agent”)

From: National Rural Utilities Cooperative Finance Corporation (the “Borrower”)

Re: 364-Day Revolving Credit Agreement dated as of March 14, 2008, among the Borrower, the Banks listed on the signature pages thereof, Deutsche Bank Securities Inc., UBS Loan Finance LLC and The Bank of Tokyo-Mitsubishi UFJ, LTD., New York Branch, as Co-Documentation Agents, The Royal Bank of Scotland plc, as Syndication Agent, and The Bank of Nova Scotia, as Administrative Agent (the “Revolving Credit Agreement”)

We hereby give notice pursuant to Section 2.03 of the Revolving Credit Agreement that we request Money Market Quotes for the following proposed Money Market Borrowing(s):

Date of Borrowing:  __________________

Principal Amount1                                                                Interest Period2

$

Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate].  [The applicable base rate is the London Interbank Offered Rate.]

Terms used herein have the meanings assigned to them in the Revolving Credit Agreement.

NATIONAL RURAL UTILITIES

 COOPERATIVE FINANCE

 CORPORATION

By:

Name:

Title:

1   Amount must be $10,000,000 or a larger multiple of $1,000,000. 

2   Any number of whole months (but not less than one month) (LIBOR Auction) or not less than 30 days (Absolute Rate Auction), subject to the provisions of the definition of Interest Period.

Ex.C-1

EXHIBIT D

FORM OF INVITATION FOR MONEY MARKET QUOTES

[Date]

To: [Name of Bank]

Re: Invitation for Money Market Quotes to the National Rural Utilities Cooperative Finance Corporation (the “Borrower”)

Pursuant to Section 2.03 of the 364-Day Revolving Credit Agreement dated as of March 14, 2008, among the Borrower, the Banks listed on the signature pages thereof, Deutsche Bank Securities Inc., UBS Loan Finance LLC and The Bank of Tokyo-Mitsubishi UFJ, LTD., New York Branch, as Co-Documentation Agents, The Royal Bank of Scotland plc, as Syndication Agent, and The Bank of Nova Scotia, as Administrative Agent (the “Revolving Credit Agreement”):

Date of Borrowing:  __________________

Principal Amount Interest Period

$

Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.]

Please respond to this invitation by no later than 9:30 A.M. (New York City time) on [date].

The Bank of Nova Scotia

By:

Name:

Title:Authorized Officer

Ex.D-1

EXHIBIT E

FORM OF MONEY MARKET QUOTE

[Date]

The Bank of Nova Scotia,

as Administrative Agent

c/o GWS Loan Operations

720 King Street West, 2nd Floor

Toronto, Ontario  M5V 2T3

Attn: NYA Loan Operations

Attention:

Re: Money Market Quote to National Rural Utilities Cooperative Finance Corporation (the “Borrower”)

In response to your invitation on behalf of the Borrower dated _____________, 200_, we hereby make the following Money Market Quote on the following terms:

1. Quoting Bank:  ________________________________

2. Person to contact at Quoting Bank:  _____________________________

3. Date of Borrowing: ____________________*

4. We hereby offer to make Money Market Loan(s) in the following principal amounts, for the following Interest Periods and at the following rates:

* As specified in the related Invitation.

Ex.E-1

Principal Amount*	Interest Period**	Money Market [Margin***]	[Absolute Rate****]
$
$

[provided, that the aggregate principal amount of Money Market Loans for which the above offers may be accepted shall not exceed $____________.]**

We understand and agree that the offer[s] set forth above [is][are] subject to the satisfaction of the applicable conditions set forth in the 364-Day Revolving Credit Agreement dated as of March 14, 2008, among the Borrower, the Banks listed on the signature pages thereof, Deutsche Bank Securities Inc., UBS Loan Finance LLC and The Bank of Tokyo-Mitsubishi UFJ, LTD., New York Branch, as Co-Documentation Agents, The Royal Bank of Scotland plc, as Syndication Agent, and The Bank of Nova Scotia, as Administrative Agent.

Very truly yours,

[NAME OF BANK]

By: __________________________________

Name:

Title:Authorized Officer

Dated: _______________

_____________________________ 

** Principal amount bid for each Interest Period may not exceed principal amount requested. Specify aggregate limitation if the sum of the individual offers exceeds the amount the Bank is willing to lend.  Bids must be made for $1,000,000 or a larger multiple thereof.

 

*** Any number of whole months (but not less than one month) or not less than 30 days, as specified in the related Invitation.  No more than five bids are permitted for each Interest Period.

 

**** Margin over or under the London Interbank Offered Rate determined for the applicable Interest Period.  Specify percentage (rounded to the nearest 1/10,000 of 1%) and specify whether “PLUS” or “MINUS”.

 

***** Specify rate of interest per annum (rounded to the nearest 1/10,000th of 1%).

Ex.E-2

EXHIBIT F

OPINION OF GENERAL COUNSEL OF THE BORROWER

March 14, 2008

To the Administrative Agent and each of the Bank parties

 to the Revolving Credit Agreement referred to below

c/o The Bank of Nova Scotia

One Liberty Plaza

New York, New York 10006

Ladies and Gentlemen:

I, Roberta B. Aronson, Acting General Counsel of the National Rural Utilities Cooperative Finance Corporation (the “Borrower”), am delivering this opinion pursuant to the Revolving Credit Agreement (the “Agreement”) dated as of March 14, 2008 among the Borrower, the Banks listed on the signature pages thereof, Deutsche Bank Securities Inc., UBS Loan Finance LLC, and The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as Co-Documentation Agents, The Royal Bank of Scotland plc, as Syndication Agent, and The Bank of Nova Scotia, as Administrative Agent.  Terms defined in the Agreement are used herein as therein defined.  This opinion is being rendered to you at the request of the Borrower, pursuant to 3.01(c) of the Agreement.

I have examined originals or copies, certified or otherwise identified to my satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. This opinion is limited to the laws of the District of Columbia.

Upon the basis of the foregoing, I am of the opinion that:

1.           The Borrower is a cooperative association duly incorporated, validly existing and in good standing under the laws of the District of Columbia and has the corporate power and authority and all material governmental licenses, authorizations, consents and approvals required to own its property and assets and to transact the business in which it is engaged.  The Borrower is duly qualified or licensed as a foreign corporation in good standing in every jurisdiction in which the nature of the business in which it is engaged makes such qualification or licensing necessary, except in those jurisdictions in which the failure to be so qualified or licensed would not (after qualification, assuming that the Borrower could so qualify without the payment of any fee or penalty and retain its rights as they existed prior to such qualification all to an extent so that any fees or penalties required to be so paid or any rights not so retained would not, individually or in the aggregate, have a material adverse effect on the business or financial condition of the Borrower), individually or in the aggregate, have a material adverse effect upon the business or financial condition of the Borrower.

Ex.H-1

2.           The Borrower has the corporate power and authority to execute, deliver and carry out the terms and provisions of the Agreement and the Notes.  The Agreement and the Notes have been duly and validly authorized, executed and delivered by the Borrower, and the Agreement constitutes a legal, valid and binding agreement of the Borrower, and the Notes constitute legal, valid and binding obligations of the Borrower, in each case enforceable in accordance with its terms, except as the same may be limited by: (a) bankruptcy, insolvency, reorganization, receivership, moratorium and other laws affecting creditors’ rights (including without limitation, the effect of statutory and other law regarding fraudulent conveyances, fraudulent transfers and preferential transfers); and (b) the exercise of judicial discretion and the application of principles of equity, good faith, fair dealing, reasonableness, conscionability and materiality (regardless of whether the applicable agreements are considered in a proceeding in equity or at law). The opinions expressed in this paragraph shall be understood to mean that if there is a default in performance of an obligation, (i) if a failure to pay or other damage can be shown and (ii) if the defaulting party can be brought into a court which will hear the case and apply the governing law, then, subject to the availability of defenses, and to the exceptions set forth in sections (a) and (b) of this paragraph, the court will provide a money damage (or perhaps injunctive or specific performance) remedy.

3.           There are no actions, suits, proceedings or investigations pending or, to my knowledge, threatened against or affecting the Borrower by or before any court or any governmental authority, body or agency or any arbitration board which are reasonably likely to materially adversely affect the business, property, assets, financial position or results of operations of the Borrower or the authority or ability of the Borrower to perform its obligations under the Agreement or the Notes.  Without limiting the foregoing opinion, I would like to draw your attention to the legal actions described on Annex A.

4.           No authorization, consent, approval or license of, or declaration, filing or registration with or exemption by, any governmental authority, body or agency is required in connection with the execution, delivery or performance by the Borrower of the Agreement or the Notes.

5.           The holders of the Borrower’s Members’ Subordinated Certificates are not and will not be entitled to receive any payments with respect to the principal thereof or interest thereon solely because of withdrawing or being expelled from membership in the Borrower.

Ex.H-2

6.           Neither the Borrower nor any Consolidated Subsidiary is in default in any material respect under any material agreement or other instrument to which it is a party or by which it or its property or assets is bound. No event or condition exists which constitutes, or with the giving of notice or lapse of time or both would constitute, such a default under any such agreement or other instrument.  Neither the execution and delivery of the Agreement or the Notes, nor the consummation of any of the transactions therein contemplated, nor compliance with the terms and provisions thereof, will contravene any provision of law, statute, rule or regulation to which the Borrower is subject or any judgment, decree, award, franchise, order or permit applicable to the Borrower, or will conflict or be inconsistent with, or will result in any material breach of, any of the material terms, covenants, conditions or provisions of, or constitute (or with the giving of notice or lapse of time, or both, would constitute) a default under (or condition or event entitling any Person to require, whether by purchase, redemption, acceleration or otherwise, the Borrower to perform any obligations prior to the scheduled maturity thereof), or result in the creation or imposition of any Lien upon any of the property or assets of the Borrower pursuant to the terms of, any indenture, mortgage, deed of trust, agreement or other instrument to which it may be subject, or violate any provision of the certificate of incorporation or by-laws of the Borrower.  Without limiting the generality of the foregoing, the Borrower is not a party to, or otherwise subject to any provision contained in, any instrument evidencing Indebtedness of the Borrower, any agreement or indenture relating thereto or any other contract or agreement (including its certificate of incorporation and by-laws), which would be violated by the incurring of the Indebtedness to be evidenced by the Notes.

7.           The Borrower has complied fully with all of the material provisions of each Indenture.  No Event of Default (within the meaning of such term as defined in any Indenture) and no event, act or condition (except for possible non-compliance by the Borrower with any immaterial provisions of such Indenture which in itself is not such an Event of Default under such Indenture) which with notice or lapse of time, or both, would constitute such an Event of Default has occurred and is continuing under such Indenture.  The borrowings by the Borrower contemplated by the Agreement will not cause such an Event of Default under, or the violation of any covenant contained in, any Indenture.

8.           Set forth on Annex B attached hereto is a true, correct and complete list of all of the Borrower’s Subsidiaries and Joint Ventures, the jurisdiction of incorporation or organization of each such Subsidiary and Joint Venture and the nature and percentage of the Borrower’s ownership of each such Subsidiary and Joint Venture.

9.           The Borrower has received a ruling from the Internal Revenue Service to the effect that it is exempt from payment of Federal income tax under

Ex.H-3

Section 501 (c)(4) of the Internal Revenue Code of 1986, and nothing has come to our attention that leads us to believe that the Borrower is not so exempt.

Although the parties have agreed that the Agreement and Notes shall be governed by and construed in accordance with the laws of the State of New York, if a court were to hold that the Agreement and Notes are to be governed and construed in accordance with the laws of the District of Columbia, the Agreement and Notes would, under the laws of the District of Columbia, be legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, subject as to enforceability only to those qualifications referenced in Paragraph 1 above.

Sincerely,

Roberta B. Aronson

Acting General Counsel

Ex.H-4

Annex A

VarTec Telecom, Inc. ("VarTec") was a telecommunications company and Rural Telephone Finance Cooperative (“RTFC”) borrower located in Dallas, Texas.  RTFC was VarTec's principal senior secured creditor.

VarTec and 16 of its U.S.-based affiliates, which were guarantors of VarTec's debt to RTFC, filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code on November 1, 2004 in Dallas, Texas.  The cases were converted in 2006 to Chapter 7 proceedings, administered by a Chapter 7 trustee.

On June 4, 2007, the Bankruptcy Court approval of a settlement of litigation against RTFC became final, pursuant to which (a) all claims against RTFC were dismissed with prejudice and fully released, (b) a portion of the proceeds from the collateral that had been provisionally applied to RTFC’s secured debt was reallocated to VarTec creditors, including RTFC, and (c) an administrative debtor-in-possession (“DIP”) financing facility owed by VarTec bankruptcy estates to RTFC was reduced to $6 million.  RTFC’s remaining claims will share in further recoveries by the bankruptcy estates.

As a result of the settlement of the litigation, National Rural Utilities Cooperative Finance Corporation (“CFC”) wrote off $44 million of pre-petition debt during the fourth quarter of fiscal year 2007. CFC also wrote off $17 million in the first quarter of fiscal year 2008.

At November 30, 2007, CFC had a receivable for $6 million, which has a payment priority from the bankruptcy estates; in addition, CFC will share in recoveries that are in excess of the amount required to repay the DIP financing and cover expenses of the estates. On December 26, 2007, CFC received $3 million from the Chapter 7 trustee, thereby reducing the receivable to $3 million.

Innovative Communication Corporation ("ICC") is a diversified telecommunications company and RTFC borrower headquartered in St. Croix, United States Virgin Islands ("USVI").  In the USVI, through its subsidiary Virgin Islands Telephone Corporation d/b/a Innovative Telephone ("Vitelco"), ICC provides wire line local and long-distance telephone services and well as other communications and media services in the eastern and southern Caribbean and mainland France.

As of November 30, 2007 and May 31, 2007, RTFC had $496 million and $493 million, respectively, in loans outstanding to ICC.  Loans outstanding to ICC continue to increase due to accrued legal costs associated with ongoing litigation to recover the outstanding loan balance.  All loans to ICC have been on non-accrual status since February 1, 2005.  ICC has not made debt service payments to RTFC since June 2005.

Ex.H-5

RTFC is the primary secured lender to ICC.  RTFC's collateral for the loans includes (i) a series of mortgages, security agreements, financing statements, pledges and guaranties creating liens in favor of RTFC on substantially all of the assets and voting stock of ICC,  (ii) a direct pledge of 100% of the voting stock of ICC's USVI local exchange carrier subsidiary, Vitelco, (iii) secured guaranties, mortgages and direct and indirect stock pledges encumbering the assets and ownership interests in substantially all of ICC's other operating subsidiaries and certain of its parent entities, including ICC's immediate parent, Emerging Communication, Inc., a Delaware corporation ("Emcom") and Emcom's parent, Innovative Communication Company LLC, a Delaware limited liability company ("ICC-LLC"), and (iv) a personal guaranty of the loans from ICC's indirect majority shareholder and chairman, Jeffrey Prosser ("Prosser").

Beginning on June 1, 2004, RTFC filed a series of lawsuits against ICC, Prosser and others for failure to comply with the terms of ICC's loan agreement with RTFC dated August 27, 2001 as amended on April 4, 2003 (hereinafter, the "RTFC Lawsuits").  In response to the RTFC Lawsuits, ICC, Vitelco and Prosser denied liability and asserted claims, by way of counterclaim and by filing its own lawsuits against RTFC, CFC and certain of RTFC's officers, seeking various remedies, including reformation of the loan agreement, injunctive relief, and damages.  The remedies were based on various theories including a claim that RTFC breached an alleged funding obligation for the settlement of litigation brought by Emcom shareholders (the "Greenlight Entities") against ICC-LLC, ICC and some of ICC's directors, and a claim that Emcom and ICC-LLC were entitled to contribution from RTFC and CFC in connection with judgments that the Greenlight Entities had been awarded (the "ICC Claims," together with the RTFC Lawsuits, the "Loan Litigation").  Venue of the Loan Litigation ultimately was fixed in the United States District Court for the District of the Virgin Islands.

On February 10, 2006, Greenlight filed petitions for involuntary bankruptcy against Prosser, Emcom and ICC-LLC in the United States Bankruptcy Court for the District of Delaware, later transferred to the United States District Court for the Virgin Islands, Bankruptcy Division.  RTFC appeared in the proceedings as a party-in-interest in accordance with the provisions of the United States Bankruptcy Code.

On April 26, 2006, RTFC reached a settlement of the Loan Litigation with ICC, Vitelco, ICC-LLC, Emcom, their directors and Prosser, individually.  Under the settlement, RTFC obtained entry of judgments in the District Court for the District of the Virgin Islands against ICC for approximately $525 million and Prosser for approximately $100 million.  RTFC also obtained dismissals with prejudice of all counterclaims, affirmative defenses and other lawsuits alleging wrongful acts by RTFC, certain of its officers, and CFC. Various parties also reached agreement for ICC to satisfy the RTFC judgments in the third quarter of

Ex.H-6

calendar year 2006, subject to certain terms and conditions, however, on July 31, 2006, certain of the parties obligated to satisfy the RTFC judgments under the agreement filed voluntary bankruptcy proceedings, as described below, in order to obtain additional time to satisfy the judgments.

On July 31, 2006, ICC-LLC, Emcom and Prosser, individually, each filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code, now pending in the United States District Court for the Virgin Islands, Division of St. Thomas and St. John, Bankruptcy Division. Each of the debtors is obligated to RTFC for certain obligations of ICC, including court judgments.  On February 13, 2007, the Bankruptcy Court ordered the appointment of a Chapter 11 trustee for the ICC-LLC and Emcom bankruptcy estates and an examiner for Prosser’s bankruptcy estate.

On August 2, 2007, the Bankruptcy Court entered an order declaring that the debtors could not satisfy the RTFC judgments at a discount.  Prosser, individually, has filed a notice of appeal of the order; none of the other debtors has sought review of the order.

On September 7, 2007, the Bankruptcy Court entered an order authorizing the Chapter 11 trustee for the Emcom bankruptcy estate to exercise control over the common stock of ICC, including authority to vote the stock to, among other things, facilitate a refinancing or sale of ICC and its assets.

On September 21, 2007, the United States District Court for the Virgin Islands, Bankruptcy Division, in response to an involuntary petition filed by the Greenlight Entities, entered an order for relief under Chapter 11 of the United States Bankruptcy Code thereby placing ICC in its own bankruptcy proceeding.  In response to a motion by RTFC, the Bankruptcy Court ordered appointment of a Chapter 11 trustee on October 3, 2007. Certain parties have moved for reconsideration of and/or appealed one or more orders of the Bankruptcy Court and have requested a stay pending ruling by the District Court. RTFC believes both that the moving parties have no standing and that the motion to reconsider and appeal have no merit. Pending the appeal, the Chapter 11 trustee of ICC has assumed ownership and control of ICC, including its subsidiaries, and has begun to marshal RTFC collateral and other assets for disposition and eventual payment in respect of RTFC’s claims and the claims of other parties-in-interest. On January 2, 2008, the Chapter 11 trustee of ICC filed a motion seeking authority to sell substantially all of ICC’s assets, including stock in ICC’s operating subsidiaries. The Court has entered an order approving certain sale motions presented on February 1, 2008.

In response to a motion by the Greenlight Entities, joined by RTFC, the Bankruptcy Court converted Prosser’s individual Chapter 11 bankruptcy to a Chapter 7 liquidation on October 3, 2007. Prosser has filed a notice of appeal of the conversion order. RTFC believes that the appeal has no merit. Pending the appeal, the Chapter 7 trustee has advised that he intends to marshal Prosser’s non-

Ex.H-7

exempt assets for disposition and eventual payment in respect of creditor claims. On December 3, 2007, the Chapter 7 trustee of Prosser’s estate filed a motion to approve sale procedures and for authority to sell Prosser’s controlling shares in the Virgin Islands Community Bank Corp. The sale closed on January 27, 2008.

In most cases, the sale (as part of the reorganization process) of ICC or any of its subsidiaries engaged in a regulated telecommunications or cable television business, or of the regulated assets of ICC or its subsidiaries, will require the prior consent of the respective regulators in the United States (including the Federal Communications Commission and the U.S. Virgin Islands Public Services Commission), the British Virgin Islands, France and its Caribbean territories, and the Netherlands Antilles. In certain limited cases, only a post-transaction notification will be required.

Each of the above cases, including related proceedings and counterclaims, has been previously disclosed in greater detail in CFCs public filings with the Securities and Exchange Commission. Nothing herein constitutes an admission that the foregoing are reasonably likely to materially adversely affect the business, property, assets, financial position or results of CFC or the authority or ability of CFC to perform its obligations under the Agreement or the Notes.

Ex.H-8

Annex B

Subsidiaries, Special Purpose Subsidiaries and Joint Ventures:

a. CFC Advantage, LLC, organized in the State of Delaware. Borrower owns 100% of the membership interests.

b. Denton Realty Holdings, LLC, organized in the State of Delaware. Borrower owns 100% of the membership interests.

c. Denton Realty Investors, LLC, organized in the State of Delaware. Borrower owns 100% of the membership interests.

d. Denton Realty Partners, LP, organized in the State of Delaware. Denton Realty Holdings, LLC is the general partner and owns 0.5% of the partnership interests, and Denton Realty Investors, LLC is the limited partner and owns 99.5% of the partnership interests.

Denton Realty Partners, LP ownership interest:

Rayzor Ranch, L.P.	25%
Laurel Development I, L.P.	25%
Crescent/Lantana I, L.P.	10%
Meridian/Lantana I, L.P.	10%
Laurel Development II, L.P.	10%
Crescent/Lantana II, L.P.	10%
Brenham Development, L.P.	10%
W/J Lakes Development LP	50%
W/J Lakes LP	50%

Ex.H-9

EXHIBIT G

OPINION OF

DAVIS POLK & WARDWELL,

SPECIAL COUNSEL FOR THE ADMINISTRATIVE AGENT

March 14, 2008

To the Banks and the Administrative Agent

Referred to Below

c/o The Bank of Nova Scotia, as Administrative Agent

c/o GWS Loan Operations

720 King Street West, 2nd Floor

Toronto, Ontario  M5V 2T3

Attn: NYA Loan Operations

Dear Sirs:

We have participated in the preparation of the 364-Day Revolving Credit Agreement dated as of March 14, 2008 (the “Credit Agreement”) among the National Rural Utilities Cooperative Finance Corporation, a not-for-profit cooperative association incorporated under the laws of the District of Columbia (the “Borrower”), the Banks listed on the signature pages thereof, Deutsche Bank Securities Inc., UBS Loan Finance LLC and The Bank of Tokyo-Mitsubishi UFJ, LTD., New York Branch, as Co-Documentation Agents, The Royal Bank of Scotland plc, as Syndication Agent, and The Bank of Nova Scotia, as Administrative Agent (the “Administrative Agent”), and have acted as special counsel for the Administrative Agent for the purpose of rendering this opinion pursuant to Section 3.01(d) of the Credit Agreement.  Terms defined in the Credit Agreement are used herein as therein defined.

We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion.

Upon the basis of the foregoing, we are of the opinion that the Credit Agreement constitutes a valid and binding agreement of the Borrower and the Notes issued today constitute valid and binding obligations of the Borrower, in each case enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors’ rights generally and by general principles of equity.

In rendering the foregoing opinion, we have assumed that (i) the Borrower is duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation and (ii) the execution, delivery and performance

Ex.H-10

by the Borrower of the Credit Agreement and the Notes issued by the Borrower are within the Borrower’s corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene or constitute a default under, any provision of applicable law or regulation or of the Borrower’s certificate of incorporation or by-laws or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or result in the creation or imposition of any lien on the assets of the Borrower or any Subsidiary of the Borrower.

We are members of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York and the federal laws of the United States of America.  In giving the foregoing opinion, we express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York) in which any Bank is located which limits the rate of interest that such Bank may charge or collect.

This opinion is rendered solely to you in connection with the above matter.  This opinion may not be relied upon by you for any other purpose or relied upon by any other Person without our prior written consent.

Very truly yours,

Ex.H-11

EXHIBIT H

ASSIGNMENT AND ASSUMPTION AGREEMENT

AGREEMENT dated as of ___________, 200__ among [ASSIGNOR] (the “Assignor”), [ASSIGNEE] (the “Assignee”), NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION (the “Borrower”) and THE BANK OF NOVA SCOTIA, as Administrative Agent (the “Agent”).

W I T N E S S E T H

WHEREAS, this Assignment and Assumption Agreement (the “Agreement”) relates to the 364-Day Revolving Credit Agreement dated as of March 14, 2008 (the “Credit Agreement”), among the Borrower, the Banks listed on the signature pages thereof, Deutsche Bank Securities Inc., UBS Loan Finance LLC and The Bank of Tokyo-Mitsubishi UFJ, LTD., New York Branch, as Co-Documentation Agents, The Royal Bank of Scotland plc, as Syndication Agent, and The Bank of Nova Scotia, as Administrative Agent (the “Agent”);

WHEREAS, as provided under the Credit Agreement, the Assignor has a Commitment to make Loans to the Borrower in an aggregate principal amount at any time outstanding not to exceed $__________;

WHEREAS, Committed Loans made to the Borrower by the Assignor under the Credit Agreement in the aggregate principal amount of $__________ are outstanding at the date hereof; and

WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its Commitment thereunder in an amount equal to $__________ (the “Assigned Amount”), together with a corresponding portion of its outstanding Committed Loans, and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms;

NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows:

SECTION 1.                                Definitions.  All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement.

SECTION 2.                                Assignment.  The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Credit Agreement to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the principal amount of the Committed Loans made by the Assignor outstanding at the date hereof.  Upon the execution and delivery hereof by the Assignor, the Assignee, the Borrower and

4. Ex.E-1

the Administrative Agent and the payment of the amounts specified in Section 3 required to be paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Credit Agreement with a Commitment in an amount equal to the Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee.  The assignment provided for herein shall be without recourse to the Assignor.

SECTION 3.  Payments.  As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds the amount heretofore agreed between them. It is understood that commitment and/or facility fees accrued to the date hereof are for the account of the Assignor and such fees accruing from and including the date hereof are for the account of the Assignee.  Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party’s interest therein and shall promptly pay the same to such other party.

SECTION 4.                                Consent of the Borrower and the Administrative Agent.  This Agreement is conditioned upon the consent of the Borrower and the Administrative Agent pursuant to Section 9.06(c) of the Credit Agreement.  The execution of this Agreement by the Borrower and the Administrative Agent is evidence of this consent.  Pursuant to Section 9.06(c) of the Credit Agreement, if requested by the Assignee, the Borrower agrees to execute and deliver a Note payable to the order of the Assignee to evidence the assignment and assumption provided for herein.

SECTION 5.                                Non-Reliance on Assignor.  The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of the Borrower, or the validity and enforceability of the obligations of the Borrower in respect of the Credit Agreement or any Note.  The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrower.

SECTION 6.                                Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New York.

Ex.H-2

SECTION 7.                                Counterparts.  This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

Ex.H-3

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written.

[ASSIGNOR]

By:

Name:

Title:

[ASSIGNEE]

By:

Name:

Title:

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

By:

Name:

Title:

THE BANK OF NOVA SCOTIA, as Administrative Agent

By:

Name:

Title:

EX-4.22

Exhibit 4.22

FEDERAL AGRICULTURAL

MORTGAGE CORPORATION

as Note Purchaser

NATIONAL RURAL UTILITIES

COOPERATIVE FINANCE CORPORATION

as Borrower

_______________________________

NOTE PURCHASE AGREEMENT

_______________________________

Dated as of March 27, 2008

Table of Contents
		Page
RECITALS		1
ARTICLE I
DEFINITIONS
SECTION 1.01	Definitions	1
SECTION 1.02.	Principles of Construction	4
ARTICLE II
PURCHASE OF NOTES
SECTION 2.01.	Purchase of Notes; Minimum Denominations	4
SECTION 2.02.	Interest Rates and Payment	4
SECTION 2.03.	Maturity	6
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.01.	Conditions Precedent to the Purchase of Each Note	6
SECTION 3.02.	Certificate of Pleged Collateral	7
ARTICLE IV
REPORTING REQUIREMENTS
SECTION 4.01.	Annual Reporting Requirements	7
SECTION 4.02.	Default Notices	7
ARTICLE V
REPRESENTATIONS OF THE PARTIES

CFC DOC

AA001-X-0000 (KHETANA)

119456-5

SECTION 5.01.		Representation of Farmer Mac	8
SECTION 5.02.		Representations of National Rural	8
ARTICLE VI
SECURITY AND COLLATERAL
SECTION 6.01.		Security and Collateral	10
ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.01.		Events of Default	10
SECTION 7.02.		Acceleration	11
SECTION 7.03.		Remedies Not Exclusive	11
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01.		GOVERNING LAW	11
SECTION 8.02.		WAIVER OF JURY TRIAL	12
SECTION 8.03.		Notices	12
SECTION 8.04.		Benefit of Agreement	12
SECTION 8.05.		Entire Agreement	12
SECTION 8.06.		Amendments and Waivers	12
SECTION 8.07.		Counterparts	13
SECTION 8.08.		Termination of Agreement	13
SECTION 8.09.		Survival	13
SECTION 8.10.		Severability	13
Schedule I -	Addresses for Notices
Schedule II -	Applicable Margin Notice
Schedule II -	Pricing Agreement
Annex A –	Form of Note
Annex B –	Opinion of Counsel to National Rural
Annex C –	Officers’ Certificate

NOTE PURCHASE AGREEMENT dated as of March 27, 2008 between FEDERAL AGRICULTURAL MORTGAGE CORPORATION, a federally-chartered instrumentality of the United States and an institution of the Farm Credit System (“Farmer Mac”); and NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a cooperative association existing under the laws of the District of Columbia (“National Rural”).

RECITALS

WHEREAS National Rural wishes from time to time to issue and sell Notes to Farmer Mac, and Farmer Mac wishes from time to time to purchase such Notes from National Rural, all on the terms and subject to the conditions herein provided; and

WHEREAS Farmer Mac is an instrumentality of the United States formed to provide for a secondary marketing arrangement for agricultural real estate mortgages; National Rural is a non-profit cooperative formed in part to provide financing for rural electric distribution cooperatives and to finance the infrastructure in rural America; and Farmer Mac and National Rural have agreed that the Notes will be secured by the pledge of mortgage notes for borrowings from National Rural by rural electric distribution cooperative members of National Rural that serve primarily communities with fewer than 50,000 inhabitants, as provided herein;

NOW, THEREFORE, in consideration of the mutual agreements herein contained, Farmer Mac and National Rural agree as follows:

ARTICLE I

DEFINITIONS

SECTION 1.01.Definitions.  As used in this Agreement, the following terms shall have the following meanings:

“Agreement” means this Note Purchase Agreement, as the same may be amended from time to time.

“AM Term” means, as to each determination of the Applicable Margin by Farmer Mac, the period of time during which such Applicable Margin shall apply, as determined in accordance with Section 2.02(a) hereof.

“Applicable Margin” means the margin to be added to the LIBOR Rate to determine the rate of interest payable on the Notes from time to time.  The Applicable Margin shall be communicated by Farmer Mac to National Rural in accordance with Section 2.02(a) hereof and calculated by Farmer Mac as follows: (i) Farmer Mac’s actual

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cost of funds (expressed in relation to the LIBOR Rate) plus 0.575% minus (ii) the LIBOR Rate.  The initial Applicable Margin shall be set in the Pricing Agreement.

“Applicable Margin Notice” means a notice by Farmer Mac to National Rural notifying National Rural of each new determination of the Applicable Margin and AM Term in accordance with Section 2.02(a), in the form of Schedule II hereto.

“Business Day” means any day other than a Saturday, a Sunday, or a day on which the Federal Reserve Bank of New York is closed.

“Certificate of Pledged Collateral” has the meaning given to that term in the Pledge Agreement.

“Closing Date” has the meaning given to that term in Section 2.01.

“Collateral Agent” means U.S. Bank Trust National Association, or its successor, as collateral agent under the Pledge Agreement.

“Dollar” or “$” means the lawful money of the United States of America.

“Eligible Member” has the meaning given to that term in the Pledge Agreement.

“Event of Default” has the meaning given to that term in Section 7.01.

“Financial Statements”, in respect of a Fiscal Year, means the consolidated financial statements (including footnotes) of National Rural for that Fiscal Year as audited by independent certified public accountants appointed by National Rural.

“Fiscal Year” means the fiscal year of National Rural, as such may be changed from time to time, which at the date hereof commences on June 1 of each calendar year and ends on May 31 of the following calendar year.

“Interest Payment Date” means the first (1st) day of each January, April, July and October beginning April 1, 2008; provided, however, that if any such date is not a Business Day, such Interest Payment Date that would otherwise be such date will be the next Business Day following such date.

“Interest Period”means, initially, the period from and including the Closing Date to and including March 31, 2008 and, thereafter until all outstanding principal amount of the Notes and interest accrued thereon have been paid in full, each 3-month period comprising a calendar quarter from and including the first day of a calendar quarter (i.e., January 1st, April 1st, July 1st and October 1st) to and including the last day of the same calendar quarter (i.e., March 31st, June 30th, September 30th and December 31st); provided, that if any Interest Period would end on a day other than a Business Day, then such Interest Period shall be extended to and including the next succeeding Business Day and the next Interest Period shall commence on the next succeeding day.

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“LIBOR Rate” shall mean, for any Interest Period, the rate appearing on Page 3750 of the Telerate service (or on any successor or substitute page of such service, or if the Telerate service ceases to be available, any successor to or substitute for such service providing rate quotations comparable to those currently provided on such page of such service, as mutually agreed by National Rural and Farmer Mac, from time to time for purposes of providing quotations of interest rates applicable to Dollar deposits in the London interbank market) as of 11:00 a.m., London time, on the day that is two London Banking Days prior to the commencement of such Interest Period, as the rate for the offering of Dollar deposits with a maturity comparable to such Interest Period.

“London Banking Day” shall mean any day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealings in foreign exchange and foreign currency deposits) in the Dollar, in London, England.

“Member” shall mean any Person who is member of National Rural.

“National Rural Notice” has the meaning given to that term in the Pledge Agreement.

“Notes” means one or more notes of National Rural payable to Farmer Mac, having the terms provided for in Article II of this Agreement and otherwise in the form of Annex A attached hereto, except to the extent Farmer Mac and National Rural may have approved changes therein.

“Note Documents” means the Notes, this Agreement, the Pledge Agreement and the Registration Rights Agreement.

“Payment Notice” means a notice furnished by Farmer Mac to National Rural that indicates the amount of each payment of interest and the date when each payment is due, determined in each case in accordance with Section 2.02 hereof.

“Person” means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

“Pledge Agreement” means the Pledge Agreement dated as of the date hereof, among National Rural, Farmer Mac and the Collateral Agent.

“Pledged Collateral” has the meaning given to that term in the Pledge Agreement.

“Pledged Securities” has the meaning given to that term in the Pledge Agreement.

“Pricing Agreement” means the Pricing Agreement between Farmer Mac and National Rural in the form of Schedule III attached hereto.

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"Registration Rights Agreement" means the Registration Rights Agreement dated as of the date hereof between Farmer Mac and National Rural.

SECTION 1.02.Principles of Construction.  Unless the context shall otherwise indicate, the terms defined in Section 1.01 hereof include the plural as well as the singular and the singular as well as the plural.  The words “hereafter”, “herein”, “hereof”, “hereto” and “hereunder”, and words of similar import, refer to this Agreement as a whole.  The descriptive headings of the various articles and sections of this Agreement were formulated and inserted for convenience only and shall not be deemed to affect the meaning or construction of the provisions hereof.

ARTICLE II

PURCHASE OF NOTES

SECTION 2.01.Purchase of Notes; Minimum Denominations.  Farmer Mac agrees to purchase Notes, at 100% of their principal amount, from time to time, but not after March 31, 2008, as requested by National Rural by written notice to Farmer Mac (and, if the purchase is other than on March 27, 2008 upon at least five Business Days’ advance notice to Farmer Mac) (the “Closing Date”) in an aggregate principal amount, for all Notes purchased hereunder, not in excess of $400 million, subject to satisfaction of the conditions set forth herein.

SECTION 2.02.Interest Rates and Payment.  Each Note shall bear interest on the outstanding principal amount thereof (computed on the basis of a 360-day year and the actual number of days elapsed) from its date of issuance until final payment on the maturity date thereof or otherwise at a variable rate per annum equal to the LIBOR Rate for each Interest Period plus the Applicable Margin for such Interest Period; provided, however, that, only for the initial Interest Period, which is the period from and including the Closing Date through and including March 31, 2008, the “LIBOR Rate” shall be the 1-week LIBOR Rate as set forth in the Pricing Agreement.  To the extent any payment of interest or principal is not paid when due, interest shall continue to accrue thereon at the rate per annum determined as provided above plus one percent.

(a)  AM Term; Applicable Margin.  The initial AM Term shall be for a period of twelve (12) months and five (5) days from the Closing Date, ending on March 31, 2009.  Unless Farmer Mac and National Rural expressly and mutually agree to a different notice schedule for any new AM Term and Applicable Margin in a writing signed by each of them that refers to this Section 2.02 (an “Agreed Variance”), Farmer Mac shall provide to National Rural (i) a preliminary indication in writing of the new Applicable Margin and the new AM Term at least 14 days prior to the end of each AM Term, (ii) an updated indication in writing of the new Applicable Margin and the new AM Term by no later than 4:00 p.m. New York time on the Business Day immediately preceding each AM Notice Date (as defined below), and (iii) written notice (by facsimile transmission) of the new Applicable Margin and AM Term by giving an Applicable Margin Notice, in the form of Schedule II hereto, so that such Applicable Margin Notice

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   is received by National Rural between 9:00 a.m. and noon New York time on the seventh (7th) day prior to the end of each AM Term (including the initial AM Term) or if such seventh (7th) day is not a Business Day, then the Business Day immediately preceding such seventh (7th) day (the date on which each Applicable Margin Notice is to be provided pursuant to this clause (iii) (including pursuant to any Agreed Variance), the “AM Notice Date”); provided, however, that in no event shall any AM Term have a duration of less than twelve months; provided, further, that if Farmer Mac does not deliver an Applicable Margin Notice in accordance with the preceding terms of this clause (iii) (including any Agreed Variance), the then current AM Term shall be automatically extended (and the Applicable Margin then in effect shall continue in effect) until the end of the next Interest Period, and shall thereafter be repeatedly extended (and such Applicable Margin continued) automatically until the end of each succeeding Interest Period, until such time as Farmer Mac delivers an Applicable Margin Notice in accordance with the preceding terms of this clause (iii).  In the event an AM Term terminates during an Interest Period, the AM Term and the then current Applicable Margin shall be automatically extended until the last day of such Interest Period.  Within two (2) Business Days after written request made by National Rural at any time and from time to time, Farmer Mac shall provide National Rural with a written notice setting forth its computation of the then current Applicable Margin and its offer of the AM Term relating thereto (except that the initial AM Term shall be twelve (12) months and five (5) days, as provided above).

(b)  Payments and Prepayments.  Farmer Mac shall furnish to National Rural a Payment Notice within seven (7) days after the beginning of each Interest Period relating to such Interest Period.  The principal amount of each Note shall be due and payable in full at the stated maturity date thereof (as set forth in Section 2.03 hereof), subject to National Rural’s right to prepay the Notes, in whole or in part, as provided below.  Interest accrued on the outstanding principal amount of each Note for each Interest Period will be payable quarterly in arrears on the Interest Payment Date immediately following the last day of such Interest Period.  National Rural shall have the right, at its option, on the last day of any AM Term, to repay or prepay the principal amount of any Note, in whole or in part, together with unpaid interest accrued on the principal amount so repaid or prepaid through and including such date, upon written notice to Farmer Mac given by National Rural no later than on the seventh (7th) day prior to the end of such AM Term (or any substituted deadline specified in an Agreed Variance).  If Farmer Mac gives an Applicable Margin Notice by facsimile transmission so that it is received by National Rural on the AM Notice Date between 9:00 a.m. and noon New York time on such date, in accordance with Section 2.02(a)(iii) above (or in accordance with any Agreed Variance), and if Farmer Mac does not receive written notice from National Rural of its acceptance of the terms contained in an Applicable Margin Notice, in the form of Schedule II hereto, at or prior to the time that is three (3) hours after National Rural’s receipt of such Applicable Margin Notice on such AM Notice Date (or at or prior to any substituted deadline specified in an Agreed Variance), then that event shall be deemed to be notice to Farmer Mac of National Rural’s intent to repay or prepay the Notes on the last day of the AM Term.  In addition, National Rural shall have the right, at its option, at any time and from time to time to repay or prepay the principal amount of any Note, in whole or in part, during any AM Term, upon nine (9)

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   days prior written notice to Farmer Mac, together with unpaid interest accrued on the principal amount so repaid or prepaid through and including (i) the last day of the immediately preceding Interest Period, if such optional repayment or prepayment is made on an Interest Payment Date, or (ii) the last day of the Interest Period in which such optional repayment or prepayment is made, if such optional repayment or prepayment is made on a date other than an Interest Payment Date.  If the Notes are repaid or prepaid in full during an AM Term, such AM Term shall terminate on the date of such repayment or prepayment (if such date is an Interest Payment Date) or on the last day of the then current Interest Period (if such prepayment or repayment is made on a date other than an Interest Payment Date).

SECTION 2.03.Maturity.  The Notes will mature on April 1, 2013.  The principal amount of each Note will be payable as provided in Section 2.02(b).

ARTICLE III

CONDITIONS PRECEDENT

SECTION 3.01.Conditions Precedent to the Purchase of Each Note.  Farmer Mac shall be under no obligation to purchase any Note unless and until the following conditions have been satisfied:

(a)The Notes.  Farmer Mac shall have received the original of such Notes, duly executed on behalf of National Rural, in form and substance, including interest rate and maturity date, as is acceptable to Farmer Mac.

(b)The Pledge Agreement.  Farmer Mac shall have received an original of the Pledge Agreement duly executed on behalf of National Rural and the Collateral Agent.

(c)The Registration Rights Agreement.  Farmer Mac shall have received an original of the Registration Rights Agreement duly executed on behalf of National Rural.

(d)Opinion of Counsel.  Farmer Mac shall have received an opinion of counsel to National Rural substantially in the form of Annex B, attached hereto.

(e)Financial and Other Information.  National Rural shall have provided Farmer Mac with its most recent Financial Statements and such other information concerning National Rural as Farmer Mac shall have reasonably requested.

(f)No Material Adverse Change.  National Rural shall have certified to Farmer Mac (in the manner specified in paragraph (i) of this Section 3.01), and Farmer Mac shall be satisfied, that no material adverse change shall have occurred in the financial condition or business of National Rural between the end of National Rural’s most recently completed Fiscal Year for which Financial Statements have been made publicly available and the date of the purchase of such Note, as provided herein.

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(g)UCC Filing.  National Rural shall have provided Farmer Mac with evidence that National Rural has filed the financing statement required pursuant to Section 2.02(i) of the Pledge Agreement.

(h)No Event of Default.  National Rural shall have certified to Farmer Mac and Farmer Mac shall be satisfied that no Event of Default shall have occurred and be continuing.

(i)Certification of Senior Management.  National Rural shall have provided Farmer Mac a certification by its Chief Executive Officer and its Chief Financial Officer (or other senior management acceptable to Farmer Mac), substantially in the form of Annex C attached hereto, as to the following: (i) that National Rural is a lending institution organized as a private, not-for-profit, cooperative association with the appropriate expertise, experience and qualifications to make loans to its rural electric distribution cooperative Members for rural electrification and related purposes; (ii) the matters to be certified under paragraphs (f) and (h) of this Section 3.01; and (iii) the representations and warranties of National Rural.

SECTION 3.02.Certificate of Pledged Collateral.  No later than April 1, 2008, National Rural shall provide Farmer Mac a copy of a Certificate of Pledged Collateral, dated as of the last day of the calendar month most recently ended at least 10 Business Days prior to such authentication and delivery, in accordance with the terms of the Pledge Agreement.

ARTICLE IV

REPORTING REQUIREMENTS

SECTION 4.01.Annual Reporting Requirements.  So long as any Notes remain outstanding, National Rural shall provide Farmer Mac with the following items within 90 days of the end of each Fiscal Year, in each case, in form and substance satisfactory to Farmer Mac:

(a)the Financial Statements for such Fiscal Year;

(b)a Certificate of Pledged Collateral;

(c)a receipt from the Collateral Agent, or such other evidence as is satisfactory to Farmer Mac, as to the Pledged Collateral held by the Collateral Agent at the end of such Fiscal Year; and

(d)such other information concerning National Rural as is reasonably requested by Farmer Mac.

SECTION 4.02.Default Notices.  If an action, occurrence or event shall happen that is, or with notice and the passage of time would become, an Event of Default, National Rural shall deliver a National Rural Notice of such action, occurrence or event

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    to Farmer Mac before 4:00 p.m. District of Columbia time on the Business Day following the date National Rural becomes aware of such action, occurrence or event, and, if such Event of Default should occur, shall submit to Farmer Mac, within five days thereafter, a report setting forth its views as to the reasons for the Event of Default, the anticipated duration of the Event of Default and what corrective actions National Rural is taking to cure such Event of Default.

ARTICLE V

REPRESENTATIONS OF THE PARTIES

SECTION 5.01.Representation of Farmer Mac.  Farmer Mac represents to National Rural that on the date hereof and on each date on which Farmer Mac purchases a Note from National Rural:

(a)it has all necessary authority and has taken all necessary corporate action, and obtained all necessary approvals, in order for it to execute and deliver all Note Documents to which it is a party and for its obligations and agreements under the Note Documents to constitute valid and binding obligations of Farmer Mac; and in particular the terms of the transaction, and the actions taken by Farmer Mac, are in compliance with and in satisfaction of the requirements of the approval letter dated October 19, 2007 from the Farm Credit Administration, as amended or waived by the Farm Credit Administration; and

(b)Farmer Mac is purchasing the Notes for its own account and, except pursuant to the Registration Rights Agreement, not with a view to the distribution thereof, provided that the disposition by Farmer Mac of its property shall at all times be within its control.  Farmer Mac understands that the Notes have not been registered under the Act and may be resold only as provided in the Registration Rights Agreement or if an exemption from registration is available.

SECTION 5.02.Representations of National Rural.  National Rural hereby represents to Farmer Mac that on the date hereof and on each date on which Farmer Mac purchases a Note from National Rural:

(a)National Rural has been duly organized and is validly existing and in good standing as a cooperative association under the laws of the District of Columbia;

(b)National Rural has the corporate power and authority to execute and deliver this Agreement and each of the other Note Documents, to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder;

(c)National Rural has taken all necessary corporate and other action to authorize the execution and delivery of this Agreement and each of the other Note

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    Documents, the consummation by National Rural of the transactions contemplated hereby and thereby and the performance by National Rural of its obligations hereunder and thereunder;

(d)this Agreement and each of the other Note Documents have been duly authorized, executed and delivered by National Rural and constitute the legal, valid and binding obligations of National Rural, enforceable against National Rural in accordance with their respective terms, subject to: (i) applicable bankruptcy, reorganization, insolvency, moratorium and other laws of general applicability relating to or affecting creditors’ rights generally; and (ii) the application of general principles of equity regardless of whether such enforceability is considered in a proceeding in equity or at law;

(e)no approval, consent, authorization, order, waiver, exemption, variance, registration, filing, notification, qualification, license, permit or other action is now, or under existing law in the future will be, required to be obtained, given, made or taken, as the case may be, with, from or by any regulatory body, administrative agency or governmental authority having jurisdiction over National Rural or any third party under any agreement to which National Rural is a party to authorize the execution and delivery by National Rural of this Agreement or any of the other Note Documents, or the consummation by National Rural of the transactions contemplated hereby or thereby or the performance by National Rural of its obligations hereunder or thereunder;

(f)neither the execution or delivery by National Rural of this Agreement or any of the other Note Documents nor the consummation by National Rural of any of the transactions contemplated hereby or thereby nor the performance by National Rural of its obligations hereunder or thereunder, including, without limitation, the pledge of the Pledged Securities (as such term is defined in the Pledge Agreement) to Farmer Mac, conflicts with or will conflict with, violates or will violate, results in or will result in a breach of, constitutes or will constitute a default under, or results in or will result in the imposition of any lien or encumbrance pursuant to any term or provision of the articles of incorporation or the bylaws of National Rural or any provision of any existing law or any rule or regulation currently applicable to National Rural or any judgment, order or decree of any court or any regulatory body, administrative agency or governmental authority having jurisdiction over National Rural or the terms of any mortgage, indenture, contract or other agreement to which National Rural is a party or by which National Rural or any of its properties is bound;

(g)there is no action, suit, proceeding or investigation before or by any court or any regulatory body, administrative agency or governmental authority presently pending or, to the knowledge of National Rural, threatened with respect to National Rural, this Agreement or any of the other Note Documents challenging the validity or enforceability of this Agreement or any of the other Note Documents or seeking to restrain, enjoin or otherwise prevent National Rural from engaging in its business as currently conducted or the consummation

Note Purchase Agreement

10

by National Rural of the transactions contemplated by this Agreement or any of the other Note Documents or which, if adversely determined, would have a material adverse effect on National Rural’s financial condition or its ability to perform its obligations under this Agreement or any of the other Note Documents;

(h)National Rural is a lending institution organized as a private, not-for-profit, cooperative association with the appropriate expertise, experience and qualifications to make loans to its rural electric distribution cooperative Members for rural electrification purposes; and

(i)no material adverse change has occurred in the financial condition or business of National Rural between the end of National Rural’s most recently completed Fiscal Year for which Financial Statements have been made publicly available and the date this representation is given.

ARTICLE VI

SECURITY AND COLLATERAL

SECTION 6.01.Security and Collateral.  (a)   National Rural shall cause the Allowable Amount of the Pledged Collateral (as such terms are defined in the Pledge Agreement) to be at all times not less than 100% of the aggregate outstanding principal amount of the Notes.

(b)National Rural shall not create, or permit to exist, any pledge, lien, charge, mortgage, encumbrance, debenture, hypothecation or other similar security instrument that secures, or in any way attaches to, such Pledged Collateral, other than the lien of the Pledge Agreement, without the prior written consent of Farmer Mac.

(c)The Pledged Securities will at all times be mortgage notes issued to National Rural by rural electric distribution cooperatives that are Eligible Members.

ARTICLE VII

EVENTS OF DEFAULT

SECTION 7.01.Events of Default.  Each of the following actions, occurrences or events shall, but only (except in the case of subsections (a), (d) and (e) below) if National Rural does not cure such action, occurrence or event within 30 days of notice from Farmer Mac requesting that it be cured, constitute an “Event of Default” under the terms of this Agreement:

(a)a failure by National Rural to make a payment of principal or interest on any Note for more than ten days after the same becomes due and payable;

Note Purchase Agreement

11

(b)a material representation by National Rural to Farmer Mac in connection with this Agreement, any Note or the Pledge Agreement, or any material information reported pursuant to Article V, shall prove to be incorrect or untrue in any material respect when made or deemed made;

(c)a failure by National Rural to comply with any other material covenant or provision contained in this Agreement or any of the other Note Documents;

(d)the entry of a decree or order by a court having jurisdiction in the premises adjudging National Rural a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of National Rural under the Federal Bankruptcy Act or any other applicable Federal or State law or law of the District of Columbia, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of National Rural or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or

(e)the commencement by National Rural of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under the Federal Bankruptcy Act or any other applicable Federal or State law or law of the District of Columbia, or the consent by it to the filing of any such petition or to the appointment of receiver, liquidator, assignee, trustee, sequestrator (or similar official) of National Rural or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by National Rural in furtherance of any such action.

SECTION 7.02.Acceleration.  Upon the occurrence, and during the continuance, of an Event of Default, Farmer Mac may, upon notice to that effect to National Rural, declare the entire principal amount of, and accrued interest on, the Notes at the time outstanding to be immediately due and payable.

SECTION 7.03.Remedies Not Exclusive.  Upon the occurrence, and during the continuance, of an Event of Default, Farmer Mac shall be entitled to take such other action as is provided for by law, in this Agreement, or in any of the other Note Documents, including injunctive or other equitable relief.

ARTICLE VIII

MISCELLANEOUS

SECTION 8.01.GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH,

Note Purchase Agreement

12

THE LAWS OF THE UNITED STATES OF AMERICA, TO THE EXTENT APPLICABLE, AND OTHERWISE THE LAWS OF THE DISTRICT OF COLUMBIA.

SECTION 8.02.WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 8.02.

SECTION 8.03.Notices.  All notices and other communications hereunder to be made to any party shall be in writing and shall be addressed as specified in Schedule I attached hereto as appropriate.  The address, telephone number, or facsimile number for any party may be changed at any time and from time to time upon written notice given by such changing party to the other parties hereto.  A properly addressed notice or other communication shall be deemed to have been delivered at the time it is sent by facsimile (fax) transmission to the party or parties to which it is given.

SECTION 8.04.Benefit of Agreement.  This Agreement shall become effective when it shall have been executed by Farmer Mac and National Rural, and thereafter shall be binding upon and inure to the respective benefit of the parties and their permitted successors and assigns.

SECTION 8.05.Entire Agreement.  This Agreement, including Schedule I hereto and Annexes A to C hereto, and the other Note Documents, constitute the entire agreement between the parties hereto concerning the matters contained herein and supersede all prior oral and written agreements and understandings between the parties.

SECTION 8.06.Amendments and Waivers.  (a)  No provision of this Agreement may be amended or modified except pursuant to an agreement in writing entered into by Farmer Mac and National Rural.  No provision of this Agreement may be waived except in writing by the party or parties receiving the benefit of and under such provision.

(b)No failure or delay of Farmer Mac or National Rural in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power.  No waiver of any provision of this Agreement or consent to any departure by National Rural therefrom shall in any event be effective unless the same shall be authorized as provided in paragraph (a) of this Section 8.06, and

Note Purchase Agreement

13

then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.  No notice or demand on National Rural in any case shall entitle National Rural to any other or further notice or demand in similar or other circumstances.

SECTION 8.07.Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument.

SECTION 8.08.Termination of Agreement.  This Agreement shall terminate upon the indefeasible payment in full of all amounts payable hereunder and under the Notes.

SECTION 8.09.Survival.  The representations and warranties of each of the parties hereto contained in this Agreement and contained in each of the other Note Documents, and the parties’ obligations under any and all thereof, shall survive and shall continue in effect following the execution and delivery of this Agreement, any disposition of the Notes and the expiration or other termination of any of the other Note Documents, but, in the case of each Note Document, shall not survive the expiration or the earlier termination of such Note Document, except to the extent expressly set forth in such Note Document.

SECTION 8.10.Severability.  If any term or provision of this Agreement or any Note Document or the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or such provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable any remaining terms or provisions of such Note Document or the application of such term or provision to circumstances other than those as to which it is held invalid or unenforceable.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, each party hereto has caused this Agreement to be executed by an authorized officer as of the day and year first above written.

FEDERAL AGRICULTURAL MORTGAGE CORPORATION,
By:	/s/ NANCY E. CORSIGLIA
Title:	Nancy E. Corsiglia Executive Vice President & CFO

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION,
By:	/s/ STEVEN L. Lilly
Title:	Steven L. Lilly Sr. Vice President & Chief Financial Officer

SCHEDULE I

TO

NOTE PURCHASE AGREEMENT

Addresses for Notices

1. The addresses referred to in Section 8.03 hereof, for purposes of delivering communications and notices, are as follows:

If to Farmer Mac:

Federal Agricultural Mortgage Corporation

1133 21st Street, N.W., Suite 600

Washington, DC 20036

Fax:  202-872-7713

Attention of: Nancy E. Corsiglia, Executive Vice President &

      Chief Financial Officer

With a copy to:

Federal Agricultural Mortgage Corporation

1133 21st Street, N.W., Suite 600

Washington, DC 20036

Fax:  202-872-7713

Attention of: Robert Owens/Jitin Singhal, Capital Markets Group

With a copy also to:

Federal Agricultural Mortgage Corporation

    1133 21st Street, N.W., Suite 600

    Washington, DC 20036

    Fax:  202-872-7713

    Attention of: Jerome G. Oslick, Vice President - General Counsel

If to National Rural:

National Rural Utilities Cooperative Finance Corporation

2201 Cooperative Way

Herndon, VA 20171-3025

Telephone:  703-709-6718

Fax:  703-709-6779

Attention of: Steven L. Lilly, Senior Vice President &

 Chief Financial Officer

With a copy to:

National Rural Utilities Cooperative Finance Corporation

2201 Cooperative Way

Herndon, VA 20171-3025

Telephone:  703-709-6748

Note Purchase Agreement

2

Fax:  703-709-6779

Attention of: John Suter, Vice President, Capital Market Funding

With a copy also to:

National Rural Utilities Cooperative Finance Corporation

2201 Cooperative Way

Herndon, VA 20171-3025

Telephone:  703-709-6712

Fax:  703-709-6811

Attention of: John J. List, Esq., Senior Vice President &

   General Counsel

Note Purchase Agreement

3

SCHEDULE II

TO

NOTE PURCHASE AGREEMENT

FORM OF

APPLICABLE MARGIN NOTICE

Issuer Name: National Rural Utilities Cooperative Finance Corporation

Date of Note(s):  __________________________

Applicable Margin:  ________________________

Effective Date of Applicable Margin:  _________________________

AM Term:  __________________

This Applicable Margin Notice is delivered pursuant to the Note Purchase Agreement dated as of March 27, 2008 between Federal Agricultural Mortgage Corporation and National Rural Utilities Cooperative Finance Corporation (the “Note Purchase Agreement”).  Capitalized terms used but not defined herein shall have the meanings given to them in the Note Purchase Agreement.

FEDERAL AGRICULTURAL MORTGAGE CORPORATION

By:

_______________________________                             __________________________________

Signature                                           Date                                Title of Authorized Officer

Name:  _____________________

PLEASE FAX TO:  ______________________   ATTN:  ________________________

ACCEPTED BY:

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

By:

_______________________________                             __________________________________

Signature                                           Date                                Title of Authorized Officer

Name:  _____________________

Note Purchase Agreement

4

SCHEDULE III

TO

NOTE PURCHASE AGREEMENT

PRICING AGREEMENT

The Federal Agricultural Mortgage Corporation, a federally chartered instrumentality of the United States and an institution of the Farm Credit System (“Farmer Mac”), and National Rural Utilities Cooperative Finance Corporation, a cooperative association existing under the laws of the District of Columbia (“National Rural”), agree that, on March 27, 2008 (the “Closing Date”), Farmer Mac will purchase from National Rural and National Rural will sell to Farmer Mac $400,000,000.00 aggregate principal amount of 5-year secured notes (the “Notes”) bearing interest at a rate per annum equal to the LIBOR Rate for each Interest Period plus the Applicable Margin; except that the interest rate for the Notes during the initial Interest Period described below shall be 3.26125 percent per annum, representing the 1-week LIBOR Rate as of the date hereof of 2.68625 percent plus the Applicable Margin of 0.575 percent.  The Applicable Margin for the first 12 months following the Closing Date shall be 0.575 percent.  The initial Interest Period for the Notes shall commence on the Closing Date and end on March 31, 2008.  Thereafter, the Interest Period for the Notes shall be each successive calendar quarter (e.g., April 1, 2008 through June 30, 2008).  The issuance and sale of the Notes by National Rural to Farmer Mac shall occur under the terms and conditions of a Note Purchase Agreement to be entered into between Farmer Mac and National Rural (the “Note Purchase Agreement”), substantially in the form of which is attached hereto.  Capitalized terms used herein and not defined herein shall have the meanings given to those terms in the Note Purchase Agreement.

Agreed to this 19th day of March, 2008.

Federal Agricultural Mortgage Corporation,

By: ______________________

Name: Nancy E. Corsiglia

Title: Executive Vice President &

Chief Financial Officer

National Rural Utilities Cooperative

             Finance Corporation,

By: ______________________                                     

Name:  John F. Suter

Title:  Vice President, Capital

Market Funding

ANNEX A

[FORM OF NOTE]

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

Variable Rate Senior Note due _______

Washington, D.C.

____________, 2008

FOR VALUE RECEIVED, the undersigned, NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION (“National Rural”), a District of Columbia cooperative association, hereby promises to pay to FEDERAL AGRICULTURAL MORTGAGE CORPORATION (“Farmer Mac”), or registered assigns, the principal sum of FOUR HUNDRED MILLION DOLLARS ($400,000,000.00) on __________________, together with interest computed from the date hereof according to the terms of the Note Purchase Agreement (as defined below).

Payments of principal and interest on this Note are to be made in lawful money of the United States of America  at such place as shall have been designated by written notice to National Rural from the registered holder of this Note as provided in the Note Purchase Agreement referred to below.

This Note is issued pursuant to a Note Purchase Agreement dated as of ____________, 2008 (as from time to time amended, the “Note Purchase Agreement”) between National Rural and Farmer Mac and is entitled to the benefits thereof.  This Note is also entitled to the benefits of the Pledge Agreement dated as of _____________, 2008, among National Rural, Farmer Mac and the Collateral Agent named therein.

Capitalized terms used herein and not defined herein shall have the meanings given to those terms in the Note Purchase Agreement.

This Note is a registered Note and, upon surrender of this Note for registration of transfer or exchange, accompanied by a written instrument of transfer duly executed by the registered holder hereof or such holder’s attorney duly authorized in writing, a new Note will be issued to, and registered in the name of, the transferee.  Prior to due presentment for registration of transfer, National Rural may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and National Rural will not be affected by any notice to the contrary.

This Note may be prepaid at any time, in whole or in part, at the option of National Rural, according to the terms of the Note Purchase Agreement and provided that, if such optional prepayment is made on a date other than an Interest Payment Date, accrued interest on the principal amount hereof that is being prepaid shall be payable

through and including the last day of the Interest Period in which such optional prepayment is made.

If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared due and payable in the manner, at the price and with the effect provided in the Note Purchase Agreement.

This Note shall be construed and enforced in accordance with, and the rights of National Rural and the holder hereof shall be governed by, the laws of the District of Columbia, excluding choice-of-law principles of the law of the District of Columbia that would require the application of the laws of another jurisdiction.

	NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION,
By
	Name:
	Title:

ANNEX B

[FORM OF OPINION OF COUNSEL TO NATIONAL RURAL]

_______________, 2008

Federal Agricultural Mortgage Corporation

1133 Twenty-First Street, NW

Suite 600

Washington, DC 20036

Gentlemen:

I am delivering this opinion as general counsel (“Counsel”) of National Rural Utilities Cooperative Finance Corporation, a District of Columbia cooperative association (“Borrower”), and am familiar with matters pertaining to the loan to Borrower in the principal amount of $400,000,000.00, provided for in the Note Purchase Agreement dated as of _____________, 2008 (“Note Purchase Agreement"), made by and between Borrower and Federal Agricultural Mortgage Corporation (“Farmer Mac”).

I have examined such corporate records and proceedings of Borrower, and such other documents as I have deemed necessary as a basis for the opinions hereinafter expressed.

I have also examined the following documents as executed and delivered: (a) the Note Purchase Agreement; (b) the Note dated as of _______________, in the principal amount of $400,000,000.00 (“Note”), said Note payable to Farmer Mac; (c) the Pledge Agreement, dated as of _____________, 2008, made by and among Borrower, Farmer Mac and U.S. Bank Trust National Association, and (d) the Registration Rights Agreement, dated as of ______________, 2008, by and between Borrower and Farmer Mac.  The documents described in items (a) through (d) above are collectively referred to herein as the "Note Documents."

Based on the foregoing, but subject to the assumptions, exceptions, qualifications and limitations hereinafter expressed, I am of the opinion that:

(1)The Borrower has been duly incorporated and is validly existing as a not-for-profit corporation in good standing under the laws of the District of Columbia with corporate power and authority to execute and perform its obligations under the Note Documents.

(2)The Note Documents have been duly authorized, executed and delivered by the Borrower, and such documents constitute the legal, valid and

 binding agreements of the Borrower, enforceable against the Borrower in accordance with their respective terms.

(3)Neither the execution nor the delivery by the Borrower of any of the Note Documents nor the consummation by the Borrower of any of the transactions contemplated therein, including, without limitation, the pledge of the Pledged Securities (as such term is defined in the Pledge Agreement) to Farmer Mac, nor the fulfillment by the Borrower of the terms of any of the Note Documents will conflict with or violate, result in a breach of or constitute a default under any term or provision of the Articles of Incorporation or By-laws of the Borrower or any law or any regulation or any order known to Counsel currently applicable to the Borrower of any court, regulatory body, administrative agency or governmental body having jurisdiction over the Borrower or the terms of any indenture, deed of trust, note, note agreement or instrument to which the Borrower is a party or by which the Borrower or any of its properties is bound.

(4)No approval, authorization, consent, order, registration, filing, qualification, license or permit of or with any state or Federal court or governmental agency or body having jurisdiction over the Borrower is required for any consummation by the Borrower of the transactions contemplated by the Note Documents; provided, however, no opinion is expressed as to the applicability of any Federal or state securities law to any sale, transfer or other disposition of the Note after the date hereof.

(5)Except as set forth in writing and previously delivered to Farmer Mac, there is no pending or, to Counsel’s knowledge, threatened action, suit or proceeding before any court or governmental agency, authority or body or any arbitrator with respect to the Borrower, or any of the Note Documents, which, if adversely determined, would have a material adverse effect on the Borrower’s financial condition or its ability to perform its obligations under any of the Note Documents.

The foregoing opinions are subject to the following assumptions, exceptions, qualifications and limitations:

A.           I am a member of the Bar of the District of Columbia and render no opinion on the laws of any jurisdiction other than the laws of the District of Columbia, the federal laws of the United States of America and the General Corporation Law of the District of Columbia.

B.           My opinions are limited to the present laws and to the facts, as they presently exist.  I assume no obligation to revise or supplement this opinion should the present laws of the jurisdictions referred to in paragraph A above be changed by legislative action, judicial decision or otherwise.

C.           The opinions expressed in paragraph 2 above shall be understood to mean only that if there is a default in performance of an obligation, (i) if a failure to pay or other damage can be shown and (ii) if the defaulting party can be brought into a court which will hear the case and apply the governing law, then, subject to the availability of defenses, and to the exceptions set forth in the next paragraph, the court will provide a money damage (or perhaps injunctive or specific performance) remedy.

D.           My opinions are also subject to the effect of:  (1) bankruptcy, insolvency, reorganization, receivership, moratorium and other laws affecting creditors’ rights (including, without limitation, the effect of statutory and other law regarding fraudulent conveyances, fraudulent transfers and preferential transfers); and (2) the exercise of judicial discretion and the application of principles of equity, good faith, fair dealing, reasonableness, conscionability and materiality (regardless of whether the applicable agreements are considered in proceeding in equity or at law).

E.           This letter is rendered to you in connection with the Note Documents and the transactions related thereto, and may not be relied upon by any other person or by you in any other context or for any other purpose.

F.           I have assumed with your permission (i) the genuineness of all signatures by each party other than the Borrower, (ii) the authenticity of documents submitted to me as originals and the conformity to authentic original documents of all documents submitted to me as copies, and (iii) the due execution and delivery, pursuant to due authorization, of the Note Documents by each party other than the Borrower.

Yours sincerely,

John J. List

General Counsel

ANNEX C

[FORM OF OFFICERS’ CERTIFICATE]

Officers’ Certificate

TO:                      Federal Agricultural Mortgage Corporation.

We, [                           ], Chief Executive Officer, and [                           ], Chief Financial Officer, of National Rural Utilities Cooperative Finance Corporation (“National Rural”), pursuant to the Note Purchase Agreement dated as of _______________, 2008, between National Rural and Federal Agricultural Mortgage Corporation (the “Note Purchase Agreement”), hereby certify on behalf of National Rural that as at the date hereof:

(1)           National Rural is a lending institution organized as a private, not-for-profit, cooperative association with the appropriate expertise, experience and qualifications to make loans to its rural electric distribution cooperative Members for rural electrification and related purposes;

(2)           no material adverse change has occurred in the financial condition of National Rural between the date of the end of National Rural’s most recently completed Fiscal Year for which Financial Statements have been made publicly available and the date hereof;

(3)           all of the representations contained in Section 5.02 of the Note Purchase Agreement remain true and correct in all material respects on and as of the date hereof; and

(4)           no Event of Default exists.

Capitalized terms used in this certificate shall have the meanings given to those terms in the Note Purchase Agreement.

DATED as of this ____day of _______________, 200__.

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION,

______________________________

Chief Executive Officer

______________________________

Chief Financial Officer

EX-4.23

Exhibit 4.23

FEDERAL AGRICULTURAL

MORTGAGE CORPORATION

NATIONAL RURAL UTILITIES

COOPERATIVE FINANCE CORPORATION

U.S. BANK TRUST NATIONAL ASSOCIATION

_______________________________

PLEDGE AGREEMENT

_______________________________

Dated as of March 27, 2008

TABLE OF CONTENTS
ARTICLE I
DEFINITIONS		Page
SECTION 1.01	Definitions	2
SECTION 1.02.	Principles of Construction	4
ARTICLE II
Provisions as to Pledged Collateral
SECTION 2.01.	Holding of Pleded Securities	4
SECTION 2.02.	UCC Filings	5
SECTION 2.03.	Withdrawal and Substitution of Pledged Collateral	5
SECTION 2.04.	Reassignement of Pledged Securities upon Payment	6
SECTION 2.05.	Addition of Pledged Collateral	6
SECTION 2.06.	Accompanying Documentation	6
SECTION 2.07.	Renewal; Extension; Substitution	6
SECTION 2.08.	Voting Rights; Interest and Principal	7
SECTION 2.09.	Protection of Title; Payment of Taxes; Liens, etc	8
SECTION 2.10.	Maintenance of Pledged Collateral	9
SECTION 2.11.	Representations, Warrenties and Covenants	9
SECTION 2.12.	Further Assurances	10
ARTICLE III
Application of Moneys Included in Pledged Collateral
SECTION 3.01.	Investment of Moneys by Collateral Agent	10
SECTION 3.02.	Collateral Agent To Retain Moneys During Event of Default	11
ARTICLE IV
Remedies
SECTION 4.01.	Events of Default	11
SECTION 4.02.	Remedies upon Default	12
SECTION 4.03.	Application of Proceeds	13
SECTION 4.04.	Securites Act	14

TABLE OF CONTENTS
(continued)
ARTICLE V
The Collateral Agent			Page
SECTION 5.01.		Certain Duties and Responsibilities	15
SECTION 5.02.		Certain Rights of Collateral Agent	16
SECTION 5.03.		Money Held by Collateral Agent	17
SECTION 5.04.		Compensation and Reimbursement	17
SECTION 5.05.		Corporate Collateral Agent Required; Eligibility	18
SECTION 5.06.		Resignation and Removal; Appointment of Successor	19
SECTION 5.07.		Acceptance of Appointment by Successor	19
SECTION 5.08.		Merger, Conversion, Consolidation or Successor to Business	20
ARTICLE VI
Miscellaneous
SECTION 6.01.		Notices	20
SECTION 6.02.		Waivers; Amendment	20
SECTION 6.03.		Successors and Assigns	21
SECTION 6.04.		Counterparts; Effectiveness	21
SECTION 6.05.		Severability	21
SECTION 6.06.		GOVERNING LAW	21
SECTION 6.07.		WAIVER OF JURY TRIAL	21
SECTION 6.08.		Headings	22
SECTION 6.09.		Securitites Interest Absolute	22
SECTION 6.10.		Termination or Release	22
SECTION 6.11.		Collateral Agent Appointed Attorney-in Fact	22
Schedule I -	Agreed Eligible Members
Schedule II -	Address for Notices
Annex A –	Form of Certificate of Pledged Collateral

PLEDGE AGREEMENT, dated as of March 27, 2008, among NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a District of Columbia cooperative association and its successors and assigns (hereinafter called “National Rural”), having its principal executive office and mailing address at 2201 Cooperative Way, Herndon, VA 20171-3025, FEDERAL AGRICULTURAL MORTGAGE CORPORATION, a federally-chartered instrumentality of the United States and an institution of the Farm Credit System and its successors and assigns (“Farmer Mac”), and U.S. BANK TRUST NATIONAL ASSOCIATION, a national banking association and its successors and assigns (hereinafter called the “Collateral Agent”), having its corporate office at 100 Wall Street, Suite 1600, New York, NY 10005-3701.

RECITALS OF NATIONAL RURAL

WHEREAS, National Rural may from time to time issue one or more Notes to Farmer Mac, and Farmer Mac may purchase such Notes, all upon the terms and subject to the conditions set forth in the Note Purchase Agreement; and

WHEREAS, National Rural is required pursuant to the terms of the Note Purchase Agreement to pledge certain property to the Collateral Agent for the benefit of Farmer Mac to secure National Rural’s obligations on the Notes;

NOW, THEREFORE, THIS PLEDGE AGREEMENT WITNESSETH that, to secure the performance of the certain Obligations contained in the Notes, the Note Purchase Agreement and herein, National Rural hereby assigns and pledges to the Collateral Agent, its successors and assigns, for the benefit of Farmer Mac, and grants to the Collateral Agent, its successors and assigns, for the benefit of Farmer Mac, a security interest in the following (collectively referred to as the “Pledged Collateral”) as provided in Article II: (a)(i) the Pledged Securities and the certificates representing the Pledged Securities; (ii) subject to Section 2.08, all payments of principal or interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of, in exchange for, and all other Proceeds received in respect of, the Pledged Securities pledged hereunder; (iii) subject to Section 2.08, all rights and privileges of National Rural with respect to the Pledged Securities; (iv) all Proceeds of any of the foregoing above; and (b) any property, including cash and Permitted Investments, that may, on the date hereof or from time to time hereafter, be subjected to the Lien hereof by National Rural by delivery, assignment or pledge thereof to the Collateral Agent hereunder and the Collateral Agent is authorized to receive the same as additional security hereunder (subject to any reservations, limitations or conditions agreed to in writing by National Rural and Farmer Mac respecting the scope or priority of such security or the use and disposition of such property or the Proceeds thereof).

TO HAVE AND TO HOLD the Pledged Collateral, together with all right, title, interest, powers, privileges and preferences pertaining or incidental thereto, unto the Collateral Agent, its successors and assigns, for the benefit of Farmer Mac, forever; subject, however, to the terms, covenants and conditions hereinafter set forth.

ARTICLE I

Definitions

SECTION 1.01.Definitions.  As used in this Pledge Agreement, the following terms shall have the following meanings:

“Allowable Amount” on any date, means:

(a)with respect to cash, 100% thereof;

(b)with respect to Eligible Securities, the aggregate principal amount of such Eligible Securities theretofore advanced thereon which remains unpaid on such date; and

(c)with respect to Permitted Investments, the cost to National Rural or the Collateral Agent thereof (exclusive of accrued interest or brokerage commissions) except that with respect to any Permitted Investments which are traded on any national securities exchange or over-the-counter market, Allowable Amount on any date shall mean the fair market value thereof (as determined by National Rural).

“Certificate of Pledged Collateral” means a certificate delivered to the Collateral Agent and Farmer Mac substantially in the form of Annex A attached hereto.

“Collateral Agent” means the Person named as the “Collateral Agent” in the first paragraph of this instrument.

“Eligible Member” means a rural electric distribution cooperative that is a member of National Rural and serves primarily communities with fewer than 50,000 inhabitants and in any event includes those rural electric distribution cooperatives listed on Schedule I hereto.

“Eligible Security” means a note or bond of any Eligible Member payable or registered to, or to the order of, National Rural, (A) in respect of which (i) the outstanding principal amount under such note or bond, together with the outstanding principal amount of any other notes or bonds of such Eligible Member pledged hereunder or pledged to secure any other notes or bonds issued by National Rural to Farmer Mac or sold by National Rural to any trust whose beneficial ownership is owned or controlled by Farmer Mac, does not aggregate more than $22.5 million, (ii) no default has occurred in the payment of principal or interest in accordance with the terms of such note or bond that is continuing beyond the contractual grace period (if any) provided in such note or

bond for such payment and (iii) no “event of default” as defined in such note or bond (or in any instrument creating a security interest in favor of National Rural in respect of such note or bond), shall exist that has resulted in the exercise of any right or remedy described in such note or bond (or in any such instrument); and (B) which is not classified by National Rural as a non-performing loan under generally accepted accounting principles in the United States.

“Event of Default” has the meaning set forth in Section 4.01.

“Farmer Mac Notice” and “Farmer Mac Order” mean, respectively, a written notice or order signed by any Vice President of Farmer Mac and delivered to the Collateral Agent and National Rural.

“Farmer Mac Notice of Default” has the meaning given to that term in Section 4.02.

“Lien” means any lien, pledge, charge, mortgage, encumbrance, debenture, hypothecation or other similar security interest attaching to any part of the Pledged Collateral.

“Lien of this Pledge Agreement” or “Lien hereof” means the Lien created by these presents.

“National Rural Notice” and “National Rural Order” mean, respectively, a written notice or order signed in the name of National Rural by either its Chief Executive Officer or its Chief Financial Officer, and by any Vice President of National Rural, and delivered to the Collateral Agent and Farmer Mac.

“Note Purchase Agreement” means the Note Purchase Agreement dated the date hereof between National Rural and Farmer Mac, as the same may be amended from time to time in accordance with the terms thereof.

“Notes” means the note or notes issued by National Rural to Farmer Mac under the Note Purchase Agreement.

“Obligations” means the due and punctual performance of the obligations of National Rural to make payments of principal, interest and Break Funding Payment (as defined in the Note Purchase Agreement), if any, on the Notes.

“Officers’ Certificate” means a certificate signed by either the Chief Executive Officer or the Chief Financial Officer of National Rural, and by any Vice President of National Rural, and delivered to Farmer Mac and/or the Collateral Agent, as applicable.

“Permitted Investments” has the meaning given to that term in Section 3.01.

“Person” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or govern­ment or any agency or political subdivision thereof.

“Pledge Agreement” means this Pledge Agreement, as originally executed and as it may from time to time be amended pursuant to the applicable provisions hereof.

“Pledged Collateral” has the meaning set forth in the Granting Clause.

“Pledged Securities” means at any time the Eligible Securities listed on Schedule A to the Certificate of Pledged Collateral most recently delivered.

“Proceeds” has the meaning specified in Section 9-102 of the Uniform Commercial Code.

“Uniform Commercial Code” means the Uniform Commercial Code as from time to time in effect in the District of Columbia.

“Vice President” means any vice president of National Rural or Farmer Mac, as applicable, whether or not designated by a number or a word or words added before or after the title “vice president”.

SECTION 1.02.Other Defined Terms; Principles of Construction.  Capitalized terms used but not defined in this Pledge Agreement shall have the meanings given to them in the Note Purchase Agreement.  Unless the context shall otherwise indicate, the terms defined in Section 1.01 hereof include the plural as well as the singular and the singular as well as the plural.  The words “hereafter”, “herein”, “hereof”, “hereto” and “hereunder”, and words of similar import, refer to this Agreement as a whole.  The descriptive headings of the various articles and sections of this Agreement were formulated and inserted for convenience only and shall not be deemed to affect the meaning or construction of the provisions hereof.

ARTICLE II

Provisions as to Pledged Collateral

SECTION 2.01.Holding of Pledged Securities.  The Collateral Agent, on behalf of Farmer Mac, shall hold the Pledged Securities in the name of National Rural (or its nominee), endorsed or assigned in blank or in favor of the Collateral Agent.  Upon occurrence of an Event of Default, the Collateral Agent, on behalf of Farmer Mac, shall have the right (in its sole and absolute discretion), to the extent a register is maintained therefor, to register the Pledged Securities in the Collateral Agent’s own name as pledgee, or in the name of the Collateral Agent’s nominee (as pledgee or as sub-agent) or to continue to hold the Pledged Securities in the name of National Rural, endorsed or assigned in blank or in favor of the Collateral Agent.  Upon cessation of such Event of Default, the Collateral Agent shall take such action as is necessary to

again cause the Pledged Securities to be registered in the name of National Rural (or its nominee).

SECTION 2.02.UCC Filings.  National Rural shall prepare and file in the proper Uniform Commercial Code filing office in the District of Columbia (i) on or prior to the date of the first purchase of a Note under the Note Purchaser Agreement, a financing statement recording the Collateral Agent’s interest in the Pledged Collateral; and (ii) from time to time thereafter, continuation statements or such other filings as are necessary to maintain the perfection of the Lien hereof on the Pledged Collateral.

SECTION 2.03.Withdrawal and Substitution of Pledged Collateral.

(a)  Any part of the Pledged Collateral may be withdrawn by National Rural or substituted for cash or other Eligible Securities or Permitted Investments by National Rural and shall be delivered to National Rural by the Collateral Agent upon National Rural Order at any time and from time to time, together with any other documents or instruments of transfer or assignment necessary to reassign to National Rural said Pledged Collateral and the interest of National Rural, provided the aggregate Allowable Amount of Pledged Collateral remaining after such withdrawal or substitution shall at least equal the aggregate principal amount of the Notes outstanding after such withdrawal or substitution, as shown by the Certificate of Pledged Collateral furnished to the Collateral Agent pursuant to Subsection (b)(i) of this Section.

(b)Prior to any such withdrawal or substitution, the Collateral Agent shall be furnished with the following instruments:

(i)a Certificate of Pledged Collateral, dated as of the last day of the calendar month most recently ended at least 10 Business Days prior to such withdrawal or substitution, showing that immediately after such withdrawal or substitution the requirements of Subsection (a) of this Section will be satisfied; and

(ii)an Officers’ Certificate certifying that no Event of Default has occurred which has not been remedied.

Upon any such withdrawal or substitution, National Rural shall deliver any cash or Eligible Securities or Permitted Investments to be substituted and the Collateral Agent shall execute any instruments of transfer or assignment specified in a National Rural Order as necessary to vest in National Rural any part of the Pledged Collateral withdrawn.

In case an Event of Default shall have occurred and be continuing, National Rural shall not withdraw or substitute any part of the Pledged Collateral, provided that any Pledged Collateral may be withdrawn (a) as provided for in Section 2.04; or (b) upon the deposit with the Collateral Agent of an amount of cash at least equal to the Allowable Amount (at the time of such withdrawal) of the Pledged Collateral so withdrawn and the delivery to the Collateral Agent of the instruments referred to in Subsection (b)(i) of this Section and a National Rural Order.

SECTION 2.04.Reassignment of Pledged Securities upon Payment.  Upon receipt of:

(i)an Officers’ Certificate stating that all payments of principal, premium (if any) and interest have been made upon any Pledged Securities held by the Collateral Agent other than payment of an amount (if any) specified in said certificate required fully to discharge all obligations on said Pledged Securities; and

(ii)cash in the amount (if any) so specified fully to discharge said Pledged Securities,

the Collateral Agent shall deliver to National Rural upon National Rural Order said Pledged Securities, together with any other documents or instruments of transfer or assignment necessary to reassign to National Rural said Pledged Securities and the interest of National Rural specified in such National Rural Order.

SECTION 2.05.Addition of Pledged Collateral.  At any time, National Rural may pledge additional Eligible Securities, cash or Permitted Investments under this Pledge Agreement by delivering such Pledged Collateral to the Collateral Agent, accompanied by a Certificate of Pledged Collateral specifying such additional collateral and dated as of the last day of the calendar month most recently ended at least 10 Business Days prior thereto, provided that, in the case of additional Permitted Investments, no such Permitted Investments shall be subject to any reservations, limitations or conditions referred to in the Granting Clause hereof.

SECTION 2.06.Accompanying Documentation.  Where Eligible Securities are delivered to the Collateral Agent under Section 2.01, 2.03 or Section 2.05, such securities shall be accompanied by the appropriate instruments of transfer executed in blank and in a form satisfactory to the Collateral Agent and by such other instruments and documents as the Collateral Agent may reasonably request.  All other property delivered to the Collateral Agent under Section 2.01, 2.03 or Section 2.05 and comprising part of the Pledged Collateral shall be accompanied by proper instruments of assignment duly executed by National Rural and such other instruments or documents as the Collateral Agent may reasonably request.

SECTION 2.07.Renewal; Extension; Substitution.  Unless and until an Event of Default shall have occurred and be continuing, National Rural may at any time renew or extend, subject to the Lien of this Pledge Agreement, any Pledged Security upon any terms or may accept in place of and in substitution for any such Pledged  Security, another Eligible Security or Securities of the same issuer or of any successor thereto for at least the same unpaid principal amount, all as evidenced by a National Rural Order delivered to the Collateral Agent; provided, however, that in case of any substitution, Eligible Securities substituted as aforesaid shall be subject to the Lien of this Pledge Agreement as part of the Pledged Collateral and be held in the same manner as those for which they shall be substituted, and in the case of each substituted Eligible Security National Rural shall provide an Officers’ Certificate certifying to the Collateral

Agent that such substituted security satisfies the requirements of this Section.  So long as no Event of Default shall have occurred and be continuing, the Collateral Agent, upon National Rural Order stating that no Event of Default shall have occurred and be continuing, shall execute any consent to any such renewal, extension or substitution as shall be specified in such National Rural Order.

SECTION 2.08.Voting Rights; Interest and Principal.  (a)  Unless and until an Event of Default has occurred and is continuing, and Farmer Mac delivers to the Collateral Agent a Farmer Mac Notice of Default suspending National Rural’s rights under this clause:

(i)National Rural shall be entitled to exercise any and all voting and/or other consensual rights and powers inuring to an owner of Pledged Securities or any part thereof provided that such rights and powers shall not be exercised in any manner inconsistent with the terms of the Note Purchase Agreement or this Pledge Agreement.

(ii)The Collateral Agent shall execute and deliver to National Rural, or cause to be executed and delivered to National Rural, all such proxies, powers of attorney and other instruments as National Rural may reasonably request for the purpose of enabling National Rural to exercise the voting and/or consensual rights and powers it is entitled to exercise pursuant to subparagraph (i) above.

(iii)National Rural shall be entitled to receive and retain any and all interest, principal and other distributions paid on or distributed in respect of the Pledged Securities; provided that any non-cash interest, principal or other distributions that would constitute Pledged Securities if pledged hereunder, and received in exchange for Pledged Securities or any part thereof pledged hereunder, or in redemption thereof, or as a result of any merger, consolidation, acquisition or other exchange of assets to which such issuer of Pledged Securities may be a party or otherwise, shall be and become part of the Pledged Collateral, and, if received by National Rural, shall not be commingled by National Rural with any of its other funds or property but shall be held separate and apart therefrom, shall be held in trust for the benefit of the Collateral Agent and shall be forthwith delivered to the Collateral Agent in the same form as so received (with any necessary endorsement).

(b)If an Event of Default shall have occurred and be continuing, then, to the extent such rights are suspended by the applicable Farmer Mac Notice of Default, all rights of National Rural to interest, principal or other distributions that National Rural is authorized to receive pursuant to paragraph (a)(iii) of this Section 2.08, shall cease, and all such suspended rights shall thereupon become vested in the Collateral Agent, which shall have the sole and exclusive right and authority to receive and retain such interest, principal or other distributions.  All interest, principal or other distributions received by National Rural contrary to the provisions of this Section 2.08 shall be held in trust for the

benefit of the Collateral Agent, shall be segregated from other property or funds of National Rural and shall be forthwith delivered to the Collateral Agent in the same form as so received (with any necessary endorsement).  Any and all money and other property paid over to or received by the Collateral Agent pursuant to the provisions of this paragraph (b) shall be retained by the Collateral Agent in an account to be established by the Collateral Agent upon receipt of such money or other property and shall be applied in accordance with the provisions of Section 4.03 to the fullest extent permitted by applicable law.  After all Events of Default have ceased, the Collateral Agent shall promptly repay to National Rural (without interest) all interest, principal or other distributions that National Rural would otherwise be permitted to retain pursuant to the terms of paragraph (a)(iii) of this Section 2.08 and that remain in such account.

(c)If an Event of Default shall have occurred and be continuing, then, to the extent such rights are suspended by the applicable Farmer Mac Notice of Default, all rights of National Rural to exercise the voting and consensual rights and powers it is entitled to exercise pursuant to paragraph (a)(i) of this Section 2.08, and the obligations of the Collateral Agent under paragraph (a)(ii) of this Section 2.08, shall cease, and all such rights shall thereupon become vested in the Collateral Agent, which shall have the sole and exclusive right and authority to exercise such voting and consensual rights and powers; provided that the Collateral Agent shall have the right from time to time during the existence of such Event of Default to permit National Rural to exercise such rights and powers.

SECTION 2.09.Protection of Title; Payment of Taxes; Liens, etc.  National Rural will:

(i)duly and promptly pay and discharge, or cause to be paid and discharged, before they become delinquent, all taxes, assessments, governmental and other charges lawfully levied, assessed or imposed upon or against any of the Pledged Collateral, including the income or profits therefrom and the interests of the Collateral Agent in such Pledged Collateral;

(ii)duly observe and conform to all valid requirements of any governmental authority imposed upon National Rural relative to any of the Pledged Collateral, and all covenants, terms and conditions under or upon which any part thereof is held;

(iii)cause to be paid and discharged all lawful claims (including, without limitation, income taxes) which, if unpaid, might become a lien or charge upon Pledged Collateral; and

(iv)do all things and take all actions necessary to keep the Lien of this Pledge Agreement a first and prior lien upon the Pledged Collateral and protect its title to the Pledged Collateral against loss by reason of any foreclosure or other proceeding to enforce any lien prior to or pari passu with the Lien of this Pledge Agreement.

Nothing contained in this Section shall require the payment of any such tax, assessment, claim, lien or charge or the compliance with any such requirement so long as the validity, application or amount thereof shall be contested in good faith; provided, however, that National Rural shall have set aside on its books such reserves (segregated to the extent required by generally accepted accounting principles) as shall be deemed adequate with respect thereto as determined by the Board of Directors of National Rural (or a committee thereof).

SECTION 2.10.Maintenance of Pledged Collateral.  National Rural shall cause the Allowable Amount of Pledged Collateral held by the Collateral Agent at all times to be not less than 100% of the aggregate principal amount of the Notes outstanding.

SECTION 2.11.Representations, Warranties and Covenants.  National Rural represents, warrants and covenants to the Collateral Agent, for the benefit of Farmer Mac, that from the time that they are pledged hereunder, and for so long as they are required to remain pledged:

(a)except for the Lien hereof and any Lien consented to in writing by Farmer Mac, National Rural (i) is and will continue to be the direct owner, beneficially and of record, of the Pledged Securities from time to time pledged hereunder, (ii) holds and will continue to hold the same free and clear of all Liens, other than Liens created by this Pledge Agreement, (iii) will make no assignment, pledge, hypothecation or transfer of, or create or permit to exist any security interest in or other Lien on, the Pledged Collateral, other than Liens created by this Pledge Agreement and (iv) will defend its title or interest thereto or therein against any and all Liens (other than the Lien created by this Pledge Agreement), however arising, of all Persons whomsoever;

(b)except for restrictions and limitations imposed by the Note Purchase Agreement or securities laws generally, the Pledged Securities are and will continue to be freely transferable and assignable, and none of the Pledged Securities are or will be subject to any restriction of any nature that might prohibit, impair, delay or otherwise affect the pledge of such Pledged Securities hereunder, the sale or disposition thereof pursuant hereto or the exercise by the Collateral Agent of rights and remedies hereunder;

(c)National Rural has the power and authority to pledge the Pledged Collateral pledged by it hereunder in the manner hereby done or contemplated;

(d)no consent or approval of any governmental authority, any securities exchange or any other Person was or is necessary to the validity of the pledge effected hereby (other than such as have been obtained and are in full force and effect); and

(e)by virtue of the execution and delivery by National Rural of this Pledge Agreement, when any Pledged Securities are delivered to the Collateral

Agent in accordance with this Pledge Agreement, the Collateral Agent will obtain a legal and valid Lien upon and security interest in such Pledged Securities as security for the payment and performance of the Obligations.

SECTION 2.12.Further Assurances.  National Rural will execute and deliver, or cause to be executed and delivered, all such additional instruments and do, or cause to be done, all such additional acts as (a) may be necessary or proper, consistent with the Granting Clause hereof, to carry out the purposes of this Pledge Agreement and to make subject to the Lien hereof any property intended so to be subject or (b) may be necessary or proper to transfer to any successor the estate, powers, instruments and funds held hereunder and to confirm the Lien of this Pledge Agreement.  National Rural will also cause to be filed, registered or recorded any instruments of conveyance, transfer, assignment or further assurance in all offices in which such filing, registering or recording is necessary to the validity thereof or to give notice thereof.

ARTICLE III

Application of Moneys Included in Pledged Collateral

SECTION 3.01.Investment of Moneys by Collateral Agent.  Any moneys held by the Collateral Agent as part of the Pledged Collateral shall, upon National Rural Order and as stated therein, be invested or reinvested by the Collateral Agent until required to be paid out by the Collateral Agent as provided in this Pledge Agreement, in any one or more of the following (herein called “Permitted Investments”):

(i)obligations of or guaranteed by the United States of America or any agency thereof for which the full faith and credit of the United States of America or such agency shall be pledged;

(ii)obligations of any state or municipality, or subdivision or agency of either thereof, which are rated AA (or equivalent) or better by at least two nationally recognized statistical rating organizations or having a comparable rating in the event of any future change in the rating system of such agencies;

(iii)certificates of deposit issued by, or time deposits of, any bank or trust company (including the Collateral Agent) organized under the laws of the United States of America or any State thereof having capital and surplus of not less than $500,000,000 (determined from its most recent report of condition, if it publishes such reports at least annually pursuant to law or the requirements of Federal or State examining or supervisory authority); and

(iv)commercial paper of bank holding companies or of other issuers (excluding National Rural) generally rated in the highest category by at least two nationally recognized statistical rating organizations and maturing not more than one year after the purchase thereof.

Unless and until an Event of Default shall have occurred and be continuing, any interest received by the Collateral Agent on any such investments which shall exceed the amount of accrued interest, if any, paid by the Collateral Agent on the purchase thereof, and any profit which may be realized from any sale, redemption or maturity of such investments, shall be paid to National Rural.  Such investments shall be held by the Collateral Agent as a part of the Pledged Collateral, but upon National Rural Order the Collateral Agent shall sell all or any designated part of the same, and the proceeds of such sale shall be held by the Collateral Agent subject to the same provisions hereof as the cash used by it to purchase the investments so sold.  In case the net proceeds realized upon any sale, redemption or maturity shall amount to less than the purchase price paid by the Collateral Agent for the purchase of the investments so sold, the Collateral Agent shall notify National Rural in writing thereof, and National Rural shall pay to the Collateral Agent the amount of the difference between such purchase price and the amount so realized, and the amount so paid shall be held by the Collateral Agent in like manner and subject to the same conditions as the proceeds realized upon such sale.  National Rural will reimburse the Collateral Agent forany brokerage commissions or other expenses incurred by the Collateral Agent in connection with the purchase or sale of such investments. The Collateral Agent may aggregate such costs and expenses of and such receipts from such investments on a monthly basis (or such other periodic basis as National Rural and the Collateral Agent may agree in writing from time to time) so as to net each against the other during such period and pay to National Rural amounts due to it or notify National Rural of amounts due from it on a net basis for such period.

SECTION 3.02.Collateral Agent To Retain Moneys During Event of Default.  If an Event of Default shall have occurred and be continuing, moneys held by the Collateral Agent as a part of the Pledged Collateral shall not be paid over to National Rural upon National Rural Order except pursuant to Section 4.03 or as otherwise required by applicable law.

ARTICLE IV

Remedies

SECTION 4.01.Events of Default.  “Event of Default”, wherever used herein, means any “Event of Default” as defined in Sections 7.01(a) of the Note Purchase Agreement, provided that, for the purposes of this Pledge Agreement:

(a)the Collateral Agent shall not be required to recognize that an Event of Default exists before such time as the Collateral Agent receives a Farmer Mac Notice or National Rural Notice stating that an Event of Default exists and specifying the particulars of such default in reasonable detail; and

(b)the Collateral Agent shall not be required to recognize that an Event of Default has ceased until (i) such time as the Collateral Agent receives a Farmer Mac Notice stipulating that such event has ceased to exist; or (ii) 30 days after receipt by the Collateral Agent of a National Rural Notice stipulating that such

Nothing contained in this Section shall require the payment of any such tax, assessment, claim, lien or charge or the compliance with any such requirement so long as the validity, application or amount thereof shall be contested in good faith; provided, however, that National Rural shall have set aside on its books such reserves (segregated to the extent required by generally accepted accounting principles) as shall be deemed adequate with respect thereto as determined by the Board of Directors of National Rural (or a committee thereof).

SECTION 4.02.Remedies upon Default.  If an Event of Default shall have occurred and be continuing, Farmer Mac may issue a notice (a “Farmer Mac Notice of Default”), which may be combined with the notice provided under Section 4.01(b), suspending the rights of National Rural under Section 2.08 in part without suspending all such rights (as specified by Farmer Mac in its sole and absolute discretion) without waiving or otherwise affecting Farmer Mac’s rights to give additional Farmer Mac Notices of Default from time to time suspending other rights under Section 2.08so long as an Event of Default has occurred and is continuing.  Subject to paragraph (b) of this Section 4.02, upon cessation of an Event of Default, all rights of National Rural suspended under the applicable Farmer Mac Notice of Default shall revest in National Rural.

(a)Upon the occurrence of an Event of Default, the Collateral Agent shall, for the benefit and at the direction of Farmer Mac, have the right to exercise any and all rights afforded to a secured party under the Uniform Commercial Code or other applicable law.  Without limiting the generality of the foregoing, National Rural agrees that the Collateral Agent shall have the right, but only if so instructed by a Farmer Mac Order and subject to the requirements of applicable law and the Collateral Agent’s right (in its sole and absolute discretion) to receive indemnification or other reasonable assurances that its costs and expenses in connection therewith will be paid, to sell or otherwise dispose of all or any part of the Pledged Collateral at a public or private sale or at any broker’s board or on any securities exchange, for cash, upon credit or for future delivery as the Collateral Agent shall deem appropriate.  The Collateral Agent shall be authorized at any such sale of securities (if it deems it advisable to do so) to restrict the prospective bidders or purchasers to Persons who will represent and agree that they are purchasing the Pledged Collateral for their own account for investment and not with a view to the distribution or sale thereof, and upon consummation of any such sale the Collateral Agent shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Pledged Collateral so sold.  Each such purchaser at any sale of Pledged Collateral shall hold the property sold absolutely, free from any claim or right on the part of National Rural, and National Rural hereby waives (to the extent permitted by law) all rights of redemption, stay and appraisal which National Rural now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted.

(b)The Collateral Agent shall give National Rural 10 days’ written notice (which National Rural agrees is reasonable notice within the meaning of Section 9-611 of the Uniform Commercial Code or its equivalent in other jurisdictions) of the Collateral Agent’s intention to make any sale of Pledged Collateral.  Such notice, in the case of a

public sale, shall state the time and place for such sale and, in the case of a sale at a broker’s board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Collateral, or portion thereof, will first be offered for sale at such board or exchange.  Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Collateral Agent may fix and state in the notice (if any) of such sale.  At any such sale, the Pledged Collateral, or portion thereof, to be sold may be sold in one lot as an entirety or in separate parcels, as the Collateral Agent may (in its sole and absolute discretion) determine.  The Collateral Agent shall not be obligated to make any sale of any Pledged Collateral if it shall determine not to do so, regardless of the fact that notice of sale of such Pledged Collateral shall have been given.  The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned.  In case any sale of all or any part of the Pledged Collateral is made on credit or for future delivery, the Pledged Collateral so sold may be retained by the Collateral Agent until the sale price is paid by the purchaser or purchasers thereof, but the Collateral Agent shall not incur any liability in case any such purchaser or purchasers shall fail to take up and pay for the Pledged Collateral so sold and, in case of any such failure, such Pledged Collateral may be sold again upon like notice.  At any public (or, to the extent permitted by law, private) sale made pursuant to this Pledge Agreement, Farmer Mac may bid for or purchase, free (to the extent permitted by law) from any right of redemption, stay, valuation or appraisal on the part of National Rural (all said rights being also hereby waived and released to the extent permitted by law), the Pledged Collateral or any part thereof offered for sale and may make payment on account thereof by using any claim then due and payable to Farmer Mac from National Rural as a credit against the purchase price, and Farmer Mac may, upon compliance with the terms of sale, hold, retain and dispose of such property without further accountability to Pledged Collateral therefor.  For purposes hereof, a written agreement to purchase the Pledged Collateral or any portion thereof shall be treated as a sale thereof; the Collateral Agent shall be free to carry out such sale pursuant to such agreement and National Rural shall not be entitled to the return of the Pledged Collateral or any portion thereof subject thereto, notwithstanding the fact that after the Collateral Agent shall have entered into such an agreement all Events of Default shall have been remedied and the Obligations paid in full.  As an alternative to exercising the power of sale herein conferred upon it, the Collateral Agent may proceed by a suit or suits at law or in equity to foreclose this Pledge Agreement and to sell the Collateral or any portion thereof pursuant to a judgment or decree of a court or courts having competent jurisdiction or pursuant to a proceeding by a court-appointed receiver.  Any sale pursuant to the provisions of this Section 4.02 shall be deemed to conform to the commercially reasonable standards as provided in Section 9-610(b) of the Uniform Commercial Code or its equivalent in other jurisdictions.

SECTION 4.03.Application of Proceeds.  The Collateral Agent shall apply the proceeds of any collection or sale of Pledged Collateral, including any Pledged Collateral consisting of cash, as follows to the fullest extent permitted by applicable law:

FIRST, to the payment of all reasonable costs and expenses incurred by the Collateral Agent in connection with or reasonably related or reasonably incidental to such collection or sale or otherwise in connection with or related or incidental to this Pledge Agreement or any of the Obligations, including all court costs and the reasonable fees and expenses of its agents and legal counsel, the repayment of all advances made by the Collateral Agent (in its sole discretion) hereunder on behalf of National Rural and any other reasonable costs or expenses incurred in connection with the exercise of any right or remedy hereunder;

SECOND, to the payment to Farmer Mac in full of the Obligations; such payment to be for an amount certified in a Farmer Mac Notice delivered to the Collateral Agent as being the amount due and owing to Farmer Mac under the Obligations; and

THIRD, to National Rural, its successors or assigns, or as a court of competent jurisdiction may otherwise direct.

Upon any sale of the Pledged Collateral by the Collateral Agent (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the Collateral Agent or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Pledged Collateral so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Collateral Agent or such officer or be answerable in any way for the misapplication thereof.

SECTION 4.04.Securities Act.  In view of the position of National Rural in relation to the Pledged Collateral, or because of other current or future circumstances, a question may arise under the Securities Act of 1933, as now or hereafter in effect, or any similar statute hereafter enacted analogous in purpose or effect (such Act and any such similar statute as from time to time in effect being called the “Federal Securities Laws”) with respect to any disposition of the Pledged Collateral permitted hereunder.  National Rural understands that compliance with the Federal Securities Laws might very strictly limit the course of conduct of the Collateral Agent if the Collateral Agent were to attempt to dispose of all or any part of the Pledged Collateral, and might also limit the extent to which or the manner in which any subsequent transferee of any Pledged Collateral could dispose of the same.  Similarly, there may be other legal restrictions or limitations affecting the Collateral Agent in any attempt to dispose of all or part of the Pledged Collateral under applicable Blue Sky or other state securities laws or similar laws analogous in purpose or effect.  National Rural recognizes that in light of such restrictions and limitations the Collateral Agent may, with respect to any sale of the Pledged Collateral, limit the purchasers to those who will agree, among other things, to acquire such Pledged Collateral for their own account, for investment, and not with a view to the distribution or resale thereof.  National Rural acknowledges and agrees that in light of such restrictions and limitations, the Collateral Agent, in its sole and absolute discretion (a) may proceed to make such a sale whether or not a registration statement for the purpose of registering such Pledged Collateral or part thereof shall have been filed under the Federal Securities Laws and (b) may

approach and negotiate with a single potential purchaser to effect such sale.  National Rural acknowledges and agrees that any such sale might result in prices and other terms less favorable to the seller than if such sale were a public sale without such restrictions.  In the event of any such sale, the Collateral Agent shall incur no responsibility or liability for selling all or any part of the Pledged Collateral at a price that the Collateral Agent, in its sole and absolute discretion, may in good faith deem reasonable under the circumstances, notwithstanding the possibility that a substantially higher price might have been realized if the sale were deferred until after registration as aforesaid or if more than a single purchaser were approached.  The provisions of this Section 4.04 will apply notwithstanding the existence of a public or private market upon which the quotations or sales prices may exceed substantially the price at which the Collateral Agent sells.

ARTICLE V

The Collateral Agent

SECTION 5.01.Certain Duties and Responsibilities.  (a)  At all times under this Pledge Agreement:

(i)the Collateral Agent undertakes to perform such duties and only such duties as are specifically set forth in this Pledge Agreement, and no implied covenants or obligations shall be read into this Pledge Agreement against the Collateral Agent; and

(ii)in the absence of bad faith on its part, the Collateral Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Collateral Agent and substantially conforming to the requirements of this Pledge Agreement; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Collateral Agent the Collateral Agent shall be under a duty to examine the same to determine whether or not they substantially conform to the requirements of this Pledge Agreement.

(b)No provision of this Pledge Agreement shall be construed to relieve the Collateral Agent from liability for its own grossly negligent action, its own grossly negligent failure to act, or its own willful misconduct, except that:

(i)this Subsection shall not be construed to limit the effect of Subsection (a) of this Section;

(ii)the Collateral Agent shall not be liable for any error of judgment made in good faith, unless it shall be proved that the Collateral Agent was grossly negligent in ascertaining the pertinent facts; and

(iii)no provision of this Pledge Agreement shall require the Collateral Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.

(c)Whether or not therein expressly so provided, every provision of this Pledge Agreement relating to the conduct or affecting the liability of or affording protection to the Collateral Agent shall be subject to the provisions of this Section.

SECTION 5.02.Certain Rights of Collateral Agent.  Except as otherwise provided in Section 5.01:

(a)the Collateral Agent may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;

(b)any request or direction of National Rural mentioned herein shall be sufficiently evidenced by a National Rural Notice or National Rural Order;

(c)any request or direction of Farmer Mac mentioned herein shall be sufficiently evidenced by a Farmer Mac Notice or Farmer Mac Order;

(d)whenever in the administration of this Pledge Agreement the Collateral Agent shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Collateral Agent (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers’ Certificate in the case of National Rural, and a certificate signed by any Vice President of Farmer Mac in the case of Farmer Mac;

(e)the Collateral Agent may consult with counsel and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon;

(f)the Collateral Agent shall be under no obligation to exercise any of the rights or powers vested in it by this Pledge Agreement at the request or direction of either National Rural or Farmer Mac pursuant to this Pledge Agreement, unless such party shall have offered to the Collateral Agent reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;

(g)the Collateral Agent shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument,

opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document, or to recompute, verify, reclassify or recalculate any information contained therein, but the Collateral Agent, in its sole and absolute discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Collateral Agent shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of National Rural, personally or by agent or attorney;

(h)the Collateral Agent may execute any of the powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Collateral Agent shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder;

(i)unless explicitly stated herein to the contrary, the Collateral Agent shall have no duty to inquire as to the performance of National Rural’s covenants herein.  In addition, the Collateral Agent shall not be deemed to have knowledge of any Event of Default unless the Collateral Agent has received a Farmer Mac Notice in accordance with Section 4.01(a), and shall not be deemed to have knowledge of the cessation of the same until such time as it receives a National Rural Notice in accordance with Section 4.01(b); and

(j)unless explicitly stated herein to the contrary, the Collateral Agent shall have no obligation to take any action with respect to any Event of Default until it has received a Farmer Mac Notice applicable to such event in accordance with Section 4.01(a), and the Collateral Agent shall have no liability for any action or inaction taken, suffered or omitted in respect of any such event by it prior to such time as the applicable Farmer Mac Notice is delivered.  Similarly, the Collateral Agent shall have no obligation to take any action with respect to the cessation of an Event of Default until it has received a National Rural Notice applicable to such event in accordance in accordance with Section 4.01(b), and the Collateral Agent shall have no liability for any action or inaction taken, suffered or omitted in respect of any such event by it prior to such time as the applicable National Rural Notice is delivered.

SECTION 5.03.Money Held by Collateral Agent.  Money held by the Collateral Agent hereunder need not be segregated from other funds except to the extent required by law.  The Collateral Agent shall have no liability to pay interest on or (except as expressly provided herein) invest any such moneys.

SECTION 5.04.Compensation and Reimbursement.  (a)   National Rural agrees:

(i)to pay to the Collateral Agent from time to time such reasonable compensation for all services rendered by it hereunder as shall have been set forth in an agreement signed by National Rural;

(ii)except as otherwise expressly provided herein, to reimburse the Collateral Agent upon its request for all reasonable expenses, out-of-pocket costs, disbursements and advances incurred or made by the Collateral Agent in accordance with any provision of this Pledge Agreement (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except to the extent any such expense, disbursement or advance may be attributable to its gross negligence or bad faith; and

(iii)to indemnify the Collateral Agent for, and to defend and hold it harmless against, any loss, liability or expense incurred without gross negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this Pledge Agreement or the performance of its duties hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent such loss, liability or expense may be attributable to its gross negligence or bad faith; provided, however, that National Rural shall have no liability under this clause for any settlement of any litigation or other dispute effected without the prior written consent of National Rural (such consent not to be unreasonably withheld).

(b)Any such amounts payable as provided hereunder shall be additional Obligations secured by the Lien hereof.  The provisions of this Section 5.04 shall remain operative and in full force and effect regardless of the termination of this Pledge Agreement or the Note Purchase Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Obligations, the invalidity or unenforceability of any term or provision of this Pledge Agreement or the Note Purchase Agreement, or any investigation made by or on behalf of the Collateral Agent or Farmer Mac.  All amounts due under this Section 5.04 shall be payable on written demand therefor.

SECTION 5.05.Corporate Collateral Agent Required; Eligibility.  There shall at all times be a Collateral Agent hereunder which shall be a corporation or association organized and doing business under the laws of the United States of America or of any State, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000, subject to supervision or examination by Federal or State authority.  If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.  Neither National Rural nor any Person directly or indirectly controlling, controlled by or under common control with National Rural shall serve as Collateral Agent hereunder.  If at any time the Collateral Agent shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.

SECTION 5.06.Resignation and Removal; Appointment of Successor.  (a)  No resignation or removal of the Collateral Agent and no appointment of a successor Collateral Agent pursuant to this Article shall become effective until the acceptance of appointment by the successor Collateral Agent under Section 5.07.

(b)The Collateral Agent may resign at any time by giving written notice thereof to National Rural.  If an instrument of acceptance by a successor Collateral Agent shall not have been delivered to the Collateral Agent within 30 days after the giving of such notice of resignation, the resigning Collateral Agent may petition any court of competent jurisdiction for the appointment of a successor Collateral Agent.

(c)If at any time:

(i)except if an Event of Default has occurred and is continuing, National Rural, in its sole and absolute discretion, elects to remove the Collateral Agent; or

(ii)the Collateral Agent shall cease to be eligible under Section 5.05 or shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Collateral Agent or of its property shall be appointed or any public officer shall take charge or control of the Collateral Agent or of its property or affairs for the purpose of rehabilitation, conservation or liquidation,

then, in any such case, National Rural may remove the Collateral Agent by delivery of a National Rural Order to that effect.

(d)If the Collateral Agent shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Collateral Agent for any cause, National Rural shall promptly appoint a successor Collateral Agent by delivering a National Rural Notice to the retiring Collateral Agent, the successor Collateral Agent and Farmer Mac to such effect.

SECTION 5.07.Acceptance of Appointment by Successor.  Every successor Collateral Agent appointed hereunder shall execute, acknowledge and deliver to National Rural, Farmer Mac and to the retiring Collateral Agent an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Collateral Agent shall become effective and such successor Collateral Agent, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Collateral Agent; but, on request of National Rural, Farmer Mac or the successor Collateral Agent, such retiring Collateral Agent shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Collateral Agent all the rights, powers and trusts of the retiring Collateral Agent, and shall duly assign, transfer and deliver to such successor Collateral Agent all property and money held by such retiring Collateral Agent hereunder, subject nevertheless to its Lien, if any, provided for in Section 5.04.  Upon request of any such successor Collateral Agent, National Rural shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Collateral Agent all such rights, powers and trusts.

No successor Collateral Agent shall accept its appointment unless at the time of such acceptance such successor Collateral Agent shall be eligible under Section 5.05 hereof.

SECTION 5.08.Merger, Conversion, Consolidation or Succession to Business.  Any corporation into which the Collateral Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Collateral Agent shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Collateral Agent, shall be the successor of the Collateral Agent hereunder, provided such corporation shall be eligible under Section 5.05 hereof without the execution or filing of any paper or any further act on the part of any of the parties hereto.

ARTICLE VI

Miscellaneous

SECTION 6.01.Notices.  All notices and other communications hereunder to be made to any party shall be in writing and shall be addressed as specified in Schedule II attached hereto as appropriate.  The address, telephone number, or facsimile number for any party may be changed at any time and from time to time upon written notice given by such changing party to the other parties hereto. A properly addressed notice or other communication shall be deemed to have been delivered at the time it is sent by facsimile (fax) transmission to the party or parties to which it is given.

(a)All National Rural Notices and National Rural Orders delivered to the Collateral Agent shall be contemporaneously copied to Farmer Mac by National Rural; all Farmer Mac Notices and Farmer Mac Orders delivered to the Collateral Agent shall be contemporaneously copied by Farmer Mac to National Rural; and all Collateral Agent notices delivered to either National Rural or Farmer Mac shall be contemporaneously copied to the other such party by the Collateral Agent.

SECTION 6.02.Waivers; Amendment.  (a)  No failure or delay by a party in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power.  The rights and remedies of each party hereunder are cumulative and are not exclusive of any rights or remedies that such party would otherwise have.  No waiver of any provision of this Pledge Agreement or consent to any departure by any party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section 6.02, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.  No notice or demand on any party in any case shall entitle any party to any other or further notice or demand in similar or other circumstances.

(b)Neither this Pledge Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by National Rural, the Collateral Agent and Farmer Mac.

SECTION 6.03.Successors and Assigns.  Whenever in this Pledge Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of National Rural, the Collateral Agent or Farmer Mac that are contained in this Pledge Agreement shall bind and inure to the benefit of their respective successors and assigns.

SECTION 6.04.Counterparts; Effectiveness.  This Pledge Agreement may be executed in counterparts, each of which shall constitute an original but all of which when taken together shall constitute a single contract.  Delivery of an executed signature page to this Pledge Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Pledge Agreement.

SECTION 6.05.Severability.  Any provision of this Pledge Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.  The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

SECTION 6.06.GOVERNING LAW.  THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE UNITED STATES OF AMERICA, TO THE EXTENT APPLICABLE, AND OTHERWISE THE LAWS OF THE STATE OF NEW YORK.

SECTION 6.07.WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS PLEDGE AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS PLEDGE AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 6.07.

SECTION 6.08.Headings.  Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Pledge Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Pledge Agreement.

SECTION 6.09.Security Interest Absolute.  All rights of the Collateral Agent and/or Farmer Mac hereunder, the grant of a security interest in the Pledged Collateral and all obligations of National Rural hereunder shall be absolute and unconditional irrespective of (a) any lack of validity or enforceability of the Note Purchase Agreement, any Note, any agreement with respect to any of the Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Note Purchase Agreement, any Note or any other agreement or instrument, (c) any exchange, release or non-perfection of any Lien on other collateral, or any release or amendment or waiver of or consent under or departure from any guarantee, securing or guaranteeing all or any of the Obligations, or (d) any other circumstance that might otherwise constitute a defense available to, or a discharge of, National Rural in respect of the Obligations or this Pledge Agreement.

SECTION 6.10.Termination or Release.  (a)  This Pledge Agreement shall terminate on the date when the Collateral Agent receives a Farmer Mac Notice to the effect that all of the Obligations have been indefeasibly paid in full, and at such time the Lien hereof shall be released.

(b)Upon any withdrawal, substitution or other disposal by National Rural of any Pledged Collateral that is permitted by the terms of this Pledge Agreement, or upon the effectiveness of any written consent to the release of the security interest granted hereby in any Pledged Collateral, the Lien hereof securing such Pledged Collateral shall be automatically released.

(c)In connection with any termination or release pursuant to paragraph (a) or (b) the Collateral Agent shall deliver to National Rural the Pledged Collateral and shall execute and deliver to National Rural, at National Rural’s expense, all documents that National Rural shall reasonably request to evidence such termination or release.  Any execution and delivery of documents pursuant to this Section 6.10 shall be without recourse to or warranty by the Collateral Agent.

SECTION 6.11.Collateral Agent Appointed Attorney-in-Fact.  National Rural hereby appoints the Collateral Agent the attorney-in-fact of National Rural for the purpose of, upon the occurrence and during the continuance of an Event of Default, carrying out the provisions of this Pledge Agreement with respect to the Pledged Collateral and taking any action and executing any instrument that the Collateral Agent may deem necessary or advisable to accomplish the purposes hereof, which appointment is irrevocable and coupled with an interest but is subject nevertheless to the terms and conditions of this Pledge Agreement.  Without limiting the generality of the foregoing, the Collateral Agent shall have the right, upon the occurrence and during the

continuance of an Event of Default, with full power of substitution either in the Collateral Agent’s name or in the name of National Rural (a) to receive, endorse, assign and/or deliver any and all notes, acceptances, checks, drafts, money orders or other evidences of payment relating to the Pledged Collateral or any part thereof; (b) to demand, collect, receive payment of, give receipt for and give discharges and releases of all or any of the Pledged Collateral; (c) to commence and prosecute any and all suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect or otherwise realize on all or any of the Pledged Collateral or to enforce any rights in respect of any Pledged Collateral; (d) to settle, compromise, compound, adjust or defend any actions, suits or proceedings relating to all or any of the Pledged Collateral; (e) to notify, or to require National Rural to notify, obligors under Pledged Securities to make payment directly to the Collateral Agent; and (f) subject to the second sentence of Section 4.02(a), to use, sell, assign, transfer, pledge, make any agreement with respect to or otherwise deal with all or any of the Pledged Collateral, and to do all other acts and things necessary to carry out the purposes of this Pledge Agreement, as fully and completely as though the Collateral Agent were the absolute owner of the Pledged Collateral for all purposes; provided that nothing herein contained shall be construed as requiring or obligating the Collateral Agent to make any commitment or to make any inquiry as to the nature or sufficiency of any payment received by the Collateral Agent, or to present or file any claim or notice, or to take any action with respect to the Pledged Collateral or any part thereof or the moneys due or to become due in respect thereof or any property covered thereby.  The Collateral Agent and Farmer Mac shall be accountable only for amounts actually received as a result of the exercise of the powers granted to them herein, and neither they nor their officers, directors, employees or agents shall be responsible to National Rural for any act or failure to act hereunder, except for their own gross negligence or willful misconduct.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be duly executed, all as of the day and year first above written.

	FEDERAL AGRICULTURAL MORTGAGE CORPORATION,
by
	/s/ NANCY E. CORSIGLIA
	Name: Nancy E. Corsiglia
	Title: Executive Vice President & CFO

	NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION,
By
	/s/ STEVEN L. LILLY
	Name: Steven L. Lilly
	Title: Sr.Vice President & Chief Financial Officer

	U.S. BANK TRUST NATIONAL ASSOCIATION,
By
	/s/ BEVERLY A. FREENEY
	Name: Beverly A. Freeney
	Title:Vice President

SCHEDULE I

TO

PLEDGE AGREEMENT

Agreed Eligible Members

Name

Black Hills Electric Co-op, Inc.

Dakota Electric Association

Butler REC, Inc.

Jones-Onslow EMC

Central Electric Co-op, Inc.

Cobb EMC

Matanuska Electric Assn., Inc.

Northern Virginia Electric Co-op

Oklahoma Electric Co-op

Magic Valley Electric Co-op, Inc.

Community Electric Co-op

Coast Electric Power Assn.

Taylor Electric Co-op, Inc.

Southeastern Electric Co-op

Eau Claire Energy Co-op

Dixie Electric Co-op

York Electric Co-op, Inc.

Cass County Electric Co-op, Inc.

Corn Belt Energy Corporation

Panola-Harrison Electric Co-op

Warren RECC

Mitchell EMC

Wright-Hennepin Co-op Elec. Assn.

Wiregrass Electric Co-op, Inc.

Inland Power & Light Company

Edgecombe-Martin County EMC

High West Energy, Inc.

Missoula Electric Co-op, Inc.

Victoria Electric Co-op, Inc.

Bartlett Electric Co-op, Inc.

Rock County Electric Co-op Assn.

Withlacoochee River Electric Co-op

Lane Electric Co-op

Grayson-Collin Electric Co-op, Inc.

Pedernales Electric Co-op, Inc.

McLennan County Electric Co-op

South River EMC

Co-op Light & Power Association

Lumbee River EMC

Kenergy Corporation

United REMC

Cuivre River Electric Co-op, Inc.

Sawnee EMC

Cherokee County Elec. Co-op Assn.

Kaw Valley Elec. Co-op, Inc.

Southwest Tennessee EMC

Cumberland EMC

Utilities Dist. of Western Indiana REMC

Stearns Co-op Electric Assn.

Nueces Electric Co-op, Inc.

Connexus Energy

Dixie Electric Membership Co-op

Craighead Electric Co-op Corp.

Intermountain REA

Southwest Louisiana EMC

Cotton Electric Co-op

Ozark Electric Co-op

Maquoketa Valley REC

Southwest Texas Elec. Co-op, Inc.

Middle Tennessee EMC

Union Power Cooperative

Midland Power Cooperative

Rusk County Electric Co-op, Inc.

C & L Electric Co-op Corp.

First Electric Co-op Corp.

Medina Electric Co-op, Inc.

J.A.C. Electric Co-op Inc.

Blue Grass Energy Co-op Corp.

Joe Wheeler EMC

Central REC

Haywood EMC

Norris PPD

Big Country Electric Co-op

Jefferson Davis Electric Co-op

Upshur RECC

Belfalls Electric Co-op, Inc.

South Central Indiana REMC

Fairfield Electric Co-op, Inc.

Coleman County Electric Co-op, Inc.

South Central Power Company

Mountain Parks Electric, Inc.

Piedmont EMC

Sioux Valley-Southwestern Elec.

Eastern Iowa Light & Power Co-op

Fannin County Electric Co-op, Inc.

Paulding-Putnam Electric Co-op

Berkeley Electric Co-op, Inc.

Walton EMC

United Power, Inc.

Rayle EMC

Chippewa Valley Electric Co-op

Clay Electric Co-op, Inc.

Arkansas Valley Elec. Co-op Corp.

Bluebonnet Electric Co-op, Inc.

Midstate Electric Co-op, Inc.

San Isabel Electric Assn.

Diverse Power, Inc.

Wood County Electric Co-op, Inc.

Wake EMC

Oconee EMC

Rutherford EMC

Homer Electric Assn., Inc.

Carroll County REMC

Laurens Electric Co-op, Inc.

Singing River Elec. Power Assn.

Jackson EMC

Sun River Electric Co-op, Inc.

Northeastern REMC

Clark County REMC

Tri-County EMC

Southwest Electric Co-op

Leavenworth-Jefferson Elec. Co-op

Hendricks Power Cooperative

Planters EMC

Warren County REMC

Sierra Electric Co-op

Blachly-Lane Co. Co-op Elec. Assn.

Minnesota Valley Electric Co-op

Comanche County Elec. Co-op Assn.

Consumers Energy

Halifax EMC

Cimarron Electric Co-op

Shelby Electric Cooperative

EnergyUnited

Linn County REC

Callaway Electric Co-op

Okefenoke REMC

Lake Region Electric Co-op, Inc.

Coosa Valley Electric Co-op, Inc.

Webster Electric Co-op

Dunn Electric Co-op

White River Valley Elec. Co-op

Tideland EMC

Fergus Electric Co-op, Inc.

Clarke Electric Co-op, Inc.

Tri-County Electric Co-op, Inc.

East-Central Iowa REC

Carroll Electric Co-op Corp.

Verdigris Valley Electric Co-op

Farmers Electric Co-op, Inc.

Lake Country Power

White County REMC

Sangre De Cristo Electric Assn.

Pitt & Greene EMC

Cooke County Electric Co-op Assn.

GreyStone Power Corporation

Navasota Valley Electric Co-op

Mor-Gran-Sou Electric Co-op, Inc.

Noble REMC

Barron Electric Cooperative

Peace River Electric Co-op, Inc.

Ralls County Electric Co-op

Kosciusko County REMC

Craig-Botetourt Electric Co-op

Beauregard Electric Co-op, Inc.

Baldwin County EMC

Caddo Electric Co-op

Amicalola EMC

PUD No. 1 of Kittitas County

Orcas Power & Light Co-op

Pointe Coupee EMC

Copper Valley Electric Assn., Inc.

Plumas-Sierra Rural Electric Co-op

Guthrie County RECA

Lower Valley Energy

Lorain-Medina REC, Inc.

Carroll Electric Co-op, Inc.

Blue Ridge Electric Co-op, Inc.

Canadian Valley Electric Co-op

Meade County RECC

Rio Grande Electric Co-op, Inc.

HomeWorks Tri-County Electric Co-op

Central Florida Electric Co-op

WIN Energy REMC

Carteret-Craven Electric Co-op

Butler County REC

Warren Electric Co-op, Inc.

Southside Electric Co-op

Eastern Illini Electric Co-op

Guadalupe Valley Elec. Co-op, Inc.

Jasper-Newton Electric Co-op, Inc.

Pennyrile RECC

Four County EMC

Benton REA

Deep East Texas Elec. Co-op, Inc.

Petit Jean Electric Co-op

Pea River Electric Co-op

Southwest Rural Electric Assn.

Flathead Electric Co-op, Inc.

Central Virginia Electric Co-op

Clay County Electric Co-op Corp.

Cullman Electric Cooperative

Consolidated Electric Co-op

Mille Lacs Electric Co-op

Three Notch EMC

Sam Houston Electric Co-op, Inc.

Clarke-Washington EMC

Highline Electric Association

Central EMC

Boone County REMC

East Central Energy

Harrison County REMC

Rappahannock Electric Co-op

Randolph EMC

Broad River Electric Co-op, Inc.

East Central Oklahoma Elec. Co-op

Golden Valley Electric Assn., Inc.

Mid-South Electric Co-op Assn.

Duck River EMC

Parke County REMC

Woodruff Electric Co-op Corp.

Valley EMC

Licking Energy Cooperative

Jackson County REMC

Gibson EMC

Meriwether Lewis Electric Co-op

Great Lakes Energy Cooperative

Intercounty Electric Co-op Assn.

North Arkansas Electric Co-op, Inc.

Volunteer Electric Co-op

Surry-Yadkin EMC

Carroll EMC

Upper Cumberland EMC

Southern Pine Elec. Power Assn.

Trinity Valley Electric Co-op

Kodiak Electric Assn., Inc.

Naknek Electric Assn., Inc.

Kotzebue Electric Assn., Inc.

Nushagak Electric & Telephone Co-op, Inc.

Alaska Village Electric Co-op, Inc.

Tlingit-Haida Electrical Authority

I-N-N Electric Cooperative, Inc.

Cordova Electric Cooperative

Yakutat Power, Inc.

Barrow Utilities & Electric Co-op

Unalakleet Valley Electric Co-op

Cherokee Electric Co-op

Pioneer Electric Cooperative

South Alabama Electric Co-op

Southern Pine Electric Co-op

Tallapoosa River Electric Co-op

Central Alabama Electric Co-op

North Alabama Electric Co-op

Sand Mountain Electric Co-op

Tombigbee Electric Co-op, Inc.

Marshall DeKalb Electric Co-op

Covington Electric Co-op

Franklin Electric Co-op, Inc.

Arab Electric Cooperative, Inc.

Farmers Electric Co-op Corp.

Southwest Arkansas Elec. Co-op Corp

Mississippi County Elec. Co-op

Ouachita Electric Co-op Corp.

South Central Arkansas Elec. Co-op

Ashley-Chicot Electric Co-op, Inc.

Rich Mountain Electric Co-op, Inc.

Navopache Electric Co-op, Inc.

Sulphur Springs Valley Elec. Co-op

Graham County Electric Co-op, Inc.

Trico Electric Co-op, Inc.

Mohave Electric Co-op, Inc.

Duncan Valley Electric Co-op, Inc.

Navajo Tribal Utility Authority

Electrical District #2 Pinal County

Tohono O'odham Utility Authority

Electrical District #5 Pinal County

Electrical District #4 Pinal County

Surprise Valley Electrification

Anza Electric Co-op, Inc.

Truckee-Donner PUD

Trinity PUD

Grand Valley Rural Power Lines

San Luis Valley REC, Inc.

Morgan County REA

Southeast Colorado Power Assn.

Gunnison County Electric Assn.

Delta-Montrose Electric Assn.

San Miguel Power Assn., Inc.

La Plata Electric Assn., Inc.

Empire Electric Assn., Inc.

Holy Cross Energy

Yampa Valley Electric Assn., Inc.

Mountain View Electric Assn., Inc.

Y-W Electric Assn., Inc.

K. C. Electric Association

White River Electric Assn., Inc.

Delaware Electric Co-op, Inc.

Suwannee Valley Electric Co-op

Sumter Electric Co-op, Inc.

West Florida Electric Co-op Assn.

Escambia River Electric Co-op, Inc.

Florida Keys Electric Co-op Assn.

Tri-County Electric Co-op, Inc.

Choctawhatchee Electric Co-op, Inc.

Gulf Coast Electric Co-op, Inc.

Glades Electric Co-op, Inc.

North Georgia EMC

Colquitt EMC

Upson EMC

Hart EMC

Altamaha EMC

Sumter EMC

Snapping Shoals EMC

Central Georgia EMC

Irwin EMC

Satilla REMC

Grady EMC

Washington EMC

Ocmulgee EMC

Lamar EMC

Habersham EMC

Blue Ridge Mountain EMC

Canoochee EMC

Little Ocmulgee EMC

Excelsior EMC

Slash Pine EMC

Middle Georgia EMC

Pataula EMC

Coastal Electric Cooperative

Coweta-Fayette EMC

Tri-State EMC

Kauai Island Utility Co-op

Glidden REC

Humboldt County REC

Harrison County REC

Boone Valley Electric Co-op

Nishnabotna Valley REC

Franklin REC

Grundy County REC

Calhoun County Electric Co-op Assn.

Pella Co-op Electric Assn.

Lyon REC

Hawkeye Tri-County REC

T.I.P. Rural Electric Co-op

Woodbury County RECA

Sac County REC

Access Energy Cooperative

Osceola Electric Co-op, Inc.

Farmers Electric Co-op, Inc.

Allamakee-Clayton Elec. Co-op, Inc.

Southern Iowa Electric Co-op, Inc.

Rideta Electric Co-op, Inc.

Chariton Valley Electric Co-op

Iowa Lakes Electric Cooperative

North West Rural Electric Co-op

Western Iowa Power Co-op

Heartland Power Co-op

Prairie Energy Cooperative

Southwest Iowa Service Co-op

Northern Lights, Inc.

Clearwater Power Company

Kootenai Electric Co-op, Inc.

Idaho County Light & Power Co-op

Raft River REC, Inc.

Fall River REC, Inc.

Lost River Electric Co-op, Inc.

Salmon River Electric Co-op, Inc.

Riverside Electric Company

United Electric Co-op.

South Side Electric Lines, Inc.

Wayne-White Counties Electric Co-op

Farmers Mutual Electric Company

Coles-Moultrie Electric Co-op

Illinois Rural Electric Cooperative

Menard Electric Co-op

Rural Electric Convenience Co-op

Enerstar Power Corp

Adams Electric Cooperative

Monroe County Electric Co-operative

McDonough Power Co-op

Western Illinois Electrical Coop.

Egyptian Electric Co-op Assn.

Norris Electric Co-op

SouthEastern Illinois Elec. Co-op

Spoon River Electric Cooperative

M.J.M. Electric Co-op, Inc.

Tri-County Electric Co-op, Inc.

Southern Illinois Electric Co-op

Jo-Carroll Energy, Inc.

Clinton County Electric Co-op, Inc.

Southwestern Electric Co-op, Inc.

Clay Electric Co-op, Inc.

Wabash County REMC

Marshall County REMC

Henry County REMC

RushShelby Energy, Inc.

Bartholomew County REMC

Daviess-Martin County REMC

Decatur County REMC

Fulton County REMC

Central Indiana Power

Jasper County REMC

Jay County REMC

Johnson County REMC

LaGrange County REMC

Miami-Cass County REMC

Orange County REMC

Southeastern Indiana REMC

Steuben County REMC

Dubois REC, Inc.

Kankakee Valley REMC

Southern Indiana REC, Inc.

Newton County REMC

Whitewater Valley REMC

Brown-Atchison Electric Co-op Assn.

Sumner-Cowley Electric Coop, Inc.

DS&O Rural Electric Co-op Assn.

Sedgwick County Electric Co-op

Butler RECA, Inc.

Doniphan Electric Co-op Assn., Inc.

Flint Hills RECA, Inc.

Prairie Land Electric Co-op Inc.

Nemaha-Marshall Electric Co-op

Ark Valley Electric Co-op Assn.

Ninnescah RECA, Inc.

Caney Valley Electric Co-op Assn.

Radiant Electric Co-op, Inc.

Lane-Scott Electric Co-op, Inc.

Pioneer Electric Co-op

C.M.S. Electric Co-op, Inc.

Western Co-op Electric Assn., Inc.

Victory Electric Co-op Assn., Inc.

Twin Valley Electric Co-op

Wheatland Electric Co-op, Inc.

Midwest Energy, Inc.

Lyon-Coffey Electric Co-op

Heartland REC

Bluestem Electric Co-op, Inc.

Rolling Hills Electric Co-op

Jackson Energy Cooperative

Jackson Purchase Energy Corp.

Salt River Electric Co-op Corp.

Taylor County RECC

Inter-County Energy Co-op

Shelby Energy Cooperative

Farmers RECC

Owen Electric Cooperative, Inc.

Hickman-Fulton Counties RECC

Clark Energy Cooperative, Inc.

West Kentucky RECC

Nolin RECC

Fleming-Mason Energy Co-op

South Kentucky RECC

Licking Valley RECC

Cumberland Valley Electric, Inc.

Big Sandy RECC

Grayson RECC

South Louisiana Electric Co-op

Washington-St. Tammany Elec. Co-op

Northeast Louisiana Power Co-op

Claiborne Electric Co-op, Inc.

Concordia Electric Co-op, Inc.

Southern Maryland Electric Co-op

Choptank Electric Co-op, Inc.

Eastern Maine Electric Co-op, Inc.

Swan's Island Electric Co-op

Fox Islands Electric Co-op

Alger-Delta Co-op Electric Assn.

Presque Isle Electric & Gas Co-op

Ontonagon County REA

Thumb Electric Co-op, Inc.

Cloverland Electric Co-op

Cherryland Electric Cooperative

Midwest Energy Cooperative

Meeker Co-op Light & Power Assn.

Goodhue County Co-op Electric Assn.

Runestone Electric Assn.

McLeod Co-op Power Assn.

Tri-County Electric Co-op

Brown County REA

Federated REA

Minn. Valley Co-op L & P Assn.

Steele-Waseca Co-op Electric

South Central Electric Assn.

Crow Wing Co-op Power & Light Co.

Lake Region Co-op Electrical Assn.

Kandiyohi Power Cooperative

Redwood Electric Co-op

Freeborn-Mower Co-op Services

Nobles Cooperative Electric

Renville-Sibley Co-op Power Assn.

Red River Valley Co-op Power Assn.

Red Lake Electric Co-op, Inc.

Agralite Electric Cooperative

Lyon-Lincoln Electric Co-op, Inc.

Wild Rice Electric Co-op, Inc.

Itasca-Mantrap Co-op Elec. Assn.

Traverse Electric Co-op, Inc.

Todd-Wadena Electric Co-op

P.K.M. Electric Co-op, Inc.

North Itasca Electric Co-op

North Star Electric Co-op, Inc.

Beltrami Electric Co-op, Inc.

Roseau Electric Co-op, Inc.

Clearwater-Polk Electric Co-op

Arrowhead Electric Co-op, Inc.

BENCO Electric Cooperative

Pemiscot-Dunklin Electric Co-op

Missouri REC

Howard Electric Co-op

Lewis County RECA

Barton County Electric Co-op

SEMO Electric Cooperative

Atchison-Holt Electric Co-op

Ozark Border Electric Co-op

Macon Electric Co-op

Tri-County Electric Co-op Assn.

Consolidated Electric Co-op

Osage Valley Electric Co-op Assn.

Black River Electric Co-op

Central Missouri Electric Co-op

Platte-Clay Electric Co-op, Inc.

Farmers' Electric Co-op, Inc.

Laclede Electric Co-op

Grundy Electric Co-op, Inc.

Three Rivers Electric Co-op

Co-Mo Electric Co-op, Inc.

New-Mac Electric Co-op, Inc.

Howell-Oregon Electric Co-op, Inc.

West Central Electric Co-op, Inc.

Crawford Electric Co-op, Inc.

Sac Osage Electric Co-op, Inc.

North Central Missouri Elec. Co-op

Citizens Electric Corp.

Se-Ma-No Electric Co-op

Gascosage Electric Co-op

Barry Electric Co-op

United Electric Cooperative

Monroe County EPA

Pontotoc Electric Power Assn.

Yazoo Valley Electric Power Assn.

Coahoma Electric Power Assn.

Central Electric Power Assn.

Southwest Mississippi EPA

North East Mississippi EPA

Tallahatchie Valley EPA

Four County Electric Power Assn.

Dixie Electric Power Assn.

Twin County Electric Power Assn.

Delta Electric Power Assn.

Pearl River Valley Elec. Power Assn

Magnolia Electric Power Assn.

Tishomingo County EPA

East Mississippi EPA

Prentiss County Elec. Power Assn.

Tippah Electric Power Assn

Northcentral Mississippi EPA

Tombigbee EPA

Natchez Trace Electric Power

Alcorn County Electric Power Assn.

Ravalli County Electric Co-op, Inc.

Lower Yellowstone REA, Inc.

Vigilante Electric Co-op, Inc.

Park Electric Co-op, Inc.

Mid-Yellowstone Electric Co-op

Beartooth Electric Co-op, Inc.

Big Horn County Electric Co-op

Big Flat Electric Co-op, Inc.

Sheridan Electric Co-op, Inc.

Northern Electric Co-op, Inc.

Valley Electric Co-op, Inc.

McCone Electric Co-op, Inc.

Goldenwest Electric Co-op, Inc.

Glacier Electric Co-op, Inc.

Marias River Electric Co-op, Inc.

Hill County Electric Co-op, Inc.

Tongue River Electric Co-op, Inc.

Southeast Electric Co-op, Inc.

Lincoln Electric Co-op, Inc.

Blue Ridge EMC

Roanoke Electric Cooperative

Pee Dee EMC

Harkers Island EMC

Brunswick EMC

French Broad EMC

Tri-County EMC

Cape Hatteras Electric Co-op

Albemarle EMC

Verendrye Electric Co-op, Inc.

Nodak Electric Co-op, Inc.

North Central Electric Co-op, Inc.

KEM Electric Co-op, Inc.

Mountrail-Williams Electric Co-op

McKenzie Electric Co-op, Inc.

Burke-Divide Electric Co-op, Inc.

Oliver-Mercer Electric Co-op, Inc.

West Plains Electric Co-op, Inc.

Slope Electric Co-op, Inc.

McLean Electric Co-op, Inc.

Cavalier REC, Inc.

Northern Plains Electric Co-op

Dakota Valley Elec. Co-op

Roosevelt PPD

Chimney Rock PPD

Polk County RPPD

Howard Greeley RPPD

Burt County PPD

Cuming County PPD

Cedar-Knox PPD

Butler County RPPD

Seward County PPD

Stanton County PPD

Perennial  Public Power District

Elkhorn RPPD

Southern Public Power District

Dawson PPD

McCook PPD

Niobrara Valley EMC

Cornhusker PPD

Custer PPD

Panhandle REMA

North Central PPD

Midwest ECC

Loup River PPD

KBR Rural Public Power District

Twin Valleys PPD

Northwest RPPD

Wheat Belt PPD

Southwest PPD

Loup Valleys RPPD

South Central PPD

Northeast Nebraska PPD

New Hampshire Electric Cooperative

Sussex REC

Central Valley Electric Co-op, Inc.

Roosevelt County Electric Co-op, Inc.

Farmers Electric Co-op, Inc.

Kit Carson Electric Co-op, Inc.

Otero County Electric Co-op, Inc.

Mora-San Miguel Electric Co-op

Northern Rio Arriba Elec. Co-op

Springer Electric Co-op, Inc.

Socorro Electric Co-op, Inc.

Central New Mexico Elec. Co-op

Continental Divide Electric Co-op

Lea County Electric Co-op, Inc.

Columbus Electric Co-op, Inc.

Southwestern Electric Co-op, Inc.

Jemez Mountains Electric Co-op

Alamo Power District #3

Overton Power District No. 5

Wells REC

Lincoln County Power District #1

Valley Electric Association

Mt. Wheeler Power, Inc.

Otsego Electric Co-op, Inc.

Delaware County Electric Co-op

Steuben REC, Inc.

Oneida-Madison Electric Co-op, Inc.

Pioneer REC, Inc.

Holmes-Wayne Electric Co-op, Inc.

Midwest Electric, Inc.

Darke REC, Inc.

Union REC, Inc.

Frontier Power Company

North Central Electric Co-op, Inc.

Tri-County REC, Inc.

Logan County Co-op Pwr. & Light Assn.

North Western Electric Co-op, Inc.

Firelands Electric Co-op, Inc.

Mid Ohio Energy Co-op, Inc.

Guernsey-Muskingum Electric Co-op

Hancock-Wood Electric Co-op, Inc.

Buckeye REC, Inc.

Washington Electric Co-op, Inc.

Adams REC, Inc.

Kay Electric Cooperative

Alfalfa Electric Cooperative, Inc.

Red River Valley REA

People's Electric Cooperative

Northfork Electric Cooperative

Northeast Oklahoma Electric Co-op

Rural Electric Cooperative, Inc.

Kiwash Electric Co-op, Inc.

Harmon Electric Assn., Inc.

Southeastern Electric Co-op, Inc.

Indian Electric Co-op, Inc.

Choctaw Electric Co-op, Inc.

Northwestern Electric Co-op, Inc.

Kiamichi Electric Co-op, Inc.

Tri-County Electric Co-op, Inc.

Cookson Hills Electric Co-op, Inc.

Consumers Power, Inc.

Umatilla Electric Co-op

Douglas Electric Co-op, Inc.

Coos-Curry Electric Co-op, Inc.

Tillamook P.U.D.

Wasco Electric Co-op, Inc.

Columbia Basin Electric Co-op

West Oregon Electric Co-op, Inc.

Columbia Power Co-op Association

Harney Electric Co-op, Inc.

Oregon Trail Elec. Consumers Co-op

Hood River Electric Cooperative

Northern Wasco County P.U.D.

Northwestern RECA, Inc.

REA Energy Cooperative, Inc.

Sullivan County REC, Inc.

Tri-County REC, Inc.

Claverack Rural Electric Co-op

Central Electric Co-op, Inc.

Valley REC, Inc.

Somerset REC, Inc.

Bedford REC, Inc.

Adams Electric Co-op, Inc.

United Electric Cooperative, Inc.

New Enterprise REC

Aiken Electric Co-op, Inc.

Lynches River Electric Co-op, Inc.

Edisto Electric Co-op, Inc.

Pee Dee Electric Co-op, Inc.

Marlboro Electric Co-op, Inc.

Santee Electric Co-op, Inc.

Black River Electric Co-op, Inc.

Coastal Electric Co-op, Inc.

Horry Electric Co-op, Inc.

Tri-County Electric Co-op, Inc.

Newberry Electric Co-op

Little River Electric Co-op, Inc.

Mid-Carolina Electric Co-op, Inc.

Palmetto Electric Co-op, Inc.

Clay-Union Electric Corp.

Union County Electric Co-op, Inc.

Butte Electric Co-op, Inc.

Whetstone Valley Electric Co-op

H-D Electric Co-op, Inc.

Codington-Clark Electric Co-op

Lake Region Electric Assn., Inc.

Northern Electric Co-op, Inc.

Rosebud Electric Co-op, Inc.

Bon Homme Yankton Electric Assn.

McCook Electric Co-op, Inc.

Kingsbury Electric Co-op, Inc.

Cam-Wal Electric Co-op, Inc.

Charles Mix Electric Assn., Inc.

Lacreek Electric Assn., Inc.

F.E.M. Electric Assn., Inc.

Oahe Electric Co-op, Inc.

Moreau Grand Electric Co-op, Inc.

Douglas Electric Co-op, Inc.

Grand Electric Co-op, Inc.

Cherry-Todd Electric Co-op, Inc.

West Central Electric Co-op, Inc.

Dakota Energy Cooperative, Inc.

Central Electric Cooperative

Tri-County EMC

Fort Loudoun Electric Co-op

Pickwick Electric Co-op

Tennessee Valley Electric Co-op

Sequachee Valley Electric Co-op

Plateau Electric Co-op

Holston Electric Co-op, Inc.

Appalachian Electric Co-op

LaFollette Utilities

Caney Fork Electric Co-op, Inc.

Forked Deer Electric Co-op, Inc.

Chickasaw Electric Co-op

Mountain Electric Co-op

Fayetteville Electric System

Powell Valley Electric Co-op

HILCO Electric Cooperative

Bowie-Cass Electric Co-op, Inc.

Deaf Smith Electric Co-op, Inc.

Lighthouse Electric Co-op, Inc.

Fayette Electric Co-op, Inc.

Lamb County Electric Co-op, Inc.

Lyntegar Electric Co-op, Inc.

Bailey County Electric Co-op, Inc.

Navarro County Electric Co-op, Inc.

Hamilton County Elec. Co-op Assn.

Lamar County Electric Co-op Assn.

Wharton County Electric Co-op, Inc.

Greenbelt Electric Co-op, Inc.

Wise Electric Co-op, Inc.

Karnes Electric Co-op, Inc.

Houston County Electric Co-op, Inc.

San Patricio Electric Co-op, Inc.

Bandera Electric Co-op, Inc.

Fort Belknap Electric Co-op, Inc.

Jackson Electric Co-op, Inc.

Swisher Electric Co-op, Inc.

San Bernard Electric Co-op, Inc.

North Plains Electric Co-op, Inc.

Rita Blanca Electric Co-op, Inc.

Central Texas Electric Co-op, Inc.

United Electric Co-op Services, Inc.

Garkane Energy Cooperative, Inc.

Moon Lake Electric Assn., Inc.

Flowell Electric Association, Inc.

Shenandoah Valley Elec. Co-op, Inc.

Northern Neck Electric Co-op, Inc.

BARC Electric Cooperative

Mecklenburg Electric Co-op

Prince George Electric Co-op

A & N Electric Cooperative

Vermont Electric Co-op, Inc.

Washington Electric Co-op, Inc.

Hardwick Electric Department

Tanner Electric

PUD No. 1 of Klickitat County

Columbia REA, Inc.

Okanogan County Elec. Co-op

Big Bend Electric Co-op, Inc.

Nespelem Valley Elec. Co-op

PUD No. 1 of Ferry County

PUD No. 1 of Mason County

OHOP Mutual Light Company

PUD No. 1 of Asotin County

Elmhurst Mutual Power & Light Co.

Parkland Light & Water Company

Peninsula Light Company

Oconto Electric Co-op

Head of the Lakes Electric Co-op

Taylor Electric Cooperative

Oakdale Electric Co-op

Clark Electric Co-op

Pierce-Pepin Cooperative Services

Richland Electric Co-op

Riverland Energy Cooperative

Vernon Electric Co-op

Scenic Rivers Energy Co-op

Jackson Electric Co-op

St. Croix Electric Co-op

Polk-Burnett Electric Co-op

Adams-Columbia Electric Co-op

Jump River Electric Co-op

Price Electric Co-op, Inc.

Washington Island Elec. Co-op, Inc.

Bayfield Electric Co-op, Inc.

Central Wisconsin Electric Co-op

Harrison REA, Inc.

Big Horn REC

Wyrulec Company

Bridger Valley Electric Assn., Inc.

Wheatland REA

Garland Light & Power Co.

Carbon Power & Light, Inc.

Niobrara Electric Assn., Inc.

Powder River Energy Corp.

High Plains Power, Inc.

Black Warrior EMC

Farmers Electric Co-op-Kalona

Salem Electric

SCHEDULE II

TO

PLEDGE AGREEMENT

Addresses for Notices

1.   The addresses referred to in Section 6.01 hereof, for purposes of delivering communications and notices, are as follows:

If to Farmer Mac:

Federal Agricultural Mortgage Corporation

    1133 21st Street, N.W., Suite 600

    Washington, DC 20036

    Fax:  202-872-7713

    Attention of: Nancy E. Corsiglia, Chief Financial Officer

With a copy to:

Federal Agricultural Mortgage Corporation

    1133 21st Street, N.W., Suite 600

    Washington, DC 20036

    Fax:  202-872-7713

    Attention of: Jerome G. Oslick, Vice President - General Counsel

If to National Rural:

National Rural Utilities Cooperative Finance Corporation

2201 Cooperative Way

Herndon, VA 20171-3025

Telephone:  703-709-6718

Fax:  703-709-6779

Attention of: Steven L. Lilly, Senior Vice President &

Chief Financial Officer

With a copy to:

National Rural Utilities Cooperative Finance Corporation

2201 Cooperative Way

Herndon, VA 20171-3025

Telephone:  703-709-6712

Fax:  703-709-6811

Attention of: John J. List, Esq., Senior Vice President &

   General Counsel

If to the Collateral Agent:

U.S. Bank Trust National Association

100 Wall Street

Suite 1600

New York, NY 10005-3701

Telephone:  (212) 361-2893

Fax:  (212) 509-3384

Attention of: Beverly A. Freeney

ANNEX A

TO

PLEDGE AGREEMENT

NATIONAL RURAL UTILITIES

COOPERATIVE FINANCE CORPORATION

PLEDGE AGREEMENT DATED AS OF ________________, 2008

CERTIFICATE OF PLEDGED COLLATERAL FILED WITH

U.S. BANK TRUST NATIONAL ASSOCIATION, Collateral Agent

________________, Chief Executive Officer (or Chief Financial Officer) and ____________________, Vice-President, respectively, of National Rural Utilities Cooperative Finance Corporation, hereby certify to Federal Agricultural Mortgage Corporation and the Collateral Agent under the above-mentioned Pledge Agreement as amended to the date hereof (herein called the “Pledge Agreement”) as follows:

1.	The Allowable Amount of Pledged Collateral certified hereby, all as shown on Schedule A hereto, is	$
2.	The aggregate principal amount of the Note(s) outstanding at the date hereof is	$
3.	The aggregate amount, if any, of the Note(s) to be issued on the basis of this Certificate is	$
4.	The sum of the amounts in items 2 and 3 is	$
5.	The aggregate amount by which the Allowable Amount of Pledged Collateral exceeds the aggregate principal amount of the Note(s) outstanding (item 1 minus item 4) is	$
6.	So far as is known to the undersigned, no Event of Default exists.

All terms which are defined in the Pledge Agreement are used herein as so defined.

Dated:  _____________________

OF NATIONAL RURAL UTILITIES

COOPERATIVE FINANCE CORPORATION

ANNEX A

TO

PLEDGE AGREEMENT

AVAILABLE SECURITIES

SCHEDULE A TO OFFICERS’ CERTIFICATE

DATED

Eligible Securities	Name of Issuer	Allowable Amount (Item 1)
Pledged Securities (Here List Securities)

EX-4.24

Exhibit 4.24

FEDERAL AGRICULTURAL

MORTGAGE CORPORATION

NATIONAL RURAL UTILITIES

COOPERATIVE FINANCE CORPORATION

_______________________________

REGISTRATION RIGHTS AGREEMENT

_______________________________

Dated as of March 27, 2008

REGISTRATION RIGHTS AGREEMENT, dated as of March 27, 2008, between FEDERAL AGRICULTURAL MORTGAGE CORPORATION, a federally-chartered instrumentality of the United States and an institution of the Farm Credit System (“Farmer Mac”); and NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a cooperative association existing under the laws of the District of Columbia (“National Rural”).

RECITALS

WHEREAS, National Rural wishes from time to time to issue and sell Notes to Farmer Mac, and Farmer Mac wishes from time to time to purchase such Notes from National Rural, all on the terms and subject to the conditions set forth in the Note Purchase Agreement dated as of March 27, 2008, between Farmer Mac and National Rural (the “Note Purchase Agreement”); and

WHEREAS, Farmer Mac wishes to have the right to resell some or all of the Notes from time to time, including in a public offering registered under the Securities Act of 1933 (the “Act”);

NOW, THEREFORE, Farmer Mac and National Rural agree as follows:

ARTICLE I

Definitions

SECTION 1.01.Definitions.  Capitalized terms used herein and not defined herein shall have the meanings given to those terms in the Note Purchase Agreement.

ARTICLE II

Registration and Sale

SECTION 2.01.Registration Request.  Under the conditions described herein, Farmer Mac may request National Rural (a “Registration Request”) to effect the registration under the Act of the issuance of the Exchange Notes (as defined below) to Farmer Mac in exchange for a specified amount (but not less than $100 million principal amount) of its Notes (the “Sale Notes”), and the sale by Farmer Mac of the Exchange Notes.

SECTION 2.02.Purchase Option.  Upon receipt of a Registration Request, National Rural may, in lieu of the requested registration, elect, by written notice delivered to Farmer Mac no later than 30 days after receipt of such request, to purchase all, but not less than all, the Sale Notes subject to such request (National Rural’s “Purchase Option”).  Upon such election, National Rural shall become obligated to purchase, and Farmer Mac shall be obligated to sell to National Rural, such Sale Notes on

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a mutually agreed date no later than 15 days after written notice of such election, at a purchase price equal to the outstanding principal amount of such Sale Notes including accrued and unpaid interest thereon through the date of purchase, payable in the same manner as payments of interest on the Notes are made by National Rural to Farmer Mac.

SECTION 2.03.Registration.  (a)  Upon receipt of a Registration Request, and so long as National Rural has not exercised its Purchase Option and purchased the Sale Notes covered thereby, National Rural shall be obligated to file a registration statement under the Act for the registration (a “Registration”) of a principal amount of Exchange Notes (as defined below) equal to the principal amount of the Sale Notes and for the qualification of an Indenture (as defined below) under the Trust Indenture Act of 1939 (the “Trust Indenture Act”), registering the exchange by National Rural with Farmer Mac of the Exchange Notes for the Sale Notes and the sale of the Exchange Notes by Farmer Mac.  National Rural shall use its reasonable best efforts to cause such registration statement to become effective within 180 days of receipt of the Registration Request.

(b)  As used herein, “Exchange Notes” shall mean notes issued by National Rural under an Indenture, having terms identical to the Sale Notes except that they will be payable to the registered holder, available in denominations of $1,000 and integral multiples thereof and otherwise contain any terms required in order for the Indenture to be qualified under the Trust Indenture Act; and “Indenture” shall mean the Indenture pursuant to which the Exchange Notes are to be issued, with a qualified trustee selected by National Rural and reasonably acceptable to Farmer Mac, which provides for the Exchange Notes to have terms identical to the Sale Notes, but without the transfer restrictions and except for provisions required by the Trust Indenture Act.

(c)  Periods of Effectiveness.  National Rural agrees to keep any Registration Statement effective, and to update as necessary (including by incorporation by reference) any prospectus included in any Registration Statement, until the later of the completion of the distribution of the Exchange Notes and 45 days after the Registration Statement has become effective.  The 45-day period provided in the preceding sentence, and the 180-day period provided in the first sentence of Section 2.03(a), shall be suspended during any Blackout Period as defined in Section 2.06 hereof.

SECTION 2.04.Expenses.  (a)  Farmer Mac shall be responsible for the following expenses in connection with any Registration:  the SEC filing fee for the Registration Statement; the fees and expenses of its counsel, if any; the underwriting commissions and discounts of its underwriters for the sale of the Exchange Notes, if any; the fees and expenses of the trustee under the Indenture, and its counsel; and the printing costs of the prospectus, if any.

(b)  National Rural shall be responsible for the following expenses in connection with any Registration:  the fees and expenses of its auditors; and the fees and expenses of its counsel.

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SECTION 2.05.Conditions.  The right of Farmer Mac to make a Registration Request shall be subject to the following conditions:

(a)           Each Registration Request shall relate to a principal amount of Sale Notes equal to $100 million, or an integral multiple of $10 million in excess thereof.

(b)           Farmer Mac can issue no more than one Registration Request in any calendar year.

(c)           Farmer Mac may not issue a Registration Request (i) in respect of any Sale Notes that have a maturity of less than five years, prior to the first anniversary of the issuance thereof, and (ii) in respect of any Sale Notes that have a maturity of five years or greater, prior to the second anniversary of the issuance thereof.

(c)           Farmer Mac shall provide all information (such as the plan of distribution) reasonably required by National Rural to be included in the registration statement that relates to its sale of the Exchange Notes.

(d)           If the sale of the Exchange Notes by Farmer Mac is proposed to be by underwriters, then the firm or firms acting as underwriters for the offering will be subject to approval by National Rural.

(e)           National Rural is not required to be registered under the Investment Company Act of 1940, as amended as a result of the issuance of the Registration Request or the sale by Farmer Mac of Exchange Notes pursuant to a Registration Statement.

SECTION 2.06.Blackout Periods.  National Rural shall have no obligation to cause a Registration Statement to become or to remain effective, and Farmer Mac agrees that it will not sell any Exchange Notes, during any period or periods during which National Rural has reasonably determined that it is not appropriate for its securities to be sold pursuant to a Registration Statement, provided that National Rural shall not during any such period be selling for its own account any debt securities registered under the Act (each such period, a “Blackout Period”).

ARTICLE III

Miscellaneous

SECTION 3.01.GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE UNITED STATES OF AMERICA, TO THE EXTENT APPLICABLE, AND OTHERWISE THE LAWS OF THE DISTRICT OF COLUMBIA.

SECTION 3.02.WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE

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LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 3.02.

SECTION 3.03.Notices.  All notices and other communications hereunder to be made to any party shall be in writing and shall be addressed as specified in Schedule I attached hereto as appropriate.  The address, telephone number, or facsimile number for any party may be changed at any time and from time to time upon written notice given by such changing party to the other parties hereto.  A properly addressed notice or other communication shall be deemed to have been delivered at the time it is sent by facsimile (fax) transmission to the party or parties to which it is given.

SECTION 3.04.Benefit of Agreement.  This Agreement shall become effective when it shall have been executed by Farmer Mac and National Rural, and thereafter shall be binding upon and inure to the respective benefit of the parties and their permitted successors and assigns.

SECTION 3.05.Amendments and Waivers.  (a)  No provision of this Agreement may be amended or modified except pursuant to an agreement in writing entered into by Farmer Mac and National Rural.  No provision of this Agreement may be waived except in writing by the party or parties receiving the benefit of and under such provision.

(b)  No failure or delay of Farmer Mac or National Rural in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power.  No waiver of any provision of this Agreement or consent to any departure by National Rural or Farmer Mac therefrom shall in any event be effective unless the same shall be authorized as provided in paragraph (a) of this Section 3.05, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.  No notice or demand on National Rural or Farmer Mac in any case shall entitle such party to any other or further notice or demand in similar or other circumstances.

SECTION 3.06.Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument.

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SECTION 3.07.Severability.  If any term or provision of this Agreement or any Note Document or the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or such provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable any remaining terms or provisions of such Note Document or the application of such term or provision to circumstances other than those as to which it is held invalid or unenforceable.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be duly executed, all as of the day and year first above written.

	FEDERAL AGRICULTURAL MORTGAGE CORPORATION,
by	/s/ NANCY E. CORSIGLIA
	Name: Nancy E. Corsiglia
	Title: Executive Vice President & CFO

	NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION,
by	/s/ STEVEN L. LILLY
	Name: Steven L. Lilly
	Title: Sr. Vice President & CFO

SCHEDULE I

Addresses for Notices

The addresses referred to in Section 3.03 hereof, for purposes of delivering communications and notices, are as follows:

If to Farmer Mac:

Federal Agricultural Mortgage Corporation

    1133 21st Street, N.W., Suite 600

    Washington, DC 20036

    Fax:  202-872-7713

    Attention of:  Nancy E. Corsiglia, Chief Financial Officer

With a copy to:

Federal Agricultural Mortgage Corporation

    1133 21st Street, N.W., Suite 600

    Washington, DC 20036

    Fax:  202-872-7713

    Attention of:  Jerome G. Oslick, Vice President - General Counsel

If to National Rural:

National Rural Utilities Cooperative Finance Corporation

2201 Cooperative Way

Herndon, VA 20171-3025

Telephone:  703-709-6718

Fax:  703-709-6779

Attention of: Steven L. Lilly, Senior Vice President &

Chief Financial Officer

With a copy to:

National Rural Utilities Cooperative Finance Corporation

2201 Cooperative Way

Herndon, VA 20171-3025

Telephone:  703-709-6712

Fax:  703-709-6811

Attention of: John J. List, Esq., Senior Vice President &

   General Counsel

EX-4.25

Exhibit 4.25

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

Variable Rate Senior Note due 2013

Washington, D.C.

March 27, 2008

FOR VALUE RECEIVED, the undersigned, NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION (“National Rural”), a District of Columbia cooperative association, hereby promises to pay to FEDERAL AGRICULTURAL MORTGAGE CORPORATION (“Farmer Mac”), or registered assigns, the principal sum of FOUR HUNDRED MILLION DOLLARS ($400,000,000.00) on April 1, 2013, together with interest computed from the date hereof according to the terms of the Note Purchase Agreement (as defined below).

Payments of principal and interest on this Note are to be made in lawful money of the United States of America at such place as shall have been designated by written notice to National Rural from the registered holder of this Note as provided in the Note Purchase Agreement referred to below.

This Note is issued pursuant to a Note Purchase Agreement dated as of March 27, 2008 (as from time to time amended, the “Note Purchase Agreement”) between National Rural and Farmer Mac and is entitled to the benefits thereof.  This Note is also entitled to the benefits of the Pledge Agreement dated as of March 27, 2008, among National Rural, Farmer Mac and the Collateral Agent named therein.

Capitalized terms used herein and not defined herein shall have the meanings given to those terms in the Note Purchase Agreement.

This Note is a registered Note and, upon surrender of this Note for registration of transfer or exchange, accompanied by a written instrument of transfer duly executed by the registered holder hereof or such holder’s attorney duly authorized in writing, a new Note will be issued to, and registered in the name of, the transferee.  Prior to due presentment for registration of transfer, National Rural may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and National Rural will not be affected by any notice to the contrary.

This Note may be prepaid at any time, in whole or in part, at the option of National Rural, according to the terms of the Note Purchase Agreement and provided that, if such optional prepayment is made on a date other than an Interest Payment Date, accrued interest on the principal amount hereof that is being prepaid shall be payable through and including the last day of the Interest Period in which such optional prepayment is made.

If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared due and payable in the manner, at the price and with the effect provided in the Note Purchase Agreement.

This Note shall be construed and enforced in accordance with, and the rights of National Rural and the holder hereof shall be governed by, the laws of the District of Columbia, excluding choice-of-law principles of the law of the District of Columbia that would require the application of the laws of another jurisdiction.

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION,
By
	/s/ STEVEN L. LILLY
	Name:  Steven L. Lilly
	Title:  Sr. Vice President & Chief Financial Officer

EX-31.1

Exhibit 31.1

National Rural Utilities Cooperative Finance Corporation

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Sheldon C. Petersen, certify that:

1.      I have reviewed this report on Form 10-Qof National Rural Utilities Cooperative Finance Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.

Date:                    April 14, 2008

/s/ SHELDON C. PETERSEN

Sheldon C. Petersen

Chief Executive Officer

A signed original of this written statement required by Section 302 has been provided to National Rural Utilities Cooperative Finance Corporation and will be retained by National Rural Utilities Cooperative Finance Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EX-31.2

Exhibit 31.2

National Rural Utilities Cooperative Finance Corporation

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Steven L. Lilly, certify that:

1.      I have reviewed this report on Form 10-Qof National Rural Utilities Cooperative Finance Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.

Date:                   April 14, 2008

/s/ STEVEN L. LILLY

Steven L. Lilly

Chief Financial Officer

A signed original of this written statement required by Section 302 has been provided to National Rural Utilities Cooperative Finance Corporation and will be retained by National Rural Utilities Cooperative Finance Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.1

Exhibit 32.1

National Rural Utilities Cooperative Finance Corporation

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(18 U.S.C. Section 1350)

     Pursuant to the requirements of Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Sections 1350(a) and (b)), I, the Chief Executive Officer of National Rural Utilities Cooperative Finance Corporation ("National Rural"), hereby certify to the best of my knowledge as follows:

1. National Rural's February 29, 2008 Form 10-Q filed with the Securities and Exchange Commission (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of National Rural.

April 14, 2008

By:  /s/  SHELDON C. PETERSEN

Sheldon C. Petersen

Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to National Rural Utilities Cooperative Finance Corporation and will be retained by National Rural Utilities Cooperative Finance Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

National Rural Utilities Cooperative Finance Corporation

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(18 U.S.C. Section 1350)

     Pursuant to the requirements of Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Sections 1350(a) and (b)), I, the Chief Financial Officer of National Rural Utilities Cooperative Finance Corporation ("National Rural"), hereby certify to the best of my knowledge as follows:

1. National Rural's February 29, 2008 Form 10-Q filed with the Securities and Exchange Commission (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of National Rural.

April 14, 2008

By:  /s/ STEVEN L. LILLY

Steven L. Lilly

Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to National Rural Utilities Cooperative Finance Corporation and will be retained by National Rural Utilities Cooperative Finance Corporation and furnished to the Securities and Exchange Commission or its staff upon request.