National Rural Utilities Cooperative Finance Corporation

“National rural utilities cooperative finance corporation is a non-stock, membership organization. As of may 31, 2015, there were 1,026 members and associates. Membership included: class a. There were 839 class a members - cooperative or nonprofit corporations, public corporations, utility districts, and other public bodies, which have received or are eligible to receive a loan or commitment for a loan from the rural utilities service or any successor agency, and which are engaged or planning to engage in the furnishing of utility services to their members and patrons for their use as ultimate consumers. Class b. There were 72 class b members - cooperative or nonprofit corporations which are federations of class a members or of other class b members, or both, or which are owned and controlled by class a members or by other class b members, or both, and which are engaged or planning to engage in the furnishing of utility services primarily to class a members or other class b members. Class c. There were 66 class c members - statewide and regional associations which are wholly-owned or controlled by class a members or class b members, or both, or which are wholly-owned subsidiaries of a cfc member, and which do not furnish utility services but which supply other forms of service to their members. Class d there was 1 class d member. Class d members are national associations of cooperatives comprised of class a, class b and class c members. In order to be eligible for membership to cfc, a national association must have, at the time of admission to cfc, member cooperatives domiciled in at least 80% of the states of the united states. In addition to members, associates (numbering 48) are not-for-profit entities organized on a cooperative basis which are owned, controlled or operated by class a, b or c members and which provide non-electric services primarily for the benefit of consumers. Associates are not entitled to vote at any meeting of the members and are not eligible to be represented on our board of directors.”

“Cfc's members are divided into eleven districts. Each district appoints two directors. For districts 1 through 10, the two directors must include one director, who is a trustee or director of a member organized within the district, and one, who is a manager of a member organization within the district; provided that, except for district 11 and in the case where only one state is located in a district, no two directors can represent members with their headquarters in the same state. Each director serves for a term of three years. Upon expiration of the term of a director, members from that district elect a director meeting the qualifications outlined above to represent them on cfc's board. A director,other than the directors from district 11, may not be elected to serve more than two consecutive three year terms on the cfc board. If the board of directors in its discretion so determines, then there may be one additional director elected by the members to serve on the board of directors from time to time who meets the qualifications as may be required by the securities and exchange commission, governmental agency or authority, or national stock exchange to serve as an audit committee financial expert.”

“Pursuant to the business organizations code of the district of columbia, cfc members must approve the sale or disposition of more than 75% of the company's assets, mergers for which the company will not be the surviving entity, and the dissolution of the company.”

“The board of directors of cfc reviewed the 2014 form 990 for fiscal year ended may 31, 2015 at a regularly scheduled board meeting prior to filing the form 990 with the internal revenue service. A draft of the form 990 was prepared by cfc staff, reviewed by internal counsel and senior management, reviewed by external tax advisors, kpmg llp, and presented to the board for review. A detailed presentation about the form 990 was made by cfc staff to the board at a regularly scheduled board meeting.”

“Conflicts of interests are addressed by cfc through its related person transactions and related credits policy (the "policy"). Cfc established the policy in may 2007, as amended from time to time, to facilitate disclosure with respect to transactions in which its executive officers, directors and key employees and their immediate family members ("related person") have a substantial interest. A related persons transaction is defined as any transaction in which (i) cfc was, is, or proposes to be a participant, (ii) the amount involved exceeds $120,000 and (iii) a related person has or will have a direct or indirect material interest in the transaction in question. The policy applies to all executive officers, directors and key employees of cfc ("covered employees") and requires similar disclosure to that required by item 404 of regulation s-k of the securities act of 1933, as amended. On a quarterly basis, each covered employee is required to review the policy and complete a related person disclosure if he or she or an immediate family member is involved in a transaction with cfc. Outside of regularly scheduled board meetings, covered employees are required to complete related person disclosure notices whenever they become aware of a potential conflict of interest. The related person disclosure notice requires a description of the parties involved in the transaction, the approximate dollar amount of the transaction, and any other material facts and circumstances, as well as an update with respect to the timing and status of the transaction. Upon receipt of a related person disclosure notice, cfc's general counsel is responsible for the review, approval and ratification of any related person transaction if it meets the criteria below. Those related person transactions involving a substantial interest of cfc's general counsel are required to be referred to the board for review, approval and ratification. In reviewing a related person transaction, the general counsel, and when applicable, the board, must reasonably determine, based on a review of the available information, that the transaction is fair and reasonable to cfc and consistent with the best interests of cfc. In the event the general counsel becomes aware of a related person transaction that has not been approved under the policy prior to consummation, the general counsel shall notify the board of directors and take such other actions as may be necessary to suspend the consummation of the transaction pending board of directors' review. Related person transactions do not include compensation or expense reimbursement arrangements with directors, officers or key employees (notwithstanding that officer compensation may be disclosed in "item 13. Related-person transaction" in our annual report on form 10-k, elsewhere in the cfc's periodic reports filed with the sec or otherwise disclosed publicly as a related person transaction); transactions where the related person's interest arises only from the person's position as a director of another entity that is a party to the transaction, and transactions deemed to be related credits. A related credit is defined as the extension of credit to or for the benefit of covered employees or related entities that are made on substantially the same terms and follow the underwriting procedures that are no less stringent than those prevailing at the time for comparable transactions generally offered by cfc. The policy prohibits cfc from extending credit in the form of a personal loan to a covered employee. Related entities include cfc's member cooperatives as well as any entity for which a related person (i) serves as an officer, director, trustee, alternative director or trustee or employee (including part time employee), (ii) controls the entity, or (iii) has a substantial beneficial interest in the entity. The board has delegated to the ceo, with authority to redelegate to such officer of cfc as the ceo deems appropriate, the authority to a”

“Cfc's compensation committee (the "committee"), which is comprised of cfc executive committee board members, determines and approves the compensation of cfc's ceo. The committee annually reviews and approves appropriate corporate goals and objectives related to the ceo's compensation and evaluates performance in light of those goals and objectives. The ceo's compensation is comprised of base pay, short and long term incentive compensation and perquisites. In fiscal year 2015,an independent consultant was engaged by the committee to conduct a compensation survey and provide compensation data for the ceo position using peer organizations identified by the independent consultant through discussions with the committee. The independent consultant included companies in the compensation comparison group that were similar to cfc in asset size, industry and business description. The group included financial institutions that are private market, commercial and/or mission-driven lenders, offering full service financing, investment and related services. The companies targeted as peer companies included two members of the farm credit system and 12 regional banks or financial services companies. These companies were chosen because their businesses are similar to cfc's. Although cfc is not focused on profits like the institutions in the peer group, the committee believes that these companies employ executives that have skills and expertise consistent with what cfc would seek if it had to replace the ceo. The targeted companies had assets ranging from approximately 50 percent to 200 percent of cfc's february 2014 total assets of $23.1 billion, and included six companies with greater total assets than cfc's. The comparator group consisted of the following financial services organizations: new york community bancorp, inc., astoria financial corp., nelnet, inc., webster financial corp., flagstar bancorp, people's united financial corp., washington federal inc., hudson city bancorp inc., first niagara financial group, tfs financial corporation, everbank financial corporation and federal agricultural mortgage corporation, as well as two farm credit system peers. Hudson city bancorp inc. Has agreed to a merger with m&t bank corp. The independent consultant recommended that this company remain in the peer group for this year and will reevaluate the peer group for next year's analysis. The independent consultant led the committee through an assessment of ceo compensation data at the comparison group companies using both a one-year and a three-year compensation analysis. The independent consultant's data included both actual compensation and target compensation based on information obtained from each comparator group company's most recent annual report or proxy statement. The elements of compensation reviewed include current base salary as well as any additional bonus,incentives or special awards. The committee reviewed total compensation data for the comparator group for informational purposes and used this data solely to determine the competitiveness of our ceo base pay. Cfc's short-term cash incentive program is a one-year cash incentive that is tied to the annual performance of the organization as a whole. Corporate performance is measured using a balanced scorecard approved by the board of directors prior to the start of the fiscal year. The balanced scorecard is a performance management tool that articulates the corporate strategy into specific, quantifiable, measurable goals. The scorecard is divided into four quadrants, reflecting crucial areas of business performance. Specific goals are established within those quadrants to focus all employees on the target results and measures that must be achieved if cfc is to succeed at realizing its strategic plan. The intent is to align organizational, departmental and individual initiatives to achieve a common set of goals. Every employee participates in the short-term incentive program, and the corpora”

“Cfc's articles of incorporation and bylaws, as amended, and annual and periodic financial statements are available to the public through the securities and exchange commission's "sec's" website. Cfc's articles of incorporation and bylaws, as amended, are also available on cfc's website at www.nrucfc.coop. Cfc's conflict of interest policy, titled the related persons transactions and related credits policy, is available on cfc's website at www.nrucfc.coop. Cfc's articles of incorporation are filed as exhibit 3.1 to annual report on form 10-k for the fiscal year ended may 31, 2014 (filed august 28, 2014). Cfc's bylaws are filed as exhibit 3.2 to the form 10-q for the quarter ended february 28, 2011, filed on april 13, 2011. Cfc's annual and periodic financial statements are periodically filed with the sec on form 10-k and form 10-q.”

“As a lender, cfc, from time to time, may have to foreclose on the assets of a borrower. As part of such actions, the company may receive interests in joint ventures with taxable entities. Cfc takes such interests only in order to maximize its recovery on the loan receivable. Cfc does not enter into joint ventures with taxable entities as part of its core lending business. To date, the company's investment in these joint ventures has been nominal. Cfc has developed a written policy that requires the company to evaluate its participation in joint venture arrangements and take steps to safeguard the company's 501(c)(4) tax exempt status.”

“Patronage capital distribution -39,779,129. Other comprehensive income -3,862,796. Derivative forward value -114,664,756. Integrity fund 2,080,723. Net membership fees 3,000. Dissolution of subsidary 92,137. Rounding -11.”

“While there is no separate audit performed of the cfc financial statements, the cfc financial statements are consolidated with the statements of national cooperative services corporation and rural telephone finance cooperative. The consolidated financial statements are audited. Cfc's audit committee is solely responsible for the nomination, approval, compensation, evaluation and discharge of the independent registered public accountants. The independent registered public accountants report directly to the audit committee and the audit committee is responsible for the resolution of disagreements between management and the independent registered public accountants. Consistent with sec requirements, the audit committee has adopted a policy to pre-approve all audit and permissible non-audit services provided by the independent registered public accountants. The policy provides that pre-approval is not required for tax compliance and tax planning and advice engagements for cfc and its affiliates provided the fees of each such engagement are not more than five percent of total revenues paid to the independent public accountants and do not impair their independence. The committee meets with our independent registered public accounting firm, internal auditors, chief executive officer and financial management executives to review the scope and results of audits and recommendations made by those persons with respect to internal and external accounting controls and specific accounting and financial reporting issues and to assess corporate risk. The board has adopted a written charter for the audit committee which may be found on our website, www.nrucfc.coop. The process has not changed from the prior period.”