NEW YORK (Standard & Poor's) Aug. 4, 2004--Standard & Poor's Ratings 
Services said today that National Rural Utilities Cooperative Finance 
Corp.'s (CFC; A/Stable/A-1) announcement that its affiliate, Rural 
Telephone Finance Cooperative (RTFC), has commenced litigation against 
Innovative Communication Corp. is unfavorable for credit quality, but does 
not affect the rating or outlook on CFC. As amended, the lawsuit alleges 
that Innovative Communication, based in the U.S. Virgin Islands, has 
breached its loan and security agreement in various respects. RTFC's 
amended complaint seeks the acceleration of the outstanding $552 million 
at June 30, 2004. Standard & Poor's has always considered Innovative 
Communication to be a high-risk credit among CFC's top-10 borrowers. Loans 
and guarantees to Innovative Communication represent 2.5% of CFC's $22 
billion loan and guarantee portfolio. RTFC has stated that its exposure to 
Innovative Communication is fully secured. As of end of its third fiscal 
quarter on Feb. 29, 2004, CFC had a $523 million loan loss reserve for its 
loan portfolio.