<PAGE>
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

(MARK ONE)
|X|      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
                                       OR
|_|      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 33-70732

                                   TELMARK LLC
     (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CERTIFICATE OF FORMATION)

          DELAWARE                                                16-1551523
  (STATE OR OTHER JURISDICTION                                (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION)                            IDENTIFICATION NO.)


                   333 BUTTERNUT DRIVE, DEWITT, NEW YORK 13214
              (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)

         REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 315-449-7935

          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

Title of each class                   Name of each exchange on which registered
-------------------                   -----------------------------------------
      None                                              None

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                                      None

         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.
                                            X
                              ---          ---
                               No          Yes

     INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT  FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST  OF  REGISTRANT'S   KNOWLEDGE,  IN  ANY  DEFINITIVE  PROXY  OR  INFORMATION
STATEMENTS  INCORPORATED  BY  REFERENCE  OF PART  III OF THIS  FORM  10-K OR ANY
AMENDMENT TO THIS FORM 10-K.      X
                                 ---

         STATE THE AGGREGATE  MARKET VALUE OF THE VOTING AND  NON-VOTING  COMMON
EQUITY HELD BY NON-AFFILIATES OF THE REGISTRANT AUGUST 21, 1998.
                                      ZERO

         INDICATE THE NUMBER OF SHARES  OUTSTANDING OF EACH OF THE  REGISTRANT'S
EQUITY SECURITIES, AS OF THE LATEST PRACTICABLE DATE.

       CLASS                                      OUTSTANDING AT AUGUST 21, 1998
----------------------                            ------------------------------
MEMBERSHIP CERTIFICATE                                          ONE

TELMARK  IS A  DIRECT  WHOLLY  OWNED  SUBSIDIARY  OF  AGWAY  HOLDINGS,  INC.,  A
SUBSIDIARY OF AGWAY,  INC.,  WHICH IS A REPORTING  COMPANY UNDER THE  SECURITIES
EXCHANGE ACT OF 1934, AND MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS
I(1)(A) AND (B) OF FORM 10-K AND IS THEREFORE  FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.

     PAGE 1 OF 30. EXHIBIT INDEX APPEARS ON SEQUENTIALLY NUMBERED PAGE 28.
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------



<PAGE>



                         FORM 10-K ANNUAL REPORT - 1998
                    TELMARK LLC AND CONSOLIDATED SUBSIDIARIES

                              CROSS-REFERENCE SHEET





                                     PART I
<TABLE>
<CAPTION>

                                                                            Page
<S>               <C>                                                       <C>
Item 1. & 2.      Business and Properties...................................   3
Item 3.           Legal Proceedings.........................................   4
Item 4.           Not Required


                                     PART II

Item 5.           Market for the Registrant's Common Equity and
                    Related Membership Matters..............................   5
Item 6.           Not Required
Item 7.           Management's Discussion and Analysis of Financial
                    Condition and Results of Operations.....................   5
Item 7A.          Quantitative and Qualitative Disclosures
                    About Market Risk.......................................   7
Item 8.           Financial Statements......................................   8
Item 9.           Changes in and Disagreements with Accountants
                    on Accounting and Financial Disclosure..................  22


                                    PART III

Item 10.          Directors and Executive Officers of the Registrant........  23
Item 11.          Executive Compensation....................................  24
Item 12.          Security Ownership of Certain Beneficial
                    Owners and Management...................................  26
Item 13.          Certain Relationships and Related Transactions............  27


                                     PART IV

Item 14.          Exhibits, Financial Statement Schedules
                    and Reports on Form 8-K.................................  28

                  Signatures................................................  30
</TABLE>

                                        2

<PAGE>
                                     PART I
ITEM 1. & 2.      BUSINESS AND PROPERTIES
Telmark LLC  ("Telmark" or the  "Company") was organized in 1964 as Telmark Inc.
under the Business  Corporation Law of the State of New York.  Effective July 1,
1998,  Telmark Inc. was merged into  Telmark LLC, a Delaware  limited  liability
company  that was formed  solely to carry on the  business of Telmark in limited
liabilty  company,  rather  than  corporate,  form.  Telmark  is a wholly  owned
subsidiary of Agway Holdings, Inc., ("Holdings"). Holdings is an indirect wholly
owned  subsidiary  of  Agway,  Inc.  ("Agway").

Agway  is  subject  to  certain  informational  reporting  requirements  of  the
Securities  Exchange Act of 1934 and in accordance  therewith  files reports and
other information with the Commission.  Reports filed with the Commission can be
inspected at the Public Reference  Section of the Commission at 450 Fifth Street
N.W.,  Washington  D.C.  20549 and at the regional  offices of the Commission at
Suite 1400,  Northwestern  Atrium  Center,  500 West  Madison  Street,  Chicago,
Illinois  60661,  and Seven World Trade Center,  13th Floor,  New York, New York
10048.  Copies  of  such  materials  can be  obtained  from  the  Commission  at
prescribed rates.

The Company's  operations  are comprised  almost  exclusively  of direct finance
leasing of agricultural related equipment,  vehicles and buildings to farmers or
other  rural  businesses  that  serve  the  agricultural   marketplace  (herein,
"customers" or "lessees").  The Company's  leases offer customers an alternative
to directly  purchasing or borrowing to purchase as a means of acquiring the use
of equipment,  vehicles or buildings. Telmark has branded its leasing service as
Agrilease(R)  and  TFS(SM),  and the  Company  highlights  its  service-oriented
approach in its advertisements  and product brochures.  Telmark offers a variety
of lease  financing  packages,  with  varying  payment  schedules  on a monthly,
quarterly,  semiannual  or annual  basis,  depending on the  expected  timing of
customer cash flows and customer  credit quality and the  customer's  individual
preferences.

With a direct finance lease the customers have use of the leased property over a
specified  term for a periodic  rental charge:  i.e.,  the lease payment.  Lease
payments are made in advance of the period and typically  the  equivalent of two
monthly  payments  are required in advance at the outset of the lease to provide
Telmark with some protection in the event of default. Most of the direct finance
leases offered by Telmark are for a period which does not exceed its estimate of
the useful life of the equipment,  vehicle,  or the building  leased.  Equipment
leases are typically  offered for a period of 3 to 6 years, and generally do not
exceed  eight  years.  Building  leases are  typically  offered for longer terms
(e.g.,  5 to 10 years)  than for  equipment  leases,  up to maximum  terms of 15
years.  As of June 30, 1998,  the  Company's  outstanding  leases had an average
original  term  of  approximately  5.5  years  and  average  remaining  term  of
approximately 4 years.

Generally, the lessee selects the supplier of the equipment or other property to
be leased and the Company is not responsible for its  suitability,  performance,
life, or any other  characteristics.  The Company's primary responsibility is to
buy the  property  from the  supplier,  lease it to the lessee,  and collect the
lease  payments,  although in certain  circumstances  it has agreed to indemnify
lessees in the event that certain  unintended  and adverse tax  consequences  to
such  lessee  arise in  connection  with the  relevant  lease.  While  Telmark's
liability,  if any,  under  such  arrangements  cannot  be  predicted  with  any
certainty, it views the likelihood of such liability as remote and believes that
the net effect of such  liability,  if any,  would be  immaterial.  Telmark also
offers financing through specific equipment  manufacturer  programs.  The lessee
assumes  all  obligations  of  insurance,  repairs,  maintenance,  service,  and
property  taxes,  while  Telmark  retains title to the leased  property.  At the
expiration  of the direct  finance  lease term,  the lessee has an option to (i)
purchase the leased  property,  (ii) renew the lease, or (iii) return the leased
property to the Company.  Historically,  in  approximately  95% of the Company's
lease  transactions,  the lessee has purchased the leased  property or equipment
upon termination of the lease.

Bankruptcies,  contract  disputes,  or defaults by lessees  could  result in the
non-payment  of  amounts  due to the  Company  under its  leases.  The  ultimate
collectibility  of amounts due under its leases is directly  dependent  upon the
credit  practices  employed by Telmark and the  creditworthiness  of the lessees
under the individual  leases  comprising its portfolio.  Despite  current credit
practices  and the existence of financial  reserves to anticipate  the potential
impact of default or  nonpayment  of leases,  there are other factors that could
significantly impact the Company's lease collection experience and its earnings.
These factors include: (i) changes in general economic conditions;  (ii) changes
in the level of  government  expenditures  on farm programs and other changes in
government  agricultural  programs that adversely  effect the level of income of
customers  of  the  Company;  (iii)  adverse  weather-related   conditions  that
negatively  impact the agricultural  productivity and income of customers of the
Company; and (iv) oversupply of, or reduced demand for, agricultural commodities
produced by customers of the Company.
                                        3
<PAGE>
ITEM 1. & 2.      BUSINESS AND PROPERTIES (CONT.)

Credit approval limits are made based on the total amount of leases  outstanding
to the  customer.  Lending  authority  is  assigned  to  members  of  management
depending on position,  training,  and  experience.  The Board of Directors must
approve all lease  amounts  exceeding $1 million.  Potential  lessees  undergo a
thorough credit approval process after a Telmark field representative  completes
a financial  application.  Telmark  retains  title to the  equipment or building
leased.  If appropriate,  Telmark obtains a second lien on the real estate owned
by the farmer or lessee as  collateral  for  payments  under a  building  lease.
Telmark  maintains  monthly  delinquency  reports which monitor leases that have
been  delinquent  for over 30 days, as well as  non-earning  leases.  Generally,
accounts  past due at least 120 days,  as well as  accounts  in  foreclosure  or
bankruptcy,  are transferred to non-earning  status.  The potential  losses from
non-earning  leases  are  partly  mitigated  by the  ability  of the  Company to
repossess  leased  property  and to  foreclose  on other  property  in which the
Company has been granted a security interest.

The  Company  realizes  most of its net  earnings  (profits)  to the extent that
revenues  from its leases  exceeds the Company's  operating  expenses and income
taxes. The Company's "revenue" from a lease is the sum of all payments due under
the lease  plus the  residual  value of the  leased  property,  less the cost of
purchasing the leased property.  "Operating  expenses" include interest expense,
provision  for credit  losses (the dollar amount the Company sets aside to cover
its  estimated  losses should a lessee fail to make  required  payments  under a
lease),  and  selling,  general  and  administrative  expenses,   including  the
Company's  payroll  costs,  rent,  advertising  costs and fees  paid for  credit
checking and legal and  accounting  services.  "Interest  expense" is the single
largest  operating cost of the Company and is primarily the interest it must pay
on the amounts borrowed by the Company from banks and other investors to finance
its leases.

The Company  leases all of the office space it uses from Agway.  It does not own
any of the real property it uses for office facilities.

Telmark has two wholly owned subsidiaries, TFS Limited and Telmark Lease Funding
I, LLC. TFS Limited is a Canadian  Corporation  formed to conduct  certain lease
transactions  with  Canadian  customers.   Telmark  Lease  Funding  I,  LLC  was
established  solely  to enable a lease  securitization  financing  entered  into
during 1997.  Telmark  Lease Funding Corp. I was organized in 1997 as a New York
Corporation  which  effective July 1, 1998 was merged into Telmark Lease Funding
I, LLC, a Delaware Limited Liability Company.

ITEM 3.  LEGAL PROCEEDINGS

The Company is not a party to any litigation or legal proceedings pending, or to
the best of its knowledge  threatened,  which, in the opinion of its management,
individually  or in the aggregate,  would have a material  adverse affect on its
results of operations, financial condition, or liquidity.

ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

Not required.

                                        4

<PAGE>



                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
         RELATED MEMBERSHIP MATTERS

Effective  July 1, 1998 Telmark  Inc's.  common stock was cancelled by virtue of
the merger of Telmark Inc. with and into Telmark LLC, with Telmark LLC being the
surviving entity in the merger.  Telmark LLC has one limited  liability  company
membership interest outstanding,  which is indirectly owned by Agway through its
wholly-owned subsidiary Holdings.  There is no public market for such membership
interest and none is expected to develop.  During the years ended June 30, 1998,
and 1997,  Telmark Inc.  declared no dividends with respect to its common stock.
Under a loan covenant, dividends are prohibited to the extent they exceed 75% of
net income  for the period  beginning  on October 1, 1997,  through  the date of
determination,  inclusive.  As of June 30, 1998, $5.2 million of member's equity
was free of this restriction.

ITEM 6.  SELECTED FINANCIAL DATA
Not required.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS

1998 COMPARED TO 1997. Telmark's net income increased by $0.9 million (11%) from
$7.9 million in 1997 to $8.8 million in 1998. The increase is principally due to
a larger outstanding portfolio of leases during 1998 as compared to 1997.

Total revenues of $65.5 million in 1998 increased $8.5 million (15%) as compared
to $56.9  million  in 1997.  The  increase  is  attributable  in part to a $49.9
million (11%)  increase in net leases and notes during 1998 as compared to 1997.
Increases  in the lease  portfolio  resulting  from new booked  volume of $227.3
million  in 1998 and $231.0  million  in 1997  exceeded  lease  reductions  from
collection and net bad debt expense of $177.4 million and $159.8 million in 1998
and  1997,  respectively.  The  increase  in new  booked  volume  in  excess  of
collections and bad debt provisions has the effect of increasing total revenues.
Total  revenue,  as a  percentage  of average  net  leases and notes,  decreased
slightly from 13.7% in 1997 to 13.5% in 1998.

While the average  cost of interest  paid on debt  decreased  from 7.5% to 7.2%,
interest expense of $26.9 million in 1998 represents an increase of $3.4 million
(14%) compared to $23.5 million in 1997, due to increased borrowings required to
finance the growth of the lease portfolio  noted above.  Selling,  general,  and
administrative expenses of $15.6 million in 1998 increased by $3.1 million (25%)
compared to $12.5  million in 1997.  The  increase was  primarily  the result of
additional personnel and incentive costs relating to the additional new business
booked as the Company expands its territory.

The provision for credit losses of $7.6 million in 1998 represents a decrease of
$0.3 million (5%)  compared to $7.9 million in 1997.  This  decrease is based on
the  Company's  analysis  of  reserves  required  to provide  for  uncollectible
receivables.  Telmark's  allowance for credit losses is determined by a periodic
review  of the lease  portfolio,  including  analysis  of  delinquent  accounts,
current economic conditions,  estimated residual values, and creditworthiness of
customers.  Reserves are  established at a level  sufficient to cover  estimated
losses in the  portfolio.  During 1997 and 1998,  the general  economy  remained
strong and the total value of non-earning  accounts increased only slightly from
$2.7 million in 1997 to $3.0 million in 1998.

1997 COMPARED TO 1996. Telmark's net income increased by $1.1 million (17%) from
$6.8 million in 1996 to $7.9 million in 1997. The increase is principally due to
a larger outstanding portfolio of leases during the year.

Increases  in the lease  portfolio  resulting  from new booked  volume of $231.0
million  in 1997 and $177.5  million  in 1996  exceeded  lease  reductions  from
collection and net bad debt expense of $159.8 million and $136.0 million in 1997
and  1996,  respectively.  The  increase  in new  booked  volume  in  excess  of
collections and bad debt provisions has the effect of increasing total revenues.
Total  revenues of $56.9 million in 1997  represents an increase of $8.3 million
(17%) as compared to $48.6 million in 1996. The increase is attributable in part
to a $71.2  million  (19%)  increase  in net  leases  and notes  during  1997 as
compared to 1996.  Interest and finance charges,  as a percentage of average net
leases and notes, increased slightly from 13.5% in 1996 to 13.7% in 1997. During
the same period, the average cost of interest paid on debt remained unchanged at
7.5%.

                                        5

<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS (CONT.)

Selling, general, and administrative expenses of $12.5 million in 1997 increased
by $2.7 million (27%)  compared to $9.8 million in 1996.  Those  increases  were
primarily the result of additional  personnel,  incentives  paid relating to the
additional  new  business  booked,  and  advertising.  While the average cost of
interest paid on debt remained  unchanged,  interest expense of $23.5 million in
1997  represents an increase of $3.2 million (16%)  compared to $20.3 million in
1996,  due to increased  borrowings  required to finance the growth of the lease
portfolio.

The provision  for credit losses of $7.9 million in 1997  represents an increase
of $0.9 million (14%) compared to $7 million in 1996.  This increase is based on
the  Company's  analysis  of  reserves  required  to provide  for  uncollectible
receivables.  During 1996 and 1997, the general economy  remained strong and the
total value of  non-earning  accounts  was reduced  from $2.9 million in 1996 to
$2.7  million  in 1997.  However,  management  believes  that it was  prudent to
increase  the level of reserve to  approximately  $24.0  million  because of the
increase  in the  size of the  overall  lease  portfolio  over the  prior  year.
Accordingly, the provision for credit losses increased.

LIQUIDITY
The ongoing  availability  of  adequate  financing  to maintain  the size of the
Company's current lease portfolio and to permit lease portfolio growth is key to
the  Company's   continuing   profitability  and  stability.   The  Company  has
principally  financed  its  operations,   including  the  growth  of  its  lease
portfolio,  through borrowings under its lines of credit,  private placements of
debt with  institutional  investors  and other term  debt,  lease  backed  asset
securitization,   principal   collections  on  leases  and  cash  provided  from
operations.  Total  assets  have  grown  an  average  rate of 17%  over the past
fourteen years.  This growth has been financed through growth in member's equity
and additional  capital  contribution from Agway, in addition to debt financing.
The ratio of debt to equity  was 4.3 at both  June 30,  1998 and June 30,  1997.
Cash flows from operations were $21.2 million, $15.2 million, and $12.6 million,
for 1998, 1997, and 1996 respectively. Cash flows from financing activities were
36.8  million,  64.5  million,  and  35.7  million  for  1998,  1997,  and  1996
respectively.  The cash generated from these two sources of $58.0 million, $79.7
million,  and $48.3  million for 1998,  1997,  and 1996  respectively,  was used
solely to  invest  in the  lease  portfolio  of the  Company.  Telmark  has been
successful in arranging its past  financing  needs and believes that its current
financing   arrangements   are  adequate  to  meet  its  foreseeable   operating
requirements.  There can be no assurance,  however, that Telmark will be able to
obtain  future  financing  in  amounts  or on  terms  that are  acceptable.  The
Company's  inability to obtain adequate  financing would have a material adverse
effect  on  its  operations.   Management   conducts  ongoing   discussions  and
negotiations with existing and potential lenders for its future financing needs.
See footnote 5 to the Consolidated  Financial Statements  "Borrowing under Lines
of Credit and Term Debt."

OTHER MATTERS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE  HARBOR"PROVISIONS OF THE PRIVATE
SECURITIES  LITIGATION REFORM ACT OF 1995
The Company is including the following cautionary statement in this Form 10-K to
make  applicable  and take  advantage  of the "safe  harbor"  provisions  of the
Private  Securities  Litigation  Reform  Act of  1995  for  any  forward-looking
statement made by, or on behalf of, the Company.  Where any such forward-looking
statement  includes a statement  of the  assumptions  or basis  underlying  such
forward-looking  statement,  the Company  cautions that,  while it believes such
assumptions  or basis to be  reasonable  and makes them in good  faith,  assumed
facts or basis  almost  always vary from  actual  results,  and the  differences
between  assumed  facts or basis and actual  results can be material,  depending
upon the  circumstances.  Certain  factors  that could cause  actual  results to
differ  materially from those  projected have been discussed  herein and include
the factors set forth below.  Other  factors that could cause actual  results to
differ  materially  include  uncertainties  of economic,  competitive and market
decisions  and  future  business  decisions,  all  of  which  are  difficult  or
impossible to predict accurately and many of which are beyond the control of the
Company.  Where,  in  any  forward-looking   statement,   the  Company,  or  its
management,  expresses  an  expectation  or belief as to  future  results,  such
expectation  or  belief  is  expressed  in good  faith  and  believed  to have a
reasonable  basis,  but  there  can  be  no  assurance  that  the  statement  of
expectation  or belief will result or be  achieved  or  accomplished.  The words
"believe,"   "expect"  and   "anticipate"  and  similar   expressions   identify
forward-looking statements.

YEAR 2000
See footnote 8 to the Consolidated Financial Statements.

                                        6
<PAGE>



ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company does not use derivatives and other interest rate  instruments  based
on the fixed rate nature of the majority of the Company's debt obligations.  The
following  table provides  information  about the Company's debt  securities and
loans that are  sensitive  to  changes in  interest  rates.  The table  presents
principal cash flows (in 000's) and related  weighted  average interest rates by
contractual maturity dates.
<TABLE>
<CAPTION>

FIXED INTEREST RATE                                                                           Fair Value
Liabilities                       1999    2000     2001     2002     2003  Thereafter Total    6/30/98
                                  ----    ----     ----     ----     ----  ---------- -----   ----------
<S>                              <C>     <C>      <C>      <C>      <C>      <C>     <C>       <C>
Short Term Bank
     Lines of Credit             $35,000    -        -        -        -        -    $35,000   $ 35,000
Weighted Average
      Interest Rate               6.30%     -        -        -        -        -

Long-Term Debt,
 including current portion       93,569  88,565   64,849   43,862   22,982   22,833  336,660    342,628
Weighted Average
      Interest Rate               7.18%   7.06%    6.96%    6.83%    7.00%    7.01%

Subordinated Debentures,
 including current portion          -    17,794    2,711    3,398   10,103      -    34,006      34,605
Weighted Average
       Interest Rate                -     8.23%    7.87%    7.50%    8.42%      -
</TABLE>

The  Company  endeavors  to limit the  effects of changes in  interest  rates by
matching as closely as possible, on an ongoing basis, the maturity and repricing
characteristics  of funds  borrowed to finance its leasing  activities  with the
maturity and repricing  characteristics of its lease portfolio.  However, a rise
in interest  rates would  increase the cost of that portion of the debt which is
not precisely  matched to the  characteristics  of the portfolio and could lower
the value of the  Company's  outstanding  leases in the  secondary  market.  The
Company has a formal risk management policy which limits the short-term exposure
to an amount which is immaterial to the results of operations or cash flows. The
subordinated debentures' interest rate is at the greater of the quoted rate or a
rate based upon the discount rate for U.S.  Government  Treasury Bills (T-Bill),
with  maturities of 26 weeks.  Based on the T-Bill rate as of June  30,1998,  as
compared to the stated rate of the debentures,  a reasonably  possible near-term
charge in interest rates and the conversion of debt to a variable rate would not
cause material near-term losses in future earnings or cash flows.  Finally,  for
the  portion of debt which is not  precisely  matched as of June 30,  1998,  the
Company does not believe that reasonable  possible near-term changes in interest
rates will result in a material effect on future earnings,  fair values, or cash
flows of the Company.




                                        7

<PAGE>




ITEM 8.  FINANCIAL STATEMENTS

                          INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

                                                                                                              PAGES
<S>                                                                                                           <C>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES:
         Report of Independent Accountants....................................................................    9

         Consolidated Balance Sheets, June 30, 1998 and 1997..................................................   10

         Consolidated Statements of Income and Member's Equity,
                  for the years ended June 30, 1998, 1997 and 1996............................................   11

         Consolidated Statements of Cash Flows for the fiscal years ended June 30, 1998, 1997 and 1996........   12

         Notes to Consolidated Financial Statements...........................................................   13

</TABLE>



                                        8

<PAGE>



                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of Telmark LLC:

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated  statements  of income and member's  equity and cash flows  present
fairly,  in all  material  respects,  the  financial  position of TELMARK LLC (a
wholly-owned  subsidiary of Agway Holdings,  Inc.) and its  subsidiaries at June
30, 1998 and 1997, and the results of their  operations and their cash flows for
each of the three years in the period ended June 30, 1998,  in  conformity  with
generally accepted  accounting  principles.  These financial  statements are the
responsibility of the Company's management;  our responsibility is to express an
opinion on these  financial  statements  based on our audits.  We conducted  our
audits of these  statements  in  accordance  with  generally  accepted  auditing
standards which require that we plan and perform the audit to obtain  reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.






                                                      PricewaterhouseCoopers LLP

Syracuse, New York
August 10, 1998


                                        9

<PAGE>



                    TELMARK LLC AND CONSOLIDATED SUBSIDIARIES

                                 BALANCE SHEETS
                             JUNE 30, 1998 AND 1997
                             (THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>

                                     ASSETS

                                                           1998               1997
                                                        ------------      ----------
<S>                                                     <C>               <C>
Restricted cash........................................ $  1,704          $    1,393
Leases and notes, net..................................  495,626             445,770
Investments............................................   11,850              10,807
Equipment, net.........................................    1,000               1,055
Deferred income taxes..................................    7,030              10,644
Other assets...........................................    1,106                 937
                                                        ------------      ----------

Total Assets........................................... $518,316          $  470,606
                                                        ============      ==========


                         LIABILITIES AND MEMBER'S EQUITY

                                                            1998             1997
                                                        ------------      ----------
Borrowings under lines of credit and term debt......... $  371,677        $  340,158
Subordinated debentures................................     34,006            31,044
Accounts payable.......................................      5,108             4,399
Payable to Agway Inc...................................      4,443               450
Accrued expenses, including interest of
      $4,262 - 1998 and $4,786 - 1997 .................      7,918             8,149
                                                        ------------      ----------


Total Liabilities......................................    423,152           384,200

Commitments & Contingencies

Member's Equity........................................     95,164            86,406
                                                        ------------      ----------


     Total Liabilities and Member's Equity............. $ 518,316         $  470,606
                                                        ============      ==========
</TABLE>



The accompanying notes are an integral part of the consolidated financial
statements.


                                       10

<PAGE>



                    TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
                    STATEMENTS OF INCOME AND MEMBER'S EQUITY
                FISCAL YEARS ENDED JUNE 30, 1998, 1997, AND 1996
                             (THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>


                                             1998                 1997              1996
                                         -------------       -------------       ------------
<S>                                      <C>                 <C>                 <C>
Revenues:
     Interest and finance charges........$   63,872          $   55,451          $  47,242
     Service fees and other income.......     1,604               1,492              1,385
                                         -------------       -------------       ------------

         Total revenues..................    65,476              56,943             48,627
                                         -------------       -------------       ------------


Expenses:
     Interest expense....................    26,871              23,486             20,305
     Provision for credit losses.........     7,587               7,947              7,000
     Selling, general and administrative.    15,606              12,507              9,820
                                         -------------       -------------       ------------


         Total expenses..................    50,064              43,940             37,125
                                         -------------       -------------       ------------



         Income before income taxes......    15,412              13,003             11,502

Provision for income taxes...............     6,654               5,112              4,745
                                         -------------       -------------       ------------


         Net income......................     8,758               7,891              6,757

Additional capital contribution..........         0                   0             27,000

Member's equity, beginning of year.......    86,406              78,515             44,758
                                         -------------       -------------       ------------


Member's equity, end of year.............$   95,164           $  86,406          $  78,515
                                         =============       =============       ============
</TABLE>



The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                       11

<PAGE>
                    TELMARK LLC AND CONSOLIDATED SUBSIDIARIES

                            STATEMENTS OF CASH FLOWS
                FISCAL YEARS ENDED JUNE 30, 1998, 1997, AND 1996
                             (THOUSANDS OF DOLLARS)

                           Increase (Decrease) in Cash
<TABLE>
<CAPTION>

                                                  1998             1997            1996
                                              ------------     ------------     ------------
<S>                                           <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income ...........................   $   8,758        $   7,891        $   6,757
     Adjustments to reconcile net income to
       net cash from operating activities:
         Depreciation and amortization ....         607              529              450
         Deferred taxes ...................       3,614            1,259            1,893
         Provision for doubtful accounts ..       7,587            7,947            7,000
         Patronage refund received in stock      (1,043)            (769)            (660)
         Changes in assets and liabilities:
              Other assets ................        (169)          (1,283)             262
              Payables ....................         709             (246)          (2,178)
              Income taxes payable ........       1,330           (2,136)          (1,878)
              Accrued expenses ............        (231)           2,028              916
                                              ------------     ------------     ------------

         Net cash flow provided by
              operating activities ........      21,162           15,220           12,562
                                              ------------     ------------     ------------


CASH FLOWS FROM INVESTING ACTIVITIES:
     Leases originated ....................    (227,270)        (231,006)        (177,502)
     Leases repaid ........................     169,827          151,851          129,032
     Purchases of equipment ...............        (552)            (523)          (1,127)
     Proceeds from sale of equipment ......           0                0            1,290
                                              ------------     ------------     ------------

         Net cash flow used
              in investing activities .....     (57,995)         (79,678)         (48,307)
                                              ------------     ------------     ------------


CASH FLOWS FROM FINANCING ACTIVITIES:
     Net change in borrowings
          under lines of credit ...........      (9,900)          48,900           42,000
     Proceeds from notes payable ..........     130,000          130,944           62,000
     Repayment of notes payable ...........     (88,508)        (112,621)         (86,622)
     Repayment of capital lease ...........         (73)             (66)             (47)
     Net change payable to Agway Inc. .....       2,663           (8,092)           2,330
     Repayment of debentures ..............     (11,208)               0                0
     Proceeds from sale of debentures .....      14,170            6,786           16,084
     Net change in restricted cash ........        (311)          (1,393)               0
                                              ------------     ------------     ------------

         Net cash flow provided by
                financing activities ......      36,833           64,458           35,745
                                              ------------     ------------     ------------


     Net change in cash ...................           0                0                0
     Cash at beginning of year ............           0                0                0
                                              ------------     ------------     ------------


     Cash at end of year ..................   $       0        $       0        $       0   
                                              ============     ============     ============


     Cash paid during period for:
         Interest .........................   $  27,395           22,761        $  19,927
         Taxes ............................   $   2,972            6,968        $   4,729
</TABLE>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                       12

<PAGE>



                    TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)

1. SIGNIFICANT ACCOUNTING POLICIES

Operations
      Telmark LLC  ("Telmark" or the "Company") was organized in 1964 as Telmark
Inc. under the Business Corporation Law of the State of New York. Effective July
1, 1998,  Telmark Inc. was merged into Telmark LLC, a Delaware limited liability
company.  The  Company  is in  the  business  of  leasing  agricultural  related
equipment,  vehicles,  and buildings.  Telmark's customers are farmers and other
rural businesses as well as manufacturers and independent dealers that serve the
agricultural  marketplace.  The Company is  indirectly  owned and  controlled by
Agway Inc.  ("Agway"),  one of the  largest  agricultural  supply  and  services
cooperatives in the United States. Telmark is a wholly-owned subsidiary of Agway
Holdings, Inc. ("Holdings"),  a subsidiary of Agway. Telmark operates throughout
the  continental  United States and the Company's  field  representatives  serve
customers  in 29  states  including  Alabama,  Connecticut,  Delaware,  Florida,
Georgia,  Illinois,  Indiana, Iowa, Kentucky,  Maine,  Maryland,  Massachusetts,
Michigan, Minnesota, Mississippi, Missouri, New Hampshire, New Jersey, New York,
North Carolina,  Ohio,  Pennsylvania,  Rhode Island, South Carolina,  Tennessee,
Vermont, Virginia, West Virginia and Wisconsin.

Basis of Consolidation
      The consolidated  financial  statements include the accounts of all wholly
owned subsidiaries.  All significant intercompany transactions and balances have
been eliminated in consolidation.

Cash and Equivalents
      The Company  considers all investments  with a maturity of three months or
less when purchased to be cash equivalents.  Certain cash accounts  amounting to
$1,704 and $1,393 at June 30, 1998, and 1997 respectively related to securitized
leases  are  held  in  segregated  cash  accounts  pending  distribution  to the
lease-backed note holders and are restricted in their use.

Lease Accounting
      Completed  lease  contracts,  which  qualify as direct  finance  leases as
defined  by  Statement  of  Financial   Accounting  Standards  ("SFAS")  No.  13
"Accounting for Leases," are accounted for by recording on the balance sheet the
total future minimum lease payments receivable,  plus the estimated unguaranteed
residual  value of leased  equipment,  less the  unearned  interest  and finance
charges. Unearned interest and finance charges represent the excess of the total
future  minimum lease  payments plus the estimated  unguaranteed  residual value
expected  to be  realized  at the end of the  lease  term  over  the cost of the
related equipment.  Interest and finance charge income is recognized as revenue,
by  using  the  interest  method  over  the term of the  lease,  which  for most
commercial  and  agricultural  leases is 60 months or less with a maximum of 180
months for  buildings.  Income  recognition is suspended on all leases and notes
which become past due greater than 120 days. As of June 30, 1998,  and 1997, the
recognition  of  interest  income was  suspended  on leases  and notes  totaling
approximately $3,000 and $2,700, respectively.

      Initial direct costs incurred in  consummating a lease are  capitalized as
part of the  investment in direct  finance  leases and amortized  over the lease
term as a reduction in the yield.  Initial  direct costs  incurred  were $5,256,
$5,354,  and  $4,748  for the  years  ended  June  30,  1998,  1997,  and  1996,
respectively.

      Provisions  for credit losses are charged to income in amounts  sufficient
to maintain the allowance at a level considered  adequate to cover losses in the
existing  portfolio.  The net  investment  in a lease  is  charged  against  the
allowance for credit losses when determined to be uncollectible.



                                       13

<PAGE>



                   TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO FINANCIAL STATEMENTS (Continued)
                             (THOUSANDS OF DOLLARS)

1. SIGNIFICANT ACCOUNTING POLICIES (CONT )

Investments
      Investments comprise capital stock of a cooperative bank acquired from the
bank at par or  stated  value.  This  stock is not  traded  and is  historically
redeemed on a periodic  basis by the bank at cost. By its nature,  this stock is
held for  redemption  and is  reported  at cost.  Dividends  on this  stock  are
recorded as a reduction of interest  expense and totalled  $1,489,  $1,099,  and
$942 for the years ended June 30, 1998, 1997, and 1996, respectively.

Equipment
      Depreciation  is  calculated  using  the  straight-line  method  over  the
estimated useful lives of the equipment.

Advertising Costs
      The Company expenses  advertising costs as incurred.  Advertising  expense
for the years ended June 30, 1998, 1997, and 1996, was approximately $900, $800,
and $600.

Income Taxes
      The Company provides for income taxes in accordance with the provisions of
Statement of Financial  Accounting  Standards  (SFAS) No. 109,  "Accounting  for
Income Taxes." Under the liability  method  specified by SFAS No. 109,  deferred
tax assets and  liabilities  are based on the  difference  between the financial
statement and tax basis of assets and  liabilities  as measured by the tax rates
which are  anticipated  to be in effect  when  these  differences  reverse.  The
deferred tax provision  represents the net change in the assets and  liabilities
for deferred tax.
      The  Company is  included in a  consolidated  federal tax return  filed by
Agway Inc.  Under the  Agway/Telmark  tax sharing  agreement,  the provision for
income taxes and related credits and carry forwards are calculated on a separate
company basis and billed to the Company as appropriate on an interim basis.  The
Company files separate state tax returns. Effective July 1, 1998, the Company is
included in consolidated state tax returns filed by Holdings.

Use of Estimates
      The  preparation  of financial  statements  in conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements,  and the  reported  amounts  of  revenues  and  expenses  during the
reporting period. Actual results could differ from those estimates.

Reclassifications
      Certain  reclassifications  have been made to conform prior year financial
statements with the current year presentation.

                                       14

<PAGE>
                    TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                             (THOUSANDS OF DOLLARS)

2. LEASES, NOTES AND ALLOWANCE FOR CREDIT LOSSES

      Leases and notes as of June 30 were as follows:

                                              1998       1997
                                            --------   --------
Leases:
   Commercial and agricultural              $667,222   $596,391
   Leasing to Agway Inc. and subsidiaries        302        460
                                            --------   --------
                                             667,524    596,851
Retail installment loans                      21,464     16,682
                                            --------   --------
      Total leases and notes                $688,988   $613,533
                                            ========   ========

      Net investment in leases and notes at June 30 are summarized as follows:

                                          1998         1997
                                        ---------    ---------

Leases and notes                        $ 688,988    $ 613,533
Unearned interest and finance charges    (175,887)    (152,591)
Net deferred origination costs              9,596        8,842
                                        ---------    ---------
   Net investment                         522,697      469,784
Allowance for credit losses               (27,071)     (24,014)
                                        ---------    ---------
   Leases and notes, net                $ 495,626    $ 445,770
                                        =========    =========

Included  within the above leases and notes is unguaranteed  estimated  residual
values of leased  property  approximating  $72,400 and $63,700 at June 30, 1998,
and 1997, respectively.

      Contractual  maturities  of leases  and notes  were as follows at June 30,
1998:

                         Leases
              ---------------------------
               Commercial     To Agway        Retail
                  and         Inc. and      Installment
              Agricultural  Subsidiaries       Loans                 Total
              ------------  ------------    -----------          -----------
1999            $198,536        $     82     $  8,933               $207,551
2000             153,181              69        4,949                158,199
2001             112,071              58        2,623                114,752
2002              73,746              51        1,333                 75,130
2003              42,159              26          700                 42,885
Thereafter        87,529              16        2,926                 90,471
              ------------  ------------    -----------          -----------

Totals          $667,222        $    302     $ 21,464               $688,988
              ============  ============    ===========          ===========


Changes in the  allowance  for credit losses for the years ended June 30 were as
follows:
<TABLE>
<CAPTION>
                                                       1998        1997        1996
                                                    --------    --------    --------
<S>                                                 <C>         <C>         <C>

Balance, beginning of year                          $ 24,014    $ 19,776    $ 15,331
Provision for credit losses charged to operations      7,587       7,947       7,000
Charge-offs                                           (6,513)     (5,481)     (4,612)
Recoveries                                             1,983       1,771       2,057
                                                    --------    --------    --------
 Balance, end of year                               $ 27,071    $ 24,014    $ 19,776
                                                    ========    ========    ========
</TABLE>
                                       15

<PAGE>
                    TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                             (THOUSANDS OF DOLLARS)

3. EQUIPMENT

      Equipment,  at cost, including capital leases,  consisted of the following
at June 30:

1998                             Owned     Leased    Combined
----                            -------    -------    -------
Office and other equipment ..   $ 2,413    $   203    $ 2,616
Less accumulated depreciation
        and amortization ....    (1,430)      (186)    (1,616)
                                -------    -------    -------
                                $   983    $    17    $ 1,000
                                =======    =======    =======



1997
Office and other equipment .....$ 2,017    $   203    $ 2,220
Less accumulated depreciation
        and amortization ....... (1,046)      (119)    (1,165)
                                -------    -------    -------

                                $   971    $    84    $ 1,055
                                =======    =======    =======

4. INCOME TAXES

      The provision for income taxes consists of the following:

                      1998     1997     1996
                     ------   ------   ------
Currently payable:
     Federal .....   $2,321   $3,215   $1,998
     State .......      719      638      854
Deferred .........    3,614    1,259    1,893
                     ------   ------   ------

                     $6,654   $5,112   $4,745
                     ======   ======   ======

The  Company's  effective  income tax rate on pre-tax  income  differs  from the
federal statutory tax rate as follows:
                                            1998    1997     1996
                                            ----    -----    -----
Statutory federal income tax rate .....     34.0%   34.0%    34.0%

Tax effects of:
    State taxes, net of federal benefit      8.7     5.4      6.7
    Other items .......................       .5     (.1)      .6
                                            -----   -----    -----

Effective income tax rate .............     43.2%   39.3%    41.3%
                                            =====   =====    =====


                                       16

<PAGE>
                    TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                             (THOUSANDS OF DOLLARS)
4. INCOME TAXES (CONT.)

The components of the net deferred tax asset as of June 30 were as follows:
                                             1998      1997
                                          -------   -------
Deferred tax assets:
    Lease receivable reserves .........   $10,726   $ 9,514
    Other reserves ....................       761       813
    Alternative minimum tax
       credit carry forward ...........     3,462     1,118
    Other .............................       456       469
                                          -------   -------
    Total deferred tax assets .........    15,405    11,914
                                          -------   -------

Deferred tax liabilities:
    Difference between book and
        tax treatment of leases .......     8,192     1,087
    Other .............................       183       183
                                          -------   -------
         Total deferred tax liabilities     8,375     1,270
                                          -------   -------
         Net deferred tax asset .......   $ 7,030   $10,644
                                          =======   =======

Based on the Company's  history of taxable earnings and its expectations for the
future,  management has determined  that operating  income will more likely than
not be sufficient to recognize  its deferred tax assets.  At June 30, 1998,  the
Company's federal AMT credit can be carried forward indefinitely.

5. BORROWINGS UNDER LINES OF CREDIT AND TERM DEBT

As of June 30,  1998,  the Company has credit  facilities  available  from banks
which allow the Company to borrow up to an aggregate  of  $294,000.  Uncommitted
short-term line of credit  agreements permit the Company to borrow up to $44,000
on an unsecured basis with interest paid upon maturity.  The lines bear interest
at money market variable rates. A committed  $250,000  partially  collateralized
revolving  term loan  facility  permits  the  Company to draw  short-term  funds
bearing  interest  at  money  market  rates  or draw  long-term  debt  at  rates
appropriate for the term of the note drawn.  The total amount  outstanding as of
June 30, 1998,  under the short-term lines of credit and the revolving term loan
facility was $20,000 and $165,000, respectively.

The Company,  through a wholly owned special purpose  subsidiary,  Telmark Lease
Funding I, LLC issued $24,000 of Class A lease-backed  notes and $2,000 of Class
B lease-backed notes to three insurance companies.  The subsidiary pays interest
at 6.58% on the  Class A notes  and  7.01% on the  Class B notes.  The notes are
collateralized  by leases having an aggregate present value of contractual lease
payments equal to the principal  balance of the notes, and the notes are further
collateralized by the residual values of these leases.

Telmark borrows under its short-term line of credit agreements and its revolving
term agreement from time to time to fund its operations.  Short-term debt serves
as interim financing between the issuances of long-term debt. Telmark renews its
lines of credit  annually.  The $44,000 lines of credit all have terms  expiring
during  the next 12  months.  The  $250,000  revolving  term  loan  facility  is
available  through  February  1, 1999.  The  increase  in the  availability  and
outstanding's  under the lines of credit are necessary to support  growth of the
Company's  portfolio of leases and notes. The Company believes it has sufficient
lines of credit in place to meet interim funding needs.

At June 30, 1998, the Company had balances  outstanding on unsecured senior note
private placements totaling $169,000.  Interest is payable  semiannually on each
senior  note.  Principal  payments  are both  semiannual  and  annual.  The note
agreements are similar to one another and each contain financial covenants,  the
most  restrictive  of  which  prohibit  (i)  tangible  net  worth,   defined  as
consolidated tangible assets less total liabilities  (excluding notes payable to
Agway  Holdings,  Inc.),  from being less than $75,000,  (ii) the ratio of total
liabilities less subordinated notes payable to Agway Holdings,  Inc. to member's
equity plus  subordinated  notes payable to Agway Holdings,  Inc. from exceeding
5:1,  (iii) the ratio of earnings  available  for fixed  charges from being less
than 1.25:1,  and (iv) dividend  distributions  and restricted  investments  (as
defined)  made after  September  30,  1997 that exceed 75% of  consolidated  net
income  for the  period  beginning  on  October  1,  1997  through  the  date of
determination,  inclusive.  As of June 30, 1998,  $5,243 of member's  equity was
free of this restriction.
                                       17

<PAGE>
                    TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                             (THOUSANDS OF DOLLARS)

5. BORROWINGS UNDER LINES OF CREDIT AND TERM DEBT (CONT.)
At June 30, term debt consisted of the following:
<TABLE>
<CAPTION>
                                                                                     1998       1997
                                                                                   --------   --------
<S>                                                                                <C>        <C>
Notes payable to banks due in varying amount and dates through
   October 16, 2000 with interest ranging from 5.88% to 8.40% ..................   $185,000   $194,900
Unsecured notes payable to insurance companies due in varying
   amount and dates through May 29, 2004, with interest
   ranging from 5.90% to 8.88% .................................................    169,000    119,722
Lease-backed notes payable to insurance companies in varying
   amounts and dates through December 15, 2004, with interest
   rates ranging from 6.58% to 7.01% ...........................................     17,660     25,446
Capital lease payable in 1999 ..................................................         17         90
                                                                                   --------   --------
     Total Term Debt ...........................................................    371,677    340,158
Subordinated debentures due in varying amount and dates through
   March 31, 2002, with interest ranging from 7.75% to 8.50% ...................     34,006     31,044
                                                                                   --------   --------
     Total Debt ................................................................   $405,683   $371,202
                                                                                   ========   ========
</TABLE>
The notes payable to banks represents the portion  outstanding at June 30, 1998,
and 1997, of the amount available under credit facilities  totaling $294,000 and
$204,000  respectively.  Of the amount outstanding at June 30, 1998, $165,000 is
partially  collateralized  by the Company's  investment  in a  cooperative  bank
having a book value of $11,850 at June 30,  1998.  The  subordinated  debentures
represent the outstanding  balance of registered  debentures offered to and held
by the general public.
The  debentures  are  unsecured  and are  subordinate  to all senior debt of the
Company.

The carrying  amounts and  estimated  fair values of the  Company's  significant
financial  instruments  held for purposes other than trading at June 30, were as
follows:
<TABLE>
<CAPTION>
                                                    1998                   1997
                                            ------------------   ---------------------
                                            CARRYING     FAIR     CARRYING    FAIR
                                             AMOUNT      VALUE     AMOUNT     VALUE
                                             ------      -----     ------     ----- 
<S>                                         <C>        <C>        <C>        <C>
Liabilities:
Lines of Credit and
     Term Debt (excluding capital leases)   $371,660   $377,628   $340,068   $344,972
Subordinated Debentures                       34,006     34,605     31,044     30,946
</TABLE>

The  aggregate  amounts  of notes  payable,  capital  leases,  and  subordinated
debentures maturing after June 30, 1998, are as follows:
<TABLE>
<CAPTION>
                          Notes Payable
                     --------------------------    Capital   Subordinated
Year Ending June 30,    Bank     Ins. Companies     Lease     Debentures    Total
                     ---------   --------------   ---------   ----------   ---------
<S>                  <C>              <C>         <C>          <C>         <C>
1999                 $  98,000        $  30,569   $      20    $       0   $ 128,589
2000                    59,000           29,565           0       17,794     106,359
2001                    28,000           36,849           0        2,711      67,560
2002                         0           43,862           0        3,398      47,260
2003                         0           22,982           0       10,103      33,085
Thereafter                   0           22,833           0            0      22,833
                     ---------        ---------   ---------   ----------   ---------
                       185,000          186,660          20       34,006     405,686
Imputed Interest             0                0          (3)           0          (3)
                     ---------        ---------   ---------   ----------   ---------
                     $ 185,000        $ 186,660   $      17    $  34,006   $ 405,683
                     =========        =========   =========   ==========   =========
</TABLE>
                                       18

<PAGE>
                    TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                             (THOUSANDS OF DOLLARS)

6.  EMPLOYEE BENEFIT PLANS

Employees  of Telmark  participate  in Agway's  employee  benefit  plans,  which
include a defined benefit retirement plan, a defined contribution 401(K) plan, a
medical and dental benefit plan, a  postretirement  medical plan, and a life and
health  insurance  plan.  Total benefit costs under these plans are allocated by
Agway to Telmark primarily based on payroll costs. Benefit costs for those plans
included  in selling,  general and  administrative  expense  were  approximately
$1,100,  $1,200,  and $800 for the periods ended June 30, 1998,  1997, and 1996,
respectively.

7.  RELATED PARTY TRANSACTIONS

Cash Management
In lieu of having its own cash  account  the  Company  utilizes  the  depository
accounts of its parent,  Agway Inc.,  drawing  checks against these accounts and
making deposits to them. The balance represented by the Payable to Agway Inc. is
dependant on the timing of deposits and the drawing of checks.

Inter-Company Transactions
Selected  amounts related to transactions  with Agway Inc. and  Subsidiaries are
separately disclosed in the financial statements. Certain other transactions for
the years ended June 30 with Agway Inc. and Subsidiaries were approximately:
<TABLE>
<CAPTION>

(Revenue) Expense                      1998        1997     1996
-----------------                    --------   --------   --------
<S>                                  <C>        <C>        <C>

Interest and finance charges .....   $   (49)   $   (38)   $   (52)
Administrative and general expense     1,638      1,780      1,828
</TABLE>

Interest and finance  charges are earned on  equipment  leases to Agway Inc. and
subsidiaries.  The  administrative  and general expense caption  described above
includes  certain  shared  expenses  incurred  by Agway  Inc.  on  behalf of the
Company,  including  the  corporate  insurance  program,  information  services,
payroll,   benefits,   and  accounts  payable   administration   and  facilities
management. These expenses were allocated to the Company and management believes
the methodology used is reasonable.

In 1996,  the Board of Directors  of Agway  approved a capital  contribution  of
$27,000 from Holdings to Telmark. There were no other changes in paid in capital
or member's equity in the three years ended June 30, 1998.

8.  COMMITMENTS & CONTINGENCIES

COMMITMENTS

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally have fixed expiration dates or other termination  clauses.  Since some
of the  commitments  are expected to expire  without being drawn upon, the total
commitment  amounts  do not  necessarily  represent  future  cash  requirements.
Outstanding  commitments to extend lease financing at June 30, 1998 approximated
$27,800.

LEGAL PROCEEDINGS

The Company is not a party to any litigation or legal proceedings pending, or to
the best of its knowledge  threatened,  which, in the opinion of its management,
individually  or in the aggregate,  would have a material  adverse affect on its
results of operations, financial position or liquidity.



                                       19

<PAGE>
                    TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                             (THOUSANDS OF DOLLARS)

YEAR 2000

The approach of the year 2000 presents potential issues to all organizations who
use  computers in the conduct of their  business or depend on business  partners
who use computers.  To the extent  computer use is  date-sensitive,  hardware or
software  that  recognizes  the  year by the  last two  digits  may  erroneously
recognize "00" as 1900 rather than 2000,  which could result in errors or system
failures.

Telmark  utilizes a number of computers and computer  software  (systems) in the
conduct  of  its  business  that  are  principally   involved  in  the  flow  of
information. Telmark initiated its year 2000 compliance efforts in January 1996.
The initial  focus of the  Company's  compliance  efforts  was on the  Company's
information systems,  including assessment of the issue, planning the conversion
to  compliance,  plan  implementation,   and  testing.  All  systems  have  been
inventoried. Those systems determined to be at risk  were prioritized, and plans
were put in place to upgrade  systems  by  remediation,  replacements,  or doing
without these systems.  Through June 1998,  the  assessment and planning  phases
have been  completed.  The  remaining  portion of these  plans are in process of
implementation  with final  implementation  scheduled  to be  completed in March
1999. Testing of systems is being conducted for each system as implemented.  The
interaction  of updated  systems will be tested in the  enterprise-wide  testing
environment.

In addition to the  information  technology  systems  review  noted  above,  the
Company has also initiated processes to review and to modify, where appropriate,
other areas impacted by year 2000. These areas include,  but are not limited to,
hardware and software associated with end-user computing  functions,  vendor and
supplier  relationships,  external interfaces to internal information technology
systems,  remote location  access to information  technology  systems,  facility
management, and certain non-information technology issues, such as the extent to
which embedded chips are used in business  operations.  The Company  anticipates
that  solutions to all year 2000 areas above will be  implemented  and tested no
later than December 1999.

The Company's  Parent Agway Inc.  engaged an  international  consulting  firm in
March 1998 to evaluate the Parent Company's  overall approach to year 2000 plans
and implementation  compared to industry "best practices." Based on this review,
Telmark has increased the  involvement  of  higher-level  management to assure a
focus  on  the   implementation   timetable  and  the  development  of  specific
contingency  plans,  and  has  initiated  development  of a  more  comprehensive
enterprise-wide testing environment to be in place by December 1998.

The year 2000  compliance  issue is an uncertainty  that is  continuously  being
monitored as the Company  implements  its plans.  Based on the work performed to
date, the Company presently believes that the likelihood of the year 2000 having
a  material  effect  on the  results  of  operations,  liquidity,  or  financial
condition is remote.  Notwithstanding  the foregoing,  it is not presently clear
that all parts of the  country's  infrastructure,  including  such things as the
national   banking  systems,   electrical   power,   transportation   of  goods,
communications,  and governmental  activities,  will be fully functioning as the
year 2000 approaches. To the extent failure occurs in such activities, which are
outside the Company's control,  it could affect the Company's ability to service
its customers with the same degree of  effectiveness  with which they are served
presently. The Company is identifying elements of the infrastructure that are of
greater  significance  to its  operations,  obtaining  information on an ongoing
basis as to their  expected year 2000  readiness,  and  determining  alternative
solutions if required.

The Company  expects to incur  internal  staff costs as well as  consulting  and
other  expenses  related  to its year 2000  efforts.  Due to the level of effort
required to complete remediation for the year 2000, non-business critical system
enhancements have been deferred until the year 2000 efforts have been completed.
The conversion and testing of existing  systems are expected to cost the Company
approximately  $300,  of which $110 has been incurred and $190 is expected to be
incurred  from July 1998  through  December  1999.  These costs will vary as the
Company  continues  to  assess  and  implement  its plans or if the  Company  is
required to invoke  contingency  plans.  The Company  treats  non-capital  costs
associated with year 2000 as period costs and they are expensed when incurred.


                                       20

<PAGE>




                    TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                             (THOUSANDS OF DOLLARS)

9.  FINANCIAL INSTRUMENTS

Off Balance-Sheet Risk

The Company is a party to financial  instruments with off-balance  sheet risk in
the normal course of its business to meet the financing  needs of its customers.
These  financial  instruments  consist  of  commitments  to  extend  credit  not
recognized in the balance sheet.  In the event of  non-performance  by the other
party to the financial  instrument,  the Company's credit risk is limited to the
amount of Telmark's  commitment  to extend  credit.  The  Company's  exposure to
credit loss in the event of  nonperformance  by the other party to the financial
instrument for  commitments  to extend credit is represented by the  contractual
amount of the  instrument.  The  Company  uses the same  credit  and  collateral
policies in making commitments as it does for on-balance sheet instruments.

Market Risk

Telmark's   business  is   concentrated  in  agriculture  in  the  New  England,
Mid-Atlantic,  and Midwest states with  approximately 75% of its leases directly
related to production  agriculture.  At June 30, 1998,  approximately 46% of the
Company's net lease  investment was in the states of Michigan,  New York,  Ohio,
and  Pennsylvania.  Adverse  developments in any of these areas of concentration
could affect operating results adversely.

The  Company  endeavors  to limit the  effects of changes in  interest  rates by
matching as closely as possible, on an ongoing basis, the maturity and repricing
characteristics  of funds  borrowed to finance its leasing  activities  with the
maturity and repricing  characteristics of its lease portfolio.  However, a rise
in interest  rates would  increase the cost of that portion of the debt which is
not precisely  matched to the  characteristics  of the portfolio and could lower
the value of the Company's outstanding leases in the secondary market.



                                       21

<PAGE>




ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

        None


                                       22

<PAGE>



                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

                            DIRECTORS AND MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT MEMBERS OF MANAGEMENT
OF THE REGISTRANT

The  Directors of the Company  determine  Company  policy and are elected by the
member at each annual  meeting to serve  until the next annual  meeting or until
their  successors  are elected and  qualified.  The  following  table sets forth
certain information  regarding the Company's  Directors,  executive officers and
significant members of management:
<TABLE>
<CAPTION>

                                                       Years served   Year Became   Term
         Name                  Age  Position           as Officer      a Director   Expires
         ----------------------------------------------------------   ------------  ----------
<S>                            <C>  <C>                      <C>       <C>          <C>

Peter J. O'Neill               51   Treasurer,
                                    Chairman of the
                                    Board and Director        4        1995         July, 1999
Andrew J. Gilbert              39   Director                           1997         July, 1999
Gary K. Van Slyke              55   Director                           1996         July, 1999
Samuel F. Minor                60   Director                           1989         July, 1999
William W. Young               45   Director                           1992         July, 1999
Daniel J. Edinger              47   President and Director   10        1988         July, 1999
Herbert E. Gerhart             53   Secretary and            21
                                    Financial Manager
Raymond G. Fuller              47   Director of Customer      4
                                    Operations
Richard A. Kalin               49   Controller                4
Kipp R. Weaver                 48   Director of Credit        4
</TABLE>

The Board of  Directors,  except for Messrs.  O'Neill and  Edinger,  are paid an
annual  retainer  fee of $1,000 for their  services  on the Telmark  Board.  The
executive officers and significant  members of management of the Company provide
operating  control  to  carry  out the  policies  established  by the  Board  of
Directors  and  serve  at the  discretion  of the  Board  with no  guarantee  of
employment.  Telmark is organized with nine  functional  managers and six region
managers  reporting to the  President,  Daniel J.  Edinger.  The  officers  with
company wide  responsibilities  who report to the  President are the Director of
Credit, Director of Customer Operations,  Financial Manager, and the Controller.
More detailed biographies of each person listed above, except for those who have
been a director or officer for more than 5 years, are set forth below.

PETER J.  O'NEILL - Mr.  O'Neill  has been  employed by Agway for more than five
years. He was elected Senior Vice President, Finance and Control in 1992.

ANDREW J. GILBERT - Mr. Gilbert is a member of the Agway Board of Directors.  He
has been engaged in full-time farming for more than five years.

GARY K. VAN SLYKE - Mr. Van Slyke is a member of the Agway  Board of  Directors.
He has been engaged in full-time farming for more than five years.

RAYMOND G. FULLER - Mr. Fuller was Collection Manager from 1985 to 1996, and was
named Director of Customer Operations in September 1996.

RICHARD A. KALIN - Mr.  Kalin was named  Controller  in July 1995.  He served as
Accounting Manager for the prior three years.

KIPP R. WEAVER - Mr. Weaver was named Director of Credit in May 1995. During the
prior  three  years he was  employed  as an officer of the Farm  Credit  Bank of
Baltimore.

                                      23

<PAGE>
ITEM 11. EXECUTIVE COMPENSATION

Employees of Telmark are eligible to  participate  in Agway Inc.'s  benefits and
compensation plans. The following table sets forth information  regarding annual
and long-term compensation for services in all capacities to the Company for the
fiscal years ended June 1998, 1997, and 1996, of the chief executive officer and
any of the other four most highly compensated  executive officers of the Company
(other than the CEO) who were  serving in such  capacity at June 30,1998 and was
compensated  over $100,000.  In accordance  with the rules on executive  officer
compensation  adopted by the  Securities and Exchange  Commission,  compensation
information is not provided for any executive  officers of the Company receiving
aggregate total compensation of less than $100,000.
<TABLE>
<CAPTION>
                           SUMMARY COMPENSATION TABLE
---------------------------------------------------------------------
                                     ANNUAL
                                 COMPENSATION(4)
                          ----------------------------
                                                         ALL OTHER
NAME AND                                                COMPENSATION
PRINCIPAL POSITION         YEAR   SALARY(1)  BONUS(2)     (3)
---------------------------------------------------------------------
<S>                        <C>    <C>        <C>        <C>

Daniel J. Edinger          1998   $178,853   $105,240   $  3,033
 President                 1997    130,619     52,801      2,807
                           1996    120,016     90,000      2,513


Raymond G. Fuller          1998   $ 60,580   $ 38,688   $    814
 Director of               1997     59,414     27,261        774
 Customer Operations       1996     54,262     11,014        681


Herbert E. Gerhart         1998   $ 61,152   $ 39,059   $  1,253
 Secretary and Financial   1997     61,152     21,403      1,170
 Manager                   1996     60,255     12,230      1,110


Richard A. Kalin           1998   $ 61,412   $ 39,220   $  1,258
 Controller                1997     61,412     21,494      1,183
                           1996     60,297     12,282        870


Kipp R. Weaver             1998   $ 82,394   $ 52,632   $    968
 Director of Credit        1997     82,394     28,838        704
                           1996     81,198     16,479      6,787
</TABLE>
------------------

     (1) Total compensation (defined as base salary or wages, overtime and bonus
or  incentive   compensation)   is  used  in  determining   the  average  annual
compensation  pursuant to the Agway Inc.  Retirement  Plan. This amount includes
all deferred amounts under the Agway Inc.  Employees' Thrift Investment Plan and
the Agway Inc. Employee's  Benefits  Equalization Plan.

     (2) Members of the Agway Inc.  chief  executive  officer's  staff and other
executives designated by the Agway Inc. chief executive officer are eligible for
participation in the Agway Inc. management  incentive plan. Within Telmark,  the
President  qualified  for this  program.  A bonus  may be paid to each  eligible
executive  contingent  upon each  individual's  performance as determined by the
President  and CEO of Agway Inc.,  Telmark's net margin,  and other  performance
factors.  Bonuses  for  other  Telmark  executive  officers  may be paid to each
eligible executive  contingent upon each individual's  performance as determined
by the President of Telmark, Telmark's net margin and other performance factors.
Bonuses are reflected in the fiscal year earned regardless of payment date.

     (3) Amounts  shown include  contributions  made by the Company to the Agway
Inc.  Employees' Thrift Investment Plan and the Agway Inc.  Employees'  Benefits
Equalization  Plan and any other  payment  not  appropriately  characterized  as
salary or bonus.

     (4) There are no perquisites paid by the Company in excess of the lesser of
$50,000 or 10% of an executives total salary and bonus for the years disclosed.

                                       24

<PAGE>



ITEM 11. EXECUTIVE COMPENSATION

EMPLOYEES' RETIREMENT PLAN

The  Employees'  Retirement  Plan of  Agway  Inc.  (the  Retirement  Plan)  is a
non-contributory  defined  benefit  plan  covering  nearly  all  employees.  The
Retirement Plan was amended  effective July 1, 1998, to include a pension equity
formula,  as  well  as  to  recognize  incentive  compensation  as   pensionable
compensation for all employees. It provides for retirement benefits,  based upon
average annual compensation received during the highest 36 consecutive months in
the last 10 years of service  and credits  earned for years of service  with the
Company.  Full  credits  are earned for  service on and after July 1, 1998,  and
credits  equal to  approximately  3/4 of the full credits are earned for service
prior to July 1, 1998.  The benefit is defined as an account  balance and can be
paid out as a lump sum or an annuity.  An employee is 100% vested in his benefit
after  completing 5 years of service or attaining  age 55 after  completing  one
year of service.

The  following  table shows  estimated  rounded  annual  benefits  payable  upon
retirement  using the credit  formula in effect for service after June 30, 1998,
based  on  certain  3-year  average  remuneration  levels  and  years-of-service
classifications.  The table was developed assuming a normal retirement at age 65
and using current  annuity  conversion  factors and current Social Security Wage
Base.
<TABLE>
<CAPTION>
                               PENSION PLAN TABLE
                                  (NEW FORMULA)
                            YEARS OF CREDITED SERVICE
---------------------------------------------------------------------------------------------
   3-YEAR AVERAGE
    REMUNERATION        5        10         15         20         25         30         35
---------------------------------------------------------------------------------------------
<S>                <C>         <C>       <C>        <C>        <C>        <C>        <C>

$100,000           $  6,600   $ 12,500   $ 18,400   $ 23,900   $ 29,300   $ 34,300   $ 39,300
 125,000              8,300     15,800     23,300     30,300     37,200     43,500     49,900
 150,000             10,100     19,200     28,300     36,600     45,000     52,700     60,400
 175,000             11,800     22,500     33,200     43,000     52,900     61,900     71,000
 200,000             13,600     25,900     38,100     49,400     60,700     71,100     81,500
 225,000             15,300     29,200     43,000     55,800     68,600     80,300     92,100
 250,000             17,100     32,500     48,000     62,200     76,500     89,500    102,600
 275,000             18,900     35,900     52,900     68,600     84,300     98,700    113,200
 300,000             20,600     39,200     57,800     75,000     92,200    107,900    123,700
 325,000             22,400     42,600     62,700     81,400    100,000    117,100    134,300
 350,000             24,100     45,900     67,600     87,800    107,900    126,300    144,800
 375,000             25,900     49,200     72,600     94,100    115,700    135,600    155,400
</TABLE>

Active  participants  are  entitled  to  receive no less than the value of their
benefits accrued under the old formula through June 30, 1998. In addition,  most
active  participants  whose age plus service totaled 55 years or more as of July
1, 1998,  will  receive  the  greater of the  benefit  determined  under the new
formula described above, or the benefit  determined had the old formula remained
in effect.

The old formula is based upon average annual  compensation  received  during the
highest 60 consecutive months in the last 10 years of service and credited years
of service.  Optional  earlier  retirement and other benefits are also provided.
The old formula pays a monthly  retirement  benefit based on the greater  amount
calculated  under two formulas.  The benefit amount under one formula is subject
to an offset for Social Security benefits.



                                       25

<PAGE>
ITEM 11.  EXECUTIVE COMPENSATION - CONTINUED

EMPLOYEES' RETIREMENT PLAN (CONTINUED)

The following table shows  estimated  annual benefits under the old formula upon
retirement   based  on   certain   5-year   average   remuneration   levels  and
year-of-service  classifications.  The table  was  developed  assuming  a normal
retirement  at age 65 and does not reflect an offset for up to 50% of the Social
Security benefit, subject to certain minimum benefits.
<TABLE>
<CAPTION>
                               PENSION PLAN TABLE
                                  (OLD FORMULA)
                            YEARS OF CREDITED SERVICE
---------------------------------------------------------------------------------------------
   5-YEAR AVERAGE
    REMUNERATION        5        10         15         20         25         30         35
---------------------------------------------------------------------------------------------
<S>                <C>         <C>       <C>        <C>        <C>        <C>        <C>
$100,000           $  8,000   $ 16,000   $ 24,000   $ 32,000   $ 40,000   $ 48,000   $ 56,000
 125,000             10,000     20,000     30,000     40,000     50,000     60,000     70,000
 150,000             12,000     24,000     36,000     48,000     60,000     72,000     84,000
 175,000             14,000     28,000     42,000     56,000     70,000     84,000     98,000
 200,000             16,000     32,000     48,000     64,000     80,000     96,000    112,000
 225,000             18,000     36,000     54,000     72,000     90,000    108,000    126,000
 250,000             20,000     40,000     60,000     80,000    100,000    120,000    140,000
 275,000             22,000     44,000     66,000     88,000    110,000    132,000    154,000
 300,000             24,000     48,000     72,000     96,000    120,000    144,000    168,000
 325,000             26,000     52,000     78,000    104,000    130,000    156,000    182,000
 350,000             28,000     56,000     84,000    112,000    140,000    168,000    196,000
 375,000             30,000     60,000     90,000    120,000    150,000    180,000    210,000
</TABLE>

Amount  under the  Retirement  Plan may be subject to  reduction  because of the
limitations imposed under the Internal Revenue Code; however,  the extent of any
reduction will vary in individual cases according to  circumstances  existing at
the  time  pension  payments  commence.   The  Agway  Inc.   Employees'  Benefit
Equalization  Plan has been  established  to provide  for the amount of any such
reduction in annual pension benefits under the Retirement Plan.

The benefits  shown are computed on a straight  life basis and do not reflect an
offset for up to 50% of the Social Security benefits, subject to certain minimum
benefits. Also, the benefits are based on continuing the Plan's benefit formulas
as in effect on June 30,  1998.  As of June 30,  1998,  the  officers  and their
respective number of credited years of service under the Retirement Plan were as
follows: Messrs. Edinger, 19; Fuller, 13; Gerhart, 25; Kalin, 25; and Weaver, 3.
"Compensation"  is defined as the  regular  salary or wages,  as reported in the
"Salary" column of the Summary  Compensation Table, which is paid to an employee
for  services  rendered  to Agway Inc.,  including  overtime,  vacation  pay and
bonuses or special pay.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The  Company has no  compensation  committee.  The salary of Daniel J.  Edinger,
President of Telmark is determined by Donald P. Cardarelli, President and CEO of
Agway Inc.,  the parent  Company of Telmark.  The salary of the other  Executive
Officers of Telmark is  determined  by Mr.  Edinger.  Salaries of all  Executive
Officers are included in the annual operating  budget,  which budget is approved
by the entire Board of Directors of Telmark.

None of the Executive  Officers or Directors who  participated  in  establishing
compensation  policies  had  interlocks  reportable  under  Section  402  (j) of
Regulation S-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

All of the  outstanding  member's  equity of the Company is indirectly  owned by
Agway Inc. None of the  executive  officers or directors of the Company owns any
membership interest of Telmark or either  individually or in the aggregate,  own
greater  than 1% of any  class of equity  securities  of its  parent  company or
subsidiaries.  All of the other directors are also directors of Agway Inc. Agway
is an agricultural  cooperative and each of its members  including each director
owns one share of $25 par value common stock. None of the executive officers and
directors  either  individually or in the aggregate,  own greater than 1% of any
class of equity security of the Company or of Agway Inc.

                                       26

<PAGE>





ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


The Company is an indirect  wholly-owned  subsidiary  of Agway and as such,  had
intercompany   transactions.   See  "Management's  Discussion  and  Analysis  of
Financial  Condition  and  Results of  Operations"  and Note 7 to the  Financial
Statement for further information.

                                PRINCIPAL MEMBER

Telmark is a wholly-owned  subsidiary of Agway  Holdings,  Inc. Agway  Holdings,
Inc. is a wholly-owned  subsidiary of Agway Financial  Corporation which in turn
is a  wholly-owned  subsidiary of Agway.  Agway is one of the largest supply and
services cooperatives in the United States.




                                       27

<PAGE>






                                     PART IV

ITEM 14.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
                                                                            PAGE
                                                                        LOCATION
(A)           INDEX TO DOCUMENT LIST                                    --------
              (1)     FINANCIAL STATEMENTS
                      Among the responses to this Item 14(a)(1) are the
                      following financial statements which are included in
                      Item 8.
                      (i)  Report of Independent Accountants................   9
                      (ii) Consolidated Balance Sheets,
                           June 30, 1998 and 1997...........................  10
                      (iii)Consolidated Statements of  Income and Member's
                           Equity, for the years ended
                           June 30, 1998, 1997, and 1996....................  11
                      (iv) Consolidated Statements of Cash Flow,
                           for the years ended June 30, 1998,
                           1997, and 1996...................................  12
                      (v)  Notes to the Consolidated Financial Statements...  13

              (2)     FINANCIAL STATEMENT SCHEDULES
                      Schedules  are  omitted  for the reason  that they are not
                      required   or  are  not   applicable,   or  the   required
                      information is shown in the financial  statements or notes
                      thereto.

              (3)     THE FOLLOWING REQUIRED EXHIBITS ARE EITHER ATTACHED HERETO
                      OR ARE HEREBY  INCORPORATED  BY  REFERENCE  TO  PREVIOUSLY
                      FILED REGISTRATION STATEMENTS FILED AS SPECIFIED.

                      3 -      ARTICLES OF INCORPORATION

                               3(a) -       Certificate   of   Incorporation  of
                                            Telmark Inc. (predecessor to Telmark
                                            LLC) dated June 4, 1964,  as amended
                                            September 8, 1964; January 15, 1975;
                                            and   June   16,   1987,   filed  by
                                            reference   to   Exhibit  3  of  the
                                            Registration  Statement  (Form S-1),
                                            File No. 33-70732, dated October 22,
                                            1993.

                               BY-LAWS

                               3(b) -       By-laws of Telmark Inc. (predecessor
                                            to Telmark LLC) as amended
                                            September 19, 1995, filed by
                                            reference to Exhibit 3 of the Annual
                                            Report (Form 10-K) dated
                                            August 23, 1996.

                               CERTIFICATE OF FORMATION

                               3(c) -       Certificate of formation of Telmark
                                            LLC dated June 25, 1998, filed
                                            herein.

                               LIMITED LIABILITY COMPANY AGREEMENT

                               3(d) -       Operating agreement of Telmark LLC
                                            dated July 1, 1998, filed herein.

                               CERTIFICATE OF MERGER

                               3(e) -       Certificate of Merger of Telmark
                                            Inc. into Telmark LLC effective
                                            July 1, 1998, filed herein.



                                       28

<PAGE>



ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
          (CONTINUED)

          4 - INSTRUMENT DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
              INDENTURES

              4(a) - The  Indenture  dated as of  September  30, 1993,  between
                     Telmark Inc. and OnBank & Trust Co. of Syracuse,  New York,
                     Trustee,   filed  by   reference   to   Exhibit  4  of  the
                     Registration Statement (Form S-1), File No. 33-70732, dated
                     October 22, 1993.

              4(b) - Telmark  Inc.  Board of Directors  resolutions  dated as of
                     June 21, 1995, authorizing the issuance of Debentures under
                     the  Indenture  filed by reference to Exhibit 4 of the post
                     effective  Amendment  No. 1 to the  Registration  Statement
                     (Form S-1), File No. 33-84442, dated August 28, 1995.

              4(c) - Supplemental  Indenture  dated  as of June 30, 1998 between
                     Telmark Inc. and Manufacturers and Trust Company,  filed by
                     reference  to Exhibit 4 of the Current  Report  (Form 8-K),
                     File No. 33-70732, dated July 6, 1998.

              4(d) - Supplemental  Indenture  dated  as of July 1, 1998  between
                     Telmark Inc. and Telmark LLC and Manufacturers  and Traders
                     Trust  Company,  filed  by  reference  to Exhibit 4  of the
                     Current  Report  (Form 8-K), File No. 33-70732, dated  July
                     6, 1998.

(B)           REPORT ON FORM 8-K
              A Current  Report (Form 8-K) was filed on July 6, 1998 relating to
              the merger of Telmark Inc.  into  Telmark LLC. The merger  changed
              the  Company's  legal  form  of  doing  business  from a New  York
              corporation to a Delaware limited liability company.


                                       29

<PAGE>




                                   SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) 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.


                               TELMARK LLC
                               (Registrant)


                                By DANIEL J. EDINGER
                                   President
                                   (Principal Executive Officer)

                               Date   8/25/98

      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the date indicated.

 SIGNATURE                   TITLE                                        DATE
 ---------                   -----                                        ----



 DANIEL J. EDINGER           President                                   8/25/98
                             (Principal Executive Officer)



 PETER J. O'NEILL            Treasurer and Chairman of the Board         8/25/98
                             and Director
                               (Principal Financial Officer
                                & Principal Accounting Officer)



 ANDREW J. GILBERT           Director                                    8/25/98



 SAMUEL F. MINOR             Director                                    8/25/98



 GARY K. VANSLYKE            Director                                    8/25/98



 WILLIAM W. YOUNG            Director                                    8/25/98






                                       30