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


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

                    UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                                    Washington, D.C. 20549
                                         FORM 10-K
(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, 1997
                                       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 INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                NEW YORK                             16-0907546
    (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
                                     -----  -----
                                      Yes     No 

     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 22, 1997.
                                      ZERO

         INDICATE THE NUMBER OF SHARES  OUTSTANDING OF EACH OF THE  REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.

           CLASS                             OUTSTANDING AT AUGUST 22, 1997
           -----                             ------------------------------
COMMON STOCK, $1 PAR VALUE                          400,000 SHARES

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
J(1)(A) AND (B) OF FORM 10-K AND IS THEREFORE  FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.

      PAGE 1 OF 21. EXHIBIT INDEX APPEARS ON SEQUENTIALLY NUMBERED PAGE 20.
--------------------------------------------------------------------------------

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

<PAGE>


                         FORM 10-K ANNUAL REPORT - 1997
                   TELMARK INC. 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
                    Stockholder Matters....................................   5
Item 6.           Not Required
Item 7.           Management's Discussion and Analysis of 
                    Results of Operations..................................   5
Item 8.           Financial Statements.....................................   6
Item 9.           Changes in and Disagreements with Accountants
                    on Accounting and Financial Disclosure.................  18


                                    PART III

Item 10.                   Not Required
Item 11.                   Not Required
Item 12.                   Not Required
Item 13.                   Not Required


                                     PART IV

Item 14.          Exhibits, Financial Statement Schedules
                    and Reports on Form 8-K................................  20

                  Signatures...............................................  21
</TABLE>

                                        2

<PAGE>

                                     PART I

ITEM 1. & 2.      BUSINESS AND PROPERTIES

     Telmark Inc.  ("Telmark" or the  "Company") was organized in 1964 under the
Business  Corporation  Law of  the  State  of New  York.  It is a  wholly  owned
subsidiary of Agway Holdings,  Inc.,  which is an indirect  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, 1997,  the  Company's  outstanding  leases had an average
original term of approximately 5 years and average remaining term of less than 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, 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 approvals 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.  In order to protect its  investment,  Telmark retains title to the
equipment or building leased.  In addition,  Telmark  sometimes 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,  and  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  generally  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.

During 1997,  Telmark  formed TFS Limited and Telmark  Lease  Funding  Corp.  I,
wholly owned subsidiaries of Telmark Inc. TFS Limited is a Canadian  Corporation
formed to conduct certain lease  transactions with Canadian  customers.  Telmark
Lease Funding Corp. I is a New York Corporation  that was established  solely to
enable a lease securitization financing entered into during 1997.

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 STOCKHOLDER MATTERS

All of the common  stock of Telmark is  indirectly  owned by Agway.  There is no
public  market for such stock and none is expected to develop.  During the years
ended June 30, 1997, and 1996, Telmark 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 January 1, 1997,  through
the  date of  determination,  inclusive.  As of June  30,  1997,  $3,291,000  of
retained earnings were 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

1997 COMPARED TO 1996.  Telmark's net income  increased by $1.1 million  (16.8%)
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.

Revenue  is  recognized  over  the  term of the  Company's  outstanding  leases.
Increases  in the lease  portfolio  resulting  from new booked  volume of $223.1
million  in 1997 and $175.0  million  in 1996  exceeded  lease  reductions  from
collection and net bad debt expense of $151.9 million and $133.5 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
(17.1%) as compared to $48.6 million in 1996.  The increase is  attributable  in
part to $71.2  million  (19.0%)  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 12.9% in 1996 to 13.0% in 1997. During
the same period, the average cost of interest paid on debt remained unchanged at
7.5%.

Selling, general, and administrative expenses of $12.5 million in 1997 increased
by $2.7 million (27.4%)  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.  Other administrative  expenses
remained low due to tight  expense  control.  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  (15.7%)  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  (13.5%)  compared to $7 million in 1996. This increase 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. The basis for the amount of reserves is a comprehensive
review of all large and non-earning  accounts and a quantitative and qualitative
review of the entire portfolio based on prior experience.  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.



                                        5

<PAGE>

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

LIQUIDITY
The Company has principally financed its operations and financing for new leases
through  repayment of existing leases and other operating cash flow,  borrowings
under lines of credit, private placements of debt with institutional  investors,
sale of  debentures  to the  public,  sale of  leases,  and  lease-backed  asset
securitization.  Cash flows from operations  were $16.0 million,  $13.2 million,
and $12.0  million for 1997,  1996,  and 1995  respectively.  Other cash used in
investing was generated from financing  activities.  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."


ITEM 8.  FINANCIAL STATEMENTS

                          INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>


                                                                                                              PAGES
                                                                                                              -----
<S>      <C>                                                                                                  <C>
TELMARK INC. AND CONSOLIDATED SUBSIDIARIES:
         Report of Independent Accountants....................................................................    7

         Consolidated Balance Sheets, June 30, 1997 and 1996..................................................    8

         Consolidated Statements of Income and Retained Earnings,
                  for the years ended June 30, 1997, 1996 and 1995............................................    9

         Consolidated Statements of Cash Flows for the fiscal years ended June 30, 1997, 1996 and 1995........   10

         Notes to Consolidated Financial Statements...........................................................   11
</TABLE>




                                        6

<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
  Telmark Inc.:

We have audited the accompanying  balance sheets of TELMARK INC. (a wholly-owned
subsidiary of Agway Holdings, Inc.) and Consolidated Subsidiaries as of June 30,
1997 and 1996,  and the related  Consolidated  statements of income and retained
earnings and cash flows for the years ended June 30, 1997, 1996 and 1995.  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  in  accordance  with  generally   accepted  auditing
standards.  Those standards 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.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financing statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Telmark Inc. and
Consolidated  Subsidiaries as of June 30, 1997 and 1996 and the results of their
operations and their cash flows for the years ended June 30, 1997, 1996 and 1995
in conformity with generally accepted accounting principles.






                                                        COOPERS & LYBRAND L.L.P.

Syracuse, New York
August 8, 1997


                                        7

<PAGE>

                   TELMARK INC. AND CONSOLIDATED SUBSIDIARIES

                                 BALANCE SHEETS
                             JUNE 30, 1997 AND 1996

<TABLE>
<CAPTION>

                                     ASSETS

                                                                                    1997           1996
                                                                                ------------   ------------
<S>                                                                             <C>            <C>
Leases and notes, net........................................................   $445,769,893   $374,561,114
Investments..................................................................     10,807,417     10,038,421
Equipment, net...............................................................      1,055,377      1,061,672
Deferred income taxes........................................................     10,643,896     11,903,065
Income taxes prepaid to Agway Inc............................................        979,599              0
Other assets.................................................................        937,120        634,018
                                                                                ------------   ------------

Total Assets.................................................................   $470,193,302   $398,198,290
                                                                                ============   ============


                      LIABILITIES AND SHAREHOLDER'S EQUITY

                                                                                     1997          1996
                                                                                ------------   ------------

Borrowings under lines of credit and term debt..............................    $339,482,406   $273,000,427
Subordinated Debentures.....................................................      31,043,938     24,258,200
Accounts payable............................................................       4,398,757      4,645,459
Payable to Agway Inc........................................................         712,678      9,521,703
Income taxes payable to Agway Inc...........................................               0      2,135,917
Accrued expenses, including interest of
      $4,785,997 - 1997 and $4,061,387 - 1996 ..............................       8,149,485      6,122,135
                                                                                ------------   ------------


Total Liabilities...........................................................     383,787,264    319,683,841
                                                                                ------------   ------------

Commitments & Contingencies

Common Stock, $1 par value;
      authorized 1,000,000 shares;
      issued and outstanding 400,000 shares.................................         400,000        400,000
Additional paid-in capital..................................................      31,600,000     31,600,000
Retained earnings...........................................................      54,406,038     46,514,449
                                                                                ------------   ------------

Total Shareholder's Equity..................................................      86,406,038     78,514,449
                                                                                ------------   ------------
                                                                                $470,193,302   $398,198,290
                                                                                ============   ============
</TABLE>




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


                                        8

<PAGE>



                   TELMARK INC. AND CONSOLIDATED SUBSIDIARIES
                   STATEMENTS OF INCOME AND RETAINED EARNINGS
                FISCAL YEARS ENDED JUNE 30, 1997, 1996, AND 1995
<TABLE>
<CAPTION>

                                               1997          1996           1995
                                            -----------   -----------   ------------
<S>                                         <C>           <C>           <C> 

Revenues:
     Interest and finance charges........   $55,450,925   $47,241,547   $40,668,073
     Other service fees and other income.     1,492,165     1,385,011     1,273,999
                                            -----------   -----------   ------------

         Total revenues..................    56,943,090    48,626,558    41,942,072
                                            -----------   -----------   ------------

Expenses:
     Interest expense....................    23,485,503    20,305,365    17,674,736
     Provision for credit losses.........     7,947,000     7,000,000     6,812,695
     Selling, general and administrative     12,507,095     9,819,581     8,182,331
                                            -----------   -----------   ------------

         Total expenses..................    43,939,598    37,124,946    32,669,762
                                            -----------   -----------   ------------

         Income before income taxes......    13,003,492    11,501,612     9,272,310

Provision for income taxes...............     5,111,903     4,744,778     4,239,990
                                            -----------   ------------  ------------




         Net income......................     7,891,589     6,756,834     5,032,320


Retained earnings, beginning of year.....    46,514,449    39,757,615    35,043,295


Dividends to parent .....................             0             0      (318,000)
                                            ------------  -----------   ------------


Retained Earnings, End of Year...........   $54,406,038   $46,514,449   $39,757,615 
                                            ===========   ===========   ============

</TABLE>



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

                                        9

<PAGE>



                   TELMARK INC. AND CONSOLIDATED SUBSIDIARIES

                            STATEMENTS OF CASH FLOWS
                FISCAL YEARS ENDED JUNE 30, 1997, 1996, AND 1995

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

                                                     1997             1996              1995
                                                --------------   --------------   --------------
<S>                                             <C>              <C>              <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income .............................   $   7,891,589    $   6,756,834    $   5,032,320
     Adjustments to reconcile net income to
       net cash from operating activities:
         Depreciation and amortization ......         529,016          450,453          256,992
         Deferred taxes .....................       1,259,169        1,893,115         (929,732)
         Patronage refund received in stock .        (768,996)        (659,694)      (1,436,651)
         Provision for doubtful accounts ....       7,947,000        7,000,000        6,812,695
         Changes in assets and liabilities:
              Other assets ..................        (303,100)         261,966         (120,365)
              Payables ......................        (246,702)      (2,178,295)       1,106,381
              Income taxes payable ..........      (3,115,516)      (1,877,774)        (751,267)
              Accrued expenses ..............       2,027,350          915,670          631,633
                                                --------------   --------------   --------------
         Net cash flow provided by
              operating activities ..........      15,219,810       12,562,275       10,602,006
                                                --------------   --------------   --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Leases originated ......................    (223,061,417)    (174,998,949)    (170,494,948)
     Leases repaid ..........................     143,905,638      126,529,122      107,648,633
     Purchases of equipment .................        (522,723)      (1,127,445)        (735,302)
     Proceeds from sale of equipment ........               0        1,290,252                0
     Proceeds from sale of investments ......               0                0          457,948
                                                --------------   --------------   --------------
         Net cash flow used
              in investing activities .......     (79,678,502)     (48,307,020)     (63,123,669)
                                                --------------   --------------   --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from notes payable ............     155,844,442       52,000,000       98,000,000
     Repayment of notes payable .............     (89,296,526)      34,622,222)     (58,022,222)
     Repayment of capital lease .............         (65,937)         (46,968)               0
     Repayment of subordinated notes payable                0      (27,000,000)               0
     Proceeds from subordinated notes payable               0                0        6,500,000
     Net change in payable to Agway Inc. ....      (8,809,025)       2,329,735        1,899,885
     Proceeds from sale of debentures .......       6,785,738       16,084,200        4,462,000
     Proceeds from capital contribution .....               0       27,000,000                0
     Cash dividends paid ....................               0                0         (318,000)
                                                --------------   --------------   --------------
         Net cash flow provided by
                financing activities ........      64,458,692       35,744,745       52,521,663
                                                --------------   --------------   --------------

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 ...........................   $  22,760,893    $  19,927,395    $  16,983,499
         Taxes ..............................   $   6,968,250    $   4,729,205    $   5,941,459
</TABLE>

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

                                       10

<PAGE>



                   TELMARK INC. AND CONSOLIDATED SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

Operations
      Telmark Inc.  ("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 direct  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 27 states  including  Alabama,  Connecticut,
Delaware,   Georgia,   Illinois,   Indiana,  Iowa,  Kentucky,  Maine,  Maryland,
Massachusetts,  Michigan,  Minnesota,  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
$716,553 at June 30, 1997 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  represents  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, 1997,  and 1996, the
recognition  of  interest  income was  suspended  on leases  and notes  totaling
$2,735,128 and $2,890,781, respectively.

      Gains on lease sales are reduced for estimated  future  servicing fees and
estimated  losses under the recourse  provisions of the sale (limited to 7.5% of
the sale  proceeds).  Servicing  amounts are amortized over the life of the sold
leases.

      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 $5,353,850,
$4,747,801,  and $4,931,842  for the years ended June 30, 1997,  1996, and 1995,
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.

      Statement of  Financial  Accounting  Standards  No. 125,  "Accounting  for
Transfers and Servicing of Financial Assets and  Extinguishments of Liabilities"
(SFAS 125), effective for the Company on January 1,1997, provides new methods of
accounting  and reporting  for  transfers and servicing of financial  assets and
extinguishments   of   liabilities.   The  Company  has  applied   SFAS  125  to
securitization  transactions  occurring  after  January 1,  1997.  The effect of
adopting  SFAS 125 has not had a  material  effect on the  Company's  results of
operation, financial position or liquidity.


                                       11

<PAGE>



                   TELMARK INC. AND CONSOLIDATED SUBSIDIARIES
                    NOTES TO FINANCIAL STATEMENTS (Continued)

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  $1,098,566,  $942,420,
and $635,298 for the years ended June 30, 1997, 1996, and 1995, respectively.

Impairment of Long Lived Assets
      In the first  quarter  of  fiscal  1997,  the  Company  adopted  Financial
Accounting  Standards,  Statement  No. 121,  Accounting  for the  Impairment  of
Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed Of, which requires
impairment  losses to be measured and  recorded on  long-lived  assets,  whether
these assets are held for disposal or used in  operations,  when  indicators  of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying  amount.  There was no effect
when the Company adopted Statement 121.

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

Advertising Costs
      The Company generally expenses advertising costs as incurred.  Advertising
expense for the years ended June 30, 1997,  1996,  and 1995,  was  approximately
$829,300, $607,500, and $216,800.

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.

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.

                                       12

<PAGE>





                   TELMARK INC. AND CONSOLIDATED SUBSIDIARIES
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. LEASES, NOTES AND ALLOWANCE FOR CREDIT LOSSES

   Leases and notes as of June 30 were as follows:

                                               1997             1996
                                          -------------    -------------
Leases:
Commercial and agricultural               $ 596,390,764    $ 505,563,322
Leasing to Agway Inc. 
  and subsidiaries                              459,886          591,255
                                          -------------    -------------
                                            596,850,650      506,154,577
Retail installment loans                     16,681,989        4,770,950
                                          -------------    -------------
Total leases and notes                    $ 613,532,639    $ 510,925,527
                                          =============    =============

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

                                               1997             1996
                                          -------------     ------------

Leases and notes                          $ 613,532,639    $ 510,925,527
Unearned interest and finance charges      (152,590,770)    (124,230,756)
Net deferred origination costs                8,841,537        7,642,305
                                          -------------    -------------
Net investment                              469,783,406      394,337,076
Allowance for credit losses                 (24,013,513)     (19,775,962)
                                          -------------    -------------
     Leases and notes, net                $ 445,769,893    $ 374,561,114
                                          =============    =============

Included  within the above leases and notes is unguaranteed  estimated  residual
values of leased property approximating  $63,670,000 and $54,400,000 at June 30,
1997, and 1996, respectively. 

Contractual maturities of leases and notes were as follows at June 30, 1997:

                           Leases             Retail
               Commercial       To Agway    Installment
                  and           Inc. and     Loans and
              Agricultural    Subsidiaries  Miscellaneous    Total
             --------------   ------------  -------------  -------------  
1998         $ 179,984,150    $   149,847   $  6,920,106   $187,054,103
1999           142,994,545         72,888      4,887,623    147,955,056
2000           103,631,449         72,888      2,609,697    106,314,034
2001            65,440,095         80,728      1,603,304     67,124,127
2002            37,657,099         50,878        553,666     38,261,643
Thereafter      66,683,426         32,657        107,593     66,823,676
             --------------   ------------  -------------  -------------
  Totals     $ 596,390,764    $   459,886   $ 16,681,989   $613,532,639
             ==============   ============  =============  =============

Changes in the allowance for credit losses for the years ended June 30 were
as follows:

                                     1997          1996           1995
                                 -----------    -----------    -----------

Balance, beginning of year       $19,775,962    $15,331,008    $12,433,825
Provision for credit losses
     charged to operations         7,947,000      7,000,000      6,812,695
Charge-offs                       (5,480,557)    (4,611,546)    (6,104,708)
Recoveries                         1,771,108      2,056,500      2,189,196
                                 -----------    -----------    -----------
     Balance, end of year        $24,013,513    $19,775,962    $15,331,008
                                 ===========   ============   ============


                                       13

<PAGE>

                   TELMARK INC. AND CONSOLIDATED SUBSIDIARIES
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. EQUIPMENT

      Equipment,  at cost, including capital leases,  consisted of the following
at June 30:
<TABLE>
<CAPTION>

      1997                                               Owned         Leased       Combined
      ----                                           ------------    ----------   -------------
<S>                                                  <C>            <C>           <C>

      Office and other equipment.................    $  2,016,769   $   202,950   $   2,219,719
      Less accumulated depreciation
              and amortization...................       1,045,954       118,388       1,164,342
                                                     ------------    ----------   -------------
                                                     $    970,815   $    84,562   $   1,055,377
                                                     ============   ===========   =============


      1996
      ----
      Office and other equipment.................    $  1,735,256   $   202,950   $   1,938,206
      Less accumulated depreciation
              and amortization...................         825,796        50,738         876,534
                                                     ------------   -----------   -------------
                                                     $    909,460   $   152,212   $   1,061,672
                                                     ============   ===========   =============
</TABLE>

4. INCOME TAXES

      The provision for income taxes consists of the following:

<TABLE>
<CAPTION>

                                                  1997              1996             1995
                                               -------------    -------------    ------------
<S>                                            <C>              <C>              <C>
           Currently payable:
                Federal..................      $   3,214,446    $   1,998,193    $  4,373,703
                State....................            638,288          853,470         796,019
           Deferred......................          1,259,169        1,893,115        (929,732)
                                               -------------    -------------    ------------

                                               $   5,111,903     $  4,744,778    $  4,239,990
                                               =============     =============   ============

</TABLE>

The  Company's  effective  income tax rate on pre-tax  income  differs  from the
federal statutory tax rate as follows:

<TABLE>
<CAPTION>
                                                           1997    1996    1995
                                                           -----   -----   -----
<S>                                                        <C>     <C>     <C>    

           Statutory federal income tax rate ........      34.0%   34.0%   35.0%

           Tax effects of:
               State taxes, net of federal benefit          5.4     6.7     7.2
               Adjustment of prior years accruals          ( .5)     .2     4.0
               Other items...........................        .4      .4    ( .5)
                                                           -----   -----   -----

           Effective income tax rate ................      39.3%   41.3%   45.7%
                                                           =====   =====   =====
</TABLE>

                                       14

<PAGE>



                   TELMARK INC. AND CONSOLIDATED SUBSIDIARIES
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. INCOME TAXES (CONT.)

The components of the net deferred tax asset as of June 30 were as follows:

                                                 1997              1996
                                            -------------     -------------
      Deferred tax assets:
         Lease receivable reserves......    $   9,514,153     $   7,356,164
         Difference between book and
            tax treatment of leases.....                0         3,582,485
         Other reserves.................          812,939           717,038
         Alternative minimum tax
            credit carry forward........        1,117,817                 0
         Other..........................          469,370           430,887
                                            -------------     -------------
            Total deferred tax assets          11,914,279        12,086,574
                                            -------------     -------------

      Deferred tax liabilities:
         Difference between book and
            tax treatment of leases....         1,086,874                 0
         Other..........................          183,509           183,509
                                            -------------     -------------
            Total deferred tax liabilities      1,270,383           183,509
                                            -------------     -------------
            Net deferred tax asset          $  10,643,896     $  11,903,065
                                            =============     =============


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, 1997 the
Company's federal AMT credit can be carried forward indefinitely.


5. BORROWINGS UNDER LINES OF CREDIT AND TERM DEBT

As of June 30, 1997, the Company had two separate  credit  facilities  available
from banks which allow the Company to borrow up to an aggregate of $204,000,000.
An uncommitted short-term line of credit agreement permits the Company to borrow
up to $4,000,000 on an unsecured  basis with  interest paid upon  maturity.  The
line bears interest at money market  variable  rates.  A committed  $200,000,000
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, 1997,  under the  short-term  line of credit and the
revolving term loan facility was $4,000,000 and $190,900,000, respectively.

On May 28,  1997,  the Company,  through a newly  created  wholly owned  special
purpose subsidiary, Telmark Lease Funding Corp. I, issued $23,998,609 of Class A
lease-backed  notes  and  $1,945,833  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 1,165  leases
having an aggregate  present value of  contractual  lease  payments equal to the
principal  balance  of the  notes,  and the notes  are  further  secured  by the
residual  values  of these  leases.  Final  scheduled  maturity  of the notes is
December 15, 2004.

Telmark borrows under its short-term line of credit  agreement 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 $4,000,000 line of credit has been renewed through
December  1997.  The  $200,000,000  revolving  term  agreement  loan facility is
available through February 1, 1998. The Company believes it has sufficient lines
of credit in place to meet interim funding needs.

                                       15

<PAGE>



                   TELMARK INC. AND CONSOLIDATED SUBSIDIARIES
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. BORROWINGS UNDER LINES OF CREDIT AND TERM DEBT (CONT.)

At June 30, term debt consisted of the following:
<TABLE>
<CAPTION>
                                                                        1997           1996
                                                                    -------------  --------------
<S>                                                                 <C>            <C>
Notes payable to banks due in varying amount and dates through
   July 15, 2000 with interest ranging from 5.95% to 8.40%........  $194,900,000   $146,000,000
Unsecured notes payable to insurance companies due in varying
   amount and dates through May 15, 2004, with interest
   ranging from 5.90% to 8.88%....................................   119,722,223    126,844,445
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%..............................    24,770,138              0
Capital lease payable in annual installments of $78,720
   due in 1999....................................................        90,045        155,982
                                                                    ------------   -------------
     Total Term Debt..............................................   339,482,406    273,000,427
Subordinated debentures due in varying amount and dates through
   March 31, 2002, with interest ranging from 6.00% to 8.50%......    31,043,938     24,258,200
                                                                    ------------   ------------
     Total Debt...................................................  $370,526,344   $297,258,627
                                                                    ============   ============
</TABLE>

     The notes payable to banks represents the portion outstanding of the amount
available under two credit facilities $204,000,000 outstanding at June 30, 1997,
and 1996, respectively.  The notes are partially collateralized by the Company's
investment  in a  cooperative  bank  having  a book  value  of  $10,807,417  and
$10,038,421  at  June  30,  1997,  and  1996,  respectively.   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, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>

                                                        1997                    1996
                                           --------------------------   -------------------------
                                             CARRYING       FAIR        CARRYING         FAIR
                                              AMOUNT        VALUE        AMOUNT          VALUE
                                              ------        -----        ------          -----
<S>                                        <C>           <C>           <C>           <C>
Liabilities:
Long-Term Debt (excluding capital leases)  $339,392,361  $344,972,085  $272,844,445  $274,016,881
Subordinated Debentures                      31,043,937    30,946,003    24,258,200    24,105,602
</TABLE>


The  aggregate  amounts  of notes  payable,  capital  leases,  and  Subordinated
Debentures maturing after June 30, 1997, are as follows:

<TABLE>
<CAPTION>

                                           Notes Payable                     
                                  ------------------------------       Capital      Subordinated   
     Fiscal Year Ending June 30,      Bank        Ins. Companies        Lease        Debentures          Total
                                  ------------    --------------    ------------    ------------    ------------
<S>  <C>                          <C>             <C>               <C>             <C>             <C>
     1998                         $ 74,900,000    $   58,125,583    $     78,720    $ 11,018,895    $144,123,198
     1999                           73,000,000        30,603,023          19,680               0     103,622,703
     2000                           43,000,000         9,477,105               0      17,007,280      69,484,385
     2001                            4,000,000        16,754,460               0               0      20,754,460
     2002                                    0        10,461,593               0       3,017,763      13,479,356
     Thereafter                              0        19,070,597               0               0      19,070,597
                                  ------------    --------------    ------------    ------------    ------------
                                   194,900,000       144,492,361          98,400      31,043,938     370,534,699
     Imputed Interest                        0                 0          (8,355)              0          (8,355)
                                  ------------    --------------    -------------   ------------    ------------
                                  $194,900,000    $  144,492,361    $     90,045    $ 31,043,938    $370,526,344
                                  ============    ==============    =============   ============    ============
</TABLE>

The Company has various  loan  covenants,  of which the most  restrictive  is to
maintain a tangible  net worth of at least  $70,000,000,  and the debt to equity
ratio  (as  defined)  no  greater  than  five  to  one.  In  addition,  dividend
distributions  and  restricted  investments  (as defined)  made after January 1,
1997,  are prohibited to the extent they exceed 75% of net income for the period
beginning on January 1, 1997, through the date of determination,  inclusive.  As
of June 30, 1997, $3,291,000 of retained earnings were free of this restriction.

                                       16

<PAGE>



                   TELMARK INC. AND CONSOLIDATED SUBSIDIARIES
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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
$1,189,000,  $820,000,  and $649,000 for the periods ended June 30, 1997,  1996,
and 1995, 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 in 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:

(Revenue) Expense                             1997          1996         1995
-----------------                         -----------   -----------   ----------

Interest and finance charges............. $  (38,000)   $  (52,000)  $ (259,000)
Administrative and general expense.......  1,780,000     1,828,000    3,034,000

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 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
$27,000,000  from  Holdings to Telmark.  There were no other  changes in paid in
Capital or Common Stock in the three years ended June 30, 1997.

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, 1997, and 1996,
approximated $12,900,000 and $14,800,000, respectively.

During  1994 and prior,  the Company  entered  into lease sale  contracts  which
contain  limited  recourse  provisions  which  are  limited  to 7.5% of the sale
proceeds.   At  June  30,  1997,  the  Company  was   contingently   liable  for
approximately  $2,000,000  under the limited  recourse  provisions.  The Company
includes  this  potential  liability in  establishing  its  allowance for credit
losses.

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.



                                       17

<PAGE>



                   TELMARK INC. AND CONSOLIDATED SUBSIDIARIES
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEAR 2000

The Company has and will  continue to make certain  investments  in its software
systems  and  applications  to ensure the  Company is year 2000  compliant;  the
financial  impact  to the  Company  has not  been and is not  anticipated  to be
material to its results of operations, financial position, or liquidity.

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, 1997,  approximately 49% 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 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.


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

        None


                                       18

<PAGE>



                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

          Not Required.

ITEM 11.  EXECUTIVE COMPENSATION

          Not Required.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

          Not Required.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          Not Required.




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<PAGE>
                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
                                                                       PAGE  
(A)  INDEX TO DOCUMENT LIST                                          LOCATION
                                                                     --------
     (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............................7
         (ii)  Consolidated Balance Sheets, June 30, 1997 and 1996..........8
         (iii) Consolidated Statements of  Income and Retained Earnings,
               for the years ended June 30, 1997, 1996, and 1995............9
         (iv)  Consolidated Statements of Cash Flow,
               for the years ended June 30, 1997, 1996, and 1995...........10
         (v)   Notes to the Consolidated Financial Statements..............11

     (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 HEREBY INCORPORATED BY REFERENCE
         TO PREVIOUSLY FILED REGISTRATION STATEMENTS FILED AS SPECIFIED.

         3 -   ARTICLES OF INCORPORATION
               3(a) - Certificate  of  Incorporation  of Telmark Inc.  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. as amended September 19, 1995,
                      filed by reference to Exhibit 3 of the Registration
                      Statement (Form 10-K) dated August 23, 1996.

         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.

         10 -  MATERIAL CONTRACTS
               10(a)- The Agreement dated as of October 1, 1986 among
                      Agway Inc., Agway Financial Corporation, Telmark Inc.,
                      and Agway Holdings, Inc., as amended by Addendum to
                      Agreement effective June 29, 1990, filed by reference to
                      Exhibit 10 of the Registration Statement (Form S-1),
                      File No. 33-70732, dated October 22, 1993.

(B)  REPORT ON FORM 8-K
            No reports on Form 8-K for the three months ended June 30,
            1997, have been filed.



                                       20

<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 INC.
                                          (Registrant)

                                            By  DANIEL J. EDINGER
                                                President
                                                (Principal Executive Officer)

                                          Date  8/22/97

      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                            8/22/97
                                    (Principal Executive Officer)



   PETER J. O'NEILL           Treasurer and Chairman of the Board       8/22/97
                              and Director      
                                (Principal Financial Officer
                                 & Principal Accounting Officer)



   SAMUEL F. MINOR            Director                                  8/22/97



   GARY K. VANSLYKE           Director                                  8/22/97



   WILLIAM W. YOUNG           Director                                  8/22/97



   STANLEY A. WEEKS           Director                                  8/22/97



   CHRISTIAN F. WOLFF, JR.    Director                                  8/22/97


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