1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
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 33-16789
_________________
RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (KEPCO) 1988-K1
(Exact name of registrant as specified in its charter)
NEW YORK
(State or other jurisdiction of incorporation or organization)
36-6878770
(I.R.S. Employer Identification Number)
2201 Cooperative Way, Herndon, VA 20171-3025
(Address of principal executive offices)
(Registrant's telephone number, including area code, is 703-709-6700)
___________________
Securities Registered pursuant to Section 12(b) 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.
Yes X No
The Registrant has no common or voting stock.
DOCUMENTS INCORPORATED BY REFERENCE:
1. Form of Trust Agreement
2. Loan Agreement
3. Loan Guarantee and Servicing Agreement
Exhibit Index located on page 13.
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Part I
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
a) There is no established trading market for the certificates
representing ownership of the beneficial interest in the Trust.
b) As of March 28, 1997 there was one holder of certificates
representing ownership of the beneficial interest in the Trust.
Item 8. Financial Statements and Supplementary Data
See attached audited financial statements.
Item 9. Disagreements on Accounting and Financial Disclosure
None.
Part III
Item 13. Certain Relationships and Related Transactions
None.
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Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K
a) The following documents are filed as part of this report:
1. Financial Statements
Report of Independent Public Accountants
Statement of Assets and Liabilities as of
December 31, 1996 and 1995
Statement of Income and Expenses, for the Years Ended
December 31, 1996, 1995 and 1994
Statement of Cash Flows, for the Years Ended
December 31, 1996, 1995 and 1994
Notes to Financial Statements
2. Financial Statement Schedules are omitted because
they are inapplicable.
3. Exhibits
Exhibit
Number Description of Exhibit
4.1 Form of Trust Agreement, including the form
of Rural Electric Cooperative Grantor Trust
Certificate (incorporated by reference to
Exhibit 4.1 to Registration Statement on Form
S-1 [No. 33-16789]).
10.1 Loan Agreement (incorporated by reference
to Exhibit 10.1 to Registration Statement
on Form S-1 [No. 33-16789]).
10.2 Loan Guarantee and Servicing Agreement
(incorporated by reference to Exhibit 10.2
to Registration Statement on Form S-1
[No. 33-16789]).
b) Form 8-K dated December 17, 1996.
Semi-annual Report to Certificateholders dated
December 15, 1995.
Supplemental information to be furnished with reports filed pursuant to
Section 15(d) of the Act by Registrants which have not registered securities
pursuant to Section 12 of the Act.
No annual report, proxy statement, form of proxy or other proxy
soliciting material has been sent to Certificateholders, and the
Registrant does not presently contemplate sending any such material
subsequent to the filing of this report.
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Pursuant to the requirements of Section 13 or 15(d) of the
Securities Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized, in the County of Fairfax, Commonwealth of Virginia
on the 28th day of March, 1997.
RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (KEPCO) 1988 K-1
By: NATIONAL RURAL UTILITIES COOPERATIVE
FINANCE CORPORATION as Servicer
By: /s/ Sheldon C. Petersen
Sheldon C. Petersen, Governor and
Chief Executive Officer
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RURAL ELECTRIC COOPERATIVE GRANTOR
TRUST (KEPCO) 1988-K1
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND 1995,
AND FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
TOGETHER WITH AUDITORS' REPORT
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Report of Independent Public Accountants
To the Trustee of
Rural Electric Cooperative Grantor Trust
(Kepco) 1988-K1, and
To the Board of Directors of
National Rural Utilities Cooperative
Finance Corporation:
We have audited the accompanying statements of assets and liabilities of
Rural Electric Cooperative Grantor Trust (Kepco) 1988-K1 as of December 31,
1996 and 1995, and the related statements of income and expenses and cash
flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Trust'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 an 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 financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Rural Electric
Cooperative Grantor Trust (Kepco) 1988-K1 as of December 31, 1996 and 1995,
and its operations and its cash flows for the years ended December 31, 1996,
1995 and 1994, in conformity with generally accepted accounting principles.
March 24, 1997
Washington, D. C.
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RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (KEPCO) 1988-K1
STATEMENTS OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 1996 AND 1995
_____________________________________________________________________
1996 1995
ASSETS
Interest Receivable $49,662 $55,378
Note Receivable 6,950,000 7,750,000
Total Assets $6,999,662 $7,805,378
LIABILITIES
Interest Payable-
Grantor Trust Certificates $48,112 $53,649
Servicer Fees Payable 1,550 1,729
Rural Electric Cooperative
Grantor Trust Certificates 6,950,000 7,750,000
Total Liabilities $6,999,662 $7,805,378
The accompanying notes are an integral part
of these financial statements
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RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (KEPCO) 1988-K1
STATEMENTS OF INCOME AND EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
_____________________________________________________________________
1996 1995 1994
INCOME:
Interest on note receivable $732,657 $804,470 $867,112
EXPENSES:
Interest on
grantor trust certificates 709,787 779,358 840,045
Servicer fees 22,870 25,112 27,067
Total Expenses 732,657 804,470 867,112
Net Income $ - $ - $ -
The accompanying notes are an integral part
of these financial statements
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RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (KEPCO) 1988-K1
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
_____________________________________________________________________
1996 1995 1994
CASH FLOWS FROM
OPERATING ACTIVITIES:
Interest received on
note receivable $732,657 $804,470 $871,757
Interest paid to
Certificateholders (709,787) (779,358) (844,545)
Fees paid to Servicer ( 22,870) (25,112) (27,212)
Net cash provided by
operating activities - - -
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from principal
payment on note 800,000 750,000 650,000
Net cash provided from
investing activities 800,000 750,000 650,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment to
Certificateholders (800,000) (750,000) (650,000)
Net cash used in
financing activities (800,000) (750,000) (650,000)
NET CHANGE IN CASH - - -
CASH, beginning of year - - -
CASH, end of year $ - $ - $ -
ACCRUAL TO CASH BASIS RECONCILIATION:
Accrual basis income $ - $ - $ -
Change in accrual accounts:
Decrease in interest
receivable 5,716 5,359 4,645
Decrease in interest
payable (5,537) (5,192) (4,500)
Decrease in servicer
fees payable ( 179) ( 167) ( 145)
Total change in
accrual accounts - - -
Net cash provided by
operating activities $ - $ - $ -
The accompanying notes are an integral part
of these financial statements
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RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (KEPCO) 1988-K1
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996, 1995 AND 1994
1. ORGANIZATION AND OPERATIONS
Rural Electric Cooperative Grantor Trust (Kepco) 1988-K1 (the "Trust")
was formed under a Trust Agreement dated February 15, 1988 among
National Rural Utilities Cooperative Finance Corporation ("CFC"),
Kansas Electric Power Cooperative, Inc. (the "Cooperative") and The
First National Bank of Chicago (the "Trustee"). On that date, CFC
made a loan to the Cooperative which issued a note (the "Note"),
evidencing the borrowing, to the Trust. The Trust issued to CFC
Rural Electric Cooperative Grantor Trust (Kepco) 9.23% Certificates
Due 2002 (the "Certificates") in the amount of $11,075,000.
The Certificates are solely the obligations of the Trust and are not
insured or guaranteed by CFC, the Cooperative, the Trustee, the
Rural Utilities Service ("RUS") of the United States Department of
Agriculture ("USDA") nor any other governmental agency. Each
Certificate represents an undivided fractional interest in the
Trust. CFC is the depositor of the Trust and acts as Servicer of
the Note. CFC filed, on behalf of the Trust, a Registration
Statement on Form S-1 (Registration No. 33-16789) which became
effective on February 17, 1988, and CFC resold the Certificates
thereunder.
The assets of the Trust consist primarily of the Note, bearing
interest at 9.52% and maturing 2002, which is guaranteed (the
"Guarantee") as to timely payment of principal and interest by
the United States of America, acting through the Administrator
of RUS. The amounts of principal and interest payments on the
Note held by the Trust are sufficient to cover the scheduled
principal and interest payments on the Certificates issued by the
Trust and the scheduled amounts of servicer fees. The General
Counsel of the USDA has issued an opinion that the Guarantee
is supported by the full faith and credit of the United States
of America.
Debt service and servicer fee payments on the Note are made to
the Trustee semi-annually (June 4 and December 4) by the Cooperative.
The Trustee deposits all such receipts in the Trust account. The
Trustee is authorized by the Trust Agreement to invest all funds
in the Trust account at the direction of CFC in certain eligible
investments that mature no later than the business day next preceding
the day (June 15 and December 15) such amounts are to be distributed
to the Certificateholders and the Servicer. The interest earned on
the investments is distributed to the Cooperative. Any funds that
are not so invested must be held by the Trustee in the Trust account.
The Trustee may not reinvest any returns of principal or investment
earnings on eligible investments and the Trustee may not sell any
eligible investment prior to its maturity except, at the direction
of CFC, to preserve the value of the corpus of the Trust.
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On or before five business days after each date on which payments
are made on the Certificates, the Trustee is obligated to supply
the holders of such Certificates a report provided by the Servicer,
which includes certain pertinent information as to how the payment
is to be allocated to principal, interest, servicer fees and premium,
if any, as well as the principal balance outstanding after such
payment.
The fiscal year of the Trust is the calendar year. Within the
prescribed period of time for tax reporting purposes, after the
end of each calendar year during the term of the Trust Agreement,
the Trustee is obligated to prepare and mail to each
Certificateholder of record for the Trust, at any time during
such year, a report setting forth the information as is reasonably
necessary for the preparation of such Certificateholder's Federal
income tax return.
Payments of principal on the Certificates began in 1989 and will
extend over a period of fourteen years. The principal payments
over the next 5 years and thereafter are as follows:
1997 $ 900,000
1998 1,000,000
1999 1,100,000
2000 1,200,000
2001 1,400,000
Thereafter 1,350,000
Total $6,950,000
The Certificates are not subject to full redemption prior to
December 15, 1997. Thereafter, such Certificates are subject to
optional redemption, for the entire remaining balance and without
premium, upon redemption or purchase of the related Note. The
Trust Agreement will terminate after payment in full has been made
on the Certificates issued thereunder.
2. TAX STATUS OF THE TRUST
Milbank, Tweed, Hadley & McCloy, counsel to CFC, has advised CFC
with respect to the Trust that, in its opinion, (i) the Trust
will not be classified as an association taxable as a corporation,
but will be classified as a grantor trust and (ii) each
Certificateholder will be treated for Federal income tax purposes
as the owner of an undivided fractional interest in each of the
assets held by the Trust.
It is expected that the Trust will not have any liability for
Federal or State income taxes for the current or future years.
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3. INTEREST AND SERVICER FEE ACCOUNTING
The Trust records interest income as it is earned and accrues
interest expense and servicer fees as they are incurred.
Servicer fees represent ten basis points of the outstanding
principal balance of the Certificates and the Note and recognition
of conversion fees over the life of the loan.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
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 at the date of the financial
statements and the reported amounts of expenses during the
reported period. The estimates involve judgments with respect to,
among other things, various future factors which are difficult
to predict and are beyond the control of the Trust. With regards
to the fair values below, actual amounts could differ from these
estimates.
The following disclosure of the estimated fair value of financial
instruments is made in accordance with FASB Statement No. 107,
"Disclosure about Fair Value of Financial Instruments."
Whenever possible, the estimated fair value amounts have been
determined using quoted market information as of December 31, 1996
and 1995 along with other valuation methodologies which are
summarized below. Below is a summary of significant methodologies
used in estimating fair value amounts and a schedule of fair values
at December 31, 1996 and 1995.
The carrying amounts reported for Interest Receivable, Interest
Payable - Grantor Trust Certificates, and Servicer Fees Payable
approximate fair values due to the short term maturity of these
instruments.
Note Receivable
Fair value is estimated by discounting the future cash flows
using the current rates at which similar loans would be made
to borrowers with similar credit ratings and for the same
remaining maturities.
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Rural Electric Cooperative Grantor Trust Certificates
The fair value of the Certificate is estimated using quoted
market prices for similar notes over the same remaining maturities.
The carrying and estimated fair values of the Trust's financial
instruments as of December 31, 1996 and 1995, are as follows:
1996 1995
Carrying Fair Carrying Fair
Value Value Value Value
Assets:
Interest Receivable 49,662 49,662 55,378 55,378
Note Receivable 6,950,000 7,859,577 7,750,000 9,219,658
Liabilities:
Interest Payable -
Grantor Trust Certificates 48,112 48,112 53,649 53,649
Servicer Fees Payable 1,729 1,729 1,550 1,550
Rural Electric Cooperative
Grantor Trust Certificates 6,950,000 7,867,658 7,750,000 9,234,648
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RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (KEPCO) 1988 K-1
Exhibit Index
Exhibit
Number Description of Exhibit
4.1 Form of Trust Agreement, including the form of Rural
Electric Cooperative Grantor Trust Certificate
(incorporated by reference to Exhibit 4.1 to Registration
Statement on Form S-1 [No. 33-16789]).
10.1 Loan Agreement (incorporated by reference to Exhibit 10.1
to Registration Statement on Form S-1 [No. 33-16789]).
10.2 Loan Guarantee and Servicing Agreement (incorporated by
reference to Exhibit 10.2 to Registration Statement on
Form S-1 [No. 33-16789]).