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 33-14843
_________________
RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (DESERET) 1988-D2
(Exact name of registrant as specified in its charter)
NEW YORK
(State or other jurisdiction of incorporation or organization)
36-6878768
(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.
2
DOCUMENTS INCORPORATED BY REFERENCE:
1. Form of Trust Agreement
2. Loan Agreement
3. Loan Guarantee and Servicing Agreement
Exhibit Index located on page 13.
3
Part I
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
4
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.
5
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. 33-14843]).
10.1 Loan Agreement (incorporated by reference to Exhibit 10.1 to Registration
Statement on Form S-1 [No. 33-14843]).
10.2 Loan Guarantee and Servicing Agreement (incorporated by reference to Exhibit
10.2 to Registration Statement on Form S-1 [No. 33-14843]).
b) Form 8-K dated December 17, 1996.
Semi-annual Report to Certificateholders dated December 15, 1996.
6
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.
7
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 (DESERET) 1988 D-2
By: NATIONAL RURAL UTILITIES COOPERATIVE
FINANCE CORPORATION as Servicer
By: /s/ Sheldon C. Petersen
Sheldon C. Petersen, Governor and
Chief Executive Officer
8
RURAL ELECTRIC COOPERATIVE GRANTOR
TRUST (DESERET) 1988-D2
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND 1995,
AND FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
TOGETHER WITH AUDITORS' REPORT
9
Report of Independent Public Accountants
To the Trustee of
Rural Electric Cooperative Grantor Trust
(Deseret) 1988-D2 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 (Deseret) 1988-D2 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 (Deseret) 1988-D2 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.
10
RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (DESERET) 1988-D2
STATEMENTS OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 1996 AND 1995
_____________________________________________________________________
1996 1995
ASSETS
Interest Receivable $1,191,767 $1,191,767
Note Receivable 152,895,000 152,895,000
Total Assets $154,086,767 $154,086,767
LIABILITIES
Interest Payable-
Grantor Trust Certificates $ 1,159,326 $ 1,159,326
Servicer Fees Payable 32,441 32,441
Rural Electric Cooperative
Grantor Trust Certificates 152,895,000 152,895,000
Total Liabilities $154,086,767 $154,086,767
The accompanying notes are an integral part
of these financial statements
11
RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (DESERET) 1988-D2
STATEMENTS OF INCOME AND EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
_____________________________________________________________________
1996 1995 1994
INCOME:
Interest on note receivable $15,890,224 $15,890,224 $15,890,224
EXPENSES:
Interest on
grantor trust certificates 15,457,684 15,457,684 15,457,684
Servicer fees 432,540 432,540 432,540
Total Expenses 15,890,224 15,890,224 15,890,224
Net Income $ - $ - $ -
The accompanying notes are an integral part
of these financial statements
12
RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (DESERET) 1988-D2
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 $15,890,224 $15,890,224 $15,890,224
Interest paid to Certificateholders (15,457,684) (15,457,684) (15,457,684)
Fees paid to Servicer ( 432,540) ( 432,540) ( 432,540)
Net cash provided by
operating activities - - -
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from principal payment on note - - -
Net cash provided from
investing activities - - -
CASH FLOWS FROM FINANCING ACTIVITES:
Principal payment to Certificateholders - - -
Net cash used in financing activities - - -
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 - - -
Decrease in interest payable - - -
Decrease in servicer fees payable - - -
Total change in accrual accounts - - -
Net cash provided by
operating activities $ - $ - $ -
The accompanying notes are an integral part
of these financial statements
13
RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (DESERET) 1988-D2
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996, 1995 AND 1994
1. ORGANIZATION AND OPERATIONS
Rural Electric Cooperative Grantor Trust (Deseret) 1988-D2 (the
"Trust") was formed under a Trust Agreement dated February 15, 1988
among National Rural Utilities Cooperative Finance Corporation
("CFC"), Deseret Generation & Transmission Co-operative, 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 (Deseret) 10.11% Certificates Due 2017 (the "Certificates")
in the amount of $152,895,000. 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. 33-14843) which became effective on May 4, 1988, and CFC
resold the Certificates thereunder.
The assets of the Trust consist primarily of the Note, bearing
interest at 10.393% and maturing 2017, 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 or
RUS guarantor of the Note. 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.
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.
14
Payments of principal on the Certificates are scheduled to be
repaid over a period of fifteen years, beginning in 2003.
The principal payment in 2003 is scheduled to be $5,200,000.
The Certificates are not subject to redemption prior to December 15,
1997. Thereafter, such Certificates are subject to optional
redemption, in whole and with premium until 2006, 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.
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 with are difficult to predict and
are beyond the control of the Company. 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.
15
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.
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 1,191,767 1,191,767 1,191,767 1,191,767
Note Receivable 152,895,000 203,695,422 152,895,000 217,016,169
Liabilities:
Interest Payable -
Grantor Trust Certificates 1,159,326 1,159,326 1,159,326 1,159,326
Servicer Fees Payable 32,441 32,441 32,441 32,441
Rural Electric Cooperative
Grantor Trust Certificates 152,895,000 204,856,226 152,895,000 218,567,765
16
RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (DESERET) 1988 D-2
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. 33-14843]).
10.1 Loan Agreement (incorporated by reference to Exhibit 10.1 to Registration Statement on
Form S-1 [No. 33-14843]).
10.2 Loan Guarantee and Servicing Agreement (incorporated by reference to Exhibit 10.2 to
Registration Statement on Form S-1 [No. 33-14843]).