-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O9fHeImK8CZReEqA87Ca7qfNTVz+KcGobvZvWMYg0qG5Fjt63npbWJUFHxL4Z/+c 7pRBPrHmrYhYB7evaMTSTQ== 0000070502-99-000071.txt : 19990402 0000070502-99-000071.hdr.sgml : 19990402 ACCESSION NUMBER: 0000070502-99-000071 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORP /DC/ CENTRAL INDEX KEY: 0000070502 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS BUSINESS CREDIT INSTITUTION [6159] IRS NUMBER: 520891669 STATE OF INCORPORATION: DC FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-07102 FILM NUMBER: 99581170 BUSINESS ADDRESS: STREET 1: 2201 COOPERATIVE WY STREET 2: C/O WOODLAND PARK CITY: HERNDON STATE: VA ZIP: 22071-3025 BUSINESS PHONE: 7037096700 MAIL ADDRESS: STREET 1: 2201 COOPERATIVE WAY CITY: HERNDON STATE: VA ZIP: 22071-3025 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________________ FORM 10-K x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 333-25029 _________________ RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (KEPCO) SERIES 1997 (Exact name of registrant as specified in its charter) NEW YORK (State or other jurisdiction of incorporation or organization) 36-7233686 (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: None. Part I Item 3. Legal Proceedings None. Item 4. Submission of Matters to a Vote of Security Holders None. 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 December 31, 1998 there was one record 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. Part IV Item 14. Exhibits and 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 Statements of Assets and Liabilities as of December 31, 1998 and 1997 Statement of Income and Expenses for the Years Ended December 31, 1998 and 1997 Statement of Cash Flows for the Years Ended December 31, 1998 and 1997 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. 333-25029]). 4.2 First Amendment to Trust Agreement (incorporated by reference to Exhibit 4.2 to Registration Statement on Form S-1 [No. 333- 25029]). 10.1 Loan Agreement dated as of February 15, 1988 between CFC and the Cooperative (including form of Note and Guarantee) (incorporated by reference to Exhibit 10.1 to Registration Statement on Form S-1 [No. 33-16789 filed on August 27, 1987]). 10.2 First Amendment to Loan Agreement (incorporated by reference to Exhibit 10.2 to Registration Statement on Form S-1 [No. 333-25029]). 10.3 Loan Guarantee and Servicing Agreement, dated as of February 15, 1988, among the Administrator of the RUS, the Cooperative, the Servicer, the Lender and the Trustee (incorporated by reference to Exhibit 10.2 to Registration Statement on Form S-1 [No. 33-16789 filed on August 27, 1987]). 10.4 First Amendment to Loan Guarantee and Servicing Agreement (incorporated by reference to Exhibit 10.4 to Registration Statement on Form S-1 [No. 333-25029]). 10.5 Remarketing Agreement (incorporated by reference to Exhibit to Registration Statement on Form S-1 [No. 333-25029]). 10.6 Swap Agreement (incorporated by reference to Exhibit 10.6 Registration Statement on Form S-1 [No. 333-25029]). 10.7 Liquidity Protection (incorporated by reference to Exhibit 10.7 to Registration Statement on Form S-1 [No. 333-25029]). 10.8 Form of Standby Certificate Purchase Agreement (incorporated by reference to Exhibit 10.8 to Registration Statement on Form S-1 [No. 333-25029]). 27 Financial Data Schedule. 99 Morgan Guaranty Trust Company of New York (Swap Counterparty) Financial Information. b) Forms 8-K dated December 20, 1998 and June 20, 1998. Semi-annual Reports to Certificate holders dated December 20, 1998 and June 20, 1998. 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 Certificate holders, and the Registrant does not presently contemplate sending any such material subsequent to the filing of this report. 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 31st day of March, 1999. RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (KEPCO) SERIES 1997 By: NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION as Servicer By: /s/ Sheldon C. Petersen, Governor and Chief Executive Officer RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (KEPCO) SERIES 1997 Exhibit Index Exhibit Number Description of Exhibit 27 Financial Data Schedule. 99 Morgan Guaranty Trust Company of New York (Swap Counterparty) Financial Information. RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (KEPCO) SERIES 1997 FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997 AND FOR THE YEAR ENDED DECEMBER 31, 1998 AND FOR THE PERIOD ENDED DECEMBER 31, 1997 TOGETHER WITH AUDITORS' REPORT Report of Independent Public Accountants To the Trustee of Rural Electric Cooperative Grantor Trust (KEPCO) SERIES 1997, and To the Board of Directors of National Rural Utilities Cooperative Finance Corporation We have audited the accompanying statement of assets and liabilities of Rural Electric Cooperative Grantor Trust (KEPCO) SERIES 1997 as of December 31, 1998 and 1997, and the related statement of income and expenses and cash flows for the year ended December 31, 1998 and the period ended December 31, 1997. 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 audit 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 financial statement presentation. We believe that our audit provides 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) SERIES 1997 as of December 31, 1998 and 1997, and its operations and its cash flows for the year ended December 31, 1998 and for the period ended December 31, 1997, in conformity with generally accepted accounting principles. March 19, 1999 Washington, D. C. RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (KEPCO) SERIES 1997 STATEMENT OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 1998 AND 1997 1998 1997 ASSETS Interest receivable - KEPCO $ 345,096 $ 170,668 Interest receivable - Swap provider 261,092 135,026 Notes receivable 56,390,000 57,390,000 Total Assets $ 56,996,188 $ 57,695,694 LIABILITIES Interest payable-Grantor Trust Certificates $ 261,092 $ 135,026 Servicer fees payable 4,225 2,075 Swap provider interest payable 340,871 168,593 Rural Electric Cooperative Grantor Trust Certificates 56,390,000 57,390,000 Total Liabilities $ 56,996,188 $ 57,695,694 The accompanying notes are an integral part of these financial statements. RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (KEPCO) SERIES 1997 STATEMENTS OF INCOME AND EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1998 AND FOR THE PERIOD ENDED DECEMBER 31, 1997 1998 1997 INCOME: Interest - Cooperative $ 4,364,794 $ 170,668 Interest on swap agreement 3,264,892 135,026 Total income $ 7,629,686 $ 305,694 EXPENSES: Interest to certificate holders $ 3,264,892 $ 135,026 Interest to swap provider 4,311,347 168,593 Servicer fees 53,447 2,075 Total expenses $ 7,629,686 $ 305,694 Net income $ - $ - The accompanying notes are an integral part of these financial statements. RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (KEPCO) SERIES 1997 STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998 AND FOR THE PERIOD ENDED DECEMBER 31, 1997 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Interest received on note receivable $ 4,190,366 $ - Interest received on swap agreement 3,138,826 - Interest paid to certificate holders (3,138,826) - Interest paid to swap provider (4,139,069) - Fees paid to servicer (51,297) - Net cash provided by operating activities - - CASH FLOWS FROM INVESTING ACTIVITIES: Principal payment to certificate holders $ (1,000,000) - Principal payment on note receivable 1,000,000 - Net cash provided by investing 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: Increase in interest receivable (300,494) (305,694) Increase in interest payable 126,066 135,026 Increase in swap provider interest payable 172,278 168,593 Increase in servicer fees payable 2,150 2,075 Total change in accrual accounts - - Net cash provided by operating activities $ - $ - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for interest expense $ 4,139,069 $ - The accompanying notes are an integral part of these financial statements. RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (KEPCO) SERIES 1997 NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997 1. ORGANIZATION AND OPERATIONS Rural Electric Cooperative Grantor Trust (KEPCO) SERIES 1997 (the "Trust") was formed under a Trust Agreement dated December 20, 1996 among National Rural Utilities Cooperative Finance Corporation ("CFC"), Kansas Electric Power Cooperative, Inc. (the "Cooperative") and The First National Bank of Chicago (the "Trustee"). The assets of the Trust consist of lender loan notes (the "1997 Note") bearing interest at 7.597% and maturing in 2017. In addition the Trust also holds certain rights under an interest rate swap agreement (the "Swap Agreement"). Rural Electric Cooperative Grantor Trust (KEPCO) Trusts K-1 and K-2 were created on February 15, 1988 resulting from a refinancing of loans from the Federal Financing Bank ("FFB") which were guaranteed by the Rural Electrification Administration, as predecessor in intent to the Rural Utilities Service ("RUS"). The FFB loans were refinanced through CFC, and in exchange the Cooperative executed lender loan notes (the "Notes") to CFC. CFC then deposited the Notes into separate Trusts. In turn, the Trusts issued to CFC, as depositor of the Trusts, two certificates: Rural Electric Cooperative Grantor Trust (KEPCO) 9.23% Certificates, due 2002 and Rural Electric Cooperative Grantor Trust (KEPCO) 9.73% Certificates, due 2017 (the "Certificates") in the amounts of $11,075,000 and $51,340,000, respectively. The Certificates were not subject to full redemption prior to December 15, 1997. On December 18, 1997, the Notes were refinanced, the outstanding Certificates were redeemed, and Trusts K-1 and K-2 were terminated. The Notes in the outstanding principal amount of $57,390,000 were then deposited into the Trust. The Trust issued Certificates of beneficial interest (the "Series 1997 Certificates") which bear interest at a variable rate, and which mature in 2017. In order to mitigate the interest rate risk inherent in the Trust, which held a fixed rate asset (the 1997 Note) and a variable rate obligation, the Cooperative assigned to the Trust certain rights under an interest rate swap agreement (the "Swap Agreement"). The counterparty to the Swap Agreement is Morgan Guaranty Trust Company of New York ("Morgan"). Pursuant to the Swap Agreement, the Trust pays to Morgan a fixed rate of interest on the outstanding notional amount, and Morgan pays the Trust a variable rate of interest on the outstanding notional amount. The structure is designed such that the interest amounts paid by the Cooperative to the Trust are the same amounts paid to Morgan, pursuant to the Swap Agreement, plus the amounts payable to CFC, as servicer. The amounts Morgan pays to the Trust under the Swap Agreement are the same amounts as the interest payable by the Trust to the Certificate holders. The notional amount of the Swap Agreement (which is not included on the Trust's Statement of Assets and Liabilities) was established at $57,390,000 and declines in amount over time such that the outstanding notional amount is always equal to the outstanding balance of the 1997 Notes and the 1997 Certificates. The Swap Agreement terminates in 2017, but is subject to early termination upon the early redemption of the Certificates. Payments of principal on the Certificates began in 1998 and will extend over a period of twenty years. The principal payments over the next 5 years and thereafter are as follows: 1999 $ 1,100,000 2000 1,200,000 2001 1,400,000 2002 1,350,000 2003 1,700,000 Thereafter 49,640,000 Total $ 56,390,000 The Certificates are subject to redemption at any time at the remaining principal amount plus accrued interest. The principal payments received on the note receivable from the Cooperative coincide with the payments due to the certificate holders. Each Certificate represents an undivided fractional interest in the Trust. CFC is the depositor of the Trust and acts as servicer of the Note. Because of the structure of the refinancing, the credit behind the Series 1997 Certificates will be bifurcated. First, Series 1997 certificate holders will look to the guarantee provided by the United States of America for payment of principal, which will continue to be distributed to Series 1997 certificate holders each December 15. Second, Series 1997 certificate holders will look to the credit of Morgan with regard to the variable rate payments of interest to be made monthly on the Series 1997 Certificates. If Morgan fails to make any variable rate payments when due and the Swap Agreement terminates without replacement of an alternate swap agreement, amounts received by the Trustee representing fixed interest rate payments under the note receivable, will become payable to the Series 1997 certificate holders. CFC's servicer fee will continue to be paid by the cooperative. 2. TAX STATUS OF THE TRUST Vinson & Elkins, Counsel to the Cooperative, 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 beclassified as a grantor trust and (ii) each certificate holder 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 9.3 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, 1998 and 1997 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, 1998 and 1997. The carrying amounts reported for interest receivable, interest payable, 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. Rural Electric Cooperative Grantor Trust Certificates The trust certificates pay a variable rate of interest that is reset weekly, and as such are considered to be carried at fair value. The carrying and estimated fair values of the Trust's financial instruments as of December 31, 1998 and 1997 are as follows: Swap Agreement The fair market value is estimated as the amount the Trust would pay to terminate the agreement, taking into account the current market rate of interest.
1998 1997 Carrying Fair Carrying Fair Value Value Value Value Assets: Interest receivable $ 606,188 $ 606,188 $ 305,694 $ 305,694 Note receivable $ 56,390,000 $ 64,323,332 $ 57,390,000 $ 64,524,167 Liabilities: Interest payable - Grantor Trust Certificates $ 261,092 $ 261,092 $ 135,026 $ 135,026 Servicer fees payable 4,225 4,225 2,075 2,075 Swap provider interest payable 340,871 340,871 168,593 168,593 Rural Electric Cooperative Grantor Trust Certificates $ 56,390,000 $ 56,390,000 $ 57,390,000 $ 57,390,000 Off-Balance Sheet Instruments: Swap Agreements - (7,932,544) - (4,579,001)
EX-27 2
5 This schedule contains summary financial information extracted from the December 31, 1998, Form 10-K and is qualified in its entirety by reference to such financial statements. 1000 12-MOS DEC-31-1998 DEC-31-1998 0 0 56,996,188 0 0 1,706,188 0 0 56,996,188 1,706,188 0 0 0 0 55,290,000 56,996,188 0 7,629,686 0 0 53,447 0 7,576,239 0 0 0 0 0 0 0 0 0
EX-99 3 Exhibit 99. MORGAN GUARANTY TRUST COMPANY OF NEW YORK Morgan Guaranty Trust Company of New York (herein, "Morgan Guaranty") is a wholly owned subsidiary and the principal asset of J.P. Morgan & Co. Incorporated ("J.P. Morgan"), a Delaware corporation whose principal office is located in New York, New York. Morgan Guaranty is a commercial bank offering a wide range of banking services to its customers both domestically and internationally. Its business is subject to examination and regulation by Federal and New York State banking authorities. Morgan Guaranty currently has a long-term credit rating of "AA+" from S & P and "Aa3" from Moody's. The following table (on the next page) sets forth certain summarized financial information of Morgan Guaranty as of the dates and for the periods indicated. The information presented is in accordance with generally accepted accounting principles, except for the Income statement data for the twelve months ended December 31, 1998 and 1997. Such data was prepared on a regulatory basis and substantially complies with generally accepted accounting principles.
December 31, December 31, (Dollars in millions) 1998 1997 1996 1995 1994 Balance Sheet Data1 Trading Account Assets $ 90,770 $ 88,995 $ 72,899 $ 55,373 $ 45,497 Total Loans 25,346 31,396 27,943 23,319 21,970 Total Assets 175,246 196,418 164,813 135,713 121,590 Total Deposits 56,221 60,743 53,074 47,074 45,108 Total Liabilities 164,768 185,985 154,922 126,728 113,124 Allowance for Credit Losses 595 730 1,115 1,129 1,130 Stockholder's Equity $ 10,478 $ 10,433 $ 9,891 $ 8,985 $ 7,977
Years Ended December 31, (Dollars in millions) 1998(2) 1997(2) 1996 1995 1994 Income Statement Data1 Net Interest Revenue $ 1,379 $ 1,550 $ 1,807 $ 2,139 $ 1,869 Provision for Credit Losses 100 (8) (1) (10) - Net Interest Revenue After Provision for Credit Losses 1,279 1,558 1,808 2,149 1,869 Non-Interest Revenue 3,552 3,721 3,110 2,312 1,981 Operating Expenses 4,154 3,728 3,121 2,886 2,626 Income before Income Taxes, Extraordinary Items, and Cumulative Effect of Change in Accounting Method 677 1,551 1,797 1,575 1,224 Income Taxes 296 554 599 569 412 Income before Extraordinary Items and Cumulative Effect of Change in Accounting Method 381 997 1,198 1,006 812 Extraordinary Items and Cumulative Effect of Change in Accounting Method - - - - - Net Income $ 381 $ 997 $ 1,198 $ 1,006 $ 812
______________________[N1] 1 Prior period balances were restated to reflect the merger of J.P. Morgan Delaware with Morgan Guaranty Trust Company of New York effective June 1996. 2 Prepared on a regulatory basis. The consolidated statement of condition of Morgan Guaranty as of December 31, 1998, is set forth on page 46 of Exhibit 13 to Form 10-K dated March 9, 1998, as filed by J.P. Morgan with the Securities and Exchange Commission. Morgan Guaranty will provide without charge to each person to whom this 10-K is delivered, on the request of any such person, a copy of the Form 10-K referred to above and a copy of the most recent quarterly Consolidated Reports of Condition and Income of Morgan Guaranty filed with the Board of Governors of the Federal Reserve System, with exhibits omitted. Written requests should be directed to: Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New York 10260-0060, Attention: Office of the Secretary. Telephone requests may be directed to (212) 648-3380. The information set forth above relates to and has been obtained from Morgan Guaranty Trust Company of New York. The delivery of this 10-K shall not create any implication that there has been no change in the affairs of Morgan Guaranty Trust Company of New York since the date hereof, of that the information contained herein or referred to above is correct as of any time subsequent to its date. -----END PRIVACY-ENHANCED MESSAGE-----