UNITED STATES

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, ~~2015~~2016



¨	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		36-7233686
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification no.)

20701 Cooperative Way, Dulles, Virginia		20166
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (703) 467-1800

__________________________

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

__________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No x

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 ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The Registrant has no common or voting stock.

		Page
PART I			1
Item 1.	Business		1
Item 1A.	Risk Factors		1
Item 1B.	Unresolved Staff Comments		1
Item 2.	Properties		1
Item 3.	Legal Proceedings		1
Item 4.	Mine Safety Disclosures		1
PART II			1
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		1
Item 6.	Selected Financial Data		1
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		1
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		1
Item 8.	Financial Statements and Supplementary Data		2
	Report of KPMG LLP, Independent Registered Public Accounting Firm		2
	Balance Sheets		3
	Statements of Comprehensive Income		4
	Statements of Changes in Deficit		5
	Statements of Cash Flows		6
	Notes to Financial Statements		7
	Note 1-Summary of Significant Accounting Policies		7
	Note 2-Grantor Trust Certificates		9
	Note 3-Derivative Instruments and Hedging Activities		9
	Note 4-Fair Value		10
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		13
Item 9A.	Controls and Procedures		13
Item 9B.	Other Information		13
PART III			13
Item 10.	Directors, Executive Officers and Corporate Governance		13
Item 11.	Executive Compensation		13
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		13
Item 13.	Certain Relationships and Related Transactions, and Director Independence		13
Item 14.	Principal Accountant Fees and Services		13
PART IV			13
Item 15.	Exhibits and Financial Statement Schedules		13
SIGNATURES			15

TABLE OF CONTENTS



		Page
PART I			1
Item 1.	Business		1
Item 1A.	Risk Factors		1
Item 1B.	Unresolved Staff Comments		1
Item 2.	Properties		1
Item 3.	Legal Proceedings		1
Item 4.	Mine Safety Disclosures		1
PART II			1
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		1
Item 6.	Selected Financial Data		1
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		1
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		1
Item 8.	Financial Statements and Supplementary Data		2
	Report of KPMG LLP, Independent Registered Public Accounting Firm		3
	Balance Sheets		4
	Statements of Comprehensive Income		5
	Statements of Changes in Deficit		6
	Statements of Cash Flows		7
	Notes to Financial Statements		8
	Note 1-Summary of Significant Accounting Policies		8
	Note 2-Grantor Trust Certificates		10
	Note 3-Derivative Instruments and Hedging Activities		10
	Note 4-Fair Value		11
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		14
Item 9A.	Controls and Procedures		14
Item 9B.	Other Information		14
PART III			14
Item 10.	Directors, Executive Officers and Corporate Governance		14
Item 11.	Executive Compensation		14
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		14
Item 13.	Certain Relationships and Related Transactions, and Director Independence		14
Item 14.	Principal Accountant Fees and Services		14
PART IV			14
Item 15.	Exhibits and Financial Statement Schedules		14
SIGNATURES			16

PART I

ITEM 1. BUSINESS

Not applicable.

ITEM 1A. RISK FACTORS

Not applicable.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Not applicable.

ITEM 3. LEGAL PROCEEDINGS

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II


ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

There is no established trading market for the certificates representing ownership of the beneficial interest in the Rural Electric Cooperative Grantor Trust (KEPCO) Series 1997 (the “Trust”).


ITEM 6.	SELECTED FINANCIAL DATA

Not applicable.


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

Not applicable.

ITEM 7A. ~~Quantitative~~QUANTITATIVE ~~and~~AND ~~Qualitative~~QUALITATIVE ~~Disclosures~~DISCLOSURES ~~About~~ABOUT ~~Market~~MARKET ~~Risk~~RISK

Not applicable.


ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



	Page
Report of KPMG LLP, Independent Registered Public Accounting Firm	3
Balance Sheets	4
Statements of Comprehensive Income	5
Statements of Changes in Deficit	6
Statements of Cash Flows	7
Notes to Financial Statements	8
Note 1-Summary of Significant Accounting Policies	8
Note 2-Grantor Trust Certificates	10
Note 3-Derivative Instruments and Hedging Activities	10
Note 4-Fair Value	11

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Trustee of

Rural Electric Cooperative Grantor Trust

(KEPCO) Series 1997

Dulles, Virginia

We have audited the accompanying balance sheets of Rural Electric Cooperative Grantor Trust (“KEPCO”) Series 1997 (the “Trust”) as of December 31, ~~2015~~2016 and ~~2014~~2015, and the related statements of comprehensive income, changes in deficit, and cash flows for each of the years in the three-year period ended December 31, ~~2015~~2016. These financial statements are the responsibility of the Trust’s Servicer. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 the Servicer, 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 the Trust as of December 31, ~~2015~~2016 and ~~2014~~2015, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, ~~2015~~2016, in conformity with U.S. generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the Trust will continue as a going concern. As discussed in Note 1 to the financial statements, the Trust will commence winding up upon the maturity of the notes receivable and Rural Electric Cooperative Grantor Trust Certificates. The notes receivable and Rural Electric Cooperative Grantor Trust Certificates both mature in 2017. The Trust has no mandatory liquidation date. However, the Servicer of the Trust expects to liquidate the remaining assets in the ordinary course of business. The financial statements do not include any adjustments that might result from the outcome of those actions. Our opinion is not modified with respect to this matter.

/s/ KPMG LLP

McLean, Virginia

March 9, ~~2016~~2017

RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (KEPCO) SERIES 1997

BALANCE SHEETS

	December 31,
	2015			2014
	2016			2015
Assets:
Interest receivable - KEPCO	$	5627,~~475~~746		$	8956,~~944~~475
Interest receivable - swap counterparty	3,~~586~~074			43,~~975~~586
Notes receivable	73,240,000			137,~~140~~240,000
Total assets	$	73,~~300~~270,~~061~~820		$	137,~~234~~300,~~919~~061
Liabilities:
Servicer fees payable	$	~~725~~340		$	~~1,101~~725
Interest payable - Grantor Trust Certificates	3,~~586~~074			43,~~975~~586
Interest payable - swap counterparty	5527,~~750~~406			8855,~~843~~750
Rural Electric Cooperative Grantor Trust Certificates	73,240,000			137,~~140~~240,000
Derivative liability	~~630~~179,~~227~~804			1630,~~464,766~~227
Total liabilities	73,~~930~~450,~~288~~624			147,~~699~~930,~~685~~288
Commitments and contingencies
Deficit:
Accumulated deficit	(~~714~~205,~~439~~839		)	(1714,~~654,565~~439		)
Accumulated other comprehensive income	8426,~~212~~035			~~189~~84,~~799~~212
Total deficit	(~~630~~179,~~227~~804		)	(1630,~~464,766~~227		)
Total liabilities and deficit	$	73,~~300~~270,~~061~~820		$	137,~~234~~300,~~919~~061

The accompanying notes are an integral part of these financial statements.

RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (KEPCO) SERIES 1997

STATEMENTS OF COMPREHENSIVE INCOME

Year Ended December 31,

2015

2014

2013

2016

2015

2014

Revenues:

Interest income from notes receivable

~~977~~536,~~080~~517

1977,~~381,873~~080

1,~~748~~381,~~323~~873

Total revenues

~~977~~536,~~080~~517

1977,~~381,873~~080

1,~~748~~381,~~323~~873

Expenses:

Interest expense to certificateholders

3962,~~922~~487

9739,~~103~~922

6097,~~883~~103

Servicer fees

116,~~995~~568

1611,~~916~~995

2116,~~402~~916

Total expenses

5169,~~917~~055

~~114~~51,~~019~~917

82114,~~285~~019

Derivative gain, net

14,963

74,758

189,520

Derivative gain

41,138

14,963

74,758

Net income

~~940~~508,~~126~~600

1940,~~342,612~~126

1,~~855~~342,~~558~~612

Other comprehensive income (loss):

Reclassification of derivative cumulative transition gain to net income

(~~105~~58,~~587~~177

)

(~~148~~105,~~175~~587

)

(~~186~~148,~~745~~175

)

Other comprehensive loss

(~~105~~58,~~587~~177

)

(~~148~~105,~~175~~587

)

(~~186~~148,~~745~~175

)

Total comprehensive income

~~834~~450,~~539~~423

1834,~~194,437~~539

1,~~668~~194,~~813~~437

The accompanying notes are an integral part of these financial statements.

RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (KEPCO) SERIES 1997

STATEMENTS OF CHANGES IN DEFICIT

				Accumulated
				Other
	Accumulated			Comprehensive			Total
	Deficit			Income			Deficit
Balance at December 31, 2012	$	(4,852,735	)	$	524,719		$	(4,328,016	)
Comprehensive income:
Net income	1,855,558			—			1,855,558
Reclassification of derivative cumulative transition gain to net income	—			(186,745		)	(186,745		)
Total Comprehensive income	1,855,558			(186,745		)	1,668,813
Balance at December 31, 2013	$	(2,997,177	)	$	337,974		$	(2,659,203	)
Comprehensive income:
Net income	1,342,612			—			1,342,612
Reclassification of derivative cumulative transition gain to net income	—			(148,175		)	(148,175		)
Total Comprehensive income	1,342,612			(148,175		)	1,194,437
Total comprehensive income	1,342,612			(148,175		)	1,194,437
Balance at December 31, 2014	$	(1,654,565	)	$	189,799		$	(1,464,766	)
Comprehensive income:
Net income	940,126			—			940,126
Reclassification of derivative cumulative transition gain to net income	—			(105,587		)	(105,587		)
Total Comprehensive income	940,126			(105,587		)	834,539
Total comprehensive income	940,126			(105,587		)	834,539
Balance at December 31, 2015	$	(714,439	)	$	84,212		$	(630,227	)
Comprehensive income:
Net income	508,600			—			508,600
Reclassification of derivative cumulative transition gain to net income	—			(58,177		)	(58,177		)
Total comprehensive income	508,600			(58,177		)	450,423
Balance at December 31, 2016	$	(205,839	)	$	26,035		$	(179,804	)

The accompanying notes are an integral part of these financial statements.

RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (KEPCO) SERIES 1997

STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2015			2014			2013
	2016			2015			2014
Cash flows from operating activities:
Net income	$	~~940~~508,~~126~~600		$	1940,~~342,612~~126		$	1,~~855~~342,~~558~~612
Adjustments to reconcile net income to net cash provided by operating activities:
Reclassification of derivative cumulative transition gain to net income	(~~105~~58,~~587~~177		)	(~~148~~105,~~175~~587		)	(~~186~~148,~~745~~175		)
Decrease in interest receivable - KEPCO	33,469			30,156			27,202
Decrease in interest receivable — KEPCO	28,729			33,469			30,156
(Increase) decrease in interest receivable - swap counterparty	1,389			1,649			(1,602		)
Decrease in interest receivable — swap counterparty	512			1,389			1,649
Decrease in servicer fees payable	(~~376~~385		)	(~~369~~376		)	(~~333~~369		)
Increase (decrease) in interest payable - Grantor Trust Certificates	(1,389		)	(1,649		)	1,602
Decrease in interest payable — Grantor Trust Certificates	(512		)	(1,389		)	(1,649		)
Decrease in interest payable - swap counterparty	(33,093		)	(29,787		)	(26,869		)
Decrease in interest payable — swap counterparty	(28,344		)	(33,093		)	(29,787		)
Decrease in derivative liability	(~~834~~450,~~539~~423		)	(1834,~~194,437~~539		)	(1,~~668~~194,~~813~~437		)
Net cash provided by operating activities	—			—			—
Cash flows from investing activities:
Proceeds from principal payments on notes receivable	54,~~900~~000,000			5,~~300~~900,000			45,~~800~~300,000
Net cash provided by investing activities	54,~~900~~000,000			5,~~300~~900,000			45,~~800~~300,000
Cash flows from financing activities:
Principal payments to certificateholders	(54,~~900~~000,000		)	(5,~~300~~900,000		)	(45,~~800~~300,000		)
Net cash used in financing activities	(54,~~900~~000,000		)	(5,~~300~~900,000		)	(45,~~800~~300,000		)
Net change in cash	—			—			—
Cash at beginning of year	—			—			—
Cash at end of year	$	—		$	—		$	—
Supplemental cash flow information:
Cash payments of interest expense to certificateholders	$	41,311		$	98,751		$	59,281
Interest expense payments to certificateholders	$	62,999		$	41,311		$	98,751

The accompanying notes are an integral part of these financial statements.

RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (KEPCO) SERIES 1997

NOTES TO FINANCIAL STATEMENTS



NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Trust

~~Creation~~Rural ofElectric Cooperative Grantor Trust (“KEPCO”) Series 1997 (the “Trust”) was formed under a Trust Agreement dated December 20, 1996.

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 Bank One, formerly The First National Bank of Chicago (the “Trustee”).

Trust Assets

The assets of the Trust consist of lender loan notes (the “1997 Notes”) bearing interest at 7.597 percent and maturing in 2017. The 1997 Notes originated from a transaction whereby National Rural Utilities Cooperative Finance Corporation (“CFC”) refinanced loans from the Federal Financing Bank, guaranteed by the Rural Utilities Service (“RUS”) and, in exchange, CFC received from Kansas Electric Power Cooperative, Inc. (the “Cooperative”) the 1997 Notes. CFC subsequently placed the 1997 Notes into two trusts, which have since been terminated and replaced by the Trust. The 1997 Notes are guaranteed (the “Guarantee”) as to timely payment of principal and interest by the United States Government (“U.S. Government”), acting through the Administrator of RUS. The General Counsel of the United States Department of Agriculture has issued an opinion that the Guarantee is supported by the full faith and credit of the U.S. Government. The Trust issued certificates of beneficial interests (the “Series 1997 Certificates”) that bear interest at a variable rate and mature in 2017.

The Trust will commence winding up upon the maturity of the 1997 Notes and Series 1997 Certificates, which both mature in 2017. The Trust has no mandatory liquidation date, however, the Servicer of the Trust expects to liquidate remaining assets in the ordinary course of business shortly after maturity of the 1997 Notes and Series 1997 Certificates.

Swap Agreement

The Trust also holds certain rights the Cooperative assigned to the Trust under an interest rate swap agreement (the “Swap Agreement”). The Swap Agreement was entered into to hedge the interest rate exposure associated with the fixed-rate 1997 Notes and a variable-rate obligation. The counterparty to the Swap Agreement is JPJPMorgan ~~Morgan~~ Chase & Co. (“JPJPMorgan ~~Morgan~~Chase”)~~, successor to Morgan Guaranty Trust Company of New York~~. Pursuant to the Swap Agreement, the Trust pays to JPJPMorgan ~~Morgan~~Chase a fixed rate of interest on the outstanding notional amount, and JPJPMorgan ~~Morgan~~Chase 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 JPJPMorgan ~~Morgan~~Chase, pursuant to the Swap Agreement, plus the amounts payable to CFC, as servicer. The amounts paid by JPJPMorgan ~~Morgan~~Chase to the Trust under the Swap Agreement are the same as the interest payable by the Trust to the holders of the Series 1997 Certificates.

The initial notional amount of the Swap Agreement, which is not included on the Trust’s balance sheet, was $57,390,000. The notional amount of the Swap Agreement decreases over time in an amount such that the outstanding notional amount is always equal to the outstanding balance of the 1997 Notes and the Series 1997 Certificates. The Swap Agreement terminates inon December 4, 2017, but is subject to early termination upon the early redemption of the Series 1997 Certificates.

Liquidity Facility

JPJPMorgan ~~Morgan~~Chase provides a liquidity facility with respect to the Series 1997 Certificates until such time as all outstanding Series 1997 Certificates have been paid in full. Investors have the right to put the certificates back to the remarketing agent in the event they are unable to resell the certificates. The remarketing agent is Goldman, Sachs & Co. ~~as successor to the original remarketing agent, Alex Brown & Sons, Incorporated.~~

Trustee

~~Effective September 2, 2004,~~ U. S. Bank Trust National Association (“U.S. Bank Trust”) ~~replaced~~is ~~Bank~~currently ~~One~~the as Trustee.

~~Servicer~~8

CFC is the servicer of the Trust ( the "Servicer") and is paid a servicing fee of 9.30 basis points under the Loan Guarantee and Servicing Agreement dated as of February 15, 1988, as amended (the “Guarantee and Servicing Agreement”). CFC, however, no longer holds a retained interest in the Trust. No delinquency in payment under either the 1997 Notes, the Guarantee or the

RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (KEPCO) SERIES 1997

NOTES TO FINANCIAL STATEMENTS

~~Swap Agreement has occurred and no event of servicing termination, or, to the best of the~~ Servicer~~'s knowledge, event that with notice or lapse of time or both would become an event of servicing termination, has occurred and is continuing.~~

CFC is the servicer of the Trust ( the “Servicer”) under the Loan Guarantee and Servicing Agreement dated as of February 15, 1988, as amended (the “Guarantee and Servicing Agreement”). CFC does not hold any retained interests in the Trust. No delinquency in payment under either the 1997 Notes, the Guarantee or the Swap Agreement has occurred and no event of servicing termination, or, to the best of the Servicer's knowledge, event that with notice or lapse of time or both would become an event of servicing termination, has occurred or is continuing.

Tax Status of the Trust

The Trust is a pass-through entity, which is not subject to income taxes. Therefore, it is expected that the Trust will not have any liability for federal or state income taxes for the current or future years.

Basis of Presentation and Use of Estimates

The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the U.S. (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires the Trust’s Servicer to make estimates and assumptions with respect to, among other things, various future factors which are difficult to predict and are beyond the control of the Trust. These estimates, which are based on information available as of the date of the financial statements, affect the amounts reported in the financial statements and related disclosures. Areas in which estimates have been made include, but are not limited to, the fair value of derivative financial instruments. While the Trust’s Servicer makes its best judgment, actual amounts or results could differ from these estimates.

Notes Receivable

The Trust accounts for the notes receivable based on historical cost. No allowance for loan losses has been recorded because the timely payment of principal and interest is guaranteed by the U.S. Government. Interest income is recognized on the notes as earned on an accrual basis.

Grantor Trust Certificates

The Trust ~~accrues and~~ recognizes interest expense on the Series 1997 Certificates ason ~~incurred~~an accrual basis.

Servicer Fee Expense

~~CFC is the depositor of the Trust and acts as Servicer of the 1997 Notes.~~ The Trust accrues and recognizes servicer fee expense ~~based on a rate~~ of 09.~~093~~30 ~~percent~~basis points of the outstanding principal balance of the 1997 Notes.

Derivative Instruments and Hedging Activities

The Trust is neither a dealer nor a trader in derivative financial instruments. The Trust entered into an interest rate swap ~~derivative instrument~~ to hedge its interest rate risk exposure related to the 1997 Notes. Derivatives are reported at fair value on the balance sheets. Derivatives in a gain position are recorded as a derivative asset, while derivatives in a loss position are reported as a derivative liability. Changes in fair value ~~and~~of ~~interest accruals on~~ derivatives are recorded as a component of derivative gain (loss), ~~net~~ in the statements of comprehensive income.

The Trust did not have any derivatives in hedge accounting relationships at December 31, ~~2015~~2016 or ~~2014~~2015. The Trust, ~~however,~~ recorded a cumulative derivative transition gain of $4,628,105 in accumulated other comprehensive income (“AOCI”) at January 1, 2001 as a result of the adoption of the derivative accounting guidance that required derivatives to be reported at fair value on the balance sheets. The transition adjustment represents the difference between the carrying amount of the interest rate swap derivative prior to the January 1, 2001 adoption of the derivative accounting guidance and its fair value at the date of initial adoption. The transition gain is being reclassified into earnings and reported in the statement of comprehensive income as a component of derivative gain (loss)~~, net~~. Cash flows related to the interest rate swap are classified in operating activities in the statements of cash flows.

~~Comprehensive Income~~9

Comprehensive income for the Trust consists of net income (loss) plus the impact of the reclassification into income of the cumulative derivative transition gain related to the transition adjustment recorded upon the January 1, 2001 adoption of the derivative accounting guidance.

Tax Status of the Trust

RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (KEPCO) SERIES 1997

NOTES TO FINANCIAL STATEMENTS

Comprehensive Income



NOTE 2—GRANTOR TRUST CERTIFICATES

Each Series 1997 Certificate represents an undivided fractional interest in the Trust. The ~~Series1997~~Series 1997 Certificates are subject to redemption by the Cooperative, through the Trust, at any time based on the remaining principal amount plus accrued interest. In the event of a continuing default, the RUS, as guarantor, may prepay or purchase the 1997 Notes at that time.

The principal payments received on the 1997 Notes from the Cooperative coincide with the payments due to the holders of the Series 1997 Certificates. Principal payments on the Series 1997 Certificates began in 1998 and extend over a period of twenty years. ~~Principal~~As ~~payments~~of December 31, 2016, there is a total of $3,240,000 of principal due ~~each~~in fiscal year 2017 through maturity of the 1997 Notes inon ~~fiscal~~December ~~year~~4, 2017 ~~are presented below~~.

Due	Amount
2016	$	4,000,000
2017	3,240,000
	$	7,240,000



NOTE 3—DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Effective January 1, 2001, the Trust adopted the accounting guidance ~~which~~requiring ~~required~~ that derivatives be recorded on the balance sheet at fair value. At adoption, the Trust had an interest rate swap agreement that had been entered into to hedge the interest rate exposure associated with the fixed-rate 1997 Notes and a variable-rate obligation. As noted above in “Note 1-Summary of Significant Accounting Policies,” the Trust recorded a cumulative derivative transition gain of $4,628,105 in AOCI upon adoption of the derivative accounting guidance. The interest rate swap was not designated as a qualifying hedge for accounting purposes on January 1, 2001, and has not been designated as a qualifying hedge since that date. Therefore, all changes in the fair value of the interest rate swap subsequent to January 1, 2001 have been recorded in the statements of comprehensive income as a component of derivative gain (loss), net.

The table below summarizes the outstanding notional amount and fair value of the interest rate swap at December 31, ~~2015~~2016 and ~~2014~~2015. The Swap Agreement, which is with a highly rated counterparty, ~~contains~~is subject to a master netting ~~arrangements~~arrangement aspursuant ~~part~~to of the International Swaps and Derivatives Association (“ISDA”). The Swap Agreement does not require collateral posting by either counterparty.

	December 31,
	2015						2014
	2016						2015
	Notional		Derivatives at Fair Value				Notional		Derivatives at Fair Value
	Amount		Asset		Liability		Amount		Asset		Liability
Derivatives not designated as accounting hedges:
Interest rate swaps	$	73,240,000	$	—	$	~~630~~179,~~227~~804	$	137,~~140~~240,000	$	—	$	1630,~~464,766~~227
Total derivatives	$	73,240,000	$	—	$	~~630~~179,~~227~~804	$	137,~~140~~240,000	$	—	$	1630,~~464,766~~227

910

RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (KEPCO) SERIES 1997

NOTES TO FINANCIAL STATEMENTS

The table below displays the components of the derivative gain ~~(loss), net~~ presented in the statements of comprehensive income. Derivative cash settlements represent the net interest amount accrued during a period for interest-rate swap payments. The derivative forward value represents the change in fair value of our interest rate swaps during the reporting period due to changes in expected future interest rates over the remaining life of the interest rate swap.

	Year Ended December 31,
	2015			2014			2013
	2016			2015			2014
Derivative settlement interest income (expense):
Derivative cash settlement income (expense):
Receive-variable leg of interest rate swap	$	3962,~~922~~487		$	9739,~~103~~922		$	6097,~~883~~103
Pay-fixed leg of interest rate swap	(~~965~~529,~~085~~949		)	(1965,~~364,957~~085		)	(1,~~726~~364,~~921~~957		)
Derivative settlement interest expense, net(1)	(925,163		)	(1,267,854		)	(1,666,038		)
Derivative cash settlement expense	(467,462		)	(925,163		)	(1,267,854		)
Change in derivative fair value, net(2)	834,539			1,194,437			1,668,813
Derivative forward value	450,423			834,539			1,194,437
Reclassification of cumulative derivative transition gain to net income(3)	105,587			148,175			186,745
Reclassification of cumulative derivative transition gain from AOCI to net income	58,177			105,587			148,175
Derivative gain, net	$	14,963		$	74,758		$	189,520
Derivative gain	$	41,138		$	14,963		$	74,758

~~_____________________~~The interest rate swap matures on December 4, 2017. As such, we expect to reclassify the remaining cumulative derivative transition gain of $26,035 at December 31, 2016 from AOCI into earnings during 2017.

(1) Represents the net accrued interest amounts received from/(paid to) the swap counterparty.

(2) Represents the change in the fair value of the interest rate swaps, excluding interest accruals.

(3) Represents reclassification of cumulative derivative transition gain from AOCI to earnings.

The remaining cumulative derivative transition gain of $84,212 at December 31, 2015 will continue to be reclassified from AOCI into earnings over the remaining life of the interest rate swap, which matures on December 4, 2017. A total of $58,177 is expected to be reclassified over the next twelve months.



NOTE 4—FAIR VALUE

Fair value is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date (also referred to as an exit price). The fair value accounting guidance provides a three-level fair value hierarchy for classifying financial instruments. This hierarchy is based on whether the inputs to the valuation techniques used to measure fair value are observable or unobservable. Fair value measurement of an asset or liability is assigned to a level based on the lowest level of any input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are as follows:

Level 1:	~~Valuation~~Quoted ~~based on quoted~~ prices (unadjusted) in active markets for identical assets or liabilities.
Level 2:	~~Valuation~~Observable market-based oninputs, other than quoted prices ~~for similar instruments~~ in active markets, ~~quoted prices~~ for identical ~~or similar instruments in markets that are not active, or models using inputs that are observable or can be corroborated by observable market data of substantially the full term of the~~ assets or liabilities.
Level 3:	~~Valuation~~Unobservable ~~based on at least one significant unobservable input or model assumption requiring significant management judgment or estimation.~~inputs

The accounting guidance for fair value requires maximizing the use of observable inputs and minimizing the use of unobservable inputs in determining fair value.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The interest rate swap derivative is the only asset/liability of the Trust that is measured and reported at fair value on a recurring basis in the financial statements. Because the interest rate swap held by the Trust is not an exchange-traded derivative, quoted market prices are not readily available. The Trust obtains the fair value measurement of the derivative from the derivative counterparty, which determines the fair value based on the net present value of expected future cash flows calculated using observable market inputs, such as interest rate yield curves and current market interest rates.

RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (KEPCO) SERIES 1997

NOTES TO FINANCIAL STATEMENTS

The Trust performs independent validation procedures to corroborate the fair value measures obtained from the derivative counterparty using pricing models based on observable market inputs. Accordingly, the valuation technique for the interest rate swap is classified as Level 2.

The following fair value hierarchy table presents information about the Trust’s assets and liabilities measured and reported at fair value on a recurring basis at December 31, 2015 and 2014.

	December 31,
	2015								2014
	Leve1 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Liabilities:
Derivative liability	$	—	$	630,227	$	—	$	630,227	$	—	$	1,464,766	$	—	$	1,464,766

Transfers Between Level 1 and Level 2

There were no transfers between Levels 1 and 2 during fiscal years 2015 or 2014.

Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Trust did not have any assets or liabilities measured at fair value on a recurring basis using Level 3 valuation techniques at December 31, 2015 or 2014.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The Trust did not have any assets or liabilities measured at fair value on a nonrecurring basis during fiscal years 2015 or 2014.

Fair Value of Financial Instruments

The ~~tables~~following ~~below~~table ~~present~~presents the carrying value, ~~fair value~~ and fair value ~~hierarchy~~for all of the financial instruments of the Trust, ~~whether~~including orthose ~~not~~carried ~~they~~at ~~are~~amortized ~~measured~~cost, at December 31, 2016 and ~~reported~~2015. atThe ~~fair~~table ~~value~~also ondisplays the ~~Trust’s~~classification ~~balance~~within ~~sheets~~the atfair ~~December~~value ~~31,~~hierarchy ~~2015~~of ~~and~~the ~~2014~~valuation technique used in estimating fair value.

	December 31, 2015
	Carrying		Fair		Fair Value Measurements Using
	Value		Value		Level 1		Level 2		Level 3
Financial assets:
Interest receivable - KEPCO	$	56,475	$	56,475	$	—	$	56,475	$	—
Interest receivable - swap counterparty	3,586		3,586		—		3,586		—
Notes receivable	7,240,000		7,794,690		—		—		7,794,690
Financial liabilities:
Servicer fees payable	$	725	$	725	$	—	$	725	$	—
Interest payable - Grantor Trust Certificates	3,586		3,586		—		3,586		—
Interest payable - swap counterparty	55,750		55,750		—		55,750		—
Rural Electric Cooperative Grantor Trust Certificates	7,240,000		7,240,000		—		7,240,000		—
Derivative liability	630,227		630,227		—		630,227		—

RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (KEPCO) SERIES 1997

NOTES TO FINANCIAL STATEMENTS

	December 31, 2014
	December 31, 2016
	Carrying		Fair		Fair Value Measurements Using
	Value		Value		Level 1		Level 2		Level 3
Financial assets:
Interest receivable - KEPCO	$	89,944	$	89,944	$	—	$	89,944	$	—
Interest receivable — KEPCO	$	27,746	$	27,746	$	—	$	27,746	$	—
Interest receivable - swap counterparty	4,975		4,975		—		4,975		—
Interest receivable — swap counterparty	3,074		3,074		—		3,074		—
Notes receivable	133,~~140~~240,000		143,~~513~~422,~~805~~218		—		—		143,~~513~~422,~~805~~218
Financial liabilities:
Servicer fees payable	$	~~1,101~~340	$	~~1,101~~340	$	—	$	~~1,101~~340	$	—
Interest payable - Grantor Trust Certificates	4,975		4,975		—		4,975		—
Interest payable — Grantor Trust Certificates	3,074		3,074		—		3,074		—
Interest payable - swap counterparty	88,843		88,843		—		88,843		—
Interest payable — swap counterparty	27,406		27,406		—		27,406		—
Rural Electric Cooperative Grantor Trust Certificates	133,~~140~~240,000		133,~~140~~240,000		—		133,~~140~~240,000		—
Derivative liability	1179,~~464,766~~804		1179,~~464,766~~804		—		1179,~~464,766~~804		—

Below is a summary of the valuation techniques used in estimating the fair value amounts of the financial instruments of the Trust at December 31, 2015 and 2014. As required under the accounting guidance for fair value, the valuation techniques have used quoted market prices and maximized the observable inputs whenever possible and minimized the use of unobservable inputs.



	December 31, 2015
	Carrying		Fair		Fair Value Measurements Using
	Value		Value		Level 1		Level 2		Level 3
Financial assets:
Interest receivable — KEPCO	$	56,475	$	56,475	$	—	$	56,475	$	—
Interest receivable — swap counterparty	3,586		3,586		—		3,586		—
Notes receivable	7,240,000		7,794,690		—		—		7,794,690

Financial liabilities:
Servicer fees payable	$	725	$	725	$	—	$	725	$	—
Interest payable — Grantor Trust Certificates	3,586		3,586		—		3,586		—
Interest payable — swap counterparty	55,750		55,750		—		55,750		—
Rural Electric Cooperative Grantor Trust Certificates	7,240,000		7,240,000		—		7,240,000		—
Derivative liability	630,227		630,227		—		630,227		—

Following is a description of the valuation methodology used in estimating fair value of the financial instruments of the Trust , the significant inputs and assumptions, if applicable, and the classification within the fair value hierarchy.

Interest Receivable - KEPCO and Swap Counterparty

The carrying amounts of interest receivable approximate fair value because of the relatively short period of time between their accrual and expected receipt of payment.

Notes Receivable

The fair value for notes receivable is estimated by discounting the expected 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. ~~Notes~~This ~~receivable~~valuation ~~are~~technique ~~categorized~~is inclassified as Level 3 ~~of the fair value hierarchy~~.

RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (KEPCO) SERIES 1997

NOTES TO FINANCIAL STATEMENTS

Servicer Fees Payable

The carrying amount of servicer fees payable approximates fair value because of the relatively short period of time between their accrual and expected payment.

Interest Payable - Grantor Trust Certificates and Swap Counterparty

The carrying amounts of interest payable approximate fair value because of the relatively short period of time between their accrual and expected payment.

Rural Electric Cooperative Grantor Trust Certificates

The Series 1997 Trust Certificates pay a variable rate of interest that is reset weekly, and as such ~~are~~the ~~considered~~carrying tovalue beapproximates ~~carried at~~ fair value. ~~Rural~~This ~~Electric~~valuation ~~Cooperative~~technique ~~Grantor~~is ~~Trust~~classified ~~Certificates~~as ~~are categorized in~~ Level 2 ~~of the fair value hierarchy~~.

Derivative Liability

AsThe ~~noted~~interest ~~above,~~rate swap is accounted for in the balance sheets as a liability measured at fair value. ofThe ~~the~~swap ~~derivative~~agreement is ~~obtained~~subject ~~from~~to ~~the~~a ~~derivative~~master ~~counterparty,~~netting ~~which~~agreement ~~determines~~pursuant to the ISDA. There is not an active secondary market for this type of interest rate swap. To calculate fair value, ~~based~~a onforward interest rate curve is used to determine the projected floating rate cash flows and the discount factors needed to calculate the net present value of ~~expected~~each ~~future~~interest payment. A model is used to determine the value of the derivative based on discounted cash flows ~~calculated~~utilizing ~~using~~ observable market inputs,. ~~such~~The assignificant ~~interest~~observable ~~rate~~market ~~yield~~inputs ~~curves~~include ~~and~~spot ~~current~~LIBOR rates and market ~~interest~~swap rates,. ~~and~~Independent isvalidation ~~categorized~~procedures inare ~~Level~~used 2to ofcorroborate the fair value ~~hierarchy~~measures obtained from the derivative counterparty. This valuation technique is classified as Level 2.

12Assets and Liabilities Measured at Fair Value on a Recurring Basis

The interest rate swap is the only asset/liability of the Trust that is measured and reported at fair value on a recurring basis in the financial statements. The following fair value hierarchy table presents information about the Trust’s assets and liabilities measured and reported at fair value on a recurring basis at December 31, 2016 and 2015.



	December 31,
	2016								2015
	Leve1 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Liabilities:
Derivative liability	$	—	$	179,804	$	—	$	179,804	$	—	$	630,227	$	—	$	630,227

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The Trust did not have any assets or liabilities measured at fair value on a nonrecurring basis during fiscal years 2016 or 2015.

Transfers Between Level 1 and Level 2

There were no transfers between Levels 1 and 2 during fiscal years 2016 or 2015.

Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Trust did not have any assets or liabilities measured at fair value on a recurring basis using Level 3 valuation techniques at December 31, 2016 or 2015.


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

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

Not applicable.

ITEM 9B. OTHER INFORMATION

Not applicable.

PART III


ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Not applicable.


ITEM 11.	EXECUTIVE COMPENSATION

Not applicable.


ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Not applicable.


ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Not applicable.


ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES

Not applicable.

PART IV


ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Documents filed as part of this report:

(1) Financial Statements and Report of Independent Registered Public Accounting Firm

The financial statements required to be filed in this Form 10-K are included in “Part II, Item 8.”

(2) Financial Statement Schedules

None.

(3) Exhibits



Exhibit No.		Description
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 National Rural Utilities Cooperative Finance Corporation (“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 10.5 to Registration Statement on Form S-1 [No. 333-25029]).
10.6		Swap Agreement (incorporated by reference to Exhibit 10.6 to 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]).
12*		Computation of Ratio of Earnings to Fixed Charges.
99*		JPMorgan Chase & Co. (Swap Counterparty) Financial Information.
31.1*		Certification of the Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of the Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
32.1†		Certification of the Chief Executive Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.
32.2†		Certification of the Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.

ExhibitNo.		Description
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 National Rural Utilities Cooperative Finance Corporation (“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 10.5 to Registration Statement on Form S-1 [No. 333-25029]).
10.6		Swap Agreement (incorporated by reference to Exhibit 10.6 to 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]).
12*		Computation of Ratio of Earnings to Fixed Charges.
99*		JP Morgan Chase & Co. (successor to Morgan Guaranty Trust Co. of NY) and Morgan Guaranty Trust Company of New York (Swap Counterparty) Financial Information.
31.1*		Certification of the Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of the Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
32.1†		Certification of the Chief Executive Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.
32.2†		Certification of the Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.

________________

* Indicates a document being filed with this Report.

† Indicates a document that is furnished with this Report, which shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section.

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SIGNATURES

Pursuant to the requirements of Section 13 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.

RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (KEPCO) SERIES 1997

By: NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, as Servicer Date: March 9, ~~2016~~2017 /s/ SHELDON C. PETERSENSheldon C. PetersenGovernor & Chief Executive Officer

1516

Filing Compare · RURAL ELECTRIC COOPERATIVE GRANTOR TRUST KEPCO SERIES 1997