Dated: April 29, 2010

† CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by Standard & Poor’s Financial Services LLC on behalf of The American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. Neither the Underwriters nor the Lessee is responsible for the selection or correctness of the CUSIP numbers set forth herein.

1.

In the opinion of Fulbright & Jaworski L.L.P., Special Counsel, interest with respect to the Certificates is exempt from personal income taxesof the State of California. Interest on Certificates will not be excludable from gross income for federal tax purposes under existing law. SpecialCounsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of theinterest deemed interest with respect to the Certificates. See “GENERAL TAX MATTERS” herein.

NEW ISSUE – BOOK-ENTRY ONLY RATING:S&P: “A”

(See “RATING” herein.)

The above-captioned Certificates evidence the proportionate undivided interests of the Owners thereof in the Lease Payments (as definedherein) to be made pursuant to a Lease Agreement dated as of May 1, 2010 (the “Lease Agreement”) by and between the Los Angeles County Schools Regionalized Business Services Corporation, as Lessor (the “Corporation”) and Charter Oak Unified School District, as Lessee (the “Lessee”), and a Trust Agreement, dated as of May 1, 2010, by and among the Corporation, the Lessee and The Bank of New York Mellon Trust Company, N.A., as Trustee (the “Trustee”). The Certificates are being executed and delivered to (i) provide for the financing of the acquisition, improvement and equipping of certain capital facilities of the Lessee and (ii) pay costs of delivery in connection with the Certificates. See “PLAN OF FINANCE” herein. The Certificates will be delivered in book-entry only form, initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). Purchasers of the Certificates will not receive certificates representing their interests therein.

Interest due with respect to the Certificates is payable on May 1 and November 1 of each year, commencing on November 1, 2010 (each, a “Certificate Payment Date”). On each Certificate Payment Date, the Trustee will make all payments of principal, premium, if any, and interest evidenced and represented by the Certificates, for so long as the Certificates are registered in the name of Cede & Co., to DTC, which, in turn, is obligated to remit such principal and, premium, if any, and interest evidenced by the Certificates to DTC Participants (as defined herein) for subsequent distribution to the Beneficial Owners (as defined herein) of the Certificates. Principal with respect to the Certificates is payable upon surrender of the Certificates at maturity or earlier prepayment at the principal corporate trust office of the Trustee in Los Angeles, California. The Certificates are to be delivered as fully registered certificates without coupons, in authorized denominations of $5,000 or any integral multiple thereof.

The Certificates are being issued as “qualified school construction bonds” as defined in Section 54F of the Internal Revenue Code of 1986, as amended (the “Code”) and as “specified tax credit bonds” as defined in Section 6431(f)(2) of the Code. The Certificates will be issued under the provisions of the American Recovery and Reinvestment Act of 2009 and the Hiring Incentives to Restore Employment Act of 2010, the interest on which is not excluded from gross income for purposes of federal income taxation. See “GENERAL TAX MATTERS” herein. The Lessee expects to irrevocably elect to receive a direct cash subsidy payment from the United States Department of Treasury relating to the interest payable by the Lessee on the Certificates as of each Interest Payment Date. See “THE CERTIFICATES – General” herein.

The Certificates are subject to prepayment as described herein. See the caption “THE CERTIFICATES – Optional Prepayment,” “– Extraordinary Optional Prepayment” and “–Extraordinary Mandatory Prepayment from Unexpended Proceeds of the Certificates” herein.

The Lessee has covenanted under the Lease Agreement that, so long as the Leased Property (as defined herein) is available for the Lessee’s use, it will take such action as may be necessary to include in its annual budgets all of its Lease Payments due in each fiscal year and to make the necessary annual appropriations therefor, subject to abatement thereof in the event of damage, destruction, condemnation or any defect of title which substantially interferes with the Lessee’s use and right of possession of the Leased Property.

The obligation of the Lessee to make Lease Payments does not constitute an obligation of the Lessee for which the Lessee is obligated to levy or pledge any form of taxation or for which the Lessee has levied or pledged any form of taxation. Neither the Certificates nor the obligation of the Lessee to make Lease Payments under the Lease Agreement constitutes a debt of the Lessee, the Corporation, the County of Los Angeles, the State of California or any of its political subdivisions within the meaning of the Constitution of the State of California or otherwise, or a pledge of the full faith and credit of any of the foregoing.

$2,975,000LOS ANGELES COUNTY SCHOOLS POOLED FINANCING PROGRAM

TAXABLE CERTIFICATES OF PARTICIPATION 2010 SERIES A

(Charter Oak Unified School District Direct Subsidy Qualified School Construction Bonds) Evidencing Proportionate Undivided Interests of the

Owners Thereof in Lease Payments to Be Made to the LOS ANGELES COUNTY SCHOOLS REGIONALIZED

BUSINESS SERVICES CORPORATION by

CHARTER OAK UNIFIED SCHOOL DISTRICT

Term Certificates Due: May 1, 2027Dated: Date of Delivery

RBC CAPITAL MARKETS De La Rosa & Co.

This cover page contains information for quick reference only. Investors must read this entire Official Statement in order toobtain information essential to making an informed investment decision.

The Certificates are offered when, as and if executed, delivered and received by the Underwriters set forth below, subject to the approval as to their validity and enforceability by Fulbright & Jaworski L.L.P., Los Angeles, California, Special Counsel to the Corporation, and certain other conditions. Certain legal matters will be passed upon for the Underwriters by Hawkins Delafield & Wood LLP, Los Angeles, California. It is anticipated that the Certificates will be available for delivery in New York, New York, through the facilities of DTC on or about May 13, 2010.

Interest Rate Yield CUSIP† Number

7.269% 7.269% 54515EBY9

No dealer, broker, salesperson or other person has been authorized by the Corporation, the Lessee or the Underwriters to give any information or to make any representations other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by the Corporation, the Lessee or the Underwriters. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Certificates by a person in any jurisdiction in which it is unlawful for such person to make an offer, solicitation or sale.

This Official Statement is not to be construed as a contract with the purchasers of the Certificates. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation of facts.

The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information.

The information set forth in this Official Statement has been obtained from the Lessee, the County of Los Angeles (see APPENDIX F — “THE LOS ANGELES COUNTY POOLED SURPLUS INVESTMENTS”), and other sources which are believed to be reliable, but is not guaranteed as to accuracy or completeness. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall under any circumstance create any implication that there has been no change in the affairs of the Lessee, the Corporation or the County of Los Angeles since the date hereof. All summaries of the Certificates, Lease Agreement, Site Lease, Trust Agreement, Assignment Agreement, and Continuing Disclosure Agreement (each as defined herein) and other documents, are made subject to the provisions of such documents respectively and do not purport to be complete statements of any or all of such provisions. This Official Statement, including any supplement or amendment hereto, is intended to be deposited with the Municipal Securities Rulemaking Board.

This Official Statement is submitted in connection with the execution and delivery of the Certificates referred to herein and may not be reproduced or used, in whole or in part, for any other purpose.

Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended. Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “budget,” “project,” “forecast” or other similar words.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITERS MAY OFFER AND SELL THE CERTIFICATES TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AT PRICES LOWER THAN THE PUBLIC OFFERING PRICE STATED ON THE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICE MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITERS.

CHARTER OAK UNIFIED SCHOOL DISTRICT

Board of Education

Robert J. Cruz, President Brian R. Akers, Vice President

Jane A. Bock, Member Don H. Davis, Member

Joseph M. Probst, Member

Administration

Dr. Clint Harwick, Superintendent Elias Jouen, Assistant Superintendent, Business Services

SPECIAL SERVICES

Program Sponsor

Los Angeles County Office of Education

Special Counsel

Fulbright & Jaworski L.L.P. Los Angeles, California

Trustee

The Bank of New York Mellon Trust Company, N.A. Los Angeles, California

[THIS PAGE INTENTIONALLY LEFT BLANK]

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TABLE OF CONTENTS

Page

INTRODUCTION ........................................................................................................................................ 1

ESTIMATED USES OF PROCEEDS .......................................................................................................... 2

PLAN OF FINANCE .................................................................................................................................... 2

THE CERTIFICATES .................................................................................................................................. 3

General Provisions .................................................................................................................................... 3

Book-Entry Only System .......................................................................................................................... 3

Optional Prepayment ................................................................................................................................ 3

Mandatory Sinking Fund Prepayment ...................................................................................................... 4

Extraordinary Mandatory Prepayment from Unexpended Proceeds of the Certificates ........................... 4 Extraordinary Optional Prepayment ......................................................................................................... 4

Mandatory Prepayment ............................................................................................................................. 5

Selection of Certificates for Prepayment .................................................................................................. 6

Notice of Prepayment ............................................................................................................................... 6

Effect of Notice of Prepayment ................................................................................................................ 7

Security for the Certificates ...................................................................................................................... 7

Lease Payments ...................................................................................................................................... 10

Limitations on Remedies Available to Owners of the Certificates ........................................................ 11 Continuing Disclosure ............................................................................................................................ 12

Certain Definitions ................................................................................................................................. 12

INVESTMENT OF LESSEE FUNDS ........................................................................................................ 12

INFORMATION REGARDING THE LESSEE ........................................................................................ 12 THE CORPORATION ............................................................................................................................... 13

STATE FUNDING OF EDUCATION ....................................................................................................... 13

General ................................................................................................................................................... 13

Proposition 98 ......................................................................................................................................... 15

State Assistance ...................................................................................................................................... 15

State School Facilities Bonds ................................................................................................................. 23

Financial Statements ............................................................................................................................... 24

Reports and Certifications ...................................................................................................................... 25

Budgets of Lessee ................................................................................................................................... 26

State Emergency Loan Program ............................................................................................................. 26

RISK FACTORS ........................................................................................................................................ 26

Not a Pledge of Taxes ............................................................................................................................. 26

Additional Obligations of the Lessee ..................................................................................................... 26

No Acceleration Upon Default ............................................................................................................... 27

Abatement ............................................................................................................................................... 27

Earthquakes ............................................................................................................................................ 27

No Liability by the Corporation to the Owners ...................................................................................... 28

Hazardous Substances ............................................................................................................................ 28

CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS ................................................................................ 28

Constitutionally Required Funding of Education ................................................................................... 28

Article XIIIB of the State Constitution ................................................................................................... 29

Article XIIIC and Article XIIID of the State Constitution ..................................................................... 30 Proposition 98 ......................................................................................................................................... 30

Proposition 39 ......................................................................................................................................... 31

Proposition 1A ........................................................................................................................................ 31

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State School Facilities Bonds ................................................................................................................. 32

Future Initiatives ..................................................................................................................................... 33

GENERAL TAX MATTERS ..................................................................................................................... 33

CERTAIN LEGAL MATTERS.................................................................................................................. 36

ABSENCE OF LITIGATION .................................................................................................................... 36

RATING ..................................................................................................................................................... 36 AVAILABILITY OF DOCUMENTS ........................................................................................................ 36

UNDERWRITING ..................................................................................................................................... 36

CONTINUING DISCLOSURE .................................................................................................................. 37

MISCELLANEOUS ................................................................................................................................... 37

APPENDIX A – THE LESSEE: CHARTER OAK UNIFIED SCHOOL DISTRICT ....................... A-1 APPENDIX B – THE LEASED PROPERTY .................................................................................... B-1 APPENDIX C – SUMMARY OF PRINCIPAL LEGAL DOCUMENTS .......................................... C-1 APPENDIX D – BOOK-ENTRY SYSTEM ....................................................................................... D-1 APPENDIX E – PROPOSED FORM OF SPECIAL COUNSEL OPINION ..................................... E-1 APPENDIX F – THE LOS ANGELES COUNTY POOLED SURPLUS

INVESTMENTS ....................................................................................................... F-1 APPENDIX G – FORM OF CONTINUING DISCLOSURE AGREEMENT ................................... G-1 APPENDIX H – EXCERPTS FROM THE LESSEE’S FISCAL YEAR 2008-09

AUDITED FINANCIAL STATEMENTS ............................................................... H-1

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SUMMARY STATEMENT

THIS SUMMARY STATEMENT IS SUBJECT IN ALL RESPECTS T O THE MORE COMPLETE INFORMATION IN THIS OFFICIAL STATEMENT AND THE OFFERING OF THE CERTIFICATES TO POTENTIAL INVESTORS IS MADE ONL Y BY MEANS OF THE ENTIRE OFFICIAL STATEMENT.

Purpose Proceeds from the sale of the Certificates in the aggregate principal amount of $2,975,000 will be used to (i) provide for the financing of the acquisition, improvement and equipping of certain capital facilities of the Lessee and (ii) pay costs of delivery in connection with the Certificates. Certain real property of Charter Oak Unified School District (the “Lessee”) has been leased by the Lessee under the Lease Agreement (the “Lease Agreement”) from the Los Angeles County Schools Regionalized Business Services Corporation (the “Corporation”), as Lessor. See Appendix B – “THE LEASED PROPERTY” attached hereto.

Security for the Certificates The Lessee is obligated under the Lease Agreement to make

Lease Payments on each April 15 and October 15 as the rental for the use and possession of the Leased Property (the “Lease Payments”). Each Certificate evidences and represents a proportionate undivided interest of the registered owner thereof (herein referred to as the “Owners” or “Certificate Owners”) in Lease Payments to be made by the Lessee. The Lessee has covenanted under the Lease Agreement that so long as its Leased Property is available for the Lessee’s use, it will take such action as may be necessary to include in its annual budget all of its Lease Payments due in such fiscal year and to make the necessary annual appropriations therefor. Under California law, the obligation of the Lessee to make Lease Payments (other than to the extent that funds are available for such purpose from insurance or in accounts established for the Lessee from proceeds of the Certificates) must be abated in whole or in part if the Lessee does not have full use and possession of its Leased Property. A Reserve Fund has been established for the Lessee for the benefit of the Certificate Owners in the amount set forth herein.

Pursuant to the Assignment Agreement (as defined herein), the Corporation will assign to the Trustee for the benefit of the Owners of the Certificates its rights under the Lease Agreement, including (i) its right to receive amounts payable by the Lessee under the Lease Agreement, (ii) its right to receive and collect any proceeds of any insurance maintained under the Lease Agreement, and (iii) its right to enforce amounts payable upon default.

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Form of Certificates The Certificates will be sold and delivered in fully registered form in authorized denominations of $5,000 or any integral multiple thereof.

Certificate Payment Dates The Certificates will be payable on May 1 and November 1, commencing November 1, 2010.

Prepayment The Certificates are subject to optional, extraordinary and mandatory prepayment as described herein.

The Lessee The Lessee is duly organized and existing as a unified school district located in Los Angeles County, California. See Appendix A – “THE LESSEE: CHARTER OAK UNIFIED SCHOOL DISTRICT” herein.

THE OBLIGATION OF THE LESSEE TO MAKE LEASE PAYMENTS UNDER THE LEASE AGREEMENT IS AN OBLIGATION PAYABLE FROM THE LESSEE’ S GENERAL FUND OR ANY OTHER SOURCE OF FUNDS LEGALLY AVAILABLE TO THE LESSEE FOR THE PAYMENT OF THE LEASE PAYMENTS. THE OBLIGATION OF T HE LESSEE TO PAY LEASE PAYMENTS DOES NOT CONSTITUTE AN OBLIGATION OF THE LESSEE FOR WHICH THE LESSEE IS OBLIGATED TO PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE LESSEE HAS PLEDGED ANY FORM OF TAXATION. THE OBLIGATION OF THE LESSEE TO PAY LEASE PAYMENTS UNDER THE LEASE AG REEMENT DOES NOT CONSTITUTE A DEBT OR INDEBTEDNESS OF THE LESSEE, THE CORPORATION, THE COUNTY OF LOS ANGELES, THE STATE OF CALIFORNIA OR A NY OF ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTION AL OR STATUTORY DEBT LIMITATION OR RESTRICTION.

OFFICIAL STATEMENT

$2,975,000 LOS ANGELES COUNTY SCHOOLS POOLED

FINANCING PROGRAM TAXABLE CERTIFICATES OF PARTICIPATION

2010 SERIES A (Charter Oak Unified School District

Direct Subsidy Qualified School Construction Bonds)

Evidencing Proportionate Undivided Interests of the Owners Thereof in Lease Payments to Be Made to the

LOS ANGELES COUNTY SCHOOLS REGIONALIZED BUSINESS SERVICES CORPORATION

by CHARTER OAK UNIFIED SCHOOL DISTRICT

______________________________

INTRODUCTION

The purpose of this Official Statement, including the cover page, inside cover, Summary Statement, Table of Contents and Appendices (the “Official Statement”), is to provide certain information concerning the execution, sale and delivery of certain Certificates of Participation, 2010 Series A (the “Certificates”), in the aggregate principal amount of $2,975,000 evidencing proportionate undivided interests of the owners thereof in Lease Payments (defined herein) to be made to the Los Angeles County Schools Regionalized Business Services Corporation (the “Corporation”) by Charter Oak Unified School District (the “Lessee”) pursuant to a Lease Agreement dated as of May 1, 2010 by and between the Corporation and the Lessee (the “Lease Agreement”).

The Lessee will execute a Site Lease, dated as of May 1, 2010 (the “Site Lease”), pursuant to which the Lessee will lease certain real property (the “Leased Property”) to the Corporation as lessee thereunder. Pursuant to the Assignment Agreement, dated as of May 1, 2010 (the “Assignment Agreement”), by and between the Corporation and the Trustee, the Corporation has assigned to the Trustee, for the benefit of the Owners, its rights under the Lease Agreement, including (i) its right to amounts payable by the Lessee under the Lease Agreement, (ii) its right to receive the proceeds of casualty and rental interruption insurance on the Leased Property and (iii) its right to enforce payment of amounts due upon default. The Certificates are being executed, sold and delivered pursuant to a Trust Agreement, dated as of May 1, 2010 (the “Trust Agreement”), by and among the Lessee, the Corporation and The Bank of New York Mellon Trust Company, N.A., Los Angeles, California, as trustee (the “Trustee”). Capitalized terms used but not defined herein shall have the meanings set forth in the Trust Agreement and Lease Agreement, as applicable. See Appendix C – “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS” attached hereto.

The Certificates are being executed and delivered to (i) provide for the financing of the acquisition, improvement and equipping of certain capital facilities of the Lessee and (ii) pay costs of delivery in connection with the Certificates. The Leased Property consists of certain real property of the Lessee as described herein under Appendix B – “THE LEASED PROPERTY,” and is expected to be comprised of property with an annual fair market rental value of not less than the maximum annual Lease Payments.

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The Lessee is required to pay to the Trustee, as assignee of the Corporation, the Lease Payments for use and possession of the Leased Property, which amounts are intended to be sufficient in both time and aggregate amount to pay, when due, the principal and interest payable with respect to the Certificates (see Appendix C – “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – THE LEASE AGREEMENT – Lease Payments”). In the Lease Agreement, the Lessee has covenanted that it will take such actions as may be necessary to include in its annual budgets all of the Lease Payments due in each fiscal year with respect to the Leased Property and to make the necessary annual appropriations therefor. The obligation of the Lessee to make Lease Payments does not constitute an obligation of the Lessee for which the Lessee is obligated to pledge any form of taxation or for which the Lessee has levied or pledged any form of taxation. Neither the Certificates nor the obligation of the Lessee to make Lease Payments constitutes an indebtedness of the Lessee, the Corporation, the County of Los Angeles, the State of California, or any of its political subdivisions within the meaning of any constitutional or statutory debt limitation or restriction. For certain financial information concerning the Lessee, see Appendix A – “THE LESSEE: CHARTER OAK UNIFIED SCHOOL DISTRICT” attached hereto.

ESTIMATED USES OF PROCEEDS

The proceeds to be received from the sale of the Certificates are estimated to be applied as follows:

Sources Certificates Principal Amount $2,975,000.00 District Funds 377,584.50

TOTAL SOURCES $3,352,584.50 Uses

Project Fund $2,915,500.00 Debt Service Reserve Fund 297,500.00 Costs of Delivery(1) 139,584.50

TOTAL USES $3,352,584.50 ____________________ (1) Includes legal fees, Underwriters’ discount (see the caption “UNDERWRITING” herein), Trustee’s fees, printing costs,

rating agency fees and other miscellaneous costs of delivery.

PLAN OF FINANCE

The net proceeds of sale of the Certificates are expected to be used to (i) finance the acquisition, improvement and equipping of certain capital facilities of the Lessee (collectively, the “Project”) and (ii) pay costs of delivery in connection with the Certificates. In accordance with Section 54F(a) of the Internal Revenue Code of 1986, as amended (the “Code”), the Certificates will be designated as “qualified school construction bonds” (as defined in the Code”), and the proceeds will be applied to pay costs of the construction, rehabilitation or repair of public school facilities and the acquisition of land upon which any property to be constructed with proceeds of the Certificates is located, together with costs of issuance of the Certificates. The Lessee expects to spend the proceeds of the Certificates within thirty-six (36) months of their date of delivery. Any certificate proceeds of the Certificates that remain unexpended 36 months following the date of delivery of such Certificates, subject to any extension granted by the Internal Revenue Service, are required to be applied to the extraordinary mandatory prepayment of the Certificates. See “THE CERTIFICATES – Extraordinary Mandatory Prepayment from Unexpended Proceeds of the Certificates” herein.

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The Leased Property consists of Royal Oak Middle School. See Appendix B – “THE LEASED PROPERTY” herein.

THE CERTIFICATES

General Provisions

The Certificates will be executed, sold and delivered in the aggregate principal amount of $2,975,000, will be dated their date of delivery, and will represent and evidence interest from such date, at the rates per annum set forth on the inside cover page hereof. The Certificates will be payable on May 1 and November 1, commencing November 1, 2010 (each, a “Certificate Payment Date”). The Certificates will mature on in each of the designated years and in the principal amounts shown on the inside cover hereof.

The Certificates evidence and represent direct and proportionate undivided interests of the Owners thereof in the Lease Payments to be made by the Lessee. The total amount of each payment of principal and interest with respect to the Certificates made to the Owners of the Certificates is comprised of various portions of the Lease Payments paid by the Lessee on the Certificate Payment Dates.

Book-Entry Only System

The Depository Trust Company (“DTC”), New York, New York, will act as securities depository for the Certificates. The Certificates will initially be executed and delivered in book-entry only form, registered in the name of Cede & Co., as nominee of DTC. Purchasers of the Certificates will not receive certificated securities representing their interests therein. See Appendix D – “BOOK-ENTRY SYSTEM” attached hereto. The Certificates will be executed, sold and delivered in fully registered form without coupons, in denominations of $5,000 each or any integral multiple thereof. On each Certificate Payment Date, the Trustee will, for so long as the Certificates are registered in the name of Cede & Co., make payments of principal, premium, if any, and interest to DTC, which, in turn, is obligated to remit such principal, premium, if any, and interest with respect to the Certificates to DTC Participants (as defined in Appendix D hereto) for subsequent distribution to the Beneficial Owners (as defined in Appendix D hereto) of the Certificates. Principal and premium, if any, with respect to the Certificates is payable upon surrender of the Certificates at maturity or earlier prepayment at the principal corporate trust office of the Trustee.

Optional Prepayment

The Certificates are subject to optional prepayment on any date on or after May 1, 2020, in whole or in part, from any lawfully available moneys of the Lessee, at a prepayment price of par, plus accrued interest to the date fixed for prepayment.

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Mandatory Sinking Fund Prepayment

The Certificates maturing on May 1, 2027, shall be subject to mandatory sinking fund prepayment prior to maturity at a prepayment price equal to the Principal Component of the Certificates to be prepaid, plus accrued interest with respect thereto to the prepayment date, on May 1 of each year, commencing May 1, 2011, in the Principal Components and on the prepayment dates set forth in the following table:

Certificate Payment Date Principal Component May 1, 2011 $150,000 May 1, 2012 155,000 May 1, 2013 160,000 May 1, 2014 160,000 May 1, 2015 165,000 May 1, 2016 165,000 May 1, 2017 170,000 May 1, 2018 170,000 May 1, 2019 175,000 May 1, 2020 180,000 May 1, 2021 180,000 May 1, 2022 185,000 May 1, 2023 185,000 May 1, 2024 190,000 May 1, 2025 190,000 May 1, 2026 195,000 May 1, 2027(1) 200,000

________ (1) Final Maturity.

Extraordinary Mandatory Prepayment from Unexpended Proceeds of the Certificates

The Certificates are subject to extraordinary mandatory prepayment, in whole or in part, on May 13, 2013, or, in the event of an extension negotiated with the Internal Revenue Service, on or before the date to which such extension has been granted, in Authorized Denominations, at a prepayment price equal to the Principal Component of the Certificates called for prepayment, in a Principal Component equal to unexpended proceeds of the sale of the Certificates held by the Lessee, but only to the extent that the Lessee fails to expend all of the net proceeds of the Certificates within three years of issuance thereof and no extension of the period for expenditure has been granted by the Internal Revenue Service.

Extraordinary Optional Prepayment

Upon the occurrence of an Extraordinary Event (defined below), the Certificates are subject to prepayment, at the option of the Lessee, prior to their maturity date, in whole or in part, on the date designated by the Lessee, at the Make-Whole Prepayment Price.

The “Make-Whole Prepayment Price” means the amount equal to the greater of the following:

1. the initial offering price of the Certificates set forth on the inside cover page hereof (but not less than 100% of the principal amount of the Certificates to be prepaid); or

5

2. the sum of the present value of the remaining scheduled payments of principal and interest with respect to the Certificates to be prepaid to the maturity date of such Certificates, not including any portion of those payments of interest accrued and unpaid as of the date on which the Certificates are to be redeemed, discounted to the date on which the Certificates are to be prepaid on a semiannual basis, assuming a 360-day year containing twelve 30 day months, at the Treasury Rate, plus 100 basis points, plus in each case accrued interest on the Certificates to be prepaid to the prepayment date.

In addition, at the request of the Lessee, the Make-Whole Prepayment Price of the Certificates to be prepaid at the option of the Lessee, will be determined by an independent accounting firm, investment banking firm or financial advisor retained by the Lessee at the Lessee’s expense to calculate such Make-Whole Prepayment Price. The Lessee and the Trustee may conclusively rely on the determination of such Make-Whole Prepayment Price by such independent accounting firm, investment banking firm or financial advisor and will not be liable for such reliance.

For the purpose of determining the Make-Whole Redemption Price, “Treasury Rate” means, with respect to any prepayment date for a particular Bond, the yield to maturity as of such prepayment date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) (the “Statistical Release”) that has become publicly available at least two Business Days prior to the prepayment date (excluding inflation-indexed securities) (or, if the Statistical Release is no longer published, any publicly available source of similar market data) most nearly equal to the period from the prepayment date to the maturity date of the Certificates to be prepaid; provided, however that if the period from the prepayment date to the maturity date is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used.

The term “Extraordinary Event” means (a) a final determination by the Internal Revenue Service (“IRS”) (after the Lessee has exhausted all administrative appeal remedies) determining that an Accountable Event of Loss of Qualified School Construction Bond Status has occurred and specifying the Date of Loss of Qualified School Construction Bond Status; (b) a non-appealable holding by a court of competent jurisdiction holding that an Accountable Event of Loss of Qualified School Construction Bond Status has occurred and specifying the Date of Loss of Qualified School Construction Bond Status; (c) the occurrence of a material adverse change under Section 54F or 6431 of the Code; (d) the publication by the IRS or the United States Treasury of any guidance with respect to such sections; or (e) any other determination by the IRS or the United States Treasury, which determination is not the result of a failure of the Lessee to satisfy certain requirements of the Trust Agreement, if as a result of an event as described in (c), (d), or (e) of this sentence, the payments of the direct subsidy from the United States Department of Treasury under section 6431(f)(1)(C) of the Code expected to be received with respect to the Certificates are eliminated or reduced, as reasonably determined by the Superintendent of the Lessee or his designee, which determination shall be conclusive.

Mandatory Prepayment

The Certificates are subject to prepayment on any Certificate Payment Date in whole or in part, in Authorized Denominations, in an amount not greater than the amount of Net Insurance Proceeds with respect to condemned, damaged, or destroyed Leased Property. Such Net Insurance Proceeds will be deposited in the Prepayment Fund to be credited towards the prepayment of the Lease Payments to be made by the Lessee at a prepayment price equal to the principal amount of the Certificates to be prepaid, together with accrued interest to the date fixed for prepayment, without premium. In the event of a prepayment of Certificates from Net Insurance Proceeds and fewer than all outstanding Certificates are

6

called for prepayment, the Trustee will select Certificates for prepayment from the outstanding Certificates proportionately by maturity in Authorized Denominations.

In the event that Net Insurance Proceeds are sufficient, together with other moneys as may be provided by the Lessee, to prepay the Lease Payments in full, payments from Net Insurance Proceeds may be applied to the prepayment of Certificates without the further consent of the Insurer; if such Net Insurance Proceeds are less than the amount necessary to prepay the Certificates in full, no prepayment of Certificates may be effected under the Trust Agreement without the prior written consent of the Insurer, if any.

Whenever Net Insurance Proceeds are set aside for prepayment of Certificates in accordance with the Trust Agreement, such Net Insurance Proceeds will, promptly upon receipt, be invested by the Trustee at the direction of the Lessee in Permitted Investments maturing in time and amount sufficient to provide for the payment in full of the Principal Component of the affected Certificates or for the other purposes provided in the Trust Agreement.

Selection of Certificates for Prepayment

All or a portion of any Certificate may be prepaid, but only in a Principal Component equal to the appropriate Authorized Denomination. Except as otherwise provided in the Trust Agreement, whenever provision is made in the Trust Agreement for the prepayment of Certificates and fewer than all Outstanding Certificates are called for prepayment, the Trustee will select Certificates for prepayment from the Outstanding Certificates not previously called for prepayment by lot, in any manner which the Trustee in its sole discretion deems appropriate and fair. The Trustee will promptly notify the Lessee and the Lessor in writing of the Certificates so selected for prepayment.

Notice of Prepayment

When prepayment is authorized or required pursuant to the Trust Agreement, the Trustee shall give notice of the prepayment of the affected Certificates. All notices of prepayment shall be dated and shall state: (i) the prepayment date, (ii) the prepayment price, (iii) if less than all Outstanding Certificates are to be prepaid, the identification (and, in the case of partial prepayment, the respective Principal Components) of the Certificates to be prepaid, (iv) that on the prepayment date, the prepayment price will become due and payable with respect to each such Certificate or portion thereof called for prepayment, and that interest with respect thereto shall cease to accrue from and after said date, and (v) whether the Lessee has deposited, or caused the deposit of, an amount of money sufficient to pay the prepayment price of all the Certificates or portions of Certificates which are to be prepaid on such date and, if not, that such notice of prepayment is revocable, and (vi) the place where such Certificates are to be surrendered for payment of the prepayment price.

Any notice of prepayment shall either (a) explicitly state that the proposed prepayment is conditioned on there being on deposit in the Prepayment Fund on the date scheduled for prepayment sufficient monies to pay the full prepayment price of the Certificates to be called for prepayment or (b) be sent only if sufficient monies to pay the full prepayment price of the Certificates to be prepaid is first on deposit in the Prepayment Fund.

Notice of prepayment having been given as aforesaid, the Certificates or portions of Certificates so to be prepaid will, on the prepayment date, become due and payable at the prepayment price therein specified, and from and after the date on which prepaid, interest with respect to such Certificates or portions of Certificates shall cease to be payable. Upon surrender of such Certificates for prepayment in accordance with said notice, such Certificates will be paid by the Trustee at the prepayment price.

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Amounts equal to the Interest Component due on or prior to the prepayment date will be payable as herein provided for regular payments of the Interest Component. Upon surrender for any partial prepayment of any Certificate, there will be prepared for the Owner a new Certificate or Certificates in the amount of the unpaid Principal Component. All Certificates which have been prepaid will be canceled by the Trustee, shall not be redelivered and shall be destroyed pursuant to the Trust Agreement.

Notice of such prepayment shall be given by first class mail, postage prepaid, to the Lessee, the Corporation, the Insurer and the respective Owners of any Certificates designated for prepayment at their addresses appearing on the Certificate registration books not less than 30 days, but not more than 60 days, prior to the prepayment date; provided that neither failure to receive such notice nor any defect in any notice so mailed shall affect the sufficiency of the proceedings for the prepayment of the Certificates.

Effect of Notice of Prepayment

Notice having been given as provided in the Trust Agreement, and the moneys to provide for the prepayment (including the Interest Component accruing through the applicable date of prepayment) having been set aside in the Prepayment Fund, the Certificates so called will become due and payable on said date of prepayment, and upon presentation and surrender thereof at the office or offices specified in said notice, said Certificates will be paid from amounts on deposit in the Prepayment Fund in the amount of the unpaid Principal Component, plus the Interest Component accrued and unpaid to said date of prepayment.

If, on said date of prepayment, moneys for the prepayment of all the Certificates to be prepaid, and premium, if any, together with Interest Component accrued to said date of prepayment, will be held by the Trustee so as to be available therefor on such date of prepayment, and, if notice of prepayment thereof shall have been given as aforesaid, then, from and after said date of prepayment, the Interest Component with respect to such Certificates will cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the prepayment of Certificates will be held in trust for the account of the Owners of the Certificates so to be prepaid, and, following payment of such Certificates, the Lessee.

All Certificates paid at maturity or prepaid prior to maturity pursuant to the provisions of the Trust Agreement will be canceled upon surrender thereof.

Security for the Certificates

General. Each Certificate evidences and represents a proportionate, undivided interest of the Owner in the Lease Agreement, including the right to receive the Lease Payments to be made by the Lessee to the Corporation. The Lessee will enter into the Lease Agreement, pursuant to which the Lessee will agree to make Lease Payments in amounts sufficient to make the payments due with respect to the Certificates. The Lease Agreement may be amended pursuant to its terms to provide for additional lease payments secured by the Leased Property on a parity with the Lease Payments made with respect to the Certificates.

The Corporation and the Trustee will enter into an Assignment Agreement. The Corporation, pursuant to the Assignment Agreement, will assign its rights under the Lease Agreement to the Trustee for the benefit of the Owners, including (i) its right to receive amounts payable by the Lessee under the Lease Agreement, (ii) its right to receive the proceeds of insurance maintained on the Leased Property, and (iii) its right to enforce amounts payable upon default by the Lessee.

Principal and interest due with respect to the Certificates will be made from the Lease Payments payable by the Lessee for the use and possession of the Leased Property, from condemnation proceeds,

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from title insurance proceeds, from rental interruption insurance proceeds, from casualty insurance net proceeds pertaining to the Leased Property (to the extent that such net proceeds are not used for repair or replacement), from interest or other income derived from the investment of the funds and accounts held by the Trustee for the Lessee pursuant to the Trust Agreement, or in certain instances, from the Reserve Fund established under the Trust Agreement.

The Lessee has covenanted under the Lease Agreement to make Lease Payments for the use and possession of the Leased Property and to take such action each year as may be necessary to include in its annual budget all of the Lease Payments due in such fiscal year and to appropriate annually an amount necessary to make the Lease Payments. Lease Payments received by the Trustee are to be used to make the payments of principal and interest with respect to the Certificates. Under California law, even though the Lease Agreement becomes effective as of the date of original execution of the Certificates, the obligation of the Lessee to make Lease Payments (other than to the extent that funds to make Lease Payments are available in the Reserve Fund and, in the case of termination of the Lease Agreement or partial prepayment of the Lease Payments, the Project Fund) must be abated in whole or in part if the Lessee does not have full use and possession of the Leased Property.

The Lessee has further covenanted to also pay such amounts as shall be required for the payment of all administrative costs of the Corporation relating to the Leased Property or the execution, sale and delivery of the Certificates, including, without limitation, taxes of any sort whatsoever payable by the Corporation as a result of its ownership of the Leased Property or as may be related to the Lease Agreement, and certain costs resulting from the administration of the Trust Agreement, the fees of auditors, accountants, attorneys or engineers, insurance premiums, credit enhancement fees, and all other necessary administrative costs of the Corporation or charges required to be paid by it in order to maintain its existence or to comply with the terms of the Certificates or of the Trust Agreement.

The obligation of the Lessee to make Lease Payments and Additional Payments does not constitute an obligation of the Lessee for which the Lessee is obligated to pledge any tax revenues. Neither the Certificates nor the obligation of the Lessee to make Lease Payments and Additional Payments constitutes an indebtedness of the Lessee, the Corporation, the County of Los Angeles, the State of California or any of its political subdivisions within the meaning of the Constitution of the State of California or otherwise or a pledge of the faith and credit of the Lessee.

The Trustee, pursuant to the Trust Agreement, will receive Lease Payments for the benefit of the Owners. The Lease Payments are scheduled to be sufficient in both time and amount to pay when due the portion of the principal and interest with respect to the Certificates due on the next Certificate Payment Date. The Trustee shall not be required to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties under the Trust Agreement, and under no circumstances shall the Trustee be liable in its individual capacity for the obligations evidenced by the Certificates. Additional Payments payable by the Lessee under the Lease Agreement include amounts as shall be required for the payment of all administrative costs of the Corporation. Lease Payments and Additional Payments are subject to abatement during any period in which, by reason of condemnation, damage or destruction, there is substantial interference with the use and possession of the Leased Property, or any discrete portion thereof, by the Lessee. See “ – Abatement” below and Appendix C “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – THE LEASE AGREEMENT” attached hereto. The Lessee is responsible for the repair and maintenance of the Leased Property and the replacement or repair of the Leased Property to the extent provided in the Lease Agreement.

Direct Subsidy Payments. The Certificates will be issued as “qualified school construction bonds” and as “specified tax credit bonds” under the provisions of the American Recovery and Reinvestment Act of 2009 (the “Recovery Act”) and the Hiring Incentives to Restore Employment Act of

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2010 (the “HIRE Act”). The Certificates are being issued as “qualified school construction bonds” as defined in Section 54F of the Code and as “specified tax credit bonds” as defined in Section 6431(f)(2) of the Code for which the Lessee will receive, pursuant to Sections 54F and 6431 of the Code, a direct cash subsidy payment from the Treasury Department equal to the amount of interest which would have been payable on such Certificates on such Certificate Payment Date if such interest were determined at a rate of 5.66%, which amount is equal to the credit rate determined under Section 54A(b)(3) of the Code had the Certificates been issued as tax credit bonds (the “Applicable Credit Rate”).

The Lessee is obligated to deposit any cash subsidy payments it receives in respect of the Certificates into the Lease Payment Fund with respect to such Certificates. The amount of Lease Payments to be made by the Lessee to the Corporation will take into account amounts received from the Treasury Department as a direct cash subsidy in connection with the Certificates on deposit in the Lease Payment Fund. The Lessee is obligated to make Lease Payments in amounts at least sufficient to make all payments of the Principal Component and the Interest Component with respect to the Certificates whether or not such subsidy payments are received pursuant to the Recovery Act and the HIRE Act and deposited into the Lease Payment Fund.

Insurance. The Lease Agreement requires the Lessee to maintain insurance of the type and in the amounts set forth therein. See Appendix C “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – THE LEASE AGREEMENT” attached hereto. The Lease Agreement permits the Lessee to self-insure to meet insurance requirements (so long as the terms of the Lease Agreement are satisfied) except for rental interruption insurance. The Lease Agreement requires the Lessee to apply the proceeds of any insurance award either to replace or repair the portion of the Leased Property or to prepay Certificates if certain certifications with respect to the adequacy of the proceeds to make repairs, and the timing thereof, cannot be made. The amount of Lease Payments will be abated and Lease Payments due under the Lease Agreement may be reduced during any period in which material damage or destruction to all or part of any component of the Leased Property substantially interferes with the Lessee’s use and possession thereof. Lease Payments may, however, be made from the proceeds of rental interruption insurance as described below. See “RISK FACTORS – Abatement” herein.

Abatement. Except to the extent of (i) amounts held by the Trustee in the Lease Payment Fund, and the Reserve Fund, (ii) amounts received in respect of rental interruption insurance or liquidated damages, if any, and (iii) amounts, if any, otherwise legally available to the Trustee for payments in respect of the Certificates during any period in which, by reason of material damage, destruction, title defect or condemnation there is substantial interference with the use and possession by the Lessee of any component of the Leased Property, Lease Payments due under the Lease with respect to such Leased Property shall be abated by the difference between the annual fair rental value of the facilities of the Leased Property with respect to which there is no such substantial interference, as set forth in a certification of the Lessee. Any abatement of Lease Payments pursuant to the Lease Agreement shall not be considered an Event of Default as defined therein. Such abatement will continue for the period commencing with the date of such interference and ending with the substantial completion of the work of repair or replacement of the portions of the Leased Property so damaged, destroyed, defective or condemned.

A proportional amount of the Lease Payments will be abated during any period in which, by reason of condemnation, damage or destruction, there is substantial interference with the use and possession of the Leased Property; provided, however, that Lease Payments for which the Lessee is not yet liable under the Lease Agreement in the event of such abatement, or a portion of such Lease Payments, as applicable, will be paid from the proceeds of rental interruption insurance, as provided in the Lease Agreement. The amount of such abatement will be determined by the Lessee, such that the resulting Lease Payments represent fair consideration for the use and possession of the portion of the

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Leased Property not condemned, damaged or destroyed. Such abatement will commence on the date of condemnation, damage or destruction and will end with the substantial completion of the replacement or work of repair. There will be no abatement in Lease Payments as a result of any design defects other than design defects that result in condemnation, damage or destruction with regard to the Leased Property. Except as provided in the Lease Agreement, in the event of any such condemnation, damage or destruction, the Lease will continue in full force and effect and the Lessee will waive any right to terminate the Lease by virtue of any such condemnation, damage or destruction.

In the event that any portion of the Lease Payments has been abated as provided in the Lease Agreement during the term thereof, and has not be paid in full due to the insufficiency of rental interruption insurance as provided in the Lease Agreement, then the Lessee will, following the date upon which the portion of the Leased Property will be returned to its substantial use and possession, pay Lease Payments at an increased level (but not in excess of the fair rental value of the total Leased Property) Owners have been reimbursed in full for amounts advanced as Lease Payments during the period of abatement.

Such abated Lease Payments, together with other moneys legally available to the Trustee, including moneys from the Reserve Fund rental interruption insurance and liquidated damages, if any, may not be sufficient to pay principal and interest represented by the Certificates in the amounts and at the rates set forth thereon. In such event, all Owners would forfeit the portion of interest attributable to abated Lease Payments payable during the period of abatement and, to the extent Certificates mature or are to be mandatorily prepaid during a period of abatement, the Owners of such Certificates would forfeit the portion of principal and attributable to such abated Lease Payments. The failure to make such payments of principal and interest would not under such circumstances constitute a default under the Trust Agreement, the Lease Agreement or the Certificates.

Reserve Fund. Pursuant to the Trust Agreement, the Reserve Fund established under the Trust Agreement shall be funded in an amount equal to the Reserve Fund Requirement with a contribution from the Lessee in the form of funds from the Lessee. Such amount deposited in the Reserve Fund, at any time, will be equal to $297,500.00 (the “Reserve Requirement”). The Lessee expects to deposit funds in the amount equal to the Reserve Requirement upon the execution and delivery of the Certificates.

Following any partial prepayment of Certificates or the Lease Payments, the Reserve Requirement may, upon the direction of the Lessee, be reduced to an amount equal to 10% of the Certificates then Outstanding, and the requirement under the Trust Agreement to replenish the Reserve Fund will extend only to the amount of such reduced Reserve Requirement. Amounts in the Reserve Fund are to be used only for the payment of Lease Payments to the extent that funds in the Lease Payment Fund are insufficient therefor; provided, however, that amounts in the Reserve Fund may be invested in Permitted Investments under the Trust Agreement.

Lease Payments

Lease Payments are required under the Lease Agreement to be made by the Lessee in arrears on each April 15 and October 15 (each, a “Lease Payment Date”) for use and possession of the Leased Property for the six month periods commencing on the first day of the month next succeeding such Lease Payment Date periods.

The Lease Agreement requires that Lease Payments be deposited in the Lease Payment Fund maintained by the Trustee. On each Lease Payment Date, the Trustee will withdraw from the Lease Payment Fund the aggregate amount of the Lease Payments and will apply such amounts to make

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principal and interest payments with respect to the Certificates, as shown in the following amortization schedule.

SCHEDULE OF LEASE PAYMENTS

Lease Payment Dates

Principal Component

Interest Component Total

October 15, 2010 -- $100,917.95 $100,917.95

April 15, 2011 $150,000 108,126.38 258,126.38 October 15, 2011 -- 102,674.63 102,674.63

April 15, 2012 155,000 102,674.63 257,674.63 October 15, 2012 -- 97,041.15 97,041.15

April 15, 2013 160,000 97,041.15 257,041.15 October 15, 2013 -- 91,225.95 91,225.95

April 15, 2014 160,000 91,225.95 251,225.95 October 15, 2014 -- 85,410.75 85,410.75

April 15, 2015 165,000 85,410.75 250,410.75 October 15, 2015 -- 79,413.83 79,413.83

April 15, 2016 165,000 79,413.83 244,413.83 October 15, 2016 -- 73,416.90 73,416.90

April 15, 2017 170,000 73,416.90 243,416.90 October 15, 2017 -- 67,238.25 67,238.25

April 15, 2018 170,000 67,238.25 237,238.25 October 15, 2018 -- 61,059.60 61,059.60

April 15, 2019 175,000 61,059.60 236,059.60 October 15, 2019 -- 54,699.23 54,699.23

April 15, 2020 180,000 54,699.23 234,699.23 October 15, 2020 -- 48,157.13 48,157.13

April 15, 2021 180,000 48,157.13 228,157.13 October 15, 2021 -- 41,615.03 41,615.03

April 15, 2022 185,000 41,615.03 226,615.03 October 15, 2022 -- 34,891.20 34,891.20

April 15, 2023 185,000 34,891.20 219,891.20 October 15, 2023 -- 28,167.38 28,167.38

April 15, 2024 190,000 28,167.38 218,167.38 October 15, 2024 -- 21,261.83 21,261.83

April 15, 2025 190,000 21,261.83 211,261.83 October 15, 2025 -- 14,356.28 14,356.28

April 15, 2026 195,000 14,356.28 209,356.28 October 15, 2026 -- 7,269.00 7,269.00

April 15, 2027 200,000 7,269.00 207,269.00 Limitations on Remedies Available to Owners of the Certificates

The enforceability of the rights and remedies of the Owners of the Certificates, and the obligations incurred by the Lessee, may become subject to the following: the Federal Bankruptcy Code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors’ rights generally, now or hereafter in effect; usual equity principles which may limit the specific enforcement under state law of certain remedies; the exercise by the United States

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of America of the powers delegated to it by the Constitution; and the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State of California and its governmental bodies in the interest of servicing a significant and legitimate public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or state government, if initiated, could subject the Owners of the Certificates to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation, or modification of their rights.

Continuing Disclosure

The Lessee has covenanted for the benefit of Certificateholders to provide certain financial information and operating data relating to the Lessee by not later than the March 1 after the end of each fiscal year, commencing with the report for the 2009-10 fiscal year, and to provide notices of the occurrence of certain enumerated events, if deemed by the Lessee to be material under federal securities laws. These covenants have been made in order to assist the Underwriters in complying with Rule 15c2-12(b)(5) promulgated by the U.S. Securities and Exchange Commission. The Lessee has complied in all material respects with its previous undertakings under Rule 15c2-12 for the past five years. See “CONTINUING DISCLOSURE” herein and Appendix G – “FORM OF CONTINUING DISCLOSURE AGREEMENT” attached hereto.

Certain Definitions

Capitalized terms used but not defined herein shall have the meanings set forth in Appendix C – “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS” attached hereto.

INVESTMENT OF LESSEE FUNDS

Most funds of the Lessee, except as otherwise set forth below, are required to be deposited into the County Treasury to the credit of the proper fund of the Lessee. Certain moneys not required for the immediate necessities of the Lessee may be invested in investments specified in Section 16430 or 53601 of the Government Code. Accordingly, all funds of the Lessee not subject to the exception, including cash receipts and other moneys received by the Lessee for deposit to the general fund of the Lessee, are deposited with the County Treasury, to remain on deposit therein and generally available for the payment of current expenses and other obligations of the Lessee until deposited into the Lease Payment Fund, or otherwise. See Appendix F – “THE LOS ANGELES COUNTY POOLED SURPLUS INVESTMENTS” attached hereto.

INFORMATION REGARDING THE LESSEE

The Lessee covenants in the Lease Agreement to budget annually and appropriate sufficient funds to pay all Lease Payments due in that fiscal period under the Lease Agreement. See “THE CERTIFICATES – Security for the Certificates” herein. See Appendix A – “THE LESSEE: CHARTER OAK UNIFIED SCHOOL DISTRICT” attached hereto.

The Lessee maintains insurance or self-insurance in such amounts and with such retentions and other terms providing coverages for property damage, fire and theft, general public liability and workers’ compensation, as are adequate, customary and comparable with such insurance maintained by similarly situated unified school districts. In addition, based upon prior claims experience, the Lessee believes that its recorded liabilities for self-insured claims are adequate.

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The information regarding the Lessee has been taken or constructed from the official records of the Lessee. Such information has been reviewed by an authorized representative of the Lessee acting in his or her official capacity. Such representative has determined that, as of the date hereof, the information contained herein is, to the best of his or her knowledge and belief, true and correct in all material respects and does not contain an untrue statement of a material fact, or omit to state a material fact, necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

THE CORPORATION

The Corporation is a nonprofit public benefit corporation organized under the Nonprofit Public Benefit Corporation Law of the State of California. The Corporation was formed in September 1985 to provide services necessary and appropriate for the establishment, operation and maintenance of regionalized business services and programs for public schools, community colleges and the Los Angeles County Board of Education. These programs and services are to (i) foster cost containment, cost reduction, revenue enhancement and efficiency measures, (ii) improve technical and management skills of school business personnel and (iii) provide financial assistance to public schools, community colleges, related entities and the Los Angeles County Board of Education by acquiring and financing land and equipment, acquiring and constructing various public facilities and leasing facilities, land and equipment.

None of the net earnings, if any, of the Corporation inure to the benefit of any private individual or any director, officer or member thereof, or any firm or other entity with the exception of public schools, community college districts and the Los Angeles County Board of Education.

The Corporation is governed by a board of directors consisting of five members appointed by the Los Angeles County Board of Education or its designee. Each member of the board of directors is elected for a two-year term.

STATE FUNDING OF EDUCATION

General

Public school district revenues consist primarily of guaranteed State moneys, ad valorem property taxes and funds received from the State and federal government in the form of categorical aid, which are amounts restricted to specific categories of use, under various ongoing programs. All State Aid (as defined below) is subject to the appropriation of funds in the State’s annual budget. Decreases in State revenues may affect appropriations made by the State Legislature to the Lessee. See Appendix A – “THE LESSEE: CHARTER OAK UNIFIED SCHOOL DISTRICT” attached hereto.

School districts in the State have historically received most of their revenues under a formula known as the “revenue limit.” Each school district’s revenue limit, which is funded by State moneys and local property taxes, is allocated based on the average daily attendance (“ADA”) of each school district for either the current or preceding school year. Each school district receives a portion of the local property taxes that are collected within its district boundaries. Generally, the State’s apportionment of revenue limit aid (“State Aid”) to a school district will amount to the difference between the school district’s revenue limit and the school district’s local property tax allocation.

Since 2002, the State has deferred certain State Aid payments to school districts from one fiscal year to the next fiscal year in order to manage the State’s cash flow. Such deferments were extended and new deferrals are set forth in the Revised 2009-10 State Budget Act (defined herein). The Revised 2009-10 State Budget Act provides for the deferral from October to December of such calendar year,

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November to February of the following calendar year, and April and May of each year to August of such calendar year. Since 2002, the State has deferred certain State Aid payments to school districts from one fiscal year to the next fiscal year in order to manage the State’s cash flow. The Revised 2009-10 State Budget Act extended deferments and provided for new deferrals of State Aid. Under this legislation, State Aid payments are deferred from October to December of such calendar year, November to February of the following calendar year, April and May to August of such calendar year, from June to July of each calendar year and from July to August of each calendar year. On March 22, 2010, the Governor approved Assembly Bill No. 14 (“ABx8 14”) to address current fiscal year State deficits. ABx8 14 establishes a cash management program intended to assure rating agencies and investors that the State can control its cash resources with more certainty and avoid issuance of IOUs, as occurred in July 2009. ABx8 14 will provide the State with authority to impose cash payment deferrals on, among others, K-12 school districts, community college districts, county offices of education, the California State University system, the University of California, cities and counties. In accordance with ABx8 14, the State Department of Finance notified K-12 districts that it would defer the apportionments for July 2010, October 2010 and March 2011 by up to 60 days, 90 days and 30 days, respectively. The aggregate amount of such deferrals may not exceed $2.5 billion at any given time. ABx8 14 will not change the ongoing cross-fiscal year cash deferrals to school districts in the State as described above.

A large percentage of a school district’s budgeted revenues comes from categorical funds provided exclusively by the State and federal government. These funds are to be used for specific programs and typically cannot be used for any other purpose. The State lottery is another source of funding for school districts, providing approximately 1.7% of a school district’s general fund budget. Every school district receives the same amount of lottery funds per pupil from the State. The initiative authorizing the State lottery mandates the funds be used for instructional purposes and prohibits their use for land acquisition, construction or research and development. A small part of a school district’s budget is from local sources other than property taxes, such as interest income, donations and sales of property.

The revenue limit calculation formula was first instituted in Fiscal Year 1973-74 to provide a mechanism to calculate the amount of general purpose revenue a school district is entitled to receive from State and local sources. Prior to Fiscal Year 1973-74, taxpayers in school districts with low property values per pupil paid higher tax rates than taxpayers in school districts with high property values per pupil. However, despite higher tax rates, less was spent per pupil in school districts with low property values per pupil than school districts with high property values per pupil. Thus, the State revenue limit funding helps to alleviate the inequities between the two types of school districts.

ADA is reported by school districts each year in April, July and December. Revenue limit calculations are adjusted annually in accordance with a number of factors designed primarily to provide cost of living increases and to equalize revenues among school districts in the State of similar type (i.e., unified school districts, high school districts or elementary school districts) and size (e.g., large or small).

The calculation of the amount of State Aid a school district is entitled to receive each year is basically a five-step process. First, the prior year school district revenue limit per ADA is established, with recalculations as are necessary for adjustments for equalization or other factors. Second, the adjusted prior year revenue limit per ADA is inflated according to formulas based on the implicit price deflator for government goods and services and the statewide average revenue limit per ADA for school districts. During this phase, a deficit factor may be applied to the base revenue limit if so provided in the State Budget Act for a given fiscal year (when appropriation of funds in the State’s annual budget for revenue limits or for any categorical program is not sufficient to pay all claims for State Aid, a deficit factor is applied to reduce the allocation of State Aid to the amount appropriated). Third, the current year’s revenue limit per ADA for each school district is multiplied by such school district’s ADA for the current or prior year. For a school district with declining enrollment, the current year’s revenue limit per

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ADA is multiplied by the school district’s ADA for the prior year. This has been the case for the Lessee in recent years, thereby providing a cushion until the Lessee’s cost structure adjusts to lower ADA. Fourth, revenue limit add-ons are calculated for each school district if such school district qualified for the add-ons. Add-ons include the necessary small school district adjustments, meals for needy pupils and small school district transportation, and are added to the revenue limit for each qualifying school district. Finally, local property tax revenues are deducted from the revenue limit to arrive at the amount of State Aid to which each school district is entitled for the current year.

Proposition 98

On November 8, 1988, California voters approved Proposition 98, a combined initiative, constitutional amendment and statute called the “Classroom Instructional Improvement and Accountability Act” (the “Accountability Act”). The Accountability Act changed State funding of public education below the university level, and the operation of the State’s Appropriations Limit, primarily by guaranteeing State funding for K-12 school districts and community college districts (collectively, “K-14 districts”).

Under Proposition 98 (as modified by Proposition 111, which was enacted on June 5, 1990), K-14 districts are guaranteed the greater of (a) in general, a fixed percent of the State General Fund’s revenues (“Test 1”), (b) the amount appropriated to K-14 districts in the prior year, adjusted for changes in the cost of living (measured as in Article XIIIB by reference to State per capita personal income) and enrollment (“Test 2”), or (c) a third test, which would replace Test 2 in any year when the percentage growth in per capita State General Fund revenues from the prior year plus one half of 1% is less than the percentage growth in State per capita personal income (“Test 3”). Under Test 3, schools would receive the amount appropriated in the prior year adjusted for changes in enrollment and per capita State General Fund revenues, plus an additional small adjustment factor. If Test 3 is used in any year, the difference between Test 3 and Test 2 would become a “credit” to schools which would be the basis of payments in future years when per capita State General Fund revenue growth exceeds per capita personal income growth. Legislation adopted prior to the end of Fiscal Year 1988-89, implementing Proposition 98, determined the K-14 districts’ funding guarantee under Test 1 to be 40.3% of the State General Fund tax revenues, based on 1986-87 appropriations. However, that percentage has been adjusted to 34.559% to account for a subsequent redirection of local property taxes whereby a greater proportion of education funding now comes from local property taxes.

Proposition 98 permits the State Legislature by a two-thirds vote of both houses of the State Legislature, with the Governor’s concurrence, to suspend the K-14 districts’ minimum funding formula for a one year period. In the fall of 1989, the State Legislature and the Governor utilized this provision to avoid having 40.3% of revenues generated by a special supplemental sales tax enacted for earthquake relief go to K-14 districts. In the fall of 2004, the State Legislature and the Governor agreed to suspend the K-14 districts’ minimum funding formula set forth pursuant to Proposition 98 in order to address a projected shortfall during Fiscal Year 2004-05. Proposition 98 also contains provisions transferring certain State tax revenues in excess of the Article XIIIB limit to K-14 districts.

State Assistance

The Lessee’s principal funding formulas and revenue sources are derived from the State of California. The following information concerning the State of California’s budgets has been obtained from publicly available information which the Lessee believes to be reliable; however, the Lessee takes no responsibility as to the accuracy or completeness thereof and has not independently verified such information.

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General. The Lessee’s operating income consists primarily of two components, the State Aid portion funded from the State General Fund and a locally generated portion derived from the Lessee’s share of the 1% levy authorized by the State Constitution. School districts may be eligible for other special categorical funding, including for State and federal programs. The Lessee receives approximately 85% of its District General Fund revenues from funds of or controlled by the State. As a result, decreases in State revenues, or in State legislative appropriations made to fund education, may significantly affect District operations.

The following discussion of the State’s budget has been obtained from publicly available information which the Lessee believes to be reliable; however the Lessee and the Underwriters do not guarantee the accuracy or completeness of this information and have not independently verified such information. Additional information regarding State budgets is available at various State-maintained websites, including www.dof.ca.gov. These websites are not incorporated herein by reference and Lessee and the Underwriters do not make any representation as to the accuracy of the information provided therein.

The State Budget Process. The State’s fiscal year begins on July 1 and ends on June 30. According to the State Constitution, the Governor of the State (the “Governor”) is required to propose a budget for the next fiscal year (the “Governor’s Budget”) to the State Legislature no later than January 10 of each year, a final budget must be adopted by a two-thirds vote of each house of the State Legislature by no later than June 15 and the Governor must sign the adopted budget by no later than June 30. The budget becomes law upon the signature of the Governor. In recent years, the State’s final budget has not been timely adopted. The Original 2009-10 State Budget Act, however, which set forth the State’s Budget for Fiscal Year 2009-10, was signed into law by the Governor on February 20, 2009, prior to the deadline therefor.

Under State law, the annual proposed Governor’s Budget cannot provide for projected expenditures in excess of projected revenues and balances available from prior fiscal years. Following the submission of the Governor’s Budget, the State Legislature takes up the proposal. Under the State Constitution, money may be drawn from the State Treasury only through an appropriation made by law. The primary source of the annual expenditure authorizations is the Budget Act as approved by the State Legislature and signed by the Governor. The Budget Act must be approved by a two-thirds majority vote of each House of the State Legislature. The Governor may reduce or eliminate specific line items in the Budget Act or any other appropriations bill without vetoing the entire bill. Such individual line-item vetoes are subject to override by a two-thirds majority vote of each House of the State Legislature. Appropriations also may be included in legislation other than the Budget Act. Bills containing appropriations (except for K-14 education) must be approved by a two-thirds majority vote in each House of the State Legislature and be signed by the Governor. Bills containing K-14 education appropriations require only a simple majority vote. Continuing appropriations, available without regard to fiscal year, may also be provided by statute or the State Constitution. Funds necessary to meet an appropriation need not be in the State Treasury at the time such appropriation is enacted; revenues may be appropriated in anticipation of their receipt. However, delays in the adoption of a final State budget in any fiscal year may affect payments of State funds during such budget impasse. See “ – State Funding of Schools Without a State Budget” below for a description of payments of appropriations during a budget impasse.

State Budget for Fiscal Year 2009-10. On February 20, 2009, the Governor signed the 2009 State Budget Act (the “Original 2009-10 State Budget Act”) to address a then-projected $42 billion shortfall in revenues. The Original 2009-10 State Budget Act projected Fiscal Year 2009-10 revenues and transfers of $97.73 billion, actual expenditures of $92.21 billion and a year-end surplus of $3.18 billion (net of the $2.34 billion deficit from Fiscal Year 2008-09), of which $1.08 billion would be

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reserved for the liquidation of encumbrances and $2.10 billion would be deposited in a reserve for economic uncertainties.

On May 14, 2009, the Governor released the May Revision to the Original 2009-10 State Budget Act, which contained proposals to be considered at a special election and contingency proposals in event the aforementioned proposals were not approved at the special election. The May Revision to the Original 2009-10 State Budget Act projected a budget gap of $21.3 billion through the remainder of Fiscal Year 2008-09 and Fiscal Year 2009-10 due to continued shortfalls in revenue collections and increased costs and the failure of five of the six budget-related propositions included in a special election, which the May Revision to the Original 2009-10 State Budget Act proposed to address through program reductions and additional borrowings. On May 26, 2009 and on May 29, 2009, the Governor released updates to the May Revision to the Original 2009-10 State Budget Act. The May Revision to the Original 2009-10 State Budget Act and the updates thereto, collectively, included proposals to reduce General Fund spending in the amount of $3.12 billion during Fiscal Year 2008-09 and $20.85 billion during Fiscal Year 2009-10 in order to eliminate the State’s then projected $24.0 billion deficit through such period.

On July 28, 2009, the Governor signed certain amendments to the Original 2009-10 State Budget Act (as amended, the “Revised 2009-10 State Budget Act”) to address a then-projected $24.16 billion shortfall in revenues. The Revised 2009-10 State Budget Act estimated Fiscal Year 2008-09 revenues and transfers of $84.1 billion, total expenditures of $91.5 billion and a year-end deficit of $3.38 billion, which included a $4.07 billion prior-year State General Fund balance, a $4.46 billion withdrawal from the reserve for economic uncertainties and an allocation of $1.08 billion to the reserve for the liquidation of encumbrances. The Revised 2009-10 State Budget Act projected Fiscal Year 2009-10 revenues and transfers of $89.54 billion, actual expenditures of $84.58 billion and a year-end surplus of $1.58 billion (net of the $3.38 billion deficit from Fiscal Year 2008-09), of which $1.08 billion was expected to be reserved for the liquidation of encumbrances and $500 million was expected to be deposited in a reserve for economic uncertainties.

Certain of the features of the Original 2009-10 State Budget Act and the Revised 2009-10 State Budget Act affecting school districts included the following:

1. The Original 2009-10 State Budget Act set forth Proposition 98 spending for school districts and community college districts to $50.7 billion for Fiscal Year 2008-09. The Revised 2009-10 State Budget Act set forth a reduction in Fiscal Year 2008-09 Proposition 98 spending for school districts and community college districts to $34.05 billion due, in part, to reduced State General Fund revenues. The outstanding maintenance factor or future funding obligation for Fiscal Year 2008-09 pursuant to Proposition 98 was estimated to be $11.2 billion at the time of the budget’s adoption. The Revised 2009-10 State Budget Act established a statutory obligation to begin paying the maintenance factor, commencing with a payment of $1.7 billion toward such amount in Fiscal Year 2009-10.

2. The Revised 2009-10 State Budget Act set forth Proposition 98 spending for school districts and community college districts to $35.03 billion for Fiscal Year 2009-10. In addition, the Revised 2009-10 State Budget Act included a shift of property tax revenues from redevelopment agencies to schools in the amount of $850 million to replace a portion of the reduction in Proposition 98 State General Fund spending in Fiscal Year 2009-10. Such amount was shifted to K-12 schools that serve the redevelopment areas and the housing built by the redevelopment agencies. However, due to the shift of property tax revenues, no net change in funding for schools was expected to occur. In October 2009, in response to the shift of property taxes, the California Redevelopment Association filed a lawsuit against the State seeking to invalidate the shift on the basis that the shift does not qualify as a constitutionally permitted use of redevelopment funds. Such lawsuit, if successful, may impact State spending for school districts and community college districts.

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3. The Original 2009-10 State Budget Act included reductions in Fiscal Year 2008-09 of $2.4 billion from K-14 programs, which amount included $943.8 million from K-12 revenue limits, $943.8 million from approximately fifty K-12 categorical programs, $286.9 million from the elimination of the K-14 COLA and $210 million from other various K-12 programs as compared to amounts set forth in the Fiscal Year 2008-09 Budget Act. The Original 2009-10 State Budget Act included additional reductions in Fiscal Year 2009-10 of $267.5 million from revenue limits and $267.5 million from categorical programs.

4. In order to reduce the Proposition 98 minimum guarantee for Fiscal Year 2009-10 and in consideration of a funding formula under Proposition 98, which calculates a level of funding for the current fiscal year in part based upon funding allocated during the prior fiscal year, the Revised 2009-10 State Budget Act retroactively reverted approximately $1.6 billion in Fiscal Year 2008-09 unallocated funds for categorical programs to the State General Fund. The Proposition 98 revenue limit funding is reduced in Fiscal Year 2009-10 to backfill the reduction in categorical funding.

5. The Original 2009-10 State Budget Act deferred until July 2009 approximately $3.2 billion in K-14 principal apportionments of which approximately $2.3 billion was to be allocated to K-12 programs, $570 million to K-3 class size reduction and $340 million to community colleges. In addition, the Original 2009-10 State Budget Act deferred until October 2009 principal apportionments established for the months of July 2009 and August 2009 in the approximate amount of $2.5 billion.

6. The Revised 2009-10 State Budget Act defers $1.8 billion in payments from Fiscal Year 2009-10 to August 2010 from school district revenue limits and community college apportionments.

7. The Original 2009-10 State Budget Act eliminated the High Priority Schools Program, which provides additional funding to low-performing schools in the State to improve academic performance. The elimination of the High Priority Schools Program reduced amounts received by such schools in the aggregate amount of $114.2 million.

9. The State will defer approximately $2 billion in K-12 payments from their previously scheduled dates in Fiscal Year 2009-10 to December 2009 and January 2010. The payment schedule for K-12 apportionment funding and categorical funding will be revised to distribute five percent of total payments in each of July and August and nine percent in each of the remaining months.

10. The Revised 2009-10 State Budget Act includes $6 billion in funds from ARRA in Fiscal Years 2008-09 and 2009-10 to maintain the minimum spending level required for receipt of State Fiscal Stabilization Fund allocations for K-12 programs.

11. The Original 2009-10 State Budget Act implemented provisions to grant school districts increased flexibility with respect to the use of certain funds received from the State to shift funds to meet their highest priority needs in Fiscal Years 2008-09 through 2012-13 and reduces penalties associated with the K-3 Class Size Reduction program through Fiscal Year 2011-12. These flexibility provisions will not apply to programs protected under federal law or programs that were approved pursuant to voter initiatives.

12. The Revised 2009-10 State Budget Act provides to schools the flexibility to reduce instruction by up to five days to accommodate a reduction of approximately $2.1 billion of revenue limit apportionments to school districts and county offices of education, although these types of reductions are generally subject to labor negotiations. In addition, the Revised 2009-10 State Budget Act will permit schools to reduce the amount of money that they are required to set aside for facility maintenance and to use funds from the sale of surplus property for non-facility related purposes.

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November 2009 LAO Report on the State’s Budget. On November 18, 2009, the Legislative Analyst’s Office issued a report entitled “The 2010-11 Budget: California’s Fiscal Outlook” (the “2010-11 Fiscal Outlook”) The 2010-11 Fiscal Outlook includes a forecast of the State’s General Fund revenues and expenditures that indicates General Fund budget deficit of $20.7 billion through Fiscal Year 2010-11. Such amount is comprised of a $6.3 billion projected deficit for Fiscal Year 2009-10 and a $14.4 billion gap between projected revenues and spending in Fiscal Year 2010-11. The 2010-11 Fiscal Outlook attributes the majority of the State’s budget problems during Fiscal Year 2009-10 to the State’s inability to implement several major solutions set forth in the Revised 2009-10 State Budget Act. The 2010-11 Fiscal Outlook states that issues such as (1) the expected inability of several programs—in particular, the prison system and Medi-Cal—to collectively achieve billions of dollars of spending reductions assumed in the Revised 2009-10 State Budget Act; (2) the expected inability of the State to sell the State Compensation Insurance Fund, a quasi-public workers’ compensation insurer, for the budgeted amount of $1 billion in Fiscal Year 2009-10; and (3) the State’s loss of a court case that prevents the General Fund from receiving more than approximately $800 million in transportation funds in Fiscal Year 2009-10 have contributed to the increase in the projected deficit.

In addition, the 2010-11 Fiscal Outlook forecasts that the State will face a nearly $1 billion increase in the Proposition 98 funding guarantee for K-14 education in Fiscal Year 2009-10. Furthermore, 2010-11 Fiscal Outlook projections will be affected by the loss of any temporary federal stimulus funding during Fiscal Year 2010-11 and Fiscal Year 2011-12 if the State does not backfill funds received in connection with ARRA. In order to address the increase in the Proposition 98 funding guarantee during Fiscal Year 2009-10, the LAO states that the State Legislature could (1) could provide the additional $1 billion at the end of Fiscal Year 2009-10 in a lump sum, (2) recognize a “settle-up” obligation and create an out-year payment plan or (3) suspend the Proposition 98 minimum guarantee and maintain the existing funding level.

State Budget for Fiscal Year 2010-11. On January 8, 2010, Governor Schwarzenegger released his 2010-11 Proposed Budget (the “2010-11 Proposed State Budget”). The 2010-11 Proposed State Budget projects an estimated $6.6 billion budget shortfall by the end of Fiscal Year 2009-10, in the absence of corrective action. In addition, the Governor estimates the State will have a $12.3 billion operating deficit in Fiscal Year 2010-11 absent corrective action. On January 8, 2010, the Governor proclaimed a fiscal emergency and called a legislative special session pursuant to Proposition 58 to address this emergency. During this legislative session, the Legislature has adopted ABX8 14 that will, among other things, impose a new pattern of intra-fiscal year cash deferrals on K-12 school districts. See “STATE FUNDING OF EDUCATION – General” herein.

The 2010-11 Proposed State Budget includes proposals relating to reduce expenditures by approximately $7.6 billion and to generate an additional $12.4 billion through increased revenues, federal funds and the adoption of flexibility solutions. The 2010-11 Proposed Budget projects State General Fund revenues and transfers for Fiscal Year 2010-11 of $89.3 billion, an increase of approximately 1.4 percent above the anticipated revenues and transfers for Fiscal Year 2009-10, and State General Fund expenditures of $82.9 billion, a decrease of approximately 4.6 percent below the anticipated expenditures for Fiscal Year 2009–10. With proposed expenditures of $2.6 billion more than revenues, the 2010-11 Proposed State Budget projects ending Fiscal Year 2009–10 with a State General Fund balance of $2.6 billion, of which $1.5 billion will be reserved for the liquidation of encumbrances and $1.0 billion will be deposited in a reserve for economic uncertainties, provided various budget-balancing proposals are approved. A portion of the 2010-11 Proposed State Budget relates to approximately $6.9 billion of funds, waivers and reimbursements from the federal government. The 2010-11 Proposed State Budget provides that if such amount is not provided by the federal government by July 15, 2010, several expenditure reductions and revenue increases will be triggered.

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Certain of the features of the 2010-11 Proposed State Budget affecting school districts include the following:

1. The 2010-11 Proposed State Budget proposes to grant local school districts the additional flexibility to layoff, assign, reassign, transfer and rehire teachers based on skill and subject matter needs without regard to seniority. In addition, the 2010-11 Proposed State Budget includes legislation to change the staffing notification window for teachers to 60 days after the adoption or subsequent amendment of the State’s budget for a given fiscal year.

2. The 2010-11 Proposed State Budget proposes to eliminate certain State law requirements that require teachers that have been terminated to receive first priority for substitute assignments and that these substitutes be paid at the rate they received before they were terminated if they work more than 20 days within a 60-school day period. The State’s Department of Finance estimates the current law significantly increases costs to school districts that have terminated teachers and may compel additional layoffs and cuts to classroom spending.

3. The 2010-11 Proposed State Budget considers the adoption of reforms in conjunction with funding allocable through the U.S. Department of Education’s “Race to the Top Fund”. If adopted, the proposed reforms will, among other things, address statutory and regulatory barriers relating to student achievement, school quality and teacher and principal quality.

4. The 2010-11 Proposed State Budget proposes a reduction of approximately 10% in funding for administration, overhead and non-instruction related spending by school districts to increase resources for classroom instruction. In addition, if adopted, the State will prevent school districts from shifting central administration costs to school sites.

5. The 2010-11 Proposed State Budget proposes to fund the Proposition 98 minimum guarantee for Fiscal Year 2009-10. However, proposed expenditures will be decreased to $49.9 billion from the $50.4 billion assumed in the Revised 2009-10 State Budget. The 2010-11 Proposed State Budget proposes to fund the Proposition 98 minimum guarantee in Fiscal Year 2010-11 at approximately $50 billion, which reflects an increase of $103 million from the proposed amount for Fiscal Year 2009-10.

6. The Revised 2009-10 State Budget Act required the State to begin paying an aggregate amount of $11.2 billion of Proposition 98 maintenance factor payments in Fiscal Year 2010-11. The 2010-11 Proposed State Budget proposes to delay the initial payment to Fiscal Year 2012-13.

7. The 2010-11 Proposed State Budget proposes to eliminate the sales tax on fuel and increase the excise tax on gasoline by 10.8 cents to partially replace these revenues. The proposal contained in the 2010-11 Proposed State Budget Act would have, if adopted, decreased the Proposition 98 expenditures from the State General Fund by approximately $836 million due to the relationship of Test 3 (defined herein) of Proposition 98 and State General Fund revenues. On March 23, 2010, the Governor approved Assembly Bill No. 6 (“ABx8 6”), a version of the “gas swap” proposal, which will eliminate the 6 percent sales tax on gasoline and replace it with a per gallon excise tax of $0.173. The elimination of the sales tax on gasoline is expected to reduce the State General Fund. See “CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS – Proposition 98” herein.

8. The 2010-11 Proposed State Budget proposes that the State continue its current program regarding days of instruction until Fiscal Year 2011-12. If adopted, school districts will have flexibility to

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reduce instructions by a maximum of five days, if necessary, to accommodate the reductions made in Fiscal Year 2009-10 without losing any incentive funding they receive to maintain a 180-day school year.

9. Due, in part, to litigation demanding that the State pay or suspend all education mandates, the 2010-11 Proposed State Budget proposes to suspend almost all K-14 education mandates. The State expects to pay $7.7 million for mandated costs related to interdistrict and intradistrict transfers and $6.8 million for mandated costs related to the California High School Exit Exam.

10. The 2010-11 Proposed State Budget does not provide funding for the science graduation requirement and does not propose to suspend the mandate. The Governor believes that the requirement does not constitute a reimbursable mandate because funding is available to offset the costs of the requirement.

11. The 2010-11 Proposed State Budget proposes a reduction of $550 million to reflect projected savings in the K-3 Class Size Reduction program. Although the penalties for exceeding class size limits were significantly reduced in 2009-10, program savings are anticipated as a result of local school district decisions to increase class sizes.

12. The Governor also proposes to recognize an anticipated 0.38 percent decline in the cost of living.

LAO Analysis of the 2010-11 Proposed State Budget. On January 12, 2010, the LAO released a report entitled “The 2010-11 Budget: Overview of the Governor’s Budget” (the “2010 LAO Budget Overview”), which provides an analysis by the LAO of the 2010-11 Proposed Budget. The 2010 LAO Budget Overview is available on the LAO website at www.lao.ca.gov. Information on the website is not incorporated herein by reference. The 2010 LAO Budget Overview states that the economic and revenue forecasts and assessments of the State’s budgetary problems set forth in the 2010-11 Proposed State Budget are generally reasonable, but it notes that the Governor’s estimates of revenues and expenditures are more optimistic than its own.

According to the LAO, the Legislature faces significant challenges in balancing the State’s budget for Fiscal Year 2010-11. The LAO notes that many of the major expenditure reductions in the Proposed 2010-11 State Budget will require significant lead-time for departments to implement. The LAO acknowledges that it is reasonable to assume that the State will secure some additional federal funding and flexibility, but it recommends that the State Legislature operate on the assumption that federal government relief will total billions of dollars less than the Governor has requested. The LAO further recommends that the Governor and State Legislature consider adopting some of the Governor’s proposed cuts and revenue increases that are presented as options only in the event of insufficient federal relief. The LAO cautions that the State’s Proposition 98 obligation could be higher than assumed in the 2010-11 Proposed State Budget due to constitutional interpretation and the interaction between Proposition 98 spending and State General Fund revenues. Further, the LAO notes that a portion of the State’s proposed spending is dependent upon receipt of a waiver from the U.S. Department of Education regarding maintenance-of-effort requirements under ARRA.

The 2010 LAO Budget Overview reiterated that the State Legislature should take action no later than March 2010 on many of the proposed budgetary measures, explore options beyond those proposed by the Governor, consider the Governor’s “trigger options” notwithstanding any assumed federal relief, and consider adoption of multi-year solutions. Further, the LAO recommends that the State Legislature should avoid proposed solutions that do not prioritize program reductions.

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Additional Information; Future State Budgets. Information about the State budget and State spending for education is regularly available at various State-maintained websites. Text of the State budget may be found at the website of the Department of Finance, www.dof.ca.gov, under the heading “2009-10 Budget”. Various analyses of the budget may be found at the website of the LAO at www.lao.ca.gov. In addition, various State official statements, many of which contain a summary of the current and past State budgets and the impact of those budgets on school districts in the State, may be found via the website of the State Treasurer, www.treasurer.ca.gov. The information presented in these websites is not incorporated by reference in this Official Statement.

The Lessee cannot predict what actions will be taken in the future by the State Legislature and the Governor to address the State’s current or future budget deficits. Future State budgets will be affected by national and State economic conditions, including the current economic downturn, over which the Lessee has no control, and other factors over which the Lessee will have no control. To the extent that the State budget process results in reduced revenues or increased expenses for the Lessee, the Lessee will be required to make adjustments to its budget. In the event future State Budgets decrease the Lessee’s revenues or increase required expenditures by the Lessee from the levels assumed by the Lessee, the Lessee will be required to generate additional revenues, curtail programs or services, or use its reserve funds to ensure a balanced budget.

In addition, the Lessee cannot predict the effect that the general economic conditions within the State and the State’s budgetary problems may have in the future on the Lessee’s budgets or operations.

State Funding of Schools Without a State Budget. Although the State Constitution requires that the State Legislature adopt a State Budget by June 15 of the prior fiscal year and that the Governor sign a State Budget by June 30, this deadline has been missed from time to time. Delays in the adoption of a final State budget in any fiscal year could impact the receipt of State funding by the Lessee. On May 29, 2002, the California Court of Appeal for the Second District decided the case of Howard Jarvis Taxpayers Association, et al. v. Kathleen Connell (as Controller of the State of California), et al. (also referred to as White v. Davis) (“Connell”). The Court of Appeal concluded that, absent an emergency appropriation, the State Controller may authorize the payment of State funds during a budget impasse only when payment is either (i) authorized by a “continuing appropriation” enacted by the State Legislature, (ii) authorized by a self-executing provision of the State Constitution, or (iii) mandated by federal law. The Court of Appeal specifically concluded that the provisions of Article XVI, Section 8 of the State Constitution – the provision establishing minimum funding of K-14 education enacted as part of Proposition 98 – did not constitute a self-executing authorization to disburse funds, stating that such provisions merely provide formulas for determining the minimum funding to be appropriated every budget year but do not appropriate funds. Nevertheless, the State Controller has concluded that the provisions of the Education Code of the State (the “Education Code”) establishing K-12 and county office of education revenue limit funding do constitute continuing appropriations enacted by the State Legislature and, therefore, has indicated that State payments of such amounts would continue during a budget impasse. The State Controller, however, has concluded that K-12 categorical programs are not authorized pursuant to a continuing appropriation enacted by the State Legislature and, therefore, cannot be paid during a budget impasse. To the extent the Connell decision applies to State payments reflected in the Lessee’s budget, the requirement that there be either a final budget bill or an emergency appropriation may result in the delay of some payments to the Lessee while such required legislative action is delayed, unless the payments are self-executing authorizations, continuing appropriations or are subject to a federal mandate.

The State Supreme Court granted the State Controller’s petition for review of the Connell case on a procedural issue unrelated to continuous appropriations and on the substantive question as to whether

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the State Controller is authorized to pay State employees their full and regular salaries during a budget impasse. No other aspect of the Court of Appeal’s decision was addressed by the State Supreme Court. On May 1, 2003, with respect to the substantive question, the State Supreme Court concluded that the State Controller is required, notwithstanding a budget impasse and the limitations imposed by State law, to timely pay those State employees who are subject to the minimum wage and overtime compensation provisions of the federal Fair Labor Standards Act.

State School Facilities Bonds

Proposition 47 and Proposition 1A. The Class Size Reduction Kindergarten – University Public Education Facilities Bond Act of 2002 (“Proposition 47”) appeared on the November 5, 2002 ballot as Proposition 47 and was approved by the California voters. This measure authorizes the sale and issuance of $13.05 billion in general obligation bonds by the State for funding construction and renovation of K-12 school facilities ($11.4 billion) and higher education facilities ($1.65 billion). Proposition 47 includes $6.35 billion for acquisition of land and new construction of K-12 school facilities. Of this amount, $2.9 billion will be set aside to fund backlog projects for which school districts submitted applications to the State on or prior to February 1, 2002. The balance of $3.45 billion would be used to fund projects for which school districts submitted applications to the State after February 1, 2002. K-12 school districts will be required to pay 50% of the costs for acquisition of land and new construction with local revenues. In addition, Proposition 47 provided that up to $100 million of the $3.45 billion would be allocated for charter school facilities. Proposition 47 provides up to $3.3 billion for reconstruction or modernization of existing K-12 school facilities. Of this amount, $1.9 billion will be set aside to fund backlog projects for which school districts submitted applications to the State on or prior to February 1, 2002 and the balance of $1.4 billion would be used to fund projects for which school districts submitted applications to the State after February 1, 2002. K-12 school districts will be required to pay 40% of the costs for reconstruction or modernization with local revenues. Proposition 47 provides a total of $1.7 billion to K-12 school districts which are considered critically overcrowded, specifically to schools that have a large number of pupils relative to the size of the school site. In addition, $50 million will be available to fund joint-use projects. Proposition 47 also includes $1.65 billion to construct new buildings and related infrastructure, alter existing buildings and purchase equipment for use in the State’s public higher education systems.

Proposition 1A was previously approved in November 1998 and provided $6.7 billion of capital funding for K-12 public schools.

Proposition 55. The Kindergarten-University Public Education Facilities Bond Act of 2004 (“Proposition 55”) appeared on the March 2, 2004 ballot as Proposition 55 and was approved by the California voters. This measure authorizes the sale and issuance of $12.3 billion in general obligation bonds by the State for funding the construction and renovation of public K-12 school facilities ($10 billion) and public higher education facilities ($2.3 billion). Proposition 55 includes $5.26 billion for the acquisition of land and construction of new school buildings. A school district would be required to pay for 50% of costs with local resources unless it qualifies for state hardship funding. The measure also provides that up to $300 million of these new construction funds is available for charter school facilities.

Proposition 55 makes $2.25 billion available for the reconstruction or modernization of existing public school facilities. Districts would be required to pay 40% of project costs from local resources. Proposition 55 directs a total of $2.44 billion to school districts with schools which are considered critically overcrowded. These funds would go to schools that have a large number of pupils relative to the size of the school site. Proposition 55 also makes a total of $50 million available to fund joint-use projects. Proposition 55 includes $2.3 billion to construct new buildings and related infrastructure, alter

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existing buildings and purchase equipment for use in these buildings for California’s public higher education systems. The measure allocates $690 million to the University of California and California State University and $920 million to community colleges in the State. The Governor and the State Legislature will select specific projects to be funded by the bond proceeds.

Proposition 1D. The Kindergarten-University Public Education Facilities Bond Act of 2006 (“Proposition 1D”) appeared on the November 7, 2006 ballot as Proposition 1D and was approved by the California voters. This measure authorizes the sale and issuance of $10.4 billion in general obligation bonds by the State for funding the construction and renovation of public K-12 school facilities ($7.3 billion) and public higher education facilities ($3.1 billion). Proposition 1D includes $1.9 billion for the acquisition of land and construction of new school buildings. A school district would be required to pay for 50% of costs with local resources unless it qualifies for state hardship funding. Proposition 1D also provides that up to $500 million of these construction funds is available for charter school facilities.

Proposition 1D makes $3.3 billion available for the reconstruction or modernization of existing public school facilities. Districts would be required to pay 40% of project costs from local resources. Proposition 1D directs a total of $1.0 billion to school districts with schools which are considered critically overcrowded. These funds would go to schools that have a large number of pupils relative to the size of the school site. Proposition 1D also makes a total of $29 million available to fund joint-use projects. Proposition 1D includes $3.1 billion to construct new buildings and related infrastructure, alter existing buildings and purchase equipment for use in these buildings for California’s public higher education systems. The measure allocates $890 million to the University of California campuses and $690 million to the California State University campuses and $1.5 billion to California community colleges. The Governor and the State Legislature will select specific projects to be funded by the bond proceeds. In December 2008, the Investment Board announced plans to stop lending money for projects throughout the State.

The Lessee applies for apportionments from State bond initiatives and historically has received funding from such State bond initiatives. No assurances can be given that the Lessee will continue to apply for apportionments from current or future State bond initiatives or that the Lessee will continue to receive funding from State bond initiatives for which it applies.

Future Initiatives. The foregoing described amendments to the State constitution and propositions were each adopted as measures that qualified for the ballot pursuant to the State’s initiative process. From time to time other initiative measures could be adopted that further affect District revenues or the Lessee’s ability to expend revenues.

Financial Statements

The Lessee’s financial statements are prepared on a modified accrual basis of accounting in accordance with generally accepted accounting principles as set forth by the Governmental Accounting Standards Board.

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Funds and Account Groups used by the Lessee are categorized as follows:

Government Funds General Fund Building Fund County School Facilities Fund Special Revenue Funds Capital Projects Funds Debt Service Funds Proprietary Funds Enterprise Funds

Fiduciary Funds Trust and Agency Funds

Account Groups General Fixed Assets Account Group General Long-term Debt Account

The General Fund of the Lessee, as shown herein, is a combined fund comprised of moneys

which are unrestricted and available to finance the legally authorized activities of the Lessee not financed by restricted funds and moneys which are restricted to specific types of programs or purposes. General Fund revenues shown thereon are derived from such sources as taxes, aid from other government agencies, charges for current services and other revenue.

The financial statements included herein were prepared by the Lessee using information from the Annual Financial Reports which are prepared by the Director of Business Operations for the Lessee and audited by independent certified public accountants each year. The Lessee’s audited financial statements for the year ended June 30, 2009, are available from the Lessee upon request to the Lessee at the address given herein.

Reports and Certifications

The Education Code of the State of California (at Section 42130 et seq.) requires each school district to certify at two points during the fiscal year whether or not it is able to meet its financial obligations for the remainder of such fiscal year, and, based on current forecasts, for the subsequent fiscal year. The first report covers the period ending October 31 and the second report covers the period ending January 31. Such certifications are based on the governing board’s assessment based on standards and criteria for fiscal stability adopted by the State Board of Education and the State Superintendent of Public Instruction. Each certification is required to be classified as positive, qualified, or negative on the basis of a review of the report against such criteria, but may include additional financial information known by the governing board to exist at the time of each certification. Such certifications are to be filed with the County Board of Education within forty-five days after the close of the period being reported and, in the event of a negative or qualified certification, to the State Controller and the State Superintendent of Public Instruction. A negative certification is to be assigned to any school district that likely will be unable to meet its financial obligations for the remainder of the fiscal year or for which existing expenditure practices jeopardize the ability of the school district to meet its multi-year financial commitments.

Any school district and office of education that has a qualified or negative certification in any fiscal year may not issue, in that fiscal year or in the next succeeding fiscal year, certificates of participation, tax anticipation notes, revenue bonds or any other debt instruments that do not require the approval of the voters of the school district, unless the County Board of Education determines that the Lessee’s repayment of indebtedness is probable.

The Lessee has filed a positive certification with the County Board of Education for each reporting period. Copies of the reports and certifications of the Lessee may be obtained upon request from the Lessee at its address set forth in Appendix A hereto.

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Budgets of Lessee

The fiscal year of the Lessee begins on the first day of July of each year and ends on the 30th day of June of the following year. On or before January 1 of each year, the Lessee adopts a fiscal line item budget setting forth expenditures in priority sequence so that appropriations during the fiscal year can be adjusted if revenues do not meet projections.

The Lessee is required by provisions of the California Education Code to maintain a balanced budget each year, where the sum of expenditures plus the ending fund balance cannot exceed the revenues plus the carry-over fund balance from the previous year. The California State Department of Education imposes a uniform budgeting format for each school district.

State Emergency Loan Program

The California Education Code provides that the governing board of a county board of education, school district or community college district which determines during a fiscal year that its revenues are less than the amount necessary to meet its current year expenditure obligations may request an emergency apportionment from the State through the State Superintendent of Public Instruction. As a condition to the making of any such emergency apportionment, certain requirements must be met.

The Lessee is not currently participating in the State Emergency Loan Program.

RISK FACTORS

The following factors, along with all other information in this Official Statement, should be considered by potential investors in evaluating an investment in the Certificates.

Not a Pledge of Taxes

The obligation of the Lessee to pay the Lease Payments does not constitute an obligation of the Lessee for which the Lessee is obligated to levy or pledge any form of taxation or for which the Lessee has levied or pledged any form of taxation. The obligation of the Lessee to pay Lease Payments does not constitute a debt or indebtedness of the Lessee, the State of California or any of its political subdivisions within the meaning of any constitutional or statutory debt limitation or restriction.

Although the Lease Agreement does not create a pledge, lien or encumbrance upon the funds of the Lessee, the Lessee is obligated under the Lease Agreement to pay Lease Payments from any source of legally available funds (subject to certain exceptions) and the Lessee has covenanted in the Lease Agreement that, for as long as the Leased Property is available for its use and possession, it will make the necessary annual appropriations within its budget for all Lease Payments. The Lessee is currently liable on certain other obligations payable from general revenues, including other certificates of participation.

Additional Obligations of the Lessee

The Lessee has the capability to enter into other obligations which may constitute additional charges against its revenues. To the extent that additional obligations are incurred by the Lessee, the funds available to make Lease Payments may be decreased.

The Lease Payments and other payments due under the Lease Agreement (including payment of costs of repair and maintenance of the Leased Property, taxes and other governmental charges levied against the Leased Property) are payable from funds lawfully available to the Lessee. In the event that the

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amounts which the Lessee is obligated to pay in a fiscal year exceed the Lessee’s revenues for such year, the Lessee may choose to make some payments rather than making other payments, including Lease Payments, based on the perceived needs of the Lessee. The same result could occur if, because of California Constitutional limits on expenditures, the Lessee is not permitted to appropriate and spend all of its available revenues.

No Acceleration Upon Default

In the event of a default, there is no available remedy of acceleration of Lease Payments or the total Additional Payments due over the term of the Lease. The Lessee will only be liable for Additional Payments and Lease Payments on an annual basis, and the Trustee would be required to seek a separate judgment in each fiscal year for such fiscal year’s Lease Payments and Additional Payments. THE TRUSTEE MAY NOT DECLARE THE CERTIFICATES TO BE DUE AND PAYABLE AND ACCELERATE PAYMENT OF THE CERTIFICATES. Any such suit for money damages would be subject to limitations on legal remedies against public agencies in the State of California, including a limitation on enforcement of judgments against funds of a fiscal year other than the fiscal year in which the Lease Payments were due and against funds needed to serve the public welfare and interest.

Abatement

The obligation of the Lessee under the Lease Agreement to pay Lease Payments is in consideration for the use and possession of the Leased Property. The obligation of the Lessee to make Lease Payments may be abated in whole or in part if the Lessee does not have full use and possession of the Leased Property.

The amount of Lease Payments due under the Lease Agreement shall be abated during any period in which by reason of damage, destruction, eminent domain or otherwise there is substantial interference with the use and possession of the Leased Property. Such abatement will end with the substantial completion or replacement, repair or reconstruction of the Leased Property. The Reserve Fund will be funded in an amount equal to the Reserve Fund Requirement, and such funds may be used by the Trustee to make payments with respect to the Certificates in the event amounts received by the Trustee are insufficient to pay principal and interest represented by the Certificates as such amounts become due. If damage or destruction or eminent domain proceedings with respect to the Leased Property result in abatement of Lease Payments and the resulting Lease Payments, together with moneys in the Reserve Fund (and in the event of damage or destruction, together with rental interruption proceeds, if any), are insufficient to make all payments of principal and interest represented by the Certificates during the period that the Leased Property is being replaced, repaired or reconstructed, then such payments of principal and interest may not be made and no remedy is available to the Trustee or the Owners, under the Lease Agreement or Trust Agreement, for nonpayment under such circumstances.

Notwithstanding the foregoing provisions of the Lease Agreement and the Trust Agreement specifying the extent of abatement in the event of the Lessee’s failure to have use and possession of the Leased Property, such provisions may be superseded by operation of law, and, in such event, the resulting Lease Payments of the Lessee may not be sufficient to pay all of that portion of the principal and interest represented by the remaining Outstanding Certificates.

Earthquakes

The Lessee is not obligated under the Lease Agreement to procure and maintain, or cause to be procured and maintained, earthquake insurance on their Leased Property. Depending on its severity, an earthquake could result in abatement under the Lease Agreement. See “ – Abatement” herein.

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No Liability by the Corporation to the Owners

Except as expressly provided in the Trust Agreement, the Corporation shall not have any obligation or liability to the Owners of the Certificates with respect to the payment when due of the Lease Payments by the Lessee, or with respect to the performance by the Lessee of other agreements and covenants required to be performed by it contained in the Lease or the Trust Agreement, or with respect to the performance by the Trustee of any right or obligation required to be performed by it contained in the Trust Agreement.

Hazardous Substances

The public education activities of the Lessee will, from time to time, result in the use of limited amounts of hazardous substances on the facilities owned and operated by the Lessee, including, but not limited to, the Leased Property. Accordingly, it is possible that spills, discharges or other adverse environmental consequences of such use in the future could cause an adverse effect on the fair rental value of the Leased Property and lead, in an extreme case, to abatement, in whole or in part, of Lease Payments. See “– Abatement” above. The Lessee has covenanted to limit its use of hazardous substances on its campuses to those permitted by the Environmental Regulations.

CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS

Constitutionally Required Funding of Education

The State Constitution requires that from all State revenues there shall first be set apart the moneys to be applied by the State for the support of the public school system and public institutions of higher education. California school districts receive a significant portion of their funding from State appropriations. As a result, decreases as well as increases in State revenues can significantly affect appropriations made by the State Legislature to school districts.

Article XIIIA of the State Constitution. On June 6, 1978, California voters approved Proposition 13 (“Proposition 13”), which added Article XIIIA to the State Constitution (“Article XIIIA”). Article XIIIA. The provisions of Article XIIIA were subsequently modified pursuant to Proposition 39, which was approved by California voters on November 7, 2000. Article XIIIA limits the amount of any ad valorem tax on real property to 1% of the full cash value thereof, except that additional ad valorem property taxes may be levied to pay debt service on (i) bonded indebtedness approved by the voters prior to July 1, 1978, (ii) bonded indebtedness approved by a two-thirds vote on or after July 1, 1978, for the acquisition or improvement of real property and (iii) bonded indebtedness incurred by a school district or community college district for the construction, reconstruction, rehabilitation or replacement of school facilities or the acquisition or lease of real property for school facilities, approved by 55% of the voters of the school district or community college district, but only if certain accountability measures are included in the proposition. Article XIIIA defines full cash value to mean “the county assessor’s valuation of real property as shown on the 1975-76 tax bill under “full cash value,” or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment.” The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or a reduction in the consumer price index or comparable local data at a rate not to exceed 2% per year for the area under taxing jurisdiction, or reduced in the event of declining property value caused by substantial damage, destruction or other factors including a general economic downturn. Subsequent amendments further limit the amount of any ad valorem tax on real property to 1% of the full cash value except that additional taxes may be levied to pay debt service on bonded indebtedness approved by the requisite percentage of voters voting on the proposition.

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Legislation Implementing Article XIIIA. Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax. Amounts to pay voter approved indebtedness are levied by the County on behalf of the local agencies. The 1% property tax is automatically levied by the County and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to 1979.

Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the 2% annual adjustment are allocated among the various jurisdictions in the “taxing area” based upon their respective “situs.” Local agencies and school districts share the growth of “base” revenue from the tax rate area. Each year’s growth allocation becomes part of each agency’s allocation the following year. Article XIIIA effectively prohibits the levying of any other ad valorem property tax above the 1% limit except for taxes to support indebtedness approved by the voters as described above.

The full cash value of taxable property under Article XIIIA represents the maximum taxable value for property. Accordingly, the fair market value for a given property may not be the equivalent of the full cash value under Article XIIIA. During periods in which the real estate market within the Charter Oak Unified School District evidences an upward trend, the fair market value for a given property, which has not been reappraised due to a change in ownership, may exceed the full cash value of such property. During periods in which the real estate market demonstrates a downward trend, the fair market value of a given property may be less than the full cash value of such property and the property owner may apply for a “decline in value” reassessment pursuant to Proposition 8. Reassessments pursuant to Proposition 8, if approved by the Office of the County Assessor, lower valuations of properties (where no change in ownership has occurred) if the current value of such property is lower than the full cash value of record of the property. The value of a property reassessed as a result of a decline in value may change, but in no case may its full cash value exceed its fair market value. When and if the fair market value of a property which has received a downward reassessment pursuant to Proposition 8 increases above its Proposition 13 factored base year value, the Office of the County Assessor will enroll such property at its Proposition 13 factored base year value.

All taxable property is shown at full cash value on the tax rolls. The tax rate is expressed as $1 per $100 of taxable value. All taxable property value included in this Official Statement is shown at 100% of cash value (unless noted differently) and all tax rates reflect the $1 per $100 of taxable value.

Article XIIIB of the State Constitution

An initiative to amend the State Constitution entitled “Limitation of Government Appropriations” was approved on November 6, 1979 thereby adding Article XIIIB to the State Constitution (“Article XIIIB”). In June 1990, Article XIIIB was amended by the voters through their approval of Proposition 111. Under Article XIIIB, the State and each local governmental entity have an annual “appropriations limit” and are not permitted to spend certain moneys that are called “appropriations subject to limitation” (consisting of tax revenues, state subventions and certain other funds) in an amount higher than the appropriations limit. Article XIIIB does not affect the appropriations of moneys that are excluded from the definition of “appropriations subject to limitation,” including debt service on indebtedness existing or authorized as of January 1, 1979, or bonded indebtedness subsequently approved by the voters. In general terms, the appropriations limit is to be based on certain 1978-79 expenditures, and is to be adjusted annually to reflect changes in costs of living and changes in population, and adjusted where applicable for transfer of financial responsibility of providing services to or from another unit of government. Among other provisions of Article XIIIB, if these entities’ revenues in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules

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over the subsequent two years. However, in the event that a school district’s revenues exceed its spending limit, the school district may, in any fiscal year, increase its appropriations limit to equal its spending by borrowing appropriations limit from the State, provided the State has sufficient excess appropriations limit in such year. See “State Funding of Education – State Budget” herein.

Article XIIIC and Article XIIID of the State Consti tution

On November 5, 1996, the voters of the State approved Proposition 218, the so called “Right to Vote on Taxes Act.” Proposition 218 added Articles XIIIC and XIIID to the State Constitution, which contain a number of provisions affecting the ability of local agencies, including school districts, to levy and collect both existing and future taxes, assessments, fees and charges.

Article XIIID deals with assessments and property related fees and charges. Article XIIID explicitly provides that nothing in Article XIIIC or XIIID shall be construed to affect existing laws relating to the imposition of fees or charges as a condition of property development; however it is not clear whether the initiative power is therefore unavailable to repeal or reduce developer and mitigation fees imposed by the Lessee.

Proposition 98

On November 8, 1988, California voters approved Proposition 98, a combined initiative, constitutional amendment and statute called the “Classroom Instructional Improvement and Accountability Act” (the “Accountability Act”). The Accountability Act changed State funding of public education below the university level, and the operation of the State’s Appropriations Limit, primarily by guaranteeing State funding for K-12 school districts and community college districts (collectively, “K-14 districts”).

Under Proposition 98 (as modified by Proposition 111, which was enacted on June 5, 1990), K-14 districts are guaranteed the greater of (a) in general, a fixed percent of the State General Fund’s revenues (“Test 1”), (b) the amount appropriated to K-14 districts in the prior year, adjusted for changes in the cost of living (measured as in Article XIIIB by reference to State per capita personal income) and enrollment (“Test 2”), or (c) a third test, which would replace Test 2 in any year when the percentage growth in per capita State General Fund revenues from the prior year plus one half of 1% is less than the percentage growth in State per capita personal income (“Test 3”). Under Test 3, schools would receive the amount appropriated in the prior year adjusted for changes in enrollment and per capita State General Fund revenues, plus an additional small adjustment factor. If Test 3 is used in any year, the difference between Test 3 and Test 2 would become a “credit” to schools which would be the basis of payments in future years when per capita State General Fund revenue growth exceeds per capita personal income growth. Legislation adopted prior to the end of Fiscal Year 1988-89, implementing Proposition 98, determined the K-14 districts’ funding guarantee under Test 1 to be 40.3% of the State General Fund tax revenues, based on 1986-87 appropriations. However, that percentage has been adjusted to 34.559% to account for a subsequent redirection of local property taxes whereby a greater proportion of education funding now comes from local property taxes.

Proposition 98 permits the State Legislature by a two-thirds vote of both houses of the State Legislature, with the Governor’s concurrence, to suspend the K-14 districts’ minimum funding formula for a one year period. In the fall of 1989, the State Legislature and the Governor utilized this provision to avoid having 40.3% of revenues generated by a special supplemental sales tax enacted for earthquake relief go to K-14 districts. In the fall of 2004, the State Legislature and the Governor agreed to suspend the K-14 districts’ minimum funding formula set forth pursuant to Proposition 98 in order to address a

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projected shortfall during Fiscal Year 2004-05. Proposition 98 also contains provisions transferring certain State tax revenues in excess of the Article XIIIB limit to K-14 districts.

The Revised 2009-10 State Budget Act and the Proposed 2010-11 State Budget (defined herein) propose to fully fund the Proposition 98 minimum guarantee in Fiscal Years 2009-10 and 2010-11, respectively. However, ABx8 6 authorizes the State to eliminate the sales tax on gasoline and replace it with an excise tax. The elimination of the sale tax on gasoline would reduce the State General Fund. Under current law, any reduction in the State General Fund could reduce the minimum guarantee under Proposition 98. Pursuant to ABx8 6, the State’s Director of Finance is directed to adjust the percentage of State General Fund revenues appropriated for school districts and community college districts such that the provisions of ABx8 6 will have no net fiscal impact upon the amounts that are otherwise required to be applied by the State for the support of school districts and community college districts pursuant to Proposition 98. However, there can be no assurances that any action taken by the State’s Director of Finance will not adversely affect Proposition 98 revenues. See “STATE FUNDING OF EDUCATION – State Assistance – Proposed Fiscal Year 2010-11 State Budget” herein.

Proposition 39

Proposition 39, which was approved by California voters in November 2000, provides an alternative method for passage of school facilities bond measures which lowers the constitutional voting requirement from two-thirds to 55% of voters and allows property taxes to exceed the current 1% limit in order to repay such bonds. The lower 55% vote requirement would apply only to bond issues to be used for construction, rehabilitation, or equipping of school facilities or the acquisition of real property for school facilities. The State Legislature enacted additional legislation which placed certain limitations on this lowered threshold, requiring that (i) two-thirds of the governing board of a school district approve placing a bond issue on the ballot, (ii) the bond proposal be included on the ballot of a statewide or primary election, a regularly scheduled local election, or a statewide special election (rather than a school district election held at any time during the year), (iii) the tax rate levied as a result of any single election not exceed $25 for a community college district, $60 for a unified school district, or $30 for an elementary school or high school district per $100,000 of taxable property value, and (iv) the governing board of the school district appoint a citizen’s oversight committee to inform the public concerning the spending of the bond proceeds. In addition, the school board of the applicable district is required to perform an annual, independent financial and performance audit until all bond funds have been spent to ensure that the funds have been used only for the projects listed in the measure. The Lessee is in full compliance with all Proposition 39 requirements.

Proposition 1A

Proposition 1A (SCA 4) (“Proposition 1A”), proposed by the State Legislature in connection with the 2004-05 State Budget and approved by the voters in November 2004, provides that the State may not reduce any local sales tax rate, limit existing local government authority to levy a sales tax rate or change the allocation of local sales tax revenues, subject to certain exceptions. Proposition 1A generally prohibits the State from shifting to schools or community colleges any share of property tax revenues allocated to local governments for any fiscal year, as set forth under the laws in effect as of November 3, 2004. Any change in the allocation of property tax revenues among local governments within a county must be approved by two-thirds of both houses of the State Legislature. Proposition 1A provides, however, that beginning in Fiscal Year 2008-09, the State may shift to schools and community colleges up to 8% of local government property tax revenues, which amount must be repaid, with interest, within three years, if the Governor proclaims that the shift is needed due to a severe State financial hardship, the shift is approved by two-thirds of both houses and certain other conditions are met. The State may also approve voluntary exchanges of local sales tax and property tax revenues among local governments

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within a county. Proposition 1A also provides that if the State reduces the vehicle license fee rate below 0.65% of a vehicle’s market value, the State must provide local governments with equal replacement revenues. Further, Proposition 1A requires the State, beginning July 1, 2005, to suspend State mandates affecting cities, counties and special districts, excepting mandates relating to employee rights, schools or community colleges, in any year that the State does not fully reimburse local governments for their costs to comply with such mandates. The Revised 2009-10 State Budget Act enacts a shift of approximately $1.9 billion of city, county, and special district property taxes and uses such funds to offset State General Fund spending for education and other programs.

State School Facilities Bonds

Proposition 47 and Proposition 1A. The Class Size Reduction Kindergarten – University Public Education Facilities Bond Act of 2002 (“Proposition 47”) appeared on the November 5, 2002 ballot as Proposition 47 and was approved by the California voters. This measure authorizes the sale and issuance of $13.05 billion in general obligation bonds by the State for funding construction and renovation of K-12 school facilities ($11.4 billion) and higher education facilities ($1.65 billion). Proposition 47 includes $6.35 billion for acquisition of land and new construction of K-12 school facilities. Of this amount, $2.9 billion will be set aside to fund backlog projects for which school districts submitted applications to the State on or prior to February 1, 2002. The balance of $3.45 billion would be used to fund projects for which school districts submitted applications to the State after February 1, 2002. K-12 school districts will be required to pay 50% of the costs for acquisition of land and new construction with local revenues. In addition, Proposition 47 provided that up to $100 million of the $3.45 billion would be allocated for charter school facilities. Proposition 47 provides up to $3.3 billion for reconstruction or modernization of existing K-12 school facilities. Of this amount, $1.9 billion will be set aside to fund backlog projects for which school districts submitted applications to the State on or prior to February 1, 2002 and the balance of $1.4 billion would be used to fund projects for which school districts submitted applications to the State after February 1, 2002. K-12 school districts will be required to pay 40% of the costs for reconstruction or modernization with local revenues. Proposition 47 provides a total of $1.7 billion to K-12 school districts which are considered critically overcrowded, specifically to schools that have a large number of pupils relative to the size of the school site. In addition, $50 million will be available to fund joint-use projects. Proposition 47 also includes $1.65 billion to construct new buildings and related infrastructure, alter existing buildings and purchase equipment for use in the State’s public higher education systems.

Proposition 1A was previously approved in November 1998 and provided $6.7 billion of capital funding for K-12 public schools.

Proposition 55. The Kindergarten-University Public Education Facilities Bond Act of 2004 (“Proposition 55”) appeared on the March 2, 2004 ballot as Proposition 55 and was approved by the California voters. This measure authorizes the sale and issuance of $12.3 billion in general obligation bonds by the State for funding the construction and renovation of public K-12 school facilities ($10 billion) and public higher education facilities ($2.3 billion). Proposition 55 includes $5.26 billion for the acquisition of land and construction of new school buildings. A school district would be required to pay for 50% of costs with local resources unless it qualifies for state hardship funding. The measure also provides that up to $300 million of these new construction funds is available for charter school facilities.

Proposition 55 makes $2.25 billion available for the reconstruction or modernization of existing public school facilities. Districts would be required to pay 40% of project costs from local resources. Proposition 55 directs a total of $2.44 billion to school districts with schools which are considered critically overcrowded. These funds would go to schools that have a large number of pupils relative to

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the size of the school site. Proposition 55 also makes a total of $50 million available to fund joint-use projects. Proposition 55 includes $2.3 billion to construct new buildings and related infrastructure, alter existing buildings and purchase equipment for use in these buildings for California’s public higher education systems. The measure allocates $690 million to the University of California and California State University and $920 million to community colleges in the State. The Governor and the State Legislature will select specific projects to be funded by the bond proceeds.

Proposition 1D. The Kindergarten-University Public Education Facilities Bond Act of 2006 (“Proposition 1D”) appeared on the November 7, 2006 ballot as Proposition 1D and was approved by the California voters. This measure authorizes the sale and issuance of $10.4 billion in general obligation bonds by the State for funding the construction and renovation of public K-12 school facilities ($7.3 billion) and public higher education facilities ($3.1 billion). Proposition 1D includes $1.9 billion for the acquisition of land and construction of new school buildings. A school district would be required to pay for 50% of costs with local resources unless it qualifies for state hardship funding. Proposition 1D also provides that up to $500 million of these construction funds is available for charter school facilities.

Proposition 1D makes $3.3 billion available for the reconstruction or modernization of existing public school facilities. Districts would be required to pay 40% of project costs from local resources. Proposition 1D directs a total of $1.0 billion to school districts with schools which are considered critically overcrowded. These funds would go to schools that have a large number of pupils relative to the size of the school site. Proposition 1D also makes a total of $29 million available to fund joint-use projects. Proposition 1D includes $3.1 billion to construct new buildings and related infrastructure, alter existing buildings and purchase equipment for use in these buildings for California’s public higher education systems. The measure allocates $890 million to the University of California campuses and $690 million to the California State University campuses and $1.5 billion to California community colleges. The Governor and the State Legislature will select specific projects to be funded by the bond proceeds.

The Lessee applies for apportionments from State bond initiatives and historically has received funding from such State bond initiatives. No assurances can be given that the Lessee will continue to apply for apportionments from current or future State bond initiatives or that the Lessee will continue to receive funding from State bond initiatives for which it applies.

Future Initiatives

The foregoing described amendments to the State constitution and propositions were each adopted as measures that qualified for the ballot pursuant to the State’s initiative process. From time to time other initiative measures could be adopted that further affect the Lessee’s revenues or the Lessee’s ability to expend revenues.

GENERAL TAX MATTERS

The following discussion of General Tax Matters was written to support the promotion and marketing of the Certificates and was not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding United States federal income tax penalties that may be imposed. Each taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

General. The following is a general summary of certain federal income tax consequences of the purchase and ownership of the Certificates. The discussion is based upon the Code, U.S. Treasury Regulations, rulings and decisions now in effect, all of which are subject to change (possibly, with

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retroactive effect) or possibly differing interpretation. No assurances can be given that future changes in the law will not alter the conclusions reached herein. The discussion below does not purport to deal with federal income tax consequences applicable to all categories of investors and generally does not address consequences relating to the disposition of a Certificate by a beneficial owner thereof. Further, this summary does not discuss all aspects of federal income taxation that may be relevant to a particular investor in the Certificates in light of the investor’s particular circumstances (for example, persons subject to the alternative minimum tax provisions of the Code), or to certain types of investors subject to special treatment under the federal income tax laws (including insurance companies, tax-exempt organizations and entities, financial institutions, broker-dealers, persons who have hedged the risk of owning the Certificates, traders in securities that elect to use a mark-to-market method of accounting, thrifts, regulated investment companies, pension and other employee benefit plans, partnerships and other pass-through entities, certain hybrid entities and owners of interests therein, persons who acquire Certificates in connection with the performance of services, or persons deemed to sell Certificates under the constructive sale provisions of the Code). The discussion below also does not discuss any aspect of state, local or foreign law or U.S. federal tax laws other than U.S. federal income tax law. The summary is limited to certain issues relating to initial investors who will hold the Certificates as “capital assets” within the meaning of Section 1221 of the Code, and acquire such Certificates for investment and not as a dealer or for resale. The summary addresses certain federal income tax consequences applicable to beneficial owners of the Certificates who are United States persons within the meaning of Section 7701(a)(30) of the Code (“United States persons”) and, except as discussed below, does not address any consequences to persons other than United States persons. Prospective investors should note that no rulings have been or will be sought from the Service with respect to any of the federal income tax consequences discussed below, and no assurance can be given that the Service will not take contrary positions.

ALL PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS IN DETERMINING THE FEDERAL, STATE, LOCAL, FOREIGN AND ANY OTHER TAX CONSEQUENCES TO THEM FROM THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE CERTIFICATES.

Internal Revenue Service Circular 230 Notice. Prospective investors should be aware that:

(a) the discussion in this Official Statement with respect to certain U.S. federal income tax consequences of purchasing and owning the Certificates is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed under the Code;

(b) such discussion was written in connection with the promotion or marketing (within the meaning of IRS Circular 230) of the transactions or matters addressed in this Official Statement; and

(c) each taxpayer should seek advice based on its particular circumstances from an independent tax advisor.

This notice is given solely for purposes of ensuring compliance with IRS Circular 230 with respect to the discussion below regarding the Certificates.

Stated Interest and Reporting of Interest Payments. The stated interest with respect to the Certificates will be included in the gross income, as defined in Section 61 of the Code, of the beneficial owners thereof as ordinary income for federal income tax purposes at the time it is paid or accrued, depending on the tax accounting method applicable to the beneficial owners thereof. Subject to certain exceptions, the stated interest with respect to the Certificates will be reported to the Service. Such information will be filed each year with the Service on Form 1099 which will reflect the name, address

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and taxpayer identification number (“TIN”) of the beneficial owner. A copy of Form 1099 will be sent to each beneficial owner of a Certificate for federal income tax purposes. The failure to furnish a tax reporting form to a Certificate Owner does not necessarily mean that such Owner has no taxable income.

Backup Withholding. Under Section 3406 of the Code, a beneficial owner of the Certificates who is a United States person, as defined in Section 7701(a)(3) of the Code, may, under certain circumstances, be subject to “backup withholding” (currently at a rate of 28 percent) on current or accrued interest with respect to the Certificates or with respect to proceeds received from a disposition of the Certificates. This withholding applies if such beneficial owner of Certificates: (i) fails to furnish to the payor such beneficial owner’s social security number or other TIN; (ii) furnishes the payor an incorrect TIN; (iii) fails to report interest properly; or (iv) under certain circumstances, fails to provide the payor or such beneficial owner’s broker with a certified statement, signed under penalty of perjury, that the TIN provided to the payor or broker is correct and that such beneficial owner is not subject to backup withholding. To establish status as an exempt person, a beneficial owner will generally be required to provide certification on IRS Form W-9 (or substitute form).

Backup withholding will not apply, however, if the beneficial owner is a corporation or falls within certain tax-exempt categories and, when required, demonstrates such fact. BENEFICIAL OWNERS OF THE CERTIFICATES SHOULD CONSULT THEIR TAX ADVISORS REGARDING THEIR QUALIFICATION FOR EXEMPTION FROM BACKUP WITHHOLDING AND THE PROCEDURE FOR OBTAINING SUCH EXEMPTION, IF APPLICABLE. The backup withholding tax is not an additional tax and taxpayers may use amounts withheld as a credit against their federal income tax liability or may claim a refund as long as they timely provide certain information to the Service.

Withholding on Payments to Nonresident Alien Individuals and Foreign Corporations. Under Sections 1441 and 1442 of the Code, nonresident alien individuals and foreign corporations are generally subject to withholding of U.S. federal income tax by the payor at the rate of 30 percent on periodic income items arising from sources within the United States, provided such income is not effectively connected with the conduct of a United States trade or business. Assuming the interest income of such a beneficial owner of the Certificates is not treated as effectively connected income within the meaning of Section 864 of the Code, such interest will be subject to 30 percent withholding, or any lower rate specified in an income tax treaty, unless such income is treated as “portfolio interest.” Interest will be treated as portfolio interest if (i) the beneficial owner provides a statement to the payor certifying, under penalties of perjury, that such beneficial owner is not a United States person and providing the name and address of such beneficial owner, (ii) such interest is treated as not effectively connected with the beneficial owner’s United States trade or business, (iii) interest payments are not made to a person within a foreign country which the Service has included on a list of countries having provisions inadequate to prevent United States tax evasion, (iv) interest payable with respect to the Certificates is not deemed contingent interest within the meaning of the portfolio debt provision, (v) such beneficial owner is not a controlled foreign corporation within the meaning of Section 957 of the Code, and (vi) the beneficial owner is not a bank receiving interest with respect to the Certificates pursuant to a loan agreement entered into in the ordinary course of the bank’s trade or business.

Assuming payments with respect to the Certificates are treated as portfolio interest within the meaning of Sections 871 and 881 of the Code, then no withholding under Section 1441 and 1442 of the Code and no backup withholding under Section 3406 of the Code is required with respect to beneficial owners or intermediaries who have furnished Form W-8 BEN, Form W-8 EXP or Form W-8 IMY, as applicable, provided the payor has no actual knowledge or reason to know that such person is a United States person.

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The preceding discussion of certain U.S. federal income tax consequences is for general information only and is not tax advice. Accordingly, each investor should consult its own tax advisor as to particular tax consequences to it of purchasing, owning and disposing of the Certificates, including the applicability and effect of any state, local or foreign tax laws, and of any proposed changes in applicable laws.

Certain State Income Tax Consequences. In the opinion of Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, interest with respect to the Certificates is exempt from State of California personal income taxes.

CERTAIN LEGAL MATTERS

Legal matters incident to the authorization, execution and delivery of the Certificates will be subject to the final approving opinion of Fulbright & Jaworski L.L.P., Los Angeles, California, Special Counsel to the Corporation, substantially in the form contained in Appendix E. Certain legal matters will be passed upon for the Underwriters by Hawkins Delafield & Wood LLP, Los Angeles, California.

ABSENCE OF LITIGATION

There is no action, suit or proceeding known to be pending or threatened, restraining or enjoining the execution or delivery of the Certificates, the Trust Agreement, the Lease Agreement, the Site Lease, the Assignment Agreement, the Continuing Disclosure Agreement or in any way contesting or affecting the validity of the foregoing or any proceedings of the Lessee or the Corporation taken with respect to any of the foregoing.

RATING

Standard & Poor’s, a division of the McGraw Hill Companies, Inc. (“S&P”) has assigned its municipal bond rating of “A” to the Certificates. The Certificates have been assigned the rating of “A”. Such rating reflects only the view of S&P, and an explanation of the significance of such rating may be obtained as follows: Standard & Poor’s at Municipal Finance Department, 55 Water Street, New York, New York 10041, tel. (212) 438-2124. There is no assurance that such rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely if, in the judgment of S&P, circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Certificates.

AVAILABILITY OF DOCUMENTS

Copies of the Lease Agreement, the Trust Agreement, the Assignment Agreement, the Site Lease and the Continuing Disclosure Agreement are available, upon written request, from the Trustee at 700 S. Flower Street, 5th Floor, Los Angeles, California 90017.

UNDERWRITING

The Certificates are to be purchased by RBC Capital Markets Corporation and E. J. De La Rosa & Co., Inc. (collectively, the “Underwriters”) at a price of $2,945,250 (reflecting the principal amount of the Certificates less an Underwriters’ discount of $29,750). The purchase agreement relating to the Certificates provides that all Certificates will be purchased if any are purchased, the obligation to

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make such purchase being subject to certain terms and conditions set forth in said purchase agreement, the approval of certain legal matters by Special Counsel and certain other conditions.

Certificates may be offered and sold to certain dealers and others at prices lower than the offering prices stated on the cover page hereof. The offering prices may be changed from time to time by the Underwriters.

CONTINUING DISCLOSURE

Pursuant to the Continuing Disclosure Agreement, the Lessee has agreed to provide, or cause to be provided, by no later than the March 1 after the end of each fiscal year, commencing with the 2009-10 fiscal year, to the Municipal Securities Rulemaking Board through its Electronic Municipal Market Access system (“EMMA”) in the manner prescribed by the U.S. Securities and Exchange Commission for purposes of Rule 15c2-12(b)(5) adopted by the U.S. Securities and Exchange Commission certain annual financial information and operating data, including its audited financial statements, of the type set forth in Appendix A of this Official Statement, with respect to the Lessee’s preceding fiscal year, and to provide or cause to be provided, to EMMA in a timely manner, notice of the certain events set forth in the Form of Continuing Disclosure Agreement set forth in Appendix I hereto. These covenants have been made in order to assist the Underwriters in complying with U.S. Securities and Exchange Commission Rule 15c2-12(b)(5). The Lessee has not failed to comply in all material respects with respect to filings required under its other existing continuing disclosure obligations in the last five years.

The Lessee’s obligations under the Continuing Disclosure Agreement shall terminate upon the defeasance, prior prepayment or payment in full of all of the Certificates. The undertakings in the Continuing Disclosure Agreement shall inure solely to the benefit of the Lessee, the Trustee, the Underwriters and the Owners and beneficial owners, from time to time, of the Certificates, and shall create no rights in any other person or entity. See Appendix G – “FORM OF CONTINUING DISCLOSURE AGREEMENT” attached hereto.

MISCELLANEOUS

References are made herein to certain documents and reports which are brief summaries thereof which do not purport to be complete or definitive and reference is made to such documents and reports for full and complete statements of the contents thereof.

Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. The presentation of information, including tables of receipt of revenues, is intended to show recent historical information and is not intended to indicate future or continuing trends in the financial position or other affairs of the Lessee. No representation is made that past experience, as it might be shown by such financial and other information, will necessarily continue or be repeated in the future. This Official Statement is not to be construed as a contract or agreement between the Lessee and purchasers or Owners of any of the Certificates.

The delivery of this Official Statement has been duly authorized by the Lessee.

[THIS PAGE INTENTIONALLY LEFT BLANK]

APPENDIX A

THE LESSEE – CHARTER OAK UNIFIED SCHOOL DISTRICT

Unless indicated otherwise, the following financial, statistical and demographic data has been provided by the Charter Oak Unified School District (the “District”). Additional information concerning the District and copies of the most recent and subsequent audited financial reports (including the operations of the District) may be obtained by contacting:

Charter Oak Unified School District 20240 E. Cienega Avenue Covina, California 91724

Attn: Assistant Superintendent, Business Services General

The Charter Oak Unified School District is a school district of the State of California, formed in 1960. The District is located in the eastern portion of the County of Los Angeles (the “County”) and provides public education within an approximately 5.89 square mile area, including the cities of Covina, Glendora and San Dimas and certain unincorporated areas of the County. The District operates five elementary schools, one middle school, one comprehensive high school, and one alternative school which encompasses a continuation high school, an alternative school that houses the independent study and home school programs, and a community day school. The District is located in the City of Covina, California.

Organization

The District is governed by a 5-member Board of Education, each member of which is elected to a 4-year term. Elections for positions to the Board are held every 2 years, alternating between 2 and 3 available positions. The management and policies of the District are administered by a Superintendent appointed by the Board who is responsible for day-to-day operations as well as the supervision of the District’s other key personnel. Clint Harwick, Ed.D. is the Superintendent.

Board Members

The Board annually elects a President and a Vice President to serve one-year terms. The present membership of the Board of Education is as follows:

Member Board Position Term Expires Jane A. Bock President November 2013 Robert J. Cruz Vice President November 2011 Brian R. Akers Member November 2011 Don H. Davis Member November 2013 Joseph M. Probst Member November 2011

Key Personnel

Clint G. Harwick, Ed.D., is the Superintendent of Charter Oak Unified School District. He has served in this capacity since 2007. Prior to joining the District, Dr. Harwick was Superintendent of Rim of the World Unified School District in Lake Arrowhead, California and also served as an Adjunct Professor at Azusa Pacific University. Dr. Harwick has more than 20 years of experience in the field of

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education. He earned his Bachelors Degree from the University of Redlands, and his Masters and Doctorate from Azusa Pacific University.

Elias Jouen is the Assistant Superintendent, Business Services of Charter Oak Unified School District. He has served in this capacity since 2007. Prior to joining the District, he was the Chief Business Official of Banning Unified School District, and prior to that appointment, he was the Business Manager of Baker Valley Unified School District. In total, Mr. Jouen has had 23 years in school business management with the last nine years as a chief business official. Mr. Jouen has a Bachelors of Science in Business and Management from the University of Redlands, and a Certificate in School Business Management from California State University, San Bernardino.

Employees

The District employs approximately 298 full-time and part-time certificated professionals and 351 full-time and part-time classified employees. The pupil-teacher ratio within the District is 22 to 1 for grades Kindergarten through 3, 31 to 1 for grades 4 through 6, 30 to 1 for grades 7 and 8, and 31.5 to 1 for grades 9 through 12.

The District’s employees are represented by two bargaining units: the Charter Oak Educators Association (“COEA”) includes 272 employee members, with a contract set to expire on June 30, 2010; the California Schools Employee Association (“CSEA”) includes 276 employee members, with a contract that expired on June 30, 2008. Negotiations relating to a new contract with CSEA are currently in progress.

The District has historically enjoyed a good working relationship with each of its bargaining units.

The District also has 43 management (certificated and classified) and confidential (classified) employees who are not represented by any formal bargaining unit.

Retirement Programs

The District participates in the State of California Teachers Retirement System (“STRS”) which provides retirement benefits to certificated personnel. The District contributed $2,061,346 for fiscal year 2007-08, $1,970,920 in fiscal year 2008-09 and has budgeted $1,819,664 for fiscal year 2009-10. The District also participates in the State of California Public Employees’ Retirement System (“PERS”) which provides retirement benefits to classified personnel. The District contributed $786,145 to PERS in fiscal year 2007-08, $828,481 in fiscal year 2008-09 and has budgeted $834,598 for fiscal year 2009-10.

The District was the recipient of on-behalf payments made by the State of California to STRS for K-12 education. In 2007-08, these payments consisted of State general fund contributions of approximately $1,128,168 to STRS (4.517% of salaries subject to STRS).

Post-Employment Benefits

The District provides post-employment health care benefits in addition to retirement payments to eligible retirees through age 64. The District is required to comply with GASB 45 beginning with the fiscal year ending June 30, 2009. The District completed an actuarial study of its other post-employment benefit obligations dated July 1, 2007. As of the date of this study, there were 573 participants (including current employees and retirees). Expenditures for postemployment benefits are recognized on a pay-as-you-go basis. In the fiscal year ended 2008, expenditures of $492,735 were recognized for retirees’

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health care benefits. The District’s Total Actuarial Accrued Liability is $6,566,346. The Annual Required Contribution is $806,485. The District has not set aside funds in a special reserve for its other post-employment benefits.

Insurance

The District is a member of the Alliance of Schools for Cooperative Insurance Programs (“ASCIP”) and the Valley Insurance Programs (“VIP”) public entity risk pools. The District pays an annual premium to ASCIP and VIP for its workers’ compensation and property liability coverage.

These entities have budgeting and financial reporting requirements independent of member units and their financial statements are separate from those of the District’s. Audited financial statements are available from the respective entities.

Based upon prior claims experience, the District believes it has adequate insurance coverage from ASCIP and VIP.

The District maintains insurance or self-insurance in such amounts and with such retentions and other terms providing coverages for property damage, fire and theft, general public liability and workers’ compensation, as are adequate, customary and comparable with such insurance maintained by similarly situated unified school districts. In addition, based upon prior claims experience, the District believes that its recorded liabilities for any self-insured claim is adequate.

Enrollment History and Projection

Student average daily attendance figures for the K-12 programs operated by the District for the past four fiscal years as well as a projection for fiscal year 2009-10 are shown below:

CHARTER OAK UNIFIED SCHOOL DISTRICT Average Daily Attendance

Fiscal Year Average Daily

Attendance 2005-06 6,708 2006-07 6,494 2007-08 6,318 2008-09 6,143 2009-10(1) 5,959

_____________ (1) Projected. Source: Charter Oak Unified School District.

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Budget, Accounting Practices and Audited Financial Report

The District is required by provisions of the State Education Code to maintain a balanced budget for its operations each year, where the sum of expenditures plus the ending fund balance cannot exceed revenues plus the carry-over fund balance from the previous year.

The following table shows the District’s budgets for fiscal years 2005-06 and 2006-07 together with the audited actuals for fiscal years 2005-06 and 2006-07. The audited data is from financial statements prepared by the District’s independent audit firm, Vavrinek, Trine, Day & Co., LLP for fiscal years 2005-06 and 2006-07.

CHARTER OAK UNIFIED SCHOOL DISTRICT General Fund Final Adjusted Budgets for 2005-06 and 2006-07

and Audited Actuals for 2005-06 and 2006-07

2005-06 Final Adjusted

Budget

2005-06 Audited Actuals

2006-07 Final Adjusted

Budget

2006-07 Audited Actuals

ADJUSTED BEGINNING FUND BALANCE $ 3,924,687 $ 3,924,687 $ 4,424,906 $ 4,424,906 Revenues:

Revenue Limit Sources $35,961,258 $35,905,573 $37,276,393 $37,231,880 Federal Sources 2,267,950 1,997,876 2,141,334 2,017,662 Other State Sources 8,983,684 10,421,820 11,032,002 11,660,934 Other Local Sources 1,891,640 2,287,801 2,378,246 2,387,761

Total Revenues $49,104,532 $50,613,070 $52,827,975 $53,298,237 Expenditures:

Instruction $32,684,489 $31,736,888 $34,823,178 $32,434,172 Instruction-related activities 4,239,745 4,159,339 4,528,133 4,782,659 Pupil services 2,526,414 2,676,680 3,076,615 3,235,206 General administration 3,191,435 3,164,231 3,442,227 3,509,292 Plant services 4,832,610 4,996,495 5,123,563 5,460,700 Facility acquisition and construction 363,758 428,383 79,495 197,504 Ancillary services 74,155 122,669 74,155 110,681 Community services 1,537,421 1,211,703 1,518,093 1,366,109 Other outgo 1,429,857 1,616,463 0 1,527,044

Total Expenditures $50,879,884 $50,112,851 $52,665,459 $52,623,367 Other Financing Sources (Uses) $ 0 $ 0 $ 0 $ 0 ENDING FUND BALANCE $ 2,149,335 $ 4,424,906 $ 4,587,422 $ 5,099,776

___________________ Source: Charter Oak Unified School District.

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The following table shows the District’s final adjusted budget and audited actuals from fiscal year 2007-08. Quezada & Company was the District’s auditor for this year.

CHARTER OAK UNIFIED SCHOOL DISTRICT General Fund Final Adjusted Budget for 2007-08 and 2007-08 Audited Actuals

2007-08 Final Adjusted

Budget 2007-08

Audited Actuals

BEGINNING FUND BALANCE (adjusted) $ 5,099,776 $ 5,099,776 REVENUES Revenue Limit Sources 37,448,524 37,016,200 Federal Sources 2,025,321 1,988,396 Other State Sources 9,350,777 10,202,289 Other Local Sources 2,054,055 1,090,935

Total Revenues $ 50,878,677 $ 50,297,820

EXPENDITURES Certificated salaries 24,817,159 24,915,221 Classified salaries 8,160,730 8,246,024 Employee benefits 9,252,189 9,427,793 Books and supplies 2,589,056 2,511,187 Services and other expenditures 5,367,475 5,281,383 Capital outlay 10,000 112,647 Other outgo 1,552,172 1,642,789 (Direct support)/indirect costs (281,693) (142,553)

Total Expenditures $ 51,467,088 $ 51,994,491

OTHER FINANCING SOURCES (USES) 0 118,471

ENDING FUND BALANCE $ 4,511,365 $ 3,521,577

Source: Charter Oak Unified School District.

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The following table shows the District’s final adjusted budget and audited actuals from fiscal year 2008-09. The audited data is from the financial statements prepared by the District’s independent audit firm, Vavrinek, Trine, Day & Co., LLP.

CHARTER OAK UNIFIED SCHOOL DISTRICT General Fund Final Adjusted Budget for 2008-09 and 2008-09 Audited Actuals

2008-09 Final Adjusted

Budget 2008-09

Audited Actuals

BEGINNING FUND BALANCE (adjusted) $ 3,521,577 $ 3,521,577 REVENUES Revenue Limit Sources 33,262,424 35,337,851 Federal Sources 3,867,259 5,190,671 Other State Sources 9,276,834 8,871,428 Other Local Sources 1,675,715 1,196,758 Total Revenues $48,082,232 $50,596,708

EXPENDITURES Instruction $33,217,975 $32,927,452 Instruction-related activities 4,053,704 4,841,600 Pupil services 4,266,157 3,559,522 General administration 3,232,188 3,480,439 Plant services 4,564,035 5,143,720 Facility acquisition and construction 99,398 108,412 Ancillary services 65,999 168,019 Community services 486,177 418,178 Other outgo 1,852,172 2,074,144 Total Expenditures $51,837,805 $52,721,486 OTHER FINANCING SOURCES (USES) 2,252,416 2,252,416 ENDING FUND BALANCE $ 2,018,420 $ 3,649,215

Source: Charter Oak Unified School District.

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The following table includes the District’s Fiscal Year 2009-10 Adopted Budget, which was adopted on June 25, 2009, and the projected estimates of year-end figures from the District’s Fiscal Year 2009-10 Second Interim Report, which was accepted by the District on March 4, 2010.

CHARTER OAK UNIFIED SCHOOL DISTRICT Fiscal Year 2009-10 Adopted Budget and

Projected Estimates of Year-End Figures for Fiscal Year 2009-10 from Second Interim Report

Fiscal Year 2009-10 Adopted Budget

Fiscal Year 2009-10 Projections from

Second Interim Report

BEGINNING FUND BALANCE (adjusted)

$ 4,470,394 $5,302,082

REVENUES Revenue Limit Sources $32,601,734 30,130,528 Federal Sources 3,493,459 3,433,153 Other State Sources 7,679,198 8,060,261 Other Local Sources 1,767,745 986,994 Total Revenues $45,542,136 $42,610,936

EXPENDITURES Certificated salaries $22,466,764 $22,894,009 Classified salaries 6,776,159 7,743,578 Employee benefits 8,551,454 8,821,038 Books and supplies 2,378,455 2,197,981 Services and other expenditures 5,454,228 5,166,394 Capital outlay 0 15,000 Other outgo 1,544,856 1,968,166 (Direct support)/indirect costs (207,321) (207,815) Total Expenditures $46,964,595 $48,598,351

OTHER FINANCING SOURCES (USES)

$ 2,052,416 $ 5,030,246

ENDING FUND BALANCE $ 5,100,351 $ 4,344,913

Source: Charter Oak Unified School District.

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General Long Term Debt

Following is a summary of the District’s outstanding long-term debt as of June 30, 2009.

As of June 30, 2009 General obligation bonds $ 29,774,683 Bond Premium 847,062 Net Accumulated Vacation 204,572 Other Post-Employment Benefits 513,870 Total $ 31,340,187

_______________________ Source: Charter Oak Unified School District.

Overlapping Indebtedness

Set forth in the table on the following page is the Debt Report prepared by California Municipal Statistics Inc. and dated as of March 1, 2010 (the “Debt Report”). The Debt Report is included for general information purposes only. The District has not reviewed the Debt Report for completeness or accuracy and makes no representations in connection therewith. The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the District. Such long-term obligations generally are not payable from revenues of the District (except as indicated) nor are they necessarily obligations secured by land within the District. In many cases, long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency.

The first column in the Debt Report names each public agency which has outstanding debt as of the date of the report and whose territory overlaps the District in whole or in part. Column 2 shows the percentage of each overlapping agency’s assessed value located within the boundaries of the District. This percentage, multiplied by the total outstanding debt of each overlapping agency (which is not shown in the Debt Report) produces the amount shown in column 3, which is the apportionment of each overlapping agency’s outstanding debt to taxable property in the District.

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CHARTER OAK UNIFIED SCHOOL DISTRICT Direct and Overlapping Bonded Debt

As of March 1, 2010

CHARTER OAK UNIFIED SCHOOL DISTRICT

2009-10 Assessed Valuation: $2,793,348,735 Redevelopment Incremental Valuation: 69,069,833 Adjusted Assessed Valuation: $2,724,278,902 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 3/1/10 Los Angeles County Flood Control District 0.301% $ 209,526 Metropolitan Water District 0.151 398,972 Mt. San Antonio Community College District 5.391 9,728,569 Charter Oak Unified School District 100.000 25,169,530 Los Angeles County Regional Park and Open Space Assessment District 0.293 652,394 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $36,158,991 DIRECT AND OVERLAPPING GENERAL FUND DEBT: Los Angeles County General Fund Obligations 0.293% $2,566,492 Los Angeles County Pension Obligations 0.293 690,574 Los Angeles County Superintendent of Schools Certificates of Participation 0.293 38,633 Mt. San Antonio Community College District 5.391 533,170 Charter Oak Unified School District Certificates of Participation 100.000 -- (1) City of San Dimas General Fund Obligations 7.129 36,001 Los Angeles County Sanitation District No. 22 Authority 11.455 2,080,097 TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT $5,944,967 COMBINED TOTAL DEBT $42,103,958 (2) (1) Excludes the Certificates to be sold. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded

capital lease obligations. Ratios to 2009-10 Assessed Valuation: Direct Debt ($25,169,530) .............................................................. 0.90% Total Direct and Overlapping Tax and Assessment Debt ................. 1.29% Ratios to Adjusted Assessed Valuation: Combined Total Debt........................................................................ 1.55% STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/09: $0

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Historic Assessed Valuation

The District has a 2009-10 fiscal year total assessed valuation of $2,793,348,735. Listed below are the District’s assessed valuations for fiscal years 2005-06 through 2009-10.

CHARTER OAK UNIFIED SCHOOL DISTRICT Assessed Valuations

Fiscal Year ended June 30, 2006 through June 30, 2010

Fiscal Year Local Secured Utilities Unsecured Total Before

Rdv. Increment

2005-06 $2,301,788,610 $387,304 $32,056,723 $2,334,232,637 2006-07 2,512,956,191 365,944 31,519,464 2,544,841,599 2007-08 2,673,609,467 267,182 30,823,621 2,704,700,270 2008-09 2,812,692,333 267,182 35,074,095 2,848,033,610 2009-10 2,757,354,228 267,182 35,727,325 2,793,348,735

____________________ Source: California Municipal Statistics, Inc.

Typical Total Tax Rates (TRA 2692) Fiscal Year ended June 30, 2007 through June 30, 2010

2005-06 2006-07 2007-08 2008-09 2009-10

General 1.000000 1.000000 1.000000 1.000000 1.000000 Los Angeles County .000795 .000663 -- -- -- Charter Oak Unified School District .068986 .061708 .087081 .087996 .097944 Mt. San Antonio Community College District .021216 .021838 .017501 .023326 .025710 Los Angeles County Flood Control District .000049 .000052 -- -- -- Metropolitan Water District .005200 .004700 .004500 .004300 .004300 Total 1.096246 1.088961 1.109082 1.115622 1.127954

____________________ Source: California Municipal Statistics, Inc.

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CHARTER OAK UNIFIED SCHOOL DISTRICT Assessed Valuation and Parcels by Land Use

2009-10 Assessed

Valuation(1) % of Total

No. of Parcels

% of Total

Non-Residential: Commercial $128,128,322 4.65% 152 1.53% Vacant Commercial 6,090,639 0.22 26 0.26 Industrial 70,846,354 2.57 74 0.75 Vacant Industrial 193,513 0.01 19 0.19 Recreational 491,469 0.02 20 0.20 Government/Social/Institutional 56,537,557 2.05 122 1.23 Subtotal Non-Residential $262,287,854 9.51% 413 4.17% Residential: Single Family Residence $2,020,445,145 73.27% 8,046 81.15% Condominium/Townhouse 243,699,621 8.84 1,199 12.09 Mobile Home Park 28,434,377 1.03 12 0.12 2-4 Residential Units 10,913,811 0.40 38 0.38 5+ Residential Units/Apartments 178,614,249 6.48 76 0.77 Vacant Residential 12,959,171 0.47 126 1.27 Subtotal Residential $2,495,066,374 90.49% 9,497 95.78% Total $2,757,354,228 100.00% 9,915 100.00% ____________________ (1) Local Secured Assessed Valuation; excluding tax-exempt property. Source: California Municipal Statistics, Inc.

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CHARTER OAK UNIFIED SCHOOL DISTRICT Per Parcel 2009-10 Assessed Valuation of Single Family Homes

No. of Parcels

2009-10 Assessed Valuation

Average Assessed Valuation

Median Assessed Valuation

Single Family Residential 8,046 $2,020,445,145 $251,112 $236,072

2009-10 Assessed Valuation

No. of Parcels (1)

% of Total

Cumulative % of Total

Total Valuation

% of Total

Cumulative % of Total

$0 - $24,999 11 0.137% 0.137% $ 181,478 0.009% 0.009% $25,000 - $49,999 160 1.989 2.125 7,351,088 0.364 0.373 $50,000 - $74,999 862 10.713 12.839 52,746,731 2.611 2.983 $75,000 - $99,999 460 5.717 18.556 39,601,420 1.960 4.944 $100,000 - $124,999 331 4.114 22.670 37,456,434 1.854 6.797 $125,000 - $149,999 400 4.971 27.641 55,120,321 2.728 9.525 $150,000 - $174,999 343 4.263 31.904 55,933,027 2.768 12.294 $175,000 - $199,999 503 6.252 38.156 94,895,847 4.697 16.991 $200,000 - $224,999 689 8.563 46.719 146,509,173 7.251 24.242 $225,000 - $249,999 613 7.619 54.338 145,585,024 7.206 31.448 $250,000 - $274,999 541 6.724 61.061 142,062,167 7.031 38.479 $275,000 - $299,999 436 5.419 66.480 125,286,374 6.201 44.680 $300,000 - $324,999 426 5.295 71.775 133,267,047 6.596 51.276 $325,000 - $349,999 430 5.344 77.119 144,914,563 7.172 58.448 $350,000 - $374,999 430 5.344 82.463 155,574,120 7.700 66.148 $375,000 - $399,999 397 4.934 87.397 153,337,515 7.589 73.737 $400,000 - $424,999 230 2.859 90.256 94,679,191 4.686 78.423 $425,000 - $449,999 160 1.989 92.245 69,814,989 3.455 81.879 $450,000 - $474,999 144 1.790 94.034 66,579,729 3.295 85.174 $475,000 - $499,999 95 1.181 95.215 46,200,049 2.287 87.461 $500,000 and greater 385 4.785 100.000 253,348,858 12.539 100.000 Total 8,046 100.000% $2,020,445,145 100.000%

(1) Improved single family residential parcels. Excludes condominiums and parcels with multiple family units.

Source: California Municipal Statistics, Inc.

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Largest Taxpayers

The twenty largest local secured taxpayers for the District for the 2009-10 fiscal year are as follows:

CHARTER OAK UNIFIED SCHOOL DISTRICT Largest 2009-10 Local Secured Taxpayers

Property Owner Primary Land Use 2009-10

Assessed Valuation % of

Total(1)

1. Vista Pointe Apartments LLC Apartments $ 43,586,398 1.58% 2. Thomas W. & Mary Redfern Apartments 22,909,674 0.83 3. Prince Club Pacific Property Apartments 22,537,402 0.82 4. Covina 023 Woods 206 LP Residential Properties 18,866,094 0.68 5 Caco Pacific Corp. Industrial 13,494,263 0.49 6. Nationwide Health Properties Inc. Convalescent Home 12,478,347 0.45 7. Masonic Homes of California Convalescent Home 12,426,085 0.45 8. Robert & Elaine Y. Chan Shopping Center 10,471,091 0.38 9. Ho C. Wai Ltd. Apartments 8,170,663 0.30

10. California Mental Health Care Network Hospital 7,898,382 0.29 11. Minfam LLC Apartments 7,765,083 0.28 12. Lumen Technologies Inc. Industrial 7,140,000 0.26 13. Covina Manor Apartments 6,847,510 0.25 14. Peter L. & Helen Tsamous Shopping Center 6,348,461 0.23 15. Chee Ming Choi Apartments 5,835,749 0.21 16. ESS Prisa LLC Industrial 5,691,257 0.21 17. Claraday Apartments LLC Apartments 4,868,347 0.18 18. PKH Inc. Apartments 4,825,988 0.18 19. Glendora Hospital Partners Convalescent Home 4,812,431 0.17 20. Palo Plesnik Shopping Center 4,745,334 0.17

$231,718,559 8.40% ____________________ (1) 2009-10 Local Secured Assessed Valuation: $2,757,354,228.

Source: California Municipal Statistics, Inc.

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APPENDIX B

THE LEASED PROPERTY

The Leased Property. The Leased Property consists of Royal Oak Middle School located on a 43 acre site at 303 South Glendora Avenue in the City of Covina, California. Constructed in 1966, the insured replaceable value of the Leased Property was estimated at $18,226,410 as of February 2, 2006. The Lessee has applied in excess of $4.45 million of general obligation bond proceeds from bond authorizations received at an election held on November 7, 2000 to the finance the construction and improvement of school facilities at the Leased Property. The Lessee represents that the fair rental value of the Leased Property on an annual basis is no less than the annual Lease Payments.

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APPENDIX C

SUMMARY OF PRINCIPAL LEGAL DOCUMENTS

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SUMMARY OF PRINCIPAL LEGAL DOCUMENTS

The following is a brief summary of the provisions of the Lease Agreement (the “Lease”), the Trust Agreement, the Assignment Agreement and the Site Lease. This summary is not intended to be definitive and is qualified in its entirety by reference to the Lease, the Trust Agreement, the Assignment Agreement and the Site Lease for the complete terms thereof. Copies of the Lease, the Trust Agreement, the Assignment Agreement and the Site Lease are available upon request from the District. For the purpose of this summary, the Corporation shall also be referred to as the “Lessor” and the District shall also be referred to as the “Lessee.”

DEFINITIONS

The following are definitions of certain terms used in this Summary of Principal Legal Documents. All capitalized terms not defined below or elsewhere in the Official Statement have the meanings set forth in the Lease or the Trust Agreement.

“Accountable Event of Loss of Qualified School Construction Bonds Status” means (a) any act or any failure to act on the part of the Lessee, which act or failure to act is a breach of a covenant or agreement of the Lessee contained in the Trust Agreement or in the Lease, the Tax Certificate or the 2010 Series A Certificates and which act or failure to act causes the 2010 Series A Certificates to lose their status, or fail to qualify, as Qualified School Construction Bonds, or (b) the making by the Lessee of any representation contained in the Trust Agreement, in the Lease, the Tax Certificate or the 2010 Series A Certificates, which representation was untrue when made and the untruth of which representation at such time causes the 2010 Series A Certificates to lose their status, or fail to qualify, as Qualified School Construction Bonds.

“Additional Certificates” means those additional certificates of participation executed and delivered in accordance with the Trust Agreement.

“Additional Payments” means those payments due as provided in the Lease.

“Authorized Denominations” means $5,000 or any integral multiple.

“Authorized Representative” means (i) in the case of the Lessor, any person authorized by resolution of the Board of Directors of the Lessor to perform such act or to execute such documents; (ii) in the case of the Lessee, the Authorized Signatory as specified in the Lessee’s resolution authorizing the execution of the Lease and related documents, or any other person authorized in writing by the Governing Board of the Lessee to act on behalf of the Lessee with respect to the Trust Agreement, the Lease and any related documents, including without limitation, the Business Services Representative and the Treasurer and Tax-Collector of the County of Los Angeles (the “County Treasurer”), and (iii) in the case of the Trustee, any person authorized to perform any act or sign any document by or pursuant to the by laws or any resolution of the governing board of the Trustee.

“Business Day” means any day (other than a Saturday or Sunday) on which the Trustee or banks and trust companies generally in New York, New York, or Los Angeles, California are not authorized or required to remain closed and on which the New York Stock Exchange is not closed.

“Business Services Representative” means any person representing the Assistant Superintendent, Business Services, including representatives of the Los Angeles County Office of Education Business Advisory Services, Internal Business Services and School Financial Services.

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“Certificate Year” means the annual period commencing on May 1 of a calendar year and ending on April 30 of the following calendar year, in any year during which the Certificates are or will be Outstanding; provided, however, that the final Certificate Year shall end on the date on which the last Certificate is paid or prepaid.

“Certificate Proceeds” means the proceeds of sale of the Certificates to the Original Purchaser.

“Closing Date” means May 13, 2010, the day upon which the Certificates, duly executed by the Trustee, are delivered.

“Code” means the Internal Revenue Code of 1986, as amended.

“Computation Date” has the meaning set forth in the Lease.

“Continuing Disclosure Agreement” means the Continuing Disclosure Agreement, dated as of May 1, 2010 by and between the Lessee and The Bank of New York Mellon Trust Company, N.A., as Dissemination Agent, and any duly authorized and executed amendments or supplements thereto.

“Corporation” means the Los Angeles County Schools Regionalized Business Services Corporation, a nonprofit public benefit corporation duly organized and existing under the laws of the State of California.

“County” means the County of Los Angeles, California.

“County Investment Policy” means, at any time, the investment policy stating the primary goals and authorized investments of the Treasurer when investing public funds under the Treasurer’s control as approved by the oversight committee and the Board of Supervisors as required by State law.

“Date of Loss of Qualified School Construction Bond Status” means the date specified in a Determination of Loss of Qualified School Construction Bond Status as the date from and after which the 2010 Series A Certificates lost their status, or failed to qualify, as Qualified School Construction Bonds as a result of an Accountable Event of Loss or Qualified School Construction Bond Status, which date could be as early as the date of delivery of the 2010 Series A Certificates.

“Delivery Costs” means all items of expense directly or indirectly payable by or reimbursable to the Lessee, relating to delivery of the Certificates, including but not limited to filing and recording costs relating to the sale of the Certificates, settlement costs, printing costs, reproduction and binding costs, financing discounts, charges and expenses, initial fees and charges of the Trustee (including the first annual fees and counsel fees), legal fees and charges, financing and other professional consultant fees, rating agencies fees for credit ratings, fees for the Trustee’s execution, transportation and safekeeping of Certificates and other charges, expenses and fees in connection with the foregoing, all of which may not exceed 2% of the aggregate principal amount of the 2010 Series A Certificates.

“Delivery Costs Fund” means the fund by that name established pursuant to the Trust Agreement.

“Depository Trust Company” or “DTC” means The Depository Trust Company, New York, New York, as initial securities depository for the Certificates.

“Designated Investment Banker” means one of the Reference Treasury Dealers designated by the Lessee.

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“Event of Default” means an event of default pursuant to Trust Agreement.

“Excess Earnings” means earnings in excess of amounts used to pay the annual Interest Component of the Lease Payments.

“Excess Earnings Account” means the Excess Earnings Account established within the Lease Payment Fund pursuant to the Trust Agreement.

“Extraordinary Event” means (a) a final determination by the Internal Revenue Service (“IRS”) (after the District has exhausted all administrative appeal remedies) determining that an Accountable Event of Loss of Qualified School Construction Bond Status has occurred and specifying the Date of Loss of Qualified School Construction Bond Status; (b) a non-appealable holding by a court of competent jurisdiction holding that an Accountable Event of Loss of Qualified School Construction Bond Status has occurred and specifying the Date of Loss of Qualified School Construction Bond Status; (c) the occurrence of a material adverse change under Section 54F or 6431 of the Code; (d) the publication by the IRS or the United States Treasury of any guidance with respect to such sections; or (e) any other determination by the IRS or the United States Treasury, which determination is not the result of a failure of the District to satisfy certain requirements of the Trust Agreement, if as a result of an event as described in (c), (d), or (e) of this sentence, the Direct Subsidy payments expected to be received with respect to the Series A Certificates are eliminated or reduced, as reasonably determined by the Superintendent of the District or his designee, which determination shall be conclusive.

“Fair Market Value” shall have the meaning ascribed to such term in, and shall be calculated in accordance with, the Tax Certificate.

“Federal Securities” means:

(1) Cash (insured at all times by the Federal Deposit Insurance Corporation),

(2) Obligations of, or obligations guaranteed as to principal and interest by, the U.S. or any agency or instrumentality thereof, when such obligations are backed by the full faith and credit of the U.S. including:

• U.S. Treasury obligations • All direct or fully guaranteed obligations • Farmers Home Administration • General Services Administration • Guaranteed Title XI financing • Government National Mortgage Association • State and Local Government Series

“Fiscal Year” means the fiscal year of the Lessee, presently commencing July 1 of each calendar

year and ending June 30 of the following calendar year.

“Gross Proceeds” shall have the meaning ascribed to such term in the Lease.

“Independent Counsel” means an attorney duly admitted to practice law before the highest court of the state in which such attorney maintains an office and who is not a regular employee of the Lessor or the Lessee.

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“Information Services” means Financial Information, Inc.’s “Daily Called Special Service.” 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention: Editor; Mergent/FIS, Inc., 5250 77 Center Drive, Suite 150, Charlotte, North Carolina 28217, Attention: Municipal News Reports; and Kenny S&P, 55 Water Street, 45th Floor, New York, New York 10041, Attention: Notification Department; or, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other services providing information with respect to called bonds as the Lessee may designate in a request of the Lessee delivered to the Trustee.

“Insurance Consultant” means an individual or firm retained by the Lessee as an independent contractor, experienced in the field of risk management.

“Interest Component” means the portion of the Lease Payments, designated as interest with respect to the Certificates, which shall be determined by the rate of interest applicable to the respective Certificates.

“Interest Payment Date” means, each May 1 and November 1, commencing November 1, 2010, or if any such day is not a Business Day, the next succeeding Business Day.

“Lease Payment” means the total amount of any Lease Payment due under the Lease, which shall include the Principal Component and the Interest Component.

“Lease Payment Date” means the 15th day immediately preceding each Interest Payment Date or, if such day is not a Business Day, then the next succeeding Business Day.

“Lease Payment Fund” means the fund by that name established and held by the Trustee pursuant to the Trust Agreement.

“Lease Supplement” means a lease supplement substantially in the Lease.

“Leased Property” means that certain real or personal property which is or will become the subject of the Lease, and, in the case of real property only, comprising those parcels described in the Site Lease and the Lease, as it may be modified from time to time.

“Lessor Representative” means the Chairman, President, Executive Director, Assistant Executive Director, Vice President, Assistant Vice President, Secretary, Assistant Secretary, and/or Treasurer of the Lessor, or any other person authorized by the Board of Directors of the Lessor to act on behalf of the Lessor under or with respect to the Lease, as evidenced by a certificate of the Lessor.

“Make-Whole Prepayment Price” means the amount equal to the greater of the following:

1. the initial offering price of the 2010 Series A Certificates set forth on the inside cover page hereof (but not less than 100% of the principal amount of the 2010 Series A Certificates to be prepaid); or

2. the sum of the present value of the remaining scheduled payments of principal and interest with respect to the 2010 Series A Certificates to be prepaid to the maturity date of such 2010 Series A Certificates, not including any portion of those payments of interest accrued and unpaid as of the date on which the Series A Certificates are to be redeemed, discounted to the date on which the Series A Certificates are to be prepaid on a semiannual basis, assuming a 360-day year containing twelve 30-day months, at the Treasury Rate, plus 100 basis points, plus in each case accrued interest on the 2010 Series A Certificates to be prepaid to the prepayment date.

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In addition , at the request of the Lessee, the Make-Whole Prepayment Price of the 2010 Series A Certificates to be prepaid at the option of the Lessee, will be determined by an independent accounting firm, investment banking firm or financial advisor retained by the Lessee at the Lessee’s expense to calculate such Make-Whole Prepayment Price. The Lessee and the Trustee may conclusively rely on the determination of such Make-Whole Prepayment Price by such independent accounting firm, investment banking firm or financial advisor and will not be liable for such reliance

“Moody’s” means Moody’s Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and assigns.

“Net Insurance Proceeds” means any net proceeds of insurance or condemnation proceeds paid with respect to the affected portion of Leased Property remaining after payment therefrom of any expenses (including attorneys’ fees) incurred in the collection thereof.

“Net Insurance Proceeds Fund” means the fund by that name established and held by the Trustee pursuant to the Trust Agreement.

“Original Purchaser” means RBC Capital Markets Corporation, as the original purchaser of the Certificates.

“Outstanding” when used as of any particular time with respect to Certificates, means (subject to the provisions of the Trust Agreement) all Certificates theretofore executed and delivered by the Trustee under the Trust Agreement except:

(i) Certificates theretofore canceled by the Trustee or surrendered to the Trustee for cancellation;

(ii) Certificates for the payment or prepayment of which funds or Federal Securities in the necessary amount shall have theretofore been deposited with the Trustee (whether upon or prior to the maturity or prepayment date of such Certificates) in accordance with the Trust Agreement; provided that, if such Certificates are to be prepaid prior to maturity, notice of such prepayment shall have been given as provided in the Trust Agreement or provision satisfactory to the Trustee shall have been made for the giving of such notice; and

(iii) Certificates in lieu of or in exchange for which other Certificates shall have been executed and delivered by the Trustee pursuant to the Trust Agreement.

“Owner” or “Certificate Owner” or “Owner of a Certificate” or any similar term, when used with respect to a Certificate, means the person in whose name such Certificate is registered on the registration books of the Trustee.

“Payment Date” means any Interest Payment Date or Principal Payment Date.

“Permitted Encumbrances” means, with respect to the Leased Property, as of any particular time: (i) liens for general ad valorem taxes and assessments, if any, not then delinquent; (ii) the Trust Agreement; (iii) the Lease; (iv) the Assignment Agreement; (v) the Site Lease; (vi) any right or claim of any mechanic, laborer, materialman, supplier or vendor not filed or perfected in the manner prescribed by law; and (vii) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions which the Lessee certifies in writing will not impair the use of the Leased Property or to which the Corporation consents in writing.

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“Permitted Investments” means any of the following, except to the extent not permitted by the laws of the State as an investment for the moneys to be invested therein at the time of investment and any policy guidelines promulgated by the County (provided that the Trustee shall be entitled to rely upon any Written Order of the Lessee as conclusive certification to the Trustee that the investments described therein are so authorized under the laws of the State of California, are Permitted Investments and comply with the policy guidelines promulgated by the County):

(1) Federal Securities;

(2) Bonds, debentures, notes, participation certificates or other evidences of indebtedness issued, or the principal of and interest on which are unconditionally guaranteed, by the Federal Intermediate Credit Bank, the Federal Home Loan Bank System, the Government National Mortgage Association or any other agency or instrumentality of or corporation wholly owned by the United States of America when such obligations are backed by the full faith and credit of the United States for the full and timely payment of principal and interest;

(3) Obligations of any state of the United States or any political subdivision thereof, which at the time of investment are rated “Aa3” or higher by Moody’s and “AA ” or higher by S&P; or which are rated by Moody’s “VMIG 1” or better and by S&P “A-1+” or better with respect to commercial paper, or “VMIG 1” and “SP-1”, respectively, with respect to municipal notes;

(4) Bank time deposits evidenced by certificates of deposit, deposit accounts, and bankers’ acceptances, issued by any bank, trust company or national banking association insured by the Federal Deposit Insurance Corporation (including the Trustee and its affiliates); provided that (a) such bank, trust company or national banking association be rated “Aa3” or better by Moody’s and “AA-” or better by S&P; and (b) the aggregate of such bank time deposits and bankers’ acceptances issued by any bank, trust company or banking association does not exceed at any one time 10% of the aggregate of the capital stock, surplus and undivided profits of such bank, trust company or banking association and that such capital stock, surplus and undivided profits shall not be less than $15,000,000;

(5) Repurchase agreements with any bank, trust company or national banking association insured by the Federal Deposit Insurance Corporation (including the Trustee), with subsidiaries (of a parent company), provided the obligations of the subsidiary under the agreement are unconditionally guaranteed by the parent, or with any government bond dealer recognized as a primary dealer by the Federal Reserve Bank of New York, which agreements are fully and continuously secured by a valid and perfected first priority security interest in obligations described in paragraph (1) or (2) of this definition, provided that either such bank, trust company or national banking association which (or senior debt or claims paying ability of the financial entity’s guarantor) is rated, at the time of investment, “Aa3” or better by Moody’s and “AA-” or better by S&P;

(6) Repurchase agreements with maturities of not more than one year entered into with financial institutions such as banks or trust companies organized under state law or national banks or banking associations (including the Trustee), insurance companies or government bond dealers reporting to, trading with, and recognized as a primary dealer by, the Federal Reserve Bank of New York and a member of the Securities Investor Protection Corporation or with a dealer or parent holding company that is rated, at the time of investment, or whose long-term debt obligations (or senior debt or claims paying ability of the financial entity’s guarantor) are rated, at the time of investment, “Aa3” or better by Moody’s and “AA-” or better by S&P, provided such

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repurchase agreements are in writing, secured by obligations described in paragraphs (1) and (2) of this definition having a fair market value, exclusive of accrued interest, at least equal to the amount invested in the repurchase agreements and in which the Trustee has a perfected first lien in, and retains possession of, such obligations free from all third party claims;

(7) Investment agreements, forward purchase agreements and reserve fund put agreements with any corporation, including banking or financial institutions, or agreements entered into with subsidiaries (of a parent company), provided the obligations of the subsidiary under the agreement are unconditionally guaranteed by the parent, the corporate debt of which (or senior debt or claims paying ability of the financial entity’s guarantor) is rated, at the time of investment, “Aa3” or better by Moody’s and “AA-” or better by S&P;

(8) Guaranteed investment contracts or similar funding agreements issued by insurance companies, provided that either the long term corporate debt of such insurance company, at the time of investment, is rated, at the time of investment, “Aa3” or better by Moody’s and “AA-” or better by S&P or which agreements are fully and continuously secured by a valid and perfected first priority security interest in obligations described in paragraph (1) or (2) of this definition, or that the following conditions are met: (a) the market value of the collateral is maintained at levels acceptable to Moody’s and S&P, (b) the Trustee or a third party acting solely as agent for the Trustee has possession of the collateral, (c) the Trustee has a perfected first priority security interest in the collateral, (d) the collateral is free and clear of third-party liens, and (e) failure to maintain the requisite collateral level will require the Trustee to liquidate collateral;

(9) Corporate commercial paper rated “P-1” or better by Moody’s and “A-1+” or better by S&P at the time of investment;

(10) Taxable government money market portfolios restricted to obligations that are rated “AAAm” or “AAAm-G” by S&P and “P-1” by Moody’s (including funds for which the Trustee or an affiliate provides investment advice or similar services);

(11) Deposits with the Local Agency Investment Fund of the State, as may otherwise be permitted by law; and

(12) The Treasury Pool of the County.

“Prepayment” means any payment made by Lessee pursuant to the Lease, as a prepayment of Lease Payments.

“Prepayment Date” means the date on which any Prepayment of Certificates occurs.

“Prepayment Fund” means the fund by that name established and held by the Trustee pursuant to the Trust Agreement.

“Principal Component” means the portion of the Lease Payments designated as principal represented by the Outstanding Certificates.

“Principal Office” means the principal corporate trust office of the Trustee in Los Angeles, California, or the principal corporate trust office of any successor Trustee, except that with respect to presentation of Certificates for payment or for registration of transfer and exchange, such term shall mean

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the office or agency of the Trustee at which, at any particular time, its corporate trust agency business shall be conducted.

“Principal Payment Date” means May 1, 2027, the maturity date of the Certificates.

“Project” means that certain capital project consisting of the acquisition, construction and/or improvement of certain facilities of the Lessee described on Exhibit D to the Lease Agreement, as it may be amended from time to time, to be financed by the Lessee with the proceeds of the 2010 Series A Certificates.

“Project Costs” means, with respect to any Component, the contract price paid or to be paid therefor upon acquisition, construction or improvement (if any), thereof, in accordance with a purchase order or contract therefor, together with all related costs of the Project. Project Costs include the administrative, engineering, legal, financial and other costs incurred by the Lessee and the Lessor in connection with the acquisition, construction or improvement of the respective Component of the Project; including all applicable sales taxes and other charges resulting from such acquisition, construction or improvement of the Project, and Delivery Costs not paid from the Delivery Costs Account.

“Project Fund” means the fund by that name established and held by the Trustee pursuant to the Trust Agreement.

“Qualified Arbitrage Rebate Calculation Service” means a nationally recognized accounting firm or Special Counsel fully qualified to perform the computations for the 2010 Series A Certificates necessary to comply with Section 148 of the Code, or the County Auditor-Controller.

“Rating Agency” means Moody’s and S&P, or whichever of such institutions then rates the Certificates, and any successors thereto, or if either such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency designated by the Lessee.

“Rating Category” means: (i) with respect to any long-term rating category, all ratings designated by a particular letter or combination of letters, without regard to any numerical modifier, plus or minus sign or other modifier, and (ii) with respect to any short-term or commercial paper rating category, all ratings designated by a particular letter or combination of letters and taking into account any numerical modifier, but not any plus or minus sign or other modifier.

“Rebate Amount” has the meaning set forth in the Lease.

“Rebate Consultant” means an individual or firm, including a law firm, accounting firm or financial advisory firm experienced in the calculation of rebate pursuant to Section 148 of the Code.

“Record Date” means the fifteenth day of the calendar month immediately preceding each Interest Payment Date.

“Reference Treasury Dealer” means the original underwriters of the 2010 Series A Certificates and the 2010 Series B Certificates, their successors and other firms, as specified by the Lessee from time to time, that are primary U.S. government securities dealers in the City of New York, New York; provided, however, that if any such firm ceases to be such a primary treasury dealer, the Lessee will substitute another primary treasury dealer for such firm.

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“Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer, the average, as determined by the Designated Investment Banker, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Designated Investment Banker by such Reference Treasury Dealer at 3:30 p.m., New York City time, on the third Business Day preceding the date on which such Certificates are to be prepaid.

“Registrar” means the Trustee.

“Related Documents” means the Lease, the Assignment Agreement, the Site Lease and any document or instrument related thereto.

“Removal” means the release of all or a portion of the Leased Property from the leasehold of the Lease and of the Site Lease as provided in the Lease.

“Requisition” means the form of requisition from the Delivery Costs Fund, as further described in the Trust Agreement.

“Reserve Fund” means the fund by that name established and held by the Trustee pursuant to the Trust Agreement.

“Reserve Replenishment Rent” means Reserve Replenishment Rent payable pursuant to the Lease.

“Reserve Requirement” means $297,500, or, upon the prepayment of any of the Certificates, 10% of the Principal Component of all Certificates then Outstanding, as provided in the Trust Agreement.

“Responsible Officer” means any Vice President, Assistant Vice President, Trust Officer or Administrator of the Trustee having regular responsibility for the obligations of the Trustee under this Agreement.

“S&P” means Standard & Poor’s, a Division of the McGraw-Hill Companies, Inc., a corporation organized and existing under the laws of the State of New York, its successors and assigns.

“Securities Act” means the Securities Act of 1933, as amended, and any successor thereto.

“Securities Depository” means The Depository Trust Company, 55 Water Street, New York, New York 10041, Fax (212) 855-1000 or 7320; or, in accordance with then-current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the Lessee may designate in a certificate of the Lessor delivered to the Trustee.

“2010 Series A Certificates” means $2,975,000 aggregate principal amount of the Los Angeles County Schools Pooled Financing Program Taxable Certificates of Participation, 2010 Series A (Charter Oak Unified School District Qualified School Construction Bonds), executed and delivered pursuant to the Trust Agreement; following the execution and delivery of Additional Certificates, if any, under the Trust Agreement, the term “Certificates” shall refer to the 2010 Series A Certificates and any Additional Certificates then Outstanding, except where the context requires otherwise.

“Service” means the Internal Revenue Service of the United States of America.

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“Site Lease” means the Site Lease, dated as of May 1, 2010, by and between the Lessor, as lessee thereunder, and the Lessee, as lessor thereunder, and any duly authorized and executed amendments or supplements thereto.

“Special Counsel” means an attorney or firm of attorneys of nationally recognized standing in matters pertaining to the tax status under federal laws and regulations of interest on obligations issued by or executed on behalf of states and their political subdivisions, as designated by the Lessee.

“State” means the State of California.

“Substitution” means the release of all or a portion of the Leased Property from the leasehold of the Lease and of the Site Lease, and the lease of substituted real property and buildings and other improvements under the Lease and under the Site Lease as provided in the Lease.

“Supplemental Lease Agreement” means any lease agreement duly authorized and entered into by and between the Lessee and the Lessor, supplementing, modifying or amending the Lease; but only if and to the extent that such Supplemental Lease Agreement is specifically authorized the Trust Agreement.

“Supplemental Trust Agreement” means each trust agreement duly authorized and entered into among the Lessor, the Lessee and the Trustee, supplementing, modifying or amending the Trust Agreement in accordance with the terms of the Trust Agreement.

“Surety Bond” means a reserve surety bond deposited into the Reserve Fund in satisfaction of the Reserve Requirement in accordance with the Trust Agreement.

“Tax Certificate” means that certain Tax Certificate delivered by the Lessee on the Closing Date with respect to the 2010 Series A Certificates.

“Term” means the time during which the Lease is in effect, as provided in the Lease.

“Treasury Rate” “Treasury Rate” means, with respect to any prepayment date for a particular 2010 Series A Certificate, the yield to maturity as of such prepayment date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) (the “Statistical Release”) that has become publicly available at least two Business Days prior to the prepayment date (excluding inflation-indexed securities) (or, if the Statistical Release is no longer published, any publicly available source of similar market data) most nearly equal to the period from the prepayment date to the maturity date of the 2010 Series A Certificates to be prepaid; provided, however that if the period from the prepayment date to the maturity date is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used.

“Written Order” means a written instruction from the Lessee, directing the Trustee to take action the Trust Agreement.

“Yield” shall have the meaning ascribed to such term in the Lease.

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THE LEASE AGREEMENT

Lease of Leased Property

The Lessor agrees to lease the Leased Property to the Lessee and the Lessee agrees to lease the Leased Property from the Lessor upon the terms and conditions set forth in the Lease.

Term of Agreement

The “Term” of the Lease shall mean the duration of Lease Payments due from the Lessee under the Lease, which shall commence on the date the Lease, and shall continue until the date the last Certificate is paid in full, unless earlier terminated in accordance with the following paragraph. The Lessee represents, warrants and covenants that the useful life of the Leased Property is at least equal to the Term of the Lease. If by May 1, 2027, the Lease Payments shall not be fully paid, or if the Lease Payments shall have been abated at any time and for any reason, then said Term of the Lease shall be extended until the date that is ten (10) days after all Lease Payments shall be fully paid, except that the Term of the Lease shall in no event be extended beyond the term of the Site Lease. If all Lease Payments and all Additional Payments shall be fully paid, the Term of the Lease shall end ten (10) days thereafter or ten (10) days after written notice by the Lessee to the Lessor, whichever is earlier; following the termination of the Lease as aforesaid, the Lessee shall have no further obligation of repayment as to the Certificates or expenses and costs, except that the obligation of the Lessee to pay rebatable arbitrage in accordance with the requirements of the Tax Certificate shall continue following the termination of the Lease. If, however, all Lease Payments and all Additional Payments shall not have been fully paid, the Term of the Lease and the Site Lease shall be extended until such payments are made in full, but shall in no event it extend beyond May 1, 2037.

The Lessee holds fee title to and has possession of the Leased Property as of the date of the Lease.

(i) The Term of the Lease will end upon the earliest of any of the following events: (a) a default by the Lessee and the Lessor’s subsequent election to terminate the Lease under the Lease; (b) the payment by the Lessee of all remaining Lease Payments required under the Lease and any Additional Payments required under the Lease; (c) the deposit of moneys or Federal Securities with the Trustee in amounts sufficient to pay all of the Lease Payments as the same shall become due, as provided by the Lease; or (d) upon the exercise by the Lessee of its option to purchase the entire interest of the Lessor in the Leased Property as provided in the Lease.

Lease Payments

Subject to the provisions of the Lease, the Lessee agrees to pay to the Lessor, its successors and assigns, as rental for the use and possession of the Leased Property, the Lease Payments computed in accordance with the further provisions of the Lease, to be due and payable in the amounts and on the dates set forth in the Lease, during the Term of the Lease, commencing November 1, 2010, or, if such day is not a Business Day, then the next succeeding Business Day (each, a “Lease Payment Date”), which are intended to be sufficient in both time and amount to pay when due the portion of the Interest Component and my Principal Component evidenced and represented by the Certificates and coming due on the next Payment Date.

Lease Payments shall be paid from any source of legally available funds of the Lessee, and so long as the Leased Property, or a sufficient portion of the Leased Property, is available for the Lessee’s use, the Lessee covenants to take such action as may be necessary to include all Lease Payments due

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under the Lease in its budgets and to make the necessary appropriations for all such Lease Payments, which covenants of the Lessee shall be deemed to be, and shall be, ministerial duties imposed by law, and it shall be the duty of each and every public official of the Lessee to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the Lessee to carry out and perform the covenants made by the Lessee under the Lease. During the Term of the Lease, the Lessee will furnish to the Trustee, within 30 days of the beginning of each Fiscal Year, a certificate of the Authorized Representative to the effect that the Lease Payments due in that Fiscal Year have been included in the budget approved by the Governing Board for such Fiscal Year.

During the Term of the Lease, the Lessee will furnish to the Trustee, no later than 20 days following the adoption of the budget for its then-current Fiscal Year, and, in any event, no later than July 31 of any year, a certificate of the Lessee to the effect that the Lease Payments due in that Fiscal Year have been included in the budget approved by the Governing Board for such Fiscal Year. The Trustee will be provided only the certification provided for in the Trust Agreement. The covenants on the part of the Lessee contained in the Lease shall be deemed to be and shall be construed to be duties imposed by law and it shall be the duty of each and every public official of the Lessee to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the Lessee to carry out and perform the covenants and agreements in the Lease agreed to be carried out and performed by the Lessee.

Interests in the Leased Property

During the term of the Lease, the Lessor shall hold a leasehold interest in the Leased Property and any and all additions which comprise repairs, replacements or modifications thereto. The Lessee shall take any and all actions reasonably required, including but not limited to executing and filing any and all documents, reasonably required to maintain and evidence the Lessor’s interest in the Leased Property at all times during the Term of the Lease.

Maintenance, Utilities, Taxes and Assessments

Throughout the Term of the Lease, as part of the consideration for the rental of the Leased Property, all repair and maintenance of such Leased Property shall be the responsibility of the Lessee, and the Lessee shall pay for or otherwise arrange for the payment of the cost of the repair and replacement of the Leased Property resulting from ordinary wear and tear or want of care on the part of the Lessee or any sublessee thereof. In exchange for the Lease Payments provided in the Lease, the Lessor agrees to provide only the Leased Property, as more specifically in the Lease. The Lessor shall have no responsibility for making improvements and additions to the Leased Property other than as set forth in the Lease.

The Lessee shall also pay or cause to be paid any and all sales taxes or other taxes, levies, charges, withholdings, assessments and governmental charges of any nature whatsoever, together with any additions to taxes, penalties, fines or interest thereon charged against the Leased Property, as Additional Payments under the Lease, including, without limitation, penalties, fines or interest arising out of any delay or failure by the Lessee to pay any of the foregoing or failure to file or furnish to the Lessor or the Trustee for filing in a timely manner any returns, levied or imposed against the Lessor or the Leased Property, the rentals and other payments required under the Lease or any parts thereof or interests in the Lessee or the Lessor or the Trustee therein by any governmental authority.

During the Term of the Lease, the District covenants and agrees to comply with all Regulations promulgated under the Recovery Act or the Tax Code with respect to applications for payment of each Direct Subsidy, in connection with each Interest Payment Date. To that end, the District has retained U.S.

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Bank National Association as its filing agent for semiannual claims for the Direct Subsidy and shall use its best efforts to insure that each claim for and payment of Direct Subsidy is accomplished in a timely fashion. The District shall cause each payment of Direct Subsidy to be deposited into the Lease Payment Fund established with the Trustee promptly following the District’s receipt thereof or, to the extent permitted under the foregoing Regulations, to cause the Direct Subsidy to be deposited directly by Treasury into the Lease Payment Fund.

Insurance

Comprehensive General Liability. The Lessee shall maintain or cause to be maintained, throughout the Term of the Lease, a standard comprehensive general public liability and property damage insurance policy or policies in protection of the Lessee. Said policy or policies shall provide for indemnification of the Lessee against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the use or operation of the Leased Property.

Said policy or policies shall provide coverage in the minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in each accident or event, and in a minimum amount of $100,000 (subject to a deductible clause of not to exceed $10,000) for damage to property resulting from each accident or event. Such public liability and property damage insurance may, however, be in the form of a single limit policy in the amount of $3,000,000 covering all such risks. Such liability insurance may be maintained as part of or in conjunction with any other liability insurance coverage carried by the Lessee. Said policies may be maintained in the form of insurance through a joint exercise of powers authority created for such purpose in the form of self-insurance by the Lessee.

The Net Insurance Proceeds of such liability insurance shall be applied toward extinguishment or satisfaction of the liability with respect to which the insurance proceeds shall have been paid, including, where appropriate, the application of Net Insurance Proceeds with respect to the prepayment of the Lease Payments.

Workers’ Compensation. The Lessee shall also maintain workers’ compensation insurance issued by a responsible carrier authorized under the laws of the State of California to insure against liability for compensation under the Workers’ Compensation Insurance and Safety Act now in force in California, or any act enacted as an amendment or supplement thereto or in lieu thereof. Workers’ compensation insurance may, to the extent provided by law, be maintained in the form of self-insurance.

Property Insurance. The Lessee shall maintain or cause to be maintained, throughout the term of the Lease Agreement in accordance with the Lease, insurance against loss or damage to any or all of the Leased Property by fire and lighting, with extended coverage and vandalism and malicious mischief insurance, and against losses occurring at or on the Leased Property by theft. Said extended coverage insurance shall, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such insurance.

Such insurance shall be in an amount equal to the total Lease Payments remaining unpaid or, if less, 100% of the replacement cost of the Leased Property (or, if under separate policies, in an aggregate amount equal to 100% of the replacement cost of the Leased Property). Such insurance may be maintained as part of or in conjunction with any other fire and extended coverage insurance carried or required to be carried by the Lessee, and may be maintained in whole or in part in the form of insurance maintained through a joint exercise of powers authority created for such purpose. The Net Insurance Proceeds of each policy or coverage shall be applied as provided in the Lease.

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Rental Interruption and Title Insurance. The Lessee shall maintain or cause to be maintained rental interruption or loss of use insurance in an amount not less than the maximum remaining scheduled Lease Payments in any twenty-four-month period, to insure against loss of use of the Leased Property caused by perils covered by the insurance required in the Lease, which does not cover loss of rental in the event of an earthquake. Such insurance may be maintained as part of or in conjunction with any other rental interruption insurance carried by the Lessee and may be maintained in whole or in part, through a joint exercise of powers authority created for such purpose. Such insurance shall be in place as of the Closing Date. The Net Insurance Proceeds of such insurance shall be paid to the Trustee and deposited in the Lease Payment Fund, and shall be credited toward the payment of the Lease Payments in the order in which such Lease Payments come due and payable.

The Lessee shall deliver to the Lessor, on the Closing Date, a CLTA policy of title insurance evidencing its ownership of each parcel comprising the Leased Property, in form and substance satisfactory to the Lessor. Such title insurance shall provide coverage in an amount no less than the total Lease Payments due under the Lease.

General Insurance Provisions

Form of Policies. All policies of insurance obtained under the requirements of the Lease and any statements of self-insurance shall be in forms certified by an insurance agent, broker or consultant to the Lessee to comply with the provisions of the Lease. All policies shall provide that the Trustee shall be given 30 days’ prior written notice of each expiration, any intended cancellation thereof or reduction of the coverage provided thereby. All policies of insurance required by the Lease shall provide that all proceeds thereunder shall be payable to the Trustee and the Lessor, with the Trustee as a loss payee, pursuant to a lender’s loss payable endorsement substantially in accordance with the form approved by the Insurance Services Office and the California Banker’s Association. All insurance policies delivered under the Lease must be provided by commercial insurers rated no less than “A” by A. M. Best Company or S&P.

Payment of Premiums. The Lessee shall pay or cause to be paid when due the premiums for all insurance policies required by the Lease to be delivered by the Lessee.

Evidence of Insurance. The Lessee will deliver to the Lessor, the Trustee in the month of May in each year a certificate to the effect that the requirements of the Lease have been satisfied. The Trustee may conclusively rely upon any certificates received from the Lessee. Upon request, the Lessee shall provide a schedule, in such detail as the Lessor or Trustee may reasonably request, setting forth any insurance policies then in force described in the Lease, listing the names of the insurers which have issued the policies, the policy limits thereof and the hazards and risks covered thereby, or the certificate of an Insurance Consultant providing similar information.

Self-Insurance Requirements. If the Lessee chooses to self-insure for certain risks described in the Lease (except title insurance described in the Lease) for which self-insurance is permitted, it must on at least an annual basis in the month of May provide (i) evidence to the Trustee and the Lessor to the effect that the Lessee has segregated amounts meeting such requirements in a special insurance reserve dedicated to the Leased Property; or (ii) a certificate of an Insurance Consultant to the Trustee and the Lessor to the effect that the Lessee’s general insurance reserves are adequate to provide the required amount of coverage. Any self-insurance provided to satisfy the requirements of the Lease shall be comprised of moneys held in a separate trust fund maintained by an independent trustee; in the event any such self-insurance is, subsequent to the date of the Trust Agreement, discontinued, the actuarial soundness of the related claim reserve fund must be maintained, as evidenced by the annual filings

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required above. The Trustee may conclusively rely upon such certificate. No self-insurance shall be permitted for the rental interruption insurance coverage required under the Lease.

Tax Covenants

The following provisions relate solely to the Series A Certificates.

Special Definitions. When used in the Lease, the following terms have the following meanings:

“Available Project Proceeds” means the sale proceeds from the Certificates less the Delivery Costs financed with such proceeds, plus any investment earnings on such amounts. For purposes of the Lease, the Lessee acknowledges that the Corporation intends to syndicate the beneficial ownership of the Lease through delivery of certificates of participation, and agrees that should such syndication occur in connection with the execution and delivery of the Lease it will treat all proceeds of such syndication as sale proceeds of the Lease (within the meaning of said Section 1.148-1(b)).

“Computation Date” has the meaning set forth in Section 1.148-1(b) of the Regulations.

“Expenditure Period” means the three (3) year period beginning on the Closing Date, plus any extension of such period granted by the Secretary of the Treasury.

“Investment” has the meaning set forth in Section 1.148-1(b) of the Regulations.

“Gross Proceeds” means any proceeds as defined in Section 1.148-1(b) of the Regulations (referring to sales, investment and transferred proceeds), and any replacement proceeds as defined in Section 1.148-1(c) of the Regulations, of the Certificates.

“Nonqualified Portion” means the portion of the outstanding Principal Component of the Lease Payments represented by the 2010 Series A Certificates in an amount that, if the remainder of Principal Component of the Lease Payments were represented by Certificates executed and delivered on the last day of the Expenditure Period, all of the Available Project Proceeds of the Certificates would have been used for Qualified Purposes within the Expenditure Period.

“Permitted Sinking Fund Yield” means the permitted sinking fund yield published by the Bureau of Public Debt at https://www.treasurydirect.gov for the calendar month in which there is first a binding, written contract to purchase the 2010 Series A Certificates.

“Qualified Sinking Fund” means a fund expected to be used to pay the Principal Component of the Lease Payments represented by the 2010 Series A Certificates, provided that (i) such fund is funded at a rate not more rapid than equal annual installments, (ii) such fund is funded in a manner reasonably expected to result in an amount not greater than an amount necessary to pay the Principal Component of the Lease Payments represented by the 2010 Series A Certificates, and (iii) the Yield on such fund is not greater than the Permitted Sinking Fund Yield.

“Qualified Purposes” means the construction, rehabilitation, or repair of public school facilities (including expenditures for the acquisition of equipment to be used in a portion of a public school facility being constructed, rehabilitated, or repaired with the proceeds of the 2010 Series A Certificates) or for the acquisition of land on which such a facility is to be constructed with a portion of the proceeds of the 2010 Series A Certificates.

“Rebate Amount” has the meaning set forth in Section 1.148-1(b) of the Regulations.

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“Regulations” means any proposed, temporary or final Income Tax Regulations which are applicable to the portion of the Lease represented by the 2010 Series A Certificates. Any reference to a specific Regulation shall also mean, as appropriate, any proposed, temporary or final Income Tax Regulation designed to supplement, amend or replace the specific Regulation referenced.

“Yield” of (1) any Investment has the meaning set forth in Section 1.148-5 of the Regulations and of (2) the 2010 Series A Certificates or the Lease represented by the 2010 Series A Certificates has the meaning set forth in Section 1.148-4 of the Regulations.

Lease as Obligation of Lessee; Not to Cause Change in Status. The Lessee represents and warrants that it intends that for federal income tax purposes and for California personal income tax purposes, the Lease is to be treated as an obligation of the Lessee, that the Lease Payments are intended to be treated as the payment of such obligation. The Lessee covenants that it shall not use, and shall not permit the use of, and shall not omit to use Gross Proceeds or any other amounts (or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with Gross Proceeds) in a manner that if made or omitted, respectively, could cause the 2010 Series A Certificates to fail to be Qualified School Construction Bonds under the Recovery Act. Without limitation of the preceding sentence, the Lessee agrees to execute and deliver in connection with the execution of the Lease a Tax Certificate, or similar document containing additional representations and covenants pertaining to the status of the Certificates as Qualified School Construction Bonds, which representations and covenants are incorporated as though expressly set forth herein.

Designation and Irrevocable Election. The 2010 Series A Certificates are hereby designated as “qualified school construction bonds” pursuant to Section 54F of the Tax Code. The Lessee hereby irrevocably elects pursuant to Section 6431(f)(3)(B) of the Tax Code to have Section 6431(f) of the Tax Code apply to the 2010 Series A Certificates, such that the interest component of the 2010 Series A Certificates qualifies for payment of the Direct Subsidies from the Treasury.

Use for Qualified Purposes. All of the Available Project Proceeds of the 2010 Series A Certificates shall be used only for Qualified Purposes.

Jurisdiction. All of the public school facilities to be financed with the Available Project Proceeds of the 2010 Series A Certificates shall be located within both the jurisdiction of the Lessee and the jurisdiction of the authorized State entity that allocated bond limitation to the issue to the extent applicable.

Costs of Delivery. Delivery Costs financed with proceeds of the 2010 Series A Certificates shall not exceed two percent (2%) of the proceeds of the 2010 Series A Certificates.

Binding Commitment. The Lessee will incur a binding commitment with a third party to spend at least ten percent (10%) of the Available Project Proceeds of the 2010 Series A Certificates within six (6) months of the date of issuance.

Use within Three Years. All of the Available Project Proceeds of the 2010 Series A Certificates will be expended for Qualified Purposes within three years of the Closing Date.

Redemption of Nonqualified Certificates. If less than one hundred percent (100%) of the Available Project Proceeds of the 2010 Series A Certificates are expended for Qualified Purposes within the Expenditure Period, the Lessee shall prepay the Nonqualified Portion of the Lease within ninety (90) days of the end of the Expenditure Period in accordance with the Lease.

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Reimbursement. Any reimbursement of proceeds of the 2010 Series A Certificates for capital expenditures for Qualified Purposes incurred prior to the Closing Date will be undertaken strictly in accordance with Section 54A(d)(2)(D) of the Tax Code, i.e., the expenditures to be reimbursed shall only be incurred after the Secretary of the Treasury has made an allocation of bond limitation with respect to the issue, prior to the payment of the original expenditure the Lessee shall have declared its intent to reimburse such expenditure, with proceeds of the Lease, not later than sixty (60) days after payment of the original expenditure the Lessee shall have adopted an official intent to reimburse the original expenditure with such proceeds, and the reimbursement shall be made not later than eighteen (18) months after the date the original expenditure is paid.

Not to Invest at Higher Yield. Except to the extent permitted by Section 148 of the Tax Code and the Regulations and rulings thereunder, as modified by Sections 54A(d)(4)(B) and (C) of the Tax Code, the Lessee shall not at any time prior to the termination of the Lease directly or indirectly invest Gross Proceeds in any Investment (or use Gross Proceeds to replace money so invested), if as a result of such Investment, the Yield from the Closing Date of all Investments acquired with Gross Proceeds (or with money replaced thereby), whether then held or previously disposed of, exceeds the Yield of the 2010 Series A Certificates. These restrictions on Yield of Investments shall not apply to the Investment of Available Project Proceeds during the Expenditure Period or with respect to a Qualified Sinking Fund.

Rebate of Arbitrage Profits. Except to the extent otherwise provided in Section 148(f) of the Tax Code and the Regulations and rulings thereunder, as modified by Sections 54A(d)(4)(B) and (C) of the Tax Code:

(1) The Lessee shall account for all Gross Proceeds (including all receipts, expenditures and investments thereof) on its books of account separately and apart from all other funds (and receipts, expenditures and investments thereof) and shall retain all records of accounting for at least six (6) years after the day on which the Lease is terminated.

(2) Not less frequently than each Computation Date, the Lessee shall calculate the Rebate Amount in accordance with rules set forth in Section 148(f) of the Tax Code and the Regulations and rulings thereunder, as modified by Sections 54A(d)(4)(B) and (C) of the Tax Code. The Lessee shall maintain such calculations with its official transcript of proceedings relating to the execution and delivery of the Lease until six (6) years after the final Computation Date.

(3) As additional consideration for the entering into the Lease, the Lessee shall pay to the United States the amount that when added to the future value of previous rebate payments made for the Lease equals (i) in the case of a Final Computation Date as defined in Section 1.148-3(e)(2) of the Regulations, one hundred percent (100%) of the Rebate Amount on such date; and (ii) in the case of any other Computation Date, ninety percent (90%) of the Rebate Amount on such date. In all cases, the rebate payments shall be made at the times, in the installments, to the place, and in the manner as is or may be required by Section 148(f) of the Tax Code and the Regulations and rulings thereunder, and shall be accompanied by Form 8038-T or such other forms and information as is or may be required by Section 148(f) of the Tax Code and the Regulations and rulings thereunder.

(4) The Lessee shall exercise reasonable diligence to assure that no errors are made in the calculations and payments required by paragraphs (2) and (3), and if an error is made, to discover and promptly correct such error within a reasonable amount of

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time thereafter (and in all events within one hundred eighty (180) days after discovery of the error), including payment to the United States of any additional Rebate Amount owed to it, interest thereon, and any penalty imposed under Section 1.148-3(h) of the Regulations.

(5) This subsection shall not apply to the investment of Available Project Proceeds during the Expenditure Period or with respect to a Qualified Sinking Fund.

Not to Divert Arbitrage Profits. Except to the extent permitted by Section 148 of the Tax Code and the Regulations and rulings thereunder, the Lessee shall not, at any time prior to final termination of the Lease, enter into any transaction that reduces the amount required to be paid to the United States pursuant to the proceeding subsection because such transaction results in a smaller profit or a larger loss than would have resulted if the transaction had been at arm’s length and had the Yield of the 2010 Series A Certificates not been relevant to either party.

Conflicts of Interest. Pursuant to section 54A(d)(6) of the Tax Code, the Lessee certifies that all applicable State and local laws governing conflicts of interest are satisfied and will continue to be satisfied with respect to the Lease. The Lessee certifies that if the Secretary of the Treasury prescribes additional conflict of interest rules governing appropriate members of Congress, Federal, State, and local officials, and their spouses, such additional rules will be satisfied with respect to the Lease.

Davis-Bacon Act. The Lessee shall comply, and take steps to assure that its contractors working on Qualified Purposes shall comply, with subchapter IV of chapter 31 of the title 40 of the United States Code (the “Davis-Bacon Act”), with respect to projects financed with the proceeds of the 2010 Series A Certificates.

Not to Cause Certificates to Fail to Qualify. The Lessee shall not take any action, or fail to take any action, if such action or failure to take such action would cause the 2010 Series A Certificates to not be “qualified school construction bonds” under Section 54F of the Tax Code.

Execution of Certifications. The Lessee shall execute and deliver such certifications and representations as are determined by Special Counsel to be required to qualify the 2010 Series A Certificates as “qualified school construction bonds” under the Tax Code and Regulations, and the Authorized Representatives, individually or jointly, are hereby authorized and directed to execute such certifications or representations.

Accuracy of Tax Certificate. The Lessee represents and warrants the accuracy of the Tax Certificate to be executed on the Closing Date by the Lessee.

Elections. The Lessee hereby directs and authorizes the Authorized Representatives, individually or jointly, to make elections permitted or required pursuant to the provisions of the Tax Code or the Regulations, as they deem necessary or appropriate in connection with the 2010 Series A Certificates, in the Tax Certificate or similar or other appropriate certificate, form, or document.

Information Report. The Lessee shall timely file the information required to be filed with the Secretary of the Treasury on Form 8038 or such other form and in such place as the Secretary may prescribe.

Defeasance. The Lessee covenants that no deposit of moneys or Federal Securities will be made under the Lease which would cause the 2010 Series A Certificates to be treated as “arbitrage bonds” within the meaning of Section 148 of the Tax Code, or regulations adopted pursuant thereto, as modified

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by Section 54A(d)(4) of the Tax Code. The Lessee will not defease any of the 2010 Series A Certificates unless it shall have first received a written opinion of Special Counsel to the effect that such defeasance will not adversely affect the status of any 2010 Series A Certificate as a Qualified School Construction Bond or the receipt of Direct Subsidies with respect to such Certificate.

Written Procedures. The Lessee shall either adopt written procedures of the type referenced in IRS Form 14127 or shall elect to treat the Tax Certificate as such written procedures. Such written procedures shall include procedures with respect to timely expenditures of proceeds, correct calculation of Available Project Proceeds, use of Available Project Proceeds only for Qualified Purposes, arbitrage yield restriction and rebate, limitation of financed Delivery Costs to less than 2% of proceeds, proper determination of interest payable on each interest payment date, proper amount of Direct Subsidy reported on Forms 8038-CP, timely filing of Forms 8038-CP, payment of the Direct Subsidies to the proper person, and timely identification of violations of federal tax requirements after issuance and timely correction of such violations through remedial actions or the Tax Exempt Bonds Voluntary Closing Agreement Program.

Record Retention. The Lessee shall retain such records as necessary to support the status of the 2010 Series A Certificates as Qualified School Construction Bonds for at least three years after termination of the Lease.

Survival of Covenants. Notwithstanding any other provision of the Lease, the Lessee’s representations and obligations under the covenants and provisions of the Lease shall survive the defeasance and termination of the Lease for as long as such matters are relevant to the designation of the 2010 Series A Certificates as “qualified school construction bonds” for federal income tax purposes.

Maximum Maturity. This Lease shall terminate not later than the maximum maturity with respect to qualified school construction bonds as published by the Bureau of Public Debt at https://www.treasurydirect.gov for the calendar month in which there is first a binding, written contract for the purchase of the 2010 Series A Certificates.

Lease Not a Hedge Bond. The Lessee represents that the Lease will not be a “hedge bond” within the meaning of section 149(g) of the Code.

Without limitation of paragraph (1) above: (a) the Lessee reasonably expects that 100% of the spendable 2010 Series A Certificate proceeds will be expended within the three-year period commencing on the Closing Date, and (b) no more than 50% of the proceeds of such portion will be invested in Nonpurpose Investments having a substantially guaranteed yield for a period of four years or more.

Abatement of Lease Payments in Event of Loss of Use

A proportional amount of the Lease Payments shall be abated during any period in which, by reason of condemnation, damage or destruction, there is substantial interference with the use and possession of the Leased Property; provided, however, that Lease Payments for which the Lessee is not yet liable under the Lease, in the event of such abatement, or a portion of such Lease Payments, as applicable, shall be paid from the proceeds of rental interruption insurance, as provided in the Lease above. The amount of such abatement shall be determined by the Lessee, such that the resulting Lease Payments represent fair consideration for the use and possession of the portion of the Leased Property not condemned, damaged or destroyed. Such abatement shall commence on the date of condemnation, damage or destruction and shall end with the substantial completion of the replacement or work of repair. There shall be no abatement in Lease Payments as a result of any design defects other than design defects that result in condemnation, damage or destruction with regard to the Leased Property. Except as

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provided in the Lease, in the event of any such condemnation, damage or destruction, the Lease shall continue in full force and effect and the Lessee waives any right to terminate the Lease by virtue of any such condemnation, damage or destruction.

In the event that any portion of the Lease Payments shall be abated under the Lease during the Term of the Lease, and shall not be paid in full due to the insufficiency of rental interruption insurance as provided above, then the Lessee shall, following the date upon which the portion of the Leased Property shall be returned to its substantial use and possession, pay Lease Payments at an increased level (but not in excess of the fair rental value of the total Leased Property) Owners have been reimbursed in full for amounts advanced as Lease Payments during the period of abatement.

Disclaimer

The Lessor, the Trustee and their assigns make no warranty or representation, either express or implied, as to the value, design, condition, merchantability or fitness for any particular purpose or fitness for the use contemplated by the Lessee of the Project or the Leased Property or any component of such Leased Property. The Lessee acknowledges that none of the Trustee, the Lessor or the is a manufacturer of any components of the Leased Property or a dealer therein, and the Lessee is leasing the components of its Leased Property “as-is,” it is being agreed that all of the aforementioned risks are to be borne by the Lessee. In no event shall the Lessor, the Trustee and their assigns be liable for incidental, indirect, special or consequential damages, in connection with or arising out of the Lease, the Site Lease or the Trust Agreement for the existence, furnishing, functioning or Lessee’s use and possession of the Leased Property. In no event shall the Lessor, the Trustee or their assignees be liable for any incidental, indirect, special or consequential damage in connection with or arising out of the Lease or the existence, furnishing, functioning or the Lessee’s use of any item or products provided for in the Lease.

Assignment and Subleasing by the Lessee

The Lessee’s rights (but not its duties) under the Lease may be assigned by the Lessee so long as such assignment does not result in loss of status of the 2010 Series A Certificates as Qualified School Construction Bonds, with the prior written consent of the Lessor, subject to all of the following conditions:

The Lease and the obligation of the Lessee to make Lease Payments under the Lease shall remain obligations of the Lessee;

The Lessee shall, within 30 days after the delivery thereof, furnish or cause to be furnished to the Lessor and the Trustee a true and complete copy of such sublease;

No sublease by the Lessee shall cause the Leased Property to be used for a purpose other than a governmental or proprietary function authorized under the provisions of the laws of the State; and

The Lessee shall deliver an opinion of counsel to the effect that the sublease shall not cause the result in loss of status of the 2010 Series A Certificates as Qualified School Construction Bonds.

Release of Site in the Case of Leased Property Including Real Estate

The Lessee shall have, and is granted, the option at any time and from time to time during the Term of the Lease to release any portion of the Site, provided that the Lessee shall first satisfy all of the following requirements which are declared to be conditions precedent to such release:

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The Lessee shall file with the Lessor and the Trustee an amended Site Lease which describes the Site, as revised by such release;

The Lessee shall file with the Lessor and the Trustee an amended Lease which describes the Site, as revised by such release;

The Lessee delivers to the Trustee and the Lessor evidence that the Site, as revised by such release, is of a value at least equal to the aggregate principal amount of Certificates then Outstanding as of the scheduled date of release and that the release will not cause the fair rental value of the Site to be less than the amount necessary to pay principal and interest due with respect to the Certificates;

The Lessee shall provide notice of such release to any Rating Agency then rating the Certificates;

The Lessee shall, deliver an opinion of counsel to the effect that such release shall not cause the Lease Payments due with respect to the remaining Leased Property to lose their status as “Qualified School Construction Bonds” under the Act or subject to State of California personal income taxes; and;

Such release shall not cause the Lessee to violate any of its covenants, representations and warranties made in the Lease or in the Trust Agreement.

Without the prior written consent of the Trustee, the Lessee will not alter, modify or cancel or agree or consent to alter, modify or cancel the Lease except as permitted by the Trust Agreement.

Amendment

The Lessee will not alter, modify or cancel or agree or consent to alter, modify or cancel the Lease except as permitted by the Trust Agreement.

Events of Default Defined

The following shall be “events of default” under the Lease and the terms “events of default” and “default” shall mean, whenever they are used in the Lease, any one or more of the following events:

(i) Failure by the Lessee to pay, or cause to be paid, any Lease Payment required to be paid under the Lease by a Lease Payment Date or any Additional Payments or any other amounts required to be paid under the Lease, when due;

(ii) Failure by the Lessee to observe and perform, or cause to be observed or performed, any covenant, condition or agreement on its part to be observed or performed in the Lease or otherwise with respect to the Lease or in the Trust Agreement, other than as referred to in clause (i) of the Lease, for a period of 30 days after written notice specifying such failure and requesting that it be remedied has been given to the Lessee by the Lessor, the Trustee, the Owners of not less than twenty-five percent (25%) in aggregate principal amount of Certificates then Outstanding; provided, however, if the failure stated in the notice cannot be corrected within the applicable period, the Lessor, the Trustee, or such Owners, as the case may be, shall not unreasonably withhold their consent to an extension of such time if corrective action is instituted by the Lessee within the applicable period and diligently pursued until the default is corrected.

(iii) The filing of a voluntary petition in bankruptcy by the Lessee, or the failure by the Lessee promptly to institute judicial proceedings to lift any execution, garnishment or attachment of such consequence as will materially impair its ability to carry on its operations, or

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the filing of a petition by the Lessee under the Federal Bankruptcy Code, or any assignment by the Lessee for the benefit of its creditors, or the application for, or consent to, the appointment of any receiver, trustee, custodian or similar officer by the Lessee or the entry by the Lessee into an agreement of composition with its creditors.

The Lessor’s failure to perform any of its obligations under the Lease shall not be an event permitting the nonpayment of Lease Payments by the Lessee or the termination of the Lease by the Lessee.

Remedies on Default

Whenever any event of default referred to in the Lease shall have happened and be continuing, it shall be lawful for the Lessor to exercise any and all remedies available pursuant to law or in equity, or granted pursuant to the Lease; provided, however, that notwithstanding anything in the Lease or in the Trust Agreement to the contrary, there shall be no right under any circumstances to accelerate the Lease Payments or otherwise declare any Lease Payments not then in default to be immediately due and payable. After the occurrence of an event of default under the Lease, (i) at the request of the Trustee, the Lease and all Related Documents shall be transferred and assigned to the Trustee, pursuant to the Trust Agreement and (ii) the Lessee will surrender possession of the Leased Property to the Lessor, if requested to do so by the Lessor, by the Trustee or by the Owners in accordance with the provisions of the Trust Agreement.

No Termination: Repossession and Re-Lease on Behalf of Lessee

In the event the Lessor does not elect to terminate the Lease in the manner provided for in the Lease, the Lessor with the consent of the Lessee, which consent is irrevocably given, may repossess the Leased Property and re-let it for the account of the Lessee, in which event the Lessee’s obligation will continue to accrue from year to year in accordance with the Lease and the Lessee will continue to receive the value of the use of the Leased Property from year to year in the form of credits against its obligation to pay Lease Payments. The obligations of the Lessee to pay Lease Payments shall remain the same as prior to such default whether the Lessor re-lets or not. The Lessee agrees to and shall remain liable for the payment of all Lease Payments and the performance of all conditions contained in the Lease and shall reimburse the Lessor for any deficiency arising out of the re-letting of the Leased Property, or, in the event the Lessor is unable to re-let the Leased Property, then for the full amount of all Lease Payments to the end of the term of the Lease, but said Lease Payments and/or deficiency shall be payable only at the same time and in the same manner as provided above for the payment of Lease Payments under the Lease, notwithstanding such repossession by the Lessor or any suit, brought by the Lessor for the purpose of effecting such repossession of the Leased Property or the exercise of any other remedy by the Lessor.

The Lessee irrevocably appoints the Lessor as the agent and attorney-in-fact of the Lessee to repossess and re-let the Leased Property in the event of a default by the Lessee in the performance of any covenants contained in the Lease to be performed by or on behalf of the Lessee and to remove (any removal to be done with reasonable prudence) all personal property connected to or made a part of the Leased Property, to place such property in storage or other suitable place in the County of Los Angeles, for the account of and at the expense of the Lessee, and the Lessee exempts and agrees to save harmless the Lessor from any costs, loss or damage whatsoever arising or occasioned by any such repossession and re-letting of the Leased Property. The Lessee waives any and all claims for damages caused or which may be caused by the Lessor in repossessing the Leased Property as provided in the Lease and all claims for damages that may result from the destruction of or the injury to the Leased Property and all claims for damage to or loss of any property belonging to the Lessee that may be in or upon the Leased Property.

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The Lessee agrees that the terms of the Lease constitute full and sufficient notice of the right of the Lessor to re-let its Leased Property in the event of such repossession without effecting a surrender of the Lease, and further agrees that no acts of the Lessor in effecting such re-letting shall constitute a surrender or termination of the Lease irrespective of the term for which such re-letting is made or the terms and conditions of such re-letting or otherwise, but that, on the contrary, in the event of such default by the Lessee the right to terminate the Lease as to the Leased Property shall vest in the Lessor to be effected in the sole and exclusive manner provided for in the Lease. The Lessee further waives the right to any rental obtained by the Lessor in excess of the Lease Payments and conveys and releases such excess to the Lessor as compensation to the Lessor for its services in re-letting the Leased Property. In the event that the liability of the Lessee under the Lease is held to constitute indebtedness or liability in any year exceeding the income and revenue provided for such year, the Lessor, or the Trustee or the Owners as assignees of the Lessor, shall not exercise the remedies provided in the paragraph.

Termination: Repossession and Re-Lease

In the event of the termination of the Lease by the Lessor at its option and in the manner provided in the Lease on account of default by the Lessee (and notwithstanding any repossession of the Leased Property by the Lessor in any manner whatsoever or the sale or re-letting of the Leased Property), the Lessee nevertheless agrees to pay to the Lessor all costs, losses or damages, but not Lease Payments, howsoever arising or occurring payable at the same time and in the same manner as is provided in the Lease in the case of payment of Lease Payments. Any proceeds of the re-letting or other disposition of the Leased Property or the sale of the Improvements located on the Leased Property by the Lessor shall, after payment of the fees and expenses of the Trustee, be deposited into the Lease Payment Fund and be applied in accordance with the provisions of the Trust Agreement. Any surplus received by the Lessor from such sale or re-letting shall be the absolute property of the Lessor and the Lessee shall have no right thereto, nor shall the Lessee be entitled to any credit in the event of a surplus in the rentals received by the Lessor for the Leased Property. Neither notice to pay rent or to deliver up possession of the Leased Property given pursuant to law nor any proceeding taken by the Lessor to recover possession of the Leased Property shall by itself operate to terminate the Lease, and no termination of the Lease on account of default by the Lessee shall be or become effective by operation of law, or otherwise, unless and until the Lessor shall have given written notice to the Lessee of the election on the part of the Lessor to terminate the Lease. The Lessee covenants and agrees that no surrender of the Leased Property or of the remainder of the term of the Lease or any termination of the Lease shall be valid in any manner or for any purpose whatsoever unless stated or accepted by the Lessor by such written notice. No such termination shall be effected whether by operation of law or acts of the parties to the Lease, except only in the manner expressly provided in the Lease.

Opinion of Special Counsel

The re-letting of the Leased Property as provided in the Lease shall be subject to the opinion of Special Counsel that such re-letting will not result in loss of status of the Series A Certificates as Qualified School Construction Bonds.

THE TRUST AGREEMENT

Funds

Delivery Costs Fund The Trustee shall establish a special trust fund designated as the “Los Angeles County Schools Pooled Financing Programs, Charter Oak Unified School District Delivery Costs Fund” (the “Delivery Costs Fund”) shall keep such fund separate and apart from all other funds and moneys held by it; and shall administer such fund as provided in the Trust Agreement. The Trustee shall

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close the Delivery Costs Fund on the earlier of the day the last amounts are withdrawn therefrom or the day which is 120 days after the Closing Date. Any balance remaining on deposit in the Delivery Costs Fund on the day which is 120 days after the Closing Date shall be transferred to the Lease Payment Fund and applied as a credit against the next Lease Payment due from the Lessee. On or after the Closing Date, the Trustee shall disburse moneys in the Delivery Costs Fund upon receipt of Requisitions signed by the Lessee’s Authorized Representative, the Business Services Representative or the County Treasurer or his or her duly designated deputy setting forth the amounts to be disbursed fro payment or reimbursement of Delivery Costs and the person or persons to whom said amounts are to be disbursed, and stating that the amounts to be disbursed are for Delivery Costs properly chargeable to the Delivery Costs Funds and to be credit of the Lessee, substantially in the form attached to the Trust Agreement, appropriately modified in accordance with the Trust Agreement, solely for payment or reimbursement of Delivery Costs to each person, firm or agency identified in such Requisitions. Each such Requisition shall be sufficient evidence to the Trustee of the facts stated therein and the Trustee shall have no duty to confirm the accuracy of such facts.

The Project Fund. The Lessor designates the Lessee as its agent in fact for the construction, acquisition and installation of all Components of the Project, which the Lessee shall accomplish in accordance with its customary standards for capital projects and in strict conformity with applicable laws of the State and with the requirements of the Recovery Act applicable to projects constructed with the proceeds of “qualified school construction bonds,” defined in the Recovery Act. The Trustee shall establish a special fund designated as the “Los Angeles County Schools Pooled Financing Program, 2010 Charter Oak Unified School District Project Fund” (the “Project Fund”), shall keep such fund separate and apart from all other funds and money held by it and shall administer such fund as provided in the Trust Agreement. There shall be credited to the Project Fund the proceeds of sale of the Certificates pursuant to the Trust Agreement, all investment earnings on moneys held in the Project Fund, the amounts required by the Trust Agreement and any other funds from time to time deposited with the Trustee for such purposes. The Trustee shall disburse moneys from the Project Fund from time to time, either to pay Project Costs directly or to reimburse the Lessee for payment of Project Costs, upon receipt by the Trustee of a Requisition signed by the Authorized Representative of the Lessee. Each such Requisition shall be sufficient evidence to the Trustee of the facts stated therein and the Trustee shall have no duty to confirm the accuracy of such facts.

The Prepayment Fund The Trustee shall establish a special trust fund designated as the “Los Angeles County Schools Pooled Financing Programs 2010 Series A Charter Oak Unified School District Prepayment Fund” (the “Prepayment Fund”) shall keep such fund separate and apart from all other funds and moneys held by it; and shall administer such funds as provided in the Trust Agreement. Prior to any prepayment of the Certificates, an amount at least equal to the amount necessary to prepay the 2010 Series A Certificates and the 2010 Series B Certificates, as applicable, shall be deposited by the Lessee into the Prepayment Fund. As provided in the Trust Agreement, prepayments of the 2010 Series A Certificates shall be made from money available therefore, including unexpended proceeds of the 2010 Series A Certificates on deposit in the Project Fund and amounts deposited into the Prepayment Fund by the Lessee, which the Trustee is instructed to accept; provided, however, that unexpended proceeds of the 2010 Series A Certificates may not be applied to the prepayment of any 2010 Series B Certificates. Any prepayments of the Certificates in advance of their maturity shall be made on the date designated for prepayment and upon presentation and surrender of such Certificates.

Upon the Trustee’s receipt of each Prepayment of Lease Payments from the Lessee under the Lease, the Trustee shall give prompt notice to the Lessee of such receipt and the amount of said Prepayment. All amounts representing Prepayments under the Trust Agreement shall be deposited into the Prepayment Fund.

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The Lease Payment Fund. The Trustee shall establish a special fund designated as the “Los Angeles County Schools Pooled Financing Program 2010 Series A Chater Oak Unified School District Lease Payment Fund” (referenced in the Trust Agreement as the “Lease Payment Fund”). All moneys at any time deposited by the Trustee in the Lease Payment Fund shall be held by the Trustee in trust for the benefit of the Owners of the Certificates. So long as any Certificates are Outstanding, neither the Lessee nor the Lessor shall have any legal, equitable or beneficial right, title or interest in the Lease Payment Fund or the moneys deposited therein, except only as provided in the Trust Agreement, and such moneys shall be used and applied by the Trustee solely as set forth in the Trust Agreement.

The Trustee shall accept for deposit into the Lease Payment Fund direct payments from the District made under terms of the Lease Agreement and, to the extent that the District is able to make such arrangements, direct deposits of Direct Subsidy from the Treasury from time to time, the term of the 2010 Series A Certificates. Such direct deposits are allocable only to the 2010 Series A Certificates.

Within the Lease Payment Fund, there is established a special account designated as the “Charter Oak Unified School Lessee Excess Earnings Account, 2010 Series A” (the “Excess Earnings Account”). The Excess Earnings Account shall be funded and applied in accordance with the provisions of the Trust Agreement. All references in the Trust Agreement and in the Lease to amounts in the Lease Payment Fund are deemed to include amounts in the Excess Earnings Account.

(a) All amounts in the Lease Payment Fund and in the Prepayment Fund, if any, shall be used and withdrawn by the Trustee solely for the purpose of paying the amounts described as follows, and in the following order of priority:

(i) to Certificate Owners, on each Interest Payment Date, in amounts representing the Interest Component and the Principal Component (or the prepayment price) of the Certificates then due and owing;

(ii) on each Payment Date, any Excess Earnings, to the Excess Earnings Fund.

(b) If on any Interest Payment Date, amounts on deposit in the Lease Payment Fund and the Reserve Fund are insufficient to pay the full amount of principal and interest then due and payable with respect to the Certificates, the Trustee shall apply such amounts to the payment of amounts due with respect to the Certificates, first, to the payment of the Interest Component, and then, to the payment of the Principal Component.

The Reserve Fund. The Trustee shall establish a special fund designated as the “Los Angeles County Schools Pooled Financing Program 2010 Series A Charter Oak Unified School District Reserve Fund (the “Reserve Fund”). All moneys at any time on deposit in the Reserve Fund shall be held by the Trustee in trust for the benefit of the Owners of the Certificates and applied solely as provided in the Trust Agreement.

On the Closing Date, there shall be deposited into the Reserve Fund, in an amount equal to the Reserve Requirement, cash or a surety or a combination thereof.

In lieu of cash or Permitted Investments, the Reserve Requirement, or any portion thereof, may be satisfied by the deposit of a Surety Bond; provided that such Surety Bond or letter of credit shall contain a provision that after such Surety Bond or letter of credit has been drawn down, any moneys available to repay the provider of such Surety Bond or letter of credit must first be used to reinstate such Surety Bond or letter of credit to its original stated amount. Any interest or fees due to the provider of a Surety Bond

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or letter of credit delivered under the Trust Agreement must be solely payable on a subordinate basis to the obligation of the Lessee to make Lease Payments.

The Net Insurance Proceeds Fund. The Trustee shall establish a special fund designated as the “Los Angeles County Schools Pooled Financing Program 2010 Series A Chater Oak Unified School District Net Insurance Proceeds Fund, 2010 Series A” (the “Net Insurance Proceeds Fund”).

The Trustee shall apply moneys on deposit in the Net Insurance Proceeds Fund as follows:

(a) Any Net Insurance Proceeds collected by the Lessee or the Lessor shall be transferred to the Trustee pursuant to the Lease and deposited by the Trustee as provided in Trust Agreement

(b) All Net Insurance Proceeds deposited in the Net Insurance Proceeds Fund and not transferred to the Prepayment Fund as provided in the Trust Agreement shall be applied to the prompt replacement or repair of the affected portion of the Leased Property by the Lessee. Amounts held by the Trustee shall be advanced to the Lessee by the Trustee upon receipt of a Requisition signed by an Authorized Representative stating, with respect to each payment to be made, (i) the Requisition number, (ii) the name and address of the person, firm or corporation to whom payment is due, (iii) the amount to be paid and (iv) that each obligation mentioned therein has been properly incurred, is a proper charge against the Net Insurance Proceeds Fund, has not been the basis of any previous withdrawal, and specifying in reasonable detail the nature of the obligation, accompanied by a bill or a statement of account for such obligation. Each such Requisition shall be sufficient evidence to the Trustee of the facts stated therein and the Trustee shall have not duty to confirm the accuracy of such facts.

(c) If any portion of the Leased Property is taken by condemnation proceedings, the Net Insurance Proceeds therefrom shall be deposited in the Net Insurance Proceeds Fund promptly upon receipt thereof and the Lessee shall certify to the Trustee (a) as to whether Leased Property has been taken in whole or in part pursuant to such proceedings, (b) as to whether the remaining portion of such Leased Property (if any) is still useful for the purposes originally intended and (c) as to whether it desires that any available Net Insurance Proceeds from such condemnation proceedings be applied for replacement of the Leased Property and, if so, that sufficient funds, together with such Net Insurance Proceeds, have been appropriated to pay the total cost of such replacement. If such certification is to the effect that the Leased Property has been taken in whole pursuant to such condemnation proceedings or has been taken in part to such extent that the remaining portion of the Leased Property is no longer useful for the purposes originally intended, or such certification is to the effect that the Leased Property has been taken in part pursuant to such condemnation proceedings and that the remaining portion of the Leased Property is still useful for the purposes originally intended, the Trustee shall apply such Net Insurance Proceeds necessary for the prepayment of Certificates as provided in the Trust Agreement; provided that, if such certification is also to the effect that the Lessee desires that any available Net Insurance Proceeds be applied for replacement of the Leased Property and if the Lessee further certifies that sufficient funds, together with such Net Insurance Proceeds, have been appropriated or are otherwise available to pay the total cost of such replacement, the Trustee will disburse such Net Insurance Proceeds to the Lessee upon receipt of its Requisition therefor in order for the Lessee to cause the Leased Property to be replaced or improved to at least the same good order, repair, condition and fair market value as it was in prior to the condemnation proceedings, and the Trustee shall transfer any excess Net Insurance Proceeds to the Lease Payment Fund to be credited against the next Lease Payment due.

Moneys in Funds

Held in Trust. The moneys and investments held by the Trustee under the Trust Agreement, to the extent provided in the Trust Agreement, are irrevocably held in trust for the benefit of the Owners,

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with the exception of moneys held in the Excess Earnings Account, which, with respect to the Excess Earnings Account, are held in trust for rebate to the United States Government, and for the purposes specified in the Trust Agreement, and such moneys, and any income or interest earned thereon, shall be expended only as provided in the Trust Agreement, and shall not be subject to levy or attachment or lien by or for the benefit of any creditor of the Lessor, the Trustee, the Lessee, or any Owner of Certificates, or any of them, other than the lien in favor of Trustee permitted pursuant to the Trust Agreement.

Investments. Subject to the Trust Agreement, moneys held by the Trustee under the Trust Agreement, upon Written Order of the Lessee, shall be invested and reinvested by the Trustee in Permitted Investments. The Lessee shall by Written Order filed with the Trustee direct such investment in specific Permitted Investments identified in such Written Order. Such investments, if registerable, shall be registered in the name of the Trustee or its nominee for the benefit of the Owners and held by the Trustee. The Trustee and its affiliates or other interested persons may act as sponsor, advisor, purchaser or agent in the making or disposing of any investment. In the absence of any such Written Order of the Lessee directing the investment of uninvested moneys held by the Trustee, the Trustee shall invest any such moneys in Permitted Investment described in the Trust Agreement, provided that as long as the Trustee is The Bank of New York Mellon Trust Company, N.A., the Trustee shall invest such money in the money market fund set forth in the letter of authorization and direction executed by the Lessee and delivered to the Trustee. If no specific money market fund has been specified by the Lessee, the Trustee shall make a request to the Lessee for investment directions. Such moneys shall be held in cash, uninvested until specific investment directions are provided by the Lessee to the Trustee. Amounts held in the Excess Earnings Account shall be held uninvested; amounts held in the Project Fund may be invested without regard to Yield.

Valuation of Investments. In computing the amount in any fund or account, Permitted Investments shall be valued at the market price thereof. Any Permitted Investment shall be deemed to mature on the earliest date that the issuer thereof may be required to repay the principal thereof at par without penalty. The Trustee shall sell in accordance with its customary practice, or present for prepayment, any Permitted Investment so purchased by the Trustee whenever it shall be necessary in order to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Permitted Investment is credited, and the Trustee shall not be liable or responsible for any loss resulting from such investment or for obtaining the highest price therefor.

The Trustee

Appointment of Trustee. The Bank of New York Mellon Trust Company, N.A., a national banking association organized and existing under and by virtue of the laws of the United States, is appointed Trustee by the Lessor and the Lessee for the purpose of receiving all moneys required to be deposited with the Trustee under the Trust Agreement and to allocate, use and apply the same as provided in the Trust Agreement.

The Trustee is authorized to pay the Certificates when duly presented for payment at maturity, or on prepayment, or on purchase by the Trustee of Certificates prior to maturity and to cancel all Certificates upon payment thereof. The Trustee shall keep accurate records of all funds administered by it and of all Certificates paid and discharged. The Trustee shall be compensated for its services rendered pursuant to the provisions of the Trust Agreement.

So long as no Event of Default shall have happened and be continuing, the Lessee may remove the Trustee initially appointed for good cause, and any successor thereto, and may appoint a successor or successors thereto; provided, that any such successor shall be a bank, national banking association or trust company meeting the requirements set forth in the Trust Agreement.

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The Trustee may resign by giving prior written notice to the Lessee and the Lessor. Upon receiving such notice of resignation, the Lessor shall promptly appoint a successor Trustee. Any resignation or removal of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee. Upon such acceptance, the successor Trustee shall mail notice thereof to the Certificate Owners at their respective addresses set forth on the Certificate registration books maintained pursuant to the Trust Agreement. In the event the Lessor does not name a successor Trustee within 30 days of receipt of notice of the Trustee’s resignation, then the Trustee may petition a court of proper jurisdiction to seek the immediate appointment of a successor Trustee.

Liability of Trustee. The recitals of facts in the Trust Agreement, in the Assignment Agreement and in the Certificates contained shall be taken as statements of the Lessee, and the Trustee assumes no responsibility for the correctness of the same, and makes no representations as to the validity or sufficiency of the Trust Agreement or the Certificates as to the value or condition of the trust estate or any part thereof, as to the title of the Lessee thereto, as to the security afforded thereby or by the Trust Agreement, as to the tax status of the Interest Component, or as to the technical or financial viability of the Lessee, and shall incur no responsibility in respect thereof. The Trustee shall not be accountable for the use or application by the Lessee of the Certificates or the proceeds thereof or of any moneys paid to the Lessee pursuant to the terms of the Trust Agreement. The Trustee shall, however, be responsible for its representations in relation to the execution of the Certificates. The Trustee shall not be liable in connection with the performance of its duties under the Trust Agreement except for its own negligence or willful misconduct. The Trustee may execute any of the trusts or powers under the Trust Agreement or perform any duties under the Trust Agreement either directly or through agents or attorneys, and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent (other than an employee) or attorney appointed with due care. The Lessee shall not be deemed an agent of the Trustee for any purpose, and the Trustee shall not be responsible for the compliance of the Lessee in its duties under the Trust Agreement in connection with the transactions contemplated in the Trust Agreement. The Trustee may become the Owner of the Certificates with the same rights it would have if it were not Trustee, and, to the extent permitted by law, may act as depositary for and permit any of their officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Certificate Owners, whether or not such committee shall represent the Certificate Owners or a majority thereof. No provision of the Trust Agreement shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties under the Trust Agreement or thereunder, or in the exercise of its rights or powers, if repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to its satisfaction.

In accepting the trusts created, the Trustee acts solely as Trustee for the Owners and not in its individual capacity and all persons, including without limitation the Owners, Lessor and Lessee having any claim against the Trustee arising from the Trust Agreement shall look only to the funds and accounts held by the Trustee hereunder for payment except as otherwise provided in the Trust Agreement. Under no circumstances shall the Trustee be liable in its individual capacity for the obligations evidenced by the Certificates.

The Trustee makes no representation or warranty, express or implied as to the title, value, design, compliance with specifications or legal requirements, quality, durability, operation, condition, merchantability or fitness for any particular purpose or fitness for the use contemplated by the Lessor and the Lessee of the Leased Property. In no event shall the Trustee be liable for incidental, indirect, special or consequential damages in connection with or arising from the Lease or the Trust Agreement for the existence, furnishing or use of the Leased Property.

The Trustee shall not be responsible for the sufficiency or enforceability of the Lease or the assignment under the Assignment Agreement of its rights to receive Lease Payments. The Trustee shall

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not be accountable for the use or application by the Lessee or any other party of any funds which the Trustee has released in accordance with the provisions of the Trust Agreement. The Trustee shall have no responsibility with respect to any information, statement, or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed with respect to the Certificates. The immunities extended to the Trustee also extend to its directors, officers, employees and agents. The Trustee shall not be liable for any action taken or not taken by it in accordance with the direction of a majority (or other percentage provided for in the Trust Agreement) in aggregate principal amount of Certificates Outstanding relating to the exercise of any right, power or remedy available to the Trustee. The permissive right of the Trustee to do things enumerated in the Trust Agreement shall not be construed as a duty.

The Trustee agrees to accept and act upon instructions or directions pursuant to the Trust Agreement sent by unsecured e-mail, facsimile transmission or other similar unsecured electronic methods, provided, however, that, the Trustee shall have received an incumbency certificate listing persons designated to give such instructions or directions and containing specimen signatures of such designated persons, which such incumbency certificate shall be amended and replaced whenever a person is to be added or deleted from the listing. If the Lessee elects to give the Trustee e-mail or facsimile instructions (or instructions by a similar electronic method) and the Trustee in its discretion elects to act upon such instructions, the Trustee’s understanding of such instructions shall be deemed controlling. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee’s reliance upon and compliance with such instructions notwithstanding such instructions conflict or if such instructions are inconsistent with a subsequent written instruction. The Lessee agrees to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Trustee, including without limitation the risk of the Trustee acting on unauthorized instructions, and the risk of interception and misuse by third parties.

The Trustee shall not be liable to the parties hereto or deemed in breach or default hereunder if and to the extent its performance hereunder is prevented by reason of force majeure. The term “force majeure” means an occurrence that is beyond the control of the Trustee and could not have been avoided by exercising due care. Force majeure shall include acts of God, terrorism, war, riots, strikes, fire, floods, earthquakes, epidemics or other similar occurrences.

The Trustee, prior to the occurrence of an Event of Default and after the curing of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in the Trust Agreement. In case an Event of Default has occurred (which has not been cured) the Trustee shall exercise such of the rights and powers vested in it by the Trust Agreement, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs.

Compensation of the Trustee. The Lessee or the Lessor shall from time to time on demand, pay to the Trustee reasonable compensation for its services and shall reimburse the Trustee for all its advances (with interest on such advances at the maximum rate allowed by law) and expenditures, including but not limited to advances to and fees and expenses of independent appraisers, accountants, consultants, counsel, agents and attorneys or other experts employed by it in the exercise and performance of its powers and duties under the Trust Agreement and the Trustee shall have a lien therefor on any and all funds at any time held by it under the Trust Agreement, which lien shall not be prior and superior to the lien of the Certificate Owners unless there has occurred an Event of Default in which event the lien of the Trustee shall be prior and superior to the lien of the Owners. The Lessee’s and Lessor’s obligations under the Trust Agreement shall remain valid and binding, notwithstanding the maturity and payment of the Certificates. The compensation of the Trustee under the Trust Agreement shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust.

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Indemnification of Trustee. To the extent permitted by law, the Lessee shall indemnify and save the Trustee and its officers, employees, agents, successors or assigns harmless from and against all claims, losses, costs, expenses, liability and damages, including legal fees and expenses, arising out of (i) the actions of any other party, including but not limited to the ownership, operation or use of Leased Property by the Lessee, or (ii) the Trustee’s exercise and performance of its powers and duties under the Trust Agreement, under the Lease. No indemnification will be made under the Trust Agreement or elsewhere in the Trust Agreement for negligence or willful misconduct under the Trust Agreement by the Trustee, its officers or employees. The Lessee’s obligations under the Trust Agreement shall remain valid and binding notwithstanding the defeasance, maturity and payment of the Certificates or the resignation or removal of the Trustee.

Amendments to the Trust Agreement

Amendments Permitted. The Trust Agreement and the rights and obligations of the Owners in the Lease and the rights and obligations of the parties thereto, may be modified or amended at any time by a supplemental agreement which shall become effective when the written consent of the Owners of at least 51% in aggregate principal amount of the Certificates then Outstanding (exclusive of Certificates disqualified as provided in the Trust Agreement), shall have been filed with the Trustee. No such modification or amendment shall (1) extend or have the effect of extending the fixed maturity of any Certificate or reducing the interest rate with respect thereto or extending the time of payment of the Interest Component, or reducing the amount of Principal Component thereof or reducing any premium payable upon the prepayment thereof, without the express consent of the Owner of such Certificate, or (2) reduce or have the effect of reducing the percentage of Certificate Owners required for the affirmative vote or written consent to an amendment or modification of the Trust Agreement or the Lease, or (3) modify any of the rights or obligations of the Trustee without its written assent thereto. Any such supplemental agreement shall become effective as provided in the Trust Agreement.

The Trust Agreement and the rights and obligations of the Owners, the Lease and the Site Lease and the rights and obligations of the parties thereto, may be modified or amended at any time by a supplemental agreement, without notice to or the consent of any such Owners, but only to the extent permitted by law, and only (1) to cure, correct or supplement any ambiguous or defective provision contained in the Trust Agreement or therein, (2) in regard to matters arising under the Trust Agreement or thereunder, as the parties to the Trust Agreement or thereto may deem necessary or desirable and which shall not adversely affect the interest of the Owners, (3) to satisfy the requirements of the Rating Agencies, (4) with respect to the Lease and the Site Lease, as permitted therein, to permit the Removal and Substitution of Leased Property and Leased Property Components in accordance with the Lease; or (5) to make any other change which is not adverse to the interests of the Owners of the Certificates as evidenced by an Opinion of counsel to such effect. Any such supplemental agreement with respect to the Trust Agreement shall require the unanimous consent of all parties to the Trust Agreement, but a supplemental agreement with respect to any Lease shall require only the consent of all parties thereto.

Procedure for Amendment with Written Consent of Owners. The Trust Agreement or the Lease may be amended by supplemental agreement as provided in the Trust Agreement in the event the consent of the Owners is required pursuant to the Trust Agreement. A copy of such supplemental agreement, together with a request to the Owners for their consent thereto, shall be mailed, by first class mail by the Trustee, at the expense of the Lessee, to each Owner at its address as set forth in the Certificate registration books maintained by the Trustee, and to the Rating Agencies at least ten (10) days prior to the effective date thereof, but failure to receive copies of such supplemental agreement and request so mailed shall not affect the validity of the supplemental agreement when assented to as provided in the Trust Agreement.

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Such supplemental agreement shall not become effective unless there shall be filed with the Trustee the written consent of the Owners of at least a majority in aggregate principal amount of the Certificates then Outstanding (exclusive of Certificates disqualified as provided in the Trust Agreement), and notices shall have been mailed as provided in the Trust Agreement. Each such consent shall be effective only if accompanied by proof of ownership of the Certificates for which such consent is given. Any such consent shall be binding upon the Owner of the Certificate giving such consent and on any subsequent Owner (whether or not such subsequent Owner has notice thereof unless such consent is revoked in writing by the Owner giving such consent or a subsequent Owner by filing such revocation with the Trustee prior to the date when the notice provided for in the Trust Agreement has been mailed.

After the Owners of the required percentage of Certificates shall have filed their consents to such supplemental agreement, the Trustee shall mail a notice to the Certificate Owners in the manner provided in the Trust Agreement for the mailing of such supplemental agreement, stating in substance that such supplemental agreement has been consented to by the Owners of the required percentage of Certificates and will be effective as provided in the Trust Agreement (but failure to mail copies of said notice shall not affect the validity of such supplemental agreement or the consents thereto). A record, consisting of the papers required by the Trust Agreement to be filed with the Trustee, shall be proof of the matters therein stated until the contrary is proved. Such supplemental agreement shall become effective upon the mailing of the notice provided in the Trust Agreement, and such supplemental agreement shall be deemed conclusively binding upon the parties to the Trust Agreement and the Owners of all Certificates at the expiration of 60 days after such mailing, except in the event of a final decree of a court of competent jurisdiction setting aside such consent in a legal action or equitable proceeding for such purpose commenced within such 60-day period.

Copies of any amendments or supplements to the Trust Agreement shall be sent to the rating agencies that have assigned a rating to the Certificates.

Disqualified Certificates. Certificates known by the Trustee to be owned or held by or for the account of the Lessee or the Lessor or by any person directly or indirectly controlled by, or under direct or indirect common control of, the Lessee or the Lessor (except any Certificates held in any pension or retirement fund) shall not be deemed Outstanding for the purpose of any vote, consent, waiver or other action provided for in the Trust Agreement, and shall not be entitled to vote upon, consent to, or take any other action provided for in the Trust Agreement.

Lessee Budgets. The Lessee shall supply to the Trustee, within thirty days of the beginning of each Fiscal Year, a certification that the Lessee has made adequate provision in its proposed annual budget for the payment of Lease Payments due under the Lease in the Fiscal Year covered by such budget. The certification given by the Lessee to the Trustee shall be to the effect that the amounts so proposed to be budgeted are fully adequate for the payment of all Lease Payments due in the ensuing Fiscal Year. If the amounts so proposed to be budgeted are not stated to be adequate for the payment of Lease Payments due under the Lease, the Trustee will notify the Lessee to take such action as may be necessary to cause such annual budget to be amended, corrected or augmented so as to include therein the amounts required to be raised by the Lessee in the ensuing Fiscal Year for the payment of Lease Payments due under the Lease and the Lessee will notify the Trustee of the proceedings then taken or proposed to be taken by the Lessee. The Trustee shall be protected in relying upon any certification or such notice from the Lessee, and the Trustee shall have no further responsibility for the evaluation of such budget data.

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Limited Liability of the Lessee

Except for the payment of Lease Payments, Additional Payments and Prepayments when due in accordance with the Lease and the performance of the other covenants and agreements of the Lessee contained in the Trust Agreement and in the Lease, the Lessee shall have no obligation or liability to any of the other parties or to the Certificate Owners with respect to the Trust Agreement or the terms, execution, delivery or transfer of the Certificates, or the distribution of Lease Payments to the Owners by the Trustee.

No Liability of the Lessee or Lessor for Trustee Performance

Except as expressly provided in the Trust Agreement, neither the Lessee nor the Lessor shall have any obligation or liability to any of the other parties or to the Certificate Owners with respect to the performance by the Trustee of any duty imposed upon it under the Trust Agreement.

Limited Liability of Trustee

The Trustee shall have no obligation or responsibility for providing information to the Owners concerning the investment character of the Certificates, for the sufficiency or collection of any Lease Payments or other moneys required to be paid to it under the Lease (except as provided in the Trust Agreement) or for the actions or representations of any other party to the Trust Agreement. The Trustee shall have no obligation or liability to any of the other parties or the Certificate Owners with respect to the Trust Agreement or the failure or refusal of any other party to perform any covenant or agreement made by any of them under the Trust Agreement or the Lease, but shall be responsible solely for the performance of the duties and obligations expressly imposed upon it under the Trust Agreement. The recitals of facts, covenants and agreements in the Trust Agreement and in the Certificates contained shall be taken as statements, covenants and agreements of the Lessee or the Lessor (as the case may be), and the Trustee assumes no responsibility for the correctness of the same, makes no representations as to the validity or sufficiency of the Trust Agreement or of the Certificates, shall incur no responsibility in respect thereof, other than in connection with the duties or obligations in the Trust Agreement or in the Certificates assigned to or imposed upon it. The Trustee shall not be liable in connection with the performance of its duties under the Trust Agreement, except for its own negligence or willful misconduct.

Remedies

If an Event of Default shall occur, then, and in each and every such case during the continuance of such Event of Default, the Trustee may exercise any and all remedies available pursuant to law or granted pursuant to the Lease under which such Event of Default has occurred; provided, however, that notwithstanding anything in the Trust Agreement or in the Lease to the contrary, there shall be no right under any circumstances to accelerate the maturities of the Certificates or otherwise to declare any Lease Payments not then in default to be immediately due and payable; provided, however, that upon the occurrence of an Event of Default described in the Trust Agreement, the Certificates shall continue to be paid in accordance with their terms from Lease Payments made under the Lease.

Upon the occurrence of an Event of Default, the Trustee may, and shall at the direction of 51% of the Owners, by written notice to the Lessee, declare the principal with respect to the Certificates to be immediately due and payable, whereupon that portion of the principal with respect to the Certificates thereby coming due and the interest with respect thereto accrued to the date of payment shall, without further action, become and be immediately due and payable, anything in the Trust Agreement or the Certificates to the contrary notwithstanding.

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Application of Funds

All moneys received by the Trustee pursuant to any right given or action taken under the provisions of the Lease, shall be deposited into the Lease Payment Fund and be applied by the Trustee in the following order upon presentation of the several Certificates, and the stamping thereon of the payment if only partially paid, or upon the surrender thereof if fully paid:

(i) First, to the payment of the costs and expenses of the Trustee[, the Insurer] and of the Owners in declaring such Event of Default [(although the Trustee shall have no claim to amounts paid under the Policy or to amounts set aside for the payment of premiums upon an optional prepayment),] including reasonable compensation and disbursements to its or their agents, attorneys and counsel;

(ii) Second, to the payment to the Persons entitled thereto, of all amounts representing the Interest Component then due in the order of the maturity of such installments, and, if the amount available shall not be sufficient to pay in full any Interest Component maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the persons entitled thereto, without any discrimination or preference;

(iii) Third, to the payment to the persons entitled thereto, of the unpaid Principal Component respecting any Certificates which shall have become due, whether at maturity or by call for prepayment, in the order of their due dates, with interest on the overdue Principal Component and Interest Component calculated at a rate equal to the rate paid with respect to the Certificates and, if the amount available shall not be sufficient to pay in full all the amounts due with respect to the Certificates on any date, together with such interest, then to the payment thereof ratably, according to the amount of the Principal Component due on such date to the Persons entitled thereto, without any discrimination or preference; and

(iv) Fourth, to the Lessee.

Defeasance

(a) Defeasance shall be deemed to occur if all Outstanding Certificates are paid and discharged in any one or more of the following ways:

(i) by well and truly paying or causing to be paid the Principal Component and Interest Component and prepayment premiums, if any, with respect to all Certificates Outstanding, as and when the same become due and payable;

(ii) if prior to maturity and having given notice of prepayment by irrevocably depositing with the Trustee, in trust, at or before maturity, an amount of cash which, together with amounts then on deposit in the Lease Payment Fund and the Reserve Fund is sufficient to pay all Certificates Outstanding, including all Principal Components and Interest Components and prepayment premium, if any;

(iii) by irrevocably depositing with the Trustee, in trust, noncallable, nonprepayable Federal Securities in such amount as will, in the opinion of an independent certified public accountant, together with interest to accrue thereon and moneys then on deposit in the Lease Payment Fund and the Reserve Fund together with the interest to accrue thereon, be fully sufficient to pay and discharge all Certificates (including all Principal Component and Interest Component represented thereby and prepayment premium, if any) at or before their maturity date and the fees and expenses of the Trustee have been paid in full; or

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(iv) by irrevocably depositing with the Trustee or an escrow agent, under an escrow deposit and trust agreement (the “escrow agreement”), security for the payment of the Lease Payments and providing the report of an independent certified public accountant as more particularly described in the Lease, said security to be held and applied to pay the Lease Payments as the same become due and payable and make a Prepayment in full on any Lease Payment Date, pursuant to the Lease.

(b) Notwithstanding that any Certificates shall not have been surrendered for payment, all obligations of the Lessor, the Trustee, and the Lessee with respect to all Outstanding Certificates shall cease and terminate, except only the obligation of the Trustee pursuant to the Trust Agreement and its obligations to pay or cause to be paid, from Lease Payments paid by or on behalf of the Lessee from funds deposited pursuant to paragraphs (ii) through (iv) above, to the Owners of the Certificates not so surrendered and paid all sums due with respect thereto, and in the event of deposits pursuant to such paragraphs, the Certificates shall continue to evidence and represent direct and proportionate interests of the Owners thereof in Lease Payments.

Any funds held by the Trustee, at the time of one of the events described in paragraphs (i) through (iv) above, which are not required for the payment to be made to Owners, as verified by a certified public accountant shall be paid over to the Lessee pursuant to Lessee’s written request therefor; provided that the fees and expenses of the Trustee have been fully paid.

THE ASSIGNMENT AGREEMENT

The Assignment Agreement provides for the transfer, assignment and setting over by the Corporation to the Trustee, for the benefit of the Owners of Certificates executed and delivered under the Trust Agreement, all of the Corporation’s rights under the Lease (excepting only the Corporation’s rights to be held harmless from and against all claims, losses and damages arising out of the Lessee’s actions in connection with the Leased Property and the right to recover attorneys’ fees and expenses in the event the Corporation is a non-defaulting party to the Lease after a default), including (1) the right to receive and collect all of the Lease Payments and prepayments from the Lessee under the Lease, (2) the right to receive and collect any proceeds of any insurance maintained pursuant to the Lease, or any lease or sale of the Leased Property in the event of a default by the Lessee under the Lease, and (3) the right to exercise such rights and remedies conferred on the Corporation by the Lease as may be necessary or convenient (i) to enforce payment of the Lease Payments, prepayments and any other amounts required to be deposited in the Lease Payment Fund, the Prepayment Fund or the Net Insurance Proceeds Fund established under the Trust Agreement, or (ii) otherwise to protect the interests of the Corporation in the event of a default by the Lessee under the Lease. The Trustee accepts such assignment subject to the provisions of the Trust Agreement.

SITE LEASE

Pursuant to the Site Lease, the Lessee leases to the Corporation and the Corporation hires from the Lessee the Leased Property commencing on the date of recordation of the Site Lease and ending as specified in the Site Lease. Pursuant to the Site Lease, the Lessee acknowledges receipt, as and for rental under the Site Lease, the aggregate principal amount of the Certificates and the Lessee covenants that it is the owner in fee of the subject site. The Leased Property will be simultaneously leased back to the Lessee under the Lease, and the title will remain with the Lessee.

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APPENDIX D

BOOK-ENTRY SYSTEM

The information in the following sections entitled “DTC’s Book-Entry System” has been provided by DTC for use in securities offering documents, and the Lessee takes no responsibility for the accuracy or completeness thereof. The Lessee cannot and does not give any assurances that DTC, Direct Participants or Indirect Participants will distribute to the Beneficial Owners either (a) payments of interest, principal or premium, if any, with respect to the Certificates or (b) certificates representing ownership interest in or other confirmation of ownership interest in the Certificates, or that they will so do on a timely basis or that DTC, Direct Participants or Indirect Participants will act in the manner described in this Official Statement. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with Direct Participants are on file with DTC.

DTC’s Book-Entry System

The Depository Trust Company (“DTC”), New York, New York, will act as securities depository for the Certificates. The Certificates will be executed and delivered as fully registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered Certificate will be issued with respect to each maturity of each series of Certificates, and such Certificates will be deposited with DTC.

DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has Standard & Poor’s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org.

Purchases of Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the Certificates on DTC’s records. The ownership interest of each actual purchaser of each Certificate (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant

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through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Certificates are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Certificates, except in the event that use of the book-entry system for the Certificates is discontinued.

To facilitate subsequent transfers, all Certificates deposited by Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Certificates with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Certificates; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Certificates are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.

Prepayment notices shall be sent to DTC. If less than all of the Certificates within an issue are being prepaid, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be prepaid.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Certificates unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Lessee (or the Trustee on behalf thereof) as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Certificates are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Principal, prepayment price and interest payments with respect to the Certificates will be made to Cede & Co. or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the Lessee or the Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Lessee or the Trustee, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, prepayment price and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Board or the Trustee, disbursement of such payments to Direct Participants is the responsibility of DTC, and disbursement of such payments to Beneficial Owners is the responsibility of Direct and Indirect Participants.

A Beneficial Owner shall give notice to elect to have its Certificates purchased or tendered, through its Participant, to the Trustee and shall effect delivery of such Certificates by causing the Direct Participant to transfer the Participant’s interest in the Certificates on DTC’s records, to the Trustee. The requirement for physical delivery of Certificates in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Certificates are transferred by Direct Participants on DTC’s records and followed by a book-entry credit of tendered Certificates to the Trustee’s DTC account.

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DTC may discontinue providing its services as securities depository with respect to the Certificates at any time by giving reasonable notice to the Lessee or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, Certificates are required to be printed and delivered.

The Lessee may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Certificates will be printed and delivered.

The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the Lessee believes to be reliable, but the Board takes no responsibility for the accuracy thereof.

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APPENDIX E

PROPOSED FORM OF SPECIAL COUNSEL OPINION

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[FORM OF FINAL APPROVING OPINION]

Upon the delivery of the Certificates, Fulbright & Jaworski L.L.P., Special Counsel, proposes to render its final approving opinion with respect to the Certificates in substantially the following form:

May __, 2010

Charter Oak Unified School District 20240 East Cienega Avenue Covina, California 91724

Re: $2,975,000 Los Angeles County Schools Pooled Financing Program Taxable Certificates of Participation, 2010 Series A (Charter Oak Unified School District Direct Subsidy Qualified School Construction Bonds)

Ladies and Gentlemen:

In our role as Special Counsel with respect to the execution and delivery of the captioned Los Angeles County Schools Pooled Financing Program Taxable Certificates of Participation, 2010 Series A (Charter Oak Unified School District Direct Subsidy Qualified School Construction Bonds) (the “Certificates”) on behalf of the Charter Oak Unified School District (the “District”), representing and evidencing undivided interests in certain lease payments (the “Lease Payments”) for certain property pursuant to a Lease Agreement, dated as of May 1, 2010 (the “Lease Agreement”), by and between the District and the Los Angeles County Schools Regionalized Business Services Corporation (the “Corporation”), we have examined certified copies of the proceedings taken in connection therewith. We have also examined supplemental documents furnished to us and have obtained such certificates and documents from public officials as we have deemed necessary for the purposes of this opinion. The Certificates are executed and delivered pursuant to a Trust Agreement, dated as of May 1, 2010 (the “Trust Agreement”), by and among the District, the Corporation and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”), and pursuant to the authorizing resolutions of the Board of Directors of the Corporation and the Governing Board of the District. Proceeds of the Certificates will be applied to: (i) finance the construction of certain capital projects of the District and (ii) pay certain costs of delivery of the Certificates. We have examined into the execution and delivery of the Certificates, solely to express legal opinions as to the validity of the Trust Agreement, the Lease Agreement and the Site lease, the qualification of the Certificates as “qualified school construction bonds” within the meaning of Section 54F of the Internal Revenue Code of 1986, as amended to the date hereof (the “Code), and for no other purpose. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Trust Agreement and the Lease Agreement, as applicable.

The Certificates are executed and delivered as fully registered certificates in denominations of $5,000 or any integral multiple thereof. The Certificates are dated their date of delivery. The interest component of the Certificates is payable semiannually on May 1 and November 1, commencing November 1, 2010.

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Charter Oak Unified School District May __, 2010 Page 2

The Certificates are subject to prepayment prior to maturity as provided in the Trust Agreement.

Based upon the foregoing, we are of the opinion that:

1. The Trust Agreement has been duly and validly authorized, executed and delivered by the District and, assuming such Trust Agreement constitutes the legally valid and binding obligation of the Corporation and the Trustee, constitutes the legally valid and binding obligation of the District, enforceable against the District in accordance with its terms, and the Certificates are entitled to the benefits of the Trust Agreement.

2. The Lease Agreement has been duly and validly authorized, executed and delivered by the District and, assuming such Lease Agreement constitutes the legally valid and binding obligation of the Corporation, constitutes the legally valid and binding obligation of the District, enforceable against the District in accordance with its terms.

3. The Site Lease has been duly and validly authorized, executed and delivered by the District and, assuming such Site Lease constitutes the legally valid and binding obligation of the Corporation, constitutes the legally valid and binding obligation of the District, enforceable against the District in accordance with its terms.

In addition, under existing statutes, the portion of Lease Payments due under the Lease Agreement designated and comprising interest with respect to the Certificates is exempt from present State of California personal income taxes.

Except as stated in the preceding paragraphs, we express no opinion as to any federal or state tax consequences of the ownership or disposition of the Lease Agreement or Certificates. We have not been requested to express, and do not express, any view as to the compliance by any person with federal and state securities laws. With the exception of the opinions expressed above, we have not been requested to express and do not express, any opinion as to any matter affected by any taxing or other law of the State of California.

The foregoing opinions are qualified to the extent that the enforceability of the Trust Agreement, the Lease Agreement and the Certificates, respectively, may be limited by any applicable bankruptcy, insolvency, debt adjustment, moratorium, reorganization or other similar laws affecting creditors’ rights generally or as to the availability of any particular remedy. Our opinions are based on existing law, which is subject to change. We do not undertake to advise you of any subsequent changes in the law or facts which may come to our attention subsequent to the date hereof which may affect the opinions expressed above. Such opinions are further based on our knowledge of facts as of the date hereof. Moreover, our opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above.

Respectfully submitted,

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APPENDIX F

THE LOS ANGELES COUNTY TREASURY POOL

The Treasurer and Tax Collector of the County of Los Angeles (the “Treasurer”) manages, in accordance with California Government Code Section 53600 et seq., funds deposited with the Treasurer by County school and community college districts, various special districts and some cities. State law generally requires that all moneys of the County, school districts and certain special districts be held in the County’s Treasury Pool (the “Treasury Pool”) as described below. The composition and value of investments under management in the Treasury Pool vary from time to time, depending on the cash flow needs of the County and the other public agencies invested in the Treasury Pool, the maturity or sale of investments, purchase of new securities and fluctuations in interest rates generally.

Los Angeles County Pooled Surplus Investments

The Treasurer has the delegated authority to invest funds on deposit in the County Treasury (the “Treasury Pool”). As of March 31, 2010, investments in the Treasury Pool were held for local agencies including school districts, community college districts, special districts and discretionary depositors such as cities and independent districts in the following amounts:

Local Agency Invested Funds (in billions)

County of Los Angeles and Special Districts $ 7.752 Schools and Community Colleges 13.744 Independent Public Agencies 2.116 Total $23.612

Of these entities, the involuntary participants accounted for approximately 91.04%, and all discretionary participants accounted for 8.96% of the total Treasury Pool.

Decisions on the investment of funds in the Treasury Pool are made by the County Investment Officer in accordance with established policy, with certain transactions requiring the Treasurer’s prior approval. In Los Angeles County, investment decisions are governed by Chapter 4 (commencing with Section 53600) of Part 1 of Division 2 of Title 5 of the California Government Code, which governs legal investments by local agencies in the State of California, and by a more restrictive Investment Policy developed by the Treasurer and adopted by the Los Angeles County Board of Supervisors on an annual basis. The Investment Policy adopted on March 31, 2009, reaffirmed the following criteria and order of priority for selecting investments:

1. Safety of Principal 2. Liquidity 3. Return on Investment

The Treasurer prepares a monthly Report of Investments (the “Investment Report”) summarizing the status of the Treasury Pool, including the current market value of all investments. This report is submitted monthly to the Board of Supervisors. According to the Investment Report dated April 27, 2010, the March 31, 2010 book value of the Treasury Pool was approximately $23.612 billion and the corresponding market value was approximately $23.700 billion.

An internal controls system for monitoring cash accounting and investment practices is in place. The Treasurer’s Compliance Auditor, who operates independently from the Investment Officer, reconciles cash and investments to fund balances daily. The Compliance Auditor’s staff also reviews each

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investment trade for accuracy and compliance with the Board adopted Investment Policy. The County Auditor-Controller’s Office performs similar cash and investment reconciliations on a quarterly basis and regularly reviews investment transactions for conformance with the approved policies. Additionally, the County’s outside independent auditor annually accounts for all investments.

The following table identifies the types of securities held by the Treasury Pool as of March 31, 2010.

Type of Investment % of Pool U.S. Government and Agency Obligations 49.85 Certificates of Deposit 14.99 Commercial Paper 31.73 Bankers Acceptances 0.00 Municipal Obligations 0.04 Corporate Notes & Deposit Notes 3.39 Asset Backed Instruments 0.00 Repurchase Agreements 0.00 Other 0.00

The Treasury Pool is highly liquid. As of March 31, 2010 approximately 47.87% of the investments mature within 60 days, with an average of 516.60 days to maturity for the entire portfolio.

APPENDIX G

CONTINUING DISCLOSURE AGREEMENT

This Continuing Disclosure Agreement (this “Agreement”) is executed and delivered by the Charter Oak Unified School District (the “District”) in connection with the execution and delivery of $2,975,000 aggregate principal amount of Los Angeles County Schools Pooled Financing Program Taxable Certificates of Participation, 2010 Series A (Charter Oak Unified School District Direct Subsidy Qualified School Construction Bonds) (the “Certificates”). The Certificates are being executed and delivered pursuant to a Trust Agreement, dated as of May 1, 2010, by and among the District, the Los Angeles County Schools Regionalized Business Services Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee (the “Trust Agreement”). Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Trust Agreement.

In consideration of the execution and delivery of the Certificates by the District and the purchase of such Certificates by the Underwriters described below, the District hereby covenants and agrees as follows:

SECTION 1. Purpose of the Agreement. This Agreement is being executed and delivered by the District for the benefit of the Certificate holders and in order to assist RBC Capital Markets Corporation, as representative of itself and E. J. De La Rosa & Co., Inc. (the “Underwriters”) in complying with Rule 15c2-12(b)(5) (the “Rule”) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.

SECTION 2. Additional Definitions. In addition to the above definitions and the definitions set forth in the Trust Agreement, the following capitalized terms shall have the following meanings:

“Annual Report” shall mean any Annual Report provided by the District pursuant to, and as described in, Sections 4 and 5 of this Agreement.

“Certificate holder” or “Holder” means any holder of the Certificates or any beneficial owner of the Certificates so long as they are immobilized with DTC.

“Designated Material Event” means any of the events listed in Section 6(a) of this Agreement.

“Dissemination Agent” shall mean any Dissemination Agent, or any alternate or successor Dissemination Agent, designated in writing by the Superintendent (or otherwise by the District), which Agent has evidenced its acceptance in writing. Initially, and in the absence of the specific designation of a successor or alternate Dissemination Agent, the Dissemination Agent shall be The Bank of New York Mellon Trust Company, N.A.

“Final Expenditure Certificate” shall mean a certificate provided by the District in connection with the Certificates that 100% of the available project proceeds were used to finance qualified purposes during the 3-year spending period.

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“Final Expenditure Certificate Period” means no more than 36 months following the date of delivery of the Certificates.

“Material Events Disclosure” means dissemination of a notice of a Material Event as set forth in Section 6.

“MSRB” shall mean the Municipal Securities Rulemaking Board, through its electronic municipal market access system, which can be found at http://emma.msrb.org/, or any repository of disclosure information that may be designated by the Securities and Exchange Commission for purposes of the Rule.

“State Repository” shall mean any public or private repository or entity designated by the State of California as a state repository for purposes of the Rule. As of the date of this Agreement, no State Repository exists in the State of California.

SECTION 3. CUSIP Numbers and Final Official Statement. The CUSIP Numbers for the Certificates have been assigned. The Final Official Statement relating to the Certificates is dated April 29, 2010 (“Final Official Statement”).

SECTION 4. Provision of Annual Reports.

(a) The District shall cause the Dissemination Agent, not later than 240 days after the end of the District’s fiscal year (currently ending June 30), commencing with the report for the fiscal year ending June 30, 2010 to provide to the MSRB an Annual Report which is consistent with the requirements of Section 5 of this Agreement. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross reference other information as provided in Section 5 of this Agreement; provided that the audited financial statements of the District may be submitted, when and if available, separately from the balance of the relevant Annual Report.

(b) If the District is unable to provide to the Repositories an Annual Report by the date required in paragraph (a) above, the District shall send a notice to the MSRB in substantially the form attached as Exhibit A.

(c) The Dissemination Agent shall:

(i) determine the name and address of the MSRB or designated repository each year prior to the date established hereunder for providing the Annual Report; and

(ii) if the Dissemination Agent is other than the District or an official of the District, the Dissemination Agent shall file a report with the District certifying that the Annual Report has been provided pursuant to this Agreement, stating the date it was provided and listing all the Repositories to which it was provided.

SECTION 5. Content of Annual Report. The District’s Annual Report shall contain or incorporate by reference the following:

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(a) Financial information including the general purpose financial statements of the District for the preceding Fiscal Year, prepared in conformity with generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board and the American Institute of Certified Public Accountants. If audited financial information is not available by the time the Annual Report is required to be filed pursuant to Section 4(a) hereof, the financial information included in the Annual Report may be unaudited, and the District will provide audited financial information to the MSRB as soon as practical after it has been made available to the District.

(b) Operating data, including the following information with respect to the District’s preceding Fiscal Year (to the extent not included in the audited financial statements described in paragraph (a) above):

(i) Outstanding indebtedness and lease obligations;

(ii) General fund budget and actual results;

(iii) Attendance and revenue limit information, or equivalent information, as may be reasonably available;

(iv) Assessed valuations; and

(v) Largest local secured taxpayers.

(c) Any or all of the items listed above may be incorporated by reference from other documents, including official statements of debt issues of the District or related public entities, which have been submitted to each of the Repositories or to the Securities and Exchange Commission. If the document incorporated by reference is a final official statement, it must be available from the MSRB. The District shall clearly identify each other document so incorporated by reference.

SECTION 6. Reporting of Designated Material Events.

(a) The District agrees to provide or cause to be provided (acknowledging that the Dissemination Agent has no obligation to determine the materiality thereof), in a timely manner, to the MSRB, notice of the following events with respect to the Certificates, if material:

(i) Principal and interest payment delinquencies.

(ii) Nonpayment-related defaults.

(iii) Unscheduled draws on any debt service reserves reflecting financial difficulties.

(iv) Unscheduled draws on any credit enhancements reflecting financial difficulties.

(v) Substitution of or failure to perform by any credit provider.

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(vi) Adverse tax opinions or events affecting the tax exempt status of the Certificates.

(vii) Modifications to rights of security holders.

(viii) Certificate calls (other than mandatory, scheduled redemptions, not otherwise contingent upon the occurrence of an event).

(ix) Defeasances.

(x) Release, substitution or sale of any property securing the repayment of the Certificates.

(xi) Rating changes.

(xii) Failure to provide a Final Expenditure Certificate regarding final expenditure of proceeds.

SECTION 7. Final Expenditure Certification.

(a) The District shall provide, no more than 36 months following the date of delivery of the Certificates, an electronic copy of the Final Expenditure Certificate to the Dissemination Agent. Promptly upon receipt of an electronic copy of the Final Expenditure Certificate, the Dissemination Agent shall distribute the Final Expenditure Certificate to the MSRB and the State Repository (if any).

(b) If after 36 months from the date the Certificates were delivered, the Dissemination Agent has not received a copy of the Final Expenditure Certificate, the Dissemination Agent shall contact the District by telephone and in writing (which may be by email) to remind the District of its undertaking to provide the Final Expenditure Certificate pursuant to Section 7(a). Upon such reminder, the District representative shall either (i) provide the Dissemination Agent with an electronic copy of the Final Expenditure Certificate, or (ii) the Dissemination Agent shall contact the District by telephone and in writing (which may be by email) every 90 days until the Final Expenditure Certificate Period ends. If after the Final Expenditure Certification Period, the District will not be able to file the Final Expenditure Certificate within the time required under this Agreement, the Dissemination Agent shall be instructed that a Designated Material Event has occurred and to immediately send a notice to the MSRB and the State Repository (if any) in substantially the form attached as Exhibit A.

(c) If the Dissemination Agent has not received the Final Expenditure Certificate by 12:00 noon (Pacific) on the first business day following the Final Expenditure Certification Period, a Designated Material Event has occurred and the District directs the Dissemination Agent to send a notice to the MSRB and the State Repository (if an) in substantially the form attached as Exhibit A.

SECTION 8. Termination of Reporting Obligation. The District’s obligations under this Agreement shall terminate when the District is no longer an obligated person with respect to the

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Certificates, as provided in the Rule, upon the defeasance, prior redemption or payment in full of all of the Certificates.

SECTION 9. Dissemination Agent. The Superintendent may, from time to time, appoint or engage an alternate or successor Dissemination Agent to assist in carrying out the District’s obligations under this Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent agrees to perform only those duties of the Dissemination Agent specifically set forth in the Agreement, and no implied duties, covenants or obligations shall be read into this Agreement against the Dissemination Agent. The Dissemination Agent may resign by providing thirty days written notice to the District and the Trustee.

The Dissemination Agent shall be paid compensation for its services provided hereunder, and reimbursement for its costs and expenses. The Dissemination Agent shall not be responsible for the form or content of any document provided by the District hereunder.

SECTION 10. Amendment. Notwithstanding any other provision of this Agreement, the District may amend this Agreement under the following conditions (provided the Dissemination Agent shall not be obligated to enter into any amendment increasing or affecting its duties or obligations):

(a) The amendment may be made only in connection with a change in circumstances that arises from a change in legal requirements, change in law or change in the identity, nature or status of the obligated person, or type of business conducted;

(b) This Agreement, as amended, would have complied with the requirements of the Rule at the time of the primary offering of the Certificates, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) The amendment does not materially impair the interests of Holders, as determined either by parties unaffiliated with the District or another obligated person (such as the Special Counsel) or by the written approval of the Certificate holders;

provided, that the Annual Report containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided.

SECTION 11. Additional Information. If the District chooses to include any information from any document or notice of occurrence of a Material Event in addition to that which is specifically required by this Agreement, the District shall have no obligation under this Agreement to update such information or to include it in any future disclosure or notice of occurrence of a Designated Material Event.

Nothing in this Agreement shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Designated Material Event, in addition to that which is required by this Agreement.

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SECTION 12. Default. The District shall give notice to the MSRB of any failure to provide the Annual Report when the same is due hereunder, which notice shall be given prior to October 1 of that year. In the event of a failure of the District to comply with any provision of this Agreement, any Certificate holder may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Agreement. A default under this Agreement shall not be deemed an event of default under the Trust Agreement, and the sole remedy under this Agreement in the event of any failure of the District or the Dissemination Agent to comply with this Agreement shall be an action to compel performance.

SECTION 13. Beneficiaries. This Agreement shall inure solely to the benefit of the District, the Dissemination Agent, the Underwriters and Holders from time to time of the Certificates, and shall create no rights in any other person or entity.

SECTION 14. Assignment. The District shall not transfer its obligations under the Trust Agreement unless the transferee agrees to assume all obligations of the District under this Agreement that would have been obligations of the transferee under the Rule, as amended as of the date of this Agreement.

SECTION 15. Duties, Immunities and Liabilities of Dissemination Agent. Article IX of the Trust Agreement is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Trust Agreement. The Dissemination Agent shall be entitled to the protections and limitations from liability afforded to the Trustee thereunder. The Dissemination Agent (if other than the Trustee or the Trustee in its capacity as Dissemination Agent) shall have only such duties as are specifically set forth in this Disclosure Agreement, and the District agrees to indemnify and save the Dissemination Agent, and its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of the disclosure of information pursuant to this Disclosure Agreement or arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct.

The Dissemination Agent shall have no duty or obligation to review any information provided to it by the District hereunder and shall not be deemed to be acting in any fiduciary capacity for the District, Beneficial Owners or any other party. The Dissemination Agent may rely and shall be protected in acting or refraining from acting upon and directions from the District or an opinion of nationally recognized bond counsel. The Dissemination Agent shall not have any liability to any party for any monetary damages or other financial liability of any kind whatsoever related to or arising from any breach of this Disclosure Agreement. No person shall have any right to commence any action against the Dissemination Agent seeking any remedy other than to compel specific performance of this Disclosure Agreement. Any company succeeding to all or substantially all of the Dissemination Agent’s corporate trust business shall be the successor to the Dissemination Agent hereunder without the execution or filing of any paper or any further act. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Certificates.

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SECTION 15. Governing Law. This Agreement shall be governed by the laws of the State, applicable to contracts made and performed in such State.

CHARTER OAK UNIFIED SCHOOL DISTRICT By:

Superintendent Dated: May 13, 2010

ACCEPTED: THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Dissemination Agent By:

Authorized Officer

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EXHIBIT A

NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: Charter Oak Unified School District

Name of Issue: $2,975,000 Los Angeles County Schools Pooled Financing Program Taxable Certificates of Participation, 2010 Series A (Charter Oak Unified School District Direct Subsidy Qualified School Construction Bonds)

Date of Issuance: May 13, 2010

NOTICE IS HEREBY GIVEN that the above-named Issuer has not provided an Annual Report with respect to the above-named Certificates as required by Section 4(a) of the Continuing Disclosure Agreement dated May 13, 2010. The Issuer anticipates that the Annual Report will be filed by ___________________.

Dated: _______________________________

[ISSUER/DISSEMINATION AGENT] By:

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APPENDIX H

EXCERPTS FROM THE DISTRICT’S FISCAL YEAR 2008-09 AUDITED FINANCIAL STATEMENTS

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[THIS PAGE INTENTIONALLY LEFT BLANK]

CHARTER OAK UNIFIED SCHOOL DISTRICT

ANNUAL FINANCIAL REPORT

JUNE 30, 2009

CHARTER OAK UNIFIED SCHOOL DISTRICT

OF LOS ANGELES COUNTY

COVINA, CALIFORNIA

JUNE 30, 2009

GOVERNING BOARD

MEMBER OFFICE TERM EXPIRES

Jane A Bock President 2009

Robert J. Cruz Vice President 2011

Brian R. Akers Member 2011

Joseph M. Probst Member 2011

David R. Rose Member 2009

ADMINISTRATION

Clint Harwick, Ed.D. Superintendent

Elias Jouen Assistant Superintendent, Business Services

Gloria Cortez Assistant Superintendent, Human Resources

Mike Hendricks, Ed.D. Assistant Superintendent, Educational Services

Kathy Perkins Director of Fiscal Services

CHARTER OAK UNIFIED SCHOOL DISTRICT

TABLE OF CONTENTSJUNE 30, 2009

FINANCIAL SECTIONIndependent Auditors' Report 2Management's Discussion and Analysis 4Basic Financial Statements

Government-Wide Financial StatementsStatement of Net Assets 13Statement of Activities 14

Fund Financial StatementsGovernmental Funds - Balance Sheet 15Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets 16Governmental Funds - Statement of Revenues, Expenditures, and Changes in Fund Balance 17

Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the District-Wide Statement of Activities 18

Proprietary Funds - Statement of Net Assets 20Proprietary Funds - Statement of Revenues, Expenses, and Changes in Net Assets 21Proprietary Funds - Statement of Cash Flows 22Fiduciary Funds - Statement of Net Assets 23

Notes to Financial Statements 24

REQUIRED SUPPLEMENTARY INFORMATION General Fund - Budgetary Comparison Schedule 50Adult Education Fund - Budgetary Comparison Schedule 51Schedule of Other Postemployment Benefits (OPEB) Funding Progress 52

SUPPLEMENTARY INFORMATIONSchedule of Expenditures of Federal Awards 54Local Education Agency Organization Structure 56Schedule of Average Daily Attendance 57Schedule of Instructional Time 58Reconciliation of Annual Financial and Budget Report with Audited Financial Statements 59Schedule of Financial Trends and Analysis 60Combining Statements - Non-Major Governmental Funds

Combining Balance Sheet 61Combining Statement of Revenues, Expenditures, and Changes in Fund Balance 62

General Fund Selected Financial Information 63Note to Supplementary Information 64

INDEPENDENT AUDITORS' REPORTSReport on Internal Control over Financial Reporting and on Compliance and Other MattersBased on an Audit of Financial Statements Performed in Accordance with GovernmentAuditing Standards 67

Report on Compliance with Requirements Applicable to Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A-133 69

Report on State Compliance 71

CHARTER OAK UNIFIED SCHOOL DISTRICT

TABLE OF CONTENTSJUNE 30, 2009

SCHEDULE OF FINDINGS AND QUESTIONED COSTSSummary of Auditors' Results 74Financial Statement Findings 75Federal Awards Findings and Questioned Costs 76State Awards Findings and Questioned Costs 77Summary Schedule of Prior Audit Findings 78Management Letter 80

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FINANCIAL SECTION

Vavrinek, Trine, Day & Co., LLP Certified Public Accountants

INDEPENDENT AUDITORS' REPORT

Governing Board Charter Oak Unified School District Covina, California

VALUE THE DIFFERENCE

We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Charter Oak Unified School District (the District) as of and for the year ended June 30, 2009, which collectively comprise the District's basic fmancial statements as listed in the table of contents. These financial statements are the responsibility of the District's management. Our responsibility is to express opinions on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and Standards and Procedures for Audits of California K-12 Local Educational Agencies 2008-09, issued by the California Education Audit Appeals Panel as regulations. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the fmancial 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 opinions.

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Charter Oak Unified School District, as of June 30, 2009, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.

As discussed in the Notes to the basic fmancial statements, the accompanying financial statements reflect certain changes required as a result of the implementation ofGASB Statement No. 45 for the year ended June 30, 2009.

As discussed in the Notes to the basic financial statements, the State of California continues to suffer the effects of a recessionary economy, which directly impacts the funding requirements of the State of California to the K-12 educational community.

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8270 Aspen Street Rancho Cucamonga, CA 91730 Tel: 909.466.4410 Fax: 909.466.4431 www.vtdcpa.com

FRESNO • LAGUNA HILLS • PALO ALTO • PLEASANTON • RANCHO CUCAMONGA

In accordance with Government Auditing Standards, we have also issued our report dated December 2, 2009, on our consideration of the District's internal control over financial reporting and on our tests of its compliance with certain provisions oflaws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in conjunction with this report in considering the results of our audit.

The required supplementary information, such as management's discussion and analysis on pages 4 through 12 and budgetary comparison and other postemployment information on pages 50 through 52, is not a required part of the basic financial statements, but is supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion.

Our audit was conducted for the purpose of forming opinions on the fmancial statements that collectively comprise the District's basic fmancial statements. The supplementary information listed in the table of contents, including the schedule of expenditures of Federal awards which is required by U.S. Office of Management and Budget Circular A-133, Audits of State, Local Governments, and Non-Profit Organizations, the Combining Statements- Non-Major Governmental Funds and the General Fund Selected Financial Information is presented for purposes of additional analysis and is not a required part of the basic fmancial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic fmancial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

Rancho Cucamonga, California December 2, 2009

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3

CChhaarrtteerr OOaakk UUnniiffiieedd SScchhooooll DDiissttrriicctt20240 East Cienega Avenue, Covina, California 91724

Telephone: (626) 966-8331 FAX: (626) 967-9580 www.cousd.k12.ca.us

JANE A. BOCK , PRESIDENT • ROBERT J. CRUZ, VICE PRESIDENTBRIAN AKERS, MEMBER • JOSEPH M. PROBST, MEMBER • DAVID R. ROSE, MEMBER

Clint Harwick, Ed.D., SuperintendentElias Jouen, Assistant Superintendent, Business Services

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This section of Charter Oak Unified School District's (the District) annual financial report presents our discussion and analysis of the District's financial performance during the fiscal year that ended on June 30, 2009. Please read it in conjunction with the District's financial statements, which immediately follow this section.

OVERVIEW OF THE FINANCIAL STATEMENTS

The Financial Statements

The financial statements presented herein include all of the activities of the Charter Oak Unified School District and its component units using the integrated approach as prescribed by Governmental Accounting Standards Board (GASB) Statement No. 34.

The Government-Wide Financial Statements present the financial picture of the District from the economic resources measurement focus using the accrual basis of accounting. They present governmental activities and business-type activities separately. These statements include all assets of the District (including capital assets) as well as all liabilities (including long-term obligations). Additionally, certain eliminations have occurred as prescribed by the statement in regards to interfund activity, payables, and receivables.

The Fund Financial Statements include statements for each of the three categories of activities: governmental, business-type, and fiduciary.

The Governmental Activities are prepared using the current financial resources measurement focus and modified accrual basis of accounting.

The Business-Type Activities are prepared using the economic resources measurement focus and the accrual basis of accounting.

The Fiduciary Activities are prepared using the economic resources measurement focus and the accrual basis of accounting.

Reconciliation of the Fund Financial Statements to the Government-Wide Financial Statements is provided to explain the differences created by the integrated approach.

The Primary unit of the government is the Charter Oak Unified School District.

CHARTER OAK UNIFIED SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSISJUNE 30, 2009

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REPORTING THE DISTRICT AS A WHOLE

The Statement of Net Assets and the Statement of Activities

The Statement of Net Assets and the Statement of Activities report information about the District as a whole and about its activities. These statements include all assets and liabilities of the District using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid.

These two statements report the District's net assets and changes in them. Net assets are the difference between assets and liabilities, one way to measure the District's financial health, or financial position. Over time, increases or decreases in the District's net assets are one indicator of whether its financial health is improving or deteriorating.

The relationship between revenues and expenses is the District's operating results. Since the governing board's responsibility is to provide services to our students and not to generate profit as commercial entities do, one must consider other factors when evaluating the overall health of the District. The quality of the education and the safety of our schools will likely be an important component in this evaluation.

In the Statement of Net Assets and the Statement of Activities, we present the District activities as follows:

Governmental Activities - All of the District's services are reported in this category. This includes the education of kindergarten through grade twelve students, adult education students, the operation of child development activities, and the on-going effort to improve and maintain buildings and sites. Property taxes, State income taxes, user fees, interest income, Federal, State and local grants, as well as general obligation bonds, finance these activities.

REPORTING THE DISTRICT'S MOST SIGNIFICANT FUNDS

Fund Financial Statements

The fund financial statements provide detailed information about the most significant funds - not the District as a whole. Some funds are required to be established by State law and by bond covenants. However, management establishes many other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money that it receives from the U.S. Department of Education.

CHARTER OAK UNIFIED SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSISJUNE 30, 2009

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Governmental funds - Most of the District's basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the District's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the District's programs. The differences of results in the governmental fund financial statements to those in the government-wide financial statements are explained in a reconciliation following each governmental fund financial statement.

THE DISTRICT AS TRUSTEE

Reporting the District's Fiduciary Responsibilities

The District is the trustee, or fiduciary, for funds held on behalf of others, like our funds for associated student body activities. The District's fiduciary activities are reported in the Statements of Fiduciary Net Assets on page 23. We exclude these activities from the District's other financial statements because the District cannot use these assets to finance its operations. The District is responsible for ensuring that the assets reported in these funds are used for their intended purposes.

FINANCIAL HIGHLIGHTS OF THE PAST YEAR

Despite continuation of the deficit on the revenue limit income, the District remained fiscally solvent with no significant reductions in instructional programs and services offered in prior years. This was accomplished even with higher fixed and/or automatic increases in expenses including employee salary hikes for step, column and longevity.

THE DISTRICT AS A WHOLE

Net Assets

The District's net assets were $51.5 million for the fiscal year ended June 30, 2009. Of this amount, $3.4 million was unrestricted. Restricted net assets are reported separately to show legal constraints from debt covenants grantors, constitutional provisions and enabling legislation that limit the governing board's ability to use those net assets for day-to-day operations. Our analysis below, in summary form, focuses on the net assets (Table 1) and change in net assets (Table 2) of the District's governmental activities.

CHARTER OAK UNIFIED SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSISJUNE 30, 2009

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Table 1

(Amounts in millions) Governmental Activities Business-Type Activities School District Activities2009 2008 2009 2008 2009 2008

ASSETSCurrent and other assets 25.6$ 31.5$ 0.1$ -$ 25.7$ 31.5$ Capital assets 66.8 62.1 - - 66.8 62.1

Total Assets 92.4 93.6 0.1 - 92.5 93.6 LIABILITIES

Current liabilities 11.4 11.7 0.1 - 11.5 11.7 Long-term obligations 29.5 32.1 - - 29.5 32.1

Total Liabilities 40.9 43.8 0.1 - 41.0 43.8 NET ASSETS

Invested in capital assets,net of related debt 36.1 31.5 - - 36.1 31.5

Restricted 12.0 16.6 - - 12.0 16.6 Unrestricted 3.4 1.7 - - 3.4 1.7

Total Net Assets 51.5$ 49.8$ -$ -$ 51.5$ 49.8$

The $3.4 million in unrestricted net assets of governmental activities represents the accumulated results of all past years' operations.

Changes in Net Assets

The results of this year's operations for the District as a whole are reported in the Statement of Activities on page 14. Table 2 takes the information from the Statement, rounds off the numbers, and rearranges them slightlyso you can see our total revenues for the year.

CHARTER OAK UNIFIED SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSISJUNE 30, 2009

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Table 2

(Amounts in millions) Governmental Activities Business-Type Activities School District Activities2009 2008 2009 2008 2009 2008

RevenuesProgram revenues:

Charges for services 0.6$ 1.9$ -$ -$ 0.6$ 1.9$ Operating grants and contributions 14.9 14.1 1.3 - 16.2 14.1

Capital grantsand contributions 4.9 8.0 - - 4.9 8.0

General revenues:Federal and State aid not restricted 33.1 34.6 - - 33.1 34.6

Property taxes 8.6 7.9 - - 8.6 7.9 Other general revenues 1.6 2.0 - - 1.6 2.0

Total Revenues 63.7 68.5 1.3 - 65.0 68.5 Expenses

Instruction-related 41.1 39.1 - - 41.1 39.1 Student support services 5.5 5.1 - - 5.5 5.1 Administration 3.7 3.7 - - 3.7 3.7 Maintenance and operations 5.3 4.7 - - 5.3 4.7 Other 4.5 6.4 1.3 - 5.8 6.4

Total Expenses 60.1 59.0 1.3 - 61.4 59.0 Change in Net Assets 3.6$ 9.5$ -$ -$ 3.6$ 9.5$

Governmental Activities

As reported in the Statement of Activities on page 14, the cost of all of our governmental activities this year was $60.1 million. However, the amount that our taxpayers ultimately financed for these activities through local taxes was only $8.6 million because the cost was paid by those who benefited from the programs ($ 0.6 million) or by other governments and organizations who subsidized certain programs with grants and contributions ($19.8 million). We paid for the remaining "public benefit" portion of our governmental activities with $8.6 million in taxes, $34.7 million in State funds, and other revenues, like interest and general entitlements. Thechange in revenue is a result of having received the majority of our Bond funding in the previous year.

CHARTER OAK UNIFIED SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSISJUNE 30, 2009

9

In Table 3, we have presented the cost and net cost of each of the District's largest functions – instruction, instruction-related, other pupil services, general administration, maintenance and operations, ancillary services, community services, interest on long-term obligations, and other activities. As discussed above, net cost shows the financial burden that was placed on the District's taxpayers by each of these functions. Providing this information allows our citizens to consider the cost of each function in comparison to the benefits they believe are provided by that function.

Table 3

(Amounts in millions)2009 2008 2009 2008

Instruction 36.1$ 34.0$ 21.5$ 9.9$ Instruction-related activities 5.0 5.1 4.1 5.1 Other pupil services 5.5 5.1 3.2 5.1 General administration 3.7 3.7 2.9 3.7 Maintenance and operations 5.3 4.7 5.1 4.7 Ancillary services 0.2 0.2 0.2 0.2 Community services 0.7 0.7 0.3 0.7 Interest on long-term obligations 0.8 1.1 0.8 1.1 Other 2.8 4.4 1.6 4.4

Total 60.1$ 59.0$ 39.7$ 34.9$

Total Cost of Services Net Cost of Services

THE DISTRICT'S FUNDS

As the District completed this year, our governmental funds reported a combined fund balance of $16.4 million.

Table 4

(Amounts in millions) Fund BalanceJuly 1, 2008 Revenues Expenditures June 30, 2009

General 3.5$ 52.9$ 52.8$ 3.6$ Adult Education 4.2 2.3 4.1 2.4 Child Development - 0.3 0.3 - Cafeteria 0.2 1.8 1.7 0.3 Deferred Maintenance 2.2 0.4 0.2 2.4 Building 2.0 - 2.0 - Capital Facilities 0.2 0.1 - 0.3 County School Facilities 3.4 5.0 4.4 4.0 Special Reserve Capital Outlay 1.0 0.7 0.4 1.3 Bond Interest and Redemption 2.0 2.5 2.4 2.1

Total 18.7$ 66.0$ 68.3$ 16.4$

CHARTER OAK UNIFIED SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSISJUNE 30, 2009

10

General Fund Budgetary Highlights

Over the course of the year, the District revises its budget as it attempts to deal with unexpected changes in revenues and expenditures. The final amendment to the budget was adopted on June 25, 2009. (A schedule showing the District's original and final budget amounts compared with amounts actually paid and received is provided in our annual report on page 50.)

CAPITAL ASSET AND DEBT ADMINISTRATION

Capital Assets

At June 30, 2009, the District had $66.8 million in a broad range of capital assets (net of depreciation), including land and construction in process, buildings and improvements, and furniture and equipment. This amount represents a net increase (including additions, deductions and depreciation) of $4.7 million, or 7.6 percent from last year (Table 5), due to modernization and improvements at District sites.

Table 5

(Amounts in millions) Governmental Activities Business-Type Activities Totals2009 2008 2009 2008 2009 2008

Land and constructionin process 18.1$ 37.4$ -$ -$ 18.1$ 37.4$ Buildings and improvements 48.4 24.3 - - 48.4 24.3 Furniture and equipment 0.3 0.4 - - 0.3 0.4

Total 66.8$ 62.1$ -$ -$ 66.8$ 62.1$

CHARTER OAK UNIFIED SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSISJUNE 30, 2009

11

Long-Term Obligations

At the end of this year, the District had $30.6 million in general obligation bonds outstanding versus $31.7 million last year. Those bonds consisted of:

Table 6

(Amounts in millions) Governmental Activities Business-Type Activities Totals2009 2008 2009 2008 2009 2008

General obligation bonds(financed with property taxes) 30.6$ 31.7$ -$ -$ 30.6$ 31.7$ Accumulated vacation - net 0.2 0.2 - - 0.2 0.2 Supplemental early retirement plan - 0.2 - - - 0.2 Other postemployment benefits 0.5 - - - 0.5 -

Total 31.3$ 32.1$ -$ -$ 31.3$ 32.1$

The District's general obligation bond rating continues to be "A+". The State limits the amount of general obligation debt that districts can issue to five percent of the assessed value of all taxable property within the District's boundaries. The District outstanding general obligation debt of 30.6 million is significantly below this statutorily - imposed limit

Other obligations include compensated absences payable and postemployment benefits. We present more detailed information regarding our long-term obligations in Note 8 of the financial statements.

CHARTER OAK UNIFIED SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSISJUNE 30, 2009

12

ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES

In considering the District Budget for the 2009-2010 year, the governing board and management used the following criteria:

The key assumptions were:

� Funded ADA 6,287 (2009-2010)

� Funded Revenue Limit per ADA $4,631

� COLA 4.25% and Deficit 17.967% (total reduction approx. 13.717%)

� Additional 4.5% reduction to State Categorical

� California CPI .90% and Interest Rate 3.4%

� Lottery per ADA $109.50

� Restricted Lottery per ADA $11.50

Over the last three school years, the District has had to deal with fiscal problems caused by the diminishing State budget. The District made cost cutting changes with as little negative impact as possible on our students' daily education experience. As a result of the Categorical flexibility, the District's 2009-10 budget meets all State requirements.

We remain concerned that the fiscal problems at the State level will continue into the 2010-2011 school year. This likely probability, along with the current need to reduce, will require further cuts in District expenditures and/or community support for increased revenue. Declining student enrollment and its impact on revenue and expense will be a concern in 2009-2010 as well as future years. We are committed to fiscal solvency and mindful of our responsibility to ensure the very best educational programs and services for our students. These will be uppermost in our minds as we make recommendations to the governing board during the current year.

CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT

This financial report is designed to provide our citizens, taxpayers, students, and investors and creditors with a general overview of the District's finances and to show the District's accountability for the money it receives. If you have questions about this report or need any additional financial information, contact the Director, Fiscal Services at Charter Oak Unified School District, P.O. Box 9, Covina, California, 91723, or e-mail at kperkins@cousd.k12.ca.us.

CHARTER OAK UNIFIED SCHOOL DISTRICT

STATEMENT OF NET ASSETSJUNE 30, 2009

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

13

Governmental Business-TypeActivities Activities Total

ASSETSDeposits and investments 17,165,836$ 75,871$ 17,241,707$ Receivables 7,739,947 1,509 7,741,456 Prepaid expenses 125 - 125 Stores inventories 72,238 - 72,238 Deferred charges on issuance 614,523 - 614,523 Capital assets

Land and construction in process 18,069,221 - 18,069,221 Other capital assets 68,192,045 - 68,192,045 Less: Accumulated depreciation (19,427,271) - (19,427,271)

Total Capital Assets 66,833,995 - 66,833,995 Total Assets 92,426,664 77,380 92,504,044

LIABILITIESAccounts payable 8,570,723 77,255 8,647,978 Interest payable 371,909 - 371,909 Deferred revenue 4,830 - 4,830 Deferred amount on refunding 595,519 - 595,519 Current portion of long-term obligations 1,829,572 - 1,829,572 Noncurrent portion of long-term obligations 29,510,615 - 29,510,615

Total Liabilities 40,883,168 77,255 40,960,423

NET ASSETSInvested in capital assets, net of related debt 36,062,261 - 36,062,261 Restricted for:

Debt service 1,745,714 - 1,745,714 Capital projects 3,847,968 - 3,847,968 Educational programs 1,333,616 - 1,333,616 Other activities 5,137,810 - 5,137,810

Unrestricted 3,416,127 125 3,416,252 Total Net Assets 51,543,496$ 125$ 51,543,621$

CHARTER OAK UNIFIED SCHOOL DISTRICT

STATEMENT OF ACTIVITIESJUNE 30, 2009

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

14

Charges for Operating Capital Services and Grants and Grants and

Functions/Programs Expenses Sales Contributions ContributionsGovernmental Activities:Instruction 36,107,768$ -$ 9,755,246$ 4,878,412$ Instruction-related activities:

Supervision of instruction 870,523 - 446,314 - Instructional library, mediaand technology 621,638 - 157,029 -

School site administration 3,491,395 - 293,894 - Pupil services:

Home-to-school transportation 576,375 - 44,456 - Food services 1,720,426 604,048 1,095,914 - All other pupil services 3,194,506 - 546,672 -

General administration:Data processing 399,144 - - - All other general administration 3,317,891 27,045 770,003 -

Plant services 5,320,841 - 179,965 - Facility acquisition and construction 687,812 - - - Ancillary services 168,586 - - - Community services 679,999 - 407,207 - Enterprise services 12,489 - - - Interest on long-term obligations 842,882 - - - Other outgo 2,074,144 - 1,212,414 -

Total Governmental Activities 60,086,419 631,093 14,909,114 4,878,412 Business-Type Activities:Enterprise services 1,216,960 - 1,263,386 -

Total Business-Type Activities 1,216,960 - 1,263,386 -

Total School District 61,303,379$ 631,093$ 16,172,500$ 4,878,412$

General revenues and subventions:Property taxes, levied for general purposesProperty taxes, levied for debt serviceTaxes levied for other specific purposesFederal and State aid not restricted to specific purposesInterest and investment earningsMiscellaneous

Subtotal, General RevenuesTransfersChange in Net AssetsNet Assets - Beginning as RestatedNet Assets - Ending

Program Revenues

14

Net (Expenses) Revenues andChanges in Net Assets

Business-Governmental Type

Activities Activities Total

(21,474,110)$ -$ (21,474,110)$ - -

(424,209) - (424,209)

(464,609) - (464,609) (3,197,501) - (3,197,501)

(531,919) - (531,919) (20,464) - (20,464)

(2,647,834) - (2,647,834)

(399,144) - (399,144) (2,520,843) - (2,520,843) (5,140,876) - (5,140,876)

(687,812) - (687,812) (168,586) - (168,586) (272,792) - (272,792)

(12,489) - (12,489) (842,882) - (842,882) (861,730) - (861,730)

(39,667,800) - (39,667,800)

- 46,426 46,426 - 46,426 46,426

(39,667,800) 46,426 (39,621,374)

6,115,914 - 6,115,914 2,476,481 - 2,476,481

22,294 - 22,294 33,099,200 - 33,099,200

339,305 3,779 343,084 1,235,107 - 1,235,107

43,288,301 3,779 43,292,080 52,416 (52,416) -

3,672,917 (2,211) 3,670,706 47,870,579 2,336 47,872,915 51,543,496$ 125$ 51,543,621$

CHARTER OAK UNIFIED SCHOOL DISTRICT

GOVERNMENTAL FUNDSBALANCE SHEETJUNE 30, 2009

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

15

Adult County SchoolGeneral Education Facilities

Fund Fund FundASSETS

Deposits and investments 1,685,700$ 3,349,195$ 5,344,659$ Receivables 7,499,309 14,148 13,996 Prepaid expenses 125 - - Stores inventories 38,519 - -

Total Assets 9,223,653$ 3,363,343$ 5,358,655$ LIABILITIES AND FUND BALANCESLIABILITIES

Accounts payable 5,569,608$ 970,571$ 1,343,989$ Deferred revenue 4,830 - -

Total Liabilities 5,574,438 970,571 1,343,989 FUND BALANCES

Reserved for:Revolving cash 7,500 - - Stores inventories 38,519 - - Prepaid expenditures 125 - - Restricted programs 1,333,616 - -

Unreserved:Designated 2,269,455 - - Undesignated, reported in:

Special revenue funds - 2,392,772 - Debt service funds - - - Capital projects funds - - 4,014,666

Total Fund Balance 3,649,215 2,392,772 4,014,666 Total Liabilities andFund Balances 9,223,653$ 3,363,343$ 5,358,655$

15

Non-Major TotalGovernmental Governmental

Funds Funds

6,786,282$ 17,165,836$ 212,494 7,739,947

- 125 33,719 72,238

7,032,495$ 24,978,146$

686,555$ 8,570,723$ - 4,830

686,555 8,575,553

1,500 9,000 33,719 72,238

- 125 - 1,333,616

- 2,269,455

2,709,819 5,102,591 2,117,623 2,117,623 1,483,279 5,497,945 6,345,940 16,402,593

7,032,495$ 24,978,146$

CHARTER OAK UNIFIED SCHOOL DISTRICT

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEETTO THE STATEMENT OF NET ASSETS

JUNE 30, 2009

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

16

Total Fund Balance - Governmental Funds 16,402,593$ Amounts Reported for Governmental Activities in theStatement of Net Assets are Different Because:

Capital assets used in governmental activities are not financial resourcesand, therefore, are not reported as assets in governmental funds.

The cost of capital assets is 86,261,266$ Accumulated depreciation is (19,427,271)

Net Capital Assets 66,833,995

Expenditures relating to issuance of debt were recognized in modifiedaccrual basis. Under accrual basis, these expenditures are capitalizedand will be amortized as an adjustment to interest expense. Thisbalance represents the unamortized costs as of June 30, 2009. 614,523

The District has advance refunded various debt obligations. Thedifference between the amounts that were sent to escrow agentsfor the payment of the old debts and the actual remaining debtobligations resulted in a deferred gain that will be amortized asan adjustment to interest income over the remaining life of theunrefunded debt. This balance represents the unamortized gainas of June 30, 2009. (595,519)

In governmental funds, unmatured interest on long-term obligations isrecognized in the period when it is due. On the government-widefinancial statements, unmatured interest on long-term obligations isrecognized when it is incurred. (371,909)

Long-term obligations at year-end consist of:General obligation bonds, net of unamortized premium (29,774,683) Unamortized premium on bonds (847,062) Accumulated vacation - net (204,572) Other postemployment benefits (513,870)

Total Long-Term Obligations (31,340,187) Total Net Assets - Governmental Activities 51,543,496$

[THIS PAGE INTENTIONALLY LEFT BLANK]

CHARTER OAK UNIFIED SCHOOL DISTRICT

GOVERNMENTAL FUNDSSTATEMENT OF REVENUES, EXPENDITURES ANDCHANGES IN FUND BALANCE

FOR THE YEAR ENDED JUNE 30, 2009

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

17

Adult County SchoolGeneral Education Facilities

Fund Fund FundREVENUESRevenue limit sources 35,337,851$ -$ -$ Federal sources 5,190,671 - - Other State sources 8,871,428 2,230,048 4,878,412 Other local sources 1,196,758 118,177 116,037

Total Revenues 50,596,708 2,348,225 4,994,449 EXPENDITURESCurrent

Instruction 32,927,452 1,609,212 - Instruction-related activities:

Supervision of instruction 862,431 - - Instructional library, media and technology 614,855 - - School site administration 3,364,314 89,815 -

Pupil services:Home-to-school transportation 528,319 - - Food services 25 - - All other pupil services 3,031,178 65,581 -

General administration:Data processing 396,576 - - All other general administration 3,083,863 94,823 -

Plant services 5,143,720 86,978 - Facility acquisition and construction 108,412 - 4,385,297 Ancillary services 168,019 - - Community services 418,178 - - Other outgo 2,074,144 - -

Debt servicePrincipal - - - Interest and other - - -

Total Expenditures 52,721,486 1,946,409 4,385,297 Excess (Deficiency) of RevenuesOver Expenditures (2,124,778) 401,816 609,152

Other Financing Sources (Uses)Transfers in 2,388,804 - - Transfers out (136,388) (2,200,000) -

Net Financing Sources (Uses) 2,252,416 (2,200,000) - NET CHANGE IN FUND BALANCES 127,638 (1,798,184) 609,152 Fund Balance - Beginning 3,521,577 4,190,956 3,405,514 Fund Balance - Ending 3,649,215$ 2,392,772$ 4,014,666$

17

Non-Major TotalGovernmental Governmental

Funds Funds

-$ 35,337,851$ 1,085,141 6,275,812

605,533 16,585,421 4,076,864 5,507,836 5,767,538 63,706,920

- 34,536,664

- 862,431 - 614,855 - 3,454,129

- 528,319 1,710,106 1,710,131

- 3,096,759

- 396,576 86,485 3,265,171 7,521 5,238,219

2,533,636 7,027,345 - 168,019

257,534 675,712 - 2,074,144

1,488,362 1,488,362 899,762 899,762

6,983,406 66,036,598

(1,215,868) (2,329,678)

136,388 2,525,192 (136,388) (2,472,776)

- 52,416 (1,215,868) (2,277,262) 7,561,808 18,679,855 6,345,940$ 16,402,593$

CHARTER OAK UNIFIED SCHOOL DISTRICT

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OFREVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCESTO THE DISTRICT-WIDE STATEMENT OF ACTIVITIES

FOR THE YEAR ENDED JUNE 30, 2009

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

18

Total Net Change in Fund Balances - Governmental Funds (2,277,262)$ Amounts Reported for Governmental Activities in theStatement of Activities are Different Because:

Capital outlays to purchase or build capital assets are reported ingovernmental funds as expenditures, however, for governmentalactivities, those costs are shown in the statement of net assetsand allocated over their estimated useful lives as annualdepreciation expenses in the statement of activities.

This is the amount by which capital outlays exceed depreciationin the period.

Capital outlays 6,341,161$ Depreciation expense (1,597,873)

Net Expense Adjustment 4,743,288 Loss on disposal of capital assets is reported in the government-widestatement of net assets, but is not recorded in the governmental funds. (27,290)

In the statement of activities, certain operating expenses - compensatedabsences (vacations) and special termination benefits (early retirement) -are measured by the amounts earned during the year. In thegovernmental funds, however, expenditures for these items aremeasured by the amount of financial resources used (essentially,the amounts actually paid). This year, special termination benefitspaid exceeded benefits earned by $200,408. Vacation paid wasmore than the amounts earned by $2,401. 202,809

Repayment of bond and capital lease principal are expenditures in the governmental funds, but they reduce long-term obligations in the statement of net assets and do not affect the statement of activities:

General obligation bonds 1,488,362

Under the modified basis of accounting used in the governmental funds,expenditures are not recognized for transactions that are not normally paidwith expendable available financial resources. In the statement of activities,however, which is presented on the accrual basis, expenses and liabilitiesare reported regardless of when financial resources are available. Thisadjustment combines the net changes of the following balances:

Amortization of debt premium 66,124 Amortization of cost of issuance (66,018) Amortization of deferred amount on refunding 554,278

Combined Adjustment 554,384

CHARTER OAK UNIFIED SCHOOL DISTRICT

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OFREVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCESTO THE DISTRICT-WIDE STATEMENT OF ACTIVITIES (Continued)

FOR THE YEAR ENDED JUNE 30, 2009

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

19

Interest on long-term obligations in the statement of activities differsfrom the amount reported in the governmental funds because interestis recorded as an expenditure in the funds when it is due, and thusrequires the use of current financial resources. In the statement ofactivities, however, interest expense is recognized as the interest accrues,regardless of when it is due. The additional interest reported inthe statement of activities is the net result of two factors. First, accruedinterest on the general obligation bonds decreased by $3,059, and second,$500,563 of additional accumulated interest was accreted on theDistrict's "capital appreciation" general obligation bonds. (497,504)$

Contributions for postemployment benefits are recorded as an expense inthe governmental funds when paid. However, the difference betweenthe annual required contribution and the actual contribution made, if less,is recorded in the government-wide statements as an expense. The actualamount of the contribution was less than the annual required contribution. (513,870)

Change in Net Assets of Governmental Activities 3,672,917$

CHARTER OAK UNIFIED SCHOOL DISTRICT

PROPRIETARY FUNDSSTATEMENT OF NET ASSETSFOR THE YEAR ENDED JUNE 30, 2009

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

20

Business-TypeActivities

Enterprise FundsChild Care

ASSETSCurrent Assets

Deposits and investments 75,871$ Receivables 1,509

Total Current Assets 77,380 Total Assets 77,380

LIABILITIES Current Liabilities

Accounts payable 77,255 Total Current Liabilities 77,255

NET ASSETSUnrestricted 125

Total Net Assets 125$

CHARTER OAK UNIFIED SCHOOL DISTRICT

PROPRIETARY FUNDSSTATEMENT OF REVENUES, EXPENSES ANDCHANGES IN NET ASSETS

FOR THE YEAR ENDED JUNE 30, 2009

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

21

Business-TypeActivities

Enterprise FundsChild Care

OPERATING REVENUESCharges for services 1,263,386$

Total Operating Revenues 1,263,386

OPERATING EXPENSESPayroll costs 1,145,001 Professional and contract services 24,092 Supplies and materials 47,576 Facility rental 290

Total Operating Expenses 1,216,959 Operating Income 46,427

NONOPERATING REVENUESInterest income 3,778

Income Before Capital Contributions and Transfers 50,205 Transfers out (52,416)

Change in Net Assets (2,211) Total Net Assets - Beginning 2,336 Total Net Assets - Ending 125$

CHARTER OAK UNIFIED SCHOOL DISTRICT

PROPRIETARY FUNDSSTATEMENT OF CASH FLOWSFOR THE YEAR ENDED JUNE 30, 2009

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

22

` Business-TypeActivities

Enterprise FundsChild Care

CASH FLOWS FROM OPERATING ACTIVITIESCash received from user charges 1,294,277$ Cash payments to employees for services (1,145,001) Cash payments to suppliers for goods and services (148,174) Cash payments for facility use (290) Cash payments for other operating expenses (24,092)

Net Cash Used by Operating Activities (23,280)

CASH FLOWS FROM NONCAPITALFINANCING ACTIVITIES

Transfers from (to) other funds (52,416)

CASH FLOWS FROM INVESTING ACTIVITIESInterest on investments 3,778

Net decrease in cash and cash equivalents (71,918) Cash and cash equivalents - Beginning 147,789 Cash and cash equivalents - Ending 75,871$

RECONCILIATION OF OPERATING INCOMETO NET CASH USED BY OPERATING ACTIVITIES:

Operating income 46,427$ Adjustments to reconcile operating income to netcash used by operating activities:Changes in assets and liabilities:

Receivables 30,891 Accrued liabilities (100,598)

NET CASH USED BY OPERATING ACTIVITIES (23,280)$

CHARTER OAK UNIFIED SCHOOL DISTRICT

FIDUCIARY FUNDSSTATEMENT OF NET ASSETSJUNE 30, 2009

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

23

AgencyFunds

ASSETSDeposits and investments 406,938$ Stores inventories 21,066

Total Assets 428,004$

LIABILITIESAccounts payable 2,603$ Due to student groups 425,401

Total Liabilities 428,004$

CHARTER OAK UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTSJUNE 30, 2009

24

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial Reporting Entity

The Charter Oak Unified School District was organized on July 1, 1960, under the laws of the State of California. The District operates under a locally elected five-member Board form of government and provides educational services to grades K - 12 as mandated by the State and/or Federal agencies. The District operates five elementaryschools, one middle school, one high school, one continuation school, one alternative school, and one community day school.

A reporting entity is comprised of the primary government, component units, and other organizations that are included to ensure the financial statements are not misleading. The primary government of the District consists of all funds, departments, boards, and agencies that are not legally separate from the District. For Charter Oak Unified School District, this includes general operations, food service, and student related activities of theDistrict.

Basis of Presentation - Fund Accounting

The accounting system is organized and operated on a fund basis. A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. The District's funds are grouped into three broad fund categories: governmental, proprietary and fiduciary.

Governmental Funds Governmental funds are those through which most governmental functions typically are financed. Governmental fund reporting focuses on the sources, uses, and balances of current financial resources. Expendable assets are assigned to the various governmental funds according to the purposes for which they may or must be used. Current liabilities are assigned to the fund from which they will be paid. The difference between governmental fund assets and liabilities is reported as fund balance. The following are the District's major and non-major governmental funds:

Major Governmental Funds

General Fund The General Fund is the chief operating fund for all districts. It is used to account for the ordinary operations of a district. All transactions except those required or permitted by law to be in another fund are accounted for in this fund.

Adult Education Fund The Adult Education Fund is used to account separately for Federal, State, and local revenues for adult education programs and is to be expended for adult education purposes only.

County School Facilities Fund The County School Facilities Fund is established pursuant to Education Code Section 17070.43 to receive apportionments from the 1998 State School Facilities Fund (Proposition lA), the 2002 State School Facilities Fund (Proposition 47), or the 2004 State School Facilities Fund (Proposition 55) authorized by the State Allocation Board for new school facility construction, modernization projects, and facility hardship grants, as provided in the Leroy F. Greene School Facilities Act of 1998 (Education Code Section 17070 et seq.).

CHARTER OAK UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTSJUNE 30, 2009

25

Non-Major Governmental Funds

Special Revenue Funds The Special Revenue funds are established to account for the proceeds from specific revenue sources (other than trusts or for major capital projects) that are restricted to the financing of particular activities:

Child Development Fund The Child Development Fund is used to account separately for Federal, State, and local revenues to operate child development programs and is to be used only for expenditures for the operation of child development programs.

Cafeteria Fund The Cafeteria Fund is used to account separately for Federal, State, and local resources to operate the food service program (Education Code Sections 38090-38093) and is used only for those expenditures authorized by the governing board as necessary for the operation of the District's food service program (Education Code Sections 38091 and 38100).

Deferred Maintenance Fund The Deferred Maintenance Fund is used to account separately for State apportionments and the District's contributions for deferred maintenance purposes (Education Code Sections 17582-17587) and for items of maintenance approved by the State Allocation Board.

Capital Project Funds The Capital Project funds are established to account for financial resources to be used for the acquisition or construction of major capital facilities (other than those financed by proprietary funds and trust funds).

Building Fund The Building Fund exists primarily to account separately for proceeds from the sale of bonds (Education Code Section 15146) and may not be used for any purposes other than those for which the bondswere issued.

Capital Facilities Fund The Capital Facilities Fund is used primarily to account separately for monies received from fees levied on developers or other agencies as a condition of approving a development (Education Code Sections 17620-17626). Expenditures are restricted to the purposes specified in Government Code Sections 65970-65981 or to the items specified in agreements with the developer (Government Code Section 66006).

Special Reserve Fund for Capital Outlay Projects The Special Reserve Fund for Capital Outlay Projects exists primarily to provide for the accumulation of General Fund monies for capital outlay purposes (Education Code Section 42840).

Debt Service Funds The Debt Service funds are established to account for the accumulation of resources for and the payment of principal and interest on long-term obligations.

Bond Interest and Redemption Fund The Bond Interest and Redemption Fund is used for the repayment of bonds issued for a district (Education Code Sections 15125-15262).

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Proprietary Funds Proprietary fund reporting focuses on the determination of operating income, changes in net assets, financial position, and cash flows. The District applies all GASB pronouncements, as well as the Financial Accounting Standards Board pronouncements issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements. Proprietary funds are classified as enterprise or internal service. The District maintains one proprietary fund. The Child Care Enterprise Fund is used to account for the financial transactions related to the child care centers operated by the District.

Fiduciary Funds Fiduciary fund reporting focuses on net assets and changes in net assets. The fiduciary fund category is split into four classifications: pension trust funds, investment trust funds, private-purpose trust funds, and agency funds.

Trust funds are used to account for the assets held by the District under a trust agreement for individuals, private organizations, or other governments and are therefore not available to support the District's own programs. The District does not have any trust funds. The District's Agency funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. Such funds have no equity accounts since all assets are due to individuals or entities at some future time. The District's agency fund accounts for student body activities (ASB).

Basis of Accounting - Measurement Focus

Government-Wide Financial Statements The government-wide financial statements are prepared using the economic resources measurement focus and the accrual basis of accounting. This is the same approach used in the preparation of the proprietary fund financial statements, but differs from the manner in which governmental fund financial statements are prepared.

The government-wide statement of activities presents a comparison between expenses, both direct and indirect, and program revenues for each segment of the business-type activities of the District and for each governmental function, and excludes fiduciary activity. Direct expenses are those that are specifically associated with a service, program, or department and are therefore clearly identifiable to a particular function. The District does not allocate indirect expenses to functions in the Statement of Activities, except for depreciation. Program revenues include charges paid by the recipients of the goods or services offered by the programs and grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues are presented as general revenues. The comparison of program revenues and expenses identifies the extent to which each program is self-financing or draws from the general revenues of the District. Eliminations have been made to minimize the double counting of internal activities.

Net assets should be reported as restricted when constraints placed on net asset use are either externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or imposed by law through constitutional provisions or enabling legislation. The net assets restricted for other activities result from special revenue funds and the restrictions on their net asset use.

Fund Financial Statements Fund financial statements report detailed information about the District. The focus of governmental and proprietary fund financial statements is on major funds rather than reporting funds by type. Each major fund is presented in a separate column. Non-major funds are aggregated and presented in a single column.

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Governmental Funds All governmental funds are accounted for using a flow of current financial resources measurement focus and the modified accrual basis of accounting. With this measurement focus, only current assets and current liabilities generally are included on the balance sheet. The statement of revenues, expenditures, and changes in fund balance reports on the sources (revenues and other financing sources) and uses (expenditures and other financing uses) of current financial resources. This approach differs from the manner in which the governmental activities of the government-wide financial statements are prepared. Governmental fund financial statements therefore include reconciliation with brief explanations to better identify the relationship between the government-wide financial statements and the statements for the governmental funds on a modified accrual basis of accounting and the current financial resources measurement focus. Under this basis, revenues are recognized in the accounting period in which they become measurable and available. Expenditures are recognized in the accounting period in which the fund liability is incurred, if measurable.

Fiduciary Funds Fiduciary funds are accounted for using the flow of economic resources measurement focus and the accrual basis of accounting.

Revenues – Exchange and Non-Exchange Transactions Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the fiscal year in which the resources are measurable and become available. Available means that the resources will be collected within the current fiscal year or are expected to be collected soon enough thereafter to be used to pay liabilities of the current fiscal year. Generally, available is defined as collectible within 90 days. However, to achieve comparability of reporting among California districts and so as not to distort normal revenue patterns, with specific respect to reimbursement grants and corrections to state-aid apportionments, the California Department of Education has defined available for districts as collectible within one year. The following revenue sources are considered to be both measurable and available at fiscal year-end: State apportionments, interest, certain grants, and other local sources.

Non-exchange transactions, in which the District receives value without directly giving equal value in return, include property taxes, certain grants, entitlements, and donations. Revenue from property taxes is recognized in the fiscal year in which the taxes are received. Revenue from certain grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Eligibility requirements include time and purpose requirements. On a modified accrual basis, revenue from non-exchange transactions must also be available before it can be recognized.

Deferred Revenue Deferred revenue arises when potential revenue does not meet both the "measurable" and "available" criteria for recognition in the current period or when resources are received by the District prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the District has a legal claim to the resources, the liability for deferred revenue is removed from the combined balance sheet and revenue is recognized.

Certain grants received before the eligibility requirements are met, are recorded as deferred revenue. On the governmental fund financial statements, receivables that will not be collected within the available period are also recorded as deferred revenue.

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Expenses/Expenditures On the accrual basis of accounting, expenses are recognized at the time they are incurred. The measurement focus of governmental fund accounting is on decreases in net financial resources (expenditures) rather than expenses. Expenditures are generally recognized in the accounting period in which the related fund liability is incurred, if measurable, and typically paid within 90 days. Principal and interest on long-term obligations, which has not matured, are recognized when paid in the governmental funds as expenditures. Allocations of costs, such as depreciation and amortization, are not recognized in the governmental funds but are recognized in the entity-wide statements.

Cash and Cash Equivalents

The District's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition.

Investments

Investments held at June 30, 2009, with original maturities greater than one year are stated at fair value. Fair value is estimated based on quoted market prices at year-end. All investments not required to be reported at fair value are stated at cost or amortized cost. Fair values of investment in the county investment pool are determined by the program sponsor.

Stores Inventories

Inventories consist of expendable food and supplies held for consumption. Inventories are stated at cost, on the weighted average basis. The costs of inventory items are recorded as expenditures in the governmental-type funds.

Capital Assets and Depreciation

The accounting and reporting treatment applied to the capital assets associated with a fund are determined by its measurement focus. General capital assets are long-lived assets of the District. The District maintains a capitalization threshold of $5,000. The District does not possess any infrastructure. Improvements are capitalized; the costs of normal maintenance and repairs that do not add to the value of the asset or materially extend an asset's life are not capitalized, but are expensed as incurred.

When purchased, such assets are recorded as expenditures in the governmental funds and capitalized in the government-wide financial statement of net assets. The valuation basis for general capital assets are historical cost, or where historical cost is not available, estimated historical cost based on replacement cost. Donated capital assets are capitalized at estimated fair market value on the date donated.

Depreciation of capital assets is computed and recorded by the straight-line method. Estimated useful lives of the various classes of depreciable capital assets are as follows: buildings and improvements, 40 years; equipment, 5 to 20 years.

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Compensated Absences

Accumulated unpaid vacation benefits are accrued as a liability on the government-wide statement of net assets as the benefits are earned. For governmental funds, unpaid compensation absences are recognized as a fund liability only upon the occurrence of relevant events such as employee resignations and retirements that occur prior to year end that have not yet been paid with expendable available financial resources. These amounts are recorded in the accounts payable in the fund from which the employees who have accumulated leave are paid.

Sick leave is accumulated without limit for each employee at the rate of one day for each month worked. Leave with pay is provided when employees are absent for health reasons; however, the employees do not gain a vested right to accumulated sick leave. Employees are never paid for any sick leave balance at termination of employment or any other time. Therefore, the value of accumulated sick leave is not recognized as a liability in the District's financial statements. However, credit for unused sick leave is applicable to all classified school members who retire after January 1, 1999. At retirement, each member will receive .004 year of service credit for each day of unused sick leave. Credit for unused sick leave is applicable to all certificated employees and is determined by dividing the number of unused sick days by the number of base service days required to complete the last school year, if employed full-time.

Accrued Liabilities and Long-Term Obligations

All payables, accrued liabilities, and long-term obligations are reported in the government-wide financial statements. In the government-wide financial statements, premiums and discounts on issuance of long-term obligations are deferred and amortized over the life of the related debt as a component of interest expense using the straight-line method. In the governmental funds, premiums and discounts on issuance of long-term obligations are recognized as other financing sources and uses, respectively.

In general, governmental fund payables and accrued liabilities that, once incurred, are paid in a timely manner and in full from current financial resources are reported as obligations of the funds.

However, claims and judgments, compensated absences, special termination benefits, and contractually required pension contributions that will be paid from governmental funds are reported as a liability in the fund financial statements only to the extent that they are due for payment during the current year. Bonds, certificates of participation, and capital leases are recognized as liabilities in the governmental fund financial statements when due.

Deferred Issuance Costs, Premiums and Discounts

In the government-wide financial statements, long-term obligations are reported as liabilities in the applicable governmental activities statement of net assets. Bond premiums and discounts, as well as issuance costs, aredeferred and amortized over the life of the bonds using the straight line method.

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Fund Balance Reserves and Designations

The District reserves those portions of fund balance which are legally segregated for a specific future use or which do not represent available expendable resources and therefore are not available for appropriation or expenditure. Unreserved fund balance indicates that portion of fund balance which is available for appropriation in future periods. Fund equity reserves have been established for revolving cash accounts, stores inventories, and legally restricted grants and entitlements.

Designations of fund balances consist of that portion of the fund balance that has been designated (set aside) by the governing board to provide for specific purposes or uses. Fund equity designations have been established for purposes as described in Note 9.

Net Assets

Net assets represent the difference between assets and liabilities. Net assets invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction or improvement of those assets. Net assets are reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the District or through external restrictions imposed by creditors, grantors, or laws or regulations of other governments. The District first applies restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net assets are available. Enabling legislation relates to laws passed that create a revenue source to be used for specific purposes. The government-wide financial statements report net assets restricted by enabling legislation of $12,065,108.

Operating Revenues and Expenses

Operating revenues are those revenues that are generated directly from the primary activity of the proprietary funds. Operating expenses are necessary costs incurred to provide the good or service that is the primary activity of the fund. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses.

Interfund Activity

Exchange transactions between funds are reported as revenues in the seller funds and as expenditures/expenses in the purchaser funds. Flows of cash or goods from one fund to another without a requirement for repayment are reported as interfund transfers. Interfund transfers are reported as other financing sources/uses in governmental funds. Repayments from funds responsible for particular expenditures to the funds that initially paid for them are not presented on the financial statements. Interfund transfers are eliminated in the governmental and business-type activities columns of the statement of activities, except for the net residual amounts transferred between governmental and business-type activities.

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Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amountsreported in the financial statements and accompanying notes. Actual results may differ from those estimates.

Budgetary Data

The budgetary process is prescribed by provisions of the California Education Code and requires the governing board to hold a public hearing and adopt an operating budget no later than July 1 of each year. The District governing board satisfied these requirements. The adopted budget is subject to amendment throughout the year to give consideration to unanticipated revenue and expenditures primarily resulting from events unknown at the time of budget adoption with the legal restriction that expenditures cannot exceed appropriations by major object account.

The amounts reported as the original budgeted amounts in the budgetary statements reflect the amounts when the original appropriations were adopted. The amounts reported as the final budgeted amounts in the budgetary statements reflect the amounts after all budget amendments have been accounted for. For budget purposes, on-behalf payments have not been included as revenue and expenditures as required under generally accepted accounting principles.

Property Tax

Secured property taxes attach as an enforceable lien on property as of January 1. Taxes are payable in two installments on November 1 and February 1 and become delinquent on December 10 and April 10, respectively. Unsecured property taxes are payable in one installment on or before August 31. The County of Los Angeles bills and collects the taxes on behalf of the District. Local property tax revenues are recorded when received.

Changes in Accounting Principles

In July 2004, the GASB issued GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. This Statement requires local governmental employers who provide other postemployment benefits (OPEB) as part of the total compensation offered to employees to recognize the expense and related liabilities (assets) in the government-wide financial statements of net assets and activities. This Statement established standards for the measurement, recognition, and display of OPEB expense/expenditures and related liabilities (assets), note disclosures, and, if applicable, required supplementary information (RSI) in the financial reports of State and local governmental employers.

This Statement provided for prospective implementation - that is, that employers set the beginning net OPEB obligation at zero as of the beginning of the initial year. The District has implemented the provisions of this Statement for the fiscal year ended June 30, 2009. The District had an annual required contribution of $806,485for the year ended June 30, 2009, and made a contribution of $292,615 resulting in an OPEB obligation of $513,870.

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New Accounting Pronouncements

In March 2009, the GASB issued GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. The objective of this Statement is to enhance the usefulness of fund balance information by providing clearer fund balance classifications that can be more consistently applied and by clarifying the existing governmental fund type definitions. This Statement establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. The requirements of this Statement are effective for the financial statements for periods beginning after June 15, 2010. Early implementation is encouraged.

In April 2009, the GASB issued GASB Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. The objective of this Statement is to incorporate the hierarchy of generally accepted accounting principles (GAAP) for State and local governments into the GASB authoritative literature. The "GAAP hierarchy" consists of the sources of accounting principles used in the preparation of financial statements of State and local governmental entities that are presented in conformity with GAAP, and the framework for selecting those principles. GASB Statement No. 55 is effective immediately.

In April 2009, the GASB issued GASB Statement No. 56, Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards. The objective of this Statement is to incorporate into the GASB's authoritative literature certain accounting and financial reporting guidance presented in the American Institute of Certified Public Accountants' Statements on Auditing Standards. This Statement addresses three issues not included in the authoritative literature that establishes accounting principles – related party transactions, going concern considerations, and subsequent events. The presentation of principles used in the preparation of financial statements is more appropriately included in accounting and financial reporting standards rather than in the auditing literature. GASB Statement No. 56 is effective immediately.

NOTE 2 – DEPOSITS AND INVESTMENTS

Summary of Deposits and Investments

Deposits and investments as of June 30, 2009, are classified in the accompanying financial statements as follows:

Governmental activities 17,165,836$ Business-type activities 75,871 Fiduciary funds 406,938

Total Deposits and Investments 17,648,645$

Deposits and investments as of June 30, 2009, consist of the following:

Cash on hand and in banks 406,938$ Cash in revolving 9,000 Investments 17,232,707

Total Deposits and Investments 17,648,645$

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Policies and Practices

The District is authorized under California Government Code to make direct investments in local agency bonds, notes, or warrants within the State; U.S. Treasury instruments; registered State warrants or treasury notes; securities of the U.S. Government, or its agencies; bankers acceptances; commercial paper; certificates of deposit placed with commercial banks and/or savings and loan companies; repurchase or reverse repurchase agreements; medium term corporate notes; shares of beneficial interest issued by diversified management companies, certificates of participation, obligations with first priority security; and collateralized mortgage obligations.

Investment in County Treasury - The District is considered to be an involuntary participant in an external investment pool as the District is required to deposit all receipts and collections of monies with their County Treasurer (Education Code Section 41001). The fair value of the District's investment in the pool is reported in the accounting financial statements at amounts based upon the District's pro-rata share of the fair value provided by the County Treasurer for the entire portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by the County Treasurer, which is recorded on the amortized cost basis.

General Authorizations

Limitations as they relate to interest rate risk, credit risk, and concentration of credit risk are indicated in the schedules below:

Maximum Maximum MaximumAuthorized Remaining Percentage Investment

Investment Type Maturity of Portfolio in One IssuerLocal Agency Bonds, Notes, Warrants 5 years None NoneRegistered State Bonds, Notes, Warrants 5 years None NoneU.S. Treasury Obligations 5 years None NoneU.S. Agency Securities 5 years None NoneBanker's Acceptance 180 days 40% 30%Commercial Paper 270 days 25% 10%Negotiable Certificates of Deposit 5 years 30% NoneRepurchase Agreements 1 year None NoneReverse Repurchase Agreements 92 days 20% of base NoneMedium-Term Corporate Notes 5 years 30% NoneMutual Funds N/A 20% 10%Money Market Mutual Funds N/A 20% 10%Mortgage Pass-Through Securities 5 years 20% NoneCounty Pooled Investment Funds N/A None NoneLocal Agency Investment Fund (LAIF) N/A None NoneJoint Powers Authority Pools N/A None None

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Interest Rate Risk

Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. The District manages its exposure to interest rate risk by investing in the county pool.

Specific Identification

Information about the sensitivity of the fair values of the District's investments to market interest rate fluctuation is provided by the following schedule that shows the distribution of the District's investment by maturity:

Fair Average Days toInvestment Type Value Maturity

County Pool 17,236,213$ 495

Credit Risk

Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. The District's investment in the county pool is not required to be rated, nor has it been rated as of June 30, 2009.

Custodial Credit Risk - Deposits

This is the risk that in the event of a bank failure, the District's deposits may not be returned to it. The District does not have a policy for custodial credit risk for deposits. However, the California Government Code requires that a financial institution secure deposits made by State or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under State law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110 percent of the total amount deposited by the public agency. California law also allows financial institutions to secure public deposits by pledging first trust deed mortgage notes having a value of 150 percent of the secured public deposits and letters of credit issued by the Federal Home Loan Bank of San Francisco having a value of 105 percent of the secured deposits. As of June 30, 2009, the District's bank balance of $211,067 was exposed to custodial credit risk because it was uninsured and collateralized with securities held by the pledging financial institution's trust department or agent, but not in the name of the District.

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NOTE 3 - RECEIVABLES

Receivables at June 30, 2009, consisted of intergovernmental grants, entitlements, interest and other local sources. All receivables are considered collectible in full.

Adult County Non-MajorGeneral Education School Facilities Governmental Enterprise

Fund Fund Fund Funds Total FundFederal Government

Categorical aid 1,954,749$ -$ -$ -$ 1,954,749$ -$ State Government

Apportionment 3,819,730 - - - 3,819,730 - Categorical aid 1,082,018 14,148 - 110,666 1,206,832 - Lottery 204,449 - - - 204,449 -

Local GovernmentInterest 14,858 - 13,996 25,676 54,530 1,509

Other Local Sources 423,505 - - 76,152 499,657 - Total 7,499,309$ 14,148$ 13,996$ 212,494$ 7,739,947$ 1,509$

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NOTE 4 - CAPITAL ASSETS

Capital asset activity for the fiscal year ended June 30, 2009, was as follows:

Balance BalanceJuly 1, 2008 Additions Deductions June 30, 2009

Governmental ActivitiesCapital Assets Not Being Depreciated

Land 1,725,594$ -$ -$ 1,725,594$ Construction in process 35,715,936 6,225,507 25,597,816 16,343,627

Total Capital Assets Not Being Depreciated 37,441,530 6,225,507 25,597,816 18,069,221

Capital Assets Being DepreciatedLand improvements 2,708,422 70,710 - 2,779,132 Buildings and improvements 38,170,468 25,597,816 - 63,768,284 Furniture and equipment 1,719,471 44,944 119,786 1,644,629

Total Capital Assets Being Depreciated 42,598,361 25,713,470 119,786 68,192,045

Less Accumulated DepreciationLand improvements 1,396,192 211,187 - 1,607,379 Buildings and improvements 15,220,437 1,302,736 - 16,523,173 Furniture and equipment 1,305,265 83,950 92,496 1,296,719

Total Accumulated Depreciation 17,921,894 1,597,873 92,496 19,427,271 Governmental Activities CapitalAssets, Net 62,117,997$ 30,341,104$ 25,625,106$ 66,833,995$

Depreciation expense was charged to governmental functions as follows:

Governmental ActivitiesInstruction 1,438,086$ All other pupil services 63,915 Pupil transportation 47,936 Plant services 47,936

Total Depreciation Expenses Governmental Activities 1,597,873$

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NOTE 5 - INTERFUND TRANSACTIONS

Operating Transfers

Interfund transfers for the year ended June 30, 2009, consisted of the following:

Non-MajorGeneral Adult Education Governmental

Transfer To Fund Fund Funds Enterprise TotalGeneral Fund -$ 2,200,000$ 136,388$ 52,416$ 2,388,804$ Non-MajorGovernmental Funds 136,388 - - - 136,388

Total 136,388$ 2,200,000$ 136,388$ 52,416$ 2,525,192$

The General Fund transferred to the Deferred Maintenance Fund for State match. 136,388$ The Adult Education Fund transferred to the General Fund for program contribution. 2,200,000

136,388 52,416

Total 2,525,192$

Transfer From

The Special Reserve Capital Outlay Fund transferred to the General Fund for DeferredMaintenance Fund State match.

The Enterprise Fund transferred to the General Fund for indirect costs.

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NOTE 6 - ACCOUNTS PAYABLE

Accounts payable at June 30, 2009, consisted of the following:

County Non-MajorGeneral Adult School Facilities Governmental

Fund Fund Fund Funds TotalSalaries and benefits 3,413,821$ 51,294$ -$ 65,395$ 3,530,510$ State apportionment - 271,336 - - 271,336 Categorical aid 12,493 - - - 12,493 Materials and supplies 259,587 22,870 - 26,976 309,433 Services 1,379,337 622,931 - 51,641 2,053,909 Construction 30,829 - 1,221,050 475,013 1,726,892 Other vendor payables 473,541 2,140 122,939 67,530 666,150

Total 5,569,608$ 970,571$ 1,343,989$ 686,555$ 8,570,723$

Enterprise FiduciaryFund Fund

Salaries and benefits 72,816$ -$ Other vendor payables 4,439 2,603

77,255$ 2,603$

NOTE 7 - DEFERRED REVENUE

Deferred revenue at June 30, 2009, consists of the following:

GeneralFund

Federal financial assistance 2,835$ State categorical aid 1,595 Other local 400

Total 4,830$

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NOTE 8 - LONG-TERM OBLIGATIONS

Summary

The changes in the District's long-term obligations during the year consisted of the following:

Balance Balance Due in July 1, 2008 Additions Deductions June 30, 2009 One Year

General obligation bonds 30,762,482$ 500,563$ 1,488,362$ 29,774,683$ 1,625,000$ Premium on general obligation bonds 913,186 - 66,124 847,062 -

Accumulated vacation - net 206,973 - 2,401 204,572 204,572 Supplemental early retirement plan 200,408 - 200,408 - - Other postemployment benefits - 806,485 292,615 513,870 -

32,083,049$ 1,307,048$ 2,049,910$ 31,340,187$ 1,829,572$

Payments on the general obligation bonds are made by the Bond Interest and Redemption Fund with local revenues. The accrued vacation will be paid by the fund for which the employee worked. The early retirement incentive plan payment was paid off by the General Fund.

Bonded Debt

The outstanding general obligation bonded debt is as follows:

Bonds BondsIssue Maturity Interest Original Outstanding OutstandingDate Date Rate Issue July 1, 2008 Accreted Redeemed June 30, 2009

6/19/01 6/1/11 4.0%-5.0% 2,000,000 $ 185,000$ -$ 60,000$ 125,000$ 7/18/03 7/1/13 2.0%-3.25% 8,000,000 1,480,000 - 230,000 1,250,000 2/03/05 8/1/29 2.25%-4.125% 10,000,000 9,130,000 - 275,000 8,855,000 2/02/06 8/1/30 3.45%-5.25% 10,000,000 10,041,893 23,392 18,362 10,046,923 2/02/06 8/1/15 3.33%-4.14% 7,429,939 9,925,589 477,171 905,000 9,497,760

30,762,482$ 500,563$ 1,488,362$ 29,774,683$

2000 General Obligation Bonds, Series A

On June 19, 2001, the District issued $2,000,000 of 2000 General Obligation Bonds, Series A. The bonds had an original maturity date of June 1, 2026, with interest yields ranging from 4.0 to 5.625 percent. The bonds were issued to provide funds to repair, acquire, and construct school facilities. On February 2, 2006, the District issued 2000 General Obligation Refunding Bonds, Series E (as noted below) to refund a portion of the Series A Bonds. The remaining 2000 General Obligation Bonds, Series A have a maturity date of June 1, 2011, with interest yields ranging from 4.0 to 5.0 percent. At June 30, 2009, the principal balance outstanding on the 2000 General Obligation Bonds, Series A was $125,000.

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2000 General Obligation Bonds, Series B

On July 18, 2003, the District issued $8,000,000 of 2000 General Obligation Bonds, Series B. The bonds had an original maturity date of July 1, 2028, with interest yields ranging from 2.0 to 5.0 percent. The District received net proceeds of $8,072,593 (representing the principal amount of $8,000,000 plus a premium of $307,321 and less issuance costs of $234,728). The bonds were issued to provide funds to repair, acquire, and construct school facilities. On February 2, 2006, the District issued 2000 General Obligation Refunding Bonds, Series E (as noted below) to refund a portion of the Series B Bonds. The remaining 2000 General Obligation Bonds, Series B have a maturity date of July 1, 2013, with interest yields ranging from 2.0 to 3.25 percent. At June 30, 2009, the principal balance outstanding on the 2000 General Obligation Bonds, Series B was $1,250,000 and unamortized premium and issuance costs were $154,621 and $118,098, respectively.

2000 General Obligation Bonds, Series C

On February 3, 2005, the District issued $10,000,000 of 2000 General Obligation Bonds, Series C. The bonds have a maturity date of August 1, 2029, with interest yields ranging from 2.25 to 4.125 percent. The District received net proceeds of $10,035,337 (representing the principal amount of $10,000,000 plus a premium of $247,113 and less issuance costs of $211,776). The bonds were issued to provide funds to repair, acquire, and construct school facilities. At June 30, 2009, the principal balance outstanding on the 2000 General Obligation Bonds, Series C was $8,855,000 and unamortized premium and issuance costs were $195,631 and $167,656, respectively.

2000 General Obligation Bonds, Series D

On February 2, 2006, the District issued current and capital appreciation, 2000 General Obligation Bonds, Series D in the amount of $10,000,000 (accreting to $10,182,375). The Bonds mature August 1, 2030, with interest yields ranging from 3.45 to 5.25 percent. The District received net proceeds of $10,355,897 (representing the principal amount of $10,000,000 plus a premium of $579,277 and less issuance costs of $223,380). The bonds were issued to finance the acquisition and construction of certain real property and improvements for the District. At June 30, 2009, the principal balance outstanding on the 2000 General Obligation Bonds, Series D was $10,046,923 and unamortized premium and issuance costs were $496,810 and $191,580, respectively.

CHARTER OAK UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTSJUNE 30, 2009

41

2000 General Obligation Refunding Bonds, Series E

On February 2, 2006, the District issued capital appreciation, 2000 General Obligation Refunding Bonds, Series E in the amount of $7,429,939. The Bonds mature on August 1, 2015, with interest rates ranging from 3.33 to 4.14 percent. The bonds were issued to finance the acquisition and construction of certain real property and improvements for the District, advance refund $1,465,000 of outstanding 2000 General Obligation Bonds, Series A, and to advance refund $5,615,000 of outstanding 2000 General Obligation Bonds, Series B. The District received net proceeds of $9,432,045 (representing the principal amount of $7,429,939 plus a premium of $2,220,510 and less issuance costs of $218,404). Of the net proceeds, $2,002,105 was deposited into the Building Fund to finance construction of school facilities; $527 was deposited into the Bond, Interest and Redemption Fund for future debt service; and $7,429,413 was deposited in an irrevocable trust with an escrow agent to provide for the portion of the future debt service payments on the 2000 General Obligation Bonds, Series A and B that were refunded. As a result, the portion of the bonds refunded is considered to be defeased and the liability for those bonds has been removed from the government-wide statement of net assets. At June 30, 2009, the principal balance outstanding on the 2000 General Obligation Bonds, Series E was $9,497,760 and unamortized issuance costs were $135,491.

The deferred amounts on refunding totaled $1,880,587. The deferred amount on refunding is the difference between the reacquisition price (funds required to refund the old debt) and the net carrying amount of the old debt. The deferred amounts on refunding are recorded as expenditures in the governmental fund financial statements. On the government-wide financial statements, these amounts are capitalized and amortized using the straight line method over the remaining life of the old debt or the life of the new debt, whichever is shorter. At June 30, 2009, the unamortized deferred amount on refunding was $595,519.

Debt Service Requirements to Maturity – All Series

Principal CurrentIncluding Accreted Accreted Interest to

Fiscal Year Interest to Date Interest Maturity Total2010 1,590,036$ 34,964$ 883,109$ 2,508,109$ 2011 1,778,880 86,120 866,339 2,731,339 2012 1,849,879 150,122 847,542 2,847,543 2013 2,032,400 237,603 830,430 3,100,433 2014 2,154,844 335,157 811,662 3,301,663

2015-2019 7,018,644 1,091,353 3,710,592 11,820,589 2020-2024 4,875,000 - 2,732,253 7,607,253 2025-2029 6,200,000 - 1,367,294 7,567,294 2030-2031 2,275,000 - 98,875 2,373,875

Total 29,774,683$ 1,935,319$ 12,148,096$ 43,858,098$

Accumulated Unpaid Employee Vacation

The accumulated unpaid employee vacation for the District at June 30, 2009, amounted to $204,572.

CHARTER OAK UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTSJUNE 30, 2009

42

Supplemental Early Retirement Plans (SERP)

The District offered supplemental early retirement plans to its certificated employees. The annuities offered to the employees are paid over a five-year period. The annuities below, which were purchased for 15 employees who retired during 2003-2004, were purchased from Pacific Life Insurance Company. The District fulfilled its obligation as of June 30, 2009.

Other Postemployment Benefit (OPEB) Obligation

The District implemented GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions during the year ended June 30, 2009. The District's annual required contribution for the year ended June 30, 2009, was $806,485 and contributions made by the District during the year were $292,615, which resulted in a net OPEB obligation of $513,870. See Note 10 for additionalinformation regarding the OPEB obligation and the postemployment benefit plan.

NOTE 9 - FUND BALANCES

Fund balances with reservations/designations are composed of the following elements:

CountyAdult School Non-Major

General Education Facilities GovernmentalFund Fund Fund Funds

ReservedRevolving cash 7,500$ -$ -$ 1,500$ Stores inventories 38,519 - - 33,719 Prepaid expenditures 125 - - - Restricted programs 1,333,616 - - -

Total Reserved 1,379,760 - - 35,219 Unreserved

DesignatedEconomic uncertainties 1,552,671 - - - Site carryover 39,159 - - - Other 677,625 - - -

Total Designated 2,269,455 - - - Undesignated - 2,392,772 4,014,666 6,310,721

Total Unreserved 2,269,455 2,392,772 4,014,666 6,310,721 Total 3,649,215$ 2,392,772$ 4,014,666$ 6,345,940$

CHARTER OAK UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTSJUNE 30, 2009

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NOTE 10 - POSTEMPLOYMENT HEALTH CARE PLAN AND OTHER POSTEMPLOYMENT BENEFITS (OPEB) OBLIGATION

Plan Description

The Postemployment Benefit Plan (the Plan) is a single-employer defined benefit healthcare plan administered by the Charter Oak Unified School District. The Plan provides medical and dental insurance benefits to eligible retirees and their spouses. Membership of the Plan consists of 54 retirees and beneficiaries currently receiving benefits, and 519 active Plan members.

Contribution Information

The contribution requirements of plan members and the District are established and may be amended by the District and the Teachers Association (CTA), the local California Service Employees Association (CSEA), and unrepresented groups. The required contribution is based on projected pay-as-you-go financing requirements. For fiscal year 2008-09, the District contributed $292,615 to the plan, all of which was used for current premiums.

Annual OPEB Cost and Net OPEB Obligation

The District's annual other postemployment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial accrued liabilities (UAAL) (or funding excess) over a period not to exceed 30 years. The following table shows the components of the District's annual OPEB cost for the year, the amount actually contributed to the Plan, and changes in the District's net OPEB obligation to the Plan:

Annual required contribution 806,485$ Contributions made (292,615) Increase in net OPEB obligation 513,870 Net OPEB obligation, beginning of year - Net OPEB obligation, end of year 513,870$

The annual OPEB cost, the percentage of annual OPEB cost contributed to the Plan, and the net OPEB obligation for 2009 was as follows:

Year Ended Annual Required Percentage Net OPEBJune 30, Contribution Contributed Obligation

2009 806,485$ 36% 513,870$

CHARTER OAK UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTSJUNE 30, 2009

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Funded Status and Funding Progress

Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, investment returns, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the Plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Since this is the first year of implementation, only the current year information is presented.

Actuarial Methods and Assumptions

Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.

In the July 1, 2007, actuarial valuation, the unprojected unit credit method was used. The actuarial assumptions included a five percent investment rate of return (net of administrative expenses), based on the plan being funded in an irrevocable employee benefit trust invested in a long-term fixed income portfolio. Healthcare cost trend rates ranged from an initial ten percent to an ultimate rate of five percent. The cost trend rate used for the Dental and Vision programs was five percent. The UAAL is being amortized at a level dollar method. The remaining amortization period at July 1, 2007, was 30 years. The actuarial value of assets was not determined in this actuarial valuation.

CHARTER OAK UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTSJUNE 30, 2009

45

NOTE 11 - EMPLOYEE RETIREMENT SYSTEMS

Qualified employees are covered under multiple-employer retirement plans maintained by agencies of the State of California. Certificated employees are members of the California State Teachers' Retirement System (CalSTRS) and classified employees are members of the California Public Employees' Retirement System (CalPERS).

CalSTRS

Plan Description

The District contributes to the CalSTRS, a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by CalSTRS. The plan provides retirement and disability benefits, annual cost-of-living adjustments, and survivor benefits to beneficiaries. Benefit provisions are established by State statutes, as legislatively amended, within the State Teachers' Retirement Law. CalSTRS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the CalSTRS annual financial report may be obtained from CalSTRS, 7667 Folsom Blvd., Sacramento, California 95826.

Funding Policy

Active plan members are required to contribute 8.0 percent of their salary and the District is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by CalSTRS Teachers' Retirement Board. The required employer contribution rate for fiscal year 2008-2009 was 8.25 percent of annual payroll. The contribution requirements of the plan members are established by State statute. The District's contributions to CalSTRS for the fiscal years ending June 30, 2009, 2008, and 2007,were $2,013,020, $2,061,346, and $1,981,305, respectively, and equal 100 percent of the required contributions for each year.

CalPERS

Plan Description

The District contributes to the School Employer Pool under the CalPERS, a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by CalPERS. The plan provides retirement and disability benefits, annual cost-of-living adjustments, and survivor benefits to plan members and beneficiaries. Benefit provisions are established by State statutes, as legislatively amended, within the Public Employees' Retirement Laws. CalPERS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the CalPERS' annual financial report may be obtained from the CalPERS Executive Office, 400 P Street, Sacramento, California 95811.

CHARTER OAK UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTSJUNE 30, 2009

46

Funding Policy

Active plan members are required to contribute 7.0 percent of their salary and the District is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by the CalPERS Board of Administration. The required employer contribution rate for fiscal year 2008-2009 was 9.428 percent of covered payroll. The contribution requirements of the plan members are established by State statute. The District's contributions to CalPERS for the fiscal years ending June 30, 2009, 2008, and 2007, were $765,828, $786,145, and $708,566, respectively, and equal 100 percent of the required contributions for each year.

Social Security

As established by Federal law, all public sector employees who are not members of their employer's existing retirement system (CalSTRS or CalPERS) must be covered by Social Security or an alternative plan. The District has elected to use Social Security as its alternative plan.

On Behalf Payments

The State of California makes contributions to CalSTRS on behalf of the District. These payments consist of State General Fund contributions to CalSTRS in the amount of $1,102,159 (4.517 percent of annual payroll). Under accounting principles generally accepted in the United States of America, these amounts are to be reported as revenues and expenditures, however, guidance received from the California Department of Education advises local educational agencies not to record these amounts in the Annual Financial and Budget Report. These amounts have not been included in the budget amounts reported in the General Fund - Budgetary Comparison Schedule. These amounts have been recorded in these financial statements. On behalf payments have been excluded from the calculation of available reserves.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

Grants

The District received financial assistance from Federal and State agencies in the form of grants. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and are subject to audit by the grantor agencies. Any disallowed claims resulting from such audits could become a liability of the General Fund or other applicable funds. However, in the opinion of management, any such disallowed claims will not have a material adverse effect on the overall financial position of the District at June 30, 2009.

Litigation

The District is involved in various litigation arising from the normal course of business. In the opinion of management and legal counsel, the disposition of all litigation pending is not expected to have a material adverse effect on the overall financial position of the District at June 30, 2009.

CHARTER OAK UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTSJUNE 30, 2009

47

Construction Commitments

As of June 30, 2009, the District had the following commitments with respect to the unfinished capital projects:

Remaining ExpectedConstruction Date of

Capital Projects Commitment CompletionModernization projects:

Glen Oak Elementary 350,000$ 08/31/09Royal Oak Middle School 586,600 08/31/09Sunflower Alternative 359,900 08/31/09

1,296,500$

NOTE 13 - PARTICIPATION IN PUBLIC ENTITY RISK POOLS AND JOINT POWER AUTHORITIES

The District is a member of the Alliance of Schools for Cooperative Insurance Programs (ASCIP) and the Valley Insurance Programs (VIP) public entity risk pools, and the East San Gabriel Valley Regional Occupation Program (ESGVROP) joint powers authority. The District pays an annual premium to ASCIP and VIP for its workers'compensation and property liability coverage. In addition, the District makes payments to ESGVROP for its share of program costs. The relationships between the District, the pools, and the JPA are such that they are not component units of the District for financial reporting purposes.

These entities have budgeting and financial reporting requirements independent of member units and their financial statements are not presented in these financial statements; however, fund transactions between the entities and the District are included in these statements. Audited financial statements are available from the respective entities.

During the year ended June 30, 2009, the District made payments of $398,761 and $1,357,851 to ASCIP and VIP,respectively, for its property liability and workers' compensation coverage, respectively. Payment of $672,815was made to ESGVROP for the District's share of program costs.

NOTE 14 - FISCAL ISSUES RELATING TO BUDGET REDUCTIONS

The State of California continues to suffer the effects of a recessionary economy. California school districts are reliant on the State of California to appropriate the funding necessary to continue the level of educational services expected by the State constituency. With the implementation of education trailer bill Senate Bill 4 of the 2009-2010 Third Extraordinary Session (SBX3 4) (Chapter 12, Statutes of 2009), 14 percent of current year appropriations have now been deferred to a subsequent period, creating significant cash flow management issues for districts in addition to requiring substantial budget reductions, ultimately impacting the ability of California school districts to meet their goals for educational services.

CHARTER OAK UNIFIED SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTSJUNE 30, 2009

48

NOTE 15 - RESTATEMENT OF PRIOR YEAR NET ASSETS AND FUND BALANCES

Certain items that occurred in the prior year net assets and fund balances have been restated as of June 30, 2008, to more accurately reflect the substance of the underlying transactions. The following table lists the reason for the restatement.

Government-Wide Financial StatementsNet Assets - Beginning 49,799,340$ Overstatement of capital assets (2,614,383) Overstatement of accumulated depreciation of capital assets 687,958 Misclassification of proprietary fund balance (2,336) Net Assets - Beginning As Restated 47,870,579$

NOTE 16 - SUBSEQUENT EVENTS

On July 28, 2009, the Governor of the State of California signed a package of bills amending the 2008-09 and 2009-10 California State budgets. The budget amendments were designed to address the State's budget gap of $24 billion that had developed as a result of the deepening recession since the State's last budget actions in February 2009.

The July budget package reduced, on a State-wide basis, $1.6 billion in 2008-09 Proposition 98 funding through a reversion of undistributed categorical program balances. The budget language identified 51 specific programs and required the amounts associated with these programs that were "unallocated, unexpended, or not liquidated as of June 30, 2009" to revert to the State's General Fund. The July budget package also provided an appropriation in 2009-10 to backfill $1.5 billion of these cuts to repay the 2008-09 reversion of the undistributed categorical program balances.

In accordance with the requirements of Governmental Accounting Standards Board Statement No. 33, the District has not recorded the revenue and related receivable associated with the District's portion of the unallocated, unexpended, or unliquidated categorical program balances identified in the July 2009 State Budget package.

49

REQUIRED SUPPLEMENTARY INFORMATION

CHARTER OAK UNIFIED SCHOOL DISTRICT

GENERAL FUND BUDGETARY COMPARISON SCHEDULEFOR THE YEAR ENDED JUNE 30, 2009

50

Variances -Positive

(Negative)Actual Final

Original Final (GAAP Basis) to ActualREVENUESRevenue limit sources 36,324,137$ 33,262,424$ 35,337,851$ 2,075,427$ Federal sources 1,933,501 3,867,259 5,190,671 1,323,412 Other State sources 9,311,782 9,276,834 8,871,428 (405,406) Other local sources 1,515,604 1,675,715 1,196,758 (478,957)

Total Revenues 1 49,085,024 48,082,232 50,596,708 2,514,476 EXPENDITURESCurrent

Instruction 32,582,410 33,217,975 32,927,452 290,523 Instruction-related activities:

Supervision of instruction 897,227 803,305 862,431 (59,126) Instructional library, media, and technology 321,311 390,648 614,855 (224,207) School site administration 2,869,899 2,859,751 3,364,314 (504,563)

Pupil services:Home-to-school transportation 346,142 346,142 528,319 (182,177) Food services - - 25 (25) All other pupil services 2,971,005 3,920,015 3,031,178 888,837

General administration:Data processing 322,057 322,057 396,576 (74,519) All other general administration 2,895,796 2,910,131 3,083,863 (173,732)

Plant services 4,951,701 4,564,035 5,143,720 (579,685) Facility acquisition and construction 99,398 99,398 108,412 (9,014) Ancillary services 65,999 65,999 168,019 (102,020) Community services 491,497 486,177 418,178 67,999 Other outgo 1,552,172 1,852,172 2,074,144 (221,972)

Total Expenditures 1 50,366,614 51,837,805 52,721,486 (883,681) Excess (Deficiency) of RevenuesOver Expenditures (1,281,590) (3,755,573) (2,124,778) 1,630,795 Other Financing Sources (Uses)

Transfers in - 2,388,804 2,388,804 - Transfers out - (136,388) (136,388) -

Net Financing Sources (Uses) - 2,252,416 2,252,416 - NET CHANGE IN FUND BALANCES (1,281,590) (1,503,157) 127,638 1,630,795 Fund Balance - Beginning 3,521,577 3,521,577 3,521,577 - Fund Balance - Ending 2,239,987$ 2,018,420$ 3,649,215$ 1,630,795$

Budgeted Amounts(GAAP Basis)

1 On behalf payments of $1,102,159 are included in the actual revenues and expenditures, but have not been included in the budgeted amounts.

CHARTER OAK UNIFIED SCHOOL DISTRICT

BUDGETARY COMPARISON STATEMENT SCHEDULE FOR SPECIAL REVENUE - ADULT EDUCATION FUNDFOR THE YEAR ENDED JUNE 30, 2009

51

Variances -Positive

(Negative)Actual Final

Original Final (GAAP Basis) to ActualREVENUESOther State sources 2,170,193$ 2,170,193$ 2,230,048$ 59,855$ Other local sources - - 118,177 118,177

Total Revenues 2,170,193 2,170,193 2,348,225 178,032 EXPENDITURESCurrent

Instruction 1,637,014 1,637,014 1,609,212 27,802 Instruction-related activities:

Supervision of instruction 95,859 95,859 - 95,859 School site administration 103,507 103,507 89,815 13,692

Pupil services:All other pupil services 16,663 16,663 65,581 (48,918)

General administration:All other general administration 103,788 103,788 94,823 8,965

Plant services 213,362 261,921 86,978 174,943 Facility acquisition and construction - 150,000 - 150,000

Total Expenditures 2,170,193 2,368,752 1,946,409 422,343 Excess (Deficiency) of RevenuesOver Expenditures - (198,559) 401,816 600,375

Other Financing UsesTransfers out - (2,200,000) (2,200,000) -

NET CHANGE IN FUND BALANCES - (2,398,559) (1,798,184) 600,375 Fund Balance - Beginning 4,190,956 4,190,956 4,190,956 - Fund Balance - Ending 4,190,956$ 1,792,397$ 2,392,772$ 600,375$

Budgeted Amounts(GAAP Basis)

CHARTER OAK UNIFIED SCHOOL DISTRICT

SCHEDULE OF OTHER POSTEMPLOYMENT BENEFITS (OPEB)FUNDING PROGRESS

FOR THE YEAR ENDED JUNE 30, 2009

52

ActuarialAccruedLiability Unfunded UAAL as a

Actuarial (AAL) - AAL Percentage ofValuation Actuarial Value Unprojected (UAAL) Funded Ratio Covered Covered Payroll

Date of Assets (a) Unit Credit (b) (b - a) (a / b) Payroll (c) ([b - a] / c)

July 1, 2007 -$ 6,566,346$ 6,566,346$ -$ 32,523,154$ 20%

Schedule of Funding Progress