NEW ISSUE - BOOK-ENTRY ONLY RATINGS: INSURED: Standard& Poor's:AAA UNDERLYING: Standard& Poor's: A­

(See"BOND INSURANCE" and"MISCELLANEOUS -Ratings" herein).

In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, ho.va,er to certain qualifications described herein, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes, such interest is not an item of tax preference for purposes of the federal alternative ninimum tax imposed on individuals and corporations, although for the purpose of computing the alternative ninimumtax imposed on certain corporations, such interest is taken into account in deternirnng certain income and earnings, and the Bonds are "qualified tax-€)(errpt obligations" within the rreaning of section 265(b)(3) of the Internal Ra,enue Code of 1986. In the further opinion ofBond Counsel, such interest is exerrptfromCalifornia personal income taxes. See" LEGAL MATTE RS - Tax Matters" herein.

$999,541.65 FRANKLIN ELEMENTARY SCHOOL DISTRICT

(Sutter County, California) General Obligation Bonds

Election of 2006, Series 2007 (Capital Appreciation Bonds)

(Bank Qualified)

Dated: Date of Delivery Due: August 1 as sho.vn on the inside front CO/er

The Bonds are issued l1,' the Franklin Elementary School District (the "District"), and the Board of Supervisors of Sutter County is empo.vered and is obligated to annually la,y ad valoremtaxes, without linitation as to rate or amount upon all prOJ)erty subject to taxation within the District (except certain personal property which is taxable at linited rates), for ihe pi!Yment of the Bonds, all as more fully described herein under "THE BONDS" and "AD VALOREM PROPERTY TAXATION.' The Bonds do not bear interest, but rather accrete in value, as more fully described under" INTRODUCTION - Description of the Bonds" and "THE BONDS - Description of the Bonds" herein.

The Bonds will be issued as Capital Appreciation Bonds, dated the date of delivery of the Bonds and accrete interest from such date, compounded semiannually on February 1 and Augustl of each year, commencing August 1, 2007. The Bonds are issuable in denoninations of $5,000 m1turity value or any integral multiple thereof.

The Bonds, when delivered, will be registered initially in the name of Cede & Co., as noninee of The Depository Trust Company ("DTC"), NEW York, NEW York. DTC will act as securities depository forthe Bonds as described herein under "THE BONDS - Book-Entry System."

The Bonds due on or before August 1, 2017, are not sul:Jject to optional rederrption. The Bonds due on or after August 1, 2018, are sugect to optional rederrption on or arter August 1, 2017, as further described herein. See "THE BONDS -Redemption."

The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Bonds 0y XL CAPITAL ASSURANCE I NC.

The follo.ving firm serving as financial advisor to the District, has structured this financing:

KNN l' f'i f1 :a rl t t

A Di,i0ioo o!Zioo, firrt Na!iorrnl Bm1k

MATURITY SCHEDULE (on insidefrontcO/er)

The Bonds will be offered when, as and if issued b,I the District and received b,I Stone & Youngberg, LLC, as U nclerwiter, sub.ject to the apprCNal of legality b,I Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel. It is anticipated that the Bonds, in oook-entry forrn will be available for delivery through The Depository Trust Corrpany in New York, New York, on or about March 15, 2007.

THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR QUICK REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OFAN INFORMED INVESTMENT DECISION.

Official Statement Date: March 1, 2007

$999,541.65 CAPITAL APPRECIATION BONDS

(Base CUSI p(l): 35250M)

MATURITY SCHEDULE

Maturity Denominational Accretion Reoffering Maturity (August ll Amount Rate Yield Value cus1p(l)

= $ 7,648.10 ll.600?6 3.6'D'6 $ lO,CXXJ.00 AW4 2010 10,248.75 l l.600 3.700 l 5,CXXJ.00 AX2 2011 9,155.85 l l.600 3.7'D l 5,CXXJ.00 AYO 2012 8,179.'D l l.600 3.800 l 5,CXXJ.00 AZ7 2013 7,307.40 l l.600 3.8'D l 5,CXXJ.00 BAl 2014 6,528.15 l l.600 3.900 l 5,CXXJ.00 BB9 2015 17,496.00 l l.600 3.9'D 45,CXXJ.OO BC7 2016 15,630.30 l l.600 4.CXXJ 45,CXXJ.OO BD5 2017 13,827.15 l l.700 4.0'D 45,CXXJ.OO BE3 2018 28,043.10 4.200 4.200 45,CXXJ.OO BFO 2019 26,577.00 4.300 4.300 45,CXXJ.OO BG8 2020 25,138.80 4.400 4.400 45,CXXJ.OO BH6 2021 23,899.'D 4.4'D 4.4'D 45,CXXJ.OO BJ2 2022 20,176.80 4.'DO 4.'DO 40,CXXJ.OO BK9 2023 24,007.'D 4.530 4.530 'D,CXXJ.00 BL7 2024 22,878.00 4.5'D 4.5'D 'D,CXXJ.00 BM5 2025 23,972.30 4.570 4.570 55,CXXJ.OO BN3 2026 22,697.40 4.620 4.620 55,CXXJ.OO BPS 2027 21,597.95 4.640 4.640 55,CXXJ.OO BQ6 2028 20,586.'D 4.6'D 4.6'D 55,CXXJ.OO BR4 2029 19,618.'D 4.660 4.660 55,CXXJ.OO BS2 2030 18,692.85 4.670 4.670 55,CXXJ.OO BTO 2031 59,895.60 4.680 4.680 185,CXXJ.OO BU7 2032 63,213.80 4.690 4.690 205,CXXJ.OO BV5 2033 62,805.80 4.720 4.720 215,CXXJ.OO BW3 2034 62,563.'D 4.730 4.730 225,CXXJ.OO BXl 2035 63,511.20 4.740 4.740 240,CXXJ.OO BY9 2036 65,465.40 4.7'D 4.7'D 260,CXXJ.OO BZ6 2037 64,673.10 4.760 4.760 270,CXXJ.OO CAO 2038 65,131.05 4.760 4.760 285,CXXJ.OO CBS 2039 65,202.00 4.770 4.770 300,CXXJ.OO CC6 2040 33,172.80 4.770 4.770 160,CXXJ.OO CD4

(l) Cowright 2003, Arrerican Bankers Asscx:iation. CUSI P data ~rein is provided 1J,,1 Stan:lard & Poor's CUSI P Service Bureau, a division of~ McGraw+-lill Corrpanies, Irr::.

No dealer, broker, salesperson or other person has been authori:zed b,I the Franklin Elementary School District (the "District") to give any information or to make any representations other than those contained herein and, if given or made, such other information or representation must not be relied upon as having been authori:zed b,I the District. This Official Statement does not constitute an offer to sell or the solicitation of any offer to buy nor shall there be any sale of the Bonds b,I a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.

This Official Statement is not to be construed as a contract ½ith the purchasers of the Bonds. 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 summaries and descriptions of documents, statutes and constitutional prcwisions referred to herein do not purport to be comprehensive or definitive, and are qualified in their entireties b,I reference to each such document, statute and constitutional prcwision.

The information set forth herein, other than that pro.tided b,I the District, has been obtained from sources which the District believes to be reliable, but is not guaranteed as to accuracy or completeness, and its inclusion herein is not to be taken as a representation of such b,I the District. The information and expressions of opinion herein are suqject to change ½ithout notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District since the date hereof. This Official Statement is submitted in connection ½ith the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose.

THE PRICES AND OTHER TERMS OF THE OFFERING AND SALE OF THE BONDS MAY BE CHANGED FROM TIME TOTI ME BY THE UNDERWRITER AFTER SUCH BONDS ARE RELEASED FOR SALE AND SUCH BONDS MAY BE OFFERED AND SOLD AT PRICES OTHER THAN THE INITIAL OFFERING PRICES, INCLUDING SALES TO SECURITIES DEALERS WHO MAY SELL SUCH BONDS INTO INVESTMENT ACCOUNTS. IN CONNECTION WITH THE OFFERING OF BONDS, THE UNDERWRITER MAY OVER­ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES FOR SUCH BONDS AT A LEVEL ABOVE THAT WHICH MIGHT PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

THE BONDS HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON THE EXEMPTION CONT Al NED IN SECTION 3(a)(2) OF SUCH ACT.

FRANKLIN ELEMENTARY SCHOOL DISTRICT

Board of Trustees

Jim Richmond President

Mary Moffitt Clerk

Col I een M ore head Trustee

Dr. Robert Peppercorn Trustee

District Administration

Douglas Reeder Superintendent

Julie Clifton Adni ni strative/Accounti ng Secretary

PROFESSIONAL SERVICES

Financial Advisor

KNN Public Finance A Division of Zions First National Bank

Oakland, California

Bond Counsel

Bill Zoellin Trustee

Jones Hall, A Professional Law Corporation San Francisco, California

Paying Agent

The Bank of Ne.vY ork Trust Corrpany, N.A. Los Angeles, California

TABLE OF CONTENTS

~ INTRODUCTION ..................................................................................................................................................... 1

The District ................................................................................................................................................... 1 Sources of Payment for the Bands ................................................................................................................ 1 Purpose of the Bands .................................................................................................................................... 1 Defi ni ti ons R egardi ng the Bands .................................................................................................................. 2 Authority for I ssuance of the B ands ............................................................................................................. 3 Description of the B ands .............................................................................................................................. 3 Bond I nsurance ............................................................................................................................................. 3 Tax Matters ................................................................................................................................................... 3 Bank Qualified .............................................................................................................................................. 4 Professionals Involved in the Offering ......................................................................................................... 4 Offering and Delivery of the Bands .............................................................................................................. 4 Other I nformati on ......................................................................................................................................... 4

THE BONDS ............................................................................................................................................................. 5 Authority for I ssuance ................................................................................................................................... 5 Purpose of Issue ............................................................................................................................................ 5 Estimated Sources and Uses of Funds .......................................................................................................... 6 Investment of Bond Proceeds ....................................................................................................................... 6 Security and Sources of Payment.. ................................................................................................................ 6 Description of the B ands .............................................................................................................................. 7 Book-Entry System ....................................................................................................................................... 7 Payment to Holders ..................................................................................................................................... 1 O Debt Service ................................................................................................................................................ 1 O Redemption ................................................................................................................................................. 12

BOND INSURANCE .............................................................................................................................................. 13 Bond Insurance Policy ................................................................................................................................ 13 Financial Strength and Financial EnhancementRatingsofXLCA ............................................................ 13 Reinsurance ................................................................................................................................................. 13 Capitalization of the lnsurer ........................................................................................................................ 14 I ncorporati on by Reference of Fi nanci al s ................................................................................................... 14 R egul ati on of the I nsurer ............................................................................................................................ 1 5

ADVALOREM PROPERTY TAXATION .............................................................................................................. 15 County Services .......................................................................................................................................... 15 AssessedValuation ..................................................................................................................................... 15 State-Assessed Utility Property .................................................................................................................. 16 Tax Levies, Collections and Delinquencies ................................................................................................ 17 Teeter Plan .................................................................................................................................................. 17

CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUE AND APPROPRIATIONS ................................................................................................................................................ 18

ArticleXIIIA ............................................................................................................................................... 18 ArticleXIIIB ............................................................................................................................................... 19 Propositions 98 and 111 .............................................................................................................................. 20 Proposition lA ............................................................................................................................................ 21 ArticlesXIIIC andXIIID ............................................................................................................................ 21 Future Initiatives ......................................................................................................................................... 22

GENERAL SCHOOL DISTRICT FINANCIAL INFORMATION ........................................................................ 22 State Funding of School Districts ............................................................................................................... 22 Basic Aid Districts ...................................................................................................................................... 23 State Budget ................................................................................................................................................ 23

State Funding of Schools Without A State Budget ..................................................................................... 25 State Funding of School Construction ........................................................................................................ 25 State Retirement Program, ......................................................................................................................... 26 County Office of Education ........................................................................................................................ 26 School District Budget Process ................................................................................................................... 27 Accounting Practices .................................................................................................................................. 28 County Investment Pool .............................................................................................................................. 28

DISTRICT INFORMATION ................................................................................................................................... 29 General Information .................................................................................................................................... 29 Average Daily Attendance and Revenue Li nit .......................................................................................... 30 Labor Relations ........................................................................................................................................... 30 Retirement Program, .................................................................................................................................. 31 Comparative Financial Statements .............................................................................................................. 31 Audit ........................................................................................................................................................... 33 District Debt ................................................................................................................................................ 33 Availability of Documents .......................................................................................................................... 33

DISTRICT TAX BASE INFORMATION .............................................................................................................. 34 Assessed Valuation ..................................................................................................................................... 34 Secured Tax Charges and Delinquencies .................................................................................................... 34 Tax Rates .................................................................................................................................................... 35 Largest Taxpayers ....................................................................................................................................... 36 Statement of Direct and overlapping Debt ................................................................................................. 36

ECONOMIC PROFILE ........................................................................................................................................... 37 Introduction ................................................................................................................................................. 37 Population ................................................................................................................................................... 38 EmplO{ment ................................................................................................................................................ 38 Major EmplO{ers ........................................................................................................................................ 39 Construction Activity .................................................................................................................................. 40 Commercial Activity ................................................................................................................................... 41 Median Household I ncorne ......................................................................................................................... 41

LEGAL MATTERS ................................................................................................................................................. 41 Tax Matters ................................................................................................................................................. 41 Legality for Investment in California .......................................................................................................... 42 No Litigation ............................................................................................................................................... 42 Legal Opi ni on ............................................................................................................................................. 42 Bank Qualification ...................................................................................................................................... 43

MISCELLANEOUS ................................................................................................................................................ 43 Ratings ........................................................................................................................................................ 43 Underwriting ............................................................................................................................................... 43 Continuing Disclosure ................................................................................................................................ 43 Financial Acwisor ........................................................................................................................................ 44 Addi ti anal Information ............................................................................................................................... 44

APPENDIX A- BASIC FINANCIAL STATEMENTS FOR YEAR ENDED JUNE 30, 2006, WITH INDEPENDENT AUDITOR'S LETTER AND MANAGEMENT'S DISCUSSION AND ANALYSIS ............................................... A-1

APPENDIX B -PROPOSED FORM OF LEGAL OPINION ................................................................. B-1 APPENDIX C- FORM OF CONTINUING DISCLOSURE CERTIFICATE ........................................ C-1 APPENDIX D- EXCERPTS FROM THE SUTTER COUNTY

INVESTMENT PORTFOLIO REPORT ..................................................................... D-1 APPENDIX E -ACCRETED VALUE TABLES .................................................................................... E-1 APPENDIX F - SPECIMEN OF MUNICIPAL BOND INSURANCE POLICY ................................... E-1

OFFICIAL STATEMENT

$999,541.65 Franklin Elementary School District

(Sutter County, California) General Obligation Bonds

Election of 2006, Series 2007 (Capital Appreciation Bonds)

(Bank Qualified)

I NTR ODU CTI ON

This introduction is not a sumrary of this official statement (the" Official Statement''). It is only a brief description of and guide to, and is qualified by, rrore corrplete and detailed information contained in the entire Official Statement, including the ccwer page and appendices hereto, and the documents sumrari:zed or described herein. A full revie.v should be made of the entire Official Statement. The offering of the Bonds to potential investors is made only by rreans of the entire Official Statement.

This Official Statement, which includes the ccwer page and appendices hereto, is pro.tided to furnish information in connection with the sale of Franklin Elementary School District (Sutter County, California), General Obligation Bonds (the "Bonds''), as described rnore fully herein. The aggregate initial principal amount of the Bonds upon issuance thereof is $999,541.65 (the initial principal amount of a Bond is referred to herein as the" Denominational Amount'').

The District

The Franklin Elementary School District (the "District'') pro.tides educational services to certain unincorporated areas of Sutter County (the "County"), and to certain residents of Yuba City (the "City"), through i nter--district transfers in the State of California (the "State''). More detailed information regarding the area served by the District and the student population of the District rnay be found under "DISTRICT INFORMATION," "DISTRICT TAX BASE INFORMATION," and "ECONOMIC PROFILE" herein.

Sources of Payment for the Bonds

The Bonds are issued by the District, and the Board of Supervisors of the County is ernp:wered and is obligated to annually le.;y ad valorern taxes, without linitation as to rate or amount, upon all property suqject to taxation within the District (except certain personal property which is taxable at limited rates), as necessary for payment of the Bonds. See "THE BONDS - Security and Soorces of Payment," "AD VALOREM PROPERTY TAXATION" and "DISTRICT TAX BASE INFORMATION" rerein.

Purpose of the Bonds

The proceeds of Bonds are authori:zed to be used in the construction of a ne.v structure consisting of a gyrmasiurn, kitchen, library, indoor and outdoor stage areas, and administrative offices, as well as

construction of addi ti anal parki ng and major modi fi cati ans to the parking and traffic patterns at the front of the school to increase safety. See "THE BONDS - Purpose of Issue."

Definitions Regarding the Bonds

The terms set forth belcw have the fol lo.vi ng meanings:

"Accreted Interest" rreans the difference, as of the date of calculation, between the Denoninational Amount and its Accreted Value, as these terms are defined belcw.

"Accreted Value" rreans the calculated value of a Bond upon discounting its Maturity Value seniannually at its Accretion Rate to the date of calculation, assuming the Accreted Value increases between semiannual compounding dates on the basis of a 360-day year of twelve 30-day months comrrencing on the date of delivery. The seniannual compounding dates for calculation of Accreted Value are February 1 and August 1. The Accreted Values are shewn (per $5,CXXl maturity) in the Accreted Value Table(s) in APPENDIX E on the seniannual compounding dates and can be interpolated for any date between the dates given b,I straight line rrethod on a 360-day basis.

"Accretion Rate'' means the yield which discounts the Maturity Value of any Capital Appreciation Bond to its Denoninational Amount, as those terms are defined herein (or, stated another way, the yield at which a Capital Appreciation Bond accretes in value from its Denominational Amount to its Maturity Value). Accretion Rate is calculated on the basis of a 360-day year of twelve 30-day months and on the basis of seniannual compounding on each February 1 and August 1, beginning on the date of delivery. For each Bond, the first interest date is August 1, 2007, and the final interest date is the date of maturity thereof, suqject to any prior optional redemption. Accretion Rates for the Bonds appear as part of the Accreted Value Table(s) in APPENDIX E herein. The Accretion Rate is not necessarily the sarre as the R eofferi ng Y i el d, as defi ned herei n.

"Capital Appreciation Bond' rreans a bond, the interest component of which is compounded seniannually and paid at maturity. A Capital Appreciation Bond has a zero stated interest rate, but accretes in value on the basis of its Accretion Rate, compounding semiannually, as described herein under "Accreted Value".

"Denoninational Amount'' rreans the initial purchase price of any Capital Appreciation Bond at which it is purchased b,I the Underwriter, as hereinafter defined.

"Maturity Value'' rreans the redemption price (or Accreted Value) of any Capital Appreciation Bond on its maturity date.

"Reoffering Price" rreans the price at which a Bond is initially reoffered to the public b,I the Underwriter.

"Reoffering Yield," for any Capital Appreciation Bond, means the yield which discounts the Maturity Value to its Reoffering Price. Reoffering Yield is calculated on the basis of a 360-day year of twelve 30-day months discounted semiannually on February 1 and August 1. The ReofferingYield is not necessarily the same as the Accretion Rate, as defined herein. Reoffering Yields on the Capital Appreciation Bonds appear on the inside ccwer page hereof and in APPENDIX E herein.

2

Authority for Issuance of the Bonds

The Bonds are issued pursuant to certain prcwisions of the State of California Gcwernment Code (the "Gcwernment Code") and other applicable law, and pursuant to resolutions adopted by the Board of Trustees of the District and the Board of Supervisors of the County. See 'THE BONDS - Authority for I ssuance" herein.

Description of the Bonds

The Bonds will not bear current interest, but will accrete in value daily, frorn the date of delivery thereof at their Denoninational Amount to their accreted value at maturity ("Maturity Value"). The Bonds will be paid, suqject to any optional redemption, at maturity on the dates and in the Maturity Value amounts set forth on the inside ccwer page hereof. The Bonds are payable in lawful rnoney of the United States of America upon the surrender thereof at the principal corporate trust office of The Bank of New Yark Trust Company, NA., Los Angeles, California (the "Paying Agent''), at the maturity thereof. Bonds maturing on or before August 1, 2017, are not suqject to optional redemption. Bonds maturing on and after August 1, 2018, rnay be redeemed prior to maturity at the option of the District beginning on August 1, 2017, as described under "THE BONDS - Redemption" herein.

Forrn Denonination and Registration. The Bonds will be issued in fully registered forrn only, without coupons, in denominations of $5,CXXl Maturity Value or integral multiples thereof. The Bonds will be registered initially in the name of Cede & Co., as noninee of The Depository Trust Company, New Yark, NewY ark(" DTC"). DTC will act as securities depository for the Bonds. So long as DTC, or Cede & Co., as its nominee, is the registered o.vner of all the Bonds, payments on the Bonds will be made directly to DTC, and disbursement of such payments to the DTC Participants (defined herein) will be the responsibility of DTC, and disbursement of such payments to the Beneficial owners (defined herein) will be the responsibility of the DTC Participants, as rnore fully described belo.v under "THE BONDS -Book-Entry System." Only if the Bonds should cease to be paid through a book-entry system would the Paying Agent make payments on the Bonds directly to Beneficial owners, as registered o.vners of the Bonds, as rnore fully described belo.v under "THE BONDS -Discontinuation of Book-Entry System; Payment to Beneficial Owners.

Bond Insurance

The scheduled payment of Maturity Value on the Bands when due wi 11 be guaranteed under an insurance policy to be issued concurrently with the delivery of the Bonds by XL Capital Assurance Inc. See" BOND INSURANCE" herein.

Tax Matters

In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, suqject, ho.vever to certain qualifications described herein, under existing law, the interest on the Bands is excluded from gross i ncorne for federal income tax purposes, such interest is not an i tern of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although for the purpose of computing the alternative minimum tax imposed on certain corporations, such i nterest is taken i nto account in deterni ni ng certai n i ncorne and earni ngs, and the Bonds are "qualified tax-exempt obligations" within the meaning of section 265(b)(3) of the Internal Revenue Code of 1986. In the further opinion of Bond Counsel, such interest is exempt from California personal income taxes. See"LEGAL MATTERS-Tax Matters'' herein.

3

Bank Qualified

The Bonds are deemed b,I the District to be "bank qualified" within the meaning of Section 265(b)(3)(B) of the Internal Re.renue Code of 1986. See" LE GAL MATTE RS - Bank Qualification" herein.

Professionals Involved in the Offering

With respect to the Bonds, KNN Public Finance, A Division of Zions First National Bank, Oakland, California, is the District's financial acwisor (the "Financial Acwisor") (see "MISCELLANEOUS - Financial Advisor" herein) and Jones Hall, A Professional Law Corporation, San Francisco, California is the District's bond counsel (the "Bond Counsel"). The Bank of New York Trust Company, NA., Los Angeles, California will act on behalf of the County as paying agent, registrar and transfer agent (the" Paying Agent'') with respect to the Bonds. The Financial Acwisor, Bond Counsel, and Paying Agent will receive compensation from the District contingent upon the sale and delivery of the Bonds.

Offering and Delivery of the Bands

The Bonds will be offered when, as and if issued b,I the District and received b,I the Underwriter, suqject to apprOJal as to their legality b,I Bond Counsel. It is anticipated that the Bonds, in book-entry form, will be available for delivery through DTC in NewY ork, NewY ork on or about March 15, 2007.

Other Information

This Official Statement speaks only as of its date, and the information contained herein is suqject to change. Copies of documents referred to herein and information concerning the Bonds are available from the Business Office, 332 North To.vnship Road, Yuba City, CA 95991--9629, phone 530-S22-5151. The District may impose a charge for cop,ling, mailing and handling. See also "MISCELLANEOUS -Continuing Disclosure'' herein.

END OF INTRODUCTION

4

THE BONDS

Authority for Issuance

The Bonds are being issued underthe authority of Article 4.5 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Gcwernrrent Code of the State (the "Gcwernrrent Code''), and other applicable prcwisions of law, including applicable prcwisions of the Education Code, and pursuant to a resolution adopted b,I the Board of Trustees of the District on February 8, 2007 (the" Resolution").

The District received authorization to issue $2.0 nil lion of bonds at an election held onJ une 6, 2006, b,I an affirmative vote of 62.43% of the votes cast (the "Authorization"). An affirmative 55% vote in favor was required. The Bonds represent the second and final series issued under the Authorization. See"DISTRICT INFORMATION-District Debt," herein.

Del ivety Date

Novem~r 9, 20C6

Purpose of Issue

FRANKLIN ELEMENTARY SCHOOL DISTRICT Prior Bonds Issued Under the Authorization

Election of 20C6, Series 20C6

Am:Junt of Original lssLe

$1.000.000

Outstan:li tl'J as of March 15 ;,ro7

$1.000.000

Net proceeds of the Bonds are authorized to be used in the construction of a new structure housing a gyrnnasiurn, kitchen, library, indoor and outdoor stage areas, and administrative offices, as well as construction of additional parking and major modifications to the parking and traffic patterns at the front of the school to increase safety.

5

Estimated Sources and Uses of Funds

Upon delivery of the Bonds, the proceeds of the Bonds will be deposited in such funds or used for such purposes as described in the table belo.v.

FRANKLIN ELEMENTARY SCHOOL DISTRICT Estimated Sources and UsesofFunds

Sources of F un::ls Denominational Am:Junt of Bon:ls Origi naJ I ssLe Premium

Total Sources

UsesofFun::ls DeposittoBuilditl'J Fun::l Costs of I ssuan:::e Fun::J(al U n:lerwri ter' s Com~nsatiorfbJ

Total Uses

$ 999,541.65 67 596.55

$1,067,138.20

$999,541.65 40,099.97 27 496.58

$1,067,138.20

(al I rr::lu::les estimated fees for Financial Advisor, Bon::! Counsel, ratitl'J agerry, printitl'J an::l distribution of official staterrent, Payitl'J Agent, an::l mi scel I aneous costs of i ssuan:::e.

(bJ I rr::I Wes bon::l insurance premium.

Investment of Bond Proceeds

The proceeds from the sale of the Bands, to the extent of the principal amount thereof, shal I be paid to the County to the credit of the building fund of the District (the "Building Fund') and shall be accounted for separately from all other District and County funds, but may be commingled with the proceeds of sale of other bonds of the District deposited in the Building Fund and authorized to be used for the same purpose. The proceeds shal I be used only for the purposes for which the Bands are authorized. Any premium received from the sale of the Bonds shall be deposited in the interest and sinking fund of the District (the "Debt Service Fund') and used only for payments of Denominational A mount and accreted interest on the Bands. Interest earned on the investment of monies held in the Debt Service Fund shall be retained in the Debt Service Fund. Interest earned on the investment of monies held in the Building Fund shall be retained in the Building Fund.

Monies in the Building Fund and the Debt Service Fund shall be invested in any one or more investments generally permitted to school districts under the laws of the State, consistent with County investment policy and the Resolution. The Resolution authorizes investment at the County Treasurer's discretion pursuant to law and the investment policy of the County. The Board of Trustees has delegated to the County Treasurer, pursuant to Section 53607 of the GOJernment Code, its authority under Section 41015 of the Education Code and Section 53601 of the GOJernment Code to invest proceeds of the Bonds held in the Treasury of the County. See "GENERAL SCHOOL DISTRICT Fl NANCI AL INFORMATION - County Investment Pool" herein and "APPENDIX D - EXCERPTS FROM THE SUTTER COUNTY INVESTMENT PORTFOLIO REPORT".

Security and Sources of Payment

The Board of Supervisors of the County is empo.vered and is obligated to annually levy ad valorem taxes, without linitation as to rate or amount, as necessary for payment of the Bonds, upon all

6

property within the District (except certain personal property which is taxable at linited rates). Such taxes, when collected, will be placed b,I the County in the Debt Service Fund.

The rate of the advaloremtaxwill be set annually b,I the County based on the assessed value of taxable property in the District and the debt service requirement on the outstanding bonds in each year. Variation in the annual debt service requirement and changes in assessed valuation within the District may cause the annual tax rate to change from year to year. For further information regarding ad valorem property taxation in general, see "AD VALOR EM PROPERTY TAXATION" and within the District in particular, see"DISTRICTTAX BASE INFORMATION" herein.

Description of the Bonds

The Bonds will not bear current interest, but will accrete in value daily, from the date of delivery thereof at their Denoninational Amount to their Maturity Value. The Bonds will be paid, suqject to any optional redemption, at maturity on the dates and in the Maturity Value amounts set forth on the inside ccwer page hereof. The Bonds are payable in lawful money of the United States of America upon the surrender thereof at the principal corporate trust office of the Paying Agent, at the maturity thereof. Bonds maturing on or before August 1, 2017, are not suqject to optional redemption. Bonds maturing on and after August 1, 2018, may be redeemed prior to maturity at the option of the District beginning on August 1, 2017, at their accreted value on the date of redemption, as descri bed under " Redemption" herein.

The Bonds will be issued in fully registered form only, without coupons, in denoninations of $5,CXXl Maturity Value or integral multiples thereof. The Bonds will be registered initially in the name of Cede & Co., as noninee of The Depository Trust Company, Ne.v York, Ne.vYork ("DTC"). DTC will act as securities depository for the Bonds. So long as DTC, or Cede & Co., as its nominee, is the registered cwner of all the Bonds, debt service payments on the Bonds will be made directly to DTC, and disbursement of such payments to the DTC Participants (defined belcw) will be the responsibility of DTC, and disbursement of such payments to the Beneficial owners (defined belcw) will be the responsibility of the DTC Participants, as more fully described belcw under "Book-Entry System." Only if the Bonds should cease to be paid through a book-entry system would the Paying Agent make payments on the Bonds directly to Beneficial owners, as registered cwners of the Bonds, as more fully described bel cw under "Discontinuation of Boak-£ ntry System; Paymentto B enefi ci al owners."

Boak-£ ntry System

The information in this section concerning DTC and DTC's book-entry system has been furnished b,I DTC for use in disclosure documents, and the District takes no responsibility for the accuracy or completeness thereof. The District cannot and does not give any assurances that DTC will distribute to Direct Participants, or that Direct Participants or Indirect Participants will distribute to the Beneficial OWners, payments of principal of, interest, and preniurn if any, on the Bonds paid or any redemption or other notices or thattheywill do so on a timely basis or will serve and act in the manner described in this Official Statement. Neither the District nor the County nor the Paying Agent are responsible or liable for the failure of DTC or any Direct or Indirect Participant to make any payments or give any notice to a Beneficial OWner or any error or delay relating thereto. Accordingly, no representations can be made concerning these matters and neither the Direct nor Indirect Participants nor the Beneficial OWners should rely on the follONing information with respect to such matters but should instead confirm the same with DTC or the DTC Participants, as the case may be.

7

DTC will act as securities dep:isitory for the Bonds. The Bonds will be issued as fully,egistered securities registered in the nan-e of Cede & Co. (DTC's partnership noninee) or such other nan-e as may be requested b,I an authorized representative of DTC. One fully,egistered Bond certificate will be issued for each maturity of the B ands, each i n the aggregate pri nci pal amount of such maturity, and wi 11 be dep:isited with DTC.

DTC, the world's I argest dep:isitory, is a Ii ni ted--purp:ise trust corrpany organized underthe New Yark Banking Law, a "banking organization" within the n-eaning of the New Yark Banking Law, a n-eniber of the Federal Reserve System, a "clearing corporation" within the n-eaning of the New Yark Uniform Comn-ercial Code, and a "clearing agency" registered pursuant to the prcwisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and pro.tides asset servicing for ewer 2.2 million issues of U.S. and non--U.S. equity issues, corporate and municipal debt issues, and money market instrun-ents from ewer 100 countries that DTC's participants (" Direct Participants") dep:isit with DTC. DTC also facilitates the p:ist-trade settlen-ent among Direct Participants of sales and other securities transacti ans in dep:isi ted securities, through electronic cornputeri zed book-entry transfers and pl edges between Direct Participants' accounts. This elininates the need for physical mcwen-ent 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-o.vned subsidiary of The Dep:isitory Trust & Clearing Corporation(" DTCC"). DTCC, in turn, is o.vned b,I a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Gcwernn-ent Securities Clearing Corporation, MBS Clearing Corporation, and En-erging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as b,I the New Yark Stock Exchange, Inc., the An-erican Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non­U.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 Comnission. More information about DTC can be found at www.dtcc.com and www.dtc.org.

Purchases of the Bonds under the DTC system must be made b,I or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The o.vnership interest of each actual purchaser of each Bond ("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. B enefi ci al owners are, ho.vever, expected to receive written confi rmati ans prcwidi ng detai Is of the transaction, as well as periodic staten-ents of their holdings, from the Direct or Indirect Participant through which the Beneficial owner entered into the transaction. Transfers of o.vnership interests in the Bonds are to be accomplished b,I entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial owners. Beneficial owners will not receive certificates representing their o.vnership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.

To facilitate subsequent transfers, all Bonds dep:isited b,I Direct Participants with DTC are registered in the nan-e of DTC's partnership nominee, Cede & Co., or such other nan-e as may be requested b,I an authorized representative of DTC. The dep:isit of Bonds with DTC and their registration in the nan-e of Cede & Co. or such other DTC noninee do not effect any change in beneficial o.vnership. DTC has no kno.vledge of the actual Beneficial owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial owners. The Direct and Indirect Participants will remain responsible for keeping account of thei r holdings on behalf of their custon-ers.

8

Conveyance of notices and other cornm.mications b,I DTC to Direct Participants, b,I Direct Participants to Indirect Participants, and b,I Direct Participants and Indirect Participants to Beneficial owners wi 11 be gcwerned b,I arrangements among them, suqj ect to any statutory or regulatory requirements as may be in effect from ti me to ti me. B enefi ci al owners of B ands may wish to take certai n steps to augment the transnission to them of notices of significant e..rents with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the security documents. For example, B enefi ci al owners of B ands may wish to ascertai n that the noni nee holding the Bands for their benefit has agreed to obtain and transmit notices to Beneficial owners. In the alternative, Beneficial owners may wish to pro.ti de thei r names and addresses to the registrar and request that copies of notices be pro.tided directly to them.

Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC's practice is to deternine b,l lot the amount of the interest of each Direct Participant in such issue to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC noni nee) wil I consent or vote with respect to Bonds unless authorized b,I a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer 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 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Redemption proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co., or such other noninee as may be requested b,I 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 issuer or paying agent, on payable date in accordance with their respective holdings sho.vn on DTC's records. Payments b,I Participants to Beneficial owners will be gcwerned b,I 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 (nor its noninee), the Paying Agent, the District or the County, suqject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other noninee as may be requested b,I an authorized representative of DTC) is the responsi bi I ity of the County or the Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue pro.tiding its services as depository with respect to the Bonds at any time b,I giving reasonable notice to the County or the Paying Agent. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered.

The County may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that e..rent, Bond certificates will be printed and delivered.

9

Payment to Holders

The follOMng prCNisions gcwerning the payment, transfer and exchange of the Bonds apply to holders of the Bonds. /le, long as the DTC oook--entry system described aro..re is in effect, Cede & Co., or such other noninee of DTC, but not the Beneficial OWners, are holders of the Bonds. Only in the e..rent that Bonds are printed and delivered to the Beneficial OWners do these prCNisions then apply directly to Beneficial OWners as holders of the Bonds.

The Accreted Value of the Bonds and any premium upon the rederrption thereof prior to the maturity will be payable upon presentation and surrender of the Bonds at the principal corporate trust office of the Paying Agent, or such other location as the Paying Agent may specify. Interest shall be paid by check to the o.vner of any Bond at the address of such o.vner sho.vn on the registration oooks of the Paying Agent, or at such other address the o.vner of the Bond has filed with the Paying Agent for such purpose on or before the Record Date. owners of not less than $1,000,000 in Denominational Amount of Bonds may, by written request received by the Paying Agent not later than the Record Date immediately preceding any Interest Payment Date, have interest payments made on the date due by wire transfer to an account maintained in the United States of America in immediately available funds.

Any Bond may be exchanged for Bonds of any authorized denominations of the same maturity and interest rate upon presentation and surrender at the principal corporate trust office of the Paying Agent, together with a request for exchange signed by the registered o.vner or by a person legally empo.vered to do so in a form satisfactory to the Paying Agent. A Bond may be transferred only on the Bond registration oooks upon presentation and surrender of the Bond at the principal corporate trust office of the Paying Agent together with an assignment executed by the registered o.vner or by a person legaily empo.vered to do so in a form satisfactory to the Paying Agent. Upon exchange or transfer, the designated District official shall execute, and the Paying Agent shall authenticate and deliver a new Bond or B ands of any authorized denoni nation or denomi nations requested by the registered o.vner or by a person legally empo.vered to do so, equal in the aggregate to the unmatured principal amount of the Bond surrendered and bearing interest at the same rate and maturing on the same date.

The Paying Agent will not be required to exchange or transfer any Bond during the period from the close of business on the applicable Record Date next preceding any Interest Payment Date or redemption date, to and including such Interest Payment Date or rederrption date.

Debt Service

Debt service obligations for the Bonds, and the outstanding Election of 2cn;, Series 2cn;, assuming that no opti anal rederrpti ons are made, are as fol Io.vs:

10

FRANKLIN ELEMENTARY SCHOOL DISTRICT Annual Debt Service

SEries XXJ7 Bm:ls Paytn:flt SEries Deroni national Accre:ed Maturity Annual

Date 20'.)3 Bords(aJ Arro1.mt I nterest(bJ Value DebtSevice 8/1 /2f]J7 $ 33,631.25 $ 33,631.25 2/1 /2f]J8 23,281.25 8/1 /2f]J8 28,281.25 51,562.50 2/1 /2f]J9 23, lCXi.25 8/1 /2f]J9 33, lCXi.25 $ 7,64& 10 $ 2,351.90 $ 10,0'.Xl.OO 66,212.50 2/1 ;2010 22,756.25 8/1 ;2010 32,756.25 10,24&75 4,751.25 15,0'.Xl.OO 70,512.50 2/1 ;2011 22,4CXi.25 8/1 ;2011 37,4CXi.25 9,155.85 5,844.15 15,0'.Xl.OO 74,812.50 2/1 ;2012 21,881.25 8/1 ;2012 41,881.25 8,179.50 6,820.50 15,0'.Xl.OO 78,762.50 2/1 ;2013 21,181.25 8/1 ;2013 46,181.25 7,307.40 7,692.60 15,0'.Xl.OO 82,362.50 2/1 ;2014 20,3CXi.25 8/1 ;2014 50,3CXi.25 6,52& 15 8,471.85 15,0'.Xl.OO 85,612.50 2/1 ;2015 l 9,4CXi.25 8/1 ;2015 24,4CXi.25 17,496.00 27,504.00 45,0'.Xl.OO 88,812.50 2/1 ;2016 l 9,3CXi.25 8/1 ;2016 29,3CXi.25 15,630.30 29,369.70 45,0'.Xl.OO 93,612.50 2/1 ;2017 19, lCXi.25 8/1 ;2017 34, lCXi.25 13,827.15 31,172.85 45,0'.Xl.OO 98,212.50 2/1 ;2018 18,BCXi.25 8/1 ;2018 38,BCXi.25 28,043.10 16,956.90 45,0'.Xl.OO 102,612.50 2/1 ;2019 18,393.75 8/1 ;2019 43,393.75 26,577.00 18,423.00 45,0'.Xl.OO lCXi,787.50 2/1 ;2020 17,878.13 8/1 ;2020 47,878.13 25, 13&80 19,861.20 45,0'.Xl.OO 110,756.26 2/1 ;2021 17,259.38 8/1 ;2021 52,259.38 23,899.50 21,100.50 45,0'.Xl.OO 114,518.76 2/1 ;2022 16,537.50 8/1 ;2022 61,537.50 20,176.80 19,823.20 40,0'.Xl.OO 118,075.00 2/1 ;2023 15,525.00 8/1 ;2023 65,525.00 24,007.50 25,992.50 50,0'.Xl.OO 131,050.00 2/1 ;2024 14,400.00 8/1 ;2024 74,400.00 22,87&00 27,122.00 50,0'.Xl.OO 138,800.00 2/1 ;2025 13,050.00 8/1 ;2025 78,050.00 23,972.30 31,027.70 55,0'.Xl.OO 146,100.00 2/1 ;2026 11,587.50 8/1 ;2026 86,587.50 22,697.40 32,302.60 55,0'.Xl.OO 153,175.00 2/1 ;2027 9,900.00 8/1 ;2027 99,900.00 21,597.95 33,402.05 55,0'.Xl.OO 164,800.00 2/1 ;2028 7,875.00 8/1 ;2028 107,875.00 20,586.50 34,413.50 55,0'.Xl.OO 170,750.00 2/1 ;2029 5,625.00 8/1 ;2029 120,625.00 19,61&50 35,381.50 55,0'.Xl.OO 181,250.00 2/1 ;2030 3,037.50 8/1 ;2030 128,037.50 18,692.85 36,307.15 55,0'.Xl.OO 186,075.00 2/1 ;2031 225.00 8/1 ;2031 10,225.00 59,895.60 125,104.40 185,0'.Xl.OO 195,450.00 2/1 ;2031 8/1 ;2032 63,213.80 141,786.20 205,0'.Xl.OO 205,0'.Xl.OO 2/1 ;2032 8/1 ;2033 62,805.80 152,194.20 215,0'.Xl.OO 215,0'.Xl.OO 2/1 ;2033 8/1 ;2034 62,563.50 162,436.50 225,0'.Xl.OO 225,0'.Xl.OO 2/1 ;2034 8/1 ;2035 63,511.20 176,48&80 240,0'.Xl.OO 240,0'.Xl.OO 2/1 ;2035 8/1 ;2036 65,465.40 194,534.60 260,0'.Xl.OO 260,0'.Xl.OO 2/1 ;2036 8/1 ;2037 64,673.10 205,326.90 270,0'.Xl.OO 270,0'.Xl.OO 2/1 ;2037 8/1 ;2038 65,131.05 219,86&95 285,0'.Xl.OO 285,0'.Xl.OO 2/1 ;2038 8/1 ;2039 65,202.00 234,79&00 300,0'.Xl.OO 300,0'.Xl.OO 2/1 ;2039 8/1 /,'040 33 172.80 126 827.20 160 O'.Xl.00 1600'.Xl.OO

Tctal $ l 789 3CXi.27 $999 541.65 P 215 45&35 $3 ? 15 O'.Xl.00 $5 004 3CXi.27

(aJ See "DISTRICT I NF ORM A TION - District Deb:' for a description of cthEr cutstarding deh: of the District. (bJ A ccre:ed I ntErest cd urm represents the accretion i n val ue cf the B crids from their Denoni nati crial A rrount to their M aturi ty Value.

11

Redemption

Optional Rederl1)tion

The Bonds maturing on or before August 1, 2017, are not suqject to optional redemption. Bonds maturing on and after August 1, 2018, are suqject to redemption prior to their respective stated maturity dates, at the option of the District, from any source of available funds, in whole or in part, on any date on or after August 1, 2017, at the optional redemption price set forth in the table belo.v (expressed as a percentage of the accreted value of the B and cal I ed for redemption on the date of redemption) . I f the redemption date falls on a February 1 or August 1, the accreted value of a Bond is calculated b,I discounting its Maturity Value semiannually on each February 1 and August 1 at its Accretion Rate to said redemption date, and if the redemption date fal Is between two such interest dates, the calculated strai ght--1 i ne interpolated val ue of the discounted accreted values of the Band on those two i nterest dates is the accreted value of the Bond. All such calculations are on the basis of a 360-day year of twelve 30-day months. If less than all of the Bonds are called for redemption, such Bonds shall be redeemed in inverse order of maturities or as otherwise directed b,I the District, and if less than all of the Bonds of any given maturity are called for rederl1)tion, the portions of such Bonds of a given maturity to be redeemed shall be deterrri ned b,11 ot.

Redemption Date

August 1, 201 7 and thereafter

Notice ofRedeniit:ion

Redemption Price

102%

Notice of redemption will be given b,I the Paying Agent at the expense of the District. Such notice will specify: (a) thatthe Bonds or a designated portion thereof are to be redeemed, (b) the numbers and CUSI P numbers of the Bonds to be redeemed, (c) the date of notice and the date of redemption, (cl) the place or places where the redemption will be made, and (e) descriptive information regarding the Bonds including the dated date, interest rate and maturity date. Such notice of rederl1)tion will also state that the Bonds, along with the interest accrued to such date and the redemption premium, if any, will become due and payable on the specified date, and that from and after such date interest with respect to the Bands wi 11 cease to accrue.

Notice of redemption will be made b,I registered or otherwise secured mail, postage prepaid, to (a) the registered o.vners of the Bonds being redeemed (or, if such o.vner is a syndicate, to the managing member of such syndicate), (b) a municipal registered securities depository, and (c) a national information service that disserrinates securities rederl1)tion notices. Notice of rederl1)tion will be at least thirty days, but not more than sixty clays, prior to the redemption date. Neither failure to receive such notice nor any defect in the content of such notice wi 11 affect the sufficiency of the proceedi ng for the redemption of the Bonds.

12

BOND INSURANCE

The follOMng information has been supplied b,I the Insurer for inclusion in this Official Statement. No representation is made b,11 ssuer as to the accuracy or cornpl eteness of the information.

The Insurer accepts no responsibility for the accuracy or completeness of this Official Statement or any other information or di sci 05Ure contained herein, or onined herefrorn other than ½ith respect to the accuracy of the information regarding the Insurer and its affiliates set forth under this heading. In addition, the Insurer makes no representation regarding the Bonds or the acwisability of investing in the Bonds.

Bond Insurance Policy

XL Capital Assurance Inc. (the" Insurer" or "X LCA") is a monoline financial guaranty insurance company incorporated under the I.M's of the State of New Yark. The Insurer is currently licensed to do insurance business in, and is suqject to the insurance regulation and supervision b,I, all 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands and Singapore.

The Insurer is an indirect wholly o.vned subsidiary of Security Capital Assurance Ltd(" SCA"), a company organized under the laws of Bermuda Through its subsidiaries, SCA pro.tides credit enhancement and protection products to the publ i c fi nance and structured finance markets throughout the United States and internationally. XL Capital Ltd beneficially o.vns approximately 63% of SCA's outstanding shares. The common shares of SCA are publicly traded in the United States and listed on the New Yark Stock Exchange (NYSE: SCA). SCA is not obligated to pay the debts of or claims against the Insurer.

Financial Strength and Financial Enhancement Ratings ofX LCA

The Insurer's insurance financial strength is rated "Aaa'' b,I Mocrly"s and "AAA" b,I Standard & Poor's and Fitch, Inc. ("Fitch"). In addition, the Insurer has obtained a financial enhancement rating of "AAA" from Standard & Poor's. These ratings reflect Moody's, Standard & Poor's and Fitch's current assessment of the Insurer's creditworthiness and claim,--paying ability as well as the reinsurance arrangement with XL Financial Assurance Ltd. ("X LFA") described under "Reinsurance" belo.v.

The abo.te ratings are not recommendations to buy, sell or hold securities, including the Bonds and are suqject to revision or withdrawal at any time b,I Moody's, Standard & Poor's or Fitch. Any do.vnward revision or withdrawal of these ratings may have an ad.terse effect on the market price of the B ands. The I nsurer does not guaranty the market price of the Bands nor does it guaranty that the rati ngs on the Bonds will not be revised or withdrawn.

Reinsurance

The Insurer has entered into a facultative quota share reinsurance agreement with X LFA, an insurance company organized underthe I.M's of Bermuda, and an affiliate of the Insurer. Pursuant to this reinsurance agreement, the Insurer expects to cede upto 7'JYo of its business toXLFA. The Insurer may also cede reinsurance to third parties on a transaction-specific basis, which cessions may be any or a combi nation of quota share, fi rst I 055 or excess of I 055. Such reinsurance is used b,I the I nsurer as a risk management device and to comply with statutory and rating agency requirements and does not alter or

13

limit the Insurer's obligations under any financial guaranty insurance policy. With respect to any transaction i nsured by X L CA, the percentage of risk ceded to X L FA may be I ess than 7'JYo dependi ng on certain factors including, without Ii mitation, whether XL CA has obtained third party reinsurance cOJeri ng the risk. As a result, there can be no assurance as to the percentage rei nsured by XL FA of any given financial guaranty insurance policy issued byXLCA, including the Policy.

Based on the audited fi nanci al s of X L FA, as of December 31 , 2005, X L FA had total assets, liabilities, redeemable preferred shares and shareholders' equity of $1,394,081,000, $704,007,000, $39,000,000 and $651,074,000, respectively, deternined in accordance with generally accepted accounting principles in the United States ("US GAAP"). XLFA's insurance financial strength is rated "Aaa'' by Mocrly's and "AAA" by S&P and Fitch Inc. In addition, XLFA has obtained a financial enhancement rating of" AAA" from S& P.

The ratings of XL FA or any other member of the SCA group of companies are not recommendations to buy, sell or hold securities, including the Bonds and are suqject to revision or withdrawal at any time by Moody's, Standard & Poor's or Fitch.

Notwithstanding the capital support prOJided to the Insurer described in this section, the Bondholders will have direct recourse against the Insurer only, andX LFA will not be directly liable to the B ondhol ders.

Capitalization of the Insurer

Based on the audited financials of XL CA, as of December 31, 2005, XL CA had total assets, liabilities, and shareholder's equity of $953,706,000, $726,758,000, and $226,948,000, respectively, deterni ned i n accordance with U .S. CAA P.

B ased on the audited statutory fi nanci al statements for X L CA as of December 31, 2005 fi I ed with the State of New York Insurance Department, X LCA has total admitted assets of $328,231,000, total liabilities of $139,392,000, total capital and surplus of $188,839,000 and total contingency reserves of $13,031,000 deternined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities ("SAP").

Incorporation by Reference of Financials

For further information concerning X LCA and X LFA, see the financial statements of X LCA and X LFA, and the notes thereto, incorporated by reference in this Official Statement. The financial statements ofXLCA andXLFA are included as exhibits to the periodic reports filed with the Securities and Exchange Commission (the "Comnission") by SCA, with respect to all periods ending after August 4, 2006, and by XL Capital Ltd, with respect to all periods ending prior to August 4, 2006, and may be reviewed at the EDGAR website maintained by the Comnission. All financial statements of X LCA and X LFA included in, or as exhibits to, documents filed by SCA or XL Capital Ltd pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 on or prior to the date of this Official Statement, or after the date of this Official Statement but prior to ternination of the offering of the Bonds, shall be deemed incorporated by reference in this Official Statement. Except for the financial statements of X LCA andX LFA, no other information contained in the reports filed with the Comnission by SCA or XL Capital Ltd is incorporated by reference. Copies of the statutory quarterly and annual statements filed with the State of New York Insurance Department by X LCA are available upon request to the State of New York Insurance Department.

14

Regulation of the Insurer

The Insurer is regulated b,I the Superintendent of Insurance of the State of New York. In addition, the Insurer is suqject to regulation b,I the insurance laws and regulations of the other jurisdictions in which it is licensed. As a financial guaranty insurance company licensed in the State of New York, the Insurer is suqject to Article 69 of the New York Insurance Law, which, among other things, limits the business of each insurer to financial guaranty insurance and related lines, prescribes ninirnum standards of solvency, including minimum capital requirements, establishes contingency, loss and unearned preni um reserve requirements, requires the maintenance of mini mum surplus to policyholders and limits the aggregate amount of insurance which may be written and the maximum size of any single risk exposure which may be assumed. The Insurer is also required to file detailed annual financial statements with the NewY ork Insurance Department and similar supervisory agencies in each of the other jurisdictions in which it is licensed.

The extent of state insurance regulation and supervision varies b,I jurisdiction, but New York and rmst other jurisdictions have laws and regulations prescribing permitted investments and gcwerning the payment of dividends, transactions with affiliates, mergers, consolidations, acquisitions or sales of assets and incurrence of liabilities for borro.vings.

THE FINANCIAL GUARANTY INSURANCE POLICIES ISSUED BY THE INSURER, INCLUDING THE INSURANCE POLICY, ARE NOT COVERED BY THE PROPERTY ;CASUAL TY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.

The principal executive offices of the Insurer are located at 1221 Avenue of the Americas, New York, New York 10020 and its telephone number at this address is (212) 478-3400.

AD VAL OREM PROPERTY TAXATION

The information in this section describes ho.v ad valorem property taxes in general are assessed and levied. For specific information on the property tax base, tax levies and collections in the District, see"DISTRICTTAX BASE INFORMATION" herein.

County Services

School districts within each county use the services of that county for the assessment and collection of property taxes for district purposes. District property taxes, including the ad valorem property tax for payment of general obiigation bonds of the District, are assessed and collected b,I the county at the same time and on the same rolls as county, special district and city property taxes.

Assessed Valuation

All property is assessed using full cash value as defined b,I Article XIIIA of the California Constitution (the "Constitution"). State law exempts from taxation $7,000 of the full cash value of an o.vner--occupied d.velling, pro.tided that the o.vner files and qualifies for such exemption. The State is required to reimburse local agencies for the value of taxes on the exempt $7,000. State law also pro.tides exemptions from ad valorem property taxation for certain classes of property based on o.vnership or use, such as churches, colleges, non-profit hospitals and charitable institutions; the State does not reirrburse

15

local agencies for any tax not le.tied due to these exemptions. State and federal gcwernment property also is not taxed, nor is local gcwernment property located within the jurisdiction of that local gcwernment.

For assessment and collection purposes, property is classified as either "secured' or "unsecured' and is listed accordingly on separate parts of the assessment roll. The "secured roll" is that part of the assessment roll containing State-assessed property and other property having a tax lien on real property which is sufficient, in the opinion of the assessor, to secure payment of the taxes. Unsecured property comprises all other taxable property. Unsecured property is assessed on the "unsecured roll." Every tax levied b,I a county that becomes a lien on secured property has priority ewer all present and future private liens arising pursuant to State law on the secured property, regardless of the time of the creation of the other liens. A tax levied on unsecured property does not become a lien against the taxed unsecured property, but may become a lien on other property o.vned b,I the taxpayer. Valuation of secured property and a statutory tax lien is established as of January 1 priortothetaxyear (the tax year istheJuly 1 -June 30 fiscal year of the State) of the related tax le.,ry, and the secured and unsecured tax rolls are certified on or beforeJ uly 1 of the tax year b,I the County Assessor. New property and imprcwements are assessed and added to a "supplemental" roll during the year acquired or when irnprcwements are corrpl eted, and such property is taxed at the secured or unsecured rate then i n effect, as appropriate, for the remaining portion of that year. The next year and thereafter such assets are assessed on the regular tax rolls.

Future grONth in assessed valuation allo.ved under Article XIIIA is allocated on the basis of "situs" among the jurisdictions that serve the tax rate area within which the grONth occurs. Local agencies and school districts wil I share the grONth of" base" revenues from the tax rate area. Each year's grONth allocation becomes part of each agency's allocation in the follo.vingyear.

See" DISTRICT TAX BASE INFORMATION" herein for a history of assessed valuation and a list of the largest secured tax payers for the current tax year within the District.

State-Assessed Utility Property

The Constitution pro.tides that the State Board of Equalization (the "SBE") rather than counties assess certai n property o.vned or used b,I regulated uti Ii ti es. Such property is grouped and assessed b,I the SBE as "going concern" operating units, which may cross local taxjurisdiction boundaries, ratherthan as individual parcels of real or personal property separately assessed. Such utility property is kno.vn as "unitary property." The SBE assesses property at "fair market value," determined b,lvarious methods and formulae depending on the nature of the property, except that certain railroad property is assessed at a specified percentage of the fair market value determined b,I the SBE, in conformity with federal law. The SBE assesses values as of January 1 prior to the tax year of the related tax le.,ry. Property tax on SBE­assessed property is then levied and collected b,I each county in the same manner as county assessed property, but at special county-wide tax rates, and distributed to each taxing agency within that county, suqj ect to certain acjj ustments, accordi ng to the approximate percentage al I ocated to each taxing agency in the prior year.

Ongoing changes in the California electric utility industry structure and in the Wify in which components of that industry are regulated and o.vned, incl udi ng the sale of electric generation assets to largely unregulated, non-utility corrpanies, may cause property that had been assessed b,I the SBE to be assessed locally instead. A change in property status from assessment b,I the SBE to assessment locally or the re.terse may result in a change in property tax re..renue received b,l local agencies and an acjjustment in advaloremtax rates and debt capacity for any local agency general obligation bonds.

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Tax Levies, Collections and Delinquencies

Secured property tax rates are set annually b,I the first business day of September for the I e.;y of property taxes in that tax year. The le.;y is payable in two equal installments due Ncwember 1 and February 1, and payments become delinquent if not postmarked or paid b,I end of the business day on December 10 and April 10, respectively. Taxes on unsecured property (personal property and leasehold interests) are levied at the preceding fiscal year's secured tax rate and have a due date set b,I each county effectively no earlier than July 1 and no later than July 31 of each year. Taxes on unsecured property become del i nquent if not p:istmarked or paid b,I the end of the business day on August 31, or if added to the unsecured roll after July 31, become delinquent at the end of the month succeeding the month of enrol I ment.

A 1036 penalty attaches to any delinquent payment for secured roll taxes. In addition, property on the secured roll for which taxes are delinquent becomes tax-defaulted. Such property may thereafter be redeemed b,I payment of the delinquent taxes and the delinquency penalty, plus a redemption penalty of 1.5% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is suqject to sale at auction b,I the County Tax Collector.

A 1036 penalty attaches to delinquent taxes on property on the unsecured rol 1, and after the I ast day of the second month after the 1036 penalty attaches, an additional penalty of 1.5% per month begins to accrue and a lien is recorded against the assessee. The taxing authority may collect delinquent unsecured personal property taxes b,I: (a) a civil action against the taxpayer; (b) filing a certificate of delinquency in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on specific property of the taxpayer; and (c) seizure and sale of personal property, imprcwements or p:issessory interests bel ongi ng or assessed to the assessee.

Supplemental roll taxes are due on the date the bill is mailed. If the tax bill is mailed within the months of J uly through October, the first i nstal I ment shal I become delinquent at 5 p.m., or the end of the business day, whichever is later, on December 10 of the same year and the second installment shall become delinquent at 5 p.m., or the end of the business day, whichever is later, on April 10 of the next year; if the bill is mailed within the months of Ncwember throughJ une, the first installment shall become delinquent at 5 p.m., or the end of the business day, whichever is later, on the last day of the month follo.ving the month in which the bill is mailed and the second installment shall become delinquent at 5 p.m., or the end of the business day, whichever is later, on the last day of the fourth calendar month follo.ving the date the first installment is delinquent. A 1036 penalty attaches to any delinquent payment for supplemental roll taxes.

A 11 tax due dates and del i nquency dates become the next busi ness day if they fal I on a day that is not a business day.

Teeter Plan

Under the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the 'Teeter Plan"), as pro.tided for in Section 4701 et seq. of the State Revenue and Taxation Code, each participating local agency levying secured property taxes, including school districts, receives from its county the amount of uncol I ected taxes credited to its fund, i n the same manner as if the amount credited had been collected. In return, the county receives and retains delinquent payments, penalties and interest as collected, that would have been due the local agency. The Teeter Plan, once adopted b,I a county, remains in effect unless the county board of supervisors orders its discontinuance or unless, prior to the commencement of any fiscal year, the board of supervisors receives a petition for its discontinuance

17

from two-thirds of the participating re..renue districts in the county. A board of supervisors may, after holding a public hearing on the matter, discontinue the procedures under the Teeter Plan with respect to any tax levying agency in the county when delinquencies for taxes le.tied by that agency exceed 3%.

The Teeter Plan applies to the 1% general purpose property tax levy. Whether or not the Teeter Plan also is applied to other tax le.ties for local agencies, such as the tax levy for general obligation bonds of a local agency, varies by county. The County applies the Teeter Plan to secured tax levy collections for the Bonds. See "DISTRICT TAX BASE INFORMATION - Secured Tax Charges and Delinquencies" herein for a history of property tax collections and delinquencies in the District.

CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUE AND APPROPRIATIONS

The information in this section concerning certain prcwisions of Articles XI I IA, XI 11 B, XI I IC and XIIID of the State constitution, Propositions 98 and 111 and certain other law is pro.tided as supplementary information only, to outline the principal constitutional and statutory laws under which the operating re..renue and finances of K-12 school districts in the State are detemined. The tax for the Bonds was apprcwed in confornity ½ith all applicable constitutional and statutory linitations. For specific financial information on the District, see" DISTRICT INFORMATION" herein.

Article XI I IA

Article XI I IA of the State constitution (the "Constitution") Ii nits, suqject to certain exceptions, the amount of ad valorem taxes on real property to 1% of "full cash value'' as determined by the county assessor. Article XI I IA defines "full cash value" to mean "the county assessor's valuation of real property as shewn 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 o.vnershi p has occurred after the 1975 assessment," suqject to exemptions in certain circumstances of property transfer or reconstruction. The "full cash value" is suqject to annual acjjustment to reflect increases, not to exceed 2% for any year, or decreases i n the consumer price i ndex or comparable I ocal data, or to reflect reductions in property value caused by damage, destruction or other factors.

Article XI I IA requires a vote of two-thirds of those voting in an election to impose ad valorem taxes, and, except to pay debt service on certain voter apprcwed indebtedness, prohibits the imposition of any additional ad valorern sales or transaction taxes on real property. Article XI I IA does pernit ad valorem taxes to be le.tied in excess of the basic 1% tax limitation as required to pay debt service (a) on any indebtedness apprcwed by the voters prior to J uly 1, 1978, ( b) on any bonded indebtedness apprcwed by two-thirds of the votes cast by the voters for the acquisition or imprcwement of real property on or after J uly 1, 1978, or ( c) on any bonded indebtedness apprcwed by 55% of the votes cast by the voters of a school or community college district for the construction, reconstruction, rehabilitation or replacement of, including furnishing and equipping of, or the acquisition or lease of real property for, school facilities, pro.tided that certain accountability and other requirements are satisfied. In addition, Article XIIIA requires the apprcwal of two-thirds of all members of the State Legislature to change any State taxes for the purpose of increasing tax revenues, while prohibiting the imposition by the State Legislature of any mw advalorern sales or transaction taxes on real property.

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L egi sl ati on has been enacted and amended a nurrber of ti mes si nee 1978 to implement Article XI I IA. Under current law, local agencies are no longer permitted to le.;y directly any property tax except to pay voter--apprcwed indebtedness. The 1% property tax is automatically levied by each county in the State and distributed according to a formula among taxing agencies within that county. The formula apportions the tax roughly in proportion to the relative shares of taxes last levied prior to 1989.

That portion of annual property tax revenues generated by increases in assessed valuations within each tax rate area within a county, suqject to redevelopment agency claims, if any, on tax increment and suqject to changes in organization, if any, of affectedjurisdictions, is allocated to each jurisdiction within the tax rate area in the same proportion that the total property tax revenue from the tax rate area for the prior year was allocated to suchj urisdictions.

Article XI 11 B

Article X 111 B of the Constitution, apprcwed by voters in 1979 and subsequently amended by Propositions 98 and 111, limits the annual appropriations of the State and of any city, county, school district, authority or other political subdivision of the State, to the level of appropriations of the particular gcwernmental entity for the prior fiscal year, as acjjusted for changes in the cost of living and in population, for transfers in the financial responsibility for pro.tiding services and for certain declared emergencies (the "Gann limit''). As amended, ArticleX 111 B defines:

( a) "change in the cost of I ivi ng" with respect to school districts to mean the percentage change in California per-capita income from the preceding year; and

( b) " change i n population" with respect to a school district to mean the percentage change in the average daily attendance of the school district from the preceding fiscal year.

The appropriations of an entity of local gcwernment suqject to Article X 111 B linitations include the proceeds of taxes levied by or for that entity and the proceeds of certain State sul:wentions to that entity. "Proceeds of taxes" include, but are not linited to, all tax revenues and the proceeds to the entity from (a) regulatory licenses, user charges and user fees (but only to the extent that these proceeds exceed the reasonable costs in pro.tiding the regulation, product or service), and (b) the investment of tax revenues. For school districts Article X 111 B constrains appropriations from State and local tax sources, but not federal aid or non-tax income, such as revenues from cafeteria sales or adult education fees.

Appropriations suqject to limitation do not include (a) refunds of taxes, (b) appropriations for debt service, (c) appropriations required to comply with certain mandates of the courts or the federal gcwernment, (cl) appropriations of certain special districts, (e) appropriations for all qualified capital outlay prqjects as defined by the legislature, (f) appropriations derived from certain fuel and vehicle taxes and ( g) appropri ati ans derived from certai n taxes on tobacco products.

Article X 111 B includes a requirement that al I revenues received by an entity of gcwernment other than the State in a fiscal year and in the fiscal year immediately follo.ving it in excess of the amount pernitted to be appropriated during that fiscal year and the fiscal year immediately follo.ving it shall be returned by a revision of tax rates or fee schedules within the next two fiscal years. If a school district receives any proceeds of taxes in excess of its appropriations Ii nit, it may increase its appropriations Ii nit to equal that amount by taking appropriations Ii nit from the State.

Article XIIIB also includes a requirement that 5036 of all revenues received by the State in a fiscal year and in the fiscal year immediately follo.ving it in excess of the amount pernitted to be

19

appropriated during that fiscal year and the fiscal year imnediately follcwing it shall be transferred and allocated to the State School Fund pursuant to Section 8.5 of Article XVI of the Constitution. See "Propositions98and 111" belcw.

Propositions 98 and 111

On Ncwember 8, 1988 the voters apprcwed Proposition 98, an initiative constitutional amendment and statute called 'The Classroom lnstructiaial lni:rcwement andAccountablity Act'' ("Proposition 98'). In addition to adding certain prcwisions to the Education Code, Proposition 98 also amended Article X 111 B and Section 8 of Article XVI of the Constitution and added Section 8.5 of Article XVI to the Constitution, the effects of which are to establish a minimum le.tel of State funding for school districts, to allocate to school districts, within limits, State revenues in excess of the State's appropriations Ii nit and to exerrpt such excess funds from school district appropriations Ii nits.

OnJ une 5, 1990, the voters apprcwed Proposition 111 (Senate Constitutional Amendment No. 1) called the "Traffic Congestion Relief and Spending Li nit Act of 1990'' (" Proposition 111") which further modified Article X 111 B and Sections 8 and 8.5 of Article XVI of the Constitution with respect to appropriations linitations and school funding priority and allocation.

Article X 111 B, as amended by both Proposition 98 and Proposition 111, is discussed abo.te under "Article XI 11 B."

The prcwisions of Sections 8 and 8.5 of Article XVI, as added to or amended by Propositions 98 and 111, may be summarized as fol I cws:

(a) State Funding of Schools (Section 8). Monies to be applied by the State for the support of school districts must be at a level equal to the greater of the follcwing "tests":

(i) The amount which, as a percentage of the State general fund revenues which may be appropriated pursuant to Article X 111 B, equals the percentage of general fund revenues appropriated for school districts in fiscal year 1986/87;

(ii) The amount actually appropriated to school districts in the prior fiscal year from general fund proceeds and from allocated local proceeds of taxes (excluding any excess state revenues allocated pursuant to Section 8.5), aqjusted for changes in enrollment and for the change in the cost of I ivi ng ( operative only in a fi seal year in which the percentage grcwth in California per capita personal income is less than or equal to the percentage grcwth in per capita general fund revenues plus one-half of one percent);

(iii) The amount actually appropriated to school districts in the prior fiscal year from general fund proceeds and from allocated local proceeds of taxes (excluding any excess State revenues al I ocated pursuant to Section 8. 5) aqj usted for changes in enrol I ment and for the change in per capita general fund re..renues, and, in addition, an amount equal to one-half of one percent times the prior year appropriations (excluding any excess State re..renues) adjusted for changes in enrol I ment ( operative only in a fi seal year in which the percentage grcwth in California per capita personal income is greaterthan the percentage grcwth in per capita general fund revenues plus one-half of one percent).

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If the third test is used in any year the difference between the third test and the second test will become a "credit'' to schools which will be paid in future years when the general fund revenue grcwth exceeds personal income grcwth.

The State legislature b,I a two-thirds vote of l:x:Jth houses, with the Gcwernor's concurrence, rnay suspend for one year the rninirnurn funding prOJisions for school districts as pro.tided for in Section 8.

(b) Allocations to the State School Fund (Section 8.5). In addition to the amounts applied to school districts underthe tests discussed abcwe, the State Controller is directed to allocate available excess State revenues (pursuant to Article X 111 B) to the State School Fund. Ho.vever, no such allocation is required at any time that the Director of Finance and the Superintendent of Public Instruction mutually determine that current annual expenditures per student equal or exceed the average annual expenditures per student of the 1 O states with the highest annual expenditures per student and the average class size equals or is less than the average class size of the 10 states with the lo.vest class size.

Proposition lA

Such allocations do not constitute appropriations suqject to Article X 111 B linitations and are to be rnade in an equal amount per enrol I ment.

Since 1992f-)3 the State has satisfied a portion of its Proposition 98 obligations for revenue limit funding of school districts b,I shifting part of the 1% local ad valorem property tax revenues otherwise belonging to cities, counties, special districts, and redevelopment agencies, to school and college districts through a local Educational Revenue Augmentation Fund (ERAF) in each county. At the Ncwember 2004 election State voters apprcwed Proposition lA, liniting the amount and frequency of such ERAF shifts of property tax revenue from othertaxing agencies to school districts.

Under Proposition 1 A, beginning in fiscal year 2008;09, the State will be able to divert no more than eight percent of local property tax revenues for State purposes (including, but not limited to, funding K-12 education) only if: (a) the Gcwernor declares such action to be necessary due to a State fiscal emergency; (b) two-thirds of l:x:Jth houses of the Legislature apprcwe the action; (c) the amount diverted is required b,I statute to be repaid within three years; (cl) the State does not o.ve to local agencies any repayment for past property tax or Vehicle License Fee diversions; and (e) such property tax diversions do not occur in more than two of any ten consecutive fiscal years. Because ERAF shifts will be capped and linited in frequency, the State will have to rely more heavily on State general fund moneys for Proposition 98 funding of school districts.

Articles XI I IC and XI 11 D

On Ncweniber 5, 1996, the voters of the State apprcwed Proposition 218, the so-cal led "Right to Vote on Taxes Act." Proposition 218 added Articles XI I IC and X 111 D to the Constitution, which contain a number of prcwisions affecting the ability of local agencies, including school districts, to levy and collect taxes, assessments, fees and charges. Among other things, Article XI I IC establishes that every tax is either a "general tax" (imposed for general gcwernmental purposes) or a "special tax'' (imposed for specific purposes); prohibits special purpose gcwernment agencies such as school districts from levying general taxes; and prohibits any I ocal agency from imposing, extending or increasing any special tax beyond its maxi rnum authorized rate without a two-thirds vote. Article X 111 C also pro.tides that no tax

21

may be assessed on property other than ad valorem property taxes irrposed in accordance with Articles X 111 and XI I IA of the Constitution and special taxes apprcwed b,I a two-thirds vote under Article XI I IA, Section 4.

Article XI I IC also pro.tides that the initiative p::wer shall not be limited in matters of reducing or repeal i ng I ocal taxes, assessments, fees and charges. I n respect to school district general obi i gati on bonds, the Constitution and laws of the State irrpose a mandatory duty on county tax collectors to levy a property tax sufficient to pay debt service on such bonds coning due in each year. The initiative p::wer cannot be used to reduce or repeal the authority and obi i gati on to I evy such taxes which are pl edged as security for payment of such bonds or to otherwise interfere with performance of the mandatory duty of a school district and its county with respect to such taxes which are pledged as security for payment of such bonds. Legislation adopted in 1997 pro.tides that Article XI I IC shall not be construed to mean that any o.vner or beneficial o.vner of a municipal security assumes the risk of, or consents to, any initiative measure which would constitute an i mpai rment of contractual rights underthe contracts clause of the U .S. Constitution.

Voter apprcwed special taxes (including those levied pursuant to the Mello-Roos Community Facilities Act), "parcel taxes", and assessments levied pursuant to the Landscape and Lighting District Act of 1972 (among other assessments) that are not pledged to the payment of bonds may be suqject to reduction or repeal b,I voter initiative underthe prcwisions of ArticleX I I IC.

Article X 111 D deals with assessments and property-related fees and charges. Article X 111 D explicitly pro.tides that nothing in Article XII IC orXIIID shall be construed to affect laws existing prior to enactment of Articles XI I IC and X 111 D relating to the irrposition of fees or charges as a condition of property development; ho.vever it is not clear whether the initiative p::wer is therefore unavailable to repeal or reduce developer and nitigation fees imposed b,I a school district.

The interpretation and application of Article XIIIC and Article XIIID will ultimately be deternined b,I the courts with respect to a number of the matters discussed alx:we, and it is not possible at this ti me to predict with certainty the outcome of such deterni nation.

Future Initiatives

Articles XIIIA, XIIIB, XIIIC and XIIID and Propositions 98 and 111 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, further affecting school districts' revenues or ability to expend revenues.

GENERAL SCHOOL DISTRICT FINANCIAL INFORMATION

The information in this section concerning funding procedures of K-12 school districts in the State is pro.tided as supplementary information only. For specific financial information on the District, see" DISTRICT INFORMATION" herein.

State Funding of School Districts

Annual State apportionments of basic and equalization aid to K-12 school districts for general purposes are made according to a revenue Ii nit per unit of average daily attendance ("A.DA."). If a

22

district's total revenue limit exceeds its property tax revenue, its annual State apportionments, suqject to certain acjj ustments, amountto the difference between the revenue Ii nit and a district's actual property tax receipts (after any redevelopment agency tax increment or other deductions or "shifts" that may be in effect under State law). A.D.A. is determined b,I school districts twice a year, in December(" First Period A.D.A.") and April ("Second PeriodA.D.A.").

The calculation of the amount of State apportionment a school district is entitled to receive each year is summarized as folio.vs: first, the prior year Statewide revenue Ii nit per A.D.A. is recalculated with certain acjjustments for equalization and other factors; second, this adjusted prior year Statewide revenue limit per A.D.A. is inflated according to formulas based on the implicit price deflator for gcwernment goods and services and the Statewide average revenue limit per A.D.A. for each type of A.D.A., yielding the school district's current year "component'' revenue limits per A.DA.; third, the current year component revenue Ii nits per A.D.A. are applied to the school district'sA.D.A. for either the current or prior year, as the district elects; fourth, revenue Ii nit acjjustments kncwn as "add--Ons" are calculated for each school district if the school district qualifies for such add--Ons (for example, add-ons to acjjust for small school district size and pro.tiding meals for needy pupils, among others); and fifth, local property tax revenues are deducted from the total revenue limit calculated for each district to arrive at the amount of State apportionment each school district is entitled to for the current year.

The State revenue limit is calculated three times a year for each school district on the basis of prqjections subnitted b,I the district on or about December 10, based on First PeriodA.D.A., and April 15 andJ une 30, both based on Second Period A.DA. A.DA. calculations are based on actual attendance and do not include excused absences. Revenue limit calculations are made b,I each school district, reviewed b,I the County Office of Education and submitted to the State Department of Education. The State Department of Education reviews the calculations for accuracy, determines the amount of State apportionment cwed to each school district and notifies the State Controller to distribute the apportionments. The first calculation is performed for the First Principal Apportionment in February, the second calculation for the Second Principal Apportionment in June, and the final calculation for the end of the fiscal year Annual Principal Apportionment, in essence a correction that is made in October of the next fi seal year.

See "DISTRICT INFORMATION" herein for the District's specific annual revenue limit per A.D.A.

Basic Aid Districts

In the event that a school district's property tax revenue exceeds its calculated revenue limit entitlement, that school district retains all of its property tax revenue, and State apportionments to that district are limited to the minimum "basic aid" amount of $120 per A.DA. set forth in the Constitution. Currently the State allocates basic aid funding to categorical entitlements that would have been received in any event. Such districts are commonly kncwn as" Basic Aid Districts." The District is not a Basic Aid district.

State Budget

The State budget apprcwal process begins with the release to the State legislature b,I January 10th of the Gcwernor's proposed budget for the follcwing fiscal year. State fiscal years beginJ uly 1st. In May, the Gcwernor submits a revision of the proposed budget that reflects updated estimates of revenues and expenditures. After a series of public hearings and other steps in the legislative process, the budget must be apprcwed b,I two-thirds vote in each house of the State legislature and submitted to the Gcwernor. The

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Gcwemor rnay reduce or eliminate any appropriation b,I line-item veto. Although the budget is required b,I the Constitution to be apprcwed no later thanJ une 15th, it often has not been apprcwed until later.

While the Constitution in large part dictates the formulae for deternining the allocation of State re..renues to the K-12 education portion of the State budget pursuant to Proposition 98 and other prcwisions(see"CONSTITUTIONAL AND STATUTORY PROVISIONS AF FE CTI NG DISTRICT REVENUE AND APPROPRIATIONS" herein), in the State budget process the Gcwemor and State legislature still have significant leeway in deciding whether and b,I ho.v much to exceed or reduce such allocation in the actual funding of K-12 school districts, and to decide what funds will be general purpose or restricted purpose.

2006;07

On January 10, 2006, the proposed Gcwernor's 2006;07 Budget was released, on May 12, 2006 the May Budget Re..rision was released and on June 30, 2006 the California State Budget 20ffi--07 was signed into law (together, the "2006;07 Budget"). The 2006;07 Budget for the State general fund for 2005;{X, reports prior year resources available of $9.511 billion, and prqjects revenue and transfers-in of $92.749 billion, for a total of $102.260 billion in resources; and for 2006;07 prqjects prior year resources available of $9.530 billion, revenue and transfers-in of $93.882 billion, for a total of $103.412 billion in resources. General fund expenditures are prqjected to be $92.730 billion for 2005;{X, and $101.261 billion for 2006;07, with general fund ending balances of $9.530 billion and $2.151 billion prqjected, respectively, for these years.

The 2006;07 Budget estimated Proposition 98 funding of K-12 education, including local property tax revenue, of $48.676 billion for 2004;05, $53.345 billion for 2005;{X, and $55.121 billion for 2006;07. Of these amounts, the State general fund would pro.tide $35.655 billion (including one-tirre "settlerrent agreerrent'' funding of $1.621 billion to make up for prior years Proposition 98 shortfalls) in 2004;05, $39.719 billion (including one-tirre "settlerrent agreerrent" funding of $1.299 billion) in 2005;{X, and $41.294 billion in 2006;07; the difference from total Proposition K-12 funding would be funded from local property tax re..renue prqjected for each school district. The Proposition 98 funding on a per A.D.A. basis is reported at $7,045 for 2004;05, $7,778 for 2005;{X, and $8,288 for 2006;07.

2007;08

On January 10, 2007, the proposed Gcwernor's 2007 ;08 Budget (the "2007 ;08 Budget") was rel eased. The 2007 ;08 Budget for the State general fund for 2005 ;a, reports prior year resources avai I able of $8.981 billion, and prqjects revenue and transfers-in of $93.427 billion, for a total of $102.408 billion in resources; for 2006;07 reports prior year resources available of $10.816 billion, and prqjects re..renue and transfers-in of $94.519 billion, for a total of $105.335 billion in resources; and for 2007;08 prqjects prior year resources available of $3.198 billion, revenue and transfers-in of $101.278 billion, for a total of $104.476 billion in resources. General fund expenditures are reported at $91.592 billion for 2005;{X,, and are prqjected to be $102.137 billion for 2006;07 and $103.141 billion for 2007;08, with general fund ending balances of $10.816 billion, $3.198 billion and $1.335 billion prqjected, respectively, for these years. There are in addition "Budget Stabilization Account'' ending balances prqjected at $0.472 billion and $1.495 billion, respectively, for each of these years.

The 2007;08 Budget estimates Proposition 98 funding of K-12 education, including local property tax revenue, of $52.120 billion for 2005;{X,, $55.022 billion for 2006;07 and $56.835 billion for 2007;08. Of these amounts, the State general fund will pro.tide $37.368 billion in 2005;{X,, $40.016 billion in 2006;07 and $40.512 billion (including $300 million of the $2.9 billion in Proposition 98 settle­up obligations for 2004;05 and 2005/06) in 2007 ;08; the difference from total Proposition K-12 funding is

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funded from local property tax re..renue prqjected for each school district. The Proposition 98 funding on a per A.D.A. basis is prqjected at $8,293 for 20C/5/07 and $8,569 for 2007 /08. Total per A.D.A. spending from all sources is estimated at $10,646 for 2005/06, $11,240 for 20C/5/07 and $11,584 for 2007 /08.

The State's budget for 2005/06 included a 4.23% COLA for most school district and county office of education re..renue limit apportionments, and assumed a 0.21% decline in A.DA. statewide. The 20C/5/07 Budget included a 5.92% COLA for most school district and county office of education revenue Ii mi t apportion men ts, and assumed a 0. 26% decl i ne in A .D .A. statewide ( the 2007 /08 B udget reports a decline of 0.39% for 2006/07). The 2007 /08 Budget includes a 4.04% COLA for most school district and county office of education revenue limit apportionments, and assumes a 0.39% decline in A.D.A. statewide.

State Funding of Schools Without A State Budget

On May 29, 2002, the Court of Appeal of the State of California for the Second Appellate District in White v. Davis et al. (combined with HcwardJ arvis Taxpayers Association et al. v. Westly in appeal) held, among other thi ngs, that absent adoption of a budget bi 11 or an emergency appropriation by the Legislature, the State Controller may disburse State funds authorized by (a) a continuing appropriation enacted by the Legislature, (b) a self-executing prcwision of the State constitution, including payment of certain funds for public schools under Article XVI, Section 8.5 of the State constitution, and (c) mandate of federal liM', such as prompt payment of minimum wage and cwertime compensation mandated by the federal Fair Labor Standards Act and benefits under federal food stamp, foster care and adoption, child support and child welfare programs. The Court of Appeal specifically concluded that Article XVI, Section 8.0 of the State constitution does not constitute a self-executing authorization to disburse revenue Ii nit apportionment to school districts; I egi sl ative appropriation is required for re..renue Ii nit disbursement. On May 1, 2003, the California Supreme Court in its decision in White v. Davis et al. granted review to two other matters and let these particular conclusions of the Court of Appeal stand without ruling on them.

During the 2003 /04 State budget impasse, the State Control I er announced that only "payments of prior year obiigations, constitutional authorizations, federal mandates and continuous legislative appropriations would be made." The State Controller concluded that revenue Ii nit apportionments to school districts, under prcwisions of the Education Code implementing Article XVI, Section 8 of the State constitution, are authorized as continuous legislative appropriations, so disbursed these funds without a budget bill or emergency appropriation enacted. The State Controller did not disburse certain categorical and other funds to school districts until the 2003/04 Budget Act was enacted.

State Funding of School Construction

The State makes funding for school facility construction and modernization available to K-12 districts throughout the State through the Office of Public School Construction ("OPSC") and the State Allocation Board ("SAB"), from proceeds of State general obiigation bonds authorized and issued for this purpose. Such bond measures require apprcwal of by a simple majority of those voting. Proposition 47, passed by 58.9% of the State-wide vote on Ncwember 5, 2002, authorized $13.05 billion, $11.40 billion of which were for K-12 school facilities and $1.65 billion of which were for higher education facilities. Proposition 55, passed by 50.6% of the State-wide vote on March 2, 2004, authorized $12.3 billion, $10.0 billion of which was for K-12 school facilities and $2.3 billion of which was for higher education facilities. Proposition 1 D, passed by 56.9% of the State-wide vote on Ncwember 7, 20C/5, authorized $7.329 billion for construction, modernization and related purposes for K-12 school districts. The State has proposed a similar bond measure in 2008 that would, if apprcwed by voters, authorize a further $6.47

25

billion for K-12 school districts, and a similar bond rreasure again in 2010 that would authorize $5.13 bi 11 ion for K -1 2 school districts.

The SAB allocates bond funds for 5036 of apprcwed new construction costs, 6036 of apprcwed modernization costs (80% for modernization prqject applications made prior to February 1, 2002), or up to 10036 of apprcwed costs of any type if the school district is apprcwed for "hardship'' funding. The school district is responsible for the portion of costs not funded b,I the State, commonly funding their portion with their o.vn general obligation bonds, certificates of participation or accumulated builder's fee re..renue. School districts routinely apply for such funding whenever they have prqjects they believe rreet OPSC and SAB criteria for funding.

State Retirement Programs

School districts participate in the State of California Teachers Retirerrent System ("STRS"). STRS ccwers all full-tirre and most part-tirre errployees with teaching certificates. In order to receive STRS benefits, an employee must be at least 55 years old and have pro.tided five years of service to California public schools. School districts also participate in the State of California Public Employees Retirerrent System ("PERS"). PERS ccwers all classified personnel, generally those employees without teaching certificates, who are employed at least four hours per day. In order to receive PERS benefits, an employee must be at least 50 years old and have had five years of ccwered PERS service as a public employee.

Contribution rates to PERS varies with changes in actuarial assurrptions and other factors, such as changes in benefits and i nvestrrent performance, and are set b,I a State reti rerrent ooard for PE RS. The contribution rates are set b,I statute for STRS at a constant 8.25% of salary. STRS has a substantial State-wide unfunded liability. Under current law, the liability is the responsibility of the State and not of individual school districts. See "DISTRICT INFORMATION" herein for information regarding the District's contributions to these reti rerrent systems.

County Office of Education

In each county there is a county superintendent of schools (the "County Superintendent") and a county ooard of education. The Office of the County Superintendent, frequently kno.vn as the "County Office of Education" (the "County Office" herein) in each county pro.tides the staff and organization that carries out the activities and policies of the County Superintendent and county ooard of education for that county.

County Offices pro.ti de i nstructi anal and support services to school districts wit hi n thei r counties, and various State mandated services county-wide, particularly in special education and juvenile court education services. County Office business services departrrents act as a control point for a variety of information, including pupi I data col I ecti on, attendance accounting, teacher credential registration, payrol I accounting, reti rerrent and tax information and school district budgets, and al so report such information to the State Departrrent of Education. All school district budgets must be apprcwed b,I their County Office and each district must pro.tide its County Office with scheduled interim reports throughout the fiscal year. County Offices also act as enforcerrent entities which intervene in district fiscal matters should a district fail to rreet State budget and reporting criteria.

The District is underthejurisdiction of, and is served b,I, the County Office for Sutter County.

26

School District Budget Process

School districts are required b,I prcwisions of the State Education Code to maintain a balanced budget each year, in which the sum of expenditures and the ending fund balance cannot exceed the sum of re..renues and the carry-0.1er fund balance from the previous year. School districts' annual general fund expenditures are characterized in large part b,I multi-year expenditure comnitments such as union contracts.Year-to-year fluctuations in State and local funding of school district general funds could result in re..renue decreases which, if large enough, may not easily be offset b,I an equal reduction in expenditures until at least the follcwing fiscal year. School districts are required b,I State law to maintain general fund reserves which can be drawn upon in the event of a resulting excess of expenditures ewer re..renues for a given fiscal year. The State Department of Education imp:ises a uniform budgeting and accounting format for school districts.

School districts must adopt a budget no later than June 30 of each year. The budget must be subnined to the County Superintendent within five days of adoption or b,I July 1, whichever occurs first. A district may be on either a dual or single budget cycle. The dual budget option requires a re..rised and reack:Jpted budget b,I September 1 that is suqject to State mandated standards and criteria The revised budget must reflect changes in prqjected income and expenses subsequent toJ uly 1. The single budget is only readopted if it is disapprcwed b,I the County Superintendent, or as needed.

For both dual and single budgets submitted on July 1, the County Superintendent will exanine the adopted budget for corrpliance with the standards and criteria adopted b,I the State Board of Education and identify technical correcti ans necessary to bri ng the budget into corrpl i ance, and wi 11 deternine if the budget allcws the district to meet its current obligations and is consistent with a financial plan that will enable the district to meet its multi-year financial commitments. On or before August 15, the County Superintendent will apprcwe or disapprcwe the ack:Jpted budget for each school district. Pursuant to State law, the county superintendent has available various remedies b,I which to imp:ise and enforce a budget that corrplies with State criteria, depending on the circumstances, if a budget is disapprcwed.

Subsequent to apprcwal, the County Superintendent throughout the fiscal year is authorized to monitor each school district under his or her jurisdiction pursuantto its adopted budgetto deternine on an ongoing basis if the district can meet its current or subsequent year financial obligations. If a County Superintendent deterni nes that a district cannot meet its current or subsequent year obi i gati ans, the County Superintendent will notify the district's gcwerning board of the deternination and the County Superintendent may do either or both of the follcwing: (a) assign a fiscal acwisor to enable the district to meet those obi i gati ans or ( b) if a study and recommendati ans are made and a district fai Is to take appropriate action to meet its financial obligations, the County Superintendent will so notify the State Superintendent of Public Instruction, and then may do any or all of the follcwing for the remainder of the fiscal year: (i) request additional information regarding the district's budget and operations; (ii) develop and imp:ise, after also consulting with the district's board, revisions to the budget that will enable the district to meet its financial obligations; and (iii) stay or rescind any action inconsistent with such re..risions. Hcwever, the County Superintendent may not abrogate any prcwision of any collective bargaining agreement that was entered into prior to the date upon which the County Superintendent assumed authority.

At minimum, school districts are required b,I statute to file with their County Superintendent and the State Department of Education a First Interim Financial Report b,I December 15th ccwering financial operations from July 1st through October 31 st

, and a Second Interim Financial Report b,I March 15th

ccwering financial operations from Ncwember 1st through January 31 st• Section 42131 of the Education

Code requires that each interim report be certified b,I the school board as either (a) "p:isitive," certifying

27

that the district, "based upon current prqjections, will n-eet its financial obligations for the current fiscal year and subsequent two fiscal years," (b) "qualified," certifying that the district, "based upon current prqjections, may not n-eet its financial obligations for the current fiscal year or two subsequent fiscal years," or (c) "negative," certifying that the district, "based upon current prqjections, will be unable to n-eet its financial obligations for the remainder of the fiscal year or the subsequent fiscal year." A certification by a school board may be revised by the County Superintendent. If eitherthe First or Second Interim Report is not "positive," the County Superintendent may require the district to pro.tide a Third Interim Financial Report by June 1st ccwering financial operations from February 1st through April 3dh. If not required, a Third Interim Financial Report is not prepared. Each interim report sho.vs fiscal year to date financial operati ans and the current budget, with any budget an-endn-ents made in Ii ght of operations and conditi ans to that point. After the close of the fi seal year, an unaudited financial report for the fi seal year is prepared and filed without certification with the County Superintendent and the State Departn-ent of Education.

Accounting Practices

The accounting policies of California school districts conform to generally accepted accounting principles, as modified in accordance with policies and procedures of the California School Accounting Manual. This manual, pursuant to Section 41010 of the Education Code, is to be follo.ved by all California school districts. Revenues are recognized in the period in which they become both n-easurable and available to finance expenditures of the current fiscal period. Expenditures are recognized in the period in which the liability is incurred. See also "Note 1" in "APPENDIX A" herein for further discussion of appl i cable accounting policies.

County Investment Pool

In accordance with Education Code Section 41001, each California public school district maintains substantially all of its operating funds in the county treasury of the county in which it is located, and each county treasurer serves as ex officio treasurer for those school districts I ocated wit hi n the county. Each county treasurer has the authority to invest school district funds held in the county treasury. Generally, the county treasurer pools county funds with school district funds and funds from certain other public agencies and invests the cash. These pooled funds are carried at cost. Interest earnings are accounted for on either a cash or accrual basis and apportioned to pool participants on a regular basis.

Each county treasurer is required to invest funds, including those pooled funds described abcwe, in accordance with Gcwernn-ent Code Sections 53601 et seq. In addition, each county treasurer is required to establish an investn-ent policy which may impose further limitations beyond those required by the Gcwernn-ent Code. A cop,1 of the County investn-ent policy and periodic reports on the County investn-ent pool are available from the County Treasurer-Tax Collector, Treasurer/fax Collector, 915 8th Street, Suite 113, Marysville, CA 95901-5273, phone 530-741--6236. It is not intended that such information be incorporated into this Official Staten-ent by such references. Certain information concerning the County's pooled investn-ent portfolio as of December 31, 2006 is included herein in "APPENDIX D-SUTTER COUNTY INVESTMENT PORTFOLIO REPORT."

28

DISTRICT INFORMATION

The description in this section concerning District general operating and financial informttion is pro.tided as supplementary informttion only. It should not be inferred from the inclusion of this informttion that any of the mttters discussed in this section affect in anyway the obligation of the County on behalf of the District to levy ad valorem taxes on taxable property within the District in an amount sufficient to pay all amounts due on the Bonds.

General Information

The District includes approximately 17 square mies of unincorporated area in the northern part of Sutter County in close proximity to Yuba City. It pro.tides elementary (K--8) services to certain unincorporated areas of Sutter County, and to certain residents of Yuba City through inter-district transfers. The District operates one elementary school. The estimated population of the District is approximately 2,900 persons.

The 2cxx:;;07 pupil-teacher ratios are expected to be as fol lo.vs:

Source T~ Di strict.

FRANKLIN ELEMENTARY SCHOOL DISTRICT Pupil -Teacher Ratios

K l throLJJh 3 4 throLJJh 5 6 thoLJJh 8

171 18 l 23 l 26 l

The District is gcwerned by a Board of Trustees consisting of five members. Members are elected to four-year terms in staggered years. The day-to-day operations are mtnaged by a board-appointed Superintendent of Schools. Douglas Reeder has served in this capacity sinceJ uly 2000.

29

Average Daily Attendance and Revenue Limit

The follcwing table summarizes the historical and current year estimated average daily attendance (A.DA.) for the District.

FRANKLIN ELEMENTARY SCHOOL DISTRICT Average Daily Attendance Second Period Report

Academic Year Average Daily Atten::lan::::e(bJ

2002;{)3 2003;04 2004;{)5 2005/Xi

=n1' (al Estimated from First Interim Repott. (bJ K --8 an::l sr:e::ial edu:::ation stu::lents

Source T~ Di strict.

399 405 413 410 412

The District is not a Basic Aid District. The District's statutory base revenue limit per A.D.A. under the State revenue Ii nit formula was $4,9<X, for 2005/CXi, and is prqjected to be $5,201 per A.D.A. for 20C/5/07. See "GENERAL SCHOOL DISTRICT FINANCIAL INFORMATION - State Funding of School Districts" herein.

Labor Relations

Currently the District employs 20 full-time equivalent (FTE) certificated employees, 9 FTE classified employees and one management employee. There is one formal bargain unit operating in the District which is described in the table belcw.

Lai:xJr Organization

Franklin Teachers Association

(al Contract un:ler pre---rBJotiation.

Source T~ Di strict.

FRANKLIN ELEMENTARY SCHOOL DISTRICT Labor Organizations

N uniJer of Employees

20

Contract Expiratiorfal

Jure 30. =

See" - Comparative Financial Statements" belcw for historical comparison of salary expense for the District.

30

Retirement Programs

The District's contribution to STRS for fiscal year 2005;{X, was $104,700 and in fiscal year 20C/5f)7 is estimated to be $16,299. The District's contribution to PE RS for fiscal year 2005;{X, was $5,531 andforfiscalyear20C/5f)7isprqjectedtobe$6,302. See"GENERAL SCHOOL DISTRICT Fl NANCI AL INFORMATION - State Retirement Programs'' herein.

Comparative Financial Statements

The table belo.v summarizes the District's historical and current General Fund revenue, expenditures, and fund balances from fiscal year 2002!)3 through 20C/5f)7. The format sho.vn is that used b,I the District for internal accounting, budgeting and periodic reporting to the County Office and the State, and b,I the District's auditors in preparing audited financial statements for the District, for years prior to the year ended June 30, 2003. Audited financial statements commencing with the year ended June 30, 2003 are prepared under GASB 34, and in respect to line items, generally are not comparable with prior years audited financial statements or the District's internal accounting, budgeting or reports to the County Office and the State. For the District's corrbined audited basic financial statements for the year ended June 30, 20C/5, independent auditor's letter and management's discussion and analysis, all preparedaccordingtoGASB 34, see"APPENDIX A" hereto.

31

The District's First Interim Report for fiscal year 2006;07 was certified as "positive." For a description of the interim report certification process, see "GENERAL SCHOOL DISTRICT FINANCIAL INFORMATION - School District Budget Process" herein. The District's 2006;07 budget has been apprcwed b,I the Board of Trustees.

FRANKLIN ELEMENTARY SCHOOL DISTRICT General Fund Revenue, Expenditures and Fund Balances

2002;03 through 2006;07

Re.;enues RevenLe Limit Sources

State Aid Pro~rty Taxes

Federal RevenLe Ot~r State RevenLe Ot~r Local Revenue

Total Re.;enues

Expenditures Cettificated Salaries Classified Salaries E mplayee Be~fits B ooks and S uppl i es Services, Ot~r O~rati tl'J E ~nses Capital Outl"( Ot~rOutlay Transfers of I n::li rect;Oi rect Suprx,tt Costs I nstru:::tion I nstru:::tion Related Services Pupi I Services Arr::illaiy Services Ge~ral Administration Plant Services Transfers Between Agerr::ies Debt Service

Prirr::ipal Interest and Ot~r Charges

Total Expenditures

Other Financing Sources/(U ses) I ntetfun:l Transfers In / Ot~r Sources I ntetfun:l Transfers Out / Ot~r Uses

Total Other FinancingSources/(Uses)

Excess of Revenues Over (Under) Expenditures

Beginning Fund Balance

Prior PeriOO Adjustment

Adjusted Beginning Balance

Ending Fund Balance

,. (bi

Based on au::lited finan::::ial staterrent data First Interim Rerx,tt as of November 24, 20C6.

Actuals ;,rom31 •

$ l.Gl0.349 727.533 136.973 401.255

43.204 2.379.314

l.162.388 246.212 434.322 202.199 263.036

10.347 27.0ll

0

0 0

2.362.078

0 9233.405) (233.405)

(216.169)

793.771

0

0

$ 577/'JJ2

Actuals ;,ro3 !04"

$ 770.101 179.433

l.371.538 36.030

2.372.'D5

0 0 0

l.721.332 199.830 92.976 13.376

125.962 218.201

17.454

37.CfJJ

931

2.427.%2

0 (9.992) (9.992)

(55.457)

577/'JJ2

0

>CJ37.925

$ 522.476

32

Actuals 2004,0~•

$ 597.610 149.143

l.75l.S\J2 49.0ll

2.568.005

0 0 0

l .657.945 174.974 74.017 15.0'D

139.403 189.473 69.407

20.924

0

2.341.193

0 (3.717) (3.717)

226.812

522.476

0

0

$ 745.571

Actuals ;,ro5rx,1•

$ 670.780 l.76().365

141.1% 25.318 57.518

2.655.177

12.616 0 0

l.878.194 l78.G42 91.073 15.955

l42.(i62 m.7m 61.240

0 0

2.589.491

0 (15.645) (15.645)

'D.041

745.571

9.085

754.656

$ 804.697

First Interim 20C6/Q1bi

$ 2.180.702

134.582 467.225

68.760 2.851.269

l.310.215 289.805 494.743 188.498 369.8%

0 61.331

0 0 0 0 0 0 0 0

0 17.346

2.731.834

0 0 0

119.435

804.697

0

0

$ 924.132

Audit

Excerpts from the 2005/CXi audited financial statements are included in APPENDIX A, herein. The District is required to accept its annual audit at a public meeting no later than January 31st of the follo.ving year. The District considers its audited financial statements to be documents of public record. The District has not requested its auditors to re..riewthis Official Statement, nor have they done so.

District Debt

General Obligation Bonds. The prior bonds outstanding as of March 15, 2007, are set forth in the table belo.v. See "THE BONDS - Authority for Issuance" and "THE BONDS - Debt Service" herein.

Del ivety Date

Novem~r 9, 20C6

FRANKLIN ELEMENTARY SCHOOL DISTRICT Outstanding Bonds

Election of 20C6, Series 20C6

Am:Juntof Original I SSL.e

$ l ,00,CXXJ.OO

Outstanditl'J March l 5 ;,ro7

$1,CXXJ,CXXJ.OO

Operating Leases. The District has entered into an operating lease for a copier with a lease term in excess of one year. The agreement does not contain a purchase option. Future ninirnum lease payments are as fol lo.vs:

Source T~ Di strict.

ELEMENTARY SCHOOL DISTRICT Operating Leases

Fi seal Year En:li m I u~ 30

;,ro7 2008

= Total

Avai labi I ity of Documents

$ 3,160 3,160 2634

$12114

Additional public documents will be made available upon request through the Business Office of the District. Such public documents include periodic financial reports such as interim reports, appro..red budget and audited financial statements. See" INTRODUCTION - Other Information" herein for contact information.

33

DISTRICT TAX BASE INFORMATION

This section presents certain informttion concerning the property tax base in the District. For general informttion on hcwadvalorem property is assessed, and hcwtaxes are levied and collected, see "ADVALOREM PROPERTYTAXATION" herein.

Assessed Valuation

The follcwing table represents the five-year history of assessed valuation in the District. For more informttion regarding hew property is assessed in the State of California, see "AD VALOREM PROPERTY TAXATION -Assessed Valuation" herein.

Fiscal Year

2002;{)3 2003;{)4 2004;{)5 2005;{)6 2006;{)7

FRANKLIN ELEMENTARY SCHOOL DISTRICT Assessed Valuation

Local Secured ~ Unsecured

$153.024.298 $108.872 $4.(Xi3. l8l 163.155.955 124.334 3.(JS\).070 173.855.848 155.143 3.403.807 190.481.602 144.711 3.601.826 206.765.530 118.978 3.845.372

Source California Municipal Statistics, Irr:.

Total

$157.196.351 166.370.359 177.414.798 194.228.139 210.729.880

The ad valorem property tax to pay debt service on the Bonds and all other outstanding bonds is levied on total assessed value of all taxable property within the District before deducting any redevelopment agency tax increment. The District's general fund property tax revenue is a percentage of the County-wide 1% general purpose tax rate levied on total assessed value of all taxable property within the District after deducting redevelopment agency tax increment.

Secured Tax Charges and Delinquencies

Sutter County does not track tax charges and delinquencies.

Under the Teeter Plan, the County funds the District its full tax le.;y allocation rather than funding only actual collections (levy less delinquencies). In exchange, the County receives the interest and penalties that accrue on delinquent payments, when the late taxes are collected. The County does include the secured, but not the unsecured, ad valoremtax le.;y for the District's general obligation bonds underthe Teeter Plan. See "AD VALOR EM PROPERTY TAXATION - Teeter Plan" herein.

34

Tax Rates

The follo.ving is a summary of tax rates for a representative tax rate area, TRA 56-014, within the District. TRA 56-014 has a total 2006;07 assessed valuation of $50,173,287, approximately 23.81% of the District's total assessed valuation. See "AD VALOREM PROPERTY TAXATION" for further information on establishing tax rates.

County-wide Rate(ai FranklinSch::xJI District TOTAL

FRANKLIN ELEMENTARY SCHOOL DISTRICT Tax Rates -TRA 56--014

l .rnJrJ!6 l .rnJrJ!6

(al Maxi mum rate for purp:Jses ot~r than payitl'J debt service in a:::cordan::::e with AtticleX I I IA oft~ State Constitution.

Source California Municipal Statistics, Irr: ..

35

l.rnJ(J!6 0.0277 l.0277%

Largest Taxpayers

The twenty I argest taxpayers in the District, as shewn on the secured tax rol I, and the am:iunts of their assessed valuations for all taxingjurisdictions within the District, are shewn belew.

FRANKLIN ELEMENTARY SCHOOL DISTRICT Largest Taxpayers

TiITTJthy W. and Gayle A. Cusick Anacapa.Oil Co. Richard R. Wilson P armi nder S . an::l Sha.mi n::ler K . B ai ns Wilbur H. BrUJmam,J r. Karm:leep S. an::l Harpreet B. Bains Raiimer S. am Pararmeep Cmhan JohnJ.An:l Denise Green G urjit S. an::l Amardeep K. Gosal Gaty E. an:l Velena R. Beutler Robert A. andJ ulie I. Del Pero Post Trust DoUJ Koch Mohamma-JJ. Moohaddam Bill E. an::l CandiceC. Lu:::ich Michael E. Lonon Marcos A. and Patricia P. Gonzales Harbhajan S. am Satnam K.Johl Dwainan::l Lin::laRickerstein DanielJ. Brink TOTAL

Pri ma.JV L an::l U se

Agricultural I n:lustrial

Agricultural Residential Agricultural Agricultural Residential Residential Agricultural Agricultural Residential

Agricultural Residential R esi denti al Agricultural Agricultural Agricultural Agricultural R esi denti al R esi denti al

(aJ Total Local Secured Assessed Valuation for 20C6;()7 $2C6,765,530

Source California Municipal Statistics, Irr:.

Statement of Direct and Overlapping Debt

20C6;tl7 Assessed Valuation

$ 3,9225,275 3,002,518 1,563,540 1,379,765 1,307,931 1,275,732 1,197,172 1,112,811 1,089,016 1,086,464 1,023,162

867,934 856,168 836,400 820,978 769,791 764,000 751,448 735,000 712497

$25,077,602

Percent of Total (aJ

l.S\J,?6

1.45 0.76 0.67 0.63 0.62 0.58 0.54 0.53 0.53 0.49 0.42 0.41 0.40 0.40 0.37 0.37 0.36 0.36 0.34

12.13%

Set forth belew is a direct and overlapping debt report (the "Debt Report") prepared by California Municipal Statistics, Inc. and dated as of March 1, 2007. The Debt Report is included for general information purposes only. The District has not revie.ved the Debt Report for corrpleteness or accuracy and makes no representation in connection there.vith.

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 in whole or in part. Such long­term 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 of the Debt Report lists local agencies with territory overlapping, at least in part, that of the District. The second column shews the portion of each overlapping entity's debt assignable to property within the boundaries of the District, and the third column shews the amount of that portion of the overlapping entity's existing debt. The total amount of debt for each overlapping entity is not given.

36

FRANKLIN ELEMENTARY SCHOOL DISTRICT Statement of Direct and Overlapping Debt

2!XJ:jfJ7 Assessed Valuation $210,729,880

DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT

FranklinSchool District TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT

OVERLAPPING GENERAL FUND DEBT

Sutter County Cettificates of Partici pa.ti on Yuba.Joint Community College District Certificates of Participation TOTAL OVERLAPPING GENERAL FUND DEBT

COMBINED TOTAL DEBT

(al Exel Wes ge~ral obligation bon::ls to~ sold.

Percent Appl icable(al

100. %

2.827 0.898

Debt 3n,{J7

$1,CXXJ,ocd. l ,CXXJ,CXXJ

59,932 26042 85974

$1 os5974'bi

(bJ Exel Wes taxan::l revenLe anticipation notes, enterprise revenLe, tTDrtgage revenLe an::l tax allocation OOn:ls an::l mn--OOn:led capital lease obligations.

Ratios to 2!XJ:j[J7 Assessed Valuation Direct Debt ($1,000,CXXJ) ....................................................................................................... 0.47% Total Direct an::l Overlapping Tax an::l Assessm::nt Debt ....................................................... 0.4 7% CormimJTotal Debt ............................................................................................................ 0.52%

STATE SCHOOL BUILDING AID REPAY ABLE AS OF 6/30/(Xi $0

Source California Municipal Statistics, Irr:.

ECONOMIC PROFILE

While the econonics of the County and surrounding region influence the econonics within the District, only property within the District is suqject to an unlinited ad valorem tax levy to pay debt service on the Bonds.

Introduction

The District is located in close proximity to Yuba City in Sutter County.

The County is a major agricultural center located in Northern California with its southern-most border lying approximately 10 niles north of the State Capitol, Sacramento. Bounded b,I the Sacramento and Feather Rivers, the County encompasses 607 square miles and provides easy access to the Lake Tahoe and the San Francisco Bay Area The southern half of the County shares its borders with the Counties of Sacramento, Yolo and Placer. The neighbors of the northern half of the County include Colusa, Butte and Yuba counties.

Within a one-hour drive radius, residents of Sutter County have access to three state universities, a major metropolitan airport, and the State Capitol. Sutter County is strategically located near the Interstate 80 and 5 corridors and is served b,I State Highways 20 and 99. This region pro.tides Sutter

37

County with a skilled labor force and affordable housing options. Sutter County is kno.vn for its rice, walnut, peach, tomato and prune production.

Population

The follo.ving table summarizes population figures for the City and for the County:

1980 l9S\J 20CQ

2002 2003 2004 2005 2006

CITY OF YUBA CITY AND SUTTER COUNTY Population

CityofYuba.City

18.736 27/XIJ 36.758

47.220 48.S\B 51.429 58.516 fJJ.'CfJ7

Sutter County

52.246 64.415 78.930

81.800 83.800 86.604 89.170 91.450

Source T~ 1980, 1990 an::l 2CCO totals are U.S. Census figures. T~ figures fort~ years 2002 throUJh 20C6 are based up:::m adjusted J anua.JY l estimates provided IJy t~ State.

E mpl O{ment

The follo.ving table summarizes emplO{ment and unemplO{ment in the Yuba City Metropolitan Statistical Area, which includes Sutter County:

Civilian Lai:xJr Force(aJ Employrrent U ~mploym::nt

Total

U ~rrployrrent Rate(bJ

YUBA CITY METROPOLITAN STATISTICAL AREA Civilian Labor Force, Employment and Unemployment

Annual Averages

2001 2002 2003

54.500 57.000 58.000 5900 6,800 7 200

63400 64400 65 200

9.3% 10.6% l l.(1?6

(aJ Based on place of residerr::e; March 2005 Berr::hmark. (bJ T~ u~mploy11mt rate is calculated using unroun:led data

Source California E mployrrent De.;eloprrent Departrrent, Lai:xJr Market Information Division.

38

2004 2005

59.100 fJJ.800 6,800 6 200

65900 67000

10.3% 9.2%

The follo.ving table summarizes the historical numbers of workers in the Yuba City Metropolitan Statistical Area, which includes Sutter County, b,I industry:

YUBA CITY METROPOLITAN STATISTICAL AREA Estimated Number of Wage and Salary Workers by Industry'~

(in thousands)

2001 2002 2003

Agricultural 5,300 4,600 5,000 Natural Resources, Minitl'J& Constru:::tion 2,600 2,300 2,500 Manufacturi tl'J 3,300 3,000 3,000 Trade, T ransrx,rtati on an::l U tili ti es 7,600 7,900 7,i!!YJ Information 400 300 300 Finan:::ial Activities 1,400 1,300 1,400 Professional an::l Busi~ssServices 2,600 2,700 2,600 Edu:::ational an::l Health Services 4,700 5,000 5,000 Leisure and Hospitality 3,300 3,600 3,400 Ot~r Services 1,500 1,400 1,400

2004

5,000 2,700 2,900 7,000

400 1,500 2,900 5,000 3,400 1,300

Governrrent 10,800 10,600 10,500 10,900 Total All Industries 43400 42,roJ 42,900 43,200

2005

5,000 2,600 2,600 8,000

400 1,500 3,200 5,200 3,500 1,200

ll 400 44 700

T~ in:lustty employrrent data are rDN based up:::m t~ NorthArrerican I ndustty Classification System (NAICS). N6iVly released data are not comparable tot~ data based on t~ Stan:lard I n:lustrial Classification (SIC). Items may not add to totals dLe to in:lependent roun:litl'J. March 2005 B err::hmark

Source California E mployrrent De.;eloprrent Departrrent, Lai:xJr Market Information Division.

Major Employers

The follo.ving table summarizes the major private employers in the City:

~

Frem::mt Hospital Sunsweet GrONers Irr::. Etlv'ironrrental Professional (Provco) Mag Soft Co. Lore! Way Care Center (Pleasant Care Corp). Labor Ready In::. Fountains (United Com Serve) SearsAutotTDtive (Sears, Roebu:::k & Co.) Sh:€i Focds Irr::. Siller B rot~rs Irr::. CTEC CareerTrainitl'J & Edu:::ation SierraCentral Credit Union Best Western Bonanza Inn Unity Forest Prcdu:::ts Inc. Sierra Gold Nurseries Irr::. Wheeler OldsmJbile Cadillac Racq~t Club (Yuba.City Racq~t Club) Sunrise Management Corp.

Source 2005 Harris I nfoSource; FebruaJV 20C6.

CITY OF YUBA CITY M ajar Private Employers

Prcduct5ervice

Medical h:Jspital Manufactures dried pru~s, ~ches, apricots, r:mrs & juices Lan:lscapitl'J services WITTlesale plumbitl'J supplies Convalescent ITTrre Temrx,raiy ~Ip service Skilled care facility AutotTDtive& tru:::kge~ral repair services Focd broker Provides lcggi tl'J services E mployrrent placerrent service State chartered credit union Traveler accommxlations Manufactures softwocd I um~r N ursety stock prcdu:::ti on Retai Is autotTDtive parts & accessories Private recreation club Manufactures wood ITTuseITTI d & office cabi ~ts

39

Employees

598 400 300 200 130 125 100 100 100 100 95 90 87 85 82 75 73 70

The fol lo.vi ng table summarizes the major private errplO(ers in Sutter County:

Employer

Frem:mt Hospital S unsweet G rONers I rr::. Provco (E tlv'ironrrental Professional) West Valley Cable,;ision Mag Soft Co. Malloy Orchards Irr::. L orel Way Care Center LalxJr Ready In::. Cal Yuba I tlv'estrrents Fountains Sears, RC€bu:::k & Co. Sh:€i Focdslrr::. Siller B rot~rs Irr::. CTEC CareerTrainitl'J & Edu:::ation SierraCentral Credit Union Best Western Bonanza I nn Richard Wilbur Ran::::h Sunset Moulditl'J Unity Forest Prcdu:::ts Inc.

Source 2005 Harris I nfoSource; FebruaJV 20C6.

Construction Activity

SUTTER COUNTY M ajar Private Employers

Prcduct5etvice

Medical h:Jspital Manufactures dried pru~s, ~ches, apricots, r:mrs & juices Lan:lscapitl'J services Cable television services WITTlesale plumbitl'J supplies Non-citrus fruit farmitl'J Convalescent ITTrre Temrx,raiy ~Ip service Manufactureswocd tTDlditl'JS & millwork Skilled care facility providitl'J rehabilitation AutotTDtive & tru:::k ge~ral repair services Focd broker Provides lcggi tl'J services Employrrent placerrent service State chartered credit union Traveler accommxlations Non-citrus fruit farmitl'J Manufactures oak & pi~ tTDlditl'JS Manufactures softwocd I um~r

Employees

598 400 300 225 200 200 130 125 120 100 100 100 100 95 SQ

87 85 85 85

The follo.ving table summarizes historical residential building permit valuation for the City and the County:

CITY OF YU BA CITY AND SUTTER COUNTY Residential Building Permit Valuation

(Dollars in Thousands)

City ofYubaCity Sutter County Year• 2001 2002 2003 2004 2005

Residential Units(DJ ValuatiorlCJ Residential Units(DJ Valuatiorl6

10 (bi

lo

As of January l.

357 595 S\XJ

1,026 SQ8

DC€s mt irr::lu::le alterations an::l additions. I rr::lu::les all residential bui lditl'J activity.

$ 62,840 lll,812 140,541 174,159 162,379

Source "California B uilditl'J Permit Activity," Ecommic Scierr::es Corp:Jration.

40

420 %2 %2

1,091 1,291

$ 72,ffi9 152,685 152,685 189,186 248,315

Commercial Activity

The follo.ving table summarizes historical taxable transactions in the City and the County.

CITY OF YUBA CITY AND SUTTER COUNTY Taxable Transactions (Dollars in Thousands)

City of Yuba City Sutter County

20CQ

2001 2002 2003 2004

Outlets Taxable Transactions

1.212 $639.054 l.240 658.Gl6 l.320 731.837 l.371 762/J89 l.418 833.780

Source State Board of Equalization.

Median Household Income

l.939 l.939 2.(XXJ 2.055 2.087

Taxable Transactions

$1.020.524 l.007.397 l.069.342 l.119.886 l.243.743

Effective Buying I ncorne (EBI) is defined as money income less personal income tax and non-tax payments, such as fines, fees or penalties. The follo.ving table summarizes historical median household EB I, for the City, County, California and the United States.

Year

2001 2002 2003 2004 2005

CITY OF YUBA CITY, SUTTER COUNTY, STATE OF CALI FORNI A AND UNITED STATES OF AMERICA

Median Household Effective Buying Income

City of Yuba.City

$28.427 32.574 30.885 30.495 31.903

Sutter County

$32.506 34.586 34.826 34.887 36.440

California

$44.464 43.532 42.484 42.924 43.915

Source "Survey of B Uy'itl'J Power'', Sales an::l Marketitl'J Managerrent Magazi~.

LEGAL MATTERS

Tax Matters

United States

$39.129 38.365 38.035 38.201 39.324

In the opinion of Jones Hall, A Professional LiM' Corporation, San Francisco, California, Bond Counsel, suqject, ho.vever, to the qualifications set forth belo.v, under existing law, the interest on the Bands is excl uded from gross i ncome for federal i ncorne tax purp:ises, such i nterest is not an item of tax preference for purp:ises of the federal alternative ninirnum tax imp:ised on individuals and corporations, pro.tided, ho.vever, that, for the purp:ise of computing the alternative minimum tax imp:ised on

41

corporati ans ( as defi ned for federal i ncorre tax purposes), such i nterest is taken into account in deternining certain income and earnings, and the Bonds are "qualified tax-exempt obligations" within the rreaning of section 265(b)(3) of the Internal Revenue Code of 1986 (the "Code'') such that, in the case of certain financial institutions (within the rreaning of section 265(b)(5) of the Code), a deduction for federal income tax purposes is allo.ved for 80 percent of that portion of such financial institution's interest expense allocable to interest payable on the Bonds.

The opinions set forth in the preceding paragraph are suqject to the condition that the District corrply with all requirerrents of the Code that must be satisfied subsequent to the issuance of the Bonds in order that such interest be, or continue to be, excluded from gross i ncorre for federal income tax purposes. The District has co.tenanted to comply with each such requi rerrent. F ai I ure to comply with certain of such requi rerrents may cause the inclusion of such interest in gross income for federal i ncorre tax purposes to be retroactive to the date of issuance of the Bonds.

In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes.

The form of Bond Counsel opinion is attached hereto as APPENDIX B.

owners of the B ands should al so be aware that the o.vnershi p or di sposi ti on of, or the accrual or receipt of interest on, the Bands may have federal or State tax consequences other than as described abcwe. Bond Counsel expresses no opinion regarding any federal or state tax consequences arising with respect to the Bands other than as expressly described abcwe.

Legality for Investment in California

Under prcwisions of the California Financial Code, the Bonds are legal investrrents for comrrercial banks in California to the extent that the Bonds, in the informed opinion of the bank, are prudent for the investrrent of funds of depositors, and under prcwisions of the California Gcwernrrent Code, are eligible for security for deposits of public moneys in California

No Litigation

No litigation is pending or threatened concerning the validity of the Bonds, and a Certificate to that effect will be furnished to purchasers at the tirre of the original delivery of the Bonds. The District is not aware of any litigation pending or threatened questioning the political existence of the District or contesting the District's ability to receive ad valorem taxes or to collect other revenues or contesting the District's ability to issue and retire the Bonds.

Legal Opinion

The legal opinions of Bond Counsel, apprcwing the validity of the Bonds, will be supplied to the original purchasers of the Bonds without cost. A cop,1 of the legal opinion, certified b,I the official in whose office the original is fi I ed, wi 11 be pri nted on each Band.

Bond Counsel's emplO{rrent is limited to a review of the legal proceedings required for authorization of the Bonds and to rendering an opinion as to the validity of the Bonds and the exclusion from gross income of interest on the Bands. The opinion of Bond Counsel wi 11 not consider or extend to

42

any ck:x:uments, agreements, representati ans, offering circulars, official statements or other material of any kind concerning the Bands.

Bank Qualification

The District has designated the Bonds as "qualified tax-exempt obligations" within the meaning of section 265(b)(3) of the Code such that, in the case of certain financial institutions (within the meaning of section 265(b)(3) of the Code), a deduction for federal income tax purposes is allo.ved for 8036 of that portion of such financial institution's interest expense allocable to interest received on such Bonds.

MISCELLANEOUS

Ratings

Standard & Poor's has assigned its municipal bond rating of "AAA" to the Bonds, based solely upon the issuance of the Policy concurrently with the issuance of the Bonds. Standard & Poor's has assigned its underlying municipal bond rating of "A.l.' to the Bonds. Such rating reflects only the view of the organization which issued the rating and any desired explanation of the significance of such rating should be obtained frorn the rating agency at the fol Io.vi ng address: Standard & Poor' s Rating Services, 55WaterStreet, 38th Floor, NewYork, NY 10041.

Generally, a rating agency bases its rating on the information and materials furnished to it (some of which may not be included in this Official Statement) and on investigations, studies and assumptions of its o.vn. There is no assurance such rating will continue for any given period ohime or that such rating wi 11 not be revised dONnward or wi thdriM'n entirely by the rating agency, if in the judgement of such rating agency, circumstances so warrant. Any such dONnward revision or withdrawal of such rating rnay have an ad.terse effect on the market price of the Bonds.

Underwriting

The Bonds are being purchased for reoffering by Stone & Youngberg, LLC, as Underwriter. The Underwriter has agreed to purchase the Bonds pursuant to a contract of purchase between the District and the Underwriter (the "Purchase Contract") at an aggregate purchase price of $999,541.65. The Purchase Contract sets forth certain representations and agreements of both the District and the Underwriter, and certain conditions to closing. The Underwriter has certified to the District that all of the Bonds of each Maturity have been offered to the public and that a representative portion of each maturity of the Bonds has been actually sold, at the prices or yields stated on the cOJer page hereof for an aggregate reoffering price of $1,CX'i7, 138.20. Based on such representations, underwriter's compensation for the Bonds will be $13,993.58 (aqj usti ng for a bond insurance preni urn of $13,503.00).

Continuing Disclosure

The District has cOJenanted for the benefit of the holders and beneficial o.vners of the Bands (a) to prC1Jide to any person upon written request certain financial information and operating data relating to the District by not later than nine months follo.ving the end of the District's fiscal year (the "Annual Report"), commencing with the Annual Report for the 20CX'i/07 Fiscal Year, which is due no later than April 1, 2008, and (b) to prC1Jide notices of the occurrence of certain enumerated e.tents, if material.

43

Currently the District's Fiscal Year ends onJ une 30 of each year. The Annual Report will be filed b,I the District with each Nationally Recognized Municipal Securities Information Rep:isitory ("NRMSIR") and with the state information rep:isitory, if any. The notices of material events will be filed b,I the District with each NRMSIR or with the Municipal Securities Rulemaking Board, and with the state information rep:isitory, if any. Subnission of Annual Reports to Disclosure USA or another "central p:ist office" designated b,I the S.E.C. will constitute corrpliance with such filing requirements. The specific nature of the information to be contained in the Annual Report or the notices of material events is set forth belcw under the caption "APPENDIX C - FORM OF CONTINUING DISCLOSURE CERTI Fl CATE." These co.tenants have been made to assist the Underwriter in corrplying with S.E.C. Rule 15c2-12(b)(5). The District has never failed to corrply in all material respects with any pre..rious undertakings with regard to said Rule to pro.tide annual reports or notices of material e..rents.

Financial Advisor

The District has entered into an agreement with KNN Public Finance, A Division of Zions First National Bank, whereunder the Financial Advisor pro.tides financial recommendations and guidance to the District with respect to preparation and sale of the Bonds. The Financial Advisor has read and participated in the drafting of certain portions of this Official Statement and has supervised the corrpl eti on and edi ti ng thereof. The Financial A cwi sor has not audited, authenticated or otherwise verified the information set forth in the Official Statement, or any other related information available to the District, with respect to accuracy and completeness of disclosure of such information, and the Financial A cwi sor makes no guaranty, warranty or other representation respecting accuracy and completeness of the Official Statement or any other matter related to the Official Statement.

Additional Information

The purp:ise of this Official Statement is to supply information to prospective buyers of the Bands. Quotations from and summaries and explanations of the B ands, the R esol uti on pro.tiding for issuance of the Bonds, and the documents, statutes and constitutional prcwisions referenced herein, do not purport to be complete, and reference is made to said documents, statutes, and constitutional prcwisions for full and complete statements of their prcwisions. This Official Statement has been revie.ved and apprcwed b,I the District.

FRANKLIN ELEMENTARY SCHOOL DISTRICT

By: -~/s~l~D~ou=gl=as~R=ee=de=r ________ _ Superintendent

44

APPENDIX A

BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDE DJ UNE 30, 2CXX,, WITH INDEPENDENT AUDITOR'S LETTER AND MANAGEMENT'S DISCUSSION AND ANALYSIS

Appendix-A

FRANKLIN ELEMENTARY SCHOOL DISTRICT

County of Sutter Yuba City, California

FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION WITH

INDEPENDENT AUDITORS' REPORT

June 30, 2006

Matson and Isom

TABLE OF CONTENTS June 30, 2006

FINANCIAL SECTION

Independent Auditors' Report

Required Supplemental Information

Management's Discussion and Analysis

Basic Financial Statements

Government-Wide Financial Statements Statement of Net Assets Statement of Activities

Fund Financial Statements

Franklin Elementary School District

Page Number

2

s

15 16

Balance Sheet - Governmental Funds 17

Reconciliation of Governmental Fund Balances to Government-Wide Net Assets 18

Statement of Revenues, Expenditures, and Changes in Fund Balances -Governmental Funds 19

Reconciliation of Net Change in Fund Balances to Change in Net Assets 20

Statement of Fiduciary Net Assets - Fiduciary Funds 21

Notes to the Financial Statements 22

Required Supplemental Information

Budgetary Comparison Schedule - General Fund Notes to the Budgetary Comparison Schedule

37 38

TABLE OF CONTENTS June 30, 2006

OTHER SUPPLEMENTAL INFORMATION SECTION

Schedule of Average Daily Attendance

Schedule oflnstructional Time

Schedule of Financial Trends and Analysis

Reconciliation of Annual Financial and Budget Report With Audited Financial Statements

Schedule of Charter Schools

Notes to the Other Supplemental Info1mation

OTHER REPORTS SECTION

Independent Auditors' Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards

Independent Auditors' Report on State Compliance

FINDINGS AND QUESTIONED COSTS SECTION

Schedule of Findings and Questioned Costs

Corrective Action Plan

Summary Schedule of Prior Audit Findings

Franklin Elementary School District

Page Number

40

41

42

43

44

45

47

48

52

54

55

FINANCIAL SECTION

matson and isom

Founded in 1962 by Robert M. Mar.son and W. Howard Isom

Chico 3013 Ceres Avenue P.O.Box 1638 Chico, CA 95927-1638 Phone (530) 891-6474 Fax (530) 893-6689

Redding I 255 East Street, Suite 202 P.O,Box991891 Redding, CA 96099-1891 Phone (530) 244-4980 Fax (530) 244-4983

www.motson-isom.com

ePace File Room • 75656

INDEPENDENT AUDITORS' REPORT

Board of Trustees Franklin Elementary School District Yuba City, California

We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Franklin Elementary School District (the District) as of and for the year ended June 30, 2006, which collectively comprise the District's basic financial 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 and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. 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, each major fund, and the aggregate remaining fund information of the District as of June 30, 2006, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.

In accordance with Government Auditing Standards, we have also issued a report dated November 3, 2006, on our consideration of the District's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, 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 assessing the results of our audit.

Management's discussion and analysis and budgetary comparison schedules listed in the table of contents are not a required part of the basic financial statements but are supplemental information required by 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 supplemental information. However, we did not audit the information and express no opinion on it.

2

INDEPENDENT AUDITORS' REPORT Continued

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District's basic fmancial statements. The accompanying financial information listed as other supplemental information in the table of contents is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.

November 3, 2006

3

Required Supplemental Information

MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2006

FrankUn Elementary School District

The discussion and analysis of the Franklin Elementary School District's (the District) financial performance provides an overall review of the District's financial activities for the fiscal year ended June 30, 2006. The intent of this discussion and analysis is to look at the District's financial performance as a whole. To provide a complete understanding of the District's financial performance, please read it in conjunction with the independent auditors' report and the District's financial statements.

FINANCIAL HIGHLIGHTS

• The District strives to keep qualified staff to educate its students, but it is difficult to compete with the larger surrounding districts. Staffing costs made up approximately 79% of the operating expenditures for 2005-06.

• During the 2004-05 fiscal year, the District began a new construction project for the seventh and eighth grade classrooms that was completed during the 2005-06 fiscal year. The total project costs at June 30, 2006, amounted to $880,063, of which $696,045 of these costs were incurred during the 2005-06 fiscal year.

• In complying with GASB Statement No. 34, fixed assets were valued at historical cost and are reported on that basis. The total of the District's fixed assets, land, site, buildings, and equipment, valued on an acquisition cost basis was $5,158,721. After depreciation and adding newly capitalized costs incurred during the fiscal year, the June 30, 2006, book value for fixed assets totaled $4,102,401.

5

MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2006

OVERVIEW OF THE FINANCIAL STATEMENTS

Franklin Elementary School District

This annual report consists of three parts - management's discussion and analysis (this section), the basic financial statements, and required supplementary infonnation. These financial statements are organized so the reader can understand the District as a financial whole, an entire operating entity. The financial statements then proceed to provide an increasingly detailed look at specific financial activities.

Components of the Financial Section

I I I

Management's Basic Required Discussion Financial Supplementary

and Analysis Statements Information

I I l I

District-Wide Fund Notes to the Financial Financial Financial

Statements Statements Statements

Summary Detail

The first two financial statements are government-wide financial statements: the statement of net assets and statement of activities. These financial statements provide infonnation about the activities of the whole District, presenting both an aggregate view of the District's finances and a longer-term view of those finances. Fund financial statements provide the next level of detail. For governmental funds, these financial statements tell how services were financed in the short-term as well as what remains for future spending. The fund financial statements also look at the District's more significant funds with all other nonmajor funds presented in total in one column. A comparison of the District's General Fund budget is included.

The financial statements also include notes that explain some of the infonnation in the statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the financial statements.

6

MANAGEMENT'S DISCUSSION AND ANALYSIS lune 30, 2006

REPORTING THE DISTRICT AS A WHOLE

Statement of Net Assets and the Statement of Activities

Franklin Elementary School District

These two financial statements provide information about the District as a whole using accounting methods similar to those used by private-sector companies. The statement of net assets includes all of the District's assets and liabilities using the accrual basis of accounting. This basis of accounting takes into account all of the current year's revenues and expenses regardless of when cash is received or paid. These financial statements report information on the District as a whole and its activities in a way that helps answer the question, "How did we do financially during 2005-06?"

These two financial statements report the District's net assets and changes in those assets. This change in net assets is important because it tells the reader that, for the District as a whole, the financial position of the District has improved or diminished. The causes of this change may be the result of many factors, some financial, some not. Over time, the increases or decreases in the District's net assets, as reported in the statement of activities, are one indicator of whether its financial health is improving or deteriorating. The relationship between revenues and expenses indicates the District's operating results. However, the District's goal is to provide services to our students, not to generate profits as commercial entities. One must consider many other nonfinancial factors, such as the quality of education provided and the safety of the schools to assess the overall health of the District.

• Increases or decreases in the net assets of the District over time are indications of whether its financial position is improving or deteriorating, respectively.

• Additional nonfinancial factors such as condition of school buildings and other facilities, and changes to the property tax base of the District need to be considered in assessing the overall health of the District.

REPORTING THE DISTRICT'S MOST SIGNIFICANT FUNDS

Fund Financial Statements

The fund financial statements provide more detailed information about the District's most significant funds - not the District as a whole. Funds are accounting devices the District uses to keep track of specific sources of funding and spending on particular programs. Some funds are required to be established by state law. However, the District establishes other funds to control and manage money for specific purposes.

Governmental Funds

All of the District's activities are reported in governmental funds. The major governmental funds of the District include the General Fund and the County School Facilities Fund. Governmental funds focus on how money flows into and out of the funds and the balances that remain at the end of the year. They 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 financial statements provide a detailed short-term view of the District's operations and services that help determine whether there are more or fewer financial resources that can be spent in the near future to finance the District's programs.

7

MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2006

Fiduciary Funds

Franklln Elementary School District

The District is the trustee, or fiduciary, for its student activity funds. All of the District's fiduciary activities are reported in a separate statement of fiduciary net assets. The District excludes 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 ANALYSIS OF THE DISTRICT AS A WHOLE

The District's net assets were $5,085,689 at June 30, 2006. Of this amount $647,385 was unrestricted, $335,903 was restricted, and $4,l 02,401 was invested in capital assets • net of related debt. A comparative analysis of government-wide data is presented below (see table I).

Table 1: Statement of Net Assets

ASSETS

Cash and investments Receivables Capital assets - net

Total Assets

LIABILITIES

Accounts payable and other current liabilities Deferred revenue Long-term liabilities

Total Liabilities

NET ASSETS

Invested in capital assets - net ofrelated debt Restricted Unrestricted

Total Net Assets

8

Governmental Activities 2005 2006

=====

$ 959,367 196,069

3,539,718

$ 4,695,154

$ 150,178 40,441 28,128

$ 218,747

$ 3,539,718 335,225 601,464

$ 4,476,407

$ 962,913 165,011

4,102,401

$ 5,230,325

$ 109,442 15,292 19,902

$ 144,636

$ 4,102,401 335,903 647,385

$ 5,085,689

Percentage Change 2005-06

0.4% -15.8% 15.9%

11.4%

-27.1% -62.2% -29.2%

-33.9%

15.9% 0.2% 7.6%

13.6%

MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2006

Franklin Elementary School District

The District's net asset position increased by $609,282 this fiscal year (see table 2), primarily due to increased revenues and controlled spending. The District's expenses for instructional, instructional related, and pupil support services represented 82.9% of total expenses. Administrative activities of the District accounted for 5.2% of total costs. The remaining 11.9% was spent in the areas of plant services and other expenses.

Table 2: Statement of Net Assets

Percentage Governmental Activities Change

2005 2006 2005-06

REVENUES

PROGRAM REVENUES Charges for services $ 3,278 $ 2,921 -10.9% Operating grants and contributions 352,070 372,943 5.9%

GENERAL REVENUES Taxes levied for general purposes 597,610 670,780 12.2% Federal and state aid not restricted to

specific purposes 1,577,661 2,191,595 38.9% Unrestricted investment earnings 28,550 32,151 12.6%

Miscellaneous 78,155 72,684 -7.0%

Total Revenues 2,637,324 3,343,074 26.8%

EXPENSES

Instruction 1,771,883 1,995,469 12.6% Instruction related services 181,662 180,699 -0.5% Pupil support services 80,252 91,073 13.5% General administration 139,403 142,662 2.3% Plant services 236,125 246,694 4.5%

Other 84,457 77,195 -8.6%

Total Expenses 2,493,782 2,733,792 9.6%

Change in Net Assets $ 143,542 $ 609,282 324.5%

9

MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2006

Franklin Elementary School District

As reported in the statement of activities, the cost of all of the District's governmental activities this year was $2,733,792 (see figure 2 following). Federal and state aid not restricted to specific purposes of $2,191,595, federal and state categorical of $372,943, and property taxes of $670,780 represent the major portions of revenue to fund this year's governmental activities (see figure I below).

Revenues for the Fiscal Year 2005..06 Figure 1

Federal & state categorical $372,943

O!her $104,835

3%

10

11%

Charges for services $2,921

0%

Property taxes $670,780

20%

MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2006

General administration $142,662

5%

Instruction related $180,699

1%

Expenses for the Fiscal Year 2005-06 Figure 2

Plant services $246,694

9%

FINANCIAL ANALYSIS OF THE DISTRICT'S FUNDS

Franklln Elementary School District

The fund financial statements focus on individual parts of the District's operations in more detail than the government-wide financial statements. The District's individual fund financial statements provide infonnation on inflows and outflows and balances of spendable resources. The District's governmental funds reported a combined fund balance of$994,801, an increase of$40,050 from the previous fiscal year's combined ending balance of$954,751.

General Deferred Maintenance Special Reserve Special Revenue Capital Facilities County School Facilities

Total

Fund Balance June 30, 2005

$

$

745,571 60,304

776 77,726 70,374

954,751

Fund Balance June 30, 2006

$

$

795,612 75,032

802 21,634

101,721

994,801

$

$

Increase (Decrease)

50,041 14,728

26 (56,092) 31,347

40,050

The increase in the General Fund is due to a salary adjustment that was less than the COLA combined with increased interest income that was generated due to cash on hand.

The increase in the Deferred Maintenance Fund is due to the District reducing expenses in anticipation of installing a new well system during the 2006-07 school year.

11

MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2006

Franklin Elementary School District

The decrease in the Capital Facilities Fund is due to the construction of the new Junior High buildings.

The increase in the County School Facilities Fund is due to two large construction grants received during July 2005.

General Fund Budgetary Highlights

Over the course of the year, the District revised the annual operating budget monthly. The significant budget adjustments fell into the following categories:

• Budget revisions to the adopted budget required after approval of the state budget.

• Budget revisions to update revenues to actual enrollment information and to update expenditures for staffing adjustments related to actual enrollments during the interim financial reporting processes.

• Other budget revisions are routine in nature, including adjustments to categorical revenues and expenditures based on final awards, and adjustments between expenditure categories for school and department budgets.

The District ended the year with a increase of $50,041 to the General Fund ending balance. The state recommends an ending reserve for economic uncertainties of $50,000 or 4% of total expenditures, whichever is greater. The District was able to meet its requirement on June 30, 2006.

CAPITAL ASSET AND DEBT ADMINISTRATION

Capital Assets

By the end of the 2005-06 fiscal year, the District has invested $5,158,721 in a broad range of capital assets, including school buildings, site improvements, vehicles, and equipment less accumulated depreciation. During the 2005-06 fiscal year the District finished a major modernization building project resulting in an increase to buildings and a decrease to the construction in progress (see table 3).

Table 3: Comparative Schedule of Capital Assets (Net of Depreciation)

Percentage

Govermental Activities Increase Change

2005 2006 (Decrease) 2005-06

Land $ 2,620 $ 2,620 $ 0.0%

Site improvemens 352,319 343,131 (9,188) -2.6%

Buildings 2,993,146 3,750,486 757,340 25.3%

Equipment 7,615 6,164 (1,451) -19.1%

Construction in progress 184,018 (184,018) NIA

Total Capital Assets $ 3,539,718 $ 4,102,401 $ 562,683 15.9%

12

MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2006

Long-Term Debt

Franklin Elementary School District

The District has a balance of $10,470 for employee compensated absences and a balance of $9,432 for postemployment benefits (see table 4). The District made normally scheduled payments on its postemployment benefits.

Table 4: Comparative Schedule of Outstanding Debt

Percentage Govermental Activities Change 2005 2006 2005-0(i

Postemployment benefits $ 18,864 $ 9,432 -50.0% Compensated absences 9,264 10,470 13.0%

Total Outstanding Debt $ 28,128 $ 19,902 -29.2%

FACTORS BEARING ON THE DISTRICT'S FUTURE

The state's economic downturn is a major factor affecting the District's future. The financial well being of the District is tied in large measure to the state funding formula. Furthermore, the state's current year budget does not fully address its budget problem, and while no mid-year cuts are anticipated, cost of living adjustment increases along with equalization will still be deficited in the budget year.

The District is maintaining a conservative approach for the 2006-07 fiscal year. Total General Fund budgeted revenues are only $105,732 more than those received in 2005-06. Likewise the General Fund budgeted expenditures have been increased by $19,624 for the 2006-07 fiscal year. The District is building its budget on prior year ADA.

With the state's economic condition still in the recovery process, future predictions require management to plan carefully and prudently to provide the resources to meet student and staffing needs over the next several years.

CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT

This financial report is designed to provide our citizens, taxpayers, parents, investors, and creditors with a general overview of the District's finances and to show the District's accountability for the money it receives. For questions about this report or additional financial information, please contact

Douglas Reeder, District Superintendent Franklin Elementary School District 322 North Township Road Yuba City, CA 95993 (530) 822-5151

13

Basic Financial Statements

STATEMENT OF NET ASSETS

June 30, 2006

ASSETS

Cash and investments Accounts receivable Due from other governments Nondepreciated capital assets Depreciated capital assets Accumulated depreciation

Total Assets

LIABILITIES

Accounts payable and other current liabilities Due to other governments Deferred revenues Long-term obligations

Due within one year Due beyond one year

Total Liabilities

NET ASSETS

Invested in capital assets - net of related debt Restricted for capital projects Restricted for educational programs Unrestricted

Total Net Assets

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

15

Franklin Elementary School District

Governmental Activities

$ 962,913 64,409

100,602 2,620

5,156,101 (1,056,320)

$ 5,230,325

$ 100,017 9,425

15,292

9,432 10,470

$ 144,636

$ 4,102,401 198,387 137,516 647,385

$ 5,085,689

STATEMENT OF ACTMTIES

Year Ended June 30, 2006

FUNCTIONS/PROGRAMS

PRIMARY GOVERNMENT Governmental activities

Instruction Instruction - related services Pupil services Ancillary services General administration Plant services Other outgo

Total Governmental Activities

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

Franklln Elementary School District

Expenses

$ 1,995,469 $ 180,699 91,073 15,955

142,662 246,694

61,240

$ 2,733,792 $

GENERAL REVENUES

Charges for Services

2,921

2,921

Program Revenues

$

$

Operating Grants and

Contributions

288,030 26,368 37,945

3,130 17,470

372,943

Property taxes - levied for general purposes Federal and state aid not restricted to specific purposes Unrestricted investment earnings Miscellaneous

Total General Revenues

Change in Net Assets

Net Assets - Beginning of Year

Net Assets - End of Year

16

$

$

Net (Expense) Revenue Change in Net Assets

Governmental Activities

(1,707,439) (154,331)

(50,207) (I 5,955)

(139,532) (229,224)

(61,240)

(2,357,928)

670,780 2,191,595

32,151 72,684

2,967,210

609,282

4,476,407

5,085,689

BALANCE SHEET- Franklin Elementary School District GOVERNMENTAL FUNDS

Other Total County School Governmental Governmental

June 30, 2006 General Fund Facilities Fund Funds Fnnds

ASSETS

Cash and investments $ 763,399 $ 101,721 $ 97,793 $ 962,913 Accounts receivable 64,409 64,409 Due from other governments 100,602 100,602 Due from other funds 1,543 1,543

Total Assets $ 928,410 $ 101,721 $ 99,336 $ 1,129,467

LIABILITIES AND FUND BALANCES

LIABILITIES Accounts payable and other current liabilities $ 99,692 $ $ 325 $ 100,017 Due to other governments 9,425 9,425 Due to other funds 1,543 1,543 Deferred revenue 23,681 23,681

Total Liabilities 132,798 1,868 134,666

FUND BALANCES Reserved for revolving fund 100 100 Reserved for other purposes 137,516 137,516 Unreserved • reported in general fund 657,996 657,996 Unreserved - reported in special revenue funds 75,834 75,834 Unreserved - reported in capital projects funds 101,721 21,634 123,355

Total Fund Balances 795,612 101,721 97,468 994,801

Total Liabilities and Fund Balances $ 928,410 $ 101,721 $ 99,336 $ 1,129,467

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

17

RECONCILIATION OF GOVERNMENTAL FUND BALANCES TO GOVERNMENT-WIDE NET ASSETS June 30, 2006

Total Fund Balances - Governmental Funds

Amounts reported for assets and liabilities for governmental activities in the statement of net assets are different from amounts reported in governmental funds because:

Capital assets: In governmental funds, only current assets are reported. In the statement of net assets, all assets are reported, including capital assets and accumulated depreciation.

Capital assets at historical cost Accumulated depreciation

Deferred recognition of earned but unavailable revenues: In governmental funds, revenue is recognized only to the extent that it is "available," meaning it will be collected soon enough after the end of the period to finance expenditures of that period. In the government-wide statements, revenue is recognized when earned, regardless of availability. The amount of unavailable revenues that is recognized in the government-wide statements is:

Long-term liabilities: In governmental funds, only current liabilities are reported. In the statement of net assets, all liabilities, including long-term liabilities, are reported. Long-term liabilities relating to governmental activities consist of:

Postemployment benefits Compensated absences

Total Net Assets - Governmental Activities

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

18

Franklin Elementary School District

$ 5,158,721 (1,056,320)

9,432 10,470

$ 994,801

4,102,401

8,389

(19,902)

$ 5,085,689

STATEMENT OF REVENUES, EXPENDITURES, AND Franklln Elementlll'J' School District CHANGES IN FUND BALANCES-GOVERNMENTAL FUNDS

Other Total County School Governmental Governmental

Year Ended June 30, 2006 General Fond Facilities Fond Fonds Funds

REVENUES Property taxes $ 670,780 $ $ $ 670,780 State revenue 1,760,365 645,501 15,954 2,421,820 Federal revenue 141,196 141,196 Interest and investment earnings 25,318 6,890 3,144 35,352 Other local revenue 57,518 18,085 75,603 Total Revenues 2,655,177 652,391 37,183 3,344,751

EXPENDITURES Current

Instruction 1,878,194 1,878,194 Instruction~related services 178,042 178,042 Pupil services 91,073 91,073 Ancillary services 15,955 15,955 General administration 142,662 142,662 Plant services 209,709 19,166 228,875 Transfers between agencies 61,240 61,240

Capital outlay 12,616 621,044 75,000 708,660 Total Expenditures 2,589,491 621,044 94,166 3,304,701

Excess (Deficiency) ofRevennes Over Expenditures 65,686 31,347 (56,983) 40,050

OTHER FINANCING SOURCES (USES) lnterfund transfers in 15,645 15,645 lnterfund transfers out (15,645) (15,645) Total Other Financing Sources (Uses) (15,645) 15,645

Net Change In Fond Balances 50,041 31,347 (41,338) 40,050

Fond Balauees • Beginning of Year 745,571 70,374 138,806 954,751

Fund Balances • End of Year $ 795,612 $ 101,721 $ 97,468 $ 994,801

The accompanying notes are an lnlegml part of Jhesefinancial .v1atements.

19

RECONCILIATION OF NET CHANGE IN FUND BALANCES TO CHANGE IN NET ASSETS June 30, 2006

Total Net Change In Fund Balances -Governmental Funds

Amounts reported for governmental activities in the statement of activities are different from amounts reported in governmental funds because:

Capital outlay: In governmental funds, the costs of capital assets are reported as expenditures in the period when the assets are acquired. In the statement of activities, costs of capital assets are allocated over their estimated useful lives as depreciation expense. The difference between capital outlay expenditures and depreciation expense for the period is:

Expenditures for capital outlay Depreciation expense

Debt service: In governmental funds, repayments of long­term debt are reported as expenditures. In the government­wide statements, repayments of long-term debt are reported as reductions of liabilities. Expenditures for repayment of the principal portion of long-term debt were:

Earned but unavailable revenues: In governmental funds, revenues are recognized only to the extent that they are "available," meaning they will be collected soon enough after the end of the period to finance expenditures of that period. In the government-wide statements, revenue is recognized when earned, regardless of availability. The amount of earned but unavailable revenues relating to the current period, less revenues that became available in the current period but related to a prior period, is:

Compensated absences: In governmental funds, compensated absences are measured by the amounts paid during the period. In the statement of activities, compensated absences are measured by the amounts earned. The difference between compensated absences paid and compensated absences earned was:

Change in Net Assets of Governmental Activities

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

20

Franklin Elementary School District

$ 40,050

$ 708,660 (145,977)

562,683

9,432

(1,677)

(1,206)

$ 609,282

STATEMENT OF FIDUCIARY NET ASSETS­FIDUCIARY FUNDS

June 30, 2006

ASSETS

Cash and investments

LIABILITIES

Due to student groups

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

21

Franklin Elementary School District

Agency

$ 1,984

$ 1,984

NOTES TO THE FINANCIAL STATEMENTS June 30, 2006

1. SIGNIFICANT ACCOUNTING POLICIES

Accounting Policies

Franklin Elementary School District

The District accounts for its financial transactions in accordance with the policies and procedures of the Department of Education's California School Accounting Manual. The District's financial statements are prepared in accordance with generally accepted accounting principles (GAAP). The Governmental Accounting Standards Board (GASB) is responsible for establishing GAAP for state and local governments through its pronouncements (statements and interpretations). Governments are also required to follow the pronouncements of the Financial Accounting Standards Board (FASB) issued through November 30, 1989, (when applicable) that do not conflict with or contradict GASB pronouncements. Although the District has the option to apply FASB pronouncements issued after that date to its business-type activities and enterprise funds, the District has chosen not to do so. The more significant accounting policies established in GAAP and used by the District are discussed below.

Basis of Presentation

Government-Wide Financial Statements

The statement of net assets and statement of activities display information about the reporting entity as a whole. They include all funds of the reporting entity except for fiduciary funds. The statements distinguish between governmental and business-type activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange revenues. Business-type activities are financed in whole or in part by fees charged to external parties for goods or services.

Fund Financial Statements

Fund financial statements of the reporting entity are organized by funds, each of which is considered to be a separate accounting entity. Each fund is accounted for by providing a separate set of self-balancing accounts that constitute assets, liabilities, fund equity, revenues, and expenditures/expenses. Funds are organized into three major categories: governmental, proprietary, and fiduciary. An emphasis is placed on major funds within the governmental and proprietary categories. A fund is considered major if it is the primary operating fund of the District or meets the following criteria:

Total assets, liabilities, revenues, or expenditures/expenses of that individual governmental or enterprise fund are at least 100/o of the corresponding total for all funds of that category or type; and

Total assets, liabilities, revenues, or expenditures/expenses of the individual governmental fund or enterprise fund are at least 5% of the corresponding total for all governmental and enterprise funds combined.

22

NOTES TO THE FINANCIAL STATEMENTS June 30, 2006

The funds of the financial reporting entity are described below:

Governmental Funds

Franklin Elementary School District

General Fund is the general operating fund of the District. It is used to account for all financial resources except those required to be accounted for in another fund.

Special revenue funds are established to account for the proceeds from specific resources that are restricted to the financing of particular activities.

J. Deferred Maintenance Fund is used to account separately for state apportionments and District contributions for deferred maintenance purposes. Expenditures in this fund are for major repairs or replacements as identified in the plan approved by the State Allocation Board ( California Education Code Sections 17582-17587).

2. Special Reserve Fund is used to provide for the accumulation of resources designated for general operating purposes.

Capital projects funds are established to account for financial resources to be used for the acquisition or construction of major capital facilities.

1. Capital Facilities Fund is used primarily to account for funds received from fees levied on developers or others as a condition for approving development ( California Education Code Sections 17620-17626).

2. County School Facilities Fund is used to receive apportionments from the State School Facilities Fund 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 (California Education Code Section 17070).

Fiduciary Funds

Agency funds are used to account for assets of others for whom the District acts as an agent. The District maintains agency funds for student body accounts.

Major and Nonmajor Funds

The funds are further classified as major or nonmajor as follows:

Major Governmental Funds General Fund County School Facilities Fund

Nonmajor Governmental Funds Deferred Maintenance Fund Special Reserve Special Revenue Fund Capital Facilities Fund

23

NOTES TO THE FINANCIAL STATEMENTS June 30, 2006

Measurement Focus and Basis of Accounting

Franklln Elementary School District

Measurement focus is a term used to describe "which" transactions are recorded within the various financial statements. Basis of accounting refers to "when" transactions are recorded regardless of the measurement focus applied.

Measurement Focus

On the government-wide statement of net assets and the statement of activities, both governmental and business-like activities are presented using the "economic resources" measurement focus. The accounting objectives of this measurement focus are the determination of operating income, changes in net assets (or cost recovery), financial position, and cash flows. All assets and liabilities (whether current or noncurrent) associated with their activities are reported. Fund equity is classified as net assets.

In the fund financial statements, governmental funds utilize a "current financial resources" measurement focus. Only current financial assets and liabilities are generally included on their balance sheets. Their operating statements present sources and uses of available spendable financial resources during a given period. These funds use fund balance as their measure of available spendable financial resources at the end of the period.

Agency funds are not involved in the measurement of results of operations; therefore, measurement focus is not applicable to them.

Basis of Accounting

In the government-wide statement of net assets and statement of activities, both governmental and business-like activities are presented using the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when the liability is incurred or economic asset used. Revenues, expenses, gains, losses, assets, and liabilities resulting from exchange and exchange-like transactions are recognized when the exchange takes place.

In the fund financial statements, governmental funds and agency funds are presented on the modified accrual basis of accounting. Under this modified accrual basis of accounting, revenues are recognized when "measurable and available." Measurable means knowing or being able to reasonably estimate the amount. Available means collectible within the current period or within 60 days after year end. Expenditures (including capital outlay) are recorded when the related fund liability is incurred, except for general obligation bond principal and interest which are reported when due.

Budgets and Budgetary Accounting

Annual budgets are adopted on a basis consistent with generally accepted accounting principles for all government funds. By state law, the District's Governing Board must adopt a final budget no later than July I. A public hearing must be conducted to receive comments prior to adoption. The District's Governing Board satisfied these requirements.

These budgets are revised by the District's Governing Board and District Superintendent during the year to give consideration to unanticipated income and expenditures. The original and final revised budgets are presented for the General Fund as required supplemental information.

24

NOTES TO THE FINANCIAL STATEMENTS June 30, 2006

Franklin Elementary School District

Fonnal budgetary integration was employed as a management control device during the year for all budgeted funds. The District employs budget control by minor object and by individual appropriation accounts. Expenditures legally cannot exceed appropriations by major object account.

Cash, Cash Equivalents, and Investments

The District's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-tenn investments with original maturity of three months or less from the date of acquisition. Cash and cash equivalents are combined with investments and displayed as cash and investments.

In accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, highly liquid market investments with maturities of one year or less at time of purchase are stated at amortized cost. All other investments are stated at fair value. Market value is used as fair value for those securities for which market quotations are readily available.

In accordance with California Education Code Section 41001, the District maintains substantially all of its cash in the Sutter County Treasury as part of the common investment pool. The county is restricted by California Government Code Section 53635 pursuant to Section 53601 to invest in time deposits, U.S. government securities, state registered warrants, notes, or bonds, State Treasurer's investment pool, bankers' acceptances, commercial paper, negotiable certificates of deposit, and repurchase or reverse repurchase agreements. Investments in the county pool are valued using the amortized cost method (which approximates fair value) and includes accrued interest. The pool has deposits and investments with a weighted-average maturity of less than one year. As of June 30, 2006, the fair value of the county pool is 98.82% of the carrying value and is deemed to represent a material difference. Infonnation regarding the amount of dollars invested in derivatives with the county was not available. The county investment pool is subject to regulatory oversight by the Treasury Oversight Committee, as required by California Government Code Section 27130. The District is considered to be an involuntary participant in the external investment pool.

The calculation of realized gains is independent of the calculation of the net increase in the fair value of investments. Realized gains and losses on investments that had been held in more than one fiscal year and sold in the current year may have been recognized as an increase or decrease in the fair value of investments reported in the prior year. The net decrease in the fair value of investments during the year ended June 30, 2006, was $9,085. This amount takes into account all changes in fair value (including purchases and sales) that occurred during the year. The unrealized loss on investments held at June 30, 2006, was $9,085.

Accounts Receivable and Due From Other Governments

Accounts receivable represent amounts due from private persons, finns, or corporations based on contractual agreements or amounts billed but not received as of June 30, 2006. Amounts due from other governrnents include entitlements and grants from federal, state, and local governments that the District has earned or been allocated but has not received as of June 30,

2006.

25

NOTES TO THE FINANCIAL STATEMENTS June 30, 2006

lnterfund Receivables and Payables

Franklin Elementary School Distrkt

During the course of operations, numerous transactions occur between individual funds that may result in amounts owed between funds. lnterfund receivables and payables between funds within governmental activities are eliminated in the statement of net assets.

Fixed Assets

The accounting treatment over property, plant, and equipment (fixed assets) depends on whether the assets are used in governmental fund operations or proprietary fund operations and whether they are reported in the government-wide or fund financial statements.

Government-Wide Statemen1ll

In the government-wide financial statements, fixed assets are accounted for as capital assets. Capital assets are defined by the District as assets with an initial, individual cost of $5,000 or more and an estimated useful life in excess of one year. All fixed assets are valued at historical cost or estimated historical cost if actual is unavailable, except for donated fixed assets which are recorded at their estimated fair value at the date of donation. Estimated historical cost was used to value the majority of the assets acquired prior to June 30, 2001.

Depreciation of all exhaustible fixed assets is recorded as an allocated expense in the statement of activities, with accumulated depreciation reflected in the statement of net assets. Depreciation is provided over the assets' estimated useful Jives using the straight-line method of depreciation. The range of estimated useful lives in years by type of asset is as follows:

School buildings 50 Portable classrooms 25 Site improvements 20 Equipment 5-15 Vehicles 8

Fund Financial Statemen1ll

In the fund financial statements, fixed assets used in governmental fund operations are accounted for as capital outlay expenditures of the governmental fund upon acquisition.

Deferred Revenue

Cash received for federal and state special projects and programs is recognized as revenue to the extent that qualified expenditures have been incurred. Deferred revenue is recorded to the extent cash received on specific projects and programs exceeds qualified expenditures.

Long-Term Debt

The accounting treatment of long-term debt depends on whether the assets are used in governmental fund operations or proprietary fund operations and whether they are reported in the government-wide or fund financial statements.

All long-term debt to be repaid from governmental and business-type resources is reported as liabilities in the government-wide statements.

26

NOTES TO THE FINANCIAL STATEMENTS June 30, 2006

Franklin Elementary School District

Long-tenn debt for governmental funds is not reported as a liability in the fund financial statements. The debt proceeds are reported as other financing sources, and payments of principle and interest are reported as expenditures.

Compensated Absences

The liability for earned but unused vacation leave is recorded as long-term debt for compensated absences in the government-wide statements. The current portion of this debt is estimated based on historical trends. In the fund financial statements, governmental funds report only the compensated absence liability payable from expendable available financial resources.

Equity Classifications

Government-Wide Statements

Equity is classified as net assets and displayed in three components:

Invested in capital assets, net of related debt consists of capital assets including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, leases, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets.

Restricted net assets consists of net assets with constraints placed on the use either by external groups such as creditors, grantors, contributors, laws or regulations of other governments, or law through constitutional provisions or enabling legislation.

Unrestricted net assets consists of all other net assets that do not meet the defmition of "restricted" or "invested in capital assets, net of related debt."

Fund Statements

Governmental fund equity is classified as fund balance. Fund balance is further classified as reserved and unreserved with unreserved further split between designated and undesignated.

Revenue Limit and Property Tax

The District's revenue limit is received from a combination of local property taxes, state apportionments, and other local sources.

Sutter County is responsible for assessing, collecting, and apportioning property taxes. Taxes are levied for each fiscal year on taxable real and personal property in the county. Secured property taxes attach as an enforceable lien on property as of July I. Property taxes on the secured roll are due on December 10 and April IO and become delinquent after December I 0 and April 10, respectively.

Secured property taxes are recorded as revenue when apportioned, in the fiscal year of the levy. The county apportions secured property tax revenue in accordance with the alternate method of distribution prescribed by Section 4705 of the California Revenue and Taxation Code. This alternate method provides for crediting each applicable fund with its total secured taxes upon completion of the secured tax roll, approximately October 1 of each year.

27

NOTES TO THE FINANCIAL STATEMENTS June 30, 2006

Franklin Elementary School District

Property taxes are recorded as local revenue limit sources by the District. California Department of Education reduces the District's entitlement by the District's local property tax revenue. The balance is paid from the state's General Fund and is referred to as the state apportionment. The District's base revenue limit is the amount of general purpose tax revenue, per average daily attendance (ADA), that the District is entitled to by law. This amount is multiplied by the second period ADA to derive the District's total entitlement.

Revenue - Nonexchange Transactions

Nonexchange transactions, in which the District receives value without directly giving equal value in return, include property taxes, grants, and entitlements. Revenue from grants and entitlements is recognized in the fiscal year in which all eligibility requirements have been satisfied. Eligibility requirements include timing requirements, which specify the year when the resources are required to be used or the year when use is first permitted; matching requirements, in which the District must provide local resources to be used for a specified purpose; and expenditure requirements, in which the resources are provided to the District on a reimbursement basis. On a modified accrual basis, revenue from nonexchange transactions must also be available before it can be recognized.

Expenditures and Expenses

In the government-wide financial statements, expenses are classified by function for both governmental and business-type activities.

In the fund financial statements, expenditures are classified as follows:

Governmental funds - by character

Current (further classified by function) Debt service Capital outlay

In the fund financial statements, governmental funds report expenditures of financial resources.

lnterfund Transfers

Permanent reallocation of resources between funds of the reporting entity are classified as interfund transfers. For the purposes of the statement of activities, all interfund transfers between individual governmental funds have been eliminated.

28

NOTES TO THE FINANCIAL STATEMENTS June 30, 2006

2. CASH AND INVESTMENTS

Franklin ElemenJary School District

The following is a summary of cash and investments at June 30, 2006:

Maturities Fair Value

DEPOSITS (1) $ 2,084

INVESTMENTS THAT ARE NOT SECURITIES (2)

County treasurer's investment pool I0.7 months average 962,813

Total Cash and Investmenu 964,897

Less: Agency fund cash and investments 1,984

Total Cash and Investmeuu Per Government-Wide Statement of Net Asseu $ 962,913

(!) Deposits The carrying amount of deposits includes checking accounts, savings accounts, nonnegotiable certificates of deposit, and money market accounts at financial institutions, if any.

(2) Investments That are Not Securities A "security" is a transferable financial instrument that evidences ownership or creditorship, whether in physical or book-entry form. Investments that are not securities do not have custodial credit risk because they do not involve a transferable financial instrument. Thus, they are not categorized into custodial credit risk categories.

Credit Risk - Investments

California Government Code Section 53601 limits investments in commercial paper to "prime" quality of the highest ranking, or of the highest letter and numerical rating as provided by nationally recognized statistical rating organizations (NRSRO), and limits investments in medium-term notes to a rating of A or better. The District has no investment policy that would further limit its investment choices. The District's investment in the county investment pool is unrated.

Concentration of Credit Risk- Investments

California Government Code Section 53635 places the following concentration limits on the county investment pool:

No more than 40% may be invested in eligible commercial paper; no more than I 0% may he invested in the outstanding commercial paper of any single issuer; and no more than 10% of the outstanding commercial paper of any single issuer may be purchased.

29

NOTES TO THE FINANCIAL STATEMENTS June 30, 2006

Franklin Elementary School District

California Government Code Section 53601 places the following concentration limits on the District's investments:

No more than 5% may be invested in the securities of any one issuer, except the obligations of the U.S. government, U.S. government agencies, and U.S. government-sponsored enterprises; no more than I 0% may be invested in any one mutual fund; no more than 25% may be invested in commercial paper; no more than I 0% of the outstanding commercial paper of any single issuer may be purchased; no more than 30% may be invested in bankers' acceptances of any one commercial bank; no more than 3 0% may be invested in negotiable certificates of deposit; no more than 20% may be invested in repurchase agreements or reverse repurchase agreements; and no more than 30% may be invested in medium-term notes.

Interest Rate Risk - Investments

California Government Code Section 53601 limits the District's investments to maturities of five years. The District does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Investments grouped by maturity date at June 30, 2006, are as follows:

Investment

County treasurer's investment pool

3. DUE FROM OTHER GOVERNMENTS

$

Less Than One Year

962,813

On the government-wide financial statements, amounts due from other governments include $8,389 for the special education mandate settlement apportionment, which will be collected from the state of California over the next five years.

4. INTERFUND TRANSACTIONS AND BALANCES

lnterfund Receivables/Payables

lnterfund receivable and payable balances in the fund financial statements are as follows:

Interfund Receivable Interfund Payable Amounts

Capital Facilities Deferred Maintenance $ 1,543

The specific purposes of the interfund balances are as follows:

Capital Facilities Fund interfund receivable from the Deferred Maintenance Fund to reimburse expenditures that were paid out of the wrong fund.

lnterfund Transfers

Interfund transfers consist of operating transfers from funds receiving resources to funds through which the resources are to be expended.

30

NOTES TO THE FINANCIAL STATEMENTS June 30, 2006

Franklin Elementmy School District

5.

lnterfund transfers are as follows:

Transfer Out Transfer In Amounts

General Deferred Maintenance $ 15,645

Transfers are used for the following:

To move revenues from the fund that statute or budget requires to collect them to the fund that statute or budget requires to expend them; and

To use unrestricted revenues collected in the General Fund to finance various programs accounted for in other funds in accordance with budgetary authorizations.

There were no transfers that are inconsistent with the activities of the funds making the transfer.

CAPITAL ASSETS

Capital asset activity is as follows:

Balance June 30, 2005 Additions Deductions

GOVERNMENTAL ACTIVITIES

NONDEPRECIATED CAPITAL ASSETS Land $ 2,620 $ $

Construction in progress 184,018 696,045 880,063

Total Nondepreciated Capital Assets 186,638 696,045 880,063

DEPRECIATED CAPITAL ASSETS Buildings and improvements 4,162,672 892,678

Equipment and vehicles 100,751

Total Depreciated Capital Assets 4,263,423 892,678

Totals at Historical Cost $ 4,450,061 $ 1,588,723 $ 880,063

LESS ACCUMULATED DEPRECIATION Buildings and improvements $ 817,207 $ 144,526 $

Equipment and vehicles 93,136 1,451

Total Accumulated Depreciation 910,343 145,977

Total Depreciated Capital Assets~ Net 3,353,080 746,701

Governmental Adivities Capital Assets ~ Net $ 3,539,718 $ 1,442,746 $ 880,063

Depreciation expense was charged to governmental activities as follows:

GOVERNMENTAL ACTIVITIES

Instruction Instruction-related services Plant services

Total Depreciation Expense - Governmental Activities

31

$

$

Balance June 30, 2006

$

$

$

$

2,620

2,620

5,055,350 100,751

5,156,101 5,158,721

961,733 94,587

1,056,320 4,099,781

4,102,401

126,707 1,451

17,819

145,977

NOTES TO THE FINANCIAL STATEMENTS June 30, 2006

6. OPERA TING LEASES

Franklin Elementary SchoolD/strlct

The District has entered into various operating leases for copiers with lease terms in excess of one year. None of these agreements contain purchase options. All agreements contain a termination clause providing for cancellation after a specified number of days' written notice to lessors, but it is unlikely the District will cancel any of the agreements prior to the expiration date. Future minimum lease payments are as follows:

Year Ending June 30

2007 2008 2009 2010 2011

Total

$

$

Lease Payments

5,536 5,536 5,010 2,376 2,178

20,636

The District will receive no sublease rental revenues nor pay any contingent rentals for this equipment.

7. CHANGES IN LONG-TERM DEBT

The following is a summary of changes in long-term debt:

Amounts Balance Balance Due Within

July 1,2005 Additions Deductions June 30, 2006 One Year

GOVERNMENTAL ACTIVITIES

Compensated absences $ 9,264 $ 1,206 $ $ 10,470 $ Postemployment benefits 18,864 9,432 9,432 9,432

Total $ 28,128 $ 1,206 $ 9,432 $ 19,902 $ 9,432

8. DESIGNATED FUND BALANCES

Fund balances as of June 30, 2006, are designated for the following purpose:

Designated for special purposes Designated for economic uncertainties

Total Designated and Unreserved

32

General Fund

$ 548,938 109,058

$ 657,996

Other County School Governmental Facilities Fund Funds

$ 101,721 $ 97,468

$ 101,721 $ 97,468

NOTES TO THE FINANCIAL STATEMENTS June 30, 2006

9. JOINT POWERS AGREEMENT

Franklin Elementary School District

The District participates in joint ventures under joint powers agreements with the following joint powers authorities (JP As): North Valley Schools Insurance Group (NVSIG), Tri-County Schools Insurance Group (TCSIG), and Schools Excess Liability Fund (SELF). The relationship between the District and the JP As is such that the JP As are not component units of the District for financial reporting purposes.

The JPAs arrange for and provide property and liability, workers' compensation, health benefits, and excess liability coverage for their members. Each JPA is governed by a board consisting of representatives from the members. The boards control the operations ofthe JPAs, including selection of management and approval of operating budgets, independent of any influence by the members beyond their representation on the boards. Each member district pays a premium commensurate with the level of coverage requested and shares surpluses and deficits proportionate to its participation in the JPA. The District's share of year-end assets, liabilities, or fund equity is not calculated by the JPAs. Separately issued financial statements can be requested from each JPA. Condensed financial information of the JP As for the fiscal year ended June 30, 2005, is as follows:

NVSIG TCSIG SELF

Total assets $ 4,623,640 $ 11,531,974 $ 177,635,435 Total liabilities 4,263,526 10,275,907 174,412,337

Net Assem (Liabilities) $ 360,114 $ 1,256,067 $ 3,223,098

Operating revenues $ 15,655,546 $ 52,490,823 $ 34,654,122 Operating expenses 15,656,575 49,444,298 60,768,157 Other income (expenses) 17,522 185 819 3 541,357

Excess Revenues (Expenses} $ 16,493 $ 3,232,344 $ (22,572,678}

10. COMMITMENTS AND CONTINGENCIES

Federal and State Allowances, Awards, and Grants

The District has received federal and state funds for specific purposes that are subject to review and audit by the grantor agencies. Although such audits could generate expenditure disallowances under terms of the grants, it is believed that any required reimbursements will not be material.

11. RISK MANAGEMENT

The District is exposed to various risks, including loss or damage to property, general liability, and injuries to employees. Settled claims resulting from these risks have not exceeded insurance coverage in any of the past three years. No significant reductions in insurance coverage from the prior year have been made. As described above, the District participates in risk pools under JPAs for property and liability, health benefits, and workers' compensation coverage.

33

NOTES TO THE FINANCIAL STATEMENTS June 30, 2006

12. EMPLOYEE RETIREMENT SYSTEMS

Franklin Elementary School District

Qualified employees are covered under multiple-employer defined benefit pension 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).

California State Teachers' Retirement System (CalSTRS)

Plan Description

The District contributes to the California State Teachers' Retirement System (CalSTRS), a cost-sharing, multiple-employer, public employee retirement system defined benefit pension plan administered by CalSTRS. The plan provides retirement, disability, 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 the CalSTRS, 7919 Folsom Boulevard, Sacramento, California 95826.

Funding Policy

Active plan members are required to contribute 8.0% of their salary. The required employer contribution rate for fiscal year 2005-06 was 8.25% 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 ended June 30, 2006, 2005, and 2004, were $104,701, $97,287, and $96,177, respectively, and equal I 00% of the required contributions for each year.

California Public Employees Retirement System (CalPERS)

Plan Description

The District contributes to the School Employer Pool under the California Public Employees' Retirement System (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 death benefits to plan members and beneficiaries. Benefit provisions are established by state statutes, as legislatively amended, within the Public Employees' Retirement Law. 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 95814.

Funding Policy

Active plan members are required to contribute 7 .0% of their salary, and the District is required to contribute an actuarially determined rate. The actuarial methods and assmnptions used for determining the rate are those adopted by the CalPERS Board of Administration. The required employer contribution rate for the 2005-06 fiscal year was 9.116%. The contribution requirements of the plan members are established by state statute. The District's contributions to CalPERS for the fiscal years ended June 30, 2006, 2005, and 2004, were $16,106, $16,196, and $16,848, respectively, and equal I 00% of the required contribution for each year.

34

NOTES TO THE FINANCIAL STATEMENTS June 30, 2006

Franklin Elementary School District

13. POSTEMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS

Jn addition to the pension benefits described above, the District provides postretirement health care benefits to employees on an individually negotiated basis. On June 30, 2006, one retiree had negotiated benefits with the District. During the year ended June 30, 2006, expenditures of $9,432 were recognized for postemployment health care benefits.

14. SUBSEQUENT EVENT

General Obligation Bonds

On August 1, 2006, the District issued $1,000,000 of 2006 general obligation bonds at a premium of $26,698. The interest rates range from 4.00% to 7.00%. The fmal maturity is August 1, 2031.

35

REQUIRED SUPPLEMENTAL INFORMATION

BUDGETARY COMPARISON SCHEDULE- Franklin Elementary GENERAL FUND SchoolDlstrkt

Variance witll Final Budget·

Budgeted Amounts Actual Amounts Positive Year Ended June 30, 2006 Original Final GAAPBa,is (Negative)

REVENUES Property taxes $ 611,713 $ 683,126 $ 670,780 $ (12,346) State revenue 1,793,152 1,800,417 1,760,365 (40,052) Federal revenue 168,989 171,600 141,196 (30,404) Interest and investment earnings 13,000 34,404 25,318 (9,086) Other local revenue 43,760 57,920 57,518 (402) Total Revenues 2,630,614 2,747,467 2,655,177 (92,290)

EXPENDITURES Current

Instruction 1,779,561 2,011,109 1,878,194 132,915 Instruction - related services 177,500 190,682 178,042 12,640 Pupil services 108,008 106,582 91,073 15,509 Ancillruy services 18,189 16,767 15,955 812 General administration 145,773 144,306 142,662 1,644 Plant services 196,419 220,215 209,709 10,506 Transfers between agencies 61,331 61,331 61,240 91

Capital outlay 12,616 (12,616) Total Eipenditures 2,486,781 2,750,992 2,589,491 161,501

Excess (Deficiency) of Revenues

Over Eipenditures 143,833 (3,525) 65,686 69,211

OTHER FINANCING SOURCES (USES) Transfers out (10,000) (15,645) (15,645)

Net Change in Fund Balances 133,833 (19,170) 50,041 69,211

Fund Balances~ Beginning of Year 745,571 745,571 745,571

Fund Balances -End of Year $ 879,404 $ 726,401 $ 795,612 $ 69,211

See rhe accompanying notes 10 the budgetary comparison schedule.

37

NOTES TO THE BUDGETARY COMPARISON SCHEDULE June 30, 2006

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Franklin Elementary School District

The District's Governing Board annually adopts a budget for the General Fund of the District. The budget is presented on the modified accrual basis of accounting. Accordingly, the accompanying budgetary comparison schedule of the General Fund presents actual expenditures in accordance with the accounting principles generally accepted in the United States on a basis consistent with the legally adopted budget as amended. Unexpended appropriations on the annual budget lapse at the end of each fiscal year.

2. EXCESS OF EXPENDITURES OVER APPROPRIATIONS

For the year ended June 30, 2006, expenditures exceeded appropriations by the following amounts:

FUNCTION

Capital outlay

General Fund

$ 12,615

These excess expenditures were offset by unexpended appropriations in other categories.

38

OTHER SUPPLEMENTAL INFORMATION SECTION

SCHEDULE OF AVERAGE DAILY ATTENDANCE June 30, 2006

ELEMENTARY

Kindergarten Grades I through 3 Grades 4 through 6 Grades 7 and 8

ADA Totals

Snpplemental Instrnction

Elementary

See the accompanying notes to the supplemental information.

40

Franklin Elemenltll'J' School District

Second Period Report

36 124 143 108

411

Annual Report

36 124 142 108

410

Hours of Attendance

388

SCHEDULE OF INSTRUCTIONAL TIME Franklin Elementary School District Year Ended June 30, 2006

1986-87 1982-83 2005-06 Traditional Multltrack Minutes Actual Actual Calendar Calendar

Requirement Minutes Minutes Days Days Status

Kindergarten 36,000 31,500 36,000 180 NIA Complied

Grades 1 through 3 50,400 43,750 52,065 180 NIA Complied

Grades 4 through 8 54,000 52,500 55,620 180 NIA Comelied

See the accompanying notes to the supplemental information.

41

SCHEDULE OF FINANCIAL TRENDS AND ANALYSIS

Year Ended June 30, 2006 (Budget} 2007

GENERAL FUND

Revenues and Other Financial Sources $ 2,760,909

Expenditures 2,608,806 Other uses and transfers out 15,954

Total Outgo 2,624,760

Change in Fund Balance $ 136,149

Ending Fund Balance 931,761

Available Reserves 794,145

Designated for Economic Uncertainties 130,440

Undesigoated Fund Balance

Available Reserves aa a Percentage of Total Outgo 30%

Total Long-Term Debt 1,010,470

Average Daily Attendance at P-2 411

$

$

2006

2,655,177 $

2,589,491 15,645

2,605,136

50,041 $

795,612

657,996

109,058

25%

19,902

411

Franklln Elementary School District

2005 2004

2,568,005 $ 2,372,505

2,341,193 2,427,962 3,717 9,992

2,344,910 2,437,954

223,095 $ (65,449)

745,571 522,476

618,650 444,723

94,500 104,060

26% 18%

28,128 48,871

415 405

The General Fund balance has increased by $273,136 over the past two years. The fiscal year 2006-07 budget projects an increase of $136,149 (17.1%). For a district this size, the state recommends available reserves of at least 4% of total General Fund expenditures, transfers out, and other uses ( total outgo).

The District has incurred an operating deficit in one of the past three years and anticipates incurring an operating surplus during the 2006-07 fiscal year. Total long-term debt has decreased by $28,969 over the past two years.

Average daily attendance has increased by six over the past two years. No additional growth in ADA is anticipated during fiscal year 2006-07.

See the accompanying notes to the other supplemental information.

42

RECONCILIATION OF ANNUAL FINANCIAL AND BUDGET REPORT WITH AUDITED FINANCIAL STATEMENTS

Year Ended June 30, 2006

June 30, 2006, Annual Financial and Budget Report Fund Balances

ADJUSTMENTS INCREASING (DECREASING) THE FUND BALANCES

Overstatement of cash and investments

June 30, 2006, Audited Financial Statement Fund Balances

See the accompanying notes to the supplemental information.

43

Franklin Elementary School District

General Fund

$ 804,697

(9,085)

$ 795,612

SCHEDULE OF CHARTER SCHOOLS Year Ended June 30, 2006

Franklin Elementary School District

The District is not the sponsoring local educational agency for any charter schools.

See the accompanying notes to the other supplemental information.

44

NOTES TO THE OTHER SUPPLEMENTAL INFORMATION June 30, 2006

1. PURPOSE OF SCHEDULES

Schedule of Average Dally Attendance

Franklin Elementary School District

Average daily attendance is a measurement of the number of pupils attending classes of the District. The purpose of attendance accounting from a fiscal standpoint is to provide the basis on which apportionments of state funds are made to school districts. This schedule provides information regarding the attendance of students at various grade levels and in different programs.

Schedule of Instructional Time

The District has received incentive funding for increasing instructional time as provided by the Incentives for Longer Instructional Day. This schedule presents information on the amount of instructional time offered bY the District and whether the District complied with the provisions of California Education Code Sections 46201 through 46206.

Schedule of Financial Trends and Analysis

This schedule discloses the District's fmancial trends by displaying past years' data along with current-year budget information. These financial trend disclosures are used to evaluate the District's ability to continue as a going concern for a reasonable period of time.

Reconciliatlon of Annual Financial and Budget Report with Audited Financial Statements

This schedule provides the information necessary to reconcile the fund balance of each fund as reported in the annual financial and budget report to the audited financial statements.

Schedule of Charter Schools

This schedule lists all charter schools sponsored by the District and indicates whether or not the charter school is included in the audit of the District.

2. EARLY RETIREMENT INCENTIVE PROGRAM

The District did not enter into any early retirement incentive agreements during 2005-06, pursuant to California Education Code Sections 22714 and 44929, whereby the service credit to eligible employees is increased by two years.

45

OTHER REPORTS SECTION

matson and isom

Founded in J 962 by Robert M. Matson andW. Howard Isam

Chico 3013 Ceres Avenue P.O.Box 1638 Chico, CA 95927-1638 Phone (530) 89 !-6474 Fax (530) 893-6689

Redding 1255 East Street, Suite 202 P.O.Box991891 Redding. CA 96099-1891 Phone (530) 244-4980 Fax (530) 244-4983

www.matson-isom.com

INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

Board of Trustees Franklin Elementary School District Yuba City, California

We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Franklin Elementary School District (the District) as of and for the year ended June 30, 2006, which collectively comprise the District's basic financial statements and have issued our report thereon dated November 3, 2006. We conducted our audit in· accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States.

Internal Control Over Financial Reporting

In planning and performing our audit, we considered the District's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinions on the fmancial statements and not to provide an opinion on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses.

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the District's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit; and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

This report is intended solely for the information and use of the Board of Trustees, management, the California Department of Education, the State Controller's Office, and the California Department of Finance, and is not intended to be and should not be used by anyone other than these specified parties.

November 3, 2006

47

matson and isom

Founded in 1962 by Robert M. Matson an<fW. How:ard Isom

Chico 3013 CeresAvenue P.O.Box 1638 Chico,CA 95927-!638 i:-hone (530} 891~6474 Fax (530) 893-6689

Roddiog 1255 East Street Suite 202 P.O.Box991891 Redding, CA 96099. ! 891 Phone (530} 244-4980 Fax (530) 244-4983

www.matson-isom.com

INDEPENDENT AUDITORS' REPORT ON STATE COMPLIANCE

Board of Trustees Franklin Elementary School District Yuba City, California

We have audited the fmancial statements of the governmental activities, each major fund, and the aggregate remaining fund infonnation of Franklin Elementary School District (the District) as of and for the year ended June 30, 2006, which collectively comprise the District's basic fmancial statements and have issued our report thereon dated November 3, 2006. We conducted our audit in accordance with auditing standards generally accepted in the United States of America; 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 200:5-06, published by the Education Audit Appeals Panel. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audit provides a reasonable basis for our opinion.

The District's management is responsible for the District's compliance with laws and regulations. ln connection with the audit referred to above, we selected and tested transactions and records to determine the District's compliance with the state laws and regulations applicable to the following:

Procedures In Procedure• Descriplion A11ditG11ide P<tformed

Attendance reporting 8 Yes Kindergarten oonlinuaru:e 3 No Independent study 22 No Continwuion education 10 No Adult edu<)a!ion 9 No Regional occupational centers and programs 6 No Instructional time

School districls 4 Yes County offices of education 3 Not Applicable

Community day schools 9 No Morgan-Hart class size reduction program 7 No Instructional materials

General requirements 12 Yes Kindergarten through grade 8 only l Yes Grades 9 through 12 only l Not applicable

Ratios of administrative employees to teru:hers I Yes Early retirement incentive program 4 No Gann limit calculation I Yes

48

INDEPENDENT AUDITORS' REPORT ON STATE COMPLIANCE Continued

Description

Scl!ool construction funds School district bonds State school facilities funds

Alternative pension plans Proposition 20 lottery funds (cardenas Textbook Act of2000) State lottery funds (California Swe Lottery Act of 1984) California school age families education (Cal-SAFE) progi:am School accountability report card Class size reduction (including in charter schools}

General requirements Option one classes Option two classes Districts or charter schools with only one school serving kindergarten through grade 3

Charter schools: Contemporaneous records of attendance Nonclassroom-based instruction/independent study Additional nonclassroom•based instruction Determination of funding for nonclassroom•based instruction Annual instructional minutes - dassroom based

Procedures in Pro«dures Audit Guide Performed

3 No I Yes 2 No 2 Yes 2 Yes 3 No 3 Yes

7 Yes 3 Yes 4 Yes 4 Not applicable

I No IS No l No 3 No 3 No

Kindergarten continuance steps ( c) and ( d) were not performed because the District did not retain any pupils in Kindergarten during 2005-06 who had already completed one school year in Kindergarten. Testing was not performed for independent study because the ADA for this program was below the level which requires testing.

Since the District did not participate in the following programs during 2005-06, all steps related to them were not performed:

Independent study Continuation education Adult education Regional occupational centers and programs Community day schools Morgan-Hart class size reduction program Early retirement incentive program School district bonds Alternative pension plans California school age families education (Cal-SAFE) program

Since the District did not sponsor any charter schools during 2005-06, all steps related to the following were not performed:

Contemporaneous records of attendance Nonclassroom-based instruction/independent study Additional nonclassroom-based instruction Determination of funding for nonclassroom-based instruction Annual instructional minutes • classroom based

49

INDEPENDENT AUDITORS' REPORT ON STATE COMPLIANCE Continued

Based on our audit, fur the items tested, we fuund the District complied with the state laws and regulations referred to above. Further, based on our exanrination for items not tested, nothing came to our attention to indicate that the District had not complied with the state laws and regulations.

This report is intended solely for the information and use of the Board of Trustees, management, the California Department of Education, the State Controller's Office, and the California Department of Finance, and is not intended to be and should not be used by anyone other than these specified parties.

November 3, 2006

50

FINDINGS AND QUESTIONED COSTS SECTION

SCHEDULE OF FINDINGS AND QUESTIONED COSTS June 30, 2006

SECTION I SUMMARY OF AUDIT RESULTS

FINANCIAL STATEMENTS

Type of auditors' report issued

Internal control over financial reporting Material weaknesses identified? Reportable conditions identified not considered to be material weaknesses?

Noncompliance material to financial statements noted?

STATE AWARDS

Internal control over state programs Material weaknesses identified? Reportable conditions identified not considered to be material weaknesses?

Type of auditors' report issued on compliance for state programs

52

Frt1nklin Elementary School Dtstrid

Unqualified

No None reported

No

No None reported

Unqualified

SCHEDULE OF FINDINGS AND QUESTIONED COSTS June 30, 2006

SECTION II FINDINGS FINANCIAL STATEMENTS AUDIT

None.

SECTION Ill FINDINGS FEDERAL AWARDS AUDIT

None.

SECTION IV FINDINGS STATE AWARDS AUDIT

None.

53

Franklin Elementary SchoolI>istrlct

CORRECTIVE ACTION PLAN June 30, 2006

Not applicable: there are no current year findings related to federal awards.

54

Frnnklin Elementary School District

SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS June 30, 2006

None.

55

Franklin ElemeJftm'y School District

APPENDIX B

PROPOSED FORM OF LEGAL OPINION

Appendix-B

APPENDIX B

PROPOSED FORM OF OPINION OF BOND COUNSEL

(LETTERHEAD OF BOND COUNSEL)

March 1 5, 2007

Board ofTrustees Franklin Elementary School District 332 N. Township Road Yuba City, CA 95993

OPINION: $999,541.65 Franklin Elementary School District (County of Sutter, California) General Obligation Bonds.Election of 2006, Series 2007

Members of the Board ofTrustees:

We have acted as bond counsel to the Franklin Elementary School District (the "District") in connection with the issuance by the District of its Franklin Elementary School District (County of Sutter, California) General Obligation Bonds, Election of 2006, Series 2007 in the aggregate principal amount of $999,541.65 (the "Bonds"), pursuant to Article 4.5 of Chapter 3 of Part 1 of Division 2, Title 5 of the California Government Code (the "Bond Law'') and pursuant to a resolution of the Board of Trustees of the District (the "Board") adopted on February 8, 2007 (the "Bond Resolution"). We have examined the law and such certified proceedings and other papers as we have deemed necessary to render this opinion.

As to questions of fact material to our opinion, we have relied upon representations of the Board contained in the Bond Resolution and in the certified proceedings and certifications of public officials and others furnished to us, without undertaking to verify the same by independent investigation.

Based upon the foregoing, we are of the opinion, under existing law, as follows:

1. The District is duly established and validly existing as a school district with the power to issue the Bonds and to perform its obligations under the Bond Resolution and the Bonds.

Board ofTrustees Franklin Elementary School District ____________ ,2007 Page 2

2. The Bond Resolution has been duly adopted by the Board, and the Bond Resolution constitutes the valid and binding obligations of the District enforceable against the District in accordance with its terms.

3, The Bonds have been duly authorized, executed and delivered by the Board and are valid and binding general obligations of the District, and the Board is obligated under the Bond Resolution and is authorized under the laws of the State of California to cause to be levied a tax without limit as to rate or amount upon the taxable property in the District for the payment when due of the principal of and interest on the Bonds.

4. Interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; it should be noted, however, that, for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings, and the Bonds are "qualified tax-exempt obligations" within the meaning of section 265(b)(3) of the Internal Revenue Code of 1986 (the "Code") such that, in the case of certain financial institutions (within the meaning of section 265(b)(5) of the Code), a deduction for federal income tax purposes is allowed for 80 percent of that portion of such financial institution's interest expense allocable to interest payable on the Bonds. The opinions set forth in the preceding sentence are subject to the condition that the District comply with all requirements of the Code that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The District has covenanted to comply with each such requirement Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. We express no opinion regarding other federal tax consequences arising with respect to the Bonds.

5. The interest on the Bonds is exempt from personal income taxation imposed by the State of California.

The rights of the owners of the Bonds and the enforceability of the Bonds and the Bond Resolution may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and may also be subject to the exercise of judicial discretion in appropriate cases.

Respectfully submitted,

AP rofessional Law Corporation

APPENDIX C

FORM OF CONTINUING DISCLOSURE CERTIFICATE

Appendix-C

CONTINUING DISCLOSURE CERTIFICATE

$999,541.65 FRANKLIN ELEMENTARY SCHOOL DISTRICT

(Sutter County, California) General Obligation Bonds

Election of 2006, Series 2007

This Continuing Disclosure Certificate (the "Disclosure Certificate") is executed and delivered by the Franklin Elementary School District (the "District'') in connection with the issuance of $999,541.65 aggregate denominational amount of Franklin Elementary School District (County of Sutter, California) General Obligation Bonds Election of 2006, Series 2007 (the "Bonds"). The Bonds are being issued pursuant to a Resolution adopted by the Board of Trustees of the District on February 8, 2007 (the "Bond Resolution"). The District covenants and agrees as follows:

Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the District for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriters in complying with S.E .C. Rule 15c2-12(b)(5).

Section 2. Definitions. In addition to the definitions set forth in the Bond Resolution, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, 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 3 and 4 of this Disclosure Certificate.

"Dissemination Agent" shall mean the District or any successor Dissemination Agent designated in writing by the District and which has filed with the District a written acceptance of such designation.

"Listed Events" shall mean any of the events listed in Section S(a) of this Disclosure Certificate.

"National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule.

"Participating Underwriter" shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds.

"Repository" shall mean each National Repository and each State Repository.

"Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

"State Repository" shall mean any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository.

Section 3. Provision of Annual Reports.

(a) The District shall, or shall cause the Dissemination Agent to, not later than nine months after the end of the District's fiscal year (which currently would be March 31), commencing March 31, 2008 with the report for the 2006;2007 Fiscal Year, provide to any person who requests it, an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. An Annual Report shall consist of the most recently available documents of the type to be included in the Annual Report (see Section 4) at the time the request is received.

Section 4. Content of Annual Reports. The Annual Report shall contain or incorporate by reference the following:

(a) Audited financial statements prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the District's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.

(b) To the extent not contained in the audited financial statements filed pursuant to the preceding clause (a), the Annual Report shall contain information showing:

(i) the average daily attendance in District schools on an aggregate bas is for the preceding fiscal year;

(ii) pension plan contributions made by the District for the preceding fiscal year;

(iii) aggregate principal amount of short-term borrowings, lease obligations and other long-term borrowings of the District as of the end of the preceding fiscal year;

(iv) description of amount of general fund revenues and expenditures which have been budgeted for the current fiscal year, together with audited actual budget figures for the preceding fiscal year;

(v) the District's total revenue limit for the preceding fiscal year;

(vi) prior fiscal year total secured property tax levy and collections, showing current collections as a percent of the total levy; and

(vii) current fiscal year assessed valuation of taxable properties in the District, including assessed valuation of the top ten properties.

(c) In addition to any of the information expressly required to be provided under paragraphs (a) and (b) of this Section, the District shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.

2

Any or all of the items listed above may be included by specific reference to 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 the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The District shall clearly identify each such other document so included by reference.

Section 5. Reporting ofS ignificant Events.

(a) Pursuant to the provisions of this Section 5, the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material:

(1) Principal and interest payment delinquencies. (2) Non-payment related defaults. (3) Unscheduled draws on debt service reserves reflecting financial difficulties. (4) Unscheduled draws on credit enhancements reflecting financial difficulties. (5) Substitution of credit or liquidity providers, or their failure to perform. (6) Adverse tax opinions or events affecting the tax-exempt status of the

security. (7) Modifications to rights of security holders. (8) Contingent or unscheduled bond calls. (9) Defeasances. (1 O) Release, substitution, or sale of property securing repayment of the

securities. (11) Rating changes.

(b) Whenever the District obtains knowledge of the occurrence of a Listed Event, the District shall as soon as possible determine if such event would be material under applicable Federal securities law.

(c) If the District determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the District shall promptly file a notice of such occurrence with the Municipal Securities Rulemaking Board and each State Repository. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds pursuant to the Bond Resolution.

Section 6. Alternative Method of Filing. In lieu of filing an Annual Report with each Repository under Section 3 of a notice of a Listed Event under Section 5, the District or the Dissemination Agent may make such filing through the internet filing system which is maintained at Disclosure USA.com (or such other central filing system as is approved by the Securities and Exchange Commission), in which event such filing need not also be made by the District or the Dissemination Agent directly with any Repository.

Section 7. Termination of Reporting Obligation. The District's obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5(c).

3

Section 8. Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent.

Section 9. Amendment Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:

(a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or S(a), it may only be made 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 an obligated person with respect to the Bonds, or type of business conducted;

(b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner pro.tided in the Bond Resolution for amendments to the Bond Resolution with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds.

If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto 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.

If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the District to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to the Repositories in the same manner as for a Listed Event under Section S(c).

Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the District shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

4

Section 11. Default. In the event of a failure of the District to comply with any provision of this Disclosure Certificate, any holder or beneficial owner of the Bonds 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 Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Bond Resolution, and the sole remedy under this Disclosure Certificate in the event of any failure of the District to comply with this Disclosure Certificate shall be an action to compel performance.

Section 12. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur 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 obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.

Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Dissemination Agent, the Participating Underwriters and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity.

Date: March 15, 2007

5

FRANKLIN ELEMENTARY SCHOOL DISTRICT

By:---~-~-~-----­S uperintendent

EXHIBIT A

NOTICE OF FAILURE TO FILE ANNUAL REPORT

Name ofObligor:

Name of Bond Issue:

Date of Issuance:

Franklin Elementary School District

$999,541.65 aggregate principal amount of Franklin Elementary School District (County of Sutter, California) General Obligation Bonds, Election of 2006, Series 2007

March 1 5, 2007

NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above-named Bonds. The District anticipates that the Annual Report will be filed by-------------.

Dated: ______________ , 2007

A-1

FRANKLIN ELEMENTARY SCHOOL DISTRICT

By:-------~-----­S uperintendent

APPENDIX D

EXCERPTS FROM THE SUTTER COUNTY INVESTMENT PORTFOLIO REPORT

Appendix-D

COUNTY OF SUTTER TREASURER AND TAX COLLECTOR

463 SECOND STREET • P.O. BOX 546 YUBA CITY, CALIFORNIA 95992

(530) 822-7117

JIM STEVENS Treasurer - Tax Collector

TANYA D. MARTIN A$sistant Treasurer - Tax Collector

January 26, 2007

To: Sutter County Board of Supervisors Sutter County Pooled Money lnveslment Board

Re: Sutter County Investment Portfolio

Attached is a copy of Sutter County's Investment Portfolio as of December 31, 2006. This schedule includes all short-tern,, mid-term and long-term investments held at the conclusion of business on the final day of the month.

As Treasurer-Tax Collector, i certify that this document reflects the government agencies' pooled investments and that all investments are in compliance with the County of Sutter Investment Policy.

The combined funds in the county treasury total $172,059,092.13 and will provide sufficient cash flow liquidity to meet estimated pooled treasury expenditures for the next six months.

Invested treasury funds total $161,555,457.26 with $59,062,483.86 under the managellll\!nt of the Local Agency Investment Fund and California Asset Management Program. The Bank of New Yon<, which provides third-party safekeeping services to Sutter County, furnishes market value data. The dollar­weighted average maturity of invested funds is 169 days.

Investments are selected based on criteria contained in the Sutter County Investment Policy, which emphasizes safety, liquidity, yield and diversification. Therefore, the interest rates wil fluctuate and the types of investments will vary depending upon county needs and market availability on a partklolar day.

Respectfully submitted,

e?•d) Jim s Treasurer-Tax Collector

JS:tdm

AGENCY NOTES 51.06% --

CAMP LOCAL AGENCY INVESTMENT FUND (COUNTY) LOCAL AGENCY INVESTMENT FUND (CEMETERY) LOCAL AGENCY INVESTMENT FUND (Y.C.U.S.D.) CERTIFICATES OF DEPOSIT COMMERCIAL PAPER/REPURCHASE SWEEP BANKERS ACCEPTANCES MEDIUM TERM NOTES AGENCY NOTES MONEY MARKET MUTUAL FUND TOTAL MANAGED INVESTMENTS LESS: LAIF FUNDS NOT POOLED TOTAL POOLED INVESTMENTS

SUTTER COUNTY INVESTMENTS December 31, 2006

CAMP 20.21%

LOCALAGENCYINVESTMENT FUND (COUNTY)

14.97%

LOCAL AGENCY INVESTMENT FUND (Cl:METERY)

1.38%

CERTIFICATES OF DEPOSIT 1.24%

MEDIUM TERM NOTES 11.14%

PERCENTAGE INVESTED% BOOK OF MANAGED OF POOLED VALY!; PORTFOLIO PQBTFOLIO

$32,646,219.29. 20.21% 20.49% $24,185,418.81 14.97% 15.18%

$2,230,845.76 1.38% NIA $0.00 !l.00% N/A

$1,999,187.15 1.24% 1.25% $0.00 0.00% 0.00% $!l.OO 0.00% 0.00%

$18,000,552.18 11.14% 11.30% $82,493,234.07 51.06% 51.78%

$0.00 0.00% 0.00% $161,555,457.26 100.00% NtA

212301845. 76 ~% NtA $15913241611.50 !!!!,!!% 100.00%

AVERAGE DAYS TO AVERAGE

MA TURfil YIELD 1 5.20% 1 5.13% 1 5.13% 0 0.00%

194 4.10% 0 0.00% 0 0.00%

120 5.03% 284 3.73%

Q. 0.00% 226 4.11%

226 4.20%

SUTTER COUNTY TREASURER INVESTMENT PORTFOLIO December 31, 2006

TOTAL TREASURY TYPE OF DATE DATE DAYS NUMBER IHllilll!IIONIBRAN!.!:I INV§TMENT BQQK Va!,!.!!; MARKET V6b!.!E e6BllAL!Ji; IHlll;l!T§D MAIJ.!Blill ll!l!§§TED X!sbQ

2008-055 CALIFORNIA ASSET MANAGEMEN1 COUNTY FUNDS $32,646,219.29 $32,646,219.29 $32,646,219.29 NIA NIA NIA 5.20% 2006-052 LAIF-STATE POOL/SAC COUNTY FUNDS $24,185,418.81 $24,185,418.81 $24,186,418.81 NIA NIA NIA 5.13% 2008-048 LAIF•STATE POOL/SAC SUTTER CEMETERY $2,230,645.76 $2,230,645.76 $2,230,645.76 NIA NIA NIA 5.13% 2003-024 FREDDIE MAC AGENCY NOTE $4,000,000.00 $3,974,680.00 $4,000,000.00 04/30/03 04130107 1,461 3.20% 2003-025 INTERNATIONAL LEASE FIN MEDIUM TERM NOTE $4,005,169.57 $3,979,375.00 $4,000,000.00 05/01103 07130107 1,551 4.60% 2003-031 FANNIE MAE AGENCY NOTE $3,997,718.66 $3,898,750.00 $4,000,000.00 06104103 06104108 1,827 3.29% 2003-041 FEDHMLNBK AGENCY NOTE $1,999,452.55 $2,000,000.00 $2,000,000.00 06/26/03 12126107 1,644 3.29% 2003-046 FED FARM CREDIT AGENCY NOTE $3,997,869.67 $3,943,750.00 $4,000,000.00 07/03103 06126/07 1,454 2.37% 2003-047 FEDHMLNBK AGENCY NOTE $3,999,831.45 $3,942,500.00 $4,000,000.00 07116103 07116/07 1,461 2.55% 2003-049 FEDHMLNBK AGENCY NOTE $4,031,483.29 $3,959,992.19 $4,045,000.00 07124/03 12128/07 1,616 3.61% 2004-007 FREDDIE MAC AGENCY NOTE $3,998,789.87 $3,942,600.00 $4,000,000.00 03/17104 03117108 1,461 4.03% 2004-009 FEDHMLNBK AGENCY NOTE $2,501,629.84 $2,450,781.25 $2,500,000.00 03124104 12124107 1,370 3.07% 2004-018 FREDDIE MAC AGENCY NOTE $3,998,585.75 $3,942,720.00 $4,000,000.00 04/29104 10129107 1,278 3.76% 2004-020 FREDDIE MAC AGENCY NOTE $3,997,857.14 $3,971,250.00 $4,000,000.00 04/30104 04127/07 1,092 3.18% 2004-046 FANNIE MAE AGENCY NOTE $1,999,716.48 $1,995,000.00 $2,000,000.00 00/16104 02112/07 910 3.13% 2004-058 FREDDIE MAC AGENCY NOTE $4,000,000.00 $3,947,600.00 $4,000,000.00 11/10/04 11110/08 1,461 4.00% 2004-063 FANNIE MAE AGENCY NOTE $4,002,964.84 $3,940,000.00 $4,000,000.00 11117/04 05120/08 1,280 3.28% 2005-001 FEDHMLNBK AGENCY NOTE $4,000,000.00 $3,957,500.00 $4,000,000.00 01105105 06/22/07 898 3.50% 2005-003 FEDHMLNBK AGENCY NOTE $1,999,969.18 $1,998,750.00 $2,000,000.00 01118/05 01118/07 730 4.03% 2005-011 FEDHMLNBK AGENCY NOTE $3,999,528.34 $3,972,500.00 $4,000,000.00 02125105 07127/07 882 4.00% 2005-018 FANNIE MAE AGENCY NOTE $4,000,000.00 $3,988,750.00 $4,000,000.00 04125/05 04125/08 1,096 5.00% 2005-019 FEDHMLNBK AGENCY NOTE $3,998,916.55 $3,988,750.00 $4,000,000.00 04108/05 04/09/07 731 4.19% 2005-020 FEDHMLNBK AGENCY NOTE $4,000,000.00 $3,995,000.00 $4,000,000.00 04120105 04120/07 730 4.75% 2005-024 FEDHMLNBK AGENCY NOTE $3,999,414.08 $3,997,500.00 $4,000,000.00 04119/05 01118/07 639 3.81% 2005-030 FEDHMLNBK AGENCY NOTE $3,982,321.70 $3,951,250.00 $4,000,000.00 05/12105 07/30/08 1,175 4.09% 2005-036 FEDHMLNBK AGENCY NOTE $3,999,001.82 $3,966,250.00 $4,000,000.00 08/30105 06/30/08 1,095 4.50% 2005·048 DEUTSCHE BANK NY CERTIFICATE OF DEPOSr $1,999,187.15 $1,999,060.00 $2,000,000.00 07127105 07113107 716 4.10% 2008•009 ING SEC LIFE INS MEDIUM TERM NOTE $1,994,378.06 $1,992,720.00 $2,000,000.00 02/28106 02115107 352 5.01% 2006-011 MONUMENT GLOBAL MG FUND MEDIUM TERM NOTE $4,000,444.15 $3,999,240.00 $4,000,000.00 03/28106 01/30107 308 5.05% 2006-012 PRINCIPAL LIFE MEDIUM TERM NOTE $1,999,511.45 $2,000,000.00 $2,000,000.00 04107106 06/28107 447 5.17% 2006-019 AMER GENERAt FINANCE MEDIUM TERM NOTE $2,002,206.46 $2,001,380.00 $2,000,000.00 04/21106 03115107 328 5.18% 2006-020 PRINCIPAL LIFE MEDIUM TERM NOTE $3,998,842.49 $3,991,562.50 $4,000,000.00 04/21106 06/28/07 433 5.18% 2008-023 FEDHMLNBK AGENCY NOTE !lil,lll!§ l§2,§§ $1,987,500.00 $2,000,000.00 04121106 05/03/07 377 5.12%

TOTAL $161,555,457.26 $160,759,394,80 $161,607,483.86 AVERAGE: 4.11%

APPENDIX E

ACCRETED VALUE TABLES

Appendix-E

Date

Mar 15, 2007 Aug l, 2007 Feb l,2008 Aug l, 2008 Feb l,2009 Aug l, 2009 Feb l, 2010 Aug l, 2010 Feb l,2011 Aug l, 201 l Feb l, 2012 Aug l, 2012 Feb l,2013 Aug l, 2013 Feb l, 2014 Aug l, 2014 Feb l,2015 Aug l, 2015 Feb l, 2016 Aug l, 2016 Feb l,2017 Aug l, 2017 Feb l, 2018 Aug l, 2018 Feb l, 2019 Aug l, 2019 Feb l,2020 Aug l, 2020 Feb l, 2021 Aug l, 2021 Feb l,2022 Aug l, 2022 Feb l,2023 Aug l, 2023 Feb l,2024

Election of 2006, Series

2007 08Pl/2009

ll.6%

3,824.05 3,99Q50 4,221.90 4,466.80 4,725.85 5,00000

Election of Election of 2006, Series 2006 Series

2007 2007 08Pl/2010 08 pl /20 ll

l l.6% l l.6%

3,416.25 3,051.95 3,564.95 3,184.80 3,771.70 3,369.50 3,990.50 3,564.95 4,221.90 3,771.70 4,466.80 3,99Q50 4,725.85 4,221.90 5,000.00 4,466.80

4,725.85 5,00000

Mar 7, 2007 4:04 pm Prepared by Kelling, Northcross & Nobriga

BOND ACCRETED VALUE TABLE

Franklin Elerrentary School Distirct Election 2006 Series 2007

Election of Election of 2006 Series 2006 Series

2007 2007 08Pl/2012 08 pl /20 l3

l l.6% l l.6%

2,726.50 2,435.80 2,845.20 2,541.80 3,010.20 2,689.20 3,184.80 2,845.20 3,369.50 3,0lQ20 3,564.95 3, 184.80 3,771.70 3,369.50 3,990.50 3,564.95 4,221.90 3,771.70 4,466.80 3,99Q50 4,725.85 4,221.90 5,000.00 4,466.80

4,725.85 5,00000

Election of Election of Election of Election of 2006, Series 2006, Series 2006, Series 2006 Series

2007 2007 2007 2007 08Pl/2014 08Pl/2015 08Pl/2016 08Pl/2017

l l.6% l l.6% l l.6% ll./%

2,176.05 1,944.00 1,736.70 1,536.35 2,270.75 2,02860 1,812.25 l,60180 2,402.45 2,146.25 1,917.40 1,697.60 2,541.80 2,27Q75 2,028.60 1,796.90 2,689.20 2,402.45 2,146.25 1,902.05 2,845.20 2,541.80 2,270.75 2,01130 3,010.20 2,689.20 2,402.45 2,131.10 3,184.80 2,845.20 2,541.80 2,255.75 3,369.50 3,0lQ20 2,689.20 2,387.70 3,564.95 3, 184.80 2,845.20 2,527.40 3,771.70 3,369.50 3,010.20 2,675.25 3,990.50 3,564.95 3,184.80 2,831.75 4,221.90 3,771.70 3,369.50 2,997.45 4,466.80 3,99Q50 3,564.95 3,172.80 4,725.85 4,221.90 3,771.70 3,35840 5,000.00 4,466.80 3,990.50 3,554.85

4,725.85 4,221.90 3,762.80 5,00000 4,466.80 3,982.95

4,725.85 4,215.95 5,000.00 4,462.60

4,72165 5,00000

Pagel

Date

Aug l, 2024 Feb l,2025 Aug l, 2025 Feb l,2026 Aug l, 2026 Feb l,2027 Aug l, 2027 Feb l,2028 Aug l, 2028 Feb l,2029 Aug l, 2029 Feb l,2030 Aug l, 2030 Feb l, 2031 Aug l, 2031 Feb l,2032 Aug l, 2032 Feb l,2033 Aug l, 2033 Feb l,2034 Aug l, 2034 Feb l,2035 Aug l, 2035 Feb l,2036 Aug l, 2036 Feb l,2037 Aug l, 2037 Feb l,2038 Aug l, 2038 Feb l,2039 Aug l, 2039 Feb l,2040 Aug l, 2040

Election of 2006, Series

2007 00Pl/20CE

ll.6%

Election of 2006, Series

2007 OOPl/2010

l l.6%

Election of 2006, Series

2007 00 pl /20 ll

l l.6%

Mar 7, 2007 4:04 pm Prepared by Kelling, Northcross & Nobriga

BOND ACCRETED VALUE TABLE

Franklin Elerrentary School Distirct Election 2006, Series 2007

Election of 2006, Series

2007 OOPl/2012

l l.6%

Election of 2006, Series

2007 00 pl /20 l3

l l.6%

Election of 2006, Series

2007 OOPl/2014

l l.6%

Election of Election of Election of 2006, Series 2006, Series 2006, Series

2007 2007 2007 OOPl/2015 OOPl/2016 OOPl/2017

l l.6% l l.6% ll./%

Page 2

BOND ACCRETED VALUE TABLE

Franklin Elerrentary School Distirct Election 2006, Series 2007

Election of Election of Election of Election of Election of Election of Election of Election of Election of 2006, Series 2006, Series 2006, Series 2006, Series 2006, Series 2006, Series 2006, Series 2006, Series 2006, Series

2007 2007 2007 2007 2007 2007 2007 2007 2007 OOPl/2018 OOPl/2019 00 pl /2020 OOPl /202 l 00 pl /2022 OOPl/2023 OOPl /2024 OOPl/2025 00 pl /2026

Date 4.2% 4.3% 4.4% 4.45% 4.5% 4.53% 4.55% 4.5i% 4.62%

Mar 15, 2007 3,115.90 2,953.00 2,79120 2,655.50 2,522. lO 2,400.75 2,287.80 2,179.30 2,06140 Aug l, 2007 3,165.20 3,000.85 2,839.50 2,700.00 2,564.90 2,441.75 2,327.05 2,216.85 2,099.30 Feb l,2000 3,231.65 3,065.40 2,902.00 2,760.10 2,622.60 2,497.05 2,379.95 2,267.50 2,147.80 Aug l, 2000 3,299.55 3,131.30 2,965.80 2,821.50 2,681.60 2,553.60 2,434.10 2,319.30 2,197.40 Feb l,2009 3,36880 3,198.60 3,031.05 2,884.30 2,741.95 2,611.45 2,489.50 2,372.30 2,24820 Aug l, 2009 3,439.55 3,267.40 3,097.75 2,948.45 2,80160 2,670.60 2,546.15 2,426.50 2,300 lO Feb l, 2010 3,511.80 3,337.65 3,165.90 3,014.05 2,866.70 2,731.10 2,604.05 2,481.95 2,35125 Aug l, 2010 3,585.55 3,409.40 3,235.55 3,001.15 2,931.20 2,792.95 2,66130 2,538.70 2,407.60 Feb l,2011 3,66Q85 3,482.70 3,306.75 3,149.70 2,997.15 2,856.20 2,72190 2,596.70 2,46125 Aug l, 201 l 3,7.37. 70 3,557.55 3,379.50 3,219.75 3,064.60 2,920.90 2,785.85 2,656.00 2,52Q 15 Feb l, 2012 3,816.20 3,634.05 3,45185 3,291.40 3, 13155 2,987.05 2,849.25 2,716.70 2,57835 Aug l, 2012 3,896.35 3,712.20 3,529.80 3,364.65 3,204.05 3,054.70 2,914.05 2,778.80 2,637.90 Feb l,2013 3,97820 3,792.00 3,607.50 3,439.50 3,276.15 3,123.90 2,98Q35 2,842.30 2,69885 Aug l, 2013 4,061.70 3,87.3.55 3,686.85 3,516.05 3,349.85 3,194.65 3,048 15 2,907.25 2,761.20 Feb l, 2014 4,147.00 3,956.80 3,767.95 3,594.25 3,425.25 3,267.05 3,117.50 2,97.3.65 2,824.95 Aug l, 2014 4,234.10 4,041.90 3,85Q85 3,674.25 3,502.30 3,341.05 3, 18845 3,041.60 2,89Q25 Feb l,2015 4,32100 4,128.80 3,935.55 3,756.00 3,581.10 3,416.70 3,26Q95 3,111.10 2,957.00 Aug l, 2015 4,41180 4,217.55 4,022.15 3,839.55 3,661.70 3,494.10 3,335.15 3,182.20 3,025.30 Feb l, 2016 4,506.50 4,300.25 4, llQ65 3,925.00 3,744.05 3,57.3.25 3,411.05 3,254.90 3,095.20 Aug l, 2016 4,601.15 4,400.85 4,201.05 4,012.35 3,&2830 3,654.15 3,48865 3,329.30 3,166.70 Feb l,2017 4,697.75 4,495.50 4,29150 4,101.60 3,914.45 3,736.95 3,56800 3,405.35 3,239.85 Aug l, 2017 4,796.40 4,592.15 4,387.95 4,192.85 4,002.55 3,821.60 3,649.15 3,483.20 3,314.70 Feb l, 2018 4,897.15 4,690.85 4,484.50 4,286.15 4,092.60 3,900.15 3,7.32.20 3,562.75 3,391.25 Aug l, 2018 5,00000 4,791.70 4,58115 4,381.50 4,184.65 3,996.65 3,817. lO 3,644.20 3,469.60 Feb l, 2019 4,894.75 4,684.00 4,479.00 4,27880 4,007.20 3,90195 3,727.45 3,549.75 Aug l, 2019 5,000.00 4,787.05 4,578.65 4,375.10 4,179.75 3,992.75 3,812.60 3,63 l. 75 Feb l,2020 4,892.35 4,680.55 4,47155 4,274.45 4,00160 3,899.75 3,715.65 Aug l, 2020 5,00000 4,784.70 4,574.20 4,371.25 4,176.50 3,988.85 3,801.45 Feb l, 2021 4,891.15 4,677. lO 4,470.25 4,271.50 4,080.00 3,889.25 Aug l, 2021 5,000.00 4,782.35 4,571.50 4,36870 4, 17.3.25 3,979.10 Feb l,2022 4,889.95 4,675.05 4,46805 4,268.60 4,071.05 Aug l, 2022 5,00000 4,780.95 4,569.70 4,366.10 4,165.05 Feb l,2023 4,889.25 4,67170 4,465.90 4,261.30 Aug l, 2023 5,000.00 4,78QOO 4,567.95 4,359.70 Feb l,2024 4,88875 4,672.30 4,46Q45

Mar 7, 2007 4:04 pm Prepared by Kelling, Northcross & Nobriga Page 3

Date

Aug l, 2024 Feb l,2025 Aug l, 2025 Feb l,2026 Aug l, 2026 Feb l,2027 Aug l, 2027 Feb l,2028 Aug l, 2028 Feb l,2029 Aug l, 2029 Feb l,2030 Aug l, 2030 Feb l, 2031 Aug l, 2031 Feb l,2032 Aug l, 2032 Feb l,2033 Aug l, 2033 Feb l,2034 Aug l, 2034 Feb l,2035 Aug l, 2035 Feb l,2036 Aug l, 2036 Feb l,2037 Aug l, 2037 Feb l,2038 Aug l, 2038 Feb l,2039 Aug l, 2039 Feb l,2040 Aug l, 2040

Election of 2006, Series

2007 OOPl/2018

4.2%

Election of 2006, Series

2007 OOPl/2019

4.3%

Election of 2006, Series

2007 00 pl /2020

4.4%

Mar 7, 2007 4:04 pm Prepared by Kelling, Northcross & Nobriga

BOND ACCRETED VALUE TABLE

Franklin Elerrentary School Distirct Election 2006, Series 2007

Election of 2006, Series

2007 OOPl /202 l

4.45%

Election of 2006, Series

2007 00 pl /2022

4.5%

Election of 2006, Series

2007 OOPl/2023

4.53%

Election of Election of Election of 2006, Series 2006, Series 2006, Series

2007 2007 2007 OOPl /2024 OOPl/2025 00 pl /2026

4.55% 4.5i% 4.62%

5,00000 4,779.05 4,56145 4,888.30 4,66890 5,000.00 4,776.75

4,887. lO 5,00000

Page4

BOND ACCRETED VALUE TABLE

Franklin Elerrentary School Distirct Election 2006, Series 2007

Election of Election of Election of Election of Election of Election of Election of Election of Election of 2006, Series 2006, Series 2006, Series 2006, Series 2006, Series 2006, Series 2006, Series 2006, Series 2006, Series

2007 2007 2007 2007 2007 2007 2007 2007 2007 OOPl/2027 oop l /2028 00 pl /2029 OOPl/2030 OOPl /2031 OOPl/2032 OOPl /2033 OOPl/2034 OOPl /2035

Date 4.64% 4.65% 4.66% 4.6i% 4.68% 4.69% 4.72% 4.73% 4.74%

Mar 15, 2007 l,96145 1,871.50 l,78150 1,699.35 l,61880 1,541.80 l,46Q60 1,390.30 l,32115 Aug l, 2007 1,997.75 1,904.30 1,814.80 l,7.29.20 1,647.35 1,569.05 1,486.60 1,415.10 1,346.75 Feb l,2000 2,044.10 1,948.55 1,857. lO 1,769.60 1,685.90 1,605.85 1,521.65 1,448.55 l,37870 Aug l, 2000 2,091.55 1,993.85 l,90040 1,810.90 l,7.25.35 1,643.50 1,557.60 1,482.80 1,411.35 Feb l,2009 2, l4Q05 2,040.20 1,944.65 1,853.20 1,765.70 1,682.00 1,594.35 1,517.90 1,444.80 Aug l, 2009 2,189.70 2,007.65 1,989.95 1,896.50 1,807.05 l,7.21.45 1,631.95 1,553.80 1,479.05 Feb l, 2010 2,24Q50 2,136.20 2,036.35 1,940.75 1,849.30 1,761.85 l,67Q50 1,590.50 1,514.10 Aug l, 2010 2,292.50 2,185.85 2,00180 1,986.10 1,892.60 1,803.15 1,709.90 1,628.15 l,55QOO Feb l,2011 2,345.65 2,236.70 2,132.35 2,032.45 1,936.90 1,845.45 l,75Q25 1,666.65 1,586.70 Aug l, 201 l 2,400 lO 2,288.70 2,182.00 2,079.90 1,982.20 1,888.70 1,791.55 1,706.05 l,6.24.35 Feb l, 2012 2,455.80 2,341.90 2,232.85 2,128.50 2,02860 1,933.00 l,83185 1,746.40 1,662.80 Aug l, 2012 2,512.75 2,396.35 2,284.90 2,178.20 2,076.05 1,978.35 1,877. lO 1,787.70 1,702.25 Feb l,2013 2,571.05 2,452.05 2,338 lO 2,229.05 2,124.65 2,024.75 1,921.40 1,830.00 1,742.60 Aug l, 2013 2,63Q70 2,509.05 2,392.60 2,281.10 2,174.35 2,07.2.20 1,966.75 l,87.3.30 l,78190 Feb l, 2014 2,691.75 2,567.40 2,44835 2,334.35 2,225.25 2,120.80 2,01120 1,917.60 l,&26.15 Aug l, 2014 2,754.20 2,627.10 2,505.40 2,388.85 2,277.30 2,170.55 2,06Q70 l,96.2.95 1,869.45 Feb l,2015 2,818 lO 2,688.20 2,56175 2,444.65 2,33Q60 2,221.45 2,109.35 2,009.35 l,91175 Aug l, 2015 2,88145 2,750.70 2,6.2150 2,501.75 2,385.15 2,27.3.55 2,159.10 2,056.90 1,959.10 Feb l, 2016 2,95Q35 2,814.65 2,684.65 2,560.15 2,44Q95 2,326.85 2,21Q05 2,105.50 2,005.55 Aug l, 2016 3,01880 2,880.10 2,747.20 2,619.90 2,49805 2,381.40 2,262.20 2,155.30 2,05105 Feb l,2017 3,00885 2,947.05 2,811.20 2,681.10 2,556.50 2,437.25 2,315.60 2,206.30 2,101.70 Aug l, 2017 3, l6Q50 3,015.55 2,876.70 2,743.70 2,616.35 2,494.40 2,37Q25 2,258.45 2,151.55 Feb l, 2018 3,23185 3,005.65 2,94175 2,807.75 2,677.55 2,552.90 2,426.20 2,311.90 2,202.50 Aug l, 2018 3,30885 3,157.40 3,012.30 2,87.3.35 2,74Q20 2,612.75 2,48145 2,366.55 2,254.70 Feb l, 2019 3,385.60 3,230.80 3,002.50 2,940.40 2,804.35 2,674.05 2,542.05 2,422.55 2,30& 15 Aug l, 2019 3,464.15 3,305.95 3,154.35 3,009.10 2,869.95 2,736.75 2,602.05 2,479.80 2,362.85 Feb l,2020 3,544.55 3,382.80 3,227.85 3,079.35 2,937. lO 2,800.90 2,66145 2,538.45 2,41885 Aug l, 2020 3,6.26. 75 3,461.45 3,30105 3,151.25 3,005.85 2,866.60 2, 7.26. 35 2,598.50 2,476.20 Feb l, 2021 3,71Q90 3,541.95 3,38QOO 3,224.85 3,076.20 2,933.80 2,79Q65 2,659.95 2,534.90 Aug l, 2021 3,797.00 3,624.30 3,45875 3,300.15 3,148 15 3,002.60 2,856.55 2,7.22.85 2,594.95 Feb l,2022 3,885.10 3,700.55 3,539.35 3,377.20 3,221.85 3,07.3.05 2,92195 2,787.25 2,656.45 Aug l, 2022 3,975.25 3,794.80 3,6.21.80 3,456.05 3,297.25 3,145.10 2,992.95 2,853.20 2,719.40 Feb l,2023 4,067.45 3,883.00 3,706.20 3,536.75 3,374.40 3,218.85 3,06160 2,920.65 2,78185 Aug l, 2023 4,161.80 3,97.3.30 3,792.55 3,619.35 3,45135 3,294.35 3,135.90 2,989.75 2,849.85 Feb l,2024 4,25835 4,065.65 3,88Q90 3,703.85 3,534.15 3,371.60 3,209.90 3,060.45 2,917.40

Mar 7, 2007 4:04 pm Prepared by Kelling, Northcross & Nobriga Page 5

Date

Aug l, 2024 Feb l,2025 Aug l, 2025 Feb l,2026 Aug l, 2026 Feb l,2027 Aug l, 2027 Feb l,2028 Aug l, 2028 Feb l,2029 Aug l, 2029 Feb l,2030 Aug l, 2030 Feb l, 2031 Aug l, 2031 Feb l,2032 Aug l, 2032 Feb l,2033 Aug l, 2033 Feb l,2034 Aug l, 2034 Feb l,2035 Aug l, 2035 Feb l,2036 Aug l, 2036 Feb l,2037 Aug l, 2037 Feb l,2038 Aug l, 2038 Feb l,2039 Aug l, 2039 Feb l,2040 Aug l, 2040

Election of 2006, Series

2007 OBPl/2027

4.64%

4,357.15 4,45825 4,561.70 4,667.50 4,775.80 4,886.60 5,00000

Election of Election of 2006, Series 2006 Series

2007 2007 OBPl/2028 08 pl /2029

4.65% 4.66%

4,160.20 3,971.35 4,256.90 4,06190 4,355.90 4, 15855 4,457.15 4,255.45 4,560.80 4,354.60 4,666.85 4,456. lO 4,775.35 4,559.90 4,886.35 4,666.15 5,000.00 4,774.85

4,886.15 5,00000

Mar 7, 2007 4:04 pm Prepared by Kelling, Northcross & Nobriga

BOND ACCRETED VALUE TABLE

Franklin Elementary School Distirct Election 2006 Series 2007

Election of Election of 2006 Series 2006 Series

2007 2007 OBPl/2030 08Pl /2031

4.6i% 4.68%

3,790.35 3,616.85 3,878.85 3,701.50 3,969.40 3,788 lO 4,06.2.10 3,876.75 4,156.95 3,967.45 4,254.00 4,06Q30 4,353.35 4,155.30 4,455.00 4,252.55 4,559.00 4,352.05 4,665.45 4,45190 4,774.40 4,558 lO 4,885.90 4,664.80 5,000.00 4,77195

4,885.65 5,00000

Election of Election of Election of Election of 2006, Series 2006, Series 2006, Series 2006 Series

2007 2007 2007 2007 OBPl/2032 08Pl /2033 OBPl/2034 08Pl /2035

4.69% 4.72% 4.73% 4.74%

3,450.65 3,285.65 3,132.85 2,986.55 3,531.55 3,36120 3,206.90 3,057.30 3,614.40 3,442.55 3,282.75 3,129.75 3,699.15 3,52180 3,360.40 3,20195 3,785.90 3,606.95 3,439.90 3,279.90 3,874.65 3,692.10 3,521.25 3,357.60 3,965.55 3,779.25 3,604.50 3,437.20 4,058.50 3,86840 3,689.75 3,51865 4,153.70 3,959.70 3,777.00 3,602.05 4,251.10 4,05115 3,866.35 3,687.40 4,350.80 4, 14885 3,957.80 3,774.80 4,452.80 4,246.75 4,051.40 3,864.25 4,557.25 4,346.95 4,147.20 3,955.85 4,664.10 4,449.55 4,245.30 4,049.60 4,77.3.45 4,554.55 4,345.70 4,145.60 4,885.40 4,662.05 4,448.45 4,24185 5,000.00 4,m.os 4,553.65 4,344.40

4,884.70 4,661.35 4,447.40 5,00000 4,771.60 4,552.80

4,884.45 4,66Q70 5,000.00 4,771.15

4,884.20 5,00000

Page 6

BOND ACCRETED VALUE TABLE

Franklin Elerrentary School Distirct Election 2006, Series 2007

Election of Election of Election of Election of Election of 2006, Series 2006, Series 2006, Series 2006, Series 2006, Series

2007 2007 2007 2007 2007 OOPl/2036 OOPl/2037 OOPl /2038 OOPl/2039 OOPl /2040

Date 4.75% 4.78% 4.78% 4.7i% 4.7i%

Mar 15, 2007 l,25&95 l, 197.65 l, 142.65 1,006.70 1,036.65 Aug l, 2007 1,281.50 1,219.15 l,16110 1,106.20 1,055.25 Feb l,2000 1,311.90 1,248.15 l,l9Q80 l, 132.60 l,OOQ45 Aug l, 2000 l,34110 1,277.85 1,219.15 l, 159.60 l, 106.20 Feb l,2009 1,375.00 1,300.30 l,24& 15 l, 187.25 l, 132.60 Aug l, 2009 1,407.65 1,339.40 1,277.85 1,215.55 l, 159.60 Feb l, 2010 1,441.05 1,371.30 l,30&30 1,244.55 l, 187.25 Aug l, 2010 1,475.30 1,403.95 1,339.40 1,274.25 1,215.55 Feb l,2011 l,51Q35 1,437.35 1,371.30 1,304.65 1,244.55 Aug l, 201 l 1,546.20 1,471.55 l,40195 1,335.75 1,274.25 Feb l, 2012 1,582.95 1,506.60 1,437.35 1,367.60 1,304.65 Aug l, 2012 l,6.2Q50 1,542.45 1,471.55 1,400.25 1,335.75 Feb l,2013 1,659.00 1,579.15 1,506.60 1,433.65 1,367.60 Aug l, 2013 l,69&40 1,616.75 1,542.45 1,467.80 l,40025 Feb l, 2014 l,7.3& 75 1,655.20 1,579.15 l,5Q2.85 l,43165 Aug l, 2014 l,78Q05 1,694.60 1,616.75 1,538.65 1,467.80 Feb l,2015 l,&22.30 1,734.95 1,655.20 1,575.35 1,502.85 Aug l, 2015 1,865.60 1,776.25 1,694.60 1,612.95 l,53&65 Feb l, 2016 1,909.90 1,818.50 l,7.34.95 1,651.40 1,575.35 Aug l, 2016 1,955.30 1,861.80 1,776.25 1,690.80 1,612.95 Feb l,2017 2,001.70 1,906.10 l,81&50 1,731.15 1,651.40 Aug l, 2017 2,049.25 1,951.45 1,861.80 1,772.40 l,69Q80 Feb l, 2018 2,097.95 1,997.90 1,906.10 1,814.70 l,7.31.15 Aug l, 2018 2,147.75 2,045.45 1,951.45 1,857.95 l,m.40 Feb l, 2019 2, 19&75 2,094.15 1,997.90 l,9Q2.30 1,814.70 Aug l, 2019 2,251.00 2,144.00 2,045.45 1,947.65 1,857.95 Feb l,2Q20 2,304.45 2,195.00 2,094.15 1,994.10 1,902.30 Aug l, 2Q20 2,359.15 2,247.25 2,144.00 2,041.65 1,947.65 Feb l, 2Q2l 2,415.20 2,300.75 2,195.00 2,090.35 1,994.10 Aug l, 2Q2l 2,472.55 2,355.50 2,247.25 2,140.20 2,041.65 Feb l,2Q22 2,531.30 2,411.55 2,30075 2,191.25 2,09Q35 Aug l, 2Q22 2,591.40 2,468.95 2,355.50 2,243.50 2, l4Q20 Feb l,2Q23 2,652.95 2,527.70 2,411.55 2,297.05 2,191.25 Aug l, 2Q23 2,715.95 2,587.85 2,46&95 2,351.80 2,24150 Feb l,2Q24 2,78Q45 2,649.45 2,527.70 2,407.90 2,297.05

Mar 7, 2007 4:04 pm Prepared by Kelling, Northcross & Nobriga Page 7

BOND ACCRETED VALUE TABLE

Franklin Elerrentary School Distirct Election 2006, Series 2007

Election of Election of Election of Election of Election of 2006, Series 2006, Series 2006, Series 2006, Series 2006, Series

2007 2007 2007 2007 2007 OOPl/2036 OOPl/2037 OOPl /2038 OOPl/2039 OOPl /2040

Date 4.75% 4.78% 4.78% 4.7i% 4.7i%

Aug l, 2024 2,846.50 2,712.50 2,587.85 2,465.35 2,351.80 Feb l,2025 2,914.10 2,777.10 2,649.45 2,524.15 2,407.90 Aug l, 2025 2,98130 2,843.15 2,712.50 2,584.35 2,465.35 Feb l,2026 3,054.20 2,910.85 2,777. lO 2,645.95 2,524.15 Aug l, 2026 3,126.70 2,980.10 2,84115 2,709.10 2,584.35 Feb l,2027 3,200.95 3,051.05 2,91Q85 2,77.3.70 2,645.95 Aug l, 2027 3,277.00 3,123.65 2,98Q lO 2,839.85 2,709.10 Feb l,2028 3,354.85 3,198.00 3,051.05 2,907.55 2,77170 Aug l, 2028 3,434.50 3,274.10 3, 12165 2,976.90 2,839.85 Feb l,2029 3,516.10 3,352.05 3, 19800 3,047.90 2,907.55 Aug l, 2029 3,599.60 3,431.80 3,274.10 3,120.60 2,976.90 Feb l,2030 3,685.05 3,513.50 3,352.05 3,195.05 3,047.90 Aug l, 2030 3,m.60 3,597.10 3,431.80 3,271.25 3, l2Q60 Feb l, 2031 3,862.20 3,682.75 3,513.50 3,349.25 3, 195.05 Aug l, 2031 3,95190 3,770.40 3,597. lO 3,429.15 3,271.25 Feb l,2032 4,047.85 3,860.10 3,682.75 3,510.95 3,349.25 Aug l, 2032 4, 14195 3,952.00 3,77Q40 3,594.65 3,429.15 Feb l,2033 4,242.40 4,046.05 3,86Q lO 3,680.40 3,51Q95 Aug l, 2033 4,34115 4,142.35 3,952.00 3,768.20 3,594.65 Feb l,2034 4,446.30 4,240.95 4,046.05 3,858.05 3,68Q40 Aug l, 2034 4,551.90 4,341.85 4,142.35 3,950.05 3, 76820 Feb l,2035 4,66QOO 4,445.20 4,24Q95 4,044.25 3,85805 Aug l, 2035 4,77Q70 4,551.00 4,34 l.85 4,140.75 3,95Q05 Feb l,2036 4,884.00 4,659.30 4,445.20 4,239.50 4,044.25 Aug l, 2036 5,000.00 4,770.20 4,551.00 4,340.60 4, l4Q75 Feb l,2037 4,883.75 4,659.30 4,444.10 4,239.50 Aug l, 2037 5,000.00 4,77Q20 4,550.10 4,34Q60 Feb l,2038 4,88175 4,658.65 4,444.10 Aug l, 2038 5,000.00 4,769.75 4,55Q lO Feb l,2039 4,883.50 4,65865 Aug l, 2039 5,000.00 4,769.75 Feb l,2040 4,88150 Aug l, 2040 5,000.00

Mar 7, 2007 4:04 pm Prepared by Kelling, Northcross & Nobriga Page 8

APPENDIX F

SPECIMEN OF MUNICIPAL BOND INSURANCE POLICY

Appendix-F

MUNICIPAL BOND INSURANCE POLICY

ISSUER:

BONDS:

1221 Avenue of the Americas New York, New York 10020 Telephone (212) 478-3400

Policy No: [

Effective Date: [

XL Capital Assurance Inc. (XLCA), a New Yark stock insurance company, in consideration of the payment of the premium and subject to the terms of this Policy (which includes each endorsement attached hereto), hereby agrees unconditionally and irrevocably to pay to the trustee (the "Trustee") or the paying agent (the "Paying Agent") (as set forth in the documentation providing for the issuance of and securing the Bonds) for the benefit of the Owners of the Bonds or, at the election of XLCA, to each Owner, that portion of the principal and interest on the nds that shall become Due for Payment but shall be unpaid by reason of Nonpayment.

XLCA will pay such amounts to or for the benefit of the Owner th day on which such principal and interest becomes Due for Payment or one (I) Business Day followin e B on w ·chXLCA shall have received Notice of Nonpayment (provided that Notice will be deemed receiv on giv. s1 ay 1 it is received prior to 10:00 a.m. Pacific time on such Business Day; otherwise it will be ee e re IVed n e ext siness Day), but only upon receipt by XLCA, in a form reasonably satisfactory to it, f e e o he r' right to receive payment of the principal or interest then Due for Payment and (b) evide e, i p riate · struments of assignment, that all of the Owner's rights with respect to payment of sucMi'l<i.n.bir is D e for Payment shall thereupon vest in XLCA Upon such disbursement, XLCA shall beco y appurtenant coupon to the Bond or the right to receipt of payment of principal and i fully subrogated to the rights of the Owner, including the Owner's right to receive payme s t of any payment by XLCA hereunder. Payment by XLCA to the Trustee or Paying Age t e all, to the extent thereof, discharge the obligation of XLCA under this Policy.

become Due for Payment the Owner pursuant to f preference to such O ner w · XLCA to the extent f c

The following meanings specified for all purposes of this Policy, except to the extent such terms are expressly modified by a ent to this Policy. "Business Day" means any day other than (a) a Saturday or Sunday or (b) a day on which bank, inst' lions in the State of California, the State of New Yark or the Insurer's Fiscal Agent are authorized or required by law or executive order to remain closed. "Due for Payment", when referring to the principal of Bonds, is when the stated maturity date or a mandatory redemption date for the application of a required sinking fund installment has been reached and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by application of required sinking fund installments), acceleration or other advancement of maturity, unless XLCA shall elect, in its sole discretion, to pay such principal due upon such acceleration; and, when referring to interest on the Bonds, is when the stated date for payment of interest has been reached. "Nonpayment" means the failure of the Issuer to have provided sufficient funds to the Trustee or Paying Agent for payment in full of all principal and interest on the Bonds which are Due for Payment. "Notice" means telephonic or telecopied notice, subsequently confirmed in a signed writing, or written notice by registered or certified mail, from an Owner, the Trustee or the Paying Agent to XLCA which notice shall specify (a) the person or entity making the claim, (b) the Policy Number, (c) the claimed amount and (d) the date such claimed amount became Due for Payment. "Owner" means, in respect of a Bond, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof, except that "Owner" shall not include the Issuer or any person or entity whose direct or indirect obligation constitutes the underlying security for the Bonds.

XLCAP-005 (Muni Spec - California 12-2001)

1

XLCA may, by giving written notice to the Trustee and the Paying Age , Fiscal Agent") for purposes of this Policy. From and after the date of receipt b notice, which shall specify the name and notice address of the Insurer's Fisc

oint a fiscal agent (the "Insurer's e and the Paying Agent of such

o s of all notices required to be Fi al Agent and to XLCA and de b XLCA under this Policy

iscal Agent is the agent y t of the Insurer's Fiscal Agent

aue hereunder.

delivered to XLCA pursuant to this Policy shall be simultaneously delive i:I t shall not be deemed received until received by both and (b) all paym ts r may be made directly by XLCA or by the Insurer's Fiscal Agent OIJ,OOQ"'l of XLCA only and the Insurer's Fiscal Agent shall in no event be I or any failure of XLCA to deposit or cause to be deposited s c'i,.r1M1.i\od

Except to the extent expressly modified by an (b) the Premium on this Policy is not refundable £ or other acceleration payment which at any tim XLCA, nor against any risk other than No;,rv··, modified, altered or affected by any othe

IN THE EVENT THA~;J,'C THIS POLICY ARE NOT ARTICLE 12119(b) OFT

!icy is non•cancelable by XLCA, and lie e not insure against loss of any prepayment

cl o any Bond, other than at the sole option of o the full undertaking of XLCA and shall not be mg any modification or amendment thereto.

E INSOLVENT, ANY CLAIMS ARISING UNDER A GUARANTY INSURANCE FUND SPECIFIED IN

CE CODE.

olicy to be executed on its behalf by its duly authorized officers.

SPECIMEN Name: Name: Title: Title:

XLCAP,005 (Muni Spec· California 12·2001)

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