NEW ISSUE-FCLL BOOK-ENTRY RATING, S & P, "AAA" Moody's: "Aaa"

(Sec "'RATINGS" herein.}

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$5,499,996.60 ALISAL lJNION SCHOOL DISTRICT

(Montcr~y County, California) GENERAL OBLIGATION BONDS,

1999 ELECTION, ?006 SERIES C (BANK QIIALIFIED)

Consisting of

$4, 190,000.00 (~urrcnt Interest Bonds

Dated: Oate of Delivery

and $ i ,309.996.60

(~apital Appreciation Bonds Due August l, as shown on the inside cover.

The $ 5 /199 ,996.60 aggregate princip:.d or issue an1ount of Alisa] li nion School I)istrict General ()bligation Bon<ls, 199':) Elt-uion, 2006 Sent:s C (rhe "Bonds") arc issuable in tht:: rl1rn1 of fully registered bonds, and wht·n d('livcred will be registered in the nan1e of The l)eposirory Trusr Con1pany, r,...;ew York, New Yt)rk ("I)TC'"), or its nominee. [)TC wdl act as securities depository for the Bonds. Individual purchases of rht: Bonds will b(: n1adc in houk-<:ntry fonn only in the aurhorized Jennrninations described below. Purchasers of such inn:·rests (the "Beneficial Owners"') will nor receive certificated securities rcpn:scnnng their interests in rhc Bonds purchasvd Principal uf. Accreted Value (as dcfirwd h<:reinl and intercsr on the Bonds \Vill be payabk by wire to l)TC. l)TC will in rurn re1nit such principal, Accreted Value and interest to the DTC Particip,uns (as defined herein), who wil! in turn remit such principal, Accreted Value and intt'rest to the Beneficial Own<:rs. See "Tl I[ B()Nl)S-Book-Entry Only Systcn1' herein. lfl)TC no longer acts :L~

securities depository !'Or the Bonds. the rrincipal and Accreted Va!ue u!- and interest on the Bunds will he payable at rnaturity at the corporate trust office of The Bank o(Ne,v York Tru:-.r Con1pany, N.A., as paying agent (the "Paying Agent"), in Los Angeles, California.

The Bonds will mature on the dates and in the an1ounts and bear or accrctc interest at the fates shown on rhe inside tnver hert'of Interest un the Current 1nterest Bonds is payable on August I. 2006 and semiannually rhcn:aftcr on each Pebruary l and Augusr I. The Capiral Appreciation Bon<ls will not bear currenr interest, but will accretc in value from tlu:ir 1niria[ arnounts (the '"l)enorninational An1ounts") ro their resr<:<.tive Accreted Values on tht'ir respective maturity dares. Intcn:sr nn the Capital Appr<:ciauon Bonds will he con1poundcd comm<:ncinf Augusr L 2006 and se1niannually rhen:after on each February l and August I and shall bt' payable only upon n1aturity. Se(' "THE B()Nl)S'" herein.

The Current Interest Bonds arc ~ubjcct to optional and mandatory redemption prior to maturity as described herein. The Capital Appreciation Bonds arc not subject to redemption prior co their maturity dates. Sec "TtIE B()Nl)S."

The Bonds wcrt' authoriied at a general election of th(· rcgisr<:red voters of Alisa! Union Schou! l)istricr uf Monterey County (the "Distncr·) hdd on Novernber 2, 1999, at which n10H' than two~tlurds of the persons voting on the proposition voted to authoriie the issuance and sale of nur mnre than $25,000,000 of general ohl igarion hoods of said l)isrrict for the aC(JUisition and 11npnive1nent of real property nf the l)isrrict. The Bonds arc the third series()( ~encral ohl1gatiun bonds to bt' issued under such authorization. afrer \vhich $3.()00J)OO of rhe l)istricr·s authorization will ren1ain 1;1r issuante uf subsequent series of the l)isrrict·s Ccneral ()bligation Bonds, 1999 [li:ttion. Th<..: Bouds are being iss,tl·d to providi: funds ltJT the unprovtrnt:nt iJ[s.:hool sires, i1iLluding .iltcrarions, additi1)ns and tlu· acquisition of fixtures to the school buildings. dassroun1s, struttures and support faciliril's of the l)istrict. All t-'.eneral obligation bonJs of rhe l)istrin arc issued on a pariry wirh one another

The scheduled payment of the princip,tl ,tnd Accr<:ted Value uf and interesr on the Bonds V.'hen due \viii he guaranteed undt'r an insurance policy to be issut'd concurrently wirh the delivery of the llonds by MBIA lnsuranrc Corporation (the ··1 nsurer·). Sec "B()NI) INSURANCE"' and "APPENDIX E PORM or MUNICIPAL BOND INSURANCE POLICY" hmm.

MBIA The Bonds are tceiu:ral obligations \lf the District. The Board uf Supervisors uf Munterey C11unty is empowtrc'd and is ubligated to

annu:.1lly levy <1d 1a/1Jrem t.txes, w1tl1out li1nitation as to rate or arnuunt, upon :.111 taxable property subject to taxation by the 1)isrrict (except certain 1x·rnonal property which is ta"Xablc at !i1nired rates), hlr the p.tyment of the principal 1)r Accreted Value of and interest or premiurn, if any, on carh Bond as the sanH.: becu1nes due and payable in ~uch fiscal year.

Tll!S COVER PAGE CONTAINS CERTAIN INPORMATION roR QUICK REFEHENCE ONLY IT IS NOT A SUMMARY OF THIS ISSUE. INVESTORS Ml!ST READ TIIE ENTIRE OFPICIAL STATEMENT TO OBTAIN INFORMATION ESSEc>iTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION.

The Bonds arc offr·red ,vlwn, .ts and if issued, subj<:ct ru tht' :.1pproval of le,t.:ality by Fulhrighr & Jaworski L.L.P., Bond CounseL and certain other conditions. Certain legal n1atters are beinp:: passed upon for the Underwrirer by its Counsel. Hawkins l)elafidd & Wood LLP, Los Angeles. Califi.1rnia. Fulhrighr & Jav.'orski L.L.E is also acting as l)isclosure Cuunsel ro rhc l)istricr. California Finallcial SC'rviccs acrc·d as Financial Advisor tu the I)istrict. le is anricipated that rhe Bondt, will be avaiLtble for delivery in bunk-entry fi.)rn1 through the facilities of [)TC in New York. New York, on or about February 2, 2006.

RBC CAPITAL MARKETS

l)ated: January 10, 2006

MATURITY SCHEDULE

$1,309,996.60 Capital Appreciation Bonds

Maturity Date Denominational Maturity Approximate !August I) Amount Value Yield

2007 $133, I 07.80 $140,000 3.40% 2008 20 I, 986.40 220,000 3.45 2009 279,001.80 315,000 3.50 2010 174,608.75 205,000 3.60 2011 124,560.05 205,000 3.75 2012 113,766.80 205,000 3.87 2013 101,376.00 200,000 3.97 2014 94.906.80 205,000 4.08 2015 86,682.20 205,000 4.15

$4,190,000 Current Interest Bonds

Maturity Date Principal Interest (August I) Amount Rate Yield

2021 $250,000 4.250% 4.00% 2022 265,000 4.250 4.05 2023 270.000 4.250 4.10 2024 285,000 4.250 4.13 2025 300.000 4.375 4.15 2026 310,000 4.500 4.18

$1,115,000 4.25% Term Bonds due August 1, 2020- Priced to Yield 3.85'Y., $665,000 4.75% Term Bonds due August I, 2028- Priced to Yield 4.30% S730,000 4.75% Term Bonds due August I, 2030- Priced to Yield 4.35%

No dealer, broker, salesperson or other person has been authorized by Alisal lJnion School l)istricl (the "District'') to provide any infonnation or to make any reprc.'iaentations other than as contained herein and, if given or made, such other infonnation or representation must not be relied upon as having been authorized by the District. This Otlicial Statement docs not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offCr, solicitation or sale.

This Official Statement is not to be construed as a contract with the purchasers of the Bonds. State1nents contained in this Otlicial Statement which involve csti1natcs. forecasts or 1nattcrs of opinion, whether or not expressly described herein, arc intended solely as such and arc not to be construed as a representation of facts.

The Underwriter has provided the following sentence for inclusion in this Official Statement. The Under\\Titer has revie\vcd the inforn1ation in this Ot1icial Statc1ncnt in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied lo the facts and circu1nstanccs of this transaction, but the lJnderv .. Titcr docs not guarantee the accuracy or completeness of such information.

The information set forth herein has been obtained from official sources which are believed to be reliable. Although ce11ain information set forth in this Official Statement has been provided by Monterey County, California, the County has not approved this Official Statement and is not responsible for the accuracy or completeness of the statements contained in this Official Statc1ncnt except fOr the information set forth under the caption "Monterey County Investment Pool."

The information and expressions of opinion herein arc subject to change \Vithout notice. and neither delivery of this Official Statement nor any sale made hereunder shall, under any circu1nstanccs, create any implication that there has been no change in the affairs of any party described herein subsequent to the date as of which such information is presented. The order and placement of materials in this Official Statement, including the appendices, arc not to be deemed a detennination of relevance, materiality or importance, and this Official Statement, including its Appendices, must be considered in its entirety. This offering of the Bonds is made only by means of this entire Official Statement.

The Preliminary Official Statement has been "deemed final" by the District pursuant to Ruic l 5c2-I 2 of the Securities and Exchange Commission.

Other than with respect to information concerning the Insurer contained under the caption "'BOND INSURANCE" and Exhibit E - "FORM OF MUNICIPAL BOND INSURANCE POLICY" herein, none of the information in this Official Statement has been supplied or verified by the Insurer and the Insurer makes no representation or warranty, express or implied, as to (i) the accuracy or completeness of such information; (ii) the validity of the Bonds; or ( iii) the tax-exempt status of the interest on the Bonds.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS OFFERED HEREBY AT A LEVEL ABOVE THAT WIIICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE BONDS TO CERTAIN DEALERS, INSTITUTIONAL INVESTORS, RANKS OR OTHERS AT PRICES LOWER OR lllGHER TllAN THE PUBLIC OFFERING PRICES STATED ON THE INSIDE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY TI IE UNDERWRITER.

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

ALISAL UNION SCHOOL DISTRICT (Monterey County, California)

Board of Trustees Guadalupe Ruiz-Gilpas, President Gary Karnes, Vicc-Prcsidcnl/Clcrk

Jesus V clasquez, Member Juan V. Flores, Member Jose Castaneda, Member

District Administration Ruben Pulido, Superintendent

Rebecca Salinas, Assistant Superintendent, Educational Support Services Robert Guillen, Deputy Superintendent, Business and Operations (CBO)

Nancy Torres Pfeiffer, Director of Fiscal Services

Professional Services

Bond Counsel and Disclosure Counsel Fulbright & Jaworski L.L.P.

Los Angeles, California

Financial Advisor California Financial Services

Santa Rosa, California

Paying Agent The Bank of New York Trust Company, N.A.

Los Angeles, California

TABLE OF CONTEI\TS

INTRODUCTION ...................................................................................................................................... I

THE BONDS ................................................................................................. . ................ 2

Authority for Issuance.................. ..................................................... . ................ 2 Purpose of the lssue ........................................................................................................................ 2 Description of the Bonds ................................................................................................................ 2 Payment of the Bonds ..... .... .......... ... .. ...... .... ....... ...... ..... ... ... . . ......... .. . . ..... ..... ...... . .................. 3 Optional Rcdemption ...................................................................................................................... 4 Mandatory Redemption ............................................................................................................... .4 Selection of Bonds for Rcdemption ................................................................................................ 5 Notice ofRcdemption ..................................................................................................................... 5 Partial Redemption of Bonds........................................................................... . ............ 6 Effect of Notice of Redemption ...................................................................................................... 6 T ransfcr and Exchange ................................................................................................................... 6 Debt Service Schedule ................................................................................................................... 7 Execution and Registration ............................................................................................................ 7 Book-Entry Only System...................................................................... . ..................... 8 Application and Investment of Bond Proceeds ............................................................................... 8 Satisfaction and Discharge ............................................................................................................ 8

ESTIMATED SOURCES AND USES OF FUNDS .................................................................................. 9

SECURITY AND SOURCE OF PAYMENT ............................................................................................ 9

BOND INSURANCE ................................................................................................................................ 10

The MBIA Insurance Corporation Insurance Policy .................................................................... IO MBIA Insurance Corporation ....................................................................................................... 11 Regulation ..................................................................................................................................... 11 Financial Strength Ratings of MBIA ............................................................................................ 11 MBIA Financial Information ........................................................................................................ 12 Incorporation of C crtain Documents by Reference .... ...... .......... ......... .. .. . .. ........ . ..................... 12

CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUE AND APPROPRIATIONS.... .................................................. . ...................... 13

Constitutionally Required Funding of Education ......................................................................... 13 Artie le XIIIA ................................................................................................................................. 13 A11iclc XIIIB ................................................................................................................................ 14 Propositions 46 and 39 .................................................................................................................. 15 Proposition 98 ............................................................................................................................... 15 Proposition 218 ............................................................................................................................. 16 The Class Size Reduction Kindergarten-University Public Education Facilities

Bond Acts of 2002 and 2004 . ...... ......... ....... ..... ........ ......... .... ..... ..... ..... . .................. 16 Future Initiatives ........................................................................................................................... 18 Limitations on Appropriations ...................................................................................................... 18 Unitary Propc1iy ........................................................................................................................... 19 California Lottcry .......................................................................................................................... 19 No Litigation ................................................................................................................................. 20

TABLE OF CONTENTS (Continued)

LIMITATION ON REMEDIES ............................................................................................................... 20

GENERAL DISTRICT FINANCIAL INFORMATION ........................................................................... 21

State Funding of Education ........................................................................................................... 21 State Revenue Limit. ..................................................................................................................... 22 Basic Aid ....................................................................................................................................... 22 State Assistance ............................................................................................................................ 22 Supplemental Information Concerning Litigation Against the Stale of California ...................... 28 Ad Valorem Property Taxation ..................................................................................................... 29 Assessed Valuation ....................................................................................................................... 29 Tax Levies, Collections and Delinquencies .................................................................................. 30 Budget Process .............................................................................................................................. 30 Accounting Practices .................................................................................................................... 31 State and Public School Building Loans ....................................................................................... 31 Monterey County Investment Pool ............................................................................................... 32

LEGAL OPINION ..................................................................................................................................... 33

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

General ......................................................................................................................................... 33 Tax Accounting Treatment of Discount and Premium on Certain Bonds .................................... 34

LEGAL MATTERS ................................................................................................................................... 35

Continuing Disclosure .................................................................................................................. 35

LEGALITY FOR INVESTMENT ............................................................................................................. 35

BANK QUALIFIED .............................................................................. : ................................................... 36

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

RATINGS .................................................................................................................................................. 36

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

APPENDIX A:

APPENDIX B:

APPENDIX C: APPENDIX D: APPENDIX E: APPENDIX F: APPENDIXG:

FINANCIAL AND DEMOGRAPHIC INFORMATION RELATING TO THE DISTRICT ................................................................................................ A-I SELECTED INFORMATION FROM AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2004 .......................................................................................... B-1 FORM OF BOND COUNSEL OPINION .............................................................. C-l FORM OF CONTINUING DISCLOSURE UNDERTAKING ............................... D-1 FORM OF MUNICIPAL BOND INSURANCE POLICY ...................................... E-l BOOK-ENTRY ONLY SYSTEM ............................................................................ F-l ACCRETED VALUE TABLES .............................................................................. G-1

II

$5,499.996.60 ALISAL UNION SCIIOOL DISTRICT

(Monterey County, California) GENERAL OBLIGATION BONDS 1999 ELECTION, 2006 SERIES C

(IIAI\K QIJALIHED)

$4,190,000 Current Interest Bonds

Consisting or

and

INTRODUCTION

$1,309,996.60 Capital Appreciation Bonds

This imroduction is 1101 a s1111111w1:v of this Official S1ateme111. /1 is 011/v a hrie(description o(and guide to. and is qualified hy. more complete and detailed i11fim11atio11 contained in the entire Official S'tate,nent. includin,'?, the cover JJa,e;e and ap11enclices hereto, and the docun1ent.,· cfcscrihccl herein. All stalements conlaill(ed in this i111rod11c1io11 are qualified in their enliretr hy reference to !he e111ire Official S'tatf!ment. Re.fl!rences to, ancl sunnnaries ql JJrovision.\' qf" !he ('onstilution Lnui lcnrs q( the State qf' Califbrnia and any document, referred to herein do not pwport to he complete and such references are qualified in their e11tire1y hv reference to !he complele provisions. Unless the context otherwise requires. ca11itali::::ecf unde.fined ter,ns shall have the nu:aning;s ascrihed thereto in the District Resolution, as defined herein.

This Preliminary Official Statement replaces and supersedes the Preliminary Official Statement of the Alisa! Union School District dated as oft\ovcmber 9. 2005.

The $5,499,996.60 aggregate principal amount of Alisa! Union School District General Obligation Bonds, 1999 Election. 2006 Series C (the "Bonds'"). arc being issued pursuant to a general obligation bond authorization of $25,000.000 (the "Authorization") approved by more than two-thirds of the voters voting on the proposition at an election held within Alisa) Union School District (the "District"") on November 2, 1999. The first series of general obligation bonds (the "Series A Bonds") was issued by the District under the Authorization on May 25. 2000 in the aggregate principal amount of $8,000,000; and the second series (the "Series B Bonds") under the Authorization was issued on February 16. 2005 in the aggregate principal amount of $7.900,000. The Bonds are the third series of general obligation bonds to be issued under the Authorization, following which, $3.600,003.40 of the Authorization will remain unissucd.

In addition to the Series A Bonds and the Series B Bonds, the District previously issued its General Obligation Bonds. 1990 Election (the "Series 1990 Bonds") as approved by the voters voting on the proposition at an election held within the District on April l 0. 1990, which are currently outstanding in two separate series in an aggregate principal amount of $9.824,669.80, with a final maturity of August l. 2022. The proceeds of the Series 1990 Bonds were applied to finance and refinance the costs of acquiring and improving real property. including land for school sites, school buildings, classrooms. cafeterias, structures and facilities, and improvements thereto and providing additional school facilities in the District.

There is no authorization remaining for the issuance of subsequent series of the District's Series 1990 Bonds as approved at the April 10, 1990, general election. All general obligation bonds of the District arc issued on a parity with one another.

The proceeds from the sale of the Bonds will be used to provide funds for the improvement of school sites, including alterations, demolitions, replacements, additions and the acquisition of fixtures to the school buildings, classrooms, structures and support facilities of the District Sec "THE BONDS -Purpose of the Issue."

The District, formed in I 934, provides kindergarten through sixth grade educational services to residents in Monterey County, California (the "County"). Most of the District's residents are located within the City of Salinas (the "City"). As of Fiscal Year 2005-06, the real property within the District had total assessed valuation of $2,438,037,912. The District's average daily al!cndance ("ADA") has grown from 7,087 students in Fiscal Year 1999-2000 to 7,460 students in Fiscal Year 2003-04. Assessed valuation of real propet1y improvements (full cash value) in the District has increased from $1.2 billion in Fiscal Year 2000-01 to over $2.3 billion in Fiscal Year 2005-06.

THE BONDS

Authority for Issuance

The Bonds arc general obligation bonds of the District and are being issued under provisions of Title I, Division I, Part 10, Chapter 2 of the California Education Code, commencing with Section 15100, as amended and pursuant to a resolution of the Board of Trustees of the District adopted October 19, 2005 (the "District Resolution"). Pursuant to Section 15140(b) of the Education Code of the State of California (the "Education Code"), general obligation bonds of a district shall be offered for sale by the board of supervisors of the county, the county superintendent of which has jurisdiction over such district, unless the County has acted to relinquish such power to the governing board of such district. The Monterey County Board of Supervisors has taken such action with regard to the issuance of general obligation bonds of Monterey County school and community college districts.

Purpose of the Issue

Proceeds from the sale of the Bonds will be used for the following purposes, as stated in the proposition which appeared on the ballot: to relieve severe overcrowding by adding classrooms and schools, improve health and safety conditions of local elementary schools, including repairing aging roofs, replacing inadequate electrical systems and classroom lighting, upgrading children's restrooms, and renovating plumbing, sewer, heating and ventilation systems, and to acquire and improve student support facilities.

Description of the Bonds

The Bonds will be issued in the form of current interest bonds (the "Current Interest Bonds") and capital appreciation bonds (the "Capital Appreciation Bonds"). The Current Interest Bonds will be issued in denominations of $5,000 or any integral multiple thereof; and the Capital Appreciation Bonds will be issued in Denominational Amounts corresponding to $5,000 Accreted Value at maturity ("Maturity Amount") or any integral multiple thereof except that one Capital Appreciation Bond may be issued in an odd Maturity Amount, and in each case, will mature on the dates and in the amounts and bear interest at the rates per annum, all as set forth on the inside cover page of this Official Statement.

The Bonds will be issued in fully registered fotm and, when issued, will be registered in the name of Cede & Co., as registered owner and nominee of The Depository Trust Company, New York, New York ("DTC"). DTC will act as securities depository for the Bonds. So long as Cede & Co. is the registered owner of the Bonds, as nominee of OTC, references herein to the Owners or registered owners

2

shall mean Cede & Co. as aforesaid, and shall not mean the Beneficial Owners (as defined herein) of the Bonds.

So long as Cede & Co. is the registered owner of the Bonds, principal of, Maturity Amount and interest or premium, if any, on the Bonds arc payable by wire transfer or New York Clearing House or equivalent next-day fonds or by wire transfer of same day funds by U.S. Bank National Association, as paying agent (the "Paying Agent"). to Cede & Co., as nominee for DTC. DTC is obligated, in tum, to remit such amounts to the DTC Participants (as defined herein) for subsequent disbursement to the Beneficial Owners. Payments of principal, Maturity Amount and premium, if any, for any Bonds shall be made only upon the suJTcndcr of such Bonds to the Paying Agent Sec "Book-Entry Only System" herein.

Payment of the Bonds

Current Interest Bonds. Interest on the Current Interest Bonds is payable on August I, 2006 and semiannually thereafter on February I and August I of each year, computed on the basis of a 360-day year of twelve 30-day months. Each Cu1Tent Interest Bond will bear interest from the Interest Payment Date next preceding the date of authentication thereof, unless it is authenticated as of a day during the period after the fifteenth day of the month preceding an Interest Payment Date (the "Record Date") to that lnterest Payment Date. in which event it shall bear interest from such Interest Payment Date, or unless it is authenticated on or before July 15, 2006, in which event it shall bear interest from the date of issuance of the Bonds; provided, that if at the time or authentication of any CuJTcnt Interest Bond, interest is in default on any outstanding Current Interest Rond. such Current Interest Bond shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment on the outstanding Current Interest Bonds. The CuJTent Interest Bonds arc issuable in denominations of $5,000 or any integral multiple thereof The CmTcnt Interest Bonds mature on the dates and in the years and amounts set forth on the inside cover page hereof

The interest on the Current Interest Bonds is payable in lawful money to the person whose name appears on the bond registration books of the Paying Agent as the registered owner thereof (an "Owner") as of the close of business on any Record Date, whether or not such day is a business day, such interest to be paid by check or draft mailed on such Interest Payment Date to such Owner at such Owner's address as it appears on such registration books or at such address as the Owner may have filed with the Paying Agent for that purpose. The interest payments on the CuJTcnt Interest Bonds may be made by federal fund wire transfer to any Owner of at least $1.000,000 of outstanding Current Interest Bonds who has requested in writing such method of payment of interest on such Bonds prior to the close of business on the applicable Record Date.

Capital Appreciation Bonds. The Capital Appreciation Bonds will not bear cuJTent interest, but will acerete in value from their Denominational Amounts to their respective Maturity Amounts on the basis or a constant interest rate (with straight-line interpolations between compounding interest dates) compounded commencing August I, 2006 and semiannually thereafter on February I and August I in each year and shall be payable only upon maturity. Maturity Amount or the Capital Appreciation Bonds shall be computed on the basis of a 360-day year of twelve 30-day months. The Capital Appreciation Bonds will be issued in denominations of $5,000 Maturity Amount or any integral multiple thereof: except that one Capital Appreciation Bond may be issued in an odd Maturity Amount Attached as APPENDIX G arc tables of accreted values for the Capital Appreciation Bonds that have been computed as of each February I and August I, per $5,000 of Maturity Amount, based upon the offering yields of such Bonds as set forth on the inside cover page hereof and upon the nominal interest rates on such Bonds. Sec "APPENDIX G: ACCRETED VALUE TABLES." The Capital Appreciation Bonds mature on August I in the years and amounts set forth on the inside cover page hereof

3

The Maturity Amount of the Capital Appreciation Bonds is payable in lawfol money to the person whose name appears on the bond registration books of the Paying Agent upon the suJTender thereof when due at the principal corporate trust office of the Paying Agent in Los Angeles.

Optional Redemption

The Current Interest Bonds maturing on and after August l, 2020, may be redeemed before maturity. at the option of the District, from any source of available funds, on any date on or after August I, 2016, as a whole or in part, at the principal amount thereof, together with interest accrued thereon to the date of redemption, without premium.

The Capital Appreciation Bonds arc not subject to optional redemption prior to their stated maturity dates.

Mandatory Redemption

The Current Interest Bonds maturing August I, 2020, shall be subject to mandatory sinking fund redemption in part by lot on August I of each year from moneys in the Debt Service Fund established under the District Resolution, at a redemption price of par, plus accrued interest, in the years and amounts set forth in the following table:

11 J Maturity.

Mandatory Sinking Fund Payment Date

(August I)

2016 2017 2018 2019 2020"'

Mandatory Sinking Fund Payment

$205,000 210,000 220,000 235,000 245,000

The Current Interest Bonds maturing August l, 2028, shall be subject to mandatory sinking fund redemption in part by lot on August I of each year from moneys in the Debt Service Fund established under the District Resolution, at a redemption price of par, plus accrued interest, in the years and amounts set forth in the following table:

111 Maturity.

Mandatory Sinking Fund Payment Date

(August I)

2027 2028 (I I

4

Mandatory Sinking Fund Payment

$325,000 340,000

The Cunent Interest Bonds maturing August I, 2030, shall be subject to mandatory sinking rund redemption in par! by lot on August I of each year from moneys in the Debt Service Fund established under the District Resolution, at a redemption price of par, plus accrued interest, in the years and amounts set forth in the following table:

"'!'vi . atunty.

Mandatory Sinking Fund Payment Date JAugustJl_

2029 2030 ii I

Mandatory Sinking _ Fund Pavmcnt.

$355,000 375,000

The Capital Appreciation Bonds arc not subject to mandatory sinking fund redemption prior to their stated maturil y dates,

Selection of Bonds for Redemption

The following provisions relate lo the redemption of Cunent Interest Bonds.

Whenever provision is made for the redemption of Bonds and less than all outstanding Bonds arc to be redeemed, the Paying Agent, upon written instruction from the District given at least 60 days prior to the date designated for such redemption, shall select Bonds in inverse order of maturity.

Within a maturity, the Paying Agent shall select the Bonds for redemption in any order specified by the District in writing, or in the absence of such written direction, in inverse order of maturity; provided, however, that the p011ion of any Cunent Interest Bond to be redeemed in part shall be in the principal amount ofS5,000 or any integral multiple thereof.

1'.otice of Redemption

When redemption is authorized or required pursuant to the District Resolution, the Paying Agent, upon written instruction from the District given at least 60 <lays prior to the date designated for such redemption, shall give notice (a "Redemption Notice") of the redemption of the Bonds. Such Redemption l\otice shall specify: (a) the Bonds or designated portions thereof (in the case of any Bond to be redeemed in part but not in whole) which arc to be redeemed, (b) the date of redemption, (c) the place or places where the redemption will be made, including the name and address of the Paying Agent, ( d) the redemption price, (c) the CUSIP numbers (if any) assigned to the Bonds to be redeemed, (t) the Bond numbers of the Bonds to be redeemed in whole or in pm1 and, in the case of any Bond to be redeemed in part only, the principal amount of such Bond to be redeemed, and (g) the original issue date, interest rate and stated maturity date or each Bond to be redeemed in whole or in part. Such Redemption Notice shall further state that on the specified date there shall become due and payable upon each Bond or po11ion thereof being redeemed the redemption price thereof, and that from and after such date, interest on Bonds shall cease to accrue.

The Paying Agent shall take the following actions with respect to such Redemption Notice: (i) at least 30 but not more than 45 days prior to the redemption date, such Redemption Notice shall be given to the respective Owners of Bonds designated for redemption by registered or certified mail, postage prepaid, at their addresses appearing on the Bond Register: and (ii) in the event that the Bonds shall no longer be held in book-entry only form, at least two days before the date of the notice required by clause

5

(i) above, such Redemption Notice shall be given by ( l) first-class mail, postage prepaid, (2) tclcphonically confinned facsimile transmission or (3) overnight delivery service, to the Securities Depositories described below; and (iii) in the event that the Bonds shall no longer be held in book-entry only fom1, at least two days before the date of the notice required by clause (i) above, such Redemption Notice shall be given by (I) first-class mail, postage prepaid, or (2) overnight delivery service, to one of the Information Services described below,

"Information Services" means Financial Information lnc.'s "Daily Called Special Service," 30 Montgomery Street, I 0th Floor, Jersey City, New Jersey 07302, Attention: Editor; McrgcntiFIS. Inc., 5250 77 Center Drive, Suite 150, Charlotte, North Carolina 28217, Attention: Municipal News Reports; and Kenny S&P, 55 Water Street, 45th Floor, New York, New York l 0041, Attention: Notification Depa11111ent "Securities Depositories" shall mean The Depository Trust Company. 55 Water Street, New York, New York I 0041, Tel: (212) 855-1000 or Fax: (212) 855-7320.

Neither failure to receive any Redemption Notice nor any defect in any such Redemption Notice so given shall affect the sufficiency of the proceedings for the redemption of the affected Bonds. Each check issued or other transfer of funds made by the Paying Agent for the purpose of redeeming Bonds shall bear or include the CUSIP number identifying, by issue and maturity, the Bonds being redeemed with the proceeds of such check or other transfer.

Partial Redemption of Bonds

Upon the surrender of any Bond redeemed in part only, the Paying Agent shall execute and deliver to the Owner thereof of a new Bond or Bonds of like tenor and maturity and of authorized denominations equal in transfer amounts to the unredeemed portion of the Bond sunTndcrcd. Such partial redemption shall be valid upon payment of the amount required to be paid to such Owner, and the County and the District shall be released and discharged thereupon from all liability to the extent of such payment

Effect of Notice of Redemption

Notice having been given as required in the District Resolution, and the moneys for redemption (including the interest to the applicable date of redemption) having been set aside in the District's Debt Service Fund, the Bonds to be redeemed shall become due and payable on such date of redemption.

If on such redemption date, money for the redemption of all the Bonds to be redeemed, together with interest to such redemption date, shall be held by the Paying Agent so as to be available thereof on such redemption date, and if notice of redemption thereof shall have been given, then from and after such redemption date, interest on the Bonds to be redeemed shall cease to accrue and become payable.

Transfer and Exchange

The following provisions apply to both the Current Interest Bonds and Capital Appreciation Bonds.

Any Bond may be exchanged for Bonds oflike tenor, maturity and principal amount ( or Maturity Amount) upon presentation and surrender at the principal office of the Paying Agent, together with a request for exchange signed by the Owner or by a person legally empowered to do so in a form satisfactory to the Paying Agent A Bond may be transferred on the Bond Register only upon presentation and surrender of such Bond at the principal office of the Paying Agent together with an assignment executed by the Owner or a person legally empowered to do so in a form satisfactory to the

6

Paying Agent and payment of such reasonable transfer fees as the Paying Agent may establish. Upon exchange or transfer. the Paying Agent shall compktc, authenticate and deliver a new Bond or Bonds of like tenor and of any authorized denomination or denominations requested by the Owner equal to the principal amount ( or Maturity Amount) of the Bond surrendered and bearing or accreting interest at the same rate and maturing on the same date.

Debt Service Schedule

The following table summarizes the annual debt service requirements of the District for the Series I 990 Bonds, the Series A Bonds, the Series B Bonds and the Bonds for each year, eorrunencing 2006:

Series A Bonds121 The Bonds01 Aggregate Calendar Series 1990 and Annual Debt

Year Bonds'" Series B Bonds''' Principal Interest Service ----

2006 $1,077,765 $1,413.356.56 $ -0- $92,582.78 $2,583,704.34 2007 1,176,015 1,286, IO 1.25 133, I 07.80 193,092.20 2, 788,316.25 2008 1,193,520 1,373,617.50 201,986.40 204,213.60 2,973,337.50 2009 1,245,000 1,434,215.00 279,001.80 222, 198.20 3,180,415.00 2010 1,290,000 1,403,017.50 I 74,608. 75 216,591.25 3,084,217.50 2011 1,380,000 895,247.50 I 24,560.05 266.639.95 2,666,447.50 2012 1,450,000 903.287.50 I 13,766.80 277,433.20 2,744,487.50 2013 1,520,000 934,712.50 101,376.00 284,824.00 2,840, 912.50 2014 1,530,000 975,512.50 94,906.80 296,293.20 2,896, 7 I 2.50 2015 1.585,000 1,100,637.50 86,682.20 304,517.80 3,076,837.50 2016 1,555,000 1.175,200.00 205,000.00 186,200.00 3, I 21,400.00 2017 1,620,000 1,359,200.00 210,000.00 I 77,487.50 3,366,687.50 2018 1,700,000 1,437,400.00 220,000.00 168.562.50 3,525,962.50 2019 1,615.000 1,505,000.00 235,000.00 159,212.50 3,514,212.50 2020 1,625,000 1,496.800.00 245,000.00 149.225.00 3,516,025.00 2021 1,635,000 1,553,000.00 250,000.00 138,812.50 3,576,812.50 2022 1,175,000 1,681,000.00 265,000.00 128.187.50 3,249.187.50 2023 -0- 2,258,250.00 270,000.00 116,925.00 2,645, 175.00 2024 -0- 3,094,250.00 285,000.00 I 05,450.00 3,484, 700.00 2025 -0- 3,259,250.00 300,000.00 93,337.50 3,652,587.50 2026 -0- 428.000.00 310.000.00 80.212.50 818.212.50 2027 -0- 435,500.00 325,000.00 66,262.50 826,762.50 2028 -0- 441,750.00 340,000.00 50,825.00 832,575.00 2029 -0- 456,750.00 355.000.00 34,675.00 846,425.00 2030 -0- -0- 375 000.00 17,812.50 392 8J;?.50

$24,372,300.00 $32.30 I ,055.31 $5.499,996.6 $4,031,573.68 $66.204,925.59

11 i Interest pay111cn1 dates for the Series 1990 Bonds, the Series n Bond~ and the Bonds are February I and AU!::,JUSt I. 121 Interest payment dates for the Series A Bonds arc tv1ay I and November 1.

Execution and Registration

The Bonds will be executed by the President of the District Board, attested by the facsimile signature of the Clerk of the District Board or any designated deputy, and will be manually authenticated by the Paying Agent. The Bonds, when issued, will be registered initially in the name of Cede & Co., as

7

nominee of OTC. So long as OTC. or Cede & Co .. as its nominee, is the registered owner of all the Bonds. principal and interest payments on the Bonds will be made directly to OTC, disbursement of such payments to the OTC Participants (defined below) will be the responsibility ofDTC, and disbursement of such payments to the Beneficial Owners (defined below) will be the responsibility of the OTC Participants. as more fully described hereinafter. Sec 'THE BONDS - Book-Entry Only System."

Book-Entry Only System

So long as Cede & Co. is the registered owner of the Bonds, principal or Maturity Amount of, interest and premium, if any, on the Bonds are payable by wire transfer or New York Clearing House or equivalent next-day funds or by wire transfer of same day funds by the Paying Agent to Cede & Co., as nominee for OTC. OTC is obligated. in tum, to remit such amounts to the OTC Participants (as defined herein) for subsequent disbursement to the Beneficial Owners. Payments of principal, Maturity Amount and premium, if any, for any Bonds shall be made only upon the surrender of such Bonds to the Paying Agent. Sec "APPENDIX F - Book-Entry Only System" herein.

Application and Investment of Bond Proceeds

The net proceeds from the sale of the Bonds will he deposited in the County Treasury, and credited by the District and the Monterey County Superintendent of Schools to the credit of the Building Fund of the Alisal Union School District (the "Building Fund") and/or the Debt Service Fund, and will be accounted for separately. Such proceeds deposited in the Building Fund will be used to provide funds for the improvement of school sites, including alterations, additions and the acquisition of fixtures to the school buildings, classrooms. structures and support facilities of the District. See ·'Purpose of Issue" above.

Except as required to be rebated to the United States, interest earned on the investment of monies held in the Bond Fund established to pay debt service on the Bonds will be retained in the Debt Service Fund and used to pay the principal and Maturity Amount of and interest on the Bonds when due. Interest earned on the investment of monies held in the Building Fund will be retained in the Excess Earnings Fund.

Monies in the Building Fund and the Debt Service Fund will be invested through the Monterey County Investment Pool in any one or more investments generally permitted to school districts under the laws of the State of California (the "State"). See "GENERAL DISTRICT FINANCIAL INFORMATION- Monterey County Investment Pool" below.

Satisfaction and Discharge

The obligations of the District under the District Resolution and under the Bonds shall be fully discharged and satisfied as to any Bond and such Bond will no longer be deemed to be outstanding and shall be deemed to have been paid for all purposes in one or more of the following ways:

(a) by well and truly paying or causing to be paid the principal and Maturity Amount of and interest on all Bonds Outstanding. and when the same become due and payable;

(b) hy depositing with the Paying Agent, in trust. at or before maturity. cash which, together with the amounts then on deposit in the Debt Service Fund plus the interest to accrue thereon without the need for further investment, is fully sufficient to pay all Bonds Outstanding at maturity thereof. including any premium and all interest thereon, notwithstanding that any Bonds shall not have been surrendered for payment; or

8

( c) by depositing with an institution to act as escrow agent selected by the District and which meets the requirements of serving as Paying Agent pursuant to the District Resolution, in trust, lawful money or noncallablc direct obligations issued by the United States Treasury (including State and Local Government Series Obligations) or obligations which arc unconditionally guaranteed by the United States of America and permitted under Section l 49(b) of the Code and Regulations which, in the opinion of nationally recognized bond counsel, will not impair the exclusion from gross income for federal income tax purposes of interest on the Bonds, in such amount as will, together with the interest to accrue thereon without the need for further investment, be fully sufficient, in the opinion of a verification agent satisfactory to the District, to pay and discharge all Bonds Outstanding at maturity thereof, including any premium and all interest thereon, notwithstanding that any Bonds shall not have been surrendered for payment:

then all obligations of the District and the Paying Agent under the District Resolution shall cease and tcnninatc, except only the obligation of the Paying Agent to pay or cause to be paid to the Owners of the Bonds all sums due thereon, and the obligation of the District to pay to the Paying Agent amounts owing to the Paying Agent under the District Resolution,

ESTIMATED SOURCES AND USES OF FUI\DS

The proceeds of the Bonds arc expected to he applied as follows:

Sources o/Fund, Principal or Issue Amount of Bonds Original Issue Premium

Total Sources

$5,499,996,60 356 657.85

$5,856,654.45

Uses ofFunds

'"

Deposit to Building Fund Estimated Costs of lssuancern Deposit to Debt Service Fund

Total Uses

$5.499,996.60 214,35752 142,30033

$5,856,654.45

Includes printing and delivery costs, Bond ('ounscl tCcs, Underwriter"s discount, Financial Advisor and Paying Agent fees, bond insurance premium and other costs of issuance.

SECURITY AND SOURCE OF PAYMENT

The Bonds represent the general obligation of the District The Bonds arc payable from ad valorem taxes, The County Board of Supervisors is empowered to and shall levy ad valorem taxes, without limitation as to rate or amount, for the payment of the interest on and principal and Maturity Amount of the Bonds upon all property subject to taxation by the District (except certain personal property which is taxable at limited rates). Such taxes, when collected, will be placed by the County in the DistJict's Bond Fund, which is maintained by the County and which is pledged for the payment of the Bonds and interest thereon when due. The annual tax levy will be based on the assessed value of taxable property in the District Fluctuations in the assessed values of property in the District may cause the annual tax levy to fluctuate, The reduction of assessed values of taxable property in the District caused by economic factors beyond the District's control, such as economic recession, deflation of land values, a relocation out of the District by one or more major property owners, or the complete or partial destruction of such property caused by, among other eventualities, an earthquake, flood or other natural disaster, could cause a reduction in the assessed value of the District and necessitate a subsequent increase in the

9

annual tax levy. For forther information regarding the District's tax base, tax rates, overlapping debt and other matters concerning taxation, sec "APPEJ\DIX A - FINANCIAL AND DEMOGRAPHIC INFORMATION RELATING TO THE DISTRICT."

BOND INSURANCE

MBIA Insurance Corporation (the "Insurer" or "MBIA") has supplied the following information for inclusion in this Oflicial Statement. No representation is made by the District or the Underwriter as to the accuracy or completeness of this information. Reference is made to APPENDIX E for a specimen of the Insurer's policy.

The MBIA Insurance Corporation Insurance Policy

MBIA docs not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted hercfrom, other than with respect to the accuracy of the information regarding the Policy and MBIA set forth under the heading "BOND IJ\SURANCE." Additionally, MBIA makes no representation regarding the Bonds or the advisability of investing in the Bonds.

The MBIA Policy unconditionally and irrevocably guarantees the full and complete payment required to be made by or on behalf of the District to the Paying Agent or its successor of an amount equal to (i) the principal of ( either at the stated maturity or by an advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Bonds as such payments shall become due but shall not be so paid ( except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise', other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed by the MBIA Policy shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration, unless MBIA elects in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any Owner of the Bonds pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such Owner within the meaning of any applicable bankruptcy law (a "Preference").

MBIA's Policy docs not insure against loss of any redemption premium which may at any time be payable with respect to any Bonds. MBIA's Policy docs not, under any circumstance, insure against loss relating to: (i) optional or mandatory redemptions (other than mandatory sinking fund redemptions); (ii) any payments to be made on an accelerated basis; (iii) payments of the purchase price of Bonds upon tender by an owner thereof'; or (iv) any Preference relating to (i) through (iii) above. MBIA's Policy also docs not insure against nonpayment of principal of or interest on the Bonds resulting from the insolvency, negligence or any other act or omission of the Paying Agent or any other paying agent for the Bonds.

Upon receipt of telephonic or telegraphic notice, such notice subsequently confinned in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by MBIA from the Paying Agent or any owner of a Bond the payment of an insured amount for which is then due, that such required payment has not been made, MBIA on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, in New York, Kew York, or its successor,

I The Bonds arc not subject to acceleration of their rnaturity dates. 2 The Bonds arc not subject to tender.

IO

sufficient for the payment of any such insured amounts which arc then due. Upon presentment and surrender of such Bonds or presentment of such other proof of ownership of the Bonds, together with any appropriate instru1ncnts of assignn1cnt to evidence the assigntncnt of the insured an1ounts due on the Bonds as arc paid by MBIA. and appropriate instruments to effect the appointment of MBIA as agent for such owners of the Bonds in any legal proceeding related to payment of insured amounts on the Bonds, such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall disburse to such owners or the Paying Agent payment of the insured amounts due on such Bonds, less any amount held by the Paying Agent for the payment of such insured amounts and legally available therefore.

MBIA Insurance Corporation

MBIA Insurance Corporation ("'MBIA") is the principal operating subsidiary of MBIA Inc., a New York Stock Exchange listed company (the "Company"). The Company is not obligated to pay the debts of or claims against MBIA. MBIA is domiciled in the State of New York and licensed to do business in and subject to regulation under the laws of all 50 states, the District of Columbia, the Commonwealth of Puerto Rico. the Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United States and the Territory of Guam. MBIA has three branches. one in the Republic of France, one in the Republic of Singapore and one in the Kingdom of Spain.

The principal executive offices of MBIA arc located at 113 King Street, Armonk, New York I 0504 and the main telephone number at that address is (914) 273-4545.

Regulation

As a financial guaranty insurance company licensed to do business in the State of New York, MBIA is subject to the New York Insurance Law which, among other things, prescribes minimum capital requirements and contingency reserves against liabilities for MBIA, limits the classes and concentrations of investments that are made by MBIA and requires the approval of policy rates and fonns that arc employed by MBIA. State law also regulates the amount of both the aggregate and individual risks that may be insured by MBIA. the payment of dividends by MBIA, changes in control with respect to MBIA and transactions among MBIA and its affiliates.

The Policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law.

Financial Strength Ratings of MBIA

Moody's Investors Service. Inc. rates the financial strength of MBIA "Aaa."

Standard & Poor's, a division of The McGraw-Hill Companies, Inc. rates the financial strength of MBIA "'AAA."

Fitch Ratings rates the financial strength of MBIA "AAA."

Each rating of MBIA should be evaluated independently. The ratings reflect the respective rating agency's current assessment of the creditworthiness of MBIA and its ability to pay claims on its policies of insurance. Any fu1iher explanation as to the significance of the above ratings may be obtained only from the applicable rating agency.

11

The above ratings are not recommendations to buy, sell or hold the Bonds, and such ratings may be subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the Bonds. MBIA docs not guaranty the market price of the Bonds nor docs it guaranty that the ratings on the Bonds will not be revised or withdrawn.

MBIA Financial Information

As of December 31. 2004, MBIA had admitted assets of $10.3 billion (unaudited and restated), total liabilities of $7.0 billion (unaudited and restated), and total capital and surplus of S3.2 billion (unaudited and restated) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. As of September 30, 2005 MBIA had admitted assets of SI0.8 billion (unaudited), total liabilities of$7.l billion (unaudited). and total capital and surplus of$3.7 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities.

For further information concerning MBIA, sec the consolidated financial statements of MBIA and its subsidiaries as of December 31, 2004 and December 31, 2003 and for each of the three years in the period ended December 31, 2004, prepared in accordance with generally accepted accounting principles, included in the Annual Report on Fonn 10-K/ A of the Company for the year ended December 31, 2004 and the consolidated financial statements of MBIA and its subsidiaries as of September 30, 2005 and for the nine month periods ended September 30, 2005 and September 30, 2004 included in the Quarterly Report on Form I 0-Q of the Company for the period ended September 30, 2005, which are hereby incorporated by reference into this Official Statement and shall be deemed to be a part hereof.

Copies of the statutory financial statements filed by MBIA with the State of New York Insurance Department arc available over the Internet at the Company's web site at http:J!www.mbia.com and at no cost, upon request to MBIA at its principal executive offices.

Incorporation of Certain Documents by Reference

The following documents filed by the Company with the Securities and Exchange Commission (the "SEC") arc incorporated by reference into this Official Statement:

(I) The Company's Annual Report on Form 10-K/A for the year ended December 31, 2004; and

(2) The Company's Quarterly Report on Form I 0-Q for the quarter ended September 30, 2005.

Any documents, including any financial statements of MBIA and its subsidiaries that are included therein or attached as exhibits thereto, filed by the Company pursuant to Sections l 3(a), l 3(c ), 14 or l 5(d) of the Exchange Act after the date of the Company's most recent Quarterly Report on Form I 0-Q or Annual Report on Form IO-KJA, and prior to the tennination of the offering of the [Bonds/Securities] offered hereby shall be deemed to be incorporated by reference in this Official Statement and to be a part hereof from the respective dates of filing such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein, or contained in this Official Statement, shall be deemed to be modified or superseded for purposes of this Official Statement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified

12

or superseded shall not be deemed, except as so modified or superseded, to constitute a pm1 of this Ofiicial Statement.

The Company files annual, quarterly and special reports, infonnation statements and other infonnation with the SEC under hie No. 1-9583. Copies of the Company's SEC filings (including ( l) the Company's Annual Report on Form I 0-K/ A for the year ended December 31, 2004, and (2) the Company's Quarterly Reports on Form I 0-Q for the quarters ended March 31, 2005, June 30, 2005 (included as restated in third quarter 10-Q) and September 30, 2005) arc available (i) over the Internet at the SEC's web site at http:/iwww.sec.gov: (ii) at the SEC's public reference room in Washington D.C:.: (iii) over the Internet at the Company's web site al http:/iwww.mbia.com: and (iv) at no cost, upon request to MBIA at its principal executive offices.

In the event the Insurer were to become insolvent, any claims arising under a policy of financial guaranty insurance arc excluded from coverage by the California Insurance Guaranty Association, established pursuant to Article 14.2 (commencing with Section I 063) of Chapter I of Part 2 of Division l of the California Insurance Code.

COJ\"STITlJTIONAL Al\"D STATUTORY PROVISIONS AFFECTING DISTRICT REVENUE Al\"D APPROPRIATIONS

The principal and Maturity Value of and interest and premium, if any, on the Bonds arc payable from the proceeds ofan ad valorem tax required to be levied by the County for the payment thereof. (Sec "THE BONDS - Security and Sources of Payment" herein.) Articles Xll!A, XIIIB, XIIIC:. and XIIID of the Constitution, Propositions 62, 98, 49. 39, 47, 55, IA, 111, 187, and 218, and certain other provisions of law discussed below, arc included in this section to describe the potential effect of these Constitutional and statutory measures on the ability of the County to levy taxes and spend tax proceeds for operations and other purposes, and it should not be inferred from the inclusion of such materials that these laws impose any limitation on the ability of the County to levy laxes for payment of the Bonds. The tax levied by the County for payment of the Bonds was approved by the District's voters in compliance with the Constitution and all applicable laws.

Constitutionally Required Funding of Education

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

Article XII I A

On June 6, 1978, California voters approved an amendment (commonly known as both Prop. 13 and the Jarvis-Gann Initiative) to the California Constitution. This amendment, which added Article Xll!A to the California Constitution, among other things affects the valuation of real property for the purpose of taxation in that it defines the full cash property value to mean "the county assessor's valuation of real property as shown on the 1975/76 tax bill under 'full cash value,' or thereafter, the appraised value of real property newly constructed, or when a change in ownership has occurred after the 1975 assessment." The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or a reduction in the consumer price index or comparable local data at a rate not to exceed 2% per year, or reduced in the event of declining property value caused by damage, destruction or other factors including a general economic downturn. The amendment further limits the amount of any ad

13

rnlorem tax on real propc11y to one percent of the full cash value except that additional taxes may be levied to pay debt service on indebtedness approved by the voters prior lo July 1, 1978, and bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978 by two-thirds of the votes cast by the voters voting on the proposition.

Legislation enacted by the California Legislature to implement Article XIIIA provides that all taxable property is shown al full-assessed value as described above. In conformity with this procedure, all taxable property value included in this Official Statement ( except as noted) is shown al 100%, of assessed value and all general tax rates reflect the $1 per $100 of taxable value. Tax rates for voter approved bonded indebtedness and pension liability arc also applied to 100% of assessed value.

Future assessed valuation growth alJowed under Article XIIIA (new construction, change of ownership, 2% annual value growth) will be allocated on the basis of "'situs" among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and school districts will share the growth of "base" revenue from the tax rate area. Each year's growth allocation becomes part of each agency's allocation the following year. The District is unable to predict the nature or magnitude of future revenue sources which may be provided by the State of California (the '"State") to replace Jost property tax revenues. Article XIIIA effectively prohibits the levying of any other ad valorem property tax above the I% limit except for taxes to support indebtedness approved by the voters as described above.

Article XIIIB

On November 6, 1979, California voters approved Proposition 4, the so-called Gann Initiative, which added Article XIIIB to the California Constitution. In June 1990, Article XIIIB was amended by the voters through their approval of Proposition 111. Article XIIIB of the California Constitution limits the annual appropriations of the State and any city, county, school district, authority or other political subdivision of the State to the level of appropriations for the prior fiscal year, as adjusted annually for changes in the cost of living, population and services rendered by the governmental entity. The "base year" for establishing such appropriation limit is the 1978-79 fiscal year. Increases in appropriations by a governmental entity arc also pcnnitted (i) if financial responsibility for providing services is transferred to the governmental entity, or (ii) for emergencies so Jong as the appropriations limits for the three years folJowing the emergency are reduced to prevent any agi,>Tegate increase above the Constitutional limit. Decreases arc required where responsibility for providing services is transferred from the government entity.

Appropriations subject to Article XIIIB include generally any authorization to expend during the fiscal year the proceeds of taxes levied by the State or other entity of local government, exclusive of certain State subventions, refunds of taxes, benefit payments from retirement, unemployment insurance and disability insurance funds. Appropriations subject to limitation pursuant to Article XIIIB do not include debt service on indebtedness existing or legally authorized as of January I, 1979, on bonded indebtedness thereafter approved according to law by a vote of the electors of the issuing entity voting in an election for such purpose, appropriations required to comply with mandates of courts or the Federal government, appropriations for qualified out lay projects, and appropriations by the State of revenues derived from any increase in gasoline taxes and motor vehicle weight fees above January I, 1990 levels. ''Proceeds of taxes" include, but arc not limited to, all tax revenues and the proceeds to any entity of government from (i) regulatory licenses, user charges, and user fees to the extent such proceeds exceed the cost of providing the service or regulation, (ii) the investment of tax revenues and (iii) certain State subventions received by local governments. Article XIIIB includes a requirement that if an entity's revenues in any year exceed the amount permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two fiscal years.

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As amended in June 1990, the appropriations limit for the County in each year is based on the limit for the prior year, adjusted annually for changes in the costs of living and changes in population, and adjusted, where applicable, for transfer of financial responsibility of providing services to or from another unit of government. The change in the cost of living is, at the County's option, either (i) the percentage change in California per capita personal income, or (ii) the percentage change in the local assessment roll for the jurisdiction due to the addition of nonresidential new construction. The measurement of change in population is a blended average of statewide overall population growth, and change in attendance at local school and community college ("K-14") districts.

As amended by Proposition 111, the appropriations li1nit is tested over consecutive two-year periods. Any excess of the aggregate "proceeds of taxes" received by the County over such two-year period above the combined appropriations limits for those two years is to be returned to taxpayers by reductions in tax rates or fee schedules over the subsequent two years.

Article XJIIB pcnnits any government entity to change the appropriations limit by vote of the electorate in conformity with statutory and Constitutional voting requirements, but any such voter­approved change can only be effective for a maximum of four years.

Propositions 46 and 39

On June 3, 1986, California voters approved Proposition 46, which added an additional exemption to the 1% tax limitation imposed by Article XIIIA. Under this amendment to Article XIIIA, local governments and school and community college districts may increase the property tax rate above I% for the period necessary to retire new, general obligation bonds, if two-thirds of those voting in a local election approve the issuance of such bonds and the money raised through the sale of the bonds is used exclusively to purchase or improve real property.

On November 7, 2000. California voters approved Proposition 39, called the "Smaller Classes, Safer Schools and Financial Accountability Act" (the "Smaller Classes Act") which amends Section 1 of Article XIIIA, Section 18 of Article XV] of the California Constitution and Section 47614 of the California Education Code and allows an alternative means of seeking voter approval for bonded indebtedness by 55 percent of the vote, rather than the two-thirds majority required under Section 18 of Article XVI of the Constitution. The Authorization, however, was approved by a two-thirds vote in accordance \.Vith Proposition 46 and is therefore not subject to the requirements of Proposition 39.

Proposition 98

On November 8, 1988, California voters approved Proposition 98, a combined initiative, constitutional amendment and statute called the "Classroom Instructional Improvement and Accountability Act" ("Proposition 98"). Proposition 98 changed State funding of public education below the university level and the operation of the State's appropriations limit, primarily by guaranteeing K-14 schools a minimum share of State General Fund revenues. Under Proposition 98 (as modified by Proposition 111, which was enacted on June 5, 1990), K-14 schools are guaranteed the greater of (a) 40.9% of State General Fund revenues (the "first test"), or (b) the amount appropriated to K-14 schools in the prior year, adjusted for changes in the cost of-living (measured as in Article XlllB by reference to per capita personal income) and enrollment (the "second test"), or (c) a "third test" which would replace the second test in any year when the percentage growth in per capita State General Fund revenues from the prior year plus one half of one percent is less than the percentage growth in California per capita personal income. Under the third test, schools would receive the amount appropriated in the prior year adjusted for changes in enrollment and per capita State General Fund revenues, plus an additional small adjustment factor. If the third test is used in any year, the difference between the third test and the second test would

15

become a "credit" to schools which would be paid in future years when State General Fund revenue growth exceeds personal income growth.

Proposition 98 permits the legislature by two-thirds vote of both houses, with the Governor's concurrence, to suspend the K-14 schools" minimum funding formula for a one-year period, and any corresponding reduction in funding for that year will not be paid in subsequent years. However, in detcnnining the funding level for the succeeding year, the fonnula base for the prior year will be reinstated as if such suspension had not taken place. In the fall of 1989, the State Legislature and the Governor utilized this provision to avoid having 40. 9% of revenues generated by a special supplemental sales tax enacted for earthquake relief go to K-14 schools. In connection with the adoption of the State's 1992-93 fiscal year budget, this provision was invoked by the State Legislature and the Governor as a contingency if culs in funding to K-14 schools were challenged in court. Sec "'State Funding of Education'" above.

Proposition 218

On November 5, 1996, the voters of the State approved Proposition 218, the so-called "Right to Vote on Taxes Act." Proposition 218 added Articles XIIIC and XIIID to the State Constitution, which contain a number of provisions affecting the ability of the District to levy and collect both existing and future taxes, assessments, fees and charges. Among other things, Article XIIIC establishes that every tax is either a "general tax" (imposed for general governmental purposes) or a "special tax'' (imposed for specific purposes); prohibits special purpose government agencies such as school districts from levying general taxes; prohibits any local agency from imposing, extending or increasing any special tax beyond its maximum authorized rate without a two-thirds vote; and provides that the initiative power shall not be limited in matters of reducing or repealing local taxes. Article XIIIC also provides that no property tax may be assessed other than ad va!orem property taxes imposed in accordance with Articles XIII and XIIIA of the California Constitution and special taxes approved by a two-thirds vote under Article XIIJA, Section 4.

Article XIIIC removes limitations on the initiative power in matters of local taxes, assessments, fees and charges. In the case of annual property tax levy to pay debt service on the Bonds, both the State Constitution and the Act impose a mandatory, statutory duty on the County annually to levy taxes each year while any of the Bonds arc outstanding, in amounts equal to the principal of and interest coming due on the Bonds. The District believes that the initiative power cannot be used to reduce or repeal the authority and obligation to levy such taxes which arc pledged as security for payment of the Bonds or to otherwise interfere with pcrfon11ancc of the mandatory, statutory duty of the County or the District with respect to such taxes which arc pledged as security for payment of the Bonds.

Aniclc XTIID deals with assessments and property-related fees and charges and does not affect the District or the Bonds.

The interpretation and application of Proposition 218 will ultimately be determined by the courts with respect to a number of the matters discussed above, and it is not possible at this time to predict with certainty the outcome of such determination.

The Class Size Reduction Kindergarten-University Public Education Facilities Bond Acts of 2002 and 2004

Proposition 47. The Class Size Reduction Kindergarten - University Public Education Facilities Bond Act of2002 ("Proposition 47") appeared on the November 5, 2002 ballot as Proposition 47 and was approved by the California voters. This measure authorized the sale and issuance of $13.05 billion in

16

general obligation bonds for construction and renovation of K-12 school facilities ($11.4 billion) and higher education facilities ($1.65 billion). Proposition 47 included $6.35 billion for acquisition of land and new construction of K-12 school facilities. Of this amount. $2. 9 billion was set aside to fund backlog projects for which school districts submitted applications to the State on or prior to February I. 2002. The balance of $3.45 billion would be used to fund projects for which school districts submitted applications to the State after fcbruary I, 2002. K-12 school districts will be required to pay 50 percent of the costs for acquisition of land and new construction with local revenues. In addition, $100 million of the $3.45 billion would be available for charter school facilities. Proposition 47 makes available $3.3 billion for reconstruction or modernization of existing K-12 school facilities. Of this amount, $1. 9 billion will be set aside to fund backlog projects for which school districts submitted applications to the State on or prior to February I. 2002 and the balance of $1.4 billion would be use to fund projects for which school districts submitted applications to the State after February I, 2002. K-12 school districts will be required to pay 40 percent of the costs for reconstruction or modernization with local revenues. Proposition 47 provides a total of SI. 7 billion to K-12 school districts which arc considered critically overcrowded. specifically to schools that have a large number of pupils relative to the size of the school site. In addition, $50 million will be available to fund joint-use projects. Proposition 47 also includes S 1.65 billion to construct new buildings and related infrastructure, alter existing buildings and purchase equipment for use in the State's public higher education systems.

Proposition 47 represents the second largest general obligation bond measure for school construction and modernization approved by California voters in the last several years. Proposition lA was previously approved in November 1998 and provided $6. 7 billion of capital fonding for schools.

Proposition 55. The Kinderga1ten-University Public Education Facilities Bond Act of 2004 ("Proposition 55") appeared on the March 2, 2004 ballot as Proposition 55 and was approved by the California voters by a margin of 1.4'Yo. This measure authorizes the sale and issuance of S 12.3 billion in general obligation bonds for the construction and renovation of K-12 school facilities ($10 billion) and higher education facilities ($2.3 billion). Proposition 55 includes $5.26 billion for the acquisition of land and construction of new school buildings. A district would be required to pay for 50 percent of costs with local resources unless it qualifies for state hardship funding. The measure also provides that up to $300 million of these new construction funds is available for charter school facilities.

Proposition 55 makes $2.25 billion available for the reconstruction or modernization of existing school facilities. Districts would be required to pay 40 percent of project costs from local resources. Proposition 55 directs a total of $2.44 billion to districts with schools which arc considered critically overcrowded. These funds would go to schools that have a large number of pupils relative to the size of the school site. Proposition 55 also makes a total of $50 million available to fund joint-use projects. Proposition 55 includes $2.3 billion to construct new buildings and related infrastructure, alter existing buildings and purchase equipment for use in these buildings for California's public higher education systems. The measure allocates $690 million to each University of California and California State University campus and $920 million to California community colleges. The Governor and the Legislature will select specific projects to be funded by the bond proceeds.

Proposition IA. Proposition I A (SCA 4), proposed by the Legislature in connection with the 2004-05 Budget Act and approved by the voters in November 2004, provides that the State may not reduce any local sales tax rate, limit existing local government authority to levy a sales tax rate or change the allocation of local sales tax revenues, subject to certain exceptions. Proposition I A generally prohibits the State from shifting to schools or community colleges any share of property tax revenues allocated to local governments for any fiscal year, as set forth under the laws in effect as of November 3, 2004. Any change in the allocation of property tax revenues among local governments within a county must be approved by two-thirds of both houses of the State Legislature. Proposition IA provides,

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however, that beginning in fiscal year 2008-09, the State may shift to schools and community colleges up to 8% of local government property tax revenues, which amount must be repaid, with interest, within three years, if the Governor proclaims that the shift is needed due to a sever state financial hardship, the shift is approved by two-thirds of both houses of the State Legislature and certain other conditions are met. The State may also approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. Proposition IA also provides that if the State reduces the Vehicle License Fee rate currently in effect, which is 0.65 percent of vehicle value, the State must provide local governments with equal replacement revenues. Further, Proposition I A requires the State, beginning July I, 2005, to suspend State mandates affecting cities, counties and special districts, schools or community colleges. excepting mandates relating to employee rights. in any year that the State does not fully reimburse local governments for their costs of compliance with such mandates.

Future Initiatives

Article XIIIA. A11icle XIIIB and Propositions 46, 47, 55, 98, 218. IA and 39 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 the District's revenues or its ability to expend revenues.

Limitations on Appropriations

Under A11iclc XIIIB of the California Constitution, state and local government agencies arc subject to an annual "appropriations limit" and arc prohibited from spending "appropriations suhject to limitation" above that limit. Al1iclc XIIIB, originally adopted in 1979. was modified substantially by Propositions 98 and 111 in 1988 and 1990, respectively. Sec "Proposition 98" above. "Appropriations subject to limitation" consist of tax revenues, state subventions, and ccl1ain other funds. A11icle XIIIB docs not affect the appropriation of money exclusive of "appropriations subject to limitation," such as debt service on indebtedness existing on or authorized by January I, 1979, or subsequently authorized by the voters, appropriations required to comply with mandates of coul1s or the federal government and, pursuant to Proposition 111, appropriations for qualified capital outlay projects and appropriations of revenues derived from any increases in gasoline taxes and motor vehicle weight fees above January I, 1990 levels. The provisions also exclude from limitation the appropriation of funds which arc not "proceeds of taxes," such as reasonable charges for regulatory licenses, user charges, or other fees to the extent that such proceeds equal "the cost reasonably borne by such entity in providing the regulation, product, or service." In addition. a number of recent and proposed initiatives arc structured to create new tax revenues dedicated to cel1ain specific uses, with such new taxes expressly exempted from the Article XlllB limits (e.g., increased cigarette and tobacco taxes enacted by Proposition 99 in 1988). The appropriations limit may also be exceeded in cases of emergency. However, unless the emergency arises from civil disturbance or natural disaster declared by the Governor, and the appropriations arc approved by two-thirds of the Legislature, the appropriations limit for the next three years must be reduced by the amount of the excess.

The State's appropriations limit in each year is based on the limit for the prior year, adjusted annually for changes in California per capita personal income and changes in population, and adjusted, when applicable, for any transfer of financial responsibility of providing services to or from another unit of government. The measurement of change in population is a blended average of statewide overall population growth, and change in attendance at local school and community college ("K-14'') districts. As amended by Proposition 111, the appropriations limit is tested over consecutive two-year periods.

Proposition 98, as modified by Proposition 111, determines how tax revenues in excess of the State appropriations limit are distributed. After any two-year period, if there are excess State tax

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revenues, 501}~, of" the excess would be transferred to K-14 schools \vlth the balance returned to taxpayers;

under prior law, 100% of excess State tax revenues go to K-14 schools, but only up to a cap of four percent of the schools' minimum funding JcveL Also, reversing prior Jaw, any excess State tax revenues transferred to K-14 schools would not be built into the school districts' base expenditures for calculating their entitlement for State aid in the next year, and the State's appropriations limit will not be increased by this amount

As originally enacted in 1979, the appropriations limit was based on 1978-79 fiscal year authorizations to expend proceeds of taxes and was adjusted annually to reflect changes in cost ofliving and population ( using different definitions, which were modified by Proposition 111 ). Starting in the 1990-91 Fiscal Y car, the appropriations limit was recalculated by taking the actual 1986-87 limit, and applying the annual adjustments as if Proposition 11 l had been in effect

There arc many remaining uncertainties and ambiguities in Article XIIIB which will require clarification by the California Legislature or the com1s. Accordingly, the District cannot now determine what the precise effect of Article Xllll:l will be upon its operations and financial obligations. The District believes it is presently fulfilling all of its obligations under Article XIIIB.

Unitary Property

California State Assembly Bill 454 (Chapter 921, Statutes of 1987). amending Section 100 of the California Revenue and Taxation Code, provides that revenues derived from most utility property (e.g., pipelines in more than one county, regulated railways, and telephone, electrical and gas utility companies) assessed by the State Board of Equalization (referred lo in the statute as "Unitary Property"), commencing with the 1988-89 Fiscal Year, will be based on a uniform rate within each county and allocated as follows: (I) each jurisdiction will receive up to l 02°!., of its prior year State-assessed revenues: and (2) if county-wide revenues generated from Unitary Property arc less than the previous year's revenues or greater than l 02'% of the previous year's revenues, each jurisdiction will share the burden of the shortfall or excess revenues by a specified fonnula. This provision applies to all Unitary Property except railroads, whose valuation will continue to be allocated to individual tax rate areas.

The provisions of Assembly Bill 454 do not constitute an elimination of the assessment of any State-assessed properties nor a revision of the methods of assessing utilities by the State Board of Equalization. Generally, Assembly Bill 454 allows valuation growth or decline of Unitary Property to be shared by all jurisdictions in a county.

California Lottery

In the November 1984 general election, the voters of the State approved a Constitutional Amendment establishing a California State Lottery (the "State Lottery"). Since 1985, the net revenues (revenues less expenses and prizes) of the State Lottery have been used to supplement other moneys allocated to public education. Revenues of the State Lottery have been allocated as follows: 50% is returned to players as prizes; at least 34% is allocated to public education; and a maximum of 16% can be used for the payment of administrative expenses and promotions to administer the lottery. The amount allocated to public education is distributed, based upon student enrollment, to K-14 public schools (K-12 school districts and community colleges), the California State University, the University of California, Hastings College of the Law, and specific state departments that provide K-14 education programs. At the school district level, the allocation of net revenues of the State Lottery is based upon the average daily attendance of each school district; however, the exact allocation fonnula may vary from year to year. In recent years, lottery revenues have averaged approximately $2.6 billion a year.

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In the March 2000 general election, the voters of'the State approved Proposition 20, the terms of which will change the way that a portion of the annual lottery revenues is distributed to public education and specify that such fonds be reserved for the purchase of textbooks and instructional materials, Under existing law, local school districts are responsible for providing necessary services and materials such as teachers, facilities, and instructional materials (textbooks and other reading materials, but also including other items such as computer software, arts and crafts supplies, and maps) to educate children, The state currently provides schools almost $600 million each year that must be spent on instrnctional materials, (This is about S 100 per student each year,) Under existing law, net revenues of the State Lottery allocated to public education can be used for any school expense such as the education of pupils and students and cannot be used for the acquisition of real property, the construction of facilities or the financing of research.

Proposition 20 would require that one-half of any increase in education revenue be allocated to K-14 public schools and reserved for the purchase of textbooks and instrnctional materials. In determining any increase in annual lottery revenues to be distributed to public education, Proposition 20 uses Fiscal Year 1997-98 as the "base year." In that year, the state allocated $780 million in lottery monies to public education. The proposition's impact in any year would depend on the growth in lottery funds since Fiscal Y car 1997-98. For example. it is estimated that the total 1999-00 allocation to public education will be $867 million. Based on this amount, the formula in Proposition 20 would result in the following: $867 million - $780 million = S87 million. Therefore, under this example, the proposition would result in the allocation of$43.5 million ($87 million x 50 percent - $43.5 million) to K-14 public schools for instructional materials. The funds are to be distributed proportionally among K-14 public schools statewide based on each district's average daily attendance. Proposition 20 would not change the way "base" lottery revenues arc allocated lo public education, nor the method by which the other one-half of growth monies is allocated. The annual amount of funds dedicated to instructional materials would depend on changes in the level of overall lottery revenues.

No Litigation

There is no action, suit or proceeding known lo the District to be pending or threatened either restraining or enjoining the execution of delivery of the Bonds, or in any way contesting or affecting the validity of the foregoing or any proceedings of the District taken with respect to any of the foregoing.

LIMITATION ON REMEDIES

Enforceability of the rights and remedies of the owners of the Bonds, and the obligations incurred by the District, may become subject to the federal bankruptcy code and applicable bankrnptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors' rights generally, now or hereafter in effect, equity principles which may limit the specific enforcement under State law of certain remedies, the exercise by the United States of America of the powers delegated to it by the Constitution, the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose and the limitations on remedies against joint powers authorities in the State. Bankruptcy proceedings, or the exercise of powers by the federal or State government, if initiated, could subject the owners of the Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation, or modification of their rights.

On January 24, 1996, the United States Bankruptcy Court for the Central District of California held in the case of Counzv of Orange v. Merrill Lynch that a California statute providing for a priority of distribution of property held in trust conflicted with, and was preempted by, federal bankruptcy law. In

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that case, the court addressed the priority of the disposition of moneys held in a county investment pool upon bankruptcy of the cnunty and held that a state statute purporting to create a priority secured lien on a portion of such moneys was ineffective unless such funds could be traced. The County. on behalf of the District is expected to be in possession of the annual ad valorem taxes and certain funds to repay the Bonds and may invest these funds in the Treasury Pool. Sec THI' BONDS - Monterey County Investment Pool." Accordingly. in the event the District or the County were to petition for the adjustment of its debts under Chapter 9 of the federal bankruptcy code, a court might hold that the owners of the Bonds do not have a valid lien on the taxes when collected and deposited in the Debt Service Fund where such amounts arc deposited in the Treasury Pool, and such lien may not provide the Bond owners with a priority interest in such amounts. In that circumstance, unless such owners could "'trace" the funds, the owners would be only unsecured creditors of the District. There can be no assurance that the owners of the Bonds could successfully so "trace" such taxes on deposit in the Dcht Service Fund where such amounts arc invested in the Treasury Pool.

GENERAL DISTRICT FINANCIAL INFORMATION

The i1!fOrmation in this section concerning the ~':tale .fio1ding <~f'puhlic education is JJrovidecf to supplement information regarding the Disrrict ·s finances discussed elsewhere in this Of/icial Statement. and ii should no/ he inferredfi-om The inclusion of' This informalion in This Of/icial Stalcmenl that the principal and Maturity Amount o/'and interest and premium, if'any. 011 the Bo11d, is parahlefi-om State revenues. The Bond, are payable fi-om the proceed, o( an ad valorem tax required to be levied hy the C'ounzv in an a111ount Slffficient to ,nake such JJl~,F1nents.

State Funding of Education

The California Constitution requires that from all State revenues there shall first be set apart the moneys to be applied by the State for support of its public school system and public institutions of higher education. In general, California school districts receive a significant portion of their funding from State appropriations. A significant revenue source for the District is the State of California. The District currently expects that approximately 98°/i, of its Fiscal Y car 2004-05 General Fund revenues will consist of aid derived from the State pursuant to revenue limit calculations. The District has no control over the level of State fonding it receives. Adverse developments in the State's finances could result in a reduction of the historical levels of State financial public support for public education and thereby reduce the financial resources of the District. As a result, decreases in State revenues 1nay significantly affect

appropriations made by the Legislature to school districts.

Annual State apportionments of basic and equalization aid to school districts for general purposes arc computed up to a revenue limit per unit of average daily attendance ("ADA"). Such apportionments will. generally speaking, amount to the difference hctwcen a district's revenue limit and that district's local property tax allocation. Revenue limit calculations arc adjusted annually in accordance with a number of factors designed primarily to provide cost of Jiving increases and to equalize revenues among all of the same type of California school districts (i.e., unified, high school or elementary). The Stale revenue limit was first instituted in 1973-74 to provide a mechanism to calculate the amount of general purpose revenue a school district is entitled to receive from State and local sources. The State revenue limit helps to alleviate the inequities among school districts throughout the State, each with varied property values and tax rates in relation to numbers of students.

The State revenue limit is calculated three times a year for each school district. The first calculation is perfonned for the February 20 First Principal Apportionment, the second calculation for the June 25 Second Principal Apportionment, and the final calculation for the end of the year Annual Principal Apportionment. Calculations arc reviewed by the county and submitted to the State Department

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of Education to review the calculations for accuracy, calculate the amount of State aid owed to such school district and notify the State controller of the amount, who then distributes the State aid.

The calculation of the amount of State aid a school district is entitled to receive each year is, in general terms, a five step process. First, the prior year State revenue limit per ADA is established, with recalculations as are neccssmy for adjustments for equalization or other factors. Second, the adjusted prior year State revenue limit per ADA is inflated according to formulas based on the implicit price dcflator for government goods and services and the statewide average State revenue limit per ADA for the school districts. Third, the curtent year's State revenue limit per ADA for each school district is multiplied by such school district's ADA for either the current or prior year. Fourth, revenue limit add­ons arc calculated for each school district if such school district qualifies for the add-ons. Add-ons include the necessary small school district adjustments. meals for needy pupils and small school district transportation, and are added to the State revenue limit for each qualifying school district. Finally, local property tax revenues arc deducted from the State revenue limit to artivc at the amount of State aid based on the State revenue limit each school district is entitled to for the curtent fiscal year.

State Revenue Limit

School districts in the State have historically received most of their income under a formula known as the State revenue limit. Annual State apportionments of basic and equalization aid is funded by State general fund moneys and local property taxes. This apportionment is allocated to the school districts based on the ADA of the school districts for either the curtent or preceding school year. Such apportionments will, generally speaking, amount to the difference between the District's revenue limit and the District's local property tax allocation. Revenue limit calculations are adjusted annually in accordance with a number of factors designed primarily to provide cost of living increases and to equalize revenues among all of the same type of California school districts (i.e., all unified school districts, all high school districts or all elementary school districts).

The State revenue limit is calculated three times a year for each school district. The first calculation is performed for the February 20th First Principal Apportionment, the second calculation for the June 25th Second Principal Apportionment, and the final calculation for the end of the year Annual Principal Apportionment. Calculations arc reviewed by the county and submitted to the State Department of Education to review the calculations for accuracy, calculate the amount of state aid owed to such school district and notify the State Controller of the amount, who then distributes the state aid.

Basic Aid

In the event that a district's property tax revenue exceeds the amount of its State apportionment entitlement under the revenue limit formulas, State apportionments by law are limited to $120 per ADA. Property tax allocations for such districts (known as "Basic Aid Districts"), however, arc not limited by the revenue limit. Because of this, Basic Aid Districts arc less dependent on State funding of education. The District is not a Basic Aid District.

State Assistance

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

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2005-06 State Budget. Governor Schwarzenegger signed a $117.:i billion 2005-06 State Budget (the "'2005-06 Budget") into law on July 11, 2005, addressing a Stale budget shortfall through spending cuts, without increasing taxes or additional borrowing. California's economy continued to improve with industry employment reaching a record high in May 2005, the unemployment rate fell to 5.3 percem in the same month, and inflation-adjusted Gross State Product up by 5.1 percent in 2004. California personal income was 7.1 percent higher in the first quarter of 2005 than a year earlier and statewide taxable sales were 7 percent higher in the fourth qua11er of2004 than the same period in 2003. While the 2005-06 Budget marked substantial and continuing progress toward structural balance, budget analysts warned that State expenses were projected to continue !,>rowing much faster than revenues, leaving the State with an estimated shm1fall of$7.5 billion in fiscal year 2006-07.

The 2005-06 Budget assumed 2005-06 total General Fund revenues and transfers of $91. 97 billion, total expenditures of $90.03 billion and a year-end reserve of$ I .94 billion. Approximately $64 I million of the reserve was designated as a reserve for the liquidation of encumbrances and the remaining S 1.3 billion was designated as a special fund for economic uncertainties (which includes $900 million set aside for refunds and accelerations of amnesty related revenue in 2006-07).

The 2005-06 Budget improved roads and bridges throughout Cali fomia by fully funding Proposition 42 and provided a year-over-year increase of more than $3 billion for K-14 education for a total of nearly $50 billion. Per-pupil spending from all sources exceeded $ I 0,000 for the first time, and as a result of the Governor's agreement with Legislators, the 2005-06 Budget fully repaid local governments $1.2 billion owed to them one year earlier than required under Stale law.

With regard to K-12 school districts, total per-pupil spending in 2005-06 exceeded SI0.000 for the first time, at $ I 0,325. The 2005-06 Budget fully funded cost-of-living adjustments (''COLA") and student growth for K-14 education, restored approximately half of the general purpose revenue limit funding reductions reflected in prior budgets and provided over $70 million for the repayment of prior year mandated costs for school districts and community colleges. According to the 2005-06 Budget, the Proposition 98 settle-up obligation should have been measured at $584 million for 2003-04, and $3.8 billion in 2004-05 which was restored to the Proposition 98 budget in future years as General Fund revenue growth exceeded personal income growth. The 2005-06 Budget also included S 16.8 million in payments towards prior year Proposition 98 obligations dating back to 1995-96, which will be supplemented beginning in 2006-07 by annual payments of $150 million per year until the estimated $1.3 billion in such obligations arc fully repaid.

General Fund Local Revenue Total Funded Guarantee

Base Guarantee Level Savings

Proposition 98 (Dollars in thousands)

2003-04 2004-05 $30,529,463 $34,009,289

15,762,333 12 932 043 $46,291, 796 $46,941.332

46,875,655 50, 768,633 583,859 3,827,301

2005-06 $36,590,833

13 376.787 $49,967,620

49,226,734 (740,886)

The General Fund contribution to the Proposition 98 guarantee increased by $2.6 billion from 2004-05 to 2005-06, while the local property tax revenue contribution increased by $445 million. This large General Fund share of the guarantee's increase reflected the second year of the agreement with California's local governments to reduce Vehicle License Fee revenues, replace those revenues with additional property tax

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allocations and hold schools harmless by providing additional General Fund moneys and reallocating local properly taxes.

• K-12 Proposition 98 Per Pupil Funding - Estimated Proposition 98 fonding per pupil rose to $7,402 in fiscal year 2005-06, representing an increase of $379 per pupil from the revised 2004-05 level. Compared to the 2004-05 Budget Act level of $7,007 per pupil, 2005-06 per pupil expenditures increased $395. Total General Fund allocations of $33. I billion for K-12 education represented 40.2 percent of the General Fund budget subject to the State appropriations limit.

• Total K-12 Funding An increase of $2.7 billion over 2004-05 brought total funding from all sources to 562.3 billion. Total funding per pupil increased by S380, from $9,945 in 2004-05 to $ I 0.325 in 2005-06. This represented a 3.8 percent increase over the adjusted estimate for 2004-05.

• From 2004-05 to 2005-06. General Fund increased $2.3 billion, while local property taxes increased by $380 million and federal funds grew by 548.6 million. Major General Fund changes included the following: an increase of $2.2 billion to Proposition 98 General Fund, an increase of$ I 90.2 million in bond debt service and a net decrease of $49.2 million in contributions to the State Teachers' Retirement System.

• Enrollment Growth - The 2005-06 Budget provided$ I 93.6 million to fund enrollment growth increases for school apportionments ($53.3 million), Special Education ($20.3 million) and other categorical programs ($120 million). This amount included $4.4 million deferred to 2006-07.

• Cost-of-Living Adjustments - The 2005-06 Budget included over $1.7 billion to provide a 4.23 percent COLA increase to K-12 programs. Included in this amount were funding for school apportionments ($1.3 billion), Special Education (SI 25 million) and other categorical programs ($295 million). Of this amount, $15.7 million was deferred to 2006-07. The 4.23 percent calculation substantially exceeded the expected growth of the consumer price index (CPI) in California.

• Revenue Limits - Revenue limit funding constituted the basic funding source for classroom instruction. The 2005-06 Budget provided a net increase of S 1.6 billion to school district and county office of education revenue limits, which included funding for enrollment growth, a cost-of-living adjustment and the repayment of $328 million or approximately half of the outstanding deficit factor owed as a result of reductions made by the prior Administration.

• K-12 Education Mandates-The 2005-06 Budget provided $60.6 million ($53.8 million from the Proposition 98 Reversion Account and S6.8 million in Proposition 98 settle-up funds) to pay prior year K-12 education mandate claims. These one-time funds were intended to pay for claims on the basis of oldest first.

• Accountability - The 2004-05 Budget provided $348.4 million for programs to assist and promote academic performance including $228. 7 million Proposition 98 General Fund to assist low-performing schools through the High Priority Schools Grant Program, $53 million to assist schools subject to sanctions pursuant to State and federal accountability programs, S30 million for federal Comprehensive School Reform Program grants, $29.2 million in federal Title I School improvement funds to fund district

24

accountability activities and $7.5 million Proposition 98 General Fund in deferred funding from 2004-05 for the final year of implementation for schools participating in the Immediate lntcrvention/Underperforming Schools Program.

Williams Litigation - The 2005-06 Budget provided $183.5 million from the Proposition 98 Reversion Account for school facility emergency repairs, consistent with the Williams sett lenient agrccn1cnt.

Pupil Testing - The 2005-06 Budget provided $118.9 million, including federal funds, for various statewide exams. The budget also provided $650,000 for the development of an allernative assessment for moderately disabled students who presently do not test at grade level, pursuant to federal guidelines.

Commission on Teacher Credentialing - The 2005-06 Budget contained $51 million ($34.5 million General Fund and $16.1 million other funds) and 161.5 positions for the Commission on Teacher Credentialing in 2005-06. This represented a reduction of $9.6 million and 4.9 positions from the revised 2004-05 Budget.

Low Performing School Enrichment Block Grant - The 2005-06 Budget included $49.5 million for the Low-Pcrfonning School Enrichment Block Grant, a one-time block grant for low-performing schools. These funds were available to schools in the bottom three deciles of the Academic Perfonnance Index.

Supplemental Instruction High School Exit Exam Program - The 2005-06 Budget provided on a one-time basis $47.9 million Special Education Program funding and $20 million under the Pupil Retention Block Grant to provide additional supplemental instruction to pupils who have failed one or both parts of the High School Exit Exam.

Governor's Proposed 2006-07 Budget. Governor Schwarzenegger announced his proposed fiscal year 2006-07 State Budget (the "Proposed 2006-07 Budget") on January IO, 2006. The Proposed 2006-07 Budget includes $97.9 billion in projected general fund spending and addresses an estimated operating deficit in fiscal year 2006-07 of approximately $6.4 billion. After adjusting for prepayments or repayments of prior obligations, the fiscal year 2006-07 operating deficit is approximately $4.7 billion. The Proposed 2006-07 Budget includes the f<Jllowing items: a deferment of tax increases; a determination not to issue the remaining $3.7 billion of Proposition 57 Economic Recovery Bonds; a deposit of approximately $920 million into the Budget Stabilization Account approved by voters in 2004 under Proposition 58 (approximately $460 million of which is dedicated to the early retirement of the Proposition 57 Economic Recovery Bonds); applying approximately $920 million of one-time revenues to pay down past loans from Proposition 42 earlier than required by law; and repaying approximately S 149 million in prior loans from 12 separate special funds.

The Governor also proposed a comprehensive rebuilding of the State's infrastructure system, including roads and highways, schools and colleges, public safety as well as water supply and levee systems with a 20-ycar plan, encompassing $222 billion in infrastructure investments, of which $68 billion arc proposed to be financed with general obligations bonds to be placed on the ballot for approval by California voters over a series of elections between 2006 and 2014.

The Proposed 2006-07 Budget assumes General Fund revenues and transfers of $91.5 billion, expenditures of $97 .9 billion and a year-end reserve of $613 million ( after distributions to the Reserve for Liquidation of Encumbrances. the Special Fund for Economic Uncertainties and the Budget Stabilization Account).

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With regard to K-12 school districts. total per-pupil expenditures from all sources arc projected by the Governor to be SI 0,336 in fiscal year 2005-06 and $10,996 in fiscal year 2006-07, including funds provided for prior year settle-up obligations. Total fiscal year 2006-07 Proposition 98 support for K-12 education will increase by 8. 7 percent over the revised 2005 Budget Act level, as adjusted for changes in local revenues, ADA and forccasted economic factors. K-12 Proposition 98 per-pupil expenditures in the Proposed 2006-07 Budget are $8,052 in fiscal year 2006-07, up from $7,428 in fiscal year 2005-06 (including funds provided for prior year settle-up obligations).

The Proposed 2006-07 Budget includes an increase of $2.3 billion to fully fund increases in growth and COLAs for K-12 revenue limits (general purpose funding for schools) and categorical programs. as well as $200 million to repay most of the outstanding school district deficit factor owed as a result of reductions to school revenue limits made in prior years. The Proposed 2006-07 Budget also includes $200 million to equalize the revenue limits of school districts. The COLA and growth adjustments to revenue limit funding, equalization funding and deficit reduction funding total in excess of $2.7 billion.

• Proposition 98 Total fiscal year 2004-05 Proposition 98 funding was $47 billion, of which the General Fund share was $34 billion. Total fiscal year 2005-06 Proposition 98 funding is now estimated to be $50 billion, which reflects a 6.3 percent increase over fiscal year 2004-05. The General Fund share is $36.3 billion in fiscal year 2005-06. These funding levels have been adjusted fi.Jr changes in attendance and costs for apportionment programs. Total fiscal year 2006-07 Proposition 98 funding is proposed at $54.3 billion, which reflects an 8. 7 percent increase over the revised estimate for fiscal year 2005-06. This level of funding also reflects $1.7 billion in Proposition 98 spending above the level that otherwise would have been required by the Proposition 98 guarantee for fiscal year 2006-07. The $54.3 billion Proposition 98 funding level for fiscal year 2006-07 also includes an increase of $428 million reflecting implementation of Proposition 49. Beginning in fiscal year 2006-07, Proposition 49 will increase state funding for the After-School Education and Safety Program to $550 million per year. The General Fund provides approximately 74 percent, or $40.5 billion of total proposed Proposition 98 funding. These totals include funding for K-12 and community colleges.

• Proposition 98 Reversion Account - The Proposed 2006-07 Budget includes a one-time Proposition 98 Reversion Account funding totaling $213.2 million to be appropriated as follows: $ I 06.6 million for school facility emergency repairs, consistent with the Williams agreement, $63.7 million for CalWORKS Stage 3 Child Care, Sl8.7 million for mandates, $9.6 million for teacher credentialing, $9 million for charter school facilities. S3 million for teacher recniitmcnt, SI. I million for school business officer training, $500,000 for coaches training and approximately $39,000 for attendance accounting.

• Fiscal Y car 2006-07 Apportionment Adjustments - For fiscal year 2005-06, the Proposed 2006-07 Budget reflects a decrease of $252 million General Fund for revised estimates related to school district and county office of education revenue limit apportionments. This adjustment is due primarily to an increase in local revenue estimates of $280 mill ion, offset by an increase in costs associated with declining enrollment funding. The Proposed 2006-07 Budget substantially increases general­purpose funding for schools by fully funding statutory growth and COLA. Furthermore, the Proposed 2006-07 Budget provides $200 million for school district revenue limit equalization to partially address disparities in base general-purpose funding levels. An additional $206 million is also included to repay over half of the outstanding deficit

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factor owed due to reductions made in prior years to revenue limits and basic aid district categorical funding.

• Enrollment Growth - The Proposed 2006-07 Budget proposes $156 million augmentation to fully fund statutory ADA growth: $67.4 million for revenue limit apportionments. $14.8 million for child care and development, $4.7 million for class size reduction, $6.5 million for special education and $62.6 million for other categorical programs. As a result of a steady decline in birth rates throughout the J 990's, attendance growth in public schools continues to be low. For the 2005-06 fiscal year, Statewide K-12 ADA is estimated to be 6,010,000, which is an increase of 28.000 ADA or 0.47 percent over the 2004-05 fiscal year. and is 21,000 ADA less than the 2005-06 May Revision estimate. For the 2006-07 fiscal year, the Administration estimates Statewide K-12 ADA to be 6.023,000. This total reflects ADA growth of 13,000 or 0.21 percent over fiscal year 2005-06.

• COLAs - The Proposed 2006-07 Budget proposes a $2.3 billion augmentation to provide a 5.18 percent statutory COLA adjustment: $1.7 billion for revenue limits, $70.2 million for child care and development, $78.4 million for class-size reduction. $161.6 million for special education and $313.6 million for various categorical programs.

• State Department of Education - The State Department of Education administers State and federal education programs and operates the State Special Schools and Diagnostic Centers. The Proposed 2006-07 Budget includes 5313.3 million ($123.7 million General Fund) for State operations. which reflects a decrease of $2 million ($3 million General Fund) below the revised fiscal year 2005-06 budget and an increase of $4. 9 million ($1.3 million General Fund) above the 2005 Budget Act. This reflects increases in both fiscal year 2005-06 and fiscal year 2006-07.

• Expanding After-School Programs - In 2002, California voters approved Proposition 49, significantly expanding access to before and after-school programs. Proposition 49 also established funding priorities and expanded program activities to include computer training, fine ai1s and physical fitness. In fiscal year 2005-06 the State After-School Education and Safety ("ASES") Program was funded at $121.6 million, serving more than 100,000 annually. Beginning in fiscal year 2006-07, Proposition 49 will provided ASES with an increase of$428 million over fiscal year 2005-06 funding levels.

• Augmentation for Mandated Local Programs - The Governor proposes $133.6 million to fund the ongoing cost of K-12 and community college locally-mandated programs. To the extent this funding is insufficient to cover all eligible claims from local education agencies for the year, the State Controller is authorized to prorate payments proportionately. Additionally, $18. 7 million is slated to be provided from the Proposition 98 Reversion Account to fund prior year mandate claims.

• Special Education - The Proposed 2006-07 Budget provides an additional $156.3 million General Fund for special education programs. A local property tax increase of $17.4 million and an increase of $16 million in federal funds also arc reflected in the Budget. These increases include $161.6 million for a 5.18 percent COLA and $6.5 million for growth.

• School Enrichment Block Grant - The Governor proposes that $100 million be made available to school districts, based on the number of pupils in the schools whose

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Academic Performance Index has placed them in the bottom three deciles, to support local strategics to recrnit and retain teachers and principals, and to focus on hard-to-staff subjects and low-pcrfonning schools. Funds will be allocated at a rate of approximately $50 per pupil with a district minimum of $5,000 per school site.

Future State Budgets. Under State law, the State Legislature is required to adopt its budget by June 15 of each year for the upcoming fiscal year. with approval by the Governor to occur on June 30. The State Legislature failed to pass a State budget for fiscal year 2004-05 until the end of July 2004. Accordingly, many State payments were held until the 2004-05 State Budget was adopted, including some scheduled to be made to school and community college districts under Proposition 98 and receipt of State categorical funds by the District were in some cases delayed until the State budget was adopted for the 2004-05 fiscal year. The State Legislature again failed to approve a final State Budget by the June 30 deadline for the 2005-06 fiscal year, and delayed payments to districts arc again a possibility. The events leading to the inability of the State Legislature to pass a budget in a timely fashion for the past several fiscal years arc not unique, and the District cannot predict what circumstances may cause a similar failure in future years. ln each year where the State budget lags adoption of the District's budget, it will be necessary for the District's staff to review the consequences of the changes, if any, at the State level from the proposals in the Governor's May Revision for that year, and determine whether the District's budget will have to be revised. This process was necessary for the District's 2004-05 budget and 2005-06 budget and revisions will be taken to the governing board of the District for their approval.

The State has in past years experienced budgetary difficulties and has balanced its budget by requiring local political subdivisions to fund certain costs theretofore borne by the State. No prediction can he made as to whether the State will take further measures to resolve its current projected budget deficit for the 2005-06 fiscal year which would, in turn, adversely affect the District. Further State actions taken to address its budgetary difficulties could have the effect of reducing K-12 support indirectly, and the District is unable to predict the nature, extent or effect of such reductions.

On March 2, 2004, the voters of the State adopted Propositions 57 and 58, which provided for a one-time borrowing by the State of up to $15.0 billion to refund past deficit borrowings and which required a balanced budget to be passed by the State Legislature at the beginning of each fiscal year. The District is unable to predict whether the methodology for budgets inherent in Proposition 58 will result in more timely adoption of State budgets and less adverse impacts upon the District's own budget process.

The full text of the 2005-06 Budget may be found at the internet website of the California Department of Finance, www.dof.ca.gov, under the heading "Governor's Budget", and the Legislative Analyst's Office's overview of the 2005-06 Budget may be found at www.lao.ca.gov. The information on these websites is not incorporated into this Official Statement by reference. The Legislative Analyst's Office provides fiscal and policy information and advice to the State Legislature.

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

Supplemental Information Concerning Litigation Against the State of California

In 1998, the Howard Jarvis Taxpayers Association, together with Steven White ("Jarvis'') filed suit against Kathleen Connell, in her capacity as Controller of the State of California (the "Controller") in Los Angeles County Superior Court to curtail the Controller's practice of continuing to make payments from the State Treasury following the date a State Budget is required to be approved (July I of each year) until it is actually so approved. The circumstances leading to the filing of this case derived from the

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budget impasse of 1998-99 under Governor Wilson, which led to a budget bill for that fiscal year being approved on August 21, 1998. The Legislature passed emergency measures at that time to provide for payment of State expenses.

On May 29, 2002, the Court of Appeal of the State of California for the Second Appellate District (the "Cou11 of Appeal'') decided in favor of Jarvis on a number of points, limiting the Controller's right to make payments by watTant during a budget impasse to payments of minimum wages for State employees. The Court of Appeal also ruled the Controller would be prevented from paying Prop 98 moneys to school and college districts and private vendors during such an impasse. Debt service payments and certain judicial salaries would not be interrupted by the May 29 decision, as they have separate statutory authority that was not suecessfolly challenged by Jarvis. The California Supreme Court i,,ranted the Controller's Petition for Review on a procedural issue unrelated to continuous appropriations and stayed the trial court's injunction. On May I, 2003, the California Supreme Court issued its opinion upholding the Controller's authority to make payments essential to State services in the absence of a State Budget. The Court also remanded the preliminary injunction issue to the Court of Appeal with instmetions to set aside the preliminary injunction in its entirety.

Ad Valorem Property Taxation

District property taxes are assessed and collected by the County at the same time and on the same rolls as the County and special district property taxes.

The valuation of secured property is established as of February I and is subsequently equalized in August. Property taxes arc payable in two installments due November I and February I, respectively, and become delinquent on December IO and April IO for each respective installment. Taxes on unsecured property (personal property and leasehold) arc due on August 31 of each year based on the preceding fiscal year's secured tax rate and become delinquent on October 31.

State law exempts from taxation $7,000 of the full cash value of an owner-occupied dwelling, but this exemption docs not result in any loss of revenue to local agencies, since the State reimburses local agencies for the value of the exemptions.

Assessed Valuation

All property is assessed using full cash value as defined by Article XIIIA of the State Constitution. State law provides exemptions from ad valorem property taxation for certain classes of property such as churches, colleges, non-profit hospitals, and charitable institutions.

Future assessed valuation growth allowed under Article XIIIA (for new constmction, certain changes of ownership, 2% per year inflation) will be allocated on the basis of "situs" among the jurisdictions that serve the tax rate area within which the i;,,rowth occurs. Local agencies and school districts will share the growth of "base" revenues from the tax rate area. Each year's growth allocation becomes part of each agency's allocation in the following year. The availability of revenue from growth in tax bases to such entities may be affected by the establishment of redevelopment agencies which, under certain circumstances, may be entitled to revenues resulting from the increase in certain property values.

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 real property having a tax lien which is sufficient, in the opinion of the assessor, to secure payment of the taxes. Unsecured property comprises all property

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not attached to land such as personal property or business property. Boats and airplanes arc examples of unsecured property. Unsecured property is assessed on the "unsecured roll."

The passage of AB 454 in 1987 changed the manner in which unitary and operating nonunitary property is assessed by the State Board of Equalization. The legislation deleted the formula for the allocation of assessed value attributable to such property, and imposed a State-mandated local program by requiring the assignment of the assessed value of all unitary and operating nonunitary property in each county for each State-assessed taxpayer other than a regulated railway company. The legislation established formulas for the computation of applicable county-wide tax rates for such property and for the allocation of property tax revenues attributable to such property among taxing jurisdictions in the county beginning in Fiscal Year 1988-89. The legislation requires each county to issue to each State-assessed taxpayer, other than a regulated railway company, a single tax bill for all unitary and operating nonunitary property.

Tax Levies, Collections and Delinquencies

The County Board of Supervisors has not adopted the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the "Teeter Plan''), as provided for in Section 4701 ct seq. of the California Revenue and Taxation Code. Taxes arc levied for each fiscal year on taxable real and personal property which is situated in the District as of the preceding January I. A supplemental roll is developed when property changes hands which produces additional revenue.

A I 0% penalty attaches to any delinquent payment for secured roll taxes. In addition. property on the secured roll with respect to which taxes arc delinquent becomes tax-defaulted. Such property may thereatier be redeemed by payment of the delinquent taxes and the delinquency penalty, plus a redemption penalty to the time of redemption. If taxes are unpaid for a period of five years or more, the property is subject to auction sale by the county tax collector.

In the case of unsecured property taxes, a 10% penalty attaches to delinquent taxes on property on the unsecured roll, and interest of 1.5% per month begins to accrue beginning November I of the fiscal year, and a lien is recorded against the assesses. The taxing authority has four ways of collecting unsecured personal property taxes: (a) a civil action against the taxpayer; (b) filing a certificate in the office of the county clerk specitying certain facts in order to obtain a judgment lien on specific property of the taxpayer; (c) filing a certificate of delinquency for record in the county recorder's office in order to obtain a lien on specified property of the taxpayer; and ( d) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assesses.

Each county levies (except for levies to support prior voter-approved indebtedness) and collects all property taxes for property falling within that county's taxing boundaries.

Budget Process

School districts arc required by provisions 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 revenues and the carry-over fund balance from the previous year. The State Department of Education imposes a uniform budgeting and accounting format on school districts.

School districts must adopt a budget on or before July I of each year. The budget must be submitted to the county superintendent within five days of adoption or by July I, whichever occurs first. A district may be on either a dual or single budget cycle. The dual budget option requires a revised and readopted budget by September I that is subject to State mandated standards and criteria. The revised

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budget must reflect changes in projected income and expenses subsequent to July I. The single budget is only readopted if it is disapproved by the county office of education, or as needed.

For both dual and single budgets submitted on July I, the county superintendent will examine the adopted budget for compliance with the standards and criteria adopted by the State Board of Education and identify technical con-ections necessary to bring the budget into compliance, will determine if the budget allows the district to meet its cun-ent obligations and will determine if the budget 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 approve or disapprove the adopted budget for each school district. Pursuant to State Jaw, the county superintendent has available various remedies by which to impose and enforce a budget that complies with State criteria, depending on the circumstances, if a budget is disapproved.

Subsequent to approval, each county superintendent of schools throughout the fiscal year will monitor each school district pursuant to its adopted budget to determine on an ongoing basis if the district can meet its cmTcnt or subsequent year financial obligations. If a county superintendent determines that a district cannot meet its cun-enl or subsequent year obligations, the superintendent will notify the district's governing board of the determination and the superintendent may do either or both of the following: (a) assign a fiscal advisor to enable the district to meet those obligations or, if a study and recommendations are made and a district fails to take appropriate action to meet its financial obligations, notify the State Superintendent of Public Instruction, and then (b) do any or all of the following for the remainder of the fiscal year: (i) request additional information regarding the district's budget and operations; (ii) develop and impose, after also consulting with the district's board, revisions to the budget tbat will enable the district to meet its financial obligations; and (iii) stay or rescind any action inconsistent with such revisions. However, the county superintendent may not abrogate any provision of any collective bargaining agreement that was entered into prior to the date upon which the county superintendent assumed authority.

The District has never had an adopted budget disapproved by the County Superintendent of Schools and has never received a "qualified" or "negative" certification pursuant to State Education Code Section 42130 et seq.

Accounting Practices

The accounting policies of the District conform to generally accepted accounting principles in accordance with policies and procedures of the California School Accounting Manual. This manual, according to Section 41010 of the State Education Code, is to be followed by all California school districts. Revenues are recognized in the period in which they become both measurable and available to finance expenditures of the cun-cnt fiscal period. Expenditures are recognized in the period in which the liability is incun-cd.

State and Public School Building Loans

The District participates in the State of California school building program. State School Building Loans arc secured by all sites purchased and improved, all equipment purchased, and all buildings constructed, reconstructed, altered, or added to through the expenditure of such funds in accordance with Section 16019 of the State Education Code. Annual repayment is determined by the State Controller in accordance with Section 16214 of the State Education Code. The repayment amount is based on the previous year's assessed valuation growth and other factors and is repaid by a special ad va/orem tax levy upon real property within the District. The District had no State School Building Loans outstanding as of June 30. 2004.

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Monterey County Investment Pool

Under California law, the District is required to pay all monies received from any source into the Monterey County Treasury to be held on hehalf of the District. The County Treasurer has authority to implement and oversee the investment of funds on deposit in commingled funds of the Treasury (the "Treasury Pool").

Decisions on the investment of funds in the Treasury Pool are made by the County Treasurer and his deputies in accordance witb established policy guidelines. In the County, investment decisions are governed by California Government Code Sections 5360 I and 53635, ct seq., which govern legal investments by local agencies in the State of California, and a more restrictive Investment Policy proposed by the County Treasurer and adopted by the County Board of Supervisors on an annual basis.

The Investment Policy is reviewed and approved annually by the County Board of Supervisors. The County Treasurer's compliance with the Investment Policy is also audited annually by an independent certified public accountant.

The County Treasurer maintains a portfolio that has, at a minimum, 30% liquidity. This liquidity is composed of overnight investments that can be readily converted to cash. This degree of liquidity assures that funds are always available to meet normal and unexpected cash demands without the need to sell other investments that could result in a loss due to market conditions. Other invcshncnts may include U. S. Treasury and federal agency securities, commercial paper, bankers acceptances and highly-rated corporate notes. The Monterey County Investment Policy requires the investment portfolio to maintain a weighted average maturity of less than two years. Income from investments is allocated on a quarterly basis, net of associated costs, to all the investment pool participants based on their average daily invested cash. The investment pool participants include only those statutorily defined by law; there arc no voluntary outside pool depositors in the Treasury Pool.

The Treasurer receives annual revenue from county departments, the 27 school districts, various special districts, and from the State of California. The Treasurer maintains records of all bank activity (receipts and disbursements) and balances those funds to the County Auditor-Controller's ledgers. The sources of deposited revenue include: property taxes, fines, service charges ( e.g. the county hospital for patient revenue) and State subventions (e.g. local sales tax, school ADA, and motor vehicle license fees).

Not all funds received by the Treasurer arc required for immediate use. Therefore, the Treasurer has developed a comprehensive cash flow forecast that projects the amounts and time frames when liquid funds must be available for depository agency disbursements. Revenue received into the county treasury that is not required for immediate use becomes part of the Treasury Pool.

On June 30, 2005, the Treasury Pool contained an amortized cost basis of $710,690.253 spread among 38 separate investments. The market value was $709,304,531 and was 99.8% of the amortized cost basis. The portfolio's weighted average yield on June 30, 2005 was 3.20%; its earned income for the quarter was 2.59%. The weighted average maturity of the portfolio was 0.9 years. The Treasury Pool is in compliance with all provisions of the adopted Investment Policy and with applicable provisions of State statutes. The source of market values and prices was Bloomberg LLP, FT Interactive, a national pricing service, and Union Bank of California. The Treasurer's report included separate reports by maturity range and security classification and the County Treasury Oversight Committee reviewed this report at their July 21, 2005 meeting.

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LEGAL OPINION

The legal opinion of Fulbright & Jaworski L.L.P., Bond Counsel to the District. substantially in the form of Appendix C hereto, approving the validity of the Bonds, will be made available to the original purchasers of the Bonds at the time of original delivery of the Bonds, and a copy thereof will be attached to the Bonds.

TAX MATTERS

General

The delivery of the Bonds is subject to delivery of the opinion of Fulbright & Jaworski L.L.P., Los Angeles, California, Bond Counsel to the District (''Bond Counsel"), to the effect that interest on the Bonds for fodcral income tax purposes under existing statutes, regulations, published rulings, and court decisions (I) will be cxcludablc from the gross income, as defined in section 61 of the Internal Revenue Code of 1986, a, amended to the date of initial delivery of the Bonds (the "Code"), of the Owners thereof pursuant to section I 03 of the Code, and (2) will not be included in computing the alternative minimum taxable income of the Owners thereof who arc individuals or, except as hereinafter described, corporations. The delivery of the Bonds is also subject to the delivery of the opinion of Bond Counsel, based upon existing provisions of the laws of the State of California that interest on the Bonds is exempt from personal income taxes of the State of California. A form of Bond Counsel's anticipated opinion is included as Appendix C. The statutes, regulations, rulings, and court decisions on which such opinions will be based arc subject to change.

Interest on all tax-exempt obligations, including the Bonds, owned by a corporation will be included in such corporation"s adjusted current earnings for purposes of calculating the alternative minimum taxable income of such corporation, other than an S corporation, a qualified mutual fund, a financial asset securitization investment trust (FASIT), a real estate investment trust (REIT), or a real estate mortgage investment conduit (REMIC). A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by section 55 of the Code is calculated.

In rendering the foregoing opinions, Bond Counsel will rely upon the representations and certifications of the District made in a certificate of even date with the initial delivery of the Bonds pertaining to the use, expenditure, and investment of the proceeds of the Bonds and will assume continuing compliance by the District with the provisions of the District Resolution subsequent to the issuance of the Bonds. The District Resolution contains covenants by the District with respect to. among other matters, the use of the proceeds of the Bonds and the facilities and equipment financed or refinanced therewith by persons other than state or local governmental units, the manner in which the proceeds of the Bonds arc to be invested, the calculation and payment to the United States Treasury of any "arbitrage profits"" and the reporting of certain information to the United States Treasury. Failure to comply with any of these covenants would cause interest on the Bonds to he includable in the gross income of the Owners thereof from the date of the issuance of the Bonds.

Except as described above, Bond Counsel will express no other opinion with respect to any other federal, State or local tax consequences under present law, or proposed legislation, resulting from the receipt or accrual of interest on, or the acquisition or disposition o( the Bonds. Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations such as the Bonds may result in collateral federal tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, S corporations with subchapter C earnings and profits, certain foreign corporations doing business in the United States, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned income tax credit, owners of

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an interest in a FASIT. and taxpayers who may he deemed to have incmTcd or continued indebtedness to purchase or can-y, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. Prospective purchasers should consult their own tax advisors as to the applicability of these consequences to their particular circumstances.

Bond Counsel's opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the District described above. No ruling has been sought from the Internal Revenue Service (the "Service") or the State of California with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel's opinion is not binding on the Service or the State of California. The Service has an ongoing program of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the Bonds is commenced, under current procedures, the Service is likely to treat the District as the "taxpayer," and the Owners of the Bonds would have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the Bonds, the District may have different or conflicting interests from the Owners of the Bonds. Public awareness of any future audit of the Bonds could adversely affect the value and liquidity of the Bonds during the pendency of the audit, regardless of its ultimate outcome.

Tax Accounting Treatment of l)iscount and Premium on Certain Bonds

The initial public offering of certain of the Bonds (the "Discount Bonds'') may be less than the amount payable on such Bonds at maturity. An amount equal to the difference between the initial public offering price of a Discount Bond (assuming that a substantial amount of the Discount Bonds of that maturity arc sold to the public at such price) and the amount payable at maturity constitutes original issue discount to the initial purchaser of such Discount Bond. A portion of such original issue discount, allocable to the holding period of such Discount Bond hy the initial purchaser, will, upon the disposition of such Discount Bond (including by reason of its payment at maturity), be treated as interest cxcludahle from gross income, rather than as taxable gain, for federal income tax purposes, on the same terms and conditions as those for other interest on the Bonds described above under 'TAX MATTERS - General." Such interest is considered to be accrued actuarially in accordance with the constant interest method over the life of a Discount Bond taking into account the semiannual compounding of accrued interest at the yield to maturity on such Discount Bond, and generally will be allocated to an original purchaser in a different amount from the amount of the payment denominated as interest actually received by the original purchaser during the tax year.

However, such interest may he required to be taken into account in determining the alternative minimum taxable income of a corporation, for purposes of calculating a corporation's alternative minimum tax imposed hy Section 55 of the Code, and the amount of the branch profits tax applicable to certain foreign corporations doing business in the United States, even though there will not be a corresponding cash payment. In addition, the accrual of such interest may result in certain other collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, "S" corporations with "subchaptcr C" earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned i ncomc tax credit, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. Moreover, in the event of the redemption, sale or other taxable disposition of a Discount Bond by the initial Owner prior to maturity, the amount realized by such Owner in excess of the basis of such Discount Bond in the hands of such Owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Discount Bond was held) is includahle in gross income.

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Owners of Discount Bonds should consult with their own tax advisors with respect to the determination for federal income tax purposes of accrued interest upon disposition of Discount Bonds and with respect to the state and local tax consequences of owning Discount Bonds. It is possible that, under applicable provisions governing determination of state and local income taxes, accrued interest on Discount Bonds may be deemed to be received in the year of accrual even though there will not be a corresponding cash payment.

The initial public offering price of certain of the Bonds (the "Premium Bonds") may be greater than the amount payable on such Bonds at maturity. An amount equal to the difference between the initial public of"fcring price of a Premium Bond (assuming that a substantial amount of the Premium Bonds of that maturity are sold to the public at such price) and the amount payable at maturity constitute premium to the initial purchaser of such Premium Bonds. The basis for federal income tax purposes of a Premium Bond in the hands of such initial purchaser may be reduced each year by the amortizable bond premium. Such reduction in basis will increase the amount of any gain (or decrease the amount of any loss) to be reco1;nized for federal income tax purposes upon a sale or other taxable disposition of a Premium Bond. The amount of premium which is amortizablc each year by an initial purchaser is determined by using such purchaser's yield to maturity. Purchasers of Premium Bonds should consult with their own tax advisors with respect to the determination of amortizable bond premium with respect to the Premium Bonds for federal income tax purposes and with respect to the state and local tax consequences of owning Premium Bonds.

A copy of the proposed fonn of opinion of Bond Counsel is attached hereto as Appendix C.

LEGAL MATTERS

Continuing Disclosure

The District covenants for the benefit of Owners of the Bonds (including beneficial owners of the Bonds) to provide certain financial information and operating data relating to the District (the "Annual Report") by not later than nine (9) months following the end of the District's fiscal year (which currently ends June 30), commencing with the report for the 2004-05 fiscal year, and to provide notices of the occurrence of certain enumerated events, if material. The Annual Report will be filed by the District with each Nationally Recognized Municipal Securities lnfonnation Repository (and with the appropriate State information depository, if any). The notices of material events will be filed by the District with the Municipal Securities Rulemaking Board (and with the appropriate State infonnation depository, if any). The specific nature of the information lo be contained in the Annual Report or the notices of material events is set forth in Appendix D - "FORM OF CONTINUING DISCLOSURE UNDERTAKING." These covenants are made in order to assist the Underwriter in complying with S.E.C. Ruic I 5c2-12(b)(5). In connection with the Series A Bonds, the District did not timely submit certain of its Annual Reports to certain of the Repositories in accordance with its continuing disclosure obligations with respect thereto. The District has since, however, filed such Annual Reports and has now complied in all material respects with all previous undertakings to provide Annual Reports or notices of material events.

LEGALITY FOR INVESTMENT

Under provisions of the California Financial Code, the Bonds arc legal investments for commercial banks in California to the extent that the Bonds, in the informed opinion of the investing bank, arc prndcnt for the investment of funds of depositors. Under provisions of the California Government Code, the Bonds arc eligible to secure deposits of public moneys in California.

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BAI\K QUALIFIED

The District has determined that the Bonds are "qualified tax-exempt obligations" within the meaning of Section 265(b )(3)(ii) of the Code such that, in the case of certain financial institutions (within the meaning of Section 265(b )(3)( ii) of the Code), a deduction for federal income tax purposes is allowed for 80 percent of that portion of such financial institution's interest expenses allocable to interest payable with respect to the Bonds.

UNDERWRITING

The Bonds are being purchased by RBC Dain Rauscher Inc. doing business under the trade name RBC Capital Markets (the "Underwriter"). The Underwriter has agreed, subject to certain conditions, to purchase the Bonds for a purchase price of S5,642,296.93, which represents the initial principal or issue amount of the Bonds, plus original issue premium on the Bonds, less Underwriter's discount, and less costs of issuance and bond insurance premium. The purchase agreement relating to the Bonds provides that the Underwriter will purchase all of the Bonds if any arc purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in the purchase agreement, the approval of ce11ain legal matters by counsel and certain other conditions.

The Underwriter may offer and sell the Bonds to certain dealers and others at prices lower than the offering price stated on the cover page. The offering prices may be changed from time to time by the Underwriter.

RATINGS

Moody's Investors Service and Standard & Poor's have assi!,'llCd the Bonds the ratings of "Aaa" and "AAA," respectively, based on the issuance of the Policy. Such ratings reflect only the view of such rating agencies and were issued with the understanding that simultaneously with the delivery of the Bonds, a policy insuring the payment of that portion of the principal of and interest on the Bonds which has become due for payment, but shall be unpaid by reason of nonpayment when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Bonds by the Insurer. Any explanation of the significance of the ratings may be obtained by contacting: Moody's Investors Service, 99 Church Street, J\icw York, New York 10007, telephone: (212) 553-0300 or Standard & Poor's, 55 Water Street, New York, NY 10041, telephone: (212) 208-8000. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by such rating agencies if, in the judgment of such rating agencies, circumstances so warrant. Any such downward revision or withdrawal of any such rating may have an adverse effect on the market price of the Bonds.

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MISCELLANEOUS

References arc made herein to certain documents and reports which arc brief summaries thereof which do not purport to be complete or definitive and reference is made to such documents and reports for full and complete statements of the contents thereof. Copies of the District Resolution arc available upon request from the oflicc of the Superintendent, Alisal Union School District, 1205 East Market Street, Salinas, California 93905. The District may impose a charge for copying, mailing and handling.

Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the District and the purchasers or Owners of any of the Bonds.

Certain data contained herein has been taken or constructed from District records. Appropriate District officials, acting in their official capacities, have reviewed this Official Statement and have determined that, as of the date hereof, the infonnation contained herein is, to the best of their knowledge and belief, true and correct in all material respects and docs not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made herein, in light of the circumstances under which they were made, not misleading. This Official Statement has been approved by the District.

ALISAL UNION SCHOOL DISTRICT

By /s/ Ruben Pulidoc__ ________ _

Supcrintcndent

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[THIS PAGE INTENTIONALLY LEFT BLANK]

APPENDIX A

FINANCIAL AND DEMOGRAPHIC 11\FORMATIOI\ RELATING TO THE DISTRICT

District Organization

The Alisa[ Union School District, formed in l 934, provides kindergarten through sixth grade educational services to residents in Monterey County, California. The District operates eleven elementary schools. Most of the District's residents arc located within the City of Salinas (the '"City"), and the area encompassed by the District comprises a large portion of the Ci1y. The economic infonnation relating to the City, as set forth below, provides the most relevant information pertaining to the District; however, the infonnation should not be construed as indicative of the economic conditions of the District in all circumstances.

Governing Board

The District is governed by an independent Board of Trustees (the "Board"). The Board consists of 5 members who arc elected at large to overlapping four-year tcnns at elections held every two years. The current Board members are as follows:

Trustee Term Expires

Guadalupe Ruiz-Gilpas Gary Karnes

President Vice-President

Member Member Member

December 2009 December 2009 December 2007 December 2007 December 2007

Juan V. Flores Jesus Velasquez Jose Castaneda

Key Personnel

The following is a listing of the key personnel of the District:

Ruben Pulido Rebecca Salinas Robert Guillen Nancy Pfcitfor

Superintendent Assistant Superintendent, Educational and Support Services

Deputy Superintendent, Business and Operations (CBO) Director of fiscal Services

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District Growth

The District has experienced only slight student enrollment fluctuation in the past several years with an overall decrease in the last five years. The table below sets forth the enrollment as of October of each year for the District for the fiscal years 200 I through 2006.

ALISAL UNIOI\ SCHOOL DISTRICT K-12 Cumulative Enrollment

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

2001 through 2006

Enrollment (as of October of Each Y car)

7,926 7,940 7,826 7,850 7,623 7,377

Source: The District.

Education

The average daily attendance (""ADA") for the most recent five-year period and a projection for the current year is reported in the following table:

ALISAL UNION SCHOOL DISTRICT Average Daily Attendance and Revenue Limit for

Fiscal Years 2000-01 through 2005-06

A veragc Daily Revenue Limit Fiscal Year Attendance Per ADA

2000-01 7,388 4.257.89 2001-02 7,427 4,424.89 2002-03 7,420 4.513.89 2003-04 7,460 4,589.89 2004-05ill 7.2 IO 4,731.40 2005-06°' 7,114 4,933.40

(l) Docs not include excused absences for this fiscal year. (2) d Projectc . Source: The District.

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Facilities and Personnel

The District's facilities cun-cntly include eleven elementary schools. District employment consists of approximately 403 certificated (including management) and 257 classified employees, including part-time personnel. The pupil-teacher ratio fiJr Fiscal Year 2005-06 is 20:1 (for K-3) and 31:J (for Grades 4- 6).

Significant Accounting Policies and Audited Financial Statements

The California State Department of Education imposes by law uniform financial reporting and budgeting requirements for K-12 school districts. Financial transactions arc accounted for in accordance with the California School Accounting Manual. Vavrinek, Trine, Day & Co., LLP, Rancho Cucamonga, California, serve as independent auditors to the District and excerpts of their report for Fiscal Year Ended June 30, 2004 arc attached hereto as APPEJ\DIX B. The District has not sought consent of the auditors for inclusion of the audited financial statements herein.

California Assembly Bill 1200 ("A.B. 1200"), effective January I, 1992. tightened the budget development process and interim financial reporting for school districts, enhancing the authority of the county schools superintendents' offices and establishing guidelines for emergency State aid apportionments. Many provisions affect District operations directly, while others create a foundation from which outside authorities (primarily state and county school officials) may impose actions on the District. Under the provisions of A.B. 1200. each school district is required to file interim certifications with the county office of education as to its ability to meet its financial obligations for the remainder of the thcn-cun-ent fiscal year and, based on cun-ent forecasts, for the subsequent fiscal year. The county office of education reviews the certification and issues either a positive, negative or qualified certification. A positive certification is assigned to any school district that will meet its financial obligations for the eun-ent fiscal year and subsequent two fiscal years. A negative certification is assigned to any school district that will be unable to meet its financial obligations for the remainder of the fiscal year or subsequent fiscal year. A qualified certification is assigned to any school district that may not meet its financial obligations for the current fiscal year or two subsequent fiscal years. Each certification is based on thcn-cun-ent projections. The District currently holds a positive certification from the Monterey County Office of Education for its budget submissions, and has not received a negative dete1mination with respect to any of its certifications in the past.

Independently audited financial reports arc prepared annually in conformity with generally accepted accounting principles for educational institutions. The annual audit report is generally available about six months after the June 30 close of each fiscal year. For the District's most recent available audited financial statements, see APPENDIX B.

The following table contains accounting data abstracted from financial statements prepared by the District's independent auditors, Vavrinek, Trine, Day & Co., LLP, Rancho Cucamonga, California.

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ALISAL UNION SCHOOL DISTRICT OF MONTEREY COUNTY Statement of General Fund Revenues and Expenditures

Income bv Source

Revenue Limit Federal Revenue Other State Other Local

Total Revenues

Expenditures

Certificated Salaries Classified Salaries Employee Benefits Books and Supplies Services and Other Expenses Other Outgoing Capital Outlay Debt Service Payments

Total Expenditures

Interfund Transfers

Excess (Deficiency) of Revenues Over Expenditures

Add Fiscal Y car Beginning

Fiscal Y car Ending Balance

Sourct:: Alisal lJnion School District.

and Changes in Fund Balances (Fiscal Years Ending June 30)

2002 (Audited)

$34,000,229 5,901,758

12,125,566 3,435,598

$55,463, 151

$29,474,855 6.090.761

I 0,823,989 3,445,828 2,907,370 1,702,689

I 05.078 51.254

$54.601,824

-0-

$ 631.327

$ 5.457.133

$ 6,0li8,460

2003 (Audited)

$34,854,510 7,311.683

11,549,919 --1,936 734

$56,652,846

$28,815, l 99 6,251,056

I l,708,139 4,249,245 3,723,573 1.794,110

169,818

$56,711,140

-0-

$ (288,294)

$ 6.088 460

$ 5 800 166

Beginning in the fiscal year ended June 30, 2003, the District implemented Government Accounting Standard Board Statements No. 34, 37 and 38. Among the changes implemented under these revised accounting rules is a change in the presentation of the General Fund expenditures. While historical total revenue and expenditures figures are comparably consistent to the figures for prior fiscal years, the categorical breakdown of revenues and expenditures is different for the revised accounting formats. The following table reflects the District's General Fund financial data for fiscal year 2003-04 under the revised reporting format:

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ALISAL UNION SCHOOL DISTRICT OF MONTEREY COUNTY Statement of General Fund Revenues, Exprnditurcs and

Changes in Fund Balances for the Year Ended .June 30, 2004

REVENUES Revenue Limit Sources F cdcral Sources Other S1a1c Sources Other Local Sources

Total Revenues

EXPENDITURES Current

Instruction Instruction-Related Activities:

Supervision of lnstruc1ion Instructional Library Media and Technology School Site Administration

Pupil Services: Home-to-School Transportation Food Services All Other Pupil Services

General Administration: All Other General Administration

Plant Services Facility Acquisition and Construction Ancillary Services Other Outgo

Total Expenditures

Excess (Deficiency) ofRcvenucs Over Expenditures Other Financing Sources (Uses):

Transfers in Transfers out

Net Financing Sources (Uses)

l\'ET CHANGE IN FUND BALANCES Fund Balance - Beginning Fund Balance - Ending

Source: Ali::.al L: nion School District.

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2004 (Audited)

$33.839.390 7,551,049 8.441.986 3.300.179

S.SJ, IJ:U:i04

534.206.218

2.452.345 715,804

2,996.011

281.954 -0-

2,973,008

2,698,130 4.414,356

32,111 1,778

2,921,825 $53 ti93,54Q

(560.936)

-0-(341.211) (341,211)

(902,147) 5,800,166

$4,898.019

As of the date hereof, the District had not received its audited financial statements for fiscal year ended June 30, 2005. The District expects to complete the 2004-05 audit by the end of January 2006. The District's 2004-05 unaudited actual results and 2005-06 First Interim Report arc presented in the table below and do not reflect the revised reporting fonnat described above as they have not been audited.

ALISAL UNION SCHOOL DISTRICT OF MOI\TEREY COUNTY Statement of General Fund Revenues and Expenditures

and Changes in Fund Balances (Fiscal Year Ending June 30)

Income bv Source

Revenue Limit Federal Revenue Other State Other Local

Total Revenues

Expenditures

Certificated Salaries Classified Salaries Employee Benefits Books and Supplies Services and Other Expenses Other Outgoing Capital Outlay Direct Supportilndirect Costs

Total Expenditures

lntcrfund Transfers

Excess (Deficiency) of Revenues Over Expenditures

Add Fiscal Year Beginning

Fiscal Year Ending Balance

2005 (Unaudited)

$35,275,869 8,588,265

10,188,953 3 686 719

$57,739,805

$27,350,585 6,039,144

11,998,652 3,074,396 3,860,616 3,262,927

47,149 (147,877)

$55,485,593

$ (700,000)

$ 1,554,212

$ 4 898 020

S 6,452,232

2005-06 First Interim Report

$36,027,662 11,092,851 10, 746,277 4,368 650

$62,235,441

$28.003,465 8,001,406

13,224,014 5,691,550 5,214,304 4,252,087

377,737 (254,878)

$64,509,685

$ (587,288)

$(2,861,533)

$ 6,452,232

$J,59Q,1QQ

Source: Al isal Union School District

District Budget

State law requires school districts to maintain a balanced budget in each fiscal year. The State Department of Education imposes a uniform budgeting and accounting format for school districts.

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Under current law, a school district's governing board must file with the county superintendent of schools a tentative budget by July I in each fiscal year and an adopted budget by September 8 of each fiscal year, Alier approval of the adopted budget, the school district's administration may submit budget revisions for governing board approval.

School districts in California must also conduct a review of their budgets according to certain standards and criteria established by the State Department of Education. A written explanation must be provided for any clement in the budget that docs not meet the established standards and criteria. The district superintendent or designee must certify that such a review has been conducted and the certification, together with the budget review checklist and a written narrative, must accompany the budget when it is submitted to the governing board for approval. The balanced budget requirement makes appropriations reductions necessary to offset any revenue shortfalls.

Furthermore. county superintendent of schools offices arc required to review district budgets, complete the budget review checklist and conduct an analysis of any budget item that docs not meet the established standards. A copy of the completed checklist, together with any comments or recommendations, must be provided to the district and its governing board hy November I. By November 30, every district must have an adopted and approved budget, or the county superintendent of schools will impose one.

Soun:e:

Presented below arc the District's Adopted Budgets for Fiscal Years 2004-05 and 2005-06.

Alisal Union School District General Fund Budgets

Fiscal Y cars 2004-05 and 2005-06

Revenue: Revenue Limit Sources Federal Revenue Other State Revenue Other Local Revenue

Total Revenue

Expenditures: Certificated Salaries Classified Salaries Employee Benefits Books and Supplies Services, Other Operating Expenses Capital Outlay Other Outgo Indirect/Direct Support Costs Total Expenditures

Other Financing Sources/Uses Net Increase (Decrease) in Fund Balance Ending Balance, June 30

The DistricL

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Adopted Budget 2004-05

$35,320,291 8,843,506

10,983,383 3 685 962

$58,833,143

$29,083, 782 6,561,398

12.802,858 3,915,745 4,119,204

35,984 3,852,831

(45,580) S60,417,381

$ ( 3 00, 000) $ ( 1,884,238) $ 3.013.782

Adopted Budget 2005-06

$35,847,640 9,598,771 8,766,651 3902124

$58,117.186

$27,234,891 6,829,378

12,969,026 3,577,680 4,677,612

-0-4,252,081 (254,685)

$59,285,988

$ (950,000) $ (2, l 18,802) $ 2.165.532

Collective Bargaining

The District had a contract with the Alisa] Teachers Association ("AT A") through July I, 2002 through July 30, 2003 and is currently in negotiation with the AT A to renew the contract. In addition, the District currently is in negotiations with the California School Employees Association ("CSEA"). The prior contract for the CSEA was for the period July I, 200 I - June 30, 2004. The AT A and the CSEA arc the only bargaining units of the District. The AT A represents approximately 254 employees of the District and the CSEA represents approximately 235 classified employees of the District. 251 of the District's substitute teachers are represented by the United Substitute Teachers Association and 417 employees of the District arc not represented by bargaining units.

Assessed Valuation

As required by State law, the District utilizes the services of the County for the assessment and collection of taxes for District purposes. District taxes arc collected at the same time and on the same tax rolls as arc County, City and other special district taxes.

California law exempts $7,000 of the full cash value of an owner-occupied dwelling, but this exemption does not result in any loss of revenue to local entities, since an amount equivalent to the taxes which would have been payable on such exempt values is paid by the State.

The law provides, among other things, for accelerated recognition and taxation of increases in real property assessed valuation upon change in ownership of property or completion of new construction. Accordingly, each K-12 school district is to receive, on a timely basis and in proportion to its ADA, allocations of revenue from such accelerated taxation remaining after allocations to each redevelopment agency in the county and, in accordance with various apportionment factors, to the county, the county superintendent of schools, each community college district, each city and each special district within the county.

In fiscal year 2005-06, the District's total net secured and unsecured assessed valuation before redevelopment increment is $2,438,037,912. Shown in the following table is the net assessed valuation of property in the District over the past five fiscal years.

2001-02 2002-03 2003-04 2004-05 2005-06

Local Secured $1,424,333,937

1,626, 728,042 1,800,250,060 2,052,521,829 2,393,067,079

Alisal Union School District Historical Assessed Valuations

Fiscal Y cars 2001-02 through 2005-06 (full cash value, rounded)

Utilitv $37,107

35,800 44,600 54,164 50,926

Unsecured $26591,761 24,709,731 25, 144, 152 29,567,826 44,919,907

Total Before Redevelopment

Increment S 1,450,962,805

1,651,473,573 1.825,438,812 2,082, 143,819 2,438,037,912

Source: CalifOmia Municipal Statistic:., Inc.

Total After Redevelopment

Increment $1,424,685, 193

1,624,574,299 1,796,578,729 2,051,680.345 2,403,619,312

Economic and other factors beyond the District's control, such as economic recession, deflation of land values, a relocation out of the District or financial difficulty or bankruptcy by one or more major

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property taxpayers. or the complete or partial destruction of taxable property caused by. among other eventualities, earthquake. flood or other natural disaster. could cause a reduction in the assessed value of taxable property in the District and. all other factors being equal, necessitate a corresponding increase in the annual tax rate applied with respect to general obligation bonds issued by the District.

Tax Rates, 1,evics, Collections and Dl'linqucncics

Taxes arc levied for each fiscal year on taxable real and personal property as of the preceding January I. Real property which changes ownership or is newly constructed is revalued at the time the change occurs or the construction is completed. The current year property tax rate is applied to the reassessed value, and the taxes arc then adjusted by a proration factor that reflects the portion of the rcmainlng tax year for \vhich taxes arc due. The annual tax rate is based on the amount necessary to pay all obligations payable from ad valorcm taxes and the assessed value of taxable property in a given year. Economic and other factors beyond the District's control. such as a general market decline in land values, reclassification of property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by State and local agencies and property used for qualified educational, hospital, charitable or religious purposes), or the complete or pat1ial destruction of taxable property caused by natural or manmade disaster. such as cat1hquake, flood, toxic dumping. etc., could cause a reduction in the assessed value of taxable propet1y within the District and necessitate a corresponding increase in the annual tax rate to be levied to pay the principal and Maturity Amount of and interest on the 13onds.

For assessment and collection purposes, property is classified either as "secured" or ''unsecured" and is listed accordingly on separate parts or the assessment roll. The "secured roll" is that part of the assessment roll containing real property the taxes on which arc a lien sufficient. in the opinion of the County Assessor, to secure payment of the taxes. Other property is assessed on the "unsecured roll."

Property taxes on the secured roll arc due in two installments, on November I and February I of each fiscal year, and become delinquent on December 10 and April I 0, respectively. A penalty of ten percent attaches immediately to all delinquent payments. Properties on the secured roll with respect to which taxes arc delinquent become tax defaulted on or about June 30 of the fiscal year. Such property may thcrcaticr be redeemed by payment of a penalty of 1.5% per month to the time of redemption, plus costs and a redemption fee. If taxes arc unpaid for a period of five years or more, the property is deeded to the State and then may be sold at public auction by the County Treasurer and Tax Collector.

Property taxes on the unsecured roll arc due as of the January I lien dates and become delinquent on August 31. A ten percent penalty attaches to delinquent unsecured taxes. If unsecured taxes arc unpaid at 5 p.m. on October 31, an additional penalty of 1.5% attaches to them on the first day of each month until paid. The County has four ways of collecting delinquent unsecured personal property taxes: (I) a civil action against the taxpayer; (2) filing a judgment in the office of the County Clerk specifying certain facts in order to obtain a lien on certain prope11y of the taxpayer; (3) filing a certificate of delinquency for record in the County Recorder's office in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee.

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The following table shows the secured taxes levied by the District during the last five fiscal years. together with the total amounts of collections, delinquencies and percentages of delinquencies with respect to taxes collected as of .June 30 of each fiscal year.

r II

Fiscal \'ear

2000-01 2001-02 2002-03 2003-04

Alisa( Union School District Secured Tax Charges and Delinquencies

Fiscal Years 2000-01 through 2003-04

Secured Tax Charge'''

S3,430,740.00 3,967.356.00 4,529,523.00 5,016.398.00

Amt. Del. June 30

$43,877.76 59.428.90 71.427.09 61,807.30

I% General Fund apponionment. Source: CalifOrnia Municipal Stat1stit:s. Inc.

%Del. June 30

1.28°/ci 1.511 1.58 1.23

The following table shows the typical tax rates levied in the District for each of the last five years.

Alisal Union School District Typical Total Tax Rates

Fiscal Years 2000-01 through 2004-05

2000-01 2001-02 2002-03

General 1.00000 1.00000 1.00000 Alisa! Union School District .08070 .07000 .06573 Salinas Union High School District .03842 Hartnell Community College District

Total All Propcny 1.08070 1.07000 1.10415

Monterey County Water Resources Agency. Zone 2A .00329

Total Land and Improvement .00329

2003-04 2004-05

1.00000 1.00000 .06457 .05898 .05877 .04312 .01737 .01862

1.14071 1.12072

The following table shows the twenty largest local secured taxpayers m the District for the 2005-06 fiscal year.

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Alisa( Union School District Largest 2005-06 Local Secured Taxpayers

2005-06 Property Owner Land Use 1\sscssed \l aluation

I. Crcckbridgc Apartments-Salinas LLC Apartn1cnts 2. Crcckbridgc Village LLC Shopping Center 3. Donahue Schriber Realty Group LP C'on1n1crcial Store 4. Creckbridgc Office Center LLC Otrice fluilding 5. Foley lnvcstlncnts LP :\part1ncnts 6. Fd\vard and E vcl ina Marie Silva Agricultural 7. Willia1n \V. and Peggy 1\nn llarder Apa11n1cnts 8. VCH-Salinas I LLC Residential Properties 9. Ja1ncs G. Skanbcrg Agricultural 10. Tanimura & Antle Partnership Agricultural I I. Sanborn Boronda I.LC Residential Properties 12. Oella Salinas LLC Food Processing 13. A WC Holdings Trust \Yater Services 14. Wesley~- and Janice M. Callahan Apartn1ents 15. Creckbridgc Homebuilders LLC Residential Properties 16. Mountain Valley Center LLC Shopping Center 17. i'vtatsui Nursery Inc. Co1nn1crcial Nursery 18. Andrew C. Smith Food Processing 19. John and Nessie M. Cuda Apart1ncnts 20. Sat Kirtan Singh Khalsa Apartments

''' 2005-06 Local Secured Assessed Valuation: $2,393,067,079 Source: California Municipal Statistics, Inc.

Retirement Systems

s 25,942,520 18,642,214 18,392,221 7,488,273 6,429,585 5.844,642 5.809,349 5,792,403 5,698,662 5.322,042 4,654,916 4.335.028 4,330,047 4,261,6 72 4,208.588 4.015.134 3.906,074 3.827,837 3,762,205 3.601.389

$146.264.801

0/o of Total'"

I .08~:;1 0.78 0.77 0.31 0.27 0.24 0.24 0.24 0.24 0.22 0.19 0.18 0.18 0.18 0.18 0.17 0.16 0.16 0.16 0.15 6. l l o/o

The District participates in the State Teachers' Retirement System ("STRS"). This plan basically covers all full-time certificated and some classified District employees. The District's employer contribution to STRS was $2.306, 187 for Fiscal Y car 2002-03 and $2, 161,109 for Fiscal Y car 2003-04. The District's unaudited employer contribution to STRS for Fiscal Year 2004-05 was $2,167,720.

The District also participates in the State Public Employees' Retirement System ("CalPERS"). This plan covers all classified personnel who arc employed four or more hours per day. The District's employer contribution to CalPERS was $559, 937 for Fiscal Y car 2002-03 and $1,013,340 for Fiscal Y car 2003-04. The District's unaudited employer contribution to CalPERS for Fiscal Year 2004-05 was $984,773.

Both CalPERS and STRS arc operated on a statewide basis and, based on available information, STRS has unfunded liabilities, while Ca!PERS has net assets available in excess of total pension/award benefit obligations. (Additional fimding of STRS hy the State and the inclusion of adjustments to such State contributions based on consumer price changes were provided for in 1979 Statutes, Chapter 282.) The amounts of the pension/award benefit oh ligation (CalPERS) or actuarially accrued liability (STRS) will vary from time to time depending upon actuarial assumptions, rates of retum on investments. salary scales. and levels of contribution. The District is unable to predict what the amount of liabilities will be in the future, or the amount of the contributions which the District may be required to make.

A-11

The District is a member of the Monterey County Schools Insurance Group ("'MCSIG"). MCSJG has submitted a request for bids for the conduct of an actuarial study to address the new GASB 45 requirements pertaining to the valuation of post-employment health benefits. The District will be obtaining services necessary to comply with GASB 45 from the contractor that is awarded the MCSIG contract.

Insurance

The District participates in three self-insurance joint powers agreement entities for comprehensive property and liability, workers' compensation, and health and welfare benefits insurance purposes. The Monterey County Schools Property/Liability Self Insurance Authority provides liability insurance for its member school districts. The Monterey County School Workers' Compensation Joint Powers Authority provides workers compensation insurance to its member school districts in a plan administered by Keenan & Associates as third party administrator. The District also participates in the Monterey County Schools Insurance Group for health and welfare insurance benefits for District employees including medical, dental, vision and life insurance. The District pays a premium for such insurance commensurate with the level of coverage requested, its prior year experience and certain other required contributions. The District believes that its current coverages arc adequate.

District Debt

Set forth below is a direct and overlapping debt report (the "Debt Report") prepared by California Municipal Statistics Inc. and dated December I, 2005. The Debt Report is included for general information purposes only. The District has not reviewed the Debt Report for completeness or accuracy and makes no representations in connection therewith. The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the District. Such long-term obligations generally arc not payable from revenues of the District (except as indicated) nor arc they necessarily obligations secured by land within the District. In many cases, long-term obligations issued by a public agency arc payable only from the general fond or other revenues of such public agency.

The first column in the table identifies each public agency that has outstanding debt as of the date of the report and whose territory overlaps the District in whole or in part. The column headed "% Applicable" shows the percentage of each overlapping agency's assessed value located within the boundaries of the District. This percentage, multiplied by the total outstanding debt of each overlapping agency (which is not shown in the table) produces the amount set for the under the heading "Debt 12/li05," which is the apportionment of each overlapping agency's outstanding debt to taxable property in the District.

A-12

Alisa I Union School District Schedule of Direct and Overlapping Bonded Debt

2005-06 Assessed Valuation: Ilcdcvclop1ncnt Incremental Valuation: Adjusted Assessed Valuation:

$2.438.()3 7, 912 34.418 600

$2.403,619,312

DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: llartnell Joint Community College District Salinas Union I-ligh School District Salinas Union I-ligh School District School Facilities Improvc1ncnt District Alisal Union School District l'ity of Salinas 1915 Act Bonds (Estimated) TOT AL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT

OVERLAPPING GENERAL FUND DEBT: Monterey County General Fund Obligation Monterey County Judgn1cnt Obligations I Iartncll Joint ('onnnunity ('ollcgc District ('crtificatcs of Participation Salinas Union lligh School District ('crti ficatcs of Participation City of Salinas General Fund Obligations Monterey Bay Unified Air Pollution Control Authority TOT AL OVERLAPPING GENERAL FCND DEBT

COMBINED TOT AL DEBT

(Ii Excludes general obligation bonds to be sold.

(x) i\pplicabl<; I 2.382(YO 19.247 32.122

100, 45.234-100.

5.755~,;) 5.755

12.382 19.247 25.844

3.335

Debt 12/ 1/05 S 4.028,239

6.206, 195 8.688,657

24, 944,669 ( I ) 14.231 277

$58,099.037

$ 9,491,722 350.767 292.215

I, 709.134 13.327,75 l

116 558 $25.288,147

$83,387,184 (2)

(]) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations.

Ratios to 2005-06 Assessed Valuation: Direct Debt ($24, 944,669) ........................................................ , 1.02% Total Direct and Overlapping Tax and Assesstncnt Debt. ........... 2.38o/o

Ratios to Adjusted Assessed Valuation: (~ombincd Total l)cbt ............................................... ·-············· 3.47°/o

STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/05: SO

Source: California l'vfunicipal Statistics, lnc.

A-13

Recent and Future Financings

General Obligation Bond;.: The District has conducted general ohligation bond elections in two previous years, l 990 and l 999, both of which were passed by more than 2/3 of the voters. As of June 30, 2005, the District has $9,824,669.80 of its 1990 election general obligation bonds outstanding, and has previously issued $15,900,000 aggregate principal amount of general obligation bonds under the 1999 election, $15, 120,000 of which was outstanding as of June 30, 2005. There is no remaining authorization under the District's 1990 election. Upon the issuance of the Bonds, the District is authorized to issue an additional $3,600,003.40 aggregate principal amount of general obligation bonds under its 1999 election.

The District is subject to a statutory limit of outstanding bonded indebtedness of 1.25% of the District's assessed valuation. Subsequent to the issuance of the Bonds, the District will have reached that statutory limit. In order to provide funds necessary for the completion of certain District facilities cmTently under construction, the District is in the process of applying to the California State Board of Education for a waiver of its maximum bonding capacity. If granted. the District would be able to issue the remaining authorization under the 1999 election prior to the 2006-07 assessed valuation being released in the fall of 2006 and finance the necessary facilities in early 2006.

Cash-Flow Borrowings. The District did not issue tax and revenue anticipation notes during the 2004-05 Fiscal Year to meet its short-term cash flow needs and docs not plan to issue tax and revenue anticipation notes during the 2005-06 Fiscal Y car.

Qualified Zone AcademJ' Bonds, The District issued $5,577,000 aggregate principal amount of qualified zone academy bonds ("QZABS") in December, 2005 with a term of 15 years. The District will not be required to pay interest on the QZABs but rather owners of the QZABs will receive an income tax credit equal to the qualified zone academy bond rate. In connection with the QZABs, the District will enter into a partnership with Learn.com. Learn.com will make a contribution to the District valued al al least 10% of the principal amount of the QZABs.

Population

The population of the City, the County and the State is set forth in the following table.

Calendar Year

2001 2002 2003 2004 2005

Source: California Department of Finance.

POPULATION OF CITY, COUNTY ANO STATE

City of Monterey Salinas Countv

146,300 405,200 148,200 410.500 149,700 415,500 152,200 421.400 152,677 425, I 02

A-14

State

34,431,000 35,049,000 35,612,000 36, 144,000 36,810,358

Taxable Sales

The taxable sales by type of business in the City for Fiscal Year 2002-03, the most recent completed year for which data is available, arc set fo11h below:

Tvpc of Business

Apparel Stores General Merchandise Food Stores Eating and Drinking Establishments Home Furnishing and Appliances Bldg. Materials and Fann Implements Auto Dealers and Supplies Service Stations Other Retail Stores All Other Outlets Total All Outlets

Soun:c: California Board of Equalization.

Major Employers

Taxable Sales

S 69,399,000 311,885,000

93.161.000 144,351,000 71.285,000

242, 181,000 348.097.000 l l 7,623,000 167,286,000 363 453 000

$1,928 66 l,OJ1ll

The top ten major employers for the Salinas Valley arc set forth below:

Company

Dole Fresh Vegetables County of Monterey Tanimura and Antle, Inc. Naval Postgraduate School Escamilla and Sons, Inc. Salinas Valley Mc1noria1 Healthcare D' Arrigo Brothers Company Fresh Express CDC Correctional Training Facility Household Credit Services

Source: Salinas Valley Chamber ofCon1merce.

Product/Service

Agricultural Government Agricultural Education Agricultural tlcalthcare Agricultural Food Processing Government Financial

A-15

% of Total

3.591Yo 16.17%, 4.83% 7.48% 3.69{!0

12.55{X) 18.04% 6.09% 8.67%,

18.84% I 00.00°;,

Approximate No. of Emplovecs

4,700 4,435 3,000 2.600 2,060 1,900 1,700 1,650 1,531 1,526

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APPEI\DIX B

SELECTED INFORMATION FROM AUDITED FINANCIAL STATEMEI\TS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2004

B-1

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AusALUNION SCHOOL DISTRICT

ANNlJAL FINANCIAL REl>oRT

JUNE 30, 2004

This PllJle left blllnk intmtionally.

MEMBER

Jesus "Jesse" Velasquez

Gary Karnes

Juan V. Flores

Guadalupe R.uiz-Gilpas

Jose Castaneda

Mr. Ruben H. Pulido

Mr. Robert Guillen

ALISAL UNION SCHOOL DISTRICT

OF MONTEREY COUNTY

SAUNAS, CALD'ORNIA

JUNE 30, .2004

GOVERNING BOARD

OFFICE

President

Vice President

Member

Member

Mcmbe:r

ADMINISTRATION

ORGANIZATION

TERM EXPIRES

2007

2005

2005

2005

2005

Superintelldent

Deputy Superintendent

The Alisa! Union School District was established in 1934 and is comprised of an area of approximately 160

square miles located in Monterey County. There wen, no changes in the boundaries of the District during the

CUITCnt year. The District operates eleven elementary schools.

This page left blllnk inuntianally.

ALISAL UNION SCHOOL DISTRICT

T .ABU OF CONTENTS JUNE 30, 2tD4

FINANCLU.SECTION lndependm Awtilors' hport 2 ~-Plscllssloo lllld Allalysfs 4 Bail: Fizimlc:lal SW-em

Gowimmad,Wldll Finaflcial .SIIIIIDllll18 Sllrttoumt afN« Anelll 11 Stimne:ot of Aolivtties 12

Pand Flnanoial S...lmti aow.rmnem.t l"mlds • Babuic,~ ShMt 13 OoveOiniMl!d Flllldl • R.cx:oooiliatiOll of the Oovc,ramental Funds Belance Sbffl ID the Sr,lrenleat ofNet .A.....i. l4

G<Mll'lllrlQIJla Rinds • Slatement ofhvenuos, P..xpencllll1*, aild CbG8"5 ill Flllld Balallce 15 Heooar:ililllioo of1hc ~ Pwids Stltrment of~ua, ~ and Cllllip in Flllld Balaocea to Che Districl-Widtr Slatanmt af Aetililies 16

Flduc:!my FllDda • Sta• 11lll'lt of Net As1om 17 Nolllll to JI~ S1llfllmoDtl HI

This page left 6lank intentionlllly.

FINANCIAL SECTION

1

Tldr page kft blanl intmtlo1Utlly.

{fffll

Board of Trustees Alisal Union ~boo! District Salinas, California

Va11inet, Trine, Day & C11., LlP VALU[ THE blFFERENCE

Cettill1d Public Accountants & Cl!noullants

INDEPENDENT AUDITORS' REPORT

We have audited the BllCOmpanying financial statements of the governmental activities, each major t\lnd, and the aggregm remaining fnnd information of the District, as of and for the year onded June JO, 2004, whidt collectively comprise the District's basic financial statements as listed in the table of contents. These flllllllcial statements an the responsibility of the District's management Our responsibilit¥ is to express opinions on these financial &1lltcments based on our audit.

We conducted OW' lllldit in acc:ordarn;o with auditing standards geneBlly accepted in the United States of America, the standards applicable to financial audits contained .in Governmenr .Auditing Sumdards, issued by the Comptroller General of the United States, am! Standard.$ a11d Proceriure8for Audits qf California K-12 Local Educaliona!Agencies, prescribed by the State Controller. Thoso 5blndards require that we plan and perform tb.e audit to obtain reasonable IISSUl'lUllle about whether 1he financial statements are free of material misstatement. All audit includes examining. w a test basis, ""idence suppon.ing the lllllOunts 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 overs.II financial statement presentation. We believe that our audit provides a reasonable basis for our opinions.

In our opinion, the fin1111Cial statemcmts refern:d to above present fairly, in all material respocts, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund infomiation of Ille Alisal Unioo School Distrlet. as of June 30, 2004, and the respective changes in financial positions, ther,:of for the year then ended in confomlily with accounting principles generally accepted in tm, United States of America.

In accordance with Govmunent Auditing Sta11darib, ~ have also illSUed our report dated November S, 2004, on our consideration of the District's internal cootrol over :financial reporting and on our tosts of its compliance with certain provisions of laws, regulations, contracts, and gnuits agreemenlll and other :mattel'G. The purpose of that report is to describe the scope of OID' testing ofintemal control over financial rcpotting lllld compliance II.ltd the ~suits of that tc:sting, and not to provide an opinion on the inlffllal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Govemment Audiling Standards and should be considered in asse•sing the results of our audit

2

1J12E: ShJw AYenue, S1ile HI.! lmn•. CA!!3710 lei: 559.248.0$71 falc: 559.24,l.0'15 ....... Vld,p,.cor,

Plti5NO • l.AGUNA HILI.S • PALO ALTO • Pl-lAIANfON • kANCffO CUCAMOtilG.4 • SAN JDSI

The required supplementary information, such as management's discussion and 1111alysis on pages 4 through IO and budgetazy comparison infonnntion on page 42, are not a required part ofthe hlisic fmancial statements, but are supplementary information required by the Governmental Accounting Standards Board (GASB). We have applied certain limited procedures, which C011sistcd principally of inquiries of management regarding the methods of measurement and preseiitation of the I11ljUired supplementary information. However, we did not audit the information and express no opinion on it.

Our audit was conducted for the purpose of fonning opinions on the financial statemcmes that collectively comprise the District's basic financial statements. The other supplementary infunnation list.ed in the table of con1ents, inohlding the Schedule of Expenditures of Federal awards which is required by U.S. om~ of Management and Budget Circular A-133, Audilll of State, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and arc DDt a requm=d part of tho basic :financial statements. Such information has been subjecred to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, ate fairly stated in all material respects in relation lo the basic financial statements taken as a whole.

Vru1~ dnimL, 0~ t Co., LlP . Fresno, California November 5, 2004

3

Al,1~1, UNION SCHOOL i(/l\ DISTRICT

1205 l.iast Mlu:kcl Street Salinas, CA 93905 (831)753·5700 • FAX (831 )753,5757

Bgqrd of Tru!ilees J()$i Castaneda

Juan F/Qre$ Ouadalupe Ruiz-Gilpas

Gary Karnes Jesus l'dlcisquez Superintendent

Ruben Pulit/o

This section of Alisa! Union School District's (comprehensive) annual financial report presents our discussion and anaiysis of the District's financial performance during the fiscal year that ended on June 30, 2004. Please read it in conjunction wil:h the District's financial statements, which immediately fellow this sed:ion. Tbis is our second year of reporting under the GASB 34 format and therefore, comparative infonnation will be presented between the fisi:al years ending Jun,; 30, 2004 flJld 2003, respectively.

OVERVIEW OF 'I'HE FINANCIAL STATEMENTS

The Financial Statements

Tbe financial statements presented heroin include all oftbe w:tivities of the Alis.al Union School District (the Disttict) and its component unit using the integrated approach a.s prescribed by GASB Statt:ment Number 34.

The G()vemmenr-W"lde Financial Statements present the financial pictun: of the District from the economic resources measurement focus 11Sing the accrual basis of accounting. These statements include all assets of the District as well as all liabilities (including long.term debt). Additionally, certain eliminations hltve occurred as pmcrlbed by the statement in regards to interfund activity, payables and receivables.

The Fwzd Financial SIQ/emenl.s include statements for each of the two categories of activities: governmental and fiduciaiy.

The Governmm1al J.cthlilies are prepared using the current financial resources mNSurement focus and modified acctual basis of aacounting.

The tiducia,y activities 1re agency funds, which oaly report a~ sheet and do not have a uwasuremcnt f'o<>us. Reccnciliation of the Fwid Fillancial StaJinn,mts to the Governmcnt-W"ule Financial Statements is provided to explain the differences created by the integrated approach.

The Primary unit of the government is the AliSlll Union Sc:hool District.

REPORTING THE DISTRICT AS A WHOLE

The Statement ofNet Assets pd the Statement of Activities and Changes in Net A'i"AA!

Tbe St(JJemenl oJNel Assets and the Stalemtnl of .Activities and Change.s i11 Ne/ Assets report infonnation about the: District as a whole and abollt its activities. These stammeuts include all assets and liabilities of the District using the accrual basis of accounting. which is similar to the accounting used by most private-sector coinpanies. All of the current year's revenues: wid expenses are taken into account regardless of when cash is received or paid.

4

ALISAL UNION SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 1004

These two statements report the Dislrict's net assets and changes in them. Net IISSets are the difference between assets and liabilities, one way to measure the District's financial·heatth, or fmandal positiun. Over time, illcreoses or decnaaes in the District's net assets are one indicator of whether its fmancial health is illlproving or deteriorating. Other factQrs to consider are chaoge11 in the District's propeny tax base and the condition ofthc:o District's facilities.

The relationship between nwenues and expe~s is the District's operating re.stdts. Sini:e the Board's responsibility is to provide services to our students and not to genenrtc profit as conunm:ia.l entities do, ooe mu.st consider other factors when evaluating the overall heallh of the District. The quality Qfthe education and the safety of our schools will likely be an important component in this evaluation.

ln the Stalemmt of Net Assets and the Statement of Activities and Changes in Net Assets, the District activi'ties are as follows:

Governmeatal aetmttes-Mosl of the District's services are reported in thisllllll!gory. This includes the education of kindergarten through grade eight students, the operation of i:bild development activities. and the on­going effort to improve and maintain buildings and sites. Property taxes, state income taxes, user fees, interest income, federal, state and local grants, as well as general obligation bonds, finance these activities.

REPORTING THI! DISTRICT'S MOST SIGNIFICANT FUNDS

F1111d Fbtancia/ Stqt,gne,zts

The fund financial statements provide detailed information about the most significant flmds • Dot the District as a whole. Some funds are required to be established by Stat.e law and by bond covenants. However, management establishes many other funds to help it control and 1118Jl1111C money .fur particular purposes or to show that it is meeting legal responsibilities for using certain taxes, glllllts, and other money that it receives .liom the U.S. Department of Education.

G(wemmalldfllnfb- Most of the District's basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year.end that are available for sp1111ding. These funds are reported using an accounting method called modifted acC1'1112f accounting, which measures cash and all other financial assets that cao readily be converted to cash. The govemmental fund $Uderneots provide a detailed short-term view of tbc District's general government operations and tbe basic services it provides. Governmental fund information helps detemtlne whether there are more or fewer fmam:ial resources that can be spent in the near future to finance: the District's programs. The differences of mulls in the governmental fund financial statements to those in the government-wide financial statements are explained in a reconciliation following each goverrunental fund fmancial statement.

5

ALISAL UNION SCHOOL DISTRICT

MANAGEMENT'S DISCUSSJON AND ANALYSIS JUNE 30, 2004

THE DISTII.ICT AS TRUSTEE

&porting tire District's Fiduciq,:y Re,wonsibilities

The Pislrict is the trustee, or jimlci.ary, for funds held on behalf of othe:rs, like OID' funds for associated student body activities, and scholarships. The District's fiduciary activities are re.ported in sepamte Statements of Fiduciary Net 11.ssets. We exclude these activities from the District's other financial stalements because the District CUlllot use these assets to fuumc:e its operations. The District is responsible for C11$Uring that the assets reported in these funds arc used for their intended purposes.

THE DISTRICT AS A WHOLE

N.etAssets

The District's net assets were $50.3 million fur the ftslllll ycar ended June 30, 2004, and SS 1.3 million for the fiscal year ended June 30, 2003; a decrease of$1.0 million. Of this amount, $10.2 million was unrestricted. Restricted net assels me reported separately to show legal constraints from debt covenants and enabling lqisJation that limit the School Board's ability to use those net assets for day-to-day operations. Our analysis below focuses on the net assets (Table I) and change in net asaets (J'able 2) of the Dislrict' s governmental activities, for the past two fiscal yean;.

Tablet

(Amounts in millions) Govemmental Activities 2004 2003 Difference

CWTellt and other assets s 21.5 s 24.6 $ (3.1) Capit.al assets 61.3 61.5 !0.22

TotalAsseu 82.8 86.1 {3.3} Current liabilities 8.8 J0.6 (1.8) Long-lerm debt 23.7 24.2 (0.52

Total Liabilities 32.5 34.8 (2.3) Net assets

Invested in capital assets, net of related debt 37.7 37.4 0.3 Restricted 2.4 2.8 (0.4) Unrestricted 10.2 II.I (0.9)

Total Net Assets $ 50..3 s 51.3 s fl.O)

The SI 0.2 million in unrestricted net assets of governmental activities represents the accumulated results of all past years' operations. It means that if we bad to pay off all of our bills roday including all of our non"Capital liabilities (compensated absences IIS an example), we would have $10.2 million left.

6

ALISAL UNION SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2004

Changes in Net Assets

The results of the past two years' opennions for the District as a whole are reported in the Statement of A.cti..,ities on page 12. Table 2 takes the information from the Statement, rounds off the nu:tnbers, and .rearranges them slightly so you Cllll see our total revenues for the pMt two years along with the variance betWeen the two fiscal years.

(Amounts in millions)

Reveu11es Program revenues Cbarps for services

Operating grants and contnoutions Capital gnuits and contributions General revenues:

Staw revenue limit sources Property taxes Other general revenues

Total Revetana Expenses

Instruction related Student support services Administration Maintenance and operations Olhcr

Total Expenses Cllanse bl Net Assets

Tablel

$

$

Governmental Activities 2004 2003

1.0 $ 19.3

22.1 11.6 s.s

59.S

40.2 6.0 2.8 7.3 4.2

60.5 (1.0) s

2.9 19.8

12.2

2.3.2 11.2 7.S

76.S

44.8 6.2 3.3 7.9 3.3

65.5 11.3

Difference

s {l.9)

(O.S) (12.2)

(1.1) 0.4

~-0) (17..3)

(4.6) (0.2) (O.S) (0.6)

Cl.9 {5.0)

s (12..3)

As reported in the Statement qf AclMties on page 12, the cost of all of OtD' gOVC1111111cntal activities this year was $60.5 million as compared to $65.5 million in the prior year, .However, the amount that ®r taxpayer$ ultimately financed for these activities through loeal 1llxes was only $ l l .6 million because the cost was paid by those who benefited from the programs ($19.3 million} or by other governments and organizations who subsidized certain programs with grants and contn'butions (Sl.O million}. We paid for the remaining ''public benefit" portion of our govemmental activities with $11.6 million in taxes, $28.6 million in State fund., and with otlier revenues, like interest and penll entitlements.

7

ALISAL UNION SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2004

In Table 3, -have presented the District's four largest functions· Instruction related. Student support services, Administration, and Maintenance and operations, as well as each program's net cost (total cost less revenues generated by the activities). As discussed above, net cost shows the financial burden that was placed on the Distriet's taxpayers by each of those functions. Providing this information allows our citizens to consider the cost of each :tiulction in QOIUpariscm to the benefits they believe are provided by that function.

Table3

(Dollar amounts in millions)

Instruction related

Total Cost of Services $ 29.]

Student support services Administration Mahltenance and operations Other

0.3 1.4 6.6 2.8

Totals $ 40.2

The District projected a decrease in net assets of approximately $3.0 million. Although revenues were $2.2 million more than expected, expendit'lll'es were not more than originally projected. Approximately $0.9 million of the inorease in revenue is irom the restricted Fi:dera1 grants which are expenditure driven; therefore, there is a corresponding $0.9 million increase in e,q,enditures.

THE DISTRICT'S FUNDS

As the District completed this year, our governmental funds reported a combined fund balance of S 12. 7 million. whidl is a deorcase of$1.3 million from Inst year.

The primary reasons far these decreases 11r11: a. Our General P1111d is our principal operating fund. The fund balance in the General Fund decreased

$0.9 million to $4.9 million. This decrease is due to: l • T11crcase in special education unfunded rnandatcs

b. Our special reVlllllJC funds decreased ftom the prior year ofapproximawly $900,000. c. The debt service funds showed an increase of approximately S:32,000. d. The capital projects fund showed an increase of approximately $4 74,000.

General Fund Budgetary Hilbligh:Js

Over the course of the year, the District revises its budget as it attempts to deal with une,cpected changes in revenues and expenditures. The final amendment to the budget was adopted June 2004. (A schedule showing the District's original and final budget amounts compared with amounts actually paid and received is provided in our annual !'\!port on page 42).

> There were no significant revenue revisions made to the 2003/04 Budget. > There were no significant changes to the Budgeted expenditures.

8

ALISAL UNION SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2004

CAPITAL ASSET & DEBT ADMINISTRATION

Capitql Aasqrs

At June 30, 200:3, the Distril.lt hed $78.9 million in a broad raog11 of caplw assets, including land, buildings; and furniture and equipment. For the cummt year, the total fixed assets totaled $81.0 million. This amount represents a net incmlse (including additions and deductions) of just over $2.1 million, or 2.7 percent, from last year.

Table4

(Amounts in millions) Oovemmentsl Activities 2004 2003 Difference

Land s 16.4 $ 16.4 s Buildings and improvements 63.I 61.0 2.1 Equipment 1.5 1.5

Totals s 81.0 s 78.9 s

Several capital projects arc planned for the 2004-05 year. We anticipate capital additions to be $13 .J million for the 2004,0S year. We preseDt more cll,tailed information about our capital assets in Note 5 to the financial smtemcnts.

Lonv-Term Dehl

At the end ofthili year, the District had $23.7 million in liabilities outstanding versus $242 million last year, a decrease of2.l JJe:cenL Those liabilities consisted of.

(Amounts in millions)

General obligatfon bonds Capitalir.ed lease obligations Other

Totals

TableS

Governmental Activities 2004 2003

s 23.S S 23.7 0.2

0.2 0.3 ...,...--,-""'-$ 23.7 S 24.l

===--== ...... -

Difference $ (0.2)

(0.2) . (0.1)

$ (0.S)

The District's ge11eral obligm.ion bond rating continues to be excellent. The Stam limits the amount of general obligation debt that District's can issue. The District's outstanding general obligation debt of $23 .S million is below this statutorily - imposed limit.

Other obligations include compensated absences payable and o1her long-renn debt. We present more detailed informatioo regarding_ our long-tenn liabilities in Note9 of the financial statements.

9

ALISAL UNION SCHOOL DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSIS .IDNE 30, 2004

ECONOMIC FACTORS AND NEXT YEAli'S BUDGETS AND RATES

1n considering the District l3udget for the 2004/2005 year, the Distriot Board and IJllUUlgcntenl used the following criteria: The key assumptions in our nivenue forecast are:

l. Property tax revenues will be about the same as the prior year. 2. The base revenue limit was increased by 10.0 pcrc:cnt. 3. lnrerest earnings will be about the same as the prior year. 4. Developer fee coll"lltions are based on approximately new housing units to be constructed. 5. Stale income will decn:ase.

CONTA.CTING THB DISTRICT'S FINANCIAL MANAGEMENT

'This financial report is designed I.O provide our citizens, taxpayers, student&, and investors and crediton with a general overview of the District's finances and to show the District's accountability for the money it receives. If you have questions about this report or need any additional financial information contact Alisa! Union School Distt:ict, 1205 E. Market Street, Salinu. Califomia. 93905.

10

This pap left blank lntentianally.

ALISAL UNION SCHOOL DISTRICT

STATEMENf OF NET ASSETS JUNE 30, 2004

Assets Deposits and investments Receivables Stores inventories Capital assets

Land and construetion in process ~ capital assets

Less: Accumulated depreciation Total capital assets Total Assets

Liabilities Accounts payable Deferred revenue Long-term liabilities

Cummt portion of long-tllmt obligations Noncur:rent portion of Jong-mnn obligations

Tot.al long-term liabilities Total Uabilities

Net Assets lnvested in capital assets,. net of related debt Rlmricted for:

Debtsemce Educational programs

Unrestrieled Total Net As1ct11

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

ll

Govemmental Activiiia

$ 14,461,750 6,819,063

221,34!

16,377,244 64,570,010

(19,656,740) 61,290,514 !Z,792,66&

7,089,022 1,677,531

1,149,904 22,560,996 23,710,900 32,477,503

37,771,219

1,146,506 1,219,905

J0,177.535 $ 50,315,165

ALISAL UNION SCHOOL DISTRICT

STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2004

Fnnctions/Proimuns Governmtat1l Acttritiea: Instruction Instruction-related activities:

Supervision of instruction lnstnu:tional h"brary, medi11 and technology School site adminiSlralion

Pupil servic:cs: Home-to-school ttansponatiOD

Food services All other pupil services

General administration: All other general administration

Plant ser\lices Amallmy services Interest on long-tenn debt Other outgo

Depreciation (llll&lloeated) Total Governmatal·Typo Actirities

Proenm Revenuea Charges ror Operailac Servieesud Gnuu ud

Exl!!:!scs Sales Contrib11ff1111s

s 33,994,96S $ 235,081 $

2,534,435 4,502

715,804 2,996,011 2,606

281,954

2,794,776 23,177 2,973,008 371,144

2,826,645 14.,738 S,091,176 SS,718

1,778 1,158,837 2,921,825 225,24S

2,1821303 $ 60!473,517 $ 965,211 $

General r,:venues 8lld subventions: Property iaxea, levied for general purposes Property taxes, levied for debt service

S,621,704

1,825,948

30,950 375,912

104,415 2,854,213 2,361,357

1,365,896 626,115

1,778

1,136,252

19,304,S40

Federal 8lld State aid not reslricted to specific purposes Miscellaneous

S11beotal, General RPenues Change in Net Assets

Net Assets • Begill1'ling Net ASSClll • Endmg

The accompanying notes are an integral part of these financial stmemem:s.

12

$

Net(Espenmea) Rl!lVellaesand

Cbaagm iD NetAslcts

Governmental Activities

(25,138,ll!O)

(703,985) (684,854)

(2,617,493)

(177,539)

82,614 (240,507)

(1,446,011)

( 4,376,343)

(1,158,837) (l,560,328}

~.1s;30JJ 140.203,766)

11,590,529

1,271,001

21,379,874 5.016,528

39,257,932 (945,834)

SJ,260,999 50,315,165

12

ALISAL UNION SCHOOL DISTRICT

GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2004

County Capital School

General Cafeteria Facilities Facllities Fund Fqnd F•IUI Flllld

ASSETS Deposits lll!d investments $ 7,054,225 s 2,085,574 $ 2,210,252 $ 1,329,490 Receivables 5,&2o,319 763,247 212,055 5,417 Due trom otber funds 128,515 19,999 Stores inventories 221,341

TutalAuets $ 13,003,059 s 3,070,162 $ 21422,307 $ 1,354,906 UABILITIES AND f'UND BALANCES Liabllitla:

Accounts payable 5,942,168 27,331 l,931 1,071,242 Due to o!her funds 485,291 121,7!12 Dcfim-ed n:venue 1,677,581

Total liabilities 8,105,040 1491123 1,931 1,071,242 FUND BALANCES

Reserved 1,229,905 221,341 Unreserved:

Designated 3,668,114 2,699,698 2,420,376 283,664 Undesignated, reported in:

Debt service funds Total Fund Balance 4,8981019 2,921,039 2,420,.376 283,664 Total Liabilities and FD.Del Balances $ 13,003,059 s 3,070,162 s 2,422,307 $ 1~541906

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

13

Non-Major Tollll Governmental Governmental

Funds Fund&

$ 1,782,209 $ 14,461,750 18,025 6,819,063

785,291 933,805 221:341

$ 2,585,525 $ 22,435,959

46,350 7,089,022 326,722 933,805

1,6n,ss1 373,072 9,700,408

1,451,246

l,06S,!147 10,137,799

1,146,506 1,146,506 2,.212,453 12, 735,551

$ 2,585,525 $ 22,435,959

13

This pace left blank Intentionally.

ALISAL UNION SCHOOL DISTRICT

GOVERNMENTAL FONDS RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS

.nJNE 30, 2004

Am1111nts Reported for Govenunenllll .Activities ID the Statement of Net A&uta are Different Because:

Total Fund Balaaee • C-mental ·Funds capital assetll used in governmental activities are not fmancial resources and, then:fon:, are not reported as assets in govenunental funds.

The cost of capital assets is Accwnulated depreciation is

Total capital assets Long-tenn liabilities at year end consist of:

General obligation bonds Early retirements Capital lease obligatioos Compensated abseuc:es

Total long-term liabilities Total Net AlaeCs - Govenamental Activities

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

14

$80,947,254 (19,656,740)

(23,495,160) (126,000)

(24,135)

(65,605)

S U,735,551

6l,290,S14

(23, 710,900) $ S0,315,165

ALIS.AL UNION SCHOOL DISTRICT

GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE FOR THE YEAR ENDED JUNE 30, 2004

Geaeral Fund

REVENUES Revenue limit sources $33,1139,390 Federal sources 7,551,049 Other slate s011YCeS 8,441,986 Otherlocalsoun:cs 3,.300,179

Total Revenues 53,132,604 EXPENDITURES Current

1nstructlon 34,206,21S Instn1ction-rel.ated activities:

Supervision of instruction 2,4S2,34S InstrucliODaI library, media and technology 715,804 School m administration 2,996,01 l

Pupil Services: Home-to-school transportation 281,954 Food services All other pupil service11 2,973,008

<Jenera! administration: All other general administration 2,698,130

Plant services 4,414,356 Facility acquisition lllld construction 32,111 Ancillary services 1,778 Other outgo l,921,825

Debt service Principal Interest and other

Total Expenditures 53,6§3,540 Excess (Deficiency) of Revenues Over Expe11dltura (560,93fi) Other Finucing Soun:es (Uses):

Tmn.smsin Transfers out (341,21 Q

Net Fioaacing Sonrces (Uses) (~l,21 Q NET CHANGE JN FUND BALANCES (902,147) Fund Balance • Beginning S,800,166 Fund Balance· Ending $ 4,898,019

The accompanying nota are an integral part of lhese fmancial $tatelllent:i.

IS

Capital Cafeteria .Facilities

Fund 1<11nd

$ $ 3,117,914

202,099 169,164 1,0131711

3,489,17.7 1,013,711

2.794,776

121,792 402,344 I 17,989

69,1S1 60,486 .

319,JSS

3,38B,67i§ 497,~~o 1 oo,soll S 16,081

100,508 516,081 2,820,531 1,904,295

S 2,921,039 S 2,42l!,3 76

County Sehool Non-Major Total

Facilities Governmental GovernmutaJ Fund Funds Fuudll

$ $ $ 33,839,390 1,166 10,670,129

392,140 9,036,425 10,243 • 1,488,442 S,981,739 10]43 i,S81,948 s1J,s2,.<is3

418,642 34,624,860

82,090 2.,S34,435 715,804

2,996,011

281,954 2,794,776 2,973,008

6,723 2,826,645 230,768 5,165,457

1,242,173 1,404,527 1,778

2,921,825

972,004 1.291,159 292,083 292,083

1,242,173 ~ilm,310 60,l'i4,322 ( l ,231,IJ30) ~120,362) ( 1,296,639)

1,189,775 941,211 2,130,986 !l,789,775) (2,130,986)

1,II~. 'ns' (840K4) (42,155) (96&,926} (J,296,639) 325,819 3,181,379 14,032,190

$ 283,664 $ 2,212,453 $ 12,735,551

IS

ALISAL UNION SCHOOL DISTRICT

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE DISTRICT-WIDE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2004

Total Net Cbange iJI Fund 8-.lances - Governmental Funds Amounts Reported for Governmentlll Activities in the Statement of Activities are Diffennt Beca1111t::

S (1,2%,639)

Capital outlays tti purchue or build capital asset$ are reported in governmental funds as expenditures, however, for govemmenlal activities, those costs are shown ln the Sla(emcnt of net assets and allocated over their estimated useful lives as annual depreciation e1<penses in the statements of activities.

This is the amount by wbich depreciation exceeds capital outlays in the period. Depreciation expense Capital outlays

In the swement of activities, certain operating expenses - c.ompensated absen=i (vac11ti0Ds) 1111d B})Ccial tennination benefits {eBTly retimnellt) are Dlllll.Slll'ed by the amounts earned during the year. In the governmental fimds. however, expenditures for these iteros are measured by the amount offmancial resources used (essentially, the amounts actually paid). This year, there were special termination benefits ~ $42,000. Vac;ation used W11S less than the amounts earned by $92,204.

Repayment of bond principal is an expcnditw-e in the governmental funds, but it reduces loug-tenn liabilities in the statement of net assets and does not affect the statement of activities:

<Jenera! obligation hoods Capital lease obligations

Interest on long-term debt in the stalement of activities diffi:rs from the amount reported in the governmental funds because interest is recorded as an expendirure in the funds when it is due. and thus requires the 1l5C of current financial resources. In the statement of activities, however, · interest expense is recognized as the interest aceraes, regardless of wJten ii is due. The additional interest reported in the statement of activities is additional accumulated inte:reSt that was accreted on the Districts' "capital appreciation" general obligation bonds.

Change h) Net Asseu of Governmental Activities

The accoinpM)'ing notes are an integral part of these financial statements.

16

$ (2,182,303) 2,016,499

$

(165,804)

134,204

972,004 142,434

(732,033~ (94S,834)

ALISAL UNION SCHOOL DISTRICT

FIDUCIARY FONDS STATEMENT OF NET ASSETS FOR THE YEAR ENDEb JUNE 30, 2004

ASSETS Deposits and invcsunems

Total Assets

UABILITIES Due 1D student groups

Total Liabillties

The accompanying notes are an integral part of these rmaneial sllltemenl.s.

17

$ $

Agency Funds

52,115 52,115

52,175 52,175

ALISAL UNlON SCHOOL DISTRICT

NOTES TO FINANC1AL STATEMENTS JUNE 30, 2004

NOTE J -SVMM.4RY OF SlGNIFTCANT ACCOUNTING POUCIES

A. Financial Reportigg Entity

The Ali.al Union School District was organized in 1934 uode:r the laws of the State of California. The District operates under a locally-elecll:d five-member Boant fono of government and provides educational services to grades K - 6 as mandated by the Smre and/or Federal agencies. The District operates eleven elementary schools.

A reporting entity is comprised of the primary government, component nnits, and other organiz.ations that are included tn ensure the financial statements are not misleading. The priminy goVCIDlll(lnt of the District consists of all funds, departments, boards, and agencies that are not legally separate fi'om the District. For Alisa! Union Sc:hool District, this includes geneial operations, food service, and student related activities of the District.

B. State Deferred Appropriamm1

As part of its plan to address the budget crisis facing the Smte of California, Senate Bill (SB) XI 18 (the "Bill") was signed into law during the year ooded June 30, 2003. The provisions of the Bill signific:aotly altered :funding fur California school districts. The Bill, among other thiDSS, shifted the appropriation for the payment of the JU110 2004 principal apportionment for the General and Adult Funds into the 2004-2005 fiscal year. The Bill allowed local educational agencies to recognize for budgwuy and financial reporting purposes any amount af mtll appropriations deferred from the cummt fiscal Ylllll' and app.optiated :from the subsequent fiscal year fbr payment of current-year costs as a receivable in 1he QWTeDt year. ln addition, Assembly Bill 2731 dcfen-ed the 2003-2004 appropriations for the Home-to-School Transportation, School Safety, and Targeted Instructional Improvement programs inlO the 2004-2005 fiscal year. Exclusion of the apporlillllDlents would have resulted in a decrease in re,;eivables, revenue, and available reserves of $1,258,698.

c. Component Uaiu

Component units are legally sepal'llle organizations for which the District is financially accountable. Component units may include organizations that are :fiscally dependent on the District in that the District approve$ their budget, the issu1U1ce of their. debt or the levying of their taxes. In addition, component tll)its are other legally separate organizations for which the District is not financially ac:countable but the nature and significance of the organization's relationship with the District is sacb that exclusion would cause the District's financial statements to be misleading or incomplete. For :firumcial reporting purposes, lhc component unit discussed below is reported in the District's financial statements because of its relationship with tile District. The component unit, although a legally separate entity, is reported in the financial statements using the blended presentation method as if it were part of tbe District's operations because the governing board of the component llllit is essentially the same as the governing board of the District and because its pmpose is to finance the construction of facilities to be used for the benefit of the District.

The Alisal School Fac:ilities Co:rporalion is a no11profit public benefit OOIJ)Oration organized to provide: assistance to the Alisa! Union School District. The Corporation's financial activity is pri=sented in 1he financial Slateinents in 1he District's County School Facilities Fund. Separate financial statements are not prepared for 1he Corporation.

18

ALISAL UNION SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2004

Joint Powers Agencies and Public Entity Risk Poob The District is assocumm with one joint powers ageni::ies lll1d four public entity risk pools. These organizations do not meet 1he criteria for inclusion as component units of the: District. Summarized audited financial information is presented in Note 14 to the financial statements. These orglllizations are:

Monterey County Property/Liability Self·lnsw-ancc: Authority (MCPLSIA) Monterey County Schools' Workers' Compensation JPA (MCSWCJP A) Monterey County Schools' Insurance Group (MCSIG) Schools' Excess Liability Fund (SELF) Partners in Nutrition Cooperative (PINCO) JPA

D, Buis of Presentatioa • Fond Aecmmting

The accounting system is organisd and operated on a fi.md basis. A fund is defined as a fiscal and accollllliDg entity with a self-balancing 5et of 11CCOunt&, which are segn:gated for the purpose of canying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. The District's funds are grouped into two broad fund categories: governmental and fiduciary.

Governmental Foods Oovemmental funds are those through which most governmental functions typically are financed. Governmental fund reporting focuses on the sources, 1111es, and balances of eUtrent fmancial resourec:s. Expendable assets ~ assigned to the various goW1n1ncntal funds according to the purposes for which they may or must be used. Cun-ent liabilities are assigned to the fund :&om which they will be paid. The difference between governmental fund assets and liabilities is reported as fund balance. The following are the District's major governmental funds: ·

Major Ggyenunental Fugds

General Fund The Genentl Fund acoounls for all financial l'IISOUl"CCS except those required to be accoW1ted for in another fund. The General Fund balance is available to the District for any purpose provided it is expended or transfemod according to lhe general laws of California.

Cafeteria Fund The Cafeteria Fund is IISed to account for the financial transactions related to the food service operations of the District.

Co11111y School F11clllties Fund The County School Facilities Fund is used primanly to account separately for State apportionments provided for construction and reconstruction of school facilities {Education Code Sections 17010.10-17076.IO).

Capital Facllities Fund The Ciipital Facilities Fund is used to aceount for resources received from developer impact fees assessed under pn;wisions of the California Environmental Qunrity Act (CEQA).

Other Non-Major Govemmental Fpnds

Special Revenue Funds The Special Revenue Funds are IISed to account for the proceeds of specific revenue sources that are legally reslricted to BXpendilures for specific purposes. The Oistrict maintains the following special revenue funds:

19

ALISAL UNION SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS .JUNE 341, 2004

Child Dew:Jopment FDDd The Child Development Fund is used to account for resources committed to child development programs maintained by the District.

Deferred Mldat111111Dce Fund The Deferred Maintenance Fund is used for the pmpose of major repair or n,placenient of District property.

Special Reserve Fund for Other than Capital Outlay The Special Reserve Fund for Other than Capital Outlay is used to provide for the accumulation of General Fund monies for general open.ting purposes.

Debt Semee Funm The Debt Service Funds are used to aceow11 for the accumulation of resources for, and the payment of, general long-tenn debt principal, interest, and related costs. The District maintains the following debt service funds:

Bond Interest and Redemption Fund The Bond Interest and Redemption Fund is used to ac:count for the accumulation of resources for, and the repayment of, district bonds, interest, end related costs.

COP Debt Service Fond The COP Debt Service Fund is ~d to ac:count fur the interest and redemption af principal of Certificates of Participation.

Capital P:rojeds Funds The Capital Projeots Funds are used to account for the acqmsition and/or conS1l'Uetion of all major govemmeotal general fixed assets. · The District maintams the following capital projc:c:ts funds:

Buildioa Fund The Building Fund exists primarily to account separately for pro=ds from sale of bonds and the acquisition of major governmental capital facilities and buildings.

State School Bnildiq Lease-Purchase Fund The State School Building Lease-Purohase Fund is used primarily to account for Stam apportiomnents provided for construction and reconstruction of school facilities (Education Code SectiOllS 17070-17080).

Special Ruerve Fm,d The Special Reserv,, Fund is med to account for funds set aside for Board designated construction projects.

Fiduciary Fuwb Fiducial)' fund reporting focuses on net assets and char).ges in ne( assets. The fiduciary fund category is agency funds.

Agency funds are c11$1odial in nature (assets equal liabilities) and do not involve meiuurement of results of operations. The District's agency fimd accounts for student body activities (ASB).

E. 8,PS or Accounting. Mgsurement Focas

Goverameat-Wide Financial Statem1111ts The government-wide fmancial statements are prepared using the ecooomic resources measurement focus and the accrual basis of accounting. This is the same approach used in the preparation of the proprietary fund financial statements, but differs from the manner in which governmental fund financial statements are prepared.

20

ALISAL UNION SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2004

The government-wide financial stall:ment of ai:tivities pn:senl.S a comparison between direct expenses for each govemmemal program. Direct expenie.11 are those that are specifically associated with a service, program, or department and are !beaefon, c::learly identifiable to a particular function, The District does not allocate .Indirect expenses to functions in the Stm:ment of Activities. Program revenues include charges paid by the n:cipicnts of the goods or s=rvi1.1es offered by the programs and grants and contributions that are restricted t.o meeting the operational or capital requil"Clllents of a particular program. Rillvenues that are not classified as program revenues are pn,scnl.ed as general revenues. The comparison of program revenues and expenses identifies the extellt to which each program or business segment is: self-fmaneing or draws from the general revenues of the District.

Net assets should be reported as restricted when constraints placed on net asset use arc either eld:emally imposed by <:reditors {suc.b as through debt covenants), grantors, contributors, or laws or n:gulations of other governments or imposed by law through constitutional provisions or enabling legislation. The net assets restricted for other activities result :from special revenue fund& and the: nstrictions on their net asset use.

FQnd Flnandal Statemea1a Fund financial slatements report detailed information about the District. The focus of governmental fi111111cial statements is on major funds rather than reporting funds by type. Each major fund is presenred in a separate column. Nonmajor funds are aggregated and presented in a single colWlln.

Governmentlll hod• All governmental funds are accounted for using a now of current f"mancial resolll'Ces mcasuxemeut focus and the modified accrual basis of accoonting. With this measurement focus, only cummt assets and current liabilities genetally are included on the balance sheet. The ststmneat of revenues, expendHures, and changes in fund balance reports on the sources (revenues and other financing sources) and uses (expenditures and olher financing uses) of current financial resources. This approach differs from the maoner in which the governmental activities of the government-wide financial statemeots are pn,parcd. Governmental fund financial statements therefore include reconciliation with brief expllllllltions to better identify the relationship between the government-wide finaDcial statements and the statements for the governmental funds au a modified accrual basis of accounting and the cummt financial resources measurement focll$. Under this basis, revenues are recognized in the accounting period in which they become measurable and available. Expenditun,s are recogni?.ed in the accouuting period in which the fund liability is incurred, if measurable.

Fiduciary Funds Fiduciary funds are accounted for using the flow of economic resomces measurement focus and the accrual basis of accounting.

Revenues - E:xcbange and Non-Exchange Transactions Revenue resulting :from exchange transactions, in which each party gives and =eivcs essentially equal value, is recorded on the accrual basis when the exchange takes place. On a modified accrual basis, revenue is mcorded in the fiscal year in which the resources are measurable and becOlllc available. Available means that the resources will be collected within lhe current fiscal yeBT or an: expected to be collected soon enough thereafter to be used to pay liabilities of the cuirent fiscal year. For the District, available means expecUld to be received within 60 days of fiscal year­end.

21

ALISAL UNION SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2004

Non-ex.chauge trallllaCtions, in which the District receives value without directly giving equal value in return, include property taxes, certain grants, entitlements, and donatiOO!l. Revenue from property taXes is recogni= in the fiscal year in which the taxes are received. Revenue from certain grants, entitlements, and donations is recognized ill the fiscal year in which all eligibility requirementH have been satisfied. Eligibility requirements include time and purpose requirements. On a modified accrual basis, revenue from non­e.x.change transactions must also be available before it can be recogni=.

Under the modified accrual basis, the following revenue sources are considered to be bo!h measurable atid available at fiscal year-end: State apportionments, interest, certain grants, md other local S<lllnles.

Deferred Reven11e Defi:m:d revenue arises wrum potential revenue does not meet bolil the ~measurable" 1111d "available" criteria fur recognition in the carrern period or when resources ue received by the District prior to the inCllil'ence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the District has II legl31 claim to the resources, the liability for deferred revenue is removed from the combined balance sheet and revenue is recognized.

Certain grants received before the eligibility requirements ue met are recorded as deferred revenue. On the governmental fund financial SllllementS, receivables that will not be collected within the available period are also recorded as deferred revenue.

Ei:pema/Eqllllldffures On 1he accrual basis of ;iccounting. expenses are reoognized at the time they are incurred. The measurement focus of governmental fund accounting is on decreases in net financial resoim::es ( expenditmes) rather than expenses. Expendilures ll1'e generally =ognmid In the accounting period in which the related fund liability is incurred, if measurable. Principai and interest on general long-term ilebt, which has not matured, are recogni= wheu paid in the governmental funds. Allocations of costs, such as depreciation and amortization, are not ~ in the govemmental funds.

F. Cash and Cash Egllivaleats

The District's cash and cash equivalents are considered to be cash on hand, demand depOSits, and short-torm investmllllts with original maturities of three months c,r less from the date of acquisition. Cash equivaleirti; also include cash with county trea.'llllj' balances for purposes of the statement of cash flows.

G. Investments

Investments held at June 30, 2004, with original maturities greater than one year are stated at fair value. Fair value is estimated based on quoted market prices at year.end. All investments not required w be n,ported at fair value are stated at cost or amortized cost.

22

ALISAL UNION SCHOOL DISTRICT

NOTES TO FJNANCIAL STATEMENTS JUNE 30, 2004

H. Restricted A!lletll

Restricted allllets ari8II when ratr:ii.tions on their use change the normal understanding of the availability of the asset. Suc:h constraints are either imposed by creditors, contributors, gmntors, or laws of other governments or imposed by enabling legislation. Restricted assets in the Geperal and Debt Service Fund represent easb wid cash equivlllents required by debt covenants and Federal and State agencies to be set aside by the District for the purpose of satisfying certain requirements of the bonded debt issuance and Federal and State grant requirements.

L Presifl Ew!f.ditures

Prepaid expenditures ( expenses) represent amoonts paid in advance of receiving goods or services. The District bas the option of reporting an expenditure in governmental nmda for prepaid items either when purchased or during the benefiting period. The District bas chosen to report the expenditun:s when incurred.

J. Stores lpmrtgry

Inventories consist af expendable food and supplies held for consumption. Invcni:ories are stated at cost, on the weighted average besis. The costs of inventory items are rec:orded as expenditures in the governmental type funds.

K. Capital Assets and Deppgpiion

The acc:ountiug and reportiil; treannent applied to the capital iwets associated with a fund are detmnined by its measurement focus. General c:apital assets are long-lived QSets oftlw District as a whole. The District maintains a capitalization threshold of $5,000. The District does not possess any infrastnicture: Improvements are capitalized; !he c:osts of nonnal maintenance and repaits that do not add to the value of the asset or materially extencl an asset's life are oot capitalized, but are cxpc:nsed as incurred.

When purchued, such 8.ISllts are recorded as expenditures in die govemmmmd :funds end capitali:.eed. The valuation basis for general c:11.pital asselS are historical cost, or where bmoric:al c:ost is not available, estimated historical eost based on replacement cost. Donated capital assets are llll)itali7.cd at estimated fair market value on the date donat=d.

Depreciation of capital assets is computed and recorded by the straight-line method. E.stirnlled useful lives of the various classes of depreeiable capital as.se!s are u follows: bw1dings, 20 to SO years; improvements/'mftastruct:lll'e, 5 to SO years; equipment, 2 to 15 yeani.

L lpterfund Balances

On fund fmancial statements, rec:eivables and payables resulting from short-term inter.fund loans are classified as "interfund receivables/payables." These amounts are eliminated in the govermnenlal and business-type activities colmnns of the statement of net assets.

23

ALISAL UNION SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS .TUNE 30, 2004

M. Comm,agted Absfflces

Accumnlated unpaid vacation benefits are accrued as a liability as the benefi1s are earned. The entire compensated absence liability is reported oo the government-wide financial statements. For governmental funds, the cw:nmt portion of unpaid compensated absences is recognized upon the OCCll!'l'ealle of relevant events such as employee resignations and retirements that occur prior to year end that have not yet been paid with expendable available financial resow=i. These amounts are n,poned in the fund from which the employees who have accunmlatcd leave are paid. The non-current portion of tht:.liability is reported in long­term debt.

Sick leave is aacumnlated without limit for each employee at the rate of one day for eaeh month wotked. Leave with pay is provided when employees are absent for health reasons; however, the employees do not gain a vested right w accumulated .sick leave. Employees are never paid for any sick leave balance at termination of employment or any other time. Therefore, the value of accumulated sick leave is not recognized as a liability in the District's financial sla!ements. However, credit for unused sick leave is applicable to all classified school members who retire after Janumy l, 1999, At retirement, each member will receive .004 year of service credit for each day of unused sit:k leave.

N. Accrued i:.:iahllides and Long-Term Obligations

All payables, accrued liabilities, and long-term obligations are reported in the government-wide financial stalcments.

In general, governmental fund payables a11d llCCl'Ued liabilities that, once incumd, are paid in a timely manner and in full from cwrent financial resources an, n,ported as obligations of the fimds.

However, claims and judgments, special termination benefits, and contractually required pension contributions that will be paid from governmental funds are reported as a liabirrty in the fund fi111111cial statements only to the extent that they are due for payment during the cunent year. Bonds, capital leases, and long-term loans are recognized as a liability on the fund financial statements when due.

0. Fund Balance Reserves and Designations

The District reserves those portions of fund equity which are legally segregated for a specific future use or which do not represent available expendable resources and thetefo1e an: not available for appropriation OI'

expendit!ll'e. Unreserved fund balance Indicates that portion of fund equity which is available for appropriation in future periods. Fund equity reserves have been established for revolving cash accounts, stores inventories, prepaid expenditures (expenses), and legally restricted grants and entitlements.

Designatioru; of fund balances consist of that portion of the fund balance that has been designated (set aside) by the governing board tc provide for specific purposes or uses. Fund equity designations have been established for economic uncertainties, and other purposes.

24

ALISAL UNION SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2004

P. Net A.u!FJ!

Net assets r,opreseot tbll difference bee.ween assets and liabilities. Net assets invested in capital assets, net of related debt consisti of capital assets., net of accumulated depreciation, roduccd by the outstanding balances of any borrowings used for the acquisition, construction or improvement of those assets. Net assets are reported as restricted when there are limitations imposed on !heir use either through the enabling legislation adopted by the District or throngh external restrictions imposed by creditors, gnuitors, or laws or regulations of other governments. The District applies restricted resources when an mq,ense is incurred fur purposes fur which both restricred and unrestricted net assets are available.

Q. lnterfund Actlyity

Exchange lnmsactions between funds are reported as revenues in the seller funds and as expenditures/ expenses in the purchaser funds. Flows of cash or goods from one fund to another without II requirement for repayment arc reported as interfund 1ransfers. Jnterfund transf'erll im: repom,d as other financing sourcesluscs in govlmlll'lml1al fimds. Repayments from funds responsible for panicular expenditures/expenses to the funds that initially paid for them im= not presented on the financial stmemen1s.

R. Estimags

The preparation ofdle ti11811Cial &tatemenlC in confonnity with IIIXlOuntin& principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the finll!IQial statements and accompanying notes. Actual results may differ from those, eatimat.es.

s. Budgetary Data

The budgetaty process is prescribed by provisions of the California Education Code and requires the governing board to hold a public hearing and adopt an openitin1 budget no later than July 1 of each year. The Dis1rict governing board satisfied these requirements. The adopted budget is subject to amendment throughout the year to givo considemion to unanticipetod nmonue and c:,q,enditures primllrily resulting from events unknown at the time of budget adoption with the legal restriction that expenditures cannot exceed appropriations by major object account.

The lllllOUilts reported a.~ the: original budgeted amounts in the budgetmy statmnents reflect the amounts when the original appropriations were adopted. The amounts reported as the final budgeted amounts in the budgetary statements reflect the amounts after all budget amendments have been accounted for.

T. Prnperty IP

Secured property taxes attach as 1111 enforceable lieu on property as of January I , TlllleS are payable in two instalhneots on November l and Februaiy 1 and become delinquent on December l O and April I 0, l'lltlJ)CCtively. Unseeured property taxes arc payable in one installment on or bef<n August :3 J. The County of Monmrey bills and collects the taxes on behalf of the District. Local property tax revenues are recorded when received. · ·

25

ALISAL UNION SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2004

lJ. N- Ai:fflnnting Pronouncement

For the fiscal year ended June 30, 2004, the Distrit:t has implemented Governmental Accounting SUuidards Board (GASB} Statement No. 39, "Determining Whether Certain Organizations Are Component Units", an amendment of GASB Statement No. 14. This smtem.ent provides additional guidance to dctennine whether certain organizations forwhich tllc primary government is not fmancially ac:eountable should be reported as component units based on the lllltlJre and significance of their relationship with the primary government.

NOTE :Z-DEPOSITS AND .INVESTMENTS

A. ,ro11• pd Practices

The District is considered to be an involuntary participant in an external investment pool since the District is required to deposit all receipt$ and collections of monies with their county treasurer (Education Code Section 4100 I). ln addition, the District is authorized to maintain deposits with certain financial iru!titutiom that are federally insured up to $ I 00,000.

The District is also authorized to make direct lnvcs1me!rts in local ageucy bonds, notes, or warrants within the state; U.S. TreasUIY iostnlments; registered S1:Dte Wllmllll!i ortreaswy ootes; SCl.llll'ities of the U.S. Government, or its agencies; t,ankers aceeptances; commercial paper; QCl!tificates of deposit placed with commercial banks and/or savings and IOlll companies; n:purchase or reverse repurchase agrccmOJIIS; medium tenn ct;11po,atc n<rtes; sbares'ofbeneficial interest issued by diversified management companies, c:ertifica1eS of participation, obligations with first priority sccwity; and collateralized mortgage obligations.

B. peposjq

At year-end, the canying amounts of die District's deposits were $85,360 for governmental activities.1111.d $52,175 held in fiduciary funds. The bank balances totaled $65,977. Of the bank balances, $65,977 was covered by Federal deposit insurance. ·

C. Investmentll

The District's investments are categorized to give an indication oftbe level ofril!k assumed by the Dismct at year-end. Category I includes investments that are insured or registered or for which the securities are held by the District or its agent in the District's name. Category 2 includes uninsured and unregistered investments for which the cowrterparty's trust department or agent in lhe District's name holds !he securities. Category 3 includes uninsured and unregistered invesllnents for which the securities are held by tbe financial institution's trust department ot agent but not in the District's name. Deposits with the County Treasury are not categorized because they do not represent securities, which exist in physical or book entry farm. The deposits with county treasu,y are valued using the amortized cost method (which appro,cimates liLir value). The fair values were provided by the county treasurer for the pools.

26

ALISAL UNION SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2004

The invilStmellts at June 3 0, 2004, are as follows:

Uncategorized Deposits with county tn:asurer

NOT£ J- RECEIVABLES

Reported Fair Amount Value

S 14,376,390 $ 14,295,744

Receivables at June 30, 2004, consisted of intergovernmental grants, entitlements, interest l!lld other local sources. All receivables are consideied collectible in full.

County Capital School Nonmajor

General Cafeteria Facilities Facilities Governmental Fund Fund Fund Fund Funds Total

Federal Government Categorical aid $2,677,893 $665,735 $ s $ 1,166 $3,344,794

State Govomment Apportionment 1,258,698 1,258,698 Categorical aid 942.,101 43,651 14,706 1,000,458 Other state 471,681 471,681

Local Government lnterest 37,291! 6,973 6,904 4,584 2,153 57,912

Other Local Sources 432,648 46,888 2051151 833 6851520 Total $5,820,319 $763.,247 S 212,055 $ 5417 s 18,025 $61819,063

27

ALISAL UNION SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENfS .JUNE 30, 2004

NOTB 4- CAPITAL.ASSETS

Capital asset l!Clivity for the fiscal year ended June 30, 2004, was as follows:

Governmental Actwitll:s Capital Assets not being depreciated

Land Capital Assets being depreciated

Land improvements Buildings and imp!'Ovcments Furniture and equipment

Tomi Capital Assets Being Depreciated Less ACCllmulated Depreciation

Larul improvements Buildings and improvements Furniture and equipment

Total Accumulated Depreciation Governmental Activities Capital Assets, Net

Depreciation expense was charged as follows:

Gavem111ental Activities Unallocated Depreciation Expenses

28

Balance July l, 2003

$ 16,377,244

9,656,52:l 51,392,269

1,504,719 62,553,511

3,775,513 12,684,761 1,014,163

17,4741437 $ 61,456:;!18

Balance Additions June 30, 2004

$ $ 16,377,244

1,934,550 11,591,073 46,067 51.438,336 35,182 1.540,601

2,016,499 64,570,010

587,992 4,363,505 1,495,,948 14,180,709

98,363 l,ll2,S26 2,182,303 19,656,740

$ (165,804l $ 61,290,514

$ 2,182,303

ALISAL ONION SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, .2004

NOTES· INTER.FUND TRANSACTIONS

A. laterfund ReceivableslPayabl@s (Que Ta/Due Fro111)

B.

Jnterfund rellllivable and payable balances at June 30, 2004, are as follows:

loierfund R;,ceivables

General $ 128,515 Child Development 46,246 Cafeteria Deferred Maintenance 139,045 Special Roservc-!llon Capital 600,000 Building County School Facility 20,000 Special Reserve-Capital

s 933,306

Operating Transfen

lnterfund transfers for the year ended June 30, 2004, consisted of the following:

The General Fund transferred to the Child Development Fund to reimburse costs.

The General Fund transfcrrod to the Special Reserve • Other than Capital for future capimJ oxpemlilurcs.

The Special Reserve. Other than Capital transferred to the County School Facilities Fund for construction projects.

The Special Reserve - Other th1111 Capilal 1rallsfcrred to the Child Development Fund

for a temporal)' loan. The Child Development Fund transferred to the Special Reserve-Other Than Capital Fund for the payment of a ternporaiy loan.

Total

Jriterfund Payables

$ 485,292 306,723 121,792

19,249

750 $ 933,806

$ 41,21 l

300,000

1,189,775

300,000

300,000 $ 2,1301986

Interfund transfers are a~ed to {I) move revenues frolll the fund that statute or budget requires to collect them to the fund that statute or budget requires to expend them, (2) move receipts res1rictcd to debt service trom the funds collecting the receipts to the debt service fund as debt service payments become due, and (3) use unrestricted revenues collected in the general fund to futance various programs accounted for in other funds in accordance with budgetary authori7.Btion.~.

29

ALISAL UNlON SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2004

NOTE 6 -ACCOUNTS PAYABLE

Accounts payable at June 30, 2004, consisted af the following:

Capital General Cafeteria Facilities Fund Fund fund

Vendor payables $2,387,839 s IS,832 $ 1,931 Salaries 1111d benefits 150,360 Accrued payrc,11 I l,499 Deferred payroll 3,4031969

Tola.I $5,942,168 $ 27i,i!3 I s 1,931

NOTE 7 ~Dl!FERRED REVENUE

Deferred revenue at June 30, 2004, consists of the following:

Federal financial usistance Siate categorical aid Other local

Total

30

CalJlliy School Nonmajor

Facilities Governmental F1md Funds

$ 1,071,242 $ 46,350

S 1,071,242 $ 46,JSO

Total $3,523,194

JS0,360 11,499

31403,969 57,089,022

General Furul

S 367,333 769,900 540,348

S 1,677,581

ALISAL UNION SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 38, 2004

NOTE 8 ·LONG-TEJlM LIABILlTIES

A. Long-Term Debt Summary

The changes in the District's long-term obligations during the year consisted of 1he following:

Balance Balance JuJx I, 2003 Additions Deductions June 30, 2004

General obligation bonds -1993 Series B $ 3,861,162 $ 149,387 $ 170,000 $ 3,84-0,549

General obligati()ll bonds -1997 Series C and D 12,177,768 580,712 592,004 12,166,476

General obligation bonds -1999 Series A 7,696,201 1,934 210,000 7,488,135

Aei::umulated vaeation • net 157,809 65,605 157,809 65,605 Early retirements 168,000 42,000 126,000 Capital leases 166,569 142,434 24,135

Total $ 43.114.823 s 797,638 $ 1,314),47 $ 23.710.900

Due in One Year

$ 200,000

583,164

235,000 65,60$ 42,000 24.llS

$1,149.904

Payments on the general obligation bonds are made by tf!e Bond Interest end Redemption Fund with local revenues. The accrued vacation will be paid by the fund for which the employee worked. Capital leases and early retirements will be paid by the Oencral Fund.

B. Bonded Debt

Tho outstanding general obligation bonded debt is as follows:

Bonds Bonds bsuc Maturity Interost Original Outstanding Capital Outstanding !>ate Date Rate Issue Jul~ 112003 Appreciation Redeemed June 30, 2004

1993 Series B: 08/01/93 08/01197- 2.80-

2018 S.90% $3,999,859 $ 3,861,162 $149,387 S (170,000) $ 3,840,549 1997 Series C and D: 11/01197 08/01198- 3.90-

2022 5.60% 11,808,195 12,177,768 580,712 (592,004) 12,166,476 1999 Series A: 05/01/00 05/01102- 4.55-

2025 6.40% 8,000,000 7,696,201 l,934 (210,000) 7,488,135 Total $23,735113 l $732,033 $ (972,004) $ 23,495,160

31

ALISAL UNION SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2004

Debt Semee Regolremep.tll to Matoril;y

The bonds mature through 2018 as fol!ows:

Series B

Interest to Fiscal Year PrinCiJ:!!l Maturi!l'. Total

2005 s 200,000 s 53, 185 s 253,185 2006 220,000 43,100 263,100 2007 235,000 31,890 266,890 2008 245,000 19,768 264,768 2009 260,000 6,760 266,760

2010-2014 715,630 1,269,370 1,985,000 201~018 759,229 2,120,770 2.879,999 Subtotal 2,634,859 3,544,843 6,179,702

Accreted Jnterest 1,.205,690 Total s 3,840,549 $ 3,544,843 $ 6,179,702

The bDDds mlllUre through 2023 as follows:

Series C and D Interest to

Fiscal Year PrinciJ!!I Maturity Total 2005 $ 583,164 s 122,601 s 705,765 2006 60S,848 131,272 737,120 2007 530,978 274,022 805,000 2008 563,652 341,348 905,000 2009 539,994 380,006 920,000

2010-2014 2,389,113 2,510,887 4,900,000 2015-2019 1,876,064 3,233,936 5,110,000 2020..2023 1,710,009 4,339,991 6,050,000

Subtotal 8,791,822 11,334,063 20,132,885 Accreted Interest 3,367,654 (3,367,654)

Total $ 12.166,476 $ 7,966.409 $ 20,132i&85

32

ALISAL UNION SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS ·JUNE 30, 2004

c.

The bonds malllte through 2025 as follows:

Series A ln~stto

Fiscal Year PrinciJ!!! Maturi!J:: Total 2005 s 235,000 $ 98,773 $ 333,773 2006 270,000 87,492 357,492 2007 305,000 74,263 379,263 2008 340,000 59,165 399,165 2009 385,000 41,995 426,995

2010-2014 1,621,921 1,274,399 2,896,320 2015·201!1 1,704,705 3,115,295 4,820,000 2020-2024 2,002,966 6,112,034 8,115,000

2025 590,408 ;249,592 2,840,000 Subtotal 7,455,000 13,113,008 20,568,008

Acc:reted Intenist 3.3,135 !33,135} Total s 7,488,135 $13,079,873 $ 20,568,008

dCCllmulate!! Unl!!!d Eml!.!o:tee V•c:•tiou

The long-term portion of accumulated unpaid employee vacation for the District at June 30, 2004, amounted to$65,60S.

D. Capital Leases

Th,:, District bu entered into varioll$ capital lease arrangements and has recorded capital assets in the amount of $358,364 with corresponding accumulau:d depreciation of $266,314 at June 30, 2004, The Dislril:t's liability an lease a~ with options to purchase are summarizc,d below:

Balance, July l, 2003 Payments Balance, June 30, 2004

The capital leases have minirnum lease payments as follows:

Year llnding June 30,

2005 Total

Less: Amount Representing Interest Present Value of Minimum Lease Payments

33

Amount $ 166,569

142,434 $ 24,135

Lease Payment

S 25,918 2S.918

1.783 $ 24,135

ALISAL UNION SCHOOL DISTRICT

NOTES TO FJNANCIAL STATEMENTS JUNE 30, 2004

F, Early Retirement Incentive Prpgnun

The District has adopted an early retirement incentive program. The future liability for this early retirement progr,!lln es of lune 30, 2004, is $126,000.

NOTE 9-FUND BALANCES

Fund balanecs with reservations/designations are composed of the following elements:

County Capital School Nonmajor

General Cafeteria Facilities Facilities Govemmenial Forni FIDld Funcl Fund Funds Total

Reserved Revolving cub $ 10,000 $ $ $ $ $ 10,000 Stores inventory 221,341 221,341 Rcstricicd programs 1,219,905 1.219,90S

Total Reserved 1.229,905 221,341 \,451.24fi Unre:ierved

Designated Bconomic 11I11:artainlies 3,668,)14 3,668,114 Other deslgnatlon 216991698 2,420,376 283,664 1,065,9'17 6,469,685

Total Designated 3,668,114 2,699,698 i420,376 2113,664 1,065,947 101137,79!1 Undcsignated 1,146,$06 1,146"'4)6

Tollll Unrescrn:d 3,668,114 2.6!19,69! 2,420~76 283,664 2,21;453 na84,30S Total $4,898,019 $2,921,039 $2,420,376 S 283,664 $ 2,212,453 $12,735,SSl

NOTE 10-POSTEMPLOYMBNT BENEFITS

The District provides postemployment health care benefits, in accordance with District employment eontnt.cts, to all employees who mire from lhe District on or after attaining age 55 with at least 15 years of service. Benefits are paid until age 65 or death, depending on the agreement. Currently, 20 employees meet those eligibility requirements.. The District contributes 60 to l 00 percent of the amount of pmniwru; incurred by retirees IUld their dependents. Expenditures for postemployment benefits are recognized on a pay-as-you-go basis, as premiums are paid. During the year, e,,;penditures of$93,0l4 were recoQllizcd for mirees' health care benefits.

The approximate 8.CCUlllulated funw liability for the District at June 30, 2004, amounts to $1,334,234. This amount was oalculatod based upon the number of retirees receiving benefits multiplied by the yearly district payment per employee in effect at June 30, 2004, multiplied by the number of years of payments remaining.

34

ALISAL UNION SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2004

NOTE 11-RJSE MANAGEMENT

A. Property and 1,jpbUlty

The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees .and natural disasters, During fiscal year ending June 30, 2004, the District conlnl<:ted with Monterey and San Benito Counties LiabilityJProperty JPA for propcny and liability insuranee coverage. Settled claims have not CJIOCeded this coYerage in any of the past three years. There has not been a significant reduction in coverage from the prior ymr.

B. Workers' CompePP!!!.ln

For fl.seal year 2004, the District participated in the Monterey County Schools' Workers' Compensation JPA (MCSWC), an insurance purchasing pool. The intont of MCSWC is to achieve the benefit of a reduced premium for the District by virtue of its grouping and repn,sentation with other participants in MCSWC. The worker$' compensation o:xperience of the participating districts is calculaied as OllCl experience and a common premium rate is applied to all districts in MCSWC. F.ach participant pays its workers• compensation premiwn based on its individual rate. Total savings are them calculated and each participant's individual perfOl'l'llanee is compared to the overall saYings pcn:entBge. A participant will then either receive money from or be required to contribute to the "equity-pooling fund." This "equity pooling" arrangement insures that each participant shares equally in the overall performancc ofMCSWC. Participation in MCSWC is limited to districts that can meet MCSWC selectioo criteria. The tirm of Keenan and Associates provides admillislrative, ~ control, ,md actuarial services to the insurance group.

C. Employee Medical :Benefits

The District has contracted with the Mont.erey County Schools' lnsuralk:e Group to provide employee medical and surgical benefits. Monterey County Schools' lnsurance is a shared risk pool. Rates are set through ,m

annual calculation process. The District pay5 a monthly contribution, which Is placed in a common fund from which claim payments are made for all participating Disu-icts. Claims are paid for all participants "'gardless of claims flow. The Board of Directors bas a right to return moni1111 to a district subsequent to the settlement of all expenses and claims if a district withdraws ftom the pool.

NOTE 12-EMPLOYEE RETIREMENT SYSTEMS

Qualified employees are covered under multiple-employer contributory retircm¢11t plans maintained by agencies of the State ofCalifomia. Certificated employees are members of the State Teachers' Retirement System (STRS) Bild classified emplayees are members of the Public Employees' Retirement System (PERS).

35

ALISAL UNlON SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, ]004

Pl9p pescriptiop

The District conm'bllles to the California State Teachers' Retirement System (STRS); aeost·sharing multiple~ employer public employee retirement sySlffll defined benefit pension plan administered by STRS. The plan provides retirement and disability benefits and survivor benefits to beneficiaries. Benefit provisi011s are established by State statutes, 11$ legislatively amended, within the Staie Teachers' Retirement Law. STRS issues a separate comprehensive ammal flllllllcial report that includes financial statements and required supplementary information. Copies of the STRS 1111nual fin11J1Cial n,port may be obtained from STRS, 7667 Folsom Blvd., Sacramento, CA 95826.

Funding Policy

Active plan members are required to contribute 3.0 percent of their salary and 1he District is required to contribute an actuarlally detennined rate. The actuarial methods md assumptions u,cd for determining the rate are those adopted by STRS Teachers' Retirement Board. The RqUired employer contribution rate for tiscalyear200'.3-2004 was 8.25 peTCent ofaonual payroll The contribution requirements of the plan members are established by State sta1Ule. The District's contributions to STRS for the fiscal years ending Jwe 30, 2004, 2003, and 2002, were $2,161,109, $2.,308,379, and $2,185,341, respectively, and equal l 00 percent of the required contributions fur each year.

B. PERS

Piao Dw,riptlop

The District contributes to the School Bmployer Pool under the California Public Employees' Retirement S}'lltem (CalPERS); a cost-sharing multiple-employer public employee mimnent system defined benefit pension plan administered by CalPBRS. The plan provides retirement and disability benefits, annual cost-of· living adjustments, and death benefits to plan members end beneficiaries. Benefit provisions ace establiihed by State statutes, as legislatively amended, within the Public Employees' Retirement Laws. CalPERS issues a separate comprehensive annual fmancial report lha.t in1.ludes financial statements and required suppletnentary information. Copies of the CalPERS' annual fmancial report may be obtained from the Ca!PERS Executive Office, 400 P Street, Sacraiuento, CA 95814.

:Funding Policy

Active plan members are required to contribute 7 .0 percent of their salmy and the Dis1rict is required to contribute an actuarially dotennined rate. The actuarial method.~ and asswnprions used for determining the rate are those adopted by the CalPERS Board of Adm.inistmtion. The required employer contribution nite for fiscal year 2003-2004 was 10.42 percent of annual payroll. The contribution requirements of the plan membets are established by State statute. The District's contr1"butions to CalPERS for !he fiscal years ending June 30, 2004, 2003, and 2002, were $),253,024, $687,807, and $0, respectively, and equal 100 percent of the required contributions for each year.

36

ALISAL UNION SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2004

C. Other lnformatio11

l.Tnder STRS law, certain early ri,tirement incentives require the employer t.o pay the present value oftbe additional benef'rt which may be paid on olther a current or defeJ:red basis. The Dislrict has no obligations m STR.S for early retirement incentives granted to terminated employees.

D. Social Security

As established by Federal law, all public sector employees who are not members of their employer's existing retirement systen:t (STRS or PERS) n1ust be covered by Social Security or llll alternative plan. The District has elected to use Social Security. Contnbutions made by the District and an employee vest immediately. The District oontribmes 6.2 percent of an employee's gross earnings. An employee is required to contribute 6.2 percent ofbis or her gross earnings tr) Social Security.

E. On Behalf Payments

The State of California makes contributions to STRS and PERS on bell4lf of the Dis1rict These payments consist of State General Flll!d contributions to STRS in the amount of $615,038 (2.28 percent of salaries subject to STR.S). No contrJ'butions were made for PERS for the year Cllded hme 30, 2004. Under accounting principles generally acceptvd in the United States of Americe, these amounts are to be reported as revenues and expenditures, however, guidmce received from the Califcmia Department of Education advises local educational agencies not to record these lllnO\llllS in the Annual Financill.J and Budget Report. These amounts also have cot been recorded in these financial statements.

NOTE 13 - COMMITMENTS AND CONTINGENCIES

A. Gr.anu

The Dis1rict m:eived financial .wistance :from Federal and State agencies in the form of grants. The disblllliement of funds received under these programs generally requin,s complianc:e with terms and conditions specified in the grant agreements and are subject to audit by the gnUltor agencies. Any disallowed claims resulting from such audits could become a liability of the general fund or other applicable funds. However, in the opinion of management, any such disallowed claims will not have a material adverse e1fecl on the overall financial position of the District at June 30, 2004.

B. Litigation

The District is involved in various litigation arising from the nOilllal course of business. In the opinion of management and legal counsel, the disposition af all litigation pending is not expected to have a material adverse effect on the overall financial position of the District at June 30, 2004.

37

ALISAL UNION SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2004

C. Operating Leans

The District has enlenld into various operating leases for equipment with no lease terms in excess of one year. None ofthese agremients contain pim:hase options. All agreements contain a termination clause providing for cancellation after a specified number of days written notice to lessors, but it is unlikely that the Dislrict will cancel any of the qreements prior to the exphalion &,.tc.

NOTE 1-1-PARTICIPATION IN PUBLIC ENTlTY RISK POOLS AND JOINT POWERS AUTHORITIES

The District is a member of the Monterey County Property/Liability Self-Insurance Authority (MCPLSIA), Monterey County Schools' Wodcers' Compensation JP A (MCSWCJPA). Monterey Cowty Schools' Insurance Group (MCSIG). and Schools' Excess Liability Fuml (SELF) public entity risk pools. The District pays an annual premium to each entity for its health, workers' compensation, and property liability coverage. Payments for cafeteria services are paid to the Partners in Nutrition Cooperative (PINCO) JPA. The relationships between the District, the pools and the JPA's are such that they are not component units of the District for financial reporting purposes.

These entities have budgeting and fmancia.J reporting requirements indepe11dent of member units and their financial stBtutents an: not presented in these fmancial statements; however, fund transactions between lhe entities and lhe District are included in these statements. Audited financial statements are available from the respective entities.

Monterey County Monterey Monterey Schools' Excess l'llI1ner$ in Property/1..iabilily County Schools' County Scliool,;' Liability Fw,d Nlllrition Self-Insurance WO!'.!a:n' in.urance Group (S.ELF) Coopemtiw Authority C-ompoation (MCSIG) (PINCO) (MCPLSIA) JPA

(MCSWClPA)

B. Purpose Arranges for and Ammges for and Arrlllp for mid Ammges for and Provides for provides a self- provides provides a provides excess cooperative insw'ance workers' program of property and parehasinil and program for compensation employee health liability wamhousing liability and insurance. cover,.gc; CO\le!llJC- services. property damage m«!ical, dental, claims. vision, 11111d life.

38

ALISAL UNION SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2004

{MCPLSIA) (MCSWC)

c.. Pa,:th.'Pants VariOUll Various educational educational agencies. ageru::i ...

D, Govemin1 J!!!l!nl Representative Representative &om ell{:h from each member entity. member entity.

E, s;:on!Jensed A!!dlt!II Fln!o,i!!l ll!fQ!J!!•tlon [!!!Jo»:! June 3012003" June 30, 2003•

Assets s 2,626,903 $ 17,033,693 Liabililis 11167,712 31,001,973

Fund Equity s 75~.191 $ (13,961!.280)

Revenues 2,892,671 9,021,678 Expenses 2,562,021 19t726,330 ·

Net lnc:ruse/{Dec:reuc) in Fund Equity s 330,650 S (10, 704,652)

*Most recent information available.

(MCSIG) (SELF) (PINCOJ Various Various Various educllliolllll educational cducatiOl'lal aFDCifl. qa,ci1!$. age11cie11-

~ Re~vc ~c from each 11:om each li'om each member entity. member entity. member entity.

Juru, 30, 2003 • Jum,30,2003• J1me 30, 200;1•

s 11,457,343 S 139,052,615 s 1,635,1185 4,47S,391 107,8551085 217,.SSO

s 6,981,952 s 31,1971530 $ 1,417~3S 45,971,003 40.290,486 7,529,584

42,606,893 56,733.282 71536,262

$ 3,364,110 s (16,442,796) s (61678)

None of the JP A's bad long-term debts outstanding at J1111e 30, 2003. The O.istrict's share of year-end assets, liabilitie&, Qt' fund equity bas not been calculated.

NOTE IS-EXPENDITURES (BUDGET 'IIE.RSUSACTUAL)

At June: 30, 2004, the following District fund exceeded the budgoted amount as follows:

Fw,d General

Other outgo

Capital outlay

39

Expcmditiires and Other Uses Budget Actual Exec:ss

$ 2,694.204

$ 662,022 $ 2.793,309 ~$=,,;9,..9 ... ,l;i:05=

s 6&3,841 =s==-=21 .... s,,,,,19=

ALISAL UNION SCHOOL DISTRICT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2004

NOTE 16- TAX AND REVENUE ANTICIPA.710N NOTES

At July I,2003, the Distm:t had outstanding Tax and Revenue Anticipation Notes in the amountof$I,240,000, which ma1ltnid on July 3, 2004.

Outstanding OUIStanding July 1, 2003 Additions Deletions June 30, 2004

2003 1.67% TRANS $ 1,240,000 $ --~-- s 1.240,000 .s....,_~ ......

40

Governing Board Alisa] Union School District I 205 East Market Street, Salinas, California 93905

APPENDIX C

FORM OF BOND COUNSEL OPINION

Fcbrnary 2, 2006

Re: $5,499,9%.60 Alisa] Union School District General Obligation Bonds, 1999 Election, 2006 Series C

Ladies and Gentlemen:

We have acted as bond counsel for the Alisa] Unified School District, County of Monterey, State of California (the "District"), in connection with the issuance by the Board of Trustees of the District (the "District Board") of $5,499,996.60 aggregate principal or issue amount of the District's General Obligation Bonds, I 999 Election, 2006 Series C (the "Bonds''). The Bonds arc issued pursuant to Chapter I, Part 10, Division I, Title I of the Education Code of the State of California ( commencing at Section 15100), as amended, and that certain resolution adopted by the District Board on October 19, 2005 (the "District Resolution"). All terms used herein and not otherwise defined shall have the meanings given to them in the Resolution.

As bond counsel, we have examined copies certified to us as being true and complete copies of the proceedings of the District and the County for the authorization and issuance of the Bonds, including the District Resolution and the Arbitrage and Use of Proceeds Certificate of the District, dated the date hereof (the "Tax Certificate"). Our services as such bond counsel were limited to an examination of such proceedings and to the rendering of the opinions set forth below. In this connection we have also examined such certificates of public officials and officers of the District and the County as we have considered necessary for the purposes of this opinion.

Certain agreements, requirements and procedures contained or referred to in the District Resolution, the Tax Certificate and other relevant documents may be changed and certain actions (including, without limitation, defeasance of Bonds) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. No opinion is expressed herein as to any Bond or the interest thereon if any such change occurs or action is taken or omitted upon the advice or approval of counsel other than ourselves.

The opinions expressed herein are based on an analysis of existing Jaws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events arc taken or do occur. Our engagement with respect to the Bonds has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures presented lo us (whether as originals or as copies) and the due and legal execution and delivery thereof by any parties other than the District. We have not undertaken to verity independently, and have assumed, the accuracy of the factual matters represented, warranted or certified in the documents referred to in the second paragraph hereof. Furthennore, we have assumed compliance with all covenants and agreements

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contained in the District Resolution and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to assure that foturc actions, omissions or events will not cause interest on the Bonds to be included in gross income for federal income tax purposes. We call attention to the fact that the rights and obligations under the Bonds, the District Resolution and the Tax Certificate may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors' rights to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against public entities in the State of California. We express no opinion with respect to any indemnification, contribution, choice of law, choice of forum or waiver provisions contained in the foregoing documents. We express no opinion and make no comment with respect to the sufficiency of the security for the marketability of the Bonds. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Bonds and express no opinion with respect thereto.

Based on and subject to the foregoing and in reliance thereon, as of the date hereof, we arc of the following opinions:

I. The Bonds constitute valid and binding obligations of the District, payable as to principal, Maturity Amount and interest from the proceeds of a levy of ad valorem taxes on all property subject to such taxes in the District, which taxes arc unlimited as to rate or amount.

2. The District Resolution has been duly adopted and constitutes a valid and binding obligation of the District.

3. It is further our opinion, based upon the foregoing, that pursuant to section I 03 of the Internal Revenue Code of l 986, as amended and in effect on the date hereof (the "Code"), and existing regulations, published rulings, and court decisions thereunder, and assuming continuing compliance with the provisions of the District Resolution and in reliance upon representations and certifications of the District made in the Tax Certificate of even date herewith pertaining to the use, expenditure, and investment of the proceeds of the Bonds, when the Bonds arc delivered to and paid for by the initial purchasers thereof, interest on the Bonds (I) will be excludable from the gross income, as defined in section 61 of the Code, of the owners thereof for federal income tax purposes, and (2) will not be included in computing the alternative minimum taxable income of the owners thereof who arc individuals or, except as described below, corporations, for federal income tax purposes. We call to your attention that, with respect to our opinion in clause (2) above, interest on all tax-exempt obligations, such as the Bonds, owned by a corporation will be included in such corporation's adjusted current earnings for purposes of calculating the alternative minimum taxable income of such corporation, other than an S corporation, a qualified mutual fond, a real estate mortgage investment conduit (REMIC), a financial asset sccuritization investment trust (FASIT), or a real estate investment trust (REIT). A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by section 55 of the Code is computed.

In our opinion, under existing law, interest on the Bonds is exempt from personal income taxes of the State of California.

We express no other opinion with respect to any other federal, state, or local tax consequences under present law or any proposed legislation resulting from the receipt or accrual of interest on, or the acquisition or disposition o( the Bonds. Ownership of tax-exempt obligations such as the Bonds may result in collateral federal tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain S corporations with subchaptcr C earnings and profits, certain foreign corporations doing business in the United States, owners of an interest in a

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rASIT. individuals otherwise qualifying for the earned income tax credit, individual recipients of Social Security or Railroad Retirement benefits, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incrnTed certain expenses allocable to. tax-exempt obligations.

Our opinions arc based on existing law, which is subject to change. Such opinions arc funher based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions arc not a guarantcc of result and arc not binding on the Internal Revenue Service: rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above.

Rcspcctfolly submitted,

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APPEJ'liDIX D

FORM OF COJ'liTIJ'liUING DISCLOSURE UJ'liDERTAKING

This Continuing Disclosure Undertaking (this "Disclosure Undertaking") is executed and delivered by the Alisal Union School District (the "District") in connection with the execution and delivery of$5,499,996.60 aggregate principal or issue amount of the District's General Obligation Bonds, 1999 Election, 2006 Series C (the "Bonds"). The Bonds arc being issued pursuant to a Resolution adopted by the Board of Trustees of the District on October 19, 2005 (the "District Resolution"). Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the District Resolution.

In consideration of the execution and delivery of the Bonds by the District and the purchase of such Bonds by the Underwriter described below. the District hereby covenants and agrees as follows:

SECTION I. Purpose of the Disclosure Undertaking. This Disclosure Undertaking is being executed and delivered by the District for the benefit of the Bondholders and in order to assist RBC Dain Rauscher Inc. (the "Underwriter") in complying with Ruic 15c2-12(b)(5) (the "Ruic") adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.

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

"Annual Report" shall mean any Annual Report provided by the District pursuant to, and as described in, Sections 4 and 5 of this Disclosure Undertaking.

"Bondholder" or "Holder" means any holder of the Bonds or any beneficial owner of the Bonds so long as they arc immobilized with DTC.

"Designated Material Event" means any of the events listed in Section 6(a) of this Disclosure Undertaking.

"Dissemination Agent" shall mean any Dissemination Agent, or any alternate or successor Dissemination Agent, dcsib:rnatcd in writing by the Superintendent ( or othcr\visc by the District), which Agent has evidenced its acceptance in writing. Initially, and in the absence of the specific designation of a successor or alternate Dissemination Agent, the Dissemination Agent shall be The Bank of New York Trust Company, KA.

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

"MSRB" shall mean the Municipal Securities Rulemaking Board.

"NRMS!Rs'' shall mean, as of any date, all Nationally Recognized Municipal Securities Information Repositories then recognized by the Securities and Exchange Commission (the "SEC") for purposes of the Ruic as set forth in the SEC Website located at http://www.sec.gov/info/municipal/nrmsir.htm.

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

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"State Repository" shall mean any public or private repository or entity designated by the State of California as a state repository for purposes of the Ruic. As of the date of this Disclosure Undertaking, no State Repository exists in the State of California.

SECTION 3. CUSIP Numbers and Final Official Statement. The CUSIP Numbers for the Bonds have been assigned. The Final Official Statement relating to the Bonds is dated January 10, 2006 ("Final Official Statement").

SECTION 4. Provision of Annual Reports.

(a) The District shall cause the Dissemination Agent, not later than nine (9) months after the end of the District's fiscal year (currently ending .June 30), commencing with the report for the fiscal year ending June 30, 2005, to provide to each Repository an Annual Report which is consistent with the requirements of Section 5 of this Disclosure Undertaking. Such Annual Report shall be submitted by the District to the Dissemination Agent not later than 225 days after the end of the District's fiscal year. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-rclcrencc other information as provided in Section 5 of this Disclosure Undertaking; provided that the audited financial statements of the District may be submitted, when and if available, separately from the balance of the relevant Annual Report.

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

( c) The Dissemination Agent shall:

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

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

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

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

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

(i) Outstanding indebtedness and lease obligations;

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(ii) General fund budget and actual results:

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

(iv) Assessed valuations; and

(v) Largest local secured taxpayers.

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

SECTION 6. Reporting of Designated MatcriatEvents.

(a) The District agrees to provide or cause to be provided. in a timely manner, to each NRMSIR or to the MSRB notice of the following events with respect to the Bonds, if material:

(i) Principal and interest payment delinquencies.

(ii) Nonpayment-related defaults.

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

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

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

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

(vii) Modifications to rights of security holders.

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

(ix) Dcfcasances.

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

(xi) Rating changes.

SECTION 7. Termination of Reporting Obligation. The District's obligations under this Disclosure Undertaking shall terminate when the District is no longer an obligated person with respect to the Bonds, as provided in the Ruic, upon the defcasance, prior redemption or payment in full of all of the Bonds.

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SECTION 8. Dissemination Agent. The Superintendent may, from time to time. appoint or engage an alternate or successor Dissemination Agent to assist in carrying out the District's obligations under this Disclosure Undertaking, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent.

SECTION 9. Amendment. Notwithstanding any other prov1S1on of this Disclosure Undertaking, the District may amend this Disclosure Undertaking under the following conditions:

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

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

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

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

SECTION 10. Additional Information. If the District chooses to include any information from any document or notice of occurrence of a Material Event in addition to that which is specifically required by this Disclosure Undertaking, the District shall have no obligation under this Disclosure Undertaking to update such information or to include it in any future disclosure or notice of occurrence of a Designated Material Event.

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

SECTION 11. Default. The District shall give notice to each NRMSIR or lo the MSRB of any failure to provide the Annual Report when the same is due hereunder, which notice shall be given prior to July I of that year. In the event of a failure of the District to comply with any provision of this Disclosure Undertaking, any Bondholder 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 Undertaking. A default under this Disclosure Undertaking shall not be deemed an event of default under the District Resolution , and the sole remedy under this Disclosure Undertaking in the event of any failure of the District to comply with this Disclosure Undertaking shall be an action to compel performance.

SECTION 12. Beneficiaries. This Disclosure Undertaking shall inure solely to the benefit of the District, the Dissemination Agent, the Underwriter and Holders from time to time of the Bonds, and shall create no rights in any other person or entity.

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SECTION 13. Governing Law. This Disclosure Undc11aking shall be governed by the laws of the State, applicable to contracts made and performed in such State.

Dated: February 2. 2006

ALISAL UNION SCHOOL DISTRICT

Superintendent

ACCEPTED:

THE BANK OF NEW YORK TRUST COMPANY, N.A., as Dissemination Agent

Authorized Officer

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EXHIBIT A

NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT

Name oflssucr: Alisa! Union Unified School District

Name of Issue: $5,499,996.60 General Obligation Bonds, 1999 Election, 2006 Series C

Date of Issuance: February 2. 2006

NOTICE IS HEREBY GIVEN that the above-named Issuer has not provided an Annual Report with respect to the above-named Bonds as required by Section 4(a) of the Continuing Disclosure Undertaking dated February 2. 2006. The Issuer anticipates that the Annual Report will be filed by

Dated: ____________ _

[ISSUER/DISSEMINATION AGENT]

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Policy No. [',/LMBERJ

APPENDIX E:

FORM OF MUNICIPAL BOND INSURANCE POLICY

MBIA Insurance Corporation Armonk, New York 10504

t\1BIJ\ Insurance Corporation (the "Insurer"), in consideration of'thi.: payrncnt of the prcn1iun1 and suhject to the terms of this policy. hereby unconditionally and irrevocably guarantees lo any uwni:r. as hereinafter defined, of the fi.J!lowing described obligation~. the full and complete payment rcqu1rcd h' bl' n1adc by or on behalf of the Issuer to The Bank of New York Tn1st Company. ~.!\. or its successor (lhc "Paying Agent") of an ainount equal lo (i) the principal of (either at the stated ma1urity or by any advance1ncnt of rnaturity pursuant to a n1andatory sinking fund payment) and interest on, the Obligations (as that tern, is defined below) as such payments shall becotne due bu1 shall not be so paid (except !hat in the event of any accelcralion of the due date of such principal hy reason of mandatory or optinnal redcn1ption or acceleration resulting frotn dct3.ult or othenvisc, othcr than any advancement of n1aturity pursuant to a 1nandatory sinking fund payn1cnt. the pay1ncnts t-,:ruarantccd hereby shall be 1nadc in such am()Unts and at such ti1ncs as such payn1cnts of principal would have been due had there not been any such acceleration. unless the Insurer elects in its sole discretion, to pay in \vholc or in part any principal due by reason of such acceleration): and (ii) the reimbursetnent of a such payment \vhich is subsequently recovered from any O\Vner pursuant to a final judgment by a court of competent jurisdiction that such payrncnl constitutes an avoidable preference to such owner within the n1eaning of any applicable bankruptcy la\v. The amounts referred to in dauscs (i) and (ii) of the preceding sentence shall be referred to herein collectively as the "Insured An1ounts." "()bligations" shall 1ncan:

$5,499,996.60 Alisal Union School District

(Monterey County, California) General Obligation Bonds, 1999 Election, 2006 Series C

Upon receipt of telephonic or telegraphic notice, such notice subsequently confinned in \\Tiring by registered or certified mail, or upon receipt of\vrittcn notice by registered or certified mail, by the Insurer from the Paying /\gent or any O\vner of an ()bligation the paytnent of an Insured An1ount for \Vhich is then due, that such required pay1nenl has not been ,nade, the Insurer on the due date of such payment or \vi thin one business day after receipt of notice of such nonpayn1ent. \Vhichevcr is later. \Yill 1nake a deposit of fi.1nds. in an account with U.S. Bank Tru-;t National Association, in Ne\v York, Ne\\' York. or its successor, sufficient fOr the payment of any such ln-;ured 1\n1ounts which are then due. Upon prcsent,nent and surrender of such Obligations or presentinent of such other proof of O\\'nership of the Obligations, together \\'ith any appropriate instrun1ents or assignment to evidence the assignn1enr of the Insured An1ounts due on the Obligations as arc paid by the Insurer, and appropriate instru1nents to effect the appointment of the Insurer as agent for ':iuch 0\\!11Crs of the ()bligations in any legal proceeding related to payn1cnt of Insured Amounts on the ()bligations. such instruments being in a form satisfactory to U.S Bank Tnist T\'ational A-;sociation, U.S. Bank Trust National Association shall disburse to such owners. or the Paying Agenl payn1ent of the Insured A1nounts due on such Obligations. lc~s any amount held by the Paying Agent fi.)r the payment of such Insured An1ounts and kgally available therefor. This policy docs no! insure again:-.t loss of any prepayment prcmiu1n v.·hich may at any tin1c be payable \Vith respect to any Obligation.

As used herein the term "owner" shall mean the rcgistcnxl O\Vner of any ()bligation as indicated in the books 1Tiaintaim.x1 hy the Paying Agent, the Issut.'f, or ru,y dcsigncc of the Issuer fi)f such purpose. ·n1c tenn o\\oner shall not include the Issuer or any parry whose agrcx..,'111(,,nt with the Issuer constitutes the Lmderlying security for the ()bligations.

Any service of pnxx."i'ion the lm'.>1rrcr1nay OC ma<letothe lnsurerat it'ioffiu.,--s located at 113 King Stnx..'t, Armonk. ;\;cw York 10504 and such service of pro\X,'S.'i shall be valid and binding.

This policy is non-cancellable fr.1r any reason. The pren1iun1 on this policy is not refundable for any reason including the payment prior to maturity of the Obligations.

In the event the Insurer were lo become insolvent, any clai,ns arising under a policy of financial guaranty insurance are excluded fron1 coverage by the California Insurance (.Juaranty Association, established pursuant to .1\rticlc 14.2 (cotnn1encing v.·ith Section 1063) of Chapter l of Part :::! of Division I of the Califi.)rnia Insurance Code. IN \VITNESS WE IEREOF, the Insurer has caused this policy to be exC<..11ted in facsiinilc on its behalf by its duly authoriz.cd offia.-rs, d1is 5th day or January, 2001,.

MBIA Insurance Corporation

Attest;

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APPENDIX F

BOOK-ENTRY ONLY SYSTEM

The it?f(Jr1nation in this section concernin,g OTC an(./ DT(' 's book-en1t:i1 SJ'Sle,n has been obtained ji-om sources that the District believes to be reliahle, hut the District lakes no responsihility for the accuracv or completeness thereof.' The District can1101 a11d does no/ give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments ol interest, principal or premium. i( anv, with respect to the Bond,, (b) Bond, representing ownership interest in or other cot?firmation or ott:nershitJ interest i11 !he Bond~. or (c) preJJOJ'n1en/ or other notices sent to l)T(' or C'ede "~ ('o., its non1i11ee. as the re,~i:-,teretl ovvner (?/the Bon,.l~. or that they v.·i/1 so ,lo on a time(v basis or that DTC. DTC Participants or DTC Indirect Participants will act in the manner described in this Official Statement. The currenl "Rules" applicable lo DTC are on file with !he Securities and Exchange Commission and the current "Procedure" of DTC to he/bl/owed in dealing with DTC Participants are onjile with DTC

General

The Depository Trust Company ("DTC"), l\ew York, New York, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond will be issued for each maturity of the Bonds, in the aggregate principal amount of such maturity, and will be deposited with DTC.

DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization'' within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17 A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-U.S. equity, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic corr1putcrizcd book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in tum, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation, and Emerging Markets Clearing Corporation ("NSCC," "FICC," and "EMCC," also subsidiaries of DTCC), as well as by the New Yark Stock Exchange, Inc., the American 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 non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants arc on file with the Securities and Exchange Commission. More infonnation about DTC can be found at www.dtcc.com and www.dtc.org. The information found on such wehsites is not incorporated herein by reference.

Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual

F-1

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 OTC of their purchase. Beneficial Owners arc, however. expected to receive written confomations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.

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

Conveyance of notices and other communications by OTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial O\vncrs will be governed by a1Tangc1ncnts a1nong them, subject to any statutory or regulatory requirements as may be in effect from time to time.

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

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

Principal, Maturity Value, premium, if any, and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of OTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the District or Paying Agent, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of OTC nor its nominee, Paying Agent, or the District. subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, Maturity Value, premium, if any, and interest payments to Cede & Co. ( or such other nominee as may be requested by an authorized representative of OTC) is the responsibility of the District or Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of OTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

OTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the District or Paying Agent. Under such circumstances, in the event that a successor depository is not obtained, Bonds arc required to be printed and delivered.

F-2

The District may decide to discontinue use of the system of book-entry transfers through DTC ( or a successor securities depository). Discontinuance of use of the system of book-entry transfers through OTC may require the approval of DTC Participants under DTC's operational arrangements. In that event, printed certificates for the Bonds will be printed and delivered.

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

Discontinuation of Book-Entry Only System; Payment to Beneficial Owners

In the event that the book-entry system described above is no longer used with respect to the Bonds, the following provisions will govern the payment, transfer and exchange of the Bonds.

The principal, Maturity Value of the Bonds and any premium and interest upon the redemption thereof prior to the maturity will be payable in lawful money of the United States of America upon presentation and surrender of the Bonds at the otlicc of the Paying Agent, initially located in Los Angeles, California. Interest on the Bonds will be paid by the Paying Agent by check or drati mailed to the person whose name appears on the registration books of the Paying Agent as the registered owner, and to that person's address appearing on the registration books as of the close of business on the Record Date. At the written request of any registered owner of at least $1,000,000 in aggregate principal, payments shall be wired to a bank and account number on file with the Paying Agent as of the Record Date.

Any Bond may be exchanged for Bonds of any authorized denomination upon presentation and surrender at the office of the Paying Agent. initially located in Los Angeles, California, together with a request for exchange signed by the registered owner or by a person legally empowered to do so in a form satisfactory to the Paying Agent. A Bond may be transferred only on the Bond registration books upon presentation and surrender of the Bond at such office of the Paying Agent together with an assignment executed by the registered owner or by a person legally empowered to do so in a form satisfactory to the Paying Agent. Upon exchange or transfer, the Paying Agent shall complete, authenticate and deliver a new Bond or Bonds of any authorized denomination or denominations requested by the owner equal in the aggregate to the unmaturcd principal amount of the Bond surrendered and bearing interest at the same rate and maturing on the same date.

Neither the District nor the Paying Agent will be required to exchange or transfer any Bond during the period from the Record Date through the next Interest Payment Date.

F-3

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DATE

0210212006 08/01!2006 02/0 I 12007 08/0 I /2007 0210 I 12008 0810 I 12008 02/012009 08101/2009 02101/2010 08101/2010

DATE

0202/2006 08/0112006 02/01/2007 08/01/2007 02/0 l /2008 08/01/2008 02/01/2009 08/01/2009 0210112010 08/01/2010 02101/20 I 1 0801/2011 02/0112012 08/0112012 02/0112013 08/0112013 02/01/2014 0810112014 02/0112015 08101/2015

08/01/2006 (a)-

5,000.00 5.000.00

08/01/2011 (ii

3. 7502068'ro

4.076.30 4,152.31 4,230.17 4,309.49 4,390.29 4,472.62 4,556.48 4,641.92 4,728.96 4,817.63 4,907.97 5,000.00

APPEI\DIX G

ACCRETED VALUE TABLES

08/01/2007 08/01/2008 (ii (j1'

08/01/2009 @

3.4003665% 3.4503118% =~---===--- 3.5003002%

4.753.85 4.590.60 4.834.22 4.669.35 4,916.41 4.749.90 5,000.00 4.831.85

4.915.21 5.000.00

08/01/2012 08/01/2013 (a' ca:

3.8701655% 3.9701275%

3.897.70 3,723.65 3.972.70 3, 797.15 4,049.58 3,872.53 4.127.94 3,949.40 4,207.82 4,027.80 4,289.24 4,107.75 4,372.24 4,189.29 4,456.85 4.272.45 4,543.09 4,357.27 4,631.0 I 4.443.76 4,720.62 4,531.97 4,811.97 4,621.93 4,905.08 4,713.68 5.000.00 4,807.25

4.902.68 5,000.00

G-1

4.428.60 4.505.6 7 4.584.53 4,664.77 4,746.41 4,829.47 4,914.00 5,000.00

08/01/2014 @

3.1)801326%

3.547.45 3.619.41 3.693.25 3.768.60 3.845.48 3,923.93 4.003.98 4,085.66 4,169.01 4,254.07 4,340.85 4,429.41 4,519.77 4,611.98 4.706.06 4,802.07 4,900.04 5,000.00

08/01/2010 @.

3.6000469%

4,258.75 4,334.98 4.413.0 I 4.492.44 4,573.31 4,655.63 4,739.43 4,824.74 4,911.59 5,000.00

08/01/2015 (a'

3.1501319%

3,384.90 3,454.74 3,526.43 3,599.61 3,674.30 3,750.55 3,828.37 3,907.81 3,988.90 4,071.68 4,156.17 4.242.41 4,330.44 4.420.30 4,512.03 4,605.65 4.701.22 4,798. 78 4,898.36 5,000.00

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