UBS PaineWebber Inc.

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1 DRAFT os9 NEW ISSUE In the opinion of Bond Counsel, under existing statutes and court decisions and assuming continuing compliance with certain covenants and procedures described herein, interest on the 2002 Series E and F Bonds is not included in gross income for Federal income tax purposes pursuant to Section 103 of the Internal Revenue Code of 1986, as amended (the Code ). In addition, under existing statutes, interest on the 2002 Series E and F Bonds is not treated as a preference item in calculating the federal alternative minimum income tax imposed under the Code with respect to individuals and corporations; such interest, however, is included in the adjusted current earnings of certain corporations for purposes of computing the alternative minimum tax imposed on such corporations. See Tax Matters herein. In the opinion of Bond Counsel, interest on the 2002 Series E and F Bonds is exempt from the State of Maine income tax imposed on individuals under existing statutes. $32,720,000 MAINE MUNICIPAL BOND BANK 2002 Series E and F Bonds Dated: October 1, 2002 Due: November 1, as shown below The 2002 Series E and F Bonds will be issued in fully registered form only, without coupons, and when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ( DTC ), New York, New York. DTC will act as securities depository (the Securities Depository ) of the 2002 Series E and F Bonds. Individual purchases will be made in book-entry form only in the principal amount of $5,000 or whole multiples thereof. Purchasers of the 2002 Series E and F Bonds will not receive certificates representing their interest in the 2002 Series E and F Bonds purchased. The principal of, semi-annual interest (May 1 and November 1, first interest payment May 1, 2003) and redemption premium, if applicable, on the 2002 Series E and F Bonds are payable by State Street Bank and Trust Company, as Trustee, to the Securities Depository, which will in turn remit such principal, interest and redemption premium, if applicable, to its Participants (as defined herein), which will in turn remit such principal, interest and redemption premium, if applicable, to the Beneficial Owners (as defined herein) of the 2002 Series E and F Bonds, as described herein. Each of the 2002 Series E Bonds and the 2002 Series F Bonds maturing after November 1, 2012 shall be redeemable, as a whole or in part, beginning on November 1, 2012 as more fully described herein. Following are the maturities, principal amounts, interest rates and prices or yields of the 2002 Series E and F Bonds. $10,625, Series E Serial Bonds $19,095, Series F Serial Bonds Maturity Principal Amount Interest Rate Yield or Price Principal Amount Interest Rate Yield or Price 2003 $ 1,175, % 1.43% $ 1,330, % 1.43% ,175, ,330, ,430, ,350, ,320, ,360, ,540, ,585, , ,335, , ,335, , ,460, , ,370, , ,395, , , , , , , $3,000, % 2002 Series F Term Bonds Due November 1, 2023, Yield or Price % (Accrued interest to be added) The 2002 Series E and F Bonds are offered when, as and if issued and accepted by the Underwriters, subject to prior sale, to withdrawal or modification of the offer without notice, and to the approval of legality by Hawkins, Delafield & Wood, New York, New York, Bond Counsel to the Maine Municipal Bond Bank. Certain legal matters will be passed upon for the Underwriters by their counsel, Preti, Flaherty, Beliveau, Pachios & Haley, LLC, Augusta, Maine. It is expected that the 2002 Series E and F Bonds in definitive form will be available for delivery to The Depository Trust Company in New York, New York on or about October 30, Quick & Reilly, Inc. McDonald Investments, Inc. Dated: October 9, 2002 UBS PaineWebber Inc. A.G. Edwards & Sons, Inc. Salomon Smith Barney

2 No dealer, broker, salesperson or other person has been authorized by the Maine Municipal Bond Bank or the Underwriters to give any information or to make any representation, other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the 2002 Series E and F Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information set forth herein has been obtained from the Maine Municipal Bond Bank and from other sources which are believed to be reliable but it is not guaranteed as to accuracy or completeness. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstance, create any implication that there has been no change in the affairs of the Maine Municipal Bond Bank since the date hereof. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER- ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE 2002 SERIES E AND F BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. FOR NEW HAMPSHIRE INVESTORS: IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE MAINE MUNICIPAL BOND BANK AS ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THE 2002 SERIES E AND F BONDS HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ii

3 TABLE OF CONTENTS Page INTRODUCTORY STATEMENT...1 THE MAINE MUNICIPAL BOND BANK...3 Purposes, Powers and Procedures of the Bank...3 Organization and Membership of the Bank...6 Commissioners...6 THE 2002 SERIES E AND F BONDS...8 Description...8 Book-Entry Bonds...8 Redemption and Notices...10 SECURITY FOR THE BONDS LOAN AGREEMENTS AND MUNICIPAL BONDS PAYMENTS...13 FEES AND CHARGES...14 APPLICATION OF 2002 SERIES E AND F BOND PROCEEDS...15 GOVERNMENTAL UNITS...15 Municipal Bonds Payable from Ad Valorem Taxes...16 Municipal Bonds Payable from Rates, Charges and Assessments...16 Municipal Bonds Eligible for Purchase by the Bank...16 OUTSTANDING BONDS...17 FUNDS AND ACCOUNTS...19 GENERAL FUND...20 General Account...20 Operating Account...20 Interest Account and Principal Account...21 Redemption Account...21 RESERVE FUND...22 SUPPLEMENTAL RESERVE FUND...23 INVESTMENT OF FUNDS ISSUANCE OF ADDITIONAL BONDS ISSUANCE OF REFUNDING BONDS...26 MISCELLANEOUS RESOLUTION AND LOAN AGREEMENT PROVISIONS...27 Modification of Loan Agreement Terms...27 Sale of Municipal Bonds by Bank...27 Enforcement of Municipal Bonds...28 Pledge of Municipal Bonds and Municipal Bonds Payments...28 Responsibilities of Trustee and Paying Agents...29 Page CERTAIN OTHER COVENANTS...29 Accounts and Reports...29 Budgets...30 Personnel and Servicing of Programs...30 Waiver of Laws...30 SECONDARY MARKET DISCLOSURE...30 DEFAULTS AND REMEDIES...33 Defaults...33 Remedies...34 Priority of Payments After Default...35 Termination of Proceedings...36 Limitation on Rights of Bondholders...36 Remedies Not Exclusive...37 No Waiver of Default...37 Notice of Event of Default...38 MODIFICATIONS OF RESOLUTIONS AND OUTSTANDING BONDS...38 DEFEASANCE...38 CERTAIN AMENDMENTS NOT CURRENTLY EFFECTIVE...40 BONDS AS LEGAL INVESTMENTS...40 SECURITY FOR PUBLIC DEPOSITS...41 TAX MATTERS...41 Opinion of Bond Counsel...41 Certain Ongoing Federal Tax Requirements and Covenants...42 Certain Collateral Federal Tax Consequences...42 State Tax Matters...42 UNDERWRITING...43 LITIGATION...43 APPROVAL OF LEGALITY...43 FINANCIAL STATEMENTS...43 MISCELLANEOUS...44 APPENDIX A- Definitions APPENDIX B - Governmental Units and Their Municipal Bonds APPENDIX C - Financial Statements APPENDIX D - Proposed Form of Legal Opinion Attention is directed to Appendix A containing definitions of certain terms used in either the Act and/or the Resolution and used in this Official Statement. iii

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5 3 University Drive P.O. Box 2268 Augusta, Maine Robert O. Lenna, Executive Director Tel Fax $32,720,000 MAINE MUNICIPAL BOND BANK 2002 Series E and F Bonds This Official Statement is provided for the purpose of setting forth information concerning the Maine Municipal Bond Bank (the Bank ) in connection with the sale of $10,625, Series E Bonds (the 2002 Series E Bonds ) and $22,095, Series F Bonds (the 2002 Series F Bonds ). The 2002 Series E Bonds and the 2002 Series F Bonds are sometimes collectively referred to herein as the 2002 Series E and F Bonds. The 2002 Series E and F Bonds are issued pursuant to the Maine Municipal Bond Bank Act, being Chapter 225 of Title 30- A of the Maine Revised Statutes, as amended (the Act ). The 2002 Series E and F Bonds are to be issued under and are to be secured by the Bank's General Bond Resolution adopted July 11, 1973, as amended and supplemented by the First Supplemental Resolution adopted on September 20, 1977 (the First Supplemental Resolution ), the Second Supplemental Resolution adopted on July 18, 1984 (the Second Supplemental Resolution ), the Third Supplemental Resolution adopted on May 7, 1993 (the Third Supplemental Resolution ) and the Fourth Supplemental Resolution adopted on June 25, 1993 (the Fourth Supplemental Resolution ) (collectively, the Resolution ) and its Series Resolution adopted on October 9, 2002 (the Series Resolution ). The Resolution and the Series Resolution are sometimes collectively referred to herein as the Resolutions. Since 1973, the Bank has issued pursuant to the Act and the Resolution bonds in an aggregate principal amount of $2,670,350,000 of which $994,700,720 are Outstanding. Such bonds, together with the 2002 Series E and F Bonds and any additional bonds (referred to collectively herein as the Bonds ), constitute general obligations of the Bank, and the full faith and credit of the Bank are pledged for the payment of principal, redemption premium, if any, and interest thereon. INTRODUCTORY STATEMENT The Bank is constituted as an instrumentality exercising public and essential governmental functions of the State of Maine (the State ). The membership of the Bank consists of five commissioners including the Treasurer of State and the Superintendent of Banking, both of who serve as commissioners ex officio, and three additional commissioners appointed by the Governor for terms of three years (the Commissioners ). 1

6 Pursuant to the Act, the Bank is authorized to issue bonds for the purpose, among other purposes, of providing funds to enable the Bank to lend money to counties, cities, towns, school administrative districts, community school districts or other quasi-municipal corporations within the State ( Governmental Units ). Such loans are made through the direct purchase by the Bank from such Governmental Units of their bonds, notes or evidences of debt payable from taxes or from rates, charges or assessments (the Municipal Bonds ). Each Governmental Unit requesting the Bank to purchase its Municipal Bonds submits an application form containing certain information concerning the Governmental Units and the Municipal Bonds proposed to be purchased. The Commissioners of the Bank, in consultation with the Bank's Executive Director, discuss and accept or reject each application in an open meeting. If approved, the Governmental Unit enters into a loan agreement (the Loan Agreement ) with the Bank pursuant to which the Governmental Unit issues Municipal Bonds, the payment of principal and interest on which is equal to the amount of principal and interest required to be paid on that portion of the Bonds issued for the purpose of purchasing the Municipal Bonds (the Loan Obligations ). The 2002 Series E and F Bonds are being issued to provide moneys (i) to purchase $29,909,327 of Municipal Bonds from 20 Governmental Units which are indicated in Appendix B; and (ii) to deposit $2,810,673 in the Reserve Fund. The 2002 Series E and F Bonds will constitute, in the opinion of Bond Counsel, general obligations of the Bank and the full faith and credit of the Bank are pledged for the payment of principal, redemption premium, if any, and interest thereon. The 2002 Series E and F Bonds, and other Bonds ranking on a parity therewith under the Resolution, are secured by an equal charge and lien on all Municipal Bonds and amounts paid or required to be paid for principal of and interest on the Municipal Bonds to the Bank by the Governmental Units (the Municipal Bonds Payments ) and the investments thereof and the proceeds of such investments, if any, and all funds and accounts established by the Resolution, as more fully described below. Additional series of bonds may be issued by the Bank on a parity with the 2002 Series E and F Bonds, provided that each additional series will be authorized and secured by a series resolution adopted in accordance with and under the provisions of the Resolution and the Act. Pursuant to the Third Supplemental Resolution, the Bank has authorized certain amendments to the Resolution which shall be effective, with respect to the holders of the 2002 Series E and F Bonds and the holders of all Series of Bonds issued under the Resolution after the date hereof, upon that date when all prior Series of Bonds Outstanding under the Resolution as of May 7, 1993 shall cease to be Outstanding. It is anticipated by the Bank that the Third Supplemental Resolution will become effective on or about November 2, See Certain Amendments Not Currently Effective herein. The Act provides that in order to assure the maintenance of the Required Debt Service Reserve in the Reserve Fund, there shall be appropriated annually and paid to the Bank for deposit in the Reserve Fund such sum as shall be certified by the Chairman of the Bank to the Governor as 2

7 necessary to restore the Fund to an amount equal to the Required Debt Service Reserve. Under the Act and the Resolution, the Chairman shall annually, on or before December 1, make and deliver to the Governor the Chairman s certificate stating the sum required to restore the Fund to the amount aforesaid, and the sum so certified shall be appropriated and paid to the Bank during the then current State fiscal year. While the 2002 Series E and F Bonds and the aforesaid provisions of the Act do not constitute a legally enforceable obligation upon the State of Maine nor create a debt on behalf of the State, there is no constitutional bar to future Legislatures to appropriate such sum as shall have been certified by the Chairman of the Bank to the Governor as necessary to restore the Reserve Fund to an amount equal to the Required Debt Service Reserve. The amount currently on deposit in the Reserve Fund is at least equal to the Required Debt Service Reserve. The Bank also has established a Supplemental Reserve Fund by the adoption of the First Supplemental Resolution in Prior to the Chairman of the Bank making and delivering his certificate to the Governor stating the amount necessary to restore the Reserve Fund to the Required Debt Service Reserve, the First Supplemental Resolution directs the Trustee to apply amounts in the Supplemental Reserve Fund to the restoration of the Reserve Fund to the Required Debt Service Reserve. The Bank may, but is not required to, deposit additional amounts into the Supplemental Reserve Fund. The Supplemental Reserve Fund is more fully described under the caption Supplemental Reserve Fund. The Bank is obligated to pay the principal of and interest on the Bonds only from revenues or funds of the Bank, and the State is not obligated to pay the principal of or interest thereon and neither the faith and credit nor the taxing power of the State is pledged to the payment of the principal of or redemption price, if any, or interest on the Bonds. U.S. Bank, N.A. ( U.S. Bank ) and State Street Bank and Trust Company, Trustee under the Resolution, have entered into an agreement pursuant to which U.S. Bank will purchase the corporate trust business of State Street Bank and Trust Company. Under the Resolution, U.S. Bank will become the successor trustee thereunder in the event such agreement is concluded. There follows in this Official Statement a brief description of the Bank together with summaries of the terms of the 2002 Series E and F Bonds, the Resolution and certain provisions of the Act. All references herein to the Act and the Resolutions are qualified in their entirety by reference to such law and such documents, copies of which are available from the Bank or State Street Bank and Trust Company, as Trustee, and all references to the 2002 Series E and F Bonds are qualified in their entirety by reference to the definitive forms thereof and the information with respect thereto contained in the Resolutions. THE MAINE MUNICIPAL BOND BANK The Maine Municipal Bond Bank was established by the Act as a body corporate and politic and is constituted as an instrumentality exercising public and essential governmental functions of the State. Purposes, Powers and Procedures of the Bank 3

8 It is the policy of the State, as declared in the Act, to foster and promote by all reasonable means the provision of adequate capital markets for the financing by Governmental Units of their respective public improvements and other municipal purposes from proceeds of their bonds and notes and to assist such Governmental Units in such financing by making funds available at reduced interest costs for orderly financing especially during periods of restricted credit or money supply, particularly for those Governmental Units not otherwise able to borrow for such purposes. In furtherance of this policy, the Bank is empowered to issue its Bonds to make funds available at reduced rates and on more favorable terms for borrowing by such Governmental Units through the purchase by the Bank of their Municipal Bonds. Each Governmental Unit requesting the Bank to purchase its Municipal Bonds is required to complete an application form containing certain information concerning the Governmental Unit and the Municipal Bonds proposed to be purchased. The Bank also requires hospital districts to supply feasibility studies with such application forms. The Commissioners of the Bank, in consultation with the Executive Director, discuss and accept or reject each application in open meeting. In considering each application, the Commissioners rely on the information contained therein and such additional information as the Commissioners deem relevant. The information considered by the Commissioners includes, among other things: the amount of debt of each Governmental Unit, the amount by which such debt will be increased by the proposed purchase of the Governmental Unit's Municipal Bonds, the state and local valuation, tax levy and taxes receivable, the largest taxpayers, the largest employers in the local area, the population trends, and the economic outlook for the community as supplied by the Governmental Unit. The Commissioners' review of the sources of revenue as set forth above includes the nature of such revenue and whether such revenue will or could be recurring or nonrecurring. On the basis of such review, the Bank believes that each Governmental Unit whose Municipal Bonds the Bank is purchasing with the proceeds of the 2002 Series E and F Bonds has the ability to service such Municipal Bonds by the levy of ad valorem taxes or the collection of rates, charges or assessments. In order to fulfill such purposes, the Bank has, among others, the following powers: (1) To purchase or hold Municipal Bonds at such prices and in such manner as the Bank shall deem advisable, and to sell Municipal Bonds acquired or held by it at such prices without relation to cost and in such manner as the Bank shall deem advisable; (2) To fix and establish any and all terms and provisions with respect to any purchase of Municipal Bonds by the Bank, including dates and maturities of the Municipal Bonds, provisions as to redemption or payment prior to maturity, and any other matters which in connection therewith are necessary, desirable or advisable in the judgment of the Bank; (3) To fix and prescribe any form of application or procedure to be required of a Governmental Unit for the purpose of any loan or purchase of its Municipal Bonds and to fix the terms and conditions of any such loan or purchase and to enter into agreements with Governmental Units with respect to any such loan or purchase; (4) In connection with any loan to a Governmental Unit, to consider the need, desirability or eligibility of such loan, the ability of such Governmental Unit to secure borrowed money from other sources and the costs thereof, and the particular public improvement or purpose to be financed by the Municipal Bonds to be purchased by the Bank; 4

9 (5) To borrow money and to issue its negotiable bonds or notes and to provide for and secure the payment thereof and to provide for the rights of the holders thereof, and to purchase, hold and dispose of any of its bonds or notes; (6) To impose and collect charges for its costs and services in review or consideration of any proposed loan to a Governmental Unit or purchase of Municipal Bonds of such Governmental Unit, and to impose and collect charges thereof whether or not such loan shall have been made or such Municipal Bonds shall have been purchased; (7) To fix and revise from time to time and charge and collect fees and charges for the use of its services or facilities; (8) To acquire, rent, lease, hold, use and dispose of other personal and real property for its purposes; (9) To make, enter into and enforce all contracts or agreements necessary, convenient or desirable for the purposes of the Bank or pertaining to any loan to a Governmental Unit or any purchase or sale of Municipal Bonds or other investments or to the performance of its duties and execution or carrying out of any of its powers under the Act; (10) To invest any funds or moneys of the Bank not then required for loan to Governmental Units and for the purchase of Municipal Bonds, in the same manner as permitted for investment of funds belonging to the State or held in the State Treasury, except as otherwise permitted or provided by the Act (however, the Resolution limits investments as hereinafter set forth); (11) To the extent permitted under its contracts with the holders of bonds or notes of the Bank, to consent to any modification with respect to rate of interest, time and payment of any installment of principal or interest, security or any other term of bond or note, contract or agreement of any kind to which the Bank is a party; and (12) To do all acts and things necessary, convenient or desirable to carry out the powers expressly granted or necessarily implied in the Act. The Bank is further empowered under the Act to issue certain bonds for other purposes and to administer certain other funds. Any such other bonds not issued under the Resolution shall not be entitled to the benefits of the Resolution. To date, the Bank has issued (i) $112,665,000 of its Sewer and Water Revenue Bonds (the SRF Bonds ), for the purpose of lending money to certain municipalities to assist in financing certain waste water treatment facilities and drinking water facilities by the purchase of the municipal bonds of such municipalities pursuant to its State Revolving Loan Fund Program (the SRF Program ), of which $64,660,000 is outstanding as of the date hereof, (ii) $1,700,000 of its taxable Special Obligation Bonds 1990 Series A (the 1990 Taxable Bonds ) for the purpose of lending money to a Maine hospital administrative district by the purchase of such district's taxable general obligation bond, of which $1,090,000 is outstanding as of the date hereof, and (iii) $3,520,000 of its Special Obligation Bonds 1994 Series A (Taxable) (the 1994 Taxable Bonds ) for the purpose of lending money to the eleven Governmental Units to which the Bank lent money from the proceeds of the 1994 Series D Bonds to provide financing for a solid waste disposal facility for the Governmental Units, including refunding of bonds issued for 5

10 such facility, of which $360,000 is outstanding as of the date hereof. The 1990 Taxable Bonds and the 1994 Taxable Bonds are hereinafter referred to as the Special Obligation Bonds. The SRF Bonds and the Special Obligation Bonds are special obligations of the Bank payable solely out of the respective revenues, funds and other security pledged therefor and are not entitled to the benefits of the Resolution. The Bank anticipates issuing additional bonds under the SRF Program and is authorized to issue additional bonds on parity with the Special Obligation Bonds. Organization and Membership of the Bank The Act provides that the membership of the Bank shall consist of five Commissioners, including the Treasurer of State and the Superintendent of Banking, who both serve as Commissioners ex officio. The three additional Commissioners appointed by the Governor are each required to be a resident of the State and each hold office for the three-year term of his appointment and until a successor is appointed and qualified. Commissioners are eligible for reappointment. Any vacancy in the office of a Commissioner occurring other than by expiration of term shall be filled in the same manner as the original appointment but only for the remainder of the unexpired term. The Commissioners select a Chairman and Vice-Chairman from among the members. The Commissioners appoint an Executive Director who also serves as both Secretary and Treasurer. The Executive Director serves at the pleasure of the Commissioners. The powers of the Bank are vested in the Commissioners, three of whom constitute a quorum. Action may be taken and motions and resolutions adopted by the Bank at any meeting thereof by the affirmative vote of at least three Commissioners of the Bank. Commissioners The Bank's membership and officers are as follows: STEPHEN R. CROCKETT, Chairman Stephen R. Crockett, a resident of Winthrop, Maine, formerly served as Senior Vice President, Public Finance and Governmental Relations, the Fleet Bank of Maine, Augusta, Maine. Mr. Crockett served as a Commissioner from September, 1973 through September, He was appointed a Commissioner again in July, 1981 and his current term expires in August, HOWARD R. GRAY, JR., Superintendent of Maine Bureau of Banking Howard R. Gray, Jr., a resident of Portland, is a former Vice President at The Chase Manhattan Bank in New York where he was involved in several key domestic and international banking assignments. Additionally, Mr. Gray held financial services marketing positions with the American Express Company. Immediately prior to leaving New York, Mr. Gray was a Vice President in a newly-formed state subsidiary that was established to negotiate and formalize a public/private financial services joint venture. Mr. Gray is a graduate of Harvard Business School and Harvard University in Cambridge, Massachusetts. Mr. Gray was confirmed by the Legislature in May 1999, and his current five-year term as Superintendent of Banking expires in June, DALE McCORMICK, Treasurer of State 6

11 Dale McCormick, a resident of Hallowell, was elected Treasurer of the State in December, Ms. McCormick is the first woman in the United States to complete the apprenticeship with the carpenter s union. She has written two books on carpentry and home repair. She founded McCormick Construction and Cabinetry Company in 1977, and in 1987 founded Women Unlimited, a program that trains women (many on welfare) in trade and technical jobs. Commencing in 1990, Ms. McCormick was a Maine State Senator for three terms. In addition to focusing on health care reform, she conceived and successfully advocated for the establishment of the Maine Employers Mutual Insurance Company, worked with the banking community to reform Maine s credit laws and enable banks to sell annuities, and negotiated an amortization schedule for payments on the unfunded liability of the Maine State Retirement System. Her current term as Treasurer of State expires in December, CATHRYN M. ROBINSON Cathryn M. Robinson, a resident of Yarmouth, Maine, graduated from Ithaca College with a Bachelor of Science Degree in Business Management. She is Capacity Development Coordinator for Maine Rural Water Association, Brunswick, Maine. Ms. Robinson served as State Revolving Fund Administrator and Program Officer for the Maine Municipal Bond Bank from October, 1989 through June, She has served in the banking and investment field since Ms. Robinson was appointed as a Commissioner in March, 2001 and her current term expires in August, LAWRENCE E. DWIGHT, Vice-Chairman Lawrence E. Dwight, a resident of Kennebunk, Maine, graduated from Bowdoin College and the Cornell Graduate School of Business. He has been in the investment business since Prior to becoming Vice President, Morgan Stanley, Dean Witter Reynolds, Inc. in Portland, Maine on October 2, 1995, he was associated with H.M. Payson & Co., Portland, Maine. He is a former board member of the Finance Authority of Maine. He serves on several boards in the Kennebunk area. Mr. Dwight served as a Commissioner from April, 1990 through January, He was reappointed in December, 1997 and his current term expires in August, ROBERT O. LENNA, Executive Director Robert O. Lenna was appointed the Executive Director of the Bank in September, 1988 by the Commissioners and also serves as Secretary and Treasurer of the Bank. He also serves as Executive Director of the Maine Health and Higher Educational Facilities Authority, the Maine Governmental Facilities Authority and the Maine Public Utility Financing Bank. He served for two years as Deputy Director of the Maine State Housing Authority and for five years as Assistant Director at the Housing Authority. He received his undergraduate degree from Stetson University and received a Masters Degree in New England Studies from the University of Southern Maine. James E. Mitchell, Augusta, Maine, is counsel to the Bank. 7

12 THE 2002 SERIES E AND F BONDS Description The 2002 Series E and F Bonds are dated October 1, 2002 (except as otherwise provided in the Resolutions) and shall mature on the dates and in the principal amounts, and bear interest at the rates per annum, set forth on the cover page of this Official Statement. The 2002 Series E and F Bonds shall bear interest from their date, payable semi-annually on May 1 and November 1, commencing May 1, The principal of, redemption premium, if any, and interest on the 2002 Series E and F Bonds shall be payable as set forth below under the caption Book-Entry Bonds or as otherwise provided in the Resolutions. Book-Entry Bonds The 2002 Series E Bonds and the 2002 Series F Bonds will be available to the ultimate purchasers in book-entry form only, in the principal amount of $5,000 and whole multiples thereof. Purchasers of the 2002 Series E Bonds and the 2002 Series F Bonds will not receive certificates representing their interests in the 2002 Series E Bonds and the 2002 Series F Bonds purchased, except as described below. The Depository Trust Company ( DTC ), New York, New York, will act as securities depository ( Securities Depository ) for the 2002 Series E Bonds and the 2002 Series F Bonds. The ownership of one fully registered 2002 Series E Bond and one fully registered 2002 Series F Bond for each maturity of the 2002 Series E Bonds and the 2002 Series F Bonds, respectively, as set forth on the cover page of this Official Statement, each in the aggregate principal amount of such maturity, will be registered in the name of Cede & Co., as nominee of DTC. DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended. DTC was created to hold securities on behalf of its participants (the Participants ) and to facilitate the clearance and settlement of securities transactions among Participants in such securities through electronic bookentry changes in accounts of the Participants, thereby eliminating the need of physical movement of securities certificates. Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations, some of which (and/or their representatives) own DTC. Access to the DTC system is also available to others, such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly. Beneficial ownership interests in the 2002 Series E Bonds and the 2002 Series F Bonds may be purchased by or through Participants and will be recorded on the records of the Participants whose interests will be recorded on a computerized book-entry system operated by DTC. Such Participants and the persons for which they acquire interests in the 2002 Series E Bonds or the 2002 Series F Bonds as nominees ( Beneficial Owners ) will not receive 2002 Series E Bond certificates or 2002 Series F Bond certificates, except as described below, but each such Participant will receive a credit balance in the records of DTC in the amount of such Participant's interest in the 2002 Series E Bonds or the 2002 Series F Bonds, as the case may be, which will be confirmed in accordance with DTC's standard procedures. Each such person for which a 8

13 Participant acquires an interest in the 2002 Series E Bonds or the 2002 Series F Bonds, as nominee, may desire to make arrangements with such Participant to receive a credit balance in the records of such Participant. DTC will receive payments from the Trustee to be remitted to Participants for subsequent disbursement to the Beneficial Owners. The Trustee and the Bank may treat DTC (or its nominee) as the sole and exclusive owner of the 2002 Series E Bonds and the 2002 Series F Bonds registered in its name for the purposes of payment of the principal or Redemption Price of or interest on the 2002 Series E and F Bonds, selecting the 2002 Series E Bonds or the 2002 Series F Bonds or portions thereof to be redeemed, giving any notice permitted or required to be given to registered owners of 2002 Series E Bonds or 2002 Series F Bonds under the Resolutions, registering the transfer of 2002 Series E Bonds or 2002 Series F Bonds, obtaining any consent or other action to be taken by registered owners of 2002 Series E Bonds or 2002 Series F Bonds and for all other purposes whatsoever; and neither the Trustee nor the Bank shall be affected by any notice to the contrary. When reference is made to any action which is required or permitted to be taken by the Beneficial Owners, such reference shall only relate to those permitted to act (by statute, regulation or otherwise) on behalf of such Beneficial Owners for such purposes. When notices are given, they shall be sent by the Trustee to DTC with a request that DTC forward (or cause to be forwarded) the notices to the Participants so that such Participants may forward (or cause to be forwarded) the notices to the Beneficial Owners. Beneficial Owners may desire to make arrangements with such Participant to have all notices of redemption or other communications by the Trustee (at the direction of the Bank or otherwise pursuant to the Resolutions) to DTC which may affect such persons to be forwarded in writing by such Participant and to have notification made of all interest payments. Neither the Trustee nor the Bank shall have any responsibility or obligation to any Participant, Beneficial Owner, or any other person which is not shown on the registration books of the Trustee as being a registered owner of any 2002 Series E Bonds or 2002 Series F Bonds, with respect to the accuracy of any records maintained by DTC or any Participant; the payment by DTC or any Participant of any amount in respect of the principal or Redemption Price of or interest on the 2002 Series E Bonds or 2002 Series F Bonds; any notice which is permitted or required to be given to registered owners of the 2002 Series E and F Bonds under the Resolutions; the selection by DTC or any Participant of any person to receive payment in the event of a partial redemption of the 2002 Series E Bonds or the 2002 Series F Bonds; or any consent given or other action taken by DTC as the registered owner of 2002 Series E Bonds or 2002 Series F Bonds. Participants are expected to send new Beneficial Owners written confirmation of their purchase detailing the terms of the 2002 Series E Bonds or 2002 Series F Bonds acquired. Transfers of ownership interests in the 2002 Series E Bonds or 2002 Series F Bonds will be accomplished by book-entries made by DTC and the Participants who act on behalf of the Beneficial Owners. Interest, redemption premium, if any, and principal will be paid by the Trustee to DTC, then paid by DTC to the Participants and thereafter paid by the Participants to the Beneficial Owners when due. Disbursal of such payments to the Participants is the responsibility of DTC, and disbursal of such payments to the Beneficial Owners is the responsibility of the Participants. For every transfer and exchange of the 2002 Series E Bonds or 2002 Series F Bonds, the Beneficial Owner may be charged a sum sufficient to cover any tax, fee or other governmental charge that may be imposed in relation thereto. 9

14 In the event the Bank determines that it is in the best interest of the Beneficial Owners of the 2002 Series E Bonds or 2002 Series F Bonds that they be able to obtain 2002 Series E Bond certificates or 2002 Series F Bond certificates, respectively, the Bank may notify DTC and the Trustee, whereupon DTC will notify the Participants, of the availability through DTC of 2002 Series E Bond certificates or 2002 Series F Bond certificates. In such event, the Trustee shall transfer and exchange 2002 Series E Bond certificates or 2002 Series F Bond certificates, as requested by DTC, the Participants or the Beneficial Owners in appropriate amounts. DTC may determine to discontinue providing its services with respect to the 2002 Series E Bonds or the 2002 Series F Bonds at any time by giving notice to the Bank and the Trustee and discharging its responsibilities with respect thereto under applicable law. Under such circumstances, the Trustee and the Bank will cooperate with DTC in taking appropriate action after reasonable notice (a) to make available one or more separate certificates evidencing the 2002 Series E Bonds or 2002 Series F Bonds to any Participant having 2002 Series E Bonds or 2002 Series F Bonds credited to its DTC account or (b) to arrange for another Securities Depository to maintain custody of certificates evidencing the 2002 Series E Bonds or 2002 Series F Bonds, as the case may be. If there is no successor Securities Depository, the Bank shall be obligated to deliver or cause to be delivered 2002 Series E Bond certificates or 2002 Series F Bond certificates as described in the Resolutions. In the event such 2002 Series E Bond certificates or 2002 Series F Bond certificates are issued, the Beneficial Owner, upon registration of the 2002 Series E Bonds or 2002 Series F Bonds held in the Beneficial Owner's name, will become the Bondholder for purposes of the Resolutions and the provisions of the Resolutions shall apply to, among other things, the transfer and exchange of such certificates and the method of payment of principal of, redemption premium, if any, and interest on such 2002 Series E Bond certificates or 2002 Series F Bond certificates. Redemption and Notices The 2002 Series E Bonds maturing after November 1, 2012 shall be subject to redemption on and after November 1, 2012, at the option of the Bank, in whole or in part on any date in such order of maturity as the Bank shall determine and by lot within a maturity upon not less than thirty (30) days nor more than sixty (60) days published notice at the Redemption Price of one hundred percentum (100%) of the principal amount of the 2002 Series E Bonds or portions thereof to be redeemed, plus interest accrued thereon to the redemption date. The 2002 Series F Bonds maturing after November 1, 2012 shall be subject to redemption on and after November 1, 2012, at the option of the Bank, in whole or in part on any date in such order of maturity as the Bank shall determine and by lot within a maturity upon not less than thirty (30) days nor more than sixty (60) days published notice at the Redemption Price of one hundred percentum (100%) of the principal amount of the 2002 Series F Bonds or portions thereof to be redeemed, plus accrued interest thereon to the redemption date. The Trustee shall also mail a copy of such notice, postage prepaid, not less than thirty (30) days before the redemption date, to DTC as the registered owner of any 2002 Series E Bonds or 2002 Series F Bonds or respective portions of 2002 Series E Bonds or 2002 Series F Bonds which are to be redeemed, but such mailing shall not be a condition precedent to such redemption and failure so to mail any such notice (or any failure of DTC to advise any Participant, or any Participant to notify the Beneficial Owner, of any such notice or its content or effect) shall not affect the validity of the proceedings for the redemption of the 2002 Series E Bonds or 2002 Series F Bonds. 10

15 If less than all of the 2002 Series E Bonds or the 2002 Series F Bonds of one maturity shall be called for redemption, the Trustee at the direction of the Bank shall notify DTC not later than the business day prior to thirty (30) days prior to the date fixed for redemption of the particular amount of such Series and maturity to be redeemed. Notice of any proposed modification or amendment of the Resolution by means of a Supplemental Resolution to be effective with consent of the registered owners of the Bonds will be mailed to DTC, as the registered owner of any 2002 Series E Bonds or 2002 Series F Bonds then outstanding. No assurance can be given by the Bank or the Trustee that DTC will distribute to the Participants or the Participants will distribute to the Beneficial Owners (i) payments of debt service on the 2002 Series E Bonds or 2002 Series F Bonds paid to DTC or its nominee, as the registered owner, or (ii) any redemption or other notices, or that DTC or the Participants will serve and act on a timely basis or in a manner described in this Official Statement. Sinking Fund Installments have been established in accordance with the Resolutions for the 2002 Series F Bonds maturing on November 1, Such Sinking Fund Installments shall become due and shall be applied to the redemption at par (100%) or payment at maturity of the 2002 Series F Bonds due November 1, 2023 on November 1 of each of the designated years in the principal amounts shown in the following table: 2002 Series F Bonds Maturing November 1, 2023 Year Sinking Fund Installment 2018 $ 520, , , , , (final maturity) 25,000 SECURITY FOR THE BONDS The Bank is obligated to pay the principal or Redemption Price of and the interest on the Bonds only from revenues or funds of the Bank and the State is not obligated to pay the principal, Redemption Price or interest thereon, and neither the faith and credit nor the taxing power of the State is pledged to the payment of the principal of, Redemption Price or the interest on the Bonds. The Bonds are general obligations of the Bank and, under the Resolution, the full faith and credit of the Bank are pledged for the payment of the principal or Redemption Price of and interest on the Bonds. The Resolution creates a continuing pledge and lien to secure the full and final payment of the principal or Redemption Price of and interest on all of the Bonds issued pursuant to the Resolution. 11

16 To secure the payment of the principal or Redemption Price of and interest on the Bonds, the Bank pledges, for the benefit of the Holders of the Bonds and coupons, all Municipal Bonds and Municipal Bonds Payments. The Municipal Bonds and the Municipal Bonds Payments, the investments thereof and the proceeds of such investments, if any, and all funds and accounts established by the Resolution are pledged for the payment of the principal or Redemption Price of and interest on the Bonds in accordance with the terms and provisions of the Resolution. Pursuant to the Resolution, the Municipal Bonds and the Municipal Bonds Payments and all other moneys and securities in the funds and accounts established by and so pledged under the Resolution shall be subject to the lien of such pledge. The Act provides that the Bank shall establish and maintain a reserve fund called the Maine Municipal Bond Bank Reserve Fund (the Reserve Fund ) in which there shall be deposited: (i) All moneys appropriated by the State for the purpose of the Fund; (ii) All proceeds of Bonds required to be deposited therein by the terms of any contract between the Bank and its Bondholders or any resolution of the Bank with respect to such proceeds of Bonds; and (iii) Any other moneys or funds of the Bank which it determines to deposit therein and any other moneys made available to the Bank for the purpose of such Fund from any other source. Moneys in the Reserve Fund shall be held and applied solely to the payment of the interest on and principal of the Bonds as they become due and payable and for the retirement of Bonds. Money may not be withdrawn if it reduces the amount in the Reserve Fund to an amount less than the Required Debt Service Reserve, except for payment of interest then due and payable on Bonds and the principal of Bonds then maturing and payable and for the retirement of Bonds in accordance with the terms of any contract between the Bank and its Bondholders and for which payments other moneys of the Bank are not then available. The Act provides that in order to assure the maintenance of the Required Debt Service Reserve in the Reserve Fund, there shall be annually appropriated and paid to the Bank for deposit in said Fund, such sum, if any, as shall be certified by the Chairman of the Bank to the Governor, as necessary to restore said Fund to an amount equal to the Required Debt Service Reserve. The Chairman shall annually, on or before December 1, make and deliver to the Governor his certificate stating the sum, if any, required to restore said Fund to an amount equal to the Required Debt Service Reserve and the sum or sums so certified shall be appropriated and paid to the Bank during the then current State fiscal year. While the 2002 Series E and F Bonds and the aforesaid provisions of the Act do not constitute a legally enforceable obligation upon the State of Maine nor create a debt on behalf of the State, there is no constitutional bar to future Legislatures to appropriate such sum as shall have been certified by the Chairman of the Bank to the Governor as necessary to restore the Reserve Fund to an amount equal to the Required Debt Service Reserve. In order to further secure the Bonds, the First Supplemental Resolution established a Supplemental Reserve Fund that is comprised of a General Reserve Account and a Special 12

17 Reserve Account. The General Reserve Account is to be funded with moneys that become available from time to time to the Bank for any of its lawful purposes pursuant to the Resolution. Earnings on the Supplemental Reserve Fund are returned to the Governmental Units as explained under the caption Supplemental Reserve Fund. Both the General Reserve Account and the Special Reserve Account are pledged to the payment of the principal or Redemption Price, if any, and interest on all Bonds heretofore and hereafter issued under the Resolution. This pledge is subject to the terms and provisions of the First Supplemental Resolution permitting the use of moneys in such Accounts for the purposes specified under the caption Supplemental Reserve Fund. The First Supplemental Resolution provides that in the event that there shall be, on any interest payment date for the Bonds, a deficiency in the Interest Account, or in the event that there shall be, on any principal payment date for the Bonds, a deficiency in the Principal Account, the Bank may, but is not required to, direct the Trustee to make up such deficiency or any portion thereof by the withdrawal of moneys from the Supplemental Reserve Fund. Such direction may require the sale or redemption of securities held in the Supplemental Reserve Fund to supplement the available cash in such Fund. The First Supplemental Resolution further provides that prior to the Chairman making and delivering his certificate to the Governor of the State, pursuant to the Resolution, stating the amount required to restore the Reserve Fund to the Required Debt Service Reserve, the Trustee shall transfer moneys or investments in the Supplemental Reserve Fund to the Reserve Fund in the amount, or any portion of such amount, necessary to restore the Reserve Fund to the Required Debt Service Reserve. LOAN AGREEMENTS AND MUNICIPAL BONDS PAYMENTS The Loan Agreement, under which a Loan is to be made to a Governmental Unit, shall comply with certain terms and conditions, including the following: (a) The Governmental Unit which is a party to such Loan Agreement must be a Governmental Unit as defined by the Act and the Loan Agreement must be executed in accordance with existing laws; (b) The Governmental Unit, prior to or simultaneously with the issuance of applicable Loan Obligations by the Bank, shall issue Municipal Bonds that are valid obligations of the Governmental Unit; (c) The Municipal Bonds Interest Payments to be made by the Governmental Unit under such Loan Agreement shall not be less than the amount of interest the Bank is required to pay on the Loan Obligations and shall be scheduled by the Bank in such manner and at such times (notwithstanding the dates of payment as stated in the Municipal Bonds) as to provide funds sufficient to pay interest on the Loan Obligations as the same become due and shall be paid to the Bank at least five business days prior to the due date; (d) The Municipal Bonds Principal Payments to be made by the Governmental Unit under such Loan Agreement shall be scheduled by the Bank in such manner and at such times 13

18 (notwithstanding the dates of payment as stated in the Municipal Bonds) as to provide funds sufficient to pay the principal of the Loan Obligations as the same mature and shall be paid to the Bank at least five business days prior to the due date; (e) The Governmental Unit shall be obligated to pay Fees and Charges to the Bank at the times and in the amounts which will enable the Bank to pay the Fees and Charges specified below; (f) The Governmental Unit shall be obligated to make the Municipal Bonds Principal Payments scheduled by the Bank on an annual basis and shall be obligated to make the Municipal Bonds Interest Payments scheduled by the Bank and to pay the Fees and Charges imposed by the Bank on a semi-annual basis; and (g) The Loan Agreement prohibits the sale or redemption of Municipal Bonds except under certain conditions (see Sale of Municipal Bonds by Bank ) and states that no sale or redemption of Municipal Bonds shall be effected without the prior written agreement and consent of the parties to the Loan Agreement. FEES AND CHARGES The Bank is authorized in connection with the making of Loans, to establish, make, maintain and charge such Fees and Charges to each Governmental Unit to which a Loan is made, and shall from time to time revise such Fees and Charges whenever necessary, so that such Fees and Charges actually collected from each such Governmental Unit will at all times produce moneys which, together with such Governmental Unit's Allocable Proportion of other moneys available under the provisions of the Resolution and other moneys available therefor, including any grants made by the United States of America or any agency or instrumentality thereof or by the State or any agency or instrumentality thereof, will be at least sufficient: (a) To pay, as the same become due, the Governmental Unit's Allocable Proportion of the Administrative Expenses of the Bank; and (b) To pay, as the same become due, the Governmental Unit's Allocable Proportion of the fees and expenses of the Trustee and Paying Agents for the Bonds of the Bank. 14

19 APPLICATION OF 2002 SERIES E AND F BOND PROCEEDS Each Series Resolution authorizing the issuance of a Series of Bonds is required to specify the purposes for which such Series of Bonds are being issued and to provide for the disposition of the proceeds thereof. Purposes for which Bonds may be issued are (i) the making of Loans to Governmental Units, (ii) the making of payments into the Interest Account and the Operating Account or either of such Accounts, (iii) the making of payments into the Reserve Fund of any amounts required to be paid thereto in order to establish the Reserve Fund in an amount at least equal to the Required Debt Service Reserve or such larger amount as the Bank shall determine, (iv) the funding of Notes theretofore issued by the Bank for any purposes for which Bonds may have been issued, and (v) the refunding of Bonds and related purposes. The proceeds of sale of the 2002 Series E Bonds and the 2002 Series F Bonds (exclusive of accrued interest which shall be deposited in the Interest Account) are expected to be used and applied as follows: For making 25 Loans to 20 Governmental Units and acquiring 25 Municipal Bonds $ 29,909, For deposit in the Reserve Fund 2,810, Principal Amount of the 2002 Series E and F Bonds $ 32,720, For deposit in the Operating Account, the premium on the 2002 Series E and F Bonds remaining after payment of the Underwriters discount therefrom (see Underwriting herein) 23, Total proceeds exclusive of accrued interest $ 32,743, Certain costs of issuing the 2002 Series E and F Bonds may be paid from other available moneys held by the Bank. In accordance with the provisions of the Act and the Resolution, the deposits in the Reserve Fund will, together with the funds on deposit therein, be at least equal to the maximum amount of principal and interest maturing and becoming due in any succeeding calendar year on all Loan Obligations. A list of those Governmental Units which have executed Loan Agreements and the Municipal Bonds of each sold to the Bank that remain unpaid is included as Appendix B to this Official Statement. GOVERNMENTAL UNITS Most of the Municipal Bonds heretofore purchased and to be purchased by the Bank are payable from ad valorem taxes with the remainder payable from rates, charges and assessments (as shown in Appendix B hereto). Municipal Bonds eligible for purchase by the Bank are described below. 15

20 Municipal Bonds Payable from Ad Valorem Taxes The Bank has received or will receive opinions from bond counsel to certain Governmental Units with respect to the Municipal Bonds of such Governmental Units to the effect that such Municipal Bonds are payable as to both principal and interest from ad valorem taxes which may be levied without limit as to rate or amount upon all the property within the territorial limits of each such Governmental Unit and taxable by it. Present statutory law in the State, enacted in order to reduce the local burden of educational costs, provides for an allocation of funds from the State's general revenues based on certain enumerated educational expenses including debt service incurred for State approved construction projects. It should be noted that the allocation for such enumerated educational expenses including debt service is computed upon an aggregate statewide basis and not upon a local Governmental Unit basis. Those Governmental Units that have incurred debt service for such approved school construction projects by the issuance of Municipal Bonds purchased by the Bank are indicated in Appendix B. Municipal Bonds Payable from Rates, Charges and Assessments The Bank has received or will receive opinions from bond counsel to certain Governmental Units with respect to the Municipal Bonds of such Governmental Units to the effect that such Municipal Bonds are payable from rates, charges or assessments collected by the Governmental Unit. Municipal Bonds Eligible for Purchase by the Bank Pursuant to the Act, the Bank is authorized and empowered to purchase Municipal Bonds of Governmental Units which include any county, city, town, school administrative district, community school district or other quasi-municipal corporation within the State. To be eligible for purchase, such Municipal Bonds must be issued by a Governmental Unit and must be payable either from taxes or from rates, charges or assessments. The Act specifically prohibits the Bank from purchasing bonds or notes issued under the Revenue Producing Municipal Facilities Act or the Municipal Securities Approval Program of the Finance Authority of Maine Act (formerly the Municipal Securities Approval Act and, prior to that, the Municipal Industrial and Recreational Obligations Act). Although the major portion of Municipal Bond issues purchased by the Bank is payable from ad valorem taxes (see Appendix B), the Maine Legislature did not limit the Bank's portfolio solely to Municipal Bonds so secured. However, it did prohibit the inclusion of bonds issued under the Revenue Producing Municipal Facilities Act or the Municipal Securities Approval Program of the Finance Authority of Maine Act by adopting limited definitions of the terms Governmental Unit and Municipal Bonds. 16

21 OUTSTANDING BONDS As shown below, the Bank has heretofore issued $2,670,350,000 aggregate principal amount of its Bonds. The Bank has, through prior refunding issues, refunded $614,760,000 principal amount of its Bonds which are no longer deemed Outstanding under the Resolution. Bonds in the aggregate principal amount of $994,700,720 were Outstanding as of August 31, Principal Amount of Bonds Issued Municipal Bond Issues Purchased 8/31/02 Outstanding Principal Amounts 1973 Series A $ 1,145,000 4 $ Series B 9,160, Series A 11,870, Series B 9,790, * 1975 Series A 1,445, Series B 1,200, Series C 4,610, Series D 6,445, * 1975 Series E 600, Series F 2,830, Series G 5,790, * 1975 Series H 28,940, * 1976 Series A 830, Series B 1,320, Series C 1,535, * 1976 Series D 18,435, * 1976 Series E 5,380, * 1977 Series A 505, Series B 1,000, Series C 1,665, Series D 17,330, * 1977 Series E** 77,030, * 1977 Series F 200, Series G 4,675, * 1978 Series A 395, Series B 960, Series C 3,290, Series D 3,990, * 1978 Series E 845, Series F 1,470, Series G 1,515, Series H 9,920, * 1979 Series A 870, Series B 5,665, Series C 3,100, Series D 19,960, * 1980 Series A 300, Series B 500, Series C 4,345, * 1980 Series D 10,105, * 1980 Series E 285, Series F 2,715, Series G 8,105, * 1981 Series A 780, Series B 1,610, * 1981 Series C 13,630, * 1981 Series D 1,185, Series E 13,840, * 1982 Series A 675, Series B 2,105, *Partially or fully refunded Bonds. The payments with respect to the Municipal Bonds refunded continue to secure all Outstanding Bonds. **Refunding Bonds. 17

22 Principal Amount of Bonds Issued Municipal Bond Issues Purchased 8/31/02 Outstanding Principal Amounts 1982 Series C $ 2,865,000 3 $ 0 * 1982 Series D 8,770, * 1982 Series E 1,925, Series F 3,265, Series G 1,860, * 1982 Series H 8,410, * 1983 Series A 905, Series B 4,045, Series C 5,585, * 1983 Series D** 31,190, * 1983 Series E 1,835, Series F 2,425, Series G 16,515, * 1984 Series A 15,345, * 1984 Series B 23,610, * 1985 Series A 29,945, * 1985 Series B 20,415, * 1985 Series C** 22,660, * 1986 Series A 48,875, * 1986 Series B** 56,800, * 1986 Series C 54,365, * 1987 Series A 36,440, * 1987 Series B 59,610, * 1987 Series C 1,020, * 1988 Series A 39,775, * 1988 Series B 31,860, * 1988 Series C 43,445, * 1989 Series A 61,880, * 1989 Series B 14,300, * 1989 Series C 14,410, Series D 43,355, * 1990 Series A 6,055, Series B 41,015, * 1990 Series C 11,315, Series D 69,335, * 1991 Series A 11,335, Series B 14,615, ,000 * 1991 Series C 14,640, ,000 * 1991 Series D 7,040, Series E 21,150, ,000,000 * 1992 Series A 8,095, , Series B 48,170, ,170,000 * 1992 Series C** 31,445, ,515,000 * 1992 Series D 11,680, ,850, Series E 32,855, ,475,000 * 1993 Series A** 323,820, ,622, Series B 14,185, ,370, Series C 25,885, ,100,000 * 1993 Series D 1,915, , Series E 27,085, ,345, Series A 12,380, * 1994 Series B 6,265, ,010, Series C 18,405, ,535,000 * 1994 Series D 12,365, ,690, Series E 4,870, ,505, Series F 16,975, ,868,585 * 1995 Series A 4,815, ,680, Series B 5,310, ,150,000 * 1995 Series C 520, , Series D 5,485, ,675, Series E 19,875, ,415,000 * 1996 Series A 2,630, ,000 *Partially or fully refunded Bonds. The payments with respect to the Municipal Bonds refunded continue to secure all Outstanding Bonds. **Refunding Bonds. 18

23 Principal Amount of Bonds Issued Municipal Bond Issues Purchased 8/31/02 Outstanding Principal Amounts 1996 Series B $ 27,340, $ 20,515, Series C** 25,510, Series D 7,165, ,955, Series E 28,060, ,590, Series A 2,265, ,045, Series B 29,605, ,775, Series C 5,025, ,060, Series D 45,760, ,435, Series A** 60,950, ,125, Series B 9,215, ,645, Series C 64,555, ,840, Series D 7,380, ,325, Series E 6,510, ,535, Series B 3,050, ,510, Series C 59,810, ,205, Series D 6,995, ,640, Series E 39,465, ,740, Series A 7,875, ,160, Series B 62,250, ,815, Series C 11,170, ,165, Series D 28,390, ,705, Series A 8,565, ,565, Series B 26,070, ,070, Series C 11,345, ,345, Series D 57,490, ,490, Series A 36,520, ,520, Series B 2,435, ,435, Series C 75,140, ,140, Series D** 49,315, ,315,000 $2,670,350,000 1,248 $ 994,700,720 FUNDS AND ACCOUNTS The Resolution establishes the following special Funds and Accounts held by the Trustee: (1) General Fund--comprised of the: (a) General Account (b) Operating Account (c) Interest Account (d) Principal Account (e) Redemption Account (2) Reserve Fund (3) Supplemental Reserve Fund (a) General Reserve Account (b) Special Reserve Account *Partially or fully refunded Bonds. The payments with respect to the Municipal Bonds refunded continue to secure all Outstanding Bonds. **Refunding Bonds. 19

24 GENERAL FUND General Account The Resolution provides for the deposit to the General Account of: (i) any income or interest earned by the Reserve Fund due to the investment thereof (provided a transfer will not reduce the amount of the Reserve Fund below the Required Debt Service Reserve); (ii) the balance of moneys remaining in the Redemption Account when the Trustee is able to purchase principal amounts of Bonds at a purchase price less than an amount equal to the proceeds from the sale or redemption of Municipal Bonds; and (iii) the excess of proceeds resulting from a Governmental Unit's redemption of its Municipal Bonds. The Resolution provides for the following withdrawals to be made from the General Account, for the following purposes: 1. On or before each interest payment date of the Bonds, the Trustee shall withdraw from the General Account and deposit in the Interest Account an amount which, when added to the amount then on deposit in the Interest Account and derived from sources other than Municipal Bonds Interest Payments, will on such interest payment date, be equal to the installment of interest on the Bonds representing the Reserve Fund Obligations then becoming due. 2. After providing for the payment to the Interest Account and on or before each interest payment date, the Trustee shall withdraw from the General Account and deposit in the Operating Account the aggregate of the amounts requisitioned by the Bank as of such interest payment date for the six month period to and including the next succeeding interest payment date, for the purposes of paying the estimated Administrative Expenses of the Bank and the fees and expenses of the Trustee and paying agents due and to become due during such six month period. 3. After providing for the aforementioned withdrawals and as of the last day of each Fiscal Year, the Trustee shall withdraw from the balance of the moneys so remaining in the General Account and deposit to the credit of the Reserve Fund such amount (or the balance of the moneys so remaining in the General Account if less than the required amount) as shall be required to bring the Reserve Fund up to the Required Debt Service Reserve. 4. After providing for all the aforementioned payments required to have been made during each Fiscal Year and as of the last day of each Fiscal Year, the Trustee shall not later than the twentieth day of the succeeding Fiscal Year withdraw from the General Account and pay to the Bank for any of its lawfully authorized purposes the balance of the moneys remaining in the General Account, provided, however, that the Bank, in its absolute discretion may direct the Trustee to deposit any or all of such balance to be withdrawn from the General Account to the credit of the Redemption Account and the payment to the Bank of such balance shall be reduced accordingly. Operating Account The Resolution provides that all Fees and Charges received by the Trustee shall be deposited upon receipt in the Operating Account. Such Fees and Charges collected from Governmental Units shall be used, together with the deposits made to the Operating Account from 20

25 the General Account, as described above, and any other moneys which may be made available to the Bank for the purposes of the Operating Account from any source or sources, including the amount received as a premium over the principal amount of a Series of Bonds, to pay: (i) Administrative Expenses of the Bank and the fees and expenses of the Trustee and paying agents, and (ii) financing costs with respect to a Series of Bonds. Moneys at any time held for the credit of the Operating Account shall be used for and applied solely to such purposes. The Resolution further provides that payments from the Operating Account shall be made (i) by the Trustee upon receipt of a requisition signed by an Authorized Officer, describing each payment and specifying that each item is a proper charge against the moneys in the Operating Account or (ii) by the Bank from a revolving fund established from payments from the Operating Account for the purpose of paying certain expenses. Interest Account and Principal Account The Resolution provides that the Trustee shall credit to the Interest Account such portion of the Municipal Bonds Payments as shall represent Municipal Bonds Interest Payments, and to the Principal Account such portion of the Municipal Bonds Payments as shall represent Municipal Bonds Principal Payments. In addition, there shall be transferred as above provided from the General Account and deposited to the Interest Account an amount equal to the installment of interest on the Bonds representing the Reserve Fund Obligations falling due on the applicable interest payment date, and as provided hereafter, the Trustee shall transfer from the Reserve Fund to the Principal Account, on or before each principal payment date of the Bonds, an amount equal to the principal amount of the Bonds representing Reserve Fund Obligations falling due on the applicable principal payment date. In addition to the preceding, accrued interest received from the proceeds of the sale of Bonds shall be deposited to the Interest Account. The moneys in the Interest Account and the Principal Account shall be used solely for the purposes of paying the principal of, Sinking Fund Installments for, and interest on, the Bonds. The Resolution further provides that in the event there shall be, on any interest payment date, a deficiency in the Interest Account, or in the event there shall be, on any principal payment date, a deficiency in the Principal Account, the Trustee shall make up such deficiencies from the Reserve Fund by the withdrawal of moneys therefrom for that purpose. Redemption Account The Resolution provides that the Trustee shall establish in the Redemption Account a separate sub-account for the Bonds of each Series outstanding. Moneys held in each such separate sub-account by the Trustee shall be applied to the purchase or retirement of the Bonds of the Series in respect of which such sub-account was created. Moneys for the redemption of Bonds may be deposited in the Redemption Account from the General Account at the direction of the Bank as provided above in Paragraph 4, under the caption General Account, and, if at any time upon the payment or retirement of Bonds at maturity or upon the purchase or redemption of Bonds, the moneys and securities in the Reserve Fund are in excess of the Required Debt Service Reserve and the use or transfer of such excess is not otherwise provided for in the Resolution, the Trustee, upon the request of the Bank, shall transfer such excess to the applicable sub-account in the Redemption Account. In the event Municipal Bonds or other obligations securing a Loan shall be sold by the Bank in accordance with the terms of the applicable Loan Agreement, or redeemed by the Governmental Unit, the Bank shall deposit the proceeds from such sale or redemption, 21

26 except an amount thereof equal to the cost and expenses of the Bank in effectuating the redemption of the Bonds to be redeemed upon such sale by the Bank or redemption by the Governmental Unit, into the applicable sub-account in the Redemption Account; and the Trustee, upon the written request of the Bank signed by an Authorized Officer, further shall, in connection with each such event, withdraw from the Reserve Fund and deposit in the applicable sub-account in the Redemption Account an amount of moneys equal to the amount of the reduction of the Required Debt Service Reserve which would result upon the redemption of such Bonds upon the next succeeding redemption date. If at any time the moneys on deposit to the credit of the Reserve Fund, or the investments thereof, are less than the Required Debt Service Reserve, and there are then moneys on deposit in any sub-account in the Redemption Account resulting from moneys credited thereto from the General Account at the direction of the Bank or from excess moneys which have been previously transferred from the Reserve Fund to the Redemption Account resulting from the retirement of Bonds, there shall be withdrawn from such sub-accounts and deposited to the credit of the Reserve Fund an amount sufficient (or all of the moneys in said sub-accounts if less than the amount sufficient) to make up such deficiency. RESERVE FUND The Reserve Fund shall be held by the Trustee. The Bank shall pay into the Reserve Fund: (i) such portion of the moneys appropriated and made available by the State and paid to the Bank for the purposes of the Reserve Fund; (ii) all moneys paid to the Bank pursuant to the Act for the purpose of restoring the Reserve Fund to the amount of the Required Debt Service Reserve; (iii) such portion of the proceeds of the sale of Bonds, if any, as shall be provided by the Series Resolution authorizing the issuance thereof; (iv) such portion of the proceeds of the sale of Notes, if any, as shall be provided by the resolution of the Bank authorizing the issuance thereof; and (v) any other moneys which may be made available to the Bank for the purposes of the Reserve Fund from any other source or sources. The Trustee shall deposit in and credit to the Reserve Fund all moneys transferred from the General Account and all moneys transferred from the Redemption Account as above provided. Moneys and securities held for the credit of the Reserve Fund shall be transferred by the Trustee to the Interest Account and Principal Account at the times and in the amounts required in the event there shall be, on any interest payment date, a deficiency in the Interest Account, or in the event there shall be, on any principal payment date, a deficiency in the Principal Account. On or before each principal payment date of the Bonds, the Trustee shall transfer from the Reserve Fund to the Principal Account an amount equal to the principal amount of the Bonds representing Reserve Fund Obligations falling due on such principal payment date. Any income or interest earned by the Reserve Fund due to the investment thereof shall be transferred by the Trustee promptly to the General Account, but only to the extent that any such transfer will not reduce the amount of the Reserve Fund below the Required Debt Service Reserve. If, at any time upon the payment or retirement of Bonds at maturity or upon purchase or redemption, the moneys and securities in the Reserve Fund are in excess of the Required Debt Service Reserve, and the use or transfer of such excess is not otherwise provided for in the Resolution, the Trustee, upon the written request of the Bank signed by an Authorized Officer, shall transfer such excess to and deposit the same in the applicable sub-account in the Redemption Account. Whenever the Bank 22

27 shall sell, or whenever a Governmental Unit shall redeem, Municipal Bonds requiring the purchase or redemption of Bonds which would result in the reduction of the Required Debt Service Reserve upon the purchase or redemption of such Bonds, the Trustee, upon the written request of the Bank signed by an Authorized Officer, shall, in connection with each such event, withdraw from the Reserve Fund and deposit in the applicable sub-account in the Redemption Account an amount of moneys equal to the amount of the reduction of the Required Debt Service Reserve which would result upon the redemption of such Bonds upon the next succeeding redemption date. SUPPLEMENTAL RESERVE FUND The Supplemental Reserve Fund was established by the First Supplemental Resolution to be maintained and held by the Trustee pursuant to the provisions of the Resolution. The following two accounts were established within the Supplemental Reserve Fund: (a) the General Reserve Account into which was deposited on October 5, 1977 $200,000 from available moneys of the Bank and into which shall be deposited such other amounts available pursuant to the Resolution as the Bank in its absolute discretion shall by resolution authorize to be deposited in the General Reserve Account (provided that nothing in the First Supplemental Resolution shall be interpreted to limit the right of the Bank, to direct the Trustee, in accordance with the Resolution, to deposit any moneys to the credit of the Redemption Account). Since that date, the Bank has deposited an additional $2,500,000 to the General Reserve Account from available moneys in the General Fund; and (b) the Special Reserve Account into which $1,970, was deposited on November 1, 1977 pursuant to a Series Resolution adopted September 20, The market value of the Supplemental Reserve Fund was $11,332, as of July 31, Subject to the provisions of the First Supplemental Resolution as to the disposition of moneys in the Supplemental Reserve Fund, the Supplemental Reserve Fund, including the moneys and securities therein, is pledged to the payment of the principal or Redemption Price of and interest on the Bonds in accordance with the terms and provisions of the Resolution. In the event that there shall be, on any interest payment date for the Bonds, a deficiency in the Interest Account, or on any principal payment date for the Bonds, a deficiency in the Principal Account, the Bank may, but is not required to, direct the Trustee to make up such deficiency or any portion thereof by the withdrawal of moneys from the Supplemental Reserve Fund for that purpose. Such direction may require the sale or redemption of securities held in the Supplemental Reserve Fund. Prior to the Chairman making and delivering his certificate to the Governor of the State, pursuant to the Resolution, stating the amount required to restore the Reserve Fund to the Required Debt Service Reserve, the Trustee shall transfer moneys or investments in the Supplemental Reserve Fund to the Reserve Fund in the amount, or any portion of such amount, necessary to restore the Reserve Fund to the Required Debt Service Reserve. The Trustee shall first transfer moneys and investments in the General Reserve Account before transferring any moneys or 23

28 investments in the Special Reserve Account to supplement the available amount in the Reserve Fund. Subject to the aforementioned provisions of the First Supplemental Resolution, on October 15 of each year, commencing October 15, 1978, each of the Governmental Units specified in a resolution of the Bank shall receive, to the extent moneys are available in the Special Reserve Account, a credit if the Municipal Bonds of such Governmental Units so specified shall be outstanding and not previously called for redemption on such October 15. Such credit shall be equal to a specified percentage of the amount earned from the investment of moneys in the Special Reserve Account received and on hand on such October 15. Such credit shall be applied to the next succeeding November 1 principal payment of such Governmental Unit due on its Municipal Bonds, and the amount of such credit shall be treated and deposited under the Resolution as a Municipal Bonds Principal Payment, provided, however, that no such credit shall be applied to such principal payments if on such November 1 there exists a deficiency in the Interest Account or in the Principal Account, or, if as the result of a prior valuation, the amount in the Reserve Fund does not at least equal the Required Debt Service Reserve. INVESTMENT OF FUNDS The Resolution provides that all moneys held by the Trustee shall be continuously and fully secured, for the benefit of the Bank and the Holders of the Bonds. The Trustee shall invest the Funds and Accounts upon the direction of the Bank as follows: Moneys in the General Fund and the Supplemental Reserve Fund, and each of the Accounts in each such Fund, and the Reserve Fund shall be invested upon the direction of the Bank in Investment Securities the maturity or redemption date at the option of the holder of which shall coincide as nearly as practicable with the times at which moneys in such Funds will be required for the purposes provided in the Resolution. The Bank may direct the Trustee to pay the income or interest earned on the investment of moneys in the General Reserve Account to the Bank for any of its lawful purposes. Investment Securities shall mean any of the following obligations: (a) direct obligations of the United States of America or the State or obligations the principal and interest of which are guaranteed by the United States of America, (b) any bond, debenture, note, participation or other similar obligation issued by any of the following Federal agencies: Government National Mortgage Association, Federal Land Banks, Federal Home Loan Banks, Federal Intermediate Credit Banks, Banks for Cooperatives, Tennessee Valley Authority, Farmers' Home Administration and Export-Import Bank, (c) any bond, debenture, note, participation or other similar obligation issued by the Federal National Mortgage Association to the extent such obligations are guaranteed by the Government National Mortgage Association, and (d) any other obligation of the United States of America or any Federal agencies which may then be purchased with funds belonging to the State or held in the State Treasury; provided, however, that for purposes of defeasance, Investment Securities shall mean only obligations described under (a), (b) and (c) above. In lieu of the investments of moneys in Investment Securities, the Trustee shall upon direction of the Bank deposit moneys from any fund or account held by the Trustee under the terms of the Resolution in, to the extent permitted by law, interest-bearing time deposits, or shall 24

29 make other similar banking arrangements, with itself or a member bank or banks of the Federal Reserve System or banks the deposits of which are insured by the Federal Deposit Insurance Corporation; provided, that all moneys in each such interest-bearing time deposit or other similar banking arrangement shall be continuously and fully secured by Investment Securities or by direct obligations of the State or obligations the principal and interest of which are guaranteed by the State, of a market value equal at all times, to the amount of the deposit or of the other similar banking arrangement. ISSUANCE OF ADDITIONAL BONDS The Resolution provides that the Bank shall not hereafter create or permit the creation of or issue any obligations or create any additional indebtedness which will be secured by a charge and lien on the Municipal Bonds and the Municipal Bonds Payments or which will be payable from the General Fund or Reserve Fund, except that additional Series of Bonds may be issued from time to time pursuant to a Series Resolution subsequent to the issuance of the initial Series of Bonds under the Resolution on a parity with the Bonds of such initial Series of Bonds and secured by an equal charge and lien on the Municipal Bonds and the Municipal Bonds Payments, and payable equally and ratably from the General Fund and Reserve Fund, for the purposes of (i) making Loans to Governmental Units, (ii) making payments into the Interest Account, the Operating Account or the Reserve Fund, (iii) the funding of Notes theretofore issued by the Bank to provide funds to make Loans, and (iv) subject to the provisions and limitations on the issuance of Refunding Bonds, the refunding of any Bonds then Outstanding, under the conditions and subject to the limitations stated below. No additional Series of Bonds shall be issued subsequent to the issuance of the initial Series of Bonds under the Resolution unless: (a) the principal amount of the additional Bonds then to be issued, together with the principal amount of the Bonds and Notes of the Bank theretofore issued, will not exceed in aggregate principal amount any limitation thereon imposed by law; (b) there is at the time of the issuance of such additional Bonds no deficiency in the amounts required by the Resolution or any Series Resolution to be paid into the General Fund and into the Reserve Fund; (c) the amount of the Reserve Fund, upon the issuance and delivery of such additional Bonds and the deposit in the Reserve Fund of any amount provided therefor in the Series Resolution authorizing the issuance of such additional Bonds, shall not be less than the Required Debt Service Reserve; (d) the provisions of Section 6006 of the Act providing for the maintenance of the Reserve Fund in an amount equal to the Required Debt Service Reserve by the appropriation and payment of moneys by the State for such purpose shall not have been repealed or amended to the detriment of Bondholders; and (e) the maturities of the additional Bonds then being issued representing Loan Obligations, unless such additional Bonds are being issued to refund Outstanding Bonds, shall be 25

30 proportionate to the scheduled Municipal Bonds Principal Payments to be made in respect of the Loans with respect to which such additional Bonds are to be issued. The Bank expressly reserves the right to adopt one or more other general bond resolutions and reserves the right to issue Notes and any other obligations so long as the same are not a charge or lien on the Municipal Bonds, the Municipal Bonds Payments and the Fees and Charges, or payable from the General Fund or Reserve Fund created pursuant to the Resolution. ISSUANCE OF REFUNDING BONDS The Resolution provides that: (1) All or any part of one or more Series of Refunding Bonds may be authenticated and delivered upon original issuance to refund all Bonds Outstanding or any part of one or more Series of Outstanding Bonds. Refunding Bonds shall be issued in a principal amount sufficient, together with other moneys available therefor, to accomplish such refunding and to make such deposits required by the provisions of the Act, the Resolution and of the Series Resolution authorizing said Series of Refunding Bonds. (2) A Series of Refunding Bonds may be authenticated and delivered only upon receipt by the Trustee (in addition to the receipt by it of the documents required by the Resolution for the delivery of any Series of Bonds) of: (a) A certificate of an Authorized Officer setting forth (1) the Aggregate Debt Service for the then current and each future calendar year (i) with respect to all Series of Bonds Outstanding immediately prior to such authentication and delivery and (ii) with respect to all Series of Bonds to be Outstanding immediately thereafter (excluding any Series of Bonds issued simultaneously with the issuance of a Series of Refunding Bonds), and (2) that the Aggregate Debt Service for each such year set forth pursuant to (1) (ii) of this paragraph (a) is no greater than the Aggregate Debt Service set forth pursuant to (1)(i) of this paragraph (a); (b) Irrevocable instructions to the Trustee, satisfactory to it, to give due notice of redemption of all the Bonds to be refunded on the redemption date specified in such instructions; (c) Irrevocable instructions to the Trustee, satisfactory to it, to make the required publication of notice to the Holders of the Bonds and coupons being refunded; (d) Either (i) moneys in an amount sufficient to effect payment at the applicable Redemption Price of the Bonds to be refunded, together with accrued interest on such Bonds to the redemption date, which moneys shall be held by the Trustee or any one or more of the Paying Agents in a separate account irrevocably in trust for and assigned to the respective Holders of the Bonds to be refunded, or (ii) direct obligations of the United States of America, or such other Investment Securities, as defined hereinbefore under the caption Investment of Funds, in such principal amounts, of such maturities, bearing such interest, and otherwise having such terms and qualifications, as shall be necessary to comply with the provisions of the Resolution relative to defeasance of Bonds and any moneys required pursuant thereto, which direct obligations of the United States of America or other securities and moneys shall be held in trust and used only as provided by such provisions; and 26

31 (e) A certificate of an Authorized Officer containing such additional statements as may be reasonably necessary to show compliance with the requirements of the Resolution which provide for Refunding Bonds. (3) If the principal amount of the Refunding Bonds of a Series shall exceed the principal amount of the Outstanding Bonds refunded thereby, from and after the delivery of such Series of Refunding Bonds, the Trustee shall make appropriate adjustment between the Interest Account and Principal Account when disbursing and applying Municipal Bonds Payments deposited in the General Fund pursuant to the provisions of the Resolution to the end that such portion of the Municipal Bonds Payments as shall represent Municipal Bonds Interest Payments not required for deposit in the Interest Account for the purpose of paying interest accruing upon the Bonds shall be deposited in the Principal Account. Any surplus which might result upon and after such deposit shall be disposed of in the manner specified in the Series Resolution authorizing such Series of Refunding Bonds. MISCELLANEOUS RESOLUTION AND LOAN AGREEMENT PROVISIONS Modification of Loan Agreement Terms The Bank shall not consent to the modification of, or modify, the rate or rates of interest of, or the amount or time of payment of any installment of principal or interest of any Municipal Bonds evidencing a Loan, or the amount or time of payment of any Fees and Charges payable with respect to such Loan, or the security for or any terms or provisions of such Loan or the Municipal Bonds evidencing the same, in a manner which adversely affects or diminishes the rights of the Bondholders; provided, however, that, in the event the Loan Obligations are being or have been refunded and the Refunding Bonds therefor are in a principal amount in excess of or less than the principal amount of the Bonds refunded, the Bank may consent to the modification of and modify the Loan Agreement relating to such Loan and the Municipal Bonds evidencing the same, and the Municipal Bonds Payments to be made thereunder so long as such Municipal Bonds Payments are sufficient in amount and payable at the times required for the payment of the principal of and interest on such Refunding Bonds and further provided, however, that, in the event the Loan Obligation has been refunded and the interest the Bank is required to pay on the Refunding Bonds is less than the interest the Bank was required to pay on such original Bonds refunded by the Bank, the Municipal Bonds Interest Payments to be made by the Governmental Unit in respect of such Loan shall be reduced so that the amounts required to be paid shall be sufficient to pay interest on such Refunding Bonds Outstanding. Sale of Municipal Bonds by Bank The Bank shall not sell any Municipal Bonds prior to the date on which all Outstanding Bonds issued with respect to the applicable Loan are redeemable, and shall not after such date sell any such Municipal Bonds unless the sales price thereof received by the Bank shall not be less than the aggregate of: (i) the principal amount of the Loan Obligation so to be redeemed, (ii) the interest to accrue on the Loan Obligation so to be redeemed to the next redemption date thereof not previously paid, (iii) the applicable premium, if any, payable on the Loan Obligation so to be redeemed, (iv) the costs and expenses of the Bank in effecting the redemption of the Loan Obligation so to be redeemed, if any, and (v) at the direction of the Bank, an amount equal to the proportionate amount of Reserve Fund Obligations so to be redeemed, if any, which were issued 27

32 by the Bank with respect to such Loan Obligation, less the amount of moneys or investments available for withdrawal from the Reserve Fund and for application to the redemption of such Bonds in accordance with the terms and provisions of the Resolution, as determined by the Bank; provided, however, that, in the event the Loan Obligation has been refunded and the Refunding Bonds therefor were issued in a principal amount in excess of or less than the Loan Obligation remaining unpaid at the date of issuance of such Refunding Bonds, the required amount to be included in such sales price under item (i) above shall be the principal amount of such Refunding Bonds Outstanding. In the event the Loan Obligation has been refunded and the interest the Bank is required to pay on the Refunding Bonds thereafter is less than the interest the Bank was required to pay on the Loan Obligation, the required amount to be included in such sales price in item (ii) above shall be the amount of interest to accrue on such Refunding Bonds Outstanding. The Loan Agreements state that no sale or redemption of Municipal Bonds shall be effected without the prior written agreement and consent of the parties to the Loan Agreement. Enforcement of Municipal Bonds The Bank shall diligently enforce, and take all reasonable steps, actions and proceedings necessary for the enforcement of, all terms, covenants and conditions of all Loan Agreements and the Municipal Bonds evidencing Loans made by the Bank, including the prompt collection of, and the giving of notice to the Treasurer of State of any failure or default of any Governmental Unit in the payment of, its Municipal Bonds or of its Fees and Charges. The Act provides that to the extent that the Treasurer of State shall be the custodian at any time of any funds or moneys due or payable to a Governmental Unit at any time subsequent to written notice to the Treasurer of State from the Bank to the effect that such Governmental Unit has not paid or is in default as to the payment of principal of or interest on any Municipal Bonds of such Governmental Unit then held or owned by the Bank, the Treasurer of State shall withhold the payment of such funds or moneys from such Governmental Unit until the amount of such principal or interest then due and unpaid has been paid to the Bank, or the Treasurer of State has been advised that arrangements, satisfactory to the Bank, have been made for the payment of such principal and interest. Pledge of Municipal Bonds and Municipal Bonds Payments To secure the payment of the principal or Redemption Price of and interest on, and Sinking Fund Installments for, the Bonds, the Bank pledges, inter alia, the Municipal Bonds and Municipal Bonds Payments. The pledge of such Municipal Bonds and Municipal Bonds Payments shall be valid and binding from and after the date of adoption of the Resolution, and such Municipal Bonds and Municipal Bonds Payments shall immediately be subject to the lien of such pledge without any physical delivery thereof or further act, and the lien of such pledge shall be valid and binding as against all parties having claims of any kind in tort, contract or otherwise against the Bank, irrespective of whether such parties have notice thereof. Responsibilities of Trustee and Paying Agents The Resolution provides that neither the Trustee nor any Paying Agent shall (1) be deemed to make any representations as to the validity or sufficiency of the Resolution or of any Bonds or coupons issued thereunder or in respect of the security afforded by the Resolution, or incur any 28

33 responsibility in respect thereof; (2) be under any responsibility or duty with respect to the issuance of the Bonds for value or the application of the proceeds thereof or the application of any moneys paid to the Bank; (3) be under any obligation or duty to perform any act which would involve it in expense or liability or to institute or defend any suit or to advance any of its own moneys, unless properly indemnified; (4) be liable in connection with the performance of its duties under the Resolution except for its own negligence or default; or (5) be under any responsibility or duty with respect to the application of any moneys paid to any one of the others. The Resolution also provides that the Trustee and any Paying Agent may consult with counsel, who may or may not be of counsel to the Bank, and the opinion or advice of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it under the Resolution in good faith and in accordance therewith. CERTAIN OTHER COVENANTS Among other covenants made by the Bank in the Resolution are those related to the following matters: Accounts and Reports (1) The Bank shall keep, or cause to be kept, proper books of record and account in which complete and correct entries shall be made of its transactions relating to all Municipal Bonds Payments, Municipal Bonds, the Fees and Charges and all funds and accounts established by the Resolution, which shall at all reasonable times be subject to the inspection of the Trustee and the Holders of an aggregate of not less than five per centum (5%) in principal amount of Bonds then Outstanding or their representatives duly authorized in writing. (2) The Bank shall annually, on or before the last day of December in each year, file with the Trustee a copy of an annual report for the preceding Fiscal Year, accompanied by an Accountant's Certificate, setting forth in complete and reasonable detail: (a) its operations and accomplishments; (b) its receipts and expenditures during such Fiscal Year in accordance with the categories or classifications established by the Bank for its operating and capital outlay purposes; (c) its assets and liabilities at the end of such Fiscal Year, including a schedule of its Municipal Bonds Payments, Municipal Bonds, Fees and Charges and the status of reserve, special or other funds and the funds and accounts established by the Resolution; and (d) a schedule of its Outstanding Bonds and other obligations outstanding at the end of such Fiscal Year, together with a statement of the amounts paid, redeemed and issued during such Fiscal Year. A copy of each such annual report and Accountant's Certificate shall be mailed promptly thereafter by the Bank to each Bondholder who shall have filed his name and address with the Bank for such purpose. Budgets (1) The Bank shall, at least sixty (60) days prior to the beginning of each Fiscal Year, prepare and file in the office of the Trustee a preliminary budget covering its fiscal operations for the succeeding Fiscal Year that shall be open to inspection by any Bondholder. The Bank shall also prepare a summary of such preliminary budget and on or before forty-five (45) days prior to the beginning of each Fiscal Year mail a copy thereof to any Bondholder who shall have filed his name and address with the Bank for such purpose. 29

34 (2) The Bank shall adopt an annual budget covering its fiscal operations for the succeeding Fiscal Year not later than June 1 of each year and file the same with the Trustee and with such officials of the State as required by the Act, as then amended, which budget shall be open to inspection by any Bondholder. In the event the Bank shall not adopt an annual budget for the succeeding Fiscal Year on or before June 1, the budget for the preceding Fiscal Year shall be deemed to have been adopted and be in effect for such Fiscal Year until the annual budget for such Fiscal Year shall have been adopted as above provided. The Bank may at any time adopt an amended annual budget in the manner provided in the Act as then amended. Personnel and Servicing of Programs (1) The Bank shall at all times appoint, retain and employ competent personnel for the purpose of carrying out its respective programs and shall establish and enforce reasonable rules, regulations, tests and standards governing the employment of such personnel at reasonable compensation, salaries, fees and charges and all persons employed by the Bank shall be qualified for their respective positions. (2) The Bank may pay to the respective State agency, municipality or political subdivision of the State from the Operating Account such amounts as are necessary to reimburse the respective State agency, municipality or political subdivision of the State for the reasonable costs of any services performed for the Bank. Waiver of Laws The Bank shall not at any time insist upon or plead in any manner whatsoever, or claim or take the benefit or advantage of any stay or extension law now or at any time hereafter in force which may affect the covenants and agreements contained in the Resolution or in any Series Resolution or in the Bonds, and all benefit or advantage of any such law or laws has been expressly waived by the Bank. SECONDARY MARKET DISCLOSURE (1) Pursuant to the Series Resolution, the Bank, for the benefit of the holders and the Beneficial Owners of the 2002 Series E and F Bonds, will file with the Trustee: (a) As soon as practicable but in no event later than nine (9) months after the end of each fiscal year of the Bank and any other Material Obligated Person, respectively, the annual financial information as described in paragraph (3) below, for the Bank and each other Material Obligated Person, respectively. Any Material Obligated Person may satisfy the requirement to provide annual financial information by filing with the Trustee a current official statement, prospectus or offering statement which contains such annual financial information. Material Obligated Person shall mean the Bank, and shall mean any other entity constituting an obligated person, as such term is used in Rule 15c2-12 under the Securities Exchange Act of 1934, as amended (the Rule ) and, in the determination of the Bank, meeting the objective criteria described as follows. The Bank shall use the following objective criteria in selecting which entities that constitute obligated persons are to be considered Material Obligated Persons from time to time and thus be obligated to provide annual financial information as described in this paragraph (1)(a): 30

35 (i) An entity shall be considered a Material Obligated Person if the aggregate outstanding principal amount of its Loans under the Resolution is in excess of twenty percent (20%) of the aggregate outstanding principal amount of all Loans under the Resolution; and (ii) In addition to any Material Obligated Persons described in paragraph (i) above, the Bank may at any time, by written notice, (a) designate additional Material Obligated Persons and (b) withdraw any such designation of Material Obligated Persons. (b) As soon as practicable but in no event later than nine (9) months after the end of each fiscal year of the Bank and any other Material Obligated Person, respectively, the audited financial statements of the Bank and any other Material Obligated Person, respectively, prepared in accordance with generally accepted accounting principles, as of the end of such fiscal year, each accompanied by the certificate or opinion of a firm of recognized independent certified public accountants. If such audited financial statements are not available within such nine (9)-month period, unaudited financial statements shall be filed with the Trustee within such nine (9)-month period and audited financial statements shall be filed with the Trustee when and if available. (c) In a timely manner, a certificate of an authorized officer giving notice of material events with respect to the 2002 Series E and F Bonds as may be required by the Rule: principal and interest payment delinquencies; non-payment related defaults; unscheduled draws on the debt service reserves reflecting financial difficulties; unscheduled draws on credit enhancements reflecting financial difficulties; substitution of credit or liquidity providers, or their failure to perform; adverse tax opinions or events affecting the tax-exempt status of any or all of the Bonds; modifications to rights of the Bondholders; bond calls; defeasances; release, substitution, or sale of property securing repayment of the Bonds; rating changes; and such other material information as the Bank determines should be disclosed. (2) The Trustee shall, not later than five (5) business days after receipt thereof, provide each NRMSIR and the SID, copies of the documents filed with the Trustee as described in paragraphs (1)(a) and (1)(b) above. The Trustee shall, as soon as practicable, provide each NRMSIR, the MSRB and the SID, copies of the documents and notices filed with the Trustee as described in paragraph (1)(c) above. The Bank shall, in a timely manner, provide each NRMSIR, the MSRB and the SID, notice of the failure of any Material Obligated Person to provide the Bank with the documents including all the information, and at the times described in paragraphs (1)(a) and (1)(b) above. The Trustee shall have no obligation or responsibility to determine the adequacy of the information provided pursuant to paragraphs (1)(a) and (1)(b) above. For the purposes of this paragraph (2), NRMSIR shall mean each nationally recognized municipal securities information repository recognized by the Division of Market Regulation of the Securities and Exchange Commission; MSRB shall mean the Municipal Securities Rulemaking Board; and SID shall mean the state information depository, if any, established for the State as contemplated by the Rule. 31

36 (3) In accordance with the Rule, the following is the type of financial information and operating data to be provided as part of the annual financial information referred to in paragraph (1)(a) above: (a) for the Bank, material information concerning the Reserve Fund and the Supplemental Reserve Fund, including the market value (if applicable) of investments and cash held directly in the Reserve Fund and the Supplemental Reserve Fund, the types of investments held in the Reserve Fund and the Supplemental Reserve Fund, the occurrence of any material investment losses in the Reserve Fund and the Supplemental Reserve Fund, and the identity of any counterparty to any repurchase agreement or guaranteed investment contract; and (b) for any other Material Obligated Person, its financial statements. (4) The Bank, in its discretion, may determine that: (a) any entity once designated as a Material Obligated Person which at such time no longer meets the objective criteria as defined in paragraph (1)(a) above shall no longer be considered a Material Obligated Person and as such with respect to which annual financial information will no longer be provided or required, and (b) in addition to any Material Obligated Person described in paragraph (1)(a) above, any entity designated by the Bank shall be considered a Material Obligated Person with respect to which annual financial information will then be provided as described in paragraph (3) above for so long as the Bank shall determine. (5) The Trustee shall cooperate with the Bank in taking such other action with respect to any financial and other statements, reports, certificates and other information as shall be required, in the opinion of counsel, to comply with any and all requirements of the Securities and Exchange Commission or other governmental agency with jurisdiction over the Bank and the 2002 Series E and F Bonds, provided, however, that the Trustee shall not be liable with respect to compliance by any Material Obligated Person, the Original Purchasers or any Governmental Unit. (6) The breach by the Bank of its covenants set forth in paragraph (1) above shall upon satisfaction of the conditions described herein in paragraph (c) under the heading Defaults and Remedies - Defaults, constitute an event of default. Nothing described in the provisions under the heading Defaults and Remedies - Limitation on Rights of Bondholders, shall affect or impair the rights of the holders of 2002 Series E and F Bonds or Beneficial Owners of the 2002 Series E and F Bonds to seek compliance with the provisions relating to secondary market disclosure as described under this heading. (7) The provisions relating to secondary market disclosure as described under this heading may be amended without the consent of the holders of 2002 Series E and F Bonds upon satisfaction of the following: (a) there shall be delivered to the Trustee a certificate of the Bank stating that (i) such amendment is to be made in connection with a change in circumstance that arose from a change in legal (including regulatory) requirements, change in law (including rules 32

37 and regulations) or the interpretation thereof, or change in identity, nature or status of the Material Obligated Person in question, and (ii) the undertaking as described in the provisions relating to secondary market disclosure under this heading, as amended, would have complied with the Rule as of the date of the original issuance of the 2002 Series E and F Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances (the requirements of this paragraph (7)(a)(ii) may be satisfied by an opinion signed by an attorney or firm of attorneys of recognized standing in the field of municipal law relating to municipal bonds selected by the Bank); and (b) there shall be delivered to the Trustee an opinion signed by an attorney or firm of attorneys of recognized standing in the field of municipal law relating to municipal bonds selected by the Bank or a determination by a person unaffiliated with the Bank (such person may be the Trustee) to the effect that the amendment does not materially impair the interest of the holders of 2002 Series E and F Bonds. In lieu of satisfaction of the provisions described in this paragraph (7)(b), the Bank may obtain the prior written consent of the holders of the 2002 Series E and F Bonds pursuant to Article X of the Resolution. All opinions and certificates delivered pursuant to the provisions described in paragraph (7) above shall be delivered to each NRMSIR, the MSRB and the SID. In addition, in connection with any amendment to the provisions relating to secondary market disclosure as described under this heading, the annual information to be provided pursuant to paragraph (3) above next following such amendment shall provide, in narrative form, the reasons for such amendment and the impact of the change in the type of operating data or financial information to be provided. Defaults DEFAULTS AND REMEDIES The Trustee shall be, and by the Resolution is, vested with all of the rights, powers and duties of a trustee appointed by Bondholders pursuant to Section 6023 of the Act, and the right of Bondholders to appoint a trustee pursuant to Section 6023 of the Act is abrogated in accordance with the provisions of Section 6004 of the Act. The Resolution declares each of the following events an event of default : (a) if the Bank shall default in the payment of the principal or Redemption Price of, or Sinking Fund Installment for, or interest on, any Bond when and as the same shall become due, whether at maturity or upon such call for redemption, and such default shall continue for a period of thirty (30) days; or (b) if the Bank shall fail or refuse to comply with the provisions of Section 6006 of the Act relating to the Reserve Fund, or such amounts as shall be certified by the Chairman of the Bank to the Governor pursuant to such provisions of the Act shall not be appropriated and paid to the Bank prior to the termination of the then current State fiscal year; or (c) if the Bank shall fail or refuse to comply with the provisions of the Act, other than as provided in (b) above, or shall default in the performance or observance of any other of the covenants, agreements or conditions on its part in the Resolution, any Series Resolution, any 33

38 Supplemental Resolution, or in the Bonds contained, and such failure, refusal or default shall continue for a period of forty-five (45) days after written notice thereof by the Trustee or the Holders of not less than five per centum (5%) in principal amount of the Outstanding Bonds; provided, however, that an event of default shall not be deemed to exist under the provisions of clause (c) above upon the failure of the Bank to make and collect Fees and Charges required to be made and collected by the provisions of the Resolution or upon the failure of the Bank to enforce any obligation undertaken by a Governmental Unit pursuant to a Loan Agreement including the making of the stipulated Municipal Bonds Payments so long as the Bank may be otherwise directed by law and so long as the Bank shall be provided with moneys from the State or otherwise, other than withdrawals from or reimbursements of the Reserve Fund, sufficient in amount to pay the principal of and interest on all Bonds as the same shall become due during the period for which the Bank shall be directed by law to abstain from making and collecting such Fees and Charges and from enforcing the obligations of a Governmental Unit under the applicable Loan Agreement. Remedies (1) Upon the happening and continuance of any event of default specified in paragraph (a) above, the Trustee shall proceed, or upon the happening and continuance of any event of default specified in paragraphs (b) and (c) above, the Trustee may proceed, and upon the written request of the Holders of not less than twenty-five per centum (25%) in principal amount of the Outstanding Bonds shall proceed, in its own name, to protect and enforce its rights and the rights of the Bondholders by such of the following remedies, as the Trustee, being advised by counsel, shall deem most effectual to protect and enforce such rights: (a) by mandamus or other suit, action or proceeding at law or in equity, enforce all rights of the Bondholders, including the right to require the Bank to make and collect Fees and Charges and Municipal Bonds Payments adequate to carry out the covenants and agreements as to, and pledge of, such Fees and Charges and Municipal Bonds Payments, and other properties and to require the Bank to carry out any other covenant or agreement with Bondholders and to perform its duties under the Act; (b) by bringing suit upon the Bonds; (c) by action or suit in equity, to require the Bank to account as if it were the trustee of an express trust for the Holders of the Bonds; (d) by action or suit in equity, enjoin any acts or things which may be unlawful or in violation of the rights of the Holders of the Bonds; and (e) in accordance with the provisions of the Act, declare, upon the occurrence of an event of default under paragraph (a) above, all Bonds due and payable, and if all defaults shall be made good, then, with the written consent of the Holders of not less than twenty-five per centum (25%) in principal amount of the Outstanding Bonds, to annul such declaration and its consequences. 34

39 (2) In the enforcement of any remedy under the Resolution, the Trustee shall be entitled to sue for, enforce payment on and receive any and all amounts then or during any default becoming, and any time remaining, due from the Bank for principal, Redemption Price, interest or otherwise, under any provision of the Resolution or a Series Resolution or of the Bonds, and unpaid, with interest on overdue payments at the rate or rates of interest specified in such Bonds, together with any and all costs and expenses of collection and of all proceedings thereunder and under such Bonds, without prejudice to any other right or remedy of the Trustee or of the Bondholders, and to recover and enforce a judgment or decree against the Bank for any portion of such amounts remaining unpaid, with interest, costs and expenses, and to collect from any moneys available for such purpose in any manner provided by law, the moneys adjudged or decreed to be payable. Priority of Payments After Default In the event that the funds held by the Trustee and Paying Agents shall be insufficient for the payment of interest and principal or Redemption Price then due on the Bonds, such funds (other than funds held for the payment or redemption of particular Bonds or coupons which have theretofore become due at maturity or by call for redemption) and any other moneys received or collected by the Trustee acting pursuant to the Act, after making provision for the payment of any expenses necessary in the opinion of the Trustee to protect the interests of the Holders of the Bonds, and for the payment of the charges and expenses and liabilities incurred and advances made by the Trustee or any Paying Agent in the performance of their respective duties under the Resolution, shall be applied as follows: (a) Unless the principal of all of the Bonds shall have become or have been declared due and payable, First: To the payment to the persons entitled thereto of all installments of interest then due in the order of the maturity of such installments, and, if the amount available shall not be sufficient to pay in full any installment, then to the payment thereof ratably, according to the amounts due on such installment, to the persons entitled thereto, without any discrimination or preference; and Second: To the payment to the persons entitled thereto of the unpaid principal or Redemption Price of any Bonds which shall have become due, whether at maturity or by call for redemption, in the order of their due dates and, if the amounts available shall not be sufficient to pay in full all the Bonds due on any date, then to the payment thereof ratably, according to the amounts of principal or Redemption Price due on such date, to the persons entitled thereto, without any discrimination or preference. (b) If the principal of all the Bonds shall have become or have been declared due and payable, to the payment of the principal and interest then due and unpaid upon the Bonds without preference or priority of principal over interest or of interest over principal, or of any installment of interest over any other installment of interest, or of any Bond over any other Bond, ratably, according to the amounts due respectively for principal and interest, to the persons entitled thereto without any discrimination or preference except as to any difference in the respective rates of interest specified in the Bonds and coupons. 35

40 These provisions are in all respects subject to provisions in the Resolution as to the extension of payment of principal and interest on the Bonds. Whenever moneys are to be applied by the Trustee pursuant to the provisions of this Section, such moneys shall be applied by the Trustee at such times, and from time to time, as the Trustee in its sole discretion shall determine, having due regard to the amount of such moneys available for application and the likelihood of additional money becoming available for such application in the future; the deposit of such moneys with the Paying Agents, or otherwise setting aside such moneys in trust for the proper purpose, shall constitute proper application by the Trustee; and the Trustee shall incur no liability whatsoever to the Bank, to any Bondholder or to any other person for any delay in applying any such moneys, so long as the Trustee acts with reasonable diligence, having due regard for the circumstances, and ultimately applies the same in accordance with such provisions of the Resolution as may be applicable at the time of application by the Trustee. Whenever the Trustee shall exercise such discretion in applying such moneys, it shall fix the date (which shall be an interest payment date unless the Trustee shall deem another date more suitable) upon which such application is to be made and upon such date interest on the amounts of principal to be paid on such date shall cease to accrue. The Trustee shall give notice as it may deem appropriate for the fixing of any such date. The Trustee shall not be required to make payment to the Holder of any unpaid coupon or any Bond unless such coupon or such Bond shall be presented to the Trustee for appropriate endorsement or for cancellation if fully paid. Termination of Proceedings In case any proceeding taken by the Trustee on account of any event of default shall have been discontinued or abandoned for any reason, then in every such case the Bank, the Trustee and the Bondholders shall be restored to their former positions and rights under the Resolution, respectively, and all rights, remedies, powers and duties of the Trustee shall continue as though no such proceeding had been taken. Limitation on Rights of Bondholders No Holder of any Bond shall have any right to institute any suit, actions, mandamus or other proceeding in equity or at law under the Resolution, or for the protection or enforcement of any right under the Resolution or any right under law unless such Holder shall have given to the Trustee written notice of the event of default or breach of duty on account of which such suit, action or proceeding is to be taken, and unless the Holders of not less than twenty-five per centum (25%) in principal amount of the Bonds then Outstanding shall have made written request of the Trustee after the right to exercise such powers or right of action, as the case may be, shall have occurred, and shall have afforded the Trustee a reasonable opportunity either to proceed to exercise the powers granted in the Resolution or granted under the law or to institute such action, suit or proceeding in its name and unless, also, there shall have been offered to the Trustee reasonable security and indemnity against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee shall have refused or neglected to comply with such request within a reasonable time; and such notification, request and offer of indemnity are declared in every such case, at the option of the Trustee, to be conditions precedent to the execution of the powers under the Resolution or for any other remedy thereunder or under law. It is understood and intended that no one or more Holders of the Bonds thereby secured shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of the Resolution, or to enforce any 36

41 right thereunder or under law with respect to the Bonds or the Resolution, except in the manner therein provided, and that all proceedings at law or in equity shall be instituted, had and maintained in the manner therein provided and for the benefit of all Holders of the Outstanding Bonds and coupons. Notwithstanding the foregoing provisions, the obligation of the Bank shall be absolute and unconditional to pay the principal and Redemption Price of and interest on the Bonds to the respective Holders thereof and the coupons appertaining thereto at the respective due dates thereof, and nothing therein shall affect or impair the right of action, which is absolute and unconditional, of such Holders to enforce such payment. Anything to the contrary notwithstanding, each Holder of any Bond by his acceptance thereof shall be deemed to have agreed that any court in its discretion may require, in any suit for the enforcement of any right or remedy under the Resolution or any Series Resolution, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the reasonable costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in any suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but such provisions shall not apply to any suit instituted by the Trustee, to any suit instituted by any Bondholder, or group of Bondholders, holding at least twenty-five per centum (25%) in principal amount of the Bonds Outstanding, or to any suit instituted by any Bondholder for the enforcement of the payment of the principal or Redemption Price of or interest on any Bond on or after the respective due date thereof expressed in such Bond. Remedies Not Exclusive No remedy conferred upon or received to the Trustee or to the Holders of the Bonds under the Resolution is intended to be exclusive of any other remedy or remedies, and each and every such remedy shall be cumulative and shall be in addition to any other remedy given thereunder or now or hereafter existing at law or by statute. No Waiver of Default No delay or omission of the Trustee or of any Holder of the Bonds to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein, and every power and remedy given by the Resolution to the Trustee and the Holders of the Bonds, respectively, may be exercised from time to time and as often as may be deemed expedient. Notice of Event of Default The Trustee shall give to the Bondholders notice of each event of default under the Resolution known to the Trustee within ninety (90) days after knowledge of the occurrence thereof, unless such event of default shall have been remedied or cured before the giving of such notice; provided that, except in the case of default in the payment of the principal or Redemption Price of or interest on any of the Bonds, or in the making of any payment required to be made into the General Fund or the Reserve Fund, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of directors or responsible officers of the Trustee in good faith determines that the withholding of such notice is in the interests of the Bondholders. Each such notice of event of default shall be given by the 37

42 Trustee by mailing written notice thereof: (1) to all registered Holders of Bonds, as the names and addresses of such Holders appear upon the books for registration and transfer of Bonds as kept by the Trustee; (2) to such Bondholders as have filed their names and addresses with the Trustee for that purpose; and (3) to such other persons as is required by law. MODIFICATIONS OF RESOLUTIONS AND OUTSTANDING BONDS The Resolution provides procedures whereby the Bank may amend the Resolution or a Series Resolution by adoption of a supplemental resolution. Amendments that may be made without the consent of Bondholders must be for purposes of further securing the Bonds, imposing further limitations on or surrendering rights of the Bank or curing ambiguities. Amendments of the respective rights and obligations of the Bank and the Bondholders may be made with the written consent of the Holders of not less than sixty-six and two-thirds per centum (66-2/3%) in principal amount of the Outstanding Bonds to which the amendment applies; but no such amendment shall permit a change in the terms of redemption or maturity of the principal of any Bond or of any installment of interest thereon or Sinking Fund Installment therefor, or a reduction in the principal amount or Redemption Price thereof, or the rate of interest thereon or reduce the percentages or otherwise affect the classes of Bonds the consent of the Holders of which is required to effect such amendment. Amendments may be made in any respect with the written consent of the Holders of all of the Bonds then Outstanding. DEFEASANCE 1. If the Bank shall pay or cause to be paid to the Holders of all Bonds and coupons then Outstanding the principal or Redemption Price, if any, and interest to become due thereon, at the times and in the manner stipulated therein and in the Resolution, then, at the option of the Bank, expressed in an instrument in writing signed by an Authorized Officer and delivered to the Trustee, the covenants, agreements and other obligations of the Bank to the Bondholders shall be discharged and satisfied. In such event, the Trustee shall, upon the request of the Bank, execute and deliver to the Bank all such instruments as may be desirable to evidence such discharge and satisfaction and the Fiduciaries shall pay over or deliver to the Bank all money, securities and funds held by them pursuant to the Resolution which are not required for the payment or redemption of Bonds or coupons not theretofore surrendered for such payment or redemption. 2. Bonds or coupons or interest installments for the payment or redemption of which moneys shall have been set aside and shall be held in trust by the Fiduciaries (through deposit by the Bank of funds for such payment or redemption or otherwise) at the maturity or redemption date thereof shall be deemed to have been paid within the meaning and with the effect expressed in paragraph 1 above. All outstanding Bonds of any Series and all coupons appertaining to such Bonds shall prior to the maturity or redemption date thereof be deemed to have been paid within the meaning and with the effect expressed in paragraph 1 above if (a) in case any of said Bonds are to be redeemed on any date prior to their maturity, the Bank shall have given to the Trustee in form satisfactory to it, irrevocable instructions to publish as provided in the Resolution notice of redemption on said date of such Bonds, (b) there shall have been deposited with the Trustee either moneys in an amount which shall be sufficient, or Investment Securities, as defined hereinbefore 38

43 under the caption Investment of Funds, the principal of and the interest on which when due will provide moneys which, together with the moneys, if any, deposited with the Trustee at the same time, shall be sufficient, to pay when due the principal or Redemption Price, if applicable, and interest due and to become due on said Bonds on and prior to the redemption date or maturity date thereof, as the case may be, and (c) in the event said Bonds are not by their terms subject to redemption within the next succeeding sixty (60) days, the Bank shall have given the Trustee in form satisfactory to it irrevocable instructions to publish, as soon as practicable, at least twice, at an interval of not less than seven days between publications, in an Authorized Newspaper a notice to the Holders of such Bonds and coupons that the deposit required by (b) above has been made with the Trustee and that said Bonds and coupons are deemed to have been paid as provided herein and stating such maturity or redemption date upon which moneys are to be available for the payment of the principal or Redemption Price, if applicable, on said Bonds. Neither direct obligations of the United States of America or moneys deposited with the Trustee pursuant to the provision in the Resolution providing for defeasance nor principal or interest payments on any such securities shall be withdrawn or used for any purpose other than, and shall be held in trust for, the payment of the principal or Redemption Price, if applicable, and interest on said Bonds; provided, however, that any cash received from such principal or interest payments on such direct obligations of the United States of America deposited with the Trustee, if not then needed for such purpose, shall, to the extent practicable, be reinvested in direct obligations of the United States of America maturing at times and in amounts sufficient to pay when due the principal or Redemption Price, if applicable, and interest to become due on said Bonds on and prior to such redemption date or maturity date thereof, as the case may be, and interest earned from such reinvestment shall be paid over to the Bank, as received by the Trustee, free and clear of any trust, lien or pledge. 3. Anything in the Resolution to the contrary notwithstanding, any moneys held by a Fiduciary in trust for the payment and discharge of any of the Bonds or coupons which remain unclaimed for six years after the date when such Bonds have become due and payable, either at their stated maturity dates or by call for earlier redemption, if such moneys were held by the Fiduciary at such date, or for six years after the date of deposit of such moneys if deposited with the Fiduciary after the said date when such Bonds became due and payable, shall, at the written request of the Bank, be repaid by the Fiduciary to the Bank, as its absolute property and free from trust, and the Fiduciary shall thereupon be released and discharged with respect thereto and the Bondholders shall look only to the Bank for the payment of such Bonds and coupons; provided, however, that before being required to make any such payment to the Bank, the Fiduciary shall, at the expense of the Bank, cause to be published at least twice, at an interval of not less than seven days between publications, in an Authorized Newspaper, a notice that said moneys remain unclaimed and that, after a date named in said notice, which date shall be not less than thirty (30) days after the date of the first publication of such notice, the balance of such moneys then unclaimed will be returned to the Bank. CERTAIN AMENDMENTS NOT CURRENTLY EFFECTIVE The Third Supplemental Resolution shall only be effective after all Bonds Outstanding as of May 7, 1993, the date of adoption of the Third Supplemental Resolution, shall cease to be Outstanding. Therefore, although the Third Supplemental Resolution will not be effective upon the date of issuance of the 2002 Series E and F Bonds, it is anticipated by the Bank that it will become effective with respect to the 2002 Series E and F Bonds on or about November 2,

44 The Third Supplemental Resolution generally (i) expands the Investment Securities in which moneys in the General Fund (and each of the Accounts therein), in the Reserve Fund and in the Supplemental Reserve Fund may be invested to include, among other things, obligations of the Federal National Mortgage Association, certain repurchase agreements and investment agreements, certain obligations the interest on which is excludable from gross income for Federal income tax purposes, debt obligations of the Resolution Funding Corporation, and certain obligations of the State of Maine, its municipalities and quasi-municipal corporations; (ii) permits the Bank to adjust the allocation of payments by Governmental Units of their Municipal Bonds Payments between the Principal Account and the Interest Account of the General Fund, provided that sufficient amounts shall be deposited in each such Account to pay the Loan Obligations; (iii) permits the Bank to sell Municipal Bonds prior to the date on which all Outstanding Bonds issued with respect to such Loan are redeemable, provided that any such sale shall be for an amount to be held by the Trustee in a separate sub-account of the General Fund which, (a) when invested in the types of securities described in paragraph 2 under Defeasance above, shall be equal to the aggregate of the amounts referred to in clauses (i) through (v) under Miscellaneous Resolution and Loan Agreement Provisions -- Sale of Municipal Bonds by Bank above, and (b) may be held until maturity of such Outstanding Bonds; (iv) permits the adoption by the Bank of series resolutions or supplemental resolutions to cure ambiguities or defects or otherwise clarify the Resolution, provided that any such modification is not materially adverse to the interests of the Bondholders; (v) reduces the notice period for redemption at the election or direction of the Bank from sixty (60) to forty (40) days; and (vi) as to any series of Bonds that shall be fully registered as to principal and interest, eliminates the requirement that notice of redemption be published in an authorized newspaper. BONDS AS LEGAL INVESTMENTS Under the provisions of Section 6011 of the Act, the Bonds, in the State of Maine, are made securities in which the State and all public officers, governmental units and agencies thereof, all national banking associations, state banks, trust companies, savings banks and institutions, building and loan associations, savings and loan associations, investment companies, and other persons carrying on a banking business, all insurance companies, insurance associations and other persons carrying on an insurance business, and all executors, administrators, guardians, trustees and other fiduciaries, may legally invest any sinking funds, moneys or other funds belonging to them or within their control. SECURITY FOR PUBLIC DEPOSITS Bonds or notes of the Bank are authorized security for any and all public deposits in the State of Maine. Opinion of Bond Counsel TAX MATTERS On the date of delivery of the 2002 Series E and F Bonds, the Bank and the Governmental Units will execute their respective Arbitrage and Use of Proceeds Certificates (the Arbitrage and Use of Proceeds Certificates ) wherein the Bank and the Governmental Units respectively will covenant that they will comply with the provisions and procedures set forth therein and that they 40

45 will do and perform all acts and things necessary or desirable to assure that interest paid on the 2002 Series E and F Bonds will not be included in gross income under Section 103 of the Internal Revenue Code of 1986, as amended (the Code ). Assuming the Bank and the Governmental Units comply with the provisions and procedures set forth in their respective Arbitrage and Use of Proceeds Certificates, in the opinion of Hawkins, Delafield & Wood, Bond Counsel, under existing statutes and court decisions, interest on the 2002 Series E and F Bonds is excluded from gross income for federal income tax purposes pursuant to Section 103 of the Code. Interest on the 2002 Series E and F Bonds is not treated as a preference item in calculating the alternative minimum tax imposed on individuals and corporations under the Code; such interest, however, is included in the adjusted current earnings of certain corporations for purposes of calculating the alternative minimum tax imposed on such corporations. In rendering its opinion, Bond Counsel has relied on certain representations, certifications of fact, and statements of reasonable expectations made by the Bank and the Governmental Units in their respective Arbitrage and Use of Proceeds Certificates in connection with the 2002 Series E and F Bonds, and Bond Counsel has assumed compliance by the Bank and the Governmental Units with certain ongoing covenants to comply with applicable requirements of the Code to assure the exclusion of interest on the 2002 Series E and F Bonds from gross income under Section 103 of the Code. Bond counsel expresses no opinion regarding any other Federal or state consequences with respect to the 2002 Series E and F Bonds. Bond Counsel renders its opinion under existing statutes and court decisions as of the issue date, and assumes no obligation to update its opinion after the issue date to reflect any future action, fact or circumstance, or change in law or interpretation, or otherwise. Bond Counsel also expresses no opinion as to the effect of any action hereafter taken or not taken in reliance upon an opinion of counsel other than Hawkins, Delafield & Wood ( HD&W ) (if such opinion of other counsel shall have been given without consultation with HD&W, or after consultation with HD&W and to which HD&W shall not concur) on the exclusion from gross income for Federal income tax purposes of interest on the 2002 Series E and F Bonds or under the State of Maine income tax imposed on individuals. 41

46 Certain Ongoing Federal Tax Requirements and Covenants The Code establishes certain significant ongoing requirements that must be met subsequent to the issuance and delivery of the 2002 Series E and F Bonds in order that interest on the 2002 Series E and F Bonds be and remain excluded from gross income under Section 103 of the Code. These requirements include, but are not limited to, requirements relating to use and expenditure of gross proceeds of the 2002 Series E and F Bonds, yield and other restrictions on investments of gross proceeds, and the arbitrage rebate requirement that certain excess earnings on gross proceeds be rebated to the Federal government. Noncompliance with such requirements may cause interest on the 2002 Series E and F Bonds to become included in gross income for Federal income tax purposes retroactive to their issue date, irrespective of the date on which such noncompliance occurs or is discovered. The Bank and the Governmental Units have covenanted to comply with certain applicable requirements of the Code to assure the exclusion of interest on the 2002 Series E and F Bonds from gross income under Section 103 of the Code. Certain Collateral Federal Tax Consequences The following is a brief discussion of certain collateral Federal income tax matters with respect to the 2002 Series E and F Bonds. It does not purport to deal with all aspects of Federal taxation that may be relevant to a particular owner of a 2002 Series E Bond or 2002 Series F Bond. Prospective investors, particularly those who may be subject to special rules, are advised to consult their own tax advisors regarding the Federal tax consequences of owning and disposing of the 2002 Series E and F Bonds. Prospective owners of the 2002 Series E and F Bonds should be aware that the ownership of such obligations may result in collateral Federal income tax consequences to various categories of persons, such as corporations (including S corporations and foreign corporations), financial institutions, property and casualty and life insurance companies, individual recipients of Social Security and railroad retirement benefits, individuals otherwise eligible for the earned income tax credit, and taxpayers deemed to have incurred or continued indebtedness to purchase or carry obligations the interest on which is not included in gross income for Federal income tax purposes. Interest on the 2002 Series E and F Bonds may be taken into account in determining the tax liability of foreign corporations subject to the branch profits tax imposed by Section 884 of the Code. Legislation affecting municipal bonds is regularly under consideration by the United States Congress. There can be no assurance that legislation enacted or proposed after the date of issuance of the 2002 Series E and F Bonds will not have an adverse effect on the tax-exempt status or market price of the 2002 Series E and F Bonds. State Tax Matters In the opinion of Bond Counsel, interest on the 2002 Series E and F Bonds is exempt under existing law from the State of Maine income tax imposed on individuals. 42

47 UNDERWRITING The 2002 Series E and F Bonds are being purchased by the Underwriters listed on the cover page hereof. The Underwriters have agreed to purchase the 2002 Series E and F Bonds at a price, plus accrued interest, if any, that reflects an Underwriters' discount, from the public offering price thereof, in the amount of $260, The purchase contract between the Bank and the Underwriters relating to the 2002 Series E and F Bonds provides that the Underwriters will purchase all of the 2002 Series E and F Bonds, if any 2002 Series E and F Bonds are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in the purchase contract, subject to the approval of certain legal matters by Preti, Flaherty, Beliveau, Pachios & Haley, LLC, Augusta, Maine, counsel to the Underwriters. The initial public offering prices of the 2002 Series E and F Bonds may be changed, from time to time, by the Underwriters. The Bank has been advised by the Underwriters that (i) they presently intend to make a market in the 2002 Series E and F Bonds, (ii) they are not, however, obligated to do so, (iii) any market making may be discontinued at any time, and (iv) there can be no assurance that an active public market for the 2002 Series E and F Bonds will develop. The Underwriters may offer and sell the 2002 Series E and F Bonds to certain dealers (including dealers depositing 2002 Series E and F Bonds into investment trusts, certain of which may be sponsored or managed by one or more of the Underwriters) and others at prices lower than the public offering prices stated on the cover page hereof. LITIGATION There is no controversy or litigation of any nature now pending, or to the knowledge of the Bank, threatened, restraining or enjoining the issuance, sale, execution or delivery of the 2002 Series E and F Bonds, or in any way contesting or affecting the validity of the 2002 Series E and F Bonds or any proceedings of the Bank taken with respect to the issuance or sale thereof, or the pledge or application of any moneys or security provided for the payment of the 2002 Series E and F Bonds, or the existence or powers of the Bank, or prohibiting the Bank from making the Loans with the proceeds of the 2002 Series E and F Bonds. APPROVAL OF LEGALITY Legal matters incident to the authorization, issuance and sale of the 2002 Series E and F Bonds are subject to the approving opinion of Hawkins, Delafield & Wood, New York, New York, Bond Counsel to the Bank, in substantially the form of Appendix D attached hereto. Copies of such opinion will be available at the time of delivery of the 2002 Series E and F Bonds. Certain legal matters will be passed upon for the Underwriters by their counsel, Preti, Flaherty, Beliveau, Pachios & Haley, LLC, Augusta, Maine. FINANCIAL STATEMENTS Included herein as Appendix C are the audited financial statements of the Bank as of, and for the year ended, June 30, 2002, together with the report thereon dated August 30, 2002 of Baker Newman & Noyes Limited Liability Company, independent certified public accountants. The financial statements as of June 30, 2002 and for the year then ended, included in Appendix C, have been audited by Baker Newman & Noyes Limited Liability Company, independent auditors, as stated in their report appearing herein. 43

48 MISCELLANEOUS All quotations from, and summaries and explanations of, the Act, the Resolutions and the Loan Agreements contained herein do not purport to be complete and reference is made to said Act, Resolutions and Loan Agreements for full and complete statements of their provisions. The Appendices attached hereto are a part of this Official Statement. Copies, in reasonable quantity, of the Act and the Resolutions may be obtained upon request directed to the Bank. 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 Bank and the purchasers or holders of any of the 2002 Series E and F Bonds. The distribution of this Official Statement and its execution have been duly authorized by the Bank. MAINE MUNICIPAL BOND BANK By: /s/ Stephen R. Crockett Stephen R. Crockett Chairman October 9,

49 APPENDIX A DEFINITIONS The following are definitions of certain of the terms that are used in either the Act and/or the Resolution and used in this Official Statement (but not otherwise defined herein) and have the following meanings unless the context shall clearly indicate some other meaning. In all instances, reference is made to the original documents, and the definitions and usage contained therein. Accountant's Certificate shall mean a certificate signed by a certified public accountant or a firm of certified public accountants of recognized standing selected by the Bank and satisfactory to the Trustee. Administrative Expenses shall mean the Bank's expenses of carrying out and administering its powers, duties and functions, as authorized by the Act, and shall include, without limiting the generality of the foregoing: administrative and operating expenses, legal, accounting and consultant's services and expenses, payments to pension, retirement, health and hospitalization funds, and any other expenses required or permitted to be paid by the Bank under the provisions of the Act or the Resolution or otherwise. Aggregate Debt Service for any period shall mean, as of any date of calculation and with respect to all Bonds, the sum of the amounts of Debt Service for such period. Bondholders or Holder of Bonds or Holder (when used with reference to Bonds) or any similar term, shall mean any person or party who shall be the bearer of any Outstanding Bond or Bonds registered to bearer or not registered or the registered owner of any Outstanding Bond or Bonds which shall at the time be registered other than to bearer and Holder (when used with reference to coupons) shall mean any person who shall be the bearer of such coupons. Debt Service for any period shall mean, as of any date of calculation and with respect to any Series, an amount equal to the sum of (i) interest accruing during such period on Bonds of such Series, and (ii) that portion of Principal Installment for such Series which would accrue during such period if such Principal Installment were deemed to accrue daily in equal amounts from the next preceding Principal Installment due date for such Series (or, if there shall be no such preceding Principal Installment due date, from a date one year preceding the due date of such Principal Installment or from the date of delivery of such Series of Bonds if such date occurred less than one year prior to the date of such Principal Installment). Such interest and Principal Installments for such Series shall be calculated on the assumption that no Bonds of such Series Outstanding at the date of calculation will cease to be Outstanding except by reason of the payment of each Principal Installment on the due date thereof. Fees and Charges shall mean all fees and charges authorized to be charged by the Bank pursuant to subsection (H) of section 5954 of the Act and charged by the Bank to Governmental Units pursuant to the terms and provisions of Loan Agreements. Fiduciary or Fiduciaries shall mean the Trustee, any Paying Agent, or any or all of them, as may be appropriate. Fiscal Year shall mean any twelve (12) consecutive calendar months commencing with the first day of July and ending on the last day of the following June. Governmental Unit shall mean any county, city, town, school administrative district, community school district or other quasi-municipal corporation within the State. Governmental Unit's Allocable Proportion shall mean the proportionate amount of the total requirement in respect of which the term is used determined by the ratio that the Loan then outstanding bears to the total of all Loans then outstanding. Loan shall mean a loan heretofore or hereafter made by the Bank to a Governmental Unit pursuant to the Act. Loan Agreement shall mean an agreement heretofore or hereafter entered into between the Bank and a Governmental Unit setting forth the terms and conditions of a Loan. Loan Obligation shall mean that amount of Bonds issued by the Bank which shall be equal to the principal amount of Municipal Bonds outstanding of a Governmental Unit, as certified to the Trustee by the Bank. Municipal Bonds shall mean the bonds or other evidence of debt issued by a Governmental Unit and (i) payable from taxes or from rates, charges or assessments, but shall not include any bond or other evidence of debt issued under chapter 213 of Title 30-A of the Maine Revised Statutes (Revenue Producing Municipal Facilities Act) or subchapter IV of chapter 110 of Title 10 of the Maine Revised Statutes (Municipal Securities Approval Program of the Finance Authority of Maine Act); and (ii) authorized pursuant to the Act and other laws of the State and which have heretofore or will hereafter be acquired by the Bank as evidence of indebtedness of a Loan to the Governmental Unit. Municipal Bonds Interest Payment shall mean that portion of a Municipal Bonds Payment made or required to be made by a Governmental Unit to the Bank which represents the interest due or to become due on the Governmental Unit's Municipal Bonds. Municipal Bonds Principal Payment shall mean that portion of a Municipal Bonds Payment made or required to be made by a Governmental Unit to the Bank which represents the principal due or to become due on the Governmental Unit's Municipal Bonds. Outstanding shall mean Bonds theretofore or then being delivered under the provisions of the Resolution, except: (i) any Bonds canceled by the Trustee or any Paying Agent at or prior to such date, (ii) any Bonds for the payment or redemption of which moneys equal to the principal amount or Redemption Price thereof, as the case may be, with interest to the date of maturity or redemption date, shall be held by the Trustee or the Paying Agents in trust (whether at or prior to the maturity or redemption date), provided that if such Bonds are to be A-1

50 redeemed, notice of such redemption shall have been given as provided in the Resolution, (iii) any Bonds in lieu of or in substitution for which other Bonds shall have been delivered and (iv) Bonds deemed to have been paid as provided in subsection 2 of Section 1401 of the Resolution. Principal Installment shall mean, as of the date of calculation and with respect to any Series so long as any Bonds thereof are Outstanding, (i) the principal amount of Bonds of such Series due on a future date for which no Sinking Fund Installments have been established, or (ii) the Sinking Fund Installment due on a future date for Bonds of such Series, or (iii) if such future dates coincide, the sum of such principal amount of Bonds and of such Sinking Fund Installment due on such future date, as provided in the Series Resolution authorizing such Series of Bonds. Redemption Price shall mean, with respect to any Bond, the principal amount thereof, plus the applicable premium, if any, payable upon redemption thereof pursuant to the Resolution and the Series Resolution pursuant to which the same was issued. Refunding Bonds shall mean all Bonds constituting the whole or a part of a Series of Bonds delivered on original issuance pursuant to the Resolution. Required Debt Service Reserve shall mean, as of any date of calculation, the amount required to be on deposit in the Reserve Fund which amount shall be equal to the maximum amount of Principal Installments and interest maturing and becoming due in any succeeding calendar year on all Loan Obligations then Outstanding as of such date of calculation. Reserve Fund Obligations shall mean the proportionate amount of Bonds issued by the Bank to obtain funds with which to establish and maintain the Reserve Fund. A-2

51 APPENDIX B GOVERNMENTAL UNITS AND THEIR MUNICIPAL BONDS The Governmental Units named in Tables I through XLVII below have previously sold their Municipal Bonds to the Bank, which Municipal Bonds are presently outstanding. Loan Agreements pertaining to the Municipal Bonds named in Table XLVIII have been executed by the Governmental Units and the Bank. Each Loan Agreement provides that simultaneously with the delivery of the Governmental Unit's Bond or Bonds to the Bank, the Governmental Unit shall furnish to the Bank an opinion of bond counsel satisfactory to the Bank which shall set forth among other things the unqualified approval of said Governmental Unit's Bond or Bonds then being delivered to the Bank and that said Governmental Unit's Bond or Bonds will constitute valid obligations of the Governmental Unit. The source of payment for the Municipal Bonds is shown as follows: A indicates Municipal Bonds payable as to both principal and interest from ad valorem taxes which may be levied without limit as to rate or amount upon all the property within the territorial limits of such Governmental Unit; S indicates Municipal Bonds issued for State approved school construction projects, the approval by the State for any such school construction projects, however, does not insure that State aid for such project will be forthcoming; and R indicates Municipal Bonds payable from rates, charges or assessments collected by the Governmental Unit. I. MUNICIPAL BONDS Issued May 19, 1982 Governmental Unit Balance Outstanding Serial Bonds Due November 1 (Years Inclusive) Source of Payment* Town of Pittsfield... $ 10, A Hallowell Water District... 20, R Kittery Water District... 20, R Mexico Water District... 10, R Old Town Water District... 55, R Ogunquit Sewer District... 35, R Region #10 Vocational Region , A,S SUB TOTAL... $ 290, II. MUNICIPAL BONDS Issued October 20, 1982 Governmental Unit School Administrative District #64... $ 140, A,S Augusta Water District... 70, R Bangor Water District... 65, R (1) Bridgton Water District... 5, R Hampden Water District... 5, R Sanford Water District... 50, R South Berwick Sewer District... 10, R SUB TOTAL... $ 345, * See heading of Appendix B for the information indicated by the letters A,S and R. (1) Serial Bonds mature on March 1 of years indicated. B-1

52 III. Governmental Unit MUNICIPAL BONDS Issued April 27, 1983 Balance Outstanding Serial Bonds Due November 1 (Years Inclusive) Source of Payment* Town of Madison... $ 20, A Caribou Utilities District , R York Water District , R Town of Carrabassett Valley , A SUB TOTAL... $ 615, IV. MUNICIPAL BONDS Issued October 26, 1983 Governmental Unit Somerset County... $ 70, A Bridgton Water District... 5, R Town of Kennebunkport , A Town of Sabattus , A,S Town of Wilton , A City of Biddeford , A City of Gardiner , A Brunswick & Topsham Water District , R Gardiner Water District... 30, R Oxford Water District... 20, R Augusta Sanitary District... 90, R Greater Portland Transit District... 80, R (1) Town of Castine... 30, A SUB TOTAL... $ 1,345, V. MUNICIPAL BONDS Issued May 2, 1984 Governmental Unit Town of Boothbay Harbor... $ 45, A North Berwick Water District , R Portland Water District , R Portland Water District , R Portland Water District , R Brunswick Sewer District... 90, R City of Gardiner... 35, A SUB TOTAL... $ 965, * See heading of Appendix B for the information indicated by the letters A, S and R. (1) The Municipal Bonds of the Greater Portland Transit District are payable as to both principal and interest from rates and, to the extent such rates are insufficient, from sums that may be annually apportioned among and assessed upon the members of such District, which sums so assessed and apportioned are payable from ad valorem taxes which may be levied without limit as to rate or amount upon all the property within the territorial limits of each such member and taxable by it. B-2

53 VI. Governmental Unit MUNICIPAL BONDS Issued October 26,1984 Balance Outstanding Serial Bonds Due November 1 (Years Inclusive) Source of Payment* School Administrative District #61... $ 330, A,S School Administrative District # , A,S City of Brewer , A City of Presque Isle , A Gray Water District... 45, R Town of Freeport , A,S (1) School Administrative District # , A,S Town of Searsport... 60, A,S SUB TOTAL... $ 1,900, VII. MUNICIPAL BONDS Issued May 22, 1985 Governmental Unit Town of Wilton... $ 50, A Auburn Water District , R Town of Cape Elizabeth , A Town of Greenville... 60, A Town of Boothbay Harbor... 80, A City of Saco , A School Administrative District # ,160, A,S Mexico Water District... 40, R Portland Water District , R Waterville Sewerage District , R School Administrative District # , A,S School Administrative District # , A,S City of Gardiner... 20, A SUB TOTAL... $ 3,465, VIII. MUNICIPAL BONDS Issued October 23, 1985 Governmental Unit Town of Kennebunk... $ 320, A Town of Pittsfield... 35, A North Berwick Sanitary District , R City of Ellsworth , A Winthrop Water District... 80, R Town of Machias , A,S SUB-TOTAL... $ 1,840, * See heading of Appendix B for the information indicated by the letters A,S and R. (1) Only a portion of the balance outstanding is allocable to a State School Aid eligible project. B-3

54 IX. Governmental Unit MUNICIPAL BONDS Issued May 28, 1986 Balance Outstanding Serial Bonds Due November 1 (Years Inclusive) Source of Payment* Town of Mechanic Falls... $ 140, A Town of Camden , A Town of Cape Elizabeth , A Aroostook County , A School Administrative District # ,075, A,S City of Biddeford , A Town of Lisbon , A Sagadahoc County , A School Administrative District #6... 1,190, A,S Wells-Ogunquit Community School District # , A,S Southport Water District , R Madison Water District , R Bangor Water District , R (1) Town of Kittery , A SUB TOTAL... $ 7,295, X. MUNICIPAL BONDS Issued October 29, 1986 Governmental Unit Waldoboro Sewer District... $ 30, R Guilford-Sangerville Sanitary District , R Kittery Water District... 1,250, R Town of Cape Elizabeth , A Penobscot County... 1,275, A Town of Cumberland , A Northport Village Corporation... 50, A School Administrative District # , A,S Town of Houlton , A City of Brewer , A School Administrative District # , A,S School Administrative District # ,375, A,S Veazie Sewer District , R Town of Freeport , A SUB TOTAL... $ 7,155, * See heading of Appendix B for the information indicated by the letters A,S and R. (1) Serial Bonds mature on March 1 of year indicated. B-4

55 XI. Governmental Unit MUNICIPAL BONDS Issued May 20, 1987 Balance Outstanding Serial Bonds Due November 1 (Years Inclusive) Source of Payment* Auburn Water District... $ 40, R Town of Pittsfield... 60, A Town of Cornish... 90, A Town of Canton... 90, A Town of Gorham... 1,275, A Town of Union , A Brunswick & Topsham Water District... 1,770, R Cumberland County , A Portland Water District , R (1) Winthrop Water District... 60, R York Water District , R Great Salt Bay Sanitary District , R School Administrative District # , A,S School Administrative District # , A,S City of Gardiner... 90, A SUB TOTAL... $ 7,125, XII. MUNICIPAL BONDS Issued October 28, 1987 Governmental Unit Town of South Berwick... $ 20, A Town of Raymond , A,S School Administrative District # ,160, A,S School Administrative District # , A,S Town of Mount Desert , A School Administrative District # , A,S School Administrative District # , A,S Brewer Water District... 1,760, R Presque Isle Sewer District , R School Administrative District # ,175, A,S Town of Wilton , A Sanford Water District , R City of Bangor , A City of Lewiston , A Presque Isle Water District , R Kennebunk, Kennebunkport & Wells Water District , R Town of Scarborough , A SUB TOTAL... $10,725, * See heading of Appendix B for the information indicated by the letters A, S and R. (1) Payable as to principal and interest from assessments certified to the Town of Cape Elizabeth by the Trustees of the Portland Water District. The amount certified may be raised through user charges or from ad valorem taxes as determined by the Town of Cape Elizabeth. B-5

56 XIII. Governmental Unit MUNICIPAL BONDS Issued December 18, 1987 Balance Outstanding Serial Bonds Due November 1 (Years Inclusive) Source of Payment* Fort Fairfield Utilities District... $ 60, R SUB TOTAL... $ 60, XIV. MUNICIPAL BONDS Issued June 2, 1988 Governmental Unit Town of Gorham... $ 190, A Town of Kittery , A Town of Scarborough... 1,925, A Town of Falmouth , A City of Biddeford... 1,820, A,S Town of Bristol , A Brewer Water District , R Cumberland County , A Madison Water District... 45, R Auburn Sewerage District , R School Administrative District # ,255, A,S School Administrative District # ,400, A,S City of Saco , A SUB TOTAL... $10,250, * See heading of Appendix B for the information indicated by the letters A, S and R. B-6

57 XV. Governmental Unit MUNICIPAL BONDS Issued July 7, 1988 Balance Outstanding Serial Bonds Due November 1 (Years Inclusive) Source of Payment* Livermore Falls Water District... $ 110, R Town of South Berwick... 19, A Town of Blue Hill... 44, A Kennebunk Sewer District , R Town of Madawaska , A Town of Searsport , A Lincoln Sanitary District , R Town of Boothbay Harbor... 72, A Town of Baileyville , A St. Agatha Sanitary District... 9, R Town of Fort Kent , A Town of Bar Harbor , A City of Presque Isle , A Van Buren Water District... 79, R Town of Randolph , A Town of Hampden , A Mapleton Sewer District... 83, R Town of Eliot , A Bethel Water District... 74, R North Jay Water District... 25, R Fort Fairfield Utilities District... 95, R Bingham Water District... 28, R Lincoln Water District , R Town of North Haven , A Sabattus Water District , R Madison Water District... 73, R Kennebunk, Kennebunkport & Wells Water District , R Belfast Water District , R York Water District... 1,227, R Richmond Utilities District , R Winterport Sewerage District... 23, R Scarborough Sanitary District... 4,327, R Newport Sanitary District , R Monmouth Sanitary District , R Limerick Sewerage District , R Lubec Water & Electric District , R Limestone Water & Sewer District , R Milo Water District , R Hallowell Water District , R Clinton Water District , R Bridgton Water District , R Winterport Water District , R Vinalhaven Water District , R Strong Water District , R South Berwick Water District , R Searsport Water District , R Winter Harbor Utilities District , R Jackman Water District , R Danforth Water District... 89, R Brownville Water District... 30, R Eagle Lake Water & Sewer District , R SUB TOTAL $17,516, * See heading of Appendix B for the information indicated by the letters A, S and R. B-7

58 XVI. Governmental Unit MUNICIPAL BONDS Issued October 26, 1988 Balance Outstanding Serial Bonds Due November 1 (Years Inclusive) Source of Payment* Rumford-Mexico Sewerage District... $ 90, R Gray Water District , R Northport Village Corporation... 25, A Town of Dixfield , A Aroostook County , A Town of Gorham , A Androscoggin County... 2,590, A School Administrative District # , A,S Town of Lisbon... 1,410, A City of Brewer , A Kennebunk Light & Power District... 70, R Portland Water District (Cape Elizabeth) , R Portland Water District (Gorham) , R Town of South Berwick... 70, A Portland Water District... 1,400, R School Administrative District # ,260, A,S SUB TOTAL... $9,125, * See heading of Appendix B for the information indicated by the letters A, S and R. B-8

59 XVII. Governmental Unit MUNICIPAL BONDS Issued May 4, 1989 Balance Outstanding Serial Bonds Due November 1 (Years Inclusive) Source of Payment* Town of Mount Desert... $ 53, A City of Rockland , A School Administrative District # , A,S Town of Gorham , A Manchester Sanitary District... 93, R Washington County , A Kittery Water District , R City of Saco... 1,240, A Town of Skowhegan , A School Administrative District # , A,S Town of Poland , A Town of Kittery... 1,320, A Town of Gorham... 1,640, A,S Town of Sanford... 2,415, A,S School Administrative District # , A,S Androscoggin County , A School Administrative District # ,317, A,S School Administrative District # ,930, A,S Cumberland County , A York Water District... 3,875, R Town of Boothbay Harbor , A Town of Greenville , A Topsham Sewer District , R Town of Farmingdale , A South Berwick Water District , R Milbridge Water District , R Guilford-Sangerville Water District , R Jackman Sewer District , R Belfast Water District , R Dover-Foxcroft Water District... 1,251, R Gardiner Water District... 1,270, R SUB TOTAL... $28,030, * See heading of Appendix B for the information indicated by the letters A, S and R. B-9

60 XVIII. Governmental Unit MUNICIPAL BONDS Issued October 26, 1989 Balance Outstanding Serial Bonds Due November 1 (Years Inclusive) Source of Payment* Presque Isle Sewer District... $ 15, R Northport Village Corporation... 40, A School Administrative District # ,205, A,S School Administrative District # ,360, A,S School Administrative District # ,000, A,S School Administrative District # ,620, A,S School Administrative District # ,860, A,S Town of Gray , A Madawaska Water District , R Bangor Water District , R (1) City of Biddeford... 2,520, A,S City of Biddeford , A City of Belfast , A Town of Princeton... 1,280, A,S Town of Lisbon , A Presque Isle Water District , R SUB TOTAL... $15,630, XIX. MUNICIPAL BONDS Issued May 24, 1990 Governmental Unit Town of Bridgton... $ 120, A Jay Village Water District , R Town of Brunswick , A Kennebec County... 1,256, A Town of Baileyville , A Town of Gorham , A Town of Nobleboro... 1,281, A,S City of Biddeford , A City of Biddeford... 2,153, A Anson Water District... 75, R Hampden Water District , R Portland Water District... 3,870, R Portland Water District (Cape Elizabeth) , R Portland Water District (Gorham)... 55, R Town of China... 1,490, A,S Augusta Water District... 3,800, R SUB TOTAL... $17,221, * See heading of Appendix B for the information indicated by the letters A, S and R. (1) Serial Bonds mature on March 1 of years indicated. B-10

61 XX. Governmental Unit MUNICIPAL BONDS Issued October 25, 1990 Balance Outstanding Serial Bonds Due November 1 (Years Inclusive) Source of Payment* Town of Gorham... $ 199, A Town of Alton , A,S Town of Sedgwick , A,S Berwick Sewer District , R School Administrative District # ,078, A,S School Administrative District # ,741, A,S School Administrative District # ,202, A,S School Administrative District # ,030, A,S School Administrative District # , A,S Town of Baileyville... 1,125, A Lewiston & Auburn Water Pollution Control Authority... 1,125, R (1) School Administrative District # ,537, A,S Livermore Falls Water District , R Bath Water District... 90, R Town of Vassalboro... 3,010, A,S Town of Acton... 1,605, A,S Town of Kittery... 3,105, A,S School Administrative District # , A,S SUB TOTAL... $26,532, XXI. MUNICIPAL BONDS Issued May 23, 1991 Governmental Unit Knox County... $ 2,842, A (2) Kennebec County... 1,421, A Town Of Vassalboro , A Cornish Water District , R Kennebunk, Kennebunkport & Wells Water District , R School Administrative District # ,662, A,S SUB TOTAL... $ 6,971, XXII. MUNICIPAL BONDS Issued July 11, 1991 Governmental Unit Augusta Water District... $9,625, R SUB TOTAL... $9,625, * See heading of Appendix B for the information indicated by the letters A, S and R. (1) The Municipal Bonds of the Lewiston & Auburn Water Pollution Control Authority are payable as to both principal and interest from sums that may be annually appropriated and assessed upon the City of Lewiston and the Auburn Sewerage District; that to the extent not paid from other sources, the sums so appropriated to and assessed upon the City of Lewiston are payable from ad valorem taxes which may be levied without limit as to rate or amount upon all the property within the territorial limits of the City of Lewiston and taxable by it; that the sums so apportioned to and assessed upon the Auburn Sewerage District are payable from sewer rates and charges. (2) Matures on July 1, B-11

62 XXIII. Governmental Unit MUNICIPAL BONDS Issued October 30, 1991 Balance Outstanding Serial Bonds Due November 1 (Years Inclusive) Source of Payment* Town of Pittsfield... $ 40, A Town of Readfield , A School Administrative District # , A,S Kennebec County... 1,025, A Portland Water District , R Portland Water District , R Town of Castine , A School Administrative District # ,750, A,S School Administrative District # ,762, A,S Town Of Mechanic Falls , A School Administrative District # ,395, A,S SUB TOTAL... $9,148, XXIV. MUNICIPAL BONDS Issued May 28, 1992 Governmental Unit Town of Greenbush... $ 145, A,S Town of Rockport... 51, A City of Belfast... 44, A School Administrative District # , A,S School Administrative District # , A,S Town of Bowdoinham... 10, A City of Auburn , A Kennebec County , A Town of Rockport... 1,215, A Town of Milford... 2,355, A,S Town of Vassalboro , A Hallowell Water District , R Portland Water District... 5,500, R Anson-Madison Sanitary District , R School Administrative District # ,815, A,S School Administrative District # ,691, A,S School Administrative District # , A,S School Administrative District # ,365, A,S School Administrative District # ,609, A,S School Administrative District # ,799, A,S Town of Kennebunkport... 1,375, A SUB TOTAL... $24,496, * See heading of Appendix B for the information indicated by the letters A, S and R. B-12

63 XXV. Governmental Unit MUNICIPAL BONDS Issued October 29, 1992 Balance Outstanding Serial Bonds Due November 1 (Years Inclusive) Source of Payment* Town of Gray... $ 40, A Town of North Haven... 10, A Town of Vanceboro , A,S Town of Fayette... 12, A School Administrative District # , A,S School Administrative District # , A,S School Administrative District # , A School Administrative District # , A,S City of Eastport , A Town of Mount Desert , A City of Biddeford , A School Administrative District # ,750, A,S Town of Rockport , A Town of Wilton , A Anson Water District... 70, R Portland Water District... 7,700, R School Administrative District # ,392, A,S SUB TOTAL... $15,012, XXVI. MUNICIPAL BONDS Issued May 27, 1993 Governmental Unit School Administrative District #54... $ 213, A Town of Fryeburg... 45, A City of Bath... 50, A Oak Hill Community School District , A,S School Administrative District # , A,S School Administrative District # , A,S School Administrative District # , A,S Town of Harpswell , A Town of Houlton , A Town of New Sweden... 1,093, A,S Town of Swanville , A Town of Ashland , A School Administrative District # ,744, A,S Bangor Water District... 3,174, R (1) Portland Water District , R Portland Water District (Gorham) , R School Administrative District # ,247, A,S SUB TOTAL... $16,570, * See heading of Appendix B for the information indicated by the letters A, S and R. (1) Serial Bonds mature on March 1 of years indicated. B-13

64 XXVII. Governmental Unit MUNICIPAL BONDS Issued October 28, 1993 Balance Outstanding Serial Bonds Due November 1 (Years Inclusive) Source of Payment* Town of Lisbon... $ 74, A Town of Stow... 17, A Portland Water District , R City of Eastport... 1,250, A,S Town of Columbia... 11, A Town of Thomaston , A School Administrative District # , A,S School Administrative District # , A,S Kennebec County , A Presque Isle Water District , R Ogunquit Sewer District... 2,832, R School Administrative District # ,843, A,S School Administrative District # ,907, A,S Town of Poland , A SUB TOTAL... $14,405, XXVIII. MUNICIPAL BONDS Issued May 26, 1994 Governmental Unit Town of Greenbush... $ 275, A,S Town of Naples... 94, A Town of Pittsfield... 45, A Auburn Sewerage District , R School Administrative District # , A Aroostook Valley Solid Waste Disposal District , R School Administrative District # , A,S Town of Boothbay , A Town of New Sweden , A,S Hallowell Water District , R Bangor Water District... 2,947, R (1) Town of Madawaska... 3,882, A,S City of Biddeford... 1,625, A Passamaquoddy Water District... 81, R Augusta Water District , R Northern Katahdin Valley Waste Disposal District , R SUB TOTAL... $11,999, * See heading of Appendix B for the information indicated by the letters A, S and R. (1) Serial Bonds mature on March 1 of years indicated. B-14

65 XXIX. Governmental Unit MUNICIPAL BONDS Issued September 27, 1994 Balance Outstanding Serial Bonds Due November 1 (Years Inclusive) Source of Payment* Town of Sumner... $ 194, A Town of Wales , A Town of Sweden , A Town of Raymond... 1,707, A Town of Poland... 2,112, A Town of New Gloucester... 1,386, A Town of Monmouth... 1,316, A Town of Minot , A Town of Lovell , A Town of Buckfield , A Town of Bowdoin , A SUB TOTAL... $ 9,409, XXX. MUNICIPAL BONDS Issued October 27, 1994 Governmental Unit Town of Madison... $ 56, A Town of Ogunquit , A Town of Sanford , A Town of Swan's Island... 90, A City of Calais School District , A School Administrative District # , A,S School Administrative District # , A,S Town of Richmond... 1,006, A,S City of Brewer , A School Administrative District # ,163, A,S Kennebunk, Kennebunkport & Wells Water District , R Portland Water District... 4,550, R Presque Isle Water District... 80, R Town of Randolph , A SUB TOTAL... $10,121, XXXI. MUNICIPAL BONDS Issued May 25, 1995 Governmental Unit School Administrative District #22... $ 312, A School Administrative District # , A Vocational Region # , A Town of Rockport... 72, A Town of Jonesport , A,S Town of Islesboro , A North Jay Water District... 45, R Town of Brooklin... 1,493, A,S City of Gardiner , A Town of South Berwick , A SUB TOTAL... $ 4,238, * See heading of Appendix B for the information indicated by the letters A, S and R. B-15

66 XXXII. Governmental Unit MUNICIPAL BONDS Issued May 25, 1995 Balance Outstanding Serial Bonds Due November 1 (Years Inclusive) Source of Payment* Town of Falmouth... $ 200, A SUB TOTAL... $ 200, XXXIII. MUNICIPAL BONDS Issued October 26, 1995 Governmental Unit Town of Richmond... $ 30, A School Administrative District # , A City of Augusta , A City of Auburn , A Town of Stockton Springs , A Town of Somerville... 18, A School Administrative District # ,166, A,S Town of Fayette... 1,290, A,S Town of Fairfield , A School Administrative District # ,500, A,S School Administrative District # ,709, A,S Vocational Region # ,800, A,S City of Lewiston , A SUB TOTAL... $13,423, XXXIV. MUNICIPAL BONDS Issued May 23, 1996 Governmental Unit City of Augusta... $ 142, A Town of Frenchboro , A Town of Readfield... 81, A Town of Freeport , A Town of Wales... 1,434, A,S School Administrative District # ,391, A,S Gardiner Water District , R Kennebec Water District , R Portland Water District , R Vocational Region #11 (Oxford Hills Technical School)... 3,000, A,S School Administrative District # ,500, A,S School Administrative District # ,613, A,S School Administrative District # ,244, A,S Bangor Water District , R SUB TOTAL... $18,857, * See heading of Appendix B for the information indicated by the letters A, S and R. B-16

67 XXXV. Governmental Unit MUNICIPAL BONDS Issued October 30, 1996 Balance Outstanding Serial Bonds Due November 1 (Years Inclusive) Source of Payment* Hospital Administrative District #04... $ 150, R (1) Town of Poland... 47, A Town of Poland... 40, A Town of Greenville... 21, A City of Augusta , A City of Auburn... 1,800, A School Administrative District # ,012, A,S School Administrative District # ,196, A,S School Administrative District # ,260, A,S Town of Cumberland , A Town of Litchfield... 4,431, A,S City of Auburn... 6,300, A,S York Sewer District , R School Administrative District # ,887, A,S SUB TOTAL... $20,545, XXXVI. MUNICIPAL BONDS Issued May 29, 1997 Governmental Unit Town of Readfield... $ 20, A So. Aroostook CSD , A Gray Water District , R City of Gardiner , A Town of Harpswell , A Town of Stockton Springs , A Boothbay-Boothbay Harbor CSD... 1,464, A School Administrative District # ,208, A,S School Administrative District # ,306, A,S School Administrative District # ,932, A,S Vocational Region # ,833, A,S Town of Orono... 1,060, A Town of Jay... 6,720, A,S Town of Fort Kent , A SUB TOTAL... $22,050, * See heading of Appendix B for the information indicated by the letters A, S and R. (1) The Municipal Bonds of the Hospital Administrative District No. 4, unless paid from other sources, are payable from ad valorem taxes which may be levied without limit as to rate or amount upon all the taxable property within the territory of each town and plantation which is a member of the District. B-17

68 XXXVII. Governmental Unit MUNICIPAL BONDS Issued October 30, 1997 Balance Outstanding Serial Bonds Due November 1 (Years Inclusive) Source of Payment* Town of Gray... $ 172, A City of Augusta , A Town of Lyman , A Town of Orono , A Town of Roxbury , A Town of Sanford , A Town of Winthrop , A Town of Freeport , A City of Brewer , A School Administrative District # ,235, A,S Brewer High School District... 1,040, A Portland Water District , R Mount Desert Water District... 1,882, R Baileyville Utilities District , R School Administrative District # ,572, A,S School Administrative District # ,436, A,S Town of Veazie... 4,306, A,S SUB TOTAL... $36,124, XXXVIII. MUNICIPAL BONDS Issued May 28, 1998 Governmental Unit Town of Madawaska... $ 100, A Town of Poland... 18, A Town of Greenville... 15, A Town of Baileyville... 90, A School Administrative District # ,128, A Town of Madison , A Town of Poland... 72, A City of Auburn... 2,520, A City of Augusta , A City of Gardiner , A City of Bath , A City of Rockland , A Town of Mars Hill... 1,119, A Town of Cumberland... 1,448, A School Administrative District # ,954, A,S Town of Millinocket... 4,121, A Town of Poland... 14,674, A,S Brewer Water District... 1,457, R Great Salt Bay C.S.D.... 2,550, A School Administrative District # ,080, A School Administrative District # ,613, A,S School Administrative District # ,281, A,S Town of Cumberland , A SUB TOTAL... $55,850, * See heading of Appendix B for the information indicated by the letters A, S and R. B-18

69 XXXIX. Governmental Unit MUNICIPAL BONDS Issued October 29, 1998 Balance Outstanding Serial Bonds Due November 1 (Years Inclusive) Source of Payment* City of Augusta... $ 281, A (1) Town of Winthrop , A City of Hallowell , A City of Auburn... 2,800, A Town of Rangeley... 70, A Town of Naples , A Town of Mount Vernon , A Town of Freeport , A Town of Fort Fairfield , A Town of Fairfield , A School Administrative District # ,700, A Sanford Water District , R Town of Hermon... 1,528, A SUBTOTAL... $9,472, XL. MUNICIPAL BONDS Issued May 27, 1999 Governmental Unit City of Brewer High School District... $ 400, A School Administrative District # , A Town of Sanford... 1,080, A Town of Randolph , A School Administrative District # ,371, A,S School Administrative District # ,376, A,S School Administrative District # , A City of Rockland , A Town of Windham... 2,539, A Town of Washburn , A Town of Liberty... 53, A Town of Raymond... 7,015, A,S Topsham Sewer District... 75, R Town of Cherryfield , A Kittery Water District , R School Administrative District # ,310, A,S Town of Cherryfield , A City of Gardiner... 1,886, A Town of Holden... 1,062, A SUBTOTAL... $51,233, * See heading of Appendix B for the information indicated by the letters A, S and R. (1) Matures on October 1, B-19

70 XLI. Governmental Unit MUNICIPAL BONDS Issued October 28, 1999 Balance Outstanding Serial Bonds Due November 1 (Years Inclusive) Source of Payment* City of Augusta... $ 355, A (1) Town of Lyman , A Town of Dayton , A Town of Norway , A Town of Wells , A City of Auburn... 3,200, A Town of Patten , A Town of Monmouth , A Town of Bucksport... 1,353, A,S Town of Boothbay , A Town of Cumberland , A MSAD # ,375, A MSAD # ,559, A Town of Orrington... 5,592, A,S Presque Isle Water District , R Five Town C.S.D ,828, A,S SUBTOTAL... $ 38,767, XLII. MUNICIPAL BONDS Issued May 25, 2000 Governmental Unit Town of Boothbay... $ 172, A Town of Poland , A Town of Poland... 76, A Town of Smithfield , A City of Augusta , A City of Old Town , A Town of Poland , A City of Old Town , A City of Rockland... 1,800, A Town of Harpswell... 1,165, A Bowdoinham Water District... 95, R Bethel Water District , R Bowdoinham Water District , R Gardiner Water District , R City of Augusta... 8,730, A Mount Desert Water District... 1,083, R Town of Poland , A MSAD # ,659, A,S Mount Desert C.S.D... 7,221, A Town of Bradley , A Town of Bradley , A Town of Southwest Harbor... 4,959, A MSAD # ,951, A,S Town of Carrabassett Valley , A MSAD # ,890, A,S SUBTOTAL... $ 59,276, * See heading of Appendix B for the information indicated by the letters A, S and R. (1) Matures on October 1, B-20

71 XLIII. Governmental Unit MUNICIPAL BONDS Issued October 26, 2000 Balance Outstanding Serial Bonds Due November 1 (Years Inclusive) Source of Payment* Town of Phippsburg... $ 602, A Town of Rangeley , A Town of Winthrop , A Town of Rockport , A MSAD # , A City of Gardiner , A Town of Winthrop... 1,139, A, S Town of Winthrop... 1,292, A, S City of Auburn... 3,960, A Town of Bowdoinham... 72, A Town of Mechanic Falls , A Town of Carrabassett Valley , A Town of Rockport , A Manchester, Mount Vernon, Readfield and Wayne C.S.D... 8,075, A, S Town of Hampden... 1,710, A Town of East Millinocket , A Town of Mechanic Falls , A Manchester, Mount Vernon, Readfield and Wayne C.S.D , A Deer Isle-Stonington C.S.D.... 6,698, A,S MSAD # ,350, A,S SUBTOTAL... $ 33,350, XLIV. MUNICIPAL BONDS Issued May 24, 2001 Governmental Unit Town of Madawaska... $ 300, A Town of Windham , A City of Augusta , A MSAD # ,400, A Town of Waterboro... 1,000, A MSAD # , A Town of Bowdoinham , A City of Hallowell , A City of Gardiner , A City of Augusta , A City of Belfast , A Town of Wells , A Town of Monmouth , A M.S.A.D. # ,000, A Town of Winthrop , A City of Augusta... 4,300, A City of Brewer High School District , A MSAD # ,603, A, S Town of Carrabassett Valley , A SUBTOTAL... $ 1,030, * See heading of Appendix B for the information indicated by the letters A, S and R. B-21

72 XLV. MUNICIPAL BONDS Issued October 25, 2001 Governmental Unit Balance Outstanding Serial Bonds Due November 1 (Years Inclusive) Source of Payment* M.S.A.D. #75... $ 461, A Town of Sabattus , A Piscataquis County... 1,410, A Town of Rockport , A MSAD # , A Town of Hermon , A Town of Freeport , A M.S.A.D. # , A City of Auburn... 5,500, A Town of Fayette , A Rumford Water District... 78, R Town of Winthrop , A Town of Dover-Foxcroft , A Town of Eliot , A Caribou Utilities District... 1,975, R Town of Edgecomb... 4,685, A,S M.S.A.D. # ,719, A,S Town of Industry , A M.S.A.D. # ,435, A,S Town of Hampden... 1,686, A M.S.A.D. # ,576, A,S M.S.A.D. # ,102, A,S Caribou Utilities District , R Town of Fort Kent , A City of Presque Isle... 2,600, A Hospital Administrative District #4... 6,000, R (1) SUBTOTAL... $ 62,528, XLVI. MUNICIPAL BONDS Issued March 27, 2002 Governmental Unit M.S.A.D. #50... $ 2,225, A M.S.A.D. #9... 6,552, A M.S.A.D. # ,742, A,S M.S.A.D. # ,883, A,S SUB TOTAL... $33,403, * See heading of Appendix B for the information indicated by the letters A, S and R. (1) See footnote (1) on page B-17. B-22

73 XLVII. MUNICIPAL BONDS Issued May 23, 2002 Governmental Unit Balance Outstanding Serial Bonds Due November 1 (Years Inclusive) Source of Payment* Town of Bucksport... $ 220, A Town of Greenwood , A Town of Bethel , A Town of Glenburn , A M.S.A.D. # , A Town of Norway , A Auburn Water District... 1,711, R Manchester, Mt. Vernon, Readfield and Wayne C.S.D... 2,026, A City of Old Town... 2,500, A Town of Mount Desert... 5,950, A City of Auburn... 6,000, A Town of Bucksport... 8,226, A,S City of Old Town... 11,316, A,S Town of Winthrop... 11,455, A,S Wells-Ogunquit C.S.D ,000, A M.S.A.D. # ,557, A,S South Freeport Water District , R SUBTOTAL... $ 70,973, * See heading of Appendix B for the information indicated by the letters A, S and R. B-23

74 XLVIII. MUNICIPAL BONDS Contracted to be purchased from the Proceeds of the 2002 Series E and F Bonds Governmental Unit Balance Outstanding Serial Bonds Due November 1 (Years Inclusive) Source of Payment* Town of Fayette... $ 69, A City of Augusta , A Town of Mechanic Falls , A Town of Litchfield , A M.S.A.D. # , A Town of Readfield , A Town of Standish , A Town of Readfield , A Town of Greenwood , A Town of Bethel , A Town of Wayne , A Town of Clinton , A City of Augusta , A Town of Freeport , A Town of Fort Kent... 1,000, A Town of Sanford... 1,000, A Town of Lisbon... 1,330, A Town of Standish... 1,660, A Town of Raymond , A Town of Raymond , A Town of Raymond... 1,595, A Town of Greene... 1,900, A Gray Water District , R H.A.D. #4... 1,500, R (1) City of Auburn... 13,100, A SUBTOTAL... $ 29,909, TOTAL (All Municipal Bonds)... $886,428, * See heading of Appendix B for the information indicated by the letters A, S and R. (1) See footnote (1) on page B-17. Anticipated date of issuance of the 2002 Series E and F Bonds is October 30, B-24

75 APPENDIX C INDEX TO FINANCIAL STATEMENTS Independent Auditors Report dated August 30, C-1 Management s Discussion and Analysis... C-3 Balance Sheets, June 30, C-10 Statement of Revenues, Expenses and Changes in Fund Equity, Year Ended June 30, C-14 Statement of Cash Flows, Year Ended June 30, C-16 Notes to Financial Statements, June 30, C-20 C-i

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77 INDEPENDENT AUDITORS REPORT Board of Commissioners Maine Municipal Bond Bank We have audited the accompanying basic financial statements, consisting of the General Operating Account, General Tax-Exempt Fund Group, Special Obligation Taxable Fund Group, Waste Water and Drinking Water Revolving Loan Fund Groups and Operating Fund Group and the School Facilities Fund Group, of Maine Municipal Bond Bank as of and for the year ended June 30, 2002, as listed in the accompanying table of contents. These financial statements are the responsibility of the Bond Bank s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of Maine Municipal Bond Bank and the individual fund groups referred to above at June 30, 2002, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. As described in note 2 to the basic financial statements, the Bond Bank adopted the provisions of Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments, as amended, for the year ended June 30, Adoption of Statement No. 34 resulted in a change to the format and content of the basic financial statements and accompanying notes to the financial statements. In accordance with Government Auditing Standards, we have also issued our report dated August 30, 2002 on our consideration of Maine Municipal Bond Bank s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. C-1

78 Board of Commissioners Maine Municipal Bond Bank The Management s Discussion and Analysis on pages 3 8 is not a required part of the basic financial statements, but is supplementary information required by the Government Accounting Standards Board. The supplementary information is the responsibility of the Bond Bank s management. We have applied certain limited procedures that consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it. Portland, Maine August 30, 2002 Limited Liability Company C-2

79 MAINE MUNICIPAL BOND BANK MANAGEMENT S DISCUSSION AND ANALYSIS June 30, 2002 As financial management of the Maine Municipal Bond Bank (the Bond Bank ), we offer readers of these financial statements this narrative, overview and analysis of the financial activities of the Bond Bank for the fiscal year ended June 30, This discussion and analysis is designed to assist the reader in focusing on the significant financial issues and activities of the Bond Bank and to identify any significant changes in financial position. We encourage readers to consider the information presented here in conjunction with the basic financial statements as a whole. Financial Highlights Revenues for the Bond Bank s General Operating Account were $863,358 for fiscal year 2002, a decrease of $196,008 or 18.5% under fiscal year This decrease was caused primarily by the decline in short-term interest rates in fiscal year 2002 and a $50,626 decease in the fair value of investments between fiscal year 2001 and Fund equity in the Bond Bank s General Operating Account increased $1,645,550 in fiscal year 2002 primarily as a result of $914,701 in bond refunding savings that were transferred from the General Tax-Exempt Fund Group and investment earnings. At June 30, 2002, the Bond Bank s General Operating Account had fund equity of $16,938,340, an increase of 11% over the prior year. The Bond Bank s gross bonds outstanding at June 30, 2002 of $1,066,845,720 represents a net increase of $96,630,940 over the balance at June 30, This increase was the result of issuing Series 2001C&D, 2002A and 2002B&C bonds totaling $182,930,000, less the scheduled November 1, 2001 debt service principal payment of $84,931,195 and the defeasance of a loan to Hospital Administrative District #1 in the amount of $1,367,865. The primary difference between the gross and net bonds outstanding is the effect of the deferred financing costs associated with the Bond Bank s several refunding issues. The Bond Bank committed loans to local governmental units during fiscal year 2002 totaling $251,971,589, which was an 88% increase over the loans provided in fiscal year The Bond Bank also provided borrowers participating in the Drinking Water Revolving Loan Fund Program and the School Facilities Revolving Loan Fund Program $15,314,866 in potential loan forgiveness in fiscal year 2002, which was an 110% increase over fiscal year Overview of the Bond Bank The Bond Bank was created in 1973 by an Act of the Maine Legislature, is a public body corporate and politic and is constituted as an instrumentality exercising public and essential governmental functions of the State. The Bond Bank was established to issue bonds for the purpose, among other things, of providing funds to enable it to lend money to counties, cities, towns, school administrative districts, community school districts or other quasi-municipal corporations (the governmental units ) within the State of Maine. The provision of funds is accomplished by the direct purchase from such governmental units of their bonds, notes or evidence of debt payable from taxes, charges for services or assessments. For financial statement reporting purposes, the Bond Bank is considered a component unit of the State of Maine. However, the Bond Bank does not receive any State appropriations for its operations. The Bond Bank does receive grant monies from the State to fund the revolving loan funds for clean water, drinking water and school renovations. The Bond Bank also administers a grant for the Maine Rural Water Association. C-3

80 The Bond Bank periodically receives allocations of the State s tax-exempt bond cap and is a member of the State s Tax Cap Allocation Committee. The Bond Bank administers the Federal Clean Water Act and Drinking Water Act Revolving Loan Funds. Each of the Revolving Loan Funds periodically receives capitalization grants from the Environmental Protection Agency and state matching funds from the State of Maine. The State of Maine Department of Environmental Protection approves low interest revolving loans to eligible borrowers, under the Clean Water Act Fund, that may be comprised of bond proceeds and federal and State equity monies or solely equity monies. The Drinking Water Revolving Loan Fund operates similar to the Clean Water Revolving Loan Fund whereby the Maine Department of Human Services (Office of Drinking Water) approves low interest revolving loans, under the Drinking Water Act, to eligible borrowers that may be comprised of bond proceeds and federal and state equity monies or solely equity monies. Under the Drinking Water Revolving Loan Fund, borrowers are eligible to receive a maximum 75% loan forgiveness. The Bond Bank administers the School Facilities Revolving Loan Fund, which is capitalized by monies received from the State of Maine. The Department of Education approves qualified projects that are eligible for interest-free revolving loans, subject to the Bond Bank s approval, to school administrative units for renovation and maintenance of school facilities. Borrowers are eligible to receive a minimum of 20% and a maximum of 70% loan forgiveness. As the result of the Bond Bank issuing tax-exempt debt, it is required to prepare arbitrage rebate calculations for each series of bonds outstanding and remit payment to the Internal Revenue Service every five years. The Bond Bank s policy is to prepare and review the calculations every six months for financial statement purposes and to annually fund rebate accounts for any rebate liability. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the Bond Bank s financial statements, which is comprised of the basic financial statements and the notes to the financial statements. Since the Bond Bank operates under three separate bond resolutions, the financial statements reflect individual fund activity. Basic Financial Statements The basic financial statements are designed to provide readers with a broad overview of the Bond Bank s finances, in a manner similar to a private-sector business. The balance sheets present information on all of the Bond Bank s assets and liabilities, with the difference between the two reported as fund equity. Over time, increases or decreases in fund equity may serve as a useful indicator of whether the financial position of the Bond Bank is improving or deteriorating. Fund equity increases when revenues exceed expenses. Increases to assets without a corresponding increase to liabilities, results in increased fund equity, which may indicate an improved financial position. The statements of revenues, expenses and changes in fund equity present information showing how the Bond Bank s fund equity changed during the fiscal year. All changes in fund equity are reported as soon as the underlying event occurs, regardless of timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future periods. Notes to the Financial Statements The notes to the financial statements provide additional information that is essential to a full understanding of the data provided in the basic financial statements. C-4

81 Financial Analysis Fund equity may serve, over time, as a useful indicator of a government s financial position. In the case of the Bond Bank, assets exceeded liabilities by $364,016,797 at June 30, This represents an increase of $30,680,705 (9.2%) over the previous fiscal year. Most of this increase is attributable to additional grants being received in the Revolving Loan Funds. The restricted fund equity was $314,893,208 compared to unrestricted fund equity of $49,123,589. By far, with the exception of the School Facilities Fund Group, the largest portion of the Bond Bank s fund equity is its investment in loans to governmental units plus bond proceeds remaining in trust investments, less any related debt used to acquire those assets. The Bond Bank s financial position and operations for the past two years are summarized below based on information included in the financial statements. Percentage Change Current assets: Cash and cash equivalents $ 457,496 $ 343, % Investments held by trustee, at market value 144,243, ,506,882 (17.3) Board designated cash and investments 15,287,737 13,513, Grant receivable from State of Maine 1,641,665 Loans receivable from governmental units 89,238,372 81,955, Accrued investment income receivable 2,020,763 2,429,143 (16.8) Accrued interest receivable from governmental units 8,728,152 7,601, Undisbursed federal letter of credit payments 47,582,560 40,020, Refunding benefits rebated to governmental units, net 291, ,519 (6.6) Due from other funds 477, , Other assets 261, ,117 (41.7) Total current assets 310,230, ,480,977 (3.5) Noncurrent assets: Investments held by trustee, at market value 113,229,890 95,120, Loans receivable from governmental units 1,030,039, ,507, Land and building, net of depreciation 920,905 1,008,817 (8.7) Refunding benefits rebated to governmental units, net 1,310,969 1,602,723 (18.2) Total noncurrent assets 1,145,500, ,239, Total assets $ 1,455,731,468 $ 1,311,720, % C-5

82 Percentage Change Current liabilities: Accounts payable and accrued liabilities $ 489,656 $ 687,048 (28.7)% Due to other funds 477, , Accrued interest payable 9,095,259 8,513, Undisbursed loans from revolving loan fund 25,207,612 12,574, Accrued interest rebate payable to U.S. Government 1,724,470 1,015, Bonds payable 82,939,510 73,587, Total current liabilities 119,934,118 96,727, Noncurrent liabilities: Accrued interest rebate payable to U.S. Government 2,146,166 2,515,658 (14.7) Bonds payable 969,634, ,141,385 (10.3) Total noncurrent liabilities 971,780, ,657, Total liabilities 1,091,714, ,384, Fund equity: Reserved 314,893, ,491, Unreserved: Designated 15,296,936 13,533, Undesignated 33,826,653 30,310, Total fund equity 364,016, ,336, Total liabilities and fund equity $ 1,455,731,468 $ 1,311,720, % Total cash and investments held by trustee decreased $12,154,352, or 4.5% at June 30, 2002 compared to June 30, The decrease was primarily the result of the disbursement of loan proceeds throughout the year. The Bond Bank s investment portfolio is comprised of cash and cash equivalents, U.S. Government obligations (including treasury bills, notes, and bonds), strips, agency notes and bank investment contracts. The Bond Bank s investments are carried at fair value. Unrealized gains and losses (primarily due to fluctuations in market values) are recognized in the statement of revenues, expenses and changes in fund equity. The Bond Bank s net loans (bond and equity) to governmental units increased $144,814,502 in fiscal year The Bond Bank s total new loan commitments in 2002 of $251,971,549 were 88.5% higher than 2001 originations of $133,613,722. Net bonds payable increased $99,845,028. C-6

83 The Bond Bank s financial position improved as fund equity increased 9.2% in fiscal year The Bond Bank continued to maintain a positive spread of income from investments and loans to governmental units over bond interest and operating expenses. Percentage Change Interest on loans receivable from governmental units $ 51,512,293 $ 49,780, % Interest income from investments 12,317,306 13,100,165 (6.0) Net increase in the fair value of investments 2,522,368 6,537,603 (61.4) Grant revenue from Environmental Protection Agency 26,383,891 18,146, Grant revenue from State of Maine 5,676,551 32,149,289 (82.3) Other income 1,561,287 1,015,089 (53.8) Total operating revenue 99,973, ,728,643 (17.2)% Interest expense 54,172,501 54,054, % Operating expense 4,256,407 3,186, Loan forgiveness 10,600,561 8,409, Amortization of deferred financing costs 263, ,406 (14.3) Total operating expenses 69,292,991 65,958, % Operating income 30,680,705 54,770,017 (44.0)% Fund equity, beginning of year 333,336, ,566, Fund equity, end of year $ 364,016,797 $ 333,336, % Operating revenues are generated principally from interest earned on investments. The General Tax-Exempt Fund Group reimburses the Operating Fund for the annual budget approved by the Board of Commissioners. Interest income from investments in 2002 decreased 6% from This decrease was primarily the result of drawing down investments in the revolving loan funds to provide loans to local government units. Also, fiscal year 2002 experienced a declining interest rate environment. Grant revenues from the Environmental Protection Agency and the State of Maine are contingent on continued funding by the U.S. Congress and the State of Maine Legislature. The Environmental Protection Agency awarded the Bond Bank grants totaling $26,383,891 in fiscal year 2002, which was a 45.4% increase over The State of Maine Legislature appropriated $28,000,000 for the School Facilities Revolving Loan Fund in fiscal year 2001 but did not provide an appropriation for fiscal year 2002, resulting in an 83.4% decrease in grant revenue from the State of Maine in fiscal year Operating expenses increased $1,069,877 in fiscal year 2002 over 2001, which was a 33.6% increase. This was due mainly to an increase in payments to the State of Maine s Department of Human Services for administrative expenses and other allowable program costs, such as technical assistance for small systems, capacity development and the operator certification program. Payment of all Department of Human Services expenses incurred is funded from federal capitalization grant funds set aside for these purposes. Loan forgiveness expense also increased 26% in fiscal year 2002 over Loan originations within the School Facilities Revolving Loan Fund increased $13,403,678 in fiscal year 2002 over 2001, which resulted in the increase in loan forgiveness. C-7

84 Requests for Information This financial report is designed to provide a general overview of the Bond Bank s financial statements for all those with an interest in its finances. Questions concerning any of the information provided in this report or request for additional information should be addressed to the Executive Director, Maine Municipal Bond Bank, P.O. Box 2268, Augusta, Maine C-8

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86 MAINE MUNICIPAL BOND BANK BALANCE SHEET June 30, 2002 General Operating Account General Tax-Exempt Fund Group ASSETS Current assets: Cash and cash equivalents $ 457,496 $ Investments held by trustee, at market value (notes 3 and 5) 44,753,510 Board designated cash and investments, at market value (note 3) 15,287,737 Grant receivable from State of Maine Loans receivable from governmental units 73,945,639 Accrued investment income receivable 112, ,227 Accrued interest receivable from governmental units 7,448,548 Undisbursed federal letter of credit payments Refunding benefits rebated to governmental units, net of amortization 291,754 Due from other funds Other assets 246,391 Total current assets 16,103, ,093,678 Noncurrent assets: Investments held by trustee, at market value (notes 3 and 5) 113,229,890 Loans receivable from governmental units 790,373,970 Land and building, net of depreciation of $529, ,905 Refunding benefits rebated to governmental units, net of amortization 1,310,969 Total noncurrent assets 920, ,914,829 Total assets $ 17,024,738 $ 1,032,008,507 C-10

87 Special Obli- Sewer and Water Fund Groups School gation Taxable Revolving Loan Fund Groups Operating Facilities Fund Group Waste Water Drinking Water Fund Group Fund Group Total $ $ $ $ $ $ 457, ,919 41,168,350 6,250,041 2,724,979 48,975, ,243,147 15,287, ,665 1,000,000 1,641, ,771 11,979,034 1,182,805 1,929,123 89,238,372 4, ,937 15,323 5, ,135 2,020,763 21,747 1,185,700 72,157 8,728,152 24,376,146 23,206,414 47,582, , , ,611 12,833 2, , ,704 79,767,665 31,728,823 3,208,255 51,729, ,230, ,229,890 1,110, ,301,527 30,499,632 16,753,373 1,030,039, ,905 1,310,969 1,110, ,301,527 30,499,632 16,753,373 1,145,500,904 $ 1,709,342 $ 271,069,192 $ 62,228,455 $ 3,208,255 $ 68,482,979 $ 1,455,731,468 C-11

88 MAINE MUNICIPAL BOND BANK BALANCE SHEET (CONTINUED) June 30, 2002 General Operating Account General Tax-Exempt Fund Group LIABILITIES AND FUND EQUITY Current liabilities: Accounts payable and accrued liabilities $ 86,398 $ 77,195 Due to other funds Accrued interest payable 8,493,527 Undisbursed loans from revolving loan fund Accrued interest rebate payable to U.S. Government 1,528,099 Bonds payable (note 4) 78,675,230 Total current liabilities 86,398 88,774,051 Noncurrent liabilities: Accrued interest rebate payable to U.S. Government 2,130,069 Bonds payable (note 4) 909,218,348 Total noncurrent liabilities 911,348,417 Total liabilities 86,398 1,000,122,468 Fund equity: Reserved (notes 5, 6 and 7) 4,670,829 Unreserved: Designated 15,296,936 Undesignated 1,641,404 27,215,210 Total fund equity 16,938,340 31,886,039 Total liabilities and fund equity $ 17,024,738 $ 1,032,008,507 See accompanying notes. C-12

89 Special Obli- Sewer and Water Fund Groups School gation Taxable Revolving Loan Fund Groups Operating Facilities Fund Group Waste Water Drinking Water Fund Group Fund Group Total $ 211,970 $ 41,316 $ 19,479 $ 30,111 $ 23,187 $ 489, ,289 30, ,611 23, ,875 33,394 9,095,259 15,028,024 2,638,224 7,541,364 25,207, ,371 1,724, ,000 3,854, ,000 82,939, ,433 20,112,155 2,926,419 30,111 7,564, ,934,118 16,097 2,146,166 1,245,000 55,191,039 3,980, ,634,387 1,245,000 55,207,136 3,980, ,780,553 1,685,433 75,319,291 6,906,419 30,111 7,564,551 1,091,714, ,239,433 54,676,445 60,306, ,893,208 15,296,936 23, , ,591 3,178, ,927 33,826,653 23, ,749,901 55,322,036 3,178,144 60,918, ,016,797 $ 1,709,342 $ 271,069,192 $ 62,228,455 $ 3,208,255 $ 68,482,979 $ 1,455,731,468 C-13

90 MAINE MUNICIPAL BOND BANK STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND EQUITY For the Year Ended June 30, 2002 General Operating Account General Tax-Exempt Fund Group Operating revenues: Interest on loans receivable from governmental units $ $ 45,185,572 Interest income from investments 670,557 6,336,491 Net increase (decrease) in the fair value of investments (50,626) 2,852,979 Grant revenue from Environmental Protection Agency (note 6) Grant revenue from State of Maine (notes 6 and 7) Other income 243, ,346 Total operating revenue 863,358 54,693,388 Operating expenses: Interest expense 50,284,108 Operating expenses 1,085,129 24,000 Loan forgiveness (notes 6 and 7) Amortization of deferred financing costs 245,975 Total operating expenses 1,085,129 50,554,083 Operating income (loss) before operating transfers (221,771) 4,139,305 Operating transfers 1,867,321 (1,867,321) Operating income (loss) 1,645,550 2,271,984 Fund equity, beginning of year 15,292,790 29,614,055 Fund equity, end of year $ 16,938,340 $ 31,886,039 See accompanying notes. C-14

91 Special Obli- Sewer and Water Fund Groups School gation Taxable Revolving Loan Fund Groups Operating Facilities Fund Group Waste Water Drinking Water Fund Group Fund Group Total $ 138,760 $ 5,832,591 $ 355,370 $ $ $ 51,512,293 15,121 2,240, ,220 57,355 2,859,715 12,317,306 4,253 (251,600) 9,611 (42,249) 2,522,368 10,542,291 15,841,600 26,383,891 2,676,551 3,000,000 5,676, , ,917 1,561, ,134 21,040,680 19,343, ,952 3,112,383 99,973, ,975 3,539, ,258 54,172,501 13, ,315 2,020, , ,655 4,256, ,386 10,412,175 10,600,561 17, , ,024 4,248,022 2,409, ,659 10,652,830 69,292,991 (3,890) 16,792,658 16,934, ,293 (7,540,447) 30,680,705 (3,890) 16,792,658 16,934, ,293 (7,540,447) 30,680,705 27, ,957,243 38,387,479 2,597,851 68,458, ,336,092 $ 23,909 $ 195,749,901 $ 55,322,036 $ 3,178,144 $ 60,918,428 $ 364,016,797 C-15

92 MAINE MUNICIPAL BOND BANK STATEMENT OF CASH FLOWS For the Year Ended June 30, 2002 General Operating Account General Tax-Exempt Fund Group OPERATING ACTIVITIES: Cash received from governmental units $ $ 112,290,279 Cash payments to governmental units (166,905,717) Cash received from other income 243, ,346 Cash payments for operating expenses (1,053,716) (56,148) Cash received from (paid to) other funds 1,867,321 (1,867,321) Cash paid for other assets and liabilities 186,976 Net cash provided (used) by operating activities 1,244,008 (56,220,561) NONCAPITAL FINANCING ACTIVITIES: Proceeds from bonds payable 182,930,000 Principal paid on bonds payable (81,874,060) Interest paid on bonds payable (46,600,952) Grant receipts from Environmental Protection Agency and State of Maine Net cash provided (used) by noncapital financing activities 54,454,988 INVESTING ACTIVITIES: Purchase of investment securities (17,300,426) (299,544,407) Proceeds from sale and maturities of investment securities 15,475, ,919,556 Income received from investments 694,390 3,911,370 Interest rebate paid to U.S. Government (1,520,946) Net cash provided (used) by investing activities (1,130,312) 1,765,573 Increase in cash and cash equivalents 113,696 Cash and cash equivalents, beginning of year 343,800 Cash and cash equivalents, end of year $ 457,496 $ C-16

93 Special Obli- Sewer and Water Fund Groups School gation Taxable Revolving Loan Fund Groups Operating Facilities Fund Group Waste Water Drinking Water Fund Group Fund Group Total $ 325,219 $ 9,369,435 $ 523,754 $ $ $ 122,508,687 (23,293,818) (8,333,682) (16,371,912) (214,905,129) 704, ,917 1,561,287 (25,278) (582,573) (2,031,978) (195,464) (292,520) (4,237,677) (166) (128,209) 58, ,941 (14,507,122) (9,841,906) 380,924 (16,369,515) (95,014,231) 182,930,000 (185,000) (4,035,000) (205,000) (86,299,060) (151,739) (3,373,220) (201,964) (50,327,875) 12,545,364 10,311,344 22,856,708 (336,739) 5,137,144 9,904,380 69,159,773 (282,859) (74,129,290) (14,749,755) (2,172,073) (31,847,893) (440,026,703) 304,473 81,118,596 14,521,350 1,729,875 45,196, ,265,907 15,184 2,380, ,304 61,274 3,021,075 10,250,268 1 (373) (1,521,318) 36,798 9,369,978 (62,474) (380,924) 16,369,515 25,968, , ,800 $ $ $ $ $ $ 457,496 C-17

94 MAINE MUNICIPAL BOND BANK STATEMENT OF CASH FLOWS (CONTINUED) For the Year Ended June 30, 2002 General Operating Account General Tax-Exempt Fund Group Reconciliation of operating income (loss) to net cash provided (used) by operating activities: Operating income (loss) $ 1,645,550 $ 2,271,984 Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Interest income from investments (670,557) (6,336,491) Net decrease (increase) in the fair value of investments 50,626 (2,852,979) Loan forgiveness Depreciation 87,912 Amortization of deferred financing costs 245,975 Interest expense on bonds payable 50,284,108 Federal and State grants Change in assets and liabilities: Loans receivable from governmental units (99,206,720) Accrued interest receivable from governmental units (594,290) Other assets 186,976 Accounts payable and accrued liabilities (56,499) (32,148) Net cash provided (used) by operating activities $ 1,244,008 $ (56,220,561) See accompanying notes. C-18

95 Special Obli- Sewer and Water Fund Groups School gation Taxable Revolving Loan Fund Groups Operating Facilities Fund Group Waste Water Drinking Water Fund Group Fund Group Total $ (3,890) $ 16,792,658 $ 16,934,557 $ 580,293 $ (7,540,447) $ 30,680,705 (15,121) (2,240,847) (137,220) (57,355) (2,859,715) (12,317,306) (4,253) 251,600 (9,611) 42,249 (2,522,368) 188,386 10,412,175 10,600,561 87,912 17, , ,975 3,539, ,258 54,172,501 (13,218,842) (18,841,600) (32,060,442) 183,694 (19,258,818) (8,128,682) (16,371,912) (142,782,438) 2,765 (498,156) (36,616) (1,126,297) (166) (128,209) 58,601 (12,229) 108,742 (11,378) (13,805) (51,865) (69,182) $ 299,941 $ (14,507,122) $ (9,841,906) $ 380,924 $ (16,369,515) $ (95,014,231) C-19

96 MAINE MUNICIPAL BOND BANK NOTES TO FINANCIAL STATEMENTS June 30, Organization The Maine Municipal Bond Bank (the Bond Bank) is constituted as an instrumentality and, for accounting purposes under Government Accounting Standards Board Statement No. 14, The Financial Reporting Entity, is considered a component unit of the State of Maine, organized and existing under and pursuant to M.R.S.A., Article 30-A, Title 5901 (the Act), as amended. Under the Act, the Bond Bank is authorized to issue bonds for the purpose, among other things, of providing funds to enable it to lend money to counties, cities, towns, school administrative districts, community school districts or other quasi-municipal corporations (the governmental units ) within the State of Maine. The provision of funds is accomplished by the direct purchase from such governmental units of their bonds, notes or evidence of debt payable from taxes, charges for services or assessments. The general operating account consists of the operating revenues and expenses incurred by the Bond Bank in administering the three bond resolutions under which it is operating. The funds and accounts of these resolutions have been grouped within each of the bond resolutions and fund groups as follows: General Tax-Exempt Fund Group: This fund group consists of funds and accounts established under the Bond Bank s General Bond Resolution adopted July 11, 1973, as amended and supplemented by the First Supplemental Resolution adopted September 20, 1977, the Second Supplemental Resolution adopted July 18, 1984, the Third Supplemental Resolution adopted May 7, 1993 and the Fourth Supplemental Resolution adopted June 25, Under these resolutions, the Bond Bank issues bonds exempt from federal and State of Maine income taxes and makes loans to local governmental units. Special Obligation Taxable Fund Group: This fund group consists of funds and accounts established under the Bond Bank s Special Obligation Bond Resolution adopted May 25, Under this resolution, the Bond Bank issues bonds which are exempt from State of Maine income taxes (but not federal income taxes) and makes loans to governmental units. Sewer and Water Fund Groups: These fund groups consist of funds and accounts established under the Bond Bank s Sewer and Water General Bond Resolution adopted February 7, 1990, as amended and supplemented by the First Supplemental Resolution adopted March 6, Under this resolution, the Bond Bank issues bonds exempt from federal and State of Maine income taxes for the purpose of making revolving loans to governmental units to finance wastewater collection, treatment system or water supply system projects. Some of these projects may be partially financed by grants from the Environmental Protection Agency and the State of Maine under the State Revolving Fund Program and the Drinking Water State Revolving Loan Fund Program. School Facilities Fund Group: This fund group consists of funds and accounts established under the Maine School Facilities Finance Program. Under this program, the Bond Bank receives appropriations from the State and also funding from various other sources for the purpose of making loans to school administrative units for school repair and renovation. This fund group is not a part of any bond resolution. C-20

97 MAINE MUNICIPAL BOND BANK NOTES TO FINANCIAL STATEMENTS June 30, Significant Accounting Policies Proprietary Fund Accounting: As the Bond Bank s operations are financed and operated in a manner similar to private business enterprise, where the intent of the governing body is that the costs of providing goods or services is financed through user charges, it meets the criteria for an enterprise fund and, therefore, is accounted for under the accrual basis of proprietary accounting. The Bond Bank complies with Governmental Accounting Standards Board Statement (GASB) No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities that Use Proprietary Fund Accounting. This Statement requires that the Bond Bank apply all applicable GASB pronouncements as well as the following pronouncements issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements: Financial Accounting Standards Board (FASB) Statements and Interpretations, Accounting Principles Board (APB) Opinions, and Accounting Research Bulletins (ARB s). As permitted by GASB No. 20, the Bond Bank has elected not to comply with the FASB Statements and Interpretations issued after November 30, The financial statements are prepared in accordance with Governmental Accounting Standards Board Statements No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments, No. 37, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments: Omnibus an amendment of GASB Statement No. 21 and No. 34, and No. 38, Certain Financial Statement Note Disclosures (the Statements). The Bond Bank implemented the Statements as of July 1, The primary impacts of adoption of these Statements resulted in changes in the presentation of the Bond Bank s financial statements to separate assets and liabilities into current and long-term components and the inclusion of Management s Discussion and Analysis. Adoption of the statements had no impact on fund equity. Accounting Method: As stated above, the Bond Bank uses the accrual basis of accounting and, accordingly, recognizes revenues as earned and expenses as incurred. Cash and Cash Equivalents: The Bond Bank considers all checking and savings deposits and highly liquid investments with maturities of three months or less to be cash equivalents. Investments: Investments are carried at fair value. Changes in fair value are recorded as net increase or decrease in the fair value of investments on the statements of revenues, expenses and changes in fund equity. Interest earnings on principal-only strips within the general tax-exempt fund group and special obligation taxable fund group of approximately $4,336,000 and $8,400, respectively, has been recorded as interest income from investments in Reserve fund investments that are not expected to be utilized to fund bond principal and interest payments until after June 30, 2003 have been classified as long-term. Undisbursed Federal Letter of Credit Payment: The Bond Bank has received federal capitalization grants under the Sewer and Water Bond Resolution s State Revolving Fund Program. The grants have been made available in the form of letters of credit which can only be drawn upon when needed for administrative and actual construction related costs. Building: The building is recorded at cost less accumulated depreciation. The provision for depreciation has been computed using the straight-line method. C-21

98 MAINE MUNICIPAL BOND BANK NOTES TO FINANCIAL STATEMENTS June 30, Significant Accounting Policies (Continued) Refunding Benefits Rebated to Governmental Units: The refunding benefits rebated to governmental units recognizes amounts paid to governmental units resulting from debt service savings on advance refunding of bonds outstanding. The rebated amounts are deferred and are being amortized over the life of the refunded bonds using a method which approximates the effective interest method. The current year amortization reduces the amount of interest income on loans receivable from governmental units on the statements of revenues, expenses and changes in fund equity. Bond Issuance Costs and Deferred Financing Costs: Bond issuance and financing costs resulting from advance refunding of bonds outstanding have been deferred as part of deferred amounts on refunding and are being amortized over the life of the refunded bonds using the bonds outstanding method. Other bond issuance and finance costs paid by the Bond Bank are expensed as incurred. Deferred Amounts on Refunding: The difference between the reacquisition price and the net carrying amount of the refunded bonds is recorded as a deferred amount on refunding and reported as a deduction from or an addition to the new bonds. The deferred amount on refunding is amortized over the remaining life of the refunded bonds as a component of interest expense using the bonds outstanding method. Original Issue Discounts: Original issue discounts, which are deducted from bond proceeds loaned to governmental units, are effectively paid by the governmental units and are not expenses of the Bond Bank. Original issue discounts resulting from the advance refunding of bonds outstanding have been deferred and are being accreted over the life of the refunded bonds using a method which approximates the effective interest method. Designated Unreserved Fund Equity: The Bond Bank has designated certain funds in the general operating account for capital improvements and other specified purposes. Construction Funds: The Sewer and Water General Bond Resolution requires bond proceeds to be deposited into construction funds. Upon deposit into the construction funds, a loan receivable from the governmental unit is recorded and the construction funds are excluded from Sewer and Water Fund Groups. The Bond Bank maintains control over disbursement of these funds until the project is complete. Approximately $1,021,000 in investments are held in the construction funds at June 30, Grant Revenue: Grant revenue is recognized when the qualifying commitments have been made and all other grant requirements have been met. Interfund Transactions: Quasi-external transactions are accounted for as revenues, expenditures or expenses. Transactions that constitute reimbursements to a fund for expenditures/expenses initially made from it that are properly applicable to another fund are recorded as expenditures/expenses in the reimbursing fund and as reductions of expenditures/expenses in the fund that is reimbursed. All other interfund transactions, except quasi-external transactions and reimbursements, are reported as transfers. Nonrecurring or nonroutine permanent transfers of equity are reported as residual equity transfers. All other interfund transfers are reported as operating transfers. C-22

99 MAINE MUNICIPAL BOND BANK NOTES TO FINANCIAL STATEMENTS June 30, Significant Accounting Policies (Continued) Management Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires the Bond Bank to make estimates and assumptions that affect the amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Total Columns: The total columns contain the totals of the similar accounts of the various funds. Since the assets of the funds are restricted, the combination of the accounts, including assets therein, is for convenience only and does not indicate that the combined assets are available in any manner other than that provided for in the separate funds. 3. Investments Held By Trustee and Board Designated Investments The Bond Bank is authorized, under Maine statutes, to invest in obligations of the U.S. Treasury, certain U.S. Governmental Agencies, state and local government agencies, bank investment contracts and collateralized repurchase agreements. The Bond Bank s policy is to invest all available funds at the highest possible rates, in conformance with legal and administrative guidelines. Generally, the funds are invested in government securities whose maturities are planned to coincide with the cash needs for operating, debt service and arbitrage requirements. Governmental Accounting Standards Board Statement No. 3 requires the investments to be classified into three categories to give an indication of the level of risk assumed by the Bond Bank; Category 1 includes deposits covered by federal depository insurance or by collateral held by the Bond Bank or by the Bond Bank s agent in the Bond Bank s name; Category 2 includes uninsured deposits covered by collateral and unregistered securities held by the pledging financial institution s trust department or agent in the Bond Bank s name; and Category 3 includes unregistered investments for which the securities are held by the financial institution s trust department or its agent, but not in the Bond Bank s name. There are no Category 1 or 3 investments held by trustee or board designated investments at June 30, At June 30, 2002, investments are categorized as follows: Category 2 Fair Value General Operating Account Board-designated investments: U.S. Government obligations $ 12,433,746 Cash and cash equivalents 2,853,991 $ 15,287,737 C-23

100 MAINE MUNICIPAL BOND BANK NOTES TO FINANCIAL STATEMENTS June 30, Investments Held By Trustee and Board Designated Investments (Continued) Category 2 Fair Value General Tax-Exempt Fund Group Investments held by trustee: U.S. Government obligations $ 153,970,965 Cash and cash equivalents 4,012,435 $ 157,983,400 Special Obligation Taxable Fund Group Investments held by trustee: U.S. Government obligations $ 356,354 Cash and cash equivalents 14,565 $ 370,919 Sewer and Water Fund Groups Investments held by trustee: Revolving Loan Fund Group Waste Water: Bank investment contracts $ 7,802,580 U.S. Government obligations 22,916,015 Cash and cash equivalents 10,449,755 $ 41,168,350 Revolving Loan Fund Group Drinking Water: U.S. Government obligations $ 2,321,841 Cash and cash equivalents 3,928,200 $ 6,250,041 Operating Fund Group: Cash and cash equivalents $ 2,724,979 School Facilities Fund Group Investments held by trustee: Bank investment contracts $ 41,713,291 U.S. Government obligations 6,714,636 Cash and cash equivalents 547,421 $ 48,975,348 C-24

101 MAINE MUNICIPAL BOND BANK NOTES TO FINANCIAL STATEMENTS June 30, Investments Held By Trustee and Board Designated Investments (Continued) The fair value of bank investment contracts, substantially all of which are insured and have original maturities of eighteen months or less, is assumed to equal contract value. The Bond Bank has invested some of its long-term funds in U.S. Government principal-only strips in order to maximize yields coincident with cash needs for operations, debt service, and arbitrage. These securities are similar to zero coupon bonds which are purchased deeply discounted, with the Bond Bank receiving its only repayment stream at maturity; therefore, they are sensitive to interest rate changes. These securities are reported at fair value in the balance sheet and are included as U.S. Government Obligations above. The fair value of these investments is approximately $80,912,000 at June 30, Bonds Payable Total General Tax-Exempt Fund Group Bonds payable consist of the following at June 30, 2002: Amount Amount Outstanding Maturity Issued June 30, 2002 Series 1991 A and B, 5.8%-6.75%, dated May 1, $ 25,950,000 $ 710,000 Series 1991 C, 5.25%-7.15%, dated July 1, ,640,000 1,445,000 Series 1991 D and E, 5.8%-6.5%, dated October 1, ,190,000 1,000,000 Series 1992 A, B and C, 4.25%-6.75%, dated May 1, ,710,000 16,720,000 Series 1992 D and E, 5.25%-6.25%, dated October 1, ,535,000 7,470,000 Series 1993 B and C, 5%-5.85%, dated May 1, ,070,000 23,730,000 Series 1993 A, 3%-5.8%, dated June 15, ,820, ,622,135 Series 1993 D and E, 4.15%-5.35%, dated October 1, ,000,000 14,445,000 Series 1994 A, 3.35%-5.5%, dated February 1, ,380,000 7,800,000 Series 1994 B and C, 5%-6.35%, dated May 1, ,670,000 12,050,000 Series 1994 D, 4%-6.3%, dated September 1, ,365,000 9,690,000 Series 1994 E and F, 5.2%-6.5%, dated October 1, ,845,000 11,953,585 Series 1995 A and B, 5.3%-6.2%, dated May 1, ,125,000 5,195,000 Series 1995 C, 5.25%-5.4%, dated May 1, , ,000 C-25

102 MAINE MUNICIPAL BOND BANK NOTES TO FINANCIAL STATEMENTS June 30, Bonds Payable (Continued) Amount Amount Outstanding Maturity Issued June 30, 2002 Series 1995 D and E, 4.9%-5.95%, dated October 1, $ 25,360,000 $ 15,490,000 Series 1996 A and B, 5%-5.9%, dated May 1, ,970,000 21,360,000 Series 1996 D and E, 4.90%-5.70%, dated October 1, ,225,000 23,545,000 Series 1997 A and B, 5.10%-5.75%, dated May 1, ,870,000 24,820,000 Series 1997 C and D, 4.5%-5.35%, dated October 1, ,785,000 40,495,000 Series 1998 A, 3.70%-5.50%, dated February 1, ,950,000 60,125,000 Series 1998 B and C, 4%-5.35%, dated May 1, ,770,000 62,485,000 Series 1998 D and E, 3.75%-4.80%, dated October 1, ,890,000 10,860,000 Series 1999 B and C, 4%-5.25%, dated May 1, ,860,000 56,715,000 Series 1999 D and E, 4%-5.875%, dated October 1, ,460,000 43,380,000 Series 2000 A and B, 4.5%-5.875%, dated May 1, ,125,000 65,975,000 Series 2000 C and D, 4.625%-5.70%, dated October 1, ,560,000 37,870,000 Series 2001 A and B, 4.125%-5.25%, dated May 1, ,635,000 34,635,000 Series 2001 C and D, 3.00%-5.125%, dated October 1, ,835,000 68,835,000 Series 2002 A, 3.00%-5.375%, dated March 1, ,520,000 36,520,000 Series 2002 B and C, 2.50%-5.25%, dated May 1, ,575,000 77,575,000 $ 1,434,210,000 $1,000,735,720 C-26

103 MAINE MUNICIPAL BOND BANK NOTES TO FINANCIAL STATEMENTS June 30, Bonds Payable (Continued) Total General Tax-Exempt Fund Group Bonds payable is presented on the balance sheet at June 30, 2002 as follows: Total principal outstanding $1,000,735,720 Deferred amount on refunding (13,965,636) Unamortized original issue discount (674,235) Unamortized premium 1,797,729 Total General Tax-Exempt Fund Group Bonds payable 987,893,578 Current portion 78,675,230 Noncurrent portion $ 909,218,348 The outstanding General Tax-Exempt Fund Group Bonds payable will mature in each of the following years with interest payable semiannually: General Tax-Exempt Fund Group Bonds Payable Due Bond Year Ending Total November 1 Principal Interest Debt Service 2002 $ 81,257,086 $ 25,379,727 $ 106,636, ,516,677 46,879, ,396, ,353,237 43,026, ,379, ,241,498 39,231, ,473, ,325,314 35,499, ,824, ,806, ,714, ,521, ,470,952 60,700, ,171, ,269,460 19,098, ,368, ,185, ,715 8,789, ,000 37, , ,000 1,575 31,575 $ 1,000,735,720 $ 396,175,138 $1,396,910,858 Repayment of the debt and interest thereon is to be funded by: Municipal loan obligations principal and interest $1,217,584,327 Reserve Funds principal and interest 179,326,531 $1,396,910,858 C-27

104 MAINE MUNICIPAL BOND BANK NOTES TO FINANCIAL STATEMENTS June 30, Bonds Payable (Continued) Total Special Obligation Taxable Fund Group Bonds payable consist of the following at June 30, 2002: Amount Amount Outstanding Maturity Issued June 30, 2002 Series 1990 A, 10.25%, dated June 1, $ 1,700,000 $ 1,090,000 Series 1994 A, 6.1%-8.1%, dated September 1, ,520, ,000 $ 5,220,000 1,450,000 Current portion 205,000 Noncurrent portion $ 1,245,000 The outstanding Special Obligation Taxable Fund Group Bonds payable will mature in each of the following years with interest payable semiannually: Due Bond Year Ending Total November 1 Principal Interest Debt Service 2002 $ 205,000 $ 70,388 $ 275, , , , ,000 91, , ,000 79, , ,000 66, , , , ,624 $ 1,450,000 $ 537,538 $ 1,987,538 Repayment of the debt and interest thereon is to be funded by: Governmental unit loan obligations principal and interest $ 1,833,493 Reserve fund principal and interest 154,045 $ 1,987,538 C-28

105 4. Bonds Payable (Continued) MAINE MUNICIPAL BOND BANK NOTES TO FINANCIAL STATEMENTS June 30, 2002 Sewer and Water Fund Group Waste Water Bonds payable consist of the following at June 30, 2002: Amount Amount Outstanding Maturity Issued June 30, 2002 Series 1991 A, 4.75%-7.2%, dated March 1, $ 19,810,000 $ 1,750,000 Series 1992 A, 3%-6.6%, dated November 1, ,300,000 13,560,000 Series 1993 A and B, 2.75%-5.45%, dated October 1, ,815,000 22,695,000 Series 1996 A, 3.7%-5.85%, dated March 1, ,795,000 5,045,000 Series 1997 A and B, 3.9%-5.45% dated July 15, ,835,000 17,425,000 C-29 $ 95,555,000 $ 60,475,000 The Sewer and Water Fund Group Waste Water Bonds payable are presented on the balance sheet at June 30, 2002 as follows: Total principal outstanding $ 60,475,000 Deferred amount on refunding (1,298,719) Unamortized original issue discount (130,962) Total Sewer and Water Fund Group Waste Water Bonds payable 59,045,319 Current portion 3,854,280 Noncurrent portion $ 55,191,039 The outstanding Sewer and Water Fund Group Waste Water Bonds payable will mature in each of the following years with interest payable semiannually: Due Bond Year Ending Total November 1 Principal Interest Debt Service 2002 $ 4,065,000 $ 1,634,626 $ 5,699, ,115,000 3,054,930 7,169, ,150,000 2,833,944 6,983, ,165,000 2,623,798 6,788, ,230,000 2,409,174 6,639, ,385,000 8,592,774 30,977, ,830,000 2,815,520 16,645, ,535, ,520 3,831,520 $60,475,000 $24,261,286 $ 84,736,286

106 MAINE MUNICIPAL BOND BANK NOTES TO FINANCIAL STATEMENTS June 30, Bonds Payable (Continued) Repayment of the debt and interest thereon is to be funded by: Governmental unit loan obligations principal and interest $ 70,104,476 Reserve fund principal and interest 14,631,810 $ 84,736,286 Sewer and Water Fund Group Drinking Water Bonds payable consist of the following at June 30, 2002: Amount Amount Outstanding Maturity Issued June 30, 2002 Series 1998 A, 3.65%-5.2%, dated August 15, $ 4,795,000 $ 4,185,000 $ 4,795,000 4,185,000 Current portion 205,000 Noncurrent portion $ 3,980,000 The outstanding Sewer and Water Fund Group Drinking Water Bonds payable will mature in each of the following years with interest payable semiannually: Due Bond Year Ending Total November 1 Principal Interest Debt Service 2002 $ 205,000 $ 98,796 $ 303, , , , , , , , , , , , , ,150, ,063 1,818, ,265, ,551 1,646, ,000 82, , ,000 20,800 95, ,000 2,860 37,860 $ 4,185,000 $ 1,959,037 $ 6,144,037 Repayment of the debt and interest thereon is to be funded by: Governmental unit loan obligations principal and interest $ 6,105,550 Reserve fund principal and interest 38,487 $ 6,144,037 C-30

107 MAINE MUNICIPAL BOND BANK NOTES TO FINANCIAL STATEMENTS June 30, Bonds Payable (Continued) The following summarizes bond payable activity for the Bond Bank for the year ended June 30, 2002: Special General Obligation Drinking Tax-Exempt Taxable Waste Water Water Fund Group Fund Group Fund Group Fund Group Balance, beginning of year $ 883,841,693 $ 1,635,000 $ 62,862,176 $ 4,390,000 Issuances 182,930,000 Redemptions (81,874,060) (185,000) (4,035,000) (205,000) Accretion of discounts, premiums and deferred refunding 2,995, ,143 Balance, end of year $ 987,893,578 $ 1,450,000 $ 59,045,319 $ 4,185,000 Some bonds contain provisions for prepayment at the Bond Bank s option. All bonds are secured by the payment stream of loans receivable from governmental units. The monies in the reserve funds shall be held and applied solely to the payment of the interest and principal of the reserve fund bonds as they become due and payable and for the retirement of the reserve fund bonds. In the event of a deficiency in an interest and/or principal payment from the governmental units, transfers can be made from the supplemental reserve and/or general reserve funds to cover the shortfall. If this transfer creates a deficiency in the required amount of the reserve funds, the State can annually appropriate and cover such deficiency. Except for deficiencies between the Waste Water and Drinking Water Revolving Loan Fund Groups, reserve funds of one fund group cannot be used to cover deficiencies of another fund group. In order to recover any shortfall covered by the reserve, the Bond Bank has the ability to attach certain State funds. Additionally, the Bond Bank is required to utilize funds available within the general operating accounts as necessary. 5. Reserve Funds Each of the resolutions requires the Bond Bank to set up reserve funds as follows: General Tax-Exempt Fund Group: The Bond Bank is required to maintain a debt service reserve which is equal to the maximum amount of principal installments and interest maturing and becoming due in any succeeding calendar year on all governmental unit loan obligations then outstanding as of such date of calculation. At June 30, 2002, the required debt service reserve was $116,034,633. In addition, the Bond Bank maintains the Special Reserve Account balance of $1,970,829 and the Supplemental Reserve Fund General Reserve Account principal balance of $2,700,000. These reserves represent segregated fund equity and are pledged to the payment of the principal or interest on the outstanding bonds of the General Tax-Exempt Fund Group if a deficiency occurs. At June 30, 2002, the fair value of the reserve fund assets totaled $137,986,649, which exceeded the required reserves by $17,281,187. C-31

108 MAINE MUNICIPAL BOND BANK NOTES TO FINANCIAL STATEMENTS June 30, Reserve Funds (Continued) Special Obligation Taxable Fund Group: The Bond Bank is required to maintain a capital reserve which is equal to the maximum amount of principal installments and interest maturing and becoming due in any succeeding calendar year on all governmental unit loan obligations then outstanding as of such date of calculation. At June 30, 2002 the required capital reserve was $332,280 and the fair value of the capital reserve assets totaled $366,076. Sewer and Water Fund Groups: The Bond Bank is required to maintain a capital reserve which is equal to the maximum amount of principal installments and interest maturing and becoming due in any succeeding calendar year on all bonds payable within the fund groups as of such date of calculation. At June 30, 2002, the required capital reserve was $7,736,845 and the fair value of the capital reserve assets totaled $8,541, Sewer and Water Revolving Fund Group Pursuant to the Sewer and Water General Bond Resolution adopted February 7, 1990, the Bond Bank receives grants from the Environmental Protection Agency and twenty percent matching grants from the State of Maine which are designated to be used for revolving loans to governmental units to finance wastewater collection, treatment systems, or water supply system projects. Fund equity consists of the following: Waste Water Drinking Water Reserved for revolving loans: Grants received from Environmental Protection Agency $ 148,215,349 $ 50,836,900 Grants received from State of Maine 31,409,210 10,000,000 Other amounts reserved (utilized) for program loans and costs 15,614,874 (6,160,455) 195,239,433 54,676,445 Unreserved amounts available 510, ,591 Fund equity at June 30, 2002 $ 195,749,901 $ 55,322,036 Under the provisions of the grants, the Bond Bank is allowed administrative costs up to 4% of the total grants received from the Environmental Protection Agency. The total administrative costs allowed at June 30, 2002 are $6,973,751 (waste water) and $2,011,780 (drinking water), with $6,463,283 and $1,366,189, respectively, expended to date. The remaining amounts of $510,468 and $645,591, respectively, can be used for future administrative costs. C-32

109 MAINE MUNICIPAL BOND BANK NOTES TO FINANCIAL STATEMENTS June 30, Sewer and Water Revolving Fund Group (Continued) Portions of the loans made to governmental units under the Drinking Water Revolving Loan Fund Program may be forgiven if certain continuing criteria are met, including that the governmental unit: continues to make debt service payments; continues to operate the project in compliance with laws and regulations; and does not dispose of or discontinue the project. The Bond Bank has loaned approximately $9,488,026 at June 30, 2002 under the Drinking Water Revolving Loan Fund Program that, upon fulfillment of these requirements by the borrowing unit, could be forgiven at some future point. For purposes of the basic financial statements, the Bond Bank recognizes forgiveness expense within this fund as the related loans are repaid. The total amounts forgiven under this program in 2002 were $188, School Facilities Fund Group Pursuant to State law, the Bond Bank receives grants from the State of Maine which are designated to be used for interest-free revolving loans to school administrative units for the renovation and maintenance of school facilities. Fund equity consists of the following: Reserved for revolving loans: Grants received from State of Maine $ 70,995,315 Loans forgiven (22,136,188) Other amounts reserved for program loans and costs 11,447,374 60,306,501 Unreserved amounts available 611,927 Fund equity at June 30, 2002 $ 60,918,428 Under the provisions of the grants, the Bond Bank is allowed administrative costs up to 0.5% of the highest fund balance in any fiscal year. The total administrative costs allowed at June 30, 2002 are $982,723, with $370,796 expended to date. The remaining amount of $611,927 can be used for future administrative costs. Portions of the loans made to school administrative units from the School Facilities Fund Group are forgiven. For purposes of the general purpose financial statements, the Bond Bank recognizes forgiveness expense within this fund at the time the loans are disbursed to the school administrative unit. This accounting treatment differs from the treatment within the Drinking Water Revolving Loan Fund due to the fact that there are no relevant continuing criteria that would require recognition of the forgiven amount as the related loans are repaid. The total amounts forgiven under this program in 2002 were $10,412,175. C-33

110 MAINE MUNICIPAL BOND BANK NOTES TO FINANCIAL STATEMENTS June 30, Defined Benefit Pension Plan Plan Description The Bond Bank participates in Regular Plan A of the Consolidated Plan for Participating Local Districts (the Plan), a cost-sharing multiple-employer defined benefit pension plan administered by the Maine State Retirement System (MSRS). The MSRS is established and administered under the Maine State Retirement System Laws, Title 5 M.R.S.A., C. 421, 423 and 425. The Plan provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. All full-time employees are eligible to participate in the Plan. Benefits vest after ten years of service. Bond Bank employees who retire at or after age 60 are entitled to an annual retirement benefit in an amount equal to 2% of the average of their highest three year earnings for each year of credited service. The authority to establish and amend benefit provisions rests with the State legislature. The MSRS issues a publicly available financial report that includes financial statements and required supplementary information for the Plan. That report may be obtained by writing to the Maine State Retirement System, 46 State House Station, Augusta, Maine Funding Policy In accordance with State statute, participants are required to contribute 6.5% of their annual covered salary to the Plan. The Bond Bank s payroll for the year ended June 30, 2002 for employees covered by the Plan was $878,347, which was 100% of payroll. The Bond Bank is required to contribute at an actuarially determined rate that, when combined with the contributions of other reporting entities, will be adequate to fund the Plan. The contribution rate is determined using an entry age normal actuarial funding method for retirement benefits and a term cost method for ancillary benefits. The Bond Bank may be required to make contributions to fund the Plan s pooled unfunded actuarial liability, if any. The contribution requirements of the plan members and the Bond Bank are established by and may be amended by the State legislature. The contributions made for the years ended June 30, 2002, 2001 and 2000 were $24,595, $25,313 and $15,997 (employer) and $57,050, $54,358 and $48,583 (employee), respectively. 9. Refunding Issues In periods of declining interest rates, the Bond Bank has refunded its bond obligations, reducing aggregate debt service. The proceeds of the refunding bonds were principally used to purchase U.S. Treasury obligations, the principal and interest on which will be sufficient to pay the principal and interest, when due, of the in-substance defeased bonds. The U.S. Treasury obligations were deposited with the trustees of the in-substance defeased bonds. The Bond Bank accounted for these transactions by removing the U.S. Treasury obligations and liabilities for the in-substance defeased bonds from its records, and recorded a deferred amount on refunding. At June 30, 2002, the remaining balances of the General Tax-Exempt Fund Group in-substance defeased bonds total $41,294,280. C-34

111 MAINE MUNICIPAL BOND BANK NOTES TO FINANCIAL STATEMENTS June 30, Subsequent Event On August 8, 2002, the Bond Bank issued $49,315,000 of 2002 Series D Refunding Bonds to advance refund certain maturities of the Bond Bank s bonds, aggregating $47,550,000. The refunding reduced total debt service payments through 2015 by approximately $4,900,000. The bonds advanced refunded are the 1991 series C Bonds maturing in 2003; 1992 Series C Refunding Bonds maturing in ; 1992 Series E Bonds maturing in ; 1993 Series C Bonds maturing in ; 1994 Series C Bonds maturing in ; 1994 Series F Bonds maturing in ; 1995 Series B Bonds maturing in ; and 1995 Series E Bonds maturing in C-35

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113 APPENDIX D Upon the delivery of the 2002 Series E and F Bonds, Bond Counsel to the Bank proposes to issue its approving opinion in substantially the following form: October, 2002 Maine Municipal Bond Bank Augusta, Maine Dear Sirs: We have examined a record of proceedings relating to the issuance of $10,625, Series E Bonds (the 2002 Series E Bonds ) and $22,095, Series F Bonds (the 2002 Series F Bonds ) (the 2002 Series E Bonds and the 2002 Series F Bonds are herein sometimes collectively referred to as the 2002 Series E and F Bonds ) of the Maine Municipal Bond Bank (herein called the Bank ), a public body corporate and politic, constituted as an instrumentality of the State of Maine (the State ), organized and existing under and pursuant to the Maine Municipal Bond Bank Act, being Chapter 225 of Title 30-A of the Maine Revised Statutes, as amended (the Act ). The 2002 Series E and F Bonds are issued under and pursuant to the Act and under and pursuant to the General Bond Resolution of the Bank entitled: A Resolution Creating and Establishing an Issue of Bonds of the Maine Municipal Bond Bank; Providing for the Issuance from Time to Time of Said Bonds; Providing for the Payment of Principal and Interest of Said Bonds; and Providing for the Rights of the Holders Thereof, adopted July 11, 1973, as supplemented by a resolution entitled: First Supplemental Resolution, adopted September 20, 1977, a resolution entitled: Second Supplemental Resolution, adopted July 18, 1984, a resolution entitled: Third Supplemental Resolution, adopted May 7, 1993 and a resolution entitled: Fourth Supplemental Resolution, adopted June 25, 1993 (the General Bond Resolution ), and the Series Resolution of the Bank entitled: A Series Resolution Authorizing the Issuance of $10,625, Series E Bonds and $22,095, Series F Bonds of the Maine Municipal Bond Bank, adopted October 9, 2002 (the Series Resolution ). The General Bond Resolution and the Series Resolution are herein sometimes collectively referred to as the Resolutions. D-1