$9,995,000 Colonial School District

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1 NEW ISSUE-BOOK-ENTRY RATINGS: Moody s:aa1 (Negative Outlook) (Underlying) (See RATING herein) $9,995,000 Aggregate Principal Amount Colonial School District Montgomery County, Pennsylvania General Obligation Bonds, Series of 2012 In the opinion of Bond Counsel, under existing statutes, regulations and judicial decisions, interest on the Bonds is excluded from gross income for purposes of federal income taxation and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations although in the case of certain corporations (as defined for federal income tax purposes) such interest is taken into account in determining adjusted current earnings for purposes of such federal alternative minimum tax. This opinion of Bond Counsel is subject to continuing compliance by the School District with its covenants in the Resolution and other documents to comply with requirements of the Internal Revenue Code of 1986, as amended, and applicable regulations thereunder. Bond Counsel is also of the opinion that under the laws of the Commonwealth of Pennsylvania as presently enacted and construed, the Bonds are exempt from personal property taxes in the Commonwealth of Pennsylvania and the interest on the Bonds is exempt from the Commonwealth of Pennsylvania Personal Income Tax and the Commonwealth of Pennsylvania Corporate Net Income Tax. The School District has designated the Bonds as qualified tax-exempt obligations for the purpose of Section 265 (b)(3)(b) of the Internal Revenue Code of 1986, as amended (relating to expenses and interest relating to tax-exempt income of certain financial institutions). For further information concerning federal and state tax matters relating to the Bonds, see Tax Exemption and Other Tax Matters herein. $9,995,000 Colonial School District Montgomery County, Pennsylvania General Obligation Bonds, Series of 2012 Dated: June 19, 2012 Principal Due: May 15, as shown on inside front cover Interest Due: May 15 and November 15 First Interest Payment: November 15, 2012 The General Obligation Bonds, Series of 2012 (the Bonds ) in the aggregate principal amount of $9,995,000 will be issued in registered book-entry only form, without coupons, in denominations of $5,000 or any integral multiple thereof. The Bonds will be registered in the name of Cede & Co., as the registered owner and nominee of The Depository Trust Company ( DTC ), New York, New York. Beneficial ownership of the Bonds may be acquired in denominations of $5,000 or any integral multiple thereof only under the book-entry only system maintained by DTC through its brokers and dealers who are, or act through, DTC Participants. The purchasers of the Bonds will not receive physical delivery of the Bonds. For so long as any purchaser is the beneficial owner of a Bond, that purchaser must maintain an account with a broker or a dealer who is, or acts through, a DTC Participant to receive payment of principal of and interest on the Bonds. See BOOK-ENTRY ONLY herein. If, under the circumstances described herein, Bonds are ever issued in certificated form, the Bonds will be subject to registration of transfer, exchange and payment as described herein. The principal of the Bonds will be paid to the registered owners or assigns, when due, upon presentation and surrender of the Bonds to Bank of New York Mellon Trust Company, N.A. (the Paying Agent ), acting as paying agent and sinking fund depository, at its designated corporate trust office in Dallas, Texas. Interest on the Bonds is payable initially on November 15, 2012 and thereafter semiannually on May 15 and November 15 of each year, until the principal sum thereof is paid. DTC Participants and Indirect Participants will be responsible for remitting such payments to Beneficial Owners of the Bonds. The Bonds are subject to optional redemption prior to maturity as described herein. The Bonds are general obligations of the Colonial School District, Montgomery County, Pennsylvania (the School District ), payable from its tax and other general revenues. The School District has covenanted that it will provide in its budget in each year, and will appropriate from its general revenues in each such year, the amount of the debt service on the Bonds for such year and will duly and punctually pay or cause to be paid from the sinking fund established under the Resolution or any other of its revenues or funds the principal of every Bond and the interest thereon on the dates, at the place and in the manner stated in the Bonds, and for such budgeting, appropriation and payment the School District irrevocably has pledged its full faith, credit and taxing power, within the limits provided by law. (See Security and Special Session Act 1 of 2006 (Taxpayer Relief Act) infra). Proceeds of the Bonds will be used for and towards (1) the advance refunding a portion of the School District s General Obligation Bonds, Series of 2008, and (2) payment of the costs and expenses related to the issuance of the Bonds. MATURITIES, AMOUNTS, RATES AND YIELDS/PRICES {As Shown on Inside Cover} The Bonds are offered when, as and if issued, subject to withdrawal or modification of the offer without notice, and subject to the approving legal opinion of Fox Rothschild LLP, of Blue Bell, Pennsylvania, Bond Counsel to the School District, to be furnished upon delivery of the Bonds. Certain other matters will be passed upon for the School District by Fox Rothschild LLP, of Blue Bell, Pennsylvania, School District Solicitor. Public Financial Management, Inc., Harrisburg, Pennsylvania, serves as Financial Advisor to the School District in connection with the issuance of the Bonds. It is expected that the Bonds will be available for delivery in New York, New York, on or about June 19, JANNEY MONTGOMERY SCOTT LLC Official Statement Dated: May 17, 2012

2 $9,995,000 Colonial School District Montgomery County, Pennsylvania General Obligation Bonds, Series of 2012 Dated: June 19, 2012 Principal Due: May 15, as shown below Interest Due: May 15 and November 15 First Interest Payment: November 15, 2012 Principal Interest May 15 Amounts Rates Prices 2013 $5, % % , , , , , * , * ,770, * ,825, ,880, ,190, * *Priced to the November 15, 2017 Optional Redemption Date.

3 Colonial School District Montgomery County, Pennsylvania BOARD OF SCHOOL DIRECTORS Alan Tabachnick... Susan L. Moore... Bernie Brady... Mel Brodsky... Leslie Finegold... Christina Frangiosa... Julie Knudsen... Kathleen Oxberry... Beth Suchsland... Dave Sherman... Karen Ottaviano... *Non-voting members President Vice-President Member Member Member Member Member Member Member Secretary* Treasurer* SUPERINTENDENT MARYELLEN GORODETZER, Ed. D. CHIEF FINANCIAL OFFICER ROBERT SALANIK SCHOOL DISTRICT SOLICITOR FOX ROTHSCHILD LLP Blue Bell, Pennsylvania BOND COUNSEL TO THE SCHOOL DISTRICT FOX ROTHSCHILD LLP Blue Bell, Pennsylvania FINANCIAL ADVISOR PUBLIC FINANCIAL MANAGEMENT, INC. Harrisburg, Pennsylvania PAYING AGENT BANK OF NEW YORK MELLON TRUST COMPANY, N.A. Dallas, Texas UNDERWRITER JANNEY MONTGOMERY SCOTT, LLC Philadelphia, Pennsylvania SCHOOL DISTRICT ADDRESS 230 Flourtown Road Plymouth Meeting, Pennsylvania

4 No dealer, broker, salesman or other person has been authorized by the Colonial School District to give information or to make any representations, other than those contained in this Official Statement, and if given or made, such other information or representations must not be relied upon. 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 Bonds in any jurisdiction in which it is unlawful to make such offer, solicitation or sale. The information set forth herein has been obtained from the School District and from other sources which are believed to be reliable but the School District does not guarantee the accuracy or completeness of information from sources other than the School District. 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 circumstances, create any implication that there has been no change in any of the information set forth herein since the date hereof. TABLE OF CONTENTS INTRODUCTION... 1 PURPOSE OF THE ISSUE... 1 VERIFICATION... 1 THE BONDS... 2 Page Description... 2 Payment of Principal and Interest... 2 Transfer, Exchange and Registration of Bonds... 3 SECURITY FOR THE BONDS... 3 General Obligation Pledge... 3 Commonwealth Enforcement of Debt Service Payments... 3 Sinking Fund... 4 BOOK-ENTRY ONLY SYSTEM... 4 REDEMPTION OF BONDS... 6 Optional Redemption... 6 Notice of Redemption... 6 Manner of Redemption... 6 THE SCHOOL DISTRICT... 7 Administration... 7 School Facilities... 7 Enrollment Trends... 7 SCHOOL DISTRICT FINANCES... 8 Introduction... 8 Financial Reporting... 8 Changes to the Budgeting Process of Pennsylvania School Districts under the 2006 Taxpayer Relief Act... 8 Summary and Discussion of Financial Results... 9 Revenue TAXING POWERS OF THE SCHOOL DISTRICT The Bonds are not grandfathered under the Taxpayer Relief Act Act 24 of Act 48 of Tax Levy Trends Other Taxes Commonwealth Aid to School Districts Page DEBT AND DEBT LIMITS Debt Statement Debt Limit and Remaining Borrowing Capacity Debt Service Requirements Future Financing LABOR RELATIONS School District Employees Pension Program Other Post-Employment Benefits LITIGATION DEFAULTS AND REMEDIES TAX EXEMPTION AND CERTAIN OTHER TAX MATTERS 22 Federal Income Tax Matters Pennsylvania Tax Matters Federal Income Tax Interest Expense Deductions for Financial Institutions Other Changes in Federal and State Tax Law CONTINUING DISCLOSURE UNDERTAKING RATINGS UNDERWRITING LEGAL OPINION FINANCIAL ADVISOR MISCELLANEOUS APPENDIX A - DEMOGRAPHIC AND ECONOMIC INFORMATION RELATING TO THE COLONIAL SCHOOL DISTRICT Introduction... A-1 Population... A-1 Employment... A-1 Income... A-3 Educational Institutions... A-4 Medical Facilities... A-4 Utilities... A-4 Transportation... A-4 APPENDIX B OPINION OF BOND COUNSEL APPENDIX C AUDITED FINANCIAL STATEMENT JUNE 30, 2011 i

5 OFFICIAL STATEMENT $9,995,000 Colonial School District Montgomery County, Pennsylvania General Obligation Bonds, Series of 2012 INTRODUCTION This Official Statement, including the cover page hereof and Appendices hereto, is furnished by Colonial School District, Montgomery County, Pennsylvania (the School District ), in connection with the offering of $9,995,000 aggregate principal amount of its General Obligation Bonds, Series of 2012, dated June 19, 2012 (the Bonds ). The Bonds are being issued pursuant to a Resolution of the Board of School Directors of the School District adopted on May17, 2012 (the Resolution ), and pursuant to the Local Government Unit Debt Act of the Commonwealth of Pennsylvania (the Commonwealth ), 53 Pa. C.S. Chs , as amended (the Act ). PURPOSE OF THE ISSUE Proceeds of the Bonds will be used for and towards (1) the advance refunding of a portion of the School District s General Obligation Bonds, Series of 2008 currently outstanding in the principal amount of $9,985,000 (the 2008 Bonds ), of which $9,530,000 shall be refunded (the Refunded 2008 Bonds ); and (2) payment of the costs and expenses related to the issuance of the Bonds. Upon issuance of the Bonds, a portion of the proceeds will be irrevocably deposited in an escrow fund (the Escrow Fund ) maintained by The Bank of New York Mellon Trust Company, N.A., as Paying Agent for the 2008 Bonds, under terms of an Escrow Agreement for the 2008 Bonds (the Escrow Agreement ) dated as of June 19, The proceeds of the Bonds so deposited will be used to purchase direct obligations of the United States of America which will mature and earn interest at such rates as will provide sufficient funds to pay the interest and maturing principal on the Refunded 2008 Bonds. The Refunded 2008 Bonds will be called for optional redemption, at a redemption price of 100% of principal amount plus accrued interest, pursuant to the optional redemption provisions applicable to the 2008 Bonds on May 15, VERIFICATION The accuracy of the mathematical computations supporting the adequacy of the maturing principal amounts of, and interest earned on, the Government Obligations deposited pursuant to the Escrow Agreement to pay the principal of, and interest and premium, if any, when due or upon the optional redemption of the Bonds, and the accuracy of certain mathematical computations supporting the conclusion of Bond Counsel that the Bonds will not be arbitrage bonds under Section 103(c) of the Internal Revenue Code, will be verified by BondResource Partners, LP, as a condition to the delivery of the Bonds. The following is a summary of the sources and uses of the proceeds from the issuance of the Bonds. SOURCES OF FUNDS Bond Proceeds... $9,995, Net Original Issue Premium... 84, Total Sources of Funds... $10,079, USES OF FUNDS Refunded 2008 Bonds Escrow Fund Deposit... $9,879, Cost of Issuance (1) , Total Uses of Funds... $10,079, (1) Includes legal, financial advisor, printing, credit rating, total bond discount, CUSIP, paying agent, escrow agent, verification agent and miscellaneous costs. 1

6 THE BONDS Description The Bonds will be issued in fully registered form in denominations of $5,000 and integral multiples thereof, will be in the aggregate principal amount of $9,995,000, will be dated as of June 19, 2012, and will bear interest at the rates and mature in the amounts and on the dates set forth on the cover of this Official Statement. Interest on the Bonds will be payable initially on November 15, 2012 and, thereafter, semiannually on May 15 and November 15 until the principal sum thereof is paid. When issued, the Bonds will be registered in the name of Cede & Co., as nominee for The Depository Trust Company ( DTC ), New York, New York. Purchasers of the Bonds (the Beneficial Owners ) will not receive any physical delivery of bond certificates, and beneficial ownership of the Bonds will be evidenced only by book entries. See BOOK ENTRY ONLY SYSTEM herein. Payment of Principal and Interest So long as Cede & Co., as nominee of DTC, is the registered owner of the Bonds, payments of principal of, redemption premium, and interest on the Bonds, when due, are to be made to DTC and all such payments shall be valid and effective to satisfy fully and to discharge the obligations of the School District with respect to, and to the extent of, principal, and interest so paid. If the use of the Book-Entry Only System for the Bonds is discontinued for any reason, bond certificates will be issued to the Beneficial Owners of the Bonds and payment of principal and interest on the Bonds shall be made as described in the following paragraphs: The principal of the Bonds, when due upon maturity or upon any earlier redemption, will be paid to the registered owners of the Bonds, or registered assigns, upon surrender of the Bonds to Bank of New York Mellon Trust Company, N.A. (the Paying Agent ), acting as paying agent and sinking fund depositary for the Bonds, at its corporate trust office in Dallas, Texas (or to any successor paying agent at its designated office(s)). Interest is payable to the registered owner of a Bond from the interest payment date next preceding the date of registration and authentication of the Bond, unless: (a) such Bond is registered and authenticated as of an interest payment date, in which event such Bond shall bear interest from said interest payment date, or (b) such Bond is registered and authenticated after a Record Date (hereinafter defined) and before the next succeeding interest payment date, in which event such Bond shall bear interest from such interest payment date, or (c) such Bond is registered and authenticated on or prior to the Record Date preceding November 15, 2012, in which event such Bond shall bear interest from June 19, 2012, or (d) as shown by the records of the Paying Agent, interest on such Bond shall be in default, in which event such Bonds shall bear interest from the date to which interest was last paid on such Bond. Interest shall be paid initially on November 15, 2012, and thereafter, semiannually on May 15 and November 15 of each year, until the principal sum is paid. Interest on each Bond is payable by check drawn on the Paying Agent, which shall be mailed to the registered owner whose name and address shall appear, at the close of business on the fifteenth (15) day (whether or not a day on which the Paying Agent is open for business) next preceding each interest payment date (the "Record Date"), on the registration books maintained by the Paying Agent, irrespective of any transfer or exchange of the Bond subsequent to such Record Date and prior to such interest payment date, unless the School District shall be in default in payment of interest due on such interest payment date. In the event of any such default, such defaulted interest shall be payable to the person in whose name the Bond is registered at the close of business on a special record date for the payment of such defaulted interest established by notice mailed by the Paying Agent to the registered owners of such Bonds not less than fifteen (15) days preceding such special record date. Such notice shall be mailed to the persons in whose names such Bonds are registered at the close of business on the fifth (5th) day preceding the date of mailing. If the date for payment of the principal of or interest on any Bonds shall be a Saturday, Sunday, legal holiday or a day on which banking institutions in the Commonwealth of Pennsylvania are authorized by law or executive order to close, then the date for payment of such principal or interest shall be the next succeeding day which is not a Saturday, Sunday, legal holiday or a day on which such banking institutions are authorized to close, and payment on such date shall have the same force and effect as if made on the nominal date established for such payment. 2

7 Transfer, Exchange and Registration of Bonds Subject to the provisions described below under Book-Entry Only System, Bonds are transferable or exchangeable by the registered owners thereof upon surrender of Bonds to the Paying Agent, accompanied by a written instrument or instruments in form, with instructions, and with guaranty of signature satisfactory to the Paying Agent, duly executed by the registered owner of such Bond or his attorney-in-fact or legal representative. The Paying Agent shall enter any transfer of ownership of Bonds in the registration books and shall authenticate and deliver at the earliest practicable time in the name of the transferee or transferees a new fully registered bond or Bonds of authorized denominations of the same series, maturity and interest rate for the aggregate principal amount which the registered owner is entitled to receive. The School District and the Paying Agent may deem and treat the registered owner of any Bond as the absolute owner thereof (whether or not a Bond shall be overdue) for the purpose of receiving payment of or on account of principal and interest and for all other purposes, and the School District and the Paying Agent shall not be affected by any notice to the contrary. The School District and the Paying Agent shall not be required (a) to register the transfer of or exchange any Bonds then considered for redemption during a period beginning at the close of business on the fifteenth (15 th ) day next preceding any date of selection of Bonds to be redeemed and ending at the close of business on the day on which the applicable notice of redemption is mailed or (b) to register the transfer of or exchange any portion of any Bond selected for redemption until after the redemption date. Bonds may be exchanged for a like aggregate principal amount of Bonds of other authorized denominations of the same series, maturity and interest rate. General Obligation Pledge SECURITY FOR THE BONDS The Bonds will be general obligations of the School District, payable from its tax and other general revenues. The School District has covenanted that it will to the fullest extent authorized under applicable law provide in its budget for each year, and will appropriate from its general revenues in each such year, the amount of the debt service on the Bonds for such year, and will duly and punctually pay or cause to be paid from its Sinking Fund, as hereinafter defined, or any other of its revenues or funds, the principal of each of the Bonds and the interest thereon at the dates and place and in the manner stated on the Bonds, and for such budgeting, appropriation and payment the School District irrevocably has pledged its full faith, credit and taxing power, which taxing power includes the power to levy ad valorem taxes on all taxable property within the School District within the limits provided by law (see Taxing Powers of the School District herein). The Act presently provides for enforcement of debt service payments as hereinafter described (see Defaults and Remedies herein), and the Public School Code presently provides for the withholding and application of subsidies in the event of failure to pay debt service (see Commonwealth Enforcement of Debt Service Payments herein). Commonwealth Enforcement of Debt Service Payments Section 633 of the Pennsylvania Public School Code of 1949, as amended by Act 154 of 1998 (the Public School Code ), presently provides that in all cases where the board of school directors of any school district fails to pay or to provide for the payment of any indebtedness at date of maturity or date of mandatory redemption or on any sinking fund deposit date, or any interest due on such indebtedness on any interest payment date or on any sinking fund deposit date, in accordance with the schedule under which the Bonds were issued, the Secretary of Education shall notify such board of school directors of its obligation and shall withhold out of any State appropriation due such school district an amount equal to the sum of the principal amount maturing or subject to mandatory redemption and interest owing by such school district, or sinking fund deposit due by such school district, and shall pay over the amount so withheld to the bank or other person acting as sinking fund depository for such bond issue. These withholding provisions are not part of any contract with the holders of the Bonds, and may be amended or repealed by future legislation. There can be no assurance, however, that any payments pursuant to this withholding provision will be made by the date on which such payments are due to the Bondholders. The effectiveness of Section 633 of the Public School Code may be limited by the application of other withholding provisions contained in the Public School Code, such as provisions for withholding and paying over of appropriations for payment of unpaid teachers salaries. Enforcement may also be limited by bankruptcy, insolvency, or other laws or equitable principles affecting the enforcement of creditors rights generally. 3

8 Sinking Fund A sinking fund for the payment of debt service on the Bonds, designated Sinking Fund, General Obligation Bonds, Series of 2012 (the Sinking Fund ), has been created under the Resolution and is maintained by the Paying Agent, as sinking fund depository. The School District shall deposit in the Sinking Fund a sufficient sum not later than the date when interest and/or principal is to become due on the Bonds so that on each payment date the Sinking Fund will contain an amount which, together with any other funds available therein, is sufficient to pay, in full, interest and/or principal then due on the Bonds. The Sinking Fund shall be held by the Paying Agent, as sinking fund depository, and invested by the Paying Agent in such securities or shall be deposited in such funds or accounts as are authorized by the Act, upon direction of the School District. Such deposits and securities shall be in the name of the School District, but subject to withdrawal or collection only by the Paying Agent, as sinking fund depository, and such deposits and securities, together with the interest thereon, shall be a part of the Sinking Fund. The Paying Agent, as sinking fund depository, is authorized without further order from the School District to pay from the Sinking Fund the principal of and interest on the Bonds, as and when due and payable. BOOK-ENTRY ONLY SYSTEM The information in this section has been obtained from materials provided by DTC for such purpose. The School District (herein referred to as the Issuer ) and the Underwriter do not guaranty the accuracy or completeness of such information, and such information is not to be construed as a representation of the School District or the Underwriter. The Depository Trust Company ( DTC ), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fullyregistered bonds registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each series of the Bonds, each in the aggregate principal amount of such issue, and will be deposited with DTC. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has a Standard & Poor s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC s records. The Ownership interest of each actual purchaser of each Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates rep resenting their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not affect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. 4

9 Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from Issuer or Agent, on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered to DTC. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof. NEITHER THE SCHOOL DISTRICT NOR THE PAYING AGENT WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO ANY DTC PARTICIPANT, INDIRECT PARTICIPANT OR BENEFICIAL OWNER OR ANY OTHER PERSON WITH RESPECT TO: (1) THE BONDS; (2) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT; (3) THE PAYMENT BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL OR REDEMPTION PRICE OF OR INTEREST ON THE BONDS; (4) THE DELIVERY TO ANY BENEFICIAL OWNER BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT OF ANY NOTICE WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE RESOLUTION TO BE GIVEN TO BONDHOLDERS; (5) THE SELECTION OF THE BENEFICIAL OWNERS TO RECEIVE PAYMENT IN THE EVENT OF ANY PARTIAL REDEMPTION OF THE BONDS; OR (6) ANY OTHER ACTION TAKEN BY DTC AS BONDHOLDER. The Issuer and the Paying Agent cannot give any assurances that DTC or the Participants will distribute payments of the principal or redemption price of and interest on the Bonds paid to DTC or its nominee, as the registered owner of the Bonds, or any redemption or other notices, to the Beneficial Owners or that they will do so on a timely basis, or that DTC will serve and act in the manner described in this Official Statement. 5

10 REDEMPTION OF BONDS Optional Redemption The Bonds stated to mature on or after May 15, 2018, shall be subject to redemption prior to maturity, at the option of the School District, as a whole, on November 15, 2017, or on any date thereafter, or from time to time, in part (and if in part, in any order of maturity as selected by the School District and within a maturity by lot), in either case upon payment of a redemption price of 100% of the principal amount of such Bonds, together with accrued interest to the redemption date. Notice of Redemption Notice of any redemption shall be given by depositing a copy of the redemption notice by first class mail not more than forty-five (45) days and not less than thirty (30) days prior to the date fixed for redemption addressed to each of the registered owners of Bonds to be redeemed, in whole or in part, at the addresses shown on the registration books; provided, however, that failure to give such notice by mailing, or any defect therein or in the mailing thereof, shall not affect the validity of any proceeding for redemption of other Bonds called for redemption as to which proper notice has been given. On the date designated for redemption, notice having been provided as aforesaid, and money for payment of the principal and accrued interest being held by the Paying Agent, interest on the Bonds or portions thereof so called for redemption shall cease to accrue and such Bonds or portions thereof shall cease to be entitled to any benefit or security under the Resolution, and registered owners of such Bonds or portions thereof so called for redemption shall have no rights with respect to such Bonds, except to receive payment of the principal of and accrued interest on such Bonds to the date fixed for redemption. Any notice of redemption of Bonds may state that the redemption is conditioned upon the deposit of sufficient funds prior to the redemption date. If sufficient funds are not received, such notice of redemption shall be of no effect. Manner of Redemption If a Bond is of a denomination larger than $5,000, a portion of such Bond may be redeemed. For the purposes of redemption, a Bond shall be treated as representing that number of Bonds which is obtained by dividing the principal amount thereof by $5,000, each $5,000 portion of such Bond being subject to redemption. In the case of partial redemption of a Bond, payment of the redemption price shall be made only upon surrender of such Bond in exchange for Bonds of authorized denominations in aggregate principal amount equal to the unredeemed portion of the principal amount thereof. If the redemption date for any Bonds shall be a Saturday, Sunday, legal holiday or a day on which banking institutions in the Commonwealth of Pennsylvania are authorized by law or executive order to close, then the date for payment of the principal, premium, if any, and interest upon such redemption shall be the next succeeding day which is not a Saturday, Sunday, legal holiday or a day on which such banking institutions are authorized to close, and payment on such date shall have the same force and effect as if made on the nominal date of redemption. 6

11 THE SCHOOL DISTRICT The School District occupies a total land area of approximately 25 square miles in the southeast portion of Montgomery County and is comprised of the Borough of Conshohocken, Plymouth Township, and Whitemarsh Township. The School District, which is contiguous to Philadelphia, Norristown, Springfield, Upper Merion, and Wissahickon, is located twenty miles west of downtown Philadelphia and forty miles south of Allentown. Administration The School District is governed by a nine-member Board of School Directors (the "School Board"), elected for four-year terms. The Superintendent is the chief executive officer of the School District, with overall responsibility for all aspects of operations, including education and finance. The Chief Financial Officer is responsible for budget and financial operations. Both of these officials are appointed by the School Board. School Facilities The School District operates five elementary schools, one middle school, and one high school, all as described in the following table. TABLE 1 COLONIAL SCHOOL DISTRICT SCHOOL FACILITIES Original Addition/ Rated Construction Renovation Pupil Building Date Date(s) Grades Capacity Enrollment Elementary: Conshohocken Elementary School (K-3 rd ) , 1968, 1988, 2004 K Plymouth Elementary School (K-3 rd ) K Ridge Park Elementary School (K-3 rd ) K Whitemarsh Elementary School (K-3 rd ) , 1967, 1988, 2004 K Colonial Elementary School (4 th 5 th ) , Secondary: Colonial Middle School (1) ,315 1,041 Plymouth-Whitemarsh Senior High School , 1962, 1966, ,800 1, , 1988, 1999 Total... 4,636 (1) Includes grades 6 th, 7 th and 8 th grades, with the 6 th grade being classified as elementary. Source: School District officials. Enrollment Trends Table 2 presents recent trends in school enrollment and projections of enrollment for the next five years, as prepared by the School District's administrative officials. TABLE 2 COLONIAL SCHOOL DISTRICT ENROLLMENT TRENDS Actual Enrollments Projected Enrollments School School Year Elementary Secondary Total Year Elementary Secondary Total ,365 2,334 4, ,448 2,208 4, ,409 2,342 4, ,451 2,226 4, ,388 2,290 4, ,438 2,259 4, ,419 2,247 4, ,451 2,235 4, ,427 2,209 4,636 Source: School District officials. 7

12 SCHOOL DISTRICT FINANCES Introduction The School District budgets and expends funds according to procedures mandated by the Pennsylvania Department of Education. An annual operating budget is prepared by the Superintendent and Chief Financial Officer and submitted to the School Board for approval prior to the beginning of the fiscal year on July 1. Financial Reporting The School District keeps its books and prepares its financial reports according to a modified accrual basis of accounting. Major accrual items are payroll taxes and pension fund contributions payable, delinquent taxes receivable, loans receivable from other funds, and revenues receivable from other governmental units. Its financial statements are audited annually by a firm of independent certified public accountants, as required by Commonwealth law. Barbacane, Thornton & Company, Certified Public Accountants, Media, Pennsylvania, serves as the School District Auditor. Changes to the Budgeting Process of Pennsylvania School Districts under the 2006 Taxpayer Relief Act In General. School districts budget and expend funds according to procedures mandated by the Pennsylvania Department of Education ( PDE ). An annual operating budget is prepared by school district administrative officials on a uniform form furnished by PDE and submitted to the board of school directors for approval prior to the beginning of each fiscal year on which commences July 1. Procedures for Adoption of the Annual Budget. Unless the Simplified Procedures described below are utilized, under Pennsylvania Act No. 1 of the Special Session of 2006, as amended by Act 25 of 2011 (together The Taxpayer Relief Act or Act 1 ), all school districts of the first class A, second class, third class and fourth class must adopt a preliminary budget (which must include estimated revenues and expenditures and proposed tax rates) no later than 90 days prior to the date of the primary election immediately preceding the beginning of each fiscal year. This preliminary budget must be printed and made available for public inspection at least 20 days prior to its adoption; the board of school directors may hold a public hearing on the budget; and the board must give at least 10 days public notice of its intent to adopt the preliminary budget prior to its adoption. The board of school directors shall print the final budget and make it available for public inspection at least 20 days prior to its adoption and shall give public notice of its intent to adopt the final budget at least 10 days prior to adoption, and may hold a public hearing prior to adoption. Guidance from PDE suggests that the preliminary budget be converted to a proposed budget adopted by the board of school directors at least 30 days prior to the adoption of the final budget as required by the School Code. The School District follows the requirements of Act 1 and the guidance of PDE pursuant to the requirements of the School Code. If the adopted preliminary budget includes an increase in the rate of any tax levy, the preliminary budget must be submitted to PDE no later than 85 days prior to the date of the primary election immediately preceding the fiscal year. PDE is to compare the proposed percentage increase in the rate of any tax with the school district s Index (see The Taxpayer Relief Act (Act 1) herein) and within 10 days of the receipt of the information about the preliminary budget, but not later than 75 days prior to the upcoming primary election, inform the school district whether the proposed percentage increase is less than or equal to the Index. If PDE determines that a proposed tax increase will exceed the Index, the school district must reduce the proposed tax increase, seek voter approval for the tax increase at the upcoming primary election, or seek approval to utilize one of the referendum exceptions authorized under The Taxpayer Relief Act. With respect to the utilization of any of the Taxpayer Relief Act referendum exceptions for which PDE approval is required (see The Taxpayer Relief Act (Act 1) herein), the school district must publish notice of its intent to seek PDE approval not less than one week before submitting its request for approval to PDE and, if PDE determines to schedule a public hearing on the request, a notice of the date, time and place of such hearing. PDE is required by the Taxpayer Relief Act to rule on the school district s request and inform the school district of its decision no later than 55 days prior to the upcoming primary election so that, if PDE denies the school district s request, the school district may submit a referendum question to the local primary election officials at least 50 days before the upcoming primary election, if it so chooses. If a school district seeks voter approval to increase taxes at a rate higher than the applicable Index, whether or not it first seeks approval to utilize one of the referendum exceptions available under the Taxpayer Relief Act, and the referendum question is not approved by a majority of the voters voting on the question, the board of school directors may not approve an increase in the tax rate greater than the applicable Index. Simplified Procedures in Certain Cases. The above budgetary procedures will not apply to a school district if the board of school directors adopts a resolution no later than 110 days prior to the primary election immediately preceding the upcoming fiscal year declaring that it will not increase any tax at a rate that exceeds the Index and that a tax increase at or below the rate of the Index will be sufficient to balance its budget. In that case, the Taxpayer Relief Act requires only that the proposed annual budget be prepared and approved at least 30 days, and made available for public inspection at least 20 days, prior to its adoption, and that at least ten (10) days public notice be given of the board s intent to adopt the annual budget. No referendum exceptions are available to a school district adopting such a resolution. 8

13 Summary and Discussion of Financial Results A summary of the General Fund Balance Sheet and changes in fund balances is presented in Tables 3 and 4. Table 5 shows revenues and expenditures for the past five years, budget for and the proposed final budget for , subject to final adoption. The School District is projecting for the revenue of $89,716,707 and expenditures of $93,938,760, which includes a budgetary reserve of $100,000. School District officials anticipate ending the school year with a general fund balance of $4,601,844. TABLE 3 COLONIAL SCHOOL DISTRICT SUMMARY OF COMPARATIVE GENERAL FUND BALANCE SHEET (Years Ending June 30) ASSETS Cash and Cash Equivalents... $5,833,972 $4,458,252 $6,835,017 $10,667,409 $7,691,994 Investments... 10,399,773 12,334,587 10,091,670 4,000,000 5,872,910 Taxes Receivable... 1,772,475 2,200,471 2,246,274 2,409,877 2,849,998 Due from Other Funds , , , , ,794 Due from Other Governments... 1,063,567 1,326,912 1,151,068 1,619,307 1,617,049 Other Receivables ,166 1,907,767 1,496,426 1,509, ,379 Other... 3,212 1, TOTAL ASSETS... $19,896,401 $22,565,777 $22,074,676 $20,381,894 $19,282,124 LIABILITIES Accounts Payable... $2,207,223 $1,744,135 $2,134,957 $2,603,855 $1,790,103 Accrued Salaries and Benefits... 5,799,762 5,329,979 5,605,089 5,670,549 6,115,641 Current Portion of Long Term Debt St. Comp. Abs , ,046 36,833 Deferred Revenues ,655 1,631,221 1,745,578 1,875,630 2,032,500 Accumulated compensated absences/ early retirement incentive , , Other , , , , ,150 TOTAL LIABILITIES... $9,183,434 $9,014,545 $10,219,207 $11,058,969 $10,458,227 FUND EQUITIES Unreserved Designated... $3,474,572 $4,400,000 $4,850,000 $4,500,000 $4,222,053 Unreserved Undesignated... 7,238,395 9,151,232 7,005,469 4,822,925 4,601,844 TOTAL FUND EQUITIES... $10,712,967 $13,551,232 $11,855,469 $9,322,925 $8,823,897 TOTAL LIABILITIES AND FUND EQUITIES... $19,896,401 $22,565,777 $22,074,676 $20,381,894 $19,282,124 Source: School District Annual Financial Reports TABLE 4 COLONIAL SCHOOL DISTRICT GENERAL FUND SUMMARY OF CHANGES IN FUND BALANCES* Proposed Actual Budget Final Budget (1) 2013 (2) Beginning Fund Balance... $10,712,965 $13,551,229 $11,855,467 $9,322,923 $8,823,894 $4,601,841 Revenues over (under) Expenditure 2,838,264 (1,695,762) (2,532,545) (499,029) (4,222,053) (384,000) Ending Fund Balance... $13,551,229 $11,855,467 $9,322,923 $8,823,894 $4,601,841 $4,217,841 *Totals may not add due to rounding. (1) Budget, as adopted June 16, See Summary and Discussion of Financial Results. (2) Proposed final budget, subject to Board approval and final adoption. Source: School District Annual Financial Reports and Budgets. 9

14 Revenue The School District received $89,589,460 in revenue in , and has budgeted revenue of $89,716,707 in Local sources decreased as a share of total revenue in the past five years from 87.0 percent ( ) to a budgeted 85.9 percent ( ). Revenue from Commonwealth sources increased as a share of total revenue from 12.2 percent to 13.2 percent over this period (due to reimbursement of state share of retirement contribution). Federal and other sources increased as a share of total revenue in the past five years from 0.8 percent to 0.9 percent over this period (due to one-time receipt of stimulus funding). TABLE 5 COLONIAL SCHOOL DISTRICT - SUMMARY OF SCHOOL DISTRICT GENERAL FUND REVENUES AND EXPENDITURES (Years Ending June 30) Proposed REVENUE Actual Budget Final Budget Local Sources: (1) 2013 (2) Real Estate Taxes... $59,624,297 $59,144,980 $62,165,765 $64,763,293 $67,275,850 $70,086,800 Interim Taxes , , , , , ,500 Total Act 511 Taxes... 7,561,143 7,621,662 7,078,745 7,289,240 7,055,000 7,154,500 Public Utility Realty Tax... 92,994 89,450 96,589 96,945 95,817 99,750 Payment in Lieu of Taxes , ,531 67,577 44,967 42,813 60,000 Delinquency on Taxes Levied , , , , ,000 1,191,235 Earnings from Investments... 1,662,740 1,021, , ,055 97, ,300 Federal funds - LEA's , , , , , ,000 Receipts from Other LEAs in PA - Education 586, , ,722 54, ,350 Refunds of Prior Years Expenditures , ,542 76, , ,000 Rentals , , ,572 98, , ,000 Contributions... 5,400 62,912 27,527 25,713 2,000 10,000 Tuition , ,990 68,802 81, ,735 78,000 Other Sources... 1,067 16,136 10, ,401 32,000 30,000 Total Local Sources... $72,902,636 $70,776,196 $72,839,444 $75,836,700 $77,065,286 $80,421,435 State Sources: Basic Instructional Subsidy... $2,704,156 $2,785,267 $2,504,138 $2,374,723 $2,611,534 $2,785,267 Charter Schools... 34,081 28,376 46,421 63, Tuition for Children in Private Homes , , , , , ,000 Safe Schools... 34,180 33, Alternative Education... 34,464 34, Special Education... 1,980,491 2,059,772 2,007,951 2,075,771 2,059,025 1,984,263 Transportation... 1,327,643 1,293,445 1,185,043 1,141,104 1,140,722 1,198,341 Rentals and Sinking Fund Payments , , , , , ,000 Health Services , , , , , ,000 State Property Tax Reduction Allocation ,617,231 2,553,670 2,731,591 2,475,692 2,450,000 Revenue for Social Security... 1,555,743 1,680,228 1,765,539 1,766, ,260 1,835,000 Revenue for Retirement ,064,150 1,145,372 1,321,808 2,108,743 3,021,100 Extra Grants/PA Accountability Grants , , , , Educational Technology ,754 19, Additional Grants Not Listed Elsewhere , Other Sources Total State Sources... $10,213,663 $12,423,940 $11,829,962 $12,054,547 $11,845,094 $13,733,971 Total Federal Sources... $584,792 $693,530 $2,031,011 $1,610,279 $715,409 $720,154 Other Sources... $64,218 $80,103 $84,314 $87,935 $90,918 $94,540 TOTAL REVENUE... $83,765,309 $83,973,770 $86,784,730 $89,589,460 $89,716,707 $94,970,100 EXPENDITURES: Instruction... $49,189,830 $52,361,433 $55,707,918 $56,322,067 $58,954,682 $60,488,627 Pupil Personnel Services... 2,831,823 2,963,025 2,990,613 3,033,729 3,100,925 3,193,952 Instructional Staff... 2,982,656 3,279,713 3,514,922 3,468,072 3,419,741 3,557,257 Administration... 3,538,106 3,724,686 3,746,750 3,906,950 4,064,592 4,165,824 Pupil Health Services , , , , , ,604 Business... 1,029,438 1,003,773 1,053,863 1,087,302 1,124, ,798 Operation & Maintenance of Plant Services 7,819,049 8,048,582 8,283,979 7,909,222 8,191,132 8,399,856 Student Transportation... 5,806,406 5,984,868 6,064,205 6,360,939 6,702,622 6,143,204 Central , , , , , ,038 Other Support Services... 88,509 67,995 73,824 76,439 74,911 76,450 Non-Instructional Services... 1,270,858 1,323,611 1,348,966 1,314,432 1,290,535 1,367,678 Debt Service... 4,735,295 5,112,532 4,628,471 4,481,640 5,125,356 4,891,272 Refund of Prior Year Receipts ,243 33, Facilities Acq., Constr. & Improv. Services. 67, , ,391 75,605 0 Fund Transfers , , , , ,762 50,000 Budgetary Reserve , ,540 TOTAL EXPENDITURES... $80,927,045 $85,669,532 $89,317,275 $90,088,489 $93,938,760 $95,354,100 SURPLUS (DEFICIT) OF REVENUES OVER EXPENDITURES. $2,838,264 ($1,695,762) ($2,532,545) ($499,029) ($4,222,053) ($384,000) *Totals may not add due to rounding. (1) Budget, as adopted June 16, See Summary and Discussion of Financial Results. (2) Proposed final budget, subject to Board approval and final adoption. Source: School District Annual Financial Reports and Budget. 10

15 TAXING POWERS OF THE SCHOOL DISTRICT Subject to certain limitations imposed by the Taxpayer Relief Act, Act No. 1 of the Special Session of 2006 (see below), the School District is empowered by the School Code and other statutes to levy the following taxes: 1. A basic annual tax on all real property taxable for school purposes, not to exceed 25 mills on each dollar of assessed valuation, to be used for general school purposes. 2. An ad valorem tax on the property taxable for school purposes to provide funds: a. for salaries and increments of the teaching and supervisory staff; b. to pay rentals due any municipality authority or non-profit corporation or due the State Public School Building Authority; c. to pay interest and principal on any indebtedness incurred pursuant to the Local Government Unit Debt Act, or any prior or subsequent act governing the incurrence of indebtedness of the school district; and d. to pay for the amortization of a bond or note issue which provided a school building prior to the first Monday of July, An annual per capita tax on each resident or inhabitant over 18 years of age of not less than $1.00 and not more than $ Additional taxes subject to division with other political subdivisions authorized to levy similar taxes on the same person, subject, business, transaction or privilege, under Act No. 511, enacted December 31, 1965, as amended ( The Local Tax Enabling Act ). These taxes, which may include, among others, an additional per capita tax, wage and other earned income taxes, real estate transfer taxes, gross receipts taxes, and occupation taxes, shall not exceed, in the aggregate, an amount equal to the product of the market valuation of real estate in the School District (as certified by the State Tax Equalization Board of the Commonwealth STEB ) multiplied by twelve mills. The Local Tax Enabling Act was amended by Act 222 of 2004 to authorize all taxing authorities to exempt from per capita, occupation, emergency and municipal service or earned income taxes any person whose total income from all sources is less than $12,000 per year. {THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK} 11

16 The Taxpayer Relief Act (Act 1) Under The Taxpayer Relief Act (Act 1), a school district may not levy any tax for the support of the public schools which was not levied in the previous fiscal year, raise the rate of any earned income and net profits tax if already imposed under the authority of the Local Tax Enabling Act, or increase the rate of any tax for school purposes by more than the Index (defined below), unless in each case either (a) such increase is approved by the voters in the school district at a public referendum or (b) one of the exceptions summarized below is applicable and the use of such exception is approved by PDE: 1. to pay interest and principal on indebtedness incurred (i) prior to September 4, 2004, in the case of a school district which had elected to become subject to the provisions of the prior Homeowner Tax Relief Act, Act 72 of 2004 ( Act 72 ), or (ii) prior to June 27, 2006, in the case of a school district which had not elected to become subject to Act 72 (as in the case of the School District); to pay interest and principal on any indebtedness approved by the voters at referendum (electoral debt); and to pay interest and principal on debt refunding or refinancing debt for which one of the above exceptions is permitted, as long as the refunding or refinancing incurs no additional debt other than for costs and expenses related to the refunding or refinancing and the funding of appropriate debt service reserves; 2. to pay costs incurred in providing special education programs and services to students with disabilities, under specified circumstances; and 3. to make payments into the State Public School Employees Retirement System when the increase in the estimated payments between the current year and the upcoming year is greater than the Index, as determined by PDE in accordance with the provisions of Act 1. Any revenue derived from an increase in the rate of any tax allowed under the exception numbered 1 above may not exceed the anticipated dollar amount of the expenditure, and any revenue derived from an increase in the rate of any tax allowed pursuant to any other exception enumerated above may not exceed the rate increase required, as determined by PDE. If a school district s petition or request to increase taxes by more than the Index pursuant to one or more of the allowable exceptions is not approved, the school district may submit the proposed tax increase to a referendum. The Index (to be determined and reported by PDE by September of each year for application to the following fiscal year) is the average of the percentage increase in the statewide average weekly wage, as determined by the State Department of Labor and Industry for the preceding calendar year, and the employment cost index for elementary and secondary schools, as reported by the federal Bureau of Labor Statistics for the preceding 12-month period beginning July 1 and ending June 30. If and when a school district has a Market Value/Income Aid Ratio greater than 0.40 for the prior school year, however, the Index is adjusted upward by multiplying the unadjusted Index by the sum of 0.75 and such Aid Ratio. The Act 1 Index applicable to the School District in the current and prior fiscal years are as follows: Source: Pennsylvania Department of Education website. Fiscal Year Index % In accordance with Act 1, the School District put a referendum question on the ballot for the May, 15, 2007, primary election seeking voter approval to levy (or increase the rate of) its earned income and net profits tax ( EIT ) or a personal income tax ( PIT ) and use the proceeds to reduce local real estate taxes by a homestead and farmstead exclusion. The referendum was NOT approved by the voters. A board of school directors may submit, but is not required to submit, a referendum question to the voters at the municipal election in any future municipal election seeking approval to levy or increase the rate of an EIT or impose PIT for the purpose of funding homestead and farmstead exclusions, but the proposed rate of the EIT or PIT shall not exceed the rate that is required to provide the maximum homestead and farmstead exclusions allowable under law. The Bonds are not grandfathered under the Taxpayer Relief Act The Bonds were not authorized before effective date of Act 1. Therefore, the Bonds are not grandfathered and the School District cannot be granted an exception to the Act 1 referendum requirement on the basis of the debt service due and payable on the Bonds if a tax increase greater than the Index is needed. The School District anticipates that it will have sufficient new tax millage included in its budget to cover the full amount of the debt service on the Bonds without exceeding the Index and the approved exceptions. 12

17 Act 24 of 2001 Act 24 of 2001 of the Commonwealth of Pennsylvania, which became law on June 22, 2001, authorizes a Board of School Directors to schedule a public hearing and conduct a ballot referendum on replacing the school district s occupation tax with an increase in the local earned income tax. Currently, school districts in Pennsylvania share a 1.0% tax on the annual amount of residents wages and other earned income (which excludes unearned or investment income), with the resident municipality. Under the new law, this tax could be increased by the percentage necessary to generate revenue equal to what was collected during the preceding year on the occupation tax. The occupation tax is a flat amount for all employed individuals, or assessed by various trade, occupation, and professional titles, regardless of income. The restructured tax is designed to be revenue neutral to the school district. Act 48 of 2003 The School District does not presently levy an occupation tax. Pennsylvania Act No (enacted December 23, 2003) prohibits a school district from increasing real property taxes for the school year or any subsequent school year, unless the school district has adopted a budget for such school year that includes an estimated ending unreserved undesignated fund balance which is not more than a specified percentage of the total budgeted expenditures, as set forth below: Estimated Ending Unreserved Undesignated Fund Balance Total Budgeted Expenditures as a Percentage of Total Budgeted Expenditures Less than or equal to $11,999, % Between $12,000,000 and $12,999, % Between $13,000,000 and $13,999, % Between $14,000,000 and $14,999, % Between $15,000,000 and $15,999, % Between $16,000,000 and $16,999, % Between $17,000,000 and $17,999, % Between $18,000,000 and $18,999, % Greater than or equal to $19,000, % Estimated ending unreserved fund balance is defined in Act as that portion of the fund balance which is appropriable for expenditure or not legally or otherwise segregated for a specific or tentative future use, projected for the close of the school year for which a school district s budget was adopted and held in the general fund accounts of the school district. [THIS SPACE INTENTIONALLY LEFT BLANK] 13

18 Tax Levy Trends Table 6 shows the recent trend of tax rates levied by the School District. Table 7 shows the comparative trend of real property tax rates for the School District, the Boroughs of Conshohocken, Plymouth and Whitemarsh Township and Montgomery County. TABLE 6 COLONIAL SCHOOL DISTRICT TAX RATES Real Estate Earned Real Estate Transfer Amusement Income Fiscal Year (mills) (%) (%) (%) Source: School District officials. TABLE 7 COLONIAL SCHOOL DISTRICT COMPARATIVE REAL PROPERTY TAX RATES (Mills on Assessed Value) Colonial School District Borough of Conshohocken Plymouth Township Whitemarsh Township Montgomery County Source: School District officials. 14

19 Real Property Tax The real property tax (excluding interim taxes and delinquent collections) produced $64,763,293 in or 72.3 percent of total revenue. The School District fiscal year is July 1 through June 30 and tax bills are issued on July 1 of each year. Taxpayers who remit within 60 days of July 1 receive a 2 percent discount, and those who remit subsequent to 120 days after July 1 are assessed a 10 percent penalty. For the fiscal year, eligible taxpayers could opt into the installment method of payment for their school taxes. Installment payments are based upon three (3) one-third payments of the base tax amount. The due date for installment payments is November 15, October 15, and December 15. The following tables summarize recent trends of assessed and market valuations of real property and real property tax collection data. The last county-wide reassessment in Montgomery County was January 1, TABLE 8 COLONIAL SCHOOL DISTRICT REAL PROPERTY ASSESSMENT DATA Market Assessed Common Level Fiscal Year Value Value Ratio $4,961,985,500 $3,787,845, % ,040,855,800 3,831,081, % ,557,674,400 3,864,567, % ,571,527,300 3,876,088, % ,165,109,052 3,872,116, % Compound Average Annual Percentage Change % 0.44% Source: Pennsylvania State Tax Equalization Board. TABLE 9 COLONIAL SCHOOL DISTRICT REAL PROPERTY ASSESSMENT DATA BY MUNICIPALITY Market Value Assessed Value Market Value Assessed Value Colonial School District... $ 5,571,527,300 $ 3,876,088,087 $ 6,165,109,052 $ 3,872,116,120 Borough of Conshohocken ,410, ,049, ,845, ,032,140 Plymouth Township... 2,342,663,600 1,640,141,502 2,543,144,023 1,639,860,046 Whitemarsh Township... 2,395,452,900 1,702,897,105 2,663,119,368 1,693,223,934 Montgomery County... 77,664,071,000 57,211,968,335 85,885,993,359 58,361,518,718 Source: Pennsylvania State Tax Equalization Board. TABLE 10 COLONIAL SCHOOL DISTRICT ASSESSMENT BY LAND USE Residential... $2,264,458,123 $2,282,167,241 $2,297,305,920 $2,319,006,840 $2,335,582,223 Lots... 16,537,890 23,809,522 22,155,112 21,431,972 19,276,311 Industrial ,232, ,262, ,400, ,376, ,618,920 Commercial... 1,299,024,466 1,299,217,255 1,316,486,440 1,307,737,565 1,289,702,026 Agriculture... 43,476,860 70,542,300 64,701,000 65,017,140 64,625,940 Land/Other ,720 82,080 7,518,380 7,518,380 8,310,700 Total... $3,787,845,489 $3,831,081,368 $3,864,567,462 $3,876,088,087 $3,872,116,120 Source: Pennsylvania State Tax Equalization Board. 15

20 TABLE 11 COLONIAL SCHOOL DISTRICT REAL PROPERTY TAX COLLECTION DATA Total Current Plus Current Year Delinquent Collections Collections Total (1) Current Year as Percent Total Current as Percent Flat Collections of Total Plus of Total Flat Year Billing (July-June) Flat Billing Delinquent Billing $59,587,260 $58,112, % $58,720, % ,325,373 60,597, % 61,067, % (2) 59,565,046 59,442, % 59,978, % (2) 62,484,590 62,781, % 63,437, % (2) 67,416,446 65,155, % 65,882, % (1) Includes interim billings and payments. (2) Beginning in the amount of the Adjusted Levy is reduced by the amount of the Homestead/Farmstead Exemptions. The Adjusted levy shown excludes the amount payable from the Property Tax and Rent Rebate Program funded pursuant to Act 1 of the Commonwealth. Source: School District officials. The ten largest real property taxpayers, together with assessed values are shown in Table 12. The aggregate assessed value of these ten taxpayers totals approximately 9.2 percent of total assessed value. All major real property tax accounts as listed below are current. TABLE 12 COLONIAL SCHOOL DISTRICT TEN LARGEST REAL PROPERTY TAXPAYERS, Assessed Owner Property Value Plymouth Ground Associates LP (1) Shopping Mall $ 52,755,970 Whitemarsh Continuing Care Retirement Community 52,255,630 McNeil Consumer/Specialty Phar. Research Laboratory 44,750,000 Metroplex West Associations LP Shopping Center 43,690,940 Eight Tower Bridge Dev. Assoc. (1) Office Building 40,383,390 IKEA Property Inc. (1) Store and Office Building 29,400,000 IMD Eleven Hundred E. Hector St. Office Complex 27,566,093 Riverwalk Realty Co. Inc. Apartment Complex 24,800,730 Plymouth TFC General Partnership (1) Office Building 23,455,000 Conference Facilities Inc. Lodge, Golf Club & Conference Center 22,756,070 Total $361,813,823 Other Taxes (1) The above taxpayers are appealing its assessment. Source: School District officials. Under Act 511, the School District received $7,289,240 in taxes in Among the taxes authorized by Act 511, the Real Estate Transfer Tax and Amusement Tax are levied by the School District. Its limit under Act 511, equal to 12 mills on the market value of real property, was approximately $73,981,309. Real Estate Transfer Tax: The School District levies a tax of 1.00% (subject to 50% sharing) of the value of real estate transfers. For the School District received $1,430,448 or 1.6 percent of total revenue. Amusement Tax: The School District levies a tax of 10.0% (subject to 50% sharing) of the entrance fee to recreational facilities. For the School District received $48,886 or less than one percent of total revenue. Wage and Income Tax. The School District levied a tax of 1.0% (subject to 50% sharing) on the earned income of residents. In the collected portion of this tax yielded revenue of approximately $5,809,906 or 6.5 percent of total revenue. 16

21 Commonwealth Aid to School Districts Pennsylvania school districts receive financial assistance from the Commonwealth in a number of forms, all subject to statutory provisions and annual appropriation by the Pennsylvania General Assembly. A basic instructional subsidy is allocated to all school districts based on: (1) the per pupil market value of assessable real property in the school district; (2) the per pupil earned income in the school district; and (3) the school district s tax effort, as compared with the tax effort of other school districts in the Commonwealth. School districts also receive state aid for special education, pupil transportation, vocational education, health service and debt service. Debt Statement DEBT AND DEBT LIMITS Table 13 shows the debt of the School District as of May 17, 2012, including the issuance of the Bonds. TABLE 13 COLONIAL SCHOOL DISTRICT DEBT STATEMENT* (As of May 17, 2012) Gross NONELECTORAL DEBT Outstanding General Obligation Bonds, Series of 2012 (last maturity 2023)... $9,995,000 General Obligation Bonds, Series of 2011 (last maturity 2025)... 9,925,000 General Obligation Bonds, Series of 2010 (last maturity 2018)... 5,445,000 General Obligation Bonds, Series A of 2009 (last maturity 2018)... 10,410,000 General Obligation Bonds, Series of 2009 (last maturity 2014)... 6,120,000 General Obligation Bonds, Series of 2008 (last maturity 2019)(remaining portion) ,000 General Obligation Notes, Vo-Tech Series, of 2001 (last maturity 2013)... 30,000 TOTAL NONELECTORAL DEBT... $42,380,000 TOTAL LEASE RENTAL DEBT... $ 0 TOTAL PRINCIPAL OF DIRECT DEBT... $42,380,000 *Includes the Bonds offered through this Official Statement. Excludes the Refunded 2008 Bonds. 17

22 Table 14 presents the overlapping indebtedness and debt ratios of the School District. After issuance of the Bonds, principal of direct debt of the School District will total $42,380,000. DIRECT DEBT TABLE 14 COLONIAL SCHOOL DISTRICT BONDED INDEBTEDNESS AND DEBT RATIOS* (As of May 17, 2012) Local Effort or Net of Available Funds Gross and Estimated Outstanding State Aid (1) Nonelectoral Debt... $42,380,000 $42,380,000 Lease Rental Debt TOTAL DIRECT DEBT... $42,380,000 $42,380,000 OVERLAPPING DEBT Montgomery County, General Obligation (2)... $31,774,882 $31,774,882 Municipal Debt... 24,865,155 24,865,155 TOTAL OVERLAPPING DEBT... $56,640,037 $56,640,037 TOTAL DIRECT AND OVERLAPPING DEBT... $99,050,037 $99,050,037 DEBT RATIOS Per Capita (2010)... $2, $2, Percent Assessed Value % 2.56% Percent Market Value % 1.61% *Includes the Bonds offered through this Official Statement. Excludes the Refunded 2008 Bonds. (1) Gives effect to current appropriations for payment of debt service and expected future State Reimbursement of School District sinking fund payments based on current CARF. See Commonwealth Aid to School Districts. (2) Pro rata 7.2 percent share of $442,655,151 principal amount outstanding. 18

23 Debt Limit and Remaining Borrowing Capacity The statutory borrowing limit of the School District under the Act is computed as a percentage of the School District's "Borrowing Base". The "Borrowing Base" is defined as the annual arithmetic average of "Total Revenues" (as defined by the Act), for the three full fiscal years ended next preceding the date of incurring debt. The School District calculates its present borrowing base and borrowing capacity as follows: Total Revenues for $ 83,784,596 Total Revenues for $ 86,591,351 Total Revenues for $ 89,354,636 Total Revenues, Past Three Years $259,730,582 Annual Arithmetic Average (Borrowing Base) $ 86,576,861 Under the Act as presently in effect, no school district shall incur any nonelectoral debt or lease rental debt, if the aggregate net principal amount of such new debt together with any other net nonelectoral debt and lease rental debt then outstanding, would cause the net nonelectoral debt plus net lease rental debt to exceed 225% of the Borrowing Base. The application of the aforesaid percentage to the School District's Borrowing Base produces the following product: Remaining Legal Net Debt Borrowing Limit Outstanding* Capacity Net Nonelectoral Debt and Lease Rental Debt Limit: 225% of Borrowing Base $194,797,937 $42,410,000 $152,387,937 *Includes the Bonds described herein. Excludes the refunded 2008 Bonds. 19

24 Debt Service Requirements Table 15 presents the debt service requirements on the School District s outstanding general obligation indebtedness including debt service on the Bonds. Table 16 presents data on the extent to which Commonwealth Aid provides coverage for debt service requirements. The School District has never defaulted on the payment of debt service. TABLE 15 COLONIAL SCHOOL DISTRICT DEBT SERVICE REQUIREMENTS (1) Other General Series of Obligation 2012 Total Year Debt Principal Interest Subtotal Requirements $4,723,334 $0 $0 $0 $4,723, ,518,451 5, , ,101 4,716, ,575,201 5, , ,140 4,793, ,679,673 5, , ,040 4,897, ,672,297 5, , ,940 4,890, ,669,682 5, , ,840 4,887, ,674,957 5, , ,740 4,892, ,492, , , ,640 5,005, ,089,625 2,770, ,640 2,976,640 5,066, ,093,018 2,825, ,240 2,976,240 5,069, ,088,343 2,880,000 94,740 2,974,740 5,063, ,091,643 1,190,000 35,700 1,225,700 3,317, ,090, ,090, ,464, ,464,163 Total $49,923,770 $9,995,000 $1,958,761 $11,953,761 $61,877,531 (1) Totals may not add due to rounding. TABLE 16 COLONIAL SCHOOL DISTRICT COVERAGE OF DEBT SERVICE AND LEASE RENTAL REQUIREMENTS BY COMMONWEALTH AID* Commonwealth Aid Received... $12,054, Debt Service Requirements... $4,481,640 Maximum Future Debt Service Requirements after Issuance of Bonds... $5,069,258 Coverage of Debt Service Requirements times Coverage of Maximum Future Debt Service Requirements after Issuance of Bonds times *Assumes current Commonwealth Aid Ratio. See Commonwealth Aid to School Districts. Future Financing The School District does not contemplate issuing additional long-term debt in the immediate future. 20

25 LABOR RELATIONS School District Employees There are presently 743 employees of the School District, including 388 teachers, 53 administrators and 302 other employees, which include secretaries, custodial staff, maintenance staff, cafeteria staff, transportation staff and instructional aides. The School District's teachers are represented by the Colonial Education Association (the "Association"), an affiliate of the Pennsylvania State Education Association ("PSEA"), under a contract with the School District which expires November 15, The secretaries and instructional aides are represented by the Colonial Support Personnel Association, an affiliate of PSEA-NEA, are under a contract which expires June 30, The custodial and maintenance staff is represented by the Teamsters Local Union No. 384, under a contract which expires June 30, Pension Program School Districts in Pennsylvania are required to participate in a statewide pension program administered by the State Public School Employees Retirement System (PSERS). All of the School District's full-time employees, part-time employees who work more than 80 days in a school year, and hourly employees who work over 500 hours a year participate in the program. The Commonwealth, School District and employees each contribute a share of the employee's pension account. The Commonwealth shares in the employer contribution at a rate which is at least one-half of the total employer rate. The contribution rates are set by the Pennsylvania Public School Code of 1949, 24 Pa.C.S et seq. which requires contributions by active members, employers and the Commonwealth. Active members who began contributions prior to July 22, 1983, contribute at 5.25% or at 6.50% of the member s qualifying compensation. Members who began contributions after July 22, 1983 and who are active or inactive as of July 1, 2001, contribute at 6.25% or at 7.50% of the member s qualifying compensation. For all new hires the higher contribution rates began with service rendered on or after January 1, The contributions required of employers are based on an actuarial valuation and are expressed as a percentage of annual covered payroll during the period for which the amounts are determined. Present rates are set at 5.25% to 7.50% for the employee contribution. The employer contribution rate, to be paid by the School District, for the fiscal year is 8.65% (such 8.65% consisting of 8.00% toward pension and 0.65% toward health care), and the PSERS Board projected, based on June 30, 2010 valuations, employer contribution rates ranging from approximately 12.36% to 26.96% per year for fiscal years to On December 9, 2011 the PSERS Board of Trustees set the employer contribution rate of 12.36% for the fiscal year. Recent School District gross pension contributions to PSERS have been as follows: The School District is current in all pension payments $2,889, ,130, ,257, ,647, (budgeted) 4,189, (budgeted) 6,103,757 Future projections are indicating increases in the contribution rate for future years. For further discussions of these increases please refer to the PSERS web site on the Internet. Source: PSERS Financial Highlights. Other Post-Employment Benefits The School District became subject to the requirements of GASB Statements No. 43 and 45 commencing with the School District s annual financial statements for the fiscal year ending June 30,

26 LITIGATION At the time of settlement, the President or Vice-President of the School District, will deliver a certificate dated as of the date of delivery of and payment for the Bonds, certifying that there is no litigation pending which challenges the validity or enforceability of the Bonds; or in the event that such litigation is pending, a description of the nature of such litigation, together with an opinion of legal counsel approved by the School District, to the effect that such litigation is without legal merit. DEFAULTS AND REMEDIES In the event of failure of the School District to pay or cause to be paid the interest on or principal of the Bonds, as the same becomes due and payable, the holders of the Bonds shall be entitled to certain remedies provided by the Debt Act. Among the remedies, if the failure to pay shall continue for 30 days, holders of the Bonds shall have the right to recover the amount due by bringing an action in assumpsit in the Court of Common Pleas of the county in which the School District is located. The Debt Act provides that any judgment shall have an appropriate priority upon the funds next coming into the treasury of the School District. The Debt Act also provides that upon a default of at least 30 days, holders of at least 25 percent of the Bonds may appoint a trustee to represent them. The Debt Act provides certain other remedies in the event of default, and further qualifies the remedies hereinbefore described. Federal Income Tax Matters TAX EXEMPTION AND CERTAIN OTHER TAX MATTERS On the date of delivery of the Bonds, Bond Counsel will issue an opinion to the effect that, under existing statutes, regulations and judicial decisions, interest on the Bonds (a) is excluded from gross income for federal income tax purposes and (b) is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although in the case of certain corporations (as defined for federal income tax purposes), such interest is taken into account in determining adjusted current earnings for purposes of such alternative minimum tax. This opinion of Bond Counsel will assume the accuracy of certifications made by the School District and will be subject to the condition that the School District will comply with all requirements of the Internal Revenue Code of 1986, as amended, that must be satisfied subsequent to the issuance of the Bonds in order that the interest thereon be, and continue to be, excluded from gross income for federal income tax purposes. The School District has covenanted to comply with all such requirements, which include, among others, restrictions upon the yield at which proceeds of the Bonds and other money held for the payment of the Bonds and deemed to be "proceeds" thereof may be invested and the requirement to calculate and rebate any arbitrage that may be generated with respect to investments allocable to the Bonds. Failure to comply with such requirements could cause the interest on the Bonds to be included in gross income retroactive to the date of issuance of the Bonds. Certain maturities of the Bonds may be sold to the public in the initial offering at a price less than the stated redemption price of such Bonds at maturity (that is, at less than par or the stated principal amount), the difference being "original issue discount". Generally, original issue discount accruing on a tax-exempt obligation is treated as interest excludable from gross income for federal income tax purposes. In addition, original issue discount that has accrued on a tax-exempt obligation is treated as an adjustment to the issue price of the obligation for the purpose of determining taxable gain upon sale or other disposition of such obligation prior to maturity. The Internal Revenue Code of 1986, as amended, provides specific rules for the accrual of original issue discount on tax-exempt obligations for federal income tax purposes. Prospective purchasers of Bonds being sold with original issue discount should consult their tax advisors for further information. Ownership of the Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, financial institutions, property and casualty insurance companies, certain subchapter S corporations with substantial passive income and Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry the Bonds. Bond Counsel will express no opinion as to such collateral tax consequences, and prospective purchasers of the Bonds should consult their tax advisors. No representation is made or can be made by the School District or any other party associated with the issuance of the Bonds as to whether or not any legislation now or hereafter introduced and enacted will be applied retroactively so as to subject interest on the Bonds to inclusion in gross income for Federal income tax purposes or so as to otherwise affect the marketability or market value of the Bonds. Enactment of any legislation that subjects the interest on the Bonds to inclusion in gross income for federal income tax purposes or otherwise imposes taxation on the Bonds or the interest paid thereon may have an adverse effect on the market value or marketability of the Bonds. Pennsylvania Tax Matters On the date of delivery of the Bonds, Bond Counsel will issue an opinion to the effect that under the laws of the Commonwealth of Pennsylvania as presently enacted and construed, the Bonds are exempt from personal property taxes within the Commonwealth of Pennsylvania and the interest on the Bonds is exempt from the Commonwealth of Pennsylvania Personal Income Tax and the Commonwealth of Pennsylvania Corporate Net Income Tax. 22

27 The Pennsylvania Local Government Unit Debt Act provides that Bonds issued in accordance with such Act, the transfer of such Bonds and the income therefrom (including any profits made on the sale thereof), shall be at all times free from taxation for State and local purposes within the Commonwealth of Pennsylvania, but that such exemption does not extend to gift, estate, succession or inheritance taxes or any other taxes not levied or assessed directly on such Bonds, the transfer thereof, the income therefrom or the realization of profits on the sale thereof. Under Act of the Commonwealth of Pennsylvania, however, profits, gains or income derived from the sale, exchange or other disposition of obligations issued on or after May 15, 1994, by any political subdivision of the Commonwealth or any public authority created by any political subdivision of the Commonwealth are subject to state and local taxation, but interest on such obligations remains free from taxation for state and local purposes within the Commonwealth of Pennsylvania. Certain maturities of the Bonds may be sold to the public in the initial offering at a price less than their stated redemption price at maturity (that is, at an "original issue discount"). On May 7, 1994, the Pennsylvania Department of Revenue published an Official Statement of Policy interpreting Act No , which declares that original issue discount on publicly offered Bonds is to be treated for Pennsylvania Personal Income Tax purposes as interest and is to be accrued in the same manner as applies for federal income tax purposes. Original issue discount is to be granted similar treatment under the Pennsylvania Corporate Net Income Tax law, according to a Private Letter Ruling issued by the Office of the Chief Counsel of the Pennsylvania Department of Revenue to the Pennsylvania Association of Bond Lawyers on December 2, 1993, immediately following the enactment of Act No On July 23, 1994 the Pennsylvania Department of Revenue published Proposed Regulations that would reaffirm and formalize the position asserted in the May 7, 1994 Statement of Policy regarding personal income tax treatment of original issue discount on publicly offered Bonds. Prospective purchasers of Bonds issued with original issue discount should consult their tax advisors for further information and advice concerning the reporting of profits, gains or other income related to a sale, exchange or other disposition of such Bonds for Pennsylvania tax purposes, including information with respect to any revision of the referenced Statement of Policy and Proposed Regulations or the adoption of final regulations by the Department of Revenue subsequent to the preparation of this Official Statement. Federal Income Tax Interest Expense Deductions for Financial Institutions Under the Internal Revenue Code of 1986, as amended (the Code ), financial institutions are disallowed 100 percent of their interest expense deductions that are allocable, by a formula, to tax-exempt obligations acquired after August 7, An exception, which reduces the amount of the disallowance, is provided for certain tax-exempt obligations that are designated or "deemed designated" by the issuer as "qualified tax-exempt obligations" under Section 265 of the Code. Each of the Bonds has been designated, or is "deemed designated", as a "qualified tax-exempt obligation" for purposes and effect contemplated by Section 265 of the Code (relating to expenses and interest relating to tax-exempt income of certain financial institutions). Financial institutions intending to purchase Bonds should consult with their professional tax advisors to determine the effect of the interest expense disallowance on their federal income tax liability. Other Changes in Federal and State Tax Law Proposals to alter or eliminate the exclusion of interest on tax-exempt bonds from gross income for some or all taxpayers have been made in the past and may be made again in the future. For example, on September 12, 2011, President Obama submitted the American Jobs Act of 2011 (the Jobs Act ) to Congress. While the Jobs Act was not enacted in its original form, certain measures in support of tax-reform continue to appear in the President s fiscal 2013 budget request, released in February The 2013 budget proposes a 28% cap on the value of tax preferences, including tax-exempt interest for municipal bonds. There is much uncertainty regarding whether any legislation to effect tax-reform will be enacted now or in the future. The impact of such legislation on the Bonds cannot be predicted. 23

28 CONTINUING DISCLOSURE UNDERTAKING The School District covenants to provide, pursuant to Rule 15c2-12(b) (the Rule ) promulgated by the Securities and Exchange Commission, for the benefit of the holders of the Bonds certain financial and operating data on an annual basis in accordance herewith. Under the terms of the Rule, the School District (being an obligated person within the meaning of the Rule) agrees: (i) to provide at least annually to the Municipal Securities Rulemaking Board (the MSRB ), the following annual financial information and operating data with respect to the School District for each of its fiscal years, beginning with the fiscal year ending June 30, 2012, within 180 days following the end of such fiscal year: - the financial statements for the most recent fiscal year, prepared in accordance with generally accepted accounting principles for local government units and audited in accordance with generally accepted auditing standards; - a summary of the budget for the new fiscal year; - the aggregate assessed value and aggregate market value of all taxable real estate for the new fiscal year; - the taxes and millage rates imposed for the new fiscal year; - the real property tax collection results for the most recent fiscal year, including (1) the real estate levy imposed (expressed both as a millage rate and an aggregate dollar amount), (2) the dollar amount of real estate taxes collected that represented current collections (expressed both as a percentage of such fiscal year s levy and as an aggregate dollar amount), (3) the amount of real estate taxes collected that represented taxes levied in prior years (expressed as an aggregate dollar amount), and (4) the total amount of real estate taxes collected (expressed both as a percentage of the current year s levy and as an aggregate dollar amount); - a list of the ten (10) largest real estate taxpayers and, for each, the total assessed value of real estate for the new fiscal year; and - pupil enrollment figures, including enrollment at the end of the most recent fiscal year, current enrollment and projected enrollment for the beginning of the next fiscal year, including a breakdown between elementary and secondary enrollment (to the extent reasonably feasible); (ii) in a timely manner not in excess of ten business days after the occurrence of the event, to file with the MSRB, notice of the occurrence of any of the following events with respect to the Bond: (1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax-exempt status of the Bonds, or other material events affecting the tax-exempt status of the Bonds; (7) modifications to rights of holders of the Bonds, if material; (8) Bond calls, if material, and tender offers; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds, if material; (11) rating changes; (12) bankruptcy, insolvency, receivership or similar event of the School District; (13) the consummation of a merger, consolidation, or acquisition involving the School District or the sale of all or substantially all of the assets of the School District, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; (14) appointment of a successor or additional paying agent or the change of name of a paying agent, if material; (iii) to provide, in a timely manner, to the MSRB, notice of the failure of the School District to provide the information set forth in subparagraph (i) above on or before the date specified above. The School District may from time to time choose to provide notice of the occurrence of certain other events, in addition to those listed above, but the School District does not commit to provide any such notice of the occurrence of any events except those specifically listed above. The School District reserves the right to terminate its obligation to provide annual financial information and notices of material events, as set forth above, if and when the School District no longer remains an obligated person with respect to the Bonds within the meaning of the Rule. The School District acknowledges that its undertaking pursuant to the Rule described herein is intended to be for the benefit of the holders or beneficial owners of the Bonds and shall be enforceable by the holders or beneficial owners of such Bonds; provided that the Bondholders right to enforce the provisions of this undertaking shall be limited to a right to obtain specific enforcement for the School District s obligations hereunder and any failure by the School District to comply with the provisions of this undertaking shall not be an event of default with respect to the Bonds. The School District may modify from time to time the specific types of information provided or the format of the presentation of such information, as a result of a change in legal requirements or change in the nature of the School District; provided that any such modification will be done in a manner consistent with the SEC Rule 15c2-12 including amendments thereto and will not, in the opinion of nationally recognized bond counsel, violate the Rule, as amended. Any filing under this Section may be made solely by transmitting such filing to the MSRB through its Electronic Municipal Market Access (EMMA) system for municipal securities disclosures. 24

29 The School District unintentionally failed to file in a timely manner the necessary annual financial and operating information and audited financial statements for fiscal years June 30, 2008 through, and including, June 30, The School District has subsequently filed with EMMA the required documentation and is currently in full compliance for these fiscal years. Once the School District was in compliance for these fiscal years it put procedures in place to ensure that future filings would be accomplished on a timely basis. The School District will continue to adhere to the procedures that have been put place to ensure that future filings are made in a timely manner. RATINGS Moody s Investor s Service, Inc. has assigned its underlying rating of Aa1 (Negative Outlook) to the Bonds. Such rating reflects only the view of such organization and any desired explanation of the significance of such rating should be obtained from the rating agency furnishing the same, at the following address: Moody s Investors Service, 7 World Trade Center, 250 Greenwich Street, New York, New York Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance that any such rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by the rating agency, if circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Bonds. UNDERWRITING The Underwriter has agreed to purchase the Bonds from the School District, subject to certain conditions precedent, and will purchase all of the Bonds if any of such Bonds are purchased. The Bonds will be purchased for a purchase price of $9,954,561.60, equal to the par value of the Bonds less an underwriters discount of $124, plus net original issue premium of $84,499.10, plus accrued interest, if any from the dated date to the date of delivery of the Bonds. LEGAL OPINION The Bonds are offered subject to the receipt of the approving legal opinion of Fox Rothschild LLP, Bond Counsel to the School District, of Blue Bell, Pennsylvania. Certain legal matters will be passed upon for by Fox Rothschild LLP, of Blue Bell, Pennsylvania, School District Solicitor. FINANCIAL ADVISOR The School District has retained Public Financial Management, Inc., Harrisburg, Pennsylvania, as financial advisor (the "Financial Advisor") in connection with the preparation, authorization, and issuance of the Bonds. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness, or fairness of the information contained in the Official Statement. Public Financial Management, Inc. is an independent advisory firm and is not engaged in the business of underwriting, trading, or distributing municipal securities or other public securities. MISCELLANEOUS This Official Statement has been prepared under the direction of the School District by Public Financial Management, Inc., Harrisburg, Pennsylvania, in its capacity as Financial Advisor to the School District. The information set forth in this Official Statement has been obtained from the School District and from other sources believed to be reliable. Insofar as any statement herein includes matters of opinion or estimates about future conditions, it is not intended as representation of fact, and there is no guarantee that it is, or will be, realized. Summaries or descriptions of provisions of the Bonds, the Resolution, and all references to other materials not purporting to be quoted in full are only brief outlines of some of the provisions thereof. Reference is hereby made to the complete documents, copies of which will be furnished by the School District or the Financial Advisor upon request. The information assembled in this Official Statement is not to be construed as a contract with holders of the Bonds. The School District has authorized the distribution of this Official Statement. COLONIAL SCHOOL DISTRICT Montgomery County, Pennsylvania By: Alan Tabachnick President, Board of School Directors 25

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31 APPENDIX A - Demographic and Economic Information Relating to the Colonial School District

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33 Introduction The School District occupies a total land area of approximately 25 square miles in the southeast portion of Montgomery County and is comprised of the Borough of Conshohocken, Plymouth Township and Whitemarsh Township. The School District, which is contiguous to Philadelphia, Norristown, Springfield, Upper Merion and Wissahickon are located twenty miles west of downtown Philadelphia and forty miles south of Allentown. Population Table A-1 shows recent population trends for the School District, Montgomery County and the Commonwealth. TABLE A-1 RECENT POPULATION TRENDS Census: April 2010 Census: April 2000 Change: 2000 to 2010 Geographic Area Number Number Number Percent Borough of Conshohocken... 7,833 7, % Plymouth Township... 16,525 16, % Whitemarsh Township... 17,349 16, % School District... 41,707 40,336 1, % Montgomery County , ,097 49, % Pennsylvania... 12,702,379 12,281, , % Source: U.S. Census Bureau, Census 2000 & 2010 Redistricting Data (Public Law ) Summary File. Employment Listed below are some of the larger employers within the vicinity of the School District: Approximate Name Product or Service Employment Merck & Company, Inc. Human and animal health products 8,600 Jefferson Health System Health care services 6,470 The Prudential Insurance Company of America Insurance services 6,120 Abington Memorial Hospital Health care services 4,000 Main Line Health Health care services 3,860 Lockheed Martin Management & Data Systems Information systems and services 3,300 Aetna, Inc. Managed health care services 3,000 Glaxo SmithKline Pharmaceutical R & D Health care products, clinical research 2,750 Genuardi Supermarkets, Inc. (Safeway) Retail supermarkets 2,700 Quest Diagnostics Medical Research/Services 2,650 Source: Montco Chamber of Commerce. A-1

34 Overall employment data are not compiled for the School District, but such data are compiled for the Philadelphia, PA-NJ- DE-MD Metropolitan Statistical Area (the PMSA ), (an area which includes the School District) as shown on Table A-3. TABLE A-3 (Philadelphia Metropolitan Statistical Area) (Bucks, Chester, Delaware, Montgomery and Philadelphia PA counties) February 2012 NONFARM JOBS Industry Employment Net Change From: ESTABLISHMENT DATA Feb 2012 Jan 2012 Dec 2011 Feb 2011 Jan 2012 Feb 2011 TOTAL NONFARM... 2,683,400 2,670,600 2,733,000 2,674,600 12,800 8,800 TOTAL PRIVATE... 2,342,800 2,337,000 2,390,000 2,325,000 5,800 17,800 GOODS-PRODUCING , , , ,000-4,600 3,600 Mining, Logging, and Construction... 94,700 97, ,800 90,000-2,600 4,700 Manufacturing , , , ,000-2,000-1,100 Durable Goods... 97,500 98,600 98,300 96,800-1, Non-Durable Goods... 86,400 87,300 88,700 88, ,800 SERVICE-PROVIDING... 2,404,800 2,387,400 2,444,200 2,399,600 17,400 5,200 PRIVATE SERVICE-PROVIDING... 2,064,200 2,053,800 2,101,200 2,050,000 10,400 14,200 Trade, Transportation, and Utilities , , , ,800-4,300-3,000 Wholesale Trade , , , ,400 1, Retail Trade , , , ,400-5,200-3,700 General merchandise stores... 47,100 49,500 54,300 46,700-2, Transportation, Warehousing, and Utilities. 90,000 90,100 93,100 90, Information... 48,800 4,900 49,500 50,000 43,900-1,200 Financial Activities , , , , ,000 Finance and insurance , , , , Credit intermediation and related activities 66,900 66,900 67,200 67, Depository credit intermediation... 36,600 36,600 36,600 36, Real estate and rental and leasing... 33,700 33,900 34,500 34, Professional and Business Services , , , ,600 6,300 9,200 Professional and technical services , , , ,400 3,300 7,800 Administrative and waste services , , , ,900 2,500 1,900 Education and Health Services , , , ,900 10,800 11,000 Health care and social assistance , , , ,400-1,700 5,000 Ambulatory health care services , , , , Hospitals , , , , ,400 Leisure and Hospitality , , , , ,200 Accommodation and food services , , , ,400-1, Other Services , , , ,100-1,600-2,000 Government , , , ,600 7,000-9,000 Federal Government... 54,200 54,100 54,700 54, State Government... 52,200 50,400 52,900 54,700 1,800-2,500 Local Government , , , ,100 5,100-5,900 Data benchmarked to March 2011 ***Data changes of 100 may be due to rounding*** Source: Pennsylvania State Employment Service: A-2

35 Table A-4 shows recent trends in labor force, employment, and unemployment for Montgomery County and the Commonwealth. TABLE A-4 RECENT TRENDS IN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT* (MONTGOMERY COUNTY) Montgomery County (1) Rate Civilian Labor Force (000) % Employment (000) % Unemployment (000) % Unemployment Rate % 5.4% 8.7% 9.2% 6.7% 6.8% Pennsylvania Civilian Labor Force (000)... 6, , , , , , % Employment (000)... 6, , , , , , % Unemployment (000) % Unemployment Rate % 5.4% 8.1% 8.7% 7.9% 7.6% (1) As of February Source: Pennsylvania State Employment Service. Income The data in Table A-5 show trends in per capita income for the School District, Montgomery County and Pennsylvania over the period. TABLE A-5 TRENDS IN PER CAPITA INCOME* Annual Average Percentage Change School District... $32,118 $43, % Montgomery County... 30,898 39, % Pennsylvania... 20,880 26, % *Income is defined by the Bureau of the Census as the sum of wage and salary income, non-farm self-employment income, net self-employment income, Social Security and Railroad retirement income, public assistance income, interest, dividends, pensions, etc. before deductions for personal income taxes, Social Security, etc. School District income is the populationweighted average for political subdivisions. Source: 2000: U.S. Census Bureau, Summary File 1 (SF 1) and Summary File 3 (SF 3) & 2009: U.S. Census Bureau, American Community Survey. A-3

36 Table A-6 shows recent trends for retail sales in Montgomery County, the MSA and the Commonwealth. TABLE A-6 TOTAL RETAIL SALES (In Millions of Dollars) Montgomery County... $ 17,281,619 $ 17,509,414 $ 16,278,763 $ 15,650,734 $ 16,723,717 MSA ,157, ,108,443 94,687,876 89,183,335 94,935,061 Pennsylvania ,558,005 N/R N/R 174,483, ,193,104 N/R: Not reported. Source: Sales and Marketing Management Magazine Commercial Activity Development in the service area is primarily residential and commercial in nature, with some light industrial development. Local officials anticipate continuous growth, as evidenced by residential development and recent construction. Access to major highways, U.S. Routes 476 and Interstate Route 76, and the availability of sewers and sewage treatment capacity are expected to influence growth. The completion of the Blue Route, which terminates at the junction of the Northeast Extension of the Pennsylvania Turnpike and the East-West Pennsylvania Turnpike in Plymouth Township, has increased commercial activity in the School District. Educational Institutions Major colleges and universities located near the School District include Chestnut Hill College, Ursinus College, Bryn Mawr College, Haverford College, Temple University s Ambler Campus, West Chester University, Villanova University, and University of Pennsylvania. Medical Facilities Major hospital facilities servicing the School District area include Montgomery Hospital, Mercy Suburban Hospital, Chestnut Hill Hospital, Bryn Mawr Hospital, Abington Memorial Hospital, and Lankenau Hospital. Utilities The following public utilities serve the School District: natural gas is supplied by Aqua Pennsylvania Incorporated; electric power is provided by PECO Energy, telephone service is provided by Verizon, and water in the service area is provided by the Philadelphia Suburban Water Authority and private water systems. Transportation Norfolk Southern provides freight service and Greyhound and Trailways provide bus service. Philadelphia International Airport is the nearest airport with scheduled commercial service. A-4

37 APPENDIX B Opinion of Bond Counsel

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39 June 19, 2012 Janney Montgomery Scott LLC 1801 Market Street Philadelphia, PA Re: Colonial School District Montgomery County, Pennsylvania $9,995,000 General Obligation Bonds, Series of 2012 Ladies and Gentlemen: We have acted as Bond Counsel to Colonial School District, Montgomery County, Pennsylvania (the School District ), a school district located in the Commonwealth of Pennsylvania (the Commonwealth ), in connection with the authorization, issuance and sale by the School District of its General Obligation Bonds, Series of 2012, dated June 19, 2012, in the aggregate principal amount of Nine Million Nine Hundred Ninety-Five Thousand Dollars ($9,995,000) (the Bonds ). The Board of Directors of the School District, by a Resolution dated May 17, 2012 (the Resolution ), has authorized and directed the issuance of the Bonds. The Resolution provides, inter alia, that the proceeds of the Bonds will be used for purposes of: (a) the advance refunding of a portion of the School District s outstanding General Obligation Bonds, Series of 2008 (the Refunded Bonds ), and (b) the payment of costs and expenses related to the issuance of the Bonds (collectively known as the Project ), all in accordance with applicable and appropriate provisions of the Local Government Unit Debt Act of the Commonwealth, as codified by the Act of December 19, 1996 (P.L. 1158, No. 177) (the LGUDA ). Proceedings for authorization, issuance and sale of the Bonds have been conducted in accordance with the provisions of the LGUDA. The Department of Community and Economic Development (the Department ) of the Commonwealth has approved the proceedings for the incurring of this debt of the School District as authorized in the Resolution, as required by the LGUDA. As to questions of fact material to our opinion, without undertaking to verify such facts by independent investigation, we have relied upon the certified proceedings and other certifications of the School District and other public officials, including without limitation, the matters listed in the following paragraph, which have been furnished to us. LN v2 05/24/12

40 Janney Montgomery Scott LLC June 19, 2012 Page 2 As Bond Counsel to the School District, we have examined and relied upon, among other things: (1) the proceedings related to the issuance and delivery of the Bonds as filed with and approved by the Department; (2) an executed counterpart of the Resolution; (3) a form of Bond; (4) a General Certificate of the School District; (5) a Tax Compliance Agreement; (6) an Escrow Agreement; (7) the verification report of BondResource Partners, LP; and (8) the usual closing affidavits, certificates and documents. We have assumed that the School District, pursuant to the Resolution, has established a sinking fund with the Paying Agent named in the Resolution, as the sinking fund depositary, into which funds for the payment of the principal of and interest on the Bonds will be deposited no later than the date fixed for the disbursement thereof. The School District has set forth in the Resolution to make payments out of such sinking fund or out of any other of its revenue or funds, at such times and in such annual amounts, as shall be sufficient for prompt and full payment of all obligations under the Bonds. The School District in the Resolution has covenanted to include in each year s budget, to the fullest extent authorized under law, sums sufficient to meet the requirements of all interest and principal payment due under the Bonds, to appropriate such amounts from its general revenues necessary for the payment of such debt service and to pay the principal and interest due upon the Bonds to the extent of its obligation as and when due and it has pledged its full faith, credit and taxing power to such payment, budgeting and appropriation. We have further assumed that the principal of and interest on the Bonds are payable without deduction of any tax or taxes now levied or assessed thereon under any present law of the Commonwealth, which tax or taxes the School District assumes and agrees to pay; provided, however, that the foregoing shall not be applicable to gift, succession or inheritance taxes or to other taxes not levied or assessed directly on the Bonds or the interest paid thereon. The Resolution provides that the School District reasonably anticipates to issue, together with subordinate governmental entities, no more than Ten Million Dollars ($10,000,000) of qualified tax exempt obligations within the meaning of Section 265(b)(3)(B) of the Internal Revenue Code of 1986 (the Code ) during calendar year 2012 and the Bonds have been designated, or are deemed designated, as qualified tax exempt obligations within the meaning of Section 265(b)(3)(B) of the Code. Based upon the foregoing, and subject to the further qualifications stated herein, and assuming investment and application of the proceeds of the Bonds as set forth in the Tax Compliance LN v2 05/24/12

41 Janney Montgomery Scott LLC June 19, 2012 Page 3 Agreement and the continuing compliance by the School District therewith and with the applicable provisions of the Code and the Regulations thereunder, we are of the opinion that: 1. The School District is authorized, under applicable laws of the Commonwealth, to issue the Bonds to provide funds as enumerated in the Resolution. 2. The amount of non-electoral debt of the School District issued and outstanding or authorized by vote of the Board of Directors of the School District, including the Bonds, computed in accordance with the LGUDA, is not in excess of legal limitations; and the incurring of non-electoral debt of the School District, which is evidenced by the Bonds, is permitted by the LGUDA and the Constitution of the Commonwealth to be made by vote of the Board of Directors of the School District without assent of electors of the School District. 3. The proceedings pursuant to which the Bonds have been authorized and thus the incurring of the non-electoral debt of the School District, which is evidenced by the Bonds, are in accordance with applicable law. The Bonds are a full faith and credit obligation of the School District, the payment for which the School District is obligated, if necessary, to exercise its ad valorem taxing power, subject to the limits of Act 1, discussed below, upon all taxable property within the School District. 4. The Bonds are not presently arbitrage Bonds as that term is contemplated by, and defined in, Section 103(b)(2) and Section 148, respectively, of the Code and applicable Regulations promulgated thereunder. 5. Interest on the Bonds is excluded from gross income for Federal income tax purposes, and is not an item of tax preference for purposes of the Federal alternative minimum tax imposed on individuals and corporations, although in the case of certain corporations and entities treated as corporations for Federal income tax purposes, such interest may be indirectly subject to the alternative minimum tax because of its inclusion in the income reported for financial accounting purposes or earnings and profits of the holder. 6. The Bonds are exempt from personal property taxes in the Commonwealth and interest on the Bonds is exempt from the personal income tax and the corporate net income tax imposed by the Commonwealth. 7. The Bonds, when issued and approved by the Pennsylvania Department of Community and Economic Development, will constitute indebtedness of the Local Government LN v2 05/24/12

42 Janney Montgomery Scott LLC June 19, 2012 Page 4 Unit for purposes of Section of the Pennsylvania Public School Code of 1949, as amended. Notwithstanding the general excludability of interest on the Bonds from gross income and the exemption of the Bonds and the interest thereon from certain taxes, ownership of the Bonds may result in other Federal, state, local and/or foreign tax consequences to certain taxpayers, including, without limitation, corporations required to include such interest in the calculation and payment of the alternative minimum tax under Section 55 of the Code (as noted in Paragraph 5 above); certain foreign corporations doing business in the United States that are subject to the Branch Profits Tax imposed by Section 884 of the Code; individuals or entities required to take such interest into account as market discount; financial institutions; insurance companies required to include such interest in amounts required to reduce the deductions for loss reserves pursuant to Section 832 of the Code; certain S Corporations (as defined in Section 1361 of the Code) with accumulated earnings and profits; individual recipients of Social Security, or Railroad Retirement benefits; and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry the Bonds. We offer no opinion as to any of such other tax consequences. With respect to the foregoing opinion, we advise you that the rights of the holders of the Bonds and the enforceability of the Bonds will be subject to and may be limited by (i) applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws of general application or equitable principles relating to or affecting creditors rights and remedies or debtors obligations generally, (ii) general principles of equity, whether considered and applied in a court of law or equity, and (iii) the exercise of judicial discretion in appropriate cases. The opinion set forth in paragraph 5 above is subject to the condition that the School District comply with all requirements of the Code that must be satisfied subsequent to the issuance of the Bonds in order that the interest thereon be, and continue to be, excludable from gross income for federal income tax purposes. The Code establishes certain requirements relating to the use and expenditures of the Bonds proceeds, restrictions on investments prior to expenditure and the requirement that certain earnings be rebated to the Federal government. Non-compliance with any of these or other applicable requirements of the Code might cause interest on the Bonds to be subject to Federal income taxation either prospectively or retroactively to the date of issuance. The School District has covenanted to comply with such requirements. LN v2 05/24/12

43 Janney Montgomery Scott LLC June 19, 2012 Page 5 We call to your attention that the Taxpayer Relief Act, Pennsylvania Special Session Act No. 1 of 2006 ( Act 1 ) became effective June 27, Act 1 generally provides that a school district may not, in fiscal year or in any subsequent fiscal year, increase the rate of any tax for school purposes by more than an index based on factors described in Act 1 without voter approval by referendum. The Bonds were not authorized before the effective date of Act 1 and, as a result, are not grandfathered and the School District cannot be granted an exception to the Act 1 referendum requirement on the basis of the debt service due and payable on the Bonds if a tax increase greater than the applicable index is needed. We express no opinion herein as to any matter not expressly set forth herein, including Federal, state, local and/or foreign tax consequences arising with respect to the Bonds other than as expressly set forth in paragraphs 4, 5 and 6 above. Further, we express no opinion herein regarding the accuracy, adequacy, or completeness of the Official Statement relating to the Bonds. This opinion is given as of the time of closing on date hereof, and is based on existing law as enacted and construed as of that time. We assume no obligation to update or supplement this opinion to reflect any facts or circumstances which may hereafter come to our attention or any changes in such laws, regulations, or judicial or administrative decisions, any of which could adversely affect a holder of the Bonds. Very truly yours, LN v2 05/24/12

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45 APPENDIX C Audited Financial Statement June 30, 2011

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47 COLONIAL SCHOOL DISTRICT PLYMOUTH MEETING, PENNSYLVANIA AUDIT REPORT JUNE 30, 2011

48 COLONIAL SCHOOL DISTRICT TABLE OF CONTENTS INDEPENDENT AUDITORS' REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS BASIC FINANCIAL STATEMENTS Entity-wide Financial Statements: - Statement of Net Assets - Statement of Activities Fund Financial Statements: - Balance Sheet - Governmental Funds - Reconciliation of Balance Sheet - Governmental Funds to Statement of Net Assets - Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds - Reconciliation of Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds to Statement of Activities - Budgetary Comparison Statement - General Fund - Statements of Net Assets - Proprietary Fund - Statements of Revenues, Expenses and Changes in Fund Net Assets - Proprietary Fund - Statements of Cash Flows - Proprietary Fund - Statement of Net Assets - Fiduciary Funds - Statements of Changes in Net Assets - Fiduciary Funds NOTES TO FINANCIAL STATEMENTS

49 COLONIAL SCHOOL DISTRICT TABLE OF CONTENTS SINGLE AUDIT Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133 Schedule of Expenditures of Federal Awards and Certain State Grants Notes to Schedule of Expenditures of Federal Awards and Certain State Grants Schedule of Findings and Recommendations

50 INDEPENDENT AUDITORS' REPORT Barbacane, Thornton & Company LLP 200 Springet Butldmg 34ll Silverside Road Wt!mmgton, Delaware March 17, 2012 T F Board of School Directors Colonial School District Plymouth Meeting, Pennsylvania We have audited the accompanying financial statements of the governmental activities, the businesstype activities. each major fund and the aggregate remaining fund information of Colonial School District, Plymouth Meeting, Pennsylvania, as of and for the year ended June 30, 2011, which collectively comprise the District's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the District's management. Our responsibility is to express an opinion on these financial statements based on our audit. The prior year summarized comparative information has been derived from the District's 2010 financial statements and, in our report dated March 2, 2011, we expressed unqualified opinions on the respective financial statements of the governmental activities, the businesstype activities, each major fund and the aggregate remaining fund information. 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 opinions. In our opinion, the financial statements referred to above present fairly, In all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of Colonial School District, Plymouth Meeting, Pennsylvania, as of June 30, 2011, and the respective changes in financial position and cash flows, where applicable, thereof and the budgetary comparisons for the general fund for the year then ended, in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Audffing Standards, we have also issued our report dated Mench 17, 2012 on our consideration of Colonial School District's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, a.nd not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral port of an audit performed in accordance with Government Audffing Standards and should be considered in assessing the results of our audit BARBA CANE 11-IORNIDN &COMPANY CERTII'IEO PUBLIC ACCOVNTANTS

51 Boord of School Directors Colonial School District The management's discussion and analysis on pages 3 through 13 is not a required port of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We hove applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise Colonial School District's basic financial statements. The accompanying schedule of expenditures of federal awards and certain state grants is presented for purposes of additional analysis as required by the U.S. Office of Management and Budget Circular A-133, "Audits of States, Local Governments and Nonprofit Organizations," and is not a required port of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, In our opinion, is fairly stated in all material respects in relation to the basic financial statements token as a whole. ;$~~~~7 LLP BARBACANE, TH;RNTON & COMPANY LL:-o

52 Colonial School District Management's Discussion & Analysis - Unaudited For the Year Ended June 30, 2011 Our discussion and analysis of the District's financial performance provides on overview of the District's financial activities for the fiscal year ended June 30, Financial Highlights As of June 30, 2011, the general fund reported a positive fund balance of $8.8 million, of which $4.2 million was allocated to balance the budget. Operational expenditures for exceeded revenues by $520 thousand. Actual local revenues for were $3.0 million more than the previous year, due primarily to the additional 4.5 percent increase in the local real estate fax rate. Real estate taxes collected were approximately $2.6 million above the fiscal year. Nevertheless, current real estate taxes were $94,875 under budgeted figures. Absent the real estate tax Increase, other local revenue sources increased $577,233 despite the current economic conditions. Interest earnings were $11, 902 over budgeted figures and interim real estate taxes were $41,865 over the budgeted amount. Transfer taxes were $130,448 over budget with delinquent real estate taxes $27,009 more than budgeted. Furthermore, Act 511 earned income tax revenue exceeded budget expectations by $9,906. A payment in lieu of real estate taxes (PILOT) totaling $31,584 was received from The Hill at Whitemarsh as outlined in the parameters of the Tax Increment Financing Project Plan documents. Actual expenditures were $4,083,705 (4.3 percent) under budget. Reporting the District as a Whole The statement of Net Assets and statement of Activities The Statement of Net Assets and the Statement of Activities report information about the District as a whole and about its overall activities. These statements include all the assets and liabilities of the District (except for fiduciary funds held in trust for student purposes), using the accrual basis of accounting similar to the accounting used by private sector corporations. All of the current year's revenues and expenses ore taken into consideration regardless of when cash is received or paid. These two statements report the District's net assets and changes in them during the fiscal year. The change in net assets provides the reader a tool to assist in determining whether the District's financial health is improving or deteriorating. The reader will need to consider other nonfinancial factors such as the District's property tax base, current property tax laws, student enrollment growth and facility conditions in arriving at a conclusion regarding the overall health of the District. The District's property tax base growth has slowed considerably the past few years from a high of percent, +$2.3 million, in , to an Increase of.21 percent, $574,366 for The current student population of 4,636 is estimated to increase by 90 students by the school year. The reader is invited to review additional tax. enrollment, budget and financial Information at the District's business office located in the administrative offices, which are housed in the Colonial Elementary School or online at go to Administration - Finance. Also available for review are the latest official offering statements of recent District bond issues that contain related housing, commercial and demographic information about Colonial School District. - 3-

53 Colonial School District Management's Discussion & Analysis - Unaudited (cont'd) For the Year Ended June 30, 2011 Entity-wide Financial Analysis Net assets may serve over time as a useful indicator of a government's financial position. In the case of the District, assets exceed liabilities by $ million at the close of the most recent fiscal year. In the prior year, assets exceeded liabilities by $13.8 million. The largest portion of the District's total assets reflects its investment in capital assets, 70 percent. The District uses capital assets to provide services; consequently, these assets are not available for future spending. Although the District's net assets reflect investment in its capital assets net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. The Statement of Net Assets contains information about what the District owns and owes, I.e., assets and liabilities; and what is left after assets are used to satisfy liabilities. The following table is a comparative analysis of fiscal year 2011 to 2010: STATEMENT OF NET ASSETS June 30, 2011 and 2010 Governmental Activities Business-type Activities Totals Current and other assets $21,146,505 $23,950,050 $ 193,906 $ 157,758 $21,340,411 $24,107,808 Capital assets 48,582,894 49,906, , ,492 48,850,540 50,1 96,212 Total Assets $69,729,399 $73,856,770 $ 461,552 $ 447,250 $70,190,951 $74,304,020 Current liabilities Long-term liabilities Total Liabilities $12,047,052 $12,351,628 $ 107,676 $ 102,259 $12,154,728 $12,453,887 45,576,884 47,999,521 73,868 64,908 45,650,752 48,064,429 57,623,936 60,351, , ,167 57,805,480 60,518,316 Net Assets: Invested in capital assets, net of debt Restricted for: Capital projects Unrestricted Total Net Assets 4,591, ,815 6,525,704 12,105,463 4,841,020 1,221,825 7,442,776 13,505, ,646 12, , ,492 4,859,590 5,130, ,815 1,221,825 (9,409) 6,538,066 7,433, ,083 12,385,471 13,785,704 Total Liabilities and Net Assets $69,729,399 $73,856,770 $ 461,552 $ 447,250 $70,190,951 $74,304,020-4-

54 Colonial School District Management's Discussion & Analysis - Unaudited (cont d) For the Year Ended June 30, 2011 Unrestricted accumulated net assets represent resources to be used for unanticipated fluctuations in expenses and/or revenues that can occur otter the board of school directors approves an annual budget. Such fluctuations can result in expenses that are greater than current year revenues. At such times, the District must rely on its accumulated unrestricted net assets to make up the difference. Additionally, for certain categories of expenses, the District may realize cost-saving opportunities if It prepays these expenses. If these prepayments are greater than currently realized revenues, then the District must rely on its unrestricted accumulated net assets in order to realize these savings. Finally, financial analysts view maintenance of aqequate unrestricted accumulated net assets as an important criterion when establishing the bond rating for a public school district. Total net assets of the District's governmental activities decreased by $1.4 million, and unrestricted net assets reflect a positive balance of $6.5 million. The Statement of ActiVities shows the cost of program services and the charges for services and grants offsetting those services. The table below reflects the cost of program services and the net cost of those services after taking into account the program revenues for the governmental activities. General revenues include real estate tax revenue of $66.8 million; earned income taxes and transfer taxes of $7.4 million; investment earnings of $232,899; and unrestricted state entitlements of $5.1 million that support the net cost of the District's services. STATEMENT OF ACTMTIES (expressed in thousands) For the Years Ended June 30, 2011 and 2010 Total Cost of Services 2011 Net Cost of Services 2011 Total Cost of Services 2010 Net Cost of Services 2010 Program Expenses Governmental Activities Instruction $ 58,727 $ 51,410 $ 57,870 $ 49,717 Instructional student support 7,733 7,326 7,953 7,560 Administration 5,829 5,603 5,697 5,495 Maintenance 8,866 8,314 8,889 8,347 Pupil transportation 6,318 5,177 6,027 4,842 Student activities 1,434 1,311 1,336 1,246 Community services 51 (47) 62 (61) Interest and fiscal charges Total Expenses 2,100 $ 91,058 1,954 $ 81,048 2,990 $ 90,824 2,881 $ 80,027 Business-type Activities Food Service $ 2,001 $ (317) $ 1,993 $ (344) - 5-

55 Colonial School District Management's Discussion & Analysis - Unaudited (confd) For the Year Ended June 30, 2011 The increases In the net cost of services for instruction are mainly due to the increasing salary and benefit costs as well as increases in special education needs. The Statement of Changes In Net Assets presented below shows that program revenues accounted for $11.7 million, or 12.5 percent of total revenues of $91.7 million, and general revenues accounted for $80.0 million or 87.5 percent. STATEMENT OF CHANGES IN NET ASSETS (expressed in thousands) Revenues Program revenues: Governmental Activities Business-type Activities Totals Charges for services $ 308 $ 829 $ 1,219 $ 1,185 $ 1,527 $ 2,014 Operating grants 9,473 9, ,938 10,206 Capital grants Total Program Revenues 10,010 10,797 1,684 1,649 11,694 12,446 General revenues: Property and other taxes 74,196 70,825 74,196 70,825 Grants and entitlements 5,107 5,058 5,107 5,058 Investment earnings Miscellaneous Total General Revenues 79,965 76,387 79,965 76,387 Total Revenues 89,975 87,184 1,684 1, ,833 Expenses Program expenses: Instruction 58,727 57,870 58,727 57,870 Support services: Instructional staff support 7,733 7,953 7,733 7,953 Administration 5,829 5,697 5,829 5,697 Maintenance 8,866 8,889 8,866 8,889 Pupil transportation 6,318 6,027 6,318 6,027 Student activities 1,434 1,336 1,433 1,336 Community services Interest and fiscal charges 2, ,100 2,990 Food service 2,001 1,993 2,001 1,993 Total Expenses 91,058 90,824 2, 001 1,993 93,059 92,817 Excess (Deficit) before transfers (1,083) {3,640) (317) (344) (1,400) (3,984) Transfers (317) (344) Change in Net Assets $ (1,400) $ {3,984} $ $ $ {1,400} $ {3,984} - 6-

56 Colonial School District Management's Discussion & Analysis - Unaudited (cont'd) For the Year Ended June 30, 2011 Reporting the District's Most Significant Funds Governmental Funds Most of the District's activities are reported in governmental funds, which focus on how money flows into and out of those funds and the balances l'eft at year-end that are available for spending in future periods. These funds are reported using an accounting method called modified accrual accounting, which measures cash and other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the District's general government operations and the basic services it provides. Governmental fund information helps you determine whether there are more or less financial resources available to spend in the near future to finance the District's programs. The relationship (or differences) between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds is reconciled In the basic financial statements. Proprietary Funds Proprietary funds use the accrual basis of accounting; the some as on the entity-wide statements; therefore, the statements will essentially match the business-type activities portion of the entity-wide statements. Fiduciary Funds The District is the trustee, or fiduciary, for its scholarship program and other items listed as private purpose trusts. All of the District's fiduciary activities ore reported in separate Statements of Fiduciary Net Assets and Changes in Fiduciary Net Assets. We exclude these activities from the District's other financial statements because the assets cannot be utilized by the District to finance its operations. Fund Financial statements The fund financial statements of the District's major funds provide detailed information about the most significant funds - not the District as a whole. Some funds are required to be established by State statute, while many other funds ore established by the District to help manage money tor particular purposes and compliance with various grant provisions. The District's three types of funds, governmental, proprietary and fiduciary, use different accounting approaches as further described in the notes to the financial statements. The District's governmental funds reported a combined fund balance of $10.2 million, which is a decrease of $2.2 million from the previous year's total of $12.3 million. The schedule below illustrates the fund balance and the total change in fund balances from June 30, to Fund Balance Fund Balance Increase June 30, 2011 June 30, 2010 {Decrease} General fund $ 8,842,563 $ 9,362,746 $ (520,183) Capital projects funds 350,951 1,756,564 (1,405,613) Capital reserve fund 987,815 1,221,825 {234,010} TOTAL $ 10,181,329 $ 12,341,135 $ (2,159,806) -7 -

57 Colonial School District Management's Discussion & Analysis - Unaudited (cont'd) For the Year Ended June 30, 2011 The District's reliance upon real estate tax revenues is demonstrated by the following graph that indicates 7 3 percent of total revenues for government activities come from local real estate taxes. General Fund Revenue Sources State $12,054,547 13% Federal $2,525,011 3% Local Other $9,841, % Real Estate Taxes $65,155,157 73% General Fund Total general fund expenditures exceeded revenues by $520,183 accounting for the slight decrease in the District's general fund balance. The tables and graphs that follow assist in illustrating the financial activities and balance of the general fund. REVENUES Variance Actual Actual $ % Current real estate taxes $ 64,763,293 $ 62,165,765 $ 2,597, % Interim real estate taxes 391, ,660 (223,796) % Earned income taxes Act 511 5,809,906 5,967,302 (157,396) -2.64% Transfer taxes 1,430,448 1,063, , % Delinquent taxes 727, ,745 71, % Other local revenue 1,873,831 1,432, , % State sources 12,054,547 11,829, , % Federal sources 2,525,011 2,970,237 {445,226} % TOTAL $ 89,575,909 $ 86,701,174 $ 2,874, % -8-

58 Colonial School District Management's Discussion & Analysis - Unaudited (confd) For the Year Ended June 30, 2011 Other Funds Fund balance decreases in the capital reserve fund, $234,01 0; and the capital projects fund, $1,405,613; were the result of capital improvement expenditures in Business-type Activities Business-type activities include the food service program. This program had a minimal decrease of $75 in net assets for the fiscal year. The general fund provided a contribution of $242,853 to offset the operational deficit. The general fund also provides a capital equipment contribution of $17,000 and a "nutritional subsidy" of $50,000, as the operation has moved to more nutritious meal offerings for students. General Fund Budget Information The District's budget is prepared in accordance with Pennsylvania law and is based on the modified accrued basis of accounting. The most significant budgeted fund is the General Fund. The final budget amounts for expenditures reflect required changes in functional categories due to spending patterns. Budgeted Amounts Variance Positive Expenditures Original Final {Negative} % Function Instruction: 1100 Regular programs $ 40,945,968 $ 40,881,032 $ (64,936) -0.16% 1200 Special programs 14,786,891 14,877,688 90, % 1300 Vocational programs 1,356,723 1,357, % 1400 Other instructional programs 1,874,282 1,834,333 (39,949) -2.13% 1600 Adult education 70,276 70, % Total Instruction 59,034,140 59,020,592 {13,548} -0.02% Support services: 2100 Pupil personnel services 3,178,284 3,216,525 38, % 2200 Instructional staff services 3,723,171 3,715,405 (7,766) -0.21% 2300 Administrative services 3,996,685 4,050,373 53, % 2400 Pupil health 877, ,066 (12,660) -1.44% 2500 Business services 1,115,840 1,129,017 13, % 2600 Operation and maintenance of plant services 8,585,747 8,586, % 2700 Student transportation services 6,506,853 6,509,814 2, % 2800 Information services 594, ,722 (449) -0.08% 2900 Other support services 78,694 78, % Total Support Services 28,657,171 28,745,127 87, % Operation of non-instructional activities: 3200 Student activities 1,454,482 1,466,983 12, % 3300 Community services 35,774 54,239 18, % Total Operation of Non-instructional Services 1,490,256 1,521,222 30, % 4000 Capital outlays 75,605 70,231 (5,374) -7.11% 5110 Debt service 4,567,689 4,567, % 5200 Transfers 134, , % 5900 Budgetary reserve 100,000 {100,000} -100% Total Expenditures $ 94,059,000 $ 94,059,000 $ 0.00% -9-

59 Colonial School District Management's Discussion & Analysis - Unaudited (cont'd) For the Year Ended June 30, 2011 Using spending variances in excess of $1 0,000, and using five percent as a spending tolerance, the most significant changes in the District's expenditures vs. planned expenditures were as follows: Expenditures Original Final Positive (Negative) % 3300 Community services $ 35,774 $ 54,239 $ 18, Budgetary reserve 100,000 $ (100,000) 51.62% -100% Function Description Reason for Variance 3300 Community services 5900 Budgetary reserve Transfers in for crossing guards and for parent involvement in federal program events Transfers out for new kindergarten classroom, crossing guards, special education legal services, laptops and appraisal services As the graph below illustrates, the largest portions of general fund expenditures are for salaries and fringe benefits. The District is a service entity, and as such. is labor intensive Actual Expenditures Purchased Svcs. $9,590, % Supplies $2,808,120 3% Equipment $1,191,056 Debt\ Other $4,949,815 6% Property Svcs. $1,713,820 2% Prof. Svcs. $6,319,208 7% Benefits $15,640,760 17%

60 Colonial School District Management's Discussion & Analysis - Unaudited (cont'd) For the Year Ended June 30, 2011 Object Actual Ex~end it ures Variance Positive {Negative} Salaries $ 47,883,190 $ 47,921,281 $ (38,091) Benefits 15,640,760 15,201, ,804 Professional services 6,319,208 6,166, ,195 Purchased property services 1,713,820 1,772,590 (58,769) Purchased services 9,590,123 9,427, ,336 Supplies 2,808,120 2,836,075 (27,955) Equipment 1 '191,056 1, ,695 Debt service interest and other 1,932,719 2,108,948 (176,229) Debt service principal and other 3,017,096 2,868, Total Expenditures and other Financing sources (uses) $ 90,096,092 $ 89,317,275 $ 778,818 % -0.08% 2.89% 2.48% -3.32% 1.72% -0.99% 17.42% -8.36% 5.19% 0.87% Actual expenditures for were up $778,818, less than.87 percent over the prior year. Object 200, Benefits, accounted for a $438,800 variance primarily due to an Increase in the employer's contribution to the employee retirement system. Object 300, Professional SeNices, includes contracted educational senices for special education. Object 400, Purchased Property SeNices, Includes electricity, heating oil and natural gas expenditures. Object 500, Purchased Services, Includes tuition to charter schools, approved private schools, private residential rehabilitative schools and other public schools for educational senices. Also included In Object 500 ore contracted student transportation costs. Capitol Assets The District has $48.8 million invested in capitol assets net of depreciation; $267,000 of capitol assets is located in the Food SeNice Fund. Acquisitions for governmental activities totaled $2.2 million and depreciation expense tor the year was $3.5 million. Detailed information regarding capital asset activity Is Included in the notes to the basic financial statements. Debt At June 30, 2011, the District hod $44.4 million In outstanding bonds and notes payable. Detailed Information regarding long-term debt and notes payable activity is included in the notes to the basic financial statements. No new debt has been incurred in the year. Under current state statutes, the District's general obligation bonded debt issues ore subject to legal limitation based on 225 percent of the overage revenues for the prior three years. At June 30, 2011, the District's general obligation debt was $133 million below the legal limit

61 Colonial School District Management's Discussion & Analysis - Unaudited (cont'd) For the Year Ended June 30, 2011 Factors Expected to have an Effect on Future Operations The most significant factor that will have an Impact on the future operations of the District Is the implementation of Act l of 2006, which became effective on June 27, Future real estate tax increases are limited to a state-wide index (4.1 percent tor , 2. 9 percent for , 1.4 percent for and 1. 7 percent for ) unless approved by District voters in the form of a back-end referendum during the May primary. Programs which enhance the educational and extracurricular offerings in the District could be cut in an attempt to remain under the state-wide cap on real estate tax increases. The law also accelerates the District's budget schedule by 90 days, which decreases the reliability of budgetary estimates and virtually eliminates all certainty when projecting state and federal revenues for the next fiscal year. The back-end referendum and the accelerated budget schedule is not required if the Board passes a resolution to remain under the Index. The current economic downturn continues to have a negative impact on local revenue sources that are sensitive to market conditions. Commercial and residential development has slowed, resulting in lower transfer and interim real estate taxes. Interest earnings have decreased as rates for investments are significantly lower. Act 511 earned income taxes are projected to be flat or decreasing in the near future. On a positive note, actual local revenues, minus real estate taxes, have increased $577,233 from the previous fiscal year. In the past, the District has used its fund balance to balance its budgets and to minimize tax increases to its residents (third lowest tax rate of the 21 districts in Montgomery County). Certainly not to be overlooked is the lack of sufficient state funding to the District. The District has seen special education and transportation subsidies increase minimally as the costs for these mandated services have far exceeded state reimbursement. The District receives an estimated percent of the cost for these services from the state. The economic conditions have also affected the state, creating a state budget shortfall for Escalating health care premiums and the employer's share of retirement contributions will have a significant impact on future budgets. Mandated employer retirement contributions are projected to increase significantly over the next few years. The state reimburses the District for 50 percent of its retirement contribution costs. Healthcare costs continue to rise and the school district is examining self funding and pooling arrangements to mitigate these increases. Federal stimulus funds total approximately $1.7 million that the District received over a two-year period in and wui not be available for

62 Colonial School District Management's Discussion & Analysis - Unaudited (cont'd) For the Year Ended June 30, 2011 Contacting the District Financial Management Office Our financial report is designed to provide our citizens, taxpayers, parents, students, investors and creditors with a general overview of the District's finances and to show the Board's accountability for the money it receives. If you have questions about this report or wish to request additional financial information, please contact the district business office at Colonial School District, 230 Flourtown Road, Plymouth Meeting, PA 19462, (61 0) extension 2121 or reference the District's website at go to Administration - Finance

63 COLONIAL SCHOOL DISTRICT STATEMENT OF NET ASSETS JUNE 30, 2011 (With Summarized Comparative Data for June 30, 2010) Governmental Business-type Totals Activities Activities ASSETS Cash and cash equivalents $ 9,157,799 $ 347,144 $ 9,504,943 $ 11,556,123 Investments 6, ,118,845 6,700,215 Taxes receivable 2,849,998 2,849,998 2,409,877 Internal balances 315,515 (315,515} Note receivable 626, , ,141 Due from other governments 1,617,048 89,600 1,706,648 1,675,750 Other receivables 305,398 20, , ,088 Inventories 52,667 52,667 56,991 Issuance costs 154, , ,623 Land 6,543,005 6,543,005 6,543,005 Construction-in-progress 81,103 81, ,330 Site improvements 8, ,032,443 7,381,359 Buildings and improvements 66,747,514 66,747,514 65,751,179 Furniture and equipment 14,825, ,560 15,489,262 14,518,415 Accumulated depreciation i47,646,873~!j95,914~ (48, ~ (44,457,076} TOTAL ASSETS $ 69,729,399 $ 461,552 $ 70,190,951 $ 74,304,020 LIABILITIES AND NET ASSETS LIABILITIES: Accounts payable $ 2,142,131 $ 10,074 $ 2,152,205 $ 2,986,715 Accrued salaries and benefits 6,115,641 5,368 6,121,009 5,671,871 Other liabilities 418, , ,004 Accrued interest payable 249, , ,801 Deferred revenue 63,833 63,833 62,41 1 Judgment payable 64,530 64, ,885 Long-term liabilities Portion due or payable within one year: Bonds payable 2,935,000 2,935,000 2,360,000 Less: Bond discounts (34,113) {34,113) {34,113} Less: Deferred amounts on refunding (52,919) {52,919) (52,919) Add: Bond premiums 142, ,197 Note payable 30,000 30,000 29,000 Accumulated compensated absences/ early retirement incentive 36, , ,035 Portion due or payable after one year: Bonds payable 41,425,000 41,425,000 44,360,000 Less: Bond discounts {192,735) {192,735) (226,848) Less: Deferred amounts on refunding (245,838} (245,838) (298,757) Add: Bond premiums 371, , ,704 Note payable 30,000 Other post-employment benefits 1,227,277 1,227, ,544 Accumulated compensated absences/ early retirement incentive 2,991,673 73,868 3,065,541 2,885,786 TOTAL LIABILITIES 57,623, ,544 57,805,480 60,518,316 NET ASSETS: Invested in capital assets, net of related debt 4,591, ,646 4,859,590 5,130,512 Restricted for capital assets 987, ,815 1,221,825 Unrestricted 6,525,704 12,362 6,538,066 7,433,367 TOTAL NET ASSETS 12,105, ,008 12, ,785,704 TOTAL LIABILITIES AND NET ASSETS $ 69,729,399 $ 461,552 $ 70,190,951 $ 74,304,020 The accompanying notes are an integral part of these financial statements

64 COLONIAL SCHOOL DISTRICT STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2011 (With Summarized Comparative Data for the Year Ended June 30, 2010) Program Revenues Net ~Ex2ense} Revenue and Changes in Net Assets Operating Capital Business- Charges for Grants and Grants and Governmental type Totals Ex~enses Services Contributions Contributions Activities Activities GOVERNMENTAL ACTIVITIES Instruction $ 58,727,228 $ 135,930 $ 7,181,067 $ $(51,410,231) $ $ (51,410,231) $ (49,717,483) Instructional student support 7,732, ,221 (7,325,724) (7,325,724) (7,560,166) Administrative and financial support services 5,828, ,772 (5,602, 796) (5,602,796) (5,494,800) Operation and maintenance of plant services 8,865, , ,357 (8,314,308) (8,314,308) (8,346,628) Pupil transportation 6,318,086 1, (5,176,982) (5, 176,982) (4,842,212) Student activities 1, , (1,310,813) (1,310,813) (1,245,972) Community services 51, ,900 46,900 61,359 Interest on long-term debt 2,100, ,888 (1,953,645} (1,953,645} (2,880,691) TOTAL GOVERNMENTAL ACTIVITIES 91,058, ,245 9,473, ,357 (81,047,599} (81,047,599} (80,026,593} BUSINESS-TYPE ACTIVITIES Food service 2,000,923 1,218, ,355 (316,782) (316,782) 1344,491) TOTAL BUSINESS-TYPE ACTIVITIES 2,000,923 1,218, ,355 (316,782) (316,782} (344,491} TOTAL PRIMARY GOVERNMENT $ 93,059,368 $ 1,527,031 $ 9,938,599 $ 229,357 (81,047,599) (316,782) (81,364,381) (80,371,084) GENERAL REVENUES Property taxes levied for general purposes 66,764,881 66,764,881 63,581,912 Taxes levied for specific purposes 7,431,151 7,431,151 7,242,912 Grants and entitlements not restricted to specific programs 5,106,314 5,106,314 5,057,808 Investment earnings 232, , Miscellaneous 428, , ,034 TRANSFERS AND CAPITAL CONTRIBUTIONS (316,693} 316,693 GENERAL REVENUES AND TRANSFERS 79, ,964,148 76,386,854 CHANGE IN NET ASSETS (1.400, 158) (75) (1,400,233) (3,984,230) NET ASSETS, BEGINNING OF YEAR 13,505, ,083 13,785,704 17,769,934 NET ASSETS, END OF YEAR $ 12,105,463 $280,008 $ 12,385,471 $ 13,785,704 The accompanying notes are an integral part of these financial statements

65 COLONIAL SCHOOL DISTRICT BALANCE SHEET-GOVERNMENTAL FUNDS JUNE 30, 2011 (With Summarized Comparative Data for June 30, 2010) Major Funds General Capital Reserve Capital Projects Totals Fund Fund Fund ASSETS Cash and cash equivalents $ 7,710,660 $ 907,394 $ 539,745 $ 9,157,799 $ 11,349,976 Investments 5,872, ,935 6,118,845 6,700,215 Taxes receivable 2,849,998 2,849,998 2,409,877 Due from other funds 317, , ,983 Due from other governments 1,617,048 1,617,048 1,619,307 Note receivable 626, , ,141 Other receivables 305, , ,928 TOTAL ASSETS $ 19,300,790 $ 1,153,329 $ 539,745 $ 20,993,864 $ 23,771,427 LIABILITIES AND FUND BALANCES LIABILITIES: Accounts payable $ 1,790,103 $ 165,514 $ 186,514 $ 2,142,131 $ 2,975,178 Due to other funds 2,280 2,280 Accrued salaries and benefits 6,115,641 6,115,641 5,670,549 Accumulated compensated absences/ early retirement incentive 36,833 36, ,046 Judgments payable 64,530 64, ,885 Other liabilities 418, , ,004 Deferred revenues 2,032,500 2,032,500 1,875,630 TOTAL LIABILITIES 10,458, , ,794 10,812,535 11,430,292 FUND BALANCES: Restricted 987, ,951 1,338,766 2,978,389 Assigned 4,240,719 4,240,719 4,500,000 Unassigned 4,601,844 4,601,844 4,862,746 TOTAL FUND BALANCES 8,842, , ,951 10,181,329 12,341,135 TOTAL LIABILITIES AND FUND BALANCES $ 19,300,790 $ 1,153,329 $ 539,745 $ 20,993,864 $ 23,771,427 The accompanying notes are an integral part of these financial statements

66 COLONIAL SCHOOL DISTRICT RECONCILIATION OF BALANCE SHEET GOVERNMENTAL FUNDS TO STATEMENT OF NET ASSETS JUNE 30, 2011 TOTAL GOVERNMENTAL FUND BALANCES $ 10,181,329 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. These assets consist of: Land Construction-in-progress Site improvements Buildings and improvements Furniture and equipment Accumulated depreciation $ 6,543,005 81,103 8,032,443 66,747,514 14,825,702 (47,646,873) 48,582,894 Some liabilities are not due and payable in the current period and therefore are not reported in the funds. Those liabilities consist of: Bonds payable Note payable Other post-employment benefits Accumulated compensated absences/early retirement incentive Accrued interest payable (44,360,000) (30,000) (1,227,277) (2,991,673) (249,132) {48,858,082) Refunded and new debt and issuance costs resulted in deferred charges which will be amortized over the life of the new debt but do not represent current rights. 166,822 Some of the District's revenues will be collected after year end but are not available soon enough to pay for the current period's expenditures and therefore are deferred in the funds. 2,032,500 NET ASSETS OF GOVERNMENTAL ACTIVITIES $ 12,105,463 The accompanying notes are an integral part of these financial statements

67 COLONIAL SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES- GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2011 (With Summarized Comparative Data for the Year Ended June 30, 2010) Major Funds Capital Reserve Capital Projects Totals General Fund Fund Fund REVENUES: Local sources $ 74,996,351 $ 5,685 $ 7,159 $ 75,009,195 $ 72,013,763 State sources 12,054,547 12,054,547 11,829,963 Federal sources 2,525,011 2,525,011 2,970,237 TOTAL REVENUES 89,575,909 5,685 7,159 89,588,753 86,813,963 EXPENDITURES: Current: Instruction 56,393,693 56,393,693 55,707,918 Support services 27,1 41,270 5,454 9,760 27,156,484 27,368,625 Operation of noninstructional services 1,436,334 1,436,334 1,448,761 Capital outlays 387, ,401 1,403,012 2,017,804 4,745,723 Debt service 4,482,468 4,482,468 4,431,784 TOTAL EXPENDITURES 89,841, ,855 1,412,772 91,486,783 93,702,811 DEFICIENCY OF REVENUES UNDER EXPENDITURES (265,247} {227,170} p,405,613} (1,898,030} (6,888,848} OTHER FINANCING SOURCES (USES): Proceeds from extended financing 87,160 87,160 17,928,557 Premium on refunding 150,001 Discount on refunding (152,549) Refund of prior year receipts (32,243) (32,243) (32,243) Payment to refunding agent (17,743,285) Transfers in 57,019 Transfers out (309,853} (6,840} ( } (401,451} TOTAL OTHER FINANCING USES {254,936} (6,840} {261,776} {193,951} NET CHANGE IN FUND BALANCES (520,183) (234,010) (1,405,613} (2,159,806) (7,082,799) FUND BALANCES, BEGINNING OF YEAR 9,362,746 1,221,825 1,756,564 12,341,135 19,423,934 FUND BALANCES, END OF YEAR $ 8,842,563 $ 987,815 $ 350,951 $ 10,181,329 $ 12,341,135 The accompanying notes are an integral part of these financial statements

68 COLONIAL SCHOOL DISTRICT RECONCILIATION OF STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS TO STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2011 NET CHANGE IN FUND BALANCES- GOVERNMENTAL FUNDS $ (2, 159,806) Amounts reported for governmental activities in the statement of activities are diffferent because: Capital outlays are reported in governmental funds as expenditures which are reported either as District-wide (capital outlays) or function-specific (i.e. instruction, pupil services). However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which depreciation ($3,553,961) exceeded capital outlays ($2,230, 135) in the period. Because some property taxes will not be collected for several months after the District's fiscal year ends, they are not considered as "available" revenues in the governmental funds. Deferred tax revenues increased. by this amount this year. Repayment of principal is an expenditure in the governmental funds but reduces the liability in the statement of net assets. This is the amount of debt repayments made during the year. Governmental funds report issuance costs, bond discounts and deferred amounts on refunding as expenditures. However, these amounts are reported on the statement of net assets as deferred charges and are amortized over the life of the debt. This is the amount of amortization recognized on issuance costs, bond discounts and deferred amounts on refunding during the year. In the statement of activities, certain operating expenses-compensated absences (vacations and sick leave) and special termination benefits (early retirement)-are measured by the amounts earned during the year. In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used (essentially, the amounts actually paid). This is the amount by which current period amounts paid exceeded current period amounts earned. Interest on long-term debt in the statement of activities differs from the amount reported in the governmental funds because interest is recognized as an expenditure in the funds when it is due, and thus requires the use of current financial resources. In the statement of activities, however, interest expense is recognized as the interest accrues, regardless of when it is due. (1,323,826) 156,870 2,389,000 31,463 (597,528) 103,669 CHANGE IN NET ASSETS OF GOVERNMENTAL ACTIVITIES $ (1,400,158) The accompanying notes are an integral part of these financial statements

69 COLONIAL SCHOOL DISTRICT BUDGETARY COMPARISON STATEMENT- GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2011 Vanance with Final Budget Bud!eted Amounts Actual Positive Ori9inal Final (GAAP Basis~ (Ne9ative) REVENUES Local sources $ 75, $ 75,009,256 $74,996,351 $ (12,905) State sources 13,352,542 13, ,547 (1,297,995) Federal sources 1,110,042 1,110,042 2, ,414,969 TOTAL REVENUES 89,471,840 89,471,840 89,575, ,069 EXPENDITURES Instruction: Regular programs 40,945,968 40, ,733,745 2, Special programs 14,786,891 14,877,688 14,515, ,871 Vocational programs 1,356,723 1,357,263 1,357,263 Other instructional programs 1,874,282 1,834,333 1,710, ,504 Adult education 70,276 70,276 76,039 (5,763) Total instruction 59,034,140 59,020,592 56,393,693 2,626,899 Support services: Pupil personnel services 3,178,284 3,216,525 3,033, ,796 Instructional staff services 3,723,171 3,715,405 3,468, ,333 Administrative services 3,996,685 4,050,373 3,906, ,423 Pupil health 877, , ,257 37,809 Business services 1 '115,840 1,129,017 1,087,302 41,715 Operation and maintenance of plant services 8,585,747 8,586,511 7,909, ,289 Student transportation services 6,506,853 6,509,814 6,360, ,875 Information services 594, , ,986 50,736 Other support services 78,694 78,694 4,813 73,881 Total Support Services 28,657,171 28,745,127 27,141,270 1,603,857 Operation of noninstructional activities: Student activities 1,454,482 1,466,983 1, ,456 Community services 35,774 54,239 51,807 2,432 Total Operation of Noninstructional Services 1,490,256 1,521,222 1,436,334 84,888 Capital outlays 75,605 70, ,391 (317,160) Debt service 4, ,567,689 4,482,468 85,221 TOTAL EXPENDITURES 93,824,861 93,924,861 89,841,156 4,083,705 DEFICIENCY OF REVENUES UNDER EXPENDITURES (4,353,021) (4,453,021) (265,247) 4,187,774 OTHER FINANCING SOURCES (USES) Transfers out {134,139) ( ) (309,853) (175, 714) Proceeds of extended financing 87,160 87,160 Refund of prior year receipts (32.243) (32,243) Budgetary reserve (100,000) TOTAL OTHER FINANCING USES (234,139) (134,139) (254,936) (120,797) NET CHANGE IN FUND BALANCE (4,587,160) (4,587,160) ( ) 4,066,977 FUND BALANCE, BEGINNING OF YEAR 9,362,746 9,362,746 9,362,746 FUND BALANCE, END OF YEAR $ 4,775,586 $ 4,775,586 $ 8, $ 4,066,977 The accompanying notes are an integral part of these financial statements

70 COLONIAL SCHOOL DISTRICT STATEMENTS OF NET ASSETS- PROPRIETARY FUND JUNE 30,2011 AND 2010 Major Fund Food Service Fund ASSETS CURRENT ASSETS: Cash and cash equivalents $ 347,144 $ 206,147 Due from other governments 89,600 56,443 Other receivables 20,010 18,160 Inventories 52,667 56,991 Total Current Assets 509, ,741 CAPITAL ASSETS: Furniture and equipment 663, ,656 Accumulated depreciation {395,914~ {364, 164~ Capital Assets, Net 267, ,492 TOTAL ASSETS $ 777,067 $ 627,233 LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Accounts payable $ 10,074 $ 11,537 Due to other funds 315, ,983 Accrued salaries and benefits 5,368 1,322 Accumulated compensated absences 28,401 26,989 Deferred revenue 63,833 62,411 Total Current Liabilities 423, ,242 NONCURRENT LIABILITIES: Accumulated compensated absences 73,868 64,908 Total Noncurrent Liabilities 73,868 64,908 Total Liabilities 497, ,150 NET ASSETS (DEFICIT): Invested in capital assets, net of related debt 267, ,492 Unrestricted (Deficit) 12,362 {9,409~ Total Net Assets 280, ,083 TOTAL LIABILITIES AND NET ASSETS $ 777,067 $ 627,233 The accompanying notes are an integral part of these financial statements

71 COLONIAL SCHOOL DISTRICT STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS PROPRIETARY FUND FOR THE YEARS ENDED JUNE 30, 2011 AND 2010 MaJor Fund Food Service Fund 2011 OPERATING REVENUES Food service revenues $ 1,218,786 $ Total Operating Revenues 1,218,786 OPERATING EXPENSES Salaries 830,358 Employee benefits 293,246 Supplies 742,630 Repairs and maintenance 14,207 Other operating expenses 88,732 Depreciation 31,750 Total Operating Expenses 2,000,923 OPERATING LOSS {782, 137~ NONOPERATING REVENUES Earnings on investments 14 State sources 95,901 Federal sources 369,454 Total Nonoperating Revenues 465, ,185,154 1,185, , , ,090 17,689 99,696 34,243 1,993,491 {808,337) 59 93, , ,905 LOSS BEFORE TRANSFERS AND CAPITAL CONTRIBUTIONS p16,768~ (344,432) Transfers in 309,853 Capital contribution from capital projects 6,840 Total Transfers and Capital Contributions 316, ,495 5, ,432 CHANGE IN NET ASSETS (75) NET ASSETS, BEGINNING OF YEAR 280,083 NET ASSETS, END OF YEAR $ 280,008 $ 280, ,083 The accompanying notes are an integral part of these financial statements

72 COLONIAL SCHOOL DISTRICT STATEMENTS OF CASH FLOWS PROPRIETARY FUND FOR THE YEARS ENDED JUNE 30, 2011 AND CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers Payments to suppliers Payments to employees Payments for other operating expenses NET CASH USED BY OPERATING ACTIVITIES CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: State sources Federal sources Transfers in NET CASH PROVIDED BY NONCAPIT AL FINANCING ACTIVITIES CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Acquisition of capital assets NET CASH USED BY CAPITAL AND RELATED FINANCING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES: Earnings on Investments NET CASH PROVIDED BY INVESTING ACTIVITIES NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR CASH AND CASH EQUIVALENTS, END OF YEAR RECONCILIATION OF OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIES: Operating loss Adjustments to reconcile operating loss to net cash used by operating activities: Depreciation Commodities used (Increase) Decrease in: other receivables Inventories Increase (Decrease) in: Accounts payable Due to other funds Accrued salaries and benefits Accumulated compensated absences Deferred revenue NET CASH USED BY OPERATING ACTIVITIES SUPPLEMENTAL DISCLOSURE: NONCASH NONCAPITAL FINANCING ACTIVITY: USDA donated commodities NONCASH CAPITAL AND RELATED FINANCING ACTIVITY: Capital contribution from capital projects $1,218,358 {561,480) ( 1 ' 1 09, 187) (1 02,939) (555,248) 92, , , ,295 {3.064) (3,064) , ,147 $ 347,144 $ (782, 137) 31,750 42,756 (1,850) 4,324 (1,463) 135,532 4,046 10,372 1,422 $ (555,248) $ 42,756 $ 6,840 Major Fund Food Service Fund 2010 $1,188,880 (770,803) (1,081 '170) (117,385) (780,478) 98, , , ,928 {8,247~ (8,247) (3,738) 209,885 $ 206,147 $ (808,337) 34,243 55, (7,496) (65,420) (146) 6,749 3,468 $ (780,478) $ 56,481 $ 5,937 The accompanying notes are an integral part of these financial statements

73 COLONIAL SCHOOL DISTRICT STATEMENT OF NET ASSETS FIDUCIARY FUNDS JUNE 30, 2011 Private- Purpose Trust Agency Fund ASSETS Cash Investments TOTAL ASSETS $ 4, ,001 $ 363,731 $ 294,668 $ 294,668 LIABILITIES AND NET ASSETS LIABILITIES: Due to student groups $ $ 294,668 NET ASSETS: Reserved for trust 363,731 TOTAL LIABILITIES AND NET ASSETS $ 363,731 The accompanying notes are an integral part of these financial statements. -24-

74 COLONIAL SCHOOL DISTRICT STATEMENTS OF CHANGES IN NET ASSETS- FIDUCIARY FUNDS FOR THE YEARS ENDED JUNE 30,2011 AND 2010 ADDITIONS 2011 Private - Puq:~ose Trust 2010 Local contributions $ 37,329 $ Investment earnings 3,704 TOTAL ADDITIONS 41, , ,434 DEDUCTIONS Fees paid and scholarships awarded 13,420 TOTAL DEDUCTIONS 13,420 CHANGE IN NET ASSETS 27,613 NET ASSETS, BEGINNING OF YEAR 336,118 NET ASSETS, END OF YEAR $ 363,731 $ 8,350 8, ,084 25, ,118 The accompanying notes are an integral part of these financial statements

75 COLONIAL SCHOOL DISTRICT NOTES TO FINANCIAl STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Colonial School District (the "District") operates five elementary schools, one middle school and one senior high school to provide education and related services to the residents of Plymouth and Whitemarsh Townships and the Borough of Conshohocken. The District operates under current standards prescribed by the Pennsylvania Department of Education in accordance with the provisions of the School laws of Pennsylvania as a school district of the third class. The District operates under a locally elected nine-member Board form of government. The financial statements of the District have been prepared in accordance with generally accepted accounting principles ("GAAP") as applied to governmental units. The Governmental Accounting Standards Board ("GASB") is the authoritative standard-setting body for the establishment of governmental accounting and financial reporting principles. The more significant of these accounting policies ore as follows: Reporting Entity GASB No. 14, "The Financial Reporting Entity," as amended by GASB Statement No. 39, established the criteria for determining the activities, organizations and functions of government to be Included in the financial statements of the reporting entity. In evaluating the District as a reporting entity, management has addressed all potential component units which may or may not fall within the District's financial accountability. The criteria used to evaluate component units for possible inclusion os part of the District's reporting entity are financial accountability and the nature and significance of the relationship. The District is considered to be an independent reporting entity and has no component units. Basis of Presentation Entity-wide Financial Statements The statement of net assets and the statement of activities display information about the District as a whole. These statements distinguish between activities that are governmental and those that are considered business-type. These statements include the financial activities of the primary government, except for fiduciary funds. The entity-wide financial statements ore prepared using the economic resources measurement focus and the accrual basis of accounting as further defined under proprietary funds below. This is the same approach used in the preparation of the proprietary fund financial statements but differs from the manner in which governmental fund financial statements are prepared. Therefore, governmental fund financial statements include a reconciliation with brief explanations to better identity the relationship between the entity-wide statements and the statements of governmental funds. -26-

76 COLONIAl SCHOOl DISTRICT NOTES TO FINANCIAl STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POliCIES (cont'd) The entity-wide statement of activities presents a comparison between expenses and program revenues for each function of the business-type activities of the District and for each governmental program. Expenses are those that are specifically associated with a service or program and are, therefore, clearly identifiable to a particular function. Program revenues Include charges paid by the recipients of the goods or services offered by the programs and grants, and contributions that are restricted to meeting the operational or capital requirements of a particular function. Revenues which are not classified as program revenues are presented as general revenues. The comparison of program revenues and expenses identifies the extent to which each function is self-financing or draws from the general revenues of the District. Except for interfund activity and balances between the funds that underlie governmental activities and the funds that underlie business-type activities, which are reported as transfers and internal balances, the effect of interfund activity has been removed from these statements. The entity-wide financial statements report net assets in one of three components. Invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation and reduced by the outstanding balances of borrowing attributable to acquiring, constructing or improving those assets. Net assets are reported as restricted when constraints placed on net asset use are either externally imposed by creditors (such as through debt covenants). grantors, contributors, or laws or regulations of other governments or imposed by law through constitutional p rovisions or enabling legislation. Those restrictions affect net assets arising from special revenue and capital projects funds. Unrestricted net assets consist of net assets that do not meet the definition of "invested in capital assets, net of related debt" or "restricted." Fund Financial Statements During the school year, the District segregates transactions related to certain District functions or activities in separate funds In order to aid financial management and to demonstrate legal compliance. Fund financial statements report detailed information about the District. The focus of governmental and enterprise fund financial statements is on major funds rather than reporting funds by type. Each major fund is presented in a separate column. The single nonmajor governmental fund is presented in a single column on the governmental fund financial statements. Fiduciary fund financial statements are presented by fund type. Governmental Funds All governmental funds are accounted for using the modified accrual basis of accounting and the current financial resources measurement focus. Under this basis, revenues are recognized in the accounting period in which they become measurable and available. Expenditures are recognized in the accounting period in which the fund liability is incurred, if measurable. The District reports the following major governmental funds: - 27-

77 COLONIAL SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) The General Fund is the government's primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for In another fund. The Capital Reserve Fund and Capital Projects Fund ore used to account for the acquisition, construction and renovation of major capital facilities and their related capital assets. Revenue Recognition In applying the "susceptible to accrual concept" under the modified accrual basis, revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers tax revenue to be available if collected within 60 days of the end of the fiscal period. Revenue from federal, state and other grants designated for payment of specific school district expenditures is recognized when the related expenditures ore incurred; accordingly, when such funds are received, they ore reported as deferred revenues until earned. Other miscellaneous receipts ore recorded as revenue when received in cash because they generally ore not measurable until actually received. Expenditure Recognition The measurement focus of governmental fund accounting is on decreases in net financial resources (expenditures) rather than expenses. Most expenditures ore measurable and are recorded when the related fund liability is incurred. However, principal and interest on general long-term debt which has not matured are recognized when paid. Liabilities for compensated absences and special termination benefits ore recognized as fund liabilities to the extent they mature each period. Allocations of costs, such as depreciation and amortization, ore not recognized in the governmental funds. Proprietary Fund Proprietary funds ore accounted for using the accrual basis of accounting. These funds account for operations that are financed primarily by user charges. The economic resource focus concerns determining costs as a means of maintaining the capital investment and management control. Revenues are realized when they ore earned and expenses ore recognized when they ore incurred. Allocations of certain costs, such as depreciation, ore recorded in proprietary funds. The District does not attempt to allocate all building-wide costs to the proprietary fund. Thus, general fund expenditures which partially benefit the proprietary fund are not entirely recognized with the proprietary fund. Similarly, the proprietary fund does not recognize a cost for the building space it occupies

78 COlONIAl SCHOOl DISTRICT NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) These funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods In connection with the proprietary fund's principal ongoing operations. The principal operating revenues of the District's proprietary fund are food service charges. Operating expenses for the District's proprietary fund include food production costs, supplies and administrative costs. All revenues or expenses not meeting this definition are reported as nonoperating revenues and expenses. Private-sector standards of accounting and financial reporting issued prior to December 1, 1989 are followed in both the entity-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the GASB. Governments also have the option of following subsequent private-sector guidance for their business-type activities and proprietary funds, subject to this same limitation. The District has elected not to follow subsequent private-sector guidance. Fiduciary Funds Fiduciary funds account for the assets held by the District as a trustee or agent for individuals, private organizations and/or governmental units and are, therefore, not available to support the District's own programs. The District accounts for these assets in a private-purpose trust and agency fund. The private-purpose trust fund accounts for activities in various scholarship accounts, whose sole purpose Is to provide annual scholarships to particular students as described by donor stipulations. The agency fund accounts for funds held on behalf of students of the District. The measurement focus and basis of accounting for the private-purpose trust Is the same as for proprietary funds, while the agency fund is custodial in nature (assets equal liabilities) and does not involve measurement of results of operations. Cash and Cash Equivalents The District's cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition. Receivables and Payables Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either due to/from other funds (i.e., the current portion of interfund loans) or advances to/from other funds (i.e., the noncurrent portion of interfund loans). Any residual balances outstanding between the governmental activities and business-type activities are reported in the entity-wide financial statements as Internal balances. The District experiences very small losses from uncollectible property taxes. Property taxes constitute a lien against real property and usually can be collected in full when title transfers. Only balances that remain after tax sales ore written off each year. Accordingly, an allowance for doubtful accounts has not been established by the District for property taxes receivable. -29-

79 COLONIAL SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS NOTE l SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) Property Taxes Taxes are levied on July 1 and are payable in the following periods: July 1 - August 31 September 1 - October 31 November 1 to collection January 15 Discount period, 2% of gross levy Face Period Penalty Period, 1 0% of gross levy - lien Date Real estate taxes for the District are collected from the Borough of Conshohocken and the Townships of Plymouth and Whitemarsh. The tax on real estate for public school purposes for fiscal was mills ($ per $1.000 of assessed valuation) as levied by the Board. Assessed valuations of property are determined by the Montgomery County Board of Assessments. Taxes from the Board of Conshohocken are collected by an elected tax collector, while the District is responsible for the collection of taxes from the Townships of Plymouth and Whitemarsh. Prepaid Items and Inventories Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both entity-wide and fund financial statements. All Inventories are valued at the lower of cost (first-in, first-out method) or market. Capital Assets Capital assets, which include property, plant and equipment, are reported in the applicable governmental or business-type activities columns in the entity-wide and proprietary fund financial statements. Capital assets are defined by the District as assets with an Initial, Individual cost of more than $5,000, and critical control assets as defined by District policy. Such assets are recorded at historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed, Inclusive of ancillary costs. Property, plant and equipment of the District are depreciated using the straight-line method over the following estimated useful lives: Buildings and improvements Site improvements Furniture and equipment Vehicles library books 50 years years 5-20 years 10 years 7 years -30 -

80 COlONIAL SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) Compensated Absences District policies permit employees to accumulate earned but unused vacation, personal and sick days as stipulated In each bargaining unit's contract. The liability for these compensated absences is recorded as long-term debt in the entity-wide financial statements. The current portion of this debt is estimated based on historical trends. In the fund financial statements, governmental funds report only the compensated absence liability payable from expendable available financial resources. long-term Obligations In the entity-wide and proprietary fund financial statements, long-term debt and other long-term obligations are reported as liabilities. Bond premiums and discounts are deferred and amortized over the life of the bonds. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. Deferred amounts on refunding are recorded as a decrease to debt payable and amortized over the life of the old debt or the life of the new debt, whichever is shorter. All amounts are amortized using the straight-line method. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources and uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures, except for refundings paid from proceeds which are reported as other financing uses. Net Assets Net assets represent the difference between assets and liabilities. Net assets Invested in capital assets consist of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction or improvement of those assets. Net assets are reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the Center or through external restrictions imposed by creditors, grantors, or laws or regulations of other governments. When both restricted and unrestricted resources are available for use, it is the District's policy to use restricted resources first and then unrestricted resources as they are needed. Fund Balances As of June 30, 2011, fund balances of the governmental funds are classified, if applicable, as follows: Nonspendab/e- amounts that cannot be spent because they are in nonspendable form (e.g., Inventory) or legally or contractually required to be maintained intact (e.g., principal of a permanent fund)

81 COLONIAL SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) Restricted- amounts limited by external parties, or legislation (e.g., grants or donations and constraints imposed through a debt covenant). Committed- amounts limited by Board policy (e.g., future anticipated costs). These constraints can be removed or changed by equal levels of action. Action or constraint resources should occur prior to fiscal year end. Assigned-amounts that are intended for a particular purpose such as future benefits funding or segregation of an amount intended to be used at some time in the future. Unassigned- amounts available for consumption or not restricted in any manner. As of June 30, 2011, fund balances are composed of the following: Restricted: Capital Assigned Unassigned $ General Fund 4,240,719 4,601,844 Capital Projects Fund $ 997,815 Capital Reserve Fund $ 350,951 Total Governmental Funds $ 1,338,766 4,240,719 4,601,844 Total Fund Balances $ 8,842,563 $ 997,815 $ 350,951 $ 10,181,329 When an expenditure is incurred for purposes for which both restricted and unrestricted fund balances are available, the District considers restricted funds to have been spent first. When an expenditure is incurred for which committed, assigned or unassigned fund balances are available. the District considers amounts to have been spent first out of committed funds, then assigned funds and, finally, unassigned funds, as needed, unless the Board has provided otherwise in its commitment or assignment actions. The beginning fund balance of the general fund (increase) and the June 30, nonmajor athletic fund (decrease) were restated by $39,821 for the inclusion of the athletic fund in the general fund. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates

82 COLONIAL SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS NOTE l SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) Comparative Data Comparative totals for the prior year have been presented In the accompanying financial statements in order to provide an understanding of changes In the District's financial position and operations. Certain amounts presented in the prior year have been reclassified in order to be consistent with the current year's presentation. However, presentation of prior year totals by fund and activity type have not been presented in each of the statements since their inclusion would make the statements unduly complex and difficult to read. Summarized comparative information should be read in conjunction with the District's financial statements for the year ended June 30, 2010, from which the summarized information was derived. NOTE 2 STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Budgetary Information An annual budget is adopted prior to the beginning of each year for the general fund on the modified accrual basis of accounting. The general fund is the only fund for which a budget is legally required, although project-length financial plans are adopted for all capital projects funds. The District is required to publish notice by advertisement at least once in two newspapers of general circulation in the municipalities In which it is located, and within 20 days of final action, that the proposed budget has been prepared and is available for public inspection at the administrative offices of the District. Notice that public hearings will be held on the proposed operating budget must be included in the advertisement: such hearings are required to be scheduled at least 1 0 days prior to the date final action on adoption is taken by the Board. Legal budgetary control is maintained at the sub-function/major object level. The Board may make transfers of funds appropriated to any particular item of expenditure by legislative action In accordance with the Pennsylvania School Code. Management may amend the budget at the sub-function/sub-object level without Board approval. Appropriations lapse at the end of the fiscal period. Budgetary Information reflected in the financial statements is presented at or below the level of budgetary control and includes the effect of approved budget amendments. Excess of Expenditures Over Appropriations General fund functions incurred expenditures in excess of appropriations in the following amounts for the year ended June 30, 2011 : Adult education Capital outlays Transfers out $ 5,763 $ 317,160 $175,714 The excess of expenditures over appropriations was financed by other expenditure category appropriations which did not exceed their budgeted amounts. -33-

83 COLONIAL SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS NOTE 3 DEPOSITS AND INVESTMENTS Deposits Custodial Credit Risk Custodial credit risk is the risk that In the event of a bank failure, the government's deposits may not be returned. At June 30, 2011, the carrying amount of the District's deposits was $9,804,341 and the bank balance was $10,061,337. Of the bank balance, $250,000 was covered by federal depository insurance and $9,720,901 was exposed to custodial credit risk because, in accordance with Act 72 of the Commonwealth of Pennsylvania, it was uninsured and the collateral held by the depository's agent was not in the District's name. The remaining cash deposits ($90,436) of the District are in the Pennsylvania School District Liquid Asset Fund ("PSDLAF") and the Pennsylvania Treasurer's Program for Local Governments ("INVEST''). Although not registered with the Securities and Exchange commission and not subject to regulatory oversight, PSDLAF and INVEST act like money market mutual funds in that its objective is to maintain a stable net asset value of $1 per share, is rated by a nationally recognized rating organization and is subject to an independent annual audit. Investments Statutes authorize the District to invest In U.S. Treasury bills, time or share accounts of Institutions insured by the Federal Deposit Insurance Corporation or in certificates of deposit when they are secured by proper bond or collateral, repurchase agreements, state treasurer's investment pools or mutual funds. As of June 30, 2011, the District had the following investments: Certificates of deposit due within one year - collateral held by the pledging bank's agent in the District's name PSDLAF PAINVEST Total $ 6,231, ,906 $ 6,477,846 Interest Rate Risk The District manages its exposure to fair value losses arising from increasing interest rates by Investing in securities with maturity dates under one year. At June 30, 2011, the District's investments in certificates of deposit had maturity dates of less than one year. Credit Risk The District limits its investment choices to those with the highest credit ratings. As of June 30, 2011, PSDLAF and INVEST were rated as AAA by a nationally recognized statistical rating organization. -34-

84 COLONIAL SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS NOTE 4 DEFERRED REVENUES Governmental funds report deferred revenue in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. Governmental funds also defer revenue recognition of resources that have been received but not yet earned. At the end of the current fiscal year, deferred revenue reported in the general fund resulted from delinquent property taxes receivable and grants and entitlements received but not earned. Deferred revenue in the proprietary funds and the entity-wide financial statements represents resources that have been received but not yet earned. NOTE 5 CAPITAL ASSETS Capital asset activity for the year ended June 30, 2011 was as follows: Beginning Ending Balance Additions Decreases Balance GOVERNMENTAL ACTIVITIES: Capital assets not being depreciated: land $ 6,543,005 $ $ $ 6,543,005 Construction-in-progress 459, ,227 81,103 Total Capital Assets Not Being Depreciated 7,002, ,227 6,624,108 Capital assets being depreciated: Site improvements 7,381, ,084 8,032,443 Buildings and improvements 65,751, ,335 66,747,514 Furniture and equipment 13,864, ,943 14,825,702 Total Capital Assets Being Depreciated 86,997,297 2,608,362 89,605,659 less accumulated depreciation for: Site improvements 2,134, ,969 2,546,727 Buildings and improvements 29,896,153 2,191,706 32,087,859 Furniture and equipment 12, ,286 13,012,287 Total accumulated depreciation 44,092,912 3,553,961 47,646,873 Total Capital Assets Being Depreciated, Net 42,904,385 (945,599) 41,958,786 Governmental Activities Assets, Net 249,906,720 $ (945,599! $ 378,227 $48,582,894 BUSINESS-TYPE ACTIVITIES: Capital assets being depreciated: Furniture and equipment ~ 653,656 ~ 9,904 $ $ 663,560 Total Capital Assets Being Depreciated 653, ,560 Less accumulated depreciation for: Furniture and equipment 364,164 31, ,914 Total accumulated depreciation 364,164 31, ,914 Business-type Activities, Net $ 289,492 $ (21,846! $ $ 267,

85 COLONIAL SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS NOTE 5 CAPITAL ASSETS (cont'd) Depreciation expense was charged to functions/programs of the District as follows: Governmental activities: Instruction Instructional student support Administrative and financial support services Operation and maintenance of plant services Student activities Total Depreciation Expense - Governmental Activities Total Business-type Activities $ 2,554, , , ,813 57,187 $ 3,553,961 $ 31,750 NOTE 6 INTERNAL RECEIVABLES. PAYABLES AND TRANSFERS The composition of lnterfund balances as of June 30, 2011 is as follows: Receivable From Amount Payable To Amount Food Service Fund Capital Projects Fund $ 315,515 2,280 General General $ 315,515 2,280 $ 317,795 $ 317,795 lnterfund balances between funds represent temporary loons recorded at year end subsequent to a final allocation of expenses. The balances generally are paid shortly after year end. lnterfund Transfers: Transfer Out: General Fund Capital Reserve Fund Transf~r In: Food Service Fund Food Service Fund $ 309,853 $ 6,840 Transfers represent funds transferred to subsidize food service operations. -36-

86 COLONIAL SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS NOTE 7 GENERAL LONG-TERM DEBT The following summarizes the changes in the long-term liabilities of governmental activities for the year ended June 30, 2011 : Balance Balance Jul~ 1, 2010 Additions Deletions June 30, 2011 Governmental Activities: Bonds payable $ 46,720,000 $ $ (2,360,000) $44,360,000 Notes payable 59,000 (29,000) 30,000 Deferred amount on refunding (351,676) 52,919 (298,757) Bond discounts (260,961) 34,113 (226,848) Bond premiums 655,901 (142, 197) 513,704 Accumulated compensated absences 3,310,924 (282,418) 3,028,506 TOTALS $ 50,133,188 $ $ (2, 726,583) $ 47,406,605 Business-type Activity: Accumulated compensated absences $ 91,987 $ 10,282 $ $ 102,269 Payments of long-term debt from bonds payable are to be funded by the general fund, while long-term debt from compensated absences is paid out of the fund from which the liability was incurred. General Obligation Bonds Series of 2006, maturing through February 15, 2025, bearing interest ranging from 3.40% to 4.25%, interest payable semiannually on February 15 and August 15. Series of 2008, maturing through May 15, 2025, bearing interest ranging from 3.25% to 4.00%, interest payable semiannually on May 15 and November 1 5. Series of 2009, maturing through November 15, 2014, bearing interest ranging from 3.25% to 4.00%, interest payable semiannually on May 15 and November 15. Issued to refund Series A of 2002 and Series of 2003 which resulted in a savings of $527,025. Series of 2009A, maturing through August 15, 2018, bearing interest ranging from 2.00% to 3.25%, interest payable semiannually on February 15 and August 15. Issued to refund Series of 2003 and Series of $ 9,580,000 9,990,000 8,125,000 10,520,

87 COLONIAL SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS NOTE 7 GENERAL LONG-TERM DEBT (cont'd) Series of 201 0, maturing through September 1, 2018, bearing interest ranging from 2.00% to 3.5%, interest payable semiannually on March 1 and September 1. Issued to refund Series of Total General Obligation Bonds ,360,000 Note Payable Series of 2001, maturing through August 25, 2011, bearing interest at 3.8%, interest payable monthly. TOTAL 30,000 $ 44,390,000 Presented below is a summary of debt service and lease requirements to maturity by years: Principal Interest Total Year Ending June 30, Maturities Maturities Maturities 2012 $ 2,965,000 $ 1,529,523 $ 4,494, ,070,000 1,426,530 4,496, ,175,000 1,315,526 4,490, ,295,000 1 ' 197,765 4,492, ,400,000 1,089,960 4,489, ,595,000 3,917,196 22,512, ,890, ,913 10,744,913 $ 44,390,000 $ 11,331,413 $ 55,721,413 NOTE 8 PENSION PLAN Plan DescriQfion The District contributes to the Public School Employees' Retirement System ("PSERS"), a governmental cost-sharing multiple-employer defined benefit pension plan administered by the Commonwealth of Pennsylvania Public School Employees' Retirement System. The PSERS provides retirement and disability, legislatively mandated ad hoc cost-of-living adjustments and certain health care insurance premium assistance to plan members and their beneficiaries. The Public School Employees' Retirement Code (Act No. 96, of October 2, 1975, as amended) provides the authority to establish and amend benefit provisions. The PSERS issues a comprehensive annual financial report that includes financial statements and required supplementary information for the plan. A copy of the report may be obtained by writing to Public School Employees' Retirement System, P. 0. Box 125, Harrisburg, PA or by accessing its website at cafr/index.htm

88 COLONIAL SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS NOTE 8 PENSION PLAN (cont'd) Funding Policy The contribution policy Is established in the Public School Employees' Retirement Code and requires contributions by active members, employers and the Commonwealth. Individual employees contribute between 5.25 and 7.5 percent of salary depending on their membership status. Contributions required of employers are based upon an actuarial valuation. For fiscal year ended June 30, 2011, the rate of employer contribution was 5.64 percent of covered payroll. The District's contributions to PSERS for the years ended June 30, 2009, 2010 and 2011 were $2,167,061, $2,295,416 and $2,674,461, respectively, equal to the required contribution for each year. The Commonwealth contributes to PSERS by reimbursing the District 50 percent of its contribution each year. NOTE 9 OPERATING LEASES The District currently is obligated under operating lease agreements for copiers. The following is a summary of the minimum rental costs for the remaining term: Year Ending June 30, 2012 $ 386, , ,140 Total $ 756,972 Rental expense for the year ended June 30, 2011 was $386,238. NOTE 1 0 SPECIAL TERMINATION BENEFITS The District from time to time offers additional retirement incentives, known as "early retirement incentive plans" (ERIPs) to senior professional staff and administrators contemplating retirement. There Is no contractual requirement for the District to offer ERIP Incentives. These special termination benefits are formally approved by School Board action in the year an ERIP plan is implemented. In order for an employee to retire and participate in a district-sponsored ERIP, the District must first decide whether or not to offer a special termination plan in the year the employee is retiring; the retiring employee must meet certain age and district service year requirements; a specified minimum number of employees must opt into the ERIP: and the retiring employee must be eligible to receive other pension benefits provided through the PSERS, described in Note 8. The District's current ERIP plan provides for the payment of specific dollars to be applied toward the healthcare premiums of the participating retiree and spouse for a limited number of years. -39-

89 COLONIAL SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS NOTE 1 0 SPECIAL TERMINATION BENEFITS (cont'd) During the year ended June 30, 2011, the District made the last of its payments under the ERIP plan In effect. During the year ended June 30, 2011 the cost of ERIP benefits was $363,490. NOTE 11 JOINT VENTURE The District is a participating member of the Center for Technical Studies (the 'Vo-Tech"). The board of directors from each member district must approve the Vo-Tech's annual budget. Each member pays an allocated share of operating costs of the Vo-Tech based on the number of students attending from each district. For fiscal year ended June 30, 2011, the District's share of operating costs was $1, 655,960. The financial statements of the Vo-Tech are available from the Center for Technical Studies located at Plymouth Road and New Hope Street, Norristown, PA The District has entered into a lease agreement with the Vo-Tech to provide rental payments to retire the Vo-Tech's outstanding debt obligations. The lease agreement provides that in the event the Vo-Tech either retires all of its outstanding obligations which were issued to finance school facilities construction or acquisition, or accumulate sufficient reserves to cover such obligations prior to the expiration of the applicable schedules, there will be no subsequently scheduled rental payments made. Future rental payments are as follows: Year Ending June 30, Total Less: Interest requirements Outstanding rental payments $ 550, , , , ,351 2,744,499 1,646,400 7,138,049 (1,984,299) $ 5,153,

90 COLONIAL SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS NOTE 12 CONTINGENCIES AND COMMITMENTS Government Grants and Awards The District participates in both state and federally assisted grant programs. These programs are subject to program compliance audits by the grantors or their representatives. The District is potentially liable for any expenditures which may be disallowed pursuant to the terms of these grant programs. Management Is not aware of any material items of noncompliance which would result in the disallowance of program expenditures. Litigation Certain litigation claims are pending against the District. In the opinion of District management and legal counsel, the potential losses, If any, on such claims are not yet determinable. Capital Improvement Commitments As of June 30, 2011, the District had outstanding construction projects to be completed. The District has incurred costs in the amount of $81,103 for capital projects that were not under a formal construction commitment as of June 30, NOTE 13 RISK MANAGEMENT The District Is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets: errors and omissions: injuries to employees; and natural disasters. Significant losses are covered by commercial insurance for all major programs except for workers' compensation, for which the District retains risk of loss. For insured programs, there were no significant reductions in Insurance coverages during the year. Settlement amounts have not exceeded Insurance coverage for the current year or the three prior years. NOTE 14 POST-EMPLOYMENT HEALTHCARE PLAN Plan Description The District implemented Governmental Accounting Standards Board Statement No. 45, "Accounting and Financial Reporting by Employers for Post-employment Benefits Other Than Pensions." for certain post-employment healthcare benefits and life insurance benefits provided by the District. This Statement generally provides for prospective Implementation - i.e., that employers set the beginning net OPES obligation at zero as of the beginning of the initial year. Accordingly, for financial reporting purposes, no liability is reported for the post-employment benefits liability at the date of transition

91 COLONIAL SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS NOTE 14 POST-EMPLOYMENT HEALTHCARE PLAN (cont'd) The District's post-employment healthcare plan Is a single-employer defined benefit healthcare plan. The plan provides medical insurance benefits to eligible retirees and their spouses. The Board of School Directors has the authority to establish and amend benefit provisions through the collective bargaining process with members of the professional and support staff, an agreement with administrative employees, and individual employment contracts with certain employees. The plan does not issue any financial report and is not included In the report of any public employee retirement system or any other entity. Funding Policy The contribution requirements of plan members are established and may be amended by the Board of School Directors. The required contribution is based on projected pay-as-you-go financing requirements, with any additional amount to prefund as determined annually by the Board of School Directors. For fiscal year 2011, the District paid $197,350 for current premiums, or approximately 36 percent of total premiums. Plan members receiving benefits contributed $350,845, or approximately 64 percent of total premiums, through their required monthly contributions. Annual OPEB Cost and Net OPEB Obligation The District's annual other post-employment benefit cost (expense) is calculated based on the annual required contribution of the employer ("ARC"), on amount octuariolly determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal costs each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years. The following table shows the components of the District's OPEB cost for the year, the amount actually contributed to the plan and changes in the District's net OPEB obligation to the plan. Annual required contribution $ 776,174 Interest on net OPEB obligation 36,025 Adjustment to annual required contribution (49,146) Annual OPES cost (expense) 763,053 Contributions made (336,320) Increase in net OPES obligation 426,733 Net OPES obligation - beginning of year 800,544 Net OPEB obligation - end of year $ 1,227,

92 COLONIAL SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS NOTE 14 POST-EMPLOYMENT HEALTHCARE PLAN (cont'd) Funded Status and Funding Progress The schedule of funding progress of OPEB is as follows: Actuarial Accrued UAAL as a Actuarial Liability Unfunded Percentage Actuarial Value of (AAL)- AAL Funded Covered of Covered Valuation Assets Entry Age (UAAL) Ratio Payroll Payroll Date (a) (b) (b-a) (a/b) (C) [(b-a)/c] 7/l/2010 $ $ 5,510,153 $ 5,510, % $44,983, % 7/l/2008 $ $6,753,596 $6,753, % $41,945, % Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events for into the future. Examples include assumptions about future employment, mortality and healthcare cost trends. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results ore compared with post expectations and new estimates ore mode about the future. Actuarial Methods and Assumptions Projections of benefits tor financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the January 1, 2010 actuarial valuation, the entry age actuarial cost method was used. The actuarial assumptions included o 4.00 percent investment rate of return and an annual heolthcare cost trend rote of 12.0 percent in 2008, reduced by decrements to an ultimate rote of five percent in 2022 or later. The UAAL is being amortized based on the level dollar, 30-yeor open period. The remaining amortization period at June 30, 2011 was 27 years

93 COLONIAL SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS NOTE 15 COMMITMENTS Tax Increment Financing Plan And Cooperation Agreement On July 16, 2008, the Board of School Directors of the Colonial School District adopted a Resolution approving a Tax Increment Financing ("TIF'') Plan for the Seven Tower Bridge Project to raze and demolish all existing improvements and construct a new multi-story office building, parking garage and associated improvements at 110 Washington, Street, Conshohocken, Pennsylvania. The TIF District is comprised of a 2.98 acre tax parcel. A private developer, Seven Tower Bridge Associates, LP will demolish the existing structure and construct a 250,000 square foot, 1 0-story commercial office building above four levels of parking. The Redevelopment Authority of the County of Montgomery (the "Authority") designed the TIF plan to finance the Project. The Tax Incremental Financing Act (P.L. 465 July 11, 1990), as amended, grants this power to development authorities. The TIF Plan calls for the developer to fund the project costs through a $34,000,000 mortgage, $5,000,000 from a Redevelopment Assistance Capital Grant, $3,053,000 from the proceeds of the TIF debt, $1,250,000 from an Infrastructure Development Grant, and $34,390,000 from the developer's equity. The School District's election to participate In the Plan shall not, in any way, pledge or obligate the credit or taxing power of the School District, nor shall the School District be liable for the payment of principal of, or interest on, any obligations issued by the Authority. In addition, the Board of School Directors of Colonial School District authorized the execution of a Cooperation Agreement among the Authority, the School District, the County and the Borough of Conshohocken which sets forth and confirms the basic terms and conditions of the Tax Increment Financing Plan. The Tax Increment District was created as of December 15, The Tax Increment District shall continue in existence until December 15, Commencing with the collection of the Tax Increment in calendar year 2010 the School District will pay to the Issuer an amount equal to 25 percent of the Tax Increment received by the School District during the term of the Tax Increment District. The tax assessor for the County has determined the full aggregate market value of the taxable property in the Tax Increment District to be $766,420. This shall be considered the base assessed value of the taxable property in the Tax Increment District, and the real estate tax calculated at the current millage will be the amount earned by the School District. The d ifference between the base assessed value of the TIF District parcel and the reassessed value is the Tax Assessment Increment. In accordance with the cooperation agreement, 25 percent of the Tax Increment has to be paid to the Authority when the owners of the TIF parcels pay the school reaj estate tax bill

94 COLONIAL SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS NOTE 16 SUBSEQUENT EVENTS The Board of School Directors authorized the issuance of $9,930,000 in General Obligation Bonds, Series of The bonds, dated July 11, were issued to refund the School District's General Obligation Bonds, Series of The bonds mature beginning February 2012 and continuing through February Interest is payable semi-annual beginning August 2011 at interest rates between 0.5 percent and 3.5 percent. The District has evaluated all subsequent events through March 17, 2012, the date the financial statements were available to be issued

95 SINGLE AUDIT

96 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATIERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Barbacane, Thornton & Company LLP 200 Springer Buildmg 3411 Silverside Road Wilmington, Delaware T F March 17, 2012 Boord of School Directors Colonial School District Plymouth Meeting, Pennsylvania We have audited the financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of Colonial School District, Plymouth Meeting, Pennsylvania as of and for the year ended June 30, 2011, and have issued our report thereon doted March 1 7, We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered Colonial School District's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Colonial School District's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the District's internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies. significant deficiencie.s or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above BARBAO\NE THORNIDN &CDMPANY CERTIEIEO PUBLIC ACCOUNTANTS

97 Board of School Directors Colonial School District Compliance and Other Matters As part of obtaining reasonable assurance about whether Colonial School District's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a d irect and material effect on the determination of financial statement amounts. However, providing on opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted a matter that we reported to management of Colonial School District in a separate letter dated March 17, This report is intended solely for the information and use of the Board of School Directors, management and federa l awarding agencies and pass-through entities; and Is not Intended to be and should not be used by anyone other than these specified parties. ;j~~1c'7 BARBACANE, TH;RNTON & COMPANY LL~ LLP

98 Barbacane, Thornton & Company LLP 200 Springer Building REPORT ON COMPLIANCE Stlverside Road WITH REQUIREMENTS THAT COULD HAVE A Wilmington, Delaware DIRECT AND MATERIAL EFFECT ON EACH T MAJOR PROGRAM AND ON INTERNAL CONTROL F OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 March Boord of School Directors Colonial School District Plymouth Meeting, Pennsylvania Compliance We have audited the compliance of Colonial Schoof District, Plymouth Meeting, Pennsylvania, with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of its major federal programs for the year ended June 30, Colonial School District's major federal programs are identified in the summary of auditors' results section of the accompanying schedule of findings and recommendations. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal programs is the responsibility of Colonial School District's management. Our responsibility Is to express an opinion on Colonial School District's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Audffing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Colonial School District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on Colonial School District's compliance with those requirements. In our opinion, Colonial School District complied, in all material respects. with the requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, Internal Control Over Compliance The management of Colonial School District, Plymouth Meeting, Pennsylvania, is responsible for establishing and maintaining effective Internal control over compliance with requirements of laws, regulations. contracts and grants applicable to federal programs. In planning and performing our audit, BARBA CANE TI-IORNIDN &COMPANY CERTIFIED PUBLIC ACCOUNTANIS