OFFICIAL STATEMENT DATED APRIL 4, 2003

Transcription

1 OFFICIAL STATEMENT DATED APRIL 4, 2003 Oregon School Boards Association $927,079, Limited Tax Pension Obligations, Series 2003 (Federally Taxable) $430,924, Series 2003A $496,155,000 Series 2003B ($889,595,000 Final Maturity Amount) (Current Interest Obligations) (Deferred Interest Obligations) DATED: Date of Delivery DUE: June 30, as shown on the inside cover MOODY S AND STANDARD & POOR S RATINGS ON THE OBLIGATIONS A1 and AA-, respectively, underlying; Aaa and AAA, respectively, insured (see Municipal Bond Insurance and Ratings herein). BOOK ENTRY ONLY The Limited Tax Pension Deferred Interest Obligations, Series 2003A (the 2003A Obligations ) and the Limited Tax Pension Current Interest Obligations, Series 2003B (the 2003B Obligations ; collectively, the Obligations ) will be issued as fully registered obligations under a book-entry only system, registered in the name of Cede & Co., as owner and nominee for The Depository Trust Company ( DTC ). DTC will act as initial securities depository for the Obligations. Individual purchases of the Obligations will be made in book-entry form, in denominations of $5,000 (final maturity amount for the 2003A Obligations), or any integral multiples thereof. Purchasers will not receive certificates representing their interest in the Obligations purchased. ISSUERS AND PURPOSE Certain Oregon school districts and education service districts (collectively, the Issuers ) are issuing limited tax bonds (the Pension Bonds ), the proceeds of which will be used to finance all or a portion of the estimated unfunded actuarial liability (the UAL ) of each Issuer with the Oregon Public Employees Retirement System ( PERS ), as more fully described herein, and to pay other costs related to financing the UALs, including costs of issuance. See Purpose and Use of Proceeds herein. The Oregon School Boards Association ( OSBA ) is the sponsor of this limited tax pension bond program (the Program ). The Issuers and the Trustee will enter into a Trust Agreement at closing to provide for the issuance and payment of the Obligations, which represent proportionate and undivided interests in and the right to receive the Pension Bond Payments. THE PENSION BONDS AND THE OBLIGATIONS The Pension Bonds constitute limited tax bonds of the Issuers. The Obligations represent proportionate and undivided interests in the right to receive particular Pension Bond Payments. SECURITY The full faith and credit of each Issuer is pledged for the punctual payment of the principal of, premium, if any, and interest on its Pension Bond (the Pension Bond Payments ), and debt service on the Pension Bonds is not subject to annual appropriation by the Issuers. Each Issuer s Pension Bond will be payable from its Available General Funds, including all taxes and other funds, of such Issuer legally available for payment of its Pension Bond. The Pension Bonds are further secured by an Intercept Agreement under which an amount equal to the debt service on each Issuer s Pension Bond will be diverted from State Education Revenues, defined herein, to the Trustee for the purposes of paying the principal and interest and any premium on such Issuer s Pension Bond. The Issuers are authorized to issue Future Pension Bonds and to require the Agency to divert State Education Revenues under the Intercept Agreement for debt service on such Future Pension Bonds. The Issuers are not authorized to levy additional taxes to pay the Pension Bonds. NEITHER THE PENSION BONDS NOR THE OBLIGATIONS CONSTITUTE A DEBT OR INDEBTEDNESS OF THE OREGON DEPARTMENT OF EDUCATION, THE STATE OF OREGON OR ANY POLITICAL SUBDIVISION THEREOF OTHER THAN THE INDIVIDUAL ISSUERS. THE PENSION BONDS ARE LIMITED TAX BONDS. THE OBLIGATION OF THE ISSUERS TO PAY THE PENSION BONDS IS NOT SUBJECT TO ANNUAL APPROPRIATION BY THE ISSUERS AND THE PENSION BOND PAYMENTS ARE NOT SUBJECT TO ACCELERATION. FURTHER, NO ISSUER IS REQUIRED TO PAY ANY PORTION OF ANOTHER ISSUER S PENSION BONDS OR LIABILITIES TO PERS. Each Issuer is required to pay or cause to be paid the Pension Bond Payments on its limited tax Pension Bond and the Trustee is required to deposit these payments into appropriate subaccount in the Trust Fund, which is part of the Trust Estate pledged to the benefit of the Obligation Owners. Payment of the principal of and interest on the Obligations when due will be insured by a municipal bond insurance policy to be issued simultaneously with the delivery of the Obligations by Financial Guaranty Insurance Company. FGIC is a registered service mark used by Financial Guaranty Insurance Company, a private company not affiliated with any U.S. Government PRINCIPAL AND INTEREST PAYMENTS The 2003A Obligations are being issued as deferred interest obligations. Interest on the 2003A Obligations will be payable only at maturity, and will be compounded semiannually (for the accreted value of the Obligations of each maturity as of each June 30 and December 30, see Accreted Value Table herein). The 2003B Obligations are being issued as current interest obligations. Interest on the 2003B Obligations will be payable on December 30, 2003 and semiannually thereafter on June 30 and December 30 of each year until maturity. The principal of, premium, if any, and interest on the Obligations will be payable by the Trustee, currently Wells Fargo Bank Northwest, National Association, solely from Pension Bond Payments and from any amounts available in the funds and accounts established under the Trust Agreement, to DTC which, in turn, will remit such principal and interest to the DTC Participants for subsequent disbursement to the Beneficial Owners of the Obligations. MATURITY SCHEDULE SEE INSIDE COVER PREPAYMENT The Obligations are not subject to optional prepayment prior to their stated maturities. The 2003B Term Obligation is subject to mandatory prepayment as further described herein. TAX MATTERS Interest on the Obligations is includable in gross income for federal income tax purposes. In the opinion of Preston Gates & Ellis LLP, Special Counsel to the Issuers, under existing law, interest on the Obligations is exempt from present personal income taxation imposed by the State of Oregon. See TAX MATTERS herein. DELIVERY The Obligations are offered for sale to the Underwriters subject to the final approving legal opinion of Preston Gates & Ellis LLP, Portland, Oregon, Special Counsel to the Issuers ( Special Counsel ). Certain legal matters will be passed on for the Underwriters by their counsel, Orrick, Herrington and Sutcliffe LLP, Seattle, Washington. It is expected that the Obligations will be available for delivery to the Trustee for Fast Automated Securities Transfer on behalf of DTC or through the Euroclear System ( Euroclear ) and Clearstream, Luxembourg, in Europe, on or about April 21, This cover page contains certain information for quick reference only. It is not a summary of the issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. Morgan Stanley & Co. Incorporated RBC Dain Rauscher Salomon Smith Barney

2 Oregon School Boards Association $430,924, Series 2003A; ($889,595,000 Final Maturity Amount) (Deferred Interest Obligations) DATED: Date of Delivery DUE: June 30, as shown below MATURITY SCHEDULE Original Final Price Approx. Original Final Price Approx. Due Principal Maturity per $5,000 Yield to CUSIP Due Principal Maturity per $5,000 Yield to CUSIP June 30 Amount Amount at Maturity Maturity June 30 Amount Amount at Maturity Maturity $ 2,210, $2,250,000 $4, % BT $25,123, $45,265,000 $2, % CD ,807, ,070,000 4, BU ,000, ,675,000 2, CE ,944, ,585,000 4, BV ,233, ,030,000 2, CF ,847, ,655,000 4, BW ,101, ,740,000 2, CG ,786, ,170,000 4, BX ,205, ,515,000 2, CH ,236, ,420,000 3, BY ,897, ,560,000 1, CJ ,735, ,245,000 3, BZ ,983, ,780,000 1, CK ,924, ,675,000 3, CA ,668, ,175,000 1, CL ,281, ,095,000 3, CB ,769, ,850,000 1, CM ,558, ,235,000 2, CC ,609, ,605,000 1, CN7 $496,155,000 Series 2003B (Current Interest Obligations) DATED: Date of Delivery DUE: June 30, as shown below MATURITY SCHEDULE Due Principal Interest CUSIP June 30 Amount Rate Yield $81,790, % 5.63% CP $10,000, CQ0 $404,365, % Term Obligation due June 30, 100; CUSIP No CT4 This Official Statement does not constitute an offer to sell the Obligations in any jurisdiction in which or to a person to whom it is unlawful to make such an offer. No dealer, salesperson or other person has been authorized by the Issuers or OSBA to give any information or to make any representations, other than those contained herein, in connection with the offering of the Obligations and, if given or made, such information or representations must not be relied upon. 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 will, under any circumstances, create an implication that there has been no change in the affairs of the Issuers since the date hereof. The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their responsibility to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. In connection with this offering, the Underwriters may over allot or effect transactions that stabilize or maintain the market price of the bonds at levels above those which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time.

3 Sponsor Oregon School Boards Association 1. Amity School District No. 4J, Yamhill and Polk Counties 2. Astoria School District No. 1, Clatsop County 3. Bend-La Pine Administrative School District No. 1, Deschutes County 4. Burns Hines School District No. 3, Harney County 5. Canby School District No. 86, Clackamas County 6. Cascade School District No. 5, Marion County 7. Central School District No. 13J, Polk, Benton and Marion Counties 8. Crook County Unit School District, Crook County 9. Crook Deschutes Education Service District, Crook, Deschutes and Jefferson Counties 10. Dayton School District No. 8, Yamhill County 11. Douglas Education Service District, Douglas County 12. Echo School District No. 5, Umatilla County 13. Falls City School District No. 57, Polk County 14. Gaston School District No. 511J, Washington and Yamhill Counties 15. Gervais School District No. 1, Marion County 16. Gladstone School District No. 115, Clackamas County 17. Gresham-Barlow School District No. 10J, Multnomah and Clackamas Counties 18. Jefferson School District No. 14J, Marion and Linn Counties 19. Lake Oswego School District No. 7J, Clackamas, Multnomah and Washington Counties 20. Lincoln County School District, Lincoln and Lane Counties 21. Milton-Freewater School District No. 7, Umatilla County 22. Molalla River School District No. 35, Clackamas County Issuers 23. Newberg School District No. 29J, Clackamas, Yamhill and Washington Counties 24. North Clackamas School District No. 12, Clackamas County 25. North Marion School District No. 15, Marion County 26. North Santiam School District No. 29J, Marion and Linn Counties 27. Pendleton School District No. 16, Umatilla County 28. Portland School District No. 1J, Multnomah, Clackamas and Washington Counties 29. Reynolds School District No. 7, Multnomah County 30. Riverdale School District No. 51J, Multnomah and Clackamas Counties 31. Silver Falls School District No. 4J, Marion and Clackamas Counties 32. Sisters School District No. 6, Deschutes and Jefferson Counties 33. South Lane School District No. 45J3, Lane and Douglas Counties 34. South Umpqua School District No. 19, Douglas County 35. St. Helens School District No. 502, Columbia County 36. Stanfield School District No. 61-R, Umatilla County 37. Sutherlin School District No. 130, Douglas County 38. Sweet Home School District No. 55, Linn County 39. The Dalles School District No. 12, Wasco County 40. Tillamook School District No. 9, Tillamook County 41. Willamette Education Service District, Marion and Polk Counties 42. Winston-Dillard School District No. 116, Douglas County 43. Yamhill-Carlton School No. 1, Yamhill County 44. Yamhill Education Service District, Yamhill, Washington and Clackamas Counties Special Counsel Preston Gates & Ellis LLP Portland, Oregon (503) Trustee Wells Fargo Bank Northwest, National Association Portland, Oregon (503) i

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5 Table of Contents Introduction... 1 Sponsor... 1 Issuers and the Obligations... 1 The Obligations and the Bonds... 1 Description of the Obligations... 2 Principal Amounts, Date, Interest Rates and Maturities... 2 Projected Debt Service Schedule... 5 Prepayment Provisions... 5 Registration Features... 6 The Trustee... 6 Book-Entry Bonds... 6 Authorization for Issuance... 7 Purpose and Use of Proceeds... 9 Sources and Uses of Funds Security for the Obligations General Full Faith and Credit Pledge Intercept Agreement Security Payments Intercept and Security Payment Schedule Intercept Schedule for Fiscal Years Funds and Accounts Future Pension Bonds Future Bonds Test and Coverage Defaults and Remedies Amendments to Resolutions and Pension Bonds Amendments to Trust Agreement Municipal Bond Insurance Ratings The Issuers General Mergers Enrollment Real Market Value State Funding, Property Taxes and Other Revenue Sources State of Oregon Public School Funding School Funding and Intercept Payments Source of Debt Service Payments Property Taxes Valuation of Property Assessment Special Voter Approval Requirement for New Property Tax Levies Exempt Bonded Indebtedness Tax Rate Limitation Real Market Value Local Option Provisions Tax Levy Property Tax Collections Strategic Investments Program Accounting Policies Financial Reporting Independent Audit Requirement Investment Policy Budgetary Process and Controls Indebtedness Debt Capacity Debt Payment Record Future Debt Plans Oregon Public Employees Retirement System Pension System City of Eugene, EWEB, et al. v. State of Oregon, PERB Current and Recent Legislative Activities Relating to the Public Employees Retirement System The Issuers PERS Pension Liability Page iii

6 Table of Contents (Continued) Tax Matters General Defeasance of Obligations Original Issue Discount Disposition of the Obligations Required Reporting to the Internal Revenue Service Other Federal Income Tax Consequences State Taxation State and Local Taxes and Foreign Persons The Initiative Process Historical Initiative Petitions Continuing Disclosure Legal Matters Approval of Counsel Litigation Financial Advisors Underwriting Concluding Statement Appendices: Form of Special Counsel Opinion... Appendix A Book-Entry Only, Clearstream, Luxembourg, and Euroclear...Appendix B Specimen Municipal Bond Insurance Policy... Appendix C Forms of Continuing Disclosure Certificates... Appendix D Projected Debt Service Schedules for Each Issuer...Appendix E Form of the Intercept Agreement, as Amended and Supplemented... Appendix F Page iv

7 OFFICIAL STATEMENT Oregon School Boards Association $927,079, Limited Tax Pension Obligations, Series 2003 (Federally Taxable) $430,924, Series 2003A $496,155,000 Series 2003B ($889,595,000 Final Maturity Amount) (Current Interest Obligations) (Deferred Interest Obligations) Introduction Sponsor The Oregon School Boards Association ( OSBA ) is the sponsor of this pooled limited tax pension bond program for school districts and education service districts (the Program ). OSBA does not have a financial obligation in connection with the districts bonds or the obligations issued under the Program. OSBA is a non-profit association that was founded in 1946 and currently represents more than 1,400 locally elected school board members. OSBA members also include board members from the State's 21 education service districts, 17 community colleges and the State Board of Education. OSBA is governed by a 22-member board of directors, which includes a fivemember executive committee. Members at OSBA s annual meeting elect board members, nominated from Congressional Districts. Issuers and the Obligations Forty-four Oregon school districts and education service districts, as shown on the inside cover page of this Official Statement (collectively, the Issuers ), are issuing limited tax pension bonds (the Pension Bonds ), the proceeds of which will be used to finance a portion of the estimated unfunded actuarial liability (the UAL ) of each Issuer with the Oregon Public Employees Retirement System ( PERS ), as more fully described herein, and to pay other costs related to financing the UAL, including costs of issuance of the Program. The Issuers, political subdivisions duly organized and existing under and by virtue of the laws of the State of Oregon (the State ), furnish this Official Statement in connection with the offering of $430,924, ($889,595,000 Final Maturity Amount) aggregate original principal amount of Limited Tax Pension Deferred Interest Obligations, Series 2003A (the 2003A Obligations ), and $496,155,000 aggregate principal amount of Limited Tax Pension Current Interest Obligations, Series 2003B (the 2003B Obligations ; the 2003A Obligations and 2003B Obligations are collectively referred to herein as the Obligations ). The Obligations and the Bonds Proceeds received from the sale of the Obligations will be applied to purchase the Pension Bonds. The Obligations represent proportionate and undivided interests in and rights to receive particular payments of principal, premium, if any, and interest on the Pension Bonds, when due (the Pension Bond Payments ). Each Issuer is required to pay its Pension Bond Payments or to cause such payments to be made on its behalf through the Intercept Agreement (see Security for the Obligations Intercept Agreement herein) on its series of Pension Bonds, and Wells Fargo Bank Northwest, National Association (the Trustee ), is required to deposit these payments into appropriate subaccount in the Trust Fund, which is part of the Trust Estate pledged to the benefit of the Obligation Owners and defined herein (see Authorization for Issuance and Security for the Obligations herein). EXCEPT FOR THE PAYMENT OF ITS PENSION BOND PAYMENTS AND ADDITIONAL CHARGES WHEN DUE IN ACCORDANCE WITH ITS RESOLUTION AND SERIES 2003 PENSION BOND, EACH SERIES 2003 ISSUER WILL HAVE NO OBLIGATION OR LIABILITY FOR ANY PAYMENT IN RESPECT OF THE OBLIGATIONS AND NO OBLIGATION OR LIABILITY FOR ANY OTHER SERIES 2003 ISSUERS, OTHER PARTIES OR TO THE OWNERS OF THE OBLIGATIONS WITH RESPECT TO THE SERIES 2003 TRUST AGREEMENT OR THE TERMS, EXECUTION, DELIVERY OR TRANSFER OF THE OBLIGATIONS, OR THE DISTRIBUTION OF PENSION BOND PAYMENTS TO THE OWNERS BY THE TRUSTEE. See Security for the Obligations herein. This Official Statement, which includes the cover page, inside cover and appendices, provides information concerning the Issuers, the Pension Bonds and the Obligations. Certain capitalized words and phrases used in this Official Statement have the meanings as defined in the Trust Agreement, described herein. 1

8 Description of the Obligations Principal Amounts, Date, Interest Rates and Maturities 2003A Obligations. The 2003A Obligations will be issued in the aggregate original principal amount of $430,924, ($889,595,000 Final Maturity Amount) and will be dated and bear interest from their date of delivery. Interest on the 2003A Obligations will be payable only at maturity, and will be compounded semiannually (for the accreted value of the Obligations of each maturity as of each June 30 and December 30, see Accreted Value Table below). Interest on the 2003A Obligations, which is payable at maturity, is included in the Final Maturity Amount. Accreted Value Table 2003A Obligations Accreted Value per $5,000 (Maturity Date) Date 06/30/ % 06/30/ % 06/30/ % 06/30/ % 06/30/ % 06/30/ % 4/21/2003 $ 4, $ 4, $ 4, $ 4, $ 4, $ 3, /30/2003 4, , , , , , /30/2003 4, , , , , , /30/2004 5, , , , , , /30/2004-4, , , , , /30/2005-5, , , , , /30/ , , , , /30/ , , , , /30/ , , , /30/ , , , /30/ , , /30/ , , /30/ , /30/ ,

9 Accreted Value Table 2003A Obligations Accreted Value per $5,000; (Maturity Date) Continued Date 06/30/ % 06/30/ % 06/30/ % 06/30/ % 06/30/ % 06/30/ % 06/30/ % 4/21/2003 $ 3, $ 3, $ 3, $ 2, $ 2, $ 2, $ 2, /30/2003 3, , , , , , , /30/2003 3, , , , , , , /30/2004 3, , , , , , , /30/2004 3, , , , , , , /30/2005 4, , , , , , , /30/2005 4, , , , , , , /30/2006 4, , , , , , , /30/2006 4, , , , , , , /30/2007 4, , , , , , , /30/2007 4, , , , , , , /30/2008 4, , , , , , , /30/2008 4, , , , , , , /30/2009 4, , , , , , , /30/2009 4, , , , , , , /30/2010 5, , , , , , , /30/2010-4, , , , , , /30/2011-5, , , , , , /30/ , , , , , /30/ , , , , , /30/ , , , , /30/ , , , , /30/ , , , /30/ , , , /30/ , , /30/ , , /30/ , /30/ ,

10 Accreted Value Table 2003A Obligations Accreted Value per $5,000; (Maturity Date) Continued Date 06/30/ % 06/30/ % 06/30/ % 06/30/ % 06/30/ % 06/30/ % 06/30/ % 4/21/2003 $ 2, $ 2, $ 1, $ 1, $ 1, $ 1, $ 1, /30/2003 2, , , , , , , /30/2003 2, , , , , , , /30/2004 2, , , , , , , /30/2004 2, , , , , , , /30/2005 2, , , , , , , /30/2005 2, , , , , , , /30/2006 2, , , , , , , /30/2006 2, , , , , , , /30/2007 2, , , , , , , /30/2007 2, , , , , , , /30/2008 2, , , , , , , /30/2008 3, , , , , , , /30/2009 3, , , , , , , /30/2009 3, , , , , , , /30/2010 3, , , , , , , /30/2010 3, , , , , , , /30/2011 3, , , , , , , /30/2011 3, , , , , , , /30/2012 3, , , , , , , /30/2012 3, , , , , , , /30/2013 3, , , , , , , /30/2013 4, , , , , , , /30/2014 4, , , , , , , /30/2014 4, , , , , , , /30/2015 4, , , , , , , /30/2015 4, , , , , , , /30/2016 4, , , , , , , /30/2016 4, , , , , , , /30/2017 5, , , , , , , /30/2017-4, , , , , , /30/2018-5, , , , , , /30/ , , , , , /30/ , , , , , /30/ , , , , /30/ , , , , /30/ , , , /30/ , , , /30/ , , /30/ , , /30/ , /30/ ,

11 2003B Obligations. The 2003B Obligations will be issued in the aggregate principal amount of $496,155,000 and will be dated and bear interest from the date of delivery. The 2003B Obligations will mature on the dates and in the principal amounts and will bear interest (payable semiannually on June 30 and December 30, first interest payable December 30, 2003) until the maturity or earlier prepayment of the 2003B Obligations at the rates set forth on the inside cover of this Official Statement. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Oregon School Boards Association Limited Tax Pension Obligations, Series 2003 Projected Debt Service Schedule Period Ending Principal Interest Debt Service 6/30/2004 $ 2,210,265 $ 33,546,672 $ 35,756,937 6/30/2005 5,807,108 28,380,601 34,187,709 6/30/ ,944,365 29,758,344 47,702,709 6/30/ ,847,646 30,925,063 49,772,709 6/30/ ,786,141 32,501,568 53,287,709 6/30/ ,236,516 34,301,193 55,537,709 6/30/ ,735,424 36,627,285 59,362,709 6/30/ ,924,256 38,868,453 61,792,709 6/30/ ,281,753 41,930,956 66,212,709 6/30/ ,558,329 44,794,380 69,352,709 6/30/ ,123,886 48,258,823 73,382,709 6/30/ ,000,940 51,791,769 76,792,709 6/30/ ,233,265 55,914,444 81,147,709 6/30/ ,101,209 59,756,500 84,857,709 6/30/ ,205,771 64,426,938 89,632,709 6/30/ ,897,066 68,780,643 93,677,709 6/30/ ,983,217 73,914,492 98,897,709 6/30/ ,668,676 78,624, ,292,709 6/30/ ,769,206 84,198, ,967,709 6/30/ ,609,725 89,112, ,722,709 6/30/ ,790,000 28,117, ,907,709 6/30/ ,085,000 22,967, ,052,932 6/30/ ,265,000 17,169, ,434,504 6/30/ ,005,000 10,679, ,684,252 6/30/ ,010,000 3,522,168 65,532,168 Total: $ 927,079,763 $ 1,108,870,209 $ 2,035,949,973 NOTE: Columns may not foot due to rounding. Debt service schedules for each of the Issuer s Pension Bonds are attached hereto as Appendix E. Prepayment Provisions Optional Prepayment. The Obligations will not be subject to optional prepayment prior to maturity. 5

12 Mandatory Prepayment. The Series 2002B Obligation maturing on June 30, 2028 (the 2028 Term Obligation ) is subject to mandatory prepayment prior to its stated maturity, in part, pro rata among Owners of the 2028 Term Obligation, on any June 30 on or after June 30, 2024, at the principal amount thereof together with accrued interest thereon to the date fixed for prepayment, without premium, solely from mandatory sinking fund payments deposited into the Obligation Account for the Obligations, as follows: (1) Final maturity Term Obligations Maturing June 30, 2028 Payment Mandatory Date (June 30) Prepayment 2025 $ 102,085, ,265, ,005, ,010,000 (`) $ 404,365,000 Selection of Obligations for Prepayment. If the Series 2002B Obligations maturing in 2028 are in book-entry form at the time of mandatory prepayment, the Trustee will direct DTC to instruct the DTC Participants to select such Series 2002B Obligations for prepayment pro rata among all Owners of the maturity being prepaid. Neither the Issuers nor the Trustee will have responsibility to insure that DTC or its participants properly select such Series 2002B Obligations for prepayment. If the Series 2002B Obligations maturing in 2028 are not then in book-entry form at the time of mandatory prepayment, the Trustee shall select such Series 2002B Obligations for prepayment in $5,000 increments, pro rata among Owners to the greatest extent practicable. Notice of Prepayment (DTC). So long as the 2003B Obligations are in book-entry only form, the Trustee is required to notify DTC of an early prepayment not less than 30 days prior to the date fixed for prepayment, and to provide such information as required by a letter of representation submitted to DTC in connection with the issuance of the 2003B Obligations. Notice of Prepayment (No DTC). During any period in which the 2003B Obligations are not in book-entry only form, unless waived by any Owner of the 2003B Obligations to be prepaid, official notice of any prepayment of 2003B Obligations will be given by the Trustee on behalf of the Issuers by mailing a copy of an official prepayment notice by first class mail, postage prepaid, at least 30 days and not more than 60 days prior to the date fixed for prepayment, to the Owners of the 2003B Obligations to be prepaid at the address shown on the bond register or at such other addresses as are furnished in writing by such Owners to the Trustee. Registration Features The Obligations will be issued as fully registered bonds and, when issued, will be registered in the name of Cede & Co. as Obligation Owner and as nominee for The Depository Trust Company ( DTC ), New York, New York. DTC will act as securities depository for the Obligations. Individual purchases and sales of the Obligations may be made in book-entry form only in minimum denominations of $5,000 (final maturity amount for the 2003A Obligations) within a single maturity and integral multiples thereof. Purchasers ( Beneficial Owners ) will not receive certificates representing their interest in the Obligations. The principal of, premium, if any, and interest on the Obligations will be payable by the Trustee to DTC, which, in turn, is obligated to remit such principal, premium and interest to its participants for subsequent disbursement to the Beneficial Owners of the Obligations, as further described in Appendix B attached hereto. Interest on the Obligations will be credited to the Beneficial Owners by the DTC Participants. The Trustee The Trustee is a wholly owned subsidiary of Wells Fargo & Company (NYSE:WFC). Wells Fargo & Company is a diversified financial services company with approximately $349 billion in assets as of December 31, 2002, providing banking, insurance, investments, mortgage and consumer finance from more than 5,400 stores and the Internet (wellsfargo.com) across North America and elsewhere internationally. Book-Entry Bonds DTC will act as securities depository for the Obligations. The ownership of one fully registered certificate for each series and maturity of the Obligations, as set forth on the inside cover of this Official Statement, each in the aggregate principal amount of the Obligations of such series and maturity, will be registered in the name of Cede & Co., as nominee for DTC. Clearstream, Luxembourg and Euroclear may hold omnibus positions on behalf of their participants through customers securities accounts in Clearstream, Luxembourg and Euroclear s names on the books of their respective U.S. Depository, which, in turn, holds such positions in customers securities accounts in its U.S. Depository s name on the books of DTC. Citibank, N.A. acts as depository for Clearstream, Luxembourg and the Euroclear Operator acts as depository for Euroclear (the U.S. Depositories ). See Appendix B attached hereto for additional information. 6

13 Procedure in the Event of Discontinuation of Book-Entry Transfer System. If DTC resigns as the securities depository and the Issuers are unable to retain a qualified successor to DTC, or if the Issuers have determined that it is in the best interest of the Issuers not to continue the book-entry system of transfer or that interests of the Beneficial Owners of the Obligations might be adversely affected if the book-entry system of transfer is continued, the Issuers are required to execute, authenticate and deliver at no cost to the Beneficial Owners of the Obligations or their nominees, Obligations in fully registered form, in the denomination of $5,000 (final maturity amount for the 2003A Obligations) or any integral multiple thereof within a maturity. Thereafter, the principal of the Obligations will be payable upon due presentment and surrender thereof at the principal office of the Obligation Registrar; interest on the Obligations will be payable by check or draft mailed or by wire transfer (wire transfer will be made only if so requested in writing and if the registered owner owns at least $1,000,000 aggregate principal amount or accreted value of the Obligations) to the persons in whose names such Obligations are registered, at the address appearing upon the registration books on the 15 th day of the month in which an interest payment date occurs, and the Obligations will be transferable as provided in the Trust Agreement. Authorization for Issuance The Pension Bonds. The Pension Bonds are authorized and are being issued under the resolutions listed in the following table (the Resolutions ) and adopted by the applicable Issuer s governing body (the Board of Directors ). The Pension Bonds are being issued pursuant to Oregon Revised Statutes ( ORS ) to , inclusive (the Pension Bonding Act ), which authorizes school districts and education service districts to issue limited tax bonds to finance their pension liabilities, and ORS , which permits the Issuers to pledge their full faith and credit and taxing power within the limitations of Sections 11 and 11b of Article XI of the Oregon Constitution to pay the Pension Bonds. The Obligations. The Issuers are authorized under the Pension Bonding Act to sell their Pension Bonds to the Trustee. The Obligations represent proportionate and undivided interests in and rights to receive particular Pension Bond Payments. Each Issuer is required to pay the Pension Bond Payments or to cause such payments to be made on its behalf through the Intercept Agreement (see Security for the Obligations Intercept Agreement herein) on its series of Pension Bonds, and the Trustee is required to deposit these payments into appropriate subaccounts in the Trust Fund, which is part of the Trust Estate pledged to the benefit of the Obligation Owners and defined herein. The Issuers and the Trustee are required to enter into a Trust Agreement at closing to provide for the issuance and payment of the Obligations. Article 13 of the Trust Agreement constitutes an intergovernmental agreement among the Issuers, authorized by the Pension Bonding Act, whereby the Issuers agree that the Pension Bonds and Obligations will be collectively issued, administered and paid as provided in the Trust Agreement. 7

14 Pension Bond Authorizing Resolutions Issuer Resolution No. Resolution Adopted 1. Amity No. 4J 8 January 15, Astoria No January 27, Bend-La Pine Admin. No January 14, Burns Hines No. 3 BH11403 January 14, Canby No January 6, Cascade No. 5 2 January 20, Central No. 13J -- January 13, Crook County Unit School District January 13, Crook Education Service District January 21, Dayton No. 8 4 January 14, Douglas Education Service District 5-03 January 23, Echo No January 8, Falls City No February 20, Gaston No. 511J January 9, Gervais No January 16, Gladstone No January 9, Gresham-Barlow No. 10J February 6, Jefferson No. 14J 10G January 17, Lake Oswego No. 7J -- January 27, Lincoln County 2002/03-08 January 17, Milton-Freewater No January 14, Molalla River No. 35 R January 9, Newberg No. 29J January 13, North Clackamas No January 16, North Marion No January 13, North Santiam No. 29J January 16, Pendleton No January 13, Portland No January 13, Reynolds No January 22, Riverdale No. 51J January 13, Silver Falls No. 4J 1, January 16, Sisters No. 6 FY F February 3, South Lane No. 45J January 6, South Umpqua No January 16, St. Helens No January 27, Stanfield No. 61-R 001 January 13, Sutherlin No January 13, Sweet Home No February 3, The Dalles No February 13, Tillamook No January 13, Willamette Education Service District January 14, Winston-Dillard No January 22, Yamhill-Carlton School No January 27, Yamhill Education Service District January 27,

15 Purpose and Use of Proceeds The Pension Bonds. The proceeds from the sale of the Pension Bonds will be used to finance all or a portion of each Issuer s UAL with the State of Oregon Public Employees Retirement System ( PERS ) as of May 1, 2003, and to pay other costs related to the UAL, including the costs of issuance of the Obligations. The Obligations. The Trustee is required to transfer Obligation proceeds from the Proceeds Account (see Security for the Obligations Funds and Accounts herein) to PERS to reduce the estimated UAL for each Issuer. The following table presents for each Issuer the Issuer s UAL as of December 31, 2001 and UAL payoff amounts as of May 1, 2003, as determined by Milliman USA; the amount of the Issuer s UAL, if any, previously financed with pension bonds, the principal amount of Pension Bonds to be issued and the total principal amount of Pension Bonds to be outstanding as of the closing date. 9

16 Estimated May 1, 2003 Pension Bond Principal UAL Estimates Pension Bonds Issuer Total 12/31/01 UAL (1) Estimated Total UAL as of 05/01/03 (2) Amount Previously Bonded (2002) (3) 2003 Pension Bond Principal Total Pension Bond Principal (4) 1 Amity No. 4J $5,949,161 $6,500,491 $0 $6,618,174 $6,618,174 2 Astoria No. 1C 15,721,600 17,178, ,365,161 17,365,161 3 Bend-La Pine Admin. No. 1 85,376,911 93,289,099 40,449,272 25,316,993 65,766,265 4 Burns Hines No. 3 9,322,315 10,186,247 4,483,820 5,743,750 10,227,570 5 Canby No ,433,833 35,439,594 15,607,598 19,910,661 35,518,259 6 Cascade No. 5 13,842,504 15,125, ,286,668 15,286,668 7 Central No. 13J 18,107,933 19,786, ,979,993 19,979,993 8 Crook County Unit Sch. Dist. 21,440,036 23,426,962 10,156,168 13,351,863 23,508,031 9 Crook Deschutes ESD 9,635,229 10,528, ,682,844 10,682, Dayton No. 8 6,635,862 7,250,832 3,052,139 4,258,372 7,310, Douglas ESD 8,717,577 9,525, ,597,617 4,597, Echo No. 5 1,530,272 1,672, ,703,320 1,703, Falls City No. 57 1,531,101 1,672, ,702,745 1,702, Gaston No. 511J 3,708,692 4,052,390 1,760,121 2,314,636 4,074, Gervais No. 1 8,605,941 9,403, ,541,779 9,541, Gladstone No ,953,928 16,339, ,513,406 16,513, Gresham-Barlow No. 10J 77,307,710 84,472,096 35,338,006 25,307,539 60,645, Jefferson No. 14J 6,131,510 6,699, ,818,701 6,818, Lake Oswego No. 7J 51,349,678 56,108,439 23,625,519 16,302,038 39,927, Lincoln County 43,535,986 47,570,624 20,770,045 26,941,738 47,711, Milton-Freewater No. 7 12,075,051 13,194,090 6,035,735 7,189,061 13,224, Molalla River No ,881,724 20,631,562 8,521,345 12,181,530 20,702, Newberg No. 29J 31,354,395 34,260, ,639,019 34,639, North Clackamas No ,690, ,299,617 50,246,326 63,156, ,403, North Marion No ,703,373 11,695, ,859,719 11,859, North Santiam No. 29J 14,148,964 15,460, ,657,118 15,657, Pendleton No ,205,551 25,356,094 11,220,733 14,200,947 25,421, Portland No ,060, ,490, ,027, ,170, ,197, Reynolds No. 7 73,412,745 80,216, ,978,772 80,978, Riverdale No. 51J 3,960,658 4,327, ,387,739 4,387, Silver Falls No. 4J 23,851,691 26,062, ,205,255 13,205, Sisters No. 6 7,951,086 8,687, ,791,649 8,791, South Lane No. 45J3 20,466,491 22,363, ,630,220 22,630, South Umpqua No ,947,740 13,054,981 6,303,381 6,776,652 13,080, St. Helens No ,651,857 24,751,087 10,540,941 14,312,440 24,853, Stanfield No. 61-R 1,852,340 3,636, ,689,436 3,636, Sutherlin No ,749,143 10,652,631 4,672,008 6,022,782 10,694, Sweet Home No ,700,637 17,155,672 7,981,533 9,199,658 17,181, The Dalles No ,715,866 14,986, ,182,068 15,182, Tillamook No. 9 15,030,272 16,423, ,593,017 16,593, Willamette ESD 27,586,598 30,143, ,260,920 15,260, Winston-Dillard No ,263,399 12,307,219 5,467,312 6,873,783 12,341, Yamhill-Carlton No. 1 8,490,278 9,277, ,421,889 9,421, Yamhill ESD 6,708,928 7,330, ,441,101 3,441,101 Total: $1,371,297,062 $1,499,992,668 $474,259,678 $927,079,763 $1,401,286,545 (1) Source: Milliman USA. The amounts in this column represent the total UAL determined by Milliman USA in the December 31, 2001 actuarial evaluation; it is not net of previous lump sum payments. Milliman USA s total UAL for all school districts were allocated by individual school district on the basis of each district s payroll. (2) Source: Milliman USA. Amount represents the projection of UAL for each Issuer as of May 1, (3) Amount represents the principal amount of pension bonds previously issued by the Issuers. 10

17 Sources and Uses of Funds The proceeds of the Obligations are estimated to be applied as follows: Sources of Funds Total Principal Amount of Obligations: 2003A $ 430,924, B 496,155,000 Original Issue Discount (222,100) Total Sources of Funds $ 926,857,663 Uses of Funds Transfer to PERS $ 916,430,324 Underwriters Discount, Costs of Issuance, Obligation Insurance, OSBA Expenses and Contingency 10,427,339 Total Use of Funds $ 926,857,663 Security for the Obligations General Each Issuer is issuing its Pension Bond to finance all or a portion of its UAL and to pay other costs related to financing the UAL, including costs of issuance. Each Issuer s UAL is that Issuer s estimated allocated portion of the total school pool UAL as of May 1, School districts and education service districts are pooled for actuarial purposes by PERS and this pool is referred to hereinafter as the School Pool. See Oregon Public Employees Retirement System herein. The Issuers and the Trustee are entering into a Trust Agreement at closing to provide for the issuance and payment of the Obligations. All of the rights, title and interest of the Issuers and the Trustee in and to the Pension Bonds and in and to all funds held by the Trustee under the Trust Agreement (including proceeds of the Obligations and any investment income therefrom), excepting only the right of the Trustee to the Additional Charges and indemnification (the Trust Estate ) are pledged for the benefit of the Owners of the Obligations. Within each fund and account held by the Trustee, the Trustee is required to establish a subaccount for each Issuer. Funds held by the Trustee in a subaccount of an Issuer in the Obligations Account may not be used to make the Pension Bond Payments of other Issuers. The Obligations represent proportionate and undivided interests in and rights to receive particular Pension Bond Payments. Full Faith and Credit Pledge Each Issuer s Pension Bonds are limited tax bonds of that Issuer. The full faith and credit and taxing power, within the limitations of Sections 11 and 11b of Article XI of the Oregon Constitution, of each Issuer are pledged for the payment of the principal of, premium, if any, and the interest on its Pension Bonds. Each Issuer s Pension Bonds are payable from the Issuer s Available General Funds, which is defined as all ad valorem property tax revenues received from levies under each Issuer s permanent rate limit and all other unrestricted taxes, fees, charges, revenues, including any state funding for school districts and education service districts, legally available to pay debt service on its Pension Bonds (the State Education Revenues ). The Issuers are not authorized to levy additional taxes to pay the Pension Bonds. Intercept Agreement The Pension Bonds are further secured by an Intercept Agreement under which the Oregon Department of Education (the Agency ) has agreed to divert to the Trustee an amount equal to the debt service on each Issuer s Pension Bond from the first State Education Revenues available for that Issuer after payment under ORS (2). ORS (2) allows the Agency to charge each school district $42 for the cost of doing criminal background checks on any person who is employed or seeks to be employed by a qualified district or who is providing services or seeks to provide services to a qualified district on a contractual or volunteer basis. The Intercept Agreement requires a supplemental intercept agreement for each pooled pension bond issue. The Issuers have entered into a First Supplemental Intercept Agreement for issuance of the Obligations which, together with the original Intercept Agreement, as amended, constitutes the Intercept Agreement. The Trust Agreement obligates the Trustee to apply the amounts the Trustee receives under the Intercept Agreement (the Intercept Payments ) to pay the principal and interest and any premium on the Pension Bonds. The Intercept Agreement requires that the Trustee invoice the Agency by the 5 th day of each month in which a payment is due (see Intercept Schedule and Security Payments herein). The Oregon School Bond Guaranty program (the OSBG ), is a credit enhancement offered through the Oregon State Treasurer s office for voter-approved general obligation bonds. OSBG does not guarantee payment of principal, premium, if any, and interest on pension bonds or other debt that is not a voter-approved general obligation bond. The OSBG program allows the State Treasurer to intercept money in the State School Fund, the General Fund, the income of the Common School Fund and any other source of operating moneys provided by the State if an issuer of a guaranteed bond defaults and the State pays on the guaranty. The following Issuers are participants in OSBG and others may participate in the future: Amity School District No. 4J, Astoria School District No. 1, Bend-La Pine Administrative School District No. 1, 11

18 Canby School District No. 86, Central School District No. 13J, Crook County Unit School District, Dayton School District No. 8, Milton-Freewater School District No. 7, Molalla River School District No. 35, Newberg School District No. 29J, Reynolds School District No. 7, Sisters School District No. 6, South Lane School District No. 45J3, Sutherlin School District No. 130, Sweet Home School District No. 55, The Dalles School District No. 12, Tillamook School District No. 9, Winston- Dillard School District No. 116 and Yamhill-Carlton School District No. 1. The total amount of bonds outstanding as of January 31, 2003 that are guaranteed by the OSBG is $380,192,750. The State could authorize other intercept programs for other purposes in the future. Each Issuer has covenanted that, except with respect to diversions pursuant to ORS (2) and the Oregon School Bond Guaranty program, it will not enter into any other agreement with the Agency whereby State Education Revenues would be diverted in time or priority before diversion for the Pension Bonds. The Intercept Agreement provides that so long as any Intercept Payment for an Issuer is due or overdue, no State Education Revenues will be disbursed to that Issuer until all of those Intercept Payments have been paid to the Trustee. The Intercept Agreement requires the Trustee to ask the Agency periodically about changes to the schedule for the Agency to receive State Education Revenues for each Issuer (the Disbursement Schedule ) from the State, but provides that the Agency will not be liable for any failure to provide prior notice to the Trustee of such schedule change. If the Trustee learns that the Disbursement Schedule has changed, the Trustee is required to adjust its invoices to the Agency to conform to those changes in the revised Disbursement Schedule, and to include the amounts to be paid by the Agency for each Issuer so that the Trustee has on hand the same amount the Trustee would have had if the Agency were making substantially equal monthly Intercept Payments to the Trustee and in all cases (other than if the State Education Revenues for any Issuer are no longer sufficient in total to equal that Issuer s debt service payment) such that the Trustee has sufficient funds on hand to make a debt service payment for each Issuer on the date such payment is due. The Trustee is also required to provide the Issuers with a copy of any new Disbursement Schedule within 10 days after receipt of such Disbursement Schedule from the Agency. Security Payments The Security Payments are equal to the amount invoiced by the Series 2003 Trustee in order to meet Pension Bond Payments and are less payments received by the Series 2003 Trustee pursuant to the Intercept Agreement and any investment earnings credited by the Series 2003 Trustee. The Series 2003 Issuers are required to make Security Payments no later than the 25th day of each month. The schedule for payments is shown below. Intercept and Security Payment Schedule 5 th day of month Intercept Payment is due: Trustee sends an invoice for Intercept Payments to the Agency; 15 th day of month Intercept Payment is due: Intercept Payments due; 20 th day of month: Notice to Issuer from the Trustee, to the extent funds available are insufficient under the Intercept Agreement; 25 th day of month: Security Payments due; and 30 th day of June and December: Obligation Payment date. THE PRECEDING INTERCEPT AND SECURITY PAYMENT SCHEDULE MAY CHANGE TO ACCOMMODATE CHANGES IN THE DISBURSEMENT SCHEDULE AND INTERCEPT SCHEDULE. THE TRUST AGREEMENT PROVIDES, HOWEVER, THAT SECURITY PAYMENTS ARE DUE TO THE TRUSTEE NO LATER THAN THE 25 TH DAY OF EACH MONTH. If the Agency does not pay any portion of any Intercept Payment in full when due and if the amount of the deficiency is not paid in full by an Issuer, the Trustee is required to add the amount of any remaining deficiency to the next invoice sent to the Agency. If the Agency is required to make more than one Intercept Payment each month for any Issuers (to the extent there is more than one payment owed due to issuance of Future Pension Bonds; see Future Pension Bonds below) and the Agency does not have sufficient funds to pay all the Intercept Payments for those Issuers, the Agency is required to apply its available funds proportionally to pay Intercept Payments due for those Issuers. The Intercept Agreement provides that the payment of Security Payments by any Issuer on any date will not relieve the Agency from its obligation to make Intercept Payments on any future date. If after the Series 2003 Trustee receives a Security Payment, and prior to a Payment Date, funds in a Series 2003 Issuer s subaccount are insufficient to make its Pension Bond Payment due to an investment loss, if such investment was made by the Series 2003 Trustee under the direction of the Series 2003 Issuer, the Series 2003 Trustee shall notify such Series 2003 Issuer and demand payment for the balance of the Pension Bond Payment. Intercept Schedule for Fiscal Years During the period beginning July 1, 2003 and ending on the date payment in full of all of the Pension Bonds is made, the Trustee shall invoice the Agency no later than the 5th day of each month, except for the month of May, which amount is required to be collected on an equal pro rata basis during the months of July through April, and the month of June, which amount is required to have been included in the preceding July billing. The amount invoiced for each Issuer shall be equal to the portion of that Issuer s Pension Bonds debt service that is attributable to the month for which the invoice is sent 12