$7,500,000 DENAIR UNIFIED SCHOOL DISTRICT GENERAL OBLIGATION BONDS (Stanislaus County, California) Election of 2007, Series 2008 (Bank Qualified)

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1 NEW ISSUE - FULL BOOK-ENTRY INSURED RATING: S&P: AAA UNDERLYING RATING: S&P: A+ See RATINGS herein. In the opinion of Garcia Calderon Ruiz, LLP, San Jose, California ( Bond Counsel ), based upon an analysis of existing statutes, regulations, rulings, and court decisions and assuming, among other things, the accuracy of certain representations and compliance with certain covenants, interest on the 2008 Bonds is excludable from gross income for federal income tax purposes and is exempt from State of California personal income taxes. In the opinion of Bond Counsel, interest on the 2008 Bonds is not an item of tax preference for purposes of the alternative minimum tax imposed on individuals and corporations; however, such interest is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on certain corporations. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the 2008 Bonds. See TAX MATTERS herein. $7,500,000 DENAIR UNIFIED SCHOOL DISTRICT GENERAL OBLIGATION BONDS (Stanislaus County, California) Election of 2007, Series 2008 (Bank Qualified) Dated: Date of Delivery Due: August 1, as set forth on inside cover The captioned bonds (the 2008 Bonds ), consisting solely of Current Interest Bonds, are being issued by the Denair Unified School District (the District ) pursuant to a resolution of the District s Board of Trustees adopted on May 29, 2008 (the Bond Resolution ). The 2008 Bonds were authorized at an election of the registered voters of the District held on November 6, 2007, which authorized a total of $13,000,000 in aggregate principal amount of general obligation bonds to finance the construction and improvements to the school facilities for the District, as further described herein. The 2008 Bonds represent the first series of bonds of the District authorized on November 6, The 2008 Bonds represent a general obligation of the District, payable solely from ad valorem taxes levied and collected on real property within the District. The Board of Supervisors of Stanislaus County (the County ) has the power and is obligated to annually levy ad valorem taxes upon all property within the District subject to taxation by the District without limitation of rate or amount (except certain personal property which is taxable at limited rates) for the payment of principal of and interest on the 2008 Bonds. See SECURITY FOR THE BONDS. The 2008 Bonds are subject to optional and mandatory sinking fund redemption prior to maturity, all as provided herein. See THE 2008 BONDS - Redemption. The 2008 Bonds will be issued in book-entry form only, and will be initially issued and registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York ( DTC ). Purchasers will not receive physical certificates representing their interests in the 2008 Bonds. See THE 2008 BONDS - Book-Entry-Only System. The 2008 Bonds are dated the date of delivery and will accrue interest from the date of delivery and is payable on February 1 and August 1 of each year, commencing on February 1, The 2008 Bonds will be issued in denomination of $5,000 and any integral multiple thereof. Payments of principal of and interest on the 2008 Bonds will be paid by U.S. Bank National Association, San Francisco, California, as Paying Agent, to DTC for subsequent disbursement to DTC Participants who will remit such payments to the beneficial owners of the 2008 Bonds. The scheduled payment of principal of and interest on the 2008 Bonds when due will be guaranteed under a financial guaranty insurance policy to be issued concurrently with the delivery of the 2008 Bonds by ASSURED GUARANTY CORP. See BOND INSURANCE. MATURITY SCHEDULE (See inside front cover) The principal of and interest and redemption premium, if any, on the 2008 Bonds do not constitute an obligation of the County, the State of California or any of its political subdivisions, other than the District, all as further described in this Official Statement. This cover page contains information for quick reference only. It is not a summary of all the provisions of the 2008 Bonds. Investors must read the entire official statement to obtain information essential in making an informed investment decision. The 2008 Bonds are offered when, as and if issued, subject to the approval as to their legality by Garcia Calderon Ruiz, LLP, San Jose, California, Bond Counsel. Certain legal matters also will be passed upon for the District by Hawkins Delafield & Wood LLP, Los Angeles, California, as Disclosure Counsel. It is anticipated that the 2008 Bonds in definitive form will be available for delivery to Cede & Co., as nominee of The Depository Trust Company, on or about July 1, 2008, in New York, New York. Dated: June 19, 2008

2 $7,500,000 DENAIR UNIFIED SCHOOL DISTRICT GENERAL OBLIGATION BONDS (Stanislaus County, California) Election of 2007, Series 2008 MATURITY SCHEDULE Base CUSIP : Maturity (August 1) Principal Amount Interest Rate Yield CUSIP 2016 $140, % 3.700% DQ , DR , DS7 $360, % Term Bonds due August 1, Yield: 3.600% - CUSIP : DT5 $1,455, % Term Bonds due August 1, Yield: 4.120% - CUSIP : DU2 $2,405, % Term Bonds due August 1, Yield: 4.470% - CUSIP : DV0 $2,775, % Term Bonds due August 1, Yield: 4.380% - CUSIP : DW8 CUSIP Copyright 2008, American Bankers Association. CUSIP data herein is provided by Standard & Poor s CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc.

3 GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT No Offering Except by This Official Statement. No dealer, broker, salesperson or other person has been authorized by the District or the Underwriter to give any information or to make any representations other than those contained in this Official Statement and, if given or made, such other information or representation must not be relied upon as having been authorized by the District or the Underwriter. No Unlawful Offers or Solicitations. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sale of the 2008 Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. Estimates and Projections. When used in this Official Statement and in any continuing disclosure by the District, in any press release and in any oral statement made with the approval of an authorized officer of the District, the words or phrases will likely result, are expected to, will continue, is anticipated, estimate, project, forecast, expect, intend and similar expressions identify forward looking statements within the meaning of the Private Securities Litigation Reform Act of Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. Information in Official Statement. The information set forth in this Official Statement has been furnished by the District and other sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness. Involvement of Underwriter. The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. Insurer s Disclaimer. Assured Guaranty Corp. ( Assured Guaranty or the Insurer ) makes no representation regarding the 2008 Bonds or the advisability of investing in the 2008 Bonds. In addition, Assured Guaranty has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding Assured Guaranty supplied by Assured Guaranty and presented under the heading BOND INSURANCE and Appendix F - Specimen Financial Guaranty Insurance Policy. Document Summaries. All summaries of the Bond Resolution or other documents referred to in this Official Statement are made subject to the provisions of such documents and qualified in their entirety to reference to such documents, and do not purport to be complete statements of any or all of such provisions. No Securities Laws Registration. The 2008 Bonds have not been registered under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, in reliance upon exceptions therein for the issuance and sale of municipal securities. The 2008 Bonds have not been registered or qualified under the securities laws of any state. Effective Date. This Official Statement speaks only as of its date, and the information and expressions of opinion contained in this Official Statement are subject to change without notice. Neither the delivery of this Official Statement nor any sale of the 2008 Bonds will, under any circumstances, give rise to any implication that there has been no change in the affairs of the District, Stanislaus County, the other parties described in this Official Statement, or the condition of the property within the District since the date of this Official Statement.

4 DENAIR UNIFIED SCHOOL DISTRICT (STANISLAUS COUNTY, CALIFORNIA) DISTRICT GOVERNING BOARD Tim Ellis, President Carolyn Brown, Clerk Louisa Allen, Member Norma Cordova, Member Kelley Day, Member DISTRICT ADMINISTRATION Edward E. Parraz, Superintendent Judy Sylvester, Assistant Superintendent, Business Services BOND COUNSEL Garcia Calderon Ruiz, LLP San Jose, California FINANCIAL ADVISOR Caldwell Flores Winters, Inc. Emeryville, California PAYING AGENT U.S. Bank National Association San Francisco, California

5 TABLE OF CONTENTS INTRODUCTION... 1 The District... 1 Description of the 2008 Bonds... 1 Redemption... 2 Authority for Issuance of the Bonds... 2 Security for the Bonds... 2 Bond Insurance... 2 Purpose of Issue... 2 Offering and Delivery of the Bonds... 3 Legal Matters... 3 Other Information... 3 PURPOSE OF THE BONDS... 3 THE 2008 BONDS... 3 Description of the 2008 Bonds... 3 Authority for Issuance... 4 Paying Agent... 4 Redemption... 4 Registration, Transfer and Exchange of Bonds... 7 Book-Entry-Only System... 7 CONTINUING DISCLOSURE SECURITY FOR THE BONDS General Ad Valorem Property Taxation Assessed Valuations Alternative Method of Tax Apportionment - Teeter Plan Application and Investment of Bond Proceeds BOND INSURANCE The Insurance Policy The Insurer DEBT SERVICE SCHEDULES ESTIMATED SOURCES AND USES OF FUNDS THE DISTRICT General Information Administration Recent Enrollment Trends ADA and Base Revenue Limit Employee Relations District Retirement Systems Postemployment Benefits TAXATION AND APPROPRIATIONS Property Tax Collection Procedures Unitary Taxation of Utility Property Assessed Valuation Tax Levies and Delinquencies Largest Taxpayers Statement of Direct and Overlapping Debt COUNTY INVESTMENT POOL CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Article XIIIA of the California Constitution Unitary Property Constitutional Appropriations Limitation i Page

6 Article XIIIC and Article XIIID of the California Constitution Proposition Proposition Proposition Proposition 1A Future Initiatives LEGAL OPINION TAX MATTERS CERTAIN LEGAL MATTERS Absence of Material Litigation Qualified Tax Exempt Obligations RATINGS UNDERWRITING ADDITIONAL INFORMATION APPENDIX A - DISTRICT FINANCIAL INFORMATION... A-1 APPENDIX B - AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR FISCAL YEAR ENDED JUNE 30, B-1 APPENDIX C - GENERAL INFORMATION ABOUT STANISLAUS COUNTY... C-1 APPENDIX D - FORM OF OPINION OF BOND COUNSEL... D-1 APPENDIX E - FORM OF CONTINUING DISCLOSURE CERTIFICATE... E-1 APPENDIX F - SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY... F-1 ii

7 $7,500,000 DENAIR UNIFIED SCHOOL DISTRICT GENERAL OBLIGATION BONDS (Stanislaus County, California) Election of 2007, Series 2008 INTRODUCTION The purpose of this Official Statement, which includes the cover page and attached appendices, is to set forth certain information concerning the sale and delivery by the Denair Unified School District (the District ) of the bonds captioned above (the 2008 Bonds ). All capitalized terms used in this Official Statement, unless noted otherwise, have the meanings set forth in the Bond Resolution (as defined below). This Introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page and appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of the 2008 Bonds to potential investors is made only by means of the entire Official Statement. The District The Denair Unified School District was established as a school district in The District is located in the central portion of Stanislaus County and serves the community of Denair, a portion of the City of Turlock and unincorporated areas of Stanislaus County. The District encompasses approximately 56 square miles and currently operates one elementary school, one middle school, one high school, 2 community day schools and 1 charter school. Average Daily Attendance in the District for the school year is projected at 1,321 students. The current student-teacher ratio in the District is 19:1 in grades K-3, 26:1 in grades 4-6, 25:1 in grades 7-8, and 21:1 in grades The Denair Unified School District Board of Trustees established a charter school in Fiscal Year The Denair Charter Academy provides students with various educational options such as homebased learning, distance learning and other individualized programs. See THE DISTRICT herein for additional information. Description of the 2008 Bonds The 2008 Bonds will be dated their date of delivery and will be issued as fully registered bonds, without coupons, in the denominations of $5,000 or any integral multiple thereof. See THE 2008 BONDS - Description of the Bonds for additional information. The 2008 Bonds will be issued in fully registered form only, registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York ( DTC ), and will be available to actual purchasers of the 2008 Bonds (the Beneficial Owners ) in authorized denominations, under the book-entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants as described herein. Beneficial Owners will not be entitled to receive physical delivery of the 2008 Bonds. See THE 2008 BONDS - Book-Entry-Only System. In the event that the book-entry-only system described below is no longer used with respect to the 2008 Bonds, the 2008 Bonds will be

8 registered in accordance with the Bond Resolution described herein. See THE 2008 BONDS - Registration, Transfer and Exchange of Bonds. Redemption The 2008 Bonds are subject to optional and mandatory sinking fund redemption prior to maturity. See THE 2008 BONDS - Redemption. Authority for Issuance of the Bonds The 2008 Bonds were authorized at an election of the registered voters of the District held on November 6, 2007, which authorized a total of $13,000,000 in aggregate principal amount of general obligation bonds ( 2007 Authorized Bonds ) to finance the costs of the school facilities and property of the District. The 2007 Authorized Bonds were approved by 62.95% of voters. The 2008 Bonds represent the first series of 2007 Authorized Bonds of the District. The 2008 Bonds will be issued pursuant to certain provisions of the Education Code of the State and pursuant to a resolution adopted by the Board of Trustees of the District on May 29, 2008 (the Bond Resolution ). See THE 2008 BONDS - Authority for Issuance herein. For additional information on the outstanding long-term obligations of the District, see SECURITY FOR THE BONDS - General herein. Security for the Bonds The 2008 Bonds represent general obligations of the District, payable solely from ad valorem taxes levied and collected on real property within the District. The Board of Supervisors of the County has the power and is obligated to annually levy ad valorem taxes for the payment of the principal of and the interest on the 2008 Bonds, upon all property within the District subject to taxation without limitation of rate or amount (except certain personal property which is taxable at limited rates). See SECURITY FOR THE BONDS herein. The principal of and interest and redemption premium, if any, on the 2008 Bonds do not constitute an obligation of the County, the State of California or any of its political subdivisions, other than the District, all as further described in this Official Statement. Bond Insurance Concurrently with issuance of the 2008 Bonds, Assured Guaranty Corp. will issue its Financial Guaranty Insurance Policy (the Policy ) for the 2008 Bonds. The Policy unconditionally guarantees the payment of the principal of, and the interest on, the 2008 Bonds which has become due for payment, but which is unpaid. See BOND INSURANCE and Appendix F - SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY. Purpose of Issue The net proceeds of the 2008 Bonds will be used to build new classrooms and facilities and improve the overall quality of education by building a new middle school to reduce student overcrowding, to provide the local match for $14,000,000 in State funds and to improve student access to modern technology, in accordance with the ballot proposition related to the 2007 Authorized Bonds. Specifically, the District will apply the proceeds of the 2008 Bonds to construct a new school building at Denair Middle School, among other purposes. See PURPOSE OF THE BONDS and ESTIMATED SOURCES AND USES OF FUNDS herein. 2

9 Offering and Delivery of the Bonds The 2008 Bonds are offered when, as and if issued and received by the purchasers, subject to approval as to their legality by Bond Counsel. It is anticipated that the 2008 Bonds will be available for delivery in New York, New York on or about July 1, Legal Matters Issuance of the 2008 Bonds is subject to the approving opinions of Garcia Calderon Ruiz, LLP, San Jose, California ( Bond Counsel ), to be delivered in substantially the form attached hereto as Appendix D. Hawkins Delafield & Wood LLP, Los Angeles, California, will serve as Disclosure Counsel to the District. Payment of the fees of Bond Counsel and Disclosure Counsel to the District is contingent upon issuance of the 2008 Bonds. Other Information The Official Statement contains brief descriptions of the 2008 Bonds, the Bond Resolution and other documents. Such descriptions are not comprehensive or definitive and are qualified in their entirety by reference to such documents. Copies of documents referred to herein and information concerning the 2008 Bonds are available from the District, 3460 Lester Road, Denair, California The District may impose a charge for copying, mailing and handling. PURPOSE OF THE BONDS The proceeds of the 2008 Bonds will be used, as specified in the bond measure approved by the District s voters on November 6, 2007, to build new classrooms and facilities and improve the overall quality of education by building a new middle school to reduce student overcrowding, to provide the local match for $14,000,000 in State funds and to improve student access to modern technology, in accordance with the ballot proposition related to the 2007 Authorized Bonds. Proceeds of the 2008 Bonds will also be used to pay costs of issuance related to the 2008 Bonds. The District expects to apply the proceeds of the 2008 Bonds to construct a new school building at Denair Middle School and to acquire improvements for student access to modern technology at Denair Middle School. When completed this new school building at Denair Middle School is expected to house approximately 300 students in approximately 65,200 square feet of new facilities. The total cost of this project is currently estimated at $27,000,000. The District anticipates receiving $14,000,000 in State Aid funding. Description of the 2008 Bonds THE 2008 BONDS The 2008 Bonds will be dated their date of delivery and will be issued as fully registered bonds, without coupons, in the denominations of $5,000 or any integral multiple thereof. The interest on the 2008 Bonds will be paid on each February 1 and August 1, commencing on February 1, 2009 (each, an Interest Payment Date ), at the annual interest rates shown on the inside cover hereof. 3

10 The 2008 Bonds will be issued in book-entry form only, and will be initially issued and registered in the name of Cede & Co. as nominee for DTC. Purchasers will not receive physical certificates representing their interest in the 2008 Bonds. Interest on the 2008 Bonds is payable by check mailed to the registered owner thereof as of the close of business on the 15 th day of the month preceding the applicable Interest Payment Date (the Record Date ) or, upon written request of an owner of $1,000,000 or more of aggregate principal amount, if given on or before the applicable Record Date, by wire transfer. The principal of and interest on, the 2008 Bonds are payable only upon surrender of the 2008 Bonds at maturity or earlier redemption at the office of the Paying Agent (described below). Authority for Issuance The 2008 Bonds are issued pursuant to the provisions of Chapter 1 and Chapter 1.5, Part 10, Division 1, Title 1 of the California Education Code (the Bond Law ) and pursuant to a resolution adopted by the District on May 29, 2008 (the Bond Resolution ). On November 6, 2007, the qualified electors within the District authorized the issuance of general obligation bonds in a principal amount not to exceed $13,000,000. The electors approved the 2007 Authorized Bonds by 62.95%, which exceeds the requisite 55% vote of the qualified electors. The 2008 Bonds represent the first series of bonds within the 2007 Authorized Bonds. Upon issuance of the 2008 Bonds, $5,500,000 of 2007 Authorized Bonds will remain for future issuance. See SECURITY FOR THE BONDS - General for additional information related to outstanding bonds of the District. Paying Agent U.S. Bank National Association, San Francisco, California, will act as the registrar, transfer agent, and paying agent for the 2008 Bonds (the Paying Agent ) under the Bond Resolution. As long as DTC is the registered owner of the 2008 Bonds and DTC s book-entry method is used for the 2008 Bonds, the Paying Agent will send any notice of prepayment or other notices to owners only to DTC. Any failure of DTC to advise any DTC Participant, or of any DTC Participant to notify any Beneficial Owner, of any such notice and its content or effect will not affect the validity or sufficiency of the proceedings relating to the prepayment of the 2008 Bonds called for prepayment or of any other action covered by such notice. The Paying Agent, the District, the County and the Underwriter of the 2008 Bonds have no responsibility or liability for any aspects of the records relating to or payments made on account of beneficial ownership, or for maintaining, supervising or reviewing any records relating to beneficial ownership, of interests in the 2008 Bonds. Redemption Optional Redemption. The 2008 Bonds maturing on or prior to August 1, 2018, are not subject to redemption prior to maturity. The 2008 Bonds maturing on or after August 1, 2019, are subject to redemption prior to their respective stated maturity dates, at the option of the District, from any source of available funds, in whole or in part, in such maturities as specified by the District and by lot within a maturity, on any Interest Payment Date on or after August 1, 2018, at the redemption price equal to the principal amount of the 2008 Bonds called for redemption, plus accrued interest thereon to the date of redemption, without premium. 4

11 Mandatory Sinking Fund Redemption. The 2008 Bonds maturing on August 1, 2015, August 1, 2023, August 1, 2028 and August 1, 2032 (collectively, the Term Bonds ), are subject to redemption prior to maturity from mandatory sinking fund payments on August 1 of each year, in accordance with the schedules set forth below. The Term Bonds so called for mandatory sinking fund redemption shall be redeemed at the principal amount thereof, together with interest thereon accrued to the redemption date, without premium. $360,000 Term Bonds Maturing on August 1, 2015 Payment Date (August 1) Principal Amount 2009 $ 5, , , , , , (Maturity) 115,000 $1,455,000 Term Bonds Maturing on August 1, 2023 Payment Date (August 1) Principal Amount 2019 $225, , , , (Maturity) 360, $2,405,000 Term Bonds Maturing on August 1, 2028 Payment Date (August 1) Principal Amount 2024 $400, , , , (Maturity) 565,000 $2,775,000 Term Bonds Maturing on August 1, 2032 Payment Date (August 1) Principal Amount 2029 $610, , , (Maturity) 780,000 5

12 Selection of Bonds for Redemption. In the case of any redemption at the election of the District of less than all the Outstanding Bonds, the District shall, at least 45 days prior to the date fixed for redemption (unless a shorter notice shall be satisfactory to the Paying Agent) notify the Paying Agent of such redemption date and of the principal amount of the 2008 Bonds to be redeemed. If less than all the Outstanding Bonds are to be redeemed, such bonds shall be redeemed in such order of maturity as directed by the District and if less than all of the 2008 Bonds of any given maturity are called for redemption, such portion will be determined by lot. For purposes of such selection, each $5,000 amount of principal at maturity shall be deemed to be a separate Bond. The Paying Agent shall promptly notify the District in writing of the 2008 Bonds so selected for redemption and, in the case of a 2008 Bond selected for partial redemption, the principal amount thereof to be redeemed. Unless the context otherwise requires, all provisions relating to the redemption of the 2008 Bonds shall relate, in the case of any 2008 Bond redeemed or to be redeemed only in part, to the portion of the principal of such 2008 Bond that has been or is to be redeemed. Notice of Redemption. When the 2008 Bonds are being redeemed as described above, the Paying Agent shall mail notice of redemption not less than thirty (30) nor more than sixty (60) days prior to the redemption date (i) by first-class mail, postage prepaid, to the respective Owners of any Bonds designated for redemption at their addresses appearing on the Bond Register; (ii) by secure mail to all organizations registered with the Securities and Exchange Commission as securities depositories; (iii) to at least two information services of national recognition which disseminate redemption information with respect to municipal securities; and (iv) as may be further required in accordance with the Continuing Disclosure Certificate of the District. Each notice of redemption shall state (a) the date of such notice, (b) the Series designation of the Bonds, (c) the date of issue of the Series of Bonds, (d) the redemption date, (e) the Redemption Price, (f) the place or places of redemption (including the name and appropriate address or addresses of the Paying Agent), (g) the CUSIP number (if any) of the maturity or maturities, and (h) if less than all of any such maturity, the distinctive certificate numbers of the Bonds of such maturity to be redeemed and, in the case of Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice shall also (a) state that on said date there will become due and payable on each of said Bonds the Redemption Price thereof or of said specified portion of the principal amount thereof in the case of a Bond to be redeemed in part only, together with interest accrued thereon to the date fixed for redemption, (b) state that from and after such redemption date interest thereon shall cease to accrue, and (c) require that such Bonds be then surrendered at the address or addresses of the Paying Agent specified in the redemption notice. Failure by the Paying Agent to give notice to the Information Service or Securities Depositories or failure of any Owner to receive notice or any defect in any such notice shall not affect the sufficiency of the proceedings for redemption. Failure by the Paying Agent to mail notice to any one or more of the respective Owners of any 2008 Bonds designated for redemption shall not affect the sufficiency of the proceedings for redemption with respect to the Owner or Owners to whom such notice was mailed. Effect of Notice of Redemption. If on such redemption date, money for the redemption of all the 2008 Bonds to be redeemed as provided in the Resolution, together with interest to such redemption date, shall be held by the Paying Agent so as to be available therefor shall have been given as specified in the Bond Resolution, then from and after such redemption date, interest with respect to the 2008 Bonds to be redeemed shall cease to accrue and become payable. All money held by or on behalf of the Paying Agent 6

13 for the redemption of 2008 Bonds shall be held in trust for the account of the Owners of the 2008 Bonds so to be redeemed. Registration, Transfer and Exchange of Bonds If the book entry system is discontinued, the District shall cause the Paying Agent to maintain and keep at its principal corporate trust office all books and records necessary for the registration, exchange and transfer of the 2008 Bonds. Any 2008 Bond may, in accordance with its terms, be transferred, upon the Registration Books, by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such 2008 Bond for cancellation at the Office at the Paying Agent, accompanied by delivery of a written instrument of transfer in a form approved by the Paying Agent, duly executed. The Paying Agent shall require the payment by the Owner requesting such transfer of any tax or other governmental charge required to be paid with respect to such transfer. Whenever any 2008 Bond is surrendered for transfer, the District shall execute and the Paying Agent shall authenticate and deliver a new 2008 Bond or Bonds, for like aggregate principal amount Bonds may be exchanged at the office of the Paying Agent for a like aggregate principal amount of 2008 Bonds of authorized denominations and of the same maturity. The Paying Agent shall require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. No exchanges or transfers of 2008 Bonds are required to be made (a) 15 days prior to the date established by the Paying Agent for selection of 2008 Bonds for redemption or (b) with respect to a 2008 Bond which has been selected for redemption. Book-Entry-Only System The information concerning The Depository Trust Company ( DTC ), New York, New York, and DTC s book-entry system has been obtained from DTC and the District takes no responsibility for the completeness or accuracy thereof. The District cannot and does not give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the 2008 Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the 2008 Bonds, or (c) redemption, tender or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the 2008 Bonds, or that they will do so on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described below. The current Rules applicable to DTC are on file with the Securities and Exchange Commission and the current Procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. The Depository Trust Company, New York, New York, will act as securities depository for the 2008 Bonds. The 2008 Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered 2008 Bond certificate will be issued for each maturity of each 2008 Bond, in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A 7

14 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 Standard & Poor s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and Purchases of the 2008 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2008 Bonds on DTC s records. The ownership interest of each actual purchaser of each 2008 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 2008 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the 2008 Bonds, except in the event that use of the book-entry system for the 2008 Bonds is discontinued. To facilitate subsequent transfers, all 2008 Bonds deposited by Direct Participants with DTC are registered in the name of Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of 2008 Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 2008 Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such 2008 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. 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 the 2008 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the 2008 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Resolution. For example, Beneficial Owners of 2008 Bonds may wish to ascertain that the nominee holding the 2008 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. 8

15 Redemption notices shall be sent to DTC. If less than all of the 2008 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 the 2008 Bonds unless authorized by a Direct Participant in accordance with DTC s MMI procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District 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 the 2008 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal, redemption price (if any) and interest payments on the 2008 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 the District or the Paying Agent, on each payment 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 nor its nominee, the Paying Agent or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, redemption price (if any) and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District or the Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the 2008 Bonds at any time by giving reasonable notice to the District or the Paying Agent. Under such circumstances, in the event that a successor depository is not obtained, the 2008 Bond certificates are required to be printed and delivered. The District may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, 2008 Bond certificates will be printed and delivered. The information under this heading concerning DTC and DTC s book-entry system has been obtained from sources that the District believes to be reliable, but the District takes no responsibility for the accuracy thereof. Discontinuation of the Book-Entry System. In the event that DTC determines not to continue to act as securities depository by giving notice to the District and the Paying Agent, and discharges its responsibilities with respect thereto under applicable law and there is not a successor securities depository, or the District determines that it is in the best interest of the Beneficial Owners of the 2008 Bonds that they be able to obtain certificates, the Paying Agent will execute, transfer and exchange 2008 Bonds as requested by DTC and will deliver new 2008 Bonds in fully registered form in authorized denominations in the names of Beneficial Owners or DTC Participants. In the event the book-entry system is discontinued, the principal amount of and premium, if any, payable with respect to the 2008 Bonds will be payable upon surrender thereof at the principal corporate trust office of the Paying Agent. The interest on 2008 Bonds will be payable by check mailed to the respective owners thereof at their addresses as they appear on the books maintained by the Paying Agent. NONE OF THE DISTRICT, THE COUNTY OR THE PAYING AGENT WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO DTC PARTICIPANTS, INDIRECT PARTICIPANTS OR 9

16 BENEFICIAL OWNERS WITH RESPECT TO THE PAYMENTS OR THE PROVIDING OF NOTICE TO DTC PARTICIPANTS, INDIRECT PARTICIPANTS OR BENEFICIAL OWNERS OR THE SELECTION OF 2008 BONDS FOR REDEMPTION. None of the District, the County, the Paying Agent or the Underwriter can give any assurances that DTC, DTC Participants, Indirect Participants or others will distribute payments of principal of, premium, if any, and interest on the 2008 Bonds paid to DTC or its nominee, as the registered Owner, or any redemption or other notice, to the Beneficial Owners or that they will do so on a timely basis or that DTC will serve and act in a manner described in this Official Statement. CONTINUING DISCLOSURE The District has covenanted for the benefit of owners of the 2008 Bonds to provide certain financial information and operating data relating to the District by not later than nine months after the end of the District s Fiscal Year (presently June 30) in each year commencing with its report for fiscal year to be delivered not later than April 1, 2009 (the Annual Report ) and to provide notices of the occurrence of certain enumerated events. These covenants have been made in order to assist the Underwriter in complying with Securities Exchange Commission Rule 15c2-12(b)(5). The specific nature of the information to be contained in the Annual Report or the notices of material events by the District is contained in Appendix E - FORM OF CONTINUING DISCLOSURE CERTIFICATE. Failure of the District to provide the required information at the required time may have a negative impact on the value of the 2008 Bonds in the secondary market. The District failed to comply with undertakings under S.E.C. Rule 15c2-12(b)(5) related to its Prior Authorized Bonds (as described herein) and certain certificates of participation delivered in The District has implemented new procedures to assist with the preparation and filing of all annual reports under the previous undertakings as well as the Continuing Disclosure Certificate being executed connection with the 2008 Bonds. As of the date of this Official Statement, the District has filed all required materials and is now current on all filings required pursuant to its previous continuing disclosure undertakings. General SECURITY FOR THE BONDS On November 6, 2007, the qualified electors within the District authorized the issuance of general obligation bonds in a principal amount not to exceed $13,000,000. The 2008 Bonds represent the first series of bonds within the 2007 Authorized Bonds. In addition to the 2007 Authorized Bonds, on November 6, 2001, the qualified electors authorized the issuance of general obligation bonds in a principal amount not to exceed $8,200,000 ( Prior Authorized Bonds ). The Prior Authorized Bonds have been previously issued and delivered. As of May 1, 2008, $7,978, in initial aggregate principal amount of the Prior Authorized Bonds remain outstanding. See Appendix A - DISTRICT FINANCIAL INFORMATION - Long-term Obligations attached hereto for additional information. The 2008 Bonds, together with the Prior Authorized Bonds (collectively, the Bonds ), will be secured on a parity, payable from ad valorem taxes levied on taxable parcels within the District. See DEBT SERVICE SCHEDULES herein for the debt service schedule related to the 2008 Bonds. 10

17 The Board of Supervisors of the County has the power and is obligated to annually levy ad valorem taxes upon all property subject to taxation by the District without limitation of rate or amount (except certain personal property which is taxable at limited rates) for the payment of principal of, and interest on, the Bonds. Such taxes are required to be levied annually, in addition to all other taxes, during the period that any Bonds are outstanding in an amount sufficient to pay the principal of, and interest on, the Bonds when due. Such taxes, when collected, will be deposited into debt service funds for each Series of the Bonds (each a Debt Service Fund ), which are maintained by the County and which are created by statute for the payment of the principal of, and interest on, the Bonds, including the 2008 Bonds, when due. Although the County is obligated to levy an ad valorem tax for the payment of the Bonds, and will maintain the Debt Service Fund pledged to the repayment of the Bonds, the Bonds are not a debt of the County. The moneys in the Debt Service Fund, to the extent necessary to pay the principal of, and interest on, the Bonds as the same become due and payable, will be transferred by the County to the Paying Agent which, in turn, will pay such moneys to DTC to pay the principal of, and interest on, the Bonds. DTC will thereupon make payments of the principal of, and interest on, the Bonds to the DTC Participants who will thereupon make payments to the beneficial owners of the Bonds. See THE 2008 BONDS -Book-Entry Only System. The amount of the annual ad valorem tax levied by the County to repay the Bonds, including 2008 Bonds, will be determined by the relationship between the assessed valuation of taxable property in the District and the amount of debt service due on the Bonds. A reduction in the assessed valuation of taxable property in the District caused by economic factors beyond the District s control, such as economic recession, slower growth, or deflation of land values, a relocation out of the District by one or more major property owners, or the complete or partial destruction of such property caused by, among other eventualities, an earthquake, flood or other natural disaster, could cause a reduction in the assessed value of the District and necessitate an unanticipated increase in the annual tax levy. For information related to the assessment valuation, a list of largest property owners and land use information, see TAXATION AND APPROPRIATION herein. The principal of and interest and redemption premium, if any, on the 2008 Bonds do not constitute an obligation of the County, the State of California or any of its political subdivisions, other than the District, all as further described in this Official Statement. Ad Valorem Property Taxation Taxes are levied by the County for each fiscal year on taxable real and personal property which is situated in the District as of the preceding January 1. For assessment and collection purposes, property is classified either as secured or unsecured and is listed accordingly on separate parts of the assessment roll. The secured roll is that part of the assessment roll containing State-assessed public utilities property and real property having a tax lien which is sufficient, in the opinion of the County Assessor, to secure payment of the taxes. Other property is assessed on the unsecured roll. Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year. If unpaid, such taxes become delinquent on December 10 and April 10, respectively, and a 10% penalty attaches to any delinquent payment. Property on the secured roll with respect to which taxes are delinquent becomes tax defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of a penalty of 1.5% per month to the time of redemption, plus costs and a redemption fee. If taxes are unpaid for a period of five years or more, the property is subject to sale by the Tax Collector and Treasurer. Property taxes on the unsecured roll are due as of the January 1 lien date and become delinquent, if unpaid, on August 31. A 10% penalty attaches to delinquent unsecured taxes. If unsecured taxes are 11

18 unpaid at 5:00 p.m. on October 31, an additional penalty of 1.5% attaches to them on the first day of each month until paid. The taxing authority has four ways of collecting delinquent unsecured personal property taxes: (1) bringing a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the County Clerk and County Recorder s office in order to obtain a lien on certain property of the taxpayer; and (4) seizing and selling personal property, improvements, or possessory interests belonging or assessed to the assessee. Assessed Valuations The assessed valuation of property in the District is established by the County Assessor, except for public utility property which is assessed by the State Board of Equalization. Assessed valuations are reported at 100% of the full value of the property, as defined in Article XIIIA of the California Constitution. The full value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or to reflect a reduction in the consumer price index or comparable data for the area, or to reflect declines in property value caused by substantial damage, destruction or other factors, including assessment appeals filed by property owners. For a discussion of how properties currently are assessed, see CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS. Certain classes of property, such as churches, colleges, not-for-profit hospitals, and charitable institutions, are exempt from property taxation and do not appear on the tax rolls. No reimbursement is made by the State for such exemptions. Alternative Method of Tax Apportionment - Teeter Plan Effective July 1, 1993, the Board of Supervisors of the County adopted the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the Teeter Plan ), as provided for in Section 4701 et seq. of the California Revenue and Taxation Code, to accomplish a simplification of the tax levying and tax apportioning process and an increased flexibility in the use of available cash resources. This alternative method is used for distribution of the ad valorem property tax revenues. The County is responsible for determining the amount of the ad valorem tax levy on each parcel in the District, which is entered onto the secured real property tax roll. Upon completion of the secured real property tax roll, the County auditor determines the total amount of taxes and assessments actually extended on the roll for each fund for which a tax levy has been included, and apportions 100 percent of the tax and assessment levies to that fund s credit. Such monies may thereafter be drawn against by the taxing agency in the same manner as if the amount credited had been collected. Under the Teeter Plan, the County established the Tax Loss Reserve Fund. The County determines which monies in the County treasury (including those credited to the Property Tax Collection Agency Fund) shall be available to be drawn on to the extent of the amount of uncollected taxes credited to each fund for which a levy has been included. When amounts are received on the secured tax roll for the current year, or for redemption of tax defaulted property, Teeter Plan monies are distributed to the apportioned tax resources accounts. The tax losses reserve fund is used exclusively to cover lost income occurring as a result of tax defaulted property. Monies in this fund are derived from several sources. While amounts collected as costs are distributed to the County s general fund, delinquent penalty collections are distributed to the tax losses reserve fund. The Teeter Plan is to remain in effect unless the Board of Supervisors orders its discontinuance or unless, prior to the commencement of any fiscal year of the County (which commences on July 1), the 12

19 Board of Supervisors shall receive a petition for its discontinuance joined in by resolutions adopted by two thirds of the participating revenue districts in the County, in which event the Board of Supervisors is to order discontinuance of the Teeter Plan effective at the commencement of the subsequent fiscal year. In the event that the Teeter Plan were terminated, receipt of revenue of ad valorem taxes in the District would depend upon the collections of the ad valorem property taxes and delinquency rates experienced with respect to the parcels within the District. So long as the Teeter Plan remains in effect, the District s receipt of revenues with respect to the levy of ad valorem property taxes will not be dependent upon actual collections of the ad valorem property taxes by the County. See TAXATION AND APPROPRIATION - Tax Levies and Delinquencies for information related to county-wide collection experience. Application and Investment of Bond Proceeds 2008 Bonds. The proceeds from the sale of the 2008 Bonds, to the extent of the principal amount thereof, shall be paid to the County Treasurer to the credit of the funds created and established in the Bond Resolution and known as the Election of 2007, Series 2008 Denair Unified School District Building Fund (the 2008 Building Fund ), which will be accounted for as separate and distinct from all other District and County funds. The proceeds will be used solely for the purposes for which the 2008 Bonds are being issued and for payment of permissible costs. Any excess proceeds of the 2008 Bonds not needed for the authorized purposes for which the Bonds are being issued shall be transferred to the Debt Service Fund for the 2008 Bonds and applied to the payment of debt service on the 2008 Bonds. If, after payment in full of the 2008 Bonds, there remain excess proceeds, any such excess amounts shall be transferred to the general fund of the District. Interest earnings on the investment of monies held in the 2008 Building Fund shall be retained in the 2008 Building Fund. The accrued interest and any premium received by the County, on behalf of the District, from the sale of the 2008 Bonds shall be kept separate and apart in the Debt Service Fund for the 2008 Bonds and be used only for payment of debt service on the 2008 Bonds. Interest earnings on the investment of monies held in the Debt Service Fund shall be retained in the Debt Service Fund for the 2008 Bonds and used by the County to pay debt service on the 2008 Bonds when due. Deposit of Funds. The proceeds of the 2008 Bonds initially will be deposited in the County Treasury of the County. Under California law, the District is generally required to pay all monies received from any source into the County Treasury to be held on behalf of the District. The County Treasurer has authority to implement and oversee the investment of funds on deposit in commingled funds of the Pooled Surplus Investment Fund of the County (the County Pool ). Money on deposit in the 2008 Building Fund and the Debt Service Fund will be accounted for separately. It is anticipated that such funds will be invested by the County Treasurer in the County Pool. See also COUNTY INVESTMENT POOL herein. BOND INSURANCE The following information has been furnished by the Insurer for use in this Official Statement. No representation is made by the District or the Underwriter as to the accuracy or completeness of such information, or the absence of material adverse changes therein at any time subsequent to the date hereof. The following information is not complete and reference is made to Appendix F for a specimen of the Financial Guaranty Insurance Policy of Assured Guaranty Corp. 13

20 The Insurance Policy Assured Guaranty has made a commitment to issue the Policy relating to the 2008 Bonds, effective as of the date of issuance of such 2008 Bonds. Under the terms of the Policy, Assured Guaranty will unconditionally and irrevocably guarantee to pay that portion of principal of and interest on the 2008 Bonds that becomes Due for Payment but shall be unpaid by reason of Nonpayment (the Insured Payments ). Insured Payments shall not include any additional amounts owing by the District solely as a result of the failure by the Paying Agent to pay such amount when due and payable, including without limitation any such additional amounts as may be attributable to penalties or to interest accruing at a default rate, to amounts payable in respect of indemnification, or to any other additional amounts payable by the Paying Agent by reason of such failure. The Policy is non-cancelable for any reason, including without limitation the non-payment of premium. Due for Payment means, when referring to the principal of the 2008 Bonds, the stated maturity date thereof, or the date on which such 2008 Bonds shall have been duly called for mandatory sinking fund redemption, and does not refer to any earlier date on which payment is due by reason of a call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity (unless Assured Guaranty in its sole discretion elects to make any principal payment, in whole or in part, on such earlier date) and, when referring to interest on such 2008 Bonds, means the stated dates for payment of interest. Nonpayment means the failure of the District to have provided sufficient funds to the Paying Agent for payment in full of all principal and interest Due for Payment on the 2008 Bonds. It is further understood that the term Nonpayment in respect of a 2008 Bond also includes any amount previously distributed to the Holder (as such term is defined in the Policy) of such 2008 Bond in respect of any Insured Payment by or on behalf of the District, which amount has been recovered from such Holder pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court having competent jurisdiction that such payment constitutes an avoidable preference with respect to such Holder. Nonpayment does not include nonpayment of principal or interest caused by the failure of the Paying Agent to pay such amount when due and payable. Assured Guaranty will pay each portion of an Insured Payment that is Due for Payment and unpaid by reason of Nonpayment, on the later to occur of (i) the date such principal or interest becomes Due for Payment, or (ii) the business day next following the day on which Assured Guaranty shall have received a completed notice of Nonpayment therefor in accordance with the terms of the Policy. Assured Guaranty shall be fully subrogated to the rights of the Holders of the 2008 Bonds to receive payments in respect of the Insured Payments to the extent of any payment by Assured Guaranty under the Policy. The Policy is not covered by any insurance or guaranty fund established under New York, California, Connecticut or Florida insurance law. The Insurer Assured Guaranty Corp. is a Maryland-domiciled insurance company regulated by the Maryland Insurance Administration and licensed to conduct financial guaranty insurance business in all fifty states of the United States, the District of Columbia and Puerto Rico. Assured Guaranty commenced operations in Assured Guaranty is a wholly owned, indirect subsidiary of Assured Guaranty Ltd. ( AGL ), a Bermuda-based holding company whose shares are publicly traded and are listed on the New York Stock Exchange under the symbol AGO. AGL, through its operating subsidiaries, provides credit 14

21 enhancement products to the U.S. and global public finance, structured finance and mortgage markets. Neither AGL nor any of its shareholders is obligated to pay any debts of Assured Guaranty or any claims under any insurance policy issued by Assured Guaranty. Assured Guaranty is subject to insurance laws and regulations in Maryland and in New York (and in other jurisdictions in which it is licensed) that among other things, (i) limit Assured Guaranty s business to financial guaranty insurance and related lines, (ii) prescribe minimum solvency requirements, including capital and surplus requirements, (iii) limit classes and concentrations of investments, (iv) regulate the amount of both the aggregate and individual risks that may be insured, (v) limit the payment of dividends by Assured Guaranty, (vi) require the maintenance of contingency reserves, and (vii) govern changes in control and transactions among affiliates. Certain state laws to which Assured Guaranty is subject also require the approval of policy rates and forms. Assured Guaranty s financial strength is rated AAA by Standard & Poor s, a division of The McGraw-Hill Companies, Inc. ( S&P ), AAA by Fitch, Inc. ( Fitch ) and Aaa by Moody s Investors Service, Inc. ( Moody s ). Each rating of Assured Guaranty should be evaluated independently. An explanation of the significance of the above ratings may be obtained from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold any security, and such ratings are subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of any security guaranteed by Assured Guaranty. Assured Guaranty does not guaranty the market price of the securities it guarantees, nor does it guaranty that the ratings on such securities will not be revised or withdrawn. Capitalization of Assured Guaranty Corp. As of March 31, 2008, Assured Guaranty had total admitted assets of $1,518,398,730 (unaudited), total liabilities of $1,138,285,708 (unaudited), total surplus of $380,113,022 (unaudited) and total statutory capital (surplus plus contingency reserves) of $1,001,533,924 (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. As of December 31, 2007, Assured Guaranty had total admitted assets of $1,361,538,502 (audited), total liabilities of $961,967,238 (audited), total surplus of $399,571,264 (audited) and total statutory capital (surplus plus contingency reserves) of $982,045,695 (audited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. The Maryland Insurance Administration recognizes only statutory accounting practices for determining and reporting the financial condition and results of operations of an insurance company, for determining its solvency under the Maryland Insurance Code, and for determining whether its financial condition warrants the payment of a dividend to its stockholders. No consideration is given by the Maryland Insurance Administration to financial statements prepared in accordance with accounting principles generally accepted in the United States ( GAAP ) in making such determinations. Incorporation of Certain Documents by Reference The portions of the following documents relating to Assured Guaranty are hereby incorporated by reference into this Official Statement and shall be deemed to be a part hereof: The Annual Report on Form 10-K of AGL for the fiscal year ended December 31, 2007 (which was filed by AGL with the Securities and Exchange Commission (the SEC ) on February 29, 2008); The Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008 (which was filed by AGL with the SEC on May 9, 2008); and 15

22 The Current Reports on Form 8-K filed by AGL with the SEC, as they relate to Assured Guaranty. All consolidated financial statements of Assured Guaranty and all other information relating to Assured Guaranty included in documents filed by AGL with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, subsequent to the date of this Official Statement and prior to the termination of the offering of the 2008 Bonds shall be deemed to be incorporated by reference into this Official Statement and to be a part hereof from the respective dates of filing such consolidated financial statements. Any statement contained in a document incorporated herein by reference or contained herein under the heading BOND INSURANCE The Insurer shall be modified or superseded for purposes of this Official Statement to the extent that a statement contained herein or in any subsequently filed document which is incorporated by reference herein also modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement. Copies of the consolidated financial statements of Assured Guaranty incorporated by reference herein and of the statutory financial statements filed by Assured Guaranty with the Maryland Insurance Administration are available upon request by contacting Assured Guaranty at 1325 Avenue of the Americas, New York, New York or by calling Assured Guaranty at (212) In addition, the information regarding Assured Guaranty that is incorporated by reference in this Official Statement that has been filed by AGL with the SEC is available to the public over the Internet at the SEC s web site at and at AGL s web site at from the SEC s Public Reference Room at 450 Fifth Street, N.W., Room 1024, Washington, D.C , and at the office of the New York Stock Exchange at 20 Broad Street, New York, New York Assured Guaranty makes no representation regarding the 2008 Bonds or the advisability of investing in the 2008 Bonds. In addition, Assured Guaranty has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom other than with respect to the accuracy of the information regarding Assured Guaranty supplied by Assured Guaranty and presented under the heading BOND INSURANCE. 16

23 DEBT SERVICE SCHEDULES The following table shows the debt service schedule with respect to the 2008 Bonds. Fiscal Year (June 30) Principal Interest 2008 Bonds Annual Debt Service $213, $213, $ 5, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Total $7,500, $6,595, $14,095,

24 The following table shows the debt service schedule with respect to the Bonds, including the 2008 Bonds (assuming no optional redemptions). Fiscal Year (June 30) Prior Authorized Bonds Debt Service 2008 Bonds Debt Service Aggregate Annual Debt Service 2008 $348, * -- $348, , $213, , , , , , , , , , , , , , , , , , , , , , ,056, , , ,124, , , ,207, , , ,290, , , ,370, , , ,454, , , ,546, ,033, , ,641, ,140, , ,765, ,245, , ,892, ,375, , ,042, ,515, , ,201, ,965, , ,668, , , , , , , , , , , Total $18,112, $14,095, $32,208, * Includes principal of and interest on Prior Authorized bonds already paid during fiscal year

25 ESTIMATED SOURCES AND USES OF FUNDS The sources and uses of funds with respect to the 2008 Bonds are as follows: Sources of Funds: Principal Amount of 2008 Bonds $7,500, Net Original Issue Premium 365, Total Sources $7,865, Uses of Funds: 2008 Building Fund $7,500, Debt Service Fund (1) 48, Underwriter s Discount 56, Costs of Issuance (2) 260, Total Uses $7,865, (1) (2) Represents a portion of interest payable on February 1, Costs of Issuance include legal fees, financial advisor s fees, Policy premium, printing costs, rating agency fees and other miscellaneous expenses. THE DISTRICT The information in this section concerning the operations of the District and the District finances are provided as supplementary information only, and it should not be inferred from the inclusion of this information in this Official Statement that debt service on the 2008 Bonds is payable from the General Fund of the District. The 2008 Bonds are payable only from the proceeds of an ad valorem tax levied by the County for the payment thereof. See SECURITY FOR THE BONDS herein. For additional information related to the District, see Appendix A - DISTRICT FINANCIAL INFORMATION attached hereto. General Information The Denair Unified School District was established as a school district in The District is located in the central portion of Stanislaus County and serves the community of Denair, a portion of the City of Turlock and unincorporated areas of Stanislaus County. The District encompasses approximately 56 square miles and currently operates one elementary school, one middle school, one high school, 2 community day schools and 1 charter school. Average Daily Attendance in the District for the school year is projected at 1,321 students. The current student-teacher ratio in the District is 19:1 in grades K-3, 26:1 in grades 4-6, 25:1 in grades 7-8, and 21:1 in grades The District Board of Trustees established a charter school in Fiscal Year The Denair Charter Academy provides students with various educational options such as home-based learning, distance learning and other individualized programs. 19

26 Administration Board of Trustees. The District is governed by a five-member Board of Trustees, each member of which is elected to a four-year term. Current members of the Board of Trustees, together with their office and the date their term expires, are listed below: Name Office Term Expires Tim Ellis President 2011 Carolyn Brown Clerk 2011 Louisa Allen Member 2009 Norma Cordova Member 2009 Kelley Day Member 2011 Superintendent and Administrative Personnel. The Superintendent of the District, appointed by the Board, is responsible for management of the day-to-day operations and supervises the work of other District administrators. Edward E. Parraz, Superintendent. Mr. Parraz is in his 8th year as Superintendent of the District. Prior to joining the District, he served the Visalia Unified School District for four years as Director of Middle School Education, Director of Student Services, Area Administrator 7-12/Adult, and as an Educational Consultant. In total, he has spent 29 years in the field of education in California. Mr. Parraz received his master s degree in education from the University of San Francisco, a bachelor of science degree in poultry industry from California Polytechnic State University, San Luis Obispo, and a bachelor of science degree in agricultural education from California State University, Fresno. Judy Sylvester, Assistant Superintendent of Business Services. Ms. Sylvester is in her 4th year as Assistant Superintendent of Business Services of the District. She has spent over 18 years in the field of public school business. Prior to joining the District, she served the Patterson Joint Unified School District as Accounting Technician for nearly seven years. She also worked at St. Helena Unified School District in a similar capacity for over seven years. Ms. Sylvester received her bachelor of science in elementary education degree in the Philippines, and an associate degree in Accounting from Napa Valley College. She completed the School Business Managers Academy offered by the Association of California School Administrators, as well as the School Business Management Program offered by the USA Foundation. In March 2008, Ms. Sylvester completed the CBO Mentor Project and has applied to the state for Chief Business Official certification. 20

27 Recent Enrollment Trends The following table sets forth the enrollment in the District since fiscal year through * Fiscal Year DENAIR UNIFIED SCHOOL DISTRICT Annual Enrollment Fiscal Years through Non-Charter School Enrollment Charter School Enrollment Total Enrollment , , , , , , , , , , * 1, ,600 Projected. Source: The District. ADA and Base Revenue Limit The following table sets forth the Average Daily Attendance and the Base Revenue Limit in the District for fiscal years through * DENAIR UNIFIED SCHOOL DISTRICT Average Daily Attendance and Base Revenue Limit fiscal years through * Fiscal Year ADA Base Revenue Limit ,160 $5, ,178 5, ,229 5, ,239 5, ,293 5,922 Projected Projected ADA Base Revenue Limit ,321 $6, ,321 6, ,340 6,800 Exclusive of ADA in the Denair Charter Academy. Source: The District. Employee Relations In the fall of 1974, the State Legislature enacted a public school employee collective bargaining law known as the Rodda Act, which became effective in stages in The law provides that employees 21

28 are to be divided into appropriate bargaining units which are to be represented by an exclusive bargaining agent. The teachers of the District ( certificated employees ) are represented by the California Teachers Association as their exclusive bargaining agent and are covered by a contract that will expire on June 30, In fiscal year , the District employed 97 certificated employees. The non-teaching staff ( classified employees ) are represented by the California School Employees Association, as the exclusive bargaining agent, and are covered by a contract that will expire on June 30, In fiscal year , the District employed 86 classified employees. Year DENAIR UNIFIED SCHOOL DISTRICT Certificated and Classified Employees Certificated Employees Classified Employees Source: The District. District Retirement Systems The District participates in the California State Teacher s Retirement System ( STRS ). This plan covers basically all full-time certificated and part-time contracted employees. The District s contribution to STRS for fiscal years was $5,664,910 and for fiscal year is budgeted at $6,292,701. The District also participates in the California Public Employees Retirement System ( PERS ). This plan covers all classified personnel who are employed four or more hours per day. The District s contribution to PERS for fiscal year was $1,996,947 and for fiscal year is budgeted at $2,228,265. Both STRS and PERS are operated on a statewide basis. Postemployment Benefits The District provides postemployment health care benefits, in accordance with District employment contracts, to all certificated employees who retire from the District prior to attaining age 65 with at least ten years of service. Currently, eight employees meet those eligibility requirements. The District contributes up to $5,000 per year for the amount of premiums incurred by retirees. Expenditures for postemployment benefits are recognized on a pay-as-you-go basis, as premiums are paid. During fiscal year , expenditures of $24,643 were recognized for retirees health care benefits. In July 2004, GASB issued GASBS No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. This Statement will require local government employers who provide other postemployment benefits (OPEB) as part of the total compensation offered to employees to recognize the expense and related liabilities (assets) in the government-wide financial statements of net assets and activities. 22

29 Current financial reporting practices for OPEB generally are based on pay-as-you-go financing approaches. They fail to measure or recognize the cost of OPEB during the periods when employees render the services or to provide relevant information about OPEB obligations and the extent to which progress is being made in funding those obligations. This Statement generally provides for prospective implementation - that is, that employers set the beginning net OPEB obligation at zero as of the beginning of the initial year. The District will be required to implement the provisions of this Statement for the fiscal year ended June 30, The District is in the process of determining the impact the implementation of this Statement will have on the government-wide statement of net assets and activities. At this time, the District expects to complete its OPEB actuarial study in October Property Tax Collection Procedures TAXATION AND APPROPRIATIONS In California, property which is subject to ad valorem taxes is classified as secured or unsecured. The secured roll is that part of the assessment roll containing (1) state-assessed public utilities property and (2) property the taxes on which are a lien on real property sufficient, in the opinion of the county assessor, to secure payment of the taxes. A tax levied on unsecured property does not become a lien against such unsecured property, but may become a lien on certain other property owned by the taxpayer. Every tax which becomes a lien on secured property has priority over all other liens arising pursuant to State law on such secured property, regardless of the time of the creation of the other liens. Secured and unsecured property are entered separately on the assessment roll maintained by the county assessor. The method of collecting delinquent taxes is substantially different for the two classifications of property. Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year. If unpaid, such taxes become delinquent after December 10 and April 10, respectively, and a 10% penalty attaches to any delinquent payment. In addition property on the secured roll with respect to which taxes are delinquent is sent to collections on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of the delinquent taxes and a delinquency penalty, plus a redemption penalty of 1-1/2% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is deeded to the State and then is subject to sale by the county tax collector. Property taxes are levied for each fiscal year on taxable real and personal property situated in the taxing jurisdiction as of the preceding January 1, except that supplemental assessment and taxation of property occurs as of the occurrence of a change of ownership or completion of new construction, timely providing increased revenue to taxing jurisdictions to the extent that supplemental assessments of new construction or changes of ownership occur subsequent to the January 1 lien date. Property taxes on the unsecured roll are due on the lien date and become delinquent, if unpaid on the following August 31. A ten percent (10%) penalty is also attached to delinquent taxes in respect of property on the unsecured roll, and further, an additional penalty of 1-1/2% per month accrues with respect to such taxes beginning the first day of the third month following the delinquency date. The taxing authority has four ways of collecting unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the county clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the county recorder s office, in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to 23

30 the assessee. The exclusive means of enforcing the payment of delinquent taxes in respect of property on the secured roll is the sale of the property securing the taxes to the State for the amount of taxes which are delinquent. Unitary Taxation of Utility Property Historically, property of regulated public utilities has been assessed for local tax purposes by the State Board of Equalization on a geographical basis in basically the same manner as other taxable property in any taxing jurisdiction. In 1987, the State Legislature enacted Chapter 921 amending Section 98.9 and various other sections of the Revenue and Taxation Code. The changes call for the establishment in each county of one county-wide tax rate area with the assessed value of all unitary and operating non-unitary utility property being assigned to this tax rate area. The result is a single assessed valuation figure for all utility property owned by each utility within the county without any breakdown for individual taxing jurisdictions. All of this property is then subjected to a tax at a rate equal to the sum of the following two rates: (i) a rate determined by dividing the county s total ad valorem tax levies for the secured roll for the prior year, exclusive of levies for debt service, by the county s total ad valorem secured roll assessed value for the prior year, and (ii) a rate determined by dividing the county s total ad valorem tax levies for the secured roll for the prior year for debt service only by the county s total ad valorem secured roll assessed value for the prior year. The foregoing process results in the creation of two pools of money, pool 1 being available for general tax purposes and pool 2 for debt service purposes, each pool being then allocated to the various taxing jurisdictions in the county by a statutory formula for the county as a whole. Assessed Valuation The District has a total local secured assessed valuation of $841,001,016. The following table sets forth the assessed valuations for the District for fiscal years through DENAIR UNIFIED SCHOOL DISTRICT Historic Assessed Valuations Year Local Secured Utility Unsecured Total Before Rdv. Increment $553,642,093 $533,325 $18,907,104 $573,082, ,494, ,774 27,381, ,402, ,001, ,814 23,790, ,959,963 Source: California Municipal Statistics, Inc. 24

31 The following table sets forth the tax rates per $100 of assessed valuation within Tax Rate Area for fiscal year DENAIR UNIFIED SCHOOL DISTRICT Typical Tax Rate per $100 of Assessed Valuation (TRA ) General Denair Unified School District Yosemite Community College District Total Source: California Municipal Statistics, Inc. The following table sets forth the assessed valuations by land use in the District as determined by secured assessed valuation in fiscal year (1) DENAIR UNIFIED SCHOOL DISTRICT Assessed Valuation and Parcels by Land Use Assessed Valuation (1) % of Total No. of Parcels % of Total Non-Residential: Agricultural $287,093, % % Commercial 8,233, Vacant Commercial 1,559, Industrial 3,767, Government/Social/Institutional 44, Subtotal Non-Residential $300,697, % % Residential: Single Family Residence $494,566, % 1, % 2-3 Residential Units 3,721, Residential Units/Apartments 4,904, Vacant Residential 37,111, Subtotal Residential $540,303, % 2, % Total $841,001, % 3, % Local Secured Assessed Valuation; excluding tax-exempt property. Source: California Municipal Statistics Inc. Tax Levies and Delinquencies Beginning in , Article XIIIA and its implementing legislation shifted the function of property taxation primarily to the counties, except for levies to support prior-voted debt, and prescribed how levies on county-wide property values are to be shared with local taxing entities within each county. The following table sets forth the tax levy and delinquency information for the entire County of Stanislaus. The actual delinquency information for the District may differ from the County-wide experience set forth in the following table. 25

32 (1) Largest Taxpayers Fiscal Year STANISLAUS COUNTY Secured Tax Charges and Delinquencies Secured Tax Charge (1) Amt. Del. June 30 % Del. June $261,326,041 $6,349, % ,449,348 7,269, ,400,352 6,847, ,561,640 11,671, ,629,068 26,374, Based on all property taxes collected by the County. Source: California Municipal Statistics, Inc. based upon information available from State Controller s Office. The largest assessed property taxpayers in the District for fiscal year are shown in the exhibit below. Property Owner DENAIR UNIFIED SCHOOL DISTRICT Largest Local Secured Taxpayers Primary Land Use Assessed Valuation % of Total (1) 1. Fresno Farming LLC Agricultural $ 19,144, % 2. JKB Homes Norcal Inc. Residential Development 15,175, Valley Fresh Foods Inc. Agricultural 15,140, Foster Dairy Farms Agricultural 11,053, J.C. Williams Company Residential Development 7,879, Montpelier Farming Corporation Agricultural 6,657, Roy A. & Doris J. Johnson Agricultural 6,358, Montpelier Orchards Agricultural 5,831, Wendell J. Naraghi Agricultural 5,668, Fitzpatrick Homes-Turlock LLC Residential Development 5,388, Lakespring Farms Corp. Agricultural 5,302, Ray & Jeanette Veldhuis Agricultural 5,032, William Haringa Agricultural 4,977, Rossini Farming Company Agricultural 4,896, Texas Municipal Plans Consortium LLC Agricultural 4,488, D&M AG Agricultural 4,470, Campos Land Co. Agricultural 3,885, California Royale LLC Agricultural 3,872, Jose L. & Barbara O. Garcia Agricultural 3,850, R. Dean Wilson Construction Residential Development 3,790, Total $142,867, % (1) Local Secured Assessed Valuation: $841,001,016 Source: California Municipal Statistics, Inc. 26

33 Statement of Direct and Overlapping Debt Set forth below is a statement of direct and overlapping debt (the Debt Statement ) prepared by California Municipal Statistics, Inc., with information as of January 1, The Debt Statement is included for general information purposes only. The District has not reviewed the Debt Statement for completeness or accuracy and makes no representation in connection therewith. The Debt Statement generally are includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the District in whole or in part. Such long-term obligations generally are not payable from revenues of the District (except as indicated) nor are they necessarily obligations secured by land within the District. In many cases, long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. Self-supporting revenue bonds, tax allocation bonds and non-bonded capital lease obligations are excluded from the Debt Statement. DENAIR UNIFIED SCHOOL DISTRICT Statement of Direct and Overlapping Debt Assessed Valuation: $864,959,963 Redevelopment Incremental Valuation: 30,290,276 Adjusted Assessed Valuation: $834,669,687 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 1/1/08 Yosemite Community College District 1.564% $1,315,089 Denair Unified School District ,978,069 (1) TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $9,293,158 OVERLAPPING GENERAL FUND DEBT: Stanislaus County Certificates of Participation 2.133% $2,202,429 Stanislaus County Pension Obligations ,190,001 Stanislaus County Office of Education Certificates of Participation ,156 Denair Unified School District Certificates of Participation ,630,000 TOTAL OVERLAPPING GENERAL FUND DEBT $7,135,586 COMBINED TOTAL DEBT $16,428,744 (2) Ratios to Assessed Valuation: Direct Debt ($7,978,069) % Total Direct and Overlapping Tax and Assessment Debt % Ratios to Adjusted Assessed Valuation: Combined Direct Debt ($11,608,069) % Combined Total Debt % (1) Excludes general obligation bonds to be sold. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations. Source: California Municipal Statistics Inc. 27

34 COUNTY INVESTMENT POOL Under the California Education Code, the District is required to deposit all monies received from any source into the County Treasury to be held on behalf of the District. The County maintains a written policy (the Investment Policy ) with respect to the investment of public funds which provides a means to implement the basic objectives of its investment program pursuant to California Code Section The objective of the Investment policy is to maintain safety of principal and the level of liquidity necessary to meet the needs of the County and agencies participating in the Treasury. The County s Investment Policy is reviewed and adopted by resolution by the County Board of Supervisors on an annual basis. The most current Investment Policy was effective on March 31, County Treasury Pool. The daily investment of Pool funds has been delegated to the Stanislaus County Treasurer/Tax Collector ( Treasurer ) pursuant to Government Code section and the Stanislaus County Board of Supervisors ordinance (approved April 16, 1996). According to the Investment Policy, the primary objective of the investment of short term operating funds is to maintain the principal of such funds (safety) in investment vehicles which are easily converted to cash (liquidity) while obtaining a competitive market rate of return (yield) for the risk taken at the time of investing. Safety of principal is of paramount importance. Investments will only be made in securities, which have a very high probability of maintaining the principal invested. Only highly rated or strongly collateralized investments will be made. Diversification by type of investment, issuer and maturity to minimize the risk of loss of principal due to credit deterioration or interest rate volatility will be made. Sales of securities before maturity may be made if at a gain, to avoid an anticipated default of payment by the issuer of interest or principal or if such sale will allow investment in a higher yielding vehicle and any loss upon sale can be more than compensated by additional interest earnings within a six month period. Sale of securities also may be made for efficiency if due to the growth in the size of the portfolio any investment is less than one-fourth of one percent of the total portfolio. To achieve appropriate liquidity needs the Pool s investments must be in maturity ranges which meet normal, anticipated disbursement requirements of all depositors as can be determined by historical disbursement patterns as well as communicated forecasts by depositors. Unanticipated cash disbursement needs require that investments be easily convertible to cash by maintaining shorter maturities in highly traded securities. To achieve a competitive market rate of return or yield, individual investment decisions must be made on a competitive basis. Due to the primary need of maintaining the purchasing power and cash availability of depositors funds, the portfolio s yield will normally be lower than that of higher-risk, longer maturity investment pools. An earnings rate goal for the fund will generally achieve a yield, which is 100 basis points higher than inflation. 28

35 The following table sets forth the investments held in the County Pool, as of March 31, STANISLAUS COUNTY Treasury Pool Portfolio Composition (as of March 31, 2008) Investments Dollar Cost Market Value Ave. Days to Maturity YTM 360 Equivalent Managed Funds $ 40,000,000 $ 40,000, % Agencies - Coupon 375,221, ,574,400 1, Agencies - Discount 372,805, ,192,000 1, Treasuries - Coupon 60,074,927 61,218,800 1, Repurchase Agreements - Roll 51,159,046 51,159, Medium Term Notes 36,952,728 36,851,368 1, Total Investments $936,213,390 $952,995, Total Cash and Investments $949,344,972 $966,127,568 Source: Stanislaus County Treasurer. CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Principal of and interest on the 2008 Bonds are payable from the proceeds of an ad valorem tax levied by the County for the payment thereof. See SECURITY FOR THE BONDS herein. Articles XIIIA, XIIIB, XIIIC, and XIIID of the State Constitution, Propositions 62, 98, and 111, and certain other provisions of law discussed below, are included in this section to describe the potential effect of these Constitutional and statutory measures on the ability of the District to levy taxes and spend tax proceeds for operating and other purposes, and it should not be inferred from the inclusion of such materials that these laws impose any limitation on the ability of the District to levy taxes for payment of the 2008 Bonds. The tax levied by the County for payment of the 2008 Bonds was approved by the District s voters in compliance with Article XIIIA and all applicable laws. Article XIIIA of the California Constitution Basic Property Tax Levy. On June 6, 1978, California voters approved Proposition 13 ( Proposition 13 ), which added Article XIIIA to the State Constitution ( Article XIIIA ). Article XIIIA limits the amount of any ad valorem tax on real property to one percent of the full cash value thereof, except that additional ad valorem taxes may be levied to pay debt service on (i) indebtedness approved by the voters prior to July 1, 1978, (ii) (as a result of an amendment to Article XIIIA approved by State voters on June 3, 1986) on bonded indebtedness for the acquisition or improvement of real property which has been approved on or after July 1, 1978 by two-thirds of the voters on such indebtedness, and (iii) bonded indebtedness incurred by a school district or community college district for the construction, reconstruction, rehabilitation or replacement of school facilities or the acquisition or lease of real property for school facilities, approved by 55% of the voters of the district, but only if certain accountability measures are included in the proposition. As described under THE 2008 BONDS - Authority for Issuance, the District received authorization by a requisite fifty-five percent of voters to issue the 2008 Bonds and has stated that it will comply with all applicable accountability measures required by law. Article XIIIA defines full cash value to mean the county assessor s valuation of real property as shown on the tax bill under full cash value, or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership have occurred after the 1975 assessment. This full cash value may be increased at a rate not to exceed two percent per year to account for inflation. 29

36 Article XIIIA has subsequently been amended to permit reduction of the full cash value base in the event of declining property values caused by damage, destruction or other factors, to provide that there would be no increase in the full cash value base in the event of reconstruction of property damaged or destroyed in a disaster and in other minor or technical ways. Both the United States Supreme Court and the California State Supreme Court have upheld the general validity of Article XIIIA. Legislation Implementing Article XIIIA. Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter-approved indebtedness). The 1% property tax is automatically levied by the county and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the annual adjustment not to exceed 2% are allocated among the various jurisdictions in the taxing area based upon their respective situs. Any such allocation made to a local agency continues as part of its allocation in future years. Inflationary Adjustment of Assessed Valuation. As described above, the assessed value of a property may be increased at a rate not to exceed two percent per year to account for inflation. On December 27, 2001, the Orange County Superior Court, in County of Orange v. Orange County Assessment Appeals Board No. 3, held that where a home s taxable value did not increase for two years, due to a flat real estate market, the Orange County assessor violated the two percent inflation adjustment provision of Article XIIIA, when the assessor tried to recapture the tax value of the property by increasing its assessed value by 4% in a single year. The assessors in most California counties, including the County, use a similar methodology in raising the taxable values of property beyond 2% in a single year. The State Board of Equalization has approved this methodology for increasing assessed values. On appeal, the Appellate Court held that the trial court erred in ruling that assessments are always limited to no more than 2% of the previous year s assessment. On May 10, 2004 a petition for review was filed with the California Supreme Court. The petition has been denied by the California Supreme Court. As a result of this litigation, the recapture provision described above may continue to be employed in determining the full cash value of property for property tax purposes. Unitary Property Some amount of property tax revenue of the District is derived from utility property which is considered part of a utility system with components located in many taxing jurisdictions ( unitary property ). Under the State Constitution, such property is assessed by the State Board of Equalization ( SBE ) as part of a going concern rather than as individual pieces of real or personal property. State-assessed unitary and certain other property is allocated to the counties by SBE, taxed at special county-wide rates, and the tax revenues distributed to taxing jurisdictions (including the District) according to statutory formulae generally based on the distribution of taxes in the prior year. Constitutional Appropriations Limitation Article XIIIB ( Article XIIIB ) of the State Constitution, as subsequently amended by Propositions 98 and 111, respectively, limits the annual appropriations of the State and of any city, county, school district, authority or other political subdivision of the State to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living and in population and for transfers in the financial responsibility for providing services and for certain 30

37 declared emergencies. For fiscal years beginning on or after July 1, 1990, the appropriations limit of each entity of government shall be the appropriations limit for the fiscal year adjusted for the changes made from that fiscal year under the provisions of Article XIIIB, as amended. The appropriations of an entity of local government subject to Article XIIIB limitations include the proceeds of taxes levied by or for that entity and the proceeds of certain state subventions to that entity. Proceeds of taxes include, but are not limited to, all tax revenues and the proceeds to the entity from (a) regulatory licenses, user charges and user fees (but only to the extent that these proceeds exceed the reasonable costs in providing the regulation, product or service), and (b) the investment of tax revenues. Appropriations subject to limitation do not include (a) refunds of taxes, (b) appropriations for debt service such as the Lease Payments, (c) appropriations required to comply with certain mandates of the courts or the federal government, (d) appropriations of certain special districts, (e) appropriations for all qualified capital outlay projects as defined by the legislature, (f) appropriations derived from certain fuel and vehicle taxes and (g) appropriations derived from certain taxes on tobacco products. Article XIIIB includes a requirement that all revenues received by an entity of government other than the State in a fiscal year and in the fiscal year immediately following it in excess of the amount permitted to be appropriated during that fiscal year and the fiscal year immediately following it shall be returned by a revision of tax rates or fee schedules within the next two subsequent fiscal years. Article XIIIB also includes a requirement that fifty percent of all revenues received by the State in a fiscal year and in the fiscal year immediately following it in excess of the amount permitted to be appropriated during that fiscal year and the fiscal year immediately following it shall be transferred and allocated to the State School Fund under Section 8.5 of Article XVI of the State Constitution. See - Proposition 98 and - Proposition below. Article XIIIC and Article XIIID of the California Constitution On November 5, 1996, the voters of the State of California approved Proposition 218, popularly known as the Right to Vote on Taxes Act. Proposition 218 added to the California Constitution Articles XIIIC and XIIID (respectively, Article XIIIC and Article XIIID ), which contain a number of provisions affecting the ability of local agencies, including school districts, to levy and collect both existing and future taxes, assessments, fees and charges. According to the Title and Summary of Proposition 218 prepared by the California Attorney General, Proposition 218 limits the authority of local governments to impose taxes and property-related assessments, fees and charges. Among other things, Article XIIIC establishes that every tax is either a general tax (imposed for general governmental purposes) or a special tax (imposed for specific purposes), prohibits special purpose government agencies such as school districts from levying general taxes, and prohibits any local agency from imposing, extending or increasing any special tax beyond its maximum authorized rate without a two-thirds percent vote; and also provides that the initiative power will not be limited in matters of reducing or repealing local taxes, assessments, fees and charges. Article XIIIC further provides that no tax may be assessed on property other than ad valorem property taxes imposed in accordance with Articles XIII and XIIIA of the California Constitution and special taxes approved by a two-thirds percent vote under Article XIIIA, Section 4. Article XIIID deals with assessments and property-related fees and charges, and explicitly provides that nothing in Article XIIIC or XIIID will be construed to affect existing laws relating to the imposition of fees or charges as a condition of property development. 31

38 Proposition 218 does not affect the ad valorem property taxes to be levied by the County to pay debt service on the 2008 Bonds or the Prior Bonds. Proposition 62 A statutory initiative ( Proposition 62 ) was adopted by the voters at the November 4, 1986, general election which (a) requires that any new or higher taxes for general governmental purposes imposed by local governmental entities such as the District be approved by a two-thirds vote of the governmental entity s legislative body and by a majority vote of the voters of the governmental entity voting in an election on the tax, (b) requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local governmental entity be approved by a two-thirds vote of the voters of the governmental entity voting in an election on the tax, (c) restricts the use of revenues from a special tax to the purposes or for the service for which the special tax was imposed, (d) prohibits the imposition of ad valorem taxes on real property by local governmental entities except as permitted by Article XIIIA, (e) prohibits the imposition of transaction taxes and sales taxes on the sale of real property by local governmental entities, and (f) requires that any tax imposed by a local governmental entity on or after August 1, 1985, be ratified by a majority vote of the voters voting in an election on the tax within two years of the adoption of the initiative or be terminated by November 15, California appellate court cases have overturned the provisions of Proposition 62 pertaining to the imposition of taxes for general government purposes. However, the California Supreme Court upheld Proposition 62 in its decision on August 28, 1995, in Santa Barbara County Transportation Authority v. Guardino. This decision reaffirmed the constitutionality of Proposition 62. Certain matters regarding Proposition 62 were not addressed in the Supreme Court s decision, such as what remedies exist for taxpayers subject to a tax not in compliance with Proposition 62, and whether the decision applies to charter cities. The District has not experienced any substantive adverse financial impact as a result of the passage of this initiative. Proposition 98 On November 8, 1988, California voters approved Proposition 98, a combined initiative constitutional amendment and statute called the Classroom Instructional Improvement and Accountability Act (the Accountability Act ). Certain provisions of the Accountability Act have, however, been modified by Proposition 111, discussed below, the provisions of which became effective on July 1, The Accountability Act changes State funding of public education below the university level and the operation of the State s appropriations limit. The Accountability Act guarantees State funding for K-12 school districts and community college districts (hereinafter referred to collectively as K-14 school districts ) at a level equal to the greater of (a) the same percentage of General Fund revenues as the percentage appropriated to such districts in , and (b) the amount actually appropriated to such districts from the General Fund in the previous fiscal year, adjusted for increases in enrollment and changes in the cost of living. The Accountability Act permits the Legislature to suspend this formula for a one-year period. The Accountability Act also changes how tax revenues in excess of the State appropriations limit are distributed. Any excess State tax revenues up to a specified amount would, instead of being returned to taxpayers, be transferred to K-14 school districts. Any such transfer to K-14 school districts would be excluded from the appropriations limit for K-14 school districts and the K-14 school district appropriations limit for the next year would automatically be increased by the amount of such transfer. These additional moneys would enter the base funding calculation for K-14 school districts for subsequent years, creating further pressure on other portions of the State budget, particularly if revenues decline in a year following an Article XIIIB surplus. The maximum amount of excess tax revenues which 32

39 could be transferred to K-14 school districts is 4% of the minimum State spending for education mandated by the Accountability Act. Proposition 111 On June 5, 1990, the voters approved Proposition 111 (Senate Constitutional Amendment No. 1) called the Traffic Congestion Relief and Spending Limit Act of 1990 ( Proposition 111 ) which further modified Article XIIIB and Sections 8 and 8.5 of Article XVI of the State Constitution with respect to appropriations limitations and school funding priority and allocation. The most significant provisions of Proposition 111 are summarized as follows: Annual Adjustments to Spending Limit. The annual adjustments to the Article XIIIB spending limit were liberalized to be more closely linked to the rate of economic growth. Instead of being tied to the Consumer Price Index, the change in the cost of living is now measured by the change in California per capita personal income. The definition of change in population specifies that a portion of the State s spending limit is to be adjusted to reflect changes in school attendance. Treatment of Excess Tax Revenues. Excess tax revenues with respect to Article XIIIB are now determined based on a two-year cycle, so that the State can avoid having to return to taxpayers excess tax revenues in one year if its appropriations in the next fiscal year are under its limit. In addition, the Proposition 98 provision regarding excess tax revenues was modified. After any two-year period, if there are excess State tax revenues, 50% of the excess are to be transferred to K-14 school districts with the balance returned to taxpayers; under prior law, 100% of excess State tax revenues went to K-14 school districts, but only up to a maximum of 4% of the schools minimum funding level. Also, reversing prior law, any excess State tax revenues transferred to K-14 school districts are not built into the school districts base expenditures for calculating their entitlement for State aid in the next year, and the State s appropriations limit is not to be increased by this amount. Exclusions from Spending Limit. Two exceptions were added to the calculation of appropriations which are subject to the Article XIIIB spending limit. First, there are excluded all appropriations for qualified capital outlay projects as defined by the Legislature. Second, there are excluded any increases in gasoline taxes above the 1990 level (then nine cents per gallon), sales and use taxes on such increment in gasoline taxes, and increases in receipts from vehicle weight fees above the levels in effect on January 1, These latter provisions were necessary to make effective the transportation funding package approved by the Legislature and the Governor, which expected to raise over $15 billion in additional taxes from 1990 through 2000 to fund transportation programs. Recalculation of Appropriations Limit. The Article XIIIB appropriations limit for each unit of government, including the State, is to be recalculated beginning in fiscal year It is based on the actual limit for fiscal year , adjusted forward to as if Proposition 111 had been in effect. School Funding Guarantee. There is a complex adjustment in the formula enacted in Proposition 98 which guarantees K-14 school districts a certain amount of State general fund revenues. Under prior law, K-14 school districts were guaranteed the greater of (1) 40.9% of State general fund revenues (the first test ) or (2) the amount appropriated in the prior year adjusted for changes in the cost of living (measured as in Article XIIIB by reference to per capita personal income) and enrollment (the second test ). Under Proposition 111, schools will receive the greater of (1) the first test, (2) the second test, or (3) a third test, which will replace the second test in any year when growth in per capita State general fund revenues from the prior year is less than the annual growth in California per capita personal income. Under the third test, schools will receive the amount appropriated in the prior year adjusted for 33

40 change in enrollment and per capita State general fund revenues, plus an additional small adjustment factor. If the third test is used in any year, the difference between the third test and the second test will become a credit to schools which will be paid in future years when State general fund revenue growth exceeds personal income growth. Proposition 1A On November 2, 2004, California voters approved Proposition 1A, which amends the State constitution to significantly reduce the State s authority over major local government revenue sources. Under Proposition 1A, the State can not (i) reduce local sales tax rates or alter the method of allocating the revenue generated by such taxes, (ii) shift property taxes from local governments to schools or community colleges, (iii) change how property tax revenues are shared among local governments without two-third approval of both houses of the State Legislature or (iv) decrease Vehicle License Fee revenues without providing local governments with equal replacement funding. Beginning, in , the State may shift to schools and community colleges a limited amount of local government property tax revenue if certain conditions are met, including: (i) a proclamation by the Governor that the shift is needed due to a severe financial hardship of the State, and (ii) approval of the shift by the State Legislature with a two-thirds vote of both houses. Under such a shift, the State must repay local governments for their property tax losses, with interest, within three years. Proposition 1A does allow the State to approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. Proposition 1A also amends the State Constitution to require the State to suspend certain State laws creating mandates in any year that the State does not fully reimburse local governments for their costs to comply with the mandates. This provision does not apply to mandates relating to schools or community colleges or to those mandates relating to employee rights. Future Initiatives Article XIIIA, Article XIIIB, Article XIIIC and Article XIIID of the California Constitution and the Propositions discussed above were each adopted as measures that qualified for the ballot under the State s initiative process. From time to time other initiative measures could be adopted further affecting District revenues or the District s ability to expend revenues. The nature and impact of these measures cannot be anticipated by the District. LEGAL OPINION The proceedings in connection with the issuance of the 2008 Bonds are subject to the approval as to their legality of Garcia Calderon Ruiz LLP, San Jose, California, Bond Counsel for the District. A copy of the legal opinion will be printed on each 2008 Bond. Certain legal matters will also be passed by Hawkins Delafield & Wood LLP, Los Angeles, California, as Disclosure Counsel to the District. The fees of Bond Counsel and Disclosure Counsel are contingent upon the issuance and delivery of the 2008 Bonds. TAX MATTERS In the opinion of Garcia Calderon Ruiz LLP, San Jose, California, Bond Counsel, based on an analysis of existing statutes, regulations, rulings and court decisions, and in reliance on certain certificates, opinions, and other things, interest on the 2008 Bonds is excludable from gross income for federal income tax purposes and is exempt from State of California personal income taxes. Bond Counsel is also of the opinion that interest on the 2008 Bonds is not an item of tax preference for purposes of the alternative minimum tax imposed on individuals and corporations; however such interest is taken into 34

41 account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on certain corporations. A copy of the proposed form of opinion of Bond Counsel is attached hereto as Appendix D. To the extent the issue price of any maturity of the 2008 Bonds is less than the amount to be paid at the maturity of such 2008 Bonds (excluding amounts stated to be interest and payable at least annually over the term of such 2008 Bonds), the difference constitutes original issue discount. The accrual of original issue discount, to the extent properly allocable to a Beneficial Owner, is treated as interest on the 2008 Bonds that is excludable from gross income for federal income tax purposes and exempt from State of California personal income taxes. For this purpose, the issue price of a particular maturity of the 2008 Bonds is the first price at which a substantial amount of that maturity is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents, or wholesalers). The original issue discount with respect to any maturity of the 2008 Bonds accrues daily over the term to that maturity date on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of the 2008 Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment at maturity) of the 2008 Bonds. Beneficial Owners of 2008 Bonds sold with original issue discount should consult their own tax advisors with respect to the tax consequences of ownership of their 2008 Bonds, including the treatment of purchasers who do not purchase such 2008 Bonds in the original offering to the public at the first price at which a substantial amount of such 2008 Bonds is sold to the public. The 2008 Bonds purchased, whether at original issuance or otherwise, for an amount greater than their principal amount payable at maturity (or, in some cases, at their earlier call date) ( Premium Bonds ) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium for bonds, like the Premium Bonds, the interest on which is excludable from gross income for federal income tax purposes. However, a purchaser s basis in a Premium Bond and, under Treasury Regulations, the amount of tax-exempt interest received will be reduced by the amount of amortizable bond premium properly allocable to such purchaser. Beneficial Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. The Internal Revenue Code of 1986 (the Code ) imposes various restrictions, conditions, and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the 2008 Bonds. The District has covenanted to comply with certain restrictions designed to assure that interest on the 2008 Bonds will not be included in federal gross income. Failure to comply with these covenants may result in interest on the 2008 Bonds being included in federal gross income, possibly from the date of issuance of the 2008 Bonds. The opinion of Bond Counsel assumes compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after the date of issuance of the 2008 Bonds may affect the tax status of interest on the 2008 Bonds. Although Bond Counsel expects to render an opinion that interest on the 2008 Bonds is excludable from gross income for federal income tax purposes and exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of interest on, the 2008 Bonds may otherwise affect a Beneficial Owner s federal or state tax liability. The nature and extent of these other tax consequences will depend upon the particular tax status of the Beneficial Owner or the Beneficial Owner s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. 35

42 In addition, no assurance can be given that any future legislation, including amendments to the Code, if enacted into law, or changes in interpretation of the Code, will not cause interest on the 2008 Bonds to be subject, directly or indirectly, to federal or state income taxation, or otherwise prevent beneficial owners of the 2008 Bonds from realizing the full current benefit of the tax status of such interest. Prospective purchasers of the 2008 Bonds should consult their own tax advisers regarding any pending or proposed federal or state tax legislation. Further, no assurance can be given that the introduction or enactment of any such future legislation, or any action of the Internal Revenue Service ( IRS ), including but not limited to regulation, ruling, or selection of the 2008 Bonds for audit examination, or the course or result of any IRS examination of the 2008 Bonds, or obligations that present similar tax issues, will not affect the market price or liquidity of the 2008 Bonds. Absence of Material Litigation CERTAIN LEGAL MATTERS No litigation is pending or threatened concerning the validity of the 2008 Bonds, and a certificate to that effect will be furnished to purchasers at the time of the original delivery of the 2008 Bonds. The District is not aware of any litigation pending or threatened that (i) questions the political existence of the District, (ii) contests the District s ability to receive ad valorem taxes or to collect other revenues or (iii) contests the District s ability to issue and retire the 2008 Bonds. Qualified Tax Exempt Obligations The District has designated the 2008 Bonds as qualified tax-exempt obligations within the meaning of Section 265(b)(3) of the Code. In connection with such designation, the District has covenanted that (i) the 2008 Bonds do not constitute private activity bonds as defined in Section 141 of the Code, and (ii) not more than $10,000,000 aggregate principal amount of obligations, the interest on which is excludable from (under Section 103(a) of the Code) gross income for federal income taxes (excluding, however, private activity bonds, as defined in Section 141 of the Code, other than qualified 501(c)(3) bonds as defined in Section 145 of the Code), including the 2008 Bonds, have been or shall be issued by or on behalf of the District, including all subordinate entities of the District, during the calendar year RATINGS Standard & Poor s Ratings Services, a Division of The McGraw-Hill Companies, Inc. ( S&P ) has assigned a municipal bond rating of AAA to the 2008 Bonds with the understanding that upon delivery of the 2008 Bonds, the Policy insuring the payment when due of the principal of and interest on the 2008 Bonds will be issued by the Insurer. In addition, S&P has assigned an underlying rating of A+ to the 2008 Bonds. There is no assurance that any credit ratings given to the 2008 Bonds will be maintained for any period of time or that the ratings may not be lowered or withdrawn entirely by such rating agencies if, in its judgment, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the 2008 Bonds. Such ratings reflect only the views of such organizations and an explanation of the significance of such ratings may be obtained from such rating agency. 36

43 UNDERWRITING The 2008 Bonds are being purchased by Kinsell, Newcomb & De Dios, Inc. (the Underwriter ). The Underwriter has agreed to purchase the 2008 Bonds at a price of $7,809, (which is equal to the initial aggregate principal amount of the 2008 Bonds of $7,500,000.00, plus net original issue premium of $365,349.60, less Underwriter s discount of $56,250.00). The purchase contract relating to the 2008 Bonds provides that the Underwriter will purchase all of the 2008 Bonds (if any are purchased), and provides that the Underwriter s obligation to purchase is subject to certain terms and conditions, including the approval of certain legal matters by counsel. The Underwriter may offer and sell 2008 Bonds to certain dealers and others at prices lower than the offering prices stated on the cover page hereof. The offering prices may be changed by the Underwriter. ADDITIONAL INFORMATION The discussions herein about the Bond Resolution and the Continuing Disclosure Certificate are brief outlines of certain provisions thereof. Such outlines do not purport to be complete and for full and complete statements of such provisions reference is made to such documents. Copies of these documents mentioned are available from the Underwriter and following delivery of the 2008 Bonds will be on file at the offices of the Paying Agent in San Francisco, California. References are also made herein to certain documents and reports relating to the District; such references are brief summaries and do not purport to be complete or definitive. Copies of such documents are available upon written request to the District. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the District and the purchasers or Owners of any of the 2008 Bonds. The execution and delivery of this Official Statement have been duly authorized by the District. DENAIR UNIFIED SCHOOL DISTRICT By: /s/ Edward E. Parraz Superintendent 37

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45 APPENDIX A DISTRICT FINANCIAL INFORMATION The information in this section concerning the operations of the District and the District s finances are provided as supplementary information only, and it should not be inferred from the inclusion of this information in this Official Statement that debt service on the Bonds is payable from the General Fund of the District. The Bonds are payable only from the proceeds of an ad valorem tax levied by the County in the District for the payment thereof. See SECURITY FOR THE BONDS in the body of the Official Statement for additional information. Accounting Practices The accounting practices of the District conform to generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board (GASB) and the American Institute of Certified Public Accountants (except that the District has not maintained a complete historical cost record of fixed assets). The District also complies with the policies and procedures contained in the California School Accounting Manual, as required by Section of the California Education Code. In accordance with the School Accounting Manual, District expenditures are accrued at the end of the fiscal year to reflect the receipt of goods and services in that year. Revenues generally are recorded on a cash basis, except for items that are susceptible to accrual (i.e., measurable and/or available to finance operations). Tax revenues are recognized by the District when received. Revenues from specific state and federally funded projects are recognized when qualified expenditures have been incurred. State block grant apportionments are accrued to the extent that they are measurable and predictable. The State Department of Education sends the District updated information from time to time explaining the acceptable accounting treatment of revenue and expenditure categories. District accounting is organized on the basis of funds or account groups, each of which is considered to be a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts comprising its assets, liabilities, fund balance (or retained earnings), revenues, and expenditures (or expenses). The major fund classification is the general fund, which accounts for all financial resources not identified as requiring special fund placement. The District s fiscal year begins on July 1 and ends on June 30. GASB published its Statement No. 34 Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments on June 30, Statement No. 34 provides guidelines to auditors, state and local governments and special purpose governments such as school districts and public utilities, on new requirements for financial reporting for all governmental agencies in the United States. Generally, the basic financial statements and required supplementary information should include (i) Management s Discussion and Analysis; (ii) financial statements prepared using the economic measurement focus and the accrual basis of accounting and (ii) fund financial statements prepared using the current financial resources measurement focus and the modified accrual method of accounting and (iii) required supplementary information. The requirements of Statement No. 34 are effective in three phases based on a government s total annual revenues (excluding extraordinary items) for the fiscal year ending after June 30, The District was required to implement Statement No. 34 for the fiscal year audited financial statement. A-1

46 Financial Statements The following table summarizes the District s Statement of General Fund Revenues, Expenditures and Changes in Fund Balance for the fiscal years , and Included as Appendix B hereto are the District s Audited Financial Statements. Those statements have been examined by Vavrinek, Trine, Day & Co., LLP, Certified Public Accountants and consultants, to the extent indicated in their report appearing in Appendix B. See Appendix B for further detail on the District s financial condition. DENAIR UNIFIED SCHOOL DISTRICT General Fund Balances, Revenues, and Expenditures Fiscal Years through Audited Actual A Audited Actual Audited Actual REVENUES Revenue Limit $6,857,392 $ 7,361,510 $ 8,324,469 Federal Revenue 606, , ,390 Other State Revenue 1,217,960 1,468,181 2,162,066 Other Local Revenue 794, , ,801 Total Revenues $9,476,475 $10,179,875 $11,826,726 EXPENDITURES Current Instruction $6,014,315 $ 6,606,986 $ 7,324,397 Instruction-related activities: Supervision of instruction 36,109 86,194 68,002 Instructional library, media, and technology 207, , ,218 School site administration 730, , ,141 Pupil Services: Home-to-school transportation 155, , ,681 Food services 6,155 3,869 3,995 All other pupil 232, , ,042 General administration: Data processing 15,011 14,693 13,626 All other general administration 671, , ,033 Plant services 755, ,773 1,019,582 Facility acquisition and construction 10, Ancillary services 115, , ,589 Other Outgo 193, , ,026 Debt Service Principal 14,047 7, Interest and other 1, Total Expenditures $9,160,449 $10,245,710 $11,125,332 Excess (Deficiency) of Revenues over Expenditures 45,940 (65,835) 701,394 Other Financing Sources & Uses Operating Transfers In 45,940 63,356 87,586 Operating Transfers Out (295,722) (128,308) (113,557) Net Financing Sources (249,782) (64,952) (25,971) Ending Balance $ 719,789 $ 589,002 $ 1,264,425 Source: The District s audited financial statements for , and

47 Budget Process The District is required by provisions of the State Education Code to maintain a balanced budget each year, in which the sum of expenditures and the ending fund balance cannot exceed the sum of revenues and the carry-over fund balance from the previous year. The State Department of Education imposes a uniform budgeting and accounting format for school districts. School districts must adopt a budget on or before July 1 of each year. The budget must be submitted to the county superintendent within five days of adoption or by July 1, whichever occurs first. A district may be on either a dual or single budget cycle. The dual budget option requires a revised and readopted budget by September 8 that is subject to State-mandated standards and criteria. The revised budget must reflect changes in projected income and expenses subsequent to July 1. The single budget is only readopted if it is disapproved by the county superintendent, or as needed. The District is on a single budget cycle and adopts its budget on or before July 1. For both dual and single budgets submitted on July 1, the county superintendent will examine the adopted budget for compliance with the standards and criteria adopted by the State Board of Education and identify technical corrections necessary to bring the budget into compliance, will determine if the budget allows the district to meet its current obligations and will determine if the budget is consistent with a financial plan that will enable the district to meet its multi-year financial commitments. On or before August 15, the county superintendent will approve or disapprove the adopted budget for each school district. Budgets will be disapproved if they fail the above standards. The district board must be notified by August 15 of the county superintendent s recommendations for revision and reasons for the recommendations. The county superintendent may assign a fiscal advisor or appoint a committee to examine and comment on the superintendent s recommendations. The committee must report its findings no later than August 20. Any recommendations made by the county superintendent must be made available by the district for public inspection. The law does not provide for conditional approvals; budgets must be either approved or disapproved. No later than August 20, the county superintendent must notify the State Superintendent of Public Instruction of all school districts whose budget has been disapproved. For all dual budget option districts and for single and dual budget option districts whose budgets have been disapproved, the district must revise and readopt its budget by September 8, reflecting changes in projected income and expense since July 1, including responding to the county superintendent s recommendations. The county superintendent must determine if the budget conforms with the standards and criteria applicable to final district budgets and not later than October 8, will approve or disapprove the revised budgets. If the budget is disapproved, the county superintendent will call for the formation of a budget review committee pursuant to Education Code Section Until a district s budget is approved, the district will operate on the lesser of its proposed budget for the current fiscal year or the last budget adopted and reviewed for the prior fiscal year. The District has never had an adopted budget disapproved by the county superintendent of schools, and has never received a negative or qualified certification of an Interim Financial Report pursuant to AB District s Adopted Budget The District is required to prepare three annual financial reports to be submitted to the State Department of Education and the Stanislaus County Superintendent of Schools. The first report is the adopted budget (the Budget ), which is a fiscal plan for the year and must be adopted before July 1. In A-3

48 addition, the District is required to prepare a First Interim Report by December 15 and a Second Interim Report by March 15. The interim reports include a certification by the President of the Board of whether the District is able to meet its financial obligations for the remainder of the fiscal year. The District adopted its budget on July 2, The Second Interim Report of the District filed with the State Department of Education indicates that the District would be able to meet all of its financial obligations for the fiscal year and the subsequent two fiscal years. The following table sets forth the District s Adopted General Fund Budget and its estimated actual General Fund revenues and expenditures for from the District s Second Interim Report for DENAIR UNIFIED SCHOOL DISTRICT Adopted General Fund Budget and Estimated Actual General Fund Revenues and Expenditures for Fiscal Year Adopted Budget Second Interim Report Revenues Revenue Limit Sources $ 8,378,004 $ 8,378,004 Federal Revenue 726, ,049 Other State Revenue 1,909,807 1,909,807 Other Local Revenue 831, ,519 Total Revenues $11,845,379 $11,845,379 Expenditures Certificated Salaries $ 5,623,408 $ 5,623,408 Classified Salaries 1,842,079 1,842,079 Employee Benefits 1,885,834 1,885,834 Books and Supplies 778, ,000 Services and Other Operating Expenses 1,591,368 1,591,368 Capital Outlay 154, ,476 Other Outgo 231, ,572 Transfers of Indirect / Direct Support Costs (68,319) (68,319) Total Expenditures $12,038,418 $12,038,418 Excess (Deficiency) of Revenues Over Expenditures (193,039) (193,039) Other Financing Sources/Uses Interfund Transfers Transfers In $ 10,500 $ 10,500 Transfers Out (72,574) (72,574) Other Sources/Uses Sources 0 0 Uses 0 0 Contributions 0 0 Total Other Financing Sources/Uses $ (62,074) $ (62,074) Source: The District s adopted budget and the Second Interim Report for A-4

49 Long-term Obligations The following table sets forth the District s outstanding long-term obligation at June 30, DENAIR UNIFIED SCHOOL DISTRICT Long-term Obligations Balance July 1, 2006 Additions Deductions A-5 Balance June 30, 2007 Due in One Year General obligation bonds $ 9,708,240 $248,693 $ 65,000 $ 9,891,933 $ 85,000 Premium on bond issue 194, , ,849 9,242 Certificates of participation 3,930, ,000 3,780, ,000 Accumulated vacation - net 141,723 24, , ,158 Capital leases 155,233 86, ,181 70,862 16,125 Total $14,129,287 $359,938 $395,423 $14,093,802 $426,525 Source: The District s audited financial statements for June 30, The general obligation bonds are paid by the Bond Interest and Redemption Fund through the collection of local property taxes. The certificates of participation are paid from the COP Debt Service Fund. The accumulated vacation is paid by the fund for which the employee worked. The capital leases are paid from the Capital Facilities Fund. General Obligation Bonds. On March 28, 2002, the District issued General Obligation Bonds (Election of 2001, Series A) (the 2002 Bonds ) in the initial principal amount of $5,161,002. On May 22, 2003, the District issued General Obligation Bonds (Election of 2001, Series B) (the 2003 Bonds ) in the initial principal amount of $3,037,067. The 2002 Bonds and the 2003 Bonds were issued as current interest bonds and capital appreciation bonds. As of June 30, 2007, the 2002 Bonds and the 2003 Bonds were outstanding in the aggregate principal amount of $9,891,933, including the accreted interest on capital appreciation bonds. General Fund Revenue Sources The District s general fund budget identifies four categories of revenues by source: (1) revenue limit sources (primarily State funding and local property taxes), (2) federal revenues, (3) other State revenues (including lottery funds), and (4) other local revenues. Each of these revenue sources is described below. Revenue Limit Sources. Since fiscal year , California school districts have operated under general purpose revenue limits established by the State Legislature. In general, the revenue limit for a district is calculated by multiplying (1) the average daily attendance ( ADA ) for the District by (2) a base revenue limit per unit of ADA. The revenue limit calculations are adjusted annually in accordance with a number of factors designed primarily to provide cost of living increases and to equalize revenues among all California school districts of the same type (i.e., elementary, high school, or unified). See THE DISTRICT - Average Daily Attendance in the body of this Official Statement for the District s ADA information. Prior to the passage of Proposition 13, State aid to a school district was deducted from its revenue limit and the result was the maximum amount that could be raised from property taxes. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS Article XIIIA of the California Constitution Proposition 13-Article XIIIA below. Proposition 13 limited all property taxes to 1% of assessed valuation. Immediately thereafter, the

50 Legislature devised a system whereby property taxes were distributed to local governments proportionate to their collections prior to Proposition 13. The principal component of local revenues is the school district s property tax revenues, i.e., the district s share of the local one-percent property tax, received pursuant to Sections 75 and following and Sections 95 and following of the California Revenue and Taxation Code. Education Code Section 42238(h) itemizes the local revenues that are counted towards the base revenue limit before calculating how much the State must provide in equalization aid. The more local property taxes a district receives, the less State equalization aid it is entitled to; ultimately, a school district whose local property tax revenues exceed its base revenue limit is entitled to receive no State equalization aid, and receives only its special categorical aid and the basic aid of $120 per student per year guaranteed by Article IX, Section 6 of the Constitution. Such districts are known colloquially as basic aid districts. Districts that receive some equalization aid may be referred to as revenue limit districts. The District is not a basic aid district. In , the District received $8,324,469 from revenue limit sources accounting for approximately 70.4% of the District s General Fund revenues. For the District has budgeted $8,378,004 of revenue limit source income, which is approximately 70.7% of the District s budgeted General Fund revenues. Because such a significant amount of the District General Fund revenues are received from the State, changes in the financial condition of the State could adversely affect the District s ability to meet its financial obligations. See STATE FUNDING OF EDUCATION. Federal Revenues. The federal government provides funding for several District programs, including special education programs, programs under the Educational Consolidation and Improvement Act, and specialized programs such as Drug Free Schools and the free and reduced price lunch program. The federal revenues, most of which are restricted, constituted approximately 4.9% of General Fund revenues in , and are budgeted to equal 6.1% of such revenues is Other State Revenues. As discussed above, the District receives State apportionments in an amount equal to the difference between the District s revenue limit and its property tax revenues. In addition to such apportionment revenue, the District receives substantial other State revenues. These other State revenues are primarily restricted revenues funding items such as the Special Education Master Plan, School-Based Coordination Program, dropout prevention, class size reduction, home-to-school transportation, instructional materials and mentor teachers. These other State revenues constituted approximately 18.3% of General Fund revenues in , and are budgeted to equal approximately 16.1% of such revenues in Included within the other State revenues described above are funds received from the California State Lottery (the Lottery ), which was established by a constitutional amendment approved in the November 1984 general election. Lottery revenues must be used for the education of students and cannot be used for non-instructional purposes such as real property acquisition, facility construction, or the financing of research. Lottery revenues are budgeted to equal approximately 1.86% of the General Fund revenues in Other Local Revenues. In addition to property taxes, the District receives additional local revenues from items such as interest earnings and donations to schools. These other local revenues are budgeted to less than 1% of the General Fund revenues in fiscal year A-6

51 Developer Fees The District maintains a Capital Facilities Fund, separate and apart from the General Fund, to account for developer fees and mitigation revenues collected by the District. The District s developer fees and mitigation revenues may be utilized for any capital purpose related to growth. Collection of such fees followed a formal declaration by the Board of Trustees which addressed the overcrowding of District schools as a result of new development. These fees were changed on January 1, 1987, following enactment of California Government Code Section allowing collection of $1.50 per square foot of habitable space on domestic housing and $0.25 per square foot on commercial/industrial developments. These square-foot amounts are adjusted for inflation. The current developer fee is $2.24 per square foot of habitable space on domestic housing developments and $0.36 per square foot on commercial/industrial developments. As of June 30, 2007, a balance of $885,813 existed in the District s Capital Facilities Fund. State Funding of Education The State of California provides school districts with a significant portion of their general revenues. The District s financial condition could be adversely affected by changes in the financial condition of the State. The 2008 Bonds are general obligations of the District. The State is not obligated and will not pay debt service on the 2008 Bonds. Effect of State Budget on Revenues. Public school districts in California are dependent on revenues from the State for a large portion of their operating budgets. California school districts receive an average of about 55 percent of their operating revenues from various State sources. The primary source of funding for school districts is the revenue limit, which is a combination of State funds and local property taxes. See - State Funding of Education above. See also CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS in the body of this Official Statement. State funds typically make up the majority of a district s revenue limit. School districts also receive substantial funding from the State for various categorical programs. The availability of State funds for public education is a function of constitutional provisions affecting school district revenues and expenditures, the condition of the State economy (which affects total revenue available to the State general fund), and the annual State budget process. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS in the body of this Official Statement. State Funding of Education and Recent State Budgets. The State of California (the State ) requires that from all State revenues there first shall be set apart the moneys to be applied for support of the public school system and public institutions of higher education. California school districts receive a significant portion of their funding from State appropriations. As a result, decreases in State revenues may significantly affect appropriations made by the legislature to school districts. The following information concerning the State s budgets for the current and most recent preceding years has been compiled from publicly-available information provided by the State. Neither the District nor the Underwriter is responsible for the information relating to the State s budgets provided in this section. Further information is available from the Public Finance Division of the State Treasurer s Office. The Budget Process. The State s fiscal year begins on July 1 and ends on June 30. The annual budget is proposed by the Governor by January 10 of each year for the next fiscal year (the Governor s Budget ). Under State law, the annual proposed Governor s Budget cannot provide for projected A-7

52 expenditures in excess of projected revenues and balances available from prior fiscal years. Following the submission of the Governor s Budget, the Legislature takes up the proposal. Under the State Constitution, money may be drawn from the Treasury only through an appropriation made by law. The primary source of the annual expenditure authorizations is the Budget Act as approved by the Legislature and signed by the Governor. The Budget Act must be approved by a two-thirds majority vote of each House of the Legislature. The Governor may reduce or eliminate specific line items in the Budget Act or any other appropriations bill without vetoing the entire bill. Such individual line-item vetoes are subject to override by a two-thirds majority vote of each House of the Legislature. Appropriations also may be included in legislation other than the Budget Act. Bills containing appropriations (except for K-14 education) must be approved by a two-thirds majority vote in each House of the Legislature and be signed by the Governor. Bills containing K-14 education appropriations only require a simple majority vote. Continuing appropriations, available without regard to fiscal year, may also be provided by statute or the State Constitution. Funds necessary to meet an appropriation need not be in the State Treasury at the time such appropriation is enacted; revenues may be appropriated in anticipation of their receipt. Recent State Budgets. Certain information about the State budgeting process and the State Budget is available through several State of California sources. A convenient source of information is the State s website, where recent official statements for State bonds are posted. The references to internet websites shown below are shown for reference and convenience only, the information contained within the websites may not be current and has not been reviewed by the District or the Underwriter and is not incorporated herein by reference. The California State Treasurer Internet home page at under the heading Bond Information, posts various State of California Official Statements, many of which contain a summary of the current State Budget, past State Budgets, and the impact of those budgets on school districts in the State. The California State Treasurer s Office Internet home page at under the heading Financial Information, posts the State s audited financial statements. In addition, the Financial Information section includes the State s Rule 15c2-12 filings for State bond issues. The Financial Information section also includes the Overview of the State Economy and Government, State Finances, State Indebtedness, Litigation from the State s most current Official Statement, which discusses the State budget and its impact on school districts. The California Department of Finance s Internet home page at under the heading California Budget, includes the text of proposed and adopted State Budgets. The State Legislative Analyst s Office prepares analyses of the proposed and adopted State budgets. The analyses are accessible on the Legislative Analyst s Internet home page at under the heading Products. Tax Shifts and Triple Flip. Assembly Bill No ( AB 1755 ), introduced March 10, 2003 and substantially amended June 23, 2003, requires the shifting of property taxes between redevelopment agencies and schools. On July 29, 2003, the Assembly amended Senate Bill No to incorporate all of the provisions of AB 1755, except that the Assembly reduced the amount of the required ERAF shift to $135 million. Legislation commonly referred to as the Triple Flip, was approved by the voters on A-8

53 March 2, 2004, as part of a bond initiative formally known as the California Economic Recovery Act. This act authorized the issuance of $15 billion in bonds to finance the and State budget deficits, which are payable from a fund established by the redirection of tax revenues through the Triple Flip. Under the Triple Flip, one-quarter of local governments one percent share of the sales tax imposed on taxable transactions within their jurisdiction are redirected to the State. In an effort to eliminate the adverse impact of the sales tax revenue redirection on local government, the legislation redirects property taxes in the ERAF to local government. Because the ERAF monies were previously earmarked for schools, the legislation provides for schools to receive other state general fund revenues. It is expected that the swap of sales taxes for property taxes would terminate once the deficit financing bonds were repaid, which is currently expected to occur in approximately 9 to 13 years State Budget. On August 24, 2007, the Governor signed the State Budget into law (the Budget ). The Budget assumes that the State will start with a fund balance of $4.1 billion. It projects $102.3 billion in budget-year revenues (an increase of 6.5% from the prior year), and $102.3 billion in expenditures (an increase of 0.6% from the prior year. The resulting operating shortfall of $0.7 billion leaves the General Fund with a year-end reserve of $3.4 billion. The Budget estimates that major tax revenues are down $243 million combined over current and budget years since January 2007, that stronger than expected revenue growth is more than offset by weakness in , and that costs would be higher for Proposition 98 education funding and prison expenses. The Budget addresses a $2 billion decline in the State s fiscal outlook by, among other proposals, (i) selling of EdFund (a nonprofit public benefit corporation formed by the State to provide student loan guarantees) to a private buyer to an estimated $1 billion; (ii) transferring $1.257 billion of tobacco bonds proceeds issued in 2003 and 2005 to the State General Fund in and rather than over time; (iii) expanding the redirection of public transit funds for State General Fund purposes; and (iv) shifting a scheduled increase for Supplemental Security income/state supplementary program recipients to June The State Budget projects to end fiscal year with a total reserve of $4.1 billion. In regards to K-14 education, the Budget includes $2.1 billion in new ongoing, Proposition 98 monies, about $703 million in one-time Proposition 98 monies, and almost $100 million in Public Transportation Account monies. The Budget provides for $2.4 billion for a 4.53% cost of living adjustment for K-14 education and $269 million to increase the Proposition 98 share for child care funding. However, the State Legislative Analyst s Office reports that the Budget makes a number of optimistic assumptions- such as the legality of its public transit proposal, estimates of gambling and property tax revenues, and assumed savings from midyear reductions. In total, the Legislative Analyst s Office estimates that the Governor s reserve is likely overstated by $1.7 billion and the Budget would leave only a $529 million reserve. In addition, the Legislative Analyst s Office estimates that, under the Budget, State expenditures would exceed revenues by more than $5 billion in both and due to a number of onetime solutions contained in the Budget. As of November 2007, the Legislative Analyst s Office estimated a Budget shortfall of $1.9 billion, growing to $8 billion in and multibillion dollar shortfalls through Proposed State Budget. On January 10, 2008, the Governor submitted the proposed State Budget (the Proposed Budget ) to the State Legislature. The Budget states that revenues in the current fiscal year are approximately $4.8 million below forecasted revenues. The Governor projects shortfalls in of $3.3 billion, growing to $14.5 billion in , as well as a shortfall in the State s cash reserves. In order to address these shortfalls, the Governor proposes a 10% across-the-board reduction to nearly every general fund program, beginning in the current fiscal A-9

54 year. Additionally, the Governor is proposing selling $3.3 billion of Economic Recovery Bonds in the current fiscal year and eliminating next year s prepayment of previously issued Economic Recovery Bonds. The total budget-balancing reductions for K-12 education programs in the Proposed Budget amount to $4.4 billion. Although the Proposed Budget has been submitted to the Legislature, the Proposed Budget is subject to extensive review and change by various Senate and Assembly review committees, as well as final passage by the Senate and Assembly. See - Budget Process, above May Revision. The Governor s Budget May Revision (the May Revision ) proposes a combination of (i) spending reductions of $12.6 billion across State government and (ii) revenue solutions, to address the budget gap and to provide for a reserve of $2 billion. According to the LAO, the sagging economy has reduced the revenue outlook for by about $6 billion. Combined with rising costs, the State faces a remaining budget shortfall of $15 billon, after accounting for the $7 billion in solutions adopted as part of a special Legislative budget session held in February The largest proposed solution is the securitization of future lottery revenues, expected by the Governor to provide $15 billion over the next few years. However, the LAO believes that the May Revision makes overly optimistic estimates about the potential growth in lottery sales and profits, and that its securitization proposal would create the strong likelihood that distributions to public education from lottery revenues would fall well short of their current levels perhaps by $5 billion over the next 12 years. In addition, voters would have to approve the plan to bond against future lottery revenues, which may or may not pass. To help K-12 schools respond to the tight budget, the May Revision includes fiscal flexibility options relating to school districts unrestricted operating reserves, maintenance reserves, and restricted categorical program reserves as well as provisions that would allow school districts to move funds among various categorical programs. In addition to ongoing Proposition 98 spending for K-12, the May Revision includes slightly more than $500 million in one-time spending in Of the newly identified resources, the bulk comes from the After School and Safety Education Program, which expanded significantly in and is estimated to have a large unexpended balance. It also would allow school districts to reduce their routine maintenance reserve and suspend local set asides for deferred maintenance. In summary, the LOA believes the sluggish economy has severely worsened the State s ongoing mismatch between revenues and spending. All available solutions involve consequences and trade-offs. A reliance on overly optimistic lottery growth assumptions and a massive bond structure will put school funding from this source at risk. Information about the State budget is regularly available at various State-maintained websites. The State Budget, as well as the Proposed Budget and the May Revision, may be found at the website of the Department of Finance, under the heading California Budget. Additionally, an impartial analysis of the budget is posted by the Office of the Legislative Analyst at The information referred to is prepared by the respective State agency maintaining each website and not by the District, and the District takes no responsibility for the continued accuracy of the internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references. Uncertainty Regarding Future State Budgets. The District cannot predict what actions will be taken in future years by the State Legislature and the Governor to address the State s current or future budget deficits. Future State budgets will be affected by national and state economic conditions and other factors over which the District has no control. The District cannot predict what impact any future budget proposals will have on the financial condition of the District. To the extent that the State budget process A-10

55 results in reduced revenues to the District, the District will be required to make adjustments to their respective budgets. The 2008 Bonds are secured by ad valorem property taxes levied on taxable properties within the District, and therefore are not directly dependent on financial support to the District from the State of California. THE STATE HAS NOT ENTERED INTO ANY CONTRACTUAL COMMITMENT WITH THE DISTRICT, THE TRUSTEE, THE UNDERWRITER OR THE OWNERS OF THE 2008 BONDS TO PROVIDE STATE BUDGET INFORMATION TO THE DISTRICT OR THE OWNERS OF THE 2008 BONDS. ALTHOUGH THEY BELIEVE THE STATE SOURCES OF INFORMATION LISTED ABOVE ARE RELIABLE, NEITHER THE DISTRICT NOR THE UNDERWRITER ASSUMES ANY RESPONSIBILITY FOR THE ACCURACY OF THE STATE BUDGET INFORMATION SET FORTH OR REFERRED TO HEREIN OR INCORPORATED BY REFERENCE HEREIN. A-11

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57 APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR FISCAL YEAR ENDED JUNE 30, 2007 B-1

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151 APPENDIX C GENERAL INFORMATION ABOUT STANISLAUS COUNTY The following information concerning the County of Stanislaus is included only for the purpose of supplying general information regarding the area of the District. The 2008 Bonds are not a debt of the County, the State or any of its political subdivisions, and neither the County, the State nor any of its political subdivisions is liable therefor. The District lies in Stanislaus County (the County ), which is located approximately 90 minutes southeast from both the City of San Francisco and Silicon Valley. Stanislaus County is known as the heartland of California s Central Valley. Population The following table lists population figures for the County of Stanislaus for the last five calendar years for which data is available. CITIES WITHIN THE COUNTY OF STANISLAUS Population Estimates, as of January Ceres 36,573 37,586 38,881 40,868 41,997 Hughson 4,942 5,267 5,955 6,112 6,082 Modesto 204, , , , ,174 Newman 7,797 8,366 9,150 10,120 10,302 Oakdale 16,802 17,230 17,468 17,824 18,628 Patterson 13,730 14,257 16,187 19,231 20,875 Riverbank 17,337 18,319 20,022 21,176 21,492 Turlock 62,461 64,630 67,124 67,757 69,321 Waterford 7,704 7,908 7,911 8,201 8,590 Unincorporated 113, , , , ,036 County Total 484, , , , ,497 Source: State Department of Finance; as of January 1. C-1

152 Industry and Employment The County makes up the Modesto Metropolitan Statistical Area. The following table summarizes the civilian labor force, employment and unemployment in Stanislaus County for the calendar years 2002 through These figures are county-wide statistics and may not necessarily accurately reflect employment trends in the District. MODESTO METROPOLITAN STATISTICAL AREA (STANISLAUS COUNTY) Civilian Labor Force, Employment and Unemployment (Annual Averages) Civilian Labor Force (1) 220, , , , ,100 Employment 199, , , , ,000 Unemployment 21,300 22,100 20,900 19,300 18,100 Unemployment Rate 9.7% 9.9% 9.2% 8.4% 8.0% Wage and Salary Employment: (2) Agriculture 13,900 14,000 13,800 13,800 13,000 Natural Resources, Mining, Construction 10,700 11,400 12,300 13,400 13,400 Manufacturing 22,500 23,100 22,700 22,600 21,800 Wholesale Trade 5,600 5,700 6,000 6,300 5,900 Retail Trade 21,700 21,800 21,500 22,300 22,500 Transportation, Warehousing, Utilities 4,500 4,600 4,700 5,200 5,200 Information 2,100 2,200 2,500 2,500 2,400 Financial Activities 5,600 6,000 6,100 6,200 6,400 Professional and Business Services 15,000 13,800 14,200 14,900 14,800 Educational and Health Services 18,100 18,900 19,200 19,400 19,600 Leisure and Hospitality 13,600 13,700 14,200 14,800 15,500 Other Services 6,200 6,200 6,200 6,100 5,900 Federal Government 1,200 1,200 1,200 1,200 1,200 State Government 1,900 1,900 1,700 1,700 1,800 Local Government 22,200 21,900 22,100 22,700 23,300 Total all Industries (3) 164, , , , ,500 (1) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (2) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (3) Totals may not add due to rounding. Source: Labor Market Information Division of the California State Employment Development Department. C-2

153 The following tables list the major employers in Stanislaus County as of January Stanislaus County Major Employers- Listed Alphabetically January 2008 Employer Name Location Industry California State University Turlock Schools-Universities & Colleges Academic Crlo Rossi Winery Modesto Winery Con Agra Foods Oakdale Canning (Manufacturers) Copperidge Winery Modesto Winery County of Stanislaus Modesto Social Service & Welfare Organization Del Monte Foods Modesto Canning (Manufacturers) Doctor s Medical Ctr Modesto Hospitals E & J Gallo Winery Modesto Wineries Ecco Domani Winery Modesto Winery Emanuel Medical Ctr Turlock Hospitals Fairbanks Cellars N/A Winery Foster Farms Turlock Poultry Processing Plants Frito-Lay Inc Modesto Food Products (Wholesale) Gallo Winery Modesto Winery Memorial Medical Center Modesto Hospitals Modesto Bee Modesto Newspapers (Publishers) Modesto Junior College Modesto Schools-Universities & Colleges Academic Patterson Frozen Foods Patterson Frozen Food Processors Peter Vella Winery Modesto Wineries Prompt Care-Memorial Hospital Modesto Hospitals Stanislaus Cnty Community Svc Modesto Government Offices-County Stanislaus Food Products Modesto Canning (Manufacturers) Sutter Gould Medical Fndtn Modesto Nutritionists Zabaco Winery Modesto Winery Source: California Employment Development Department, extracted from The America s Labor Market Information System (ALMIS) Employer Database. C-3

154 Construction Trends Provided below are the building permits and valuations for the County for calendar years 2002 through COUNTY OF STANISLAUS Total Building Permit Valuations (Valuations in Thousands) Permit Valuation New Single-family $479,084.6 $641,520.1 $710,329.4 $854,957.9 $455,387.1 New Multi-family 12, , , , ,388.0 Res. Alterations/Additions 34, , , , ,455.4 Total Residential $526,265.5 $700,773.8 $791,441.9 $929,474.4 $521,230.5 New Commercial $ 56,865.3 $ 94,486.7 $ 98,856.4 $165,249.2 $104,690.1 New Industrial 12, , , , ,137.2 New Other 71, , , , ,502.7 Com. Alterations/Additions 61, , , , ,382.8 Total Nonresidential $202,195.1 $243,335.7 $291,920.5 $335,780.7 $349,712.9 New Dwelling Units Single Family 2,917 3,884 4,106 4,489 2,276 Multiple Family TOTAL 3,109 4,168 5,603 4,723 2,410 Source: Construction Industry Research Board, Building Permit Summary. Effective Buying Income Effective Buying Income is defined as personal income less personal tax and nontax payments, a number often referred to as disposable or after-tax income. Personal income is the aggregate of wages and salaries, other labor-related income (such as employer contributions to private pension funds), proprietor s income, rental income (which includes imputed rental income of owner-occupants of nonfarm dwellings), dividends paid by corporations, interest income from all sources, and transfer payments (such as pensions and welfare assistance). Deducted from this total are personal taxes (federal, state and local), ontax payments (fines, fees, penalties, etc.) and personal contributions to social insurance. According to U.S. government definitions, the resultant figure is commonly known as disposable personal income. The following table summarizes the total effective buying income for the County, the State and the United States for the period 2003 through C-4

155 Year Commercial Activity COUNTY OF STANISLAUS EFFECTIVE BUYING INCOME As of January 1, 2003 through 2007 Area Total Effective Buying Income (000 s Omitted) Median Household Effective Buying Income 2003 Stanislaus County $ 7,078,408 $36,670 California 674,721,020 42,924 United States 5,466,880,008 38, Stanislaus County 7,416,705 37,815 California 705,108,410 43,915 United States 5,692,909,567 39, Stanislaus County 7,749,738 39,038 California 720,798,106 44,681 United States 5,894,663,364 40, Stanislaus County 8,343,540 40,738 California 764,120,963 46,275 United States 6,107,092,244 41, Stanislaus County 8,8,46,150 42,406 California 814,894,438 48,203 United States 6,300,974,040 41,792 Source: Sales & Marketing Management Survey of Buying Power for 203 and 2004; Claritas Demographics for 2005 and after. During calendar year 2006, total taxable transactions in the County were reported to be $7,352,532,000 a 0.9% increase over the total taxable sales of $7,285,900,000 that were reported in the County during calendar year A summary of historic taxable sales within the County during the years indicated in which data is available is shown in the following table. Figures are not yet available for Year Retail Permits on July 1 COUNTY OF STANISLAUS Taxable Transactions (Dollars in Thousands) Retail Stores Taxable Transactions Total Permits on July 1 Total Outlets Taxable Transactions ,624 $4,107,978 10,452 $5,825, ,978 4,336,170 10,817 6,175, ,297 4,720,450 11,123 6,765, ,420 5,143,024 11,127 7,285, ,373 5,268,389 10,903 7,352,532 Source: State Board of Equalization. C-5

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157 APPENDIX D FORM OF OPINION OF BOND COUNSEL July, 2008 Board of Trustees Denair Unified School District 3460 Lester Road Denair, California Re: DENAIR UNIFIED SCHOOL DISTRICT GENERAL OBLIGATION BONDS, ELECTION OF 2007, SERIES 2008 Final Opinion Members of the Board of Trustees: We have served as bond counsel to the Denair Unified School District (the District ) in connection with the issuance of its Denair Unified School District General Obligation Bonds, Election of 2007, Series 2008, in the aggregate principal amount of $7,500,000 (the Bonds ). The Bonds are being issued pursuant to a resolution of the Board of Trustees of the District (the Board ), adopted on May 29, 2008 (the Bond Resolution ), Chapters 1 and 1.5 of Part 10 of Division 1 of Title 1 of the California Education Code, commencing with Section In our capacity as bond counsel, we have examined the law and such certified proceedings and other matters to the extent we deemed necessary to render the opinions set forth herein. As to questions of fact material to our opinion, we have relied upon said certified proceedings, the representations of the District and the County and certifications of public officials and others furnished to us without undertaking to verify the same by independent investigation. We have assumed, but have not independently verified, that the signatures on all documents, certificates and opinions that we reviewed are genuine. Attention is called to the fact the we have not been requested to examine, and have not examined, any documents or information relating to the District or the County other than the record of proceedings hereinabove referred to, and no opinion is expressed as to any financial or other information, or the adequacy thereof, which has been, or may be supplied to any purchaser of the Bonds. We have not been engaged nor undertaken to review the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Bonds (except to the extent, if any, stated in the Official Statement) and we express no opinion relating thereto (excepting only matters set forth in our opinion in the Official Statement). Based on and subject to the foregoing, and in reliance thereon, under existing law we are of the opinion that, as of the date hereof: D-1

158 Board of Trustees, Denair Unified School District G.O. Bonds Election of 2007, Series 2008 Final Opinion Page 2 1. The Bonds have been duly authorized, executed and delivered by the Board in the name of the District and constitute valid and binding general obligations of the District, payable solely from the proceeds of the levy by the County of ad valorem taxes on all property subject to such taxes within the District, which taxes are unlimited as to rate or amount. 2. Assuming compliance by the District with certain covenants in the Bond Resolution, the Tax Certificate relating to the Bonds and other documents pertaining to the Bonds and requirements of the Internal Revenue Code of 1986, as amended, regarding the use, expenditure and investment of proceeds of the Bonds and the timely payment of certain investment earnings to the United States, interest on the Bonds is excludable from gross income for federal income tax purposes. Failure to comply with such covenants and requirements may cause interest on the Bonds to be included in federal gross income retroactive to the date of issuance and delivery of the Bonds. 3. Interest on the Bonds is not treated as an item of tax preference in calculating the federal alternative minimum taxable income of individuals or corporations. Such interest is, however, included as an adjustment in the calculation of federal corporate alternative minimum taxable income and may therefore affect a corporation s alternative minimum tax liability. We express no opinion regarding other federal income tax consequences arising with respect to the Bonds. 4. Interest on the Bonds is exempt from personal income taxes imposed by the State of California. Other than as described herein, we have neither addressed nor are we opining on the tax consequences to any person of the investment in, or receipt of interest on, the Bonds. The rights of the owners of the Bonds and the enforceability thereof may be subject to bankruptcy, insolvency, reorganization, arrangement, moratorium and other similar laws affecting creditors rights heretofore or hereafter enacted and may also be subject to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against school districts in the State of California. Respectfully submitted, Garcia Calderón Ruíz, LLP D-2

159 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (the Disclosure Certificate ) is executed and delivered by the Denair Unified School District (the District ) in connection with the issuance of $7,500,000 aggregate principal amount of Denair Unified School District (Stanislaus County, California) General Obligation Bonds, Election of 2007, Series 2008 (the Bonds ). The Bonds are being issued pursuant to a Resolution adopted by the Board of Trustees of the District on May 29, 2008 (the Resolution ). The District covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the District for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriters in complying with S.E.C. Rule 15c2-12(b)(5). Section 2. Definitions. In addition to the definitions set forth in the Resolution, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: Annual Report shall mean any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. Dissemination Agent shall mean the District or any successor Dissemination Agent designated in writing by the District and which has filed with the District a written acceptance of such designation. Listed Events shall mean any of the events listed in Section 5(a) of this Disclosure Certificate. "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. "Participating Underwriter" shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. "Repository" shall mean each National Repository and each State Repository. Rule shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. State Repository shall mean any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository. Section 3. Provision of Annual Reports. (a) The District shall, or shall cause the Dissemination Agent to, not later than nine (9) months after the end of the District's fiscal year (which currently ends on June 30), commencing with the report for the 2007/2008 Fiscal Year, provide to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than fifteen (15) Business Days prior to said date, the District shall provide the Annual Report to the Dissemination Agent (if other than the District). The Annual Report may be submitted as a single document or as separate documents E-1

160 comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the District may be submitted separately from the balance of the Annual Report, and later than the date required above for the filing of the Annual Report if not available by that date. If the District's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c). (b) If the District is unable to provide to the Repositories an Annual Report by the date required in subsection (a), the District shall send a notice to the Municipal Securities Rulemaking Board and the appropriate State Repository, if any, in substantially the form attached as Exhibit A. (c) The Dissemination Agent shall: (i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and each State Repository, if any; and (ii) if the Dissemination Agent is other than the District, file a report with the District certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided and listing all the Repositories to which it was provided. Section 4. Content of Annual Reports. The Annual Report shall contain or incorporate by reference the following: (a) Audited financial statements prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the District's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) To the extent not contained in the audited financial statements filed pursuant to the preceding clause (a), the Annual Report shall contain information showing: (i) the average daily attendance in District schools on an aggregate basis for the preceding fiscal year and for the current budget year; (ii) pension plan contributions made by the District for the preceding fiscal year and for the current budget year; (iii) aggregate principal amount of short-term borrowings, lease obligations and other long-term borrowings of the District as of the end of the preceding fiscal year; (iv) description of amount of general fund revenues and expenditures which have been budgeted for the current fiscal year, together with audited actual budget figures for the preceding fiscal year; (v) the District s total revenue limit for the preceding fiscal year and for the current budget year; E-2

161 (vi) prior fiscal year total secured property tax levy and collections, showing current collections as a percent of the total levy; and (vii) current fiscal year assessed valuation of taxable properties in the District, including assessed valuation of the top ten properties. (c) In addition to any of the information expressly required to be provided under paragraphs (a) and (b) of this Section, the District shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading. Section 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material: (1) Principal and interest payment delinquencies. (2) Non-payment related defaults. (3) Unscheduled draws on debt service reserves reflecting financial difficulties. (4) Unscheduled draws on credit enhancements reflecting financial difficulties. (5) Substitution of credit or liquidity providers, or their failure to perform. (6) Adverse tax opinions or events affecting the tax-exempt status of the security. (7) Modifications to rights of security holders. (8) Contingent or unscheduled bond calls. (9) Defeasances. (10) Release, substitution, or sale of property securing repayment of the securities. (11) Rating changes. (b) Whenever the District obtains knowledge of the occurrence of a Listed Event, the District shall as soon as possible determine if such event would be material under applicable Federal securities law. (c) If the District determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the District shall promptly file a notice of such occurrence with the Municipal Securities Rulemaking Board and each State Repository. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds pursuant to the Resolution. Section 6. Termination of Reporting Obligation. The District's obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5(c). Section 7. Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: E-3

162 (a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Resolution for amendments to the Resolution with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds. If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the District to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to each State Repository in the same manner as for a Listed Event under Section 5(c). Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the District shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 10. Default. In the event of a failure of the District to comply with any provision of this Disclosure Certificate, any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Resolution, and the sole remedy under this Disclosure Certificate in the event of any failure of the District to comply with this Disclosure Certificate shall be an action to compel performance. Section 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the E-4

163 District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. Section 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Dissemination Agent, the Participating Underwriters and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity. Date: July, 2008 DENAIR UNIFIED SCHOOL DISTRICT By: Superintendent E-5

164 EXHIBIT A NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Obligor: Name of Bond Issue: Denair Unified School District $7,500,000 aggregate principal amount of Denair Unified School District (Stanislaus County, California) General Obligation Bonds Election of 2007, Series 2008 Date of Issuance: July, 2008 NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above-named Bonds as required by the Resolution authorizing the issuance of the Bonds, adopted by the Board of Trustees of the District on, The District anticipates that the Annual Report will be filed by. Dated: DENAIR UNIFIED SCHOOL DISTRICT By: Superintendent E-6

165 APPENDIX F SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY F-1

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167 Financial Guaranty Insurance Policy Issuer: Policy No.: Obligations: Premium: Effective Date: Assured Guaranty Corp., a Maryland corporation ( Assured Guaranty ), in consideration of the payment of the Premium and on the terms and subject to the conditions of this Policy (which includes each endorsement hereto), hereby unconditionally and irrevocably agrees to pay to the trustee (the Trustee ) or the paying agent (the Paying Agent ) for the Obligations (as set forth in the documentation providing for the issuance of and securing the Obligations) for the benefit of the Holders, that portion of the Insured Payments which shall become Due for Payment but shall be unpaid by reason of Nonpayment. Assured Guaranty will make such Insured Payments to the Trustee or the Paying Agent on the later to occur of (i) the date applicable principal or interest becomes Due for Payment, or (ii) the Business Day next following the day on which Assured Guaranty shall have Received a completed Notice of Nonpayment. If a Notice of Nonpayment by Assured Guaranty is incomplete or does not in any instance conform to the terms and conditions of this Policy, it shall be deemed not Received, and Assured Guaranty shall promptly give notice to the Trustee or the Paying Agent. Upon receipt of such notice, the Trustee or the Paying Agent may submit an amended Notice of Nonpayment. The Trustee or the Paying Agent will disburse the Insured Payments to the Holders only upon receipt by the Trustee or the Paying Agent, in form reasonably satisfactory to it of (i) evidence of the Holder's right to receive such payments, and (ii) evidence, including without limitation any appropriate instruments of assignment, that all of the Holder's rights to payment of such principal or interest Due for Payment shall thereupon vest in Assured Guaranty. Upon and to the extent of such disbursement, Assured Guaranty shall become the Holder of the Obligations, any appurtenant coupon thereto and right to receipt of payment of principal thereof or interest thereon, and shall be fully subrogated to all of the Holder's right, title and interest thereunder, including without limitation the right to receive payments in respect of the Obligations. Payment by Assured Guaranty to the Trustee or the Paying Agent for the benefit of the Holders shall discharge the obligation of Assured Guaranty under this Policy to the extent of such payment. This Policy is non-cancelable by Assured Guaranty for any reason. The Premium on this Policy is not refundable for any reason. This Policy does not insure against loss of any prepayment premium or other acceleration payment which at any time may become due in respect of any Obligation, other than at the sole option of Assured Guaranty, nor against any risk other than Nonpayment. Except to the extent expressly modified by any endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. Avoided Payment means any amount previously distributed to a Holder in respect of any Insured Payment by or on behalf of the Issuer, which amount has been recovered from such Holder pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court having competent jurisdiction that such payment constitutes an avoidable preference with respect to such Holder. Business Day means any day other than (i) a Saturday or Sunday, (ii) any day on which the offices of the Trustee, the Paying Agent or Assured Guaranty are closed, or (iii) any day on which banking institutions are authorized or required by law, executive order or governmental decree to be closed in the City of New York or in the State of Maryland. Due for Payment means (i) when referring to the principal of an Obligation, the stated maturity date thereof, or the date on which such Obligation shall have been duly called for mandatory sinking fund redemption, and does not refer to any earlier date on which payment is due by reason of a call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity (unless Assured Guaranty in its sole discretion elects to make any principal payment, in whole or in part, on such earlier date) and (ii) when referring to interest on an Obligation, the stated date for payment of such interest. Holder means, in respect of any Obligation, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Obligation to payment of principal or interest thereunder, except that Holder shall not include the Issuer or any person or entity whose direct or indirect obligation constitutes the underlying security for the Obligations. Insured Payments means that portion of the principal of and interest on the Obligations that shall become Due for Payment but shall be unpaid by reason of Nonpayment. Insured Payments shall not include any additional amounts owing by the Issuer solely as a result of the failure by the Trustee or the Paying Agent to pay such amount when due and payable, including without limitation any such additional amounts as may be attributable to penalties or to interest accruing at a default rate, to amounts payable in respect of indemnification, or to any other additional amounts payable by the Trustee or the Paying Agent by reason of such failure. Nonpayment means, in respect of an Obligation, the failure of the Issuer to have provided sufficient funds to the Trustee or the Paying Agent for payment in full of all principal and interest Due for Payment on such Obligation. It is further understood that the term "Nonpayment" in respect of an Obligation includes any Avoided Payment. Receipt or Received means actual receipt or notice of or, if notice is given by overnight or other delivery service, or by certified or registered United States mail, by a delivery receipt signed by a person authorized to accept delivery on behalf of the person to whom the notice was given. Notices to Assured Guaranty may be mailed by registered mail or personally delivered or telecopied to it at 1325 Avenue of the Americas, New York, New York 10019, Telephone Number: (212) , Facsimile Number: (212) , Attention: Risk Management Department Public Finance Surveillance, with a copy to the General Counsel, or to such other address as shall be specified by Assured Guaranty to the Trustee or the Paying Agent in writing. A Notice of Nonpayment will be deemed to be Received by Assured Guaranty on a given Business Day if it is Received prior to 12:00 noon (New York City time) on such Business Day; otherwise it will be deemed Received on the next Business Day. Term means the period from and including the Effective Date until the earlier of (i) the maturity date for the Obligations, or (ii) the date on which the Issuer has made all payments required to be made on the Obligations. Page 1 of 2 Form NY-FG (05/07)