CALIFORNIA COUNTY TOBACCO SECURITIZATION AGENCY. Independent Auditor s Reports and Financial Statements. For the Fiscal Year Ended June 30, 2015

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1 CALIFORNIA COUNTY TOBACCO SECURITIZATION AGENCY Independent Auditor s Reports and Financial Statements

2 Table of Contents Independent Auditor s Report Financial Statements: Page Statement of Net Position... 3 Statement of Revenues, Expenses, and Changes in Net Position... 4 Statement of Cash Flows... 5 Notes to the Financial Statements Other Report: Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed In Accordance with Government Auditing Standards

3 Certified Public Accountants Sacramento Walnut Creek San Francisco Oakland Board of Commissioners California County Tobacco Securitization Agency Bakersfield, California Report on the Financial Statements Independent Auditor s Report Los Angeles Century City Encino Newport Beach San Diego We have audited the accompanying financial statements of the California County Tobacco Securitization Agency (Agency) as of and for the fiscal year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the Agency s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Agency, as of June 30, 2015, and the changes in its financial position and its cash flows for the fiscal year then ended in accordance with accounting principles generally accepted in the United States of America. Macias Gini & O Connell LLP 3000 S Street, Suite 300 Sacramento, CA

4 Other Matters Required Supplementary Information Management has omitted the management s discussion and analysis that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. Our opinion on the basic financial statements is not affected by this missing information. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated August 24, 2016 on our consideration of the Agency s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Agency s internal control over financial reporting and compliance. Sacramento, California August 24,

5 FINANCIAL STATEMENTS

6 Statement of Net Position June 30, 2015 ASSETS Current Assets: Accounts Receivable $ 32,007 Interest Receivable 4,154,805 Notes Receivable (Note 2) 17,997,394 Total Current Assets 22,184,206 Noncurrent Assets: Notes Receivable (Note 2) 1,229,346,259 Total Assets 1,251,530,465 DEFERRED OUTFLOWS OF RESOURCES Deferred amount on refundings 6,749,586 LIABILITIES Current Liabilities: Accounts Payable 32,007 Interest Payable (Note 4) 4,154,805 Bonds Payable (Note 3) 17,997,394 Total Current Liabilities 22,184,206 Noncurrent Liabilities: Bonds Payable (Note 3) 1,236,095,845 Total Liabilities 1,258,280,051 NET POSITION $ - The accompanying notes are an integral part of these financial statements. 3

7 Statement of Revenues, Expenses, and Changes in Net Position Operating Revenues: Fees and Other Income $ 43,666 Operating Expenses: General and Administrative Expenses 43,666 Change in Net Position - Net Position - Beginning of Year - Net Position - Ending of Year $ - The accompanying notes are an integral part of these financial statements. 4

8 Statement of Cash Flows Cash Flow from Operating Activities Fees Received $ 38,966 General and Administrative Costs Paid (38,966) Net Cash Provided by Operating Activities - Net Increase in Cash and Cash Equivalents - Cash and Cash Equivalents, Beginning of Year - Cash and Cash Equivalents, End of Year $ - Reconciliation of Operating Income to Net Cash Provided by Operating Actitivites: Operating Income $ - Increase in Accounts Receivable (4,700) Increase in Accounts Payable 4,700 Net Cash Provided by Operating Activities $ - Noncash Items: Increase in Notes Receivable, Bonds Payable and Deferred Amount on Refundings Resulting from Capital Appreciation Net of Debt Service Payments Made on Behalf of the Agency by Member Counties in Addition to the Refunding of the Kern County Bonds. $ 29,561,834 The accompanying notes are an integral part of these financial statements. 5

9 Notes to The Financial Statements NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Description of the Reporting Entity The California County Tobacco Securitization Agency (Agency) is a Joint Powers Agency created in accordance with Chapter 5 of Division 7 of Title I of the Government Code of the State of California, dated as of November 15, 2000, by and among the County of Stanislaus, the County of Merced, the County of Sonoma, the County of Kern, and as of May 31, 2002, includes the County of Marin, the County of Placer, and the County of Fresno. The County of Alameda was added on August 15, 2002, and the County of Los Angeles was added on January 24, The Agency is governed by a Board of Commissioners who are designees of the Board of Supervisors of each member county. In November 1998, the attorneys general of 46 states (Settling States) and the four largest U.S. tobacco manufacturers (the OPMs ) entered into a master settlement agreement (the MSA ) in resolution of cigarette smoking-related litigation between the Settling States and the OPMs. The MSA releases the OPMs from past and present smoking-related claims and provides for the continuing release of future smoking-related claims in exchange for certain payments to be made to the Settling States. On August 5, 1998, the counsel representing the State of California (State), various cities and counties in the State, and certain other parties entered into a Memorandum of Understanding (the MOU ) pursuant to which each participating jurisdiction is entitled to receive a portion of the payments to be made to the State pursuant to the MSA. The members are allowed to sell or otherwise exchange their rights to receive payments under the MSA and MOU for the cash payment, thereby self-insuring, hedging against, or otherwise managing the risks associated with the receipts of such revenues, and assuring the availability of moneys to fund the social needs of its population. The members have created legally separate entities (referred to as Tobacco Settlement Authorities or TSAs) to issue debt and to obtain the rights to all or a portion of the member s future tobacco settlement resources (TSRs). The Agency has the power to issue the bonds secured by the MSA payments of one or more members, the proceeds of which bonds were loaned to the TSAs to pay for the cash portion of the purchase price for all the rights, titles and interests of each member in and to the MSA. The Agency is an entity that is legally separate from each of the member counties. The term of the governing agreement will continue in full force until June 1, 2055, or until such time as any and all bonds and the interest thereon shall have been paid in full, or provision for such payment shall have been made, whichever period is longer. The debts, liabilities and obligations of the Agency, including any bonds, shall not constitute debts, liabilities or obligations of any of the member counties. B. Measurement Focus and Basis of Accounting The Agency is a financing authority and it functions essentially as a legal device for the issuance of debt, with the financing authority having little, if any, actual involvement with the debt service. A separate financial institution acting as trustee administers the debt service. Since the TSAs are the recipients of the debt proceeds and are responsible for making the subsequent debt service payments, the Agency s liability from the various bond issuances is offset by a corresponding receivable from the TSAs. The Agency also reports fees and administrative expenses. 6

10 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) B. Measurement Focus and Basis of Accounting (Continued) The accounting and financial reporting treatment applied to the Agency is determined by its measurement focus. The transactions of the Agency are accounted for using the flow of economic resources measurement focus in which all assets and liabilities associated with the operations are included in the statement of net position. Basis of accounting refers to when revenues and expenses are recognized in the accounts and reported in the financial statements. The Agency uses the accrual basis of accounting in accordance with Governmental Accounting Standards Board (GASB) Statement No. 34. Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments. Under this method, revenues are recorded when earned and expenses are recorded when the related liability is incurred. The Agency uses a proprietary (enterprise) fund to account for its activities. The activities of this fund are accounted for with a separate set of self-balancing accounts that comprise the Agency s assets, liabilities, net position, revenues and expenses. An enterprise fund may be used to report any activity for which a fee is charged to external users for goods or services. Enterprise funds are required for any activity whose principal external revenue sources meet any of the following criteria: (1) issued debt is backed solely by fees and charges, (2) the cost of providing services for any activity (including capital costs such as depreciation or debt service) must be legally recovered through fees or charges, or (3) if the government s policy is to establish activity fees or charges designed to recover the cost of providing services. Proprietary funds distinguish operating from nonoperating revenues and expenses. Operating revenues and expenses generally result from providing services in connection with the fund s principal ongoing operations. The principal operating revenues of the Agency are fees and other revenues related to notes receivable, investment in limited obligation bonds, net investment in direct financing leases and installment purchase agreements. Significant expenses include amounts paid to the members for project costs and professional services provided to the Agency. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. C. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. 7

11 NOTE 2 NOTES RECEIVABLE Each of the Tobacco Settlement Authorities (TSA) has issued notes to the Agency equal in amounts to the bonded indebtedness. The Secured Loan Agreements between the TSAs and the Agency stipulate that as long as any of the bonds remain outstanding under the trust indenture, the TSAs shall pay or cause to be paid to the indenture trustee for deposit in the collection account established under the indenture all tobacco settlement payments. The total notes receivable represents the total bonds payable less the deferred amount on refundings at June 30, Notes receivable as of June 30, 2015, consisted of the following: Noncurrent Portion Current Portion Total Notes Receivable Deferred Amount on Refundings Total Bonds Payable Alameda County Tobacco Asset Securitization Corporation $ 272,703,210 $ 4,615,000 $ 277,318,210 $ - $ 277,318,210 Fresno County Tobacco Funding Corporation 136,837,140 2,755, ,592, ,592,140 Gold Country Settlement Funding Corporation (Placer) 57,630, ,394 58,247,748 1,251,733 59,499,481 Golden Gate Tobacco Funding Corporation (Marin) 47,513, ,000 48,053, ,448 48,932,523 Kern County Tobacco Funding Corporation 95,386,139 3,505,000 98,891,139 1,206, ,097,652 Los Angeles County Securitization Corporation 401,125,633 3,225, ,350, ,350,633 Merced County Tobacco Funding Corporation 34,897,511-34,897,511-34,897,511 Sonoma County Securitization Corporation 66,830, ,000 67,465,551 3,411,892 70,877,443 Stanislaus County Tobacco Funding Corporation 116,422,646 2,105, ,527, ,527,646 Total $ 1,229,346,259 $ 17,997,394 $ 1,247,343,653 $ 6,749,586 $ 1,254,093,239 8

12 NOTE 3 TOBACCO SETTLEMENT ASSET-BACKED BONDS PAYABLE A summary of changes in the tobacco settlement asset-backed bonds payable for the fiscal year ended June 30, 2015, is as follows: Balance at Balance at Due Within June 30, 2014 Additions Deletions June 30, 2015 One Year Alameda County Tobacco Asset Securitization Corporation Tobacco Settlement Asset-Backed Turbo Bonds Series 2002 $ 160,140,000 $ - $ (4,700,000) $ 155,440,000 $ 4,615,000 Unamortized Bond Discount - Series 2002 (3,558,067) - 137,202 (3,420,865) - Turbo Capital Appreciation Bonds Subordinate Series ,858, ,858,509 - Turbo Capital Appreciation Bonds Subordinate Series Accretion 49,509,787 7,930,779-57,440, ,950,229 7,930,779 (4,562,798) 277,318,210 4,615,000 Fresno County Tobacco Funding Corporation Tobacco Settlement Asset-Backed Turbo Bonds Series ,460,000 - (1,920,000) 67,540,000 2,755,000 Unamortized Bond Discount - Series 2002 (787,691) - 98,461 (689,230) - Turbo Capital Appreciation Bonds Subordinate Series ,015, ,015,131 - Turbo Capital Appreciation Bonds Subordinate Series Accretion 29,055,132 4,828,277-33,883,409 - Unamortized Bond Discount - Series 2006 (167,096) - 9,926 (157,170) - 136,575,476 4,828,277 (1,811,613) 139,592,140 2,755,000 Gold Country Tobacco Funding Corporation (Placer) Tobacco Settlement Asset-Backed Refunding Turbo Bonds Series ,000, ,000,000 - Turbo Capital Appreciation Bonds Series ,707,139 - (388,836) 9,318, ,516 Turbo Capital Appreciation Bonds Series Accretion 5,666, ,329 (263,396) 6,312, ,878 Unamortized Bond Discount - Series 2006 (1,167,478) - 36,484 (1,130,994) - 59,205, ,329 (615,748) 59,499, ,394 Golden Gate Tobacco Funding Corporation (Marin) Tobacco Settlement Asset-Backed Refunding Turbo Bonds Series ,500,000 - (540,000) 28,960, ,000 Turbo Capital Appreciation Bonds Series ,505, ,505,081 - Turbo Capital Appreciation Bonds Series Accretion 5,010, ,344-5,840,593 - Unamortized Bond Discount - Series 2007 (435,344) - 62,193 (373,151) - 48,579, ,344 (477,807) 48,932, ,000 Kern County Tobacco Funding Corporation Tobacco Settlement Asset-Backed Bonds Series ,445,000 - (82,445,000) - - Unamortized Bond Discount - Series 2002 (1,154,955) - 1,154, Tobacco Settlement Asset-Backed Refunding Turbo Bonds Series ,860,000 (2,425,000) 93,435,000 3,505,000 Unamortized Bond Premium - Series ,840,323 (177,671) 6,662,652-81,290, ,700,323 (83,892,716) 100,097,652 3,505,000 Los Angeles County Securitization Corporation Convertible Turbo Bonds Series ,305, ,305,000 3,225,000 Turbo Capital Appreciation Bonds Subordinate Series ,663, ,663,853 - Turbo Capital Appreciation Bonds Subordinate Series Accretion 17,578,865 2,802,915-20,381, ,547,718 2,802, ,350,633 3,225,000 Merced County Tobacco Funding Corporation Tobacco Settlement Asset-Backed Refunding Turbo Bonds Series ,540, ,540,000 - Unamortized Bond Discount - Series 2005 (688,381) - 45,892 (642,489) - 34,851,619-45,892 34,897,511 - Sonoma County Securitization Corporation Tobacco Settlement Asset-Backed Refunding Turbo Bonds Series ,475,000 - (665,000) 72,810, ,000 Unamortized Bond Discount - Series 2005 (1,996,975) - 64,418 (1,932,557) - 71,478,025 - (600,582) 70,877, ,000 Stanislaus County Tobacco Funding Corporation Tobacco Settlement Asset-Backed Bonds Series ,350,000 - (2,055,000) 45,295,000 2,105,000 Unamortized Bond Discount - Series 2002 (682,854) - 23,544 (659,310) - Turbo Capital Appreciation Bonds Subordinate Series ,153, ,153,611 - Turbo Capital Appreciation Bonds Subordinate Series Accretion 27,339,864 4,398,481-31,738, ,160,621 4,398,481 (2,031,456) 118,527,646 2,105,000 Total Tobacco Settlement Asset-Backed Bonds $ 1,223,639,619 $ 124,400,448 $ (93,946,828) $ 1,254,093,239 $ 17,997,394 9

13 NOTE 3 TOBACCO SETTLEMENT ASSET-BACKED BONDS PAYABLE (Continued) Tobacco Settlement Asset-Backed Bonds (Alameda County Tobacco Asset Securitization Corporation) On October 16, 2002, the Agency issued Tobacco Settlement Asset-Backed Turbo Bonds on behalf of the Alameda County Tobacco Asset Securitization Corporation in the amount of $220,525,000. The bond proceeds were loaned to the Alameda County Tobacco Asset Securitization Corporation, a nonprofit public benefit corporation organized under California Law pursuant to a secured loan agreement dated October 1, The Corporation applied the loan proceeds to (1) pay the cash portion of the purchase price for all of the rights, title and interest of the County of Alameda in and to the payments required to be made after the closing date, to the State of California under the MSA, (2) fund a debt service reserve account, (3) capitalize certain operating expenses of the Agency, and (4) pay costs of issuance incurred in connection with the issuance and administering of the bonds. Interest payments are due each June 1 and December 1. Interest rates and principal maturities are as follows: Asset-Backed Bonds Series 2002 Serial Bonds $23,330,000 - Maturity dates between June 1, 2003 and June 1, Fully redeemed during the fiscal year ended June 30, Asset-Backed Bonds Series 2002 Current Interest Turbo Bonds $197,195,000 - $24,290,000 Maturity date June 1, Expected final turbo redemption date June 1, 2009, including interest at 4.750%. Fully redeemed during the fiscal year ended June 30, $51,485,000 Maturity date June 1, Expected final turbo redemption date June 1, 2015, including interest at 5.750%. As of June 30, 2015, turbo redemptions amounted to $17,465, $45,170,000 Maturity date June 1, Expected final turbo redemption date June 1, 2018, including interest at 5.875%. - $76,250,000 Maturity date June 1, Expected final turbo redemption date June 1, 2021, including interest at 6.000%. On February 9, 2006, the Agency issued Tobacco Settlement Asset-Backed Subordinate Turbo Capital Appreciation Bonds in the amount of $67,858,509 on behalf of the Alameda County Tobacco Asset Securitization Corporation in three series as follows: Initial Accreted Accreted Projected Principal Value at Value at Maturity Final Turbo Interest Amount 06/30/15 Maturity Date Redemption Rate Subordinate Series 2006A $ 38,683,877 $ 68,661,518 $ 578,840,000 June 1, 2050 June 1, % Subordinate Series 2006B 12,790,902 23,760, ,220,000 June 1, 2050 June 1, % Subordinate Series 2006C 16,383,730 32,876, ,310,000 June 1, 2055 June 1, % Totals $ 67,858,509 $ 125,299,075 $ 1,449,370,000 10

14 NOTE 3 TOBACCO SETTLEMENT ASSET-BACKED BONDS PAYABLE (Continued) Tobacco Settlement Asset-Backed Bonds (Alameda County Tobacco Asset Securitization Corporation) (Continued) Capital appreciation bonds are debt securities on which the investment return on an initial principal amount is reinvested at a stated compounded rate until maturity, at which time the investor receives a single payment ( the maturity value ) representing both the initial principal amount and the total investment return. As subordinate bonds, no payments are due to bondholders prior to payment of the outstanding $155,440,000 Tobacco Settlement Asset-Backed Bonds Series The bond payments are funded by the revenue from the tobacco master settlement agreement. As of June 30, 2015, annual debt service requirements of the bonds to maturity are as follows: Fiscal Year Ending June 30, Principal Interest Total 2016 $ 4,615,000 $ 9,184,887 $ 13,799, ,919,525 8,919, ,919,525 8,919, ,919,525 8,919, ,919,525 8,919, ,597,625 44,597, ,405,000 42,906,838 72,311, ,170,000 36,143,688 81,313, ,875,000 22,875, ,250,000 9,150,000 85,400, ,474, ,585, ,060, ,383, ,926, ,310, ,298,509 1,582,047,629 1,805,346,138 Accreted interest 57,440,566 (57,440,566) - Less unamortized discount (3,420,865) - (3,420,865) Totals $ 277,318,210 $ 1,524,607,063 $ 1,801,925,273 Tobacco Settlement Asset-Backed Bonds (Fresno County Tobacco Funding Corporation) On July 25, 2002, the Agency issued Tobacco Settlement Asset-Backed Turbo Bonds on behalf of the Fresno County Tobacco Funding Corporation in the amount of $92,955,000. The bond proceeds were loaned to the Fresno County Tobacco Funding Securitization Corporation, a nonprofit public benefit corporation organized under California Law pursuant to a secured loan agreement dated July 1, The Corporation applied the loan proceeds to (1) pay the cash portion of the purchase price for all of the rights, title and interest of Fresno County in and to the payments required to be made to the State of California under the MSA, (2) fund a debt service reserve account, (3) capitalize the interest that was due on the Series 2002 bonds through December 1, 2003, and (4) pay certain expenses incurred in connection with the issuance and administering of the bonds. 11

15 NOTE 3 TOBACCO SETTLEMENT ASSET-BACKED BONDS PAYABLE (Continued) Tobacco Settlement Asset-Backed Bonds (Fresno County Tobacco Funding Corporation) (Continued) Interest payments are due each June 1 and December 1. Interest rates and principal maturities are as follows: Asset-Backed Bonds Series 2002 Serial Bonds $9,925,000 - Maturity dates between June 1, 2005 and June 1, 2015, including interest between 3.000% and 5.000%. Fully redeemed during the fiscal year ended June 30, Asset-Backed Bonds Series 2002 Current Interest Turbo Bonds $83,030,000 - $17,035,000 Maturity date June 1, Expected final turbo redemption date June 1, 2012, including interest at 5.625%. As of June 30, 2015, turbo redemptions amounted to $15,490, $12,230,000 Maturity date June 1, Expected final turbo redemption date June 1, 2015, including interest at 5.875%. - $35,265,000 Maturity date June 1, Expected final turbo redemption date June 1, 2020, including interest at 6.000%. - $18,500,000 Maturity date June 1, Expected final turbo redemption date June 1, 2022, including interest at 6.125%. On April 6, 2006, the Agency issued Tobacco Settlement Asset-Backed Subordinate Turbo Capital Appreciation Bonds in the amount of $39,015,131 on behalf of the Fresno County Tobacco Funding Corporation in four series as follows: Initial Accreted Accreted Projected Principal Value at Value at Maturity Final Turbo Interest Amount 06/30/15 Maturity Date Redemption Rate Subordinate Series 2006A $ 16,605,906 $ 29,792,377 $ 216,420,000 June 1, 2046 June 1, % Subordinate Series 2006B 2,889,809 5,253,472 39,920,000 June 1, 2046 June 1, % Subordinate Series 2006C 9,756,936 18,294, ,800,000 June 1, 2055 June 1, % Subordinate Series 2006D 9,762,480 19,557, ,500,000 June 1, 2055 June 1, % Totals $ 39,015,131 $ 72,898,540 $ 952,640,000 As subordinate bonds, no payments are due to bondholders prior to payment of the outstanding $67,540,000 Tobacco Settlement Asset-Backed Bonds Series The bond payments are funded by the revenue from the tobacco master settlement agreement. 12

16 NOTE 3 TOBACCO SETTLEMENT ASSET-BACKED BONDS PAYABLE (Continued) Tobacco Settlement Asset-Backed Bonds (Fresno County Tobacco Funding Corporation) (Continued) As of June 30, 2015, annual debt service requirements of the bonds to maturity are as follows: Fiscal Year Ending June 30, Principal Interest Total 2016 $ 2,755,000 $ 4,054,444 $ 6,809, ,896,450 3,896, ,896,450 3,896, ,896,450 3,896, ,896,450 3,896, ,482,250 19,482, ,020,000 17,539,975 28,559, ,265,000 16,245,125 51,510, ,500,000 3,399,375 21,899, ,495, ,844, ,340, ,519, ,780, ,300, ,555, ,931,838 1,096,486,969 Accreted interest 33,883,409 (33,883,409) - Less unamortized discount (846,400) - (846,400) Totals $ 139,592,140 $ 956,048,429 $ 1,095,640,569 Tobacco Settlement Asset-Backed Bonds (Gold Country Settlement Funding Corporation (Placer)) On May 19, 2006 the Agency issued Tobacco Settlement Asset-Backed Refunding Turbo Capital Appreciation Bonds on behalf of the Gold Country Settlement Funding Corporation in the amount of $59,372,118. The bond proceeds were loaned to the Gold Country Settlement Funding Corporation to securitize eight additional years of tobacco settlement receipts and to advance refund the Tobacco Settlement Assets-Backed Bonds, Series 2002 issued by the Agency for the benefit of the Gold Country Settlement Funding Corporation. The net proceeds of $57,913,000, along with $5,788,000 of cash previously held in reserve for future debt service, were used to (1) pay costs of issuance and related fees of $1,013,000, (2) fund a debt service reserve of $5,064,000, (3) deposit $1,181,000 to set aside the necessary funds to pay interest on the Series 2006 Bonds due on December , (4) pay accrued interest and principal, as a turbo redemption payment, on the Series 2002 Bonds of $1,178,000 and $275,000 respectively, (5) purchase $41,422,000 of U.S. government securities and deposit those funds in an irrevocable trust with an escrow agent to provide for all future debt service payments on the Series 2002 Bonds, (6) the remaining $13,568,000 was loaned to the Gold Country Settlement Funding Corporation by the Agency under an amended and restated loan agreement to fund various capital projects occurring within the County of Placer. As a result, the Series 2002 Bonds are considered to be defeased. As of June 30, 2015, there was no outstanding balance remaining on the refunded Series 2002 Bonds. 13

17 NOTE 3 TOBACCO SETTLEMENT ASSET-BACKED BONDS PAYABLE (Continued) Tobacco Settlement Asset-Backed Bonds (Gold Country Settlement Funding Corporation (Placer)) (Continued) Interest payments are due each June 1 and December 1. Interest rates and principal maturities are as follows: Asset-Backed Bonds Series 2006A Current Interest Turbo Bonds $45,000,000 - Maturity date June 1, Expected final turbo redemption date June 1, 2032, including interest at 5.250%. Asset-Backed Bonds Series 2006B Turbo Capital Appreciation Bonds that as of June 30, 2015, turbo redemptions amounted to $6,958,137. Initial Accreted Accreted Projected Principal Value at Value at Maturity Final Turbo Interest Amount 06/30/15 Maturity Date Redemption Rate Series 2006B $ 14,372,118 $ 15,630,475 $ 43,975,000 June 1, 2033 June 1, % As of June 30, 2015, annual debt service requirements of the bonds to maturity are as follows: Fiscal Year Ending June 30, Principal Interest Total 2016 $ 347,516 $ 2,632,378 $ 2,979, ,362,500 2,362, ,362,500 2,362, ,362,500 2,362, ,362,500 2,362, ,812,500 11,812, ,812,500 11,812, ,970,787 45,176,713 54,147, ,812,500 11,812, ,812,500 11,812, ,000,000 2,362,500 47,362,500 54,318, ,871, ,189,894 Accreted interest 6,312,172 (6,312,172) - Less unamortized discount (1,130,994) - (1,130,994) Totals $ 59,499,481 $ 100,559,419 $ 160,058,900 14

18 NOTE 3 TOBACCO SETTLEMENT ASSET-BACKED BONDS PAYABLE (Continued) Tobacco Settlement Asset-Backed Bonds (Golden Gate Settlement Funding Corporation (Marin)) On June 14, 2007, the Agency issued Tobacco Settlement Asset-Backed Refunding Turbo Capital Appreciation Bonds on behalf of the Golden Gate Tobacco Funding Corporation, in the amount of $49,870,081. The bonds were issued to refund the Tobacco Settlement Asset-Backed Bonds (Golden Gate Tobacco Funding Corporation), Series As of June 30, 2015, there was no outstanding balance remaining on the refunded Series 2002 Bonds. Interest payments are due each June 1 and December 1. Interest rates and principal maturities are as follows: Asset-Backed Bonds Series 2007A Current Interest Turbo Bonds $35,365,000 - $8,860,000 Maturity date June 1, Expected final turbo redemption date December 1, 2014, including interest at 4.500%. As of June 30, 2015, turbo redemptions amounted to $6,405, $9,255,000 Maturity date June 1, Expected final turbo redemption date June 1, 2022, including interest at 5.000%. - $17,250,000 Maturity date June 1, Expected final turbo redemption date June 1, 2027, including interest at 5.000%. Asset-Backed Bonds Series 2007B-F Turbo Capital Appreciation Bonds includes the Series 2007B Turbo Capital Appreciation Bonds, which were converted to Current Interest Turbo Bonds on December 1, Initial Accreted Accreted Projected Principal Value at Value at Maturity Final Turbo Interest Amount 06/30/15 Maturity Date Redemption Rate Subordinate Series 2007B $ 6,154,095 $ 6,625,000 $ 6,625,000 June 1, 2028 June 1, % Subordinate Series 2007C 2,337,139 3,670,662 39,700,000 June 1, 2057 June 1, % Subordinate Series 2007D 2,237,592 3,617,904 45,600,000 June 1, 2057 June 1, % Subordinate Series 2007E 1,913,225 3,233,685 51,500,000 June 1, 2057 June 1, % Subordinate Series 2007F 1,863,030 3,198,423 55,250,000 June 1, 2057 June 1, % Totals $ 14,505,081 $ 20,345,674 $ 198,675,000 As subordinate bonds, no payments are due to bondholders of the Series 2007C to Series 2007F bonds prior to payment of the outstanding $28,960,000 Series 2007A Current Interest Turbo Bonds and the 2007B Turbo Capital Appreciation Bonds converted to Current Interest Turbo Bonds. The bond payments are funded by the revenue from the tobacco master settlement agreement. 15

19 NOTE 3 TOBACCO SETTLEMENT ASSET-BACKED BONDS PAYABLE (Continued) Tobacco Settlement Asset-Backed Bonds (Golden Gate Settlement Funding Corporation (Marin)) (Continued) As of June 30, 2015, annual debt service requirements of the bonds to maturity are as follows: Fiscal Year Ending June 30, Principal Interest Total 2016 $ 540,000 $ 1,773,600 $ 2,313, ,749,300 1,749, ,749,300 1,749, ,749,300 1,749, ,749,300 1,749, ,915,000 8,401,800 10,316, ,154,095 8,110,780 14,264, ,626,250 6,626, ,255,000 4,775,250 14,030, ,312,500 4,312, ,250,000 1,725,000 18,975, ,350, ,699, ,050,000 43,465, ,421, ,886,475 Accreted interest 5,840,593 (5,840,593) - Less unamortized discount (373,151) - (373,151) Totals $ 48,932,523 $ 220,580,801 $ 269,513,324 Tobacco Settlement Asset-Backed Bonds (Kern County Tobacco Funding Corporation) On October 21, 2014, the Agency issued Tobacco Settlement Asset-Backed Refunding Turbo Bonds on behalf of the Kern County Tobacco Funding Corporation in the amount of $95,860,000. The bonds were issued to refund the Tobacco Settlement Asset-Backed Bonds (Kern County Tobacco Funding Corporation), Series 2002 and to loan to the Kern County Tobacco Funding Corporation, a public benefit corporation organized under California Law pursuant to a secured loan agreement dated April 2, 2002 and amended as of October 1, 2014, to finance certain capital projects of Kern County. The refunding was undertaken to reduce total future debt service payments. The reacquisition price exceeded the net carrying amount of the old debt by $1,238,687. This amount is being reported as deferred amount on refundings and amortized over the new debt s life, which is shorter than the refunded debt. The transaction also resulted in an economic gain of $23,366,192 and a reduction of $33,435,310 in future debt service payments. As of June 30, 2015, there was no outstanding balance remaining on the refunded Series 2002 Bonds. 16

20 NOTE 3 TOBACCO SETTLEMENT ASSET-BACKED BONDS PAYABLE (Continued) Tobacco Settlement Asset-Backed Bonds (Kern County Tobacco Funding Corporation) (Continued) Interest payments are due each June 1 and December 1. Interest rates and principal maturities are as follows: Asset-Backed Bonds Series 2014 Serial Bonds $29,010,000 - Maturity dates between June 1, 2015 and June 1, 2024, including interest between 4.000% and 5.000%. Asset-Backed Bonds Series 2014 Current Interest Turbo Bonds $66,850,000 - $21,110,000 Maturity date June 1, Expected final turbo redemption date June 1, 2024, including interest at 4.000%. As of June 30, 2015, turbo redemptions amounted to $605, $20,590,000 Maturity date June 1, Expected final turbo redemption date June 1, 2027, including interest at 5.000%. - $25,150,000 Maturity date June 1, Expected final turbo redemption date June 1, 2028, including interest at 5.000%. As of June 30, 2015, annual debt service requirements of the bonds to maturity are as follows: Fiscal Year Ending June 30, Principal Interest Total 2016 $ 3,505,000 $ 4,393,450 $ 7,898, ,290,000 4,253,250 6,543, ,790,000 4,161,650 6,951, ,860,000 4,050,050 6,910, ,950,000 3,907,050 6,857, ,055,000 17,101,000 31,156, ,245,000 14,514,200 33,759, ,590,000 10,405,500 30,995, ,150,000 6,287,500 31,437,500 93,435,000 69,073, ,508,650 Plus unamortized premium 6,662,652-6,662,652 Totals $ 100,097,652 $ 69,073,650 $ 169,171,302 17

21 NOTE 3 TOBACCO SETTLEMENT ASSET-BACKED BONDS PAYABLE (Continued) Tobacco Settlement Asset-Backed Bonds (Los Angeles County Securitization Corporation) On February 1, 2006, the Agency issued Tobacco Settlement Asset-Backed Turbo Bonds in the amount of $319,827,107 on behalf of the Los Angeles County Securitization Corporation. The bond proceeds were loaned to the Los Angeles County Securitization Corporation, a public benefit corporation organized under California Law pursuant to a secured loan agreement dated February 1, The Corporation applied the loan proceeds to (1) purchase Sold County Tobacco Assets, (2) fund a debt service reserve account, (3) fund an operating account for the bonds and (4) pay certain expenses incurred in connection with the issuance and administering of the bonds. Interest payments are due each June 1 and December 1. Interest rates and principal maturities are as follows: Initial Accreted Accreted Projected Principal Value at Value at Maturity Final Turbo Interest Amount 06/30/15 Maturity Date Redemption Rate Convertible Turbo Bonds, Series 2006A $ 60,279,686 $ 53,005,000 $ 53,005,000 June 1, 2021 June 1, % Convertible Turbo Bonds, Series 2006A 46,370,436 60,070,000 60,070,000 June 1, 2028 June 1, % Convertible Turbo Bonds, Series 2006A 62,196,244 81,140,000 81,140,000 June 1, 2036 June 1, % Convertible Turbo Bonds, Series 2006A 53,157,077 69,510,000 69,510,000 June 1, 2041 December 1, % Convertible Turbo Bonds, Series 2006A 72,159,811 94,580,000 94,580,000 June 1, 2046 June 1, % Totals $ 294,163,254 $ 358,305,000 $ 358,305,000 These bonds converted to Current Interest Turbo Bonds on December 1, As of June 30, 2015, turbo redemptions amounted to $24,355,000. Initial Accreted Accreted Projected Principal Value at Value at Maturity Final Turbo Interest Amount 06/30/15 Maturity Date Redemption Rate 2006B Turbo Capital Appreciation Bonds $ 13,586,213 $ 23,831,553 $ 154,670,000 June 1, 2046 June 1, % 2006C Turbo Capital Appreciation Bonds 12,077,640 22,214, ,800,000 June 1, 2046 June 1, % Totals $ 25,663,853 $ 46,045,633 $ 323,470,000 The Turbo Capital Appreciation, Subordinate Series 2006C is subordinate to the Turbo Capital Appreciation, Subordinate Series 2006B which is subordinate to the Tobacco Settlement Asset-Backed Bonds, Series 2006A Convertible Turbo Bonds. As subordinate bonds, no payments are due to bondholders of the Turbo Capital Appreciation, Subordinate Series 2006B prior to payment of the outstanding $358,305,000 Tobacco Settlement Asset-Backed Bonds Series 2006A Convertible Turbo Bonds. As subordinate turbo capital appreciation bonds, no payments are due to bondholders of the Turbo Capital Appreciation, Subordinate Series 2006C prior to payment of the outstanding $23,831,553 Turbo Capital Appreciation, Subordinate Series 2006B bonds. The bond payments are funded by the revenue from the tobacco master settlement agreement. 18

22 NOTE 3 TOBACCO SETTLEMENT ASSET-BACKED BONDS PAYABLE (Continued) Tobacco Settlement Asset-Backed Bonds (Los Angeles County Securitization Corporation) (Continued) As of June 30, 2015, annual debt service requirements of the bonds to maturity are as follows: Fiscal Year Ending June 30, Principal Interest Total 2016 $ 3,225,000 $ 19,918,793 $ 23,143, ,749,480 19,749, ,749,480 19,749, ,749,480 19,749, ,749,480 19,749, ,780,000 88,293, ,073, ,070,000 79,132, ,202, ,311,075 69,311, ,140,000 51,135, ,275, ,510,000 30,882, ,392, ,243, ,197, ,441, ,968, ,869,445 1,104,838,298 Accreted interest 20,381,780 (20,381,780) - Totals $ 404,350,633 $ 700,487,665 $ 1,104,838,298 Tobacco Settlement Asset-Backed Bonds (Merced County Tobacco Funding Corporation) On October 27, 2005, the Agency issued Tobacco Settlement Asset-Backed Refunding Turbo Bonds, Series 2005 in the amount of $39,690,000 on behalf of the Merced County Tobacco Funding Corporation. The bonds were issued to refund the Tobacco Settlement Asset-Backed Bonds, Series 2002 and permitted the California County Tobacco Securitization Agency to take advantage of market opportunities to generate additional proceeds which were unavailable in As of June 30, 2015, there was no outstanding balance remaining on the refunded Series 2002 Bonds. Interest payments are due each June 1 and December 1. Interest rates and principal maturities are as follows: Asset-Backed Bonds Series 2005A Current Interest Turbo Bonds $37,490,000 - $6,515,000 Maturity date June 1, Expected final turbo redemption date June 1, 2016, including interest at 5.000%. As of June 30, 2015, turbo redemptions amounted to $1,950, $15,160,000 Maturity date June 1, Expected final turbo redemption date June 1, 2024, including interest at 5.125%. - $15,815,000 Maturity date June 1, Expected final turbo redemption date June 1, 2029, including interest at 5.250%. Asset-Backed Bonds Series 2005B Current Interest Turbo Bonds $2,200,000 - Maturity date June 1, Expected final turbo redemption date June 1, 2010, including interest at 6.750%. Fully redeemed during the fiscal year ended June 30,

23 NOTE 3 TOBACCO SETTLEMENT ASSET-BACKED BONDS PAYABLE (Continued) Tobacco Settlement Asset-Backed Bonds (Merced County Tobacco Funding Corporation) (Continued) As of June 30, 2015, annual debt service requirements of the bonds to maturity are as follows: Fiscal Year Ending June 30, Principal Interest Total 2016 $ - $ 1,835,488 $ 1,835, ,835,487 1,835, ,835,488 1,835, ,835,487 1,835, ,835,488 1,835, ,177,437 9,177, ,565,000 8,264,438 12,829, ,036,187 8,036, ,160,000 6,482,288 21,642, ,815,000 4,151,437 19,966,437 35,540,000 45,289,225 80,829,225 Less unamortized discount (642,489) - (642,489) Totals $ 34,897,511 $ 45,289,225 $ 80,186,736 Tobacco Settlement Asset-Backed Bonds (Sonoma County Securitization Corporation) On October 27, 2005, the Agency issued Tobacco Settlement Asset-Backed Refunding Turbo Bonds, Series 2005 in the amount of $83,060,000 on behalf of the Sonoma County Securitization Corporation. The proceeds of the bonds were used to advance refund the 2002 Tobacco Settlement Asset-Backed Bonds (Series 2002A and 2002B) totaling $62,205,000 and to provide funds to the County. As of June 30, 2015, there was no outstanding balance remaining on the refunded Series 2002 Bonds. Interest payments are due each June 1 and December 1. Interest rates and principal maturities are as follows: Asset-Backed Bonds Series 2005 Current Interest Turbo Bonds $83,060,000 - $14,835,000 Maturity date June 1, Expected final turbo redemption date June 1, 2014, including interest at 4.250%. As of June 30, 2015, turbo redemptions amounted to $10,250, $9,920,000 Maturity date June 1, Expected final turbo redemption date June 1, 2017, including interest at 5.000%. - $31,045,000 Maturity date June 1, Expected final turbo redemption date June 1, 2024, including interest at 5.125%. - $27,260,000 Maturity date June 1, Expected final turbo redemption date June 1, 2028, including interest at 5.250%. 20

24 NOTE 3 TOBACCO SETTLEMENT ASSET-BACKED BONDS PAYABLE (Continued) Tobacco Settlement Asset-Backed Bonds (Sonoma County Securitization Corporation) (Continued) As of June 30, 2015, annual debt service requirements of the bonds to maturity are as follows: Fiscal Year Ending June 30, Principal Interest Total 2016 $ 635,000 $ 3,713,069 $ 4,348, ,686,081 3,686, ,686,081 3,686, ,686,081 3,686, ,686,082 3,686, ,950,000 17,758,906 21,708, ,920,000 15,607,031 25,527, ,111,031 15,111, ,045,000 11,928,919 42,973, ,260,000 7,155,750 34,415,750 72,810,000 86,019, ,829,031 Less unamortized discount (1,932,557) - (1,932,557) Totals $ 70,877,443 $ 86,019,031 $ 156,896,474 Tobacco Settlement Asset-Backed Bonds (Stanislaus County Tobacco Funding Corporation) On April 4, 2002, the Agency issued Tobacco Settlement Asset-Backed Turbo Bonds on behalf of the Stanislaus County Tobacco Funding Corporation in the amount of $67,305,000. The bond proceeds were loaned to the Stanislaus County Tobacco Funding Corporation, a public benefit corporation organized under California Law pursuant to a secured loan agreement dated March 1, The Corporation applied the loan proceeds to (1) pay the cash portion of the purchase price for all of the rights, title and interest of the County in and to the payments required to be made to the State of California under the MSA, (2) fund a debt service reserve account, and (3) pay certain expenses incurred in connection with the issuance and administering of the bonds. Interest payments are due each June 1 and December 1. Interest rates and principal maturities are as follows: Asset-Backed Bonds Series 2002A Current Interest Turbo Bonds $59,215,000 - $24,490,000 Maturity date June 1, Expected final turbo redemption date June 1, 2016, including interest at 5.500%. As of June 30, 2015, turbo redemptions amounted to $13,920, $34,725,000 Maturity date June 1, Expected final turbo redemption date June 1, 2022, including interest at 5.875%. 21

25 NOTE 3 TOBACCO SETTLEMENT ASSET-BACKED BONDS PAYABLE (Continued) Tobacco Settlement Asset-Backed Bonds (Stanislaus County Tobacco Funding Corporation) (Continued) Asset-Backed Bonds Series 2002B Current Interest Turbo Bonds $ 8,090,000 - Maturity date June 1, Expected final turbo redemption date June 1, 2009, including interest at 7.500%. Fully redeemed during the fiscal year ended June 30, On March 29, 2006, the Agency issued Tobacco Settlement Asset-Backed Subordinate Turbo Capital Appreciation Bonds in the amount of $42,153,611 on behalf of the Stanislaus County Tobacco Funding Corporation. The bonds were issued as subordinate Turbo Capital Appreciation Bonds in four series, as follows: Initial Accreted Accreted Projected Principal Value at Value at Maturity Final Turbo Interest Amount 06/30/15 Maturity Date Redemption Rate Subordinate Series 2006A $ 20,965,835 $ 35,266,763 $ 204,445,000 June 1, 2046 June 1, % Subordinate Series 2006B 2,827,547 4,809,173 28,950,000 June 1, 2046 June 1, % Subordinate Series 2006C 9,446,325 16,686, ,500,000 June 1, 2055 June 1, % Subordinate Series 2006D 8,913,905 17,129, ,750,000 June 1, 2055 June 1, % Totals $ 42,153,611 $ 73,891,956 $ 728,645,000 As subordinate bonds, no payments are due to bondholders prior to payment of the outstanding $45,295,000 Tobacco Settlement Asset-Backed Bonds Series The bond payments are funded by the revenue from the tobacco master settlement agreement As of June 30, 2015, annual debt service requirements of the bonds to maturity are as follows: Fiscal Year Ending June 30, Principal Interest Total 2016 $ 2,105,000 $ 2,621,444 $ 4,726, ,505,669 2,505, ,505,668 2,505, ,505,669 2,505, ,505,669 2,505, ,528,344 12,528, ,528,343 12,528, ,465,000 11,597,194 20,062, ,200,469 10,200, ,725,000 6,120,281 40,845, ,793, ,601, ,395, ,360, ,889, ,250,000 87,448, ,110, ,558,750 Accreted interest 31,738,345 (31,738,345) - Less unamortized discount (659,310) - (659,310) Totals $ 118,527,646 $ 720,371,794 $ 838,899,440 22

26 NOTE 4 INTEREST PAYABLE Interest payments are due each June 1 and December 1. The interest payments are paid by the TSAs on behalf of the Agency. Therefore, the amount accrued at June 30, 2015 will include a receivable portion from the TSAs of equal value. The accrued interest as of June 30, 2015 is as follows: Alameda County Tobacco Asset Securitization Corporation $ 765,407 Fresno County Tobacco Funding Corporation 337,870 Gold Country Settlement Funding Corporation (Placer) 196,875 Golden Gate Tobacco Funding Corporation (Marin) 147,800 Kern County Tobacco Funding Corporation 366,121 Los Angeles County Securitization Corporation 1,659,899 Merced County Tobacco Funding Corporation 152,957 Sonoma County Securitization Corporation 309,422 Stanislaus County Tobacco Funding Corporation 218,454 $ 4,154,805 NOTE 5 RELATED PARTY TRANSACTIONS During the fiscal year ended June 30, 2015, the California County Tobacco Securitization Agency incurred $43,666 for legal services, of which $32,007 remained outstanding and due from the TSAs as of June 30, 2015 as follows: Alameda County Tobacco Asset Securitization Corporation $ 1,125 Gold Country Settlement Funding Corporation (Placer) 631 Golden Gate Tobbaco Funding Corporation (Marin) 1,847 Kern County Tobacco Funding Corporation 16,713 Los Angeles County Securitization Corporation 892 Merced County Tobacco Funding Corporation 1,352 Sonoma County Securitization Corporation 3,257 Stanislaus County Tobacco Funding Corporation $ 6,190 32,007 23