NEW ISSUE BOOK-ENTRY ONLY In the opinion of Kutak Rock LLP, Special Counsel, based upon an analysis of existing laws, regulations, rulings, and court decisions, and assuming, among other matters, compliance with certain covenants, interest with respect to the 2009 Certificates is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes. Special Counsel is of the further opinion that interest with respect to the 2009 Certificates is not a specific preference item and is not included in adjusted current earnings for purposes of the federal alternative minimum tax. Special Counsel is of the further opinion that the 2009 Certificates are “qualified tax-exempt obligations” within the meaning of section 265(b)(3) of the Internal Revenue Code of 1986, as amended. For a more complete description see “TAX MATTERS” herein.

$5,755,000

SAN DIEGO COUNTY BOARD OF EDUCATION 2009 CERTIFICATES OF PARTICIPATION

(CAMP CUYAMACA OUTDOOR SCHOOL PROJECT) (Bank Qualified)

Dated: Date of Delivery Due: February 1, as shown below

This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision.

The 2009 Certificates of Participation (the “2009 Certificates”) will be issued in book-entry form only, initially registered in the name of

Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). Purchasers of the 2009 Certificates will not receive instruments representing their interests in the 2009 Certificates purchased. Individual purchases of 2009 Certificates will be made in principal amounts of $5,000 or any integral multiple thereof.

Interest with respect to the 2009 Certificates is payable on February 1, 2010 and semiannually thereafter on February 1 and August 1 of

each year. Payments of interest and principal with respect to the 2009 Certificates will be paid to DTC. DTC will in turn remit such interest and principal to the DTC Participants who will in turn remit such interest and principal to the Beneficial Owners of the 2009 Certificates, all as more fully described herein.

The 2009 Certificates are subject to optional and mandatory prepayment as described herein. See “DESCRIPTION OF THE 2009

CERTIFICATES-Prepayment.” The 2009 Certificates are being executed and delivered pursuant to a Trust Agreement, dated as of November 1, 2009 (the “‘Trust

Agreement”), by and among the San Diego County Board of Education (hereinafter referred to as the “Board of Education”), the SDCOE Corporation (the “Corporation) and Union Bank, N.A., as trustee (the “Trustee”). The 2009 Certificates are being executed and delivered to provide funds to: (i) finance a portion of the construction cost of certain educational facilities; (ii) to fund a reserve fund for the 2009 Certificates established under the Trust Agreement; and (iii) to pay certain costs of issuance of the 2009 Certificates. Pursuant to a Property Lease dated as of November 1, 2009 by and between the Board of Education and the Corporation, the Board of Education will lease certain real property and improvements to the Corporation (the “Leased Property”). The Corporation will construct certain improvements (the “Facility”) on the Leased Property and will lease the Leased Property and the Facility (collectively, the “Leased Premises”) back to the Board of Education pursuant to a Lease Agreement dated as of November 1, 2009 by and between the Board of Education and the Corporation. In consideration for the use and possession of the Leased Premises, the Board of Education will make semi-annual base rental payments (the “Base Rental”) and certain additional rental payments to the Corporation.

The 2009 Certificates are payable by the Board of Education solely from the Base Rental payments made by the Board of Education under

the Lease Agreement and from certain limited funds held by the Trustee under the Trust Agreement. The Board of Education has covenanted under the Lease Agreement to make all Base Rental payments provided for therein, to take such action as may be necessary to include the Base Rental payments in its annual budget and to make the necessary annual appropriations therefore. The Board of Education’s obligation to make the Base Rental payments is subject to abatement. See “SECURITY AND SOURCES OF PAYMENTS FOR THE 2009 CERTIFICATES-Abatement “ herein.

THE OBLIGATION OF THE BOARD OF EDUCATION TO BUDGET FOR AND TO MAKE BASE RENTAL PAYMENTS UNDER

THE LEASE AGREEMENT IS A SPECIAL OBLIGATION OF THE BOARD OF EDUCATION AND DOES NOT CONSTITUTE A DEBT OF THE BOARD OF EDUCATION, THE CORPORATION, THE COUNTY OF SAN DIEGO (THE “COUNTY”), THE STATE OF CALIFORNIA (THE “STATE”) OR ANY OTHER POLITICAL SUBDIVISION WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. THE OBLIGATION OF THE BOARD OF EDUCATION TO MAKE BASE RENTAL PAYMENTS DOES NOT CONSTITUTE ON OBLIGATION FOR WHICH THE BOARD OF EDUCATION IS OBLIGATED TO LEVY OR PLEDGE, OR HAS LEVIED OR PLEDGED, ANY FORM OF TAXATION. THE CORPORATION HAS NO LIABILITY OR OBLIGATION WHATSOEVER TO THE OWNERS OF THE 2009 CERTIFICATES. FOR MORE COMPLETE AND DETAILED INFORMATION, SEE “SECURITY AND SOURCES OF PAYMENT FOR THE 2009 CERTIFICATES” HEREIN.

The 2009 Certificates are offered when, as and if issued and delivered, subject to the approval of validity by Kutak Rock LLP, Los Angeles,

California, Special Counsel, and certain other conditions. Certain legal matters will be passed on for the Board of Education and the Corporation by Kutak Rock LLP, Los Angeles, California. It is anticipated that the 2009 Certificates will be available for delivery in book-entry form to DTC in New York, New York, on or about November 10, 2009.

Dated: October 27, 2009

Maturity Schedule (Base CUSIP Number 79738P)*

Maturity (Feb. 1)

Principal Amount

Interest Rate

Price/ Yield

CUSIP

Maturity (Feb. 1)

Principal Amount

Interest Rate

Price/ Yield

CUSIP

2010 $60,000 5.000% 1.250% BN6 2018 $370,000 4.875% 100.000% BW6 2011 265,000 5.250 2.250 BP1 2019 385,000 5.000 100.000 BX4 2012 280,000 5.250 3.000 BQ9 2020 405,000 5.125 100.000 BY2 2013 295,000 5.000 3.500 BR7 2021 425,000 5.250 100.000 BZ9 2014 310,000 5.000 4.000 BS5 2022 450,000 5.250 5.350 CA3 2015 325,000 4.250 100.000 BT3 2023 475,000 5.375 5.400 CB1 2016 335,000 4.500 100.000 BU0 2024 500,000 5.375 5.450 CC9 2017 350,000 4.750 100.000 BV8 2025 525,000 5.500 100.000 CD7

____________________________ * CUSIP Numbers are provided only for the convenience of the reader. The Board of Education takes no responsibility for any changes to or errors in this list of CUSIP Numbers.

SAN DIEGO COUNTY OFFICE OF EDUCATION BOARD MEMBERS

Sharon C. Jones, President Susan Hartley, Vice President

Mark Anderson, Member Jerry R. Rindone, Member

John Witt, Member

STAFF

Randolph E. Ward, Ed.D., Superintendent Lora Duzyk, Assistant Superintendent, Business Services Division

Mikal Nichols, Senior Director, Educational Facility Solutions Group

FINANCIAL ADVISOR

Municipal Capital Management, Inc. Mill Valley, California

TRUSTEE

Union Bank, N.A. Los Angeles, California

SPECIAL COUNSEL

Kutak Rock LLP

Los Angeles, California

No dealer, broker, salesperson or other person has been authorized by the Board of Education, the Financial Advisor or the Purchaser to give any information or to make any representations other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any offer, solicitation or sale of the 2009 Certificates by any person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.

This Official Statement is not to be construed as a contract with the purchasers of the 2009 Certificates. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of facts.

The information set forth herein has been obtained from the Board of Education, The Depository Trust Company (“DTC”), and other sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the Purchaser. The information and expressions of opinion herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change since the date hereof in the affairs of the Board of Education or DTC, or in any other matters which are material to the full and punctual payment of the 2009 Certificates. All summaries of statutes and documents are made subject to the provisions of such statutes and documents, respectively, and do not purport to be complete statements of any or all of such provisions.

This Official Statement is submitted in connection with the sale of the 2009 Certificates referred to herein and may not be reproduced or used, in whole or in part, for any other purpose.

The 2009 Certificates have not been registered under the Securities Act of 1933, as amended, in reliance upon an exemption contained therein, and have not been registered or qualified under the securities laws of any state.

In connection with this offering, the Purchaser may effect transactions which stabilize or maintain the market price of the 2009 Certificates at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Purchaser may offer and sell the 2009 Certificates to certain dealers, dealer banks, banks acting as agent for certain purchasers, and institutional investors at prices lower than the public offering price stated on the cover page of this Official Statement, and said public offering price may be changed from time to time by the Purchaser.

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TABLE OF CONTENTS INTRODUCTION....................................................................................................................................................... 1 APPLICATION OF BOND PROCEEDS ................................................................................................................... 2 DEBT SERVICE SCHEDULE ................................................................................................................................... 3 DESCRIPTION OF THE 2009 CERTIFICATES....................................................................................................... 4

General ........................................................................................................................................................ 4 Prepayment.................................................................................................................................................... 5

BOOK-ENTRY-ONLY SYSTEM .............................................................................................................................. 5 SECURITY AND SOURCES OF PAYMENT FOR THE 2009 CERTIFICATES.................................................... 8

Covenant to Budget....................................................................................................................................... 8 Additional Rental .......................................................................................................................................... 8 Abatement .................................................................................................................................................... 8 Reserve Fund................................................................................................................................................. 9 Additional Certificates .................................................................................................................................. 9 Repair and Maintenance; Insurance; Modification of the Leased Premises.................................................. 9 Public Liability Insurance ........................................................................................................................... 10 Property Insurance....................................................................................................................................... 10

Title Insurance............................................................................................................................................. 11 THE FACILITY AND THE LEASED PREMISES.................................................................................................. 11 RISK FACTORS ....................................................................................................................................................... 12

Limited Obligations..................................................................................................................................... 12 Full Faith and Credit Not Pledged............................................................................................................... 12 Constitutional and Statutory Limitations on Appropriations....................................................................... 12

Abatement ................................................................................................................................................... 12 No Limitation on Incurring Additional Obligations.................................................................................... 13 Limitations on Default Remedies................................................................................................................ 13 Insurance ..................................................................................................................................................... 13 No Liability of Board of Education or the Corporation to the Owners ....................................................... 14 Loss of Tax Exemption ............................................................................................................................... 14 The State Budget ......................................................................................................................................... 15 The 2008-09 State Budget........................................................................................................................... 15 The 2009-10 State Budget........................................................................................................................... 16 State Funding of Schools without a State Budget ....................................................................................... 17 Future Budgets at the State Level ............................................................................................................... 17 Proposition 1A ............................................................................................................................................ 18 BOARD OF EDUCATION FINANCIAL INFORMATION.................................................................................... 19

History and Operation ................................................................................................................................. 19 State Funding of Education ......................................................................................................................... 19 State Lottery ................................................................................................................................................ 20 Developer Fees............................................................................................................................................ 20 Assessed Valuation ..................................................................................................................................... 20 Tax Rates, Levies, Collections and Delinquencies...................................................................................... 21 Largest Taxpayers ....................................................................................................................................... 22 Significant Accounting Policies and Audited Financial Reports................................................................. 23 Budgets ...................................................................................................................................................... 24 Outstanding Debt......................................................................................................................................... 25 Cash Flow Borrowing ................................................................................................................................. 27

Employment ................................................................................................................................................ 27 Pension Plans .............................................................................................................................................. 27 San Diego County Investment Pool ............................................................................................................ 27 CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS ................... 30 Article XIIIA of the California Constitution ............................................................................................... 30 Article XIIIB of the California Constitution ............................................................................................... 31 Article XIIIC and XIIID of the California Constitution (Proposition 18)................................................... 31

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Unitary Property.......................................................................................................................................... 32 Proposition 98 ............................................................................................................................................. 32 Proposition 111 – Revisions to Article XIIIB and Proposition 98 .............................................................. 33 Proposition 227 ........................................................................................................................................... 34 Proposition 39 ............................................................................................................................................. 34 Future Initiatives ......................................................................................................................................... 35 RATING.................................................................................................................................................................... 35 TAX MATTERS ....................................................................................................................................................... 35

General ........................................................................................................................................................ 35 Changes in Federal Tax Law ....................................................................................................................... 36 Bank Qualified............................................................................................................................................. 36 Original Issue Discount ............................................................................................................................... 36 Market Discount .......................................................................................................................................... 37 Original Issue Premium ............................................................................................................................... 37 Backup Withholding.................................................................................................................................... 37

LITIGATION ............................................................................................................................................................ 37 FINANCIAL ADVISOR........................................................................................................................................... 38 LEGAL MATTERS .................................................................................................................................................. 38 PURCHASE OF 2009 CERTIFICATES................................................................................................................... 38 FINANCIAL STATEMENTS................................................................................................................................... 38 CONTINUING DISCLOSURE................................................................................................................................. 38 OTHER MATTERS .................................................................................................................................................. 39 APPENDIX A CURRENT ECONOMIC AND DEMOGRAPHIC DATA PERTAINING TO SAN

DIEGO COUNTY APPENDIX B ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2008

FOR THE SAN DIEGO COUNTY BOARD OF EDUCATION APPENDIX C DEFINITIONS AND SUMMARY OF PRINCIPAL LEGAL DOCUMENTS APPENDIX D FORM OF CONTINUING DISCLOSURE AGREEMENT APPENDIX E FORM OF PROPOSED OPINION OF SPECIAL COUNSEL

OFFICIAL STATEMENT

$5,755,000 San Diego County Board of Education

2009 Certificates of Participation (Camp Cuyamaca Outdoor School Project)

INTRODUCTION

This Official Statement, which includes the cover page and appendices hereto, sets forth certain information in connection with the offering of $5,755,000 aggregate principal amount of San Diego County Board of Education 2009 Certificates of Participation (Camp Cuyamaca Outdoor School Project) (the “2009 Certificates”). This introduction is not a summary of the 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 and the documents summarized or described herein. A full review should be made of the entire Official Statement. All capitalized terms not otherwise defined herein or in APPENDIX C hereto shall have the meanings set forth in the Trust Agreement dated as of November 1, 2009 (the “Trust Agreement”), by and among the San Diego County Board of Education (the “Board of Education”), SDCOE Corporation, a California nonprofit corporation (the “Corporation”) and Union Bank, N.A., as trustee (the “Trustee”).

The Board of Education and the Corporation have entered into a Property Lease, dated as of November 1, 2009 (the “Property Lease”), pursuant to which the Board of Education will lease certain real property and improvements (the “Leased Property”) to the Corporation. The Corporation will construct certain improvements (the "Facility") on the Leased Property and will lease the Leased Property and the Facility (collectively, the "Leased Premises") back to the Board of Education pursuant to a Lease Agreement, dated as of November 1, 2009 (the "Lease Agreement"), between the Corporation and the Board of Education. In consideration for the use and possession of the Leased Premises, the Board of Education covenants in the Lease Agreement to make certain base rental payments (the “Base Rental”) and certain additional rental payments (“Additional Rental”). The Corporation will transfer all of its right, title and interest (excluding its rights to indemnification and payment or reimbursement for its costs and expenses) in and to the Lease Agreement, including the right to receive payments of Base Rental due under the Lease Agreement, its right to receive insurance or condemnation proceeds due under the Lease Agreement and such rights as may be necessary for the Trustee to enforce payment of the Base Rental thereunder, to the Trustee for the benefit of the Owners of the 2009 Certificates pursuant to an Assignment Agreement, dated as of November 1, 2009 (the “Assignment Agreement”), by and between the Corporation and the Trustee.

The Base Rental payments are designed to be sufficient in both time and amount to pay, when

due, the principal and interest components of the 2009 Certificates. See “SECURITY AND SOURCES OF PAYMENT FOR THE 2009 CERTIFICATES.”

Proceeds of the 2009 Certificates will be used to: (i) finance a portion of the construction cost of certain educational facilities which will be used by the Board of Education; (ii) to fund a reserve fund for the 2009 Certificates established under the Trust Agreement and (iii) to pay certain costs of issuance of the 2009 Certificates.

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Under the Lease Agreement, the Board of Education covenants to take such action as may be necessary to include all applicable Base Rental in its annual budget and make the necessary annual appropriations therefor. The Lease Agreement provides that such covenant of the Board of Education is deemed by the Board of Education to be and shall be construed to be ministerial duties imposed by law.

THE OBLIGATION OF THE BOARD OF EDUCATION TO MAKE RENTAL PAYMENTS DOES NOT CONSTITUTE AN OBLIGATION OF THE BOARD OF EDUCATION FOR WHICH THE BOARD OF EDUCATION, THE COUNTY OF SAN DIEGO (THE “COUNTY”), THE STATE OF CALIFORNIA (THE “STATE”), OR ANY POLITICAL SUBDIVISION THEREOF, IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE BOARD OF EDUCATION, THE COUNTY, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. NEITHER THE 2009 CERTIFICATES NOR THE OBLIGATION OF THE BOARD OF EDUCATION TO MAKE RENTAL PAYMENTS UNDER THE LEASE AGREEMENT CONSTITUTE AN INDEBTEDNESS OF THE BOARD OF EDUCATION, THE COUNTY OR THE STATE, OR OF ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. FOR MORE COMPLETE AND DETAILED INFORMATION, SEE “SECURITY AND SOURCES OF PAYMENT FOR THE 2009 CERTIFICATES” HEREIN.

Brief descriptions of the 2009 Certificates, the security and source of payment for the 2009 Certificates, the Board of Education and its financial status are presented herein. Such references and descriptions do not purport to be comprehensive or definitive. All references herein to various documents are qualified in their entirety by reference to the forms thereof, all of which are available at the Trustee’s Offices.

APPLICATION OF BOND PROCEEDS

The following table shows the estimated application of the proceeds of the 2009 Certificates.

SOURCES OF FUNDS Principal Amount of 2009 Certificates .................................................................................... $5,755,000.00 Original Issue Premium/(Discount) ................................................................................................ 39,858.95 Total Sources ........................................................................................................................... $5,794,858.95 USES OF FUNDS Deposit to Project Account ...................................................................................................... $5,000,000.00 Debt Service Reserve Fund........................................................................................................... 556,281.26 Costs of Issuance(1)........................................................................................................................ 141,168.74 Purchasers’ Discount ...................................................................................................................... 97,408.95 Total Uses ................................................................................................................................ $5,794,858.95 _______________ (1) Includes the estimated fees and expenses for Special Counsel, Counsel to the Board of Education

and Corporation, the financial advisor, printing, rating agency fees and other costs related to the issuance of the 2009 Certificates.

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DEBT SERVICE SCHEDULE The table below sets forth the amount required in each year for the payment of principal of and interest with respect to the 2009 Certificates. The 2009 Certificates shall mature on February 1 of each year, as set forth below.

Principal

Interest

Total Debt Service

Total Annual Debt Service

February 1, 2010 $ 60,000 $ 65,843.44 $125,843.44 $125,843.44August 1, 2010 144,818.75 144,818.75

February 1, 2011 265,000 144,818.75 409,818.75 554,637.50August 1, 2011 137,862.50 137,862.50

February 1, 2012 280,000 137,862.50 417,862.50 555,725.00August 1, 2012 130,512.50 130,512.50

February 1, 2013 295,000 130,512.50 425,512.50 556,025.00August 1, 2013 123,137.50 123,137.50

February 1, 2014 310,000 123,137.50 433,137.50 556,275.00August 1, 2014 115,387.50 115,387.50

February 1, 2015 325,000 115,387.50 440,387.50 555,775.00August 1, 2015 108,481.25 108,481.25

February 1, 2016 335,000 108,481.25 443,481.25 551,962.50August 1, 2016 100,943.75 100,943.75

February 1, 2017 350,000 100,943.75 450,943.75 551,887.50August 1, 2017 92,631.25 92,631.25

February 1, 2018 370,000 92,631.25 462,631.25 555,262.50August 1, 2018 83,612.50 83,612.50

February 1, 2019 385,000 83,612.50 468,612.50 552,225.00August 1, 2019 73,987.50 73,987.50

February 1, 2020 405,000 73,987.50 478,987.50 552,975.00August 1, 2020 63,609.38 63,609.38

February 1, 2021 425,000 63,609.38 488,609.38 552,218.76August 1, 2021 52,453.13 52,453.13

February 1, 2022 450,000 52,453.13 502,453.13 554,906.26August 1,2022 40,640.63 40,640.63

February 1, 2023 475,000 40,640.63 515,640.63 556,281.26August 1, 2023 27,875.00 27,875.00

February 1, 2024 500,000 27,875.00 527,875.00 555,750.00August 1, 2024 14,437.50 14,437.50

February 1, 2025 525,000 14,437.50 539,437.50 553,875.00

TOTAL $5,755,000 $2,686,624.72 $8,441,624.72 $8,441,624.72

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DESCRIPTION OF THE 2009 CERTIFICATES

General

The 2009 Certificates will be executed and delivered in the aggregate principal amount of $5,755,000 and will mature on February 1 in the years and in the amounts set forth on the inside cover page of this Official Statement. The 2009 Certificates will be executed and delivered in the form of fully registered certificates, without coupons, in the denomination of $5,000 or any integral multiple thereof (each, an “Authorized Denomination”), will be dated the date of delivery and will bear interest at the rates set forth on the inside cover page hereof payable semiannually beginning February 1, 2010 and on each February 1 and August 1 thereafter (each, an “Interest Payment Date”) until maturity or redemption prior to maturity as described herein. Interest with respect to the 2009 Certificates will be calculated on the basis of a 360-day year, comprised of twelve 30-day months.

The 2009 Certificates, when issued, will be registered in the name of Cede & Co., as registered owner and nominee of The Depository Trust Company, New York, New York (“DTC” and, together with any successor securities depository, the “Securities Depository”). DTC will act as Securities Depository for the 2009 Certificates so purchased. Individual purchases will be made in book-entry-only form. Purchasers will not receive a certificate representing their beneficial ownership interest in 2009 Certificates. So long as Cede & Co. is the registered owner of the 2009 Certificates, as nominee of DTC, references herein to the 2009 Certificateholders, holders or registered owners shall mean Cede & Co. as aforesaid, and shall not mean the “Beneficial Owners” of the 2009 Certificates.

In this Official Statement, the term “Beneficial Owner” shall mean the person for whom a Participant (as defined herein) acquires an interest in the 2009 Certificates. See “BOOK-ENTRY-ONLY SYSTEM” herein.

So long as Cede & Co. is the registered owner of the 2009 Certificates, principal and interest with respect to the 2009 Certificates are payable by wire transfer of same day funds by the Trustee to Cede & Co., as nominee for DTC. DTC is obligated, in turn, to remit such amounts to the DTC Participants for subsequent disbursement to the Beneficial Owners. See “BOOK-ENTRY-ONLY SYSTEM” herein.

In the event the use of the book-entry-only system is discontinued, principal with respect to the 2009 Certificates will be payable upon surrender thereof at the principal corporate trust office of the Trustee in Los Angeles, California. All interest payable with respect to the 2009 Certificates will be paid by check mailed by first-class mail on each Interest Payment Date to the person in whose name each 2009 Certificate is registered in the registration books maintained by the Trustee as of the close of business on the fifteenth day of the month immediately preceding each Interest Payment Date (each, a “Record Date”); provided that registered owners of $1,000,000 or more in aggregate principal amount of 2009 Certificates may request payment by wire transfer to an account within the United States, such request to be submitted in writing and received by the Trustee on or before the applicable Record Date for such Interest Payment Date in accordance with the provisions set forth in the Trust Agreement.

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Prepayment

Optional Prepayment. The 2009 Certificates maturing on or before February 1, 2015 are not subject to optional prepayment prior to maturity. The 2009 Certificates maturing on or after February 1, 2016 are subject to optional prepayment in whole or in part at any time from prepayments of the applicable Base Rental made at the option of the Board of Education pursuant to the Lease Agreement on February 1, 2015, or on any date thereafter, at a prepayment price equal to the principal amount of the 2009 Certificates to be prepaid plus accrued interest to the date fixed for prepayment.

Mandatory Prepayment. Following an event of damage to, or destruction, theft or condemnation of, the Leased Premises or any portion thereof or loss of the use or possession of the Leased Premises or any portion thereof due to a title defect, the 2009 Certificates are subject to mandatory prepayment prior to maturity, as a whole or in part on any date, at a prepayment price equal to the principal amount thereof plus accrued but unpaid interest to the prepayment date, without premium.

BOOK-ENTRY-ONLY SYSTEM

DTC will act as Securities Depository for the 2009 Certificates. The 2009 Certificates will be issued initially in fully registered form and will be registered in the name of Cede & Co., DTC’s partnership nominee. One fully registered 2009 Certificate will be issued for each maturity in the aggregate principal amount of such maturity and will be deposited with DTC. The following information has been provided by DTC, and the Board of Education and the Purchaser make no representation as to its accuracy or completeness. For further information, Beneficial Owners should contact DTC in New York, New York.

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 of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 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, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. 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 www.dtcc.com.

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Purchases of the 2009 Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2009 Certificates on DTC’s records. The ownership interest of each actual purchaser of each 2009 Certificate (“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 2009 Certificates 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 2009 Certificates, except in the event that use of the book-entry system for the 2009 Certificates is discontinued.

To facilitate subsequent transfers, all 2009 Certificates deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of 2009 Certificates 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 2009 Certificates; DTC’s records reflect only the identity of the Direct Participants to whose accounts such 2009 Certificates 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 2009 Certificates may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the 2009 Certificates, such as redemptions, tenders, defaults, and proposed amendments to the 2009 Certificates documents. For example, Beneficial Owners of 2009 Certificates may wish to ascertain that the nominee holding the 2009 Certificates 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.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the 2009 Certificates unless authorized by a Direct Participant in accordance with DTC’s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Board of Education as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Redemption proceeds, distributions, and dividend payments on the 2009 Certificates 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 Paying Agent, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC nor its nominee, the Paying Agent, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Paying Agent, disbursement of such payments to Direct Participants will be the

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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 2009 Certificates at any time by giving reasonable notice to the Board of Education as Paying Agent. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered.

The Board of Education may decide to discontinue use of the system of book-entry transfers

through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered.

The information in this section, “Book-Entry-Only System” concerning DTC and the Book-Entry Only System has been obtained from sources that the Board of Education believes to be reliable, but the Board of Education takes no responsibility for the accuracy thereof.

THE PAYING AGENT WILL NOT HAVE ANY RESPONSIBILITY OR OBLIGATION TO SUCH DTC PARTICIPANTS OR THE PERSONS FOR WHOM THEY ACT AS NOMINEES WITH RESPECT TO THE PAYMENTS TO OR PROVIDING OF NOTICE FOR THE DTC PARTICIPANTS, OR THE INDIRECT PARTICIPANTS, OR BENEFICIAL OWNERS.

SO LONG AS CEDE & CO. IS THE REGISTERED OWNER OF THE 2009 CERTIFICATES, AS NOMINEE OF DTC, REFERENCES HEREIN TO THE 2009 CERTIFICATEHOLDERS OR REGISTERED OWNERS OF THE 2009 CERTIFICATES (OTHER THAN UNDER THE CAPTION “TAX EXEMPTION”) SHALL MEAN CEDE & CO. AND SHALL NOT MEAN THE BENEFICIAL OWNERS OF THE 2009 CERTIFICATES.

Discontinuation of Book-Entry-Only System

If the Board of Education, in its sole discretion, determines that DTC is not capable of discharging its duties, or if DTC discontinues providing its services with respect to the 2009 Certificates at any time, the Board of Education will attempt to locate another qualified Securities Depository. If the Board of Education fails to find such Securities Depository, or if the Board of Education determines, in its sole discretion, that it is in the best interest of the Board of Education or that the interest of the Beneficial Owners might be adversely affected if the book-entry only system of transfer is continued (the Board of Education undertakes no obligation to make an investigation to determine the occurrence of any events that would permit it to make such determination) the Board of Education shall notify DTC of the termination of the book-entry only system.

In the event that the book-entry only system for the 2009 Certificates is discontinued, the Board of Education has provided that upon receipt of the 2009 Certificates from DTC and the Participant information, the Board of Education will authenticate (or cause to be authenticated) and deliver definitive Certificates to the holders thereof, and the principal and interest with respect to the 2009 Certificates will be payable and the 2009 Certificates may thereafter be transferred or exchanged in the manner described in the 2009 Certificates so provided.

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SECURITY AND SOURCES OF PAYMENT FOR THE 2009 CERTIFICATES

The 2009 Certificates are payable solely from the Base Rental made by the Board of Education under the Lease Agreement and from certain limited funds held by the Trustee under the Trust Agreement. The Trustee, as assignee of the Corporation, will receive the Base Rental for the benefit of the Owners of the 2009 Certificates. On or before February 1 and August 1 of each year during the term of the Lease Agreement, the Board of Education must pay to the Trustee the Base Rental due on such date from the Board of Education’s General Fund or from other legally available sources (to the extent required under the Lease Agreement) which are designed to be sufficient in both time and amount to pay when due the principal and interest payments evidenced and represented by the 2009 Certificates.

Covenant to Budget

The Board of Education has covenanted in the Lease Agreement to take such action as may be necessary to include the Base Rental thereunder in its annual budget and to make the necessary annual appropriations for all such Base Rental. The Lease Agreement also provides that in so providing for the payment of Base Rental in its annual budget, the Board of Education may take into account moneys on deposit in the various accounts and funds under the Trust Agreement which monies are properly available to make Base Rental. The Lease Agreement provides that such covenants on the part of the Board of Education are deemed to be and shall be construed to be ministerial duties imposed by law, and it shall be the duty of each and every public officer of the Board of Education to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the Board of Education to carry out and perform the covenants and agreements in the Lease Agreement. For a discussion of the financial and budgetary information of the Board of Education, see “BOARD OF EDUCATION FINANCIAL INFORMATION” herein.

Additional Rental Under the Lease Agreement, the Board of Education has agreed to pay Additional Rental consisting of (i) all taxes and assessments, including but not limited to excise taxes, ad valorem taxes, ad valorem and specific lien special assessments and gross receipts taxes, if any, levied upon the Leased Premises or upon any interest of the Corporation, the Trustee or the Owners therein or in the Lease Agreement, (ii) insurance premiums, if any, on all insurance required under the Lease Agreement, and (iii) all fees, expenses and indemnification (not otherwise paid or provided for out of the proceeds of the sale of the 2009 Certificates) of the Trustee in connection with the Trust Agreement, (iv) any other fees, costs or expenses incurred by the Corporation in connection with the execution, performance or enforcement of the Lease Agreement or any assignment of the Lease Agreement or the Trust Agreement or any of the transactions contemplated by the Lease Agreement or Trust Agreement or related to the Leased Premises, including, without limitation, any amounts (not otherwise paid or provided for out of the proceeds of the sale of the Certificates) which may become due, and (v) any amounts required to be paid as rebate to the United States pursuant to the Tax and Nonarbitrage Certificate. Abatement

During any period in which damage to or destruction of all or a portion of the Leased Premises, or other event, results in substantial interference with the use or right of possession of such Leased Premises or any portion thereof, all or a portion of the Base Rental due under the Lease Agreement may be abated such that the remaining Base Rental due under the Lease Agreement represents fair rental for the use and possession of the Leased Premises not affected. In the event of any such interruption of use and possession, the Lease Agreement shall continue in full force and effect and the Base Rental shall not be subject to abatement to the extent that the proceeds of rental interruption insurance or amounts in the

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Reserve Fund or Certificate Fund are available to pay Base Rental which would otherwise be abated. (See APPENDIX C-”DEFINITIONS AND SUMMARY OF PRINCIPAL LEGAL DOCUMENTS-THE LEASE AGREEMENT-Abatement” hereto.) The Board of Education and the Corporation have agreed and determined that the Base Rental under the Lease Agreement to be paid by the Board of Education for the use and possession of the Leased Premises, consisting of the Base Rental and the Additional Rental thereunder, do not exceed the fair rental value of the Leased Premises, as applicable. Reserve Fund

The Trust Agreement establishes a Reserve Fund that will be held by the Trustee pursuant to the Trust Agreement and funded from proceeds of the 2009 Certificates, in an amount equal to the least of (a) 10% of the initial principal amount of the Certificates, (b) the maximum Base Rental payable by the Board of Education in any year between such date of calculation and the expiration of the Lease Agreement, and (c) 125% of the average annual debt service on the Certificates Outstanding. Such moneys will be held in trust as a reserve for the payment, when due, of all Base Rental to be paid pursuant to the Lease Agreement.

If on any Interest Payment Date prior to receipt by the Trustee of a Certificate of Completion, the amounts on deposit in the Reserve Fund are in excess of the Reserve Requirement, the Trustee will withdraw the amount of any such excess from the Reserve Fund and deposit such amount in the Project Fund. If on any Interest Payment Date after the Trustee receives a Certificate of Completion, the amounts on deposit in the Reserve Fund are in excess of the Reserve Requirement, the Trustee will withdraw the amount of any such excess from the Reserve Fund and deposit such amount in the Certificate Fund.

The Board of Education is not obligated under the Lease Agreement to restore the Reserve

Requirement for the 2009 Certificates in the event of investment losses on Permitted Investments held therein or in the event of a draw on such Reserve Fund as a result of abatement. At the option of the Board of Education, a Credit Facility in the amount of all or a portion of the Reserve Requirement for the 2009 Certificates may be substituted for the moneys and Permitted Investments held by the Trustee in the Reserve Fund. Such Credit Facility shall, among other things, be issued by a bank, other financial institution or insurance company, and such bank, financial institution or insurance company shall be rated at least equivalent to the underlying ratings on the applicable Certificates by the Rating Agencies. SEE APPENDIX C-” DEFINITIONS AND SUMMARY OF PRINCIPAL LEGAL DOCUMENTS -TRUST AGREEMENT-Reserve Fund” hereto. Additional Certificates The Trust Agreement provides that the Corporation and the Board of Education may, at any time, determine to execute and deliver Additional Certificates representing New Base Rental without the consent of the Owners of the 2009 Certificates, subject to certain terms and conditions set out in the respective Trust Agreement. See APPENDIX C-” DEFINITIONS AND SUMMARY OF PRINCIPAL LEGAL DOCUMENTS-THE TRUST AGREEMENT-Additional Certificates” hereto. Repair and Maintenance; Insurance; Modification of the Leased Premises The Lease Agreement requires the Board of Education to maintain the Leased Premises at its sole cost and expense. The Lease Agreement permits the Board of Education to make any improvements, or to make any addition or modification to the Leased Premises, provided that after any such work is completed such Leased Premises will have a fair rental value which is approximately equal to or greater than the fair rental value of such Leased Premises prior to such work.

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Public Liability Insurance The Lease Agreement requires the Board of Education to maintain or cause to be maintained, throughout the term of the Lease Agreement, a program of general liability insurance against claims for damages including death, personal injury, bodily injury or property damage arising from operations involving the Leased Premises. The Lease Agreement requires that such insurance afford protection with a combined single limit of not less than $1,000,000 per occurrence.

The Lease Agreement permits such insurance to be satisfied by a combination of commercial insurance, risk pooling under a joint powers authority or similar statutory provision, self-funded loss reserves and risk retention programs in such proportions as are deemed appropriate and actuarially sound by professional risk management personnel or independent consultants. Property Insurance The Lease Agreement requires the Board of Education to procure and maintain, throughout the Term of the Lease Agreement, all risk property insurance, including insurance against losses due to earthquake and flood, with respect to the Leased Premises. Such insurance will be maintained in an amount not less than the full replacement value of the Leased Premises or at least equal to the aggregate principal amount of Outstanding Certificates. Such insurance may at any time include deductible clauses, on a per-loss basis in any one year, not to exceed (i) $50,000, in the case of Special Form Certificate Insurance, (ii) $250,000 in the case of flood and all other perils insurance, and (iii) 10% of the replacement cost of the Leased Premises in the case of earthquake insurance. The Lease Agreement permits such insurance to be satisfied by a combination of commercial insurance, risk pooling under a joint powers authority or similar statutory provision, self-funded loss reserves and risk retention programs in such proportions as are deemed appropriate and actuarially sound by professional risk management personnel or independent consultants.

The Lease Agreement obliges the Board of Education to secure and maintain boiler and machinery coverage against loss or damage by explosion of steam boilers, pressure vessels and similar apparatus, both currently and later-installed on the Leased Premises, in an amount not less than $2,000,000 per accident. The Lease Agreement permits such insurance to be satisfied by a combination of commercial insurance, risk pooling under a joint powers authority or similar statutory provision, self-funded loss reserves and risk retention programs in such proportions as are deemed appropriate and actuarially sound by professional risk management personnel or independent consultants. If the Leased Premises or any portion thereof are damaged or destroyed, the Board of Education is obligated to repair or replace the damaged or destroyed property. The Board of Education may choose not to repair or replace any damaged or destroyed portions of the Leased Premises if the Board of Education applies or causes to be applied to the prepayment of the 2009 Certificates insurance proceeds or other legally available funds sufficient to prepay (a) all of the Certificates Outstanding, or (b) any portion thereof relating to the Leased Premises or such portion thereof, and the Base Rental allocable to the remaining portion of the Leased Premises equals the pro-rata portion of Base Rental allocable to the Certificates Outstanding after such prepayment. The Lease Agreement requires the Board of Education to procure and maintain, commencing upon the Board of Education’s possession of the Leased Premises and throughout the Term of the Lease Agreement, rental interruption insurance to cover loss, total or partial, of the use of the Leased Premises in an amount not less than the maximum Base Rental due under the Lease Agreement during any 24

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month period. Such rental interruption insurance must be obtained commercially, and the Board of Education may not self-insure for such loss or damage. Title Insurance

The Lease Agreement requires that the Board of Education procure and maintain a California Land Title Association insurance policy in an amount equal to the aggregate maturity value of the Certificates. Such title insurance policy will insure (i) the leasehold estate of the Corporation in the Leased Premises created pursuant to the Property Lease and (ii) the Board of Education’s subleasehold interest in the Leased Premises created pursuant to the Lease Agreement subject only to Permitted Encumbrances. Such title insurance must be obtained commercially, as the Board of Education may not satisfy this requirement by self-insurance. All Net Proceeds received under such title insurance policy will be deposited with the Trustee and applied as provided in the Trust Agreement. So long as any Certificates remain outstanding, each policy of title insurance obtained pursuant to the Lease Agreement or required by the Lease Agreement will provide that all proceeds thereunder will be payable to the Trustee for the benefit of the Certificate Owners.

For further discussion of these matters, see APPENDIX C-” DEFINITIONS AND SUMMARY OF PRINCIPAL LEGAL DOCUMENTS-THE LEASE AGREEMENT-Maintenance; Taxes; Insurance and Other Matters.”

THE FACILITY AND THE LEASED PREMISES

Camp Cuyamaca is a year-round nature and science residential camp for fifth and sixth graders

located approximately 47 miles east of San Diego in the Cuyamaca Rancho State Park. Camp Cuyamaca currently contains approximately 30 structures on approximately 20 acres of property. The property (the "Leased Property") is leased to the Board of Education by the State of California pursuant to a joint powers agreement. The lease has a remaining term of approximately 35 years. The current buildings on the property include a 200-person capacity dining hall, administrative/office building, four staff/teacher cabins, infirmary cabin, weather station, four 72-person capacity student dormitories, two assembly lodge/craft rooms, swimming pool and a maintenance building. If the State subsequently determines for any reason to terminate the joint powers agreement and recover the Leased Property, the Board of Education shall be obligated to substitute other property for the Leased Property and shall lease such property to the Corporation in accordance with the terms and provisions set forth in the Trust Agreement.

The facilities, improvements and upgrades to be constructed at Camp Cuyamaca (the "Facility"

and, together with the Leased Property, the "Leased Premises") will consist of a third village, including one 300-person capacity lodge and two 72-person capacity student dormitories. Additionally, the Board of Education will be undertaking associated utility and infrastructure upgrades, as well as ADA upgrades to the common areas at Camp Cuyamaca. Work is expected to take up to a year as construction is scheduled around existing camp operations. The Facility will be designed and constructed pursuant to the lease-leaseback authority defined in Education Code paragraph 17406.

The Board of Education has operated an outdoor education program (the "Program") continuously since 1946. The Program's mission is to provide students with experiential learning programs that enhance awareness and scientific understanding of the natural world and their connection to it while building self-reliance, teamwork, and a sense of social responsibility. The Program connects students to science and nature through the outdoor school and outreach programs. Facilities at Camp

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Cuyamaca and Camp Fox currently serve approximately 12,000 students in the Program each year. Due to the aging condition of the Camp Fox facilities, the Board of Education has elected to construct additional facilities at Camp Cuyamaca and close Camp Fox.

RISK FACTORS

The following factors, along with the other information in this Official Statement, should be considered by potential investors in evaluating any purchase of the 2009 Certificates. However, they do not purport to be an exhaustive listing of risks and other considerations that may be relevant to an investment in the 2009 Certificates. In addition, the order in which the following factors are presented is not intended to reflect the relative importance of any such risks. Limited Obligations

The Board of Education has covenanted in the Lease Agreement to take such actions as may be necessary to include the Base Rental in its annual budgets and to make the necessary annual appropriations therefor. THE OBLIGATION OF THE BOARD OF EDUCATION TO MAKE BASE RENTAL PAYMENTS UNDER THE LEASE AGREEMENT DOES NOT CONSTITUTE A DEBT OF THE BOARD EDCATION, THE CORPORATION, THE COUNTY, THE STATE OR ANY OTHER POLITICAL SUBDIVISION WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION AND DOES NOT CONSTITUTE AN OBLIGATION FOR THE WHICH THE BOARD OF EDUCATION IS OBLIGATED TO LEVY OR PLEDGE, OR HAS LEVIED OR PLEDGED, ANY FORM OF TAXATION. THE CORPORATION HAS NO LIABILITY OR OBLIGATION WHATSOEVER TO THE OWNERS OF THE CERTIFICATES. Full Faith and Credit Not Pledged

Although the Board of Education covenants to take the necessary action to include the Base Rental and Additional Rental in its annual budget and to make the necessary annual appropriations therefor, the Board of Education has not and cannot pledge its full faith and credit to the payment of Base Rental. In the event that the Board of Education’s revenue sources are less than its total obligations, it could choose to fund other services before making Base Rental Payments. Constitutional and Statutory Limitations on Appropriations

Article XIIIB of the State Constitution places certain limits upon the appropriations the Board of Education is permitted to make. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS—Article XIIIB of the California Constitution.”

Abatement In the event of substantial interference with the right of use and possession by the Board of

Education of all or any material portion of the Leased Premises caused by material damage or defects in title to or destruction, condemnation or theft of the Leased Premises, Base Rental will be subject to abatement. In the event that the Leased Premises, if damaged or destroyed by an insured casualty, could not be replaced during the period of time that proceeds of the rental interruption insurance will be available in lieu of Base Rental payments plus the period for which funds are available from the Reserve Fund, or in the event that casualty or title insurance proceeds or condemnation proceeds are insufficient to

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provide for the complete repair or replacement of the Leased Premises or prepayment of the 2009 Certificates otherwise payable from such Base Rental, there could be insufficient funds to make payments to Owners in full.

No Limitation on Incurring Additional Obligations

Neither the Lease Agreement nor the Trust Agreement contain any legal limitations on the ability of the Board of Education to enter into other obligations that may constitute additional charges against its General Fund revenues. To the extent that the Board of Education incurs additional obligations, the funds available to make Base Rental may be decreased. The Board of Education is currently liable on other obligations payable from general fund revenues. See “BOARD OF EDUCATION FINANCIAL INFORMATION” herein. Limitations on Default Remedies

The enforcement of any remedies provided in the Lease Agreement and Trust Agreement could prove both expensive and time consuming. Although the Lease Agreement and Trust Agreement provide that, if there is a default by the Board of Education under the Lease Agreement, the Trustee may terminate the Lease Agreement and re-let the Leased Premises, such Leased Premises may not be easily re-leased. Furthermore, due to the essential nature of the governmental function of the Leased Premises, it is not certain whether a court would permit the exercise of the remedies of repossession and re-letting with respect to any or all of such Leased Premises. The Trustee may exercise any and all remedies available pursuant to law or the Lease Agreement, but there shall be no right under any circumstances to accelerate the Base Rental not then in default to be immediately due and payable. In addition, under the United States Bankruptcy Code, a bankruptcy case may be filed by the Corporation or by the Board of Education. In general, the filing of any such petition operates as a stay against enforcement of the terms of the agreements to which the bankrupt entity is a party, and in the bankruptcy process, executory contracts such as the Lease Agreement or the Trust Agreement may be subject to the assumption or rejection by the bankrupt party. In the event of any such rejection, the non-rejecting party or its assigns may become an unsecured claimant of the rejecting party. The various legal opinions to be delivered concurrently with the 2009 Certificates (including Special Counsel’s approving opinion) will be qualified as to the enforceability of the various legal instruments, by limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally and by general principles of equity applied in the exercise of judicial discretion. Insurance

The Board of Education has agreed to procure and maintain certain insurance policies, as described above. See “SECURITY AND SOURCES OF PAYMENT FOR THE 2009 CERTIFICATES—Public Liability Insurance” and “—Property Insurance”. Insurance required by the Lease Agreement, except rental interruption insurance, may be satisfied by a combination of commercial insurance, risk pooling under a joint powers authority or similar statutory provision, self-funded loss reserves and risk retention programs in such proportions as are deemed appropriate and actuarially sound by professional risk management personnel or independent consultants. Such insurance does not cover acts of terrorism. Rental interruption insurance must be maintained; however, some rental or business interruption insurance policies may require that the insured, the Board of Education, elect to rebuild a damaged property in order for such rental interruption insurance to be payable under the policy. See APPENDIX C- “DEFINITIONS AND SUMMARY OF PRINCIPAL LEGAL DOCUMENTS-THE LEASE AGREEMENT- Maintenance; Taxes; Insurance and Other Matters” hereto.

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The Board of Education anticipates that these insurance arrangements will be adequate to protect the Board of Education from the various liabilities that arise from use of the Leased Premises and to provide for the payment of Base Rental in the event that the Board of Education loses beneficial use of the Leased Premises. However, no assurance can be given that such insurance arrangements will cover all events causing damage or will be adequate to cover the payment of Base Rental in all circumstances.

No Liability of the Board of Education or the Corporation to the Owners

Except as expressly provided in the Lease Agreement, the Board of Education will not have any obligation or liability to the Owners of the 2009 Certificates with respect to the payment when due of the Base Rental by the Board of Education, or with respect to the performance by the Board of Education of other agreements and covenants required to be performed by it contained in the Lease Agreement, or with respect to the performance by the Trustee of any duty imposed upon it under the Trust Agreement.

The Corporation will not have any obligation or liability to the Owners of the 2009 Certificates with respect to the payment when due of Base Rental by the Corporation, or with respect to the performance by the Corporation of any other agreements and covenants required to be performed by it contained in the Lease Agreement, or with respect to the performance by the Trustee of any duty imposed upon it under the Trust Agreement.

The full faith and credit of the Board of Education, the Corporation, the State or any other political subdivision thereof has not been pledged to the payment of Base Rental or any other payments due under the Lease Agreement. The Board of Education is not obligated to levy any form of taxation to pay Base Rental. Neither the obligation to make Base Rental payments nor the Certificates constitute a debt of the Board of Education, the Corporation, the County, the State or any other political subdivision thereof within the meaning of any constitutional debt limitation or restriction. The Board of Education is obligated under the Lease Agreement to pay Base Rental from any source of legally available funds (subject to the exceptions under which Base Rental may be abated; see “RISK FACTORS—Abatement,” above) from within the unrestricted moneys of the General Fund of the Board of Education, which fund finances the legally authorized activities of the Board of Education not provided for by other funds of the Board of Education that are restricted to the specific purposes for which those moneys were received. The Board of Education has covenanted in the Lease Agreement that, for as long as the Leased Premises are available for its use, it will make the necessary annual appropriations within its budget for all Base Rental.

A significant source of unrestricted revenue for the Board of Education consists of revenue it

receives from the State. This State revenue is utilized by the Board of Education in its normal course of operation, including the discharging of obligations, such as will be the case for the payment of Base Rental. As a result of the Board of Education’s dependence upon the State for the majority of its funding, Board of Education revenues in any and all future years during which the 2009 Certificates will be outstanding may be adversely affected by the financial condition of the State. For a discussion of the State’s financial condition and the funding of education in California see “RISK FACTORS” herein. Loss of Tax Exemption

The interest with respect to the 2009 Certificates could become includable in gross income for purposes of federal income taxation retroactive to the date of delivery of the 2009 Certificates, as a result of acts or omissions of the Board of Education in violation of their covenants in the Trust Agreement and the Lease Agreement. Should such an event of taxability occur, the 2009 Certificates would not be subject to a special prepayment and would remain outstanding until maturity, until purchased by the Board of Education or until prepaid under the redemption provisions contained in the Trust Agreement.

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State Budget

The State budget approval process begins with the release to the State legislature by January 10th of the Governor’s proposed budget for the following fiscal year. State fiscal years begin July 1st. In May, the Governor submits a revision of the proposed budget that reflects updated estimates of revenues and expenditures. After a series of public hearings and other steps in the legislative process, the budget must be approved by two-thirds vote in each house of the State legislature and submitted to the Governor, The Governor may reduce or eliminate any appropriation by line-item veto. Although the budget is required by the State Constitution to be approved on or before June 15th, it often has been approved later.

While the State Constitution in large part dictates the formula for determining the allocation of State revenues to the K-12 education portion of the State budget pursuant to Propositions 98 and 111 and other provisions, in the State budget process the Governor and State legislature still have significant leeway in deciding whether and by how much to exceed or reduce such allocation in the actual funding of K-12 school districts, and to decide what funds will be general purpose or restricted purpose.

The 2008-09 State Budget

The following information concerning the State of California’s 2008-09 fiscal year budget has been obtained from publicly available information which the Board of Education believes to be reliable; however, the Board of Education takes no responsibility as to the accuracy or completeness thereof and has not independently

On September 23, 2008, the 2008-09 Budget Act was signed (the “2008-09 State Budget”), and was designed to address an otherwise anticipated State budget shortfall of $24.3 billion. A portion of the balancing of revenues and expenditures in the 2008-09 State Budget depended on various measures that were not yet in State law, and the State Department of Finance announced State tax revenue to be falling below the levels assumed in the 2008-09 State Budget. On November 11, 2008, the independent Legislative Analysts Office (the “LAO”) provided to the State Legislature its report “Overview of the Governor’s Special Session Proposals” and on November 20, 2008, the LAO provided a second report to the State Legislature entitled “California’s Fiscal Outlook: LAO Projections 2008-09 through 2013-14” (together, the “LAO Reports”). Copies of the LAO Reports are available at www.lao.ca.gov. The LAO Reports state that the State’s revenue collapse is so dramatic and the underlying economic factors are so weak that absent corrective action, the State will experience annual shortfalls in the range of $22 billion through fiscal year 2013-14. On December 1, 2008, the Governor declared a fiscal emergency for the State and convened three special sessions of the Legislature to address this emergency. On December 10, 2008, the Governor announced that the 2008-09 shortfall had become at least $14.8 billion, and if unaddressed for 2008-09 and 2009-10, the cumulative budget shortfall by the end of 2009-10 could reach $41.6 billion. On January 9, 2009, the Governor presented his proposed Budget for 2009-10, designed to remove this shortfall. On February 20, 2009, the State signed its 2009 Budget Act (the “2009-10 February Budget”), a “17 month budget” for 2009-10 that includes certain revisions for 2008-09 as well, that aims at balancing State revenues and expenditures by the end of 2009-10, closing completely the $41.6 billion budget gap by a combination of expenditure reductions, increases in taxes on income, sales and vehicles, borrowing and receipt of federal stimulus funds. Certain fund diversions and other aspects of the budget plan required voter approval. The 2009-10 February Budget was balanced by assuming the passage of certain ballot measures, which required approval of the State’s electorate at a special statewide election held on May 19, 2009. All of those measures failed. On July 24, 2009, the Legislature approved a new budget package, which the Governor signed on July 28, 2009 (the “2009-10 Amended Budget”).

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As adopted, the 2008-09 State Budget for the State general fund for 2007-08 projects prior year resources available of $4.305 billion, revenue and transfers-in of $103.027 billion, for a total of $107.332 billion in resources; and for 2008-09 projects prior year resources available of $3.999 billion, revenue and transfers-in of $101.991 billion, for a total of $105.990 billion in resources. General fund expenditures are projected to be $103.333 billion for 2007-08 and $103.401 billion for 2008-09, with general fund ending balances of $3.999 billion and $2.589 billion, respectively.

The 2008-09 State Budget reports Proposition 98 funding of K-12 and community college education, including local property tax revenue, of $55.2 billion for 2006-07 and projects $56.6 billion for 2007-08 and $58.1 billion for 2008-09. Of these amounts, the State general fund provides $41.4 billion in 2006-07, $41.5 billion in 2007-08 and $41.9 billion in 2008-09; the difference from total Proposition 98 funding is funded from local property tax revenue projected for each school district, including, in 2008-09, a State-wide total shift of $350 million of tax increment revenue from redevelopment agencies. The 2006-07 State Budget included a 5.92% COLA for most school district and county office of education revenue limit apportionments, and assumed a 0.26% decline in A.D.A. statewide (the 2006-07 decline estimate is revised to 0.09% in the 2007-08 State Budget). The 2007-08 State Budget included a 4.53% COLA for most school district and county office of education revenue limit apportionments, and assumed a 0.48% decline in A.D.A. statewide (revised to a 0.101% decline in the 2008-09 Budget). The 2008-09 State Budget includes a funded COLA of 0.68% (statutory COLA of 5.66% less a deficit factor) for most school district and county office of education revenue limit apportionments, and assumes a 0.521% decline in A.D.A. statewide. The 2008-09 State Budget reports total Proposition 98 K-12 funding on a per A.D.A. basis at $8,279 for 2006-07 and assumes $8,509 for 2007-08 and $8,610 for 2008-09. Total K-12 funding from all sources on a per A.D.A. basis is reported at $11,279 for 2006-07 and projected at $12,042 for 2007-08 and $12,152 for 2008-09.

The 2009-10 State Budget

Although the Governor signed the 2009-10 February Budget, it relied on passage of five ballot measures proposed to the State’s electorate on May 19, 2009. All five failed to gain the required majority vote. The 2009-10 February Budget also relied on revenue and expenditure projections for fiscal year 2009-10 that, like the revenue estimates supporting the 2008-2009 State Budget, also quickly became out of date. The Governor proposed revisions to the 2009-10 February Budget on May 14, 2009 and July 1, 2009, but it was not until July 24, 2009 that the Legislature approved a new budget package. The Governor signed the 2009-10 Amended Budget on July 28, 2009, after vetoing $489 in general fund appropriations in order to providing funding for a $500 million general fund reserve. This final budget package contains $16.1 billion in spending cuts, $2.2 billion in borrowing, $3.5 billion in new revenues, $1 billion in fund shifts and $1.4 billion in other accounting changes.

Because K-12 education funding constitutes such a large part of the State’s general fund expenditures, it is at the heart of any budget adjustments. The 2009-10 Amended Budget cuts Proposition 98 spending by $2.1 billion in fiscal year 2008-09 and $4.5 billion in fiscal year 2009-10 compared to the levels appropriated in the 2009-10 February Budget. The $2.1 billion cut comes from reverting $1.6 billion in unallocated funds for categorical programs to the State general fund, and by delaying for one year the $450 million Proposition 98 settle-up payment from prior-year obligations for the Quality Education and Investment Act (“QEIA”). The Proposition 98 revenue limit funding is then redirected in fiscal year 2009-10 to backfill the reduction in categorical funding and to continue the QEIA program. For fiscal year 2008-09, total Proposition 98 spending is budgeted at $49.1 billion, the minimum level guaranteed by Proposition 98, which is $9 billion (15.5%) lower than the level assumed in the 2008-09 State Budget. For fiscal year 2009-10, total Proposition 98 spending is budgeted at $50.4 billion, which is $4.5 billion (8.2%) lower than the level assumed in the 2009-10 February Budget. In addition, $1.7 billion in K-12 Proposition 98 funding is deferred from fiscal year 2009-10 to fiscal year 2010-11. Fiscal

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year 2008-09 revenue limit payments are reduced by $1.6 billion and fiscal year 2009-10 revenue limit payments are reduced by $2.3 billion compared to the funding levels provided in the 2009-10 February Budget. Fiscal year 2009-10 funding for basic aid districts’ categorical programs is reduced by $80 million to provide a proportionate reduction to non-basic aid districts’ revenue limit reductions.

However, the 2009-10 Amended Budget also establishes a statutory obligation to make $11.2 billion in future “maintenance factor” payments as a result of funding reductions in fiscal year 2008-09, to be paid in future years until the obligation is paid in full. Moreover, spending flexibility is granted to school districts in various ways: Districts are permitted to reduce instructional time by up to five days per year through 2012-13 without losing incentive grants, penalties are reduced and mandates liberalized with respect to class-size reduction, instructional materials, and other programs, and the major maintenance reserve requirement is reduced for several years.

State Funding of Schools without a State Budget

The Board of Education cannot predict what circumstances may cause an inability of the State Legislature to pass a budget in future years. In each year where the State budget lags adoption of the Board of Education budgets it will be necessary for Board of Education staff to review the consequences of the changes, if any, at the State level from the proposals in the Governor's May Revision for that year, and determine whether the budget will have to be revised.

On May 29, 2002, the Court of Appeal of the State of California for the Second Appellate District in White v. Davis et al. (combined with Howard Jarvis Taxpayers Association et al. v. Westly in appeal) held, among other things, that absent adoption of a budget bill or an emergency appropriation by the Legislature, the State Controller may disburse State funds authorized by (a) a continuing appropriation enacted by the Legislature, (b) a self-executing provision of the State Constitution, including payment of certain funds for public schools under Article XVI, Section 8.5 of the State Constitution, and (c) mandate of federal law, such as prompt payment of minimum wage and overtime compensation mandated by the federal Fair Labor Standards Act and benefits under federal food stamp, foster care and adoption, child support and child welfare programs. The Court of Appeal specifically concluded that Article XVI, Section 8.0 does not constitute a self-executing authorization to disburse revenue limit apportionment to school districts; legislative appropriation is required for revenue limit disbursement. On May 1, 2003, the California Supreme Court in its decision in White v. Davis et al. granted review to two other matters and let these particular conclusions of the Court of Appeal stand without ruling on them.

During the 2003-04 State budget impasse, the State Controller announced that only “payments of prior year obligations, constitutional authorizations, federal mandates and continuous legislative appropriations would be made.” The State Controller concluded that revenue limit apportionments to school districts, under provisions of the Education Code implementing Article XVI, Section 8 of the State Constitution, are authorized as continuous legislative appropriations, so disbursed these funds without a budget bill or emergency appropriation enacted. The State Controller did not disburse certain categorical and other funds to school districts until the 2003-04 Budget Act was enacted. During the recent delayed adoption of the 2008-09 budget, the State Controller also delayed these disbursements until the 2008-09 Budget Act was enacted.

Future Budgets at the State Level

The State has in past years experienced budgetary difficulties and has balanced its budget by requiring local political subdivisions to fund certain costs theretofore borne by the State. No prediction can be made as to whether the State will take measures to resolve future projected budget deficits which would, in turn, adversely affect the cash flows for the Board of Education that have been projected for

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that fiscal year. Further State actions taken to address its budgetary difficulties could have the effect of reducing K-12 support indirectly, and the Board of Education is unable to predict the nature, extent or effect of such reductions. The fiscal impact of the budget bill, trailer bills and the Governor’s line-item veto, upon the Board of Education will remain unclear until all such bills are approved by the Legislature and the Governor.

The Board of Education cannot predict what actions will be taken in the future by the Legislature and the Governor to deal with changing State revenues and expenditures or the impact such actions will have on State revenues available in the current or future years for education. The State budget will be affected by national and state economic conditions and other factors over which the Board of Education will have no control. Certain actions could result in a significant shortfall of revenue and cash, and could impair the State’s ability to fund schools during 2009-2010 as budgeted. The full text of the adopted 2009-2010 State Budget may be found at the internet website of the California Department of Finance, www.dof.ca.gov, under the heading “California Budget”, and the LAO overview of the 2009-2010 State Budget may be found at www.lao.ca.gov. No information from these websites is incorporated into this Official Statement. The LAO provides fiscal and policy information and advice to the Legislature.

Proposition 1A On November 2, 2004, California voters passed Proposition 1A, a legislative constitutional

amendment that was a compromise measure among California’s local governments, the Governor and the State Legislature. This measure amends the State Constitution to significantly reduce the State’s authority over major local government revenue sources. Under the measure the State cannot reduce local sales tax rates or alter their method of allocation, shift property taxes from local governments to schools or community colleges, or decrease Vehicle License Fee revenues without providing replacement funding. The amendment also requires the State to fund legislative mandates on local governments or suspend operation of the mandates. The provision regarding legislative mandates does not apply to schools or community college districts.

The measure provides two significant exceptions to the restrictions regarding sales and property

taxes. First, beginning in 2008–09, the State may shift to schools and community colleges a limited amount of local government property tax revenues if: the Governor proclaims that the shift is needed due to a severe state financial hardship, the Legislature approves the shift with a two-thirds vote of both houses, and certain other conditions are met. The State must repay local governments for their property tax losses, with interest, within three years. Second, the measure allows the state to approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county.

Proposition 1A reduces State authority over local finances. Over time, it may have significant

fiscal impacts on State and local governments, such as increased and more stable local government revenues, fewer resources for State programs and less change to the revenue of individual local governments.

Because the measure appears to expand the circumstances under which the State is required to

reimburse local agencies, the measure may increase future State costs or alter future State actions regarding local or jointly funded state-local programs. While it is not possible to determine the cost to reimburse local agencies for potential future State actions, the State Legislative Analyst’s review of State measures enacted in the past suggests that, over time, increased State reimbursement costs may exceed a hundred million dollars annually.

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BOARD OF EDUCATION FINANCIAL INFORMATION History and Operation The Board of Education has operated under the laws of the State continuously since the 1800s. The Board of Education became fiscally independent of the San Diego County Board of Supervisors on July 1, 1970. Services provided to San Diego County school districts and community college districts by the Board of Education include regional occupational programs, special education support services, audio-visual services, library facilities, data processing services, supervisory instructional services, instructional training sessions, special projects and general business services. The Board of Education also maintains and operates juvenile court schools, including community day schools and transitional facilities, classes for preschool handicapped children and outdoor education facilities. The governing board of the Board of Education is an independent board of five members who are elected by trustee area for four-year staggered terms. The Superintendent, who is appointed by the Board, administers the affairs of the Board of Education in accordance with policies of the Board. The members of the Board and the Superintendent are constitutional officers. State Funding of Education The State Constitution requires that from all State revenues there shall first be set apart the moneys to be applied by the State for support of the public school system and public institutions of higher education. As discussed below, school districts in the State receive a significant portion of their funding from State appropriations. Annual State apportionments of basic and equalization aid to school districts for general purposes are computed up to a revenue limit per unit of average daily attendance (“A.D.A.”). Generally, these apportionments amount to the difference between the district’s revenue limit and the district’s local property tax allocation. 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 school districts of the same type in the State (e.g., elementary or unified). The Board of Education’s revenue limits per unit of A.D.A were $9,100.27 and $9,512.51 in 2006-07 and 2007-08, respectively, and are budgeted to be $9,263.03 in 2008-09 and $9,145.27 in 2009-10. The Board of Education’s average daily attendance (K-12) since 2002-03 is as follows:

Average Daily Attendance

Fiscal Year Board of Education

2002-03 13,827 2003-04 13,371 2004-05 13,898 2005-06 14,659 2006-07 14,626 2007-08 14,441 2008-09 15,584

State law also provides for State support of specific school-related programs including summer school, adult education, pupil transportation, portable classrooms and other capital outlays. In 2007-08, State Revenue Limit funds paid to the Board of Education totaled $917,372, or 0.0019% of total General Fund revenues. The following table provides a history of State funds paid to the Board of Education. See also “RISK FACTORS.”

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State Revenue Limit

Fiscal Year Board of Education

2003-04 4,636,722 2004-05 5,518,948 2005-06 5,097,573 2006-07 5,673,072 2007-08 917,372 2008-09 (Budgeted) 468,422 2009-10 (Budgeted) 710,594

State Lottery In the November 1984 general election, the voters of the State approved a constitutional amendment establishing a State lottery (the “State Lottery”), the net revenues of which are used to supplement money allocated to public education. This amendment prohibited the use of funds derived from the State Lottery for non-instructional purposes, such as the acquisition of real property, the construction of facilities or the financing of research. State Lottery net revenues (gross revenues less prizes and administration expenses) are allocated by computing an amount per A.D.A., which is derived by dividing the total net revenues by the total A.D.A. for grades K-12, community colleges, the University of California system and other participating educational institutions. Each school district and board of education receives an amount equal to its total A.D.A. multiplied by the per A.D.A. figure. The Board of Education received $1,843,068 as its 2006-07 State Lottery allocation, $1,880,548 as its 2007-08 allocation, and has budgeted to receive $1,708,638 as its 2008-09 allocation and $1,692,432 as its 2009-10 allocation (based on unrestricted lottery funds only; does not include Proposition 20 funds). Developer Fees The Board of Education is not empowered to collect developer fees. Assessed Valuation

The Board of Education utilizes the services of the County for the assessment and collection of taxes. Board of Education taxes are collected at the same time and on the same tax rolls as are County, city, and other special district taxes. State law exempts $7,000 of the full cash value of an owner-occupied dwelling, but this exemption does not result in any loss of revenue to local entities, since an amount equivalent to the taxes which would have been payable on such exempt values is paid by the State. On July 28, 1983, the Hughes-Hart Act Educational Reform Act, Chapter 3.5 of Part 0.5 of Division 1 of the California Revenue and Taxation Code (commencing with Section 75), was signed into law. This act provides, among other things, for accelerated recognition and taxation of increases in real property assessed valuation upon change in ownership of property or completion of new construction. Accordingly, each K-12 school district is to receive, on a timely basis and in proportion to its A.D.A., allocations of revenue from such accelerated taxation remaining after allocations to each redevelopment agency in the county and, in accordance with various apportionment factors, to the county, the county superintendent of schools, each community college district, each city and each special district within the county. A five-year history of assessed valuation in the County appears below. Assessed valuations include homeowners’ exemptions, the taxes on which are paid by the State of California.

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Five-Year History of Assessed Valuations 1

(in Thousands)

Fiscal Year San Diego County

2003-04 $248,784,580,619 2004-05 263,211,440,325 2005-06 311,627,791,129 2006-07 355,998,192,157 2007-08 391,426,581,430 2008-09 409,385,589,626

1 All years shown at full cash value. Includes secured, unsecured and utility. Includes redevelopment agency increments, the taxes on which are payable to the redevelopment project areas within the County. Source: California Municipal Statistics Inc. and County of San Diego.

Tax Rates, Levies, Collections and Delinquencies Taxes are levied for each fiscal year on taxable real and personal property as of the preceding March 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 the taxes on which are a lien 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, and become delinquent on December 10 and April 10, respectively. A penalty of 10% attaches immediately to all delinquent payments. Properties on the secured roll with respect to which taxes are delinquent become tax defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of a penalty of 1-1/2% 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 deeded to the State and may be sold at public auction by the Director of Finance. Property taxes on the unsecured roll are due as of the March 1 lien dates and become delinquent on August 31. A 10% penalty attaches to delinquent unsecured taxes. If unsecured taxes are unpaid at 5:00 p.m. on October 31, an additional penalty of 1-1/2% attaches to them on the first day of each month until paid. The County has four ways of collecting delinquent unsecured personal property taxes: (a) a civil action against the taxpayer; (b) filing a judgment in the Office of the County Clerk specifying certain facts in order to obtain a lien on certain property of the taxpayer; (c) 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 (d) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee. Beginning in 1978-79, Proposition 13 and its implementing legislation shifted the function of property tax allocation 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. Shown in the following table are the secured roll tax levies and corresponding delinquencies over the five-year period from 1999-00 through 2003-04 for the Board of Education.

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San Diego County

Secured Tax Roll Statistics

Fiscal Year

Secured

Tax Charge 1

Amount Delinquent

June 30

Percent Delinquent

June 30

2003-04 $326,611,217.17 $3,640,010.90 1.11% 2004-05 363,552,992.33 5,357,203.08 1.47 2005-06 412,646,353.17 7,366,211.81 1.79 2006-07 465,857,852.70 11,580,781.06 2.49 2007-08 513,588,573.73 17,124,707.82 3.33 2008-09 533,815,158.14 17,223,652.96 3.23

____________________ 1 1% General Fund apportionment. Source: California Municipal Statistics Inc.

Largest Taxpayers The table below sets forth the approximate tax levied against the ten largest taxpayers in the County for Fiscal Year 2008-09. These tax payments represent approximately 3.67% of the total secured property tax levied by the County for Fiscal Year 2008-09, which amount is $4,558,064,753.

San Diego County

Ten Largest Taxpayers Fiscal Year 2008-09

Property Owners Business Area Approximate Tax

San Diego Gas & Electric Company Gas and Electric Utility $52,371,437 Irvine Co. Real Estate 19,601,829 Southern California Edison Co. Electric Utility 19,100,180 Kilroy Realty LP Real Estate 15,017,426 Qualcomm Inc. Telecommunications 13,497,684 Arden Realty LTD Partnership Real Estate 10,739,580 Pacific Bell Telephone Company Telecommunications 10,682,549 San Diego Expressway LTD Partnership Real Estate 10,483,506 O C/SD Holdings LLC Real Estate 10,042,042 Genentech Inc. Biotechnology 5,881,740

Source: County of San Diego Auditor and Controller

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Significant Accounting Policies and Audited Financial Reports The State Department of Education imposes by law uniform financial reporting and budgeting requirements for K-12 school districts and county offices of education. Financial transactions are accounted for in accordance with the Department of Education’s California School Accounting Manual. Significant accounting policies are explained in Notes to the Board of Education’s financial reports for the fiscal year ended June 30, 2008, which are included herein as Appendix B. Independently audited financial reports are prepared annually in conformity with generally accepted accounting principles for educational institutions. The annual audit report is generally available about six months after the June 30 close of each fiscal year. The following table contains accounting data extracted from the financial statements prepared by the Board of Education’s independent auditors. The financial statements should be read in their entirety. The information contained herein does not purport to be a summary of the Board of Education’s financial statements.

San Diego County Board of Education

General Fund Revenues, Expenditures and Changes in Fund Balances

2004-05 2005-06 2006-07 2007-08 Revenues:

Revenue Limit Sources: State Apportionments $ 5,518,948 $ 5,097,573 $ 5,673,072 $ 917,372 Local Sources 47,521,822 53,392,364 57,785,524 61,538,728

Federal Revenue 74,864,804 92,813,174 82,772,722 81,812,870 Other State Revenues 214,404,375 230,066,736 277,470,831 290,672,292 Other Local Revenues 27,140,453 30,272,383 37,062,843 44,772,084

Total Revenues 369,450,402 411,642,230 460,764,992 479,713,346 Expenditures:

Current Expenditures: Instruction 61,646,137 66,409,809 75,598,342 74,764,489 Instruction Related Services 85,901,708 110,574,932 128,399,228 141,632,121 Pupil Services 2,913,174 2,925,073 3,131,234 3,537,219 Ancillary Services -- -- -- 51,079 Community Services 49,572 30,203 (974) 824 Enterprise 32,238 32,929 31,201 40,430 General Administration 20,157,546 22,459,067 24,158,864 25,020,209 Plant Services 7,069,533 7,507,854 8,728,822 8,696,793 Other Outgo 189,127,319 197,169,981 205,134,004 212,080,351 Debt Payments 586,023 594,329 785,013 1,328,599

Total Expenditures 367,483,250 407,703,997 445,965,734 467,152,114 Excess (Deficiency) of Revenues Over

Expenditures 1,967,152 3,938,233 14,799,258

12,561,232 Other Financing Sources (Uses):

Transfers In 245,323 346,471 638,961 476,671 Transfers Out (1,628,601) (2,199,042) (12,466,654) (7,805,903) Other Sources -- -- 5,870,000 -- Total Other Sources (Uses) (1,383,278) (1,852,571) (5,957,693) (7,329,232) Net Change in Fund Balance 583,874 2,085,662 8,841,565 5,232,000 Fund Balance—July 1 21,711,374 22,295,248 24,380,910 33,222,475 Fund Balance—June 30 22,295,248 24,380,910 33,222,475 $38,454,475 _______________________ Source: Board of Education Audited Financial Statements.

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Budgets Under existing law, each county superintendent of schools is required annually to submit to the county board of education certain reports regarding the financial and budgetary status of the county office of education. The first interim report shall cover the financial and budgetary status of the county office of education for the period ending October 31. The second interim report must cover the period ending January 31. Both reports must be reviewed by the county board of education and approved by the county superintendent of schools no later than 45 days after the close of the period being reported. As part of each report, the superintendent will certify in writing whether or not the county office of education is able to meet its financial obligations for the remainder of the fiscal year and, based on current forecasts, for the subsequent fiscal year. On or before July 1 of each fiscal year, each county office of education is required to adopt its annual budget and to file that budget with the Superintendent of Public Instruction, the county board of supervisors and the county auditor. On or before September 1, revisions are required that may be necessary to reflect provisions of the State Budget Act. In the event of any county office of education having a negative or qualified certification pursuant to the annual reports described above, the Superintendent of Public Instruction or his or her designee may exercise the following powers. On or before September 1 of each year, the county board of education must make certain revisions to the county office of education budget, adopt the revised budget, and file the revised budget for review by the Superintendent of Public Instruction. If a budget review committee recommends approval of the budget of the county office of education, the Superintendent of Public Instruction is required to approve that budget. If the budget review committee disapproves that budget, the superintendent, with the agreement of the budget review committee, may adopt an alternative budget for the county office of education. The Superintendent of Public Instruction is authorized to approve or disapprove the budget of a county office of education whether or not the budget review committee recommends approval of that budget. If the Superintendent of Public Instruction disapproves the budget, the superintendent or his or her designee, for the remainder of the fiscal year, is required to adopt a fiscal plan and budget to govern the county office of education, to stay or rescind actions of the county office of education that are inconsistent with the fiscal plan or budget, and otherwise to monitor and review the operation of the county office of education. The following table summarizes the Board of Education’s 2006-07, 2007-08, 2008-09 and 2009-10 Adopted General Fund Budgets.

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San Diego County Board Of Education General Fund Adopted Budgets

2006-07 Adopted Budget

2007-08 Adopted Budget

2008-09 Adopted Budget

2009-10 Adopted Budget

Revenues: Revenue Limit Sources 59,287,718 62,488,404 59,686,005 62,326,468 Federal Revenues 93,374,163 84,891,133 79,583,286 82,037,066 Other State Revenues 247,507,282 304,676,563 279,787,896 270,571,987 Other Local Revenues 29,064,440 39,962,388 47,705,719 49,118,331

Transfers In 649,506 473,425 822,641 779,098 Other Sources -- 2,133,596 2,882,802 -- Contributions (21,986) -- -- --

Total Revenues 429,861,123 494,625,509 470,468,349 464,832,950 Total Beginning Balance and Revenues

Expenditures: Certificated Salaries 38,665,670 42,265,535 43,495,418 41,440,591 Classified Salaries 36,860,310 40,484,696 40,284,988 40,305,515 Employee Benefits 23,068,093 24,500,880 25,442,032 25,684,468 Books and Supplies 5,330,664 7,211,164 7,577,509 8,453,148 Services & Other Operating Expenses 124,665,421 166,740,467 154,393,102 137,949,277 Capital Outlay 246,000 1,556,969 1,281,013 1,717,592 Other Outgo/District Passthru 202,876,260 211,778,432 200,144,286 209,041,652 Direct Support/Indirect Costs (40,100) (32,954) (34,812) (34,812)

Transfers Out 1,663,808 2,514,740 3,108,740 3,310,437 Other Uses -- -- -- --

Total Expenditures 433,336,126 497,019,929 475,692,276 468,167,868 Excess of Total Revenues Over Total

Expenditures (3,475,003) (2,394,420) (5,223,927)

(3,334,918) ___________________ Source: Board of Education

Outstanding Debt Set forth below, for the Board of Education, is the direct and overlapping debt report (the “Debt Report”) prepared by California Municipal Statistics, Inc. and dated as of August 1, 2009. The Debt Report is included for general information purposes only. The Board of Education has not reviewed the Debt Report for completeness or accuracy and make no representations in connection therewith. The Debt Report generally includes long term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the Board of Education in whole or in part. Such long-term obligations generally are not payable from revenues of the Board of Education, except as indicated, nor are they necessarily obligations secured by land within the Board of Education. 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.

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SAN DIEGO COUNTY SUPERINTENDENT OF SCHOOLS Estimated Statement of Direct and Overlapping Bonded Debt

As of October 1, 2009 2009-10 Assessed Valuation: $396,107,250,653 (includes unitary utility valuation) Redevelopment Incremental Valuation: 40,221,284,812 Adjusted Assessed Valuation: $355,885,965,841 OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 10/1/09 Metropolitan Water District 18.719% (1) $ 54,926,226 Grossmont-Cuyamaca Community College District 100. 197,775,562 San Diego Community College District 100. 625,679,185 Other Community College Districts 100. 233,708,656 Carlsbad Unified School District 100. 130,438,077 Oceanside Unified School District 100. 164,295,054 Poway Unified School District SFID Nos. 2002-1 and 2007-1 100. 251,833,254 San Diego Unified School District 100. 1,527,458,221 Vista Unified School District 100. 134,914,882 Other Unified School Districts 100. 32,938,857 Grossmont Union High School District 100. 309,143,431 Sweetwater Union High School District 100. 343,709,415 Other Union High School Districts 100. 49,505,117 Cajon Valley Union School District 100. 102,075,000 Chula Vista City School District 100. 78,430,000 San Ysidro School District 100. 87,392,104 Other School Districts 100. 324,850,906 Otay Municipal Water District 100. 7,960,000 Cities 100. 115,035,000 Grossmont Healthcare District 100. 85,627,076 Palomar Pomerado Hospital District 100. 417,623,319 Community Facilities Districts 100. 1,692,214,116 1915 Act Bonds (Estimated) 100. 167,538,212 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $7,135,071,670 DIRECT AND OVERLAPPING GENERAL FUND DEBT: San Diego County General Fund Obligations 100. % $ 450,930,000 San Diego County Pension Obligations 100. 953,514,739 (1) San Diego County Superintendent of School Obligations 100. 16,267,500 (2) Community College District Certificates of Participation 100. 14,155,000 Poway Unified School District Certificates of Participation 100. 127,465,490 Other Unified School District Certificates of Participation 100. 100,193,360 High School District Certificates of Participation 100. 23,522,500 Chula Vista City School District Certificates of Participation 100. 126,025,000 Other School District Certificates of Participation 100. 123,349,849 Otay Municipal Water District Certificates of Participation 100. 61,890,000 City of Chula Vista General Fund and Pension Obligations 100. 132,260,000 City of Escondido General Fund Obligations 100. 67,787,090 City of San Diego General Fund Obligations 100. 431,520,000 City of Vista General Fund Obligations 100. 116,780,000 Other City General Fund Obligations 100. 270,480,000 Special District Certificates of Participation 100. 13,145,000 TOTAL GROSS DIRECT AND OVERLAPPING GENERAL FUND DEBT $3,029,285,528 Less: Otay Municipal Water District Certificates of Participation (100% self-supporting) 61,890,000 School District Qualified Zone Academy Bonds supported by investment fund 15,000,000 TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND DEBT $2,952,395,528 GROSS COMBINED TOTAL DEBT $10,164,357,198 (3) NET COMBINED TOTAL DEBT $10,087,467,198 (1) Excludes issue to be sold. (2) Excludes accreted value of capital appreciation bonds. (3) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations. Ratios to 2009-10 Assessed Valuation: Total Overlapping Tax and Assessment Debt ..........................................................1.80% Ratios to Adjusted Assessed Valuation: COMBINED DIRECT DEBT ($16,267,500).........................................................0.005% Gross Combined Total Debt .....................................................................................2.86% Net Combined Total Debt.........................................................................................2.83% STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/09: $0

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Cash Flow Borrowing The Board of Education did not issue Tax and Revenue Anticipation Notes for either the 2007-08 fiscal year or the 2008-09 fiscal year and does not plan to issue Tax and Revenue Anticipation Notes for fiscal year 2009-10. Employment As of June 30, 2009, Board of Education employees were represented by two bargaining units as follows:

Name of Bargaining Unit

Number of Employees

Represented Current Contract Expiration Date

California Teacher’s Association (CTA) 246 In negotiation California School Employees Association (CSEA) 599 6/30/09

Pension Plans The Board of Education participates in the State of California Teacher’s Retirement System (“STRS”). This plan covers basically all full-time certificated employees. Contributions to STRS, which operates on a partial reserve funding basis, are made by employee members, their employers, and the State. The Board of Education’s contributions to STRS for the fiscal year ending June 30, 2008, 2007 and 2006 were $3,276,433, $2,874,734 and $2,705,892, respectively. For the fiscal year ending June 30, 2009, the STRS contribution is budgeted at $3,370,672 and is budgeted at $3,100,361 for the fiscal year ending June 30, 2010. The Board of Education also participates in the State of California Public Employees’ Retirement System (“PERS”). This plan covers all full-time classified personnel. The Board of Education’s contribution to PERS for the fiscal year ending June 30, 2008, 2007 and 2006 was $5,631,238, $5,562,805 and $4,191,099, respectively. For the fiscal year ending June 30, 2009, the PERS contribution is budgeted at $6,250,725 and is budgeted at $5,916,542 for the fiscal year ending June 20, 2010. San Diego County Investment Pool

The following information concerning the Treasury Pool of the County of San Diego (the “Treasury Pool”) has been provided by the Treasurer and has not been confirmed or verified by the Board of Education. No representation is made herein as to the accuracy or adequacy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof, or that the information contained or incorporated hereby by reference is correct as of any time subsequent to its date.

In accordance with Government Code Section 53600 et seq., the Treasurer manages funds deposited with it by the District. Each county is required to invest such funds in accordance with California Government Code Sections 53601 et seq. In addition, counties are required to establish their own investment policies which may impose limitations beyond those required by the Government Code.

All investments in the Treasurer’s investment portfolio conform to the statutory requirements of Government Code Section 53601 et seq., authorities delegated by the County Board of Supervisors and the Treasurer’s investment policy.

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General. Pursuant to a resolution adopted July 8, 1958, the Board of Supervisors delegated to the Treasurer the authority to invest and reinvest funds of the County. Applicable law limits this delegation of authority to a one-year period and must be renewed annually by action of the Board of Supervisors. In addition to funds of the County (and the various departments in the County, funds of certain local agencies within the County, including the Board of Education, are required under state law to be deposited into the County treasury (“Involuntary Depositors”). In addition, certain agencies, including community college districts, invest certain of their funds in the County treasury on a voluntary basis (“Voluntary Depositors” and together with the Involuntary Depositors, the “Depositors”). Deposits made by the County and the various local agencies are commingled in a pooled investment fund (the “Treasury Pool” or the “Pool”). No particular deposits are segregated for separate investment.

Under State law, Depositors in the Pool are permitted to withdraw funds which they have deposited on 30 days notice. The County does not expect that the Pool will encounter liquidity shortfalls based on its current portfolio and investment guidelines or realize any losses that may be required to be allocated among all Depositors in the Pool.

The County has established an Oversight Committee as required by State law. The members of the Oversight Committee include the Treasurer, the Chief Financial Officer, members of the public, and a representative from a special district and a school district. The role of the Oversight Committee is to review and monitor the Investment Policy that is prepared by the Treasurer.

The Treasury Pool’s Portfolio. As of July 31, 2009, the securities in the Treasury Pool had a market value of $5,513,396,454 and a book value of $5,484,025,454, for a net unrealized gain of $29,371,000 of the book value of the Treasury Pool from the prior month. As of July 31, 2009, the weighted average maturity of the Pool portfolio was approximately 344 days.

In September of 2008, Standard & Poor’s Rating Services rated the Pool’s ability to meet its financial commitments “AAAf” (long-term) and “S1” (short term volatility).

Investments of the Treasury Pool. Authorized Investments. Investments of the Pool are placed in those securities authorized by various sections of the California Government Code, which include obligations of the United States Treasury, agencies of the United States Government, local and State bond issues, bankers acceptances, commercial paper of prime quality, certificates of deposit (both collateralized and negotiable), repurchase and reverse repurchase agreements, medium term corporate notes, shares of beneficial interest in diversified management companies (mutual funds), asset backed (including mortgage related) and pass-through securities. Generally, investments in any repurchase agreement may not exceed a term of one year and the security underlying the agreement shall be valued at 102% or greater of the funds borrowed against the security and the value of the repurchase agreement shall be adjusted no less than quarterly. In addition, reverse repurchase agreement generally may not exceed 20% of the base value of the portfolio and the term of the agreement may not exceed 92 days. Securities lending transactions are considered reverse repurchase agreements for purposes of this limitation. Base Value is deferred as the total cash balance excluding any amounts borrowed (i.e., amounts obtained through selling securities by way of reverse repurchase agreements or other similar borrowing methods).

Legislation which would modify the currently authorized investments and place restrictions on the ability of municipalities to invest in various securities is considered from time to time by the California State Legislature. Therefore, there can be no assurances that the current investments in the Treasury Pool will not vary significantly from the investments described herein.

The Investment Policy. The County’s Investment Policy (the “Investment Policy”) (which may be modified, amended, or otherwise changed at any time at the sole discretion of the Treasurer) currently

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states the primary goals of the Treasurer when investing public funds to be as follows: the primary objective is to safeguard the principal of the funds under the Treasurer’s control, the secondary objective is to meet the liquidity needs of the Pool Participants, and the third objective is to achieve a return on the funds under the control of the Treasurer within the parameters of prudent risk management. The Investment Policy contains a goal that 50% of the Pool should be invested in securities maturing in one year or less, with the remainder of the portfolio being invested over one to five years depending on opportunities in the market place. With respect to reverse repurchase agreements, the Investment Policy provides for a maximum maturity of 92 days (unless the reverse repurchase agreement includes a written guarantee of a minimum earning or spread for the entire period of such agreement) and a limitation on the total amount of reverse repurchase agreements to 20% of the total investments in the Pool. The Investment Policy states that the purpose of reverse repurchase agreements is to supplement the yield on securities owned by the Pool or to provide funds for the immediate payment of an obligation and that the maturity of the reverse repurchase agreement and the maturity of the security purchased be the same.

The Investment Policy also authorizes investments in covered call options or put options, which are options on the part of a third party to buy from the Pool a specified security within a finite time at a specified price. Under the Investment Policy, securities subject to covered calls are not to be used for reverse repurchase agreements, cash sufficient to pay for outstanding puts are to be invested in securities maturing on or before the expiration date of the option, the maximum maturity of a covered call option/put option is to be 90 days and not more than 10% of the total investments in the Pool could have options (in contrast to “derivatives”) written against them at any one time.

The County from time to time has engaged in securities lending transactions. Generally, these transactions involve the transfer by the governmental entity, through an agent, of securities to certain broker-dealers and financial institutions or other entities in exchange for collateral, and this collateral may be cash or securities. Most commonly, these transactions provide for the return of the collateral to the securities borrower upon receipt of the same securities at a later date. Presently, the County has suspended its securities lending transactions program, but may decide to enter into a securities lending agreement with another custodian in the future. Any such securities lending transactions are considered reverse repurchase agreements under the Investment Policy and, accordingly, the total principal amount of reverse repurchase agreements and securities lending agreements may not exceed 20% of the Pool. Since the inception of the County’s securities lending program in 1987, there has not been any loss of principal to the Pool resulting from these securities lending transactions or the investment of the related collateral.

Certain Information Relating to the Pool. The following table reflects information with respect to the Pool as of July 31, 2009. As described above, a wide range of investments is authorized by state law. Therefore, there can be no assurances that the investments in the Pool will not vary significantly from the investments described below. In addition, the value of the various investments in the Pool will fluctuate on a daily basis as a result of a multitude of factors, including generally prevailing interest rates and other economic conditions. Therefore, there can be no assurance that the values of the various investments in the Pool will not vary significantly from the values described below. In addition, the values specified in the following tables were based upon estimates of market values provided to the County by a third party. Accordingly, there can be no assurance that if these securities had been sold on July 31, 2009, the Pool necessarily would have received the values specified.

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San Diego County Investment Pool Portfolio Information as of July 31, 2009

% of

Portfolio Book Value Accrued Interest

Market Value

Unrealized Gain/Loss

Yield to Maturity

WeightedAverage Days to

Maturity

US Treasury Bills 1.81% $99,916,097 $23,125 $99,950,000 $33,903 0.23% 97 US Treasury Notes 6.85 366,821,680 3,193,298 377,565,669 10,743,989 2.81 772 FNMA Discount Notes 3.17 174,569,069 0 174,955,000 385,931 1.91 60 Federal Farm Credit Bank Notes 6.60 360,770,775 2,215,414 363,850,535 3,079,760 2.75 853 Federal Home Loan Bank

Discount Notes 2.09 115,088,987 0 115,117,961 28,974 0.51 31

Federal Home Loan Bank Notes 13.55 739,959,903 7,486,026 746,855,115 6,895,212 2.06 436 Federal Home Loan Mortgage

Corporation Discount Notes 6.98 384,458,526 0 384,630,086 171,560 1.02 51 Federal Home Loan Mortgage

Corporation Notes 8.21 448,324,752 4,063,201 452,839,364 4,514,612 2.77 868 Fannie Mae 12.18 669,030,538 8,058,409 671,665,777 2,635,239 2.48 621 Corporate Medium Term Notes 1.44 78,475,867 969,271 79,444,000 968,133 4.06 510 Bond Fund 0.63 35,000,000 31,120 34,964,965 (35,035) 0.75 1 Money Market Funds 1.72 94,860,000 25,076 94,860,000 0 .016 1 Repurchase Agreements 4.65 256,232,482 1,684 256,232,482 0 0.24 3 Negotiable Certificates of

Deposit 9.07 500,000,000 68,555 499,965,000 (35,000) 0.24 27 Commercial Paper 15.41 799,911,278 0 799,895,000 (16,278) 0.22 19 Collateralized/FDIC Certificates

of Deposit 6.54

360,605,500 188,972 360,605,500 0 0.62 146 Totals for July 2009 100.00% $5,484,025,454 $26,324,151 $5,513,396,454 $29,371,000 1.49% 344 ____________________ Source: Treasurer-Tax Collector of the County of San Diego

CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES

AND APPROPRIATIONS

Article XIIIA of the California Constitution 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 1% of the full cash value thereof, except that additional ad valorem taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978 and (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 (as a result of a constitutional amendment approved by California voters on November 7, 2000) on bonded indebtedness for school facilities and equipment approved by 55 percent of voters voting on the bond measure. See “Proposition 39” below.. Article XIIIA defines full cash value to mean “the county assessor’s valuation of real property as shown on the 1975-76 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 2% per year to account for inflation.

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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. 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 1979. This system results in widely varying amounts of tax on similarly situated properties based on differences in the taxpayer’s date of acquisition of the property. On June 18, 1992, the United States Supreme Court issued a decision upholding the constitutionality of Article XIIIA (Nordlinger v. Hahn, 112S. Ct.2326, 120 L. Ed. 2d 1 (1992)). Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the 2% annual adjustment 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. Beginning in the 1981-82 fiscal year, assessors in the State no longer record property values on tax rolls at the assessed value of 25% of market value which was expressed as $4 per $100 assessed value. All taxable property is now shown at full market value on the tax rolls. Consequently, the tax rate is expressed as $1 per $100 of taxable value. All taxable property value included in this Official Statement is shown at 100% of market value, unless noted differently, and all tax rates reflect the $1 per $100 of taxable value. The State Supreme Court upheld the validity of Article XIIIA, in general, in the case of Amador Valley Joint Union High School District v. State Board of Equalization (1978), 22 Cal. 3rd 208. Article XIIIB of the California Constitution An initiative to amend the State Constitution entitled “Limitation of Government Appropriations” was approved on September 6, 1979 thereby adding Article XIIIB to the State Constitution (“Article XIIIB”). Under Article XIIIB state and local governmental entities have an annual “appropriations limit” and are not permitted to spend certain moneys which are called “appropriations subject to limitation” (consisting of tax revenues, state subventions and certain other funds) in an amount higher than the “appropriations limit.” Article XIIIB does not affect the appropriations of moneys which are excluded from the definition of “appropriations subject to limitation,” including debt service on indebtedness existing or authorized as of January 1, 1979, or bonded indebtedness subsequently approved by the voters. In general terms, the “appropriations limit” is to be based on certain 1978-79 expenditures, and is to be adjusted annually to reflect changes in consumer prices, populations and services provided by these entities. Among other provisions of Article XIIIB, if these entities’ revenues in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years. Articles XIIIC and XIIID of the California Constitution (Proposition 18) On November 5, 1996, the voters of the State approved Proposition 218, the so-called “Right to Vote on Taxes Act.” Proposition 218 added Articles XIIIC and XIIID to the State Constitution, 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. Among other things, XIIIC establishes that every tax is either a “general tax” (imposed for general governmental purposes) or a

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“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 vote. Article XIIIC also 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 vote under Article XIIIA, Section 4. Article XIIIC also provides that the initiative power shall not be limited in matter of reducing or repealing local taxes, assessments, fees and charges. Legislation adopted in 1997 provides that Article XIIIC shall not be construed to mean that any owner or beneficial owner of a municipal security assumes the risk of or consents to any initiative measure that would constitute an impairment of contractual rights under the contracts clause of the U.S. Constitution. Article XIIID deals with assessments and property-related fees and charges. Article XIIID explicitly provides that nothing in Article XIIIC or XIIID shall be construed to affect existing laws relating to the imposition of fees or charges as a condition of property development; however it is not clear whether the initiative power is therefore unavailable to repeal or reduce developer and mitigation fees. Implementing legislation with respect to Proposition 218 may be introduced in the State Legislature from time to time that would supplement and add provisions to California statutory law. No assurance can be given as to the terms of such legislation or its potential impact on the Board of Education. Unitary Property AB 454 (Chapter 921, Statutes of 1986) provides that revenues derived from most utility property assessed by the State Board of Equalization (“Unitary Property”), commencing with the 1988-89 fiscal year, will be allocated as follows: (a) each jurisdiction will receive up to 102% of its prior year State-assessed revenue; and (b) if county-wide revenues generated from Unitary Property are less than the previous year’s revenues or greater than 102% of the previous year’s revenues, each jurisdiction will share the burden of the shortfall or excess revenues by a specified formula. This provision applies to all Unitary Property except railroads, whose valuation will continue to be allocated to individual tax rate areas. The provisions of AB 454 do not constitute an elimination of the assessment of any State-assessed properties nor a revision of the methods of assessing utilities by the State Board of Equalization. Generally, AB 454 allows valuation growth or decline of Unitary Property to be shared by all jurisdictions in a county. Proposition 98 On November 8, 1988, 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, 1990. 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 (collectively, “K-14 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 1986-87, which percentage is equal to 40.9%; or (b) the amount actually appropriated to such districts from the General Fund in the previous fiscal year, adjusted for increases in enrollment and

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changes in the cost of living. The 40.9% guarantee has been adjusted to 35% to account for a subsequent redirection of local property taxes whereby a greater proportion of education funding now comes from local property taxes. Since the Accountability Act is unclear in some details, there can be no assurance that the Legislature or a court might not interpret the Accountability Act to require a different percentage of General Fund revenues to be allocated to K-14 districts than the 35% percentage, or to apply the relevant percentage to the State’s budgets in a manner different from that proposed in the Governor’s Budget. In any event, the Governor and other fiscal observers expect the Accountability Act to place increasing pressure on the State Budget over future years, potentially reducing resources available for other State programs, especially to the extent the Article XIIIB spending limit would restrain the State’s ability to fund such other programs by raising taxes. 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 districts. Such transfer would be excluded from the Appropriations Limit for K-14 districts and the K-14 district Appropriations Limits 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 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 could be transferred to schools is 4% of the minimum State spending for education mandated by the Accountability Act, as described above. Proposition 111 - Revisions to Article XIIIB and Proposition 98 On June 30, 1989, the Legislature enacted, with the Governor’s support, Senate Constitutional Amendment 1 (“SCA 1”), a proposed modification of the Constitution to alter the spending limit and education funding provisions of Proposition 98. SCA 1 was approved by the voters on June 5, 1990 and went into effect on July 1, 1990. Most significantly, SCA 1 (a) liberalized the annual adjustments to the spending limit by measuring the “change in the cost of living” by the change in State per capita personal income rather than the Consumer Price Index, and specified that a portion of the State’s spending limit would be adjusted to reflect changes in school attendance; (b) provided that 50% of the “excess” tax revenues, determined based on a two-year cycle, would be transferred to K-14 school districts with the balance returned to taxpayers (rather than the previous 100% but only up to a cap of 4% of the districts’ minimum funding level), and that any such transfer to K-14 school districts would not be built into the school districts’ base expenditures for calculating their entitlement for State aid in the following year and would not increase the State’s appropriations limit; (c) excluded from the calculation of appropriations that are subject to the limit appropriations for certain “qualified capital outlay projects” and certain increases in gasoline taxes, sales and use taxes, and receipts from vehicle weight fees; (d) provided that the Appropriations Limit for each unit of government, including the State, would be recalculated beginning in the 1990-91 fiscal year, based on the actual limit for fiscal year 1986-87, adjusted forward to 1990-91 as if SCA 1 had been in effect; and (e) adjusted the Proposition 98 formula that guarantees K-14 school districts a certain amount of General Fund revenues, as described below. Under prior law, K-14 school districts were guaranteed the greater of (a) 40.9% of General Fund revenues (the “first test”); or (b) 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 SCA 1, school districts would receive the greater of (i) the first test; (ii) the second test; or (iii) a third test, which would replace the second test in any year when growth in per capita General Fund revenues from the prior year was less than the annual growth in State per capita personal income. Under the third test, school districts would receive the amount appropriated in the prior year adjusted for change in

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enrollment and per capita General Fund revenues, plus an additional small adjustment factor. If the third test were used in any year, the difference between the third test and the second test would become a “credit” to be paid in future years when General Fund revenue growth exceeds personal income growth. Proposition 227 Proposition 227 was approved on June 2, 1998, and amends the California Education Code to require that all children in California public schools be taught exclusively in English and require that all children who do not speak English or whose native language is not English be placed in English immersion classrooms during a temporary transition period, normally not to exceed one year. Once such students acquire a good working knowledge of English, they are to be transferred to English language mainstream classrooms. The statute mandates penalties associated with not following the law as written. Proposition 227 will also allocate $50 million per year for free or subsidized adult English language instruction programs to parents or other members of the community who pledge to provide English language tutoring to California school children with limited English proficiency. The State LAO has concluded that since the level of spending on K-12 programs is based on a formula in the State Constitution, the $50 million allocated for these adult English closes would probably not cause the level of State spending for K-12 programs to increase. On the contrary, as a result of this provision of Proposition 227, spending on other school programs would likely decrease by a corresponding amount. At the school level, it is possible that funds associated with bilingual programs may be reduced. On the day after the June 2, 1998 election, a coalition of civil rights groups filed a lawsuit in the United States District Court in San Francisco seeking to enjoin implementation of Proposition 227 and to –date Proposition 227 is the subject of litigation. Four separate District Courts denied the request for a stay. The Proposition has been enacted under Section 305, et seq. of the California Education Code. Under the California Education Code sections 310 and 311, parents may request a waiver of the English-only requirements of Section 305. Proposition 39 On November 7, 2000, voters approved Proposition 39 called the “Smaller Classes, Safer Schools and Financial Accountability Act”) (“The Smaller Classes Act”). The Smaller Classes Act amends Section 1 of Article XIIIA, Section 18 of Article XVI of the California Constitution and Section 47614 of the California Education Code. As respects school districts, community colleges and county offices of education and effective upon its passage, the newly added Section 18(b) of Article XVI allows an alternative means of seeking voter approval for bonded indebtedness by 55 percent of the vote, rather than the two-thirds majority required under Section 18 of Article XVI of the Constitution. The reduced 55 percent voter requirement applies only if the bond measure submitted to the voters includes, among other items: 1) a restriction that the proceeds of the bonds may be used for “the construction, reconstruction, rehabilitation, or replacement of school facilities, including the furnishing and equipping of school facilities, or the acquisition or lease of real property for school facilities,” 2) a list of projects to be funded and a certification that the school district board has evaluated “safety, class size reduction, and information technology needs in developing the list”; and 3) that annual, independent performance and financial audits will be conducted regarding the expenditure and use of the bond proceeds. Section 1(b)(3) of Article XIIIA has been added to except from the one percent ad valorem tax limitation under Section 1(a) of Article XIIIA of the Constitution levies to pay bonds approved by the 55 percent of the voters, subject to the restrictions explained above. The Legislature enacted AB 1908, Chapter 44, which became effective upon passage of Proposition 39. AB 1908 amends various sections of the Education Code. Under amendments to Sections 15268 and 15270 of the Education Code, the

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following limits on ad valorem taxes apply in any single election: 1) for a school district, indebtedness shall not exceed $30 per $100,000 of taxable property; 2) for a unified school district, indebtedness shall not exceed $60 per $100,000 of taxable property; and 3) for a community college district, indebtedness shall not exceed $25 per $100,000 of taxable property. Finally, AB 1908 requires that a citizen’s oversight committee must be appointed who will review the use of the bond funds and inform the public about their property usage. Future Initiatives Article XIIIA, Article XIIIB, Article XIIIC, Article XIIID and Propositions 98, 111, 227 and 39 were each adopted as measures that qualified for the ballot pursuant to the State’s initiative process. From time to time other initiative measures could be adopted, further affecting Board of Education revenues or the Board of Education’s ability to expend revenues.

RATING

Moody’s Investors Service (“Moody’s”) has assigned a rating of A1 to the 2009 Certificates.

Such rating reflects only the view of Moody’s and an explanation of the significance of such rating may be obtained from the following addresses: Moody’s Investors Service, 99 Church Street, New York, New York 10007. There is no assurance that any ratings will be retained for any given period of time or that the same will not be revised downward or withdrawn entirely by either rating agency if in its judgment, circumstances so warrant. Any such downward revision or withdrawal of the rating may have an adverse effect on the market price of the 2009 Certificates.

TAX MATTERS

General

In the opinion of Kutak Rock LLP, Special Counsel, under existing laws, regulations, rulings and judicial decisions, and assuming continuing compliance with certain covenants, interest with respect to the 2009 Certificates is excluded from gross income for federal income tax purposes and is exempt from present State of California personal income taxes. Special Counsel is further of the opinion that interest with respect to the 2009 Certificates is not a specific preference item and is not included in adjusted current earnings for purposes of the federal alternative minimum tax.

The opinion described in the preceding paragraph assumes compliance by the Board of Education with covenants designed to satisfy the requirements of the Code that must be met subsequent to the issuance of the 2009 Certificates. Failure to comply with such requirements could cause interest with respect to the 2009 Certificates to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2009 Certificates. The Board of Education has covenanted to comply with such requirements. Special Counsel has expressed no opinion regarding other federal tax consequences arising with respect to the 2009 Certificates.

The accrual or receipt of such interest with respect to the 2009 Certificates may otherwise affect the federal income tax liability of the owners of the 2009 Certificates. The extent of these other tax consequences will depend upon such owner’s particular tax status and other items of income or deduction. Special Counsel has expressed no opinion regarding any such consequences. Purchasers of the 2009 Certificates, particularly purchasers that are corporations (including S corporations and foreign corporations operating branches in the United States), property or casualty insurance companies, banks, thrifts or other financial institutions, certain recipients of social security or railroad retirement benefits,

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taxpayers otherwise entitled to claim the earned income credit, or taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, should consult their tax advisors as to the tax consequences of purchasing or owning the 2009 Certificates.

Changes in Federal Tax Law

From time to time, there are legislative proposals in the Congress that, if enacted, could alter or amend the federal tax matters referred to above or adversely affect the market value of the 2009 Certificates. It cannot be predicted whether or in what form any such proposal might be enacted or whether if enacted it would apply to 2009 Certificates issued prior to enactment. Purchasers of the 2009 Certificates should consult their tax advisors regarding any pending or proposed tax legislation. The opinions expressed by Special Counsel are based upon existing legislation as of the date of issuance and delivery of the 2009 Certificates and Special Counsel has expressed no opinion as of any date subsequent thereto or with respect to any pending legislation.

Bank Qualified

The Lease Agreement is a "qualified tax-exempt obligation" within the meaning of Section 265(b)(3) of the Code, and, in the case of certain financial institutions (within the meaning of Section 265(b)(3) of the Code), a deduction is allowed for 80% of that portion of such financial institutions' interest expense allocable to the 2009 Certificates.

Original Issue Discount

The 2009 Certificates maturing in 2022, 2023 and 2024 (collectively, the “Discount 2009 Certificates”) are being sold at an original issue discount. The difference between the initial public offering prices of such Discount 2009 Certificates and their stated amounts to be paid at maturity constitutes original issue discount treated in the same manner for federal income tax purposes as interest, as described above.

The amount of original issue discount which is treated as having accrued with respect to such Discount 2009 Certificate is added to the cost basis of the owner in determining, for federal income tax purposes, gain or loss upon disposition of such Discount 2009 Certificate (including its sale, redemption or payment at maturity). Amounts received upon disposition of such Discount 2009 Certificate which are attributable to accrued original issue discount will be treated as tax-exempt interest, rather than as taxable gain, for federal income tax purposes.

Original issue discount is treated as compounding semiannually, at a rate determined by reference to the yield to maturity of each individual Discount 2009 Certificate, on days which are determined by reference to the maturity date of such Discount 2009 Certificate. The amount treated as original issue discount on such discount 2009 Certificate for a particular semiannual accrual period is equal to the product of (i) the yield to maturity for such Discount 2009 Certificate (determined by compounding at the close of each accrual period) and (ii) the amount which would have been the tax basis of such Discount 2009 Certificate at the beginning of the particular accrual period if held by the original purchaser, less the amount of any interest payable for such Discount 2009 Certificate during the accrual period. The tax basis is determined by adding to the initial public offering price on such Discount 2009 Certificate the sum of the amounts which have been treated as original issue discount for such purposes during all prior periods. If such Discount 2009 Certificate is sold between semiannual compounding dates, original issue discount which would have been accrued for that semiannual compounding period for federal income tax purposes is to be apportioned in equal amounts among the days in such compounding period.

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Owners of Discount 2009 Certificates should consult their tax advisors with respect to the determination and treatment of original issue discount accrued as of any date and with respect to the state and local tax consequences of owning a Discount 2009 Certificate.

Market Discount

A purchaser (other than a person who purchases a 2009 Certificate upon issuance at the issue price) who buys a 2009 Certificate at a discount from its principal amount (or its adjusted issue price if issued with original issue discount) will be subject to the market discount rules of the Code. In general, the market discount rules of the Code treat principal payments and gain on disposition of a debt instrument as ordinary income to the extent of accrued market discount. Each potential investor should consult his tax advisor concerning the application of the market discount rules to the 2009 Certificates.

Original Issue Premium

The 2009 Certificates maturing in 2010, 2011, 2012, 2013 and 2014 (collectively, the “Premium 2009 Certificates”) are being sold at a premium. An amount equal to the excess of the issue price of a Premium 2009 Certificate over its stated redemption price at maturity constitutes premium on such Premium 2009 Certificate. An initial purchaser of a Premium 2009 Certificate must amortize any premium over such Premium 2009 Certificate’s term using constant yield principles, based on the purchaser’s yield to maturity (or, in the case of Premium 2009 Certificates callable prior to their maturity, by amortizing the premium to the call date, based on the purchaser’s yield to the call date and giving effect to the call premium). As premium is amortized, the amount of the amortization offsets a corresponding amount of interest for the period and the purchaser’s basis in such Premium 2009 Certificate is reduced by a corresponding amount resulting in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes upon a sale or disposition of such Premium 2009 Certificate prior to its maturity. Even though the purchaser’s basis may be reduced, no federal income tax deduction is allowed. Purchasers of the Premium 2009 Certificates should consult with their tax advisors with respect to the determination and treatment of premium for federal income tax purposes and with respect to the state and local tax consequences of owning a Premium 2009 Certificate.

Backup Withholding

As a result of the enactment of the Tax Increase Prevention and Reconciliation Act of 2005, interest on tax-exempt obligations such as the 2009 Certificates is subject to information reporting in a manner similar to interest paid on taxable obligations. Backup withholding may be imposed on payments made after March 31, 2007 to any certificateholder who fails to provide certain required information including an accurate taxpayer identification number to any person required to collect such information pursuant to Section 6049 of the Code. The new reporting requirement does not in and of itself affect or alter the excludability of interest with respect to the 2009 Certificates from gross income for federal income tax purposes or any other federal tax consequence of purchasing, holding or selling tax-exempt obligations.

LITIGATION No litigation is pending, or to the best knowledge of the Board of Education, threatened, against

the Board of Education concerning the validity of the 2009 Certificates. The Board of Education is not aware of any litigation pending or threatened against the Board of Education questioning the existence of the Board of Education.

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FINANCIAL ADVISOR

Municipal Capital Management, Inc., Mill Valley, California, has acted as Financial Advisor to the Board of Education in conjunction with the issuance of the 2009 Certificates. The Financial Advisor has assisted the Board of Education in preparation of this Official Statement and in other matters related to the planning, structuring, execution and delivery of the 2009 Certificates. The Financial Advisor will receive compensation contingent upon the sale and delivery of the 2009 Certificates. The Financial Advisor has not audited, authenticated or otherwise independently verified the information set forth in the Official Statement, or any other information related to the Board of Education with respect to the accuracy or completeness of disclosure of such information. Because of this limited participation, the Financial Advisor makes no guaranty, warranty or other representation respecting the accuracy or completeness of the Official Statement or any other matter related to the Official Statement.

LEGAL MATTERS

Legal matters incident to the issuance of the 2009 Certificates are subject to the approving opinion of Kutak Rock LLP, Special Counsel. The proposed form of the opinion being delivered by Special Counsel is attached hereto as APPENDIX E.

PURCHASE OF 2009 CERTIFICATES

The 2009 Certificates have been awarded to Stone & Youngberg LLC (the “Purchaser”) pursuant to a competitive bid as described in the Official Notice of Sale dated September 23,, 2009. The Purchaser has agreed to purchase the 2009 Certificates from the Board of Education at an aggregate purchase price of $5,697,450.00 (principal amount of the 2009 Certificates plus original issue premium of $39,858.95 and less Purchaser’s discount of $97,408.95). The Official Notice of Sale relating to the 2009 Certificates provides that the Purchaser will purchase all of the 2009 Certificates if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in said Official Notice of Sale.

2009 Certificates may be offered and sold to certain dealers and others at prices lower than the

offering prices stated on the cover page hereof. The offering prices may be changed from time to time.

FINANCIAL STATEMENTS The Annual Report for Fiscal Year Ended June 30, 2008 of the San Diego County Board of Education is included as APPENDIX B to this Official Statement and has been audited by Wilkinson Hadley King & Co. LLP, independent certified public accountants, as stated in their report.

CONTINUING DISCLOSURE Pursuant to the Lease Agreement and a Continuing Disclosure Agreement for the 2009 Certificates, the Board of Education has covenanted for the benefit of the Owners to provide certain financial information and operating data relating to the Board of Education within 210 days after the close of each fiscal year beginning with the fiscal year ending June 30, 2009, in the form of an annual report (the "Annual Report"), and to provide notices of the occurrence of certain enumerated events, if deemed by the Board of Education to be material. The Annual Report and notices of material events will be filed by the Board of Education with the Municipal Securities Rulemaking Board. The specific nature of the information to be contained in the Annual Report or the notices of material events is summarized in

39

APPENDIX D-FORM OF CONTINUING DISCLOSURE AGREEMENT. These covenants have been made in order to assist the Purchaser in complying with S.E.C. Rule 15c2-12(b)(5). The Board of Education has never failed to comply with any prior such undertaking under Rule 15c2-12.

OTHER MATTERS

This Official Statement is not to be construed as a contract or agreement between the Board of Education and the purchasers, holders or Beneficial Owners of any of the 2009 Certificates. Any statements made in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended merely as an opinion and not as representations of fact. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Board of Education since the date hereof.

Additional information may be obtained upon request from the San Diego County Board of Education, 6401 Linda Vista Road, Room 610, San Diego, CA, 92111 Attention: Secretary, or from Municipal Capital Management, Inc., 1097 W. California Avenue, Mill Valley, CA 94941. (415) 383-8455. The execution and delivery of this Official Statement have been duly authorized by the Board of Education.

SAN DIEGO COUNTY BOARD OF EDUCATION By_/s/ Sharon C. Jones_____________________ Sharon C. Jones, President

(THIS PAGE INTENTIONALLY LEFT BLANK)

APPENDIX A ECONOMY OF THE COUNTY OF SAN DIEGO

The following information about the County of San Diego (the “County”) is presented as general background information because the Office of Education encompasses this area. The 2009 Certificates are payable solely from the Revenues and other sources as described in the Official Statement and are not a debt of, nor payable by, the County.

General Information on the County of San Diego

The County is the southernmost major metropolitan area in the State of California. The County covers 4,255 square miles, extending 70 miles along the Pacific Coast from the Mexican border to Orange County, and inland 75 miles to Imperial County. Riverside and Orange counties form the northern boundary. The County is approximately the size of the State of Connecticut.

Topography of the County varies from broad coastal plains and fertile inland valleys to mountain ranges in the east which rise to an elevation of 6,500 feet. Eastern slopes of these mountains form the rim of the Anza-Borrego Desert and the Imperial Valley. The Cleveland National Forest occupies much of the interior portion of the County. The climate is equable in the coastal and valley regions where most of the population and resources are located. Average annual rainfall in the coastal areas is approximately 10 inches.

The County possesses a diverse economic base consisting of a significant manufacturing presence in the fields of electronics and shipbuilding, a large tourist industry attracted by the favorable climate of the region, and a considerable defense-related presence which contributes approximately $10 billion annually to the retail and service businesses of the area.

The County is also growing as a major center for culture and education. Over 30 recognized art organizations, including the San Diego Opera, the Old Globe Theatre productions, the La Jolla Chamber Orchestra, as well as museums and art galleries, are located in the County. Higher education is provided through five two-year colleges and six four-year colleges and universities.

In addition to the City of San Diego, other principal cities in the County include Carlsbad, Chula Vista, Oceanside, El Cajon, Escondido, La Mesa and National City. Most County residents live within 20 miles of the coast. Farther inland are agricultural areas, principally planted in avocados and tomatoes, while the easternmost portion of the County has a dry, desert-like topography.

Population

There are 18 incorporated cities in the County, and a number of unincorporated communities. The County population for January 1, 2009, was estimated to be 3,173,407, making it the second largest County by population in California. The 2009 population increased 4.58% from 2005. The following table sets forth population trends for the County and the State for the years 2005 through 2009.

A-2

County of San Diego State of California

Population 2005 Through 2009

2005

2006

2007

2008

2009

% Change 2005-2009

County of San Diego 3,034,388 3,058,413 3,088,891 3,131,552 3,173,407 4.58% State of California 36,676,931 37,086,191 37,472,074 37,883,992 38,292,687 4.41%

____________________ Source: California State Department of Finance, with 2000 DRU Benchmark Employment

The strength of the regional economy is indicated by the County’s relatively low unemployment rates, which historically have been lower than both the State’s and the nation’s. The unemployment rate has fallen from a rate of 5.1% in 2002 to 4.3% in 2005. In comparison, the State’s unemployment rate fell from 6.7% in 2002 to 5.4% in 2005, while the nation’s rate fell from 5.8% to 5.1% for the same period.

County of San Diego, California, and United States Labor Force, Employment and Unemployment

Annual Averages From 2004 Through 2008 Not Seasonally Adjusted

(000s) (1)

Year and Area Labor Force Employment Unemployment Unemployment

Rate*

2004 San Diego 1,489 1,418 70 4.7% California 17,444 16,355 1,089 6.2

2005 San Diego 1,505 1,440 64 4.3% California 17,629 16,672 957 5.4

2006 San Diego 1,511 1,451 60 4.0 California 17,821 16,948 873 4.9

2007 San Diego 1,531 1,462 70 4.6 California 18,078 17,109 969 5.4

2008 San Diego 1,566 1,472 94 6.0 California 18,392 17,060 1,332 7.2

____________________ (1) March 2009. *Unemployment rate is based on unrounded data. Note: Totals may not add due to independent rounding. Source: U.S. Department of Labor, Bureau of Labor Statistics.

A-3

The largest components of employment by industry in the County in 2009 were government, trade, transportation and utilities and professional and business services. All of these sectors except government have grown over the time period of 2006 through 2009. Over the same time period, manufacturing has declined in the County, from 112,300 in 2006, to 104,200 in 2009.

County of San Diego Wage and Salary Nonagricultural Workers by Industry

Annual Averages for 2006Through 2009(in thousands)

2006 2007 2008 2009

Total Nonfarm 1,230.7 1,240.1 1,260.3 1,255.7

Total Private 1,011.0 1,022.9 1,046.0 1,026.6

Natural Resources and Mining 0.3 0.3 0.4 0.3

Construction 76.4 80.2 87.7 91.4

Manufacturing 112.3 105.3 104.3 104.2

Trade, Transportation and Utilities

208.6 209.7 215.3 219.1

Information 37.7 36.9 36.6 37.3

Financial Activities 75.0 79.9 81.9 83.2

Professional and Business Services

201.7 201.2 204.5 209.8

Educational and Health Services 119.7 121.8 121.7 122.8

Leisure and Hospitality 133.8 140.7 145.7 150.2

Other Services 45.6 46.8 47.9 48.7

Government 219.7 217.3 214.3 214.8

Note: Totals may not add due to independent rounding. Source: California Employment Development Department

A-4

Building Activity

County of San Diego New Residential Building Permits

Calendar Years 2004 Through 2008

(Dollars in thousands)

2004 2005 2006 2007 2008

Construction Costs $2,967,543 $2,677,499 $1,763,333 $1,417,129 $1,069,645

Residential Building Permits Single Units 9,122 7,576 4,652 3,384 2,361 Multiple Units 6,465 6,730 4,428 3,988 2,996

Total 15,587 14,306 9,080 7,372 5,357

Source: U.S. Census Bureau.

Commercial Activity

Consumer spending in 2007 resulted in approximately $47.48 billion in taxable sales in the County. This total is 7% above 2004.

2004 2005 2006 2007

Retail Stores Apparel $1,644,428 $1,798,104 $1,909,011 $2,034,512 General Merchandise 5,204,962 5,406,091 5,594,621 5,673,538 Specialty 4,541,225 4,728,028 4,926,656 (1) Food Stores 1,736,610 1,858,152 1,928,274 1,994,237 Eating and Drinking 4,407,726 4,267,302 4,521,392 4,784,500 Home Furnishings and

Appliances 1,549,482 1,556,046 1,511,389 1,420,933

Building Materials 3,341,105 3,376,009 3,331,161 2,768,385 Automotive 9,318,277 9,739,136 9,819,932 10,077,108

All other retail stores 961,645 1,045,927 1,076,631 5,285,332 Total Retail Stores 32,345,460 33,784,795 34,619,067 34,038,545

Business and Personal Services

2,146,781 2,239,304 2,302,057 2,298,265

All Other Outlets 9,978,097 10,655,372 10,914,390 11,149,178 Total All Outlets $44,470,338 $46,679,471 $47,835,514 $47,485,988

(1) Specialty stores now combined with All other retail stores. Source: “Taxable Sales in California,” California State Board of Equalization.

A-5

Personal Income

The following table compares personal income, per capita personal income, and per capita income as a percent of the U.S. personal income for both San Diego County and the State of California.

2004 2005 2006 2007

San Diego County Personal Income ($ in millions)

$113,003.0 $118,457.5 $125,471.5 $131,499.7

State of California Personal Income ($ in thousands)

$1,265,370.3 $1,342,753.7 $1,445,580.6 $1,520,3754.9

San Diego County Per Capita Personal Income

$38,567 $40,406 $42,721 $44,430

State of California Per Capita Personal Income

$35,531 $37,418 $40,020 $41,805

San Diego County Per Capita Personal Income as a percent of U.S.

116 % 116% 116% 115%

State of California Per Capita Personal Income as a percent of U.S.

107% 108% 109% 108%

Source: Regional Economic Information System, Bureau of Economic Analysis, U.S. Department of Commerce.

Transportation

Surface, sea and air transportation facilities serve County residents and businesses. Interstate 5 parallels the coast from Mexico to the Los Angeles area and points north. Interstate 15 runs inland, leading to Riverside-San Bernardino, Las Vegas, and Salt Lake City. Interstate 8 runs eastward through the southern United States.

San Diego’s International Airport (Lindbergh Field) is located approximately one mile west of the downtown area at the edge of San Diego Bay. The facilities are owned and maintained by the San Diego Unified Port District and are leased to commercial airlines and other tenants. The airport is the busiest, single-runway commercial service airport in the country,, served by 18 commercial airlines. A West Terminal was completed in mid-1979, approximately doubling terminal capacity. In addition to San Diego International Airport there are two naval air stations and seven general aviation airports located in the County.

McClellan-Palomar Airport is located in Carlsbad, California and can accommodate private and light commercial aircraft. Oceanside Municipal Airport is located eight miles north in Oceanside, California.

A-6

Public transit in the metropolitan area is provided by the Metropolitan Transit Development Board. The San Diego Trolley, developed by the Metropolitan Transit Development Board beginning in 1979, has been expanded. A total of 17.6 miles were added to the original 108 miles; construction was completed in 1990.

San Diego is the terminus of the Santa Fe Railway’s main line from Los Angeles. Amtrak passenger service is available at San Diego, with stops at Del Mar and Oceanside in the North County.

San Diego’s harbor is one of the world’s largest natural harbors. The Port of San Diego is administered by the San Diego Unified Port District, which includes the cities of San Diego, National City, Chula Vista, Imperial Beach, and Coronado.

Visitor and Convention Activity

An excellent climate, proximity to Mexico, extensive maritime facilities, and such attractions as the San Diego Zoo and Wild Animal Park, Sea World, Cabrillo National Monument, and Palomar Observatory allow San Diego to attract a high level of visitor and convention business each year. Contributing to the growth of visitor business has been the development of the 4,600-acre Mission Bay Park at San Diego and the expansion of the San Diego Convention Center. San Diego’s visitor industry is a major sector of the region’s economy. In 2005, there were a total of 27.15 million visitors, of which 15.9 million were overnight visitors. Spending was approximately $5.8 billion in 2005, according to an estimate by the San Diego Convention and Visitors Bureau. The San Diego Convention Center, containing over 525,000 square feet of exhibit space and over 200,000 square feet of meeting/banquet space, with total interior space of over $1.1 million square feet, opened in November 1989, and was expanded in 2001. During fiscal year 2006, 283 events were held in the Convention Center, attracting over 949,000 attendees and contributing $23.2 million in hotel tax room revenues and an estimated $1.1 billion in total regional economic impact (direct and indirect spending). The Convention Center can accommodate a wide range of events from small meetings to large convention and trade shows. The Convention Center enables the City of San Diego to compete with Los Angeles and San Francisco in attracting the largest conventions and trade shows.

Education

Elementary and secondary public education services in the County are provided by 24 elementary, six high and 12 unified school districts offering instruction from kindergarten through high school. For the 2005-06 school year, 495,228 students were enrolled in grades K through 12 in the public schools in the County. Facilities include 654 schools.

Community colleges in California are locally operated and administered. They offer the Associate of Arts and Associate of Science degrees and have extensive vocational curricula. There are five community college districts in San Diego County at nine campuses. Among the four-year institutions of higher education in metropolitan San Diego are the University of California at San Diego, University of San Diego, San Diego State University, California State University San Marcos, United States International University, and Point Loma College.

APPENDIX B

ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2008 FOR THE SAN DIEGO COUNTY BOARD OF EDUCATION

This page is left blank intentionally.

SAN DIEGO COUNTY OFFICE OF EDUCATION COUNTY OF SAN DIEGO SAN DIEGO, CALIFORNIA

AUDIT REPORT

JUNE 30, 2008

Wilkinson Hadley King & Co. LLP CPA's and Advisors 250 E. Douglas Ave El Cajon, CA 92020

Tel619-447-6700 Fax 619-447-6707

Introductory Section

San Diego County Office of Education Audit Report

For The Year Ended June 30, 2008

TABLE OF CONTENTS

Eage_ Exhibit[[able

FINANCIAL SECTION

Independent Auditor's Report on Financial Statements........................................................ 1 Management's Discussion and Analysis (Required Supplementary Information)................. 3

Basic Financial Statements

Government-wide Financial Statements: Statement of Net Assets .......... , ................................................................................. . 12 Exhibit A-1 Statement of Activities ................................................................................................ . 13 Exhibit A-2

Fund Financial Statements: Balance Sheet - Governmental Funds ....................................................................... . 14 Exhibit A-3 Reconciliation of the Governmental Funds

Balance Sheet to the Statement of Net Assets .................................................... .. 15 Exhibit A-4 Statement of Revenues, Expenditures, and Changes in

Fund Balances - Governmental Funds ................................................................. . 16 Exhibit A-5 Reconciliation of the Statement of Revenues, Expenditures, and Changes in

Fund Balances of Governmental Funds to the Statement of Activities ................ .. 17 Exhibit A-6 Statement of Fiduciary Net Assets- Fiduciary Funds ........................................ , ...... .. 18 Exhibit A-7 Statement of Changes in Fiduciary Net Assets - Fiduciary Funds ............................ .. 19 Exhibit A-8

Notes to the Financial Statements ................................................................................ .. 20

Required Supplementary Information:

Budgetary Comparison Schedules:

General Fund.............................................................................................................. 36 Exhibit B-1

Schedule of Funding Progress - Pension Plan................................................................. 37

Combining Statements as Supplementary Information:

Combining Balance Sheet - All Nonmajor Governmental Funds..................................... 38 Exhibit C-1 Combining Statement of Revenues, Expenditures and Changes in

Fund Balances - All Non major Governmental Funds.................................................. 39 Exhibit C-2

Special Revenue Funds:

Combining Balance Sheet - Non major Special Revenue Funds................................. 40 Exhibit C-3 Combining Statement of Revenues, Expenditures and Changes

in Fund Balances - Non major Special Revenue Funds......................................... 42 Exhibit C-4

Capital Projects Funds:

Combining Balance Sheet - Non major Capital Projects Funds................................... 44 Exhibit C-5 Combining Statement of Revenues, Expenditures and Changes

in Fund Balances - Non major Capital Projects Funds........................................... 45 Exhibit C-6

San Diego County Office of Education Audit Report

For The Year Ended June 30, 2008

TABLE OF CONTENTS

Page Exhibit/Table

Fiduciary Funds:

Private-Purpose Trust Funds:

Combining Statement of Fiduciary Net Assets...................................................... 46 Combining Statement of Changes in Fiduciary Net Assets................................... 47

OTHER SUPPLEMENTARY INFORMATION SECTION

Local Education Agency Organization Structure .................................................................. . 48 Schedule of Average Daily Attendance ................................................................................ . 49 Schedule of Instructional Time ............................................................................................. . 50 Schedule of Financial Trends and Analysis .......................................................................... . 51 Reconciliation of Annual Financial and Budget Report

With Audited Financial Statements ................................................................................. . 52 Schedule of Charter Schools ................................................................................................ . 53 Schedule of Excess Sick Leave ............................................................................... u .••...•...•.

I:::. A .... .... Schedule of Expenditures of Federal Awards .................................................................... .. 55 Notes to the Schedule of Expenditures of Federal Awards ................................................. .. 56 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 ..................................................... .. 57

Report on Compliance with Requirements Applicable To each Major Program and Internal Control over Compliance In Accordance With OMB Circular A-133 ....................................................................... .. 59

Auditor's Report on State Compliance .................................................................................. . 61 Schedule of Findings and Questioned Costs ...................................................................... . 63 Summary Schedule of Prior Audit Findings ......................................................................... .. 66

Exhibit C-7 Exhibit C-8

Table D-1 Table D-2 Table D-3

Table D-4 Table D-5 T.,.hl,., n_e::

I QUIV LJ-\.1

Table D-7

This page is left blank intentionally.

Financial Section

Wilkinson Hadley King & Co. LLP CPA's and Advisors 250 E. Douglas Ave El Cajon, CA 92020

Tel619-447-6700 Fax 619-447-6707

Independent Auditor's Report on Financial Statements

Board of Trustees San Diego County Office of Education San Diego, California 92111

Members of the Board of Trustees:

We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of San Diego County Office of Education as of and for the year ended June 30, 2008, which collectively comprise the County Office's basic financial statements as listed in the table of contents. These financial statements are the responsibility of San Diego County Office of Education's management. Our responsibility is to express opinions on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions.

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of San Diego County Office of Education as of June 30, 2008, and the respective changes in financial position for the year then ended in conformity with accounting principles generally accepted in the United States of America.

In accordance with Government Auditing Standards, we have also issued our report dated December 12, 2008, on our consideration of San Diego County Office of Education'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 the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.

The Management's Discussion and Analysis and the budgetary comparison information identified as Required Supplementary Information in the table of contents are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.

Our audit was performed for the purpose of forming opinions on the financial statements which collectively comprise the San Diego County Office of Education's basic financial statements. The accompanying schedule of expenditures of federal awards required by U.S. Office of Management and Budget Circular A-133, Audits ot States, LocaJ Governments and Non-Profit Organizations and the combining financial statements and supporting schedules listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. This information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in ali material respects in relation to the basic financial statements taken as a whole.

-z,J~ ~ ~ ~ lo.,l-LI' El Cajon, California December 12, 2008

2

San Diego County Office of Education Management's Discussion and Analysis For the Fiscal Year Ended June 30, 2008

(Unaudited)

This discussion and analysis of the San Diego County Office of Education's financial performance provides an overall review of the County Office's financial activities for the fiscal year ended June 30, 2008. The intent of this discussion and analysis is to look at the County Office's financial performance as a whole. Readers should also review the notes to the basic financial statements and the financial statements to enhance their understanding of the County Office's financial performance.

USING THESE FINANCIAL STATEMENTS

This report consists of a series of fmancial statements and notes to those statements. These statements are organized so the reader can understand the San Diego County Office of Education as a complex financial entity. The statements then provide an increasingly detailed look at specific financial activities. The San Diego County Office of Education does not operate any business-type activities, so the information presented is solely for governmental activities.

The Statement of Net Assets and Statement of Activities provide information about the activities of the whole County Office, presenting both an aggregate view of the County Office's fmances and a longer-term view of those finances. Fund financial statements provide the next level of detail. For governmental funds, these statements tell how services were financed in the short-term and what remains for future spending. The fund financial statements also look at the County Office's most significant fund with all other non-major funds presented in total in one column. In the case of the San Diego County Office of Education, the general fund is by far the most significant fund.

FINANCIAL HIGHLIGHTS

Key financial highlights for 2007-2008 are as follows:

• Total assets are $173,789,241. • Total revenue is $483,440,126, an increase of$18,952,860 over 2006-2007. • Total program expenses are $468,230,928, an increase of $18,162,440 over 2006-

2007. • Outstanding debt is $21,063,576 and includes certificates of participation, lease­

revenue bonds and capital leases.

Reporting the County Office as a Whole

Statement of Net Assets and Statement of Activities

While this document contains the large number of funds used by the County Office to provide programs and activities, the view of the County Office as a whole looks at all financial transactions and asks the question, "How did we do financially during 2007-2008?" The Statement of Net Assets and the Statement of Activities answer this

3

San Diego County Office of Education Management's Discussion and Analysis For the Fiscal Year Ended June 30, 2008

(Unaudited)

question. These statements include all assets and all liabilities using the accrual basis of accounting similar to the accounting used by most private-sector companies. This basis of accounting takes into account all of the current year's revenues and expenses regardless of when cash is received or paid out.

These two statements report the County Office's net assets and changes in those assets. This change in net assets is important because it tells the reader that, for the County Office as a whole, the financial position of the County Office has improved or diminished. The causes of this change may be the result of many factors, some financial some not. Non-fmancial factors include the County Office's property tax base, current property tax laws in California restricting revenue growth, facility conditions, required educational programs and other factors.

In the Statement of Net Assets and the Statement of Activities, the County Office is presented in just one kind of activity, Governmental Activities. All of the County Office's programs and services are reported here including instructional, support services, and operation and maintenance of plant and facilities. The County Office does not operate any business-type activities, so none are presented here.

Reporting the County Office's Most Significant Fund

Fund Financial Statements

Major Funds: The analysis of the County Office's major funds is included in the audit report. Fund financial reports provide detailed information about the County Office's major funds. The County Office uses many funds to account for a multitude of financial transactions. However, these fund financial statements focus on the County Office's most significant funds. The County Office's major governmental funds are the general fund and the special reserve fund.

Governmental Funds: Most of the County Office's activities are reportecl in governmental funds which focus on how money flows into and out of those funds and the balances left at year-end available for spending in future periods. These funds are reported using an accounting method called modified accrual, which measures cash and all other financial assets that can readily be converted into cash. The governmental fund statements provide a detailed short-term view of the County Office's general government operations and the basic services it provides. Governmental fund information helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance educational programs. The relationship (or differences) between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds is reconciled in the financial statements.

4

San Diego County Office of Education Management's Discussion and Analysis For the Fiscal Year Ended June 30, 2008

(Unaudited)

THE COUNTY OFFICE AS A COMPLETE FINANCIAL ENTITY

Recall that the Statement of Net Assets provides the perspective of the County Office as a whole. Table 1 provides a summary of the County Office's net assets for 2005-2006, 2006-2007, and 2007-2008.

Table 1 Statement of Net Assets

June 30, 2008

2005-2006 2006-2007 2007-2008

Assets Cash 65,468,275 105,176,130 84,466,264 Investments Receivables 45,494,066 36,501,392 51,380,898 Due from other funds Stores Prepaid expenses 534,853 540,700 811,757 Other current assets Capital assets:

Sites 2,322,378 2,322,378 2,322,378 Site improvements 1,582,596 2,041,977 2,041,977 Buildings and Improvements 37,087,382 36,772,981 37,681,803 Equipment 19,281,238 19,721,622 21,877,784 Work in progress

Less accumulated depreciation {21 ,269,646) {24,477,640) {26,793,620)

Total assets 150,501,142 178,599,540 173,789,241 Liabilities Accounts payable and other current liabilities 54,219,183 57,511,372 40,467,548 Accrued vacation benefits Current loans Deferred revenue 17,648,006 22,239,190 20,334,856 Long-term liabilities:

Due within one year 2,296,412 3,733,817 2,226,870 Due in more than one year 14,852,406 19,267,772 18,836,706

Total liabilities 89,016,007 102,752,151 81,865,980 Net Assets Invested in capital assets, net of related debt 22,278,481 15,655,163 44,619,937 Restricted 34,598,735 53,282,872 38,144,078 Unrestricted 4,607,919 6,909,354 9,159,246

Total net assets 61,485,135 75,847,389 91,923,261

5

San Diego County Office of Education Management's Discussion and Analysis For the Fiscal Year Ended June 30, 2008

(Unaudited)

Chart 1. Net Assets - Governmental Activities

(In Millions) 2005-2006 2006-2007 2007-2008

Total Assets 150.5 178.6 173.8

Total Liabilities Net Assets

180.0

'160.0

140.0

120.()

100.0

80.0

60.0

40.0

20.0

89.0 61.5

102.8 75.8

81.9 91.9

Net Assets - Governmental Activities

Tota1 Assets Total liabilities Net Assets

I m 2005.-2006

El 2006-2007

Cl 2007-2008

Total assets were $174 million while total liabilities were $82 million. The County Office purchased and is in the process of implementing a new student information system.

6

San Diego County Office of Education Management's Discussion and Analysis For the Fiscal Year Ended June 30, 2008

(Unaudited)

Revenue in the Governmental Funds is divided into general revenue, which funds the basic operations of the County Office, and program revenue, . which funds specific program activities that support the children and school districts of San Diego County.

Chart 2. Revenue - Governmental Activities

(In Millions)

General Revenue Program Revenue Total Revenue

2005-2006 2006-2007 33.3 85.2

384.8 379.3 418.1 464.5

2007-2008 92.2

391.2 483.4

Revenue- Governmental Activities

500.0

450.0

400.0

350_0

300.0

25iJ.O

200.0

General Revenue Program Revenue Total Revenue

7

112005-2006

02006-2007

D2007-200S

San Diego County Office of Education Management's Discussion and Analysis For the Fiscal Year Ended June 30, 2008

(Unaudited)

The primary sources of general revenue are the state Revenue Limit and local revenue. The main source of program revenue is the State of California which funds many programs operated by the County Office.

Expenditures in the Governmental Funds are similarly divided into general or umestricted expenses and program expenses.

Chart 3. Expenditures - Governmental Activities

General Expenditures Program Expenditures Total Expenditures

(In Millions) 2005-2006

30.5 391.3 421.8

2006-2007 32.0

418.0 450.0

2007-2008 40.9

429.3 470.2

Expenditures- Governmental Activities

500.0

450.0

400.0

350.0

300.0

250.0

200.0

150.0

100:0

50.0

General Expenditures Program Expenditures

T•Jial Expe-nditures

IIB2005-2006

Eil2006-200i

1 02001-2oos 1

The general expenditures cover the cost of operating the County Office and operating many of the programs that assist school districts with curriculum, assessment, technology, staff development, and financial services. The general expenditures remained fairly constant over the last two years while the program expenditures increased by $11.3 million.

8

San Diego County Office of Education Management's Discussion and Analysis For the Fiscal Year Ended June 30, 2008

(Unaudited)

THE COUNTY OFFICE'S FUNDS

Information about the County Office's major funds is shown later in this report. These funds are accounted for using the modified accrual basis of accounting. The County Office's budget is prepared according to California law and is based on accounting for certain transactions on a basis of cash receipts, disbursements and encumbrances. The General Fund is the County Office's largest major fund.

During the course of the 2007-2008 fiscal year, the County Office revised its general fund budget on occasion to better serve our client populations. None of the revisions were significant in terms of the overall budget. The County Office uses a fairly centralized budgeting process which affords control of the budget while allowing flexibility at the program level.

CAPITAL ASSETS

At the end of the 2007-2008 fiscal year, the County Office had $63.9 million invested in land, buildings, and capital equipment. Depreciation totaling $26.8 million was charged against the value of those assets for net capital assets of $37.0 million. Table 4 shows the breakdown of capital assets.

Chart 4. Capital Assets at June 30

(Net of Depreciation- In Millions) 2005-2006 2006-2007 2007-2008

Land & Improvements Buildings & Improvements Work In Progress

Equipment

Total

30.0

25.0

20.0

15.0

10.0

5.0

2.7 27.5 0.0

§J.

38.3

Capital Assets

land & Bldgs W.I.P Equip lmpr & lmpr

9

3.1 26.2

0.0

7.0

36.3

m2005-2006

I'J2006-2007

02007-2008

3.0 26.6

0.0

7.4

37.0

DEBT

San Diego County Office of Education Management's Discussion and Analysis For the Fiscal Year Ended June 30, 2008

(Unaudited)

At June 30, 2007 the County Office had $15.7 million in certificates of participation, $1.6 million in lease revenue bonds and $2.0 million in capital leases, with $1.6 million due within one year.

Chart 5. Debt- Governmental Funds

Certificates of Participation Lease Revenue Bonds Capital Leases

20

15

10

5

0

(In Millions) 2005-2006

10.7 1.8 3.5

Debt

COPs Bonds Leases

2006-2007

16.3 1.7 2.7

2007-2008

15.7 1.6 2.0

1112005-2006

m2006-2007

02007-2008

Lease Revenue Bonds and Certificates of Participation continued as in past years and decreased due to principal payments during 2007-2008.

CURRENT FINANCIAL RELATEDACTIVITIES

The San Diego County Office of Education is strong financially. As the preceding information shows, assets are strong and the amount of debt is a very small percentage of the overall budget. However, the financial future is full of challenges due to the County Office's dependence on the State of California for the bulk of its revenue.

The state of California's economy has left the 2008-2009 funding for education in question. The economy remains sluggish so the status of the 2008-2009 and the 2009-2010 California state budgets are unclear. The County Office must remain diligent in working with and around this ever changing financial picture to maintain its history of strong financial health.

10

San Diego County Office of Education Management's Discussion and Analysis For the Fiscal Year Ended June 30, 2008

(Unaudited)

In addition, while the County Office's system of budgeting and internal controls is well regarded, all of the County Office's financial abilities will be needed to meet the challenges of the future.

CONTACTING THE COUNTY OFFICE'S FINANCIAL MANAGEMENT

This financial report is designed to provide our citizens, taxpayers, investors, and creditors with a general overview ofthe County Office's finances and to show the County Office's accountability for the money it receives. If you have questions about this report or need additional financial information you may contact Pamela Gilles, Senior Director, Internal Business Services at San Diego County Office of Education, 6401 Linda Vista Road, Room 503, San Diego, CA 92111. Or E-mail to pgilles@sdcoe.kl2.ca.us.

11

This page is left blank intentionally.

Basic Financial Statements

SAN DIEGO COUNTY OFFICE OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2008

ASSETS: Cash in County Treasury Cash on Hand and in Banks Cash in Revolving Fund Cash with a Fiscal Agent/Trustee Accounts Receivable Prepaid Expenses Capital Assets:

Land Land Improvements Buildings Equipment Less Accumulated Depreciation

Total Assets

LIABILITIES: Accounts Payable Deferred Revenues Long-Term Liabilities:

Due within One Year Due in More Than One Year

Total Liabilities

NET ASSETS: Invested in Capital Assets, Net of Related Debt Restricted For:

Educational Programs Unrestricted Total Net Assets

The accompanying notes are an integral part of this statement.

EXHIBIT A-1

Governmental Activities

$ 77,778,432 90,885

2,400 6,594,547

51,380,898 811,757

2,322,378 2,041,977

37,681,803 21,877,784

(26,793,620) 173,789,241

40,467,548 20,334,856

2,226,870 18,836,706 81,865,980

44,619,937

38,144,078 9,159,246

$ 91,923,261

12

SAN DIEGO COUNTY OFFICE OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2008

Functions/Programs PRIMARY GOVERNMENT: Government Activities: Instruction Instruction-Related Services Pupil Services General Administration Plant Services Ancillary Services Community Services Enterprise Interest on Long-Term Debt Other Outgo Depreciation (unallocated)

Total Governmental Activities Total Primary Government

Program Revenues Operating

Charges for Grants and Expenses Services Contributions

$ 74,919,627 $ 334,370 $ 54,033,856 141,913,134 8,860,350 107,009,976

3,563,861 144,999 1,509,781 24,017,599 2,375,159 4,555,327

8,457,447 45,580 2,418,497 51,079 39,163 (43,616)

910 1,732 358 57,141 20,389 4,215

1,044,126 212,166,943 3,162,610 206,731,740

2,039,061 468,230,928 14,984,352 376,220,134

$ 468,230,928 $ 14,984,352 $ 376,220,134

General Revenues: Taxes and Subventions Federal and State Revenues, not restricted Interest and Investment Earnings Miscellaneous

Total General Revenues Change in Net Assets

Net Assets - Beginning Net Assets - Ending

The accompanying notes are an integral part of this statement.

13

Capital Grants and

Contributions

$ 1,304

1,304 $ 1,304

$

EXHIBIT A-2

Net (Expense) Revenue and Changes in Net Assets

Governmental Activities

(20,550,097) (26,042,808)

(1 ,909,081) (17,087,113)

(5,993,370) (55,532)

1,180 (32,537)

(1 ,044, 126) (2,272,593) (2,039,061)

(77,025, 138) (77,025,138)

62,768,388 3,137,334 4,445,795

21,882,819 92,234,336 15,209,198 76,714,063

$.==9=1 ~,92=3~,2=6=1

SAN DIEGO COUNTY OFFICE OF EDUCATION BALANCE SHEET- GOVERNMENTAL FUNDS JUNE 30, 2008

General Fund

ASSETS: Cash in County Treasury $ 48,957,765 Cash on Hand and in Banks 90,885 Cash in Revolving Fund 2,400 Cash with a Fiscal Agent/Trustee 5,886,672 Accounts Receivable 51,052,989 Due from Other Funds 514,380 Prepaid Expenditures 235,940

Total Assets $ 106,741,031

LIABILITIES AND FUND BAlANCE: Liabilities:

Accounts Payable $ 39,440,175 Due to Other Funds 8,626,088 Deferred Revenue 20,220,293

Total Liabilities 68,286,556

Fund Balance: Reserved Fund Balances:

Reserve for Revolving Cash 2,400 Reserve for Prepaid Items 235,940

Designated Fund Balances: Other Designated 4,656,346

Unreserved 33,559,789 Unreserved, reported in nonmajor:

Special Revenue Funds Capital Projects Funds

Total Fund Balance 38,454,475

Total Liabilities and Fund Balances $ 106,741,031

The accompanying notes are an integral part of this statement.

14

$

$

$

$

EXHIBIT A-3

Capital Outlay Other Total Projects Governmental Governmental

Fund Funds Funds

10,566,020 $ 18,254,647 $ 77,778,432 90,885

2,400 707,875 6,594,547

26,428 301,480 51,380,897 4,378,377 4,448,668 9,341,425

235,940 14,970,825 $ 23,712,670 $ 145,424,526

15,335 $ 245,871 $ 39,701,381 715,336 9,341,424 114,563 20,334,856

15,335 1,075,770 69,377,661

2,400 235,940

4,656,346 14,955,490 48,515,279

16,869,229 16,869,229 5,767,671 5,767,671

14,955,490 22,636,900 76,046,865

14,970,825 $ 23,712,670 $ 145,424,526

SAN DIEGO COUNTY OFFICE OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2008

Total fund balances- governmental funds balance sheet

Amounts reported for governmental activities in the statement of net assets are different because:

Capital assets used in governmental activities are not reported in the funds, net of accumulated depreciation.

Unamortized costs: In governmental funds, debt issue costs are recognized as expenditures in the period they are incurred. In the government-wide statements, debt issue costs are amortized over the life of the debt. Unamortized debt issue costs included in prepaid expense on the statement of net assets are:

Unmatured interest on long-term debt In governmental funds, interest on long-term debt is not recognized until the period in which it matures and is paid. In government-wide statement of activities, it is recognized in the period that it is incurred. The additional liability for unmatured interest owing at the end of the period was:

Long .. term liabilities: In governmental funds, only current liabilities are reported. In the statement of net assets, all liabilities, including long-term liabilities, are reported. Long-term liabilities relating to governmental activities consisted of:

Net assets of governmental activities - statement of net assets

The accompanying notes are an integral part of this statement.

15

EXHIBIT A-4

$ 76,046,865

37,130,322

575,815

(766, 165)

(21 ,063,576)

$ 91,923,261

SAN DIEGO COUNTY OFFICE OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES- GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2008

General Fund

Revenues: Revenue Limit Sources:

State Apportionments $ 917,372 Local Sources 61,538,728

Federal Revenue 81,812,870 Other State Revenue 290,672,292 Other Local Revenue 44,772,084

Total Revenues 479,713;346

Expenditures: Instruction 74,764,489 Instruction - Related Services 141,632,121 Pupil Services 3,537,219 Ancillary Services 51,079 Community Services 824 Enterprise 40,430 General Administration 25,020,209 Plant Services 8,696,793 ()th<>r (),,tnn 212,080,351 -···-· --·::::~"'

Debt Service: Principal 1,065,300 Interest 263,299 Total Expenditures 467,152,114

Excess (Deficiency) of Revenues Over (Under) Expenditures 12,561,232

Other Financing Sources (Uses): Transfers In 476,671 Transfers Out (7,805,903)

Total Other Financing Sources (Uses) (7,329,232)

Net Change in Fund Balance 5,232,000

Fur"ld Balance, July 1 33,222,475 Fund Balance, June 30 $ 38,454,475

The accompanying notes are an integral part of this statement.

16

$

$

EXHIBIT A-5

Capital Outlay Other Total Projects Governmental Governmental

Fund Funds Funds

$ $ 917,372 61,538,728

61,102 81,873,972 1,559,342 292,231 ,634

68,126 2,038,210 46,878,420 68,126 3,658,654 483,440,126

74,764,489 404,148 142,036,269

3,537,219 51,079

824 40,430

34,167 25,054,376 952,503 637,422 10,286,718

86,591 212,166,942

57,379 335,000 1,457,679 2,404 490,052 755,755

1,012,286 1,987,380 470,151,780

(944,160) 1,671,274 13,288,346

4,378,377 3,628,507 8,483,555 (677,651) (8,483,554)

4,378,377 2,950,856 1

3,434,217 4,622,130 13,288,347

11,521,273 18,014,770 62,758,518 14,955,490 $ 22,636,900 $ 76,046,865

SAN DIEGO COUNTY OFFICE OF EDUCATION RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2008

Net change in fund balances - total governmental funds

Amounts reported for governmental activities in the statement of activities are different because:

Capital Outlay: In governmental funds, the cost of capital assets are reported as expenditures in the period when the assets are acquired. In the statement of activities, costs of capital assets are allocated over their estimated useful lives as depreciation expense. The difference between capital outlay expenditures and depreciation expense for the period is:

Expenditures for capital outlay Depreciation expense

Net

3,247,468 (2,942,440)

Debt service: In governmental funds, repayment of long-term debt are reported as expenditures. In the government-wide statements, repayments of long-term debt are reported as reductions of liabilities. Expenditures for repayment of the principal portion of long-term debt were:

Unmatured interest on long-term debt: In governmental funds, interest on long-term debt is recognized in the period that it becomes due. In the governmental-wide statement of activities, it is recognized in the period that ·it is incurred. Unmatured interest C\AJing at the end of the period,

EXHIBIT A-6

$ 13,288,347

305,028

1,457,679

less matured interest paid during the period but owing from the prior period was: (252,843)

Compensated absences: In governmental funds, compensated absences are measured by the amounts paid during the period. !n the statement of activities, compensated absences are measured by the amounts earned. The difference between compensated absences paid and compensated absences earned was:

Gain or loss from disposal of capital assets: In governmental funds, the entire proceeds from disposal of capital assets are reported as revenue. In the statement of activities, only the resulting gain or loss is reported. The difference between the proceeds from disposal of capital assets and the resulting gain or loss is:

Postemployment benefits other than pensions (OPES): In governmental funds, OPES costs are recognized when employer contributions are made. In the statement of activities, OPES costs are recognized on the accrual basis. This year, the difference between OPES costs and actual employer contributions was:

Amortization of debt issue premium or discount: In governmental funds, if debt is issued at a premium or at a discount, the premium or discount is recognized as an Other Financing Source or an Other Financing Use in the period it is incurred. In the government-wide statements, the premium or discount is amortized as interest over the life of the debt. Amortization of premium or discount for the period is:

Change in net assets of governmental activities - statement of activities

The accompanying notes are an integral part of this statement.

17

866,908

443,976

(864,369)

(35,528)

$ 15,209,198

SAN DIEGO COUNTY OFFICE OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2008

ASSETS: Cash in County Treasury Cash on Hand and in Banks Accounts Receivable Prepaid Expenses

Total Assets

liABiliTiES: Accounts Payable Due to Other Agencies Incurred and Reported Claims Incurred But Not Reported Claims Liability for Underground Storage Tanks Deferred Revenue

Total Liabilities

NET ASSETS: Held in Trust

Total Net Assets

Private-purpose Trust Funds

$ 1 i 5,009,967 632,800

3,419,916 305,563

$ 119,368,246

$ 1,838,358

20,017,540 34,109,458

80,000 5,222,742

61,268,098

58,100,148 $ 58,100,148

18

Agency Funds

Warrant! Pass-through

Fund

$ 41,822,319

$ 41,822,319

$ 41,822,319

41,822,319

$====

EXHIBIT A-7

SAN DIEGO COUNTY OFFICE OF EDUCATION STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS FOR THE YEAR ENDED JUNE 30, 2008

Additions: Investment Income Participant Fees Transfers In Commissions and Refunds

Total Additions

Deductions: Claims Paid, net of Recoveries Insurance Premiums Transfers Out Administrative Expenses Other Expenses

Total Deductions

Change in Net Assets

Net Assets-Beginning of the Year ~~et Assets ... End of the Yeai

The accompanying notes are an integral part of this statement.

EXHIBIT A-8

Private-Purpose Trust Funds

$ 5,238,389 135,578,909

1,558,519 1,065,208

143,441 ,025

79,441,857 48,633,575

2,957,742 5,860,420 4,865,037

141,758,631

1,682,394

56,417,754 <I' 58,100,148 "'

19

SAN DIEGO COUNTY OFFICE OF EDUCATION NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2008

A. Summary of Significant Accounting Policies

San Diego County Office of Education (County Office) accounts for its financial transactions in accordance with the policies and procedures of the Department of Education's "California School Accounting Manual". The accounting policies of the County Office conform to accounting principles generally accepted in the United States of America (GMP) as prescribed by the Governmental Accounting Standards Board (GASB) and the American Institute of Certified Public Accountants (AICPA).

1 . Reporting Entity

The County Office's combined financial statements include the accounts of all its operations. The County Office evaluated whether any other entity should be included in these financial statements. The criteria for including organizations as component units within the County Office's reporting entity, as set forth in GASB Statements No. 14 and 31 include whether:

- the organization is legally separate (can sue and be sued in its name) - the County Office holds the corporate powers of the organization - the County Office appoints a voting majority of the organization's board - the County Office is able to impose its will on the organization · - the organization has the potential to impose a financial benefit/burden on the County Office - there is fiscal dependency by the organization on the County Office

The County Office also evaluated each legally separate, tax-exempt organization whose resources are used principally to provide support to the County Office to determine if its omission from the reporting entity would result in financial statements which are misleading or incomplete. GASB Statement No. 14 requires inclusion of such an organization as a component unit when: 1) The economic resources received or held by the organization are entirely or almost entirely for the direct benefit of the County Office, its component units or its constituents; and 2) The County Office or its component units is entitled to, or has the ability to otherwise access, a majority of the economic resources received or held by the organization; and 3) Such economic resources are significant to the County Office.

Based on these criteria, the County Office has no component units. Additionally, the County Office is not a component unit of any other reporting entity as defined by the GASB Statement.

2. Basis of Presentation, Basis of Accounting

a. Basis of Presentation

Government-wide Statements: The statement of net assets and the statement of activities include the financial activities of the overall government, except for fiduciary activities. Eliminations have been made to minimize the double-counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions.

The statement of activities presents a comparison between direct expenses and program revenues for each function of the County Office's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. The County Office does not allocate indirect expenses in the statement of activities. Program revenues include (a) fees, fines, and charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues.

Fund Financial Statements: The fund financial statements provide information about the County Office's funds, with separate statements presented for each fund category. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. All remaining governmental funds are aggregated and reported as nonmajor funds.

20

SAN DIEGO COUNTY OFFICE OF EDUCATION NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2008

The County Office reports the following major governmental funds:

County School Service Fund (General Fund). This is the County Office's primary operating fund. It accounts for all financial resources of the County Office except those required to be accounted for in another fund.

Capital Outlay Projects Fund. This fund is used to account for acquisiton and construction of capita! projects of the County Office.

In addition, the County Office reports the following fund types:

Special Revenue Funds: These funds are used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for specific purposes.

Capital Projects Funds: These funds account for the acquisition and/or construction of all major governmental general fixed assets.

Private-Purpose Trust Funds: These funds are used to report trust arrangements under which principal and income benefit individuals, private organizations, or other governments not reported in other fiduciary fund types.

Agency Fund: This fund is used for the purpose of remitting payroll tax deposits for various school districts and transmitting various state monies to individual districts.

Fiduciary funds are reported in the fiduciary fund financial statements. However, because their assets are held in a trustee or agent capacity and are therefore not available to support County Office programs, these funds are not included in the government-wide statements.

b. Measurement Focus, Basis of Accounting

Government-wide and Fiduciary Fund Financial Statements: These financial statements are reported using the economic resources measurement focus. They are reported using the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the County Office gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, grants, entitlements, and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.

Governmental Fund Financial Statements: Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The County Office does not consider revenues collected after its year-end to be available in the current period. Revenues from local sources consist primarily of property taxes. Property tax revenues and revenues received from the State are recognized under the susceptible-to-accrual concept. Miscellaneous revenues are recorded as revenue when received in cash because they are generally not measurable until actually received. Investment earnings are recorded as earned, since they are both measurable and available. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they have matured. General capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term debt and acquisitions under capital leases are reported as other financing sources.

When the County Office incurs an expenditure or expense for which both restricted and unrestricted resources may be used, it is the County Office's policy to use restricted resources first, then unrestricted resources.

21

SAN DIEGO COUNTY OFFICE OF EDUCATION NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2008

3. Encumbrances

Encumbrance accounting is used in all budgeted funds to reserve portions of applicable appropriations for which commitments have been made. Encumbrances are recorded for purchase orders, contracts, and other commitments when they are written. Encumbrances are liquidated when the commitments are paid. All encumbrances are liquidated as of June 30.

4. Assets, Liabilities. and Equity

a. Deposits and Investments

Cash balances held in banks and in revolving funds are insured to $100,000 by the Federal Depository Insurance Corporation. All cash held by the financial institutions is fully insured or collateralized.

In accordance with Education Code Section 41 001 , the County Office maintains substantially all its cash in the San Diego County Treasury. The county pools these funds with those of other districts in the county and invests the cash. These pooled funds are carried at cost, which approximates market value. Interest earned is deposited quarterly into participating funds, except for the Tax Override Funds, in which interest earned is credited to the general fund. Any investment losses are proportionately shared by all funds in the pool.

The county is authorized to deposit cash and invest excess funds by California Government Code Section 53648 et seq. The funds maintained by the county are either secured by federal depository insurance or are collateralized.

Information regarding the amount of dollars invested in derivatives with San Diego County Treasury was not avaiiabie.

b. Stores Inventories and Prepaid Expenditures

Inventories are recorded using the purchases method in that the cost is recorded as an expenditure at the time individual inventory items are purchased. These inventories are immaterial and have been omitted from these statements.

The County Office has the option of reporting an expenditure in governmental funds for prepaid items either when purchased or during the benefiting period. The County Office has chosen to report the expenditure when incurred.

c. Capital Assets

Purchased or constructed capital assets are reported at cost or estimated historical cost. Donated fixed assets are recorded at their estimated fair value at the date of the donation. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized. A capitalization threshold of $5,000 is used.

Capital assets are being depreciated using the straight-line method over the following estimated useful lives:

Asset Class

Infrastructure Buildings Building Improvements Land Improvements Vehicles Office Equipment Computer Equipment

22

Estimated Useful Lives

30 50

20-25 20-25

8 5-15 5-20

SAN DIEGO COUNTY OFFICE OF EDUCATION NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2008

d. Receivable and Payable Balances

The County Office believes that sufficient detail of receivable and payable balances is provided in the financial statements to avoid the obscuring of significant components by aggregation. Therefore, no disclosure is provided which disaggregates those balances.

There are no significant receivables which are not scheduled for collection within one year of year end.

e. Compensated Absences

Accumulated sick leave benefits are recognized as liabilities of the County Office. The County Office's policy is to record sick leave as an operating expense in the period taken since such benefits do not vest nor is payment probable; however, unused sick leave is added to the creditable service period for calculation of retirement benefits when the employee retires.

f. Deferred Revenue

Cash received for federal and state special projects and programs is recognized as revenue to the extent that qualified expenditures have been incurred. Deferred revenue is recorded to the extent cash received on specific projects and programs exceeds qualified expenditures.

g. lnterfund Activity

lnterfund activity results from loans, services provided, reimbursements or transfers between funds. Loans are reported as interfund receivables and payables as appropriate and are subject to elimination upon consolidation. Services provided, deemed to be at market or near market rates, are treated as revenues and expenditures or expenses. Reimbursements occur when one fund incurs a cost, charges the appropriate benefiting fund and reduces its related cost as a reimbursement. All other interfund transactions are treated as transfers. Transfers In and Transfers Out are netted and presented as a single "Transfers" line on the government-wide statement of activities. Similarly, interfund receivables and payables are netted and presented as a single "Internal Balances" line of the government-wide statement of net assets.

h. Property Taxes

Secured property taxes attach as an enforceable lien on property as of March 1. Taxes are payable in two installments on November 15 and March 15. Unsecured property taxes are payable in one installment on or before August 31.fhe County of San Diego bills and collects the taxes for the County Office.

i. Fund Balance Reserves and Designations

Reservations of the ending fund balance indicate the portions of fund balance not appropriable for expenditure or amounts legally segregated for a specific future use. The reserve for revolving fund and reserve for stores inventory reflect the portions of fund balance represented by revolving fund cash and stores inventory, respectively. These amounts are not available for appropriation and expenditure at the balance sheet date.

Designations of the ending fund balance indicate tentative plans for financial resource utilization in a future period.

j. Use of Estimates

The preparation of financial statements in conformity with GAAP requires the use of management's estimates. Actual results could differ from those estimates.

23

SAN DIEGO COUNTY OFFICE OF EDUCATION NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2008

B. Compliance and Accountability

1. Finance-Related Legal and Contractual Provisions

In accordance with GASB Statement No. 38, "Certain Financial Statement Note Disclosures," violations of finance­related legal and contractual provisions, if any, are reported below, along with actions taken to address such violations:

Violation None reported

Action Taken Not applicable

2. Deficit Fund Balance or Fund Net Assets of Individual Funds

Following are funds having deficit fund balances or fund net assets at year end, if any, along with remarks which address such deficits:

Fund Name None reported

C. Excess of Expenditures Over Appropriations

Deficit Amount

Not applicable Remarks Not applicable

As of June 30, 2008, expenditures exceeded appropriations in individual funds as follows:

Appropriations Category

General Fund: Enterprise activities

D. Cash and Investments

1. Cash in County Treasury:

$

Excess Expenditures

13,839

In accordance with Education Code Section 41001, the County Office maintains substantially all of its cash in the San Diego County Treasury as part of the common investment pool ($234,61 0,718 as of June 30, 2008). The fair value of the County Office's portion of this pool as of that date, as provided by the pool sponsor, was $234,610,718. Assumptions made in determining the fair value of the pooled investment portfolios are available from the County Treasurer.

2. Cash on Hand, in Banks, and in Revolving Fund

Cash balances on hand and in banks ($723,685 as of June 30, 2008) and in the revolving fund ($2,400) are insured up to $100,000 by the Federal Depository Insurance Corporation. All cash held by the financial institution is fully insured or collateralized.

3. Investments:

The County Office's investments at June 30, 2008 are shown below.

Investment or Investment Type Corporate investment agreements Blackrock T-Funds Total Investments

24

Fair Value

$ 6,515,967 78,580

$======6,=59=4=,5=4 7==

SAN DIEGO COUNTY OFFICE OF EDUCATION NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2008

3. Analysis of Specific Deposit and Investment Risks

GASB Statement No. 40 requires a determination as to whether the County Office was exposed to the following specific investment risks at year end and if so, the reporting of certain related disclosures:

a. Credit Risk

Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The county is restricted by Government Code Section 53635 pursuant to Section 53601 to invest only in time deposits, U.S. government securities, state registered warrants, notes or bonds, State Treasurer's investment pool, bankers' acceptances, commercial paper, negotiable certificates of deposit, and repurchase or reverse repurchase agreements. The ratings of securities by nationally recognized rating agencies are designed to give an indication of credit risk. At year end, the County Office was not exposed to credit risk.

b. Custodial Credit Risk

Deposits are exposed to custodial credit risk if they are not covered by depository insurance and the deposits are uncollateralized, collateralized with securities held by the pledging financial institution, or collateralized with securities held by the pledging financial institution's trust department or agent but not in the County Office's name.

Investment securities are exposed to custodial credit risk if the securities are uninsured, are not registered in the name of the government, and are held by either the counterparty or the counterparty's trust department or agent but not in the County Office's name.

At year end, the County Office was not exposed to custodial credit risk.

c. Concentration of Credit Risk

This risk is the risk of loss attributed to the magnitude of a government's investment in a single issuer. At year end, the County Office was not exposed to concentration of credit risk.

d. Interest Rate Risk

This is the risk that changes in interest rates will adversely affect the fair value of an investment. At year end, the County Office was not exposed to interest rate risk.

e. Foreign Currency Risk

This is the risk that exchange rates will adversely affect the fair value of an investment. At year end, the County Office was not exposed to foreign currency risk.

Investment Accounting Policy The County Office is required by GASB Statement No. 31 to disclose its policy for determining which investments, if any, are reported at amortized cost. The County Office's general policy is to report money market investments and short-term participating interest-earning investment contracts at amortized cost and to report nonparticipating interest-earning investment contracts using a cost-based measure. However, if the fair value of an investment is significantly affected by the impairment of the credit standing of the issuer or by other factors, it is reported at fair value. All other investments are reported at fair value unless a legal contract exists which guarantees a higher value. The term "short-term" refers to investments which have a remaining term of one year or less at time of purchase. The term "nonparticipating" means that the investment's value does not vary with market interest rate changes. Nonnegotiable certificates of deposit are examples of nonparticipating interest-earning investment contracts.

25

SAN DIEGO COUNTY OFFICE OF EDUCATION NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2008

The County Office's investments in external investment pools are reported at an amount determined by the fair value per share of the pool's underlying portfolio, unless the pool is 2a7-like, in which case they are reported at share value. A 2a7-like pool is one which is not registered with the Securities and Exchange Commission ("SEC") as an investment company, but nevertheless has a policy that it will, and does, operate in a manner consistent with the SEC's Rule 2a7 of the Investment Company Act of 1940.

E. Capital Assets

Capital asset activity for the year ended June 30, 2008, was as follows:

Governmental activities: Capital assets not being depreciated: Land Total capital assets not being depreciated

Capital assets being depreciated: Buildings Land improvements Equipment Total capital assets being depreciated

Less accumulated depreciation for: Buildings Land improvements Equipment

Total accumulated depreciation Total capital assets being depreciated, net

Governmental activities capital assets, net

Depreciation was charged to functions as follows:

Instruction Instruction-Related Services General Administration Plant Services Unallocated

$

$

$

Beginning Balances

2,322,378 $ 2,322,378

36,772,981 2,041,977

19,721,622 58,536,580

(1 0,524,003) (1,214,182)

(12,739,455) (24,477,640) 34,058,940 36,381,318 $

338,854 196,974 220,207 147,344

2,039,061

$====2~,9=42=-=,4=4=0

26

Ending Increases Decreases Balances

$ 2,322,378 2,322,378

908,822 37,681,803 2,041,977

2,338,646 182,484 21,877,784 3,247,468 182,484 61 ,601 ,564

(922,348) (389,314)(11 ,057,037) (79,957) (1,294,139)

(1 ,940, 135) (237, 146)(14,442,444) (2,942,440) (626,460)(26,793,620)

305,028 (443,976) 34,807,944 305,028 $ (443,976} 37,130,322

SAN DIEGO COUNTY OFFICE OF EDUCATION NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2008

F. lnterfund Balances and Activities

1. Due To and From Other Funds

Balances due to and due from other funds at June 30, 2008 consisted of the following:

Due To Fund Due From Fund Amount

General Fund Child Development Fund $ 6,093 General Fund Deferred Maintenance Fund 24 General Fund Special Reserve Fund 26,520 General Fund Capital Facilities Fund 481,743 Child Development Fund General Fund 11,247 Deferred Maintenance Fund General Fund 1,202,768 Special Reserve Fund General Fund 1,970,077 Building Fund General Fund 1,063,595 Building Fund Capital Facilities Fund 200,980 Special Reserve Fund General Fund 4,378,377

Total $ 9,341,424

All amounts due are scheduled to be repaid within one year.

2. Transfers To and From Other Funds

Transfers to and from other funds at June 30, 2008 consisted of the following:

Transfers From

Special Reserve Fund Special Reserve Fund Deferred Maintenance Fund General Fund General Fund Building Fund Building Fund Child Development Fund

G. Short-Term Debt Activity

Transfers To

General Fund General Fund General Fund Capital Facilities Fund Special Reserve Fund General Fund Capital Facilities Fund General Fund

Total

$

Amount

1,970,077 4,378,377 1,417,466

450,151 26,520 37,785

200,980 2,198

$===8,=48=3=,5=54=

The County Office accounts for short-term debts for maintenance purposes through the General Fund. The proceeds from loans are shown in the financial statements as Other Resources.

27

SAN DIEGO COUNTY OFFICE Of EDUCATION NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2008

H. Long-Term Obligations

1. Long-Term Obligation Activity

Long-term obligations include debt and other long-term liabilities. Changes in long-term obligations for the year ended June 30, 2008 are as follows:

Amounts Beginning Ending Due Within Balance Increases Decreases Balance One Year

GQve[Omental activities: Lease revenue bonds $ 1,712,500 $ $ 120,000 $ 1,592,500 122,500 Capital leases 2,683,655 683,384 2,000,271 647,934 Certificates of participation 16,330,000 655,000 15,675,000 525,000 Compensated absences * 2,275,433 1,343,997 931,436 931,436 Net OPEB obligation 864,369 864,369 Total governmental activities $ 23,001 ,588 $ 864,369 $ 2,802,381 $ 21,063,576 2,226,870

Liability Activity Type Fund Compensated absences Governmental General

2. Debt Service Requirements

Debt service requirements on long-term debt at June 30, 2008 are as follows:

a. Certificates of Participation Year Endiog June 3Q, Principal Interest Total 2009 $ 750,000 $ 617,120 $ 1,367,120 2010 775,000 589,745 1,364,745 2011 800,000 561,700 1,361,700 2012 830,000 533,100 1,363,100 2013 855,000 505,300 1,360,300 2014-2018 4,045,000 2,056,523 6,101,523 2019-2023 1,710,000 1,520,348 3,230,348 2024-2028 2,095,000 1,129,356 3,224,356 2029-2033 2,600,000 626,538 3,226,538 2034-2038 1,215,000 80,281 1,295,281 Totals $ 15,675,000 $ 8,220,011 $ 23,895,011

b. Lease Revenue Bonds Year Endiog June 3Q, Principal Interest Total 2009 $ 122,500 $ 55,766 $ 178,266 2010 127,500 52,562 180,062 2011 130,000 48,938 178,938 2012 132,500 44,835 177,335 2013 137,500 40,207 177,707 2014-2018 767,500 116,675 884,175 2019-2023 175,000 3,719 178,719 Totals $ 1,592,500 $ 362,702 $ 1,955,202

28

SAN DIEGO COUNTY OFFICE OF EDUCATION NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2008

c. Capital Leases

Commitments under capitalized lease agreements for facilities and equipment provide for minimum future lease payments as of June 30, 2008 as follows:

Year Ending June 30: 2009 2010 2011 Total Minimum Lease Payments Les Amount Representing Interest Net Present Value of Minimum Lease Payments

I. Commitments Under Noncapitalized Leases

$ 718,501 714,349 710,197

2,143,047 (142,776)

Commitments under operating (noncapitalized) lease agreements for facilities provide for minimum future rental payments as of June 30, 2008 as follows:

Year Ending June 30, 2009 2010 2011 2012 Total Minimum Rentals

$ 3,136,258 2,503,188 2,016,245 1,677,969

$======9,=33=3=,6=6=0

The County Office will receive no sublease rental revenues nor pay any contingent rentals associated with these leases.

In conjunction with the County Office's participation in the San Diego County Educational Facilities Authority No the County Office entered into a lease agreement with the JPA for use of the premises. The lease was renewed in November 2003 to reflect the changes in the bond refinancing. The term of the lease ends on August 15, 2018. The JPA holds title to the property, and upon expiration of the lease, title to the property will remain with the JPA.

Future gross minimum lease payments under the agreement which are equal to the payments required to amortize the bonds are as follows:

Year Ending June 30, 2009 2010 2011 2012 2013 2014-2018 2019-2023 Total Minimum Lease Payments

$ 178,266 180,062 178,938 177,335 177,707 884,175 178,719

$=======1 ·=95=5='=,2=0=2

In conjunction with the County Office's participation in the San Diego County Educational Facilities Authority No.2 the County Office entered into a lease agreement with the JPA for use of the premises. The lease was entered into in August 2005. The term of the lease ends on February 1, 2035. The JPA holds title to the property, and upon expiration of the lease, title to the property will remain with the JPA.

29

SAN DIEGO COUNTY OFFICE OF EDUCATION NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2008

Future gross minimum lease payments under the agreement which are equal to the payments required to amortize the bonds are as follows:

Year Ending June 30, 2009 2010 2011 2012 2013 2014-2018 2019-2023 2024-2028 2029-2033 2034-2038 Total Minimum Lease Payments

J. Joint Ventures (Joint Powers Agreements)

$

$

649,214 645,214 646,244 647,244 644,744

3,238,944 3,230,348 3,224,356 3,226,537 1,295,281

17,448,126

The County Office participates in one joint powers agreements (JPA) entity, the San Diego County Schools Risk Management Joint Powers Authority. The relationship between the County Office and the JPA is such that the JPA is not a component unit of the County Office.

The JPA arranges for and provide for various types of insurances for its members as requested. The JPA is governed by a board consisting of a representative from each of its members. The boards control the operations of the JPA, including selection of management and approval of operating budgets, independent of any influence by the members beyond their representation on the board. Each member pays a premium commensurate with the level of coverage requested and shares surpluses and deficits proportionate to their participation in the JPA.

Combined condensed unaudited financial information of the County Office's share of the JPA's for the year ended June 30, 2008 is as follows:

Total Assets Total Liabilities Total Fund Balance

Total Cash Receipts Total Cash Disbursements Net Change in Fund Balance

$

San Diego County Schools Risk Management

JPA

3,946,190 2,129,342 1,816,848

2,306,766 1,823,401

483,365

The County Office entered into a Joint Powers Agreement (JPA) with the Grossmont Union High School District for the purpose of obtaining lease revenue bonds for the construction of a joint use facility. The JPA entity formed is called the San Diego County Educational Facilities Authority No. 1. The County Office has a 50% interest in the assets and liabilities of the JPA. On June 15, 1995 the JPA issued three series of lease revenue bonds in the amount of $4,620,000, with interest rates ranging from 5.375% to 6.50%.

In November 2003, the JPA issued new lease revenue bonds in the amount of $4,155,000 for the purpose of advance refunding $3,890,000 of the JPA's outstanding 1995 lease revenue bonds and to pay $125,000 principal of the 1995 lease revenue bonds that matured on August 15, 2004. The new bonds mature from August 15, 2004 to August 15, 2018 with interest rates ranging from 2% to 4.25%. The County Office's share of These bonds are recorded as long-term debt. (See Note G)

30

SAN DIEGO COUNTY OFFICE OF EDUCATION NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2008

In January 2004, the County Office entered into a Joint Exercise of Powers Agreement with the San Marcos Unified School District. This agreement created and established the San Diego County Educational Facilities Authority No. 2 for the purpose of constructing, owning and operating the North County Regional Education Center (NCREC) on behalf of the County Office and the San Marcos Unified School District.

In February 2005, the County Office issued $10,875,000 of Certificates of Participation (COP) to provide funds to finance a portion of the construction costs of the NCREC. These COP's are recorded as long-term debt of the County Office and mature in February 2035. (See Note G)

K. Employee Retirement Systems

Qualified employees are covered under multiple-employer defined benefit pension plans maintained by agencies of the State of California. Certificated employees are members of the State Teachers' Retirement System (STRS), and classified employees are members of the Public Employees' Retirement System (PERS).

PERS:

Plan Description

The County Office contributes to the School Employer Pool under the California Public Employees' Retirement System (CaiPERS), a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by CaiPERS. The plan provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. Benefit provisions are established by state statutes, as legislatively amended, within the Public Employees' Retirement Law. CaiPERS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the CaiPERS annual financial report may be obtained from the CaiPERS Executive Office, 400 P Street, Sacramento, California 95814.

Funding Policy

Active plan members are required to contribute 7% of their salary (7% of monthly salary over $133.33 if the member participates in Social Security), and the County Office is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by the CaiPERS Board of Administration. The required employer contribution rate for fiscal year 2007-08 was 9.32% of annual payroll. The contribution requirements of the plan members are established by state statute. The County Office's contributions to CaiPERS for the fiscal year ending June 30, 2008, 2007 and 2006 were $5,631 ,238, $5,562,805 and $4,191 ,099, respectively, and equal 100% of the required contributions for each year.

STRS:

Plan Description

The County Office contributes to the State Teachers' Retirement System (STRS), a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by STRS. The plan provides retirement, disability, and survivor benefits to beneficiaries. Benefit provisions are established by state statutes, as legislatively amended, within the State Teachers' Retirement Law. STRS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the STRS annual financial report may be obtained from the STRS, 7667 Folsom Boulevard, Sacramento, California 95826.

31

SAN DIEGO COUNTY OFFICE OF EDUCATION NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2008

Funding Policy

Active pian members are required to contribute 8% of their salary and the County Office is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by the STRS Teachers' Retirement Board. The required employer contribution rate for fiscal year 2007-08 was 8.25% of annual payroll. The contribution requirements of the plan members are established by state statute. The County Office's contributions to STRS for the fiscal year ending June 30, 2008, 2007 and 2006 were $3,276,433, $2,874,734 and $2,705,892, respectively, and equal 100% of the required contributions for each year. The amount contributed by the State on behalf of the County Office was $2,497,093.

L. Postemployment Benefits Other Than Pension Benefits

Plan Description: The San Diego County Office of Education {SDCOE) administers a single-employer healthcare plan (Plan). The plan currently provides medical benefits to age 65 to eligible active employees and eligible retirees. A retiree must be at least age 55 and have at least 10 years service at retirement to be eligible for retiree medical benefits. SDCOE's contribution is based on the cost for single (retiree only) coverage. Some employees also receive life insurance benefits paid by SDCOE.

For Certificated (Teachers Only) Employees, SDCOE provides retiree health benefits (including prescription drug, mental health, and chiropractic benefits), dental and vision benefits to eligible retirees and their dependents. SDCOE's financial obligation is to pay for retiree medical for the retiree only coverage through the earlier of age 65 or Medicare eligibility. SDCOE pays up to 100% of the cost for single medical coverage subject to an annual maximum. The retiree pays for the cost of covering eligible dependents. The retiree pays for the cost of dental and vision coverage. Dependent coverage (except COBRA continuation) ceases upon the death of the retiree or when the retiree reaches age 65 or Medicare eligibility, if earlier. SDCOE does not provide any retiree health benefits beyond age 65 or Medicare eligibility, if earlier. However, retirees or their eligible dependents may be eligible to elect AB528 or COBRA continuation coverage in some situations. Eligibility for retiree health coverage requires retirement under STRS/PERS on or after age 55 with at least 1 0 years of District service.

For Classified Employees, SDCOE provides retiree health benefits (including prescription drug, mental health, and chiropractic benefits), dental, vision and life (2x annual salary) benefits to eligible retirees and their dependents. SDCOE's financial obligation is to pay for basic life insurance coverage through age 65 and retiree medical for the retiree's coverage only through the the earlier of age 65 or Medicare eligibility. SDCOE pays up to 100% of the cost for single medical coverage subject to an annual maximum. The retiree pays for the cost of covering eligible dependents. The retiree pays for the cost of dental and v1s1on coverage. Dependent coverage (except COBRA continuation) ceases upon the death of the retiree or when the retiree reaches age 65 or Medicare eligibility, if earlier. SDCOE does !lot provide ally retiree health benefits beyond age 65 or Medicare eligibility, if earlier. However, retirees or their eligible dependents may be eligible to elect AB528 or COBRA continuation coverage in some situations. Eligibility for retiree health coverage requires retirement under STRS/PERS on or after age 55 with at least 10 years of District service. Full-time employees who have worked in this capacity for 30 years with the Office of Education are eligible on or after age 50.

For Management (Including Certificated & Classified Management) & Other Employees, SDCOE provides retiree health (including prescription drug, mental health, and chiropractic benefits), dental, vision and life (2x annual salary) benefits to eligible retirees and their dependents SDCOE's financial obligation is to pay for basic life insurance coverage through age 65 and retiree medical for the retiree's coverage only through the earlier of age 65 or Medicare eligibility. SDCOE pays up to 100% of the cost for single medical coverage subject to an annual maximum. The retiree pays for the cost of covering eligible dependents. The retiree pays for the cost of dental and vision coverage. Dependent coverage (except COBRA continuation) ceases upon the death of the retiree or when the retiree reaches age 65 or Medicare eligibility, if earlier. SDCOE does not provide any retiree health benefits beyond age 65 or Medicare eligibility, if earlier. However, retirees or their eligible dependents may be eligible to elect AB528 or COBRA continuation coverage in some situations. Eligibility for retiree health coverage requires retirement under STRS/PERS on or after age 55 with at least 1 0 years of District service.

32

SAN DIEGO COUNTY OFFICE OF EDUCATION NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2008

For Board Members, SDCOE provides retiree health benefits (including prescription drug, mental health, and chiropractic benefits), dental and v1s1on benefits to eligible retirees and their dependents. For Board Members who served in office after January 1, 1981 who were first elected or appointed prior to January 1, 1990 whose total years at time of termination is 12 years or more, SDCOE will pay 100% of the cost for medical, dental and vision coverage for the retiree and any eligible dependents for the retiree's lifetime. For Board Members who were first elected or appointed after January 1, 1990 whose total years of service at time of termination is 12 years or more, SDCOE provided benefits are similiar to other retired employees (benefits provided only between the ages of 55 and 65 or Medicare eligibility). For Board Members first elected or appointed on or after January 1 , 1995 or who have not completed 12 years of service, retiree health benefits are only available on a self-pay basis.

Funding Policy: Beginning in the 2007-08 fiscal year, SDCOE began to accrue the retiree health benefits in accordance with GASB Statement No. 45. The expense is generally accrued over the working career of employees. Under accrual accounting in accordance with GASB Statement No. 45, SDCOE's expense for the fiscal year ended June 30, 2008 is $1 ,332, 720.

Annual OPEB Cost and Net OPEB Obligation: SDCOE's annual other postemployment benefits (OPEB) cost (expense) is based on the annual required contribution of the employer (ARC). SDCOE's expense is comprised of the present value of benefits accruing in the current year (normal cost) plus a 30 year amortization (on a level-dollar basis) of the unfunded actuarial accrued liability (past service liability). The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal costs each year and to amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The foiiowing table shows the components of SDCOE's annual OPEB cost for the fiscal year ended June 30, 2008, the amount actually contributed to the plan, and charges in the District's net OPEB obligation to the plan:

Annual required contribution $1,332,720

Contributions made 468,331

Increase in net OPEB obligation 864,369

Net OPEB obligations-beginning of year

Net OPEB obligations-end of year $864,369

SDCOE's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the fiscal year ended June 30, 2008 is as follows:

Fiscal Year Ended

June 30,

2008

Percentage of Net Annual OPEB Annual OPEB OPEB

Costs Cost Contributed Obligation ------"'----

$1,332,720 35.14% $864,369

Funded Status and Funding Progress: As of June 30, 2008, the accrued liability for benefits was $1,332,720, of which $864,369 is unfunded. The covered payroll (annual payroll of active employees covered by the plan) was $81 ,540,200, and the ratio of unfunded accrued liability to the covered payroll was 1.6 percent.

The projection of future benefit payments for an ongoing plan involves estimates of the value of reported amounts and assumptions about the probability of occurance of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multi-year trend information about whether the actuarial value of the plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.

33

SAN DIEGO COUNTY OFFICE OF EDUCATION NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2008

The following assumptions were made:

Retirement eligibility age: The earliest retirement age assumed is age 55.

Participation rate: 95% of active employees are assumed to elect retiree health coverage at retirement. Of those electing coverage approximately 25% are assumed to elect coverage for their spouse. Spouses are assumed to be the same age as the retiree. Approximately 70% are assumed to elect Kaiser HMO Plan, 15% the Pacificare POS plan.

Claim cost development: The valuation was based on the medical premiums furnished by SDCOE. The average annual health costs for retiree coverage are based on the premium costs. The average annual costs (including both employer and employee portions) used in the valuation are provided in the following table:

Coverage

Medical: Pre 65 Coverage Medical: Post 65 Coverage Dental Coverage Vision Coverage

Annual Cost

$4,275 $3,125 $1,100

$155

Medical trend rates: The expected rate of increase in healthcare insurance premiums ranged from a rate of 1 0.0 percent initially, reduced to a rate of 5.0 percent after 10 years, was used.

Life Insurance Benefits: The liability associated with these benefits was deemed immaterial; the premium for coverage was included in the costs above.

Actuarial Cost Method: The actuarial cost method used was Projected Unit Credit with service prorate. Under this method, the Actuarial Accrued Liability is the present value of projected benefits multiplied by the ratio of benefit service as of the valuation date to the projected benefit service at retirement, termination, disability or death. The Normal Cost for a plan year is the expected increase in the Accrued Liability during the year. All employees eligible as of the measurement date in accordance with the provisions of the plan listed in the data provided by SDCOE were included in the valuation

Actuarial value of assets: Any assets of the plan will be valued on a market value basis.

M. Contractual Labor Commitments

The County Office currently negotiates labor contracts with two separate labor groups. The two groups, the employees covered, and the terms of each commitment are as follows:

California Teachers Association (CTA)-representative for teachers of the County Office. The contractual agreement with the CT A expired on June 30, 2005. On November 2, 2005 a tentative agreement was reached on a new agreement that, when approved, will expire June 30, 2008.

2 California School Employee Association (CSEA)-representative for the office-technical and business services employees of the County Office. The contractual agreement with CSEA expires on June 30, 2009.

34

SAN DIEGO COUNTY OFFICE OF EDUCATION NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2008

N. Commitments and Contingencies

Litigation

The County Office is involved in various litigation. In the op101on of management and legal counsel, the disposition of all litigation pending will not have a material effect on the financial statements.

State and Federal Allowances. Awards and Grants

The County Office has received state and federal funds for specific purposes that are subject to review and audit by the grantor agencies. Although such audits could generate expenditure disallowances under terms of the grants, it is believed that any required reimbursement will not be material.

35

This page is left blank intentionally.

Required Supplementary Information

Required supplementary information includes financial information and disclosures required by the Governmental Accounting Standards Board but not considered a part of the basic financial statements.

SAN DIEGO COUNTY OFFICE OF EDUCATION GENERAL FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2008

Budgeted Amounts Original Final

Revenues: Revenue Limit Sources:

State Apportionments $ 7,033,859 $ 917,370 Local Sources 55,454,545 61,538,726

Federal Revenue 84,891,133 87,429,668 Other State Revenue 304,676,563 300,360,149 Other Local Revenue 39,962,388 62,114,865

Total Revenues 492,018,488 512,360,778

Expenditures: Instruction 74,659,430 76,809,324 Instruction- Related Services 165,760,814 175,894,844 Pupil Services 3,839,423 3,893,327 Ancillary Services 45,000 51,079 Community Services 58,658 61,182 Enterprise 28,445 26,591 General Administration 28,625,448 35,001,043 Plant Services 9,709,539 9,817,371 Other Outgo 211 '778,432 214,546,427 Debt Service:

Principal 1,064,505 1,068,505 Interest 272,450 272,450 Total Expenditures 495,842,144 517,442,143

Excess (Deficiency) of Revenues Over (Under) Expenditures (3,823,656) (5,081 ,365)

Other Financing Sources (Uses): Transfers In 2,607,021 Transfers Out (1,177,785) (7,813,682)

Total Other Financing Sources (Uses) (1,177,785) (5,206,661)

Net Change in Fund Balance (5,001,441) (1 0,288,026)

Fund Balance, July 1 33,222,475 33,222,475 Fund Balance, June 30 $ 28,221,034 $ 22,934,449

36

EXHIBIT B-1

Variance with Final Budget

Positive Actual (Negative)

$ 917,372 $ 2 61,538,728 2 81,812,870 (5,616,798)

290,672,292 (9,687,857) 44,772,084 (17,342,781)

479,713,346 (32,647,432)

74,764,489 2,044,835 141,632,121 34,262,723

3,537,219 356,108 51,079

824 60,358 40,430 (13,839)

25,020,209 9,980,834 8,696,793 1,120,578

212,080,351 2,466,076

1,065,300 3,205 263,299 9,151

467,152,114 50,290,029

12,561,232 17,642,597

476,671 (2, 130,350) (7,805,903) 7,779 (7,329,232) (2, 122,571)

5,232,000 15,520,026

33,222,475 $ 38,454,475 $ 15,520,026

SAN DIEGO COUNTY OFFICE OF EDUCATION REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF FUNDING PROGRESS SAN DIEGO COUNTY OFFICE OF EDUCATION HEALTHCARE PLAN YEAR ENDED JUNE 30, 2008

Actuarial Acturial Accrued Unfunded Actuarial Value of Liability (AAL) AAL Valuation Assets -Entry Age (UAAL}

Date (a) (b) (b-a)

6/30/08 $ $ 1,332,720 $ 1,332,720

37

UAAL as a Funded Covered Percentage of Ratio Payroll Covered Payroll (a/b) (c) ((b-a}/c)

$ 81,540,200 1.6%

This page is left blank intentionally.

Combining Statements and Budget Comparisons as Supplementary Information

This supplementary information includes financial statements and schedules not required by the Governmental Accounting Standards Board, nor a part of the basic financial statements, but are presented for purposes of additional analysis.

EXHIBIT C-1

SAN DIEGO COUNTY OFFICE OF EDUCATiON COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS JUNE 30, 2008

Total Non major

Special Capital Governmental Revenue Projects Funds(See

Funds Funds Exhibit A-3) ASSETS: Cash in County Treasury $ 13,856,408 $ 4,398,239 $ 18,254,647 Cash with a Fiscal Agent/Trustee 707,875 707,875 Accounts Receivable 133,785 167,695 301,480 Due from Other Funds 3,184,093 1,264,575 4,448,668

Total Assets $ 17,174,286 $ 6,538,384 $ 23,712,670

LIABILITIES AND FUND BAlANCE: Liabilities:

Accounts Payable $ 157,881 $ 87,990 $ 245,871 Due to Other Funds 32,613 682,723 715,336 Deferred Revenue 114,563 114,563

Total Liabilities 305,057 770,713 1,075,770

Fund Balance: Unreserved, reported in nonmajor:

Special Revenue Funds 16,869,229 16,869,229 Capital Projects Funds 5,767,671 5,767,671

Total Fund Balance 16,869,229 5,767,671 22,636,900

Total Liabilities and Fund Balances $ 17,174,286 $ 6,538,384 $ 23,712,670

38

EXHIBIT C·2

SAN DIEGO COUNTY OFFICE OF EDUCATION COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2008

Total Nonmajor

Special Capital Governmental Revenue Projects Funds (See

Funds Funds Exhibit A-5) Revenues:

Federal Revenue $ 61,102 $ $ 61,102 Other State Revenue 1,559,342 1,559,342 Other Local Revenue 542,754 1,495,456 2,038,210

Total Revenues 2,163,198 1,495,456 3,658,654

Expenditures: Instruction- Related Services 404,148 404,148 General Administration 34,167 34,167 Plant Services 895,633 (258,211) 637,422 Other Outgo 86,591 86,591 Debt Service:

Principal 335,000 335,000 Interest 490,052 490,052 Total Expenditures 1,420,539 566,841 1,987,380

Excess (Deficiency) of Revenues Over (Under) Expenditures 742,659 928,615 1,671,274

Other Financing Sources (Uses): Transfers In 3,389,742 238,765 3,628,507 Transfers Out (26,520) (651,131) (677,651)

Total Other Financing Sources (Uses) 3,363,222 (412,366) 2,950,856

Net Change in Fund Balance 4,105,881 516,249 4,622,130

Fund Balance, July 1 12,763,348 5,251,422 18,014,770 Fund Balance, June 30 $ 16,869,229 $ 5,767,671 $ 22,636,900

39

SAN DIEGO COUNTY OFFICE OF EDUCATION COMBINING BALANCE SHEET NONMAJOR SPECIAL REVENUE FUNDS JUNE 30, 2008

ASSETS: Cash in County Treasury Accounts Receivable Due from Other Funds

Total Assets

liABiliTIES AND FUND BALANCE: Liabilities:

Accounts Payable Due to Other Funds Deferred Revenue

Total Liabilities

Fund Balance: Unreserved, reported in nonmajor:

Special Revenue Funds Total Fund Balance

Total Liabilities and Fund Balances

$

$

$

$

40

Child Deferred Development Maintenance

Fund Fund

163,693 $ 12,338,123 17,895 106,908 11,247 1,202,768

192,835 $ 13,647,799

72,179 $ 85,702 6,093

114,563 192,835 85,702

13,562,097 13,562,097

192,835 $ 13,647,799

Forest Post Employment Reserve Benefits

Fund Fund

$ 3i7 $ 1,354,275 165 8,817

1,970,078 $ 482 $ 3,333,170

$ $ 26,520

26,520

482 3,306,650 482 3,306,650

$====4=8=2 $====3,=33=3=,1=7=0

41

$

$

$

EXHIBIT C·3

Total Nnnrn!linr I '11''-'1 IIII"""J"'

Special Revenue

Funds(See Exhibit C-1 )

13,856,408 133,785

3,184,093 17,174,286

157,881 32,613

114,563 305,057

16,869,229 16,869,229

$=====1==='7,=17=4=,2=86=

SAN DIEGO COUNTY OFFICE OF EDUCATION COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR SPECIAL REVENUE FUNDS FOR THE YEAR ENDED JUNE 30, 2008

Child Deferred Development Maintenance

Fund Fund Revenues:

Federal Revenue $ $ Other State Revenue 463,741 1,095,601 Other Local Revenue 8,185 493,041

Total Revenues 471,926 1,588,642

Expenditures: Instruction - Related Services 404,148 General Administration 34,167 Plant Services 10,649 884,984 Other Outgo 25,160

Total Expenditures 474,124 884,984

Excess (Deficiency) of Revenues Over (Under) Expenditures (2,198) 703,658

Other Financing Sources (Uses): Transfers In 2,198 1,417,466 Transfers Out

Total Other Financing Sources (Uses) 2,198 1,417,466

Net Change in Fund Balance 2,121 '124

Fund Balance, July 1 11,440,973 Fund Balance, June 30 $ $ 13,562,097

42

EXHIBITC-4

Total 1\.lnnrn~int" 1'\I,IIIIIQjVI

Special Forest Post Employment Revenue

Reserve Benefits Funds(See Fund Fund Exhibit C-2)

$ 61,102 $ $ 61,102 1,559,342

490 41,038 542,754 61,592 41,038 2, 163,198

404,148 34,167

895,633 61,431 86,591 61,431 1,420,539

161 41,038 742,659

1,970,078 3,389,742 (26,520) (26,520)

1,943,558 3,363,222

161 1,984,596 4,105,881

321 1,322,054 12,763,348 $ 482 $ 3,306,650 $ 16,869,229

43

EXHIBIT C-5

SAN DIEGO COUNTY OFFICE OF EDUCATION COMBINING BALANCE SHEET NONMAJOR CAPITAL PROJECTS FUNDS JUNE 30, 2008

Total Ncnmajor

Capital Capital County School Projects

Building Facilities Facilities Funds(See Fund Fund Fund Exhibit C-1)

ASSETS: Cash in County Treasury $ 572,609 $ 3,796,621 $ 29,009 $ 4,398,239 Cash with a Fiscal Agent/Trustee 707,875 707,875 Accounts Receivable 110,366 57,079 250 167,695 Due from Other Funds 1,264,575 1,264,575

Total Assets $ 2,655,425 $ 3,853,700 $ 29,259 $ 6,538,384

liABiliTIES AND FUND BALANCE: Liabilities:

Accounts Payable $ $ 87,990 $ $ 87,990 Due to Other Funds 682,723 682,723

Total Liabilities 770,713 770,713

Fund Balance: Unreserved, reported in nonmajor:

Capital Projects Funds 2,655,425 3,082,987 29,259 5,767,671 Total Fund Balance 2,655,425 3,082,987 29,259 5,767,671

Total Liabilities and Fund Balances $ 2,655,425 $ 3,853,700 $ 29,259 $ 6,538,384

44

EXHIBITC-6

SAN DIEGO COUNTY OFFICE OF EDUCATION COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR CAPITAL PROJECTS FUNDS FOR THE YEAR ENDED JUNE 30, 2008 Total

1\.ln.n""' !'!II inr I'IVIIIIIUJVI

Capital Capital County School Projects

Building Facilities Facilities Funds(See Fund Fund Fund Exhibit C-2)

Revenues: Other Local Revenue $ 243,315 $ 1,250,837 $ 1,304 $ 1,495,456

Total Revenues 243,315 1,250,837 1,304 1,495,456

Expenditures: Plant Services (386,971) 128,760 (258,211) Debt Service:

Principal 335,000 335,000 Interest 490,052 490,052 Total Expenditures 438,081 128,760 566,841

Excess (Deficiency) of Revenues Over (Under) Expenditures (194,766) 1,122,077 1,304 928,615

Other Financing Sources (Uses): Transfers In 238,765 238,765 Transfers Out (651,131) (651,131)

Total Other Financing Sources (Uses) 238,765 (651,131) (412,366)

Net Change in Fund Balance 43,999 470,946 1,304 516,249

Fund Balance, July 1 2,611,426 2,612,041 27,955 5,251,422 Fund Balance, June 30 $ 2,655,425 $ 3,082,987 $ 29,259 $ 5,767,671

45

EXHIBIT C-7

SAN DIEGO COUNTY OFFICE OF EDUCATION COMBINING STATEMENT OF FIDUCIARY NET ASSETS PRIVATE-PURPOSE TRUST FUNDS JUNE 30, 2008

Total Private= Purpose

Employee Benefits Workers' Property & Liability Trust Self-Insurance Compensation Self-Insurance Funds(See

Trust Fund Trust Fund Trust Fund Exhibit A-7) ASSETS: Cash in County Treasury $ 18,457,548 $ 75,018,631 $ 21,533,788 $ 115,009,967 Cash on Hand and in Banks 332,800 150,000 150,000 632,800 Accounts Receivable 2,091,162 888,607 445,710 3,425,479 Prepaid Expense 300,000 300,000

Total Assets $ 20,881,510 $ 76,357,238 $ 22,129,498 $ 119,368,246

LIABILITiES: Accounts Payable $ 770,849 $ 1,018,373 $ 49,136 $ 1,838,358 Incurred and Reported Claims 14,867,817 5,149,723 20,017,540 Incurred But Not Reported Claims 5,522,761 26,087,124 2,499,573 34,109,458 Liability for Underground Storage Tanks 80,000 80,000 Deferred Revenue 5,222,742 5,222,742

Total Liabilities 11,516,352 41,973,314 7,778,432 61,268,098

NET ASSETS: Held in Trust 9,365,158 34,383,924 14,351,066 58,100,148

Total Net Assets $ 9,365,158 $ 34,383,924 $ 14,351,066 $ 58,100,148

46

EXHIBIT C-8

SAN DIEGO COUNTY OFFICE OF EDUCATION COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS ALL PRIVATE-PURPOSE TRUST FUNDS FOR THE YEAR ENDED JUNE 30, 2008

Total Private-Purpose

Employee Benefits Workers' Property & Liability Trust Self-Insurance Compensation Self-Insurance Funds(See

Trust Fund Trust Fund Trust Fund Exhibit A-8) Additions: Investment Income $ 1,020,690 $ 3,126,702 $ 1,090,997 $ 5,238,389 Participant Fees 85,818,439 36,225,979 13,534,491 135,578,909 Transfers In 1,414,997 112,346 31,176 1,558,519 Commissions and Refunds 1,065,208 1,065,208

Total Additions 89,319,334 39,465,027 14,656,664 143,441 ,025

Deductions: Claims Paid, net of Recoveries 54,336,999 19,695,137 5,409,721 79,441,857 Insurance Premiums 29,741,215 12,880,288 6,012,072 48,633,575 Transfers Out 1,245,763 1,531,134 180,845 2,957,742 Administrative Expenses 3,938,595 654,820 1,267,005 5,860,420 Other Expenses 404,607 3,853,939 606,491 4,865,037

Total Deductions 89,667,179 38,615,318 13,476,134 141,758,631

Change in Net Assets (347,845) 849,709 1,180,530 1,682,394

Net Assets-Beginning of the Year 9,713,003 33,534,215 13,170,536 56,417,754 Net Assets-End of the Year $ 9,365,158 $ 34,383,924 $ 14,351,066 $ 58,100,148

47

Other Supplementary Information

This section includes financial information and disclosures not required by the Governmental Accounting Standards Board and not considered a part of the basic financial statements. It may, however, include information which is required by other entities.

Supplementary Information Section

SAN DIEGO COUNTY OffiCE OF EDUCATION LOCAL EDUCATION AGENCY

. ORGANIZATION STRUCTURE JUNE 30, 2008

The San Diego County Board of Education has operated under the laws of the State of California continuously since the 1800's. The Board of Education became fiscally independent of the San Diego County Board of Supervisors on July 1, 1970. There were no changes in the boundaries of the Board of Education during the fiscal year. The Board of Education currently maintains and operates juvenile court and community schools, classes for preschool handicapped children and outdoor education facilities.

Name

Robert J. Watkins

Sharon Jones

Nick Aguilar

Susan Hartley

John Witt

Governing Board

Office

President

Vice President

Member

Member

Member

Administration

Randolph E. Ward Superintendent

Lora Duzyk Assistant Superintendent

Business Services Division

Pamela Gilles Senior Director

Internal Business Services

48

Term and Term Expiration

Four year term Expires January 2009

Four year term Expires January 201 i

Four year term Expires January 2009

Four year term Expires January 2011

Four year term Expires January 2009

SAN DIEGO COUNTY OFFICE OF EDUCATION SCHEDULE OF AVERAGE DAILY ATTENDANCE YEAR ENDED JUNE 30, 2008

Elementary: Juvenile Halls, Homes and Camps County Group Home and Instruction Pupils Community Schools Community Day Schools

Elementary totals

High School: Juvenile Halls, Homes and Camps County Group Home and Instruction Pupils Community Schools Regional Occupational Centers and Programs Community Day Schools

High School totals

ADA totals

Summer School

Elementary High School

TABlE D-1

Second Period Report Annual Report

126.30 133.72 1.64 1.60

218.80 227.59 103.99 92.03 450.73 454.94

1,407.29 1,399.11 46.01 43.84

1,217.17 1,226.17 11,014.35 11,319.08

305.42 307.23 13,990.24 14,295.43

14,440.97 14,750.37

Hours of Attendance

5,574 16,674

Average daily attendance is a measurement of the number of pupils attending classes of the county office. The purpose of attendance accounting from a fiscal standpoint is to provide the basis on which apportionments of state funds are made to county office. This schedule provides information regarding the attendance of students at various grade levels and in different programs.

49

SAN DIEGO COUNTY OFFICE OF EDUCATION SCHEDULE OF INSTRUCTIONAL TIME YEAR ENDED JUNE 30, 2008

1986-87 1982-83 Minutes

Grade Level Actual Minutes Requirement

Kindergarten 63,000 36,000

Grade 1 63,000 50,400

Grade 2 63,000 50,400

Grade 3 63,000 50,400

Grade 4 63,000 54,000

Grade 5 63,000 54,000

Grade 6 63,000 54,000

Grade 7 63,000 54,000

Grade 8 63,000 54,000

Grade 9 63,000 64,800

Grade 10 63,000 64,800

Grade 11 63,000 64,800

Grade 12 63,000 64,800

2007-08 Actual Minutes

86,760

86,760

86,760

86,760

86,760

86,760

86,760

86,760

86,760

86,760

86,760

86,760

86,760

County office's, must maintain their instructional minutes at either the

TABLE D-2

Number Number of Days of Days

Traditional Multitrack Calendar Calendar Status

241 Complied

241 Complied

241 Complied

241 Complied

241 Complied

241 Complied

241 Complied

241 Complied

241 Complied

241 Complied

241 Complied

241 Complied

241 Complied

1982-83 actual minutes or the 1986-87 requirements, whichever is greater, as required by Education Code Section 46201. This schedule is required of all county offices.

The county office has received incentive funding for increasing instructional time as provided by the Incentives for Longer Instructional Day. This schedule presents information on the amount of instruction time offered by the county office and whether the county office complied with the provisions of Education Code Sections 46200 through 46206.

50

SAN DIEGO COUNTY OFFICE OF EDUCATION SCHEDULE OF FINANCIAL TRENDS AND ANALYSIS YEAR ENDED JUNE 30, 2008

(Budget) General Fund 2009

Revenues and other financial sources $ 471,699,146

Expenditures, other uses and transfers out 475,692,276

Change in fund balance (deficit) (3,993, 130)

Ending fund balance $ 34,461,343

Available reserves $ 34,223,003

Available reserves as a percentage of total outgo 7.2%

Total long-term debt $ 19,600,837

Average daily attendance at P-2 13,438

$

$

$

$

TABLE D-3

2008 2007 2006

480,190,016 $ 467,273,953 $ 411,988,701

474,958,018 458,432,388 409,903,039

5,231,998 8,841,565 2,085,662

38,454,473 $ 33,222,475 $ 24,380,910

33,559,787 $ 28,690,721 $ 8,023,018

7.1% 6.3% 2.0%

21,191,838 $ 23,001,588 $ 18,058,054

14,441 14,626 14,659

This schedule discloses the county office's financial trends by displaying past years' data along with current year budget information. These financial trend disclosures are used to evaluate the county office's ability to continue as a going concern tor a reasonable period of time.

The county school service fund has increased by $15,159,225 over the past three years. The fiscal year 2008-09 budget projects a decrease of $3,993,130. For a county office this size, the state recommends available reserves of at least 2% of expenditures, other uses, and transfers out. The county office's available reserves are exclusive of restricted fund balances relating to categorical programs.

Long-term debt has increased by $6,753,217 over the past three years.

Average daily attendance {ADA) has increased by 543 over the past three years.

51

SAN DIEGO COUNTY OFFICE OF EDUCATION RECONCILIATION OF ANNUAL FINANCIAL AND BUDGET REPORT WITH AUDITED FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2008

June 30, 2008, annual financial and budget report total liabilities

Adjustments and reclassifications:

Increase (decrease) in total liabilities:

Net OPEB obligation understatement

June 30, 2008, audited financial statement total liabilities

$

Schedule of Long-Term Debt

20,199,207

864,369

$===2=1 ·~06=3~,5=7=6

TABLE D-4

This schedule provides the information necessary to reconcile the fund balances of all funds and the total liabilities balance of the general long-term debt account group as reported on the SACS report to the audited financial statements. Funds that required no adjustment are not presented.

52

SAN DIEGO COUNTY OFFICE OF EDUCATION SCHEDULE OF CHARTER SCHOOLS YEAR ENDED JUNE 30, 2008

The San Diego County Office of Education charters one charter school.

Charter Schools

Literacy First Charter School

53

Included In Audit?

No

SAN DIEGO COUNTY OFFICE OF EDUCATION SCHEDULE OF EXCESS SICK LEAVE YEAR ENDED JUNE 30, 2008

TABLE D-6

The following disclosure is made for excess sick leave as that term is defined in subdivision (c) of Education Code Section 22170.5:

Is Excess Was Excess Is Excess Sick Leave Sick Leave Sick Leave

Titles of Authorized By Found To Be Authorized In Employees Exhibiting Employee's Accrued For Contract Authorizing Teachers'

Excess Sick Leave Contract? Employee? Excess Sick Leave Contract?

Superintendent Yes Yes Employment Contract Yes

Assistant Superintendent Yes Yes Employment Contract Yes

54

SAN DIEGO COUNTY OFFICE OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2008

Federal Grantor/ Pass-Through Grantor/ Program Title

U S OEPABIME~I QE II::IE ll'liEBIQB Direct Program:

US Wildlife Reserve Funds Total U. S. Department of the Interior

U S OEEABIME~I QE I::IEALII::I Al'lO I::IUMAI'l SEBlliCES Direct Program:

Medi-Cal* Total U. S. Department of Health and Human Services

U S OEEARTME~I QE EOUCATIQf\1 Passed Through State Department of Education:

Title I

Migrant Education

Special Education •

Vocational Education

Advanced Placement

Preschool'

Early Intervention

Safe Schools

Character Education

Title IV-Drug Free

Title X-Homeless Assistance Grants

Teaching American History

AVID

21st Century Learning

TitleV

nle II-Technology

Carol white PE Grant

AlE-Picture This

Reading First

nle 111-LEP

CAMSP

Title II-Teacher Quality Total Passed Through State Department of Education Total U.S. Department of Education

U S OEEARTMEI'li QE AGBICUL.IUBE Direct Program:

Forest Reserve • Passed Through State Department of Education:

National School Lunch Program • Total U. S. Department of Agriculture

EEOEBAL. EMEBGEI'lCY MAI'lAGEMEI'li AGEI'lGY Direct Program:

FEMA Total Federal Emergency Management Agency TOTAL EXPENDITURES OF FEDERAL AWARDS

Federal CFDA

Number

15.611

93.778

84.010

84.011

84.027

84.048

84.1168

84.173

84.181

84.184

84.184E

84.186

84.196

84.215

84.276

84.287

84.298

84.318

84.349A

84.351

84.357

84.365

84.366

84.367

10.665

10.555

83.544

• Indicates clustered program under OMB Circular A-133 Compliance Supplement

The accompanying notes are an integral part of this schedule.

TABLE D-7

Pass-Through Entity Identifying Federal

Number Expenditures

$ 11,858 11,858

141,457 141,457

03064 4,473,534

03628 6,984,141

03379 57,750,792

03923 766,672

812,267

03430 2,082,831

03379 280,961

03453 2,995,575

03453 708,602

03453 68,077

04652 181

580,203

03835 13,899

04124 1,638,085

13,166

04046 87,304

488,547

275,308

03030 779,058

04363 42,100

$ 397,159

04035 $ 171,572 81,410,034 81,410,034

61,102

03396 155,192 216,294

94,329 94,329

$ 81,873,972

55

SAN DIEGO COUNTY OFFICE OF EDUCATION NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2008

Basis of Presentation

The accompanying schedule of expenditures of federal awards includes the federal grant activity of San Diego County Office of Education and is presented on the modified accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the general purpose financial statements.

56

Other Independent Auditor•s Reports

This page is left blank intentionally.

Wilkinson Hadley King & Co. LLP CPA's and Advisors 250 E. Douglas Ave El Cajon, CA 92020

Tel619-447-6700 Fax 619-447-6707

Report on Internal Control oyer Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed jn Accordance with Government Auditing Standards

Board of Trustees San Diego County Office of Education San Diego, California 921 i 1

Members of the Board of Trustees:

We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of San Diego County Office of Education as of and for the year ended June 30, 2008, which collectively comprise the San Diego County Office of Education's basic financial statements and have issued our report thereon dated December 12, 2008. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.

Internal Control Oyer Financial Reporting In planning and performing our audit, we considered San Diego County Office of Education's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements but not for the purpose of expressing an opinion on the effectiveness of the San Diego County Office of Education's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the San Diego County Office of Education's internal control over financial reporting. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the San Diego County Office of Education's ability to initiate, authorize, record, process or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the San Diego County Office of Education's financial statements that is more than inconsequential will not be prevented by the San Diego County Office of Education's internal control.

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the San Diego County Office of Education's internal control.

Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we considered to be material weaknesses, as defined above.

57

Compljance and Other Maners As part of obtaining reasonable assurance about whether Sao Diego County Office of Education's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

This report is intended solely for the information and use of management, others within the entity, the Board of Trustees, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.

1AJ~ ~ ~ &tv. 1 L1J' El Cajon, California December 12, 2008

58

Wilkinson Hadley King & Co. LLP CPA's and Advisors 250 E. Douglas Ave El Cajon, CA 92020

Tel619-447-6700 Fax 619-447-6707

Report on Compljance wjth Requirements Agplicab!e To each Major Program and on Internal Control oyer Compliance In Accordance Wjth OMB Circular A-133

Board of Trustees San Diego County Office of Education San Diego, California 92111

Members of the Board of Trustees:

Compliance We have audited the compliance of San Diego County Office of Education with the types of compliance requirements described in the U. S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the year ended June 30, 2008. San Diego County Office of Education's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal programs is the responsibility of San Diego County Office of Education's management. Our responsibility is to express an opinion on San Diego County Office of Education's compliance based on our audit.

We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits oi States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about San Diego County Office of Education's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of San Diego County Office of Education's compliance with those requirements.

In our opinion, San Diego County Office of Education complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs for the year ended June 30, 2008.

Internal Control Oyer Compliance The management of San Diego County Office of Education is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered San Diego County Office of Education's internal control over compliance with the requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of San Diego County Office of Education's internal control over compliance.

59

A control deficiency in an entity's internal control over compliance exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect noncompliance with a type of compliance requirement of a federal program on a timely basis. A significant deficiency is a coniroi deficiency, or combination of control deficiencies, that adversely affects the entity's ability to administer a federal program such that there is more than a remote likelihood that noncompliance with a type of compliance requirement of a federal program that is more than inconsequential will not be prevented or detected by the entity's internal control.

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected by the entity's internal control.

Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we considered to be material weaknesses.

This report is intended solely for the information and use of management, others within the entity, the Board of Trustees, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.

El Cajon, California December 12, 2008

60

Wilkinson Hadley King & Co. LLP CPA's and Advisors 250 E. Douglas Ave El Cajon, CA 92020

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Audjtor's Report on State Compliance

Board of Trustees San Diego County Office of Education San Diego, California 92111

Members of the Board of Trustees:

We have audited the basic financial statements of the San Diego County Office of Education ("District") as of and for the year ended June 30, 2008, and have issued our report thereon dated December 12, 2008. Our audit was made in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the State's audit guide, Standards and Procedures for Audits of California K-12 Local Education Agencies 2007-08, published by the Education Audit Appeals Panel. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

The District's management is responsible for the District's compliance with laws and regulations. In connection with the audit referred to above, we selected and tested transactions and records to determine the District's compliance with the state laws and regulations applicable to the following items:

Description

Attendance Accounting: Attendance Reporting Kindergarten Continuance Independent Study Continuation Education Adult Education Regional Occupational Centers and Programs

Instructional Time: School Districts County Offices of Education

Community Day Schools Morgan-Hart Class Size Reduction Program Instructional Materials:

General Requirements Grades K-8 Only Grades 9-12 Only

Ratios of Administrative Employees to Teachers Classroom Teacher Salaries Early Retirement Incentive Program GANN Limit Calculation

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Procedures In Audit Guide

8 3 23 10 9 6

6 3 9 7

12 1 1 1 1 4 1

Procedures Performed

Yes Yes Yes

Not Applicable Not Applicable

Yes

Not Applicable Yes Yes

Not Applicable

Yes Yes Yes

Not Applicable Not Applicable Not Applicable

Yes

School Construction Funds: School District Bonds State School Facilities Funds

Excess Sick Leave Notice of Right to Elect California State T eacheis

Retirement System (CaiSTRS) Membership Proposition 20 Lottery Funds (Cardenas Textbook Act of 2000) State Lottery Funds (California State Lottery Act of 1984) California School Age Families Education (Cal-SAFE) Program School Accountability Report Card Mathematics and Reading Professional Development Class Size Reduction Program (Including In Charter Schools):

General Requirements Option One Classes Option Two Classes Only One School Serving Grades K-3

After School Education and Safety Program: General Requirements After School Before School

Contemporaneous Records of Attendance, For Charter Schools Mode of Instruction, for Charter Schools Nonclassroom-Based Instruction/Independent Study, For Charter Schools Determination of Funding for Nonclassroom-Based

Instruction, For Charter Schools Annual Instructional Minutes - Classroom Based, For Charter Schools

3 Yes 1 Yes 3 Yes

1 Yes 2 Yes 2 Yes 3 Not Applicable 3 Yes 4 Not Applicable

7 Yes 3 Yes 4 Not Applicable 4 Not Applicable

4 Yes 4 Yes 5 Yes 1 Not Applicable 1 Not Applicable

15 Not Applicable

3 Not Applicable 3 Not Applicable

The term "Not Applicable" is used above to mean either that the District did not offer the program during the current fiscal year or that the program applies only to a different type of local education agency.

Based on our audit, we found that, for the items tested, San Diego County Office of Education complied with the state laws and regulations referred to above, except as described in the Findings and Recommendations section of this report. Further, based on our examination, for items not tested, nothing came to our attention to indicate that the San Diego County Office of Education had not complied with the state laws and regulations.

This report is intended solely for the information and use of the Board of Trustees, management, State Controller's Office, Department of Finance, Department of Education, and pass-through entities, and is not intended to be and should not be used by anyone other than these specified parties.

El Cajon, California December 12, 2008

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Findings and Recommendations Section

This page is left blank intentionally.

SAN DIEGO COUNTY OFFICE OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2008

A. Summary of Auditor's Results

1. Financial Statements

Type of auditor's report issued:

Internal control over financial reporting:

One or more material weaknesses identified?

One or more significant deficiencies identified that are are not considered to be material weaknesses?

Noncompliance material to financial statements noted?

2. Federal Awards

Internal control over major programs:

One or more material weaknesses identified?

One or more significant deficiencies identified that are not considered to be material weaknesses?

Type of auditor's report issued on compliance for major programs:

Any audit findings disclosed that are required to be reported in accordance with section 510(a) of Circular A-133?

Identification of major programs:

Unqualified

Yes

Yes

Yes

Yes

Yes

Unqualified

Yes

CFDA Number(s) Name of Federal Program or Cluster

84.027 Special Education

Dollar threshold used to distinguish between type A and type B programs:

Auditee qualified as low-risk auditee?

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$300,000

X Yes

X No

X None Reported

X No

X No

X None Reported

X No

No

SAN DIEGO COUNTY OFFICE OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2008

3. State Awards

Internal control over state programs:

One or more material weaknesses identified?

One or more significant deficiencies identified that are are not considered to be material weaknesses?

Type of auditor's report issued on compliance for state programs:

B. Financial Statement Findings

Finding Identification

None

C. Federal Award Findings and Questioned Costs

None

D. State Award Findings and Questioned Costs

Finding 2008-1 (40000) Regional Occupational Program

Criteria or Specific Requirement

Yes X No

Yes X None Reported

Unqualified

Determine that the average daily attendance for the Regional Occupational Program reported to the California Department of Education is properly accounted for and in agreement with the supporting documentation maintained by the District.

Condition In our review of the Regional Occupational Program we noted that the Annual attendance report included the attendance for the period July 1, 2007 through July 1, 2008. The attendance was not properly cut off at June 30, 2008. As a result, the average daily attendance was overstated by 13.12.

Questioned Costs Average daily attendance overstated by 13. i 2 at the Annual reporting period. No loss in revenue to the County Office as they are in excess of their funding cap for the year.

Recommendation We recommend that the County Office file an amended Annual attendance report that includes the attendance for the period July 1, 2007 through June 30, 2008 and report the correct average daily attendance. We also recommend that the County implement procedures to ensure that the attendance is properly cut off at the end of the year.

LEA's Response The error in attendance reporting occurred as a result of a software upgrade to the AIM-SRM student information system that took place at the end of June 2008. In the course of the upgrade, the default fiscal year end date changed from 6-30 to 7-1. In running the ADA report, staff failed to notice the date change as it had always defaulted correctly in prior reports.

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SAN DIEGO COUNTY OFFICE OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2008

The San Diego County Regional Occupational Program was funded up to a cap of about 10,188 ADA for 2007-2008. Actual ADA for 2007-2008 was 11,305.96 exceeding the funded cap by roughly 1 , 118 ADA. The 13.12 ADA in question resulting from the software error had no fiscal consequence due to the excess ADA generated by the program. The County Office has revised its 2007-08 Annual Attendance report to reflect the actual ADA through June 30, 2008 and the revised report was submitted to the California Department on October 30, 2008.

To correct the error and insure this does not happen again, the software vendor has been notified of the problem and the default fiscal year end date has been corrected to 6-30. Staff has also been directed to check the dates for accuracy prior to running reports.

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SAN DIEGO COUNTY OFFICE OF EDUCATION SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30, 2008

Finding/Recommendation

There were no findings reported in the June 30, 2007 audit report.

Current Status

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Management's Explanation If Not Implemented

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APPENDIX C

DEFINITIONS AND SUMMARY OF PRINCIPAL LEGAL DOCUMENTS

The following are definitions of certain terms and summaries of certain provisions contained in the Trust Agreement, the Lease Agreement, the Property Lease, the Assignment Agreement, the Agency Agreement and other agreements that are not summarized elsewhere in this Official Statement with respect to the 2009 Certificates. While the terms and definitions used in this Summary reflect the terms and definitions used in the Trust Agreement and the Lease Agreement and may differ from those terms and definitions used elsewhere in this Official Statement, they nonetheless reference the same material. For a summary description of the 2009 Certificates, see “DESCRIPTION OF THE 2009 CERTIFICATES.” These summaries do not purport to be comprehensive, and reference should be made to said documents, copies of which may be obtained from the Trustee, for the complete text thereof.

Definitions

“Additional Certificates” means Certificates of Participation executed and delivered from time to time in accordance with the provisions of the Trust Agreement pursuant to a Supplemental Trust Agreement entered into by the Board of Education, the Corporation and the Trustee pursuant to the terms and provisions of the Trust Agreement.

“Additional Rental” means the amounts specified as such in the Lease Agreement.

“Administrative Expense Fund” means the Administrative Expense Fund established pursuant to the Trust Agreement.

“Assignment Agreement” means the Assignment Agreement dated as of November 1, 2009 between the Corporation and the Trustee.

“Authorized Denominations” means, with respect to the Certificates, $5,000 principal amount and integral multiples thereof.

“Base Rental” means the amounts specified as such in the Lease Agreement.

“Base Rental Account” means the Base Rental Account established within the Certificate Fund pursuant to the Trust Agreement.

“Board of Education” means the San Diego County Board of Education, California, a county board of education of the State of California.

“Board of Education Representative” means any representative designated by the Board of Education and authorized to act on behalf of the Board of Education under or with respect to the Trust Agreement and all other agreements related thereto.

“Business Day” means a day which is not a Saturday or Sunday or a day on which banking institutions are authorized or required by law to be closed for commercial banking purposes in the State of California and the State of New York.

“Certificate Fund” means the Certificate Fund established pursuant to the Trust Agreement.

“Certificate Register” means the books referred to in the Trust Agreement.

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“Certificates” means collectively the Certificates and any Additional Certificates executed and delivered by the Trustee pursuant to the Trust Agreement.

“Closing Date” means the date on which the Lease Agreement or a memorandum thereof is recorded in the official records of the County Recorder of the County of San Diego.

“Code” means the Internal Revenue Code of 1986, as amended.

“Continuing Disclosure Agreement” means the Continuing Disclosure Agreement dated as of the Date of Delivery, by and between the Board of Education and Union Bank, N.A., as Dissemination Agent, with respect to the Certificates.

“Corporation” means the SDCOE Corporation, a non-profit public benefit corporation duly organized under the laws of the State of California.

“Costs of Issuance” means all the costs of issuing the Certificates, including, but not limited to, all printing and document preparation expenses in connection with the Trust Agreement, the Lease Agreement, the Property Lease, the Assignment Agreement, the Certificates and the official statement pertaining to the Certificates; rating agency fees; CUSIP Service Bureau charges; market study fees; legal fees and expenses of counsel with respect to the financing of the Leased Premises; any computer and other expenses incurred in connection with the Certificates; the initial fees and expenses of the Trustee and any paying agent (including without limitation, origination fees and first annual fees payable in advance); and any other fees and expenses incurred in connection with the issuance of the Certificates or the implementation of the financing for the Leased Premises, to the extent such fees and expenses are approved by the Board of Education.

“Costs of Issuance Account” means the Costs of Issuance Account established within the Project Fund pursuant to the Trust Agreement.

“Credit Facility” means a letter of credit, line of credit, surety bond, insurance policy or other similar credit enhancement.

“Date of Delivery” means November 10, 2009.

“Event of Default” means an event described as such in the Trust Agreement.

“Facility” means the improvements and equipment installed on the Property, more particularly described on Exhibit D to the Trust Agreement, commonly known as the Camp Cuyamaca Outdoor School.

“Fiscal Year” means the fiscal year of the Board of Education, which at the date of the Lease Agreement is the period from July 1 to and including the following June 30.

“Fitch” means Fitch, Inc., a New York corporation, and its successors and assigns.

“Independent Counsel” means an attorney or firm of attorneys of recognized national standing in the field of municipal finance selected by the Board of Education.

“Interest Account” means the Interest Account established within the Certificate Fund pursuant to the Trust Agreement.

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“Interest Payment Date” means February 1 and August 1 in each year, commencing February 1, 2010, the dates upon which interest with respect to the Certificates becomes due until the maturity or earlier prepayment date of the Certificates.

“Lease Agreement” means the Lease Agreement dated as of November 1, 2009, between the Corporation and the Board of Education pursuant to which the Board of Education leases the Leased Premises from the Corporation.

“Leased Premises” means the real property described in Exhibit A to the Lease Agreement, and all buildings, improvements and fixtures situated thereon.

“Moody’s” means Moody’s Investors Service, Inc., a Delaware corporation, and its successors and assigns.

“Municipal Obligations” means the obligations of a state, a territory or a possession of the United States, or any political subdivision of the foregoing, or of the District of Columbia, within the meaning of Section 103(a)(1) of the Code, which are rated “AA/Aa” or better, by S&P and Moody’s.

“Net Proceeds” means any insurance proceeds in excess or $50,000, paid with respect to the Leased Premises or any portion thereof, remaining after payment therefrom of all reasonable expenses incurred in the collection thereof.

“Nonarbitrage Certificate” means the Tax and Nonarbitrage Certificate executed by the Board of Education on the date of execution and delivery of the Certificates.

“Outstanding” when used as of any particular time with respect to Certificates, means all Certificates theretofore executed and delivered by the Trustee under the Trust Agreement except:

(a) Certificates theretofore canceled by the Trustee or surrendered to the Trustee for cancellation;

(b) Certificates for the payment or prepayment of which funds or eligible securities in the necessary amount shall have theretofore been deposited with the Trustee in accordance with the Trust Agreement (whether on or prior to the maturity or prepayment date of such Certificates), provided that, if such Certificates are to be prepaid prior to maturity, notice of such prepayment shall have been given as provided in the Trust Agreement or provision satisfactory to the Trustee shall have been made for the giving of such notice; and

(c) Certificates in lieu of or in exchange for which other Certificates shall have been executed and delivered by the Trustee pursuant to the Trust Agreement.

“Owner” means the registered owner, as indicated in the Certificate Register, of any Certificate.

“Permitted Encumbrances” means with respect to the Leased Premises, as of any particular time: (i) liens for general ad valorem taxes and assessments, if any, not then delinquent, or which the Board of Education may, pursuant to provisions of the Lease Agreement permit to remain unpaid; (ii) the Property Lease; (iii) the Lease Agreement; (iv) the Assignment Agreement; (v) any right or claim of any mechanic, laborer, materialman, supplier or vendor not filed or perfected in the manner prescribed by law; (vi) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions which exist of record as of the date of recording the Lease Agreement or the date of recording an amendment to the Lease Agreement which the Board of Education certifies in

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writing will not affect the intended use of the Leased Premises or impair the security granted to the Trustee for the benefit of the Owners of the Certificates by the Trust Agreement and the Assignment Agreement and to which the Corporation and the Board of Education consent in writing; and (vii) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions established following the date of recording of the Lease Agreement which the Board of Education certifies in writing will not affect the intended use of the Leased Premises or impair the security granted to the Trustee for the benefit of the Owners of the Certificates by the Trust Agreement and the Assignment Agreement and to which the Corporation and the Board of Education consent in writing.

“Prepayment Account” means the Prepayment Account established within the Certificate Fund pursuant to the Trust Agreement.

“Principal Account” means the Principal Account established within the Certificate Fund pursuant to the Trust Agreement.

“Project” means the Board of Education’s proportionate share of the costs of the Facility.

“Project Costs” shall mean any and all costs incurred in connection with the design, development, construction, installation and equipping of the Facility, including, without limitation, any and all costs required for site preparation, architectural plans, permits, engineering studies, legal, financial, interest expense, and other costs and expenses incurred in connection with the construction, installation, delivery and financing of the Facility. Project Costs shall also include amounts required to reimburse the Board of Education or the Corporation for any costs paid in connection with the design, development, construction, installation and equipping of the Facility.

“Property” means the real property and improvements located thereon as described in Exhibit D to the Trust Agreement.

“Property Lease” means the Property Lease, dated as of November 1, 2009 by and between the Board of Education and the Corporation.

“Qualified Investments” means, if and to the extent permitted by law:

a) For all purposes, including defeasance investments in refunding escrow accounts:

i) Cash (insured at all times by the Federal Deposit Certificate Insurance Corporation);

ii) Obligations of, or obligations guaranteed as to principal and interest by, the United States of America or any agency or instrumentality thereof, when such obligations are backed by the full faith and credit of the United States of America including

• United States Treasury obligations • All direct or fully guaranteed obligations • Farmers Home Administration • General Services Administration • Guaranteed Title XI financing • Government National Mortgage Association (GNMA) • State and Local Government Series.

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Any security used for defeasance must provide for the timely payment of principal and interest and cannot be callable or prepayable prior to maturity or earlier redemption of the rated debt (excluding securities that do not have a fixed par value and/or whose terms do not promise a fixed dollar amount at maturity or call date).

b) For all purposes other than defeasance investments in refunding escrow accounts:

i) Obligations of any of the following federal agencies which obligations represent the full faith and credit of the United States of America, including:

• Export-Import Bank • Rural Economic Community Development Administration • U.S. Maritime Administration • Small Business Administration • U.S. Department of Housing & Urban Development (PHAs) • Federal Housing Administration • Federal Financing Bank.

ii) Direct obligations of any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America:

• Senior debt obligations issued by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC)

• Obligations of the Resolution Funding Corporation (REFCORP) • Senior debt obligations of the Federal Home Loan Bank System

iii) U.S. dollar denominated deposit accounts, federal funds and bankers’ acceptances with domestic commercial banks, including the Trustee, its parent holding company, if any, and their affiliates, which have a rating on their short term certificates of deposit on the date of purchase of “P-1” by Moody’s and “A-1” or “A-1+” by S&P and maturing not more than 360 calendar days after the date of purchase. (Ratings on holding companies are not considered as the rating of the bank);

iv) Commercial paper which is rated at the time of purchase in the single highest classification, “P-1” by Moody’s and “A-1+” by S&P and which matures not more than 270 calendar days after the date of purchase;

v) Investments in a money market fund rated “AAAm” or “AAAm-G” or better by S&P, including funds for which the Trustee, its parent holding company, if any, or any affiliates or subsidiaries of the Trustee or such holding company provide investment advisory or other management services;

vi) Pre-refunded Municipal Obligations defined as follows: any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice; and

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(A) which are rated, based on an irrevocable escrow account or fund (the “escrow”), in the highest rating category of Moody’s or S&P or any successors thereto; or

(B) (1) which are fully secured as to principal and interest and redemption premium, if any, by an escrow consisting only of cash or obligations described in paragraph (a)(ii) above, which escrow may be applied only to the payment of such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (2) which escrow is sufficient, as verified by a nationally recognized independent certified public accountant, to pay principal of and interest and redemption premium, if any, on the Certificates or other obligations described in this paragraph on the maturity date or dates specified in the irrevocable instructions referred to above, as appropriate; pre-refunded municipal obligations meeting the requirements of this subsection may be used as Qualified Investments for annual appropriation lease transactions.

vii) Municipal obligations rated “Aaa/AAA” or general obligations of states of the United States of America with a rating of “A2/A” or higher by both Moody’s and S&P.

c) The value of the above investments shall be determined as follows:

i) For the purpose of determining the amount in any fund, all Qualified Investments credited to such fund shall be valued at fair market value. The Trustee shall determine the fair market value based on accepted industry standards and from accepted industry providers. Accepted industry providers shall include but are not limited to pricing services provided by Financial Times Interactive Data Corporation, Merrill Lynch, Salomon Smith Barney, Bear Stearns, or Lehman Brothers.

ii) As to certificates of deposit and bankers’ acceptances: the face amount thereof, plus accrued interest thereon; and

iii) As to any investment not specified above: the value thereof established by prior agreement among the Board of Education and the Trustee.

“Qualified Tax-Exempt Obligations” means Municipal Obligations the interest on which is (a) excluded from gross income for federal income tax purposes and (b) is not a specific tax preference item for purposes of the federal alternative minimum tax.

“Rebate Amount” means the requirement defined as such in the Nonarbitrage Certificate.

“Rebate Fund” means the Rebate Fund established pursuant to the Trust Agreement.

“Record Date” means the 15th day of the month next preceding an Interest Payment Date, whether or not the 15th day is a Business Day.

“Reserve Fund” means the Reserve Fund established pursuant to the Trust Agreement.

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“Reserve Requirement” means, as of any date of calculation, the least of (a) 10% of the initial principal amount of the Certificates, (b) the maximum Base Rental payable by the Board of Education in any year between such date of calculation and the expiration of the Lease Agreement, and (c) 125% of the average annual debt service on the Certificates Outstanding.

“S&P” means Standard & Poor’s Ratings Services, a division of The McGraw Hill Companies, Inc., and its successors and assigns.

“Securities Depositories” means The Depository Trust Company, 55 Water Street, 50th Floor, New York, NY 10041-0099, Attn: Call Notification Department; Facsimile (212) 855-7232; or, in accordance with then-current guidelines of the Securities and Exchange Commission, to such other addresses and/or such other securities depositories, or no such depositories, as the Board of Education or the Securities and Exchange Commission may designate in a certificate of the Board of Education delivered to the Trustee.

“Special Account” means the Special Account established by the Trustee pursuant to the Trust Agreement for the purposes described therein.

“State” means the State of California.

“Supplemental Trust Agreement” means a Supplemental Trust Agreement entered into by the Board of Education, the Corporation and the Trustee pursuant to the terms and provisions of the Trust Agreement.

“Trust Agreement” means the Trust Agreement, dated as of November 1, 2009 by and among the Board of Education, the Corporation and the Trustee, together with any amendments or supplements thereto.

“Trustee” means Union Bank, N.A., a national banking association, or any successor appointed as provided in the Trust Agreement.

“2009 Certificates” means the $5,755,000 aggregate principal amount of San Diego County Board of Education 2009 Certificates of Participation (Camp Cuyamaca Outdoor School Project) executed and delivered by the Trustee on the Date of Delivery pursuant to the Trust Agreement.

The Trust Agreement

The Trust Agreement sets forth the terms of the Certificates, various rights of the Owners of the Certificates, various rights, duties and immunities of the Trustee and various rights, duties and immunities of the Board of Education.

The Trustee is appointed and accepts appointment pursuant to the Trust Agreement to receive, hold and disburse in accordance with the terms thereof the money to be paid to it, to execute and deliver Certificates representing proportionate interests in the Lease Agreement to the original purchasers, to apply and disburse payments received pursuant to the Lease Agreement to Owners of such Certificates, and to perform certain other functions provided in the Trust Agreement.

A summary of the terms of the Certificates is provided in the Official Statement under the heading “THE CERTIFICATES.”

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Establishment and Application of Project Fund. The Trust Agreement establishes in trust a special fund designated the “Project Fund.” Moneys in the Project Fund will be expended for the purposes specified in the Trust Agreement. The Trust Agreement establishes two accounts, the “Costs of Issuance Account,” and the “Project Account” within the Project Fund.

Costs of Issuance Account of the Project Fund. Costs of Issuance will be paid from moneys within this fund, upon a request from the Board of Education to the Trustee. Any amounts remaining in the Costs of Issuance Account on the earlier of (a) the date on which the Board of Education has notified the Trustee in writing that all Costs of Issuance have been paid; and (b) the 180th day after the Closing Date, will be transferred to the Project Account.

Project Account of the Project Fund. Costs with respect to the Board of Education’s portion for the acquisition, construction, improvement and equipping of the Facility will be paid from moneys within this fund, upon a request from an Board of Education Representative to the Trustee. Amounts on hand in the Project Account may also be disbursed to pay Costs of Issuance, upon receipt by the Trustee of a written request from the Board of Education.

If, after payment by the Trustee of all written requests theretofore tendered to the Trustee with respect to the Project Account, and delivery to the Trustee of a Certificate of Completion, any balance remains in the Project Account, all money so remaining will be transferred, first, to the Reserve Fund to the extent necessary to make the amount on deposit therein equal to the Reserve Requirement and, second, at the written direction of the Board of Education, to any of the following accounts in such amounts as the Board of Education should direct: (a) to the Base Rental Account, to the extent permitted by the Nonarbitrage Certificate or a written opinion of Independent Counsel, to be used to pay principal and interest with respect to the 2009 Certificates or a written opinion of Independent Counsel; (b) to the Board of Education, to the extent permitted by the Nonarbitrage Certificate or a written opinion of Independent Counsel, to be used for capital projects; and (c) to the Administrative Expense Fund, to the extent permitted by the Nonarbitrage Certificate or a written opinion of Independent Counsel, in an amount not to exceed $50,000, to pay administrative expenses necessary to comply with the terms of the 2009 Certificates or the Trust Agreement. Notwithstanding anything herein to the contrary, in the event moneys remain in the Project Account as of November 9, 2012, the Trustee will invest such amounts solely in Qualified Tax-Exempt Obligations, unless and until the Board of Education delivers to the Trustee a written opinion of Independent Counsel stating that the investment of such funds in other Qualified Investments will not adversely affect the exemption from federal income taxation of interest with respect to the 2009 Certificates.

Establishment and Application of Administrative Expense Fund. The Trust Agreement establishes in trust a special fund designated the “Administrative Expense Fund.” All expenses of the Corporation or the Board of Education (not otherwise paid or provided for out of the proceeds of the sale of the 2009 Certificates) incidental to the execution and delivery of the 2009 Certificates, including but without limiting the generality of the foregoing; salaries, wages, expenses, fees and charges of auditors, accountants, architects, attorneys and engineers, and all other necessary administrative charges of the Corporation or the Board of Education or charges required to be paid by either of them in order to comply with the terms of the 2009 Certificates or of the Trust Agreement will be paid from moneys in this fund upon a request from an Board of Education Representative to the Trustee.

Establishment and Application of Certificate Fund. The Trust Agreement establishes in trust a special fund designated the “Certificate Fund.” The Certificate Fund will remain in existence until all required Base Rental is paid in full pursuant to the terms of the Lease Agreement, or until such earlier date as there are no Certificates Outstanding. Within the Certificate Fund, the Trustee will establish the

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following accounts: “Base Rental Account;” “Interest Account;” “Principal Account;” “Prepayment Account;” and “Capitalized Interest Account.”

Base Rental Account. Except as otherwise provided, Base Rental and proceeds of rental interruption insurance with respect to the Leased Premises, if any, received by the Trustee will be deposited in the Base Rental Account. On each Interest Payment Date, moneys in the Base Rental Account will be transferred to the Interest Account and the Principal Account in accordance with the terms of the Trust Agreement. Any amounts remaining in the Base Rental Account on an Interest Payment Date after these transfers have been made will be deposited into the following funds and accounts in the order of priority indicated: (a) the Reserve Fund to the extent that the amount therein is less than the Reserve Requirement; (b) the Interest Account to the extent necessary to make the total amount so deposited equal to the amount of the interest component of the next succeeding Base Rental payment; and (c) the Principal Account to the extent necessary to make the total amount so deposited equal to the amount of the principal component of the next Base Rental payment which has a principal component. Amounts not required to be so deposited will be remitted to the Board of Education. Any delinquent Base Rental payments and any proceeds of rental interruption insurance with respect to the Leased Premises deposited in the Base Rental Account will be applied first to the Interest Account for the immediate payment of interest payments past due and then to the Principal Account for immediate payment of principal payments past due according to the tenor of any Certificate, and then to the Reserve Fund to the extent necessary to make the amount on deposit therein equal to the Reserve Requirement. Any remaining money representing delinquent Base Rental payments and any proceeds of rental interruption insurance will remain on deposit in the Base Rental Account to be applied in the manner provided in the Trust Agreement.

Interest Account. The Trustee will transfer from the Base Rental Account to the Interest Account on each Interest Payment Date an amount which, together with moneys on deposit in the Interest Account, (or to be deposited therein on or prior to such Interest Payment Date), equals the interest then due on such Interest Payment Date with respect to the Certificates in accordance with the terms of the Trust Agreement.

Principal Account. The Trustee will transfer from the Base Rental Account to the Principal Account on each Interest Payment Date an amount which, together with moneys on deposit in the Principal Account, equals the principal then due or required to be prepaid on such Interest Payment Date with respect to the Certificates.

Prepayment Account. Any proceeds of insurance (other than rental interruption insurance) or awards in respect of a taking under the power of eminent domain not required to be used for repair, reconstruction or replacement of the Leased Premises, and any other amounts provided for the prepayment of Certificates, will be deposited by the Trustee in the Prepayment Account. On the scheduled prepayment date, the Trustee will withdraw from the Prepayment Account and pay to the Owners entitled thereto the prepayment price of the Certificates prepaid on such date.

Establishment and Application of Reserve Fund. The Trust Agreement establishes in trust a special fund designated the “Reserve Fund,” which will remain in existence as provided in the Trust Agreement until the Base Rental is paid in full pursuant to the Lease Agreement or until there are no longer any Certificates Outstanding.

If on any Interest Payment Date the amounts in the Certificate Fund are less than the principal and interest payments due with respect to the Outstanding Certificates on such date, then the Trustee will transfer from the Reserve Fund for credit to the Interest Account and Principal Account of the Certificate Fund amounts sufficient to make up such deficiencies.

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Establishment and Application of Earnings Fund. The Trust Agreement establishes in trust a special fund designated the “Earnings Fund,” which will be maintained by the Trustee until the Board of Education directs, in writing, that it be closed. The Trustee will establish and maintain within the Earnings Fund an account designated the “Investment Earnings Account” and an account designated the “Excess Earnings Account.” The Trustee will transfer all Investment Earnings on deposit in the funds and accounts established by the Trust Agreement (other than the Excess Earnings Account) to the Investment Earnings Account. All amounts deposited into the Excess Earnings Account and the Investment Earning Account will be retained in such accounts until transferred in accordance with the Nonarbitrage Certificate, as such Nonarbitrage Certificate may be amended from time to time.

Pursuant to the Nonarbitrage Certificate, the Board of Education is required to compute its Rebatable Arbitrage, as such term is defined in the Nonarbitrage Certificate, at least once each year. After any such Rebatable Arbitrage computation, the Board of Education will ascertain whether the amount on deposit in the Excess Earnings Account is at least equal to the Rebatable Arbitrage it has earned. If the amount on deposit in the Excess Earnings Account is less than the Rebatable Arbitrage earned, the Trustee will transfer moneys from the Investment Earnings Account to the Excess Earnings Account in accordance with instructions from the Board of Education. Prior to the Completion Date, following the computation of Rebatable Arbitrage and, to the extent required, the transfer of Rebatable Arbitrage to the Excess Earnings Account, any amounts remaining in the Investment Earnings Account will be transferred to the Project Account as directed in writing by an Board of Education Representative. On and after the Completion Date, following the computation of Rebatable Arbitrage and, to the extent required, the transfer of Rebatable Arbitrage to the Excess Earnings Account, any amounts remaining in the Investment Earnings Account will be transferred to the following funds and accounts in the order of priority indicated: (a) to the Reserve Fund to the extent that the amount therein is less than the Reserve Requirement; (b) to the Interest Account to the extent necessary to make the total amount deposited therein equal to the amount of the interest component of the next succeeding Base Rental payment; and (c) to the Principal Account to the extent necessary to make the total amount deposited therein equal to the amount of the principal component of the next succeeding Base Rental payment which has a principal component.

Any moneys deposited in the Excess Earnings Account will be applied to payments of Rebatable Arbitrage to the United States of America in accordance with written instructions of the Board of Education, unless the Board of Education directs the Trustee in writing that such moneys are not needed for such purpose and are to be transferred to another fund or account established pursuant to the Trust Agreement.

Surplus. After payment or prepayment of all amounts due with respect to the Certificates, the payment of all fees and expenses to the Trustee, or satisfactory provision for such payments having been made, and the transfer of any amounts required to be transferred to the Excess Earnings Account in accordance with the Nonarbitrage Certificate, any amounts remaining in any of the funds or accounts established pursuant to the Trust Agreement and not required for such purposes will be remitted to the Board of Education and used for any lawful purpose thereof.

Additional Rental. In the event the Trustee receives Additional Rental pursuant to the Lease Agreement, such Additional Rental is to be applied by the Trustee solely to the payment of any costs in respect of which such Additional Rental was received and is not to be commingled in any way with any other funds received by the Trustee pursuant to the Lease Agreement or the Trust Agreement.

Substitution of Leased Premises. The Board of Education, at its discretion, may substitute other property for the Leased Premises, provided, however, that: (a) substitution does not, in the opinion of Independent Counsel, adversely affect the exclusion of the interest component of the Base Rental

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received by the Owners of the Certificates from gross income for federal income tax purposes; (b) the Board of Education certifies to the Trustee, in the event of substitution, that the fair rental value of the property being substituted for the Leased Premises is at least equal to the Base Rental each year for the remaining term of the Lease Agreement; (c) the Board of Education has been advised by all rating agencies that have provided ratings with respect to the Outstanding Certificates, that such substitution will not, in and of itself, result in a reduction of such ratings with respect to the Outstanding Certificates; and (d) evidence that a CLTA insurance policy has been obtained for the substituted property.

Repair or Replacement; Application of Insurance Proceeds and Condemnation Awards. If the Leased Premises or any portion thereof is damaged, destroyed or taken by eminent domain proceedings, the Board of Education will continuously and diligently prosecute or cause to be prosecuted, as expeditiously as possible, the repair or replacement thereof, unless the Board of Education elects not to repair or replace the Leased Premises. The Board of Education will take such action as is reasonably necessary to obtain compensation for a taking by eminent domain at least equal to the proportionate amount of Outstanding Certificates related to the Leased Premises or portion thereof taken.

If the Trustee receives proceeds of any insurance (other than any rental interruption insurance), including the proceeds of any self-insurance fund, or any condemnation award, received on account of any damage, destruction or taking of the Leased Premises or portion thereof, the Trustee will establish in trust a special account designated the “Special Account.” Any such proceeds shall be held by the Trustee in the Special Account and made available for, and to the extent necessary be applied to, the cost of repair or replacement of such Leased Premises or portion thereof. Pending such application, such proceeds may be invested by the Trustee, as directed in writing by the Board of Education, in Qualified Investments that mature not later than such times as moneys are expected to be needed to pay such costs of repair or replacement.

Notwithstanding the foregoing, the Board of Education will notify the Trustee in writing within 90 days of the receipt by the Trustee of insurance or condemnation proceeds, whether the Board of Education intends to replace or repair the Leased Premises or portion thereof in respect of which such proceeds were received, in which event the Board of Education will promptly deposit with the Trustee the full amount of any insurance deductible to be credited to the Special Account. The Board of Education is to replace or repair the Leased Premises or portion thereof as required by the Lease Agreement, unless it deposits the full amount of any insurance deductible necessary to prepay the Certificates relating to the Leased Premises or portion thereof and the Base Rental with respect to the remaining portion of the Leased Premises is sufficient to pay the principal and interest due with respect to the Certificates after the date on which Certificates relating to the Leased Premises or portion thereof are prepaid. The proceeds of any insurance (other than rental interruption insurance), including the proceeds of any self-insurance fund or of any condemnation award, not applied to repairing or replacing damaged, destroyed or taken property, or in respect of which notice in writing by the Board of Education of its intention to apply the same to the work of repairing or replacing the property damaged, destroyed or taken shall not have been given to the Trustee within six months after receipt of such proceeds by the Trustee, or which the Board of Education shall at any time during such period have notified the Trustee are not to be so applied, shall forthwith be deposited into the Prepayment Account and applied to the prepayment of Certificates in accordance with the Trust Agreement.

Title Insurance. Proceeds of any policy of title insurance received by the Trustee in respect of the Leased Premises or any portion thereof are to be applied and disbursed by the Trustee as follows: (a) if the Board of Education determines that the title defect giving rise to such proceeds has not materially affected the operation of the Leased Premises and will not result in an abatement of Base Rental payable by the Board of Education under the Lease Agreement, such proceeds are (i) first, to be deposited into the Reserve Fund to the extent that the amount therein is less than the Reserve

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Requirement and (ii) second, to be remitted to the Board of Education and used for any lawful purpose thereof; or (b) if any portion of the Leased Premises has been affected by such title defect, and if the Board of Education determines that such title defect will result in an abatement of Base Rental payable by the Board of Education under the Lease Agreement, then the Trustee will immediately deposit such proceeds in the Prepayment Account of the Certificate Fund and such proceeds are to be applied to the prepayment of Certificates.

Investments Authorized. Subject to certain restrictions, money held by the Trustee in any fund or account is to be invested in Qualified Investments subject to the direction of the Board of Education. If the Board of Education shall fail to provide the Trustee direction with respect to any moneys subject to investment, the Trustee shall, nevertheless, invest such moneys in those investments described in clause (a) through (d) of the definition of Qualified Investments for a period no longer than 180 days. The Trustee shall not be responsible or liable for any loss suffered in connection with any investment of funds made by it in accordance with the terms of the Trust Agreement.

The Trustee will deposit, as and when received, all Investment Earnings on amounts on deposit in all funds and accounts maintained by it pursuant to the Trust Agreement (except the Excess Earnings Account of the Earnings Fund) into the Investment Earnings Account of the Earnings Fund. All Investment Earnings on amounts on deposit in the Excess Earnings Account of the Earnings Fund will be retained therein and applied as provided in the Trust Agreement.

Amendments to the Trust Agreement. The Trust Agreement may be amended in writing by agreement between the parties thereto, but no such amendment will be effective as to the Owners of Outstanding Certificates unless and until approved in writing by the Owners of a majority in aggregate principal amount of Outstanding Certificates. Notwithstanding the foregoing, the Trust Agreement may also be modified or amended at any time without the consent of any Owners of the Certificates, upon the written agreement of the Board of Education and the Trustee, but only (a) for the purpose of curing any ambiguity or omission relating thereto, or of curing, correcting or supplementing any defective provision contained in the Trust Agreement; (b) in regard to questions arising under the Trust Agreement which the Board of Education and the Trustee may deem necessary or desirable and not inconsistent with the Trust Agreement and which do not adversely affect the interests of the Owners of the Certificates; (c) for the purpose of providing for the execution and delivery of Additional Certificates pursuant to and in accordance with the terms and provisions of the Trust Agreement; or (d) for any other reason, provided such modification or amendment does not adversely affect the interests of the Owners of the Certificates. An amendment that impairs the right of any Owner to receive its proportionate share of principal and interest in accordance with the terms of his Certificate is prohibited.

Amendments to Lease Agreement and Property Lease. The Lease Agreement and the Property Lease may be amended in writing by agreement between the parties thereto, with the consent of the Trustee, but no such amendment will become effective as to the Owners of Outstanding Certificates unless and until approved in writing by the Owners of a majority in aggregate principal amount of Outstanding Certificates. Notwithstanding the foregoing, the Lease Agreement and the Property Lease and the rights and obligations provided thereby may also be modified or amended at any time with the consent of the Trustee but without the consent of any Owners of the Certificates, upon the written agreement of the Board of Education and the Corporation, but only (a) for the purpose of substituting property to be leased as provided in the Lease Agreement; (b) for the purpose of curing any ambiguity or omission relating thereto, or of curing, correcting or supplementing any defective provision contained in the Lease Agreement or the Property Lease; (c) in regard to questions arising under the Lease Agreement or the Property Lease which the Board of Education and the Corporation may deem necessary or desirable and not inconsistent with the Lease Agreement or the Property Lease and which does not adversely affect the interests of the Owners of the Certificates; (d) for the purpose of providing for the payment of

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additional Base Rental in connection with the execution and delivery of Additional Certificates; or (e) for any other reason, provided such modification or amendment does not adversely affect the interests of the owners of the Certificates.

Execution, and Delivery of Additional Certificates. The Board of Education and the Trustee may, by execution of a Supplemental Trust Agreement, without the consent of the Owners, provide for the execution and delivery of Additional Certificates representing additional Base Rental and the Trustee may execute and deliver upon the written request of the Board of Education, such Additional Certificates, in such principal amount as shall reflect the additional principal components of the Base Rental and the proceeds of such Additional Certificates may be applied to acquire, construct or install improvements to the Leased Premises or any portion thereof, or to acquire, construct or improve other real property owned by the Board of Education; provided, however, that such Additional Certificates may only be executed and delivered upon compliance by the Board of Education with the provisions of the Trust Agreement, and subject to the following specific conditions, which are conditions precedent to the execution and delivery of any such Additional Certificates:

(a) The Board of Education shall not be in default under the Trust Agreement or any supplemental trust agreement or under the Lease Agreement;

(b) The Additional Certificates shall be payable as to principal on August 1 of each year in which principal components are due and shall be payable as to interest on February 1 and August 1 of each year commencing after their date of execution and delivery and extending no longer than the remaining useful life of the improvements financed by such Additional Certificates;

(c) The aggregate principal amount of Certificates executed and delivered and at any time Outstanding under the Trust Agreement or under any supplemental trust agreement shall not exceed any limit imposed by law, by the Trust Agreement or by any Supplemental Trust Agreement;

(d) The Lease Agreement shall have been amended so as to identify the improvements being made to the Leased Premises, if applicable, and to increase the Base Rental payable by the Board of Education thereunder by an aggregate amount equal to the principal and interest represented by such Additional Certificates (the “New Base Rental”), payable at such times and in such manner as may be necessary to provide for the payment of the principal and interest represented by such Additional Certificates; provided, however, that no such amendment shall be made such that the sum of the Base Rental and the New Base Rental, plus the Additional Rental due under the Lease Agreement shall be in excess of the fair rental value of the Leased Premises after taking into account the use of the proceeds of any Additional Certificates executed and delivered in connection therewith in the event that the proceeds of any such Additional Certificates are used with respect to the Leased Premises (evidence of the satisfaction of this condition shall be by a written certification of the Board of Education);

(e) Said supplemental trust agreement shall provide that from such proceeds or other sources an amount shall be deposited in the Reserve Fund so that following such deposit there shall be on deposit in the Reserve Fund an amount at least equal to the Reserve Requirement for the Outstanding Certificates; and

(f) Said supplemental trust agreement shall provide principal payment dates and/or for the mandatory redemption of Additional Certificates in amounts sufficient to provide for

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payment of the Additional Certificates when principal and interest components of said Additional Certificates are due.

Any Additional Certificates shall be on a parity with, and each Owner thereof shall have the same rights upon an Event of Default as, the Owner of any other Certificates executed and delivered under the Trust Agreement, except as otherwise provided in the supplemental trust agreement under which Additional Certificates are executed and delivered.

Proceedings for Authorization of Additional Certificates. Whenever the Board of Education shall determine to authorize the execution and delivery of any Additional Certificates pursuant to the Trust Agreement, the Board of Education and the Trustee shall enter into a Supplemental Trust Agreement, without the consent of the Owners of any Certificates, providing for the execution and delivery of such Additional Certificates, specifying the maximum principal amount of such Additional Certificates and prescribing the terms and conditions of such Additional Certificates.

Such supplemental trust agreement shall prescribe the form or forms of such Additional Certificates and, subject to the provisions of the Trust Agreement, shall provide for the distinctive designation, denominations, method of numbering, dates, principal payment dates, interest rates, Interest Payment Dates, provisions for redemption (if desired) and places of payment of principal and interest.

Before such Additional Certificates shall be executed and delivered, the Board of Education shall file or cause to be filed the following documents with the Trustee:

(a) An opinion of Special Counsel setting forth (i) that such Special Counsel has examined the supplemental trust agreement and the amendment to the Lease Agreement required by the Trust Agreement; (ii) that the execution and delivery of the Additional Certificates have been sufficiently and duly authorized by the Board of Education; (iii) that said amendment to the Lease Agreement, when duly executed by the Board of Education and the Corporation, will be a valid and binding obligation of the Board of Education and the Corporation; (iv) that said Supplemental Trust Agreement, when duly executed by the Board of Education and the Trustee, will be a valid and binding obligation of the Board of Education; (v) that the amendment to the Lease Agreement has been duly authorized, executed and delivered and has been duly recorded in the official records of the County Recorder of the County of San Diego or that a memorandum thereof has been duly recorded in the official records of the County Recorder of the County of San Diego; and (vi) that the amendment to the Lease Agreement does not adversely affect the exclusion from gross income for federal income tax purposes of interest evidenced by the Outstanding Certificates.

(b) evidence satisfactory to the Trustee establishing that the fair market value of the Leased Premises (after giving effect to the execution and delivery of the Additional Certificates and to the use of proceeds received therefrom to the extent that such proceeds are used with respect to the Leased Premises) is at least equal to the principal evidenced by the Outstanding Certificates, which evidence may be in the form of an internal appraisal prepared by the risk manager or other employee of the County of San Diego Office of Education with knowledge of real estate valuation;

(c) A written certification of the Board of Education that the requirements of the Trust Agreement have been met, which shall include a written certification by the Board of Education that the fair rental value of the Leased Premises is at least equal to the maximum Base Rental due under the Lease Agreement during the Lease Term, after giving effect to the execution and delivery of the Additional Certificates and to the use of proceeds received therefrom, to the

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extent that the proceeds of the Additional Certificates are used with respect to the Leased Premises.

(d) A certified copy of the resolution or resolutions of the San Diego County Board of Education authorizing the execution of the supplemental trust agreement and the amendment to the Lease Agreement required by the Trust Agreement.

(e) A certified copy of the resolution or resolutions of the governing board of the Corporation authorizing the execution of the amendment to the Lease Agreement required by the Trust Agreement.

(f) An executed counterpart of the supplemental trust agreement and an executed counterpart or duly authenticated copy of the amendment to the Lease Agreement required by the Trust Agreement.

(g) A written certification of the Board of Education that the policies of insurance required by the Lease Agreement or certificates thereof have been acquired.

(h) In the event that the proceeds of the Additional Certificates are used for the acquisition, construction, installation or improvement of real property, a California Land Title Financial Guaranty Insurance Policy in the amount of the Additional Certificates of the type and with the endorsements described in the Lease Agreement for the initial title insurance policy or an endorsement to the existing California Land Title Financial Guaranty Insurance Policy increasing the coverage amount thereof in the amount of the Additional Certificates.

Upon the delivery to the Trustee of the foregoing instruments, the Trustee shall, in the absence of bad faith on its part, be entitled to rely on, shall be fully protected in relying thereon and shall, in reliance thereon, execute and deliver said Additional Certificates, in the aggregate principal amount specified in such Supplemental Trust Agreement, upon the written request of the Board of Education.

Events of Default and Remedies. The following are “events of default” under the Trust Agreement: (a) an event of default under the Lease Agreement; (b) failure by the Board of Education to observe and perform any covenant, condition or agreement on its part to be observed or performed under the Trust Agreement or the Lease Agreement, for a period of 30 days after written notice specifying such failure and requesting that it be remedied has been given to the Board of Education by the Trustee or to the Board of Education and the Trustee by the Owners of not less than a majority in aggregate principal amount of Certificates then Outstanding; provided, however, that if the failure stated in the notice cannot be corrected within such period, then such period will be extended so long as corrective action as instituted by the Board of Education within such period and diligently pursued until the default is corrected, but only if such extension would not materially adversely affect the interest of any Owner.

Upon the occurrence and continuance of any event of default specified in the Trust Agreement, the Trustee shall proceed, or upon the occurrence and continuance of any other event of default under the Trust Agreement, the Trustee may proceed (and upon written request of the Owners of not less than a majority in aggregate principal amount of Certificates then Outstanding shall proceed), to exercise the remedies set forth in the Lease Agreement or available to the Trustee under the Trust Agreement.

The Trustee shall take any appropriate action to cause the Board of Education to pay any Base Rental payment not paid when due, upon written request and authorization by the Owners of a majority in aggregate principal amount of the Certificates then Outstanding and unpaid, and upon being satisfactorily

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indemnified against any expense and liability with respect thereto and receiving payment for its fees and expenses.

No remedy in the Trust Agreement conferred upon or reserved to the Trustee is intended to be exclusive and every such remedy shall be cumulative and shall be in addition to every other remedy given under the Trust Agreement and the Lease Agreement, or now or hereafter existing at law or in equity. No delay or omission to exercise any right or power accruing upon any default shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Trustee or the Owners to exercise any remedy reserved to it or them, it shall not be necessary to give any notice other than such notice as may be required in the Trust Agreement or by law.

In the event the Trustee fails to take any action to eliminate an event of default under the Lease Agreement or under the Trust Agreement, the Owners of a majority in aggregate principal amount of Certificates then Outstanding may institute any suit, action, mandamus or other proceeding in equity or at law for the protection or enforcement of any right under the Lease Agreement or the Trust Agreement, but only if such Certificate Owners shall have first made written request of the Trustee after the right to exercise such powers or right of action shall have arisen, and shall have afforded the Trustee a reasonable opportunity either to proceed to exercise the powers granted therein or otherwise granted by law or to institute such action, suit or proceeding in its name, and unless, also, the Trustee shall have been offered reasonable security and indemnity against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee shall have refused or neglected to comply with such request within a reasonable time.

All payments received by the Trustee with respect to the rental of any portion of the Leased Premises after a default by the Board of Education, and all damages or other payments received by the Trustee from the enforcement of any rights and powers of the Trustee under the Lease Agreement, shall be deposited by the Trustee into the Base Rental Account of the Certificate Fund.

No Liability of Board of Education or Corporation for Trustee Performance. Neither the Board of Education nor the Corporation has any obligation or liability to any other party or to the Owners of the Certificates with respect to the performance by the Trustee of any duty imposed upon it under the Trust Agreement, including the distribution by the Trustee of principal and interest to the Owners of the Certificates.

No Liability of Trustee for Base Rental Payments by Board of Education. Except as provided in the Trust Agreement, the Trustee has no obligation or liability to the Owners of the Certificates with respect to the payment of the Base Rental by the Board of Education when due, or with respect to the performance by the Board of Education of any other covenant made by it in the Lease Agreement.

No Liability of Board of Education Except as Stated. Except for (a) the payment of Base Rental and Additional Rental when due in accordance with the terms of the Lease Agreement; and (b) the performance by the Board of Education of its obligations and duties as set forth in the Lease Agreement, the Property Lease and the Trust Agreement, the Board of Education has no obligation or liability to the Trustee or the Owners.

Limited Liability of Trustee. The Trustee has no obligation or responsibility for providing information to the Owners concerning the investment quality of the Certificates, for the sufficiency or collection of any Base Rental or for the actions or representations of any other party to the Trust Agreement. The Trustee has no obligation or liability to any other party or to the Owners with respect to the failure or refusal of any other party to perform any covenant or agreement made by it under the Trust

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Agreement or the Lease Agreement but shall be responsible solely for the performance of the duties expressly imposed under the Trust Agreement. The recitals of facts, covenants and agreements contained in the Trust Agreement and the Certificates are to be taken as statements, covenants and agreements of the Board of Education and the Trustee assumes no responsibility for the correctness of the same and makes no representation as to the validity or sufficiency of the Trust Agreement, the Lease Agreement, the Assignment Agreement or the Certificates, or as to the value of or title to the Leased Premises, and will not incur any responsibility in respect thereof, other than in connection with the duties or obligations herein assigned to or imposed upon it. The Trustee will not be liable in connection with the performance of its duties, except for its own negligence or willful misconduct.

Indemnification. To the extent permitted by law, the Board of Education has agreed to indemnify and save the Trustee, its officers, directors, agents and employees (collectively, the “Indemnitees”) harmless from and against all claims, suits and actions brought against it, or to which it is made a party, and from all losses and damages suffered by it as a result thereof, where and to the extent such claim, suit or action arises out of the actions of any other party to the Trust Agreement or the Lease Agreement, including but not limited to the ownership, operation or use of the Leased Premises.

The Lease Agreement

The Lease Agreement sets out the terms under which the Corporation will lease the Leased Premises to the Board of Education, and the Board of Education will pay the Base Rental, the amounts of which will be determined by the Lease Agreement. In addition to the Base Rental, the Board of Education agrees to pay as Additional Rental all of the following: (a) all taxes and assessments of any nature whatsoever, including but not limited to excise taxes, ad valorem taxes, ad valorem, and specific lien special assessments and gross receipts, if any, levied upon the Leased Premises or upon any interest of the Corporation, the Trustee or the Owners therein or in the Lease Agreement; (b) insurance premiums, if any, on all insurance required by the Lease Agreement; (c) all fees and expenses of the Trustee in connection with the Trust Agreement; and (d) any other fees, costs or expenses incurred by the Corporation in connection with the execution, performance or enforcement of the Lease Agreement or any assignment thereof or the Trust Agreement or any of the transactions contemplated by the Lease Agreement, the Trust Agreement or any other related agreement or related to the Leased Premises, including, without limitation, any amounts which may become due. The Lease Agreement is a triple net lease; rentals provided for in the lease will be an absolute net return to the Corporation free and clear of any expenses, charges, counterclaim ore recoupment or set-offs whatsoever.

Upon payment of all Base Rental and Additional Rental required by the Lease Agreement, all right, title and interest of the Corporation in the Leased Premises shall terminate and will be transferred directly to and vested in the Board of Education or, at the option of the Board of Education, to any assignee or nominee of the Board of Education, in accordance with the provisions of the Lease Agreement and the Lease Agreement and the Property Lease shall terminate as to the Leased Premises.

The Base Rental payable by the Board of Education is due on each February 1 and August 1 during the Lease Agreement Term or on the next succeeding Business Day in the event that any such day is not a Business Day. To secure the performance of its obligation to pay Base Rental, the Board of Education must deposit the Base Rental with the Trustee on or before the fifteenth day of the month preceding the date on which such Base Rental is due, for application by the Trustee in accordance with the terms of the Trust Agreement. Base Rental payments are subject to abatement as described below.

Rental Abatement. Except to the extent of (a) amounts held by the Trustee in the Certificate Fund or the Reserve Fund; (b) amounts received in respect of rental interruption insurance or title insurance; and (c) amounts, if any, otherwise legally available to the Trustee for payments in respect of

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the Certificates, Base Rental and Additional Rental payments due will be abated during any period in which, by reason of delay in construction and installation of the Facilities or material damage, destruction, condemnation or defects in title to the Leased Premises, there is substantial interference with the use or right of possession by the Board of Education thereof. The amount of abatement will be such that the resulting Base Rental and Additional Rental represent fair rental value for the use and possession of the remaining portions of the Leased Premises as to which the Board of Education has beneficial use and occupancy and as to which such damage, destruction, theft, condemnation or title defects do not substantially interfere with the use and right of possession by the Board of Education. Such abatement will continue for the period commencing with the date of such substantial interference due to a delay in the construction and installation of the Leased Premises, or material damage, destruction, theft, condemnation or title defects and ending with the restoration of the Leased Premises to tenantable condition.

Replacement, Maintenance and Repairs. The Board of Education will, at its own expense, during the term of the Lease Agreement maintain the Leased Premises, or cause the same to be maintained, in good order, condition and repair and will replace any portion of the Leased Premises which is destroyed; provided, that the Board of Education is not required to repair or replace any such portion of the Leased Premises if there shall be applied to the prepayment of Certificates insurance proceeds or other legally available funds sufficient to prepay (a) all of the Certificates Outstanding; or (b) any portion thereof relating to the Leased Premises or such portion thereof and the Base Rental allocable to the remaining portion of the Leased Premises equals the pro-rata portion of Base Rental allocable to the Certificates Outstanding after such prepayment. The Board of Education shall provide or cause to be provided all security service, custodial service, janitorial service and other services necessary for the proper upkeep and maintenance of the Leased Premises. The Corporation shall not be required at any time to make any improvements, alterations, changes, additions, repairs or replacements of any nature whatsoever in or to the project.

Insurance. The Lease Agreement requires the Board of Education to secure and maintain or cause to be secured and maintained at all times, with insurers of recognized responsibility or through a program of self-insurance or risk-pooling to the extent specifically permitted in the Lease Agreement, insurance with respect to the Leased Premises of the type and in the amounts described therein.

All policies or certificates issued by the respective insurers for insurance, with the exception of workers’ compensation insurance, are to provide that such policies or certificates shall not be canceled or materially changed without at least 30 days’ prior written notice to the Trustee. Furthermore, the Board of Education shall annually certify that the policies of insurance required by the Lease Agreement are in full force and effect, and will provide the Trustee with copies of such policies upon request.

All policies or certificates of insurance required by the Lease Agreement are to name the Board of Education as a named insured, and the Corporation and its directors and the Trustee as additional insureds.

Proceeds of insurance (other than rental interruption insurance) received in respect of theft of, destruction of or damage to the Leased Premises by fire, earthquake or other casualty or event are to be paid to the Trustee for application in accordance with the provisions of the Trust Agreement. If the Board of Education elects pursuant to the Trust Agreement to apply such proceeds to the replacement, repair or reconstruction of the Leased Premises, the Base Rental will again begin to accrue with respect thereto upon restoration of the Leased Premises to tenantable condition.

Notwithstanding the generality of the foregoing, the Board of Education is not required to maintain or cause to be maintained more insurance than is specifically referred to above or any policies of

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insurance other than standard policies of insurance with standard deductibles offered by reputable insurers at a reasonable cost on the open market.

Liens. The Board of Education will promptly pay or cause to be paid all sums of money that may become due for any labor, services, materials, supplies or equipment alleged to have been furnished or to be furnished to or for, in, upon or about the Leased Premises and which may be secured by any mechanic’s, materialman’s or other lien against the Leased Premises, or the interest of the Corporation therein, and will cause each such lien to be fully discharged and released; provided, however, that the Board of Education or the Corporation (a) may contest any such claim or lien without payment thereof so long as such non-payment and contest stays execution or enforcement of the lien, but if such lien is reduced to final judgment and such judgment or such process as may be issued for the enforcement thereof is not stayed, or if stayed and the stay thereafter expires, then and in any such event the Board of Education will forthwith pay and discharge such judgment or lien; or (b) delay payment without contest so long as and to the extent that such delay will not result in the imposition of any penalty. The Board of Education will not, directly or indirectly, create, incur, assume or suffer to exist any pledge, lien, charge, encumbrance or claim on or with respect to the Leased Premises, other than the rights of the Corporation and the Board of Education as herein provided. Except as expressly provided in the Lease Agreement, the Board of Education will promptly, at its own expense, take such action as may be necessary to duly discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim for which it is responsible, if the same arises at any time.

Eminent Domain. If the Leased Premises, or so much thereof as to render the remainder of the Leased Premises unusable for the Board of Education’s purposes under the Lease Agreement, is taken under the power of eminent domain, then the Lease Agreement will terminate with respect to the Leased Premises as of the day possession is so taken, or, if the Board of Education is the condemnor, then the Lease Agreement will terminate as of the date of entry of the interlocutory judgment. In the event of a taking by eminent domain, there will be an abatement of Base Rental in accordance with the terms of the Lease Agreement. If less than a substantial portion of the Leased Premises will be taken under the power of eminent domain, and the remainder is usable for County purposes, then there will be an abatement of Base Rental only to the extent of the portion of the Leased Premises which is unusable and the Lease Agreement will continue in full force and effect and shall not be terminated with respect to the Lease Premises by virtue of such taking and the parties waive the benefit of any law to the contrary. Any award made in eminent domain proceedings for the taking will be paid to the Trustee for application in accordance with the provisions of the Trust Agreement. If the Board of Education elects pursuant to the Trust Agreement to apply such proceeds to the repair or replacement of the Leased Premises, then the Base Rental will again begin to accrue with respect thereto upon restoration of the Leased Premises to tenantable condition.

Assignment and Lease Agreement. The Lease Agreement provides that the Board of Education will not mortgage, pledge, assign or transfer any interest of the Board of Education in the Lease Agreement by voluntary act or by operation of law, or otherwise; provided, however, the Board of Education may sublease all or any portion of the Leased Premises, may grant concessions to others involving the use of any portion of the Leased Premises, whether such concessions purport to convey a leasehold interest or a license to use a portion of the Leased Premises, and may assign its right to purchase any portion of the Leased Premises. The Board of Education will at all times remain liable for the performance of the covenants and conditions on its part to be performed under the Lease Agreement, notwithstanding any subletting or granting of concessions which may be made. Nothing in the Lease Agreement will be construed to relieve the Board of Education from its obligation to pay Base Rental and Additional Rental as provided in the Lease Agreement or to relieve the Board of Education from any other obligations contained in the Lease Agreement. In no event will the Board of Education sublease or

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permit the use of all or any part of the Leased Premises to any person so as to cause the interest component of Base Rental to be subject to federal income tax or State personal income tax.

The Corporation will, concurrently with the execution of the Lease Agreement, assign all of its right, title and interest in the Lease Agreement pursuant to the terms of the Assignment Agreement (described below).

Indemnification and Hold Harmless Agreement. To the extent permitted by law, the Board of Education agrees to indemnify and hold harmless the Corporation and its officers and directors against any and all liabilities which might arise out of or are related to the Leased Premises and the Certificates, and the Board of Education further agrees to defend the Corporation and its officers and directors in any action arising out of or related to the Leased Premises and the Certificates.

Default.

(a) (i) If the Board of Education shall fail (A) to pay any rental payable under the Lease Agreement when the same becomes due and payable, time being expressly declared to be of the essence in the Lease Agreement, or (B) to keep, observe or perform any other term, covenant or condition contained in the Lease Agreement or in the Trust Agreement to be kept or performed by the Board of Education, or (ii) upon the happening of any of the events specified in paragraph (b) below, the Board of Education shall be deemed to be in default under the Lease Agreement and, it shall be lawful for the Corporation to exercise any and all remedies available pursuant to law or granted pursuant to the Lease Agreement. The Board of Education shall in no event be in default in the observance or performance of any covenant, condition or agreement in the Lease Agreement on its part to be observed or performed, other than as referred to in clause (i)(A) or (ii) of the preceding sentence, unless the Board of Education shall have failed, for a period of 30 days or such additional time as is reasonably required, to correct any such default after notice by the Corporation to the Board of Education properly specifying wherein the Board of Education has failed to perform any such covenant, condition or agreement. Upon any such default, the Corporation, in addition to all other rights and remedies it may have at law, shall have the option to do any of the following:

(1) To terminate the Lease Agreement in the manner hereinafter provided on account of default by the Board of Education, notwithstanding any re-entry or re-letting of the Leased Premises as hereinafter provided for in subparagraph (2) below, and to re-enter the Leased Premises and remove all persons in possession thereof and all personal property whatsoever situated upon the Leased Premises and place such personal property in storage in any warehouse or other suitable place located within the geographical boundaries of the Board of Education, for the account of and at the expense of the Board of Education. In the event of such termination, the Board of Education agrees to surrender immediately possession of the Leased Premises, without let or hindrance, and to pay the Corporation all damages recoverable at law that the Corporation may incur by reason of default by the Board of Education, including, without limitation, any costs, loss or damage whatsoever arising out of, in connection with, or incident to any such re-entry upon the Leased Premises and removal and storage of such property by the Corporation or its duly authorized agents in accordance with the provisions contained in the Lease Agreement. Neither notice to pay rent or to deliver up possession of the Leased Premises given pursuant to law nor any entry or re-entry by the Corporation nor any proceeding in unlawful detainer, or otherwise, brought by the Corporation for the purpose of affecting such re-entry or obtaining possession of the Leased Premises nor the appointment of a receiver upon initiative of the Corporation to protect the Corporation’s interest under the

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Lease Agreement shall of itself operate to terminate the Lease Agreement, and no termination of the Lease Agreement on account of default by the Board of Education shall be or become effective by operation of law or acts of the parties hereto, or otherwise, unless and until the Corporation shall have given written notice to the Board of Education of the election on the part of the Corporation to terminate the Lease Agreement. The Board of Education covenants and agrees under the Lease Agreement that no surrender of the Leased Premises or of the remainder of the term thereof or any termination of the Lease Agreement shall be valid in any manner or for any purpose whatsoever unless stated or accepted by the Corporation by such written notice.

(2) Without terminating the Lease Agreement, (x) to collect each installment of rent as it becomes due and enforce any other terms or provisions of the Lease Agreement to be kept or performed by the Board of Education, regardless of whether or not the Board of Education has abandoned the Leased Premises or (y) to exercise any and all rights of entry and re-entry upon the Leased Premises. In the event the Corporation does not elect to terminate the Lease Agreement in the manner provided for in subparagraph (1) above, the Board of Education shall remain liable and agrees to keep or perform all covenants and conditions in contained the Lease Agreement to be kept or performed by the Board of Education and, if the property is not re-let, to pay the full amount of the rent to the end of the term of the Lease Agreement or, in the event that the Leased Premises is re-let, to pay any deficiency in rent that results therefrom; and further agrees to pay said rent and/or rent deficiency punctually at the same time and in the same manner as hereinabove provided for the payment of rent under the Lease Agreement, notwithstanding the fact that the Corporation may have received in previous years or may receive thereafter in subsequent years rental in excess of the rental specified in the Lease Agreement, and notwithstanding any entry or re-entry by the Corporation or suit in unlawful detainer, or otherwise, brought by the Corporation for the purpose of effecting such re-entry or obtaining possession of the Leased Premises. Should the Corporation elect to re-enter as provided in the Lease Agreement, the Board of Education has irrevocably appointed the Corporation as the agent and attorney-in-fact of the Board of Education to re-let the Leased Premises, or any part thereof, from time to time, either in the Corporation’s name or otherwise, upon such terms and conditions and for such use and period as the Corporation may deem advisable and to remove all persons in possession thereof and all personal property whatsoever situated upon the Leased Premises and to place such personal property in storage in any warehouse or other suitable place located within the geographical boundaries of the Board of Education, for the account of and at the expense of the Board of Education, and the Board of Education hereby indemnifies and agrees to save harmless the Corporation from any costs, loss or damage whatsoever arising out of, in connection with, or incident to any such re-entry upon and re-letting of the Leased Premises and removal and storage of such property by the Corporation or its duly authorized agents in accordance with the provisions contained in the Lease Agreement. The Board of Education agrees that the terms of the Lease Agreement constitute full and sufficient notice of the right of the Corporation to re-let the Leased Premises in the event of such re-entry without effecting a surrender of the Lease Agreement, and further agrees that no acts of the Corporation in effecting such re-letting shall constitute a surrender or termination of the Lease Agreement irrespective of the use or the term (subject to the preceding sentence) for which such re-letting is made or the terms and conditions of such re-letting, or otherwise, but that, on the contrary, in the event of such default by the Board of Education the right to terminate the Lease Agreement shall vest in the Corporation to be effected in the sole and exclusive manner provided for in subparagraph (1) above. The Board of Education further waives the right

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to any rental obtained by the Corporation in excess of the rental specified in the Lease Agreement and conveys and releases such excess to the Corporation as compensation to the Corporation for its services in re-letting the Leased Premises. The Board of Education further agrees to pay the Corporation the cost of any alterations or additions to the Leased Premises necessary to place the Leased Premises in condition for re-letting immediately upon notice to the Board of Education of the completion and installation of such additions or alterations.

The Board of Education waives under the Lease Agreement any and all claims for damages caused or which may be caused by the Corporation in re-entering and taking possession of the Leased Premises as provided in the Lease Agreement and all claims for damages that may result from the destruction of or injury to the Leased Premises and all claims for damages to or loss of any property belonging to the Board of Education, or any other person, that may be in or upon the Leased Premises.

(b) If (i) the Board of Education’s interest in the Lease Agreement or any part thereof be assigned or transferred, either voluntarily or by operation of law or otherwise, without the written consent of the Corporation, as hereinafter provided for, or (ii) the Board of Education or any assignee shall file any petition or institute any proceeding under any act or acts, state or federal, dealing with or relating to the subject or subjects of bankruptcy or insolvency, or under any amendment of such act or acts, either as a bankrupt or as an insolvent, or as a debtor, or in any similar capacity, wherein or whereby the Board of Education asks or seeks or prays to be adjudicated a bankrupt, or is to be discharged from any or all of the Board of Education’s debts or obligations, or offers to the Board of Education’s creditors to effect a composition or extension of time to pay the Board of Education’s debts or asks, seeks or prays for reorganization or to effect a plan of reorganization, or for a readjustment of the Board of Education’s debts, or for any other similar relief, or if any such petition or any such proceedings of the same or similar kind or character be filed or be instituted or taken against the Board of Education, or if a receiver of the business or of the property or assets of the Board of Education shall be appointed by any court, except a receiver appointed at the instance or request of the Corporation, or if the Board of Education shall make a general assignment for the benefit of the Board of Education’s creditors, or if (iii) the Board of Education shall abandon or vacate the Leased Premises, then the Board of Education shall be deemed to be in default under the Lease Agreement.

(c) In addition to the other remedies set forth in the Lease Agreement, upon the occurrence of an event of default as described above, the Corporation and its assignee shall be entitled to proceed to protect and enforce the rights vested in the Corporation and its assignee by the Lease Agreement or by law. The provisions of the Lease Agreement and the duties of the Board of Education and of its board, officers or employees shall be enforceable by the Corporation or its assignee by mandamus or other appropriate suit, action or proceeding in any court of competent jurisdiction. Without limiting the generality of the foregoing, the Corporation and its assignee shall have the right to bring the following actions:

(i) Accounting. By action or suit in equity to require the Board of Education and its board, officers and employees and its assigns to account as the trustee of an express trust.

(ii) Injunction. By action or suit in equity to enjoin any acts or things which may be unlawful or in violation of the rights of the Corporation or its assignee.

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(ii) Mandamus. By mandamus or other suit, action or proceeding at law or in equity to enforce the Corporation’s or its assignee’s rights against the Board of Education (and its board, officers and employees) and to compel the Board of Education to perform and carry out its duties and obligations under the law and its covenants and agreements with the Board of Education as provided in the Lease Agreement.

Each and all of the remedies given to the Corporation under the Lease Agreement or by any law now or hereafter enacted are cumulative and the single or partial exercise of any right, power or privilege under the Lease Agreement shall not impair the right of the Corporation to other or further exercise thereof or the exercise of any or all other rights, powers or privileges. The term “re-let” or “re-letting” as used in the Lease Agreement shall include, but not be limited to, re-letting by means of the operation by the Corporation of the Leased Premises. If any statute or rule of law validly shall limit the remedies given to the Corporation under the Lease Agreement, the Corporation nevertheless shall be entitled to whatever remedies are allowable under any statute or rule of law.

In the event the Corporation shall prevail in any action brought to enforce any of the terms and provisions of the Lease Agreement, the Board of Education agrees to pay a reasonable amount as and for attorney’s fees incurred by the Corporation in attempting to enforce any of the remedies available to the Corporation under the Lease Agreement.

(d) Notwithstanding anything in the Lease Agreement to the contrary, the termination of the Lease Agreement by the Corporation and its assignees on account of a default by the Board of Education under the Lease Agreement shall not affect or result in a termination of the lease of the Leased Premises by the Board of Education to the Corporation pursuant to the Lease Agreement.

However, under the Lease Agreement, the Corporation or any assignee of the rights of the Corporation under the Trust Agreement may not exercise its remedies so as to cause the interest component of Base Rental to be subject to federal income taxes or State personal income taxes. Notwithstanding any other provision of the Lease Agreement or the Trust Agreement, in no event will the Corporation have the right to accelerate the payment of any Base Rental.

Option to Purchase. The Board of Education has the exclusive right and option, which is irrevocable during the term of the Lease Agreement, to purchase the Corporation’s interest in the Leased Premises on any Business Day, upon payment of the option price, but only if the Board of Education is not in default under the Lease Agreement or the Trust Agreement. The option price will be determined by reference to a schedule contained in the Lease Agreement. The Board of Education will exercise its option to purchase by giving notice thereof to the Trustee not later than 15 days prior to the Business Day on which it desires to purchase Corporation’s interest in the Leased Premises, unless the Business Day on which the Board of Education intends to exercise its option under the Lease Agreement is, in accordance with the terms of the Trust Agreement, a date on which Certificates are subject to optional prepayment, in which case the Board of Education is to give notice to the Trustee of its intention to exercise its option not later than 60 days prior to the Business Day on which it desires to purchase the Leased Premises.

If the Business Day on which the Board of Education intends to exercise its option is, in accordance with the terms of the Trust Agreement, a date on which Certificates are subject to optional prepayment, then the Board of Education will deposit with the Trustee on such purchase date an amount equal to the option price which amount is in addition to the Base Rental due on such date.

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If the Business Day on which the Board of Education intends to exercise its option is not a date on which Certificates are subject to optional prepayment pursuant to the terms of the Trust Agreement, then the option price will be payable in installments. Each such installment (a) is payable at each time at which a payment of Base Rental would have been payable had such option not been exercised until the due date of the final installment referred to in the proviso set forth below in this paragraph; and (b) equals the principal amount of each Base Rental payment referred to in clause (a) above; provided, however, that the final installment is payable on the first date on which Certificates are subject to optional prepayment pursuant to the terms of the Trust Agreement and will be in an amount equal to the option price on such date. Each such installment will bear interest until paid at a rate equal to the rate which would have been payable with respect to the payments of Base Rental referred to in clause (a) above.

In order to secure its obligations to pay the installments referred to in the immediately preceding paragraph, the Board of Education, concurrently with the exercise of its option will deposit or cause to be deposited with the Trustee, in trust, cash or investments of the type described in the Trust Agreement in such amount as will, together with the interest to accrue thereon without the need for further investment, be fully sufficient to pay the installments (including all principal and interest) referred to in the immediately preceding paragraph at the times at which such installments are required to be paid. Such deposit shall be in addition to the Base Rental, if any, due on such date. The excess, if any, of the amount so deposited over the installments actually required to be paid by the Board of Education is to be remitted to the Board of Education.

The Property Lease

The Property Lease provides the terms under which the Board of Education agrees to lease the Leased Premises to the Corporation for the term of the Property Lease for the purposes described in the Property Lease and such purposes as may be incidental thereto.

Rent. The Corporation is to pay to the Board of Education as advance rent equal to the proceeds of the 2009 Certificates deposited, in the aggregate, into the funds and accounts established under the Trust Agreement, as full consideration for the Property Lease over its term, such advance rent to be deposited by the Trustee into such funds and accounts on behalf of the Corporation for the benefit of and use by the Board of Education pursuant to the terms of the Trust Agreement. The Corporation waives any right to abatement of such advance rent in the event of loss of use of the Property or portion thereof due to damage, destruction or theft.

Assignment and Sublease. The Corporation may not assign, mortgage, hypothecate or otherwise encumber the Property Lease and any rights under the Property Lease and the leasehold created thereby by Trust Agreement, indenture or deed of trust or otherwise or sublet the Property without the written consent of the Board of Education, except that the Board of Education expressly approves and consents to the assignment and transfer of the Corporation’s right, title and interest in the Property Lease to the Trustee pursuant to the Assignment Agreement. In the event of default by the Board of Education under the Lease Agreement, the Board of Education expressly approves the assignment of the Property Lease.

Taxes. The Board of Education covenants and agrees to pay any and all taxes and assessments levied or assessed upon the Property.

Eminent Domain. If the whole or any part of the Property is taken under the power of eminent domain, the interest of the Corporation will be recognized and is determined to be the aggregate amount of unpaid Base Rental under the Lease Agreement and will be paid to the Trustee in accordance with the terms of the Lease Agreement and the Trust Agreement.

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Possession of Leased Property by State. If the State subsequently determines for any reason to terminate the Joint Powers Agreement and recover the Leased Property, the Board of Education shall be obligated to substitute other property for the Leased Property and shall lease such property to the Corporation all in accordance with the terms and provisions set forth in the Trust Agreement.

Amendment. The Property Lease may be amended only in accordance with and as permitted by the terms of the Trust Agreement.

The Assignment Agreement

The Assignment Agreement sets forth the terms under which the Corporation unconditionally sells, assigns and transfers to the Trustee, for the benefit of the owners of the Certificates, all of the Corporation’s rights, title and interest (excluding the Corporation’s rights to indemnification and payment or reimbursement for any costs or expenses) in and to the Property Lease and the Lease Agreement.

Agency Agreement

The Agency Agreement sets forth the terms under which the Corporation appoints the San Diego County Superintendent of Schools (the “Superintendent of Schools”) as the agent of the Corporation, to undertake responsibility for the construction of the Facility. The Superintendent of Schools, as agent of the Corporation, assumes all rights, duties, liabilities and responsibilities of the Corporation regarding construction of the Facility, except as limited in the Agency Agreement.

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APPENDIX D

FORM OF CONTINUING DISCLOSURE AGREEMENT

This Continuing Disclosure Agreement, dated as of November 1, 2009 (this “Disclosure Agreement”), is executed and delivered by the San Diego County Board of Education (the “Issuer”) and Union Bank, N.A., as Dissemination Agent, in connection with the execution and delivery of $5,755,000 aggregate principal amount of the San Diego County Board of Education 2009 Certificates of Participation (Camp Cuyamaca Outdoor School Project) (the “Certificates”). The Certificates are being issued pursuant to a Trust Agreement, dated as of November 1, 2009 (the “Trust Agreement”), by and among the Issuer, SDCOE Corporation, a California nonprofit public benefit corporation and Union Bank, N.A., as trustee (the “Trustee”). The Issuer is an “Obligated Person” as defined under the Rule (as defined below), and covenants and agrees as follows:

Section 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Issuer for the benefit of the Owners of the Certificates and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5).

Section 2. Definitions. In addition to the definitions set forth in the Trust Agreement, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:

“Annual Report” means any Annual Report provided by the Issuer pursuant to, and as described in, Section 3 of this Disclosure Agreement.

“Beneficial Owner” means any registered owner of any Certificates and any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Certificates (including persons holding Certificates through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Certificates for federal income tax purposes.

“Dissemination Agent” means the Trustee, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Issuer and which has filed with the Trustee a written acceptance of such designation.

“EMMA” means the Electronic Municipal Market Access facility for municipal securities disclosure of the MSRB, or any other market access method approved under the Rule.

“Issuer” means San Diego County Board of Education, a public agency of the State of California.

“Material Events” means any of the events listed in Section 4(a) of this Continuing Disclosure Agreement.

“MSRB” means the Municipal Securities Rulemaking Board and any successors or assigns, or any other entities or agencies approved under the Rule.

“Participating Underwriter” means the original underwriter of the Certificates required to comply with the Rule in connection with offering of the Certificates.

“Rule” means 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.

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“Trustee” means Union Bank, N.A., acting in its capacity as Trustee under the Trust Agreement, or any successor Trustee designated in writing by the Issuer.

Section 3. Provision of Annual Reports.

(a) Within 210 days after the close of each fiscal year beginning with the fiscal year ending June 30, 2009, the Issuer shall, or shall cause the Dissemination Agent to, provide to the MSRB, at www.emma.msrb.org, in such electronic format accompanied by such identifying information as shall have been prescribed by the MSRB and which shall be in effect on the date of filing of such information, the following financial information and operating data (the “Annual Report”):

(i) the financial statements of the Board of Education for such recently ended fiscal years, prepared in accordance with GAAP as in effect from time to time. Such financial statements shall be audited by an independent accounting firm. If the Board of Education’s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to this 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 with respect to the Certificates, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available; and

(ii) Updated historical information of the type set forth in the section entitled “Board of Education Financial Information” in the Official Statement, other than the information included under the captions Assessed Valuation; Tax Rates, Levies, Collections and Delinquencies; Largest Taxpayers, State Lottery and San Diego County Investment Pool in such section.

Any or all of the items listed above may be incorporated by reference from other documents, including official statements of debt issues with respect to which the Issuer is an “obligated person” (as defined by the Rule), which are available to the public on the MSRB’s Internet Web site, or have been filed with the Securities and Exchange Commission. The Issuer shall clearly identify each such other document so included by reference.

In each case, the Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in this Section; provided that the audited financial statements of the Issuer 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 they are not available by that date. If the Issuer’s fiscal year changes, it shall give notice of such change in the same manner as for a Material Event under Section 4(a).

(b) Not later than 15 business days prior to the date specified in subsection (a) for providing the Annual Report to the MSRB, the Issuer shall provide the Annual Report to the Dissemination Agent and the Trustee (if the Trustee is not the Dissemination Agent). If by such date the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall contact the Issuer to determine if the Issuer is in compliance with subsection (a).

(c) If the Dissemination Agent is unable to verify that the Annual Report has been provided to the MSRB by the date required in subsection (a), the Dissemination Agent shall send a notice in substantially the form attached as Exhibit A to the MSRB, of the failure of the Issuer to submit the Annual Report by the date specified.

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(d) The Dissemination Agent shall determine each year prior to the date for providing the Annual Report the address of the MSRB, and provide the Annual Report to the MSRB and file a report with the Issuer certifying that the Annual Report has been provided pursuant to this Continuing Disclosure Agreement, stating the date it was provided.

Section 4. Reporting of Material Events.

(a) Pursuant to the provisions of this Section, the Issuer shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Certificates, if material (“Material Events”):

(1) principal and interest payment delinquencies;

(2) non-payment related defaults;

(3) modifications to rights of owners;

(4) optional, contingent or unscheduled note calls;

(5) defeasances;

(6) rating changes;

(7) adverse tax opinions or events affecting the tax-exempt status of the Certificates;

(8) unscheduled draws on debt service reserves reflecting financial difficulties;

(9) unscheduled draws on credit enhancements reflecting financial difficulties;

(10) substitution of credit or liquidity providers, or their failure to perform; or

(11) release, substitution or sale of property securing repayment of the Certificates.

(b) The Dissemination Agent shall, promptly after obtaining actual knowledge of the occurrence of any event that it believes may constitute a Material Event, contact the Assistant Superintendent Business Services Division of the San Diego County Office of Education, or such other person as the Issuer shall designate in writing to the Dissemination Agent from time to time, inform such person of the event, and request that the Issuer promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (d). If in response to a request under this subsection (b), the Issuer determines that such event would not be material under applicable federal securities laws, the Issuer shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection (d).

(c) Whenever the Issuer obtains knowledge of the occurrence of a Material Event, because of a notice from the Dissemination Agent pursuant to subsection (b) or otherwise, the

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Issuer shall promptly notify and instruct the Dissemination Agent in writing to report the occurrence pursuant to subsection (d).

(d) If the Dissemination Agent receives written instructions from the Issuer to report the occurrence of a Material Event, the Dissemination Agent shall promptly file a notice of such occurrence with the MSRB, with a copy to the Issuer. Notwithstanding the foregoing, notice of Material Events described in subsections (a)(4) and (5) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to the registered owners of affected Certificates pursuant to the Trust Agreement.

Section 5. Termination of Reporting Obligation. The Issuer’s obligations under this Continuing Disclosure Agreement shall terminate upon the legal defeasance, prior prepayment or payment in full of all of the Certificates. If the Issuer’s obligations under this Continuing Disclosure Agreement are assumed in full by some other entity, such person shall be responsible for compliance with this Continuing Disclosure Agreement in the same manner as if it were the Issuer, and the Issuer shall have no further responsibility hereunder. If such termination or substitution occurs prior to the final maturity of the Certificates, the Issuer shall give notice of such termination or substitution in the same manner as for a Material Event under Section 4.

Section 6. Dissemination Agent. The Issuer may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Continuing Disclosure Agreement, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent may resign as dissemination agent hereunder at any time upon 30 days prior written notice to the Issuer. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report (including without limitation the Annual Report) prepared by the Issuer pursuant to this Continuing Disclosure Agreement. The initial Dissemination Agent is the Trustee.

Section 7. Amendment; Waiver. Notwithstanding any other provision of this Continuing Disclosure Agreement, the Issuer and the Trustee may amend this Continuing Disclosure Agreement and any provision of this Continuing Disclosure Agreement may be waived, provided that Bond Counsel or other counsel experienced in federal securities law matters provides the Issuer and the Trustee with its opinion that the undertaking of the Issuer contained herein, as so amended or after giving effect to such waiver, is in compliance with the Rule and all current amendments thereto and interpretations thereof that are applicable to this Continuing Disclosure Agreement.

In the event of any amendment or waiver of a provision of this Continuing Disclosure Agreement, the Issuer shall describe such amendment in the next Annual Report prepared in accordance with Section 2, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the Issuer. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (1) notice of such change shall be given in the same manner as for a Material Event under Section 4(d), and (2) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles.

Section 8. Additional Information. Nothing in this Continuing Disclosure Agreement shall be deemed to prevent the Issuer from disseminating any other information, using the means of dissemination set forth in this Continuing Disclosure Agreement or any other means of communication, or including any other information in any report under Section 2 or notice of occurrence of a Material

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Event, in addition to that which is required by this Continuing Disclosure Agreement. If the Issuer chooses to include any information in any report provided under Section 2 or notice of occurrence of a Material Event, in addition to that which is specifically required by this Continuing Disclosure Agreement, the Issuer shall have no obligation under this Continuing Disclosure Agreement to update such information or include it in any future report provided under Section 2 or notice of occurrence of a Material Event.

Section 9. Default. If the Issuer or the Dissemination Agent fails to comply with any provision of this Continuing Disclosure Agreement, any Participating Underwriter or any Beneficial Owner of the Certificates may take such actions as may be necessary and appropriate, including seeking mandamus or specific performance by court order, to cause the Issuer or the Dissemination Agent, as the case may be, to comply with its obligations under this Continuing Disclosure Agreement. A default under this Continuing Disclosure Agreement shall not be deemed an event of default under the Trust Agreement or the Certificates, and the sole remedy under this Continuing Disclosure Agreement in the event of any failure of the Issuer or the Dissemination Agent to comply with this Continuing Disclosure Agreement shall be an action to compel performance.

Section 10. Duties and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Continuing Disclosure Agreement, and the Issuer 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 Issuer under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Certificates. The Issuer shall pay the fees, charges and expenses of the Dissemination Agent in connection with its administration of this Continuing Disclosure Agreement.

Section 11. Notices. Any notices or communications to or among any of the parties to this Continuing Disclosure Agreement may be given by registered or certified mail, return receipt requested, or by confirmed facsimile, or delivered in person or by overnight courier, and will be deemed given on the second day following the date on which the notice or communication is so mailed, as follows:

To the Issuer: San Diego County Board of Education 6401 Linda Vista Road San Diego, California 92111 Attention: Assistant Superintendent Business Services Divsion

To the Dissemination Agent: Union Bank, N.A. 120 San Pedro Street, 4th Floor Los Angeles, California 90012 Attention: Corporate Trust Department

Any person may, by written notice to the other persons listed above, designate a different address

or telephone number to which subsequent notices or communications should be sent.

Section 12. Beneficiaries. This Continuing Disclosure Agreement shall inure solely to the benefit of the Issuer, the Dissemination Agent, the Participating Underwriters and Beneficial Owners from time to time of the Certificates, and shall create no rights in any other person or entity.

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Section 13. Severability. If any provision in this Continuing Disclosure Agreement, the Trust Agreement or the Certificates shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

Section 14. Counterparts. This Continuing Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

Section 15. Governing Law. This Continuing Disclosure Agreement shall be governed by and construed in accordance with the laws of the State of California determined without regard to principles of conflict of law.

Section 16. Electronic Transactions. The parties agree that the arrangement described herein may be conducted and related documents may be stored by electronic means.

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THIS CONTINUING DISCLOSURE AGREEMENT is hereby executed as of the date first hereinabove written.

SAN DIEGO COUNTY BOARD OF EDUCATION

By Sharon C. Jones, President ATTEST: _____________________________ Randolph E. Ward, Ed.D., Secretary UNION BANK, N.A. As Dissemination Agent By Authorized Signatory

[Signature Page to Continuing Disclosure Agreement]

EXHIBIT A

NOTICE OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: San Diego County Board of Education (San Diego, California)

Name of Certificate Issue: $5,755,000 San Diego County Board of Education 2009 Certificates of Participation (Camp Cuyamaca Outdoor School Project)

Issuance Date: November 10, 2009

NOTICE IS HEREBY GIVEN that the SAN DIEGO COUNTY BOARD OF EDUCATION (the “Board of Education”) has not provided the Annual Report with respect to the above-named Certificates as required by Sections 3 and 5 of the Continuing Disclosure Agreement, dated as of November 1, 2009, by and between the Board of Education and Union Bank, N.A., as Dissemination Agent. The Board of Education anticipates that the Annual Report will be filed by ____________.

Dated: ______________

UNION BANK, N.A., as Dissemination Agent on behalf of the SAN DIEGO COUNTY BOARD OF EDUCATION By

Authorized Officer

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APPENDIX E

FORM OF PROPOSED OPINION OF SPECIAL COUNSEL

November 10, 2009

San Diego County Board of Education 6401 Linda Vista Road San Diego, California 92111 SDCOE Corporation 6401 Linda Vista Road San Diego, California 92111

$5,755,000 San Diego County Board of Education

2009 Certificates of Participation (Camp Cuyamaca Outdoor School Project)

Ladies and Gentlemen:

We have acted as special counsel in connection with the execution and delivery of $5,755,000 aggregate principal amount of San Diego County Board of Education 2009 Certificates of Participation (Camp Cuyamaca Outdoor School Project) (the “2009 Certificates”). The 2009 Certificates are being executed and delivered pursuant to a Trust Agreement, dated as of November 1, 2009 (the “Trust Agreement”), among the San Diego County Board of Education (the “Board of Education”), the SDCOE Corporation (the “Corporation”) and Union Bank, N.A., as trustee (the “Trustee”). The 2009 Certificates are payable from, among other specified sources, base rental (“Base Rental”) payments payable by the Board of Education pursuant to a Lease Agreement, dated as of November 1, 2009 (the “Lease Agreement”), between the Corporation and the Board of Education. The Board of Education has leased certain real property and improvements (the “Leased Property”) to the Corporation pursuant to a Property Lease, dated as of November 1, 2009 (the “Property Lease”). The Corporation has agreed to construct certain improvements (the “Facility”) on the Leased Property and to lease the Leased Property and the Facility (collectively, the “Leased Premises”) back to the Board of Education pursuant to the Lease Agreement. The Board of Education is obligated under the Lease Agreement to make rental payments including the Base Rental payments for the use and occupancy of the Leased Premises from any source of legally available funds in amounts intended to be sufficient in both time and amount to pay, when due, the principal, interest and premium, if any, with respect to the 2009 Certificates. The Corporation has assigned all of its rights under the Property Lease and the Lease Agreement (excluding the Corporation’s right to indemnification and payment or reimbursement for any costs or expenses) to the Trustee for the benefit of the owners of the 2009 Certificates pursuant to an Assignment Agreement, dated as of November 1, 2009, between the Corporation and the Trustee. A portion of each Base Rental

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payment is designated as interest. All capitalized terms not defined herein shall have the meanings assigned to them in the Trust Agreement.

In such connection, we have reviewed the Trust Agreement, the Lease Agreement, the

Property Lease, the Tax and Nonarbitrage Certificate, dated the date hereof (the “Tax Certificate”), certificates of the Corporation, the Board of Education, the Trustee, and others, opinions of counsel to the Corporation, the Board of Education and others, and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein.

Certain agreements, requirements and procedures contained or referred to in the Trust

Agreement, the Lease Agreement, the Property Lease, the Tax Certificate and other relevant documents may be changed and certain actions (including, without limitation, defeasance of the Lease Agreement) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. No opinion is expressed herein as to any 2009 Certificate or the portion of each Base Rental payment designated as and comprising interest and received by the owners of the 2009 Certificates if any such change occurs or action is taken or omitted upon the advice or approval of counsel other than ourselves.

The opinions expressed herein are based on an analysis of existing laws, regulations,

rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine or to inform any person, whether any such actions are taken or omitted or events do occur. Our engagement with respect to the 2009 Certificates has concluded with their delivery, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the Board of Education and the Corporation. We have not undertaken to verify independently, and have assumed, the accuracy of the factual matters represented, warranted or certified in the documents, and of the legal conclusions contained in the opinions, referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Trust Agreement, the Lease Agreement and the Tax Certificate, including without limitation covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause the portion of each Base Rental payment designated as and comprising interest and received by the owners of the 2009 Certificates to be included in gross income for federal income tax purposes. We call attention to the fact that the rights and obligations under the 2009 Certificates, the Trust Agreement, the Lease Agreement and the Tax Certificate may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against public agencies in the State of California. We express no opinion with respect to any indemnification, contribution, choice of law, choice of forum or waiver provisions contained in the foregoing documents nor do we express any opinion with respect to the state or quality of title to any of the property

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described in the Lease Agreement and the Property Lease or the accuracy or sufficiency of the description of any such property contained therein. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the 2009 Certificates and express no opinion with respect thereto.

Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we

are of the following opinions:

1. The Property Lease, the Lease Agreement and the Trust Agreement have been duly authorized, executed and delivered by the Board of Education and the Corporation and, assuming due authorization, execution and delivery by the other parties thereto, constitute valid and binding obligations of the Board of Education and the Corporation, enforceable in accordance with their terms.

2. The obligation of the Board of Education to make Base Rental payments

during the term of the Lease Agreement constitutes a valid and binding obligation of the Board of Education, payable from funds of the Board of Education lawfully available therefor, and does not constitute a debt of the Board of Education, the County of San Diego, the State of California or any political subdivision of the State within the meaning of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the Board of Education, the County of San Diego, the State of California or any political subdivision thereof is obligated to levy or pledge any form of taxation or for which the Board of Education, the County of San Diego, the State of California or any political subdivision thereof has levied any form of taxation.

3. Assuming due authorization and execution of the Trust Agreement and the

2009 Certificates by the Trustee, the 2009 Certificates are entitled to the benefits of the Trust Agreement.

4. The portion of each Base Rental payment due under the Lease Agreement

designated as and comprising interest (including original issue discount) and received by the owners of the 2009 Certificates is excludable from gross income for federal income tax purposes. Furthermore, such interest portion (including original issue discount) of each Base Rental payment does not constitute an item of tax preference and is not included in adjusted current earnings for purposes of the alternative minimum tax imposed on individuals and corporations by the Internal Revenue Code of 1986, as amended (the “Code”). The opinions set forth in this paragraph are subject to continuing compliance by the Board of Education with covenants regarding federal tax law contained in the Trust Agreement, the Lease Agreement and the Tax Certificate. Failure to comply with such covenants could cause the interest portion (including original issue discount) of the Base Rental payments to be included in gross income retroactive to the date of delivery of the 2009 Certificates. Although we are of the opinion that the interest portion (including original issue discount) of each Base Rental payment is excludable from gross income for federal income tax purposes, the accrual or receipt of the interest

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portion (including original issue discount) of each Base Rental payment may otherwise affect the federal income tax liability of the recipient. The extent of these other tax consequences will depend upon the recipient’s particular tax status or other items of income or deduction. We express no opinion regarding any such consequences. Purchasers of the 2009 Certificates, particularly purchasers that are corporations (including S corporations, corporations subject to the environmental tax imposed by Section 59A of the Code and foreign corporations operating branches in the United States), property or casualty insurance companies, banks, thrifts or other financial institutions, certain recipients of Social Security or Railroad Retirement benefits, or taxpayers otherwise entitled to claim the earned income credit and taxpayers who may be deemed to have incurred or continued indebtedness to carry tax-exempt obligations, are advised to consult their tax advisors as to the tax consequences of purchasing or holding the 2009 Certificates.

5. The portion of each Base Rental payment due under the Lease Agreement

designated as and comprising interest (including original issue discount) and received by the owners of the 2009 Certificates is exempt from present State of California personal income taxes.

6. Because the Lease Agreement has been properly designated as a “qualified

tax-exempt obligation” within the meaning of Section 265(b)(3) of the Code, in the case of certain banks, thrift institutions or other financial institutions owning the 2009 Certificates, a deduction is allowed for 80% of that portion of such institutions' interest expense allocable to interest with respect to the 2009 Certificates.

Very truly yours,