ffsa. - californiacdiacdocs.sto.ca.gov/2007-0349.pdfbonds are "qualified tax-exempt...

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NEW ISSUE BOOK-ENTRY ONLY

OFFICIAL STATEMENT INSURED RA TING: S&P: AAA UNDERLYING RA TING: S&P: AA (See "RA TING" herein)

In the opinion of Jones Hall, A Professwnal Law Corporation, San Francisco, California, Bond Counsel, undn existing law, the interest on the Bonds is excludable from gross income for federal income tax purposes and such interest is not an ili~m of tax preference for purposes of the federal individual and corporate alternative minimum taxes; although it is includable in determinir.g certain income and earnings in computing the alternative minimum tax imposed on certain corporations, subject, however to certain qualifications described herein, and the Bonds are "qualified tax-exempt obligations" within the meaning of Section 265(b)(3) of the Internal Re,;enue Code of 1986. In the further opinion of Bond Counsel, such interest is exempt from California personal income taxes. See ''TAX MATTERS."

$3,035,000 PACIFIC GROVE UNIFIED SCHOOL DISTRICT

(MONTEREY COUNTY, CALIFORNIA) 2007 GENERAL OBLIGATION REFUNDING BONDS

BANK QUALIFIED Dated: Date of Delivery Due: August 1, as shown below

The Pacific Grove Unified School District 2007 General Obligation Refunding Bonds (the "Bonds") arc being issued to refund certain outstanding general obligation bonds heretofore issued by the Pacific Grove Unified School District (the "Distrid"), which were previously issued to finance the repair, renovation, and modernization of schools and classrooms throughout the Distrid, as further described herein. See "RHUNDING PLAN." The Bonds are general obligations of the Pacific Grove Unified School District. The Board of Supervi~ors of Monterey County is empowered and is obligated to levy or cause to be levied ad valorem taxes, without limitation of rate or amount, for the payment of interest on and principal of the Bonds, upon all property subject to taxation by the District (except certain personal property which is taxable at limited rates). To the extent more fully described herein, the Bonds are legal investments for commercial banks in the State of California and are eligible to secure deposits of public moneys in the State of California.

Interest due with respect to the Bonds is payable semiannually on February 1 and August J o:: cad1 year commencing August 1, 2007. The Bonds will be delivered in fully registered form only and, when executed and delivered, will be registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York ("DTC"). Ownership interests in the Bonds will be ln denominations of $5,000 or any integral multiple thereof. Beneficial mvner:, of the Bonds will not receive physical certificates representing their interests in the Bonds, but will receive a credit balance on the books of the nominees for such beneficial owners. The principal of and interest on the Bonds will be paid by Wells Fargo Bank, N.A., as paying agent (the "Paying Agent") to DTC, which will in turn remit such principal and interest to its participants for subsequent disbursement to the beneficial owners of the Bonds as described herein. See "THE BONDS - Book-Entry Only System." The Bonds are subject to redemption prior to maturity as described herein under the heading "THE BONDS - Redemption."

The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Bonds by FINANCIAL SECURITY ASSURANCE :NC.

Maturity Aui.ust 1,

2007 2008 2009 2010 2011 2012

FFSA. MATURITY SCHEDULE

Base CUSI pO): 694393 Principal Coupon Price/ Maturity Principal Coupon

Amount Rate Yield cus1pu) August 1, Amount Rate $25,000 3.50% 3.52% GC7 2013 $15,000 3.50%

10,000 3.50 3.52 GOS 2014 15,000 3.60 15,000 3.50 3.52 CE3 2015 15,000 3.60

15,000 3.50 3.56 CFO 2016 145,000 4.00 15,000 3.50 3.59 ccs 2017 150,000 4.00 15,000 3.50 3.62 Gll6

$ 320,000 3.85% Term Bond due August l, 2019 (Yield 3.95%) CUSIP GQ6 $ 530,000 4.00% Term Bond due August 1, 2022 (Yield 4.05%) CUSIP CTO $ 600,000 4.00% Term Bond due August 1, 2025 (Yield 4.10%) CUSIP GW3 $1,150,000 4.10% Term Bond due August l, 2030 (Yield 4.20%) CUSH' HBS

Price/ Yield CUSIP(1) 3.64% GJ2 3.68 CK9 3.72 CL7 3.80(2) CMS 3.85(2) GN3

The Bonds were offered when, as and if issued and received by the Underwriter, S1Jbject to the approval of lt;gaiity by Jones Hall, A Professional Law Corporaflon

1 San Francisco, California, Bond Counsel and subject lo certain other cond.itions, It is anticipated that the

Bonds will be available for delwery to OTC on or aliout April 10, 2007 .

Pi perJ affray. This Official Statement is dated March 27, 2007.

(1) CUSIP Copyright American Bankers Association. a division of the McGraw I lill Companies, lnc. (2) Yield to August 1, 2015 par call

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CUSIP data herein is provided by Standard & Poor's CUSIP Service Bureau, •·,.J '.:l;•

GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT

Use of Official Statement. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. The information set forth herein has been obtained from official 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 District.

Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the District, in any press release and in any oral statement made with the approval of an authorized officer of the District, the words or phrases "will likely result," "are expected to", "will continue", "is anticipated", "estimate", "project," "forecast'', "expect", "intend" and similar expressions identify ''forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. 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, give rise to any implication that there has been no change in the affairs of the District since the date hereof.

Limit of Offering. No dealer, broker, salesperson or other person has been authorized by the District or the Underwriter to give any information or to make any representations other than those contained herein and, if given or made, such other information or representation 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 sale of the Bonds by a person m 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 Bonds.

Involvement of the Underwriter. The Underwriter has provided the following statement for inclusion in the Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, the Underwriter's responsibilities to investors under the Federal Securities Laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The information and expressions of opinions 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 in the affairs of the District since the date hereof. All summaries of any legal documents referred to in this Official Statement are made subject to the provisions of such documents, respectively, and do not purport to be complete statements of any or all of such provisions.

Municipal Bond Insurer's Statement. Other than with respect to information concerning Financial Security Assurance Inc., ("Financial Security") contained under the caption "THE BONDS - Bond Insurance" and "APPENDIX F - Specimen Municipal Bond Insurance Policy" herein, none of the information in this Official Statement has been supplied or verified by Financial Security and Financial Security makes no representation or warranty, express or implied, as to (i) the accuracy or completeness of such information; (ii) the validity of the Bonds; or (iii) the tax exempt status of the interest of the Bonds

Stabilization of Prices. In connection with this offering, the Underwriter may overallot or effect transactions which stabilize or maintain the market price of the Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriter may offer and sell the Bonds to certain dealers and others at prices lower than the public offering prices set forth on the cover page hereof and said public offering prices may be changed from time to time by the Underwriter.

TIIE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXCEPTION FROM THE REGISTRATION REQUIREMENTS CONTAINED IN SUCH AC..7'. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.

Piper Jaffray & Co. Since 1895. Member SIPC and NYSE.

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PACIFIC GROVE UNIFIED SCHOOL DISTRICT MONTEREY COUNTY

STATE OF CALIFORNIA

District Board of Education

Mike Niccum, President Richard Schramm, Clerk

Jessie Bray, Member Beth Shammas, Member

Bill Phillips, Member

District Administrative Staff

Patrick Perry, Superintendent Robin Blakley, Assistant Superintendent, Business Services

Financial Advisor

Dale Scott & Company Inc. 400 Montgomery Street, Suite 805

San Francisco, California 94104

Bond Counsel

Jones Hall A Professional Law Corporation 650 California Street, 18th Floor San Francisco, California 94108

Paying Agent and Escrow Bank

Wells Fargo !lank 333 Market Street, 18th Floor

San Francisco, California 94105

Verification Agent

Causey Demgen & Moore Inc. 1801 California Street, Suite 4650

Denver, Colorado 80202

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[THIS PAGE INTENTIONALLY LEFT BLANK]

TABLE OF CONTENTS

INTRODUCf!ON .............................................................................................................................................................. 1

THE REFUNDING PLAN ................................................................................................................................................ 1

THE BONDS ....................................................................................................................................................................... 2

~~:~~;Z,~0~/~h~;;'i~d;:::::: :: ::::: :: ::::::::::::::::::::::::::::: :::::::::::::::::::::::::: ::::: ::::: :: :: ::::::::::::::::::: :::::::::::::: :: ~ Book-Entry Only System .................................................................................................................................. 3 Transfer and Exchange ...................................................................................................................................... 5 Redemption ......................................................................................................................................................... 5

Optional Redemption ......................................................................................................................... 5 Mandatory Sinking Fund Redemption ........................................................................................... 6 Selection of Bonds for Redemption ................................................................................................. 6 Notice of Redemption ......................................................................................................................... 7

Payment ............................................................................................................................................................... 7 Legal Opinion ..................................................................................................................................................... 8 Security and Sources of Payment for the Bonds ......................................................................................... 8 Bond Insurance .................................................................................................................................................... 8 Annual Debt Service ........................................................................................................................................ 10 The Purpose of the Issue .................................................................................................................................. 9 Sources and Uses of Funds....................................................................................... .. ................. 12 Defeasance .............................. ......................................................................................................................... 12

CONTINUING DISCLOSURE ..................................................................................................................................... 13

THE DISTRICT ................................................................................................................................................................ 13 General Information ........................................................................................................................................ 13 Employee Relations ......................................................................................................................................... 14 Pension Plans .................................................................................................................................................... 14 Postemployment Benefits Other than Pension Benefits .......................................................................... 15 Short-Term Borrowing ..................................................................................................................................... 15 Lease Obligations ........................................................................................................................................... 16 l .ong-Term Borrowing .................................................................................................................................... 17

TAXATION AND APPROPRIATIONS ................................................................................................................. 18

.. Property Tax Collection Procedures ........................................................................................................... 18 Unitary Taxation of Utihty Property ........................................................................................................... 19 Tax Levies and Delinquencies ....................................................................................................................... 20 Assessed VaJuation..... . ................... 20 Largest Taxpayers ............................................................................................................................................ 22

DISTRJCT FINANCIAL INFORI\.IATION ................................................................................................................ 22 District Budget .................................................................................................................................................. 22 Accounting Practices ........................................................................................................................................ 24

STATE OF CALIFORNIA FINANCES ........................................................................................................................ 24 State Funding of Education and Revenue Limits ...................................................................................... 24 State Funding of Education and Recent State Budgets ............................................................................. 25

LIMITATIONS ON TAX REVENUES ........................................................................................................................ 28 • Article XIIIA of the California Constitution ................................................................................................ 28

Article Xlllll of the California Constitution ............................................................................................... 29 Proposition 218 ................................................................................................................................................. 29

TAX MA TIERS ................................................................................................................................................................ 30

CERTAIN LEGAL MATTERS ...................................................................................................................................... 31 Legality for Investment .................................................................................................................................. 31 Interest Deduction for Financial Institutions ............................................................................................. 31 Absence of Litigation........................................................................................................... . ........... 32

UNDERWRITING ........................................................................................................................................................ 32

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MISCELLANEOUS ....................................................................................................................................................... 32

APPENDIX A - EXCERPTS FROM AUDITED FINANCIAL STATEMENTS OF THE DISTRICJ" FOR FISCAL YEAR 2005-06

APPENDIX B - FORM OF OPINION OF BOND COUNSEL

APPENDIX C FORM OF CONTINUING DISCLOSURE CERTIFICATE

APPENDIX D - MONTEREY COUNTY

APPENDIX E - COUNTY POOLED INVESTMENT POLICY

APPENDIX F -SPECIMEN MUNICIPAL BOND INSURANCE POLICY

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OFFICIAL STATEMENT


(MONTEREY COUNTY, CALIFORNIA) 2007 GENERAL OBLIGATION REFUNDING BONDS

INTRODUCTION

The $3,305,000 principal amount of Pacific Grove Unified School District 2007 General Obligation Refunding Bonds (the "Bonds") is being issued to refund a portion of the Pacific Grove Unified School District General Obligation Bonds, 1999 Election, Series B 13onds (the "Series B Bonds"). The Bonds are general obligations of the Pacific Grove Unified School District (the "District") secured by ad valorem tax revenues to be issued under provisions of the State of California Government Code, and pursuant to a resolution of the Board of Education of the District adopted on March 15, 2007 (the "Resolution"). The Series B Bonds were issued on April 25, 2001, in the original par amount of $4,000,000. The final maturity of the Series B Bonds is August 1, 2030. The Series B Bonds were issued to finance the repair, renovation, and modernization of schools and classrooms throughout the District. The purpose of the Bonds is to provide funds to refund a portion of the Series B Bonds and therefore lower the total annual debt service payments. See 'THE REFUNDING PLAN" below. The proceeds from the sale of Bonds will be used to (a) establish an escrow account to refund a portion of the Series B Bonds and (b) pay costs of issuance of the Bonds.

This Introduction is only a brief description of and guide to, and is qualified by, more complete and detailed Information contained in the entire Official Statement, including the cover page and appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of the Bonds to potential 111vestors is made only by means of the entire Official Statewent.

THE REFUNDING PLAN

The net proceeds from the sale of the Bonds will be deposited into an irrevocable escrow fund (the "Escrow Fund"), to be he1d by Wells Fargo Bank N.A. as escrow bank (the "Escrow Bank") for the purpose of paying and redeeming a portion of the Series B Bonds, in accordance with the terms of that Escrow Agreement (the "Escrow Agreement'') dated the closing date of the Bonds, entered into by and between the District and the Escrow Bank. Under the Escrow Agreement, the Escrow Bank will establish the Escrow fund, which may have separate accounts, into which will be irrevocably deposited amounts sufficient for such purpose. Amounts on deposit in the Escrow Fund will be inves:ed in certain federal securities which, together with earnings thereon and other available cash in the Escrow Fund, will be sufficient to pay and redeem the principal, redemption premium of 102%, and interest on a portion of the Series B Bonds. The District will irrevocably elect in the Escrow Agreement to redeem $2,760,000 of the outstanding principal of the Series B Bonds on August 1, 2009, subject to the closing of the Bonds. As a result of the deposit and administration of the Escrow Fund, a portion of the Series B Bonds will be fully discharged and defeased pursuant to their terms as of the closing date of the Bonds .

THE BONDS

Authority for Issuance

The $3,305,000 principal amount of the Bonds of the District are general obligation bonds to be issued under provisions of Title 5, Division 2, Part 1, Chapter 3, Articles 9 and 11 of the State of California Government Code, commencing with Section 53550, and pursuant to the Resolution.

Description of the Bonds

The Bonds will be dated the date of delivery and will be issued in registered form in denominations of $5,000 or any integral multiple thereof, provided that no Bond shall have principal maturing on more than one maturity date. The Bonds will be delivered in fully registered form only and, when executed and delivered, will be registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York ("OTC'). Beneficial owners of the Bonds will not receive physical certificates representing their interests in the Bonds, but will receive a credit balance on the books of the nominees for such beneficial owners. The principal of and interest on the Bonds will be paid by Wells Fargo Bank as paying agent (the "Paying Agent"), to OTC, which will in turn remit such principal and interest to its participants for subsequent disbursement to the beneficial owners of the Bonds as described herein. As long as Cede & Co. is the registered owner of the Bonds, principal and interest on the Bonds are payable by wire transfer with same-day funds transferred by the Paying Agent to Cede & Co., as norninee for DTC, which will in turn remit such amounts to OTC Participants (as defined herein) for subsequent distribution to the Beneficial Owners. As long as Cede & Co. is the registered owner of the Bonds, as nominee of OTC, references herein to the registered owners shall mean Cede & Co. as aforesaid and shall not mean the Beneficial Owners (as defined herein) of the Bonds. See 'THE BONDS - Book Entry Only System."

On the business day immediately preceding each February 1 and August 1 commencing August 1, 2007 (the "Interest Payment Date") if the Paying Agent is not the Treasurer, and on the Interest Payment Date if the Paying Agent is the Treasurer, the District shall transfer or cause to be transferred from the Debt Service Fund to the Paying Agent, an amount, in immediately available funds, sufficient to pay all the Principal of and interest on the Bonds (collectively, the "Debt Service") on such Payment Date. Debt Service on the Bonds shall be paid by the Paying Agent in the manner provided by law for the payment of Debt Service. The Bonds will mature on August 1, in the years and amounts set forth in the following maturity schedule.

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Maturity (August ll

2007 2008 2009 2010 2011 2012

EXHIBITl SCHEDULE OF MATURITIES

PACIFIC GROVE UNIFIED SCHOOL DISTRICT

Principal Coupon Price/ Maturity Principal Amountm Rate Yield !August ll Amount!~)

25,000 3.50% 3.52% 2013 15,000 10,000 3.50 3.52 2014 15,000 15,000 3.50 3.52 2015 15,000 15,000 3.50 3.56 2016 145,000 15,000 350 3.59 2017 150,000 15,000 3.50 3.62

$ 320,000 3.85% Term Bond due August 1, 2019 (Yield 3.95%) $ 530,000 4.00% Term Bond due August 1, 2022 (Yield 4.05%) $ 600,000 4.00% Term Bond due August 1, 2025 (Yield 4.10%) $1,150,000 4.10% Term Bond due August 1, 2030 (Yield 4.20%)

(]) Yield lo August 1, 2015 par call

Coupon Rate 3.50% 3,60 3,60 4.00 4,00

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Book-Entry Only System

Price/ Yield 3.64% 3,68 3.72 3.soOl 3.ssOl

The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Bonds (the "Bonds"), The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requestec, by an authorized representative of DTC One fully-registered Bond certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC

DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17 A of the Secunties Exchange Act of 1934. DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-U.S. equity, corporate and municipal debt issues, and money market instrument from over 100 countries that DTC's participants ("Direct Participants") deposit with DTC OTC: also facilitates the posttrade 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 Participantc, 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, l'ixed Income Clearing Corporation, and Emerging Markets Clearing Corporation (NSCC:, FICC:, 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 nonU.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 and www.dtc.org.

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http://www.dtcc.com

http://www.dtc.org

Purchases of Bonds under the OTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from OTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bondsf except in the event that use of the book-entry system for the Bonds is discontinued.

To facilitate subsequent transfers, all Bonds deposited by Direct Participants with OTC 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 OTC The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. OTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by OTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners wil1 be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.

Redemption notices shall be sent to DTC. If less than all of the Bonds are being redeemed, DTC's practice is lo determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

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

Redemption proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of OTC. DTC's practice is to credit Direct Participants' accounts, upon DTC's receipt of funds and corresponding detail information from the District or the Paying Agent on 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 Bonds 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 OTC nor its nominee, the Paying Agent, or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of OTC) is the responsibility of the District or the Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the District or the Paying Agent. Under such circumstances, in the event that a successor securities depository is not obtained, Bond certificates are required to be printed and delivered.

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The District may decide to discontinue use of the system of book-entry-only transfers through OTC (or a successor securities depository). In that event, Bond certificates will be printed and de-livered to OTC

The information in this section concerning OTC and DTC's book-entry system has been obtained from sources that the District believes to be reliable, but the District takes no responsibility for the accuracy thereof.

Transfer and Exchange

Any Bond may, in accordance with its terms, be transferred by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation at the principal corporate office of the Paying Agent, accompanied by delivery of a duly executed written instrument of transfer in a form approved by the Paying Agent Bonds may be exchanged at the principal corporate office of the Paying Agent, for a like aggregate principal amount of Bonds of other authorized denominations of the same maturity and interest rate. The Paying Agent is not required to exchange or transfer any Bonds during the period established by the Paying Agent for the se.:ection of Bonds for prepayment, and the Paying Agent shall not be required to transfer or exchange any Bond selected for prepayment in whole or in part. The Paying Agent may require the payment by the Bond Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. The foregoing provisions of this paragraph are not applicable to the Bonds so long as the Bonds are maintained in the book-entry system of OTC as described above. Transfers and exchanges of ownership interests in the Bonds will be governed by the rules of OTC as described above so long as the Bonds are maintained in book-entry form.

Redemption

Optional Redemption. The Bonds maturmg on or before August 1, 2015, are not subject to optional redemption prior to maturity. The Bonds maturing on or after August 1, 2016, are subject to redemption at the option of the District, as a whole or in part among maturities on such basis as shall be designated by the District and by lot within each maturity, from any source of available funds, on any date on or after August 1, 2015, at a price equal to 100% of the principal amount without premium, together with accrued interest thereon,

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Mandatory Sinking Fund Redemption. The Bonds maturing on August 1 in the years 2019, 2022, 2025, and 2030 will be subject to mandatory sinking fund redemption on August 1 of each of the years set forth below, by lot, at a redemption price equal to the principal amount to be redeemed without premium, together with accrued interest thereon to the date fixed for redemption.

Sinking Fund Redemption Date Principal Amount

(August 1) To Be Redeemed ($)

2018 155,000 2019 (Maturity) 165,000

Total 320,000

2020 170,000 2021 180,000 2022 (Maturity) 180,000

Total 530,000

2023 190,000 2024 200,000 2025 (Maturity) 210,000

Total 600,000

2026 215,000 2027 225,000 2028 230,000 2029 235,000 2030 (Maturity) 245,000

Total 1,150,000

Selection of Bonds for Redemption. Whenever less than all of the outstanding Bonds of any one maturity are to be redeemed, the Paying Agent shall select the Bonds of such maturity to be redeemed by lot, and the Paying Agent shall promptly notify the District in writing of the numbers of the Bonds so selected for redemption on such date. For purposes of such selection, Bonds shall be deemed to be composed of $5,000 multiples and any such multiple may be separately redeemed.

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Notice of Redemption. Notice of redemption shall be mailed, first class postage prepaid, to the respective Owners of any Bonds designated for redemption at their address appearing on the books required to be kept by the Paying Agent, not less than thirty (30) nor more than sixty (60) days prior to the redemption date, which notice shall, in the case of each Bond called for redemption in part only, state the amount of the principal amount represented thereby which is to be redeemed. Each notice of redemption shall also state the redemption date, the redemption place, and the redemption price, shall designate the serial numbers of the Bonds to be redeemed by giving the individual number of each Bond or by stating that all Bonds between two stated numbers, both inclusive, have been called for redemption, and shall require that such Bonds be then surrendered for redemption; and shall also state that the interest on the Bonds designated for redemption shall cease to accrue from and after such redemption date and that on such redemption date there will become due and payable on each of the Bonds designated for redemption the redemption price thereof.

In case of the redemption as permitted herein of all the outstanding Bonds of any one maturity, then outstanding, notice of redemption shall be given by mailing as herein above provided, except that the notice of redemption need not specify the serial numbers of the Bonds of such maturity.

Neither the failure to receive such notice nor any defect in any notice so mailed shall affect the sufficiency of the proceedings for the redemption of such Bonds or the cessation of accrual of interest thereon from and after the redemption date.

Payment

Principal (or redemption price) is payable upon surrender of the Bonds in lawful money of the United States of America at the corporate trust office of the Paying Agent. Interest on the Bc,nds shall be payable in like lawful money to the person whose name appears on the bond registration books of the Paying Agent as the registered owner thereof as of the close of business on the fifteenth (15th) day of the month (the "Record Date") immediately preceding an Interest Payment Date, whether or not such day is a business day. Such interest shall be paid by check mailed to such owner at such address as appears on such registration books or upon written request of the owner of Bonds aggregating not less than $1,000,000 in principal amount, such request having been made before the fifteenth (15th) day of the month immediately preceding an Interest Payment Date, by wire transfer in immediately available funds at an account maintained in the United States at such wire address as such owner shall specify in its written notice. However, as long as Bonds are held in book-entry form only, interest payments shall be made by the Paying Agent in immediately payable funds to OTC. The Bonds shall no longer be deemed to be outstanding and unpaid 1f the District shall have made adequate provis10n for the payment, in accordance with the Bonds and the District Resolution, of the principal, interest and premiums, if any, to become due thereon at maturity or upon call and redemption prior to maturity and the District shall have given to the Paying Agent irrevocable instructions to mail notice of redemption of Bonds on the redemption date if any of the Bonds are to be redeemed prior to maturity. Such provision for payment shall be deemed to be adequate if the District shall have irrevocably set aside, in a special trust fund or account, moneys or direct and non-callable obligations of, or obligations guaranteed oy, the United States of America, in which the District may lawfully invest its money, in an amount sufficient to pay when due the principal of, premium, if any, and interest on the Bonds on and prior to the redemption date or maturity date, as the case may be.

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Legal Opinion

The legal opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel to the District, approving the validity of the Bonds, will be supplied to the original purchasers of the Bonds without cost. A copy of the legal opinion, certified by the official in whose office the original is filed, will be printed on each Bond, without charge to the successful bidder. The form of the legal opinion is attached hereto as Appendix B.

The statements of law and legal conclusions set forth herein under the section entitled "THE BONDS," except the material under the headings "Annual Debt Service" and "Book-Entry only System," have been reviewed by Bond Counsel. Bond Counsel's employment is limited to a review of the legal proceedings required for authorization of the Bonds and to rendering an opinion as to the validity of the Bonds and the exclusion from gross income for federal income tax purposes of interest on the Bonds. The opinion of Bond Counsel will not consider or extend to any documents, agreements, representations, offering circulars, or other material of any kind concerning the Bonds not mentioned in this paragraph. Bond Counsel has undertaken no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering materials relating to the Bonds and expresses no opinion relating thereto.

Security and Sources of Payment for the Bonds

The Bonds are general obligations of the District. The County has the po\ver and is obligated to levy or cause to be levied ad valorem taxes for payment of both principal and interest of the Bonds upon all property within the District subject to taxation by the District (except certain personal property which is taxable at limited rates), without limitation of rate or amount.

The principal of and interest and redemption premium (if any) on the Bonds shall not constitute a debt of the County, the State of California, or any of its political subdivisions other than the District, or any of the officers, agents or employees thereof, and neither the County, the State of California, any of its political subdivisions nor any of the officers, agents or employees thereof shall be liable thereon. In no event shall the principal of and interest and redemption premium (if any) on the Bonds be payable out of any funds or properties of the District other than ad valorem taxes levied upon all taxable property in the District.

Bond Insurance

Bond Insurance Policy. Concurrently with the issuance of the Bonds, Financial Security Assurance Inc. ("Financial Security") will issue its Municipal Bond Insurance Policy for the Bonds (the "Policy"). The Policy guarantees the scheduled payment of principal of and interest on the Bonds when due as set forth in the form of the Policy included as an appendix to this Official Statement.

The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law.

Financial Security Assurance Inc. Financial Security is a New York domiciled financial guaranty insurance company and a wholly owned subsidiary of Financial Security Assurance !foldings Ltd. ('Holdings"). Holdings is an indirect subsidiary of Dexia, S.A., a publicly held Belgian corporation, and of Dexia Credit Local, a direct wholly-owned subsidiary of Dexia, S.A. Dexia, S.A., through its bank subsidiaries, is primarily engaged in the business of public finance, banking and asset management in France, Belgium and other European countries. No shareholder of Holdings or Financial Security is liable for the obligations of Financial Security.

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At September 30, 2006, Financial Security's combined policyholders' surplus and contingency reserves were approximately $2,581,107,000 and its total net unearned premium reserve was approximately $1,992,163,000 in accordance with statutory accounting principles. At September 30, 2006, Financial Security's consolidated shareholder's equity was approximately $3,058,987,000 and its total net unearned premium reserve was approximately $1,590,538,000 in accordance with generally accepted accounting principles.

The consolidated financial statements of Financial Security included in, or as exhibits to, the annual and quarterly reports filed after December 31, 2005 by Holdings with the Securities and Exchange Commission are hereby incorporated by reference into this Official Statement. All financial statements of Financial Security included in, or as exhibits to, documents filed by Holdings pursuant to Section 13(a), 13(c), 14 or lS(d) of the Securities Exchange Act of 1934 after the date of this Official Statement and before the termination of the offering of the Bonds shall be deemed incorporated by reference into this Official Statement. Copies of materials incorporated by reference will be provided upon request to Financial Security Assurance Inc.: 31 West 52nd Street, New York, New York 10019, Attention: Communications Department (telephone (212) 826-0100).

The Policy does not protect investors against changes in market value of the Bonds, which market value may be impaired as a result of changes in prevailing interest rates, changes in applicable ratings or other causes. Financial Security makes no representation regarding the Bonds or the advisability of investing in the Bonds. Financial Security makes no representation regarding the Official Statement, nor has it participated in the preparation thereof, except that Financial Security has provided to the Issuer the information presented under this caption for inclusion in the Official Statement.

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Annual Debt Service

Exhibit 2 below presents a schedule of the annual debt service for the Bonds.

EXHIBIT2 ANNUAL DEBT SERVICE SCHEDULE

2007 GENERAL OBLIGATION REFUNDING BONDS PACIFIC GROVE UNIFIED SCHOOL DISTRICT

Fiscal Year Ending

June 30 Principal($) Interest ($) Total ($)

2008 25,000.00 97,694.17 122,694.17 2009 10,000.00 120,350.00 130,350.00 2010 15,000.00 119,912.50 134,912.50 2011 15,000.00 119,387.50 134,387.50 2012 15,000.00 118,862.50 133,862.50 2013 15,000.00 118,337.50 133,337.50 2014 15,000.00 117,812.50 132,812.50 2015 15,000.00 117,280.00 132,280.00 2016 15,000.00 116,740.00 131,740.00 2017 145,000.00 113,570.00 258,570.00 2018 150,000.00 107,670.00 257,670.00 2019 155,000.00 101,686.25 256,686.25 2020 165,000.00 95,526.25 260,526.25 2021 170,000.00 88,950.00 258,950.00 2022 180,000.00 81,950.00 261,950.00 2023 180,000.00 74,750.00 254,750.00 2024 190,000.00 67,350.00 257,350.00 2025 200,000.00 59,550.00 259,550.00 2026 210,000.00 51,350.00 261,350.00 2027 215,000.00 42,742.50 257,742.50 2028 225,000.00 33,722.50 258,722.50 2029 230,000.00 24,395.00 254,395.00 2030 235,000.00 14,862.50 249,862.50 2031 245 000.00 5,022.50 250,022.50 Total 3,035,000.00 2,009,474.17 5,044,474.17

Exhibit 3 below presents the combined debt service schedule for the unrefunded portion of the previously issued Pacific Grove Unified School District, 1999 General Obligation, Series A Bonds and Series B Bonds, the previously issued Pacific Grove Unified School District, 1999 General Obligation, Series C Bonds and Series D Bonds, the 2005 General Obligation Refunding Bonds, the 2006 General Obligation, Series A Bonds, and the Bonds.

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EXHIBIT3 COMBINED DEBT SERVICE SCHEDULES


Fiscal Year 1999 Election 1999 Election 1999 Election 1999 Election 2005 2006 Election

Ending Series A Series B Series C Series D Refunding Series A 2007 Refunding June 30 Debt Service Debt Service Debt Service Debt Service Debt Service Debt Service Debt Service Total

2008 $64,935.00 $124,875.00 $199,445.00 $124,675.00 $150,653.36 $229,253.06 $122,694.17 $1,016,530.59

2009 66,657.50 124,537.50 200,070.00 122,875.00 150,373.36 302,007.50 130,350.00 1,096,870.86

2010 0.00 125,275.00 200,345.00 126,018.75 213,570.86 387,107.50 134,912.50 1,187,229.61

2011 0.00 121,427.50 201,395.00 124,106.25 215,187.11 383,882.50 134,387.50 1,180,385.86

2012 0.00 122,380.00 198,395.00 127,087.50 217,491.48 380,307.50 133,862.50 1,179,523.98

2013 0.00 123,022.50 200,215.00 125,075.00 212,529.50 381,207.50 133,337.50 1,175,387.00

2014 000 123,345.00 196,785.111) 121,150.00 213,414.77 376,582.50 132,812.50 1,166,089.77

2015 0.00 123,337.50 198,122.50 126,075.00 213,970.14 371,607.50 132,280.00 1,165,392.64

2016 0.00 127,875.00 199,140.00 123,737.50 215,132.64 366,282.50 131,740.00 1,163,907.64

2017 0.00 0.00 199,837.50 126,150.00 212,944,59 355,782.50 258,570.00 1,153,284.59

2018 0.00 0.00 195,325.00 123,450.00 218,180.04 361,407.50 257,670.00 1,156,032.54

2019 0.00 0.00 195,595.00 120,750.00 217,828.00 358,882.50 256,686.25 1,149,741.75

2020 0.00 0.00 195,572.50 122,937.50 211,729.56 356,982.50 260,526,25 1,147,748.31

2021 0.00 0.00 195,250,00 120,012.50 213,331.16 359,782.50 258,950.00 1,147,326.16

2022 0.00 0.00 194,625.00 121,975.00 218,375.66 357,282.50 261,950.00 1,154,208.16

2023 0.00 0.00 193,750.00 123,712.50 215,425.86 359,482.50 254,750.00 1,147,120.86

2024 0.00 0.00 197,500.00 125,225.00 214,526.06 361,282.50 257,350.00 1,155,883.56

2025 0.00 0.00 195,875.00 121,505.00 215,526.06 362,682.50 259,550.00 1,155,138.56

2026 0.00 0.00 194,000.00 122,545.00 215,926.06 358,782.50 261,350,00 1,152,603.56

2027 0.00 0.00 196,750.00 123,345,00 215,726.06 359,582.50 257,742.50 1,153,146.06

2028 0.00 0.00 194,125.00 123,905.00 212,425.78 355,082.50 258,722.50 1,144,260,78

2029 0.00 0.00 196,125.00 124,225.00 213,525.50 355,157.50 254,395.00 1,143,428.00

2030 0.00 0.00 192,750.00 124,278.75 218,837.75 354,702.50 249,862.50 1,140,431.50

2031 0.00 0.00 194,000.00 124,065.00 0.00 358,735.00 250,022.50 926,822.50

2032 0.00 0.00 194,750.00 123,608.75 0.00 357,255.00 0.00 675,613.75

2033 0.00 0.00 0.00 122,910.00 0.00 355,328.13 0.00 478,238,13

2034 0.00 ll.00 0.00 0.00 0.00 357,850.00 0,00 357,850.00

2035 0,00 0.00 0.00 OM OM 354,856.25 0.00 354,856.25 v.vv v.vv

2036 0.00 0.00 0.00 0.00 0.00 356,346.88 0.00 356,346.88

2037 0.00 0.00 0.00 0.00 0.00 357,218,75 0.00 357,21~.75

Total $131,592.50 $1,116,075.00 $4,919,742.50 $3,217,400.00 $4,816,631.36 $10,692,703.06(1) 55,044,474.17 $29,938,618.60(1) (1) Totals may not sum due to rounding.

Purpose of the Issue

Proceeds from the sale of the Bonds will be used to refund a portion of the Series B Bonds and to pay certain costs of issuance of the Bonds. The Series B Bonds were issued to finance the repair, renovation, and modernization of schools and classrooms throughout the District.

Sources and Uses of Funds

The proceeds to be received from the sale of the Bonds are to be applied as shown in Exhibit 4.

EXHIBIT4 ESTIMATED SOURCES AND USES OF FUNDS

Sources Bond Proceeds ............................................................................................................... . Original Issue Discount ............................................................................................ .

TOTAL

Uses Deposit to Escrow Account ...................................................................................... . Costs of Issuance(ll ....................................................................................................... .

TOTAL

$3,035,000.00 (27,784.15)

$3,007,215.85

$2,892,305.35 114 910.50

$3,007,215.85

(1) Includes financial advisor fees, Underwriter's discount, legal fees, rating agency fees, municipal bond insurance premium, verification agent fee, printing fees, and other miscellaneous costs of issuance.

Defeasance

All or any portion of the outstanding maturities of the Bonds may be defeased at any time prior to maturity in the following ways:

1. by well and truly paying or causing to be paid the principal, premium, if any, and interest on all Bonds outstanding, and when the same becomes due and payable;

2. by irrevocably depositing with a bank or trust company in escrow an amount of cash which together with amounts then on deposit in the Debt Service Fund, is sufficient to pay all Bonds outstanding, including all principal, premium, if any, and interest; or

3. by irrevocably depositing with a bank or trust company in escrow noncallable United States Obligations (defined below), together with cash, if required, in such amount as will, in the opinion of an independent certified public accountant, together with interest to accrue thereon and moneys then on deposit in the Debt Service Fund, together with the interest to accrue thereon, be fully sufficient to pay and discharge all the Bonds outstanding, including all principal, premium, if any, and interest due with respect thereto at or before their maturity date or applicable redemption date; then, notwithstanding that any Bonds shall not have been surrendered for payment, all

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obligations of the District, the County and the Paying Agent with respect to all outstanding Bonds shall cease and terminate, except only the obligation of the County and the Paying Agent to pay or cause to be paid from funds deposited pursuant to paragraphs (1), (2) or (3) above, to the owners of the Bonds not so surrendered and paid all sums due with respect thereto.

"United States Obligations" means direct and general obligations of the United S:ates of America, or obligations that are unconditionally guaranteed as to principal and interest by the United States of America, including (in the case of direct and general obligations of the United States of America) evidence of direct ownership or proportionate interests in future interest or principal payments of such obligations. Investments in such proportionate interest must be limited to circumstances wherein (a) a bank or trust company acts as custodian and holds the underlying United States Obligations; (b) the owner of the investment is the real party in interest and has the right lo proceed directly and individually against the obligor of the underlying United States Obligations; and (c) the underlying United States Obligations are held in a special account, segregated from the custodian's general assets, and are not available to satisfy any claims of the custodian, any person claiming through the cust,odian, or any person to whom the custodian may be obligated; provided that such obligations are rated "AAA" by Standard & Poors and "Aaa" by Moody's Investors Service if the Bonds are then rated by Moody's Investors Service.

CONTINUING DISCLOSURE

The District has covenanted for the benefit of the holders and beneficial owners of the Bonds to provide certain financial information and operating data relating to the District by not later than 9 months following the end of the District's fiscal year (which currently would be March 31), commencing with the report due March 31, 2008 for the 2006-07 Fiscal year (the "Annual Report''), and lo provide notices of the occurrence of certain enumerated events, if material. The District will file, or cause to be filed, 1·hc Annual Report with each Nationally R£'cogrnzed Municipal Securities Information Repository, and with the appropriate State information depository, if any. The District will file, or cause to be filed, the notices of material events with the Municipal Securities Rulemaking Board (and with the appropriate State information depository, if any). The specific nature of the information to be contained m the Annual Report or the notices of material events is summarized below under the caption "APl'ENDIX C - Form of Continuing Disclosure Certificate." These covenants have been made in order to assist the Underwriters in complying with S.E.C. Rule 15c2-12(b)(5). The District has never failed to comply, in all material respects, with an undertaking pursuant to the Rule. Neither the County nor any other entity other than the District shall have any obligation or incur any liability whatsoever with respect to the performance of the District's duties regarding continuing disclosure .

THE DISTRICT

General Information

The Pacific Grove Unified School District began offering a kindergarten through 12th grade program beginning with the 1895-96 school year. The District is comprised of an area of approximately 12 square miles located in Monterey County and serves the City of Pacific Grove and an adjoining portion of Pebble Beach. The District currently operates two elementary schools, one middle school and one high school. The District also maintains a continuation high school, an adult education center, and three child care centers.

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The District is governed by a Board of Education. The five members are elected to four-year terms in alternate slates of three and two. The 2006-07 pupil-teacher ratio for kindergarten is 20:1, for grades 1-3 is 20:1, for grades 4-6 is 25:1, for grades 7-8 is 30:1, and for grades 9-12 is 30:l.

The following exhibit shows the average daily attendance for the five-year period 2003-04 to 2007-08.

(1) Estimate.

EXHIBITS AVERAGE DAILY ATTENDANCE


Fiscal Year

2003-04 2004-05 2005-06 2006-07 2007-08 (I)

1,928 1,815 1,828 1,692 1,658

Source: Pacific Grove Unified School District. ==--------Employee Relations

In the fall of 1974, the California State Legislature enacted a public school employee collective bargaining law known as the Rodda Act which became effective in stages on January 1, 1976, April 1, 1976 and July 1, 1976. This law provides that employees are to be divided into appropriate bargaining units which are to be represented by an exclusive bargaining agent.

The District has approximately 300 total full and part-time employees. Bargaining agents represent all but approximately 17 employees in the management, supervisory and confidential categories. Teachers, nurses, librarians, and other certified employees are represented by the Pacific Grove Teachers' Association (PGTA), an affiliate of the California Teachers Association and the National Education Association. The PGTA contract expired on June 30, 2006; negotiations are continuing.

The California School Employees Association has been selected as the bargaining agent for most classified personnel and such personnel are covered by a contract that expired on June 30, 2006; negotiations are continuing.

Pension Plans

The District participates in the State of California Teachers Retirement System ("STRS"). This plan covers basically all full-time certificated employees. The District's contribution to STRS for fiscal year 2005-06 totals approximately $1,041,948 and is expected to be $904,330 in fiscal year 2006-07. In order to receive STRS benefits, an employee must be at least 55 years old and have provided five years of service to California public schools.

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The District also participates in the State of California Public Employees Retirement System ("PERS"). This plan covers all classified personnel who are employed more than four hours per day. The District's contribution to PERS for fiscal year 2005-06 totals approximately $524,555 and is expected to be $454,482 in fiscal year 2006-07. In order to receive PERS benefits, an employee must be at least 50 years old and have provided five years of service to California schools.

The Federal Omnibus Budget Reconciliation Act of 1990 requires all state and local agencies to provide retirement benefits to seasonal and part-time employees effective July 1, 1991. All Pacific Grove Unified School District employees participate in either STRS or PERS retirement plans.

Postemployment Benefits Other than Pension Benefits

The District provides postemployment health care benefits, in accordance with District employment contracts, to all employees who retire from the District on or after attaining the age 55 with at least ten years of service. Currently, 109 employees meet those eligibility requirements in accordance with employment contracts. The District contributes a percentage of the amount of premiums incurred by retirees and their dependents. Expenditures for postemployment benefits are recognized on a pay-asyou-go basis, as premiums are p,1id. For the fiscal year 2005-06, expenditures of approximately $368,615 were recognized for retirees' health care benefits.

The approximate future liability for the District at June 30, 2006, amounts to $6,746,895. This amount was calculated based upon the number of retirees receiving benefits multiplied by the yei<rly district payment per employee in effect at June 30, 2006, multiplied by the number of years of payments remaining. Each employee's future benefits are dependent upon the negotiated contract in effect on the date of retirement.

DISTRICT DEBT STRUCTURE

Short-Term Borrowing

In June 2006, the District issued $5,000,000 in Tax and Revenue Anticipation Notes (TRANs). These notes mature on July 6, 2007 with interest at 3.5%. The Notes were sold to supplement cash flow of the District's general fund .

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Lease Obligations

Shown in the table below is the yearly schedule of future minimum lease payments due under capital leases.

EXHIBIT6 MINIMUM CAPITAL LEASE OBLIGATIONS


Year Ending June 30

2007 2008 2009

Total Minimum Lease Payments Less Amount Representing Interest

Present Value of Net Minimum Lease Payments

Source: Pacific Grove Unified School District.

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Lease Payments

$184,910 19,072

2505 206,487 28964

$177,523

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Long-Term Borrowing

The District has never defaulted on the payment of principal or interest on any of its '.ndebtedness .

In February 2000, the District issued its Pacific Grove Unified School District General Obligation Bonds, 1999 Election, Series A in the amount of $3,000,000. A portion of this series of bonds was refunded by the 2005 General Obligation Refunding Bonds. The final maturity of the outstandin:, Series A Bonds is August 1, 2008. As of April 1, 2007, the outstanding balance on these bonds is $125,000.

In April 2001, the District issued its Pacific Grove Unified School District General Obligation Bonds, 1999 Election, Series B in the amount of $4,000,000. The final maturity is August 1, 2030. As of April 1, 2007, the outstanding balance on these bonds is $3,680,000. A portion of the Series B Bond,; will be refunded by the Bonds.

In March 2002, the District issued its Pacific Grove Unified School District General Obligation Bonds, 1999 Election, Series C in the amount of $3,000,000. The final maturity is August 1, 2031. As of April 1, 2007, the outstanding balance on these bonds is $2,835,000.

In February 2003, the District issued its Pacific Grove Unified School District General Obligation Bonds, 1999 Election, Series D in the amount of $2,000,000. The final maturity is August l 2032. As of April l, 2007, the outstanding balance on these bonds is $1,865,000.

In January 2006, the Golden West Schools Financing Authority issued its 2005 General Obligation Revenue Bonds (Pacific Grove Unified School District Refunding) in the amounl of $3,065,000. The proceeds of this issue were used to establish an escrow account to pay the redemption price of a certain portion of the 1999 Election, Series A Bonds. At the same time the District issued $2,745,000 of its 2005 District Refunding Bonds as replacement bonds, which are privately held bonds. The revenue from the 2005 District Refunding Bonds is pledged to pay the principal of and interest on the Golden West Schools Financing Authority 2005 Revenue Bonds. The final maturity of both the District Refunding Bonds and the Golden West Schools Financing Authority Revenue Bonds is August 1, 2029. As of April 1, 2007, the outstanding balance on the D,stnct's Refundmg Bonds is $2,681,000.

In April 2007, the District issued its Pacific Grove Unified School District General Obligation Bonds, 2006 Election, Series A in the amount of $6,000,000. The final maturity is August I, 2036. As of April 1, 2007, the outstanding balance on these bonds is $6,000,000.

Contained within the District's boundaries are numerous overlapping local agencies providing public services. These local agencies have outstanding bonds issued in the form of general obligation, lease revenue and special assessment. The direct and overlapping debt of the District is shown in Exhibit 7. Self-supporting revenue bonds, tax allocation bonds and non-bonded capital l,ease obligations are excluded from the debt statement.

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EXHIBIT? STATEMENT OF DIRECT AND OVERLAPPING DEBT


2006-07 Assessed Valuation: $3,609,136,044

DIRECJ' AND OVERLAPPING TAX AND ASSESSMENT DEBT: Monterey Peninsula Community College District Pacific Grove Unified School District City of Pacific Grove

% Applicable 16.554%

100. 100.

TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT

OVERLAPPING GENERAL FUND DEBT: Monterey County General Fund Obligations Monterey County Judgment Obligations City of Pacific Grove Pension Obltgations Monterey Bay Unified Air Pollution Authority TOTAL OVERLAPPING GENERAL FUND DEBT

COMBINED TOTAL DEBT

(1) Excludes issue to be sold.

8.295% 8.295

100. 4.883

Debt2/1/07 $ 5,406,435 11,186,000 (1)

790 000 $17,382,435

$13,320,941 450,004

19,365,355 159 430

$33,295,730

$50,678,165 (2)

(2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations.

Ratios to 2006-07 Valuation: Direct Debt ($11,186,000) .................................................................. 0.31 % Total Direct and Overlapping Tax and Assessment Debt ........... 0.48% Combined Total Debt... ........................................................................ 1.40%

STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/06: $0

Source: California Municipal Statistics, Inc.

TAXATION AND APPROPRIATIONS

Property Tax Collection Procedures

In California, property which is subject to ad valorem taxes is classified as "secured" or "unsecured." The "secured roll" is that part of the assessment roll containing (1) state-assessed public utilities' property and (2) property the taxes on which are a lien on real property sufficient, in the opinion of the county assessor, to secure payment of the taxes. A tax levied on unsecured property does not become a lien against such unsecured property, but may become a lien on certain other property owned by the taxpayer. Every tax which becomes a lien on secured property has priority over all other liens arising pursuant to State law on such secured property, regardless of the time of the creation of the other liens. Secured and unsecured property are entered separately on the assessment roll maintained by the county assessor. The method of collecting delinquent taxes is substantially different for the two classifications of property.

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Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year. If unpaid, such taxes become delinquent after December 10 and April 10, respectively, and a 10% penalty attaches to any delinquent payment. In addition property on the secured roll with respect to which taxes are delinquent is sent to collections on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of the delinquent taxes and a delinquency penalty, plus a redemption penalty of 1-1/2% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is deeded to the State and then is subject to sale by the county tax collector.

Property taxes are levied for each fiscal year on taxable real and personal property situated in the taxing Jurisdiction as of the preceding January 1, except that supplemental assessment and taxation of property occurs as of the occurrence of a change of ownership or completion of new construction, timely providing increased revenue to taxing jurisdictions to the extent that supplemental assessments of new construction or changes of ownership occur subsequent to the January 1 lien date.

Property taxes on the unsecured roll are due on the lien date and become delinquen~ if unpaid on the following August 31. A ten percent (10%) penalty is also attached to delinquenl taxes in respect of property on the unsecured roll, and further, an additional penalty of 1-1/2% per month accrues with respect to such taxes beginning the first day of the third month following the delinquency date. The taxing authority has four ways of collecting unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a certific,ite in the office of the county clerk specifying certam facts m order to obtain a judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the county recorder's office, in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee. The exclusive means ol enforcing the payment of delinquent taxes in respect of property on the secured roll is the sale of the property securing the taxes to the State for the amourt of taxes which are delinquent.

Unitary Taxation of Utility Property

Historically, property of regulated public utilities has been assessed for local tax purposes by the State Board of Equalization on a geographical basis in basically the same manner as other taxable property in any taxing jurisdiction.

In 1987, the State Legislature enacted Chapter 921 amending Section 98.9 and various other sections of the Revenue and Taxation Code. The changes call for the establishment in each county of one county-wide tax rate area with the assessed value of all unitary and operating non-unitary utility property being assigned to this tax rate area.

The result is a single assessed valuation figure for all utility property owned by each utility within the county without any breakdown for individual taxing jurisdictions. All of this property is then subjected to a tax at a rate equal to the sum of the following two rates:

a) A rate determined by dividing the county's total ad valorem tax levies for the secured roll for the prior year, exclusive of levies for debt service, by the county's total ad valorem secured roll assessed value for the prior year, and

b) A rate determined by dividing the county's total ad valorem tax levies for the secured roll for the prior year for debt service only by the county's total ad valorem secured roll assessed value for the prior year.

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The foregoing process results in the creation of two pools of money, pool 1 being available for general tax purposes and pool 2 for debt service purposes, each pool being then allocated to the various taxing jurisdictions in the county by a statutory formula for the county as a whole.

Tax Levies and Delinquencies

Beginning in 1978-79, Article XIIIA and its implementing legislation shifted the function of property taxation primarily to the counties, except for levies to support prior-voted debt, and prescribed how levies on county-wide property values are to be shared with local taxing entities within each county. Exhibit 8 displays tax levy and delinquency data for the District.

EXHIBITS SECURED TAX LEVIES AND DELINQUENCIES PACIFIC GROVE UNIFIED SCHOOL DISTRICT

Fiscal Year

2001-02 2002-03 2003-04 2004-05 2005-06

(1) 1% General Fund Appointment.

Secured Tax Charge l1l

$10,903,371 11,609,057 12,514,542 13,543,649 14,843,550


The County Pooled Investment Fund

Amount Delinquent June 30

$162,493 186,083 154,596 174,122 300,499

Percent Delinquent

June 30

1.49% 1.60 1.24 1.29 2.02

As required by State Law, the District deposits all of its General Fund revenues with the County of Monterey's Pooled Investment fond (the "Pool"). As of December 31, 2006, the Pool has a book value of $947,380,826 with a weighted average maturity of 0.8 years. By policy, the Pool maintains a high degree of liquidity. As of December 31, 2006, 43% of the Pool's holdings had a maturity of ninety days or less.

The District has no reason to believe that the general operating funds or any other District funds, including any bond funds, on deposit with Monterey County are at risk. Additional information may be obtained at the Treasurer's website athttp://www.co.monterey.ca.us/ taxcollector. See "APPENDIX E -County Pooled Investment Policy" for further information.

Assessed Valuation

The District has a 2006-07 gross assessed valuation of $3,609,136,044 (full cash value) accounting for approximately 7.53% of the total assessed valuation of Monterey County. Shown in the following exhibit arc the assessed valuatlons for the District.

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http://www.co.monterey.ca.us/taxcollector

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EXHIBIT 9 HISTORIC ASSESSED VA LUA TIO NS <1>


Fiscal Year 2002-03 2003-04 2004-05 2005-06 2006-07

(1) Before redevelopment increment.

(2) Including unitary utility valuation.

District Assessed Valuations

$2,611,901,757 2,794,207,430 3,017,318,486 3,300,649,098 3,609,136,044


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County Assessed Valuations <2>

$34,007,855,236 36,255,064,439 38,911,850,053 43,069,440,799 47,916,628,833

Largest Taxpayers

The largest assessed property taxpayers in the District for fiscal year 2006-07 are shown in the exhibit below.

EXHIBITl0 LARGEST LOCAL SECURED TAXPAYERS

PACIFIC GROVE UNIFIED SCHOOL DISTRICT 2006-07

2006-07 Properly Owner Land Use Assessed Valuation

1. Pebble Beach Company Hotel and Golf 2. FPA Country Club Associates LP Golf Course/ Country Club 3. Kirkwood Village Associates Ltd. Apartments 4. California-American Water Company Water Service 5. WGA Grove Acres LP Apartments 6. Delaware North Parks Services Inc. Conference Center 7. Lighthouse Lodge LLC Hotel and Golf 8. Foursome Development Company Commercial Building 9. Edward J. and Janis M. Donaghy Residential 10. Nam Long 1 LP Hotel/Motel 11. Villa Del Mar Apartments Partnership Apartments 12. Holman Building Associates LP Commercial Store 13. William 0. and Gail 0. Branch Residential 14. Reddy N. and Prameela N. Damodar Residential 15. Jeffrey R. and Janet E. Cohen Residential 16. Brian J. Grossi and Marilyn A. Woods Residential 17. Dennis W. Plummer Residential 18. Wesley N. and Janice N. Callahan Apartments 19. James M. and Nanci A. Dobbins Residential 20. Monarch Pines Homeowners Association Mobilehome Park

(1) 2006-07 Local Secured Assessed Valuation: $3,568,379,492 Source: California Municipal Statistics, Inc

DISTRICT FINANCIAL INFORMATION

District Budget

$226,094,869 20,196,510 17,749,644 15,393,310 13,353,534 12,754,431 11,852,166 9,954,465 9,256,500 8,313,000 7,756,608 7,316,925 5,610,000 4,968,893 4,907,091 4,779,946 4,500,000 4,498,773 4,451,260 4 309199

$398,017,124

% of Total (1)

6.34% 057 050 0.43 0.37 0.36 0.33 0.28 0.26 0.23 0.22 0.21 0.16 0.14 0.14 0.13 0.13 0.13 0.12 0.12

11.15%

The District is required by provisions of the State Education Code to maintain a balanced budget each year, where the sum of expenditures plus the ending fund balance cannot exceed revenues plus the carryover fund balance from the previous year. The California State Department of Education imposes a uniform budgeting format for the school districts.

Under current law, the District Board of Education approves an adopted budget by July 1 of each fiscal year. The following table shows the District's fund balances, revenues, and expenditures from the fiscal years 2004-05 and 2005-06 Audits and the 2006-07 First Interim Report.

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(I)

(2)

EXHIBITll GENERAL FUND BALANCES, REVENUES, AND EXPENDTIURES

FISCAL YEA RS 2004-05 through 2006-07 PACIFIC GROVE UNIFIED SCHOOL DISTRICT

2004-05 2005-06 2006-07 Audited Actual Audited Actual First Interim<2)

Beginning Balance $2,296,144 $2,378,011 $2,846,430

Revenues Revenue Limit 14,108,588 15,413,937 16,785,092 Federal Revenue 662,627 603,497 554,452 Other State Revenue 1,588,703 1,711,903 1,877,938 Other Local Revenue 1,920,373 2,080,331 1737688

Total Revenue 18,280,291 19,809,668 20,955,170

Expenditures Cerbficated Salaries 9,309,840 10,175,165 10,268,285 Classified Salaries 2,830,634 2,870,375 3,063,976 Employee Benefits 2,496,667 2,383,009 2,531,897 Books & Supplies 921,176 959,651 1,831,803 Services & Other Operating Expenses 1,737,250 1,959,423 2,318,638 Other Outgo 277,236 299,234 1,021,859 Debt Service 109,355 109,355 0 Transfers of Indirect/Direct Support 0 0 (327,873) Costs Capital Outlay 0 6 800 0

Total Expenditures 17,682,158 18,763,012 20,708,585

Other Financing Sources & Uses Operating Transfers In 7,338 6,800 0 Operating Transfers Out (523,603) (585,037) (664,239) Other Sources 0 0 0 Other Uses 0 0 0

Total Other Financing Sources (516,265) (578,237) (664,239)

Ending Balance $2,378,011 (l) $2,846,430 $2,428,776

Totals may not sum due to rounding. Projected year-end totals from First Interim Report as of December 7, 2006.

Source: Pacific Grove Unified School District

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Accounting Practices

The accounting practices of the District conform to generally accepted accounting principles in accordance with policies and procedures of the California School Accounting Manual. This manual, according to Section 41010 of the State of California Education Code, is to be followed by all California school districts.

District revenues are recognized during the period in which they become both measurable and available to finance operations of the current fiscal period. District expenditures are reflected in the fiscal period in which the liability occurred.

District accounhng is organized on the basis of governmental fund types, with each fund consisting of a separate set of self-balancing accounts containing assets, liabilities and fund balances, including revenues and expenditures. The major fund classification is the General Fund, which accounts for the general operations of the District. The District's fiscal year begins on July 1 and ends on June 30.

The District's independent auditor is currently, Vavrinek, Trine, Day & Co., Rancho Cucamonga, California. The audited financial statements for the year ended June 30, 2006 are included as APPENDIX A hereto.

STATE OF CALIFORNIA FINANCES

State Funding of Education and Revenue Limits

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 ("ADA"). Such apportionments will, in general, 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 all of the same type of California school districts. In November 1988, California voters approved an amendment to the California Constitution which guarantees primary and secondary education and the community college system a certain percentage of the state general fund budget for the 1988-89 budget year and subsequent budget years.

Exhibit 12 shows the District's revenue limit per unit of average daily attendance and revenue limit total over the period 2002-03 through 2006-07.

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Fiscal Year

2002-03 2003-04 2004-05 2005-06 2006-07 (l)

(1) Estimate.

EXHIBIT12 REVENUE LIMITS


Revenue Limit per Unit of Average

Daily Attendance

$4,669.65 4,669.65 4,902.17 5,113.17 5,421.17

Average Daily Attendance (2)

1,933 1,933 1,815 1,828 1,692

(2) Excused absences not included beginning Fiscal year l 998-99. Source: Pacific Grove Unified School District.

State Funding of Education and Recent State Budgets

Total Revenue Limit

$9,026,433 9,026,433 8,896,801 9,346,108 9,172,511

The State of California (the "State") requires that from all State revenues there first shall be set apart the moneys to be applied for support of the public school system and public institutions of higher education. California school districts receive a significant portion of their funding from State appropriations. As a result, decreases in State revenues may significantly affect appropriations made by the legislature to school districts.

The following information concerning tire State's budgets for tire current and most recent preceding ye,ns has been compiled from publicly-availnble information provided hy the State. Neither the District. the County, nm tire Undenuriter is responsible for the information relating to the Stateis budgets provided in this section. Further information is available from the P11blic Finance Division of the State Treasurer's Office .

The Budget Process. The State's fiscal year begins on July 1 and ends on June 30. The annual budget 1s proposed by the Governor by January 10 of each year for the next fiscal year (the "Covernor's Budget''). Under State law, the annual proposed Covernor's Budget cannot provide for projected expenditures in excess of projected revenues and balances available from prior fiscal years. Following the submission of the Governor's Budget, the Legislature takes up the proposal.

Under the State Constitution, money may be drawn from the Treasury only through an appropriation made by law. The primary source of the annual expenditure authorizations is the Budget Act as approved by the Legislature and signed by the Governor. The Budget Act must be approved by a twothirds majority vote of each House of the Legislature. The Governor may reduce or eliminate specific line items in the Budget Act or any other appropriations bill without vetoing the entire bill. Such individual line-item vetoes are subject to ovc-rride by a two-thirds majority vote of each I louse of the Legidature. Appropriations also may be included in legislation other than the Budget Act. Bills containing appropriations (except for K-14 education) must be approved by a two-thirds majority vote in each House of the Legislature and be signed by the Governor. Bills containing K-14 education appropriations only require a simple majority vote. Continuing appropriations, available without regard to fiscal year,

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may also be provided by statute or the State Constitution. Funds necessary to meet an appropriation need not be in the State Treasury at the time such appropriation is enacted; revenues may be appropriated in anticipation of their receipt.

Recent State Budgets. Certain information about the State budgeting process and the State Budget is available through several State of California sources. A convenient source of information is the State's website, where recent official statements for State bonds are posted. The references to internet websites shown below are shown for reference and convenience only, the information contained within the websites may not be current and has not been reviewed by the District and is not incorporated lterein by reference.

• The California State Treasurer Internet home page at www.treasurer.ca.gov, under the heading "Bond Information", posts various State of California Official Statements, many of which contain a summary of the current State Budget, past State Budgets, and the impact of those budgets on school districts in the State.

• The California State Treasurer's Office Internet home page at www.treasurer.ca.gov, under the heading "Financial Information", posts the State's audited financial statements. In addition, the Financial Information section includes the State's Rule 15c2-12 filings for State bond issues. The Financial Information section also includes the Overview of the State Economy and Government, State Finances, State Indebtedness, Litigation from the State's most current Official Statement, which discusses the State budget and its impact on school districts.

• The California Department of Finance's Internet home page at www.dof.ca.gov, under the heading "California Budget'', includes the text of proposed and adopted State Budgets.

• The State Legislative Analyst's Office prepares analyses of the proposed and adopted State budgets. The analyses are accessible on the Legislative Analyst's Internet home page at www.lao.ca.gov under the "heading Products".

Tax Shifts and Triple Flip. Assembly Bill No. 1755 ("AB 1755"), introduced March 10, 2003 and substantially amended June 23, 2003, requires the shifting of property taxes between redevelopment agencies and schools. On July 29, 2003, the Assembly amended Senate Bill No. 1045 to incorporate all of the provisions of AB 1755, except that the Assembly reduced the amount of the required ERAF shift to $135 million. Legislation commonly referred to as the "Triple Flip," was approved by the voters on March 2, 2004, as part of a bond initiative formally known as the "California Economic Recovery Act." This act authorized the issuance of $15 billion in bonds to finance the 2002-03 and 2003-04 State budget deficits, which are payable from a fund established by the redirection of tax revenues through the "Triple Flip." Under the "Triple Flip", one-quarter of local governments' one percent share of the sales tax imposed on taxable transactions within their jurisdiction are redirected to the State. In an effort to eliminate the adverse impact of the sales tax revenue redirection on local government, the legislation redirects property taxes in the ERAF to local government. Because the ERAF monies were previously earmarked for schools, the legislation provides for schools to receive the other state general fund revenues. It is expected that the swap of sales taxes for property taxes would terminate once the deficit financing bonds were repaid, which is currently expected to occur in approximately 9 to 13 years.

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http://www.treasurer.ca.gov

http://www.treasurer.ca.gov

http://www.dof.ca.gov

http://www.lao.ca.gov

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2007-08 State Budget. On January 10, 2007, the Governor released his proposed budget for 2007-08 (the "Proposed 2007-08 Budget''). The Proposed 2007-08 Budget includes a number of budget-balancing actions, including a major redirection of transportation funds and significant reductions in sooal services, to eliminate a significant shortfall in 2007-08.

For fiscal year 2007-08, $56.8 billion in total K-14 Proposition 98 is proposed, approximately 3.3% over the revised 2006-07 estimate.

The Proposed 2007-08 Budget proposes to use the Public Transportation Account ("PTA"), a special fund, in lieu of Proposition 98 funding from the General Fund, to fund the $627 million Home-to-School Transportation program. With the shift, the 2007-08 Proposition 98 per pupil funding rate would be $8,525 (a 3.3% increase from the revised 2006-07 estimate). If the $627 million shift were not to occur, total K-12 Proposition 98 funding would increase by $2.1 billion, or 4.2%, from 2006-07, and the 2007-08 per pupil funding rate would be $8,631(a 4.6% increase over 2006-07).

Additional provisions, as summarized by the Legislative Analyst's Office, include:

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Implementation 2006-07 Proposition 98 expansions, but does not propose new expansions for budget year .

Full funding of both stati1tory and discretionary COLAs at 4.04% {$1.9 Billion).

Increase of Proposit10n 98 Spending for Child Care ($269 Million) .

• Recognition of Savings From Declining Attendance (About $90 Million). The Proposed 2007-08 Budget assumes that student attendance will decline by 0.39% from 2006-07 to 2007-08.

While the Proposed 2007-08 Budget, if adopted, would produce a balanced budget and healthy reserve, the Legislative Analyst's Office notes that implementation could be problematic and that several of the assumptions may be overly optimistic. The Proposed 2007-08 Budget is subject to extensive review and change by various Senate and Assembly review committees, as well as final passage by the Senate and Assembly. See "The Budget Process" above.

h1formation about the State budget is regularly available at various State-maintained websites. The Fiscal Years 2005-06 and 2006-07 State Budgets may be found at the website of the Department of Finance, www.dofca.gov, under the heading "California Budget". Additionally, an impartial analysis of the budget is oosted by the Office of the Legislative Analyst at www.lao.ca.gov. TT1e information referred to is prepared by the respective State agency maintaining each website and not by the District, and the District takes no responsibility for the continued acrnracy of the internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references.

Uncertainty Regarding Future State Budgets. The District cannot predict what actions will be taken in future years by the State Legislature and the Governor to address the State's current or future budget deficits. Future State budgets will be affected by national and state economic conditions and other factors over which the District has no control. The District cannot predict what impact any future budget proposals will have on the financial condition of the District. To the extent that the State budget process results in reduced revenues to the District, the District will be required to makt, adjustments to its budgets.

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http://www.dof.ca.gov

THE STA TE I !AS NOT ENTERED INTO ANY CONTRACTUAL COMMITMENT WITH THE DISTRJCT, THE COUNTY, THE UNDERWRITER OR THE OWNERS OF TllE BONDS TO PROVIDE STATE BUDGET INFORMATION TO THE DISTRICT OR THE OWNERS OF THE BONDS. AL THOUGH THEY BELIEVE THE STATE SOURCES OF INFORMATION LISTED ABOVE ARE RELIABLE, NEITHER THE DISTRJCT NOR THE UNDERWRITER ASSUMES ANY RESPONSIBILITY FOR TIIE ACCURACY OF THE ST ATE BUDGET INFORMATION SET FORTH OR REFERRED TO HEREIN OR INCORPORATED BY REFERENCE HEREIN.

LIMIT A TIO NS ON TAX REVENUES

Article XIIIA of the California Constitution

Proposition 13-Article. XIIlA On June 6, 1978, California voters approved Proposition 13 ("Proposition 13"), which added Article XIIIA to the State Constitution ("Article XllIA"). 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.

Proposition 46. Under Proposition 46, approved by the voters on June 3, 1986, Article XlIIA was amended to allow bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978 by two-third of the voters on such indebtedness,.

Proposition 39. Proposition 39, approved by voters on November 7, 2000, further amended Article XJIIA to permit bonded indebtedness to be incurred by a school district or community college district for the construction, reconstruction, rehabilitation or replacement of school facilities or the acquisition or lease of real property for school facilities, if approved by 55% of the voters of the district voting at the election, but only if certain accountability measures are included in the proposition.

"Cash Value." 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 two percent per year to account for inflation.

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.

Inflationary Adjustment of Assessed Valuation. As described above, the assessed value of a property may be increased at a rate not to exceed two percent per year to account for inflation. On December 27, 2001, the Orange County Superior Court, in County of Orange v. Orange County Assessment Appeals Board No. 3, held that where a home's taxable value did not increase for two years, due to a flat real estate market, the Orange County assessor violated the two percent inflation adjustment provision of Article XIIIA, when the assessor tried to "recapture" the tax value of the property by increasing its assessed value by 4% in a single year. The ass'essors in most California counties, including the County, use a similar methodology in raising the taxable values of property beyond 2% in a single year. The State Board of Equalization has approved this methodology for increasing assessed values. On appeal, the Appellate Court held that the trial court erred in ruling that assessments are always limited to no more than 2% of

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the previous year's assessment. On May 10, 2004 a petition for review was filed with the California Supreme Court The petition has been denied by the California Supreme Court. As a result of this litigation, the "recapture" provision described above may continue to employed in determining the full cash value of property for property tax purposes.

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 (such as the District) are no longer permitted to levy directly any property tax (except to pay voter-approved inc:ebtedness). The one percent property tax is automatically levied by the county and distributed according to a formula among taxing agencies in the county. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to 1989. Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the two percent 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 assess,,d 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.

Article XIIIB of the California Constitution

On November 6, 1979, the voters of the State approved Proposition 4, known as the Cann Initiative, which added Article XJ[JB to the California Constitution. On June 5, 1990, the voters approved Proposition 111, which amended Article Xll!B in certain respects. Under Arllcle Xllll:i, as amended, state and local government entities have an annual "appropriations subject to limitation" which limits the ability to spend certain moneys which are called "appropriations subject to limitation" (consishng of most tax revenues and certain state subventions together called "proceeds of taxes" and certain other funds) in an amount higher than the "appropriations subject to limitation." Article XIIIB does not affect the appropriation of moneys which are excluded from the definition of "appropriations subject to ltmitation," including appropriations for debt service on indebtedness existing or authorized as of January 1, 1979, or bonded indebtedness subsequently approved by the voters in accordance with the law governing the election.

Proposition 218

On November 5, 1996, California voters approved Proposition 218 - Voter Approval for Local Government Taxes - Limitation on Fees, Assessments, and Charges - Initiative Constitutional Amendment. Proposition 218 added Articles XllIC and XIIID to the California Co.1stitution .. imposing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property-related foes and charges. Proposition 218 states that all taxes imposed by local governments shall be deemed to be either general taxes or special taxes. No local government may impose, extend or increase any general tax unless and until such tax is submitted to the electorate and approved by a majority vote. No local government may impose, extend or increase a,y special tax unless and until such tax is submitted to the electorate and approved by a two-thirds vote.

Proposition 218 also provides that no tax, assessment, fee or charge shall be assessed by any agency upon any parcel of property or upon any person as an incident of property ownership except: (i) the ad valorem property tax impose pursuant to Article XIII and Article XIIIA of the California Constitution, (ii) any special tax receiving a two-thirds vote pursuant to the California Constitution, and (iii) assessments,

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fees and charges for property related services as provided in Proposition 218. Proposition 218 further adds voter requirements for assessments and fees and charges imposed as an incident of property ownership, other than fees and charges for sewer, water, and refuse collection services. Proposition 218 also extended the initiative power to reducing or repealing any local taxes, assessments, fees and charges. This extension of the initiative power is not limited to taxes imposed on or after November 6, 1996, the effective date of Proposition 218, and could result in retroactive repeal or reduction in any existing taxes, assessments, fees and charges, subject to overriding federal constitutional principles relating to the impairments of contracts.

TAX MATTERS

Federal Tax Status. In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to the qualifications set forth below, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, provided, however, that, for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings. In the further opinion of Bond Counsel, the Bonds are "qualified tax-exempt obligations" within the meaning of section 265(b)(3) of the Internal Revenue Code of 1986 (the "Code") such that, in the case of certain financial institutions (within the meaning of section 265(b)(5) of the Code), a deduction for federal income tax purposes is allowed for 80 percent of that portion of such financial institution's interest expense allocable to interest payable on the Bonds.

The opinions set forth in the preceding paragraph are subject to the condition that the District comply with all requirements of the Tax Code that must be satisfied subsequent to the issuance of the Bonds in order that such interest be, or continue to be, excluded from gross income for federal income tax purposes. The District has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds.

Federal Tax Treatment of Original Issue Discount and Premium. If the initial offering price to the public (excluding Bond houses and brokers) at which a Bond is sold is less than the amount payable at maturity thereof, then such difference constitutes "original issue discount'' for purposes of federal income taxes and State of California personal income taxes. If the initial offering price to the public (excluding bond houses and brokers) at which each Bond is sold is greater than the amount payable at maturity thereof, then such difference constitutes "original issue premium" for purposes of federal income taxes and State of California personal income taxes. De minimis original issue discount is disregarded.

Under the Tax Code, original issue discount is treated as interest excluded from federal gross income and exempt from State of California personal income taxes to the extent properly allocable to each owner thereof subject to the limitations described in the first paragraph of this section. The original issue discount accrues over the term to maturity of the Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). The amount of original issue discount accruing during each period is added to the adjusted basis of such Bonds to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such Bond. The Tax Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the Bonds who purchase the Bonds after the initial offering of a substantial amount of such maturity. Owners of such Bonds should consult their own tax

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advisors with respect to the tax consequences of ownership of Bonds with ori;~inal issue discount, including the treatment of purchasers who do not purchase in the original offering, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of accrued original issue discount on such Bonds under federal individual and corporate alternative minimum taxes.

Under the Tax Code, original issue premium is amortized on an annual basis over the term of the Bond (said term being the shorter of the Bond's maturity date or its call date). The amount of original issue premium amortized each year reduces the adjusted basis of the owner of the Bond for purposes of determining taxable gain or loss upon disposition. The amount of original issue premium on a Bond is amortized each year over the term to maturity of the Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). Amortized Bond premium is not deductible for federal income tax purposes. Owners of Premium Bonds, including purchasers who do not purchase in the ori£inal offering, should consult their own tax advisors with respect to State of California personal income tax and federal income tax consequences of owning such Bonds.

California Tax Status. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes.

Form of Bond Counsel Opinion. Bond Counsel expects to deliver an opinion at the time of issuance of the Bonds in substantially the same form set forth in Appendix B.

Other Tax Considerations. Owners of the Bonds should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may have federal or state tax consequences other than as described above. Bond Counsel expresses no opinion regarding any federal or state tax consequences arising with respect to the Bonds other than as expressly described above.

CERTAIN LEGAL MATTERS

Legality for Investment

Under provisions of the California Financial Code, the Bonds are legal investments for commercial banks in Cahfornia to the extent that the Bonds, in the informed opinion of the bank, are prudent for the investment of funds of depositors, and under provisions of the California Governm2nt Code, the Bonds are eligible to secure deposits of public moneys in California.

Interest Deduction for Financial Institutions

The Internal Revenue Code of 1986, as amended, generally prohibits the deduction of interest on indebtedness incurred or continued by a bank or other financial institution to purchase or carry taxexempt obligations, such as the Bonds. The Code, however, contains an exception to this provision which permits an 80% deduction for interest expense of banks and other financial institutions allocable to their investments in tax-exempt obligations to the extent they purchase obligations of certain small governmental units (i) that together with all subordinate entities thereof do not reasonably expect to issue in the aggregate more than $10,000,000 of tax-exempt obligations (not counting private activity bonds other than qualified 501(c)(3) bonds) in a calendar year, and (ii) that designate such obligations as qualifying for such exception. The District has (i) represented that it expects that it and all subordinate entities thereof will not issue in the aggregate more than $10,000,000 of tax-exempt obligations during calendar year 2007, and (ii) designated the Bonds as qualifying for such exception.

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Absence of Litigation

At the time of payment for and delivery of the Bonds, the Underwriter will be furnished with a certificate of the District that to the best knowledge of the officer of the District executing the same that there is no litigation pending, affecting the validity of the Bonds.

RATING

Standard & Poor's Corporation ("S&P") has assigned the bonds an underlying rating of "AA." Standard & Poor's has assigned its municipal bond rating of" AAA" to the Bonds with the understanding that upon delivery of the Bonds, a municipal bond insurance policy insuring the payment when due of the principal and interest with respect to the Bonds will be issued by Financial Securities Assurance Inc. Such rating reflects only the views of such organization and an explanation of the significance of such rating may be obtained from Standard & Poor's at the following address: Standard & Poor's Corporation, 55 Water Street, New York, New York 10041. There is no assurance that any such rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by the rating agency, if in the judgment of the rating agency, circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Bonds. The District assumes no obligation to attempt to maintain any rating on the Bonds from S&P.

UNDERWRITING

The Bonds were purchased through negotiation by Piper Jaffray & Co. (the "Underwriter") at a price of $2,892,305.35 which consists of aggregate principal, less net original issue discount, less Underwriter's discount, and less costs of issuance (including bond insurance premium). The purchase contract pursuant to which the Underwriter is purchasing the Bonds provides that the Underwriter will purchase all of the Bonds if any are purchased. The obligation of the Underwriter to make such purchase is subject to certain terms and conditions set forth in such purchase contract. The Bonds may be offered and sold by the Underwriter to certain dealers and others at yields lower than the public offering prices indicated on the cover hereof, and such public offering prices may be changed from time to time, by the Underwriter.

MISCELLANEOUS

At the time of delivery and payment for the Bonds, an authorized representative of the District will deliver a certificate stating that to the best of his knowledge this Official Statement does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements herein, in light of the circumstances under which they were made, not misleading. Such certificate will also certify that to the best of his knowledge from the date of this Official Statement to the date of such delivery and payment there was no material adverse change in the information set forth herein.

Dale Scott & Company Inc. has acted as financial advisor to the District in conjunction with this offering. The delivery of this Official Statement has been authorized by the District.

PACIFIC GROVE UNIFIED SCHOOL DISTRICT, CALIFORNIA

By: /s/ Robin Blakley Robin Blakley, Assistant Superintendent, Business Services

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APPENDIX A EXCERPTS FROM AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR

FISCAL YEAR 2005-06

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ftl Vavrinek, Trine, Day & Co., LLP Certified Public Accountants

INDEPENDENT AUDITORS' REPORT

Governing Board Pacific Grove Unified School District Pacific (irove, Callfornia

VALUE THE DIFFERENCE

We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Pacific Grove Unified School District (the "Di,;trict") as of and for the year ended June 30, 2006; which collectively comprise the District's basic financial statements as listed in the table of contents .. These financial statemc:nts are the responsibility of the _District's management. Our responsibility is to express opinions on these financial statements based on our audit.

\Ve conducted our audit 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 Standards and Procedures for Audits ofCali/omia K-12 Local Educational Agencies 2005-06, issued by the California Education Audit Appeals Panel as regulations. 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 ov~rall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions_

ln 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 the Pacific Grove Unified School District, as of June 30, 2006, and the respective changes in financial position thereof for the year then ended in confonnity with accounting principles generally accepted in the United States of ·America. ·

in accordance with Government Auditing Standards, we have also issued our report dated November 16. 2006, on our consideration of the District'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 rnaners. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and c,ompliancc 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 perfonned in accordance with Government Auditing Standards and should be considered in conjunction with this report in considering the results of our audit.

The required supplementary infornution, such as management's discussion and analysis on pages 4 through 11 and budgetary comparison information on pages 45 and 46, are not a required part of the basic financial statements, but are supplementary i11formation required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted pri;ocipally 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 iL

2

6051 tt Fiesno Slreet. SuUe 101 Fresno, CA 93710 lcl 559 248.0871 Fax: 559.248,0875 wwwvtdcpacom

fll:ESNO • lAGUNA HlllS • PA.LO A.ltO " PlEASUHON • IANCHO CUCAMONGA

Our audit was conducted for the purpose of fonning opinions on the financial statements that collectively comprise the District's basic financial statements. The supplementary information listed in the table of contents, including the schedule of expenrutures of federal awards which is required by U.S. Office of Management and Budget Circular A-133, Audits of State. local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole.

The unaudited supplementary infonnation listed in the table of contents, the Combining Statements - Non-Major Governmental Funds, are presented for pwposes of additional analysis and are not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them.

VookUJ!J.k, JhUI(L, ,0~ J Co., L.L{)

· Fresno, California November 16, 2006

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~~c;;.~c GROVE

""'f"IEO SCHOOL DISTRICT

www.pgusd.org

PACIFIC GROVE UNIFIED SCHOOL DISTRICT 555 Sinex Avenue Pacific Grove, California 93950

Patricl< Perry Superintendent (831 J 646-6520 Fax(831)646-6500 ppenyOpgusd.org

Robin T. Blaklay Assi&tant Superintendent Business Services (831) 646-6!;)9

[email protected]

Tilis section of Pacific Grove Unified School District's (2005-06) annual financial rt1)0rt presents our discussion and analysis_ of the District's financial performance during the fiscal year that ended on June 30, 2006. Please read it in conjunction with the District's financial statements, which immediately follow this section .

OVERnEWOFTHE FINANCIAL STATEMENTS

[he Financial Statemen/S

The financial stalements presented herein include all of the activities of the Pacific Grove Unified School District (the "District") using the integrated approach as prescribed by GASB Statement Number 34.

The Government-Wide Financial Statemen/S present the financial picture of the District from the economic resources rrti;:asurement focus using 1he accrual basis of accounting, These statements incluC,c all asset:: of the District as ~ell as all liabilities (including long-term debt). Additionally, certain eliminations have occurred as prescribed by the statement in regards to interfund activity, payables and receivables.

Governmental Activities are prepared using the economic resources measurement focus and 1 he accrual basis of accounting.

The Fund Financial Statements include statements for each of the two categories of activities: governmental and fiduciary.

The Goyernmental Funds are prep~rc<l using the current financial resources measurement focus and modified accrual basis of accounting.

The Fiduciary Funds are agency funds, which only report a balance sheet and do not have a measurement focus.

Reconciliation of the Fund Financial Statements to the Government-Wide Financial Statements is provided lo explain the differences created by the inlegmted approach.

The Primary umt of the govenunent is the Pacific Grove Unified School District.

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'llv?w<i<l<(;,,o,,,,o~""'-'-"'d"""- .... N-o(•--•---'(lln,......-_-,~"'-"----""'-....,,,.,~al,,_ --... -~ __ .,._,. __ "'_~---~-~ .. ,,. ___ __


MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2006

REPORTING THE DISTRICT AS A WHOLE

The Statement of Net Assets and the_ Statement o[Activities

The Stateinent u/Net ASsets and the Statement of Activities report information about the District as a whole and about its activities. These statements include all assets and liabilities oft he District using the accrual basis of accounting. which is similar to the accounting used by most private-sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid.

These two statements report the District's net assets and changes in them. Net assets are the difference between assets and liabilities, one way to measure the District's financial health, or financial position. Over time, increases or decreases in the District's nel assets are one indicator of whether its firumcia/ health is improving or deLeriQrating. Other factors to consider are changes in the District's property tax base and the condit10n of the

District's facilities.

The relationship between revenues and expenses is the District's operating results. Since the Board's responsibility is to provide services to our students and not to generate profit as commercial entities do, one tnust consider other factors when evaluating the overall health of the District_ The quality of the education and the safety of our schools will likely be an important component in tlus evaluation.

In the Statement of Net Assets and the Statement of Activities, we present the District activities as follows;

Governmental activities• Most of the District's services are reported in this category. This includes the education of kindergarten through grade twelve students, adult education students, the operation of cluld development activities, and the on-going effort to improve and maintain buildings and sites. Property taxes, state income taxes, user fees, interest income, federal, state and local grants, as well as general obligation bonds, finance these activities.

REPORTING THE DISTRJCT'S MOST SIGNIFICANT FUNDS

Fund Financial Statements , .. , .. "

The fund financial statements provide detailed information about the most significant funds - not the District as ~ .. · whole. Some funds are required to be established by State law and by bond covenants. However, management establishes many other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money that it receives from the U.S. Department of Education.

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Governmental funds - Most of the District's basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the District's general government operations and the basic services it provides. Governmental fund infonnation helps detennine whether there are more or fewer financial resources that can be spent in the near future to finance the District's programs. The differences of results in the governmental fund financial statements to those in the government~wide financial statements are explained in a reconciliation following each governmental fund financial statement.

THE DISTRICT AS TRUSTEE

Reporting the Dis1n·c1's Fiduciary RE·sponsibi/ities

The District is the trustee, or fiduciary, for funds held on behalf of others, like our funds for associated student body activities, seholarnhips and 125 Cafeteria Plan. The District's fiduciary acttvities are reported in separate Statements of Fiduciary Net Assets. We exclude these activities from the District's other financial statements because the District cannot use these assets to finance its operations. The District is responsible for ensuring that the assets reported in these funds are used for their intended purposes.

THE DISTRICT AS A WHOLE

Net Assets

The District's net assets were $21,038,909 for the fiscal year ended June 30, 2006, and $20,604,993 for the fiscal year ended June 30, 2005, an increase of$433,9l6. Of this amount, $2,836,936 was unrestricted. Restricted net assets are reported separately to show legal constraints from debt covenants grantors, constitutional provisions and enabling legislation that limit the School Board's abiltty to use those net assets for day-to•-day operations. Our analysis below, in summary fonn, focuses on the net assets (Table I) and change in net assets (Table 2) of the District's governmental activities.

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PACIF1C GROVE UNIFIED SCHOOL DISTRICT


Table 1

Assets Current and other assets Capital assets (Net of accumulated deprec"iation)

Total Assets Liabilities

" Current liabilities

Long-term obligations Total Liabilities

Net Assets Invested in capital assets,

net of related debt Restricted

Unrestricted Total Net Assets

Governmental Activities

2006 2005

$ l 1,288,821

28,084,398

39,373,219

6,386,473 11,947,837 18,334,310

16,203,977 1,997,996

2,836,936 $ 21,038,909

$ 10,561,362

27,880,406 38,441,768

5,412,969

12,423,808 17,836,777

15,520,452 2,885,357

2, I 99,182 $ 20,604,991

The $2,836,936 in unrestricted net assets of governmental activities represents the accumulated results of all past years' operations" See page 52 for Financial Trends and Analysis to review available reserves in the Districts' General and Special Reserve Non-Capital Project Funds"

Changes in Net Assets

The results of this year's operations for the District as a whole are reported in the Statement of Activities" Table 2 takes the information from the Statement, rounds off the numbers, and rearranges them slightly so you can sec our total revenues for the year.

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Table 2

Revenues Program revenues:

Charges for services Operating grants and contributions

General revenues: State revenue sources Property taxes

Other general revenues Total Revenues

Expenses lnstruction¥related

Student support services

Administration Maintenance and operations Other

Total Expenses Change io Net Assets

GovernmentqJ Activities

$

$

Govem:mental Activities

2006 2005

910,605 $ 845,849 4,627,620 4,401,581

786,759 894,528 16,547,829 15,322,214 2,333,170 2,073,343

25,205,983 23,537,515

15,889,298 15,596,745 1,525,468 1,286,133 1,967,745 1,905,234 2,565,292 2,3.55,851 2,824,264 2,739,213

24,772,067 23,883,176 433,916 $ (345,661)

As reported in the Statement of Activities, the cost of all of our governmental activities this year was $24,772,067, as compared to $23,883,t 76 in the prior year. However, the amount that our taxpayers ultimately financed for these activities through local taxes was only $16,547,829 because the cost was paid by those who benefited from the programs ($910,605) or by other governments and organizations who subsidized certain programs with grants and contributions ($4,627 1620). We pald for the remaining "public benefit" portion of our govcmn1ent.al activities with $786,759 in State funds and $2,333,170 in other revenues, like interest and general enli tlements.

In Table J, we have presented the cost of each of the District's largest functions - regular program instrnction, instruction-related activities, home-to-school transportation services, other pupil services, gt:neral administration, maintenance and operations and other activities, as well as each program's net cost (total co:;t less revenues generated by the activities). As discussed above, net cost shows the financial burden that was placed on the District's taxpayers by each of these functions. Providing this information allows our citizens to consider the cost of each function in comparison to the benefits provided by that function .

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Table 3

2006

Total Cost Net Cost

of Services of Services

Instruction $13,211,788 $ 9,631,641

lnstruction~related activities 2,677,510 1,900,941

Home-to-school transportation 180,196 31,619

Other pupil services 1,345,272 962,374

General administration 1,967,745 1,620,520

Maintenance.and operations 2,565,292 2,440,152

Ancillary services 300,967 300,967

Community services 325.442 147,773

Interest on long-term obligations 470,793 470,793

Other outgo 1,253,069 1,253,069

Other 473,993 473,993

Totals $24,772,067 $ 19,233,842

THE DISTRICT'S FUNDS

2005 Total Cost Net Cost of Services of Services

$13,197,830 $ 9,553,400

2,398,915 1,922,714

183,498 42,262

1,102,635 745,395 1,905,234 1,577,179

2,355,851 2,234,295

261,329 261,329

294,233 294,233 581,195 581,195

1,159,600 980,888 442,856 442,856

$23,883,176 $18,635,746

As the District completed this year, our governmental funds reported a combined fund balance of $4,902,348, while the prior year reported $5,148,393, which is a decrease of $246,045 (Table 4).

Table4

General Adult Education

Building Special Reserve Capital Outlay

Non-Major Governmental Totals

The primary reasons for these increases are:

Fund Balance

June 30, 2006 June 30, 2005 $ 2,846,430 $ 2,378,013

55,503 151,731

284,234 821,546

594,127

1,122,054 $ 4,902,348

777,005

1,020,098 $ 5,148,393

The General Fund is the District's principal operating fund. The tund balance m the General Fund increased $468,419 to $2,846,430. This increase is due primarily to:

I. Expenditures being carefully monitored.

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PACIFIC GROVE UNIFIED SCHOOL DISTRJCT


General Fund Budgetary Highlights

Over tho course of the year, the District revises its budget as it attempts to deal with unexpected changes in revenues and expenditures. The final amendment lo the budget was adopted in June 2006. (A schedule showing the District's original and final budget amounts compared with amounts actually paid and received is provided in our annual report on page 45).

• Significant revenue revisions made to the 2005-06 Budget were due lo revised prop,,rty tax projections made after the budget adoption.

• There were no significant budgeted expenditure increases made to the 2005-06 Budget

CAPITAL ASSET AND DEBT AD.'IJINJSTRATJON

CgJ2jta/Assets

At June 30, 2005, the District had $27,880,406 in a broad range of capital assets (net of depr,,c,ation), including land, buildings, and furniture and equipment At June 30, 2006, the District had $28,084,391: ma broad range of capital assets (net of depreciation), including land, buildings, and furniture and equipment. This amount represents.a net increase (including additions, deductions and depreciation) of$203,992, or C.73 percent, from last year (Table 5).

Table 5

Land and construction in process

Buildings and improvements

Furniture and equipment

Totals

Govemmen!al Activities

2006 $ 217,496

27,758,498

108,404

$28,084,398

2005 $ 277,559

27,456,050

146,797

$27,880,406

This year's additions of $738,048 included school site modernization. General obligation debt was issued for these additions .

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Long-Term Obligations

At the end of this year, the District bad $11,315,000 in bonds outstanding versus $11,535,000 last year, a decrease of 1.91 percent. The long-term debt of the District includes the following:

Table 6

General obligation bonds (financed with property taxes)

Compensated absences

Capitalized lease obligations Eady retirement contracts

Totals

Governmental Activities

2006 $11,315,000

67,416

177,523 387,898

SI l,947,837

2005 $11,535,000

63,854

361,188 463,766

$12,423,808

Other obligations include compensated absences payable, capital lease obligations and other long-term debt. We present more detailed infonnation regarding our long-term liabilities in Note 9 of the financial statements.

ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES

In considering the District Budget for the 2006-07 year, the District Board and management used the following key assumptions in our revenue and expenditure forecasts:

l. Property tax revenues will increase by 6. 76 percent due to an estimated rise m assessed valuation. 2. Interest earnings will continue at the historically low 2005-06 levels. 3. No "basic aid" will be received. 4. Federal income will not increase over 2005-06 levels. 5. State income will not increase over 2005-06 levels. 6. The District will receive an estimated $270,271 for the new local parcel tax.

CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT

This financial report is designed to provide our citizens, taxpayers, students, and investors and creditors with a general overview of the District's finances and to show the Districes accountability for the money it receives. If you have questions about this report or need any additional financial information, contact the Assistant Superintendent, Business Services, at Pacific Grove Unified School District, 555 Sinex Avenue, Pacific Grove, California, 93950, or e-mail al [email protected].

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ST A TEMENT OF NET ASSETS JUNE 30, 2006

Govern men ta I Activitie•

ASSETS. Deposits and investments $ 10,369,092 Receivables 917,310 Stores inventory 2,419 Nondepreciable capital assets 217,496 Depreciable capital assets 30,612,870 Accumulated depreciation (2,745,968)

Total Assets 39,373,219

LIABILITIES Accounts payable 6,301,423 Deferred revenue 85,050 Current portion of long-term obligations 554,990 Noncurrent portion of long-term obligations 11,392,847

Total LiabUlties I 8,334,310

NET ASSETS

• Invested in capital assets, net of related debt 16,203,977 Restricted for:

Debt service 617,105 Capital projects 935,719 Other activities 445,172

~ Unrestricted 2,836,936

Total Net Assets $ 21,038,909

• The accompanying notes are an integral part of these fmancial statements.

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PACIFIC GROVE UNlFIED SCHOOL DISTRICT

ST A TEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2006

Program Revenues Charges for Operating Services and Grants and

Functions/Programs Expenses Sales Contributions Governmental Activities: Instruction $ 13,211,788 $ 536,837 $

Instruction-related activities: Supervision of instruction 208,789 Instructional library, media and technology 345,247

3,043,310

160,148

536,043

138,504 60,775

School site administration Pupil services:

Home-to-school transportation Food servlc~s . All other pupil services

General administration: All other general administration

Plant services Ancillary services Community services Interest on long-tenn obligations Other outgo Depreciation (unallocated)

2,123,474

180,196 327,461

1,017,811

l,967,745 2,565,292

300,967 325,442 470,793

l,253,069 473,993

80,378

10,073 231,780

1,168

50,267

102

Total Governmental Acthities $ 24,772,067 $ 910,605

General revenues and subventions: Property taxes, levied for general purposes Property taxes, levied for debt service

Taxes levied for other specific purposes Federal and State aid not restricted to specific purposes

Interest and investment earnings

Miscellaneous Subtotal, General Revenues

Change in Net Assets

Net Assets - Beginning Net A.ssets - Ending

The accompanying notes are an integral part of these financial statements.

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$

89,175

296,958 125,140

177,567

4,627,620

Net (Expense,) Revenues and Chaoges in Net Assets

Governmental Adivities

$ (9,631,641)

• (48,641) (345,247)

(1,507,053)

(31,619) (34,906)

(927,468)

(1,620,520) (2,440,l 52)

(300,967) (147,773) (470,793)

(1,253,069) (473,993)

(19,233,842)

15,476,997 •

802,531

268,301 786,759

202,643

2,130,527

19,667,758

433,916

20,604,993

s 21,038,909

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GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2006

General Fund

ASSETS Deposits and investments $ 8,143,674

Receivables 716,324

Due from other funds 77,989

Stores inventory Total Assets $ 8,937,987

LlABILITrES AND FUND BALANCES Liabilities:

Accounts payable 5,983,330

Due to other funds 30,000

Deferred revenue 78,227

Total Liabilities 6,091,557

FUND BALANCES Reserved 5,000

Unreserved:

Designated 2,136,630

Undesignated, reported in:

Gener.ti Fund 704,800

Special revenue funds Debt service funds

Capital projects funds

Total Fuod Balance 2,846,430

Total Liabilities and Fund Balances $ 8,937,987


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Adult Building Fund Fund

$ $ 525,561

76,645 5,898

$ 76,645 $ 531,459

2,261 247,225

18,881

21, l 42 247,225

2,768

52,735

284,234

55,503 284,234

$ 76,645 $ 531,459

Non-Major Total Governmental Governmental

Funds Funds

$ 1,699,857 $ 10,369,092 118,443 917,310 30,000 107,989 i,419 2,419

$ . 1,850,719 $ 11,396,810

68,607 6,301,423 59,[08 107,989

6,823 85,050 134,538 6,494,462

~.419 7,419

2,139,398

704,800 445,172 497,907 617,105 617,105

' 651,485 935,719

1,716,181 4,902,348

$ l,85d,719 $ 11,396,810

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RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2006

Amounts Reported for Governmental Activities in the Statement of Net Assets are Different Because:

Total Fund Balance - Governmental Funds

Capital assets used in governmental activities are not financial resources

and, therefore, are not reported as assets in governmental funds.

TI1e cost of capital assets is

Accumulated depreciation is Total capital assets - net

Long-term liabilities, including general obligation bonds, compensated absences, capital lease obligations and early retirement consultancy contracts are not due and payable in the current period and, therefore, are not reported as liabilities in the funds.

Long-term liabilities at year end consist of:

General obligation bonds

Early relirement Compensated absences Capital lease obligations

Total long-term liabilities

Total Net Assets - Governmental Activities


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S 30,830,366

(2,745,968)

(11,315,<)00)

(387,898) (67,416)

(177,523)

$ 4,902,348

28,084,398

(11,947,837) $21,038,909


GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE FOR THE YEAR ENDED JUNE 30, 2006

General Adult Building Fund Fund Fund

REVENUES Revenue limit sources $ I 5,413,937 $ 2,088,608 $

Federal sources 603,497 63,000

Other State sources 2,2 I 8,358 62,281

Other local sources 2,080 33 I 277,087 22,316 Total Revenues 20,316,123 2,490,976 22,316

EXP END !TURES Current

Instruction 11,416,456 1,705,516

Instruction-related activities: Supervision of instruction 208,789 Instructional library, media and 1echnology 345,247 School site administration 1,552,739 570,735

Pupil services: Home-to-school transportation 186,996 Food services All other pupil services 1,004,199 13,612

General administration: All other general administration 1,649,422 296,3 I 2

Plant services 1,877,739 1,030 Facility acquisition and construction 555,679

Ancillary services 300,967 Community services Other outgo 617,558

Debt service Principal 109,355 Interest and other 3,950

Total Expenditures 19,269,467 2,587,205 559,629

Excess (Deficiency) of Revenues Over Expenditures 1,046,656 (96,229) (537,313) Other Financing Sources (Uses):

Transfers in 6,800 Transfers out (585,037)

Net Finandng Sources (Uses) (578,237)

NET CHANGE IN FUND BALANCES 468,4 I 9 (96,229) (537,313)

Fund Balance - Beginning 2,378,0l I 151,732 82 l,547

Fund BaJance ~ Ending $ 2,846,430 $ 55,503 $ 284,234


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Non-Major Total Governmental Governmental • Funds Funds

$ $ 17,502,545 58,470 724,967

204,235 2,484,874 2,113,863 4,493,597

• 2,376,568 25,205,983

86,254 13,208,226

208,789

345,247 2,123,474

186,996 327,46 I 327,461

1,017,81 I •

22,0l I 1,967,745 153,304 2,032,073 648,725 l,204,404

300,967 325,442 325,442

, 635,511 1,253,069

248,928 358,28! 588,093 592,04!

3,035,729 25,452,030

(659,161) (246,047)

585,037 591,837 (6,800) (591,837)

578,237 (80,924) (246,047)

I.797,105 5,148,395 $ 1,716,181 $ 4,902,348

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RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE DISTRICT-WIDE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2006

Total Net Change in Fund Balance, - Governmental Funds Amonnts Reported for Governmental Activities in the Statement of Activities are Different Because:

Capital outlays to purchase or build capital assets are reported in governmental funds as expenditures, however. for governmental activities,

those costs are shown in the statement of net assets and allocated over their estimated useful lives as annual depreciation expenses in the statement of

activities,

This is the amount by which capital outlays exceed depreciation in the period.

Capital outlays Depreciation ex:pense

ln the statement of activities, certam operating expenses - compensated absences (vacations) and special termination benefits (early retirement consultancy contracts) are measured by the amounts earned during the year. In the governmental funds. however, expenditures for these items are measured by the amount of financial resources used (essentially, the

amounts actually paid).

Repayment of bond principal is an expenditure in the governmental funds, but it reduces long-term liabilities in the statement of net assets and does not

affect the statement of activities:

General obligation bonds

Capital lease obligations

Change in Net As~ets of Governmental Activities

The accompanying notes are an mtegral part of these financial statements.

17

$ 677,985 (473,993)

220,000 183,665

$ (246,047)

203,992

72,306

403,665 $ 433,916

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FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET ASSETS JUNE 30, 2006

ASSETS

125 Cafeteria Scholarships

Agency Funds

Deposits and in vestments $ 20,690 $ 219,929 $ 62,205 ====== ===~~

LIABILITIES Due to student groups

NET ASSETS Unreserved

$ $ ====-

=$~~2;;;0e,;;,6;,,90;.,, $ 219,929


18

$ 62,205


FIDUCIARY FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FOR THE YEAR ENDED JUNE 30, 2006

125 Cafeteria Scholarships

ADDITIONS Contributions S I, 176,262 _$'----'8--'-2,::;_,53;;..;9_

Total Additions

DEDUCTIONS Other expenditures

Change in Net Assets Net Assets - Beginning Net Assets - Ending


19

$

1,176,262 82,539

1,185,559 16,350

(9,297) 66,189 29,987 153,740 20,690 $ 219,929

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NOTES TO FINANCIAL ST A TEMENTS JUNE 30, 2006

NOTE I SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial Reporting Entity

The Pacific Grove Unified School District was org-.rnized in 1936 under the laws of the State of California. The. District operates under a locally-elected five member Board form of government and provides educational services to grades K - 12 as mandated by the State and/or Federal agencies. TI,e District operates two elementary schools, one middle school, one high school, one adult education center, one continuation high school and three child care centers.

A repo,tittg entity is comprised of the primary government, component units, and other organizations that are included to ensure the financial stalt~ments are not misleading. The primary government of the District consists of all funds, departments, boards, and agencies that are not legally separate from the District. For Pacific Grove Unified School Distnct, this includes general operations, food service, and student related activities of the District.

Component Units

Component units are legally separate organizations for which the District is financially accountable. Component units may also include organizations that are fiscally dependent on the District in that the District approves their budget, the issuance of their debt or the levying of their taxes. The District has no component units.

Other Related Entities

Joint Powers Agencies and Public Entity Risk Pools The District is associated with one joint powers agency and three public entity risk pools. These organizations do not meet the criteria for inclusion as component units of the District. Additional information is presented in Note l6 to the financial statements. These organizations are:

Mission Trails Regional Occupational Program (ROP) Monterey County Schools' Insurance Group (MCSIG)

. Monterey County Disability and Property, Self-Insurance Authority (MCLPSIA) Monterey County Schools' Workers' Compensation (MCSWC)

Basis of Presentation - Fund Accounting

The accounting system is organized and operated on a fund basis. A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts, which arc segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regu]atJons, restrictions, or limitations. The District's funds are grouped into three broad fond categories: governmental, proprietary, and fiduciary.

Governmental Funds Governmental funds are those through which most governmental fimotions typically are financed. Governmental fund reporting focuses on the sources, uses, and balances of current financial resources. Expendable assets are assigned to the various governmental funds according to the purposes :for which they may or must be used. Current liabilities are assigned to the fund from which they will be paid. The difference between governmental fund assets and liabilities is reported as fund balance. The following are the District's major and non-major governmental funds:

20

PACIFIC GROVE UNIFLED SCHOOL DISTRICT

NOTES TO FINA.11/CIAL STATEMENTS JUNE 30, 2006

Major Governmental Funds

General Fund The Generdl Fund accounts for all financial resources except those required to be accounted for in another fund. The General Fund balance is available to the District for any purpose provided it is expended or transferred according lo the general laws of California.

Adult Education Food The Adult Education Fund is used to account for resources committed to adult education programs maintained hy the District.

Building Fund The Building Fund exists primarily lo account separately for proceeds from sale of bonds and the acquisition of major governmental capital facilities and buildings.

Non-Major Governmental Funds

Special Revenue Fund, The Special Revenue Funds are used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for specific purposes. The District maintains the following special revenue funds:

Child Development Fund The Child Development Fund is used to account for resources committed to child development programs maintained by the District.

Cafeteria Fund The Cafeteria Fund is used to account for the financial transactions related to the food service operations of the District.

Deferred Maintenance Fund The Deferred Maintenance Fund is used for the purpose of major repair or replacement of District property.

Special Reserve Fund for Other than Capital Outlay The Special Reserve Fund for Other than Capital Outlay is used to provide for the accumulation of General Fund monies for general operating purposes.

Retiree Benefits Fund The Retiree Benefits Fund is used to account for funds set aside for payment of retirees health benefit costs.

Debt Service Funds The Debt Service Funds are used to account for the accumulation of resources for, and the payment of, long-term debt principal, interest, and related co,;ts. The District maintains the following debt service fund:

Bond Interest and Redemption Fund The Bond Interest and Redemption Fund is used to account for the accumulation of resources for, and the repayment of, district bonds, interest, and related costs.

Capital Projects Funds The Capital Projects Funds are used to account for the acquisition and/or construction of all major governmental fixed assets. The District maintains the following capital projects fund:

Special Reserve Fund The Special Reserve Fund ts used to account for funds set aside for Board designated construction projects.

21

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PACUlC GROVE UNIFIED SCHOOL DISTRICT


Proprietary Funds Proprietary fund reporting focuses on the dctennination of operating income, changes in net assets, financial position, and cash flows. The District applies all GASB pronouncements, as well as the Financial Accounting Standards Board pronouncements issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements. Proprietary funds are classified as <:nterprise or internal service. The District has no proprietary funds.

Fiduciary Funds Fiduciary fund reporting focuses on net assets and changes in net assets. The fiduciary funds category are composed of agency funds and trust funds. The District has a 125 cafeteria fund, scholarship fund, and ASB student body fund.

Basis of Accounting - Measurement Focus

Goveromelli~Wide FinanCial Statements The government~wide financial statements arc prepared using the economic resources measurement focus and the accrual basis of accounting.

The govemment~wide statement of activities presents a comparison between expenses, both .jfrect and ;ndirect. and program revenues for each governmental function. Direct expenses are those that are specifically associated with a service, program, or department and are therefore, clearly identifiable to a particular function. The District does not allocate indirect expenses to functions in the Statement of Activities. Program rcv-enues include charges paid by the recipients of the goods or services offered by the programs and grants and contribuuons that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as prtigraril revenues are presented as general revenues. The comparison of program revenut:s and 1

expenses identifies the extent to which each program or business segment is self-financing cir draws from the general revenues of the District.

Net assets should be reported as reslricted when constraints placed on net asset use are either externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or imposed hy law through constitutional provisions or enabling legislation. The net assets restricted for other purposes result from special revenue funds and the restrictions on their net asset use.

Fund Financial Statements Fund financial statements report detailed infonnation about the District. The focus of governmental and proprietary fund financial statements is on major funds rather than reporting funds by type. Each maJor fund is presented in a separate column. Non-major funds are aggregated and p·:escntcd in a single column.

Governmental Funds All governmental funds are accounted for using a flow of current financial resources measurement focus and the modified accrual basis of accounting. With this measurement focus, only current assets and current liabilities generally are included on the balance sheet. The statement of revenues, expenditures, and changes in fund balance reports on the sources (revenues and other financing sources) and uses (expenditures and otht,"f financing uses) of current financial resources. 'This approach differs from the manner in which the governmental activities of the government-wide financial statemcnls are prepared. Governmental fund financial statements therefore include reconciliation with brief explanations to better identify the relationship between the government-wide financial statements and the statements for the governmental funds on a modified accrual basts of accounting and the current financial resources measurement focus. Under this basis, revenues are recognized in the accounting period in which they become measurable and available. Expenditures are recognized in the accounting period in which the fund liability is incurred, if measurable .

22

PACIFIC GROVE UNIFIED SCHOOL DISTRJCT

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2006

Fiduciary Funds Fiduciary funds are accounted for using the flow of economic resources measurement focus and the accrual basis of accounting.

Revenues - Exchange and Non-Exchange Transactions Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the fiscal year in which the resources are measurable and become available. Available means that the resources will be collected within the current fiscal year or are expected to be collected soon enough thereafter to be used to pay liabilities of the current fiscal year. Generally, available is defined as collectible within 45 or 60 days. However to achieve comparability of reporting among California LEAs and so as not to distort normal revenue patterns, with specific respect to reimbursement grants and corrections to state-aid apportionments, the California Department of Education has defined available for LEAs as collectible within one year.

Non-ex.change transactions. in which the District receives value without directly giving equal value in return, include property taxes, certain grants, entitlements, and donations. Revenue from property taxes is recognized in the fiscal year in which the taxes are received. Revenue from certain grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Eligibility requirements inc1ude time and purpose requirements. On a modified accrual basis, revenue from non-exchange transactions must also be available before it can be recognized.

Under the modified accrual basis, the following revenue sources are considered to be both measurable and available at fiscal year-end: State apportionments, interest, certain grants, and other local sources.

Deferred Revenue Deferred revenue arises when potential revenue does not meet both the 11 measurable11 and "available" criteria for recognition in the current period or when resources are received by the District prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the District has a legal claim to the resources, the liability for deferred revenue is removed from the combined balance sheet and revenue is recognized.

Certain grants received that have not met eligibility requirements are recorded as deferred revenue. On the governmental fund financial statements, receivables that will not be collected within the available period are also. recorded as deferred revenue.

Expenses/Expenditures On the accrual basis of accounting, expenses are recognized at the time they are incurred, The measurement focus of govenunenta) fund accounting is on decreases in net financial resources (expenditures) rather than expenses. Expenditures are generally recognized m the accounting period in which the related fund liability is incurred, if measurable. Principal and interest on long-term obligations, which has nnt matured. are recognized when paid in the governmental funds. Allocations of costs, such as depreciation and amortization., are not recognized in the governmental funds.

Cash and Cash Equivalents

The District's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. Cash equivalents also include cash with county treasury balances for purposes of the statement of cash flows.

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Investments

Investments held at June 30, 2006, with original maturities greater than one year are stated a1 fair value Fair value is estimated based on quoted market prices at year-end. All investments not required t,) be reported at fair value are stated at cost or amortized cost. Fair values of investments in county pools are det,:rmined by the program sponsor.

Restricted AS>ets

Restricted assets arise·wheii restrictions on their use change the normal understanding of the availability of the "' asset. Such constraints are either imposed b"y creditors, contributors, grantors, or laws of oth,er governments or imposed by enabling legislation. Restricted assets in the general and debt service Fund represent cash and cash equivalents required by state and local agencies to be set aside by the District for the purpose of satisfying certain requirements of the federal, state programs, and debt service requirements.

Stores Inventory

inventories consist of expendable food and supplies held for consumption. Inventories are stated at cost, on the weighted average basis.

Capital Assets and Depreciation

The accounting and reporting treatm,,nt applied to the capital assets associated with a fund are determined by its measurement focus. General capital assets are long-lived assets of the District. The District maintains a capitalization threshold of$5,000. The District does not possess any infrastructure, Improvements are capitalized; the costs of normal maintenance and repairs that do not add to the value of the asset or materially extend an asset's life are not capitalized, but are expensed as incurred.

When purchased, such assets are recorded as expenditures in the governmental funds and capitali,cd in the government-wide statement of net assets. The valuation basis for capital assets is historical cost, or where historical cost is not available, estimated historical cost based on replacement cost. Donated capital assets are capitalized at estimated fair market value on the date c;lonated.

Depreciation of capital assets is computed and recorded by the strdight-line method. Estimated useful lives of the various classes of depreciable capital assets are as follows: buildings, 20 to 50 years; improvements/infrastructure, 5 to 50 years; equipment, 2 to 15 years.

Interfund Balances

On fund financlal statements. receivables and payables resulting from short-tenn interfund loans are classified as "interfund receivables/payables.'' These amounts are eliminated in the governmental column of the statement of net assets .

24



Compemated Ab,ences

Accumulated unpaid vacation benefits are accrued as a liability as the benefits are earned. The entire compensated absence liability is reported on the government-wide statement of net assets. For governmental funds, the current portion of unpaid compensated absences is recognized upon the occurrence of relevant events such as employee resignations and retirements that occur prior to year end that have not yet been paid with expendable avallable financial resources. These amounts are reported in the fund from which the employees who have accumulated leave are paid.

Sick leave is accumulated without limit for each employee at the rate of one day for each month worked. Leave with pay is provided when employees are absent for health reasons; however. the employees do not gain a vested right to accumulated sick leave. Employees are never paid for any sick leave balance at tennmation of employment or any other time. Therefore, the value of accumulated sick leave is not recognized as a liability in the District's financial statements. However, credit for unused sick leave is applicable to all classified school members who retire after January 1, 1999. At retirement, each member will receive .004 year of service credit for each day of unused sick leave.

Accrued Liabilities and Long-Term Obligations

All payables, accrued liabilities, and long-term obligations are reported in the government-wide financial statements. In general, governmental fund payables and accrued liabilities that, once incurred, are paid in a timely manner and in full from current financial resources are reported as obligations of the governmental funds.

However, claims and judgments, compensated absences, special tennination benefits, and contractually required pension contributions that will be paid from governmental funds are reported as a liability in the governmental fund financial statements only to the extent that they are due for payment during the current year. Bonds, capital leases, and other long-tenn obligations are recognized as liabilities in the governmental fund financial statements when due.

Fund Balance Reserves and Designations

The District reserves those pon,ons of fund balance which are legally segregated for a specific future use or which do not represent available expendable resources and therefore are not available for appropriation or' expenditure. Unreserved fund balance indicates that portion of fund balance, which is available for appropriation in future periods. Fund balance reserves have been established for revolving cash accounts, stores inventories, and legally restricted grants and entitlements.

Designations of fund balances constsl of that portion of the fund balance that bas been designated (set aside) by the governing board to provide for specific purposes or uses. Fund balance designations have been established for economic uncertainties, and other purposes.

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Net Assets

Nd assets represent the difference between assets and liabilities. Net assets invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction or improvement of those assets. Net assets are reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the District or througb external restrictions imposed by creditors. grantors, or laws or regulation, of other governments. The District first applies restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net assets are avaj]able. The government-wide financial state:ments reports $1,997,996 of restricted net assets. of which $1,400,711 is restricted by enabling legislation .

Ioterfuod Activity

Ex.change transactions between funds are reported as revenues in the seller funds and as ex:pe.nditures/expenses in U,e purchaser funds. Flows of cash or goods from one fund to another without a requirement for repayment are reported as interfund transfers. Repayments from funds responsible for particular expenditUies/expenses to the funds that initrnlly paid for them are not presented on the financial statements.

Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates.

Budgetary Data

The budgetary process is prescribed by provisions of the California Education Code and requires the governing board to hold a public hearing and adopt an operating budget no later than July I of each year. The District governing board satisfied these requirements. The adopted budget is subject to amendment cirroughout the year to give consideration to unanticipated revenue and expenditures primarily resulting from events unknown at the time of budget adoption with the legal restriction that expenditures cannot exceed appropriations by major object account.

The amounts reported as the origin..1.l budgeted amounts in the budgetary statements rcf1CL1: the amounts when the original appropriations were adopted. The amounts reponed as the final budgeted amounts in the budgetary statements reflect the amounts after all budget amendments have been accounted for. For pu1poses of the budget, on behalf payments have not been included as revenue and expenditures as required under generally accepted accounting principles.

Property Tax

Secured property taxes attach as an enforceable lien on property as of January I. Taxes are p.ayable in two installments on November I and February 1 and become delinquent on December 10 and April 10, respectively. Unsecured property taxes are payable in one installment on or before August 31. The County of Monterey bills and collects the taxes on behalf of the District. Local property tax revenues are recorded when received

26



New Accounting Pronouncements

[n July 2004, GASB issued GASBS No. 45, Accounting and Financial Reporting by Employers for Postemploymenl Benefits Other Than Pensions. This Statement will require local governmental employers who provide other post employment benefits (OPEB) as part of the total compensation offered to employees to recognize the expense and related liabilities (assets) in the government-wide financial statements of net assets and activities. This Statement establishes standards for the measurement, recognition, and display of OPEB expense/expenditures and related liabilities (assets), note disclosures, and, if applicable, required supplementary information (RSI) in the financial reports of State and local governmental employers.

Current financial reporting practices for OPEB generally are based on pay-as-you-go financing approaches. They fail to measure or recognize the cost of OPEB dunng the periods when employees render the services or to provide relevant information about OPEB obligations and the extent to which progress is being made in funding those obligations.

This Statement generally provides for prospective implementation - that is, that employers set the beginning net OPEB obligation at zero as of the beginning of the initial year. The District will be required to implement the provisions of this Statement for the fiscal year ended June JO, 2009. The District is in the process of determining the impact the implementation of this Statement will have on the government-wide statement of net assets and activities.

In June 2005, the GASB issued QASBS No. 47, Accounting for Termination Benefits. GASBS No. 47 addresses accounting for both voluntary and involuntary temtination benefits. For tennination benefits that affect an employer's obligations for defined benefit OPEB, the provisions of GASBS No. 47 should be applied simultaneously with the requirements of GASBS No. 45. For all other termination benefits, including those that affect an employer's obligations for defined benefit pension benefits, GASBS No. 47 is effective for financial statements for periods beginning after June 15, 2005. f:.arlier application ofGASBS No. 47 is encouraged.

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NOTE 2 - DEPOSITS AND INVESTMENTS

Summary of Deposits and Investments

Deposits and investments as of June 30, 2006, art: classified ln the acCompanying financial statements as follows:

Governmental activities Fiduciary funds

Total Deposits and [nvestments

Deposits and investments as of June 30, 2006, consist of the following:

Cash on hand and in banks Cash in revolving lnvestments

Total Deposits aud lnvcslments

Policies and Practices

$ 10,369,092 302,824

$ 10,671,916

$ 265,03] 5,000

10,401,885 $ 10,671,916

The District is authorized under California Government Code lo make direct investments in local agency bonds, notes, or warrants within the State; U.S. Treasury instruments; registered State warrants or tn~asury nott:s; securities of the U.S. Government, or its agencies; bankers acceptances; commercial paper; certificates of deposit placed with commercial banks and/or savings and loan companies; repurchase or reverse repurchase agreements; medium term corporate notes; shares of beneficial interest issued by diversified management companieB, certificates of participation, obligations with first priority security; and collateralized mortgage obligations.

Investment in County Treasury - The District is considered to be an involuntary participaff. in an external investment pool as the District is required to deposit all receipts and collections of monies with their County Treasurer. (Education Code Section 4100 I). The fair value of the District's investment in the pool is reported in the accounting financial statements at amounts based upon the District's pro-rata share of the fair value provided by the County Treasurer for the entire portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by the County Treasurer, which is recorded on the amortized cost basis .

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General Authorizations

Limitations as they relate to interest rate risk, credit risk, and concentration of credit risk are indicated in the schedules below:

Maximum Maximum Maximum Authorized Remaining Pel':entage Investment

Investment Tl:'.ee Maturi!~ of Portfolio in One Issuer Local Agency Bonds, Notes, Warrants 5 years None None

Registered State Bonds, Notes, Warranls 5 years None None U.S. Treasury Obligations S years None None

U.S. Agency Securities S years None None

Banker's Acceptance 180 days 40% 30%

Commercial Paper 270days 25% 10%

Negotiable Certificates ofDepos,t 5 years 30% None Repurchase Agreements I year None None Reverse Repurchase Agreements 92 days 20% of base None Medium-Term Corporate Notes S years 30% None Mutual Funds NIA 20% 10%

Money Market Mutual Funds NIA 20% 10%

Mortgage Pass-Through Securities 5 years 20% None County Pooled Investment Funds NIA None None Local Agency Investment Fund (LA!F) NIA None None Joint Powers Authority Pools NIA None None

Interest Rate Risk

Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an iavestriient, the greater the sensitivity of its fair value to changes in market interest rates. The District manages its exposure to interest rate risk by investing in the County Pool and purchasing a combination of shorter term and longer term in'vestments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations.

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Segmented Time Distribution

Information aOOut the sensitivity ofr.he fair values of the District's investments to market interest rate fluctuations · is provided by the following schedule that shows the distribution of the District's investment:; by maturity:

Fair Investment Type Value

Corporate Bonds $ 37,793 $

County Pool 5,663,292 Held by Trustee:

Investment contract 4,700,800 Total $ 10,401,885 $

Credit Risk

12 Months

or Less

5,663,292

4,700,800 10,364,092

13 24

Months $

$

25 -60 Months

$

$ ==

More Than 60Months $ 37,793

$ 37,793

Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization Pr.csented_ below is the minimum rating required by the California Government Code, the District's investment policy, or debt agreements, and the actual rating as of the year-end for each investment type.

Fair Minimum Ratin~ as of Year End Investment Ti:J!e Value Leila! Rating AAA A,1 Unrated

Corpornte Bonds $ 37,793 NIA $12,791 $ 25,(1(]2 $

County Pool 5,663,292 NIA 5,663,292 Held by Trustee:

investment contract 4,700,800 NIA 4,700,800 Total $ 10,401,885 $12,791 $ 25,(1(]2 $ 10,364,092

== NI A - Not applicable

Concentratioo of Credit Risk

The investment policy of the District contains no Jimitations on the amount that can be invested in anyone issuer beyond the amount stipulated by the California Government code. Investments in any one issuer that represent five percent or more of the total investments are as follows:

fasuer Investment T we Piper Jaffray ln vestment Contract

30

Reported

Amount $ 4,700,800



Custodi1l Credit Risk - Deposit•

This is the risk that in the event of a bank failure, the District's deposits may not be returned to it. The District does not have a policy for custodial credit risk for deposits. However, the California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least I ID percent of the total amount deposited by the public agencies. California law also allows financial institutions to secure public deposits by pledging first trust deed mortgage notes having a value of 150 percent of the secured public deposits and letters of credit issued by the Federal Home Loan Bank of San Francisco having a value of I 05 percent of the •" secured deposits. As of June 30, 2006, the District's bank balance of$149,766 was exposed to custodial credit risk because it was uninsured and collateralized with securities held by the pledging financial institution's trust department or agent, but not in the name of the District.

Custodial Credit Risk- Investments

This is the risk that, in the event of the failure of the counterparty, the District will not be able to recover the value of its investments or collateral securities that are in possession of an outside party. Of the inveslmenl in

investment contracts of $4,700,800, the District has a custodial credit risk: exposure of $4,700,800 because the related securities are uninsured, unregistered and held by the brokerage firm which is also the counterparty for these securities. The District does not have a policy limiting the amount of securities that can be held by

counterparties.

NOTE 3 - RECEIVABLES

Receivables at June 30, 2006, consisted of intergovernmental grants, entitlements, interest and other local sources. All receivables are considered collectible in full.

Adult Non-MaJor Total

General Education Building Governmental Governmental

Fund Fund Fund Funds Activities

Federal Government Categorical aid $ 274,337 s 31,500 $ $ 10,664 s 316,501

State Government Apportionment 11,235 41,992 53,227

Categorical aid 295,826 4,989 300,815

Lottery 48,615 48,61S

Local Government interest S9,356 3,153 5,898 10,867 79,274

Other Local Sources 26,955 91,923 118,878

Total $ 716,324 $ 76,645 $ 5,898 $ 118,443 $ 917,310

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NOTE 4 - CAPITAL ASSETS

Capital asset activity for the fiscal year ended June 30, 2006, was as follows:

Balance

Julr 1, 2005 Additions Governmental Activities Capital Assets Not Bemg Depreciated

Land $ 217,496 $

Construction in process 60,063 Total Capital Assets Nol Being Depreciated 277,559

Capital Assets Being Depreciated Buildings and improvements 29,599,725 731,248 Furniture and equipment 275,097 6,800

Total Capital Assets Being Depreciated 29,874,822 738,048

Less Accumulated Depreciation Buildings and improvements 2,143,675 428,800 Furniture and equipment 128,300 45,193

Total Accumulated Depreciation 2,271,975 473,993 (Jovemmental Activities Capital Assets, Net $27,880,406 $ 264,055

Deductions

$

60,063

60,063

s 60,063

Depreciation expense of $473,993 was charged to governmental functions as unallocated .

NOTE 5 - INTERFUND TRANSACTIONS

lnterfund Receivables/Payables (Due To/Due From)

Balance June 30, 2006

$ 217,496

217,496

30,330,973

281,897

30,612,870

2,572,475 173,493

2,745,968 $28,084,398

lnterfund receivable and payable balances at June JO, 2006, between major and non-major governmental funds, are as follows:

Due from General Child Dev

Due To Fund Fund Total General $ $ 30,000 $ 30,000 Adult Education 18,881 18,881 Child Development 59,108 59,108

Total $ 77,989 $ 30,000 $ 107,989 =

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NOTES TO FINA.l'l"CIAL ST A TEMENTS JUNE 30, 2006

Open1ting Transfen;

Interfuod transfers for the year ended June 30, 2006, consisted of the following:

The General Fund transferred to the Special Reserve Non-Capital Fund for purchases. The General Fund transferred to the Child Development Fund to supplement cash flaw. The General fund transferred to the Cafeteria Fund to supplement cash flow. The General Fund transferred to the Deferred Maintenance Fund for the matching

contribution. The General fund transferred to the Retiree Benefits Fund for benefit costs. The General Fund transferred to the Special Reserve Capital Fund for future capital

expenditures. The Special Reserve Non-Capital Fund transferred to tbe General Fund to

reimburse expenditures. Total

$ 1,500 30,000 46,778

100,000 356,759

50,000

6,800 $ 591,837

Interfund transfers are used to ( l) move revenues from the fund that statute or budget requires to collect them to the fund that statute or budget requires to expend them, (2) move receipts restricted to debt service from the funds collecting the receipts to the debt service fund as debt service payments become due, and (3) use unrestricted revenues collected in the General Fund to finance various programs accounted for in other funds in accordance with budgetary authorizations.

NOTE6-ACCOUNTSFAYABLE

Accounts payable at June 30, 2006, consisted of the following:

Adult Non-Major Total

General Education Building Governmental Governmental

Fund Fund Fund Funds Activities

Vendor payables $ 220,334 $ 2,261 $ 247,225 $ 68,607 $ 538,427

Deferred payroll 1,062,196 1,062,196

TRANS 4,700,800 4,700,800 Total $ 5,983,330 s 2,261 $ 247,225 $ 68,607 $ 6,301,423

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NOTE 7 - DEFERRED REVENUE

Deferred revenue at June 30, 2006, consists of the following:

General Fund

Federal financial assistooce $ 7,092

State categorical aid 71,135 Total $ 78,227

NOTE 8 -TAX AND REVENlH: ANTICIPATION NOTES (TRANS)

Non-Major Total

Governmental Governmental Funds Activities

$ $ 7,092 6,823 77,958

$ 6,823 $ 85,050

At July 1, 2005, the District had outstanding Tax and Revenue Anticipation Notes in the amount of $3,485,000, which matured on July 2, 2005. On July 6, 2005, the District issued $4,520,000 Tax and Revenue Anticipation Notes bearing interest at 2.6 percent. The notes were issued to supplement cash flows. Interest and principal were due and payable on July 6, 2006. By June 30, 2006, the District bad placed I 00 percent of principal and interest in an irrevocable trust for the sole purpose of satisfying the notes. The District was not required to make any additional payments on the notes. The District has recorded the cash available to make the principal and interest payments as Investments with the corresponding liability as an accounts payable ..

Changes in the outstanding liabilities for the Tax and Revenue Anticipation Notes are as follows:

Outstanding Outstanding Issue Date Rate Maturitz: Date Jull'. I, 2005 Additions Pal'.ments June 30, 2006

July 6, 2005 2.60% July 2, 2006 $ S4,520,000 $ $ 4,520,000 July 2, 2004 1.60% July 2, 2005 3,485,000 3,485,000

Total $3,485,000 $4,520,000 $ 3,485,000 _ ~ 20,000 ,,, .,,

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NOTE 9 - LONG--Tl<:RM OBLJGA TIONS

Summuy

The changes in the District's long-term obligations during the year consisted of the following:

Balance Balance

Julz l, 2005 Additions Deductions June 30, 2006

General obligation bonds $11,535,000 $ $ 220,000 $11,315,000

Accumulated vacation - net 63,854 67,416 63,854 67,416

Capital leases 361,188 183,665 177,523

Early retirement 463,766 75,868 387,898

Total $12,423,808 $ 67,416 $ 543,387 $ ll,947,837

Bonded Debt

The outstanding general obligation bonded debt is as follows:

Bonds Outstanding

Issue Maturity Interest Original Beginning

Date Date Rate Issue of Year Redeemed

February I, 2000 August l, 2029 4.20 - 5.0% $3,000,000 $ 2,810,000 $ 50,000

April 25, 2001 August I, 2030 3.25 - 5.1% 4,000,000 3,840,000 80,000

March 26, 2002 August l, 2031 2.25 - 5.0% 3,000,000 2,950,000 55,000

February 26, 2003 August I, 2032 3.80 - 5.0% 2,000,000 1,935,000 35,000

Total $ l I ,535,000 $ 220,000

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Due in One Year

$ 230,000 67,416 . '

184,910 72,664

$ 554,990

Bonds Outstanding End of Year S 2,760,000

3,760,000 2,895,000 1,900,000

$11,315,000

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NOTES TO .FINANCIAL ST A TEMENTS JUNE 30, 2006

Debt Service Requlrement_s to Maturity

Series A The annual requirements to amortize general obligation bonds payable, outstanding as of June 30, 2006, are as follows:

Interest to Fiscal Year Princieal Maturitt Total

2006 $ 55,000 $ 158,940 $ 213,940 2007 60,000 155,395 215,395 2008 65,000 152,118 217,118 2009 ·65,000 148,803 213,803 20!0 70,000 l 45,360 215,360

2011-2015 405,000 666,080 1,071,080 2016-2020 545,000 532,333 1,077,333 2021-2025 730,000 344,400 1,074,400 2026-2030 765,000 95,250 860,250

Total $ 2,760,000 $ 2,398,679 $ 5,158,679

Series B. The annual requirements to amortize general obligation bonds payable, outstanding as of June 30, 2006, are as follows:

Interest to Fiscal Year Princieal Maturit~ Total

2007 $ 80,000 $ 183,845 $ 263,845 2008 85,000 178,070 263,070 2009 90,000 172,733 262,733 2010 95,000 168,470 263,470 201 I 95,000 [64,623 .. 259,623

2012-2016 555,000 755,935 1,310,935 '2017-2021 710,000 608,750 1,318,750 2022-2026 905,000 409,600 1,314,600 2027-203 l I, 145,000 150,832 1,295,832

Total $ 3,760,000 $ 2,792,858 $ 6,552,858

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Series C. The annual requirements to amortize general obligation bonds payable, outstanding as of June 30, 2006, are as follows:

Interest to

Fiscal Year PrinciEal Maturit:t Total

2007 $ 60,000 $ 143,645 $ 203,645

2008 60,000 139,445 199,445

2009 65,000 135,070 200,070

2010 70,000 130,345 200,345

201 l 75,000 126,395 201,395

2012-2016 410,000 582,658 992,658

2017-2021 505,000 476,581 981,58[

2022-2026 640,000 335,750 975,750

2027-203[ 820,000 [53,750 973,750

2032-2033 190,000 4,750 194,750

Total $ 2,895,000 $ 2,228,389 $ 5,123,389

Series D. The annual requirements to amortize general obligation bonds payable, outstanding as of June 30, 2006, are as follows:

Interest to

Fiscal Year Princieal Maturit:t Total

2007 $ 35,000 $ 86,406 $ 121,406

2008 40,000 84,675 124,675

2009 40,000 82,875 122,875

2010 45,000 81,019 126,019

2011 45,000 79,106 124,106

2012-2016 260,000 365,126 625,126

2017-2021 310,000 303,301 613,301

2022-2026 390,000 224,963 614,963

2027-2031 500,000 119,819 619,819"

2032-2033 235,000 11,519 246,519

Total $ 1,900,000 $ 1,438,809 $ 3,338,809

Accumulated Unpaid Employee Vacation

The long-<erm portion of accumulated unpaid employee vacation for the District at June 30, 2006, amounted to $67,416.

Early Retirement Incentive Program

The District has obligations on their early retirement with STRS under Education Code Section 22714. The outstanding balance for the District at June 30, 2006, was $387,898.

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Capital Leases

The District's liability on lease agreements with options to purchase are summarized below:

Modular Rooms

Balance, July 1, 2005 $ 276,564 $

Payments (138,285) Balance, June 30, 2006 $ 138,279 $

The capital leases have minimum lease payments as follows:

Year Ending June 30,

2007

2008 2009 Total

Less: Amount Representing Interest Present Value of Minimum Lease Payments

NOTE 10. FUND BALANCES

Copy Machines Vehicles

51,786 $ 63,049 (25,892) (20,7352 25,894 $ 42)14

$

$

Total 39l.399

(184,912) 206,487

Lease

Payment

$ 184,910

19,072 2,505

206,487 28,964

$ 177,523

Fund balances with reservations/designations arc composed of the following elements:

Adult Non-Major General Education Building · Governmental

Fund Fund Fund Funds Total Re!:>crved

Revolving cash s 5,000 $ $ $ $ 5,000 Stores inventory 2,419 2,419

Total Reserved 5,000 2,419 7,419 Unreserved

Designated

Economic uncertainties 622,746 622,746 Other designation 1,513,884 2,768 1,516,652

Total Designated 2,136,630 2,768 2,139,398 Undesignated 704,800 52,735 284,234 1,713,762 2,755,531

Total Unreserved 2,841,430 55,503 284,234 1,713,762 4,894,929 Total $ 2,846,430 $ 55,503 $ 284,234 $ 1,716,181 $4,902,348

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NOTE 11 - EXPENDITURES (BUDGET VERSUS ACTUAL)

At June 30, 2006, the following District major fund exceeded the budgeted amounts as follows:

Ex~enditures and Other Uses

Fund Budget Actual

Adult Education Fund Certificated sah,ries $ 1,459,703 $ 1,483,117 $

Classified salaries $ 212,087 $ 223,508 $

NOTE 12 - POSTEMPLOYMENT BENEFITS

Excess

23,414 11,42!

The District provides postemployment health care benefits, in accordance with District employment contracts, to all employees who retire from the District on or after attaining age 55 with at least ten years of service. Currently, 109 employees meet those eligibility requirements in accordance with employment contracts. The District contributes a percentage of the amount of premiums incurred by retirees and their dependents. Expenditures for postemployment benefits are recognized on a pay-as-you-go basis, as premiums are paid. During the year, expenditures of approximately $368,615 were recognized for retirees' health care benefits.

The approximate accumulated future liability for the District at June 30, 2006, amounts to $6,746,895. This · amount was calculated based upon the number of retirees receiving benefits multiplied by the yearly district payment per employee in effect at June 30, 2006, multiplied by the number of years of payments remaining. Each employee's future benefits are dependent upon the negotiated contract in effect on the date of retirement.

NOTE 13 - RISK MANAGEMENT

Description

The District's risk management activities are recorded in the General Fund. The District participates in the three public entity risk pools (JPA's) for the workers' compensation, health, and property and liability programs. Refer to Note 16 for additional infonnation regarding the JPA's.

NOTE 14 - EMPLOYEE llliTlRJ,:M•:NT SYSTEMS

Qualified employees are covered under multiple-employer contributory retirement 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).

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STRS

Plan Description

The District contributes to the California State Teachers' Retirement System (STRS); a cosH:haring multipleemployer puhlic employee retirement system defined benefit pension plan administered by STRS. The plan provides retirement and disability benefits and survivor benefits to beneficiaries. Benefit provisions are established by State statutes, as legislat1vely 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 STRS, 7667 Folsom Blvd.', Sacramento, CA 95826. ·

F'unding Policy

Active plan members are required to contribute 8.0 percent of their salary and the District is required to contribute an actuarially determined rate. The actuarial.methods and assumptions used for determining the rate are those adopted by STRS Teachers' Retirement Board. The required employer contribution rate for fiscal year 2005-2006, was 8.25 percent of annual payroll. The contribution requirements of the plan members are established by State statute. The District's contributions to STRS for the fiscal years ending June 30, 2006, 2005, and 2004, were $ I ,041,948, $971,194, and $937,744, respectively, and equal 100 percent of the required concributions for each year.

PERS

Plan Description

The District contributes to the School Employer Pool under the California Public Employees' Retirement System (CalPERS); a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by CalPERS. The plan provides retirement and disability benefits, annual costa>f-living adjustments, and death benefits to plan members and beneficiaries. Benefit provisions are eslablished by State statutes, as legislatively amended, within the Public Employees1 Retirement Laws. CalPERS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the CalPERS' annual financial report may be obtained from the Ca!PERS Executive Office, 400 P Street, Sacramento, CA 95814.

Funding Poliq

Active plan members are required to contribute 7 .0 percent of their salary and the District is required lo contribute an aduarially determined rate. The actuarial methods and assumptions used for detennining the rate arc those adopted by the CalPERS Board of Administration. The required employer contribution rate for fiscal year 2005-2006 was 9.952 percent of annual payroll. The contribution requirements of the plan members are established by State statute. The District's contributions to CalPERS for the fiscal years ending June 30, 20C>6, 2005, and 2004, were $524,555, $504,845, and $493,248, respectively, and equal 100 percent of the required contributions for each year.

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Tax Deferred Annuity/Social Security

As established by Federal law, all public sector employees who are not members of their employer's existing retirement system (STRS or PERS) must be covered by social security or an alternative plan. The District has elected to use social security as its alternative plan.

On Behalf Payments

The State of California makes contributions to STRS and PERS on behalf of the D1s1rict. These payments consist of State General Fund contributions to STRS in the amount of $570,482 ( 4.517 percent of salaries subject to STRS). No contributions were made for PERS for the year ended June 30, 2006. Under accounting principles generally accepted in the United States of America, these amounts are to be reported as revenues and expenditures, however, guidance received from the California Department of Education advises local educational agencies not to record these amounts in the Annual Financial and Budget Report. These amounts have not been included in the budget amounts reported in the General Fund Budgetary Schedule. These amounts have been recorded in these financial statements. On behalf payments have been excluded from the calculation of available reserves.

NOTE 15 - COMMITMENTS AND CONTINGENCIES

Sick Leave

Sick leave is accumulated without limit for each employee at the rate of one day for each month worked. Leave with pay is provided when employees are absent for health reasons; the certificated, management, and classified employees do gain a vested right to accumulated sick leave. In addition, certificated, management, and confidential employees are paid an incentive amount for any sick leave balance at year-end and at tennination of employment, subject to a contracted sick leave incentive program. Therefore, the value of accumulated sick leave incentive payments are recognized in the District's financial statements.

Grants

The District received financial assistance from Federal and State agencies in the fonn of grants. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and are subject to audit by the grantor agencies. Any disallowed claims resulting from such audits could become a liability of the General Fund or other applicable funds. However, in the opinion of management, any such disallowed claims will not have a material adverse effect on the overall financial position of the District at June 30, 2006.

Litigation

The District is involved in various litigation arising from the normal course of business. In the opinion of management and legal counsel, the disposition of all litigation pending is not expected to have a material adverse effect on the overall financial position of the District at June 30, 2006.

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Construction Commitments

As of June 30, 2006, the District had the following commitments with respect lo the unfinished capital projects:

Remaining Expected Construction Date of

CAPITAL PROJECTS Commitment Come let ion Middle School Flooring $ 250,000 High Schpol Windows 253,000

'f;i,taJ $ 503,000

NOTE 16 - PARTICIPATION IN PUBLIC ENTITY RJSK POOLS AND JOINT POWERS AUTHORJTIES

10131/06 08131/06

The District;; a member oflhe Monterey County Schools' lnsurance Group (MCSIG), Monterey County Liability and Property Self-Insurance Authority (MCLPSIA), the Monterey County Schools' Workers' Compensation (MCSWC) public entity risk pools. The District pays an annual premium to each entity for its health, workers' compcnsatio11: and p'roperty liabihty coverage. The relat10nships between the District, the pools. and the JP A's are such thaqhey are not component units of the District for financial reporting purposes.

'l These entities have budgeting and financial reporting requirements independent of member units and their financial statements are not presented in these financial statements; however, fund transactions between the entities and the District are included in these statements. Audited financial statements are available from the respective entities.

The District has appointed one board member to the governing board of MCSlG.

During they~ ended June 30, 2006, the District made payment of $438,522 to MCS[G for medical, dental, vision. and Iii'h insurance.

"" The District has appointed one board member lo the governing board of MCLPSIA.

During the year ended June 30, 2006, the District made payment of $162,336 to MCLPS!A for liability and property insurance.

The District has appointed one board member to the governing board of MCSWC.

During the year ended June_ 30, 2006, the District made payment of$353,960 to MCSWC for workers' compensation insurance.

The District participates in the Mission Trails Regional Occupational Program which is oper.s.ted by a joint powers agency comprised of seven high school districts within Monterey County. Pursuant to the joint powers agreement, each member district provides occupational training classes and is required to ma:.ntain separate accounts to record related transactions. Average daily attendance, which is the basis for Stat,, apportionment, ,s reported to the State by the district educating pupils.

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Contract revenues are recognized in the General Fund as reimbursement for providing instruction to classes in the name of Mission Trails Occupational Program. Expenditures are recorded in the General Fund by object category. Fiscal 2005-2006 revenues and expenditures for the classes the District conducts are summarized as follows:

Amount Revenues

State sources $ 458,411 Local 46,567

Total Revenue 504,978 Expenditures

Certificated salaries 358,418 Classified salaries 22,312 Employee benefits 57,951 Books and supplies 29,457 Service and other operating expenses 9,464 Other outgo 27,376

Total Expenditures 504,978 Excess Expenditures Over Revenues $

NOTE 17 - SUBSEQUENT EVENTS

The District issued $5,000,000 of Tax and Revenue Anticipation Notes dated July 6, 2006. The notes mature on July 6, 2007, and yield 3.5 percent interest The notes were sold to supplement cash flow. Repayment requirements are that a percentage of principal and interest be deposited with the Fiscal Agent each month beginning January 30, 2007, until 100 percent of principal and interest due is on account by June 30, 2007.

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GENERAL FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2006

Variances -

Favorable Budgeted Amounts (Unfavorable)

(GAAP Basis) Actual Final Original Final (GAAP Basis) to Actual

REVENUES Revenue limit sources $14,821,766 $ 15,330,_624 $15,413,937 · $ 83,313

Federal sources 636,647 613,536 603,497 (10,039) • Other State sources 1,505,834 1,741,456 1,711,903 (29,553)

Other local sources 1,486,757 l,900,384 2,080,3] I I 79,947

Total Revenues I 18,451,004 19,586,000 19,809,668 223,668

EXPENDITURES Current

Certificated salaries 9,583,708 10,197,514 10,175,165 22,349 Classified salaries 2,834,469 3,056,733 2,870,375 186,358 Employee benefits 2,708,289 2,634,942 2,383,009 251,933

Books and supplies 645,139 1,723,532 959,651 763,881

Services and operating expenditures 1,772,675 2,245,681 1,959,423 286,258

• Other outgo 414,165 790,451 299,234 491,217 Debt service 109,355 109,355 109,355 Capital outlay 6,800 6,800

Total Expenditures 1 18,067,800 20,765,008 18,763,012 2,001,996 Excess (Deficiency) of Revenues Over Expenditures 383,204 (U 79,008) 1,046,656 2,225,664

Other Financing Sources (Uses): Transfers in 6,800 6,800 Transfers out \513,750) (585,037) (585,037)

Net Financing Sources (Uses) (513,750) 6,800 (578,237) (585,037)

NET CHANGE L"< FUND BALANCES (130,546) (I, 172,208) 468,419 1,640,627

Fund Balance - Beginning 2,378,01 I 2,378,0!l 2,378,0I I Fund Balance - Ending $ 2,247,465 $ 1,205,803 $ 2,846,431) $ 1,640,627

1 On behalf paymen~ of .$506,455 are excluded from the revenues and expc:nditun:s .

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ADULT EDUCATION SPECIAL REVENUE FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED JUNE 30, 2006

Variances -Favorable

Budgeted Amounts (Unfavorable) ! GAAP Basis) Actual Final

Original Final (GAAP Basis) to Actual

REVENUES Revenue limit sources $ 2,085,720 $ 2,142,007 $ 2,088,608 $ (53,399)

Federal sources 80,022 63,000 63,000

Other local sources 299,435 296,855 277,087 (19,768)

Total Revenues 1 2,465,177 2,501,862 2,428,695 (73,167)

EXPENDITURES Current

Certificated salaries 1,402,447 1,459,703 1,483,117 (23,4 l 4)

Classified salaries 193,952 212,087 223,508 (11,421)

Employee benefits 331,413 315,641 305,096 I 0,S45

Books and supplies 158,164 135,472 123,236 12,236

Services and operating expenditures 101,898 126,159 93,655 32,504

Other outgo 272,236 296,312 296,312

Capital outlay 5,000 5,000 5,000

Total Expenditures I 2,465,110 2,550,374 2,524,924 25,450

Excess (Deficiency) of Revenues Over Expenditures 67 (48,512) (96,229) (47,717)

Other Financing Sources (Uses): Net Financing Source., (Uses)

NET CHANGE IN FUND BALANCES 67 (48,512) (96,229) (47,717)

Fund Balance• Beginni~g 151,732 151,732 151,732

Fund Balance - Ending $ 151,79.9 $ 103,220 $ . 55,503 $ (47,717) ' ,;

I On behalf payments of$62,281 arc excluded from the revenues and expenditures.

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APPENDIXB • FORM OF OPINION OF BOND COUNSEL

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APPENDIX B

FORM OF OPINION OF BOND COUNSEL

Board of Education Pacific Grove Unified School District 555 Sinex Avenue Pacific Grove, CA 93950

April 10, 2007

OPINION: $3,035,000 Pacific Grove Unified School District (Monterey County, California). 2007 General Obligation Refunding Bonds

Members of the Board of Education:

We have acted as bond counsel to the Pacific Grove Unified School District (the "District") in connection with the issuance by the District of its Pacific Grove Unified School District (Monterey County, California), 2007 General Obligation Refunding Bonds in the aggregate principal amount of $3,035,000 (the "Bonds"), pursuant to Articles 9 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code (the "Bond Law"), and a resolution of the Board of Education of the District (the "Board") adopted on March 15, 2007 (the "Resolution"). We have examined the law and such certified proceedings and other papers as we have deemed necessary to render this opinion.

As to questions of fact material to our opinion, we have relied upon representations of the Board contained in the Resolution and in the certified proceedings and certifications of public officials and others furnished to us, without undertaking to verify the same by independent investigation.

Based upon the foregoing, we are of the opinion, under existing law, as follows:

1. The District is duly established and validly existing as a school district with the power to enter into the Resolution, to issue the Refunding Bonds and to p,erform its obligations under the Resolution .

Board of Education Pacific Grove Unified School Distlict April 10, 2007 Page 2

2. The Resolution has been duly approved by the Board and constitutes a valid and binding obligation of the District enforceable against the District in accordance with its terms.

3. The Refunding Bonds have been duly authorized, executed and delivered by the District and are valid and binding general obligations of the District, and the Board of Supervisors of Monterey County is obligated under the laws of the State of California to cause to be levied a tax without limit as to rate or amount upon the taxable property in the District for the payment when due of the principal of and interest on the Refunding Bonds.

4. Interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; it should be noted, however, that, for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings, and the Bonds are "qualified tax-exempt obligations" within the meaning of section 265(b)(3) of the Internal Revenue Code of 1986 (the "Code") such that, in the case of certain financial institutions (within the meaning of section 265(b)(5) of the Code). a deduction for federal income tax purposes is allowed for 80 percent of that portion of such financial institution's interest expense allocable to interest payable on the Bonds. The opinions set forth in the preceding sentence are subject to the condition that the District comply with all requirements of the Code that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The District has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. We express no opinion regarding other federal tax consequences arising with respect to the Bonds.

5. The interest on the Refunding Bonds is exempt from personal income taxation imposed by the State of California.

The rights of the owners of the Refunding Bonds and the enforceability of the Refunding Bonds and the Resolution may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and may also be subject to the exercise of judicial discretion in appropriate cases.

Respectfully submitted,

A Professional Law Corporation

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APPENDIXC

' FORM OF CONTINUING DISCLOSURE CERTIFICATE

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(Monterey County, California) 2007 General Obligation Refunding Bonds

CONTINUING DISCLOSURE CERTIFICATE

This Continuing Disclosure Certificate (the "Disclosure Certificate") is executed and delivered by the Pacific Grove Unified School District (the "District") in connection with the issuance of $3,035,000 aggregate principal amount of Pacific Grove Unified School District, 2007 General Obligation Refunding Bonds (the "Refunding Bonds"). The Re,funding Bonds are being issued pursuant to a Resolution of the Board of Education of the District adopted on March 15, 2007 (the "Resolution"). The District covenants and agrees as follows:

Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the District for the benefit of the holders and beneficial owners of the Refunding Bonds and in order to assist the Underwriter in complying with S.E.C. Rule 15c2-12(b)(5).

Section 2. Definitions. In addition to the definitions set forth in the Resolution, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:

"Annual Reporf' shall mean any Annual Report provided by the District pursuant to. and as described in, Sections 3 and 4 of this Disclosure Certificate.

"Dissemination Agenf' shall mean the District or any successor Dissemination Agent designated in writing by the District and which has filed with the District a written acceptance of such designation.

"Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Certificate.

"National Repository' shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule.

"Repository" shall mean each National Repository and each State Repository .

"Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securitie,s and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

"State Repository" shall mean any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository.

"Underwriter· shall mean any of the original underwriters of the Refunding Bonds required to comply with the Rule in connection with offering of the Refunding Bonds .

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Section 3. Provision of Annual Reports.

(a) The District shall, or shall cause the Dissemination Agent to, not later than nine months after the end of the District's fiscal year (which currently would be March 31 ), commencing March 31, 2008 with the report for the 2006-07 Fiscal Year, provide to any person who requests it an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than fifteen (15) Business Days prior to said date, the District shall provide the Annual Report to the Dissemination Agent {if other than the District). The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the District may be submitted separately from the balance of the Annual Report, and later than the date required above for the filing of the Annual Report if not available by that date. If the District's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c).

(b) If the District is unable to provide an Annual Report by the date required in subsection (a), the District shall send a notice to the Municipal Securities Rulemaking Board, if any, in substantially the form attached as Exhibit A.

Section 4. Content of Annual Reports. The Annual Report shall contain or incorporate by reference the following:

(a) Audited financial statements prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the District's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.

(b) To the extent not contained in the audited financial statements filed pursuant to the preceding clause (a), the Annual Report shall contain information showing:

(i) the average daily attendance in District schools on an aggregate basis for the preceding fiscal year;

(ii) pension plan contributions made by the District for the preceding fiscal year;

(iii) aggregate principal amount of short-term borrowings, lease obligations and other long-term borrowings of the District as of the end of the preceding fiscal year;

(iv) description of amount of general fund revenues and expenditures which have been budgeted for the current fiscal year, together with audited actual budget figures for the preceding fiscal year;

(v) the District's total revenue limit for the preceding fiscal year;

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(vi) prior fiscal year total secured property tax levy and collections, showing current collections as a percent of the total levy; and

(vii) current fiscal year assessed valuation of taxable properties in the District.

(c} In addition to any of the information expressly required to be provided under paragraphs (a) and (b) of this Section, the District shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.

Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The District shall clearly identify each such other document so included by reference.

Section 5. Reporting of Significant Events .

(a) Pursuant to the provisions of this Section 5, the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Refunding Bonds, if material:

(1) Principal and interest payment delinquencies. (2) Non-payment related defaults. (3) Unscheduled draws on debt service reserves reflecting financial

difficulties. (4) Unscheduled draws on credit enhancements reflecting financial

difficulties . (5) Substitution of credit or liquidity providers, or their failure to pertorm. (6) Adverse tax opinions or events affecting the tax-exempt status of

the security. (7) Modifications to rights of security holders. (8) Contingent or unscheduled bond calls. (9) Defeasances. (10) Release, substitution, or sale of property securing repayment of the

securities. (11) Rating changes.

(b) Whenever the District obtains knowledge of the occurrence of a Listed Event, the District shall as soon as possible determine if such event would be material under applicable Federal securities law.

(c) If the District determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the District shall promptly file a notice of such occurrence with the Municipal Securities Rulemaking Board and each State Repository. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Refunding Bonds pursuant to the Resolution.

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Section 6. Alternative Method of Filing. In lieu of filing an Annual Report with each Repository under Section 3 of a notice of a Listed Event under Section 5, the District or the Dissemination Agent may make such filing through the internet filing system which is maintained at DisclosureUSA.com (or such other central filing system as is approved by the Securities and Exchange Commission), in which event such filing need not also be made by the District or the Dissemination Agent directly with any Repository.

Section 7. Termination of Reporting Obligation. The District's obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Refunding Bonds. If such termination occurs prior to the final maturity of the Refunding Bonds, the District shall give notice of such termination in the same manner as for a Listed Event under Section S(c).

Section 8. Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent.

Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:

(a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Refunding Bonds, or type of business conducted;

(b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Refunding Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) the proposed amendment or waiver either (i) is approved by holders of the Refunding Bonds in the manner provided in the Resolution for amendments to the Resolution with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Refunding Bonds.

If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided.

If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the

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differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the District to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to the Repositories in the same manner as for a Listed Event under Section 5(c).

Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence, of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, thEl District shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

Section 11. Default. In the event of a failure of the District to comply with any provision of this Disclosure Certificate, any holder or beneficial owner of the Refunding Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Resolution, and the sole remedy under this Disclosur,e Certificate in the event of any failure of the District to comply with this Disclosure Certificate shall be an action to compel performance .

Section 12. Duties Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending a9ainst any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Refunding Bonds.

Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Dissemination Agent, the Underwriter and holders and ben,eficial owners from time to time of the Refunding Bonds, and shall create no rights in any other person or entity.

Date: April 10, 2007

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By: Assistant Superntendent,

Business Services

EXHIBIT A

NOTICE OF FAILURE TO FILE ANNUAL REPORT

Name of Obligor: Pacific Grove Unified School District

Name of Bond Issue: $3,035,000 Pacific Grove Unified School District 2007 General Obligation Refunding Bonds

Date of Issuance: April 10, 2007

NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above-named Bonds as required by the Resolution authorizing the issuance of the Refunding Bonds. The District anticipates that the Annual Report will be filed by

Dated: ______ _

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BY---,--,----,------,-----Assistant Superintendent,

Business Services

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APPENDJXD MONTEREY COUNTY

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COUNTY OF MONTEREY

General Information

Monterey County is situated along the California coastline almost at its midpoint. The County is 106 miles south of San Francisco and 241 miles north of Los Angeles. Monterey Countv covers 3,324 square miles. In the County's eastern portion, between the Gavilan and Diablo mountain ranges, lies the Salinas Valley, a rich agricultural center and one of the nation's major vegetable producing areas. The 170-mile long Salinas River, the third-longest in California, winds quietly thorough the entire length of the Salinas Valley. Salinas, the County's government center and largest city, is located in the northern part of the valley. Serving as the industrial, commercial, and residential hub of the Salinas Valley, Salinas has become a regional trade center for California's central coast counties.

Population

Monterey County's population was 424,842 as of January 1, 2006, which was an increase of 1,088, or .25 percent over the prior year.

EXHIB!Tl POPULATION

COUNTY OF MONTEREY (Cities and Unincorporated Areas)

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Area W02 2003 2004 2005 2006

Total County 409,600 415,845 421,485 423,754 424,842 Total Unincorporated 102,800 103,800 105,700 109,191 108,590 Total Incorporated 306,850 312,045 315,785 314,563 316,252

Carmel-By-The-Sea 4,080 4,090 4,100 4,064 4,038 Del Rey Oaks 1,650 1,650 1,650 1,6315 1,622 Gonzales 8,050 8,275 8,425 8,344 8,455 Greenfield 12,700 12,950 13,150 13,270 15,335 King City 11,250 11,300 11,500 11,359 11,333 Marina 19,600 19,650 19,100 18,929 18,824 Monterey 29,800 30,350 30,250 30,399 30,161 Paci fie Grove 15,500 15,550 15,600 15,429 15,305 Salinas 148,400 150,300 152,200 148,759 148,350 Sand City 270 280 310 300 300 Seaside 33,600 33,450 33,300 34,809 34,454 Soledad 21,950 24,200 26,200 27,266 28,075

Totals may not add due to independent rounding. Source: State of California, Department of Finance.

Industry

The exhibit below shows average annual employment by industry group in the County from 2001 through 2005.

EXHIBIT2 EMPLOYMENT BY INDUSTRY

MONTEREY COUNTY

Type of Employment 2001 2002

Agricultural 36,900 38,100

Non Agricultural 130,100 129,600

Goods Producing 16,100 15,100 Natural Resources & Mining 200 200 Construction 6,700 6,600 Manufacturing 9,300 8,300

Durable Goods 2,500 2,000 Nondurable Goods 6,800 6,300

Service Producing 114,000 114,500 Trade, Transportation & Utilities 25,400 25,500 Information 2,800 2,400 Financial Activities 6,500 6,500 Professional & Business Services 12,500 12,300 Educational & Health Services 11,700 12,000 Leisure & Hospitality 20,400 20,100 Other Services 4,300 4,400 Government 30,400 31,300

Total All Industries 166,900 167,700

Totals may not add due to independent rounding to the nearest 100. Source: State of California, Employment Development Department.

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2003

41,400

127,800

14,400 200

6,700 7,500 1,700 5,800

113,500 25,200 2,400 6,500

11,800 12,300 19,700 4,500

31,100

169,200

2004 2005

41,900 41,500

126,900 127,300

14,100 13,600 200 200

6,700 6,700 7,100 6,700 1,700 1,700 5,500 5,000

112,800 113,600 25,200 25,000 2,300 2,400 5,900 6,100

11,800 12,400 12,300 12,100 20,300 20,700

4,700 4,700 30,300 30,200

168,800 168,700

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Major Employers

The Exhibit below displays the ten largest employers on the Monterey Peninsula, ranked from largest number of employees to smallest. All employers listed have more than 450 employees.

EXHIBIT3 MAJOR EMPLOYERS

MONTEREY PENINSULA

Company Name

California State University at Monterey Bay City of Monterey Community Hospital of the Monterey Peninsula McGraw-Hill-CTB Defense Language Institute Defense Manpower Data Center Monterey Peninsula Junior College Paiges Security Services The Pebble Beach Company The Naval Postgraduate School

Source: Monterey Peninsula Chamber of Commerce, 2003 .

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Industry

Education Government

Medical Publishing

Military Militar:y

Educati,in Servic(•

Resort Management Military

Agriculture

Monterey County's gross agricultural value for 2005 increased approximately 10.8% from 2004. Exhibit 4 shows a summary of major agricultural classifications.

Note: Organic Produce is no longer listed separately from regular categories. The total gross value of Organic Produce in 2005, in all categories, was $134,082,965.

Crop

Fruits and nuts Vegetable Crops Field Crops Seed Crops Nursery Apiary Livestock & Dairy Organic

Total

$

EXHIBIT4 GROSS VALUE OF AG RI CULTURAL PRODUCTION

COUNTY OF MONTEREY

2000 2002 2003 2004

451,625,000 $ 409,055,000 $ 446,356,000 $ 529,041,000 2,216,764,000 2,133,570,000 2,544,908,000 2,098,931,000

11,237,300 12,926,000 13,104,600 15,515,000 8,766,000 6,024,000 6,930,000 7,022,000

194,251,000 218,679,000 240,898,000 261,203,000 52,550 36,853 63,450 47,800

40,704,850 31,778,530 34,908,190 40,111,000 89.853.000

$3,013,253,700 $2,812,069,383 $3,287,168,240 $2,951,870,800

Source: Monterey County Agricultural Commissioner.

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2005

$ 685,553,000 2,249,474,000

15,477,000 6,049,000

276,235,000 34,100

40,189,000

$3,273,011,100

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Commercial Activity

Monterey County's growth in taxable retain sales during 2001 through 2005 is shown in the following table.

EXHIBITS TAXABLE RETAIL SALES (000)

COUNTY OF MONTEREY

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Taxable Sales 2001 2002 2003 200,~ 2005

Apparel Stores $ 163,672 $ 164,560 $ 165,390 $ 172,931 $ 181,167 General Merchandise Stores 593,709 593,851 588,389 608,660 609,948 Specialty Stores 413,700 407,431 410,503 435,057 447,420 Food Stores 265,431 253,727 263,201 265,097 271,595 Eating & Drinking Group 458615 472,756 484,559 504,336 525,737 Household Group 146,242 152,763 162,548 164,1.78 170,614 Building Material Group 304,141 308,043 329,465 351,391 354,999 Automotive Group 930,604 920,986 952,602 1,041,968 1,113,635 All Other Retail Outlets 188 090 183.332 205.738 222.881 232.493

Retail Stores Total 3,464,204 $3,457,449 $3,562,395 $3,766,499 $3,907,608

Business & Personal Services 330.326 332,202 336,077 351,104 359,809 All Other Outlets 1 307 039 1,062.295 1,020.184 1.118.352 1 187 083

Total All Outlets $5,101,569 $4,851,946 $4,918,656 $5,235,955 $5,454,500

Source: State of California, Board of Equalization.

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APPENDIXE COUNTY POOLED INVESTMENT POLICY

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1.0 Policy.

TREASURER-TAX COLLECTOR County of Monterey Investment Policy

It is the policy of the Treasurer-Tax Collector of Monterey County to invest pub! ic funds in a manner which provides for the safety of the funds on deposit, the cash flow dem2nds, or liguidity needs of the treasury pool participants, and the highest possible yield after first considering the first two objectives of safety and liquidity. In addition, it is the Treasurer-Tax Collector's policy to invest all funds in strict conformance with all state statutes governing the investment of public monies.

2.0 Scope.

This investment policy applies to all financial assets of the treasury pool participants. These funds are accounted for in the annual Financial Reports of the County and each of the treasury pool's participating agencies.

2.1 Participating Agencies. Participants in the Treasurer's investment poo I shall be limited to the County of Monterey, school districts within Monterey County and those special districts, which, by statute, maintain depository authority with the County Treasurer.

2.2 Outside Agency Participation. It is the Treasurer's policy to prohibit any voluntary agency participation in the treasury pool.

3.0 Prudence.

The county treasurer is a trustee and therefore a fiduciary subject to the prudent i:wcstor standard. When investing, reinvesting, purchasing, acquiring, exchanging, selling, and managing public funds, the county treasurer shall act with care, skill, prudence and diligence under the circumstances then prevailing, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the county and the other depositors. Within the limitations of this section and considering individual investments as part of an overall investment strategy, a trustee is authorized to acquire investments as authorized by law. Nothing in this Chapter is intended to grant investment authority to any person or governing body except as provided in Sections 53601, 53607, and 53635, of the Government Code.

4.0 Objectives.

The primary objectives, in priority order, of the County of Monterey's investment activities shall be:

4.1 Safety. Safety of principal. Investments of the County shall be undertaken in a manner that seeks to ensure preservation of capital in the overall portfolio. To attain this objective, diversification is required in order that potential losses do not exceed the income generated from !he remainder of the portfolio.

4.2 Liquidity. The investment portfolio will remain sufficiently liquid to enable all depositors to meet all operating requirements that might be reasonably anticipated. A minimum of 30% of the investment portfolio shall be kept in overnight liquid assets.

4.3 Return on Investment. The County's investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the County's investment risk constraints and the cash flow characteristics of the portfolio.

5.0 Delegation of Authority.

Authority of the Treasurer-Tax Collector to manage the investment program is derived from Section 53635 of the Government Code of the State of California. The Treasurer-Tax Collector shall establish written procedures for the operation of the investment program consistent with this investment policy. Procedures should include reference to: safekeeping, master repurchase agreements, funds transfer agreements, collateral/depository agreements and banking service contracts. Such procedures shall include explicit delegation of authority to persons responsible for investment transactions. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the Treasurer-Tax Collector. The Treasurer-Tax Collector shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials.

6.0 Conflict of Interest.

Pursuant to Article 2 ( commencing with Section 87200) of Chapter 7 of Title 9 of the Government Code and the regulations of the Fair Political Practices Commission enacted pursuant thereto, the Treasurer-Tax Collector shall disclose his investments, interests in real properties, and any income received during the immediately preceding 12 months. Such disclosure shall be in writing, and shall be filed with the officer designated by law within the time periods specified by law.

6.1 Acceptance of Gifts. The Treasurer-Tax Collector and all deputized departmental staff are prohibited from accepting any monetary or in-kind gift from any broker, dealer, or firm doing business or seeking to do business with the Monterey County Treasurer.

6.2 Treasury Oversight Committee. Regular members of the Monterey County Treasury Oversight Committee shall be subject to the provisions of the Political Reform Act of 1974, as amended (Government Code Sections 81000, et seq.). Advisory members of the Monterey County Treasurer's Oversight Committee are exempt from all reporting requirements but shall be subject to disclosure and disqualification requirements of the Political Reform Act, as amended.

7.0 Authorized Dealers and Institutions.

The Treasurer-Tax Collector will maintain a list of broker/dealers and institutions authorized to provide investment services, which will be primary dealers or affiliates that report their positions daily

., 10 the Federal Reserve, or dealers that clear trades with finns that report to the Federal Reserve. Repurchase agreements and reverse repurchase agreements shall only be made with primary dealers and their affiliates.

7.1 Limitations on Political Contributions. Pursuant to Government Code Section 27133 (c), the Treasurer-Tax Collector shall not select for business any broker, brokerage, dealer, or securities firm that has, within any consecutive 48-month period following January I, 1996, made a political contribution in an amount exceeding the limitations contained in Rule G-37 of the Municipal Securities Rulemaking Board, to the county treasurer, any member of the Monterey County Board of Supervisors, or any candidate for those offices.

8.0 Authorized and Suitable Investments.

The Treasurer-Tax Collector of Monterey County may invest in any security within the limits authorized by Section 53635 of the Government Code of the State of California, and within the limits of any other Government Code Statute that permits public agency investment in various securities or participation in investment trading techniques or strategies. Permissible investments are detailed in Appendix A.

8. I Limitations. The Treasurer shall not invest in any security not previously purchased prior to January 1, 1995, which, by its structure, term or other characteristics, has the possibility of returning a zero or negative yield or could be subject to a loss of principal at the time such security has attained its maturity date. Investments shall not be made in inverse floaters, range notes, and interest-only strips.

8.2 Reverse Repurchase Agreements. Any reverse repurchase agreemen1 where securities were not purchased previous to January 1, 1995, shall have a maximum maturity of92 days, and the proceeds shall not be invested beyond the expiration of the reverse repurchase agreement.

9.0 Safekeeping and Custody.

All security transactions, including collateral for repurchase agreements, shall be conducted on a delivery-versus-payment basis. Securities will be held either by a third-party custodian designated by the Treasurer-Tax Collector and evidenced by safekeeping receipts and tri-party master repurchase agreements, or, in the case of repurchase agreements, collateral may be held in the Trust Department if the repurchase

• agreement provider is a bank reporting to the Federal Reserve. Securities acquired through reverse repurchase agreement transactions may be held as collateral by primary dealers acting as counter-parties .

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10.0 Criteria for Withdrawal of Funds from the Treasury Investment Pool (Section 27136 and Section 27133 (h) - Government Code).

The County Treasurer is defined by statute (Government Code Sec. 27000.3) as a fiduciary subject to the prudent investor standard. The Treasurer shall have exclusive authority to approve any withdrawal request predicated on the impact such withdrawal may have on other depositors and other criteria incorporated in the Treasurer's Investment Policy.

An agency having funds on deposit in the county treasury investment pool, and where such agency possesses specific statutory authority to separately invest funds on deposit in the county treasury, may make application to the Treasurer for the withdrawal of funds. All such applications must be in writing and be received by the County Treasurer at least 45 days in advance of the first anticipated date of first withdrawal. All application for withdrawal requests must include the following:

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(I). A resolution of the governing body of the requesting agency declaring a surplus of funds targeted for separate investment. The resolution must state the specific purpose for the withdrawal of funds and incorporate all of the following elements:

a. an investment plan specifying the first target date of withdrawal, b. complete details of how, where, and by whom the targeted funds would

be managed, c. a statement of compliance assuring that all targeted funds would be

managed in full accordance with all laws pertaining to the investment of public funds,

d. complete explanation of how the targeted investment funds would interface with the agency's operating account including the account reconciliation process, the specific source of all audits of the investment funds, and an explanation of how the agency plans to coordinate and balance externally invested funds with the agency's general ledger;

(2). An investment policy adopted by the governing board of the requesting agency. Such policy must conform in all respects to all sections of the Government Code of California pertaining to the investment of public funds;

(3 ). A contractual safekeeping agreement with a recognized bank or safekeeping institution providing for third party custody of invested public funds. The safekeeping agent must provide at least quarterly statements of all account activity and provide copies to the County Treasurer. The safekeeping agent must provide full delivery versus payment capability, and separate statements or other documents defining the GASB 3 investment categories encumbering

invested funds. All agency deposits must conform to category I of GASB

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( 4). A detailed cash flow projection reflecting at least a 25% liquidity cushion where invested funds may be immediately withdrawn without the necessity to sell or liquidate other securities that are separately invested. Tbe liquidity cushion must extend over a projected 12-month time horizon;

(5). A statement of justification for withdrawal of funds. The statement must describe how the withdrawn funds would sustain their safely and liquidity on a basis comparable at least to tbe funds on deposit in the county treasury investment pool.

Before any withdrawal of funds is approved by the Treasurer, the requesting agency must first meet with the Treasurer to determine whether a mutually acceptable investment plan can be arranged within the county investment pool. In the absence of such a plan, and if all conditions for withdrawal (I) through (5) are satisfied, the Treasurer shall evaluate the proposal for withdrawal. In no instance will the Treasurer approve a withdrawal request where yield enhancement is the justified purpose for the withdrawal. A written decision of the Treasurer shall be delivered to the requesting agency no later than 15 days prior to the target date for first withdrawal. All decisions of the Treasurer are final. The participants' interest in the pooled portfolio may be marked to market in connection with the sale of securities relating to a withdrawal from the investment pool.

I LO Maximum Maturities.

Any non-marketable investments, such as time deposits, should not exceed a two-year maturity. In addition, no specific investment shall have a term remaining to maturity in exces;; of five years except under the following circumstances, and subject to specific approval of the Board of Supervisors:

Bond proceeds where the maturity tenn is not integral to short term cash flow needs.

Other special purpose investments where the maturity term is not integral to short term cash flow needs.

II.I Weighted Average Maturity. The weighted average maturity of the overall portfolio shall not exceed two years.

11.2 Money Market Pool. The maximum maturity of investments in a money market pool shall not exceed 397 days, and the weighted average maturity of the pool shall not exceed 90 days.

12.0 Audits.

The Monterey County investment portfolio shall be subject to a process of independent review by the Auditor-Controller's internal auditor. The County's external auditors shall review the investment portfolio in connection with the annual county audit and requirements of the Governmental Accounting Standards Board .

12.l Compliance Audit. Pursuant to Government Code Section 27134 the County Treasury Oversight Committee shall cause an annual audit to be conducted to determine the County Treasurer's compliance with Article 6, Chapter 5 of Division 2 of Title 3 of the Government Code.

13.0 Performance Standards.

The investment portfolio will be designed to obtain a market average rate of return during budgetary and economic cycles, taking into account the County's investment risk constraints and cash flow needs.

14.0 Investment Policy Adoption.

The Treasurer-Tax Collector of Monterey County shall submit the Investment Policy to the Board of Supervisors at least annually.

14.l Policy Amendments. As the California Government Code pertaining to investments is amended, this policy shall likewise become amended and adopted by the Board of Supervisors. Other amendments may be recommended periodically by the Treasurer-Tax Collector based on determinations by the Treasury Oversight Committee.

15.0 Reporting.

Pursuant to Government Code Section 53686 (b) the Treasurer-Tax Collector shall provide quarterly investment reports to the Board of Supervisors, the Treasury Oversight Committee, and all pool participants. The report shall include a listing of all securities held in the portfolio. Such listing shall include investment description, maturity date, par, original cost and market values, and a risk measurement standard such as duration, along with a certification concerning the portfolio's available liquidity to meet expenditure requirements for the next succeeding reporting period, and disclosure of the method used to apportion investment interest. Each second and fourth calendar quarter investment report and the current investment policy shall be provided to the State Treasurer's California Debt and Investment Advisory Committee as required by Sections 8855 and 53646 of the Government Code.

16.0 Treasury Oversight Committee.

A Treasury Oversight Committee nominated by the County Treasurer and confirmed by the Board of Supervisors shall provide oversight through periodic review of the Investment Policy and compliance with such policy. The Treasury Oversight Committee shall consist of the County Administrative Officer, the County Treasurer-Tax Collector, the County Superintendent of Schools, at least three, but no more than five, public committee members, and not more than two advisory members nominated by the Treasurer. The Committee shall meet at least quarterly, or as needed, and shall review investment policy and report on compliance with such policy.

16.l Membership Prohibition. Pursuant to Government Code Section 27132.3 a member of the Treasury Oversight Committee may not secure employment with, or be employed by, bond underwriters, bond counsel, security brokers or dealers, or financial services firms, with whom

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the Treasurer is doing business during the period that the person is a member of the Committee or for one year after leaving the Committee.

17.0 Allocation of Investment Cost.

The costs of investing, banking, and cash management as budgeted annually and applied quarterly shall be assessed to depositing agencies at the time of quarterly interest apportionment by the County Auditor-Controller, and in accordance with Government Code statutes. Depositi:~g agencies will receive net revenue after pro rata application of costs that correspond to a basis point reduction to earned interest rates.

ADOPTED: I 0/29/02

C:\MSOFFICE\POLICY

APPENDIX A Authorized Investments Pursuant to Government Code

Instrument Maximum Maturity County Restriction Maximum Percentage

California State Treasurer's Local Agency NIA NIA $40,000,000 Investment Fund

Bonds, including revenue bonds, issued by 5 years NIA NIA The County, its departments, boards, Agencies, or authorities

U.S. Treasury notes, bonds, bills, or 5 years NIA NIA Certificates of indebtedness bearing a full faith and credit pledge

Registered warrants, notes, and bonds, 5 years NIA NIA including revenue bonds, of the State of California

Bonds, notes, warrants, and other 5 years NIA NIA evidences of indebtedness issued by any local agency within California, including revenue bonds

Obligations of federal agencies and United 5 years NIA NIA States government-sponsored enterprises

Bankers acceptances 180 days NIA 40% (not more than 30°/o from one issuing bank)

Prime commercial paper of domestic issuers 270 days NIA 40% (10% limit on any with assets in excess of$500 million one issuer)

Negotiable certificates of deposit issued 5 years NIA 30% by domestic banks, associations, and state-chartered branches of foreign banks.

Reverse repurchase agreements 92 days NIA NIA

matched maturities

Repurchase agreements

Medium term notes issued by domestic corporations and depository institutions rated "A" or better

Money market mutual funds

Collateralized deposits and investment contracts

Securitized passthrough instruments rated at least "AA" by issuers rated at least "A"

Overall portfolio

I year

5 years

NIA

5 years

5 years

NIA

No inverse floating rate instruments

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NIA

NIA

2 years

20%

30%

20% (10% limit on any one issuer)

NIA

20%

APPENDIXF SPECIMEN OF MUNICIPAL BOND INSURANCE POLICY

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ISSUER:

BONDS:

FINANCIAL SECURITY ASSURANCE@

MUNICIPAL BO INSURANCE

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FINANCIAL SECURITY ASSURANCE INC. ("Fin hereby UNCONDITIONALLY AND IRREVOCABLY ag paying agent (the "Paying Agent") (as set forth · e d securing the Bonds) for the Bonds, for the en it o Security, directly to each Owner, subject nly to th endorsement hereto), that portion of the pri ipal of n for Payment but shall be unpaid by re n o Nonpay e

i:,ct1ve Date.

SI O d, e (the " or the issu d

recei on a given , otheiwise, it will

np e eived by Financial y n n al Security for purposes is t Trustee, Paying Agent or

ment. Upon disbursement in and, any appurtenant coupon to

st on the Bond and shall be fully to receive payments under the Bond,

u r. Payment by Financial S,:icurity to the shall, IQ the extent thereof, cl1scharge the

Except o the xtent e ressly mo ifie n endorsement hereto, the following terms shall have pe 1ed for I purposes f this Policy. "Business Day" means any day other than (a:i a da or (b) a ay on whi h banking institutions in the State of New York or the Insurer's a horized r requir by law or executive order to remain closed. "Due for Payment" r erring to he cipal of a Bond, payable on the stated maturity date !hereof or the

he ame sh I ave been duly called for mandatory sinking fund redemplion and does lier date n which payment is due by reason of call for redemption (other than by und redemption), acceleration or other advancement of maturity unless Financial

I ect in its sole discretion, to pay such principal due upon such acceleration together with y accrue in r t to the date of acceleration and (b) when referring to inlerest on a Bond, payable on

stated at or payment of interest. "Nonpayment" means, in respect of a Bond, the failure of the Is uer to ave provided sufficienl funds lo lhe Trustee or, if !here is no Trustee, to the Paying Agenl for p men n full of all principal and interest that is Due for Payment on such Bond. "Nonpayment" shall als lude, in respect of a Bond, any payment of principal or interest that is Due for Payment

In wltne s o its behalf

t re]

to le e, r, ty

y, an all not be modified, altered or od 1c · n or amendment thereto. Except

a) an premium paid in respect of this Policy· e r provision being made for payment, of nceled or revoked. THIS POLICY IS NOT

ECURITY FUND SPECIFIED IN ARTICLE 76

SURANCE INC. has caused this Policy to be executed

FINANCIAL SECURITY ASSURANCE INC.

By---~~~-=~----Authorized Officer

subsidia o inancial Security Assurance Holdings Ltd. (212) 826-0100 Street, New York, N.Y. 10019

•

•

ISSUER;

BONDS:

FINANCIAL SECURITY ASSURANCE@

ENDORSEMENT N(). 1 MUNICIPAL BOND INSURANCE PO (California In Guaranty s

Notwithstanding the terms and provision contai d in is P ic insurance provided by this Policy ct overed y he C Iii ni established pursuant to Article 14 c m ncing wit cti n O ) of the California Insurance Co

Nothing herein shall be c Policy. If found co t language.

In witness ereof, Fl A behalf by is

du e o a e hetrmoth

ASSU NC

IA

B Authorized Officer

-N

i ion si 1

A subsi ry inancial Security Assurance Holdings Ltd. 31 Wes 52° Street, New York, N.Y. 10019

(212) 826-0100

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ffsa. - californiacdiacdocs.sto.ca.gov/2007-0349.pdfbonds are "qualified tax-exempt...

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