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Home My Public Portal About19990112 - Agendas Packet - Board of Directors (BOD) - 99-01 i Regional Open ice s MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Meeting 99-01 SPECIAL MEETING BOARD OF DIRECTORS AGENDA* 7:30 P.M. Town of Portola Valley Tuesday Town Hall January 12, 1999 765 Portola Road, Room 8 (7:30) ROLL CALL SPECIAL MEETING OF THE BOARD OF DIRECTORS ** ORAL COMMUNICATIONS -- Public ADOPTION OF AGENDA BOARD BUSINESS 1. Public Hearing Pursuant to Government Code Section 6586.5 on the Proposed 1999 Revenue Bond Financing by the Midpeninsula Regional Open Space District Financing Authority and the Significant Public Benefit Thereof and the Final Approval of the Issuance of Such Bonds -- C. Britton ADJOURNMENT *NOTE: Times are estimated and items may appear earlier or later than listed. Agenda is subject to change of order. ** TO ADDRESS THE BOARD: The Chair will invite public comment on agenda items at the time each item is considered by the Board of Directors. You may address the Board concerning other matters during oral communications. Each speaker will ordinarily be limited to 3 minutes. Alternately, you may comment to the Board by a written communication, which the Board appreciates. 3 M Distel Circle ® I os Altos, CA 940 2-1404 . Phone: 0-)0-691-1 200 4,`o FAX:650-091-04WI . f mail: mrosclrl,openslm(e.org . weh site:www.orienstmce.org Hwal o1 1 hw(tols Pew swmcn� Mary led(vr, Deamc Little, Nonctle I hriko, Bel,v<r�rw t3i�r, Kcmwth(. Nit/ m Gene ral �1 rn,r,:;er:I. (?mu I)Wlwi Regional Open *ce R-99-12 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Meeting 99-01 January 12, 1999 AGENDA ITEM 1 AGENDA ITEM Public Hearing Pursuant to Government Code Section 86.5 on the Proposed 1999 Revenue Bond Financing by the Midpeninsula Regional Open Space District Financin Authority and the Significant Public Benefit Thereof and the Final Approval for the Issuance of Such Bonds _._. GENERAL MANAGER'S RECOMMENDATION Hold a public hearing for the purpose of receiving comment on the proposed 1999 Revenue Bond financing by the Midpeninsula Regional Open Space District Financing Authority and the public benefit thereof. DISCUSSION At your Meeting of December 14, 1998 (see report R-98-151)you authorized the execution and delivery of the documentation necessary to allow the issuance up to$31,000,000 of the Midpeninsula Regional Open Space District Financing Authority 1999 Revenue Bonds.At the Financing Authority's Meeting of December 14, 1999(see Report R-98-02)the authority approved the issuance of such bonds. Your action as the District's Board of Directors included setting required public hearings pursuant to Government Code Section 6586.5. This statute requires public hearings to be held in any county where the proceeds of such a bond issue are proposed to be spent for District purposes. Public testimony should be received on the significant public benefit to the District resulting therefrom, including demonstrable savings to the District. On January 13, 1999 you will conduct a similar hearing in Santa Clara County and then adopt the required resolution. In accordance with the attached letter from Tom Lockard,Managing Director of Stone and Youngberg,the District's underwriter,the aggregate savings expected from the Midpeninsula Regional Open Space District Financing Authority's bond structure would total$370,000,which is deemed to be a significant savings as defined by law. Prepared by: L. Craig Britton, General Manager Contact person: Same as above 330 Distel Circle . Los Altos,CA 94022-1404 . Phone:650-691-1200 FAX:650-691-0485 . E-mail:mrosdr+openspace.org . Web site:www.openspace.org Board of Directors:Pete Siemens,Mary C. Davey,led Cyr,Deane Little,Nonette Hanko,Betsy Crowder,Kenneth C.Nitz . General Manager:L.Craig Britton Stone & Youngberg LLC Established 1931 January 6, 1999 Mr. Craig Britton Midpeninsula Regional Open Space District 330 Distel Circle Los Altos, California 94022 Regarding: 1999 Financing Program Dear Craig: The 1999 Revenue Bond financing program is being implemented by the District's Joint Powers Financing Authority(JPA). The JPA was established in 1996 and at that time the District used this financing authority to engineer the District's 1996 financing program. During 1998 a law was passed requiring joint powers authorities to conduct public hearings in the jurisdictions where bond proceeds will be expended. The public hearings are intended to set out the purpose for the financing and to establish the costs savings expected to be achieved from the JPA financing. The 1999 financing program will refinance at lower interest rates promissory notes sold in 1992 and raise new funds for acquiring open space in Santa Clara and San Mateo Counties. By offering the financing program in one issue of JPA revenue bonds the District will realize savings in excess of$150,000 from the economy of issuing one bond issue rather than two- -one for the refunding and then another bond issue for the new funds. Included in the$150,000 estimated savings are the costs of bond counsel,trustee, rating,printing, regulatory compliance and underwriter's counsel. An additional$200,000 in savings is realized by structuring the 1999 financing program as bonds rather than as certificates of participation. Bonds are less expensive to sell than certificates and the annual cost associated with this trading difference in the current market is approximately 6 basis points. Finally,by combining issues,the District realizes some small annual administrative savings from only paying one set of trustee and continuing disclosure fees. I estimate the present value cost of these savings to be approximately$20,000. Therefore the aggregate savings expected from the JPA bond structure total$370,000. In my opinion, use of the JPA structure will provide significant public benefit to the District by generating the savings described above. Sincerely, Stone oungberg LLC Tom Lockard Managing Director cc: Carlo Fowler, Orrick Herrington& Sutcliffe 50 California Street - San Francisco, California 94111 - 415/981-1314 January 12, 1999 MEMO: RE: 1999 Financing Program TO: Board Directors and General Manager FROM: Kenneth Nitz—Board Treasurer Dear Directors; When the 1999 Financing Program was introduced in December, I was concerned that the debt increases in years 2012 through 2019 would not be offset by the property tax income for those years. Mike Foster's spreadsheet only showed data only up to 2008 so I continued it up to 2027. With this information I plotted out the relationship between debt, operating expenses and income. This is shown in Figure 1. As you can see the Debt plus Expenses bar graph comes close to the Income line but does not cross it. Note that this data is only Tax Revenue as income (does not include grants, sales, interest or other income) and operating expenses does not include major improvements. These I felt are guesses and may increase or decrease with time and so are too variable when projected 20 years. (When these other income/expenses are summed, they generally produce an approximate $300K positive inflow, according to the spreadsheet). Also note that as per Mike's spreadsheet, the Tax Revenue increases at 4% after 99-00 with a 6% Expense growth. In 99-00 there is a 6% Tax Growth and 10%Expense growth from 98-99 (current year, not shown on the graphs). This 10% increase produces a$200,000 increase from a normal 6% year. I'm assuming this will show up at budget time as new hires (rangers). Bottom Line: Figure 2 shows the Operating Cash Flow. We normally have approximately$1.3Million in positive cash flow but in the 2012 through 2019 years this drops to about$400K and gets as low as $100K. The data is still positive, so no red flags. Also of note is comparing operating expenses to debt service. This has usually been about 50150, but in the future with a 6% yearly increase, we can see that this ratio goes to 60/40 by 2018 and continues to increase. Recommendation: All future MROSD Cash Flow projections should be projected out to 20 years so that we can see the affects of any changes on this critical period. Also a policy decision should be made concerning negative cash flows and if it is it ok to do so for a short amount of time, given future income. Fig. 1 New Financing $40,000 $35,000 $30,000 - - — $25,000 - $20,000 $15,000 - - - - - $10,000 - - - - $5,000 $0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 ----- ------ - ------------ ® debt operating expenses income Fig. 2. Operating CashFlow $6,000 $5,000 $4,000 $3,000 $1 ,000 $0 0 o n - 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 Operating CashFlow Job Title: Mip Pen Open Insertion: Monday 1/18/99 Size: 4.25 x 5(2 column by 5 inches) Cost: Paper: SJ Murc, Mid Pen Placement: Display /Business Contact: Phone: Approved by: Stone & Youngberg LLC Established 1931 Tax Free Municipal Bonds $2590005000" Midpeninsula Regional Open Space Financing Authority Ambac Insured Aaa/AAA Rated Maturities: Serial Bonds from 2000 to 2014 Capital Appreciation Bonds from 2015 to 2030 This issue is being underwritten by Stone & Youngberg on January 19, 1999. For more information about these and other fixed income securities, please call: 8 0 0/447-8663 SIPC Preliminary,subject to change.Final amount is subject to change.This announcement is neither an offer to sell,a solicitation nor an offer to buy these securities.The offer is made by the Prospectus.These bonds are subject to change in price or prior sale. MIDPENINSULA REGIONAL OPEN SPACE DISTRICT 1999 Financing Program - Annual Payment Profile $10,000,000 $9.000,000 $8,000,000 1999 Obligation Inereases at—4.S Per Year- Refunds All 1992.Notes and $7,000,000 Raises $17..S M:tiI $6,000,000 $5,000,000 $4.000,000 $3,000,000 $2,000,000 $1.000,000 $- 4I1/1999* 4/1/03 4/1/07 4/1/11 4/1/15 4/1/19 4/1/23 4/1/27 4/1131 Land Contracts �1990 Notes O 1993 COP 1995 Notes 1996 Notes ®1996 Lease 1999 Lease -0—Existing Debt Service LA O"Pf",", DISI "W" Total Debt Service Profile-After 1999 Financing I'otd Fml,,d m3d I owxavt�-- P)90\' Ykk' P993 ?FF PI),)`z 199 6 s 19% Lvasv 19,P) h"jw D04 ser,'ia t, Fxistiog DS 64,000 $ 464,529 S 457,743 $ 396,634 S 402,445 $ 225,396 $ 1.946.746 64,000 $ 1,609,200 S 1,266,935 S 890,268 S 1,269,440 $ 641,503 $ 632,656 3 QVj 1 S, 6.529.283 64,000 $ 1,606,328 $ 1,347,345 $ 884,193 $ 1,218,755 S 657,153 $ 899,089 $ 6,563,239 61,000 $ 1,604,908 $ 1,344,305 $ 877,968 $ 1,260,770 S 680,718 $ 942,090 Y> nl 'S Q 6,610,428 559,000 $ 1,604,508 S 1,349,300 $ 871,618 $ 1,289,178 $ 697,360 $ 992,525 7.149,793 27,000 $ 1,599,858 S 1,342,515 S 865,168 $ 1,324,585 $ 722,253 $ 1,040,080 6,665,493 27,000 $ 1,595,678 S 1,348,763 $ 858,618 $ 1,360,985 S 739,948 $ 1,089,625 S' 6,712,320 27,000 $ 1,596,318 S 1,342,860 $ 851,968 S 1,402,855 S 765,238 S 1,140,833 7 S 6.762.136 27,000 $ 1,591,293 S 1,340,190 $ 845,218 $ 1,444,653 $ 787,783 $ 1,203,346 6,809,144 27,000 S 1,585,549 S 1,345,300 $ 838,368 $ 1,481,080 $ 812,358 S 1,261,724 s 6,962.120 1,578,875 S 1,347,900 $ 894,184 $ 1,458,480 $ 833,733 $ 1,325,414 A S, 6,887,169 1,575,938 $ 1,343,070 $ 906,800 $ 1,486,710 $ 861,528 $ 1,388,913 :11 14 6.941,574 1,571,438 $ 1,340,403 S 922,450 S 1,513,973 $ 885,353 $ 1,456,691 $ 0,996,415 1,565,000 1,339,945 S 2,480,000 S 1,540,118 S 910,126 $ 1,532,979 S 7,045,02 1 1,556,250 $ 1,341,780 S 2,480,775 $ 1,571,918 S 941,720 $ 1,611,969 S 7,110,005 j Si 7.159,405 $ $ - $ 1,335,908 $ 3,258,575 $ 1,596,585 $ 968,338 $ 1,688,048 j $ $ 1,332,328 $ 3,265,425 $ 1,631,758 S 998,615 $ 1,775,773 7229,125 $ $ $ 1,330,500 $ $ 4,890,000 $ 1,025,000 $ 1,865,000 S 7,245,500 $ $ $ 1,126,163 $ $ 5,130,000 $ 1,060,000 S 1,960,000 S 73 16.163 $ $ $ 1,129,556 $ S 1,090,000 $ 2,055,000 2,219,556 $ $ 1,124,931 $ $ 1,125,000 $ 2,155,000 L 0 i '5', 1249,931 $ S 1,122,288 $ S 1,155,000 $ 2,270,000 L.", 2,277,299 $ S 1,121,338 $ $ 1,190,000 $ 2,380,000 2,3 11338 A S S $ 1,225,000 $ 2,500,000 1,225M0 $ $ $ $ $ 1,265,000 $ 2,620,000 o,j I", 1,265,000 $ $ $ $ S 1,300,000 $ 2,755,000 6 1.300A00 S $ $ 1,340,000 S 2,890,000 1,340.000 1,380,000 S 3,035,000 k. 1, 1',W S, 1,380,000 S S S s S 1,420,000 S 3,190,000 S 1 120,000 $ $ S $ $ $ 3,345,000 1 s S $ $ $ $ 3,515,000 S $ S $ S 3,690,000 S S S $ $ 3,875,000 1 899 TABLE OF CONTENTS MROSD- 1998/99 Financing Program 1999 Lease Report Page Sources and Uses of Funds . . . . . . . . . . . . . . . . . . . . . . . . I Summary of Financing Results . . . . . . . . . . . . . . . . . . . . . . . . . 2 Summary of Refunding Results . . . . . . . . . . . . . . . . . . . . . . . 3 Cost of Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Bond Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Bond Summary Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Summary of Refunding Results . . . . . . . . . . . . . . . . . . . . . . . . 9 Summary of Bonds Refunded . . . . . . . . . . . . . . . . . . . . . . . . . 10 Bond Debt Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I I Escrow Requirements . . . . . . . . . . . . . . . . . . . . . . . . . 15 Escrow Descriptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Escrow Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Escrow Statistics . . . . . . . . . . . . . . . . . . . . . . . 18 Bond Accreted Value Table . . . . . . . . . . . . . . . . . . . . . . . . . . 19 12-1an-99 6:02 pm Prepared by Stone&Youngberg LLC 4.111 Midptom:1999WO) SOURCES AND USES OF FUNDS MROSD- 1998/99 Financing Program 1999 Program-92 Refunding&Lease Dated Date 01/28/1999 Delivery Date 01/28/1999 Sources: Bond Proceeds: Par Amount 25,572,716.65 Other Sources of Funds: 1992 Reserve Fund 655,604.00 1992 Payment Fund 443.00 656,047.00 26,228,763.65 Uses: Project Fund Deposits: 1998 Lease 17,500,000.00 Refunding Escrow Deposits: Cash Deposit 0.56 SLG Purchases 7,808,269.00 7,808,269.56 Delivery Date Expenses: Cost of Issuance 180,500.00 Underwriter's Discount 255,727.17 Bond Insurance(65 bp) 418,621.67 Surety Bond(2.5%of RR) 63,706,81 918,555.65 Other Uses of Funds: Rounding 1,938.44 26,228,763,65 12-Jan-99 6:02 pm Prepared by Stone&Youngberg LLC (4.I11 Midptom:1999WO) Page I SUMMARY OF FINANCING RESULTS MROSD - 1998/99 Financing Program 1999 Program-92 Refunding&Lease Bond Escrow Negative Net Series Bond Par Yield Contingency Yield Arbitrage Savings Refunding of 1992 Notes 7,420,578.15 5.266% 1,813.17 4.569% 151,659.78 -138,514.06 1999 Lease 18,152,138.50 5.265% 125.27 25,572,716.65 1,938.44 151,659.78 -138,514.06 Aggregate: Arbitrage Yield 5.265530% Escrow Yield 4.568514% 12-Jan-99 6:02 pm Prepared by Stone&Youngberg LLC (4.111 Midptom:1999WO) Page 2 SUMMARY OF REFUNDING RESULTS MROSD- 1998/99 Financing Program Refunding of 1992 Notes Dated Date 01/28/1999 Delivery Date 01/28/1999 Arbitrage yield 5.265530% Escrow yield 4.568514% Bond Par Amount 7,420,578.15 True Interest Cost 5.331465% Average Life 16.816 Par amount of refunded bonds 7,345,000.00 Average coupon of refunded bonds 6.211594% Average life of refunded bonds 7.865 PV of prior debt to 01/28/1999 @ 5.265530% 7,796,542,91 Net PV Savings -138,514.06 Percentage savings of refunded bonds -1.885828% Percentage savings of refunding bonds -1.866621% 12-Jan-99 6:02 pm Prepared by Stone&Youngberg LLC (4.111 Midptom:1999WO) Page 3 COST OF ISSUANCE MROSD- 1998/99 Financing Program Master for 1999 Program Cost of Issuance $/1000 Amount Bond Counsel(Orrick) 75,000.00 Moody's Rating 20,000.00 S&P Rating 20,000.00 Trustee/Escrow Agent 12,000.00 POS/OS Printing(Pacific) 18,000.00 Appraisal 10,000.00 Title Insurance 10,000.00 Verification(Causey) 5,500.00 Miscellaneous 10,000.00 0.00 180,500.00 12-Jan-99 6:03 pm Prepared by Stone&Youngberg LLC (4.111 Midptom:MID98-MASTER) Page 4 BOND PRICING MROSD- 1998/99 Financing Program 1999 Program-92 Refunding&Lease Principal Maturity per$5,000 Bond Component Date Amount Rate Yield Price at Maturity Serial Bonds through 2029: 09/01/2000 325,000.00 3.350% 3.350% 100.000 09/01/2001 380,000.00 3.500% 3.500% 100.000 09/01/2002 445,000.00 3.600% 3.600% 100.000 09/01/2003 505,000.00 3.700% 3.700% 100.000 09/01/2004 585,000.00 3.800% 3.800% 100.000 09/01/2005 660,000.00 3.900% 3.900% 100.000 09/01/2006 745,000.00 4.000% 4.000% 100.000 09/01/2007 840,000.00 4.100% 4.100% 100.000 09/01/2008 935,000.00 4.200% 4.200% 100.000 09/01/2009 1,050,000.00 4.250% 4.250% 100.000 09/01/2010 1,160,000.00 4.350% 4.350% 100.000 09/01/2011 1,290,000.00 4.450% 4.450% 100.000 09/01/2012 1,430,000.00 4.550% 4.550% 100.000 09/01/2013 1,580,000.00 4.650% 4.650% 100,000 09/01/2014 1,740,000.00 4.750% 4.750% 100.000 13,670,000.00 Serial CABS+m40+8� 09/01/2015 800,006.25 5.200% 5.200% 100.000 2,133.35 09/01/2016 789,654.90 5.250% 5.250% 100.000 2,009.30 09/01/2017 780,817.80 5.300% 5.300% 100,000 1,890,60 09/01/2018 771,304.80 5.350% 5,350% 100,000 1,777.20 09/01/2019 759,395.00 5.400% 5.400% 100.000 1,669.00 09/01/2020 756,387.20 5.400% 5.400% 100.000 1,582.40 09/01/2021 744,892.70 5.450% 5.450% 100.000 1,483.85 09/01/2022 741,067.40 5.450% 5.450% 100.000 1,406.20 09/01/2023 738,232.70 5.450% 5.450% 100.000 1,332.55 09/01/2024 734,949.60 5.450% 5.450% 100.000 1,262.80 09/01/2025 729,987.00 5.450% 5.450% 100,000 1,196.70 09/01/2026 726,926.05 5.450% 5.450% 100,000 1,134.05 09/01/2027 713,279.05 5.500% 5.500% 100.000 1,059.85 09/01/2028 708,718.10 5.500% 5.500% 100.000 1,003.85 09/01/2029 705,530.70 5.500% 5.500% 100.000 950.85 09/01/2030 701,567.40 5.500% 5.500% 100,000 900.60 11,902,716.65 25,572,716.65 - 12-Jan-99 6:02 pm Prepared by Stone&Youngberg LLC (4.111 Midptom:1999WO) Page 5 BOND PRICING MROSD- 1998/99 Financing Program 1999 Program-92 Refunding&Lease Dated Date 01/28/1999 Delivery Date 01/28/1999 First Coupon 09/01/1999 Par Amount 25,572,716.65 Discount Production 25,572,716.65 100.000000% Underwriter's Discount -255,727.17 -1.000000% Purchase Price 25,316,989.48 99.000000% Accrued Interest Net Proceeds 25,316,989.48 12-Jan-99 6:02 pm Prepared by Stone&Youngberg LLC (4.111 Midptom:1999WO) Page 6 BOND SUMMARY STATISTICS MROSD- 1998/99 Financing Program 1999 Program-92 Refunding&Lease Dated Date 01/28/1999 Delivery Date 01/28/1999 Last Maturity 09/01/2030 Arbitrage Yield 5.265530% True Interest Cost(TIC) 5.331297% All-In TIC 5.378273% Average Life(_years) 16.812 Duration of Issue(years) 15.659 Par Amount 25,572,716.65 Bond Proceeds 25,572,716.65 Total Interest 6,413,333.94 Net Interest 6,669,061.11 Total Debt Service 64,403,333.94 Maximum Annual Debt Service 3,895,000.00 Average Annual Debt Service 2,038,617.80 Underwriter's Fees(per$1000) Average Takedown Other Fee 10.000000 Total Underwriter's Discount 10.000000 Bid Price 99.000000 Par Average Average Bond Component Value Price Coupon Life Serial Bonds through 2028 13,670,000.00 100.000 4.413% 10.630 Serial CABS due 2018 11,902,716.65 100.000 23.912 25,572,716.65 16.812 12-7an-99 6:02 pm Prepared by Stone&Youngberg LLC (4.111 Midptom:1999WO) Page 7 BOND SUMMARY STATISTICS MROSD - 1998/99 Financing Program 1999 Program-92 Refunding&Lease All-In Arbitrage TIC TIC Yield Par Value 25,572,716.65 25,572,716.65 25,572,716.65 +Accrued Interest +Premium(Discount) -Underwriter's Discount -255,727.17 -255,727.17 -Cost of Issuance Expense -180,500.00 -Other Amounts -482,328.48 -482,328.48 -482,328.48 Target Value 24,834,661.00 24,654,161.00 25,0901,388.17 Target Date 01/28/1999 01/28/1999 01/28/1999 Yield 5.331297% 5.378273% 5.265530% 12-Jan-99 6:02 pm Prepared by Stone&Youngberg LLC (4.11 I Midptom:1999WO) Page 8 SUMMARY OF REFUNDING RESULTS MROSD- 1998/99 Financing Program 1999 Program-92 Refunding&Lease Dated Date 01/28/1999 Delivery Date 01/28/1999 Arbitrage yield 5.265530% Escrow yield 4.568514% Bond Par Amount 7,420,578.15 True Interest Cost 5.331465% Average Life 16.816 Par amount of refunded bonds 7,345,000.00 Average coupon of refunded bonds 6.211594% Average life of refunded bonds 7.865 PV of prior debt to 01/28/1999 @ 5.265530% 7,796,542.91 Net PV Savings -138,514.06 Percentage savings of refunded bonds -1.885828% Percentage savings of refunding bonds -1.866621% 12-Jan-99 6:02 pm Prepared by Stone&Youngberg LLC (4.111 Midptom:1999WO) Page 9 SUMMARY OF BONDS REFUNDED MROSD- 1998/99 Financing Program 1999 Program-92 Refunding&Lease Maturity Interest Par Call Call Bond Date Rate Amount Date Price 1992, 1992: SERIALS 07/01/1999 5.400% 355,000.00 SERIALS 07/01/2000 5.600% 370,000.00 SERIALS 07/01/2001 5.700% 390,000.00 SERIALS 07/01/2002 5.800% 415,000.00 SERIALS 07/01/2003 5.900% 440,000.00 07/01/2002 102.000 SERIALS 07/01/2004 6.000% 465,000.00 07/01/2002 102,000 SERIALS 07/01/2005 6.100% 495,000.00 07/01/2002 102.000 SERIALS 07/01/2006 6.150% 525,000.00 07/01/2002 102.000 SERIALS 07/01/2007 6.200% 555,000.00 07/01/2002 102.000 SERIALS 07/01/2008 6.250% 590,000.00 07/01/2002 102.000 SERIALS 07/01/2009 6.250% 625,000.00 07/01/2002 102,000 SERIALS 07/01/2010 6.300% 665,000,00 07/01/2002 102.000 SERIALS 07/01/2011 6.300% 705,000,00 07/01/2002 102,000 SERIALS 07/01/2012 6.350% 750,000.00 07/01/2002 102.000 7,345,000.00 12-Jan-99 6:02 pm Prepared by Stone&Youngberg LLC (4.111 Midptom:1999WO) Page 10 BOND DEBT SERVICE MROSD- 1998/99 Financing Program 1999 Program-92 Refunding&Lease Dated Date 01/28/1999 Delivery Date 01/28/1999 Period Compounded Annual Ending Principal Coupon Interest Interest Debt Service Debt Service 01/28/1999 03/01/1999 09/01/1999 345,561.44 345,561.44 03/01/2000 292,023.75 292,023.75 04/01/2000 637,585.19 09/01/2000 325,000.00 3.350% 292,023.75 617,023.75 03/01/2001 286,580.00 286,580.00 04/01/2001 903,603,75 09/01/2001 380,000.00 3.500% 286,580.00 666,580.00 03/01/2002 279,930.00 279,930.00 04/01/2002 946,510.00 09/01/2002 445,000.00 3.600% 279,930.00 724,930.00 03/01/2003 271,920,00 271,920.00 04/01/2003 996,850.00 09/01/2003 505,000.00 3.700% 271,920.00 776,920.00 03/01/2004 262,577.50 262,577.50 04/01/2004 1,039,497.50 09/01/2004 585,000.00 3.800% 262,577.50 847,577.50 03/01/2005 251,462.50 251,462.50 04/01/2005 1,099,040.00 09/01/2005 660,000.00 3.900% 251,462.50 911,462.50 03/01/2006 238,592.50 238,592.50 04/01/2006 1,150,055.00 09/01/2006 745,000.00 4.000% 238,592.50 983,592.50 03/01/2007 223,692.50 223,692.50 04/01/2007 1,207,285.00 09/01/2007 840,000.00 4.100% 223,692.50 1,063,692.50 03/01/2008 206,472.50 206,472.50 04/01/2008 1,270,165.00 09/01/2008 935,000.00 4.200% 206,472.50 1,141,472.50 03/01/2009 186,837.50 186,837.50 04/01/2009 1,328,310.00 09/01/2009 1,050,000.00 4.250% 186,837.50 1,236,837,50 03/01/2010 164,525.00 164,525.00 04/01/2010 - 1,401,362.50 09/01/2010 1,160,000.00 4.350% 164,525.00 1,324,525.00 03/01/2011 139,295.00 139,295.00 04/01/2011 1,463,820.00 09/01/2011 1,290,000.00 4.450% 139,295.00 1,429,295.00 03/01/2012 110,592.50 110,592.50 04/01/2012 1,539,887.50 09/01/2012 1,430,000.00 4.550% 110,592.50 1,540,592.50 03/01/2013 78,060.00 78,060.00 04/01/2013 1,618,652.50 12-Jan-99 6:02 pm Prepared by Stone&Youngberg LLC (4.111 Midptom:1999WO) Page 11 i BOND DEBT SERVICE MROSD - 1998/99 Financing Program 1999 Program-92 Refunding&Lease Period Compounded Annual Ending Principal Coupon Interest Interest Debt Service Debt Service 09/01/2013 1,580,000.00 4.650% 78,060.00 1,658,060.00 03/01/2014 41,325.00 41,325.00 04/01/2014 1,699,385.00 09/01/2014 1,740,000.00 4.750% 41,325,00 1,781,325.00 03/01/2015 04/01/2015 1,781,325.00 09/01/2015 800,006.25 5.200% 1,074,993.75 1,875,000.00 03/01/2016 04/01/2016 1,875,000.00 09/01/2016 789,654.90 5.250% 1,175,345.10 1,965,000.00 03/01/2017 04/01/2017 1,965,000.00 09/01/2017 780,817.80 5.300% 1,284,182.20 2,065,000.00 03/01/2018 04/01/2018 21,065,000.00 09/01/2018 771,304.80 5.350% 1,398,695.20 2,170,000.00 03/01/2019 04/01/2019 2,170,000.00 09/01/2019 759,395.00 5.400% 1,515,605.00 2,275,000.00 03/01/2020 04/01/2020 2,275,000.00 09/01/2020 756,387.20 5.400% 1,633,612.80 2,390,000.00 03/01/2021 04/01/2021 2,390,000,00 09/01/2021 744,892.70 5.450% 1,765,107.30 2,510,000.00 03/01/2022 04/01/2022 2,510,000.00 09/01/2022 741,067.40 5.450% 1,893,932.60 2,635,000.00 03/01/2023 04/01/2023 2,635,000.00 09/01/2023 738,232.70 5.450% 2,031,767.30 2,770,000.00 03/01/2024 04/01/2024 2,770,000.00 09/01/2024 734,949.60 5.450% 2,175,050.40 2,910,000,00 03/01/2025 04/01/2025 2,910,000.00 09/01/2025 729,987.00 5.450% 2,320,013.00 3,050,000.00 03/01/2026 04/01/2026 - 3,050,000.00 09/01/2026 726,926.05 5.450% 2,478,073.95 3,205,000.00 03/01/2027 04/01/2027 3,205,000.00 09/01/2027 713,279.05 5.500% 2,651,720.95 3,365,000.00 03/01/2028 04/01/2028 3,365,000.00 09/01/2028 708,718.10 5.500% 2,821,281.90 3,530,000.00 03/01/2029 04/01/2029 3,530,000.00 12-Jan-99 6:02 pm Prepared by Stone&Youngberg LLC (4.111 Midptom:1999WO) Page 12 BOND DEBT SERVICE MROSD - 1998/99 Financing Program 1999 Program-92 Refunding&Lease Period Compounded Annual Ending Principal Coupon Interest Interest Debt Service Debt Service 09/01/2029 705,530.70 5.500% 3,004,469.30 3,710,000.00 03/01/2030 04/01/2030 3,710,000.00 09/01/2030 701,567.40 5.500% 3,193,432.60 3,895,000.00 04/01/2031 3,895,000.00 25,572,716.65 6,413,333.94 32,417,283.35 64,403,333.94 64,403,333.94 12-Jan-99 6:02 pm Prepared by Stone&Youngberg LLC (4.11 I Midptom:1999WO) Page 13 BOND DEBT SERVICE MROSD- 1998/99 Financing Program 1999 Program-92 Refunding&Lease Dated Date 01/28/1999 Delivery Date 01/28/1999 Period Compounded Ending Principal Coupon Interest Interest Debt Service 04/01/1999 04/01/2000 637,585.19 637,585.19 04/01/2001 325,000.00 3.350% 578,603.75 903,603.75 04/01/2002 380,000.00 3.500% 566,510,00 946,510,00 04/01/2003 445,000.00 3.600010 551,850.00 996,850.00 04/01/2004 505,000.00 3.700% 534,497.50 1,039,497.50 04/01/2005 585,000.00 3.800% 514,040.00 1,099,040,00 04/01/2006 660,000.00 3.900% 490,055.00 1,150,055.00 04/01/2007 745,000.00 4.000% 462,285.00 1,207,285.00 04/01/2008 840,000.00 4.100% 430,165.00 1,270,165.00 04/01/2009 935,000.00 4.200% 393,310.00 1,328,310.00 04/01/2010 1,050,000.00 4.250°% 351,362.50 1,401,362,50 04/01/2011 1,160,000.00 4.350% 303,820.00 11463,820,00 04/01/2012 1,290,000.00 4.450% 249,887.50 1,539,887.50 04/01/2013 1,430,000.00 4.550% 188,652.50 1,618,652.50 04/01/2014 1,580,000.00 4.650% 119,385.00 1,699,385.00 04/01/2015 1,740,000.00 4.750% 41,325.00 1,781,325.00 04/01/2016 800,006.25 5.200% 1,074,993.75 1,875,000.00 04/01/2017 789,654.90 5.250% 1,175,345.10 1,965.000.00 04/01/2018 780,817.80 5.300% 1,284,18220 2,065,000.00 04/01/2019 771,304.80 5.350% 1,398,695.20 2,170,000,00 04/01/2020 759,395.00 5.400% 1,515,605.00 2,275,000.00 04/01/2021 756,387.20 5.400% 1,633,612.80 2,390,000.00 04/01/2022 744,892.70 5.450% 1,765,107.30 2,510,000.00 04/01/2023 741,067.40 5.450% 1,893,932.60 2,635,000.00 04/01/2024 738,232.70 5.450% 2,031,767.30 2,7701,000.00 04/01/2025 734,949.60 5.450% 2,175,050.40 2,910,000.00 04/01/2026 729,987.00 5.450% 2,320,013.00 3,050,000.00 04/01/2027 726,926.05 5.450% 2,478,073.95 3,205,000.00 04/01/2028 713,279.05 5.500% 2,651,720.95 3,365,000.00 04/01/2029 708,718.10 5.500% 2,821,281.90 3,530,000.00 04/01/2030 705,530.70 5.500% 3,004,469.30 3,710,000.00 04/01/2031 701,567,40 5.500% 3,193,432.60 3,895,000.00 25,572,716.65 6,413,333.94 32,417,283.35 64,403,333.94 12-Jan-99 6:02 pm Prepared by Stone&Youngberg LLC (4.111 Midptom:1999WO) Page 14 ESCROW REQUIREMENTS MROSD- 1998/99 Financing Program 1999 Program-92 Refunding&Lease Period Principal Redemption Ending Principal Interest Redeemed Premium Total 07/01/1999 355,000.00 223,407.50 578,407.50 01/01/2000 213,822.50 213,822.50 07/01/2000 370,000.00 213,822.50 583,822.50 01/01/2001 203,462.50 203,462.50 07/01/2001 390,000.00 203,462.50 593,462.50 01/01/2002 192,347.50 192,347.50 07/01/2002 415,000.00 192,347.50 5,815,000.00 116,300.00 6,538,647.50 1,530,000.00 1,442,672.50 5,815,000.00 116,300.00 8,903,972.50 12-Jan-99 6:02 pm Prepared by Stone&Youngberg LLC (4.11 I Midptom:1999WO) Page 15 ESCROW DESCRIPTIONS MROSD- 1998/99 Financing Program 1999 Program-92 Refunding&Lease Type of Type of Maturity First Int Par Max Security SLGS Date Pint Date Amount Rate Rate Jan 28, 1999: SLG Certificate 07/01/1999 07/01/1999 427,825 4.490% 4.490% SLG Certificate 01/01/2000 01/01/2000 44,519 4.480% 4.480% SLG Note 07/01/2000 07/01/1999 416,365 4.490% 4.490% SLG Note 01/01/2001 07/01/1999 45,353 4.560% 4.560% SLG Note 07/01/2001 07/01/1999 436,387 4.570% 4.570% SLG Note 01/01/2002 07/01/1999 45,243 4.570% 4.570% SLG Note 07/01/2002 07/01/1999 6,392,577 4.570% 4.570% 12-Jan-99 6:02 pm Prepared by Stone&Youngberg LLC (4.111 Midptom:1999WO) Page 16 ESCROW COST MROSD- 1998/99 Financing Program 1999 Program-92 Refunding&Lease Type of Maturity Par Total Security Date Amount Rate Cost SLG 07/01/1999 427,825 4.490% 427,825.00 SLG 01/01/2000 44,519 4.480% 44,519.00 SLG 07/01/2000 416,365 4.490% 416,365.00 SLG 01/01/2001 45,353 4.560% 45,353.00 SLG 07/01/2001 436,387 4.570% 436,387.00 SLG 01/01/2002 45,243 4.570% 45,243.00 SLG 07/01/2002 6,392,577 4.570% 6,392,577.00 7,808,269 7,808,269,00 Purchase Cost of Cash Total Date Securities Deposit Escrow Cost Yield 01/28/1999 7,808,269 0.56 7,808,269.56 4.568514% 7,808,269 0.56 7,808,269.56 12-Jan-99 6:02 pm Prepared by Stone&Youngberg LLC (4.111 Midptom:1999WO) Page 17 ESCROW STATISTICS MROSD- 1998/99 Financing Program 1999 Program-92 Refunding&Lease Modified Yield to Yield to Perfect Value of Total Duration Recent Disbursement Escrow Negative Cost of Escrow Escrow Cost (years) Date Date Cost Arbitrage Dead Time Refunding of 1992 Notes,Global Proceeds Escrow: 7,808,269.56 2.822 4.568514% 4.568514% 7,656,609.73 151,659.78 0.05 7,808,269.56 7,656,609.73 151,659.78 0.05 Delivery date 01/28/1999 Arbitrage yield 5.265530% 12-Jan-99 6:02 pm Prepared by Stone&Youngberg LLC (4.11 1 Midptom:1999WO) Page 19 BOND ACCRETED VALUE TABLE MROSD - 1998/99 Financing Program Refunding of 1992 Notes Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Ser ial ai CABS due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 09/01/2015 09/01/2016 09/01/2017 09/01/2018 09/01/2019 09/01/2020 09/01/2021 09/01/2022 Date 5.2% 5.25% 5.3% 5.35% 5.4% 5.4% 5.45% 5.45% 01/28/1999 2,133.35 2,009.30 1,890.60 1,777.20 1,669.00 1,582.40 1,483.85 1,406.20 03/01/1999 2,143.40 2,018.85 1,899.70 1,785.85 1,677.15 1,590.15 1,491.20 1,413.15 09/01/1999 2,199.10 2,071.85 1,950.05 1,833.60 1,722.45 1,633.05 1,531.85 1,451.65 03/01/2000 2,256.30 2,126.25 2,001.70 1,882.65 1,768.95 1,677.15 1,573.60 1,491.20 09/01/2000 2,314.95 2,182.05 2,054.75 1,933.00 1,816.70 1,722.45 1,616.45 1,531,85 03/01/2001 2,375.15 2,239.30 2,109.20 1,984.70 1,865.75 1,768.95 1,660.50 1,573,60 09/01/2001 2,436.90 2,298.10 2,165.10 2,037.80 1,916.15 1,816.70 1,705.75 1,616,45 03/01/2002 2,500.25 2,358.45 2,222.50 2,092.35 1,967.90 1,865.75 1,752.25 1,660.50 09/01/2002 2,565.30 2,420.35 2,281.35 2,148.30 2,021.00 1,916.15 1,800.00 1,705.75 03/01/2003 2,632.00 2,483.90 2,341.85 2,205.75 2,075.60 1,967.90 1,849,05 1,752.25 09/01/2003 2,700.40 2,549.10 2,403.90 2,264.75 2,131,60 2,021,00 1,899,45 1,80().0O 03/01/2004 2,770.60 2,616.00 2,467.60 2,325.35 2,189.20 2,075.60 1,951.20 1,849.05 09/01/2004 2,842.65 2,684,65 2,533.00 2,387.55 2,248.30 2,131.60 2,004.35 1,899.45 03/01/2005 2,916.55 2,755.15 2,600.10 2,451,40 2,309.00 2,189.20 2,059.00 1,951.20 09/01/2005 2,992.40 2,827,45 2,669.00 2,517.00 2,371.35 2,248.30 2,115.10 2,004.35 03/01/2006 3,070.20 2,901.70 2,739.75 2,584.35 2,435.35 2,309.00 2,172.70 2,059.00 09/01/2006 3,150.05 2,977.85 2,812.35 2,653.45 2,501.10 2,371.35 2,231.95 2,115.10 03/01/2007 3,231.95 3,056.00 2,886.90 2,724.45 2,568.65 2,435.35 2,292.75 2,1.72.70 09/01/2007 3,315.95 3,136.25 2,963.40 2,797.30 2,638.00 2,501.10 2,355.25 2,231.95 03101/2008 3,402.15 3,218.55 3,041.90 2,872,15 2,709.25 2,568.65 2,419,40 2,292.75 09/01/2008 3,4W65 3,303.05 3,122.50 2,949.00 2,782.40 2,638.00 2,485.35 2,355.25 03/01/2009 3,581.40 3,389.75 3,205.25 3,027.85 2,857.50 2,709.25 2,553.05 2,419,40 09/01/2009 3,674,50 3,478.75 3,290.20 3,108,85 2,934.65 2,782.40 2,622.65 2,485.35 03/01/2010 3,770.05 3,570.05 3,377.40 3,192,05 3,013.90 2,857.50 2,694.10 2,553.05 09/01/2010 3,868.05 3,663.80 3,466.90 3,27T40 3,095.25 2,934.65 2,767.50 2,622.65 03/01/2011 3,968.65 3,759.95 3,558,80 3,365.10 3,178.85 3,013.90 2,842.95 2,694.10 09/01/2011 4,071.80 3,858.65 3,653.10 3,455.10 3,264.65 3,095.25 2,920,40 2,767.50 03/01/2012 4,177.70 3,959.95 3,749,90 3,547.55 3,352.80 3,178.85 3,000.00 2,84295 09/01/2012 4,286.30 4,063.90 3,849.25 3,642.40 3,443.35 3,264.65 3,081.75 2,920.40 03/01/2013 4,397.75 4,170.55 3,951.25 3,739.85 3,536.30 3,352,80 3,165.70 3,000.00 09/01/2013 4,512.10 4,280,05 4,056.00 3,839.90 3,631.80 3,443.35 3,252.00 3,081.75 12-Jan-99 6:02 pm Prepared by Stone&Youngberg LLC (4.111 Midptom:1999WO) Page 19 BOND ACCRETED VALUE TABLE MROSD- 1998/99 Financing Program Refunding of 1992 Notes Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 09/01/2015 09/01/2016 09/01/2017 09/O1/2018 09/01/2019 09/01/2020 09/01/2021 09/01/2022 Date 5.2% 5.25% 5.3% 5.35% 5.4% 5.4% 5.45% 5.45'%t 03/01/2014 4,629.40 4,392.40 4,163.45 3,942.60 3,729.85 3,536.30 3,340.60 3,165.70 09/01/2014 4,749.75 4,507.70 4,273.80 4,048.10 3,830.55 3,631.80 3,431.65 3,252,00 03/01/2015 4,873.25 4,626.05 4,387.05 4,156.35 3,934.00 3,729.85 3,525.15 3,340.60 09/01/2015 5,000.00 4,747.45 4,503.30 4,267.55 4,040.20 3,830.55 3,621.20 3,431,65 03/01/2016 4,872.10 4,622.65 4,38L70 4,149.30 3,934.00 3,719.90 3,525.15 09/01/2016 5,000.00 4,745.15 4,498.90 4,261.35 4,040.20 3,821.25 3,62110 03/01/2017 4,870.90 4,619.25 4,376.40 4,149.30 3,925.40 3,719,90 09/01/2017 5,000.00 4,742.85 4,494.55 4,261.35 4,032,35 3,821.25 03/01/2018 4,869.70 4,615.90 4,376.40 4,142.25 3,925.40 09/01/2018 5,000.00 4,740.55 4,494.55 4,255,10 4,032.35 03/01/2019 4,868.50 4,615.90 4,371.05 4,142.25 09/01/2019 5,000.00 4,740.55 4,490.15 4,255.10 03/01/2020 4,868.50 4,612.55 4,371.05 09/01/2020 5,000.00 4,738.20 4,490.15 03/01/2021 4,867.35 4,612.55 09/01/2021 5,000.00 4,738.20 03/01/2022 4,867.35 09/01/2022 5,000.0() 03/01/2023 09/01/2023 03/01/2024 09/01/2024 03/01/2025 09/01/2025 03/01/2026 09/01/2026 03/01/2027 09/01/2027 03/01/2028 09/01/2028 12-Jan-99 6:02 pm Prepared by Stone&Youngberg LLC (4.I I l Rlidptom:1999W0) Page 20 BOND ACCRETED VALUE TABLE MROSD - 1998/99 Financing Program Refunding of 1992 Notes Serial CABS Serial CABs Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 09/01/2015 09/01/2016 09/01/2017 09/01/2018 09/01/2019 09/01/2020 09/01/2021 09/01/2022 Date 5.2% 5.25% 5.3% 5.35% 5.4% 5.4% 5.45% 5.45% 03/01/2029 09/01/2029 03/01/2030 09/01/2030 i 12-Jan-99 6:02 pm Prepared by Stone&Youngberg LLC (4.11 1 Midptom:1999WO) Page 21 BOND ACCRETED VALUE TABLE MROSD - 1998/99 Financing Program Refunding of 1992 Notes Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 09/01/2023 09/01/2024 09/01/2025 09/01/2026 09/01/2027 09/01/2028 09/01/2029 09/01/2030 Date 5.45% 5.45% 5.45% 5.45% 5.5% 5.5% 5.5% 5.5% 01/28/1999 1,332.55 1,262.80 1,196.70 1,134.05 1,059.85 1,003.85 950.85 900.60 03/01/1999 1,339.15 1,269.05 1,202.60 1,139.65 1,065.10 1,008.85 955.60 905.10 09/O1/1999 1,375.65 1,303.65 1,235.40 1,170.70 1,094,40 1,036.60 98L85 9300) 03/01/2000 1,413.15 1,339.15 1,269.05 1,202.60 1,124.50 1,065.10 1,008.85 955.60 09/01/2000 1,45L65 1,375.65 1,303.65 1,235.40 1,155.45 1,094.40 1,036.60 981.85 03/01/2001 1,491.20 1,413.15 1,339.15 1,269.05 1,187.20 1,124.50 1,065.10 1,008.85 09/01/2001 1,531.85 1,451.65 1,375.65 1,303.65 1,219.85 1,155.45 1,094.40 1,036.60 03/01/2002 1,573.60 1,491.20 1,413.15 1,339.15 1,253.40 1,187.20 1,124.50 1,065.10 09/01/2002 1,616.45 1,531.85 1,451.65 1,375.65 1,287.85 1,219.85 1,155.45 1,094.40 03/01/2003 1,660.50 1,573.60 1,491.20 1,413,15 1,323.30 1,253.40 1,187.20 1,124.50 09/01/2003 1,705.75 1,616.45 1,531.85 1,451.65 1,359.65 1,287.85 1,219.85 1,155.45 03/01/2004 1,752.25 1,660.50 1,573.60 1,491.20 1,397,05 1,323.30 1,253,40 1,187.20 09/01/2004 1,800.00 1,705.75 1,616.45 1,531.85 1,435.50 1,359.65 1,287,85 1,219.85 03/01/2005 1,949.05 1,752.25 1,660.50 1,573.60 1,474.95 1,39T05 1,323.30 1,253.40 09/01/2005 1,899.45 1,800.00 1,705.75 1,616.45 1,515.50 1,435.50 1,359.65 1,28T85 03/01/2006 1,951.20 1,849.05 1,752.25 1,660.50 1,557.20 1,474.95 1,397.05 1,323.30 09/01/2006 2,004.35 1,899.45 1,800,00 1,705.75 1,600.00 1,515.50 1,435.50 1,359.65 03/01/2007 2,059.00 1,951.20 1,849.05 1,752.25 1,644.00 1,557.20 1,474.95 1,397.05 09/01/2007 2,115.10 2,004.35 1,899.45 1,800.00 1,689.25 1,600.00 1,515.50 1,435.50 03/01/2008 2,172.70 2,059.00 1,951.20 1,849.05 1,735.70 1,644.00 1,557.20 1,474.95 09/01/2008 2,231.95 2,115.10 2,004.35 1,899.45 1,783.40 1,689.25 1,600.00 1,515.50 03/01/2009 2,292.75 2,172.70 2,059.00 1,951.20 1,832.45 1,735,70 1,644.00 1,557,20 09/01/2009 2,355.25 2,231.95 2,115.10 2,004,35 1,882.85 1,783.40 1,689.25 1,600.00 03/01/2010 2,419.40 2,292.75 2,172.70 2,059.00 1,934.65 1,832.45 1,735.70 1,644.00 09/01/2010 2,485.35 2,355.25 2,231.95 2,115.10 1,987.85 1,882,85 1,783.40 1,689.25 03/01/2011 2,553.05 2,419.40 2,292.75 2,172.70 2,042,50 1,934.65 1,832.45 1,735,70 09/01/2011 2,622.65 2,485.35 2,355.25 2,231.95 2,098.70 1,987.85 1,882.85 1,783,40 03/01/2012 2,694.10 2,553.05 2,419.40 2,292.75 2,156.40 2,042.50 1,934,65 1,832,45 09/01/2012 2,767.50 2,622.65 2,485.35 2,355.25 2,215.70 2,098,70 1,98T85 1,882,85 03/01/2013 2,842.95 2,694.10 2,553.05 2,419,40 2,276.65 2,156.40 2,042.50 1,934,65 09/01/2013 2,920.40 2,767.50 2,622.65 2,485.35 2,339.25 2,215.70 2,098.70 1,987.85 12-Jan-99 6:02 pm Prepared by Stone&Youngberg LLC (4 111 Midptom:1999WO) Page 22 BOND ACCRETED VALUE TABLE MROSD - 1998/99 Financing Program Refunding of 1992 Notes Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 09/01/2023 09/01/2024 09/01/2025 09/01/2026 09/01/2027 09/01/2028 09/01/2029 09/01/2030 Date 5.45% 5.45% 5.45% 5.45% 5.5% 5.5% 5.5% 5.5% 03/01/2014 3,000.00 2,842.95 2,694.10 2,553.05 2,403.55 2,276.65 2,156.40 2,042,50 09/01/2014 3,081.75 2,920.40 2,767.50 2,622.65 2,469.65 2,339.25 2,215.70 2,098.70 03/01/2015 3,165.70 3,000.00 2,842.95 2,694.10 2,537.60 2,403.55 2,276.65 2,156.40 09/01/2015 3,252.00 3,081.75 2,920.40 2,767.50 2,607.35 2,469.65 2,339.25 2,215.70 03/01/2016 3,340.60 3,165.70 3,000,00 2,842.95 2,679.05 2,537.60 2,403,55 2,276.65 09/01/2016 3,431.65 3,252.00 3,081.75 2,920.40 2,752.75 2,607.35 2,469.65 2,339.25 03/01/2017 3,525.15 3,340,60 3,165.70 3,000.00 2,828.45 2,679.05 2,537.60 2,403.55 09/01/2017 3,621.20 3,431.65 3,252.00 3,081.75 2,906.25 2,752.75 2,607.35 2,469.65 03/01/2018 3,719.90 3,525.15 3,340.60 3,165.70 2,986.15 2,828.45 2,679,05 2,537.60 09/01/2018 3,821.25 3,621.20 3,431.65 3,252.00 3,068.25 2,906.25 2,752,75 2,607.35 03/01/2019 3,925.40 3,719.90 3,525.15 3,340,60 3,152.65 2,986.15 2,828.45 2,679.05 09/01/2019 4,032.35 3,821.25 3,621.20 3,431.65 3,239.35 3,068.25 2,906.25 2,752.75 03/01/2020 4,142.25 3,925.40 3,719.90 3,525.15 3,328.45 3,152.65 2,986.15 2,828.45 09/01/2020 4,255.10 4,032.35 3,821.25 3,621.20 3,419.95 3,239.35 3,068.25 2,906.25 03/01/2021 4,371.05 4,142.25 3,925A0 3,719.90 3,514.00 3,328.45 3,152.65 2,986.15 09/01/2021 4,490,15 4,255.10 4,032.35 3,821.25 3,610.65 3,419.95 3,239.35 3,068.25 03/01/2022 4,612.55 4,371.05 4,142.25 3,925.40 3,709.95 3,514,00 3,328.45 3,152.65 09/01/2022 4,738.20 4,490.15 4,255,10 4,032,35 3,811.95 3,610.65 3,419.95 3,239.35 03/01/2023 4,867.35 4,612.55 4,371,05 4,142.25 3,916.80 3,709.95 3,514.00 3,328.45 09/01/2023 5,000.00 4,738.20 4,490.15 4,255.10 4,024.50 3,811.95 3,610.65 3,419.95 03/01/2024 4,867.35 4,612.55 4,371.05 4,135.20 3,916,80 3,709.95 3,514,00 09/O1/2024 5,000.00 4,738.20 4,490,15 4,248.90 4,024,50 3,811,95 3,610.65 03/01/2025 4,867.35 4,612.55 4,365.75 4,135.20 3,916.80 3,709.95 09/01/2025 5,000.00 4,738.20 4,485.80 4,248.90 4,024.50 3,811.95 03/01/2026 4,867.35 4,609,15 4,365.75 4,135.20 3,916,80 09/01/2026 5,000.00 4,735.90 4,485.80 4,248.90 4,024.50 03/01/2027 4,866.15 4,609.15 4,365,75 4,135.20 09/01/2027 5,000.00 4,735.90 4,485,80 4,248.90 03/01/2028 4,866.15 4,609.15 4,365.75 09/01/2028 5,000.00 4,735.90 4,485,80 12-Jan-99 6:02 pm Prepared by Stone&Youngberg LLC (4.111 Midptom:I999WO) Page 23 BOND ACCRETED VALUE TABLE MROSD- 1998/99 Financing Program Refunding of 1992 Notes Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 09/01/2023 09/01/2024 09/01/2025 09/01/2026 09/01/2027 09/01/2028 09/01/2029 09/O1/2030 Date 5.45% 5.45% 5.45% 5.45% 5.5% 5.5% 5.5% 5.5% 03/O1/2029 4,866.15 4,609.15 09/01/2029 5,000.00 4,735.90 03/01/2030 4,866.15 09/01/2030 5,000,00 12-Jan•99 6:02 pm Prepared by Stone&Youngberg LLC (4.111 Midptom:1999WO) Page 24 BOND ACCRETED VALUE TABLE MROSD - 1998/99 Financing Program 1999 Lease Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 09/01/2015 09/01/2016 09/01/2017 09/01/2018 09/01/2019 09/01/2020 09/01/2021 09/01/2022 Date 5.2% 5.25% 5.3% 5.35% 5.4% 5.4% 5.45% 5.45% 01/28/1999 2,133.35 2,009.30 1,890.60 1,777.20 1,669.00 1,582.40 1,483.85 1,406.20 03/01/1999 2,143.40 2,018.85 1,899.70 1,785.85 1,677.15 1,590.15 1,491.20 1,413.15 09/01/1999 2,199.10 2,071.85 1,950.05 1,833.60 1,722.45 1,633.05 1,531.85 1,451.65 03/01/2000 2,256.30 2,126.25 2,001.70 1,882.65 1,768.95 1,677.15 1,573.60 1,491.20 09/01/2000 2,314.95 2,182.05 2,054.75 1,933.00 1,816.70 1,722.45 1,616.45 1,531.85 03/01/2001 2,375.15 2,239,30 2,109.20 1,984.70 1,865.75 1,768.95 1,660,50 1,573.60 09/01/2001 2,436.90 2,298,10 2,165.10 2,037.80 1,916.15 1,816.70 1,705.75 1,616.45 03/01/2002 2,500,25 2,358.45 2,222.50 2,092.35 1,967.90 1,865.75 1,752.25 1,660.50 09/01/2002 2,565,30 2,420.35 2,281.35 2,148.30 2,021.00 1,916.15 1,800.00 1,705,75 03/O1/2003 2,632,00 2,48390 2,34L85 2,205.75 2,075.60 1,967.90 1,849.05 1,752.25 09/01/2003 2,700.40 2,549,10 2,403.90 2,264.75 2,131.60 2,021.00 1,899.45 1,800.00 03/01/2004 2,770,60 2,616.00 2,467.60 2,325.35 2,189.20 2,075,60 1,951.20 1,849.05 09/01/2004 2,842.65 2,684.65 2,533.00 2,387.55 2,248.30 2,131.60 2,004.35 1,899.45 03/01/2005 2,916.55 2,755.15 2,600.10 2,451.40 2,309.00 2,189.20 2,059.00 1,951.20 09/01/2005 2,992.40 2,827.45 2,669.00 2,517.00 2,371.35 2,248.30 2,115.10 2,004.35 03/01/2006 3,070.20 2,901.70 2,739.75 2,584.35 2,435.35 2,309.00 2,172.70 2,059.00 09/01/2006 3,150.05 2,977.85 2,812.35 2,653.45 2,501.10 2,371.35 2,231.95 2,115.10 03/01/2007 3,231,95 3,056.00 2,886.90 2,724.45 2,568.65 2,435.35 2,292.75 2,172,70 09/01/2007 3,315.95 3,136.25 2,963.40 2,797.30 2,638.00 2,501.10 2,355.25 2,231.95 03/01/2008 3,402.15 3,218.55 3,041.90 2,872.15 2,709.25 2,568,65 2,419.40 2,292.75 09/01/2008 3,490,65 3,303.05 3,122.50 2,949.00 2,782.40 2,638.00 2,485.35 2,355,25 03/01/2009 3,581.40 3,389.75 3,205.25 3,027.85 2,857,50 2,709,25 2,553,05 2,419.40 09/01/2009 3,674.50 3,478.75 3,290.20 3,108.85 2,934.65 2,782.40 2,622.65 2,485.35 03/01/2010 3,770.05 3,570.05 3,377.40 3,192.05 3,01390 2,857.50 2,694.10 2,553.05 09/01/2010 3,868.05 3,663.80 3,466.90 3,277.40 3,095.25 2,934.65 2,767.50 2,622.65 03/01/2011 3,968.65 3,759.95 3,558.80 3,365.10 3,178.85 3,013,90 2,842.95 2,694.10 09/01/2011 4,071.80 3,858.65 3,653.10 3,455,10 3,264.65 3,095.25 2,920.40 2,767.50 03/01/2012 4,177.70 3,959.95 3,749.90 3,547,55 3,352.80 3,178.85 3,000,00 2,842,95 09/01/2012 4,286.30 4,063,90 3,849.25 3,642.40 3,443.35 3,264.65 3,081.75 2,920.40 03/01/2013 4,397.75 4,170,55 3,951.25 3,739,85 3,536,30 3,352.80 3,165.70 3,000.00 09/01/2013 4,512,10 4,280,05 4,056.00 3,839.90 3,631.80 3,443,35 3,252.00 3,081.75 12-Jan-99 6:02 pm Prepared by Stone&Youngberg L,LC (4.11 1 Nfidptom:1999WO) Page 25 BOND ACCRETED VALUE TABLE MROSD- 1998/99 Financing Program 1999 Lease Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 09/01/2015 09/01/2016 09/01/2017 09/01/2018 09/01/2019 09/01/2020 09/01/2021 09/01/2022 Date 5.2% 5.25% 5.3% 5.35% 5.4% 5.4% 5.45% 5.45% 03/01/2014 4,629.40 4,392.40 4,163.45 3,942.60 3,729.85 3,536.30 3,340.60 3,165.70 09/01/2014 4,749.75 4,507.70 4,273.80 4,048.10 3,830.55 3,631.80 3,431.65 3,252.00 03/01/2015 4,873.25 4,626.05 4,387.05 4,156.35 3,934.00 3,729.85 3,525.15 3,340.60 09/01/2015 5,000.00 4,747.45 4,503.30 4,267.55 4,040.20 3,830.55 3,621.20 3,431.65 03/01/2016 4,87110 4,622.65 4,381.70 4,149.30 3,934,00 3,719.90 3,525.15 09/01/2016 5,000.00 4,745.15 4,498.90 4,261.35 4,040.20 3,821.25 3,621.20 03/01/2017 4,870.90 4,619.25 4,376.40 4,149.30 3,925A0 3,719.90 09/01/2017 5,000.00 4,742.85 4,494.55 4,261.35 4,032,35 3,821.25 03/01/2018 4,869.70 4,615,90 4,376.40 4,142.25 3,925,40 09/01/2018 5,000.00 4,740.55 4,494.55 4,255.10 4,032.35 03/01/2019 4,868.50 4,615.90 4,371.05 4,14125 09/01/2019 5,000.00 4,740.55 4,490.15 4,255.10 03/01/2020 4,868.50 4,612.55 4,371,05 09/01/2020 5,000.00 4,738.20 4,490.15 03/01/2021 4,867.35 4,612,55 09/01/2021 5,000.00 4,738.20 03/01/2022 4,867.35 09A01/2022 5,000.00 03/01/2023 09/01/2023 03/01/2024 09/01/2024 03/01/2025 09/01/2025 03/01/2026 09/01/2026 03/01/2027 09/01/2027 03/01/2028 09/01/2028 12-Jan-99 6:02 pm Prepared by Stone&Youngberg LLC (4.11IMidptom:1999WO) Page26 BOND ACCRETED VALUE TABLE MROSD- 1998/99 Financing Program 1999 Lease Serial CABs Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 09/01/2015 09/01/2016 09/01/2017 09/01/2018 09/01/2019 09/01/2020 09/01/2021 09/01/2022 Date 5.2% 5.25% 5.3% 5.35% 5.4% 5.4% 5.45% 5.45% 03/01/2029 09/01/2029 03/01/2030 09/01/2030 12-Jan-99 6:02 pm Prepared by Stone&Youngberg LLC (4.11IMidptom:1999WO) Page27 BOND ACCRETED VALUE TABLE MROSD - 1998/99 Financing Program 1999 Lease Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 09/01/2023 09/01/2024 09/01/2025 09/O1/2026 09/01/2027 09/01/2028 09/01/2029 09/01/2030 Date 5.45% 5.45% 5.45% 5.45% 5.5% 5.5% 5.5% 5.5% 01/28/1999 1,332.55 1,262.80 1,196.70 1,134.05 1,059.85 1,003.85 950.85 900.60 03/01/1999 1,339.15 1,269.05 1,202.60 1,139.65 1,065.10 1,008.85 955.60 905.10 09/01/1999 1,375.65 1,303.65 1,235.40 1,170.70 1,094.40 1,036.60 981.85 930.(X) 03/01/2000 1,413.15 1,339.15 1,269.05 1,202.60 1,124.50 1,065.10 1,008.85 955.60 09/01/2000 1,451.65 1,375.65 1,303,65 1,235.40 1,155.45 1,094.40 1,036.60 981.85 03/01/2001 1,491.20 1,413.15 1,339.15 1,269.05 1,187.20 1,124.50 1,065.10 1,008.85 09/01/2001 1,531.85 1,451.65 1,375.65 1,303.65 1,219.85 1,155.45 1,094.40 1,036.60 03/01/2002 1,573.60 1,491.20 1,413.15 1,339.15 1,253.40 1,187.20 1,124.50 1,065.10 09/01/2002 1,616.45 1,531.85 1,451.65 1,375.65 1,287.85 1,219.85 1,155.45 1,094.40 03/01/2003 1,660.50 1,573.60 1,491.20 1,413.15 1,323.30 1,253.40 1,187.20 1,124,50 09/01/2003 1,705.75 1,616.45 1,531,85 1,451.65 1,359.65 1,287.85 1,219.85 1,155.45 03/01/2004 1,752.25 1,660.50 1,573.60 1,491,20 1,397.05 1,323.30 1,253.40 1,187.20 09/01/2004 1,800 00 1,705.75 1,616.45 1,531.85 1,435.50 1,359,65 1,287,85 1,219.85 03/01/2005 1,849.05 1,752.25 1,660.50 1,573.60 1,474.95 1,397.05 1,323.30 1,253.40 09/01/2005 1,899.45 1,800.00 1,705.75 1,616.45 1,515.50 1,435.50 1,359.65 1,287.85 03/01/2006 1,951.20 1,849.05 1,752.25 1,660.50 1,557.20 1,474.95 1,397.05 1,323.30 09/01/2006 2,004.35 1,899.45 1,800.00 1,705.75 1,600.00 1,515.50 1,435,50 1,359.65 03/01/2007 2,059.00 1,951.20 1,849.05 1,752,25 1,644.00 1,557.20 1,474.95 1,397.05 09/01/2007 2,115.10 2,004.35 1,899.45 1,800.00 1,689.25 1,600.00 1,515.50 1,435,50 03/01/2008 2,172.70 2,059.00 1,951.20 1,849.05 1,735.70 1,644.00 1,557.20 1,474.95 09/01/2008 2,231.95 2,115.10 2,004.35 1,899.45 1,783.40 1,689.25 1,600.00 1,515.50 03/01/2009 2,292.75 2,172.70 2,059.00 1,951.20 1,832.45 1,735.70 1,644.00 1,557.20 09/01/2009 2,355.25 2,231.95 2,115.10 2,004.35 1,882.85 1,783.40 1,689.25 1,600.00 03/01/2010 2,419.40 2,292.75 2,172.70 2,059.00 1,934.65 1,832.45 1,735.70 1,644.00 09/01/2010 2,485.35 2,355.25 2,231.95 2,115.10 1,987.85 1,882.85 1,783.40 1,689.25 03/01/2011 2,553.05 2,419A0 2,292.75 2,172.70 2,042.50 1,934.65 1,832.45 1,735.70 09/01/2011 2,622.65 2,485.35 2,355.25 2,23195 2,098.70 1,987.85 1,882,85 1,783.40 03/01/2012 2,694.10 2,553.05 2,419.40 2,292.75 2,156.40 2,042.50 1,934.65 1,832.45 09/01/2012 2,767.50 2,622.65 2,485.35 2,355.25 2,215.70 2,098.70 1,987.85 1,882.85 03/01/2013 2,842.95 2,694.10 2,553.05 2,419.40 2,276.65 2,156.40 2,042.50 1,934.65 09/01/2013 2,920.40 2,767.50 2,622.65 2,485.35 2,339.25 2,215.70 2,098.70 1,98T85 12-7an-99 6:02 pm Prepared by Stone&Youngberg LLC (4.11 1 Midptom:1999WO) Page 29 BOND ACCRETED VALUE TABLE MROSD- 1998/99 Financing Program 1999 Lease Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 09/01/2023 09/01/2024 09/01/2025 09/01/2026 09/01/2027 09/01/2028 09/01/2029 09/01/2030 Date 5.45% 5.45% 5.45% 5.45% 5.5% 5.5% 5.5% 5.5% 03/01/2014 3,000.00 2,842.95 2,694,10 2,553.05 2,403.55 2,276.65 2,156.40 2,042.50 09/01/2014 3,081.75 2,920.40 2,767,50 2,622.65 2,469.65 2,339.25 2,215,70 2,098.70 03/01/2015 3,165.70 3,000.00 2,842.95 2,694.10 2,53T60 2,403.55 2,276.65 2,156.40 09/01/2015 3,252.00 3,081.75 2,920.40 2,767.50 2,607.35 2,469.65 2,339.25 2,215.70 03/O1/2016 3,340.60 3,165.70 3,000.00 2,842.95 2,679,05 2,537.60 2,403.55 2,276.65 09/01/2016 3,431.65 3,252.00 3,081.75 2,920,40 2,752.75 2,607.35 2,469.65 2,339.25 03/01/2017 3,525.15 3,340.60 3,165.70 3,000.00 2,828.45 2,679.05 2,537.60 2,403.55 09/01/2017 3,621.20 3,431.65 3,252.00 3,081.75 2,906.25 2,752.75 2,607.35 2,469.65 03/01/2018 3,719.90 3,525.15 3,340.60 3,165.70 2,986.15 2,828.45 2,679.05 2,53T60 09/01/2018 3,821.25 3,621.20 3,431,65 3,252.00 3,068.25 2,906.25 2,752.75 2,607.35 03/01/2019 3,925.40 3,719.90 3,525.15 3,340.60 3,152.65 2,986.15 2,828.45 2,679.05 09/01/2019 4,032.35 3,821.25 3,621.20 3,431.65 3,239.35 3,068.25 2,906.25 2,752.75 03/01/2020 4,142.25 3,925.40 3,719.90 3,525.15 3,328.45 3,152.65 2,986.15 2,828.45 09/01/2020 4,255.10 4,032.35 3,821.25 3,621.20 3,419.95 3,239.35 3,068,25 2,906.25 03/01/2021 4,371.05 4,142.25 3,925.40 3,719.90 3,514.00 3,328.45 3,152,65 2,986.15 09/01/2021 4,490.15 4,255.10 4,032.35 3,821.25 3,610.65 3,419.95 3,239,35 3,068.25 03/01/2022 4,612.55 4,371.05 4,142.25 3,925.40 3,709.95 3,514.00 3,328.45 3,152.65 09/01/2022 4,738.20 4,490.15 4,255.10 4,032.35 3,811,95 3,610.65 3,419.95 3,239.35 03/01/2023 4,867.35 4,612,55 4,371.05 4,142.25 3,916.80 3,709.95 3,514.00 3,328.45 09/01/2023 5,000.00 4,738,20 4,490.15 4,255.10 4,024.50 3,811.95 3,610.65 3,41995 03/01/2024 4,867.35 4,612.55 4,371.05 4,135.20 3,916.80 3,709.95 3,514.00 09/01/2024 5,000,00 4,738.20 4,490.15 4,248.90 4,024,50 3,811.95 3,610.65 03/01/2025 4,867,35 4,612.55 4,365.75 4,135.20 3,916.80 3,709,95 09/01/2025 5,000.00 4,738.20 4,485.80 4,248.90 4,024.50 3,811,95 03/01/2026 4,867.35 4,609.15 4,365.75 4,135.20 3,916.80 09/01/2026 5,000.00 4,735.90 4,485.80 4,248.90 4,024.50 03/01/2027 4,866.15 4,609.15 4,365.75 4,135.20 09/01/2027 5,000.00 4,735.90 4,485.80 4,248,90 03/01/2028 4,866.15 4,609.15 4,365.75 09/01/2028 5,000.00 4,735.90 4,485.80 12-Jan-99 6:02 pm Prepared by Stone&Youngberg LLC (4.11 1 Midptom:1999WO) Page 29 BOND ACCRETED VALUE TABLE MROSD - 1998/99 Financing Program 1999 Lease Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS Serial CABS due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 due 2018 09/01/2023 09/01/2024 09/01/2025 09/01/2026 09/01/2027 09/01/2028 09/01/2029 09/01/2030 Date 5.45% 5.45% 5.45% 5.45% 5.5% 5.5% 5.5% 5.5% 03/01/2029 4,866.15 4,609.15 09/01/2029 5,000.00 4,735.90 03/01/2030 4,866.15 09/01/2030 5,000.00 12-7an•99 6:02 pm Prepared by Stone&Youngberg LLC 4.111 Midptom:1999WO) Page 30 s PREL ARY OFFICIAL STATE4IEN7 DATED,L ABY 11. 199,Q r. g , NEW ISSUF—BOOX-ENTRY ONLY RATINGS Moodys Ass -� • S&P AAA °$ Ambsc insured See "Rating" n In the opinion of Orrick, Herrington sit Sutcliffe LLr. Bond Counsel, based on existing laws, regulations. rulings and court decisions and assuming, annong other matters, compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code and is exempt front Stare of California personal income eases. in the opinion of Bond Counsel, interest on the Bonds is not a specific preference item for purposes of federal individual or corporate alternative minimum taxes,although �1 Bond Counsel observes that such interest is included In adjusted current earnings in calculating federal corporate alternative minimum taxable a 8 4 income. Bond Counsel expresses no opinion regarding other federal or state income tax consequences n/arbig to the ownership or disposition of, ? or the accrual or receipt of Interest on, the Bonds. See"TAX MATTERS". �= 1 $15 920a137-69 s MIDPENINSULA REGIONAL OPEN SPACE DISTRICT FINANCING AUTHORITY 0" REVENUE BONDS 181 Dated:Date of Delivery Due:September 1,u shown below oThe Bonds sro being issued to enable the Midpeaituula Regional Upon Space District Financing Authority(the"Authonty") to scquire s certain Project Lease (the"19N Lease")from tht Midpenituula Regional Open Space District (the"District"),Xhirh"will assist the Distract in acquiring land to preserve and use as open space-and in refundi"oertain outstanding obligations of the District and in purchase a reserve fund surety policy and pay costs of issuance of the Bonds. .3 The CurTentlutcricst Bonds will bear interest payable on March 1 and September 1 of each year,commencing September 1. 1999. er Thi-rraanaal Apprerintinn Annr s will nnrretp inu��r frnm their d�tr rnm�n ti�d�nit MArrh I and Sent rnhnr 1 f lArh vettr rnmmrnring S Marc 1944 .� The Bonds will be initially delivered only in book-entry form. registered to Cede k Co. as nominee of c Depository'!lust Company El ("DTC").Pnnapal of the Bonds will be payable at the prinapal corporate trust office of BNY Western Trust Company(the"Mustee"),in;.M n�California,to DTC,which will act as initial securities depository for the Bonds. Individual purchases will be made in book-entry only form in the principal amount of S5,000 or integral multiples thereof. Purchasen of the Bonds will not receive instruments representing their • ^ interests in the Bonds.See"THE BONDS—Ptwr*don of the Bowde" and"—Boole-Entry Only Sys w L" q prior to mist ut See OM BONDS—Riedemptfon". 15 t5.� The Bonds are stab/set to opriatsef tawdpfmlflrOQill/i=r�ederwptfow p t1t 3 _ The payment of principal and Interest on the Bonds vn'11 be made from"Revenues",consisting principally of payments to be made by the '$ a Distnct under the 1999 Lease+"hiri,,*;w"ntA Are�`rM t to AnnuAl,�m�n�tinn at &tcr,t�hrm-'q The Pull faith and credit of the District s not p or the payment of the I9-N T Pace and the 1999 Lease is cot secured by any pledge of property of the Distnct or any of its jags. Payment of the principal of and interest on the Bonds when due will be insured by a municipal bond insurance policy to be issued by Ambac $ Assurance Corporation simultaneously with the delivery of the Roods. See"MUNICIPAL BOND INSURANCE FOR THE BONDS". �� And' The Boris an special obligations of the Autheelty payable sokly fmn the Revenues and speclfle funds and accounts.The Bonds are not a debt or liability of the District.thepovnties of Soma ciao and San Mateo,the State of CaWwule or any other political subdivision thereof, q a other than the Authotitst.Nose of dwee setWee is obligated to pay the principal of the clouds,or the interest thereon,except fwm the funds c fi described above,and neither the bath sal Ma credit am the taxing power of any of than Is pledged to such payment The Issuance of the Bonds shall not directiy, IodIseedy or co dnileaft obligate any entity to levy or pledge any font of tasadon or nuke any appropriations for their $ E. psyment.te Authoritrlisa cep taxing}owes 6 $ This cover page contains certain information for general reference only.11 is nor a summary of this issue.Investors are advised to read the entire gOfficial Statement to obtain informstlon essential to the making of an informed Investment decision. MATURM SCHEDULE* c Cumnt laterest Bonds Maturing September 1 Maturity Interest Prieti Mammy totereat Meet t tote hi� Rene View Data Pri_ ad el Rate Ykm 'v _ % $ 96 % C E E Capital AppredaMor Bonds Matwfrtg September I $ MYartay A�pq ate Accreted Yiem to Date W, Asarerr Vales Marwhy 91.9 The Bonds are offered when, as and if issued, subject to the approval of validity of the Bondi by Orrick, Herrington do Sutcliffe Liar San $m Francisco, California. Certain legal marten will be passed upon for the Authority and the District by their legal counsel,and for the Underwriter by Foley & Lardner. It Is expected that the Bonds will be available for delivery through the facilities of DTC on or about lanuary 2.J 1999. s • _ Stone & Youngberg LLC S • Preliminary,subject to change MIDPENINSULA REGIONAL OPEN SPACE DISTRICT FINANCING AUTHORITY Authority Governing Board BETSY CROWDER JED CYR MARY DAVEY KEN NITZ JOE SIMITIAN MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Board of Directors BETSY CROWDER, President JED CYR, Vice President KEN NITZ, Treasurer PETE SIEMENS, Secretary MARY DAVEY, Member DEANE LITTLE, Member NONETTE HANKO, Member District Staff L. CRAIG BRITTON, General Manager MICHAEL L. FOSTER, Controller SUSAN SCHECTMAN, ESQ., District Legal Counsel SPECIAL SERVICES Bond Counsel Orrick, Herrington & Sutcliffe LLP San Francisco, California Escrow Verification Causey, Demgen & Moore, Inc. Denver, Colorado Trustee BNY Western Trust Company Los Angeles, California Iv No dealer, broker, salesperson or other person has been authorized by the Author- ity, the District or the Underwriter to give 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 the Authority, the District or the Underwriter. This Official Statement does not constitute an offer to sell or the solicita- tion of an offer to buy nor will there be any sale of the Bonds by any person in any ju- risdiction 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. Statements contained in this Official Statement which involve estimates, forecasts, projections or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation of facts. The information set forth herein has been obtained from the District and from other sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the Underwriter. The information and expressions of opinion herein are subject to change without no- tice and neither delivery of this Official Statement nor any sale made hereunder will, under any circumstances, create any implication that there has been no change in the affairs of the District or the Counties of San Mateo and Santa Clara since the date hereof. All of the summaries contained herein of the authorizing Trust Agreement and other documents referred to herein are made subject to the provisions of such docu- ments respectively, and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the Authority and the District for further information in connection therewith. All capitalized terms used herein and not normally capitalized have the meanings assigned to them in the Trust Agreement, unless otherwise stated in this Official Statement. IN CONNECTION WITH THIS OFFICIAL STATEMENT, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE AND 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 ANYTIME. 7V MAP TABLE OF CONTENTS INTRODUCTION 1 THE FINANCING PLAN 2 ESTIMATED SOURCES AND USES OF FUNDS 2 ESTIMATED DEBT SERVICE 2 THE BONDS 3 Authority for Issuance 3 Description of the Bonds 3 Current Interest Bonds 3 Capital Appreciation Bonds 4 Redemption 4 Selection of Bonds for Redemption 5 Notice of Redemption 5 Effect of Redemption and Notice 5 Transfer and Exchange 5 Book-Entry Only System 5 MUNICIPAL BOND INSURANCE FOR THE BONDS 7 The Bond Insurer 8 Available Information 8 Incorporation of Certain Documents by Reference 9 SECURITY AND SOURCE OF PAYMENT 9 The 1999 Lease 9 Remedies 10 Surety Reserve 11 Parity Obligations/Senior Lien Obligations 11 THE TRUST AGREEMENT 12 Interest Account 12 Redemption Account 12 Reserve Account 13 Rebate Fund 13 Investment of Moneys in Funds and Accounts 13 Covenants of the Authority 13 District Covenants and Additional Debt 14 THE AUTHORITY 15 THE DISTRICT 15 Location and Size 15 Management 16 Objectives and Operations 16 ESTIMATED REVENUES AND OUTSTANDING OBLIGATIONS 17 General 17 Property Tax Limitation and Allocation 17 Property Tax Collection Procedures 17 Assessed Valuation 18 Secured and Unsecured Tax Levies 18 Projected Revenues 20 Estimated Debt Service Coverage 20 Direct and Overlapping Bonded Indebtedness 21 DISTRICT FINANCIAL INFORMATION 22 Method of Accounting 22 District Financial Statements 22 Debt Capacity/Additional Debt 23 Sources of Funds 23 Other Outstanding Debt 24 Salaries and Benefits 24 CONSTITUTIONAL AND STATUTORY TAX LIMITATIONS 24 Constitutional Limitations-Article XIIIA 24 Gann Initiative 25 Proposition 62 25 Proposition 218 25 Future Initiatives 26 CERTAIN INVESTMENT CONSIDERATIONS 26 Bankruptcy and Limitations on Remedies 26 No Assurance of Secondary Market for the Bonds 27 Year 2000 Concerns 27 LEGAL MATTERS 28 TAX MATTERS 29 LEGALITY FOR INVESTMENT 30 RATINGS 30 LITIGATION 30 UNDERWRITING 30 CONTINUING DISCLOSURE 30 AVAILABILITY OF DOCUMENTS 31 MISCELLANEOUS 31 APPENDIX A: DISTRICT'S AUDITED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31 1998,AND MARCH 31, 1997 APPENDIX B: GENERAL AND ECONOMIC INFORMATION SANTA CLARA COUNTY AND SAN MATEO COUNTY APPENDIX C: PROPOSED FORM OF BOND COUNSEL OPINION APPENDIX D: FORM OF CONTINUING DISCLOSURE AGREEMENT APPENDIX E: TABLE OF ACCRETED VALUES APPENDIX F: SPECIMEN INSURANCE POLICY $25,590,137.65* MIDPENINSULA REGIONAL OPEN SPACE DISTRICT FINANCING AUTHORITY 1999 REVENUE BONDS INTRODUCTION This Official Statement, including the cover page and the appendices hereto (the "Official State- ment") provides information in connection with the sale of $25,590,137.65* aggregate principal amount of Midpeninsula Regional Open Space District Financing Authority 1999 Revenue Bonds (the "Bonds") being issued pursuant to a Trust Agreement, dated as of January 1, 1999 (the "Trust Agreement"), between the Midpeninsula Regional Open Space Financing Authority (the "Authority") and BNY Western Trust Company, as trustee (the "Trustee"). The sale of the Bonds will enable the Authority to enter into a Project Lease (as defined below) with the Midpeninsula Regional Open Space District (the "District") to (i) help the District acquire land to preserve and use as open space, (ii) refund certain outstanding obligations of the District, (iii) provide for a reserve fund surety bond, and (iv) pay costs of issuance of the Bonds. In 1996, the Authority was established under a Joint Exercise of Powers Agreement between the District and the County of Santa Clara, pursuant to Chapter 5, Division 7 of Title 1 of the Govern- ment Code of the State of California (the "Act"). The Authority was created in part to help the Dis- trict finance public capital improvements through the acquisition and/or construction of real and personal property for sale or lease to the District, with the power to issue and deliver bonds as authorized under the Act and to purchase bonds or other obligations of the District. The President of the Board of Directors of the District serves as the Chairperson of the Board of Directors of the Authority. Three members of the Board of Directors of the District, appointed by the President, and the member of the Board of Supervisors of the County whose district encompasses the greatest ter- ritory of the District are also members of the Governing Board of the Authority. The District, established by the voters in 1972, includes approximately 330 square miles of land within Santa Clara County and San Mateo County (collectively, the "Counties") on the peninsula south of San Francisco, California, plus approximately 1.2 square miles of land in Santa Cruz County. The 1998 population of the District is approximately 650,000. District policies are the re- sponsibility of a seven-member Board of Directors elected from seven wards within the District. The payment of principal and interest on the Bonds will be secured under the Trust Agreement by the Revenues. The Revenues consist principally of payments to be made by the District to the Authority pursuant to a Project Lease, dated as of January 1, 1999, by and between the District and the Authority (the "1999 Lease"), from any funds legally available therefor. The District has cove- nanted under the 1999 Lease to take such action as may be necessary to include all rental payments in its annual budget and to make the necessary annual appropriations for the rental payments. The District's primary source of revenue is property tax revenues. The amount of property tax revenues allocated to the District is primarily a function of the assessed value of properties in the District, the rates at which such properties are taxed by the Counties and the allocation formula ap- plied to property tax revenues. The reduction of assessed values of taxable property in the District caused by economic factors beyond the District's control, or the complete or partial destruction of such property, or a change in the property tax rates or in the property tax allocation formula estab- lished by California law could cause a reduction in revenues of the District. Such reduction of revenues could have an adverse effect on the District's ability and, therefore, the Authority's abil- ity, to make timely payments on the 1999 Lease and on the Bonds, respectively. Likewise, delin- quencies in the payment of property taxes could have an adverse effect on the District's ability to make timely payments on the 1999 Lease. Furthermore, the obligation of the District to appropriate and pay rental payments under the 1999 Lease will be subordinate to the obligation of the District to apply revenues to make payment on senior lien debt. The District has other indebtedness and 1 lease obligations subordinate to senior debt payable from its general revenues as described under "ESTIMATED REVENUES AND OUTSTANDING OBLIGATIONS" and "DISTRICT FINANCIAL INFORMATION". With the exception of the audited financial statements of the District for the year ended March 31, 1998, contained in APPENDix A, the financial and statistical information contained herein has been obtained from the records of the District and from certain other sources, and such finan- cial information has not been audited or reviewed by the independent auditors for the District. There is no assurance that the numbers contained in the financial projections contained herein will be met, or that the assumptions on which such projections were made will conform to actual expe- rience. If actual experience should deviate significantly from the assumptions upon which such projections were made, the moneys available to the District may be insufficient to make such pay- ments on the 1999 Lease which could then produce insufficient Revenue for the Authority to make the payment of the principal of, redemption premium, if any, and interest on the Bonds. THE FINANCING PLAN The Bonds are being issued to provide the funds needed to (i) assist the District in acquiring land to preserve and use as open space, (ii) refund certain outstanding obligations of the District, (iii) provide for a reserve fund surety bond and (iv) pay costs of issuance of the Bonds. The Authority will use a portion of the Bond proceeds to acquire from the District the 1999 Lease. The District will apply the funds received from the Authority to refinance or finance the cost of acquisition of land for open space for the District and to refund all of the District's outstanding notes issued in 1992, maturing through July 1, 2012 (the "1992 Notes"), in the original aggregate principal amount of $8,000,000, and currently outstanding in the aggregate principal amount of $7,345,000. All 1992 Notes which have not matured on or prior to July 1, 2002, are scheduled to be redeemed on that date at a redemption price equal to 102% of the unpaid principal thereof and un- paid interest thereon accrued to said date. The proceeds of the 1992 Notes were used by the Dis- trict to acquire land to preserve and use as open space. ESTIMATED SOURCES AND USES OF FUNDS SOURCES Principal Amount of Bonds Proceeds of the (Less Original Issue Discount(1)) sale of the Bonds, to- Funds and Accounts of Prior District Notes gether with other sources TOTAL SOURCES of funds, are expected to USES Project Fund be applied as indicated by Refunding Escrow Deposit Reserve Fund Surety Bond Premium the estimates shown in Cost of Issuance(Including Bond Insurance premium) this table: Underwriter's Discount TOTAL USES (1) See"TAx MATTERS". ESTIMATED DEBT SERVICE The table on the next page sets forth estimated annual debt service on the Bonds. 2 (FOR FISCAL YEARS ENDING MARCH 3 1) YEAR PRINCIPAL INTEREST TOTAL YEAR PRINCIPAL INTEREST TOTAL 1999 $ --- $ --- $ 2016 $ 782,964.30 $ 1,082,035.70 $ 1,865,000,00 2000 --- 632,656.32 632,656.32 2017 780,922.80 1,179,077.20 1,960,000.00 2001 325,000.00 574,088.75 899,088.75 2018 777,036.60 1,277,963,40 2,055,000.00 2002 380,000.00 562,090.00 942,090.00 2019 773,321.75 1,381,678.25 2,155,000.00 2003 445,000.00 547,525.00 992,525.00 2020 757,726.00 1,512,274,00 2,270,000,00 2004 510,000.00 530,080.00 1,040,080.00 2021 753,222.40 1,626,777.60 2,380,000.00 2005 580,000.00 509,625.00 1,089,625.00 2022 750,150.00 1,749,850.00 2,500,000.00 2006 655,000.00 485,832,50 1,140,832.50 2023 745,363.80 1,874,636.20 2,620,000,00 2007 745,000.00 458,346.25 1,203,346.25 2024 743,078.60 2,011,921.40 2,755,000.00 2008 835,000.00 426,723.75 1,261,723.75 2025 739,059.70 2,150,940.30 2,890,000.00 2009 935,000.00 390,413.75 1,325,413.75 2026 735,866.10 2,299,133.90 3,035,000.00 2010 1,040,000.00 348,912.50 1,388,912.50 2027 733,317.20 2,456,682.80 3,190,000.00 2011 1,155,000.00 301,691,25 1,456,691.25 2028 729,042.75 2,615,957.25 3,345,000.00 2012 1,285,000.00 247,978.75 1,532,978.75 2029 726,339.60 2,788,660.40 3,515,000,00 2013 1,425,000.00 186,968.75 1,611,968.75 2030 722,944.80 2,967,055.20 3,690,000-00 2014 1,570,000,00 118,047.55 1,688,04T50 2031 719,781.25 3,155,218.75 3,875,000.00 2015 1,735,000.00 40,772.50 1,775,772.50 THE BONDS Authority for Issuance The issuance of the Bonds by the Authority is authorized pursuant to the Act and the Trust Agreement. With the proceeds of the Bonds, the Authority will acquire the 1999 Lease. Rental payments by the District under the 1999 Lease will constitute "Revenues" as defined in the Trust Agreement. The 1999 Lease has been executed and delivered pursuant to a resolution of the Dis- trict. The District is authorized by California law to lease real property for open space purposes. Description of the Bonds The Bonds will bear interest at the rates and mature in the amounts and on the dates set forth on the cover page of this Official Statement. The Bonds in the aggregate principal amount of $25,590,137.65* will be issued as fully registered bonds in the denominations of $5,000 each or any integral multiple thereof with respect to the Current Interest Bonds and in the denominations such that the Accreted Value represented thereby on the stated maturity date will be $5,000 or any inte- gral multiple thereof with respect to the Capital Appreciation Bonds. Principal of and premium, if any, on the Bonds will be payable at the Corporate Trust Office of the Trustee in Los Angeles, Cali- fornia, to The Depository Trust Company, New York, New York ("DTC"), which will in turn remit such principal and interest to its participants for subsequent disbursement to Owners. See "Book- Entry Only System". Current Interest Bonds Interest on the Current Interest Bonds is payable on March 1 and September 1 of each year (each an "Interest Payment Date"), commencing September 1, 1999, by check mailed to the Owners whose names appear on the registration books of the Trustee as of the close of business on the fifteenth day of the month immediately preceding each Interest Payment Date (each, a "Record Date"); but interest shall be paid by wire transfer to any owner of Bonds in the aggregate principal amount of $1,000,000 or more upon the written request of such owner to the Trustee prior to the Record Date. So long as Cede & Co. is the Owner of all of the Bonds, interest payments will be made by the Trus- tee by wire transfer to DTC in immediately available funds. Each Current Interest Bond will be dated as of the Delivery Date, and will bear interest (calcu- lated on the basis of a 360-day year comprised of twelve 30-day months) from the Interest Payment 3 Date next preceding the date of authentication thereof, unless (i) it is authenticated after a Record Date and on or before the following Interest Payment Date, in which event it will bear interest from such Interest Payment Date; or (ii) it is authenticated on or before August 15, 1999, in which event it will bear interest from the Delivery Date; but if, as of the date of authentication of any Current Interest Bond, interest thereon is in default, such Current Interest Bond will bear interest from the Interest Payment Date to which interest thereon has previously been paid or made available for payment. Capital Appreciation Bonds The Capital Appreciation Bonds will be dated as of the Delivery Date and are payable at maturity or upon prior redemption in an amount (their "Accreted Value") equal to the initial amount of such Bonds as shown on the cover page hereof, plus compounded interest thereon from the date of such Bonds, compounded on each Compounding Date, being March 1 and September 1 of each year, commencing March 1, 1999. Interest on the Capital Appreciation Bonds will be payable at maturity or prior redemption upon presentation and surrender at the Corporate Trust Office of the Trustee to DTC, which will in turn remit such accreted value to its participants for subsequent disburse- ment to Owners. The Accreted Value per $5,000 maturity amount of each Capital Appreciation Bond, as of the Delivery Date and as of each Compounding Date thereafter, is shown in the Table of Accreted Val- ues (the "Table of Accreted Values") attached hereto as APPENDix E. "Accreted Value" means, with respect to any Capital Appreciation Bond, (a) on any Compounding Date, the amount set forth oppo- site such Compounding Date on the Table of Accreted Values which is included in APPENM E, (b) on any date between the Delivery Date and the first Compounding Date, the amount determined on the basis of straight-line interpolation between the Delivery Date and such Compounding Date (based on a 360-day year and twelve 30-day months), and (c) on any date which is between two Com- pounding Dates (based on a 360-day year and twelve 30-day months), the amount determined on the basis of straight-line interpolation between such date and such Compounding Dates. Redemption Optional Redemption. The Bonds maturing on or after September 1, 2010, are subject to op- tional redemption by the Authority on any Interest Payment Date or Compounding Date (as applica- ble) on or after September 1, 2009, and prior to their respective maturity dates, as OPTIONAL REDEMPTION DATES PRICE(%PRINCIPAL) a whole, or in part in integral multiples of $5,000 principal amount (or Accreted September 1,2009,and March 1,2010 102% Value thereof in the case of the Capital September 1,2010 and March 1,2011 101% Appreciation Bonds), from maturities se- September 1,2011 and thereafter 100% lected by the Authority (and by lot within any one maturity if less than all the Bonds of any one maturity are redeemed), from any legally available funds of the Authority, at a redemption price expressed as a percentage of the principal amount of the Bonds or the portions thereof called for redemption, together with accrued interest thereon to the date of redemption, as shown in the table above. Extraordinary Redemption. The Bonds are subject to redemption on or prior to their respective maturities, upon notice, as a whole on any date, or in part by lot on any Interest Payment Date or Compounding Date (as applicable) in integral multiples of $5,000 principal amount (or Accreted Value thereof in the case of the Capital Appreciation Bonds) so that the aggregate annual amounts of Base Rental Payments which will be payable after such redemption date will be as nearly propor- tional as practicable to the aggregate annual amounts of the then unpaid Base Rental Payments due under the 1999 Lease, from prepaid rental payments made by the District from funds received by the District due to a governmental taking of the Project, or portions thereof, by eminent domain proceedings, which is subject to the 1999 Lease, at a redemption price equal to the sum of the prin- cipal amount (or Accreted Value) plus accrued interest thereon to the date fixed for redemption, without premium. 4 Selection of Bonds for Redemption When less than all of the Bonds of any one maturity date are to be redeemed, the Trustee will select the outstanding Bonds or the portions thereof for redemption by lot in any manner that it deems fair. Notice of Redemption The Trustee is required to give mailed notice of redemption of any Bonds to the registered own- ers of the Bonds called in whole or in part and to various securities depositories and securities in- formation services at least 30, but not more than 60, days prior to the redemption date; but neither failure to receive any such notice nor any immaterial defect contained therein will affect the re- demption of such Bonds. So long as the Book-Entry Only System is used for the Bonds, the Trustee will give any notice of redemption or any other notices required to be given to Owners only to DTC. Any failure of DTC to advise any DTC Participant, or of any DTC Participant to notify the Beneficial Owner, of any such notice and its content or effect will not affect the validity of the redemption of the Bonds called for redemption or any other action premised on such notice. Beneficial Owners may desire to make ar- rangements with a DTC Participant so that all notices of redemption or other communications to DTC which affect such Beneficial Owners, including notification of all interest payments, will be forwarded in writing by such DTC Participant. See "THE BONDS - Book-Entry Only System". Effect of Redemption and Notice If a notice of redemption of any Bonds to be redeemed has been properly given and money to pay the redemption price of such Bonds is held by the Trustee, then on the redemption date desig- nated in such notice such Bonds so called for redemption shall become due and payable, and from and after the date so designated interest on such Bonds shall cease to accrue, and the Holders of such Bonds shall have no rights in respect thereof except to receive payment of the redemption price. Transfer and Exchange The Bonds are transferable by the registered owner thereof, in person or by duly authorized at- torney, at the principal corporate trust office of the Trustee in Los Angeles, California, upon sur- render thereof for cancellation accompanied by a duly executed written instrument of transfer on a form approved by the Trustee, and thereupon a new Bond or Bonds will be issued to the transferee in exchange therefor, in the manner, subject to the conditions and upon payment of any tax or gov- ernmental charge required to be paid with respect to such transfer. Book-Entry Only System DTC will act as securities depository for the Bonds. The Bonds will be executed and delivered as fully-registered notes registered in the name of Cede & Co. (DTC's partnership nominee). One fully- registered Bond will be executed and delivered for each maturity of the Bonds, each in the aggregate principal amount or Accreted Value due on such maturity date, and will be deposited with DTC. The following information has been provided by DTC and neither the District nor the Authority makes any representation as to its accuracy or completeness. For further information, DTC may be contacted in New York, New York. DTC is a limited purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Ex- change Act of 1934. DTC holds securities that its participants ("DTC Participants") deposit with DTC. DTC also facilitates the settlement among DTC Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in DTC Participants' accounts, thereby eliminating the need for physical movement of securities certificates. "Direct Participants" include securities brokers and dealers, banks, trust companies, 5 clearing corporations and certain other organizations. DTC is owned by a number of its Direct Par- ticipants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the Na- tional Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks, and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). The Rules applicable to DTC and its participants are on file with the Securities and Exchange Com- mission. Purchases of Bonds under the DTC 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 Par- ticipants' records. Beneficial Owners will not receive written confirmation from DTC of theirFothernotices ED BOOK-ENTRY RESPONSIBILITIES purchase, but Beneficial Owners are expected to receive written confirmations providing details as a book-entry only system is used for the of the transaction, as well as periodic statementsrustee will send any notice of redemption or of their holdings, from the Direct or Indirect Par to holders only to DTC. Any failure of DTC ticipant through which the Beneficial Owner en- to advise any DTC Participant, or of any DTC Participant tered into the transaction. Transfers of owner- to notify any Beneficial Owner, of any notice and its con- ship interests in the Bonds are to be accom- tent or effect will not affect the validity or sufficiency of the plished by entries made on the books of DTC proceedings relating to the redemption of the Bonds Participants acting on behalf of Beneficial Own- called for redemption or of any other action premised on ers. Beneficial Owners will not receive Bonds such notice. representing their ownership interests, unless use of the book-entry system for the Bonds is The Authority, the District, the Trustee and the Un- derwriter have no responsibility or liability for any aspects discontinued. of the records relating to or payments made on account of To facilitate subsequent transfers, all Bonds beneficial ownership, or for maintaining, supervising or deposited by DTC Participants with DTC are reviewing any records relating to beneficial ownership of registered in the name of DTC's partnership interests in the Bonds. nominee, Cede & Co. The deposit of Bonds with DTC and their registration in the name of Cede & The Authority, the District, the Trustee and the Un- Co. effect no change in beneficial ownership. derwriter cannot and do not give any assurances that DTC DTC has no knowledge of the actual Beneficial will distribute payments to DTC Participants or that DTC Owners of the Bonds; DTC's records reflect only Participants or others will distribute payments with respect the identity of the Direct Participants to whose to the Bonds received by DTC or its nominees as the accounts such Bonds are credited, which may or holder or any redemption notices or other notices to the may not be the Beneficial Owners. The DTC Par- beneficial holders, or that they will do so on a timely ba- ticipants will remain responsible for keeping ac- sis, or that DTC will serve and act in the manner de- count of their holdings on behalf of their cus- scribed in this Official Statement. tomers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Par- ticipants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory re- quirements as may be in effect from time to time. Neither DTC nor Cede & Co. will consent or vote with respect to the Bonds. Under its usual pro- cedures, DTC mails an Omnibus Proxy to the issuer of the securities 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 at- tached to the Omnibus Proxy). Principal and interest payments and premium, if any, with respect to the Bonds will be made to DTC. DTC's practice is to credit Direct Participants' accounts on the payable date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payment on the payable date. Payments by DTC Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the respon- 6 sibility of such DTC Participant and not of DTC, the Trustee or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of the Trustee; 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 Trustee and the Authority. Under such circumstances, in the event that a successor securities depository is not obtained, physical notes are required to be printed and delivered as described in the Trust Agreement. If the Authority and the Trustee determine not to continue the DTC book-entry only system or DTC determines to discontinue its services with respect to the Bonds and the District does not se- lect another qualified securities depository, the Authority will deliver one or more Bonds in such principal amount or amounts, in authorized denominations, and registered in whatever name or names, as DTC will designate. In such event, transfers and exchanges of Bonds will be governed by the provisions of the Trust Agreement. DTC's operations may be affected by "Year 2000" and related computer processing issues. See "CERTAIN INVESTMENT CONSIDERATIONS- Year 2000 Concerns - DTC". The foregoing description of the procedures and record keeping with respect to beneficial own- ership interests in the Bonds, payment of principal of, redemption premium, if any, and interest on the Bonds to DTC, DTC Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the Bonds and other related transactions by and between DTC, DTC Partici- pants and the Beneficial Owners is based solely on the Authority's and the Trustee's understanding of such procedures and record keeping from information provided by DTC. Accordingly, no repre- sentations can be made concerning these matters, and neither DTC, DTC Participants nor the Bene- ficial Owners should rely on the foregoing information with respect to such matters, but should in- stead confirm the same with DTC or DTC Participants, as the case may be. The Authority and the Trustee understand that the current "Rules" applicable to DTC are on file with the Securities and Exchange Commission and that the current "Procedures" of DTC to be followed in dealing with DTC Participants are on file with DTC. MUNICIPAL BOND INSURANCE FOR THE BONDS Ambac Assurance Corporation (the "Bond Insurer") has made a commitment to issue a municipal bond insurance policy (the "Municipal Bond Insurance Policy") relating to the Bonds effective as of the date of issuance of the Bonds. Under the terms of the Municipal Bond Insurance Policy, the Bond Insurer will pay to the United States Trust Company of New York, in New York, New York, or any successor thereto (the "Insurance Trustee") that portion of the principal of and interest on the Bonds which shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer (as such terms are defined in the Municipal Bond Insurance Policy). The Bond Insurer will make such payments to the Insurance Trustee on the later of the date on which such principal and interest becomes Due for Payment or within one business day following the date on which the Bond Insurer shall have received notice of Nonpayment from the Trustee. The insurance will extend for the term of the Bonds and, once issued, cannot be canceled by the Bond Insurer. The Municipal Bond Insurance Policy will insure payment only on stated maturity dates and on mandatory sinking fund installment dates, in the case of principal, and on stated dates for pay- ment, in the case of interest. If the Bonds become subject to mandatory redemption and insuffi- cient funds are available for redemption of all outstanding Bonds, the Bond Insurer will remain ob- ligated to pay principal of and interest on outstanding Bonds on the originally scheduled interest and principal payment dates including mandatory sinking account redemption dates. In the event of any acceleration of the principal of the Bonds, the insured payments will be made at such times and in such amounts as would have been made had there not been an acceleration. IF the Trustee has notice that any payment of principal of or interest on a Bond which has be- come Due for Payment and which is made to a Bondholder by or on behalf of the District has been deemed a preferential transfer and theretofore recovered from its registered owner pursuant to the 7 United State Bankruptcy Code in accordance with a final, nonappealable order of a court of compe- tent jurisdiction, such registered owner will be entitled to payment from the Bond Insurer to the extent of such recovery if sufficient funds are not otherwise available. The Municipal Bond Insurance Policy does not insure any risk other than Nonpayment, as de- fined in the Policy. Specifically, the Municipal Bond Insurance Policy does not cover: ♦ payment on acceleration, as a result of a call for redemption (other than mandatory sinking fund redemption) or as a result of any other advancement of maturity; ♦ payment of any redemption, prepayment or acceleration premium; ♦ nonpayment of principal or interest caused by the insolvency or negligence of any Trustee or Paying Agent, if any. If it becomes necessary to call upon the Municipal Bond Insurance Policy, payment of principal requires surrender of Bonds to the Insurance Trustee together with an appropriate instrument of assignment so as to permit ownership of such Bonds to be registered in the name of the Bond In- surer to the extent of the payment under the Municipal Bond Insurance Policy. Payment of interest pursuant to the Municipal Bond Insurance Policy requires proof of Bondholder entitlement to inter- est payments and an appropriate assignment of the Bondholder's right to payment to the Bond In- surer. Upon payment of the insurance benefits, the Bond Insurer will become the owner of the Bonds, appurtenant coupon, if any, or right to payment of principal or interest on such Bonds and will be fully subrogated to the surrendering Bondholder's rights to payment. If the Bond Insurer were to become insolvent, any claims arising under the Municipal Bond In- surance Policy would be excluded from coverage by the California Insurance Guaranty Association, established pursuant to the laws of the State of California. The Bond Insurer The following information has been provided by the Bond Insurer and has not been verified by the Authority, the District, the Trustee or the Underwriter. The Bond Insurer is a Wisconsin-domiciled stock insurance corporation regulated by the Office of the Commissioner of Insurance of the State of Wisconsin and licensed to do business in 50 states, the District of Columbia, the Territory of Guam and the Commonwealth of Puerto Rico, with admit- ted assets of approximately $3,073,000,000 (unaudited) and statutory capital of approximately $1,769,000,000 (unaudited) as of March 31, 1998. Statutory capital consists of The Bond Insurer's policyholders' surplus and statutory contingency reserve. Standard & Poor's Ratings Services, a di- vision of The McGraw-Hill Companies, Inc., Moody's Investors Service and Fitch IBCA Inc., have each assigned a triple-A financial strength rating to the Bond Insurer. The Bond Insurer has obtained a ruling from the Internal Revenue Service to the effect that the insuring of an obligation by the Bond Insurer will not affect the treatment for federal income tax purposes of interest on such obligation and that insurance proceeds representing maturing interest paid by the Bond Insurer under policy provision substantially identical to those contained in its municipal bond insurance policy shall be treated for federal income tax purposes in the same man- ner as if such payments were made by the issuer of the Bonds. The Bond Insurer makes no representation regarding the Bonds or the advisability of investing in the Bonds and makes no representation regarding, nor has it participated in the preparation of, the Official Statement other than the information supplied by the Bond Insurer and presented under the heading "MUNICIPAL BOND INSURANCE FOR THE BONDS". Available Information The parent company of the Bond Insurer, Ambac Financial Group, Inc. (the "Company"), is sub- ject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Ex- change Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information may be inspected and copied at the public reference facilities maintained by 8 the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices at 7 World Trade Center, New York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained from the public reference section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition, the aforementioned material may also be inspected at the offices of the New York Stock Exchange, Inc. (the "NYSE") at 20 Broad Street, New York, New York 10005. The Company's Common Stock is listed on the NYSE. Copies of the Bond Insurer's financial statement prepared in accordance with statutory ac- counting standards are available from the Bond Insurer. The address of the Bond Insurer's adminis- trative offices and its telephone number are One State Street Plaza, 17th Floor, New York, New York, 10004 and (212) 668-0340. Incorporation of Certain Documents by Reference The following documents filed by the Company with the Commission (File No. 1-10777) are in- corporated by reference in this Official Statement: ♦ The Company's annual Report on Form 10-K for the fiscal year ended December 31, 1997, and filed on April 1, 1998; ♦ The Company's Current Report on Form 8-K dated January 31, 1998, and filed on Febru- ary 28, 1998; ♦ The Company's Current Report on Form-8-K dated March 13, 1998, and filed March 14, 1998; ♦ The Company's Current Report on Form 8-K/A, First Amendment to Current Report on Form 8-K dated March 13, 1998, and filed on March 15, 1998; and ♦ The Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1998, and filed on May 15, 1998. All documents subsequently filed by the Company pursuant to the requirements of the Exchange Act after the date of this Official Statement will be available for inspection in the same manner as described above in "Available Information". SECURITY AND SOURCE OF PAYMENT The payment of principal and interest on the Bonds will be secured under the Trust Agreement by the Revenues. The Revenues consist principally of payments to be made by the District to the Authority under the 1999 Lease. The obligation to make such payments is subordinate to the Dis- trict's obligation to make payments on its promissory notes issued in 1990, 1995 and 1996, which will remain outstanding after issuance of the Bonds, and such obligation is on a parity with the Dis- trict's other outstanding lease obligations, and is payable from any source of legally available funds. The 1999 Lease The obligation of the District to make the rental payments pursuant to the 1999 Lease does not constitute an obligation of the District for which the District is obligated to levy or pledge any form of taxation or for which the District has levied or pledged any form of taxation, nor does the obliga- tion of the district to make the Rental Payments constitute an indebtedness of the District, the State, or any of its political subdivisions within the meaning of any constitutional or statutory debt limitation or restriction. The obligation of the District to appropriate and pay rental payments under the 1999 Lease will be subordinate to the obligations of the District to apply tax revenues to make payments on senior lien obligations. Under the 1999 Lease, the District covenants to take action as may be necessary to include all rental payments due under the 1999 Lease in its annual budgets and to make the necessary annual appropriations for all such Rental Payments. The 1999 Lease provides that the covenant of the Dis- 9 trict to budget and appropriate will be deemed to be and will be construed to be duties imposed by law and it will be the duty of each and every public official of the District to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the district to carry out and perform such covenants. During any period in which, by reason of eminent domain proceedings (as described in the 1999 Lease), there is substantial interference with the use and possession by the District of any portion of the Project, rental payments due under the 1999 Lease with respect to such portion of the Project will be abated proportionately by the fractional amount that the cost of the portion of the Project so condemned bears to the entire cost of the Project, as calculated by the District and set forth in writing to the Trustee; and the District waives the benefits of Civil Code Sections 1932(2) and 1933(4) and any and all other rights to terminate the 1999 Lease by virtue of any such interference and the 1999 Lease will continue in full force and effect. Such abatement will continue for the pe- riod commencing with the date of such condemnation and ending with the substantial replacement of the portions of the Project so condemned. The District will agree in the 1999 Lease that it will procure and maintain (or cause to be pro- cured and maintained) throughout the term of the 1999 Lease (a) workers' compensation insurance covering all employees working in or on the Project, and (b) public entity liability insurance, with minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in each accident or event, and in a minimum amount of $200,000 (subject to a deductible clause of not to exceed $100,000) for damage to prop- erty resulting from each accident or event; provided, that such public liability and property damage insurance may be in the form of a single limit policy in the amount of $3,00,000 covering all such risks and may be maintained as part of or in conjunction with any other liability insurance carried by the District. As an alternative to providing the insurance described in sentences (a) and (b) above, the Dis- trict may provide a self-insurance method or plan of protection in compliance with certain provi- sions of the 1999 Lease. The District also will agree in the 1999 Lease to file a certificate with the Trustee each year certi- fying that the insurance required under the 1999 Lease is in full force and effect for the ensuing year and that the Trustee is named as a loss payee on each policy of insurance which the 1999 Lease required to be so endorsed. The 1999 Lease may be amended from time to time (with the prior written consent of the Bond Insurer) to permit the substitution of one parcel or parcels of real property for parcels of real prop- erty which are the subject of the 1999 Lease, as long as the substituted parcels or parcels are used for open space for the District; provided, that before any such substitution is approved by the Dis- trict it will have first prepared and filed with the Authority and the Trustee an M.A.I. appraisal by an independent real estate appraiser concluding that the parcel or parcels of real property to be so substituted have a fair market value at least equal to that of the parcel or parcels of real property to be released from the terms of the 1999 Lease by virtue of such substitution except that if the parcel or parcels of real property that are proposed to be substituted have been purchased by the District within 12 months of the amendment of the 1999 Lease, the District may use the purchase price thereof in determining the fair market value thereof; and, provided further, that so long as any par- cel or parcels of real property that are proposed to be so substituted have no prior liens against them that would impair their use for the purpose intended by the District and have a useful life at least as long as the parcel or parcels being substituted out of the 1999 Lease. Remedies Any remedies available to the Authority under the 1999 Lease and Trust Agreement or by any law now or hereafter enacted are cumulative, and the exercise of one right or remedy will not im- pair the right of the Authority to any or all remedies allowable under any statute or rule of law. However, the enforcement of any remedies provided in the 1999 Lease and Trust Agreement could prove expensive and time consuming. 10 If the District fails to make rental payments when due, the Trustee may sue for payment on an annual basis; but any suit for money damages would be subject to limitations on legal remedies against public entities in California, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. In the event of a default, the Trustee will not have the right to re-enter and re-let the Project. In addition to the limitations on remedies contained in the 1999 Lease and the Trust Agreement, the rights and remedies provided in the Trust Agreement and the 1999 Lease may be limited by and are subject to provisions of federal bankruptcy laws, as now or hereafter enacted and to other laws or equitable principles that may affect creditors' rights. Surety Reserve A Surety Reserve will be established for the security of the registered owners of the Bonds in the stated amount of $[AMOUNT], which is the initial Reserve Requirement, as defined in the Trust Agreement. The initial Reserve Requirement will be satisfied by a deposit of a Surety Bond to be issued by Ambac in the stated amount of $[AMOUNT]. For information concerning Ambac, see "MUNICIPAL BOND INSURANCE FOR THE BONDS". An amount equal to the Reserve Requirement will be re- tained in the Reserve Account and used only for the payment of principal of and interest on the Bonds to the extent amounts in the Revenue Account (as defined below) are insufficient therefor or for the retirement of all outstanding Bonds. Whenever any withdrawals from the Reserve Account reduce the balance therein below the Reserve Requirement, the Reserve Account will be replenished to the Reserve Requirement on September 1 of each year from moneys remaining in the Revenue Fund, as provided in the Trust Agreement. Parity Obligations/Senior Lien Obligations In 1990, the District sold its 1990 Notes in the aggregate principal amount of $15,000,000 to re- fund a portion of 1987 promissory notes, prepay certain land contract debt and finance acquisition of open space lands. The outstanding 1990 Notes mature annually through September 1, 2010, and bear interest at rates up to 7.5% per annum. As of September 30, 1998, the outstanding principal of the 1990 Notes was $12,615,000. The District's obligation to make payments on the 1990 Notes is senior to its obligations under the 1999 Lease. In 1992, the District sold its 1992 Notes in the aggregate principal amount of $8,000,000 to fi- nance acquisition of open space lands. The 1992 Notes mature annually through July 1, 2012, and bear interest at rates up to 6.35%. As of September 30, 1998, the outstanding principal of the 1992 Notes was $7,345,000. All of the 1992 Notes are to be refunded through the issuance of the Bonds. In 1995, the District sold its 1995 Notes in the aggregate principal amount of $11,500,000 to re- fund a portion of the 1987 Notes and finance the acquisition of open space lands. The 1995 Notes mature annually through September 1, 2014, and bear interest at rates up to 7.10%. As of Septem- ber 30, 1998, the outstanding principal of the 1995 Notes was $11,400,000. The District's obligation to make payments on the 1995 Notes is senior to its obligations under the 1999 Lease. In 1996, the District sold its 1996 Notes in the aggregate principal amount of $18,166,481 to re- fund a portion of the 1987 Notes and finance the acquisition of open space lands. The 1996 Notes mature annually through September 1, 2014, and bear interest at rates up to 6.30%. As of Septem- ber 30, 1998, the outstanding principal of the 1996 Notes was $17,796,481. The District's obligation to make payments on the 1996 Notes is senior to its obligations under the 1999 Lease. As of September 30, 1998, the District had $711,340 aggregate principal amount of notes repre- senting obligations of the District under contracts for the purchase of land by the District for open space (the "Land Contract Notes"), which are payable from Limited Tax Revenues on a parity with the 1996 Notes, the 1995 Notes and the 1990 Notes. The District may in the future issue additional notes on a parity with such Notes subject to covenants described herein for issuing such parity debt. See "DISTRICT FINANCIAL INFORMATION". 11 THE TRUST AGREEMENT The following is a brief outline of certain provisions of the Trust Agreement and is not to be con- sidered a full statement pertaining thereto. Reference is made to the Trust Agreement for the com- plete text thereof. Copies of the Trust Agreement are available from the Authority. The Authority will use the proceeds of the Bonds to acquire the 1999 Lease, pay costs of issu- ance and provide for a reserve fund surety bond. All Revenues received by the Authority have been assigned by the Authority to the Trustee for the benefit of the Owners of the Bonds, and irrevocably pledged to the payment of the interest on and the principal of and the redemption premiums, if any, on the Bonds as provided herein, and the Revenues will not be used for any other purpose while any of the Bonds remain Outstanding. This pledge will constitute a first pledge of and charge and lien upon the Revenues and all money on de- posit in the accounts and funds established hereunder for the payment of the interest on and prin- cipal of and redemption premiums, if any, on the Bonds in accordance with the terms hereof and thereof. In order to carry out and effectuate the pledge, charge and lien contained in the Trust Agree- ment, the Authority agrees and covenants that all revenues when and as received by the Authority will be transferred by the Authority to the Trustee for deposit in the "Midpeninsula Regional Open Space District Financing Authority 1999 Revenue Bonds Revenue Fund," which fund the Authority agrees and covenants to maintain with the Trustee so long as any Bonds are Outstanding. All money in the Revenue Fund will be accounted for and held in trust by the Trustee, and the Author- ity will have no beneficial right or interest in any money in the Revenue Fund. All Revenues will be accounted for separately and apart from all other accounts, funds, money or other resources of the Authority. All money in the Revenue Fund will be set aside by the Trustee in the following respective spe- cial accounts within the Revenue Fund in the following order of priority: ♦ Interest Account, ♦ Redemption Account, and ♦ Reserve Account. All money in each of such accounts will be held in trust by the Trustee and will be applied, used and withdrawn only for the purposes set forth in the Trust Agreement. Interest Account On March 1 and September 1 of each year, beginning on September 1, 1999, the Trustee will set aside from the Revenue Fund and deposit in the Interest Account that amount of money which is equal to the amount of interest becoming due and payable on all Bonds on such March 1 or Septem- ber 1, as the case may be; but no such deposit need be made in the Interest Account if the amount contained therein is at least equal to the aggregate amount of interest becoming due and payable on all Bonds on such Interest Payment Date. All money in the Interest Account will be used and withdrawn by the Trustee solely for the pur- pose of paying the interest on the Bonds as it will become due and payable (including accrued in- terest on any Bonds purchased or redeemed prior to maturity). Redemption Account On September 1 of each year, beginning on September 1, 2000, the Trustee will set aside from the Revenue Fund and deposit in the Redemption Account an amount of money equal to the princi- pal amount of all Outstanding Current Interest Bonds maturing on such September 1 and the Ac- creted Value of all Capital Appreciation Bonds maturing on such September 1, but no such deposit need be made in the Redemption Account if the amount contained therein is at least equal to the aggregate amount of the principal of all Outstanding Current Interest Bonds maturing on such Sep- tember 1 and the Accreted Value of all Capital Appreciation Bonds maturing on such September 1. 12 All money in the Redemption Account will be used and withdrawn by the Trustee solely for the pur- pose of paying the principal of the Current Interest Bonds as they become due and payable, whether at maturity or on prior redemption, and for paying the Accreted Value of the Capital Appreciation Bonds. Reserve Account On September 1 of each year, beginning on September 1, 1999, the Trustee will set aside from the Revenue Fund and deposit in the Reserve Account all money remaining in the Revenue Fund. All money in the Reserve Account will be used and withdrawn by the Trustee solely for the purpose of paying the interest on or the principal of the bonds (in such order) in the event that no other money is available for this purpose in the Interest Account or in the Redemption Account or through the Re- serve Fund Surety Bond; but all money on deposit in the Reserve Account in excess of the Reserve Re- quirement will, on September 1 of each year (beginning in September 1999), be withdrawn by the Trus- tee from the Reserve Account and deposited in the Revenue Fund; and for this purpose all investments in the Reserve Account will be valued on September 1 of each year (beginning in September 1999)at the face value thereof if such investments mature within 12 months from the date of valuation, or if such investments mature more than 12 months after the date of valuation, at the price at which such invest- ments are redeemable by the holder, at his option, if so redeemable, or if not so redeemable, at the market value of such investments. Rebate Fund The Authority agrees to establish and maintain with the Trustee so long as any Bonds are Out- standing a fund separate from any other fund established under the Trust Agreement designated the "Midpeninsula Regional Open Space District Financing Authority 1999 Revenue Bonds Rebate Fund." The Trustee will deposit in the Rebate Fund from funds provided by the Authority the Rebate Require- ment in accordance with the Tax Certificate, but only as directed by the Authority in an appropriate Written Request of the Authority filed with the Trustee. The Rebate Fund is not security for the Bonds. Investment of Moneys in Funds and Accounts Subject to the provisions of the Internal Revenue Code of 1986 (the "Code") and State law, all mon- eys in the funds and accounts established under the Trust Agreement are to be deposited or invested as determined by the District Controller so as to obtain the highest yield that the District Controller deems practicable, having due regard for the safety of such deposits and investments; provided, that all such deposits and investments must be withdrawable or must mature at such times so as to coincide as nearly as practicable with the time when such moneys are expected to be withdrawn for use under the Trust Agreement. Proceeds of the investment of amounts in the funds and accounts established by the Trust Agreement are deposited as and when received in the fund or account in which such investments are held. Covenants of the Authority Punctual Payment and Performance. The Authority will punctually pay the interest on and the prin- cipal of and the redemption premium, if any, to become due on every Bond from the Revenues in strict conformity with the terms of the Trust Agreement and of the Bonds, and will faithfully observe and per- form all the 1999 Lease, conditions, covenants and terms to be observed or performed. Against Encumbrances. The Authority will not make any pledge of or place any charge or lien upon the Revenues except as provided in the Trust Agreement, and will not issue any bonds, notes or obliga- tions payable from the Revenues or secured by a pledge of or charge or lien upon the Revenues except the Bonds. The District may, however, issue additional parity notes and enter into leases. Tax Covenants. The Authority will not take any action, or fail to take any action, if such action or failure to take such action would adversely affect the exclusion from gross income of the interest on the Bonds pursuant to Section 103 of the Code. Accounting Records and Reports. The Authority will keep or cause to be kept proper books of rec- ord and accounts in which complete and correct entries will be made of all transactions relating to the receipts, disbursements, allocation and application of the Revenues, and such books will be available 13 for inspection by the Trustee at reasonable hours and under reasonable conditions. Not more than 210 days after the close of each Fiscal Year, the Authority will furnish or cause to be furnished to the Trus- tee audited financial statements for such Fiscal Year prepared by an Independent Certified Public Ac- countant. Prosecution and Defense of Suits. The Authority will defend against every suit, action or proceeding at any time brought against the Trustee upon any claim to the extent arising out of the receipt, applica- tion or disbursement of any of the Revenues or to the extent involving the failure of the Authority to fulfill its obligations; provided, that the Trustee or any affected Owner at its election may appear in and defend any suit, action or proceeding. The Authority will indemnify and hold harmless the Trustee against any and all liability claimed or asserted by any person to the extent arising out of any such fail- ure by the Authority, and will indemnify and hold harmless the Trustee against any attorney's fees or other expenses which it may incur in connection with any litigation to which it may become a party by reason of its actions under the Trust Agreement, except for any loss, costs, damage or expense resulting from the active or passive negligence, willful misconduct or breach of duty by the Trustee. Enforcement and Amendment of Agreements. The Authority will enforce all of its rights with re- spect to the 1999 Lease to the fullest extent necessary to preserve the rights and protect the security of the Owners under the Trust Agreement. The Authority and the Trustee may, without the consent of or notice to the Owners, consent to any amendment, change or modification of either Agreement that may be required (a) to conform to the provisions of the Trust Agreement (including any modifications or changes contained in any Supple- mental Trust Agreement), (b) for the purpose of curing any ambiguity or inconsistency or formal defect or omission, (c) to add additional rights acquired in accordance with the provisions of the Agreement, (d) in connection with any other change therein which is not to the material prejudice of the Trustee or the Owners pursuant to an Opinion of Bond Counsel, or (e) in an Opinion of Counsel, to preserve or as- sure the exemption of interest on the Agreement or the Bonds from federal income taxes under the Code or the exemption from State of California personal income tax. Except for amendments, changes or modifications provided for in the preceding paragraph, neither the Authority nor the Trustee will consent to any amendment, change or modification of either Agree- ment without the mailing of notice and the written approval or consent of the Owners of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding given and procured. If at any time the Authority will request the consent of the Trustee to any such proposed amendment, change or modification of either Agreement, the Trustee will, upon being satisfactorily indemnified with respect to expenses, cause notice of such proposed amendment, change or modification to be mailed. Such notice will briefly set forth the nature of such proposed amendment, change or modification and will state that copies of the instrument embodying the same are on file at the Principal Corporate Trust Office of the trustee for inspection by all Owners. Maintenance of Existence. The Authority will maintain its existence, powers and authority as a joint exercise of powers entity under the laws of the State of California. Further Assurances. Whenever and so often as reasonably requested to do so by the Trustee or any Owner, the Authority will promptly execute and deliver or cause to be executed and delivered all such other and further assurances, documents or instruments,and promptly do or cause to be done all such other and further things as may be necessary or reasonably required in order to further and more fully vest in the Owners all rights, interest, powers,benefits, privileges and advantages conferred or intended to be conferred upon them. District Covenants and Additional Debt In connection with the issuance of any additional indebtedness or the entering into of any capital lease obligations (the "Additional Obligations"): ♦ The District must first file with the Trustee a certificate executed by the District Controller showing: (1) the total "Limited Taxes" (excluding any subventions received by the District from the State of California, excluding any interest earnings and assuming a delinquency rate equal to the average delinquency rate for the last five years, or a zero delinquency rate if the allocable share of the District's taxes are collected on the Teeter Plan) in its most recent audited fiscal 14 year, as shown by the most recent audited financial statement of the District; (2) the debt service payable by the District during its next succeeding fiscal year on all indebtedness or capital lease obligations of the District that would be payable from the Limited Taxes in the next succeeding fiscal year (assuming the maximum interest rate for any variable rate obligations); and (3) that the total described in item (1) above is at least 125% of the total described in subparagraph (2) above, and • The test must be applied with reference to the maximum annual debt service on all the out- standing parity obligations and such proposed Additional Obligations, with variable rate obliga- tions assumed to bear an interest rate equal to the Bond Buyer 20-year index (or some other in- dex approved by the Bond Insurer or its successor). "Limited Taxes means the limited ad valorem taxes levied on all taxable property.in the District by the Boards of Supervisors of the Counties and allocated to the District under applicable law that are le- gally available to pay any Additional Obligations. The District agrees and covenants that it will diligently and in good faith contest any attempt to re- duce its limited taxing authority, and that it will promptly notify the Bond Insurer in writing if any measure or petition is introduced to change such taxing authority. THE AUTHORITY The Authority is a joint powers authority, organized pursuant to a Joint Exercise of Powers Agree- ment, dated as of May 1, 1996 (the "Joint Powers Agreement") by and between the District and the County of Santa Clara. The Joint Powers Agreement was entered into pursuant to the provisions of the California Government Code. The Authority is a separate entity constituting a public instrumentality of the State of California and was formed for the public purpose of assisting the District in financing capi- tal projects. Four members of the Board of Directors of the District and one member of the Board of Supervisors of the County of Santa Clara constitute the Directors of the Authority. THE DISTRICT Location and Size On November 7, 1972, the citizens of northwestern Santa Clara County voted to establish the Mid- peninsula Regional Park District under provisions of the Public Resources Code of the State of Califor- nia. On July 7, 1976, after another public vote, the District expanded its boundaries by annexing the southeastern portion of San Mateo County. The District was subsequently renamed the "Midpeninsula Regional Open Space District". The approximately 331 square miles of the District include about 200 square miles within Santa Clara County and 130 square miles within San Mateo County, constituting approximately 61% and 39% respectively of the total District area. In 1992, approximately 1.2 square miles of land in Santa Cruz County was also annexed to the District, although the District receives no portion of the property taxes attributable to this land. The southwestern border of the District falls approximately along the ridgeline of the coast range which bisects the San Francisco Peninsula into the coastside and bayside regions. The coastside is predominately rural in character, with limited areas of flat land on the ocean terraces and vast areas of steep, forested ridges and canyons located inland. The District is located on the bay- side which has more gentle topography characterized by substantially level areas and rolling plains which have been more favorable for development. The District's northeast border is the San Francisco Bay. The District is composed of the incorporated communities of Palo Alto, Mountain View, Los Altos, Los Altos Hills, Sunnyvale, Cupertino, Saratoga, Monte Sereno, and Los Gatos and adjacent unincorpo- rated areas located in Santa Clara County, the incorporated communities of Woodside, San Carlos, Menlo Park, East Palo Alto, Atherton, Portola Valley and Redwood City and adjacent unincorporated ar- eas located in San Mateo County. The small portion of the District in Santa Cruz County is in an unin- corporated area. The District encompasses a population of approximately 650,000 persons. 15 Management The seven-member elected District Board of Directors originates, guides, and enforces District poli- cies. Members of the Board of Directors are elected for staggered four-year terms from seven wards within the District. The following are the current Board members: Pete Siemens (Ward 1, Los Gatos area); Mary Davey (Ward 2, Los Altos area); Jed Cyr (Ward 3, Sunnyvale area); Deane Little (Ward 4, Mountain View area); Nonette Hanko (Ward 5, Palo Alto area); Betsy Crowder (Ward 6, Woodside area); and Ken Nitz (Ward 7, Redwood City area). L. Craig Britton is the District's General Manager and is responsible for the administration of the Dis- trict's affairs. Mr. Britton joined the District in 1977 as Land Acquisition Manager and in 1979 also as- sumed the duties of Assistant General Manager. Prior to his involvement with the District, Mr. Britton worked for the Counties of Marin and Santa Cruz and the State of California with duties including acqui- sition and property management. Mr. Britton attended Claremont Men's College and San Francisco State College where he received a B.A. in Business. Michael L. Foster has been Controller of the District since 1978. In addition to his responsibility with the District, Mr. Foster is also Vice President - Finance and Chief Financial Officer of SDL, Inc., a manufacturer of optoelectronic products. Mr. Foster received both an undergraduate degree in eco- nomics and a Master of Business Administration from Stanford University. The District currently has 55 full-time employees, 2 part-time employees and 5 seasonal employees. Objectives and Operations Preservation of open space is the principal objective of the District. "Open space" is generally de- fined by the District as any land or water area which remains in a natural state, is used for agriculture, or is otherwise essentially undeveloped.The District has adopted the following mission statement: "To acquire and preserve a regional greenbelt of open space land in perpetuity; protect and restore the natural environment; and provide opportunities for ecologically sensitive public enjoyment and educa- tion." The Master Plan of the District (the "Master Plan"), which was adopted initially by the District Board of Directors in fiscal year 1977/78, defines acquisition policies and the role the District will play in the preservation of open space. According to the Master Plan, the District seeks to preserve open space for the following purposes: for the protection of natural vegetation, for the protection of wildlife, for out- door recreation, for guiding urban form, for scenic preservation, for the preservation of unique sites, for the protection of agriculture, for the production of minerals and for the protection of public health and safety. Under certain circumstances the District may acquire undeveloped land within an urban- ized area. The Master Plan of the District defines acquisition policies and the role the District will play in the preservation of open space and reflects the roles the District believes other public agencies and private organizations should play in the preservation of open space. The Master Plan map was based on an open space lands evaluation. The District's most effective method for the preservation of open space is the purchase of land with District revenues and from the proceeds of its debt obligations. Other sources of revenues for acquir- ing land for open space purposes include obtaining State and federal grants for the land purchases. From time to time the District also receives gifts of open space land and participates in joint projects with other governmental agencies and private non-profit organizations to acquire and maintain open space lands. The District has the power of eminent domain. However, the District does not have regulatory power over lands other than those it owns. Consequently, it cannot adopt zoning ordinances or regula- tions affecting lands not owned by the District. The power to protect open space by regulating land use is held primarily by the cities located within the District and by the Counties. It is the policy of the current Board of Directors that during the next several years as much as possi- ble of the District's financial resources will be devoted to acquiring open space lands before the land is 16 developed and land costs become prohibitive. In keeping with this land acquisition policy, administra- tive costs are projected to be kept to a minimum, but land management expenditures are anticipated to be an increasing percentage of annual tax revenue. Approximately 43,000 acres of open space land had been preserved by the District as of Decem- ber 14, 1998. The use of proceeds of a portion of the Bonds will add additional land to the District's current open space holdings. ESTIMATED REVENUES AND OUTSTANDING OBLIGATIONS General The Bonds are limited obligations of the Authority payable from the Revenues. The Revenues con- sist principally of payments to be made by the District to the Authority with respect to the 1999 Lease. The District's sources of revenues for making payments under the 1999 Lease are derived from two basic sources: (1) the District's allocation of the 1% tax rate levied in the Counties; and (2) subventions received from the State in lieu of certain property taxes. Property Tax Limitation and Allocation Article XIIIA of the California Constitution provides for a maximum ad valorem property tax equal to one percent of the full cash value of property. 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 thereaf- ter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment." At other times, this full cash value may be increased at a rate not to exceed two percent per year to account for inflation. Future assessed valuation growth allowed under Article XIIIA (new construction, certain changes of ownership, two percent inflation) will be allocated on the basis of "situs" among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and schools will share the growth of "base" revenues from the tax rate area. Each year's growth allocation becomes part of each agency's allocation in the following year. The availability of revenues from growth in tax bases to such entities may be affected by the establishment of redevelopment agencies which, under certain circum- stances, may be entitled to revenues resulting from the increase in certain property values. See "CONSTITUTIONAL AND STATUTORY TAX LIMITATIONS". Although Proposition 46, approved by the voters of the State in June 1986, permits local govern- ments, including the District, to issue bonded indebtedness payable from ad valorem taxing in excess of one percent of full cash value with the approval of two-thirds of the votes cast by voters voting on the proposition, the voters of the District have not been presented with a tax override proposal with re- spect to the Bonds. Owners of the Bonds have no right to compel the District to levy or cause to be levied any tax for the payment of the principal of, redemption premium, if any, or interest on the Bonds and must look solely to the allocation described above and to certain other legally available revenues of the District for such payment. Property Tax Collection Procedures In California, property which is subject to ad valorem taxes is classified as "secured" or "unse- cured." The secured classification includes property on which any property tax levied by a county be- comes a lien on that property sufficient, in the opinion of the county assessor, to secure payment of the taxes. Every tax which becomes a lien on secured property has priority over all other liens, arising pur- suant to State law, on the secured property,regardless of the time of the creation of such other liens. A tax levied on unsecured property does not become a lien against the taxed unsecured property,but may become a lien on certain other property owned by the taxpayer. 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 classi- fications of property. The exclusive means of enforcing the payment of delinquent taxes with respect to property on the secured roll is the sale of the property securing the taxes to the State for the amount of taxes that is delinquent. The taxing authority has four ways of collecting unsecured personal prop- 17 erty taxes in the absence of timely payments by the taxpayer: (i) a civil action against the taxpayer; (ii) filing a certificate in the office of the county clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (iii) 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 (iv) seizure and sale of personal property, improvements or possessory interests belonging or taxable to the assessee. A ten percent penalty is added to delinquent taxes which have been levied with respect to property on the secured roll. In addition, property on the secured roll on which taxes are delinquent is sold to the State on or about June 30 of each fiscal year. Such property may thereafter be redeemed by pay- ment of the delinquent taxes and a delinquency penalty, plus a redemption penalty of IY2 percent 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. A 10 percent penalty also applies to delinquent taxes on property on the unsecured roll, and further, an additional penalty of 1Y2 percent per month accrues with respect to such taxes beginning the first day of the third month fol- lowing the delinquency date. Except for property assessed by the State, the valuation of property is determined as of March I each year and equal installments of taxes levied upon secured property become delinquent on the fol- lowing December 10 and April 10. Taxes on unsecured property are due March I and become delin- quent August 31 and such taxes are levied at the prior year's secured tax rate. The valuation of State- assessed property is determined on January I of each year. SB 327 (Chapter 499, Statutes of 1995) changes the property tax lien date from March 1 to January I effective January 1, 1997. Assessed Valuation Table I shows a detailed summary of the District's assessed valuation since 1985/86. Property in the District is assessed by the Santa Clara and San Mateo County Assessors in their respective counties except for public utility property which is assessed by the State Board of Equalization. TABLE 1: DISTRICT ASSESSED VALUATION(in millions of dollars) STATE SANTA CLARA SAN MATEO DISTRICTWIDE LESS REDEVELOP- DISTRICTWIDE FISCAL YEAR COUNTY PORTION COUNTY PORTION GROSS VALUATION MENT INCREMENT NET VALUATION 1985/86 $ 23,264.7 $ 8,900.1 $32,164.8 $ 516A $ 31,648A 1986/87 25,560.3 9,832.2 35,392.4 748.4 34,644.1 1987/88 27,708.4 10,844.5 38,552.9 966.0 37,586.9 1988/89 29,285.4 11,583.5 40,869.0 1,047,1 39,821.9 1989/90 32,999.0 13,040.2 46,039.2 1,358.7 44,680.5 1990/91 36,598.5 14,849.0 51,447.5 1,586.8 49,860.7 1991/92 38,191.6 15,866.6 54,058.2 1,783.7 52,274.5 1992/93 40,129.0 16,809.8 56,938.8 1,936.5 55,002.3 1993/94 41,537.4 17,592.6 59,130.0 2,075.5 57,054.5 1994/95 41,918.1 18,203.5 60,121.6 2,146.9 57,974.7 1995/96 42,872.9 18,892.3 61,765.2 2,3607 59,404.5 1996/97 1997/98 47,561.1 20,998.4 68,5%5 1998/99 52,711.1 23,206.4 75,917,5 Source: California Municipal Statistics. Secured and Unsecured Tax Levies Table 2 on the next page shows the total combined secured and unsecured tax receipts allocated by the Counties to the District and received by the District during the last ten fiscal years. The pre- Article XIIIA tax override for the District, as well as certain late payments of taxes with respect to fiscal years prior to the fiscal years during which such payments are made are not reflected in Ta- ble 2. See "CONSTITUTIONAL AND STATUTORY TAX LIMITATIONS- Constitutional Limitations - Article XIIIA". 18 TABLE 2: DISTRICT CURRENT SECURED AND UNSECURED TAX RECEIPTS(Excludes Pre-Article XIIIA Tax Override Levy)(1) CURRENT SECURED TAX RECEIPTS(1) STATE FISCAL YEAR SANTA CLARA COUNTY SAN MATEO COUNTY DISTRICTWIDE SECURED 1988/89(2) $4,007,120 $ 1,792,226 $ 5,799,346 1989/90 4,476,832 2,031,886 6,508,718 1990/91 4,580,579 2,342,564 6,923,143 1991/92 5,311,839 2,426,882 7,738,721 1992/93 5,448,227 2,449,937 7,898,164 1993/94 5,431,540 2,633,077 8,064,617 1994/95 5,947,135 2,829,980 8,777,115 1995/96 5,906,079 2,909,826 8,815,905 1996/97 6,076,525 3,049,870 9,126,395 1997/98 6,577,561 3,234,981 9,812,542 C U R R E N T U N S E C U R E D T A X R E C E I P T S TOTAL SECURED STATE FISCAL YEAR SANTA CLARA COUNTY SAN MATEO COUNTY DISTRICTWIDE UNSECURED AND UNSECURED 1988/89(2) $ 574,021 $ 236,983 $ 811,004 $ 6,610,350 1989/90 625,167 242,246 867,413 7,376,131 1990/91 739,049 280,485 1,019,534 7,942,677 1991/92 742,900 312,098 1,054,998 8,793,719 1992/93 762,242 331,431 1,093,673 8,991,837 1993/94 754,355 363,596 1,117,951 9,182,568 1994/95 704,557 322,486 1,027,043 9,804,158 1995/96 716,892 351,800 1,068,692 9,884,597 1996/97 800,423 356,314 1,156,737 10,283,132 1997/98 896,648 354,600 1,251,248 11,063,790 (1) The District also receives a share of delinquent taxes, redemption fees, supplemental taxes and State subvention payments received by each County. This revenue totaled$445,950 in 1996/97 and$605,219 in 1997/98. (2) Nine-month fiscal year(District changed fiscal year end from June 30 to March 31). Source: District Controller. The Boards of Supervisors of the Counties have respectively approved the implementation of the Al- ternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the "Teeter Plan"), as provided for in Section 4701 et seq. of the California Revenue and Taxation Code. Under the Teeter Plan, the Counties apportion secured property taxes on an accrual basis when due (irrespective of actual collections) to local political subdivisions, including the District, for which the Counties act as the tax-levying or tax-collecting agency. The Teeter Plan is to remain in effect unless the Boards of Su- pervisors of the Counties, respectively, order its discontinuance or unless, prior to the commencement of any Fiscal Year of the Counties (which commences on July 1), such Board of Supervisors receive a pe- tition for its discontinuance joined in by resolutions adopted by at least two-thirds of the participating revenue districts in the respective County, in which event the respective Board of Supervisors is to or- der discontinuance of the Teeter Plan effective at the commencement of the subsequent fiscal year. If the Teeter Plan is discontinued subsequent to its implementation, secured property taxes would be al- located to political subdivisions (including the District)for which such County acts as the tax-levying or tax-collecting agency as collected(see "Ad Valorem Property Taxation"). The District's allocation of tax revenues is the aggregate of the District's apportionment of the taxes produced by the one percent tax rate in nearly one thousand tax code areas in Santa Clara and San Mateo Counties. In accordance with Chapter 6 of the State Revenue and Taxation Code, the tax incre- ment derived by the increase in assessed valuation in each tax code area is apportioned to the taxing entities within the code area in the same proportion as in the prior year, subject to certain modifica- tions for change in jurisdiction or new incorporations and for certain incremental tax revenues allo- cated directly to redevelopment agencies within the District. Thus, the increase in the District's alloca- tion of taxes varies directly with the increase in the assessed valuation within the District. 19 Unlike special districts in California that are wholly within one county,as a multi-county special dis- trict, the District receives 100% of its allocation of collected taxes pursuant to Section 98.6 of the Cali- fornia Revenue and Taxation Code, and is not subject to a discretionary reduction in such allocation by action of either County's Board of Supervisors. Projected Revenues The District has projected revenues for the first ten fiscal years in which the Bonds will be out- standing, as set forth in Table 3 below. Although the District believes its assumptions to be reasonable, there is no assurance that such assumptions and the projections based thereon will in fact be realized. The District's projection of revenues is based on the following assumptions: ♦ Annual increases of 3% in the Districts' allocation of funds derived from the basic 1% tax rate. The assessed valuation of taxable property within the District has increased at an average rate of approximately 5.5%annually over the last five years. ♦ District cash balances will be invested to earn 5.5%per annum. TABLE 3: ESTIMATED DISTRICT REVENUES(in thousands of dollars) FISCAL YEAR TAX REVENUES INTEREST EARNINGS OTHER REVENUEM TOTAL REVENUES 1998/99 $ 12,388 $900 $ 2,196 $ 15,484 1999/00 13,131 900 882 14,913 2000/01 13,657 425 940 15,022 2001/02 14,203 425 946 15,574 2002/03 14,771 425 953 16,148 2003/04 15,362 425 959 16,746 2004/05 15,976 425 966 17,367 2005/06 16.615 425 973 18,013 2006/07 17,280 425 980 18,685 2007/08 17,971 425 987 19,383 (1) Primarily grants,rental income,and in 1999/2000,proceeds from the sale of surplus property. Source: District Controller. Estimated Debt Service Coverage Table 4 below estimates debt service coverage on the District's various debt and lease obligations. See "DISTRICT FINANCIAL INFORMATION - Other Outstanding Debt" for a description of the District's other outstanding obligations payable from Revenues and other legally available funds of the District. TABLE 4: ESTIMATED DEBT SERVICE COVERAGE(in thousands of dollars except coverage) FISCAL YEAR ENDING IN 1999 2000 2001 2002 2003 2004 2005 Estimated Revenues(1) $ 15,484 $ 14,913 $ 15,022 $ 15,574 $ 16,148 $ 16,746 $ 17,367 Total Senior Notes Debt Service(2) 1,264 3,769 3,709 3,744 3,765 3,790 3,815 Senior Debt Service Coverage 1,225% 396% 405% 416% 429% 442% 455% Estimated Net Revenues $ 14,156 11,144 11,313 11,830 12,383 12,956 13,552 1999 Lease --- 633 899 942 993 1,040 1,090 Other Lease and Subordinate Debt(3) 747 1,972 2,068 2,086 2,606 2,092 2,116 Total Lease and Subordinate Debt 747 2,605 2,967 3,028 3,599 3,133 3,206 NET REVENUE COVERAGE 1,895% 428% 381% 391% 344% 414% 423% Estimated Revenues Less Other Revenues(1) $ 13,288 14,031 14,082 14,628 15,196 15,787 16,401 All Lease and Debt Payments 2,011 6,374 6,676 6,772 7,364 6,923 7,021 Adjusted Coverage 661% 220% 211% 216% 206% 228% 234 (1) Based on information appearing in Table 3. (2) Includes 1996 Notes, 1995 Notes and 1990 Notes. (3) Includes 1993 Certificates of Participation, 1996 Lease and various land contracts. Source: District Controller. 20 Direct and Overlapping Bonded Indebtedness Table 5 below shows overlapping and direct bonded indebtedness of the District as of July 1, 1998. TABLE 5: DISTRICT DIRECT AND OVERLAPPING DEBT 1998-1999 Assessed Valuation $75,917,452,504 Redevelopment Incremental Valuation 3,204,254,393 Adjusted Assessed Valuation $72,713,198,111 DIRECTAND OVERLAPPING TAX AND ASSESSMENT DEBT %APPLICABLE(1) DEBTATI2/1/98 Santa Clara County Flood Control and Water Conservation District,Zone NC-1 58.050% $ 629,843 Santa Clara County Flood Control and Water Conservation District,Zone W-1 34.531 4,891,316 Palo Alto Unified School District 100. 120,495,000 Fremont Union High School District 82.597 33,038,800 Mountain View-Los Altos Union High School District 100. 37,285,000 Cupertino Union School District 70.347 38,901,880 Redwood City School District 99.981 43,711,888 Other School Districts Various 187,594,254 Cities 99.268-100. 13,061,440 Redwood City General Improvement District No.1.64 100. 12,600,000 Parking Districts 100. 7,365,000 1915Act Bonds(Estimate) 100. 22,056,550 Other Special Districts Various 129,997 Midpeninsula Regional Open Space District 100. 31,360,000 TOTAL GROSS DIRECTAND OVERLAPPING TAX AND ASSESSMENT DEBT $553,120,968 Less: Santa Clara County Flood Control and Water Conservation District,Zone NC-1(100%self-supporting) 629,843 TOTAL NET DIRECTAND OVERLAPPING TAX AND ASSESSMENT DEBT $552,491,125 DIRECT AND OVERLAPPING GENERAL FUND OBLIGATION DEBT Santa Clara County General Fund Obligations 34.166% $ 240,631,004 San Mateo County General Fund Obligations 39.471 84,886,320 Foothill Community College District Certificates of Participation 91.399 33,776,497 Cupertino Union School District Certificates of Participation 70.347 9,683,265 Other School District General Fund Obligations Various 36,472,663 City of Cupertino General Fund Obligations 88,348 45,238,593 City of Mountain View General Fund Obligations 100. 29,464,197 City of Palo Alto General Fund Obligations 100. 13,756,000 City of Redwood City General Fund Obligations 100. 44,575,000 City of Sunnyvale General Fund Obligations 99.988 28,321,601 Other City General Fund Obligations Various 12,317,793 El Camino Hospital District Facilities Authority 96.915 2,689,391 Santa Clara Valley Water District Certificates of Participation 39.471 52,451,038 Other Special Districts Various 3,436,645 Midpeninsula Regional Open Space District Certificates of Participation 100. (2) 45,695,201 TOTAL GROSS DIRECTAND OVERLAPPING GENERAL FUND OBLIGATION DEBT $553,120,968 Less: El Camino Hospital Facilities Authority(100%self-supporting) 629,843 TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND OBLIGATION DEBT $552,491,125 GROSS COMBINED TOTAL DEBT (3)$1,236,516,176 NET COMBINED TOTAL DEBT $1,233,196,942 RATIOS TO 1998-99 ASSESSED VALUATION: Direct Debt($31,360,000).............................................................0.04% Total Gross Direct and Overlapping Tax and Assessment Debt............0.73% Total Net Direct and Overlapping Tax and Assessment Debt................0.73% RATIOS TO ADJUSTED ASSESSED VALUATION: Combined Direct Debt($77,055,201).............................................0.11 % STATE SCHOOL BUILDING AID Gross Combined Total Debt..............................................................1.70% REPAYABLE AS OF 6 3/ 0/98: $680,632 Net Combined Total Debt.................................................................1.70 (1) Based on 1997-98 ratios. (2) Excludes revenue issue to be sold. (3) Excludes tax and revenue anticipation notes, revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations. Source: California Municipal Statistics. 21 DISTRICT FINANCIAL INFORMATION Method of Accounting The official books of record kept by the District utilize the principles of fund accounting as pre- scribed for special districts by the State Controller. All District funds reflect the modified accrual basis of accounting under which revenues are generally recognized in the period they become available and measurable and expenditures are recognized generally when the obligation is incurred, except for inter- est on long term debt which is recognized as an expenditure when due. The District's fiscal year is April 1 through March 31. Prior to fiscal year 1988/89, the District's fiscal year was July 1 to June 30. The District's certified public accountants are currently Grant Thornton up, San Jose, California. District Financial Statements The District's audited statement of General Fund Revenues, Expenditures and Changes in Fund Bal- ance for the six years ended March 31, 1998, is shown in Table 6. General property taxes are the District's largest source of revenues. Over the last six fiscal years, property taxes have generated between 70%and 89% of the District's total revenues. See "EsnmATw TAx REVENUES AND NoTE RETIREMENT" and "CONsTminONAL AND STATUTORY TAX LB TTATIONS" for a description of the tax assessment process in California. Land acquisition, including debt service on notes issued to buy land in prior years, is the major component of the District's expenditures. TABLE 6: DISTRICT GENERAL FUND REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCE(in thousands of dollars) FISCAL YEAR ENDED MARCH 31: 1993 1994 1995 1996 1997 1998 REVENUES General Property Tax 9,626 10,116 10,199 10,173 10,025 11,313 State Grants 25 224 1,352 332 195 585 Other Taxes 171 177 250 119 183 224 Interest Income 474 472 618 694 711 1,353 Other 561 479 651 1,062 1,247 982 TOTAL REVENUES 10,857 11,468 13,070 12,380 12,362 14,459 EXPENDITURES Salaries and Benefits 2,635 2,699 2,868 2,923 3,038 3,133 Services and Other 2,091 1.947 1,436 1,664 2,141 2,306 SUBTOTAL 4,726 4,646 4,304 4,586 5,179 5,439 DEBT SERVICE Principal Repayment 2,206 2,346 874 1,483 640 1,446 Interest Paid 3,666 2,959 3,195 3,951 4,721 4,534 TOTAL DEBT SERVICE 5,871 5,305 4,069 5,434 5,361 5,980 EXPENDITURES AND DEBT SERVICE 10,597 9,951 8,373 10,020 10,540 11,419 NET OPERATING CASH FLOW 260 1,517 4,697 2,359 1,822 3,040 PROPERTY ACQUISITION 11,253 5,297 8,454 14,409 930 1,988 REVENUESaa EXPENDITURES (10,993) (3,780) (3,758) (12,049) 892 1,052 PROCEEDS OF NOTES PAYABLE 7,817 5,508 5,226 7,259 9,962 0 NET EXCESS(DEFICIENCY) (3,176) 1,728 1,469 (4,791) 10,854 1,052 STARTING FUND BALANCE 14,589 11,413 13,141 14,609 9,818 20,673 ENDING FUND BALANCE 11,413 13,141 14,609 9,818 20,673 21,725 Source: Audited Financial Statements. Table 7 on the next page sets forth the combined Balance Sheet for the District's General Fund, Gen- eral Fixed Assets Fund, and General Long-Term Debt Fund for the years ended March 31, 1997 and 1998. The General Fixed Assets Fund includes all land, equipment, structures and improvements. The General Long-Term Debt Fund accounts for the annual payment of long-term debt. See APPENDix A: "Dis- 22 trict's Audited Financial Statements for the Years Ended March 31, 1998, and March 31, 1997 - Notes to Financial Statements" for the breakdown of changes in the General Long-Term Debt Account and the amount of future debt service payments. TABLE 7:DISTRICT GENERAL BALANCE SHEET(in thousands of dollars) AS OF MARCH 31 , 1998 AS OF MARCH 31 , 1997 GENERAL FIXED LONG-TERM GENERAL FIXED LONG-TERM FUND ASSETS DEBT FUND ASSETS DEBT ASSETS/OTHER DEBT BALANCES Cash and Cash Investments $13,586 $13,882 Restricted Cash 5,374 5,788 Taxes and Other Receivables 3,405 1,703 Prepaid Expenses and Other Assets 23 21 Land(at cost) $162,417 $160,429 Equipment 1,683 1,543 Structures and Improvements 8,104 7,207 Retirement of Long-Term Debt $79,758 $81,204 TOTAL ASSETS $22,368 $172,204 $79.758 $21,395 $169,179 $81,204 LIABILITIES AND FUND EQUITY: LIABILITIES Accounts Payable $ $191 27 Accrued Liabilities/Deposits 272 278 Deferred Revenue 223 254 Notes Payable $79,758 $81,204 TOTAL LIABILITIES $636 $0 $79J58 $722 $0 $81,204 FUND EQUITY: Investment in General Fixed Assets $172,204 $169,179 Fund Balance 21.725 20,672 TOTAL FUND EQUITY $21,725 $172,204 $0 $20,672 $169,179 $0 TOTAL LIABILITIES AND EQUITY $22,361 $172,204 $79258 $21395 $169,179 $81,204 Source: Audited Financial Statements. Debt Capacity/Additional Debt Pursuant to the California Public Resources Code, the District may acquire lands or facilities by means of a plan to borrow money or by purchase on contract. The amount of such indebtedness to be incurred may not exceed an amount equal to the District's anticipated tax income for the next five- year period. All such indebtedness must be repaid during a period not to exceed 20 years from the date on which it is incurred and may bear interest at rates not exceeding 12% per annum. Each such indebtedness will be authorized by a resolution adopted by the affirmative votes of at least two-thirds of the members of the Board of Directors of the District. Additional debt may also be subject to pro- visions of parity debt covenants of the District arising from other outstanding obligations. The 1990 Notes, the 199S Notes and the 1996 Notes were issued pursuant to this authority. The District's obli- gation to pay such debt is senior to the District's obligations under the 1999 Lease and other Dis- trict leases. Sources of Funds Tax Revenues. The general ad valorem property tax is the District's major source of revenue, as well as the primary source of funds for the payment of Revenues on the 1999 Lease to pay debt serv- ice on the Bonds. The general ad valorem property tax consists of secured and unsecured property taxes. See "ESTIMATEDTAX REVENUESAND NOTE RETIREMENT" for a description of the District's tax revenues. Grants. In 1998/99, the District projects revenues from grants of $800,000, which amount repre- sents grants for which the District has received approval, pending the completion of land acquisitions or site development for certain projects. In general, the District budgets grant revenues only when the source and amount of the grant have been reasonably assured. Major Uses of Funds. Most of the District's funds are used for the acquisition of open space lands and to service the debt issued for those purposes. In keeping with the policy of the District's Board 23 I of Directors, administrative costs are projected to be kept to a minimum, but land management ex- penditures are anticipated to be an increasing percentage of annual tax revenue. In 1997/98, land acquisition, including debt service on notes issued to buy land in prior years, totaled $7,967,500, ac- counting for approximately 59% of total District expenditures. Other Outstanding Debt Following the execution of the 1999 Lease, the District will have outstanding $12,615,000 of 1990 Notes, $11,400,000 of 1995 Notes and $17,796,481 of 1996 Notes. In addition, the District will have outstanding $16,455,000 aggregate principal amount of lease obligations represented by certificates of participation executed and delivered in 1993, $11,433,720 aggregate principal amount of lease ob- ligations related to the Authority's 1996 revenue bonds and approximately $711,340 principal amount of Land Contract Notes as described below. The District has never defaulted in the payment of any of its debt. Table 8 below lists the District's total indebtedness outstanding as of September 30, 1998, after giving effect to the issuance of the Bonds. The outstanding balance of the Land Contract Notes as shown below is, in the case of the Sierra Azul Contract, an aggregate of the outstanding balances on more than one Land Contract Note. Over time, several parcels constituting one open space area have been purchased at different times through contracts secured by Land Contract Notes with differing maturities and interest rates. In each case, the land has been purchased pursuant to the California Public Resources Code which currently requires payment of debt over not more than 20 years. TABLE 8:DISTRICT DEBT OUTSTANDING AT SEPTEMBER 30, 1998(in thousands of dollars) ORIGINAL AMOUNT OUTSTANDING AMOUNT 1999/00 DEBT SERVICE FINAL PAYMENT Foothills 192 136 18 December 2008 Skyline 500 500 33 March 2003 Sierra Azui(a) 150 75 13 August 2008 1990 Notes 15,000 12,615 1,606 September 2010 1993 Certificates 17,315 16,455 1,267 September 2020 1995 Notes 11,500 11,400 890 March 2015 1996 Revenue Bonds 29,910 29,230 1,911 September 2026 1999 Revenue Bonds 25,590 (a)25,590 633 September 2031 TOTAL 100,157 96,001 6,371 (a) as of the date of issuance of the Bonds. Source: District Controller. Salaries and Benefits Salaries and benefits for the District's 55 full-time, 2 part-time, and 5 seasonal employees repre- sent the third major component of total District expenditures. In 1997/98, $3,133,448 was ex- pended for salaries and benefits. District employees are covered under the Public Employees Re- tirement System administered by the State of California. Other uses of funds include patrol and site development, site maintenance, professional serv- ices, utilities and communications. CONSTITUTIONAL AND STATUTORY TAX LIMITATIONS Constitutional Limitations-Article XIIIA Article XIIIA of the California Constitution limits the maximum ad valorem tax on real property to one percent of "full cash value," to be collected by counties and apportioned according to law, but provides that the one percent limitation does not apply to ad valorem taxes to pay interest or redemption charges on (1) indebtedness approved by the voters. prior to July 1, 1978, or (2) any bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978, by two-thirds of the votes cast by the voters voting on the proposition. "Full cash value" is defined 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 has occurred after the 1975 assessment." The full cash 24 i value may be adjusted annually to reflect inflation at a rate n y � y of to exceed two percent per year, or reduction in the consumer price index or comparable data for the area under taxing jurisdiction or reduced in the event of declining property value caused by substantial damage, destruction or other factors. Legislation enacted by the California Legislature provides that each county will levy the maximum tax permitted by Article XIIIA of $1.00 per $100 of assessed valuation (based on full cash value). 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 and to pro- vide 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 various other minor or technical ways. Gann Initiative At the Statewide special election on November 6, 1979, the voters approved an initiative entitled "Limitation on Government Appropriations" (the "Gann Initiative") which added Article XIIIB to the California Constitution. Under Article XIIIB, as amended in 1990, State and local government enti- ties have an annual "appropriations limit", which limits the ability to spend certain moneys that are called "appropriations subject to limitation" in an amount higher than the "appropriations limits." Article XIIIB does not affect the appropriation of moneys which are excluded from the definition of "appropriations limit", including appropriations of any special district which existed on January 1, 1978, and which did not as of the 1977-78 fiscal year levy an ad valorem tax on property in excess of 12.5 cents per $100 of assessed value. Since the District did not levy a tax in excess of 12.5 cents, in the opinion of the District's General Counsel the District's appropriations are not subject to the limitations of Article XIIIB. Proposition 62 A statutory initiative ("Proposition 62") was adopted by the voters at the November 4, 1986, general election, which (i) requires that any new or higher taxes for general governmental purposes imposed by local governmental entities such as the District be approved by a two-thirds vote of the governmental entity's legislative body and by a majority vote of the voters of the governmental entity voting in an election on the tax, (ii) requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local governmental entity be approved by a two-thirds vote of the voters of the governmental entity voting in an election on the tax, (iii) restricts the use of revenues from a special tax to the purposes or for the service for which the special tax was imposed, (iv) prohibits the imposition of ad valorem taxes on real property by local governmental entities except as permitted by Article XIIIA, (v) prohibits the imposition of transaction taxes and sales taxes on the sale of real property by local governmental entities, and(vi) requires that any tax imposed by a local governmental entity on or after August 1, 1985, be ratified by a majority vote of the voters voting in an election on the tax within two years of the adoption of the initiative or be terminated by November 18, 1988. On September 28, 1995, the California Supreme Court, in the case of Santa Clara County Local Transportation Corporation v. Guardino, upheld the constitutionality of Proposition 62. In that case, the court held that a county-wide sales tax of one-half of one percent was a special tax that, under section 53722 of the Government Code, required a two-thirds voter approval. Because the tax received an affirmative vote of only 54.1 percent, this special tax was found to be invalid. On December 16, 1997, the California Court of Appeal, in the case of McBrearty v. District of Brawley, ruled that a local utility tax adopted in 1991 could be challenged in 1996 for lack of voter approval under Proposition 62, despite the passage of five years, due to the fact that Guardino was not decided until 1995. The court again found Proposition 62 to be constitutional and to apply to local taxes adopted even before Guardino was decided, concluding that the District of Brawley would be left with the choice of holding an election on its utility tax or ceasing to collect the tax. The District does not anticipate any material adverse effect in its financial condition as the result of the Guardino and Brawley cases. Proposition 218 On November 5, 1996, California voters approved Proposition 218, which added Articles XIIIC and XIIID to the California Constitution, imposing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property-related fees and charges. Proposition 25 218 states that all taxes imposed by local governments shall be deemed to be either general taxes or special taxes. Special purpose districts, including school districts, have no power to levy general 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 any 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 imposed 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, fees and charges for property related services as provided in Proposition 218. Proposition 218 then goes on to add 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. In addition, all assessments and fees and charges imposed as an incident of property ownership, including sewer, water and refuse collection services, are subjected to various additional procedures, such as hearings and stricter and more individualized benefit requirements and findings. The effect of such new provisions will presumably be to increase the difficulty a local agency will have in imposing, increasing or extending such assessments, fees and charges. 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 and State constitutional principles relating to the impairments of contracts. Proposition 218 is likely to undergo both judicial and legislative scrutiny before its full impact on the District and its obligations can be determined. Certain provisions of Proposition 218 may be examined by the courts for their constitutionality under both State and federal constitutional law. The District is not able to predict the outcome of any such examination. The foregoing discussion of Proposition 218 should not be considered an exhaustive or authoritative treatment of the issues. The District does not expect to be in a position to control the consideration or disposition of these issues and cannot predict the timing or outcome of any judicial or legislative activity in this regard. Interim rulings, final decisions, legislative proposals and legislative enactments may all affect the impact of Proposition 218 on the Bonds as well as the market for the Bonds. Future Initiatives Article XIIIA, the Gann Initiative and Proposition 62 were each adopted as measures that quali- fied for the ballot pursuant to California's initiative process. From time to time other initiative measures could be adopted, further affecting District revenues or the District's ability to expend revenues. CERTAIN INVESTMENT CONSIDERATIONS THE BONDS ARE SUBJECT TO CERTAIN INVESTMENT RISKS. The following information should be considered by prospective investors in evaluating the Bonds. However, the following does not pur- port to be an exhaustive listing of risks and other considerations which may be relevant to investing in the Bonds, and the order in which the following information is presented is not intended to re- flect the relative importance of any such risks. Each investor and his or her advisors must consider these and other relevant risks in evaluating the suitability of the Bonds for investment. The Authority makes no representation as to such suitability. Bankruptcy and Limitations on Remedies In addition to the limitations on remedies contained in the Trust Agreement and the 1999 Lease, the rights and remedies provided in the Trust Agreement and the 1999 Lease may be limited by and are subject to the provisions of federal bankruptcy laws and to other laws or equitable principles that may affect the enforcement of creditors' rights generally. 26 Under Chapter 9 of the Bankruptcy Code (Title 11, United States Code), which governs the bank- ruptcy proceedings for public agencies such as the Authority and the District, there are no involun- tary petitions in bankruptcy. If the Authority or the District were to file a petition under Chapter 9 of the Bankruptcy Code, the Owners and the Trustee could be prohibited from taking any steps to enforce their rights under the Trust Agreement or the 1999 Lease, and from taking any steps to collect amounts due from the Authority or the District thereunder. No Assurance of Secondary Market for the Bonds The Underwriter is under no obligation to make a secondary market for the Bonds, and no as- surance can be given as to whether such a market will develop. If a secondary market exists, there can be no guarantee that the Bonds can be sold for any particular price. Prices upon resale of the Bonds could be substantially lower than the original purchase price. In addition, due to the small size of the issue, any market for the Bonds will necessarily be limited in size, with only intermittent trading activity expected. Accordingly, a purchaser of the Bonds should be prepared to have his or her funds committed for an indefinite period of time, perhaps until the Bonds mature or are re- deemed. Year 2000 Concerns Overview. Many existing computer programs and chips use only two digits to identify a year in the date field, resulting in the inability of software applications and hardware components to prop- erly process calendar dates during the year 2000 and beyond, as well as some dates in 1999. In ad- dition, certain applications and components may not reflect the fact that the year 2000, unlike other "century years" such as the year 1900, is a leap year. Many believe that the consequences of equipment and systems failures may be more extensive and complex than anticipated, and the effi- cacy of remedial or preventative measures may not meet expectations in some cases. Likewise, the implementation and performance of year'2000 compliance plans may be impaired by a shortage of qualified personnel. The District. The District is working to resolve the potential impact of the year 2000 on the ability of its computerized information systems to accurately process information that may be date- sensitive. The District uses financial systems incorporating computer hardware and software pro- grams as well as equipment containing embedded technology, such as microprocessors, which could inaccurately recognize a date using "00" as the year 1900 rather than the year 2000, possibly resulting in the failure of such systems and/or equipment to perform their intended functions or to support other operations involving such dates. Similar problems may affect a wide range of public utilities and other entities which provide services or payments necessary for the normal operation of the District, and any interruption of such services or payments could disrupt such operations, possibly for a substantial period of time, resulting in a material and adverse effect on the District. Although the District is planning solutions to be implemented and tested prior to the year 2000, there can be no assurance that internal or external factors will not cause significant disruptions in the operations of the District. If the District or any third parties upon it relies are unable to address the year 2000 issues in a timely manner, such failure could result in significant disruptions and a material financial risk to the District. Should such disruptions occur, the District may be subject to claims in substantial amounts, significant portions of which may be uninsured. Such claims could have a material adverse effect on the financial condition of the District. The Counties. The Counties' receipt of tax revenues is subject in part to the performance of computer systems and software which may be subject to year 2000 problems. County of Santa Clara. The County of Santa Clara conducted an assessment of this issue in 1997 and determined that much of its information technology infrastructure required modification or replacement. The County then established a central Year 2000 program office which uses both in-house staff and qualified consultants, with the goal of making possible continuous operation of vital County services and accountability of public resources throughout the year 2000 transition. The County has placed its revenue and payment capabilities at the highest level of priority in its year 2000 efforts, along with public health and safety. While the County cannot guarantee success 27 in this program, it believes that it can be year 2000-ready and that no delays will occur in any pay- ments to the District. County of San Mateo. The County of San Mateo's Chief Information Officer has reported that sufficient appropriations have been made and are expected to be made for the County to correctly identify and modify the necessary internal and external computer resources to replace, upgrade or modify all significant systems which do not correctly identify the year 2000. Most County internal systems, including all financial systems, are considered by the County to be year-2000 compliant already. The County anticipates that all remaining non-medical internal systems will be year-2000 compliant by March 1, 1999, and that all external interfaces (e.g., with the State Board of Equaliza- tion) will be properly modified during 1999. In addition, the County is reviewing its vendors, sup- pliers and other third parties with whom it has substantial financial relationships to determine whether any such parties expect to experience year-2000 problems with consequences to the County. The County has not indicated that it is aware of any substantial problem with such entities which would have a material adverse effect on the County; however, the County can offer no assur- ance that the systems or products of other companies on which the County's systems rely will be timely converted or that any such failure to convert by a vendor, customer or another company would not have an adverse effect on the County's systems. The Trustee. The Trustee has stated that, in its general capacity as a paying agent, registrar, es- crow agent, trustee and depository, and in its specific capacities as Trustee, it intends to meet the federal regulation that all securities processing institutions be year 2000 compliant by Decem- ber 31, 1998. With respect to debt service payments on the Bonds, if the Trustee is provided with funds therefor on a timely basis, the Trustee is prepared to provide manual payment checks to any paying agents and to DTC in the event computer payment systems fail. In no capacity is the Trus- tee prepared to anticipate the performance of the Federal Reserve wire transfer payments system or the effects thereof. Debt service payments due on the Bonds for the first six months of calendar year 2000 will be due only on March 1, 2000. DTC. DTC management is aware that some computer applications, systems and the like for processing data ("Systems") that are dependent upon calendar dates, including dates before, on and after January 1, 2000, may encounter "Year 2000 problems". DTC has informed its Participants and other members of the financial community (the "Industry") that it has developed and is imple- menting a program so that its Systems, as the same relate to the timely payment of distributions (including principal and income payments) to securityholders, book-entry deliveries and settlement of trades within DTC ("DTC Services"), continue to function appropriately. This program includes a technical assessment and a remediation plan, each of which is complete. Additionally, DTC's plan includes a testing phase, which is expected to be completed within appropriate time frames. However, DTC's ability to perform properly its services is also dependent upon other parties, including but not limited to issuers and their agents, as well as third-party vendors from whom DTC licenses software and hardware, and third-party vendors on whom DTC relies for information or the provision of services, including telecommunication and electrical utility service providers, among others. DTC has informed the Industry that it is contacting (and will continue to contact) third- party vendors from whom DTC acquires services to: (i) impress upon them the importance of such services being Year 2000 compliant and (ii) determine the extent of their efforts for Year 2000 re- mediation (and, as appropriate, testing) of their services. In addition, DTC is in the process of de- veloping such contingency plans as it deems appropriate. According to DTC, the foregoing information with respect to DTC has been provided to the In- dustry for informational purposes only and is not intended to serve as a representation, warranty, or contract modification of any kind. LEGAL MATTERS All legal proceedings in connection with the issuance of the Bonds are subject to the approval of Orrick, Herrington & Sutcliffe LLP, San Francisco, California, Bond Counsel. Bond Counsel assumes no responsibility for the accuracy, completeness or fairness of this Official Statement. The pro- posed form of the opinion of Bond Counsel is set forth in APPENDIX C to this Official Statement. 28 TAX MATTERS In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel, based on existing laws, regu- lations, rulings and court decisions, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the "Code") and is exempt from State of California personal income taxes. Bond Counsel is also of the opinion that in- terest on the Bonds is not a specific preference item for purposes of federal individual or corporate alternative minimum taxes although Bond Counsel observes that such interest is included in ad- justed current earnings in calculating federal corporate alternative minimum taxable income. The proposed form of the opinion of Bond Counsel is set forth in APPENDIX C to this Official Statement. The difference, if any, between the issue price of any maturity of the Current Interest Bonds or the Capital Appreciation Bonds, and the amount to be paid at maturity of such Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Bonds) constitutes "original issue discount," the accrual of which, to the extent properly allocable to each owner thereof, is treated as interest on such Bonds, which is excluded from gross income for federal in- come tax purposes and is exempt from State of California personal income taxes. For these pur- poses; the issue price of a particular maturity of such Bonds is the first price at which a substantial amount of such maturity of such Bonds is sold to the public (excluding bond houses, brokers, or similar persons, or organizations acting in the capacity of underwriters, placement agents, or wholesalers). The original issue discount with respect to any maturity of such Bonds accrues daily over the term of maturity of such Bonds on the basis of a constant interest rate compounded semi- annually (with straight-line interpolations between compounding dates). The accruing original is- sue discount is added to the adjusted basis of such Bond to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Bonds. Owners of the Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of purchasers who do not purchase such Bonds in the original offering to the public at the first price at which a substantial amount of such Bonds is sold to the public. Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) ("Premium Bonds") will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a purchaser's basis in a Premium Bond, will be reduced by the amount of am- ortizable bond premium properly allocable to such purchaser. Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. The Authority has covenanted to comply with certain restrictions designed to assure that interest on the Bonds will not be included in federal gross income. Failure to comply with these covenants may result in interest on the Bonds being included in federal gross income, possibly from the date of issuance of the Bonds. The opinion of Bond Counsel assumes compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after the date of issuance of the Bonds may af- fect the value of, or tax status of interest on, the Bonds. Further, no assurance can be given that pending or future legislation or amendments to the Code, if enacted into law, or any proposed leg- islation or amendments to the Code, will not adversely affect the value of, or the tax status of inter- est on, the Bonds. Prospective holders are urged to consult their own tax advisors with respect to proposals to restructure the federal income tax. Certain requirements and procedures contained or referred to in the Trust Agreement and other relevant documents may be changed and certain actions (including, without limitation, defeasance of the Bonds) may be taken, under the circumstances and subject to the terms and conditions set forth in such documents, upon the advice or with the approving opinion of nationally recognized bond counsel. 29 Although Bond Counsel has rendered an opinion that interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from California personal income taxes, the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may otherwise affect a holder's federal or state tax liability. The nature and extent of these other tax conse- quences will depend upon the particular tax status of the holder and the holder's other items of in- come or deduction. Bond Counsel expresses no opinion regarding any such other tax conse- quences. LEGALITY FOR INVESTMENT The Bonds are legal investments in California for commercial and savings banks and as such are legal investments for all trust funds, and for funds of insurance companies and trust companies. The Bonds are eligible as security for deposits of public moneys in California. RATINGS Moody's Investors Service and Standard & Poor's Ratings Group have assigned their ratings of "Aaa" and "AAA", respectively, to the Bonds with the understanding that upon delivery of the Bonds, a policy insuring the payment when due of the principal of and interest on the Bonds will be issued by Ambac. Such ratings reflect only the views of such organizations and an explanation of the significance of such ratings may be obtained from them as follows: Moody's Investors Service, 99 Church Street, New York, New York 10007, (212) 553-0300; and Standard & Poor's Corporation, 25 Broadway, New York, New York 10004, (212) 208-8000. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by the rating agency if, in the judgment of such rating agency, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the mar- ket price of the Bonds. LITIGATION There is no litigation pending concerning the validity of the Bonds and the application of the proceeds thereof, the corporate existence of the Authority, the District, or the title of the officers thereof to their respective offices or contesting or affecting the District's ability to receive the Lim- ited Taxes or other moneys that could be used for payment of the Bonds. There are a number of lawsuits and claims pending against the District. The aggregate amount of the uninsured liabilities of the District and the timing of any anticipated payments of judgments which may result from suits and claims will not, in the opinion of the General Counsel of the District, materially affect the District's finances or impair its ability to make Revenue payments under the 1999 Lease, or the Authority's repayment of the Bonds. UNDERWRITING The Bonds will be purchased from the Authority by Stone & Youngberg LLC as underwriter (the "Underwriter") under a Purchase Contract pursuant to which the Underwriter has agreed to pur- chase all of the Bonds for an aggregate purchase price of $[AMOUNT]. Such purchase price is based on an initial par amount of $[AMOUNT] less an original issue discount to investors of $[AMOUNT] and less an underwriter's discount of $[AMOUNT]. The initial public offering prices stated on the cover of this Official Statement may be changed from time to time by the Underwriter. The Underwriter may offer and sell the Bonds to certain dealers (including dealers depositing Bonds into investment trusts), dealer banks, banks acting as agents and others at prices lower than said public offering prices. CONTINUING DISCLOSURE The Authority and the District have covenanted for the benefit of the owners and the beneficial owners of the Bonds to provide certain financial information and operating data relating to the Dis- trict by no later than 210 days following the end of the District's fiscal year (presently March 31) 30 (the "Annual Report"), commencing with the report for the 1998/99 Fiscal Year, and to provide no- tices of the occurrence of certain enumerated events, if deemed by the Authority or the District to be material under federal securities laws. The Annual Report will be filed by the Trustee on behalf of the District with each Nationally Recognized Municipal Securities Information Repository and State Repository, if any. The notices of material events will be filed by the Trustee on behalf of the District with the Municipal Securities Rulemaking Board. The specific nature of the information to be contained in the annual Report or the notices of material events is set forth below in "APPENDIX D: Form of Continuing Disclosure Agreement". These covenants have been made in order to assist the Underwriter in complying with SEC Rule I.ScI2(b)(5) (the "Rule"). Neither the Authority nor the Dis- trict has ever failed to comply with such covenants. A failure by the District or the Authority to comply with the provisions of the Continuing Disclo- sure Agreement will not constitute a default under the Trust Agreement (although Bondholders will have any available remedy at law or in equity). Nevertheless, such a failure to comply must be re- ported in accordance with the Rule and must be considered by any broker, dealer or municipal se- curities dealer before recommending the purchase or sale of the Bonds in the secondary market. Consequently, such a failure may adversely affect the transferability and liquidity of the Bonds. AVAILABILITY OF DOCUMENTS During the initial offering period for the Bonds, copies of the forms of the Trust Agreement and other documents referred to herein may be obtained, upon written request, from Midpeninsula Re- gional Open Space District Financing Authority, 330 Distel Circle, Los Altos, California 94022, Atten- tion: Chairperson. After delivery of the Bonds, copies of such agreements may be obtained from the Trustee, BNY Western Trust Company, 700 South Flower Street, Suite 500, Los Angeles, Califor- nia 90017-4104, Attention: Corporate Trust Department. MISCELLANEOUS Insofar as any statements made in this Official Statement involve matters of opinion or of esti- mates, whether or not expressly stated, they are set forth as such and not as representations of fact. No representation is made that any of such statements made will be realized. Neither this Official Statement nor any statement which may have been made verbally or in writing is to be construed as a contract with the registered owners of the Bonds. The execution and delivery of this Official Statement have been duly authorized by the Authority. MIDPENINSULA REGIONAL OPEN SPACE DISTRICT FINANCING AUTHORITY Chairperson 31 APPENDIX A: DISTRICT'S AUDITED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 1998,AND MARCH 31, 1997 A- 1 4 C FAX I,-;Z 7 Report of Independent Certified Public Accountants Grant- Thornton 4XV, GRMT THORNTON -- Accountants and Management Consultants The U.S. member Firm of Grant Thornton International The Board of Directors Midpeninsula Regional Open Space District We have audited the accompanying combined balance sheet of the Midpeninsula Regional Open Space District (the "Districr) as of March 31, 1998, and the related statement of revenues, expenditures and changes in fund balance, budget and actual, of the General Fund for the year then ended. These financial statements are the responsibility of the District's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the District at March 31, 1998, and the results of operations and changes in fund balance of the General Fund for the year then ended in conformity with generally accepted accounting principles. A,,,,f T;0tjM LLP San Jose, California May 22, 1998 Midpeninsula Regional Open Space District COMBINED BALANCE SHEET March 31, 1998 Account Groups General General Total General Agency Fixed Long-Term (Memorandum ASSETS Fund Fund Assets Debt Only) Cash, including interest-bearing deposits and cash equivalents $ 13,122,725 $ $ $ S 13,122,725 Restricted cash and cash equivalents 1,788,190 1,788,190 Unrestricted investments 443,109 443,109 Restricted investments 3,586,156 2,367,236 5,953,392 Property tax and other receivables 3,404,647 - 3,404,647 Prepaid expenses 23,321 23,321 Land - 162,417,029 162,417,029 Structures and improvements - 8,104.227 8,104,227 Equipment 1,682,504 1,682,504 Amount available in General Fund - - 5.817 455 5,817,455 Amount to be provided for retirement of general long-term debt - 73,940,571 73 940.571 TOTAL ASSETS S 22,368,148 S 2,367,236 $ 172,203,760 $ 79,758,026 S 276.697 170 LIABILITIES AND FUND EQUITY Liabilities Accounts payable $ 141,210 S $ - $ $ 141.210 Accrued liabilities 183.319 183.319 Deposits 29,903 29,903 Deferred revenue 289,192 289,192 Deferred compensation - 2,367,236 2,367,236 Long-term debt 79,758,026 79.758,026 Total liabilities 643,624 2,367,236 79,758,026 82,768,886 Fund equity Investment in general fixed assets - 172,203.760 172,203,760 Fund balance 21,724.524 21,724,524 Total fund equity 21,724,524 - 172,203,760 193,928,284 TOTAL LIABILITIES AND FUND EQUITY S 22,368.148 $ 2,367,236 S 172.203,760 $ 79,758.026 S 276.697,170 The accompanying notes are an integral part of this statement. Midpeninsula Regional Open Space District STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL - GENERAL FUND For the year ended March 31, 1998 Variance Favorable Budget Actual (Unfavorable) REVENUES General property tax $ 10,980,000 $ 11,313,406 $ 333.406 State grants 886,000 585,422 (300,578) Other property taxes 180,000 224,259 44,259 Interest 845,000 1,353,222 508,222 Rental income and other 643,000 982,469 339,469 Total 13,534,000 14,458,778 924,778 EXPENDITURES Salaries and benefits 3,390,650 3,133,448 257,202 Professional services 254,850 244,828 10,022 Vehicle expenses 155,000 136,417 18,583 Rent 10,000 8,962 1,038 Site supplies and services 214,800 197,111 17,689 Utilities and communications 167,400 171,911 (4,511) Other 550,225 498,047 52,178 Acquisitions: Land 13,154,000 1,987,950 11,166,050 Structures and improvements 994,800 897,098 97,702 Equipment 143,500 151,380 (7,880) Debt service Principal retirement 1,445,950 1,445,974 (24) Interest 4,533,650 4,533,576 74 Total 25,014,825 13,406,702 11,608,123 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (11,480,825) 1,052,076 12,532,901 Fund balance, April 1, 1997 20,672,448 20,672,448 - Fund balance, March 31, 1998 $ 9,191,623 $21,724,524 $ 12,532.901 The accompanying notes are an integral part of this statement. Midpeninsula Regional Open Space District NOTES TO FINANCIAL STATEMENTS March 31, 1998 NOTE A •ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES 1 2MKization The Midpeninsula Regional Open Space District (the "District") was formed in 1972 to acquire and preserve open space land in the northern and western portions of Santa Clara County. In June 1976, the southern and eastern portion of San Mateo County was annexed to the District. The District annexed a small portion of the northern tip of Santa Cruz County in 1992, 2. Reporting Entity The District and the Midpeninsula Regional Open Space District Financing Authority (the ""Authority") have a financial and operational relationship which meets the reporting entity definition criteria of GASB Statement No. 14, The Financial Reporting Entity, for inclusion of the Authority as a component unit of the District. Accordingly, the financial activities of the Authority have been included in the financial statements of the District. The following are those aspects of the relationship between the District and the Authority which satisfy GASB No. 14 criteria. Accountability 1. The Authority's Board of Directors was appointed by the Districts Board of Directors, except for the member appointed by the Board of Supervisors of Santa Clara County, 2. The District is able to impose its will upon the Authority, based on the following: • All major financing arrangements, contracts, and other transactions of the Authority must have the consent of the District. • The District exercised significant influence over operations of the Authority. The District is the sole obligator for any obligations issued by the Authority. 3, The Authority provides specific financial benefits or imposes specific financial burdens on the District based upon the following: • Any deficits incurred by the Authority will be reflected in the payments of the District. • Any surpluses of the Authority revert to the District. Scope of Public Service The Authority is organized as a joint powers authority pursuant to the California Government Code. The Authority was formed for the sole purpose of providing financing assistance to the District to fund the acquisition of land to preserve and use as open space. The District intends to manage and occupy all properties financed by the Authority. Midpeninsula Regional Open Space District NOTES TO FINANCIAL STATEMENTS (continued) March 31, 1998 NOTE A -ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued) Financial Presentation For financial presentation purposes, the Authority's financial activity has been blended, or combined, with the financial data of the District. The financial statements present the Authority's financial activity within the General Fund and the Account Groups. The 1996 Revenue Bonds issued by the Authority are included in the General Long-Term Debt Account Group, 3. Basis of Accounting The records of the District are maintained on the modified accrual basis of accounting. Under this method, revenues are generally recognized in the period they become measurable and available, and expenditures are generally recognized when the obligation is incurred, except for interest on long-term debt, which is recognized as an expenditure when due. Substantially all revenues are susceptible to accrual. 4 Budgets and Budgetary Accounting The Board of Directors of the District adopts an annual operating budget on or before March 31 for the ensuing fiscal year. The Board of Directors may amend the budget by resolution during the fiscal year. All appropriations lapse at the end of the fiscal year. The budget is presented on a basis consistent with generally accepted accounting principles. 5. Agency Fund The Agency Fund accounts for the assets of the District's deferred compensation plan which are held by the District as an agent for its employees. 6. General Fixed Assets Land, structures, improvements, and equipment purchased by the District are stated at cost in the General Fixed Assets Account Group. Assets donated to the District are stated at their estimated fair market value as of the date received. Depreciation is not recorded for fixed assets. 7. Long-term Debt The principal portion of long-term debt is recorded as a liability in the General Long-Term Debt Account Group, Midpeninsula Regional Open Space District NOTES TO FINANCIAL STATEMENTS (continued) March 31, 1998 NOTE A •ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued) 8. Property Tax Levy, Collection and Maximum Rates The State of California ("State") Constitution Article XIII A provides that the combined maximum property tax rate on any given property may not exceed one percent of its assessed value unless an additional amount for general obligation debt has been approved by voters. Assessed value is calculated at 100 percent of market value as defined by Article XIII A and may be increased by no more than two percent per year unless the property is sold or transferred. The State Legislature has determined the method of distribution of receipts from the one percent tax levy among the counties, cities, school districts and other districts. The District receives property tax revenues from Santa Clara and San Mateo Counties. The Counties assess properties, bill for and collect property taxes as follows: Secured Unsecured Valuation dates March 1 March 1 Lien/Levy dates July 1 March 1 Due dates 50% on November 1 July 1 50% on February 1 Delinquent as of December 10 (for November) August 31 April 10 (for February) Property taxes are distributed to the District by the Counties following their collection. Unsecured taxes are levied on personal property other than real estate, land and buildings. These taxes are secured by liens on the property being taxed. 9, Compensated Absences Vacation pay is recorded as an expenditure in the year earned. Sick leave is recorded as an expenditure when paid. 10. Use of Estimates In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as revenues and expenses during the reporting period. Actual results could differ from those estimates. Midpeninsula Regional Open Space District NOTES TO FINANCIAL.STATEMENTS (continued) March 31, 1998 NOTE A -ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued) 11. Total (Memorandum Only) The column in the financial statements captioned "Total (Memorandum Only)" is presented for purposes of additional analysis and is not a required part of the basic financial statements. This information is not comparable to a consolidation and does not present financial position in conformity with generally accepted accounting principles. NOTE B -CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of the following at March 31, 1998: Deposits Cash on hand and bank overdraft- unrestricted $ (97,668) Cash in banks- restricted 1,779,628 Pooled Funds Cash in Santa Clara County Treasury - unrestricted 13,220,393 Cash in Santa Clara County Treasury - restricted 8,562 Cash balances held in banks are insured up to $100,000 by the Federal Depository Insurance Corporation. The Santa Clara County investment pool is subject to legal restrictions, and additional restrictions prescribed by the County. NOTE C - DEFERRED COMPENSATION INVESTMENTS Investments with a fair market value of $2,367,236 at March 31, 1998, included in the Agency Fund, are restricted for the District's deferred compensation plan. The investments of the plan are held by the District's agent in the Districts name. NOTE D - INVESTMENTS The District maintains certain restricted investments for purposes of satisfying the future requirements of its long-term debt. The District also maintains certain unrestricted investments that are held by Santa Clara County. All investments held are U.S. Government securities with a maturity date of August 31, 1999. All U.S. Government securities are insured or collateralized with securities held by the District or its agent in the District's name. The type of investments made by the District are restricted by state law. The investments are recorded at cost which approximates fair market value as of March 31, 1998. Midpeninsula Regional Open Space District NOTES TO FINANCIAL STATEMENTS (continued) March 31, 1998 NOTE E -FIXED ASSETS Changes in the General Fixed Assets Account Group for the year ended March 31, 1998 were as follows.. Balances Balances April 1, March 31, 1997 Additions Retirements 1998 Land $ 160,429,360 $ 1,987,669 $ $ 162,417,029 Structures and improvements 7,206,848 897,379 8,104,227 Equipment 1,543,066 151,380 11,942 1,682,504 $ 169,179,274 $ 3,036,428 $ 11,942 $ 172,203,760 All fixed assets additions during fiscal 1997 were acquired through general fund expenditures. NOTE F - LONG-TERM DEBT Long-term debt issued to acquire land, structures and improvements, and equipment is recorded in the General Long-Term Debt Account Group. Changes in the account group for the year ended March 31, 1998 were as follows: Long-term debt, April 1, 1997 $81,204,000 Principal repayments 1,445,974 Long-term debt, March 31, 1998 $79,758,026 The following is a detail of the long-term debt of the District as of March 31, 1998: a Long-term debt $717,825 bears interest at fixed rates from 6% to 7% at March 31, 1998 and is collateralized by land. a 1990 Notes, principal balance of $13,270,000, bearing interest at rates ranging from 6.50% to 7,50%, maturing annually from September 1, 1995 through September 1, 2010, * 1992 Notes, principal balance of $7,680,000, bearing interest at rates ranging from 5% to 6.35% maturing annually from July 1, 1997 through July 1, 2012. • 1993 Certificates of Participation including Serial Certificates with a principal balance of$6,570,000, bearing interest at rates ranging from 2.90% to 5.6% maturing annually from September 1, 1994 through September 1, 2009. This issue also includes $4,345,000 of 5.70% Term Certificates due on September 1, 2014 and $5,910,000 of 5.75% Term Certificates due on September 1, 2020. Midpeninsula Regional Open Space District NOTES TO FINANCIAL STATEMENTS (continued) March 31, 1998 NOTE F - LONG-TERM DEBT(continued) • 1995 Notes, principal balance of $11,500,000, comprised of $1,355,000 of Serial Notes, bearing interest at rates ranging from 5.75% to 7%, maturing annually from September 1, 1998 through September 1, 2009, and $10,145,000 of 7% term notes due on September 1, 2014, • 1996 Notes, principal balance of $29,765,201, including $18,630,000 of Current Interest Bonds, bearing interest at rates ranging from 3.9% to 5.75% maturing annually from September 1, 1997 through September 1, 2012. This issue also includes $4,900,000 of Current Interest Term Bonds, bearing interest at 5.9% due September 1, 2014 and $6,235,201 of Capital Appreciation Bonds, bearing interest at rates ranging from 6.2% to 6.3%, maturing annually from September 1, 2015 through September 1, 2026. All notes are payable from limited ad valorem property taxes levied on all taxable property within the District. The District has not pledged its full faith and credit or taxing power for payment of the notes nor are the notes collateralized by any District property. Maturities of long-term debt are as follows: Year ending March 31 Principal Interest Total 1999 $ 2,001,951 $ 4,440,435 $ 6,442,386 2000 2,203,031 4,326,246 6,529,277 2001 2,364,170 4,199,061 6,563,231 2002 2,552,405 4,057,826 6,610,231 2003 3,247,088 3,903,046 7,150,134 Thereafter through 2027 67,386,381 47,333,932 114,723,313 $ 79.758,026 $ 68,260,546 $ 148.018,572 NOTE G -EMPLOYEES' RETIREMENT PLAN All regular employees are eligible to participate in the Public Employees' Retirement Fund (the "Fund") of the State of California's Public Employees Retirement System ("PERS"). The Fund, an agent multiple-employer defined benefit retirement plan that acts as a common investment and administrative agent for various local and state governmental agencies within California, is administered by a Board of Administration composed of individuals who are (1) elected by PERS members, (2) appointed by elected State of California officials, and (3) specific elected State of California officials. The Fund provides retirement, disability, and death benefits. Such benefits are based on each employee's years of service, age and final compensation. Employees vest after five years of service and are eligible to receive retirement benefits at age 50. These benefits provisions and all other requirements are established by State statute and District resolution. Midpeninsula Regional Open Space District NOTES TO FINANCIAL STATEMENTS (continued) March 31, 1998 NOTE G - EMPLOYEES' RETIREMENT PLAN (continued) For the year ended March 31, 1998, the District made contributions to the Fund of $201,520. The District's payroll for employees covered by the Fund for the year ended March 31, 1998 was $2,512.880 from a total payroll of $2,600,128. District participation in the Fund is comprised of 58 active employees of a total of 69 employees. The District's required employer contribution rate is 3.29%. The employees' required contribution rate is 7%, which is currently funded by the District. Funding Status and Progress The "pension" benefit obligation is determined for each participating employer by the Fund's actuary and is a standardized disclosure measure that results from applying actuarial assumptions to estimate the present value of pension benefits, adjusted for the effects of projected salary increases and step rate benefits, to be payable in the future as a result of employee service to date. The measure is intended to help users assess the funding status of the District's portion of the Fund to which contributions are made on a going-concern basis, assess progress made in accumulating sufficient assets to pay benefits when due, and make comparisons among employers. The measure is the actuarial present value of credited projected benefits and is independent of the funding method used. The "excess of net assets available for benefits over the pension benefit obligation" was computed as part of an actuarial valuation performed as of June 30, 1996 (most recent valuation). Significant actuarial assumptions used in the valuation include (a) rate of return on the investment of present and future assets of 8.50% per year compounded annually: (b) projected salary increases of 4.5% per year attributable to inflation; (c) across the board real salary increases of 0.0%; and (d) additional projected salary increases, that vary by length of service, each year and are attributable to merit/longevity. Information applicable to the District's employee group at June 30, 1996 (the latest date for which the information is available) follows: Pension benefit obligation: Retirees and beneficiaries currently receiving benefits and terminated employees not yet receiving benefits $ 920,393 Current employees- Accumulated employee contributions and allocated investment earnings 1,560,152 Employer-financed, vested 784,079 Employer-financed, nonvested 95,696 Total pension benefit obligation 3,360,320 Net assets available for benefits, at cost(total market value, $5,133,828) 4,780,546 Unfunded pension benefit obligation (surplus) $(1,420,227) Changes in the pension benefit obligation from last year due to: Changes in benefit provisions $ Changes in actuarial assumptions Midpeninsula Regional Open Space District NOTES TO FINANCIAL STATEMENTS (continued) March 31, 1998 NOTE G - EMPLOYEES' RETIREMENT PLAN (continued) Actuarially Determined Contributions Required and Contributions Made The funding policy of the Fund provides for actuarially determined periodic contributions by the District at rates such that sufficient assets will be available to pay Fund benefits when due. The District's contribution calculation for the year ended March 31, 1998 was made in accordance with the actuarially determined requirements computed as of June 30, 1996. The contribution rate for normal cost is determined using the credited projected benefits actuarial funding method. The Fund uses the level percentage of payroll method to amortize the liability over an eight-year period. Significant actuarial assumptions used in the 1996 valuation to compute the actuarially determined contribution requirements are the same as those used to compute the pension benefit obligation as described above. Historical Trend Information Trend information gives an indication of the progress made in accumulating sufficient assets to pay for benefits when due. System wide ten-year trend information may be found in the California Public Employees' Retirement Systems' annual report. Trend information for the District for each of the five years in the period ended June 30, 1996 (the period for which information is available) is as follows (dollars in thousands): 1996 1995 1994 1993 1992 Net assets available for benefits $ 4,781 $ 4,206 $ 3,631 $ 2,868 $ 2,459 Pension benefit obligation 3,360 3,150 2,619 2,345 2,124 Excess of net assets over the pension benefit obligation 1 421 1 056 L1012 L 523 L 335 Percentage funded 142% 133% 139% 122% 116% Annual covered payroll $ 2,736 $ 2,585 $ 2,293 $ 2,013 $ 1,876 Excess of net assets over the pension obligation as a percentage of covered payroll 52% 41% 44% 26% 17.9% Employer contributions as a percentage of covered payroll 7.4% 7.7% 6.1% 12.4% 10.2% Midpeninsula Regional Open Space District NOTES TO FINANCIAL STATEMENTS (continued) March 31, 1998 NOTE H -DEFERRED COMPENSATION PLAN During 1988, the District established a deferred compensation plan for its employees in accordance with California Government Code Section 53212 and Internal Revenue Code Section 457. The plan, available to all District employees, permits them to defer a portion of their salary until future years. The deferred compensation is not available to employees until termination, retirement, death or unforeseeable emergency. All amounts of compensation deferred under the plan, all property and rights purchased with those amounts, and all income attributable to those amounts, property or rights are (until paid or made available to employee or other beneficiary) solely the property and rights of the District (without being restricted to the provisions of benefits under the Plan), subject only to the claims of the District's general creditors. Participants' rights under the plan are equal to those of general creditors of the District in an amount equal to the fair market value of the deferred account for each participant. Changes in the assets (restricted investments) of the deferred compensation plan for the year ended March 31, 1998 are as follows: Balance, April 1, 1997 $ 1,645,870 Additions 754,969 Payments 33,603 Balance, March 31, 1998 $ 2,367.236 NOTE I - LEASE REVENUES The District leases certain land and structures to others under operating leases with terms generally on a month-to-month basis. Lease revenue received was approximately $590,584 during the year ended March 31, 1998. NOTE J - LITIGATION The District is named in certain claims and litigation. In the opinion of management, after consultation with counsel, the liability, if any, resulting therefrom will not have a material effect on the District's financial position. 3-,e,Fey e.jr- San'Ose -,A ax 4 Report of Independent Certified Public Accountants Grant- Thornton 0 GRANT rooRwoN ,P Accountants and Management Consultants The U S Member Firm of Grant Thornton International The Board of Directors Midpeninsula Regional Open Space District We have audited the accompanying combined balance sheet of the Midpeninsula Regional Open Space District (the "District") as of March 31, 1997, and the related statement of revenues, expenditures and changes in fund balance, budget and actual, of the General Fund for the year then ended. These financial statements are the responsibility of the District's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the District at March 31, 1997, and the results of operations and changes in fund balance of the General Fund for the year then ended in conformity with generally accepted accounting principles. San Jose, California June 4, 1997 r Midpeninsula Regional Open Space District COMBINED BALANCE SHEET March 31,1997 Account Groups General General Total General Agency Fixed Long-Term (Memorandum ASSETS Fund Fund Assets Debt Only) Cash, including interest-bearing deposits and cash equivalents $ 13,882.140 $ $ $ S 13,882,140 Restricted cash and cash equivalents 479,178 - 479,178 Restricted investments 5,308,566 1,645,870 6,954,436 Property tax and other receivables 1,703,459 - 1,703,459 Prepaid expenses 21,298 21,298 Land - 160,429,360 160,429,360 Structures and improvements - 7,206,848 7,206.848 Equipment - 1,543.066 1,543,066 Amount available in General Fund - 5,787,744 5,787,744 Amount to be provided for retirement of general long-term debt - - - 75,416,256 75,416.256 TOTAL ASSETS S 21.394,641 S 1,645,870 S 169.179,274 $ 81.204,000 S 273.423.785 LIABILITIES AND FUND EQUITY Liabilities Accounts payable $ 190.632 S $ $ $ 190,632 Accrued liabilities 248,048 - - 248,048 Deposits 29,615 29,615 Deferred revenue 253,898 - 253,898 Deferred compensation - 1,645,870 1,645,870 Long-term debt - 81,204,000 81,204.000 Total liabilities 722,193 1,645,870 • 81,204,000 83,572,063 Fund equity Investment in general fixed assets 169,179,274 t69,179.274 Fund balance 20,672.448 20.672,448 Total fund equity 20.672,448 - 169,179,274 - 189,851,722 TOTAL LIABILITIES AND FUND EQUITY $ 21.394,641 S 1.645.870 $ 169,179,274 $ 81,204,000 S 273.423,785 The accompanying notes are an integral part of this statement. Midpeninsula Regional Open Space District STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL- GENERAL FUND For the year ended March 31, 1997 Variance Favorable Budget Actual (Unfavorable) REVENUES General property tax $ 10,445,000 $10,025,454 $ (419,546) State grants 493,000 195,264 (297,736) Other property taxes 180,000 183,139 3,139 Interest 520,000 710,747 190,747 Rental income and other 588,000 647,332 59,332 Total 12,226,000 11,761,936 (464,064) EXPENDITURES Salaries and benefits 3,138,500 3,038,125 100,375 Professional services 288,400 283,378 5,022 Vehicle expenses 142,700 143,110 (410) Rent 9,200 8,251 949 Site supplies and services 203,200 185,949 17,251 Utilities and communications 129,800 116,226 13,574 Other 463,650 422,532 41,118 Acquisitions'. Land 8,402,000 930,284 7,471,716 Structures and improvements 1,141,400 847,442 293,958 Equipment 131,650 133,935 (2,285) Debt service Principal retirement 810,000 639,960 170,040 Interest 4,025,800 4,720,651 (694,851) Total 18,886,300 11,469,843 7,416,457 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (6,660,300) 292,093 6,952,393 OTHER FINANCING SOURCES (USES) Proceeds from sale of land, net - 600,000 600,000 Proceeds from issuance of long-term debt, net 28,621,000 28,615,726 (5,274) Repayment of long-term debt (19,660,000) (18,653,476) 1,006,524 Total 8,961,000 10,562,250 1,601,250 REVENUES AND OTHER FINANCING SOURCES OVER (UNDER) EXPENDITURES 2,300,700 10,854,343 8,553,643 Fund balance, April 1, 1996 9,818,105 9,818,105 Fund balance, March 31, 1997 $ 12,118,805 $20,672,448 $ 8,553,643 The accompanying notes are an integral part of this statement. Midpeninsula Regional Open Space District NOTES TO FINANCIAL STATEMENTS March 31, 1997 NOTE A- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES 1. Organization The Midpeninsula Regional Open Space District (the "District*) was formed in 1972 to acquire and preserve open space land in the northern and western portions of Santa Clara County. In June 1976, the southern and eastern portion of San Mateo County was annexed to the District. The District annexed a small portion of the northern tip of Santa Cruz County in 1992. 2. Reporting Entity The District and the Midpeninsula Regional Open Space District Financing Authority (the "Authority") have a financial and operational relationship which meets the reporting entity definition criteria of GASB Statement No. 14, The Financial Reporting Entity, for inclusion of the Authority as a component unit of the District. Accordingly, the financial activities of the Authority have been included in the financial statements of the District. The following are those aspects of the relationship between the District and the Authority which satisfy GASB No. 14 criteria. Accountability 1. The Authority's Board of Directors was appointed by the District's Board of Directors. 2. The District is able to impose its will upon the Authority, based on the following: • All major financing arrangements, contracts, and other transactions of the Authority must have the consent of the District. • The District exercised significant influence over operations of the Authority. The District is the sole obligator for any obligations issued by the Authority. 3. The Authority provides specific financial benefits or imposes specific financial burdens on the District based upon the following: • Any deficits incurred by the Authority will be reflected in the payments of the District. • Any surpluses of the Authority revert to the District. Scope of Public Service The Authority is organized as a joint powers authority pursuant to the California Government Code. The Authority was formed for the sole purpose of providing financing assistance to the District to fund the acquisition of land to preserve and use as open space. The District intends to manage and occupy all properties financed by the Authority. i Midpeninsula Regional Open Space District NOTES TO FINANCIAL STATEMENTS (continued) March 31, 1997 NOTE A- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued) Financial Presentation For financial presentation purposes, the Authority's financial activity has been blended, or combined, with the financial data of the District. The financial statements present the Authority's financial activity within the General Fund and the Account Groups. The 1996 Revenue Bonds issued by the Authority are included in the General Long-Term Debt.Account Group. 3. Basis of Accounting The records of the District are maintained on the modified accrual basis of accounting. Under this method, revenues are generally recognized in the period they become measurable and available, and expenditures are generally recognized when the obligation is incurred, except for interest on long-term debt, which is recognized as an expenditure when due. Substantially all revenues are susceptible to accrual. 4. Budgets and Budgetary Accounting The Board of Directors of the District adopts an annual operating budget on or before March 31 for the ensuing fiscal year. The Board of Directors may amend the budget by resolution during the fiscal year. All appropriations lapse at the end of the fiscal year. The budget is presented on a basis consistent with generally accepted accounting principles. 5. Agency Fund The Agency Fund accounts for the assets of the District's deferred compensation plan which are held by the District as an agent for its employees. 6. General Fixed Assets Land, structures, improvements, and equipment purchased by the District are stated at cost in the General Fixed Assets Account Group. Assets donated to the District are stated at their estimated fair market value as of the date received. Depreciation is not recorded for fixed assets. 7. long-term Debt The principal portion of long-term debt is recorded as a liability in the General Long-Term Debt Account Group. Midpeninsula Regional Open Space District NOTES TO FINANCIAL STATEMENTS (continued) March 31, 1997 NOTE A- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued) 8. Property Tax Levy, Collection and Maximum Rates The State of California ("State") Constitution Article XIII A provides that the combined maximum property tax rate on any given property may not exceed one percent of its assessed value unless an additional amount for general obligation debt has been approved by voters. Assessed value is calculated at 100 percent of market value as defined by Article XIII A and may be increased by no more than two percent per year unless the property is sold or transferred. The State Legislature has determined the method of distribution of receipts from the one percent tax levy among the counties, cities, school districts and other districts. The District receives property tax revenues from Santa Clara and San Mateo Counties. The Counties assess properties, bill for and collect property taxes as follows: Secured Unsecured Valuation dates March 1 March 1 Lien/Levy dates July 1 March 1 Due dates 50% on November 1 July 1 50% on February 1 Delinquent as of December 10 (for November) August 31 April 10 (for February) Property taxes are distributed to the District by the Counties following their collection. Unsecured taxes are levied on personal property other than real estate, land and buildings. These taxes are secured by liens on the property being taxed. 9. Compensated Absences Vacation pay is recorded as an expenditure in the year earned. Sick leave is recorded as an expenditure when paid. 10. Use of Estimates in preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as revenues and expenses during the reporting period. Actual results could differ from those estimates. Midpeninsula Regional Open Space District NOTES TO FINANCIAL STATEMENTS (continued) March 31, 1997 NOTE A- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued) 11. Total (Memorandum Only) The column in the financial statements captioned "Total (Memorandum Only)" is presented for purposes of additional analysis and is not a required part of the basic financial statements. This information is not comparable to a consolidation and does not present financial position in conformity with generally accepted accounting principles. NOTE B - CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of the following at March 31, 1997: Deposits Cash on hand and bank overdraft- unrestricted $ (9,483) Cash in banks- restricted 479,178 Pooled Funds Cash in Santa Clara County Treasury - unrestricted 13,891,623 Cash in Santa Clara County Treasury - restricted 443,110 Cash balances held in banks are insured up to $100,000 by the Federal Depository Insurance Corporation. All U.S. Government securities are insured or collateralized with securities held by the District or its agent in the District's name. The type of investments made by the District are restricted by state law. The Santa Clara County investment pool is subject to legal restrictions, and additional restrictions prescribed by the County. NOTE C - DEFERRED COMPENSATION INVESTMENTS Investments of $1,645,870 with a fair market value of $1,645,870 at March 31, 1997, included in the Agency Fund, are restricted for the District's deferred compensation plan. The investments of the plan are held by the District's agent in the District's name. NOTE D - RESTRICTED INVESTMENTS The District maintains certain restricted investments for purposes of satisfying the future requirements of its long-term debt. These investments are in U.S. Government securities with maturity dates ranging from March 31, 1997 to August 31, 1999. The investments are recorded at cost which approximates fair market value as of March 31, 1997. Midpeninsula Regional Open Space District NOTES TO FINANCIAL STATEMENTS (continued) March 31, 1997 NOTE E - FIXED ASSETS Changes in the General Fixed Assets Account Group for the year ended March 31, 1997 were as follows: Balances Balances April 1, March 31, 1996 Additions Retirements 1997 Land $ 159,759,076 $ 930,284 $ 260,000 $ 160,429,360 Structures and improvements 6,359,406 847,442 - 7,206,848 Equipment 1,466,485 133,935 57,354 1,543,066 $ 167,584,967 1 1,911,611 $ 317,354 $ 169,179.274 All fixed assets additions during fiscal 1997 were acquired through general fund expenditures. NOTE F - LONG-TERM DEBT Long-term debt issued to acquire land, structures and improvements, and equipment is recorded in the General Long-Term Debt Account Group. Changes in the account group for the year ended March 31, 1997 were as follows: Long-term debt, April 1, 1996 $ 70,587,235 Issuance of bonds payable 29,910,201 Principal repayments (639,960) Principal reductions (18,651476) Long-term debt, March 31, 1997 L8�04 0�0O The following is a detail of the long-term of the District as of March 31, 1997: 9 Long-term debt of $733,799 bears interest at fixed rates from 5% to 7% at March 31, 1997 and is collateralized by land. a 1990 Notes, principal balance of $13,885,000, bearing interest at rates ranging from 6.50% to 7.50%, maturing annually from September 1, 1995 through September 1, 2010. 0 1992 Notes, principal balance of $8,000,000, bearing interest at rates ranging from 5% to 6.35% maturing annually from July 1, 1997 through July 1, 2012. 0 1993 Certificates of Participation including Serial Certificates with a principal balance of$6,920,000, bearing interest at rates ranging from 2.90% to 5.6% maturing annually from September 1, 1994 through September 1, 2009. This issue also includes$4,345,000 of 5.70%Term Certificates due on September 1, 2014 and $5,910,000 of 5.75%Term Certificates due on September 1, 2020. Midpeninsula Regional Open Space District NOTES TO FINANCIAL STATEMENTS (continued) March 31, 1997 NOTE F- LONG-TERM DEBT(continued) • 1995 Notes, principal balance of $11,500,000, comprised of $1,355,000 of Serial Notes, bearing interest at rates ranging from 5.75% to 7%, maturing annually from September 1, 1998 through September 1, 2009, and $10,145,000 of 7% tern notes due on September 1, 2014. • 1996 Notes, principal balance of $29,910,201, including $18,775,000 of Current Interest Bonds, bearing interest at rates ranging from 3.9% to 5.75% maturing annually from September 1, 1997 through September 1, 2012. This issue also includes $4,900,000 of Current Interest Term Bonds, bearing interest at 5.9% due September 1, 2014 and $6,235,201 of Capital Appreciation Bonds, bearing interest at rates ranging from 6.2% to 6.3%, maturing annually from September 1, 2015 through September 1, 2026. All notes are payable from limited ad valorem property taxes levied on all taxable property within the District. The District has not pledged its full faith and credit or taxing power for payment of the notes nor are the notes collateralized by any District property. Maturities of long-term debt are as follows: Year Ending March 31, Principal Interest Total 1998 $ 1,945,925 $ 4,533,625 $ 6,479,550 1999 2,001,951 4,408,043 6,409,994 2000 2,183,031 4,293,746 6,476,777 2001 2,364,170 4,166,562 6,530,732 2002 2,552,405 4,025,325 6,577,730 Thereafter through 2026 70,156,518 51,235,854 121,392,372 $ 81,204,000 $ 72,663,155 $ 153,867,155 NOTE G - EMPLOYEES' RETIREMENT PLAN All regular employees are eligible to participate in the Public Employees' Retirement Fund (the "Fund") of the State of California's Public Employees Retirement System ("PERS'). The Fund, an agent multiple-employer defined benefit retirement plan that acts as a common investment and administrative agent for various local and state governmental agencies within California, is administered by a Board of Administration composed of individuals who are (1) elected by PERS members, (2) appointed by elected State of California officials, and (3) specific elected State of California officials. The Fund provides retirement, disability, and death benefits. Such benefits are based on each employee's years of service, age and final compensation. Employees vest after five years of service and are eligible to receive retirement benefits at age 50. These benefits provisions and all other requirements are established by State statute and District resolution. Midpeninsula Regional Open Space District NOTES TO FINANCIAL. STATEMENTS (continued) March 31, 1997 NOTE G - EMPLOYEES' RETIREMENT PLAN (continued) For the year ended March 31, 1997, the District made contributions to the Fund of $199,985. The District's payroll for employees covered by the Fund for the year ended March 31, 1997 was $2,321,974 from a total payroll of $2,437,606. District participation in the Fund is comprised of 55 active employees of a total of 61 employees. The District's required employer contribution rate is 3.74%. The employees' required contribution rate is 7%, which is currently funded by the District. Funding Status and Progress The "pension" benefit obligation is determined for each participating employer by the Fund's actuary and is a standardized disclosure measure that results from applying actuarial assumptions to estimate the present value of pension benefits, adjusted for the effects of projected salary increases and step rate benefits, to be payable in the future as a result of employee service to date. The measure is intended to help users assess the funding status of the District's portion of the Fund to which contributions are made on a going-concern basis, assess progress made in accumulating sufficient assets to pay benefits when due, and make comparisons among employers. The measure is the actuarial present value of credited projected benefits and is independent of the funding method used. The "excess of net assets available for benefits over the pension benefit obligation" was computed as part of an actuarial valuation performed as of June 30, 1995 (most recent valuation). Significant actuarial assumptions used in the valuation include (a) rate of return on the investment of present and future assets of 8.50% per year compounded annually; (b) projected salary increases of 4.5% per year attributable to inflation: (c) across the board real salary increases of 0.0%; and (d) additional projected salary increases, that vary by length of service, each year and are attributable to merit/longevity. Information applicable to the District's employee group at June 30, 1995 (the latest date for which the information is available)follows: Pension benefit obligation: Retirees and beneficiaries currently receiving benefits and terminated employees not yet receiving benefits $ 811,725 Current employees- Accumulated employee contributions and allocated investment 1,415,630 earnings Employer-financed, vested 868,423 Employer-financed, nonvested 54,723 Total pension benefit obligation 3,150,501 Net assets available for benefits, at cost(total market value, $3,620,354) 4,200,627 Unfunded pension benefit obligation (surplus) $(1,050"126) Changes in the pension benefit obligation from last year due to: Changes in benefit provisions $ - Changes in actuarial assumptions - Midpeninsula Regional Open Space District NOTES TO FINANCIAL STATEMENTS (continued) March 31, 1997 NOTE G - EMPLOYEES' RETIREMENT PLAN (continued) Actuarially Determined Contributions Required and Contributions Made The funding policy of the Fund provides for actuarially determined periodic contributions by the District at rates such that sufficient assets will be available to pay Fund benefits when due. The District's contribution calculation for the year ended March 31, 1997 was made in accordance with the actuarially determined requirements computed as of June 30, 1995. The contribution rate for normal cost is determined using the credited projected benefits actuarial funding method. The Fund uses the level percentage of payroll method to amortize the liability over an eight-year period. Significant actuarial assumptions used in the 1995 valuation to compute the actuarially determined contribution requirements are the same as those used to compute the pension benefit obligation as described above. Historical Trend Information Trend information gives an indication of the progress made in accumulating sufficient assets to pay for benefits when due. System wide ten-year trend information may be found in the California Public Employees' Retirement Systems' annual report. Trend information for the District for each of the five years in the period ended June 30, 1995 (the period for which information is available) is as follows (dollars in thousands): 1995 1994 1993 1992 1991 Net assets available for benefits $4,206 $ 3,631 $ 2,868 $ 2,459 $ 2,100 Pension benefit obligation 3,150 2,619 2,345 2,124 1,831 Excess of net assets over the pension benefit obligation $1.056 LI.,012 L 523 L 335 $ 269 Percentage funded 133% 139% 122% 116% 115% Annual covered payroll $2,585 $ 2,293 $ 2,013 $ 1,876 $ 1,718 Excess of net assets over the pension obligation as a percentage of covered payroll 41% 44% 26% 17.9% 15.7% Employer contributions as a percentage of covered payroll 7.7% 6.1% 12.4% 10.2% 5.4% Midpeninsula Regional Open Space District NOTES TO FINANCIAL STATEMENTS(continued) March 31, 1997 NOTE H - DEFERRED COMPENSATION PLAN During 1988, the District established a deferred compensation plan for its employees in accordance with California Government Code Section 53212 and Internal Revenue Code Section 457. The plan, available to all District employees, permits them to defer a portion of their salary until future years. The deferred compensation is not available to employees until termination, retirement unforeseeable emergency. , death or All amounts of compensation deferred under the plan, all property and rights purchased with those amounts, and all income attributable to those amounts, property or rights are (until paid or made available to employee or other beneficiary) solely the property and rights of the District (without being restricted to the provisions of benefits under the Plan), subject only to the claims of the Districts general creditors. Participants' rights under the plan are equal to those of general creditors of the District in an amount equal to the fair market value of the deferred account for each participant. Changes in the assets (restricted investments) of the deferred compensation plan for the year ended March 31, 1997 are as follows: Balance, April 1, 1996 $ 1,388,925 Additions Payments 287,686 (30 741) Balance, March 31, 1997 $ 1,645.870 NOTE I - LEASE REVENUES The District leases certain land and structures to others under operating leases with terms generally on a month-to-month basis. Lease revenue received was approximately $554,421 during the year ended March 31, 1997. NOTE J - LITIGATION The District is named in certain claims and litigation. In the opinion of management, after consultation with counsel, the liability, if any, resulting therefrom will not have a material effect on the District's financial position. APPENDIX B: GENERAL AND ECONOMIC INFORMATION SANTA CLARA COUNTY AND SAN MATEO COUNTY Santa Clara County is located below the southern point of San Francisco Bay and covers a total land area of over 1,300 square miles or about 847,000 acres. Two distinct valleys are created by the hill forma- tion of the Santa Cruz Mountains and the Diablo Range. These two areas are known locally as "North County" and "South County". South County has retained the agricultural base which once characterized the entire area. North County is densely populated, extensively urbanized and heavily industrialized. Most of North County is now referred to as "Silicon Valley" because of the concentration of electronics companies throughout the area. San Mateo County is located on the San Francisco Peninsula. The coastal mountains run north and south through the County dividing the lightly populated coastal area from the more heavily developed eastern corridor between San Francisco and San Jose. San Mateo County attracted businesses at a fast pace during the 1960s with its suburban atmosphere and convenient access to nearby population centers. The County is characterized by manufacturing, engineering and technical-product firms located along the Bay, with commercial and residential areas stretching westward into the foothills. Transportation facilities in the Counties include San Francisco International Airport, a small deepwater port in Redwood City and freeway and bridge connections to nearby ports and airports in San Francisco, San Jose and Oakland. In addition to their own extensive range of manufacturing, professional, service, and academic employ- ers, the Counties provide an important residential base for the financial, trade, commercial, and industrial companies located in San Francisco. The District extends from 20 to 40 miles south of San Francisco. Population According to the California State Department of Finance, as of January 1, 1996, Santa Clara County is ranked the fourth most populous County in the State and is the most populous of the nine San Francisco Bay Area counties. The County's population has been growing at a fast pace since 1960, and between 1960 and 1984, Santa Clara County's population more than doubled. San Mateo County has experienced moderate but consistent population growth since 1970. The U.S. Census reports that between 1970 and 1980 the County grew by approximately 30,000 residents, or 5.4%. The 1990 Census reported that the County population was 649,623, which represents a 10.6%increase over 1980. The table below shows population estimates for the last six years for both Counties. POPULATION: DISTRICT,SAN MATEO AND SANTA CLARA COUNTIES 1993 1994 1995 1996 1997 1998 Midpeninsula Regional Open Space District(1) 601,000 601,000(3) 601,000(3) 601,000(3) 601,000(3) 650,000 San Mateo County(2) 680,900 679,100 685,000 693,800 701,100 715,400 Santa Clara County(2) 1,563,800 1,581,700 1,594,800 1,620,700 1,653,100 1,689,900 Sources: (1) Midpeninsula Regional Open Space District. (2) California State Department of Finance, Population Research. (3) Number used based upon 1990 census. Economic Characteristics Santa Clara County, with approximately 818,100 wage and salary jobs in 1995, has the largest em- ployment base of any county in Northern California. Three major industry sectors comprise 72% of the County's employment: manufacturing (30%), services (28%) and retail trade (14%). Their percentage share of County payrolls has remained virtually constant over the past five years. Various types of manufacturing firms are located in Santa Clara County, with durable goods manufac- turing accounting for almost 90% of manufacturing employment. Within this sector, the electrical equip- ment and supplies industry accounts for approximately 36%of all County manufacturing jobs. Other ma- jor components of durable goods manufacturing are electronic components and accessories; office com- puting and accounting machinery; instruments, guided missiles and space vehicles and communications equipment. B - 1 In the nondurable goods manufacturing sector, the printing, publishing, software, and goods proc- essing industries are the leading employers. The services sector has been the fastest growing industry, particularly in the areas of business and medical services which support electronics manufacturing and health care. San Mateo County's diversified economy includes construction, manufacturing, transportation, com- munications, retail and wholesale trade, financial services and government employment. Forty-eight of the nation's top 100 industrial firms are either headquartered or have branch offices in San Mateo County. The two major growth industries affecting San Mateo County over the past decade have been the high technology and office sectors. The San Francisco Bay Area's principal airport, San Francisco International Airport, is located within San Mateo County. Major commercial centers located in the Counties include the Stanford Shopping Center in Palo Alto, Eastridge Mall and Valley Fair in San Jose, Vallco Fashion Park in Cupertino, San Antonio Shopping Center in Mountain View, Great Mall in Milpitas and Hillsdale Mall in San Mateo. Taxable sales and the number of sales permits issued in each County since 1992 are shown below. TAXABLE SALES AND NUMBER OF SALES PERMITS: SAN MATEO AND SANTA CLARA COUNTIES(sales In thousands of dollars) SANTA CLARA COUNTY SAN MATEO COUNTY AT JULY I PERMITS TAXABLE SALES %CHANGE PERMITS TAXABLE SALES %CHANGE 1992 50,789 17,661,362 1.4 22,835 8,093,618 2.9 1993 50,755 18,516,103 4.8 23,213 8,143,240 0.6 1994 50,966 19,633,186 6,0 23,348 8,172,772 0.4 1995 51,576 22,585,949 15.0 23,449 8,772,560 7.3 1996 50,906 25,260,854 11,8 23,158 9,775,981 11.4 1997 51,180 22,376 Source: California State Board of Equalization Major employers in each County, ranked by employment size, are shown in the following table. Santa Clara County's major employers, led by Hewlett-Packard, the County, Lockheed/Martin and IBM, are active in the high technology, government, aerospace and electronic sectors. Many of these companies are the resident hardware and software producers of "Silicon Valley." San Mateo County's employment base in- cludes United Airlines, which employs over 17,000 persons at the San Francisco International Airport, and several electronics manufacturers, medical facilities and research organizations. MAJOR EMPLOYERS: SANTA CLARA AND SAN MATEO COUNTIES SANTA CLARA COUNTY SAN MATEO COUNTY EMPLOYERS WORKFORCE EMPLOYERS WORKFORCE Hewlett-Packard Company 16,000 United Airlines 17,212 County of Santa Clara 12,426 Oracle Corp. 4,300 Lockheed/Martin 9,000 County of San Mateo 4,050 IBM Corporation 7,800 Raychem Corp. 2,749 Stanford University 8,074 Genentech Inc. 2,445 UCSF/Stanford Hospital Franklin Resources Inc. 2,410 Santa Clara Valley Health&Hospital 5,694 American Airlines 2,100 City of San Jose 5,633 SRI International 1,940 Apple Computers 4,971 Intuit Inc. 1,600 Sun Microsystems 4,900 U.S.Postal Service 1,485 National Semiconductor 4,300 Kaiser Permanente Medical Center 1,300 Intel Corporation 5,200 Seton Medical Center 1,230 Pacific Bell 3,216 Sequoia Hospital 1,153 Tandem Computers 3,100 San Francisco International Airport 1,087 Silicon Graphics 4,500 San Mateo Community College District 1,010 Solectron Corporation 4,883 Advanced Micro Devices,Inc. 2,866 Sources: San Jose Metropolitan Chamber of Commerce; San Mateo County Economic Development Association, Inc. B-2 i The unemployment rates for the County of Santa Clara and for the County of San Mateo for 1992 through 1998 are shown below. ANNUAL AVERAGE CIVILIAN LABOR FORCE,EMPLOYMENT AND UNEMPLOYMENT: SAN MATEO AND SANTA CLARA COUNTIES S A N T A C L A R A C 0 U N T Y 1992 1993 1994 1995 1996 1997 1998(1) Civilian Labor Force(2) 837,500 838,800 857,200 860,700 898,200 938,500 956,400 Employment 781,200 782,100 803,400 818,100 865,900 910,100 925,200 Unemployment 56,300 56,700 53,800 42,600 32,300 28,400 31,200 Unemployment Rate(3) 6.7 % 6.8% 6.3% 5.0 % 3.6 % 3.0 % 3.3% S A N M A T E 0 C 0 U N T Y 1992 1993 1994 1995 1996 1997 1998(1) Civilian LaborForcei2> 365,000 366,000 371,100 371,100 377,000 387,000 391,700 Employment 346,100 347,100 352,800 352,800 364,300 376,600 383,500 Unemployment 18,900 18,900 18,300 18,300 12,700 10,400 8,200 Unemployment Rate(3) 5.2 % 5.2% 4.9% 4.9% 3.4% 2.7 % 2.1 % (1) As of November 1998 only; not seasonally adjusted. (2) Labor force by place of residence. Employment includes persons involved in labor-management trade disputes. (3) The unemployment rate is computed from non-rounded data; therefore it may differ from rates calculated by using rounded fig- ures in this table. Source: State of California, Employment Development Department. The following table shows the ten largest taxpayers of secured taxes for the County of Santa Clara and for the County of San Mateo. TEN LARGEST TAXPAYERS AS OF 1997: SANTA CLARA AND SAN MATEO COUNTIES SANTA CLARA COUNTY SAN MATEO COUNTY Hewlett-Packard United Airlines Lockheed Missiles&Space Co. Pacific Gas&Electric IBM Corporation Pacific Bell Pacific Bell American Airlines Pacific Gas&Electric Genentech Sobrato Development Corp. Raychem Corporation Richard T.Perry,et.al Delta Airlines Tandem Computers United Telecom/U.S.Sprint Syntex Redwood Shores Properties Metropolitan Life Insurance Co. USAir,Inc. Sources:Offices of the Santa Clara County Treasurer-Tax Collector and the San Mateo County Treasurer-Tax Collector. Construction The tables on the next page show building permit activity in the County of Santa Clara and the County of San Mateo for 1992-1997. B -3 BUILDING PERMIT ACTIVITY: SANTA CLARA COUNTY 1992 1993 1994 1995 1996 1997 Single Family $ 279,339 $ 300,307 $ 336,452 $ 401,553 $ 690,587 $ 795,906 Multiple Family 88,267 103,592 132,420 92,002 238,651 320,192 Other Residential 181,765 165,154 168,586 163,557 169,630 213,549 Valuation(000) Residential $ 549,371 $ 569,053 $ 637,458 $ 657,112 $ 1,098,868 $ 1,329,647 Non-Residential 612,194 623,097 596,084 859A09 1,293,185 1,914.710 TOTAL $ 1,161,565 $ 1,192,150 $ 1,233,542 $ 1,516,521 $2,392,053 $3,244,357 Commercial $ 155,147 $ 123,271 $ 117,928 $ 244,798 $ 239,864 $ 643,915 Industrial 61,073 48,917 88,319 138,731 271,070 287,037 Other Non-Residential 36,121 28,931 24,681 41,364 59,195 146,561 Alt/Add Non-Residential 359,853 421,978 364,156 434,516 723,056 837,197 TOTAL $ 612,194 $ 623,097 $ 596,084 $ 859,409 $ 1,293,185 $ 1,914,710 Total Building Valuation $ 1,161,565 $ 1,192,150 $1,233,542 $ 1,516,521 $2,392,053 $3,244,357 Dwelling Units Single Family 1,751 1,825 2,128 2,213 4,042 4,367 Multiple Family 1,301 1,628 1,817 1.232 3,459 4,443 TOTAL 3,052 3,453 3,945 3,445 7,501 8,810 BUILDING PERMIT ACTIVITY: SAN MATEO COUNTY 1992 1993 1994 1995 1996 1997 Single Family $ 85,175 $ 101,862 $ 136,623 $ 151,230 $ 134,504 $ 227,894 Multiple Family 40,054 10,615 34,678 59,263 43,942 65,295 Other Residential 125,081 113,210 108,967 113,151 104,544 131,274 Valuation(000) Residential $ 250,310 $ 225,687 $ 280,268 $ 323,644 $ 282,990 $ 424,463 Non-Residential 154,190 170,659 295,452 214,249 223,213 470,270 TOTAL $ 404,500 $ 396,346 $ 575,720 $ 537,893 $ 506,203 $ 894,733 Commercial $ 29,624 $ 31,160 $ 112,874 $ 64,311 $ 58,342 $ 244,371 Industrial 2,838 931 989 6,083 3,339 8,273 Other Non-Residential 10,342 11,111 14,250 10,889 17,207 23,470 Alt/Add Non-Residential 111,385 127,457 167,339 132,966 144,325 194,156 TOTAL $ 154,190 $ 170,659 $ 295,452 $ 214,249 $ 223,213 $ 470,270 Total Building Valuation $ 404,500 $ 396,346 $575,720 $ 537,983 $ 506,203 $ 894,733 Dwelling Units Single Family 354 422 598 724 594 922 Multiple Family 607 89 301 623 385 597 TOTAL 961 511 899 1,347 979 1,519 Source: Economic Sciences Corp. Agriculture Santa Clara County was once a leading producer of apricot, cherry and prune crops. However, recent industrial development and urbanization have displaced most of the agricultural land. Most of the remaining agricultural acreage is found around the communities of Gilroy and Morgan Hill. Major crops include cut flowers, wine grapes, mushrooms and nursery stock. Dairy products and seasonal crops including tomatoes, bell peppers, strawberries, prunes, walnuts and garlic provide the balance of agricultural production in Santa Clara County. San Mateo County is a national leader in the production of ornamental flowers and nursery products. This industry, which accounts for about 80% of total County revenue from agriculture, developed in the County due to the favorable climate and proximity to the San Francisco Interna- tional Airport. The industry is located in the western part of the County, particularly around the communities of Half Moon Bay and Pescadero. B -4 Transportation Transportation has played a vital role in the Bay Area's growth as an economic center. Seven general purpose ports located in the area and numerous special purpose facilities serve manufac- turing industries and facilitate distribution to world markets. The San Francisco Bay Area is the western terminus for three transcontinental railroads. An extensive network of freeways serves the area. The Bay Area's network of freeways and expressways provides the peninsula industries access to regional, national and international markets. U.S. 101, a parallel route along the Bay, and a major north-south highway between San Francisco and Los Angeles, provides access to the deep sea ports at San Francisco and Redwood City, and to air passenger and cargo facilities of San Francisco Inter- national and San Jose International Airports. Interstate Highway 280 traverses the ridge of the peninsula and joins U.S. 101 in San Francisco. Additional north-south transportation is provided by Interstate 5, the major national highway reaching north to Canada and south through San Diego, and State Highway 82. Principal routes connecting the peninsula with the East Bay's air and sea ports are State Highway 17, Interstate Highway 680 and the San Mateo, Dumbarton, and San Fran- cisco-Oakland Bay Bridges. The main coast line of the Union Pacific Railroad traverses Santa Clara County, providing con- nections to San Francisco, Oakland, and Los Angeles, commuter passenger service is operated on the Southern Pacific between San Jose and San Francisco. In addition to local bus service, cities in the District are served by Santa Clara County Transit System, San Mateo County Transit District and Greyhound Bus Lines. The Bay Area Rapid Transit System ("BART") provides passenger rail service within Contra Costa, Alameda, San Francisco and northern San Mateo Counties. San Francisco International Airport, located in San Mateo County, is served by all major sched- uled air carriers. Metropolitan Oakland International Airport is served by eight scheduled airlines and two large supplemental carriers. The San Jose International Airport is served by twelve airlines. General aviation airports include Reid-Hillview in San Jose, South County Airport, Palo Alto Airport, San Carlos Airport, and Half Moon Bay Airport. Water transportation is provided by the international water transportation complex of the San Francisco Bay; major ports include the Port of Oakland, Port of San Francisco, and Port of Redwood City. Education In 1994, approximately 235,442 students were enrolled in Santa Clara County's 314 public ele- mentary and high schools. In San Mateo County about 85,090 students attended approximately 96 elementary, 36 middle and 24 public high schools. Institutions of higher education include Stanford University, the University of Santa Clara, San Jose State University, and nine public community colleges. B -5 APPENDIX C: PROPOSED FORM OF BOND COUNSEL OPINION January, 1999 Midpeninsula Regional Open Space District Financing Authority Los Altos, California Midpeninsula Regional Open Space District Financing Authority 1999 Revenue Bonds (Final Opinion) Ladies and Gentlemen: We have acted as bond counsel in connection with the issuance by the Midpeninsula Regional Open Space District Financing Authority (the "Authority") of $_____________ aggregate principal amount of its Midpeninsula Regional Open Space Dis- trict Financing Authority 1999 Revenue Bonds (the "Bonds") pursuant to Article 4 of Chapter S of Division 7 of Title 1 of the Government Code of the State of California and pursuant to the Trust Agreement dated as of January 1, 1999 (the "Trust Agreement") by and between the Authority and BNY Western Trust Company, as Trustee (the "Trustee"), and in such connection we have reviewed the Trust Agreement, the Tax Certificate of the Authority dated the date hereof (the "Tax Certificate"), certificates of the Authority, the Midpeninsula Regional Open Space District (the "District"), the Trustee and others, opinions of counsel to the Authority, the District, the Trustee and others, and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein. Certain agreements, requirements and procedures contained or referred to in the Trust Agreement, the Tax Certificate and other relevant documents may be changed and certain actions (including, without limitation, defeasance of the Bonds) may be taken or omitted under the circumstances and subject to the terms and condi- tions set forth in such documents, and no opinion is expressed herein as to any Bond or the interest thereon if any such change occurs or action is taken or omitted upon the advice or approval of counsel other than ourselves. The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly ad- dressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof, and we have not undertaken to determine or to inform any person whether any such actions are taken or omitted or such events do occur. Our engagement with respect to the Bonds has concluded with their issuance, and we disclaim any obligation to update this opinion. We have assumed the genuine- ness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any par- ties other than the Authority and the District. We have not undertaken to verify inde- pendently, and have assumed, the accuracy of the factual matters represented, war- ranted or certified in the documents, and of the legal conclusions contained in the opinions, referred to in the first paragraph hereof. Furthermore, we have assumed compliance with all agreements and covenants contained in the Trust Agreement and the Tax Certificate, including (without limitation) agreements and covenants compliance with which is necessary to assure that future actions, omissions or events will not cause interest on the Bonds to be included in gross income for federal income tax purposes. C- 1 In addition, we call attention to the fact that the rights and obligations under the Trust Agreement, the Tax Certificate and the Bonds and their enforceability are subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent convey- ance, moratorium and other laws relating to or affecting creditors' rights, to the appli- cation of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against joint exercise of powers authorities in the State of California, and we express no opinion with respect to any indemnification, contribution, choice of law, choice of forum or waiver provisions contained in the fore- going documents. Finally, we undertake no responsibility for the accuracy, complete- ness or fairness of the Official Statement or other offering material relating to the Bonds and express no opinion with respect thereto. Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions: 1. The Bonds constitute valid and binding limited obligations of the Authority. 2. The Bonds are payable solely from the Revenues (as that term is de- fined in the Trust Agreement) and the funds held in certain accounts and funds pursu- ant to the Trust Agreement as provided therein. The Bonds are not a debt, liability or obligation of the Authority or of any of the public agencies that are parties to the joint powers agreement creating the Authority. 3. The Trust Agreement has been duly executed and delivered by, and constitutes a valid and binding obligation of, the Authority. 4. Interest on the Bonds is excluded from gross income or federal income tax purposes under section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. Interest on the Bonds is not a specific preference item for purposes of federal individual or corporate alternative minimum taxes, although we observe that it is included in adjusted current earnings in calculating corporate alternative minimum taxable income. We express no opinion regarding other tax consequences relating to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. Faithfully yours, ORRICK, HERRINGTON & SUTCLIFFE LLP per C- 2 APPENDIX D: FORM OF CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement (the "Disclosure Agreement") is executed and delivered by the Midpeninsula Regional Open Space District (the "District") in connection with the issuance, sale and delivery of $[AMOUNT] Midpeninsula Regional Open Space District Financing Authority 1999 Revenue Bonds (the "Bonds"). The Bonds are being executed and delivered pursuant to a Trust Agreement, dated as of January 1, 1999 (the "Trust Agreement"), between the Midpeninsula Re- gional Open Space District Financing Authority (the "Authority") and BNY Western Trust Company, as trustee (the "Trustee"). The District covenants and agrees as follows: Section 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the District for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule I Sc2-12(b)(S). Section 2. Definitions. In addition to the definitions set forth in the Trust Agreement, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Annual Report" shall mean any Annual Report provided by the District pursuant to, and as de- scribed in, Sections 3 and 4 of this Disclosure Agreement. "Beneficial Owner" shall mean any person who has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries). "Dissemination Agent" shall mean the District, or any successor Dissemination Agent designated in writing by the District and which has filed with the District a written acceptance of such designa- tion. "Listed Events"shall mean any of the events listed in Section S(a) of this Disclosure Agreement. "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. "Participating Underwriter" shall mean the original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds. "Repository" shall mean each National Repository and each State Repository. "Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "State Repository" shall mean any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securi- ties and Exchange Commission. As of the date of this Disclosure Agreement, there is no State Re- pository. Section 3. Provision of Annual Reports. (a) The Authority shall, or shall cause the Dissemination Agent to, not later than 210 days after the end of the Authority's Fiscal Year (presently June 30), commencing with the report for the 1998- 1999 Fiscal Year, provide to each Repository an Annual Report which is consistent with the re- quirements of Section 4(a) of the Disclosure Agreement. (b) The District shall, or shall cause the Dissemination Agent to, not later than 210 days after the end of the District's Fiscal Year (presently March 31), commencing with the report for the 1998- 1999 Fiscal year, provide to each Repository an Annual Report which is consistent with the re- quirements of Section 4(b) of the Disclosure Agreement. An 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 the Disclo- sure Agreement; provided, that the audited financial statements may be submitted separately from the balance of any related Annual Report and later than the date required above for the filing of such Annual Report if they are not available by that date. If the Fiscal Year of either the Authority D- I or the District changes, such party shall give notice of such change in the same manner as for a Listed Event under Section 5(f). (c) Not later than fifteen (15) Business Days prior to the date specified in subsections (a) and (b) above for providing their respective Annual Reports to the Repositories, the Authority and the Dis- trict, respectively, shall provide its Annual Report to the Dissemination Agent and the Trustee (if the Trustee is not the Dissemination Agent). If by such date the Trustee has not received a copy of such Annual Report, the Trustee shall contact the Authority or the District, as the case may be, and the Dissemination Agent (if other than the Trustee) to determine if the Authority or the District, as applicable, has provided its Annual Report. (d) If the District is unable to provide to the Repositories an Annual Report by the date required in subsection (a), the District shall send a notice to the Municipal Securities Rulemaking Board and the appropriate State Repository, if any, in substantially the form attached as Exhibit A. (e) The Dissemination Agent shall: (1) determine each year prior to the date for providing the Annual Report the name and ad- dress of each National Repository and each State Repository, if any; and (2) if the Dissemination Agent is other than the District, file a report with the District certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided and listing all the Repositories to which it was provided. Section 4. Content of Annual Reports. (a) The Authority's Annual Report shall contain or include by reference the financial statements of the Authority for the prior Fiscal Year, prepared in accordance with generally accepted account- ing principles as promulgated to apply to governmental entities from time to time; provided, that if the Authority has prepared audited financial statements which are not available by the time the An- nual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unau- dited financial statements, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) The District's Annual Report shall contain or include by reference the following: (1) 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 con- tain 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. (2) Updates, if any, of information contained in Tables 2, 3, 4, 5, 6, 7 and 8 the Sections titled "THE DISTRICT", "ESTIMATED REVENUES AND OUTSTANDING OBLIGATIONS" and "DISTRICT FINAN- CIAL INFORMATION" to the extent that such information has materially changed and are not in- cluded in the Audited Financial Statements provided pursuant to 4(a). (3) In Addition to any of the information expressly required to be provided under paragraphs (a) or (b) of this Section, the authority or 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 Authority 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 Authority and the District shall clearly identify each such other document so included by reference. Section S. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the District shall give, or cause to be given, no- tice of the occurrence of any of the following events with respect to the Bonds, if material: D -2 (1) Principal and interest payment delinquencies. (2) Non-payment related defaults. (3) Unscheduled draws on debt service reserves reflecting financial difficulties. (4) Unscheduled draws on credit enhancements reflecting financial difficulties. (5) Substitution of credit or liquidity providers, or their failure to perform. (6) Adverse tax opinions or events affecting the tax-exempt status of the security. (7) Modifications to rights of security holders. (8) Contingent or unscheduled bond calls. (9) Defeasances. (10)Release, substitution, or sale of property securing repayment of the securities. (11)Rating changes. (b) Whenever the District obtains knowledge of the occurrence of a Listed Event, the District shall as soon as possible determine if such event would be material under applicable Federal securi- ties law. (c) If the District determines that knowledge of the occurrence of a Listed Event would be mate- rial under applicable Federal securities law, the District shall promptly file a notice of such occur- rence 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 un- der this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds pursuant to the Trust Agreement. Section 6. Termination of Reporting Obligation. The obligations of the Authority, the District and the Dissemination Agent under this Disclosure Agreement shall terminate upon the legal defea- sance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the District shall give notice of such termination in the same man- ner as for a Listed Event under Section 5(c). Section 7. Dissemination Agent. The District may, from time to time, appoint or engage a Dis- semination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Agent, with or without appointing a successor Dissemination Agent Section 8. Amendment, Waiver. Notwithstanding any other provision of this Disclosure Agree- ment, the District may amend this Disclosure Agreement, and any provision of this Disclosure Agreement 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 require- ments, change in law, or change in the identity, nature or status of an obligated person with respect to the Bonds, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of na- tionally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Trust Agreement for amendments to the Trust Agreement with the consent of holders, or (ii) does not, in the opinion of the Trustee or nationally recognized bond counsel, ma- terially impair the interests of the holders or beneficial owners of the Bonds. If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. D -3 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 account- ing principles. The comparison shall include a qualitative discussion of the differences in the ac- counting 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 Re- positories in the same manner as for a Listed Event under Section S(c). Section 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement 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 Agreement. 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 specifi- cally required by this Disclosure Agreement, the District shall have no obligation under this Disclo- sure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 10. Default. In the event of a failure of the District to comply with any provision of this Disclosure Agreement any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court or- der, to cause the District to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Trust Agree- ment, and the sole remedy under this Disclosure Agreement in the event of any failure of the Dis- trict to comply with this Disclosure Agreement shall be an action to compel performance. Section 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Dis- trict 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 (in- cluding attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. Section 12. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the District, the Dissemination Agent, the Participating Underwriter and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity. Dated: [DATE] [SIGNATURE] EXHIBIT A — NOTICE OF FAILURE TO FILE ANNUAL REPORT] Name of Issuer: Midpeninsula Regional Open Space District Financing Authority Name of Issue: $[AMOUNT] Midpeninsula Regional Open Space District Financing Authority 1999 Revenue Bonds Date of Issuance: January __, 1999 NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above-named issue as required. The District anticipates that the Annual Report will be filed by ------------- D-4 APPENDIX E: TABLE OF ACCRETED VALUES E- 1 APPENDIX F: SPECIMEN INSURANCE POLICY 016.178505.1 F 1