NEW ISSUE – BOOK-ENTRY NOT RATED

(See “CONCLUDING INFORMATION - No Rating on the Bonds; Secondary Market” herein)

In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to certain qualifications described herein, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although for the purpose of computing the alternative minimum tax imposed on certain corporations, such interest is taken into account in determining certain income and earnings. In the further opinion of Bond Counsel, such interest is exempt from California personal income taxes. See “LEGAL MATTERS - Tax Matters” herein.

SANTA CRUZ COUNTY STATE OF CALIFORNIA

$815,000 COUNTY OF SANTA CRUZ

LIMITED OBLIGATION IMPROVEMENT BONDS ASSESSMENT DISTRICT NO. 15-01

(ORCHARD DRIVE SEWER EXTENSION PROJECT)

Dated: Date of Delivery Due: September 2 as Shown on the Inside Front Cover.

The cover page contains certain information for quick reference only. It is not a summary of the issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. Investment in the Bonds involves risks. See “RISK FACTORS” herein for a discussion of special risk factors that should be considered in evaluating the investment quality of the Bonds.

The County of Santa Cruz Limited Obligation Improvement Bonds, Assessment District No. 15-01 (Orchard Drive Sewer Extension Project) (the “Bonds”) are being issued by the County of Santa Cruz (the “County”) pursuant to a Fiscal Agent Agreement, dated as of February 1, 2016 (the “Fiscal Agent Agreement”), by and between the County and The Bank of New York Mellon Trust Company, N.A., as fiscal agent (the “Fiscal Agent”) to: (i) finance the construction of sewer improvements, (ii) pay costs related to the issuance of the Bonds, (iii) capitalize interest on the Bonds through September 2, 2016 and (iv) make a deposit to a Reserve Fund for the Bonds.

The Bonds are being issued pursuant to provisions of the Improvement Bond Act of 1915, being Division 10 of the California Streets and Highways Code (the “Bond Law”). The Bonds are payable from assessments levied pursuant to the Municipal Improvement Act of 1913 (Division 12 of the California Streets and Highways Code) (the “1913 Act”). See “SOURCES OF PAYMENT FOR THE BONDS” and “RISK FACTORS” herein.

Interest on the Bonds is payable semiannually on September 2 and March 2 each year, commencing September 2, 2016 (each, an “Interest Payment Date”), until maturity. The Bonds are subject to optional, sinking fund and extraordinary redemption as described herein. See “THE BONDS - Redemption” herein.

The Bonds are offered when, as and if issued subject to the approval as to their legality by Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel and certain other conditions. Certain legal matters will be passed on for the County by the County Counsel and by Jones Hall, A Professional Law Corporation, San Francisco, California, Disclosure Counsel. It is anticipated that the Bonds in book-entry form will be available for delivery through the facilities of The Depository Trust Company, on or about February 23, 2016.

The date of this Official Statement is February 10, 2016.

2016-0082

$815,000 COUNTY OF SANTA CRUZ

LIMITED OBLIGATION IMPROVEMENT BONDS ASSESSMENT DISTRICT NO. 15-01

(ORCHARD DRIVE SEWER EXTENSION PROJECT)

MATURITY SCHEDULE

(Base CUSIP®† 80182L)

$280,000 Serial Bonds

Maturity Date Principal Interest Reoffering Reoffering

September 2 Amount Rate Yield Price CUSIP®†

2017 $20,000 2.00% 1.04% 101.448 ED3

2020 20,000 2.00 1.66 101.476 EG6

2021 20,000 2.00 1.76 101.258 EH4

2022 20,000 2.00 1.95 100.304 EJ0

2023 20,000 2.00 2.16 98.893 EK7

2024 20,000 2.375 2.38 99.961 EL5

2025 20,000 2.50 2.52 99.831 EM3

2026 20,000 2.625 2.68 99.498 EN1

2027 20,000 2.75 2.81 99.412 EP6

2028 25,000 2.875 2.95 99.218 EQ4

2029 25,000 3.00 3.02 99.778 ER2

2030 25,000 3.00 3.09 98.952 ES0

2031 25,000 3.125 3.18 99.329 ET8

$40,000 2.00% Term Bond maturing September 2, 2019, Yield 1.40%, Price 102.056 CUSIP®† EF8

$140,000 3.25% Term Bond maturing September 2, 2036, Yield 3.47%, Price 96.788 CUSIP®† EY7

$165,000 3.60% Term Bond maturing September 2, 2041, Yield 3.73%, Price 97.870 CUSIP®† FD2

$190,000 3.625% Term Bond maturing September 2, 2046, Yield 3.78%, Price 97.206 CUSIP®† FJ9

† Copyright 2016, American Bankers Association. CUSIP® is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services Bureau, operated by Standard & Poor’s. This data is not intended to create a database and does not serve in any way as a substitute for CUSIP Global Services. CUSIP numbers have been assigned by an independent company not affiliated with the County and are included solely for the convenience of the holders of the Bonds. None of the County, the Municipal Advisor or the Underwriter takes any responsibility for the selection or uses of these CUSIP numbers, and no representation is made as to their correctness on the Bonds or as included herein. The CUSIP number for a specific maturity is subject to being changed after the issuance of the Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the Bonds.

GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT

Use of Official Statement. This Official Statement is submitted in connection with the offer and sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not to be construed as a contract with the purchasers of the Bonds.

Effective Date. This Official Statement speaks only as of its date, and the information and expressions of opinion contained in this Official Statement are subject to change without notice. Neither the delivery of this Official Statement nor any sale of the Bonds will, under any circumstances, create any implication that there has been no change in the affairs of the County or any other parties described in this Official Statement.

Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the County, any press release and any oral statement made with the approval of an authorized officer of the County or any other entity described or referenced herein, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “forecast,” “expect,” “intend” and similar expressions identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material.

Limit of Offering. No dealer, broker, salesperson or other person has been authorized by the County to give any information or to make any representations in connection with the offer or sale of the Bonds 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 County, the Municipal Advisor or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.

Preparation of this Official Statement. The information contained in this Official Statement has been obtained from sources that are believed to be reliable, but this information is not guaranteed as to accuracy or completeness. The information and expressions of opinions herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the County since the date hereof. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the County. All summaries of the Bonds, the Fiscal Agent Agreement or other documents, are made subject to the provisions of such documents 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 Auditor-Controller-Treasurer-Tax Collector for further information. See “INTRODUCTION - Summary Not Definitive.”

The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.

Bonds are Exempt from Securities Laws Registration. The issuance, sale and delivery of the Bonds has not been registered under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, in reliance upon exemptions for the execution, sale and delivery of municipal securities provided under Section 3(a)(2) of the Securities Act of 1933 and Section 3(a)(l2) of the Securities Exchange Act of 1934.

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

County Website. The County maintains a website. The information on such website is not part of this Official Statement and is not intended to be relied on by investors with respect to the Bonds unless specifically set forth or incorporated herein.

COUNTY OF SANTA CRUZ, CALIFORNIA

BOARD OF SUPERVISORS

John Leopold, Supervisor, 1st District Zach Friend, Supervisor, 2nd District

Ryan Coonerty, Supervisor, 3rd District Greg Caput, Supervisor, 4th District

Bruce McPherson, Supervisor, 5th District ________________________________________

COUNTY STAFF

Susan A. Mauriello, County Administrative Officer Edith Driscoll, Auditor-Controller-Treasurer-Tax Collector

Carlos Palacios, Assistant County Administrative Officer John Presleigh, Director of Public Works

Dana McRae, County Counsel ________________________________________

PROFESSIONAL SERVICES

Bond Counsel and Disclosure Counsel Jones Hall

A Professional Law Corporation San Francisco, California

Municipal Advisor Harrell & Company Advisors, LLC

Orange, California

Assessment Engineer Bowman & Williams Santa Cruz, California

Fiscal Agent The Bank of New York Mellon Trust Company, N.A.

Los Angeles, California

TABLE OF CONTENTS

INTRODUCTION ...................................................... 1 The County ................................................................ 1 The District ................................................................ 1 Security and Sources of Repayment for the

Bonds ...................................................................... 1 Purpose ...................................................................... 2 Property Values .......................................................... 2 Summary Not Definitive ............................................ 2 

THE FINANCING PLAN .......................................... 3 Estimated Uses of Funds............................................ 3 Estimated Improvement Costs ................................... 3 

THE BONDS ............................................................... 4 Authority for Issuance ............................................... 4 General Provisions ..................................................... 4 Book-Entry System .................................................... 5 Redemption ................................................................ 5 Scheduled Debt Service on the Bonds ....................... 8 

THE DISTRICT ....................................................... 11 General ..................................................................... 11 Assessed Values ....................................................... 11 Assessment Parcels .................................................. 13 Assessed Value to Assessment Lien Ratios .............. 15 Delinquencies .......................................................... 16 Effective Tax Rates .................................................. 16 Direct and Overlapping Debt ................................... 17 

SOURCES OF PAYMENT FOR THE BONDS ................................................................... 19 Repayment of the Bonds .......................................... 19 Reserve Fund ........................................................... 22 

RISK FACTORS ....................................................... 23 General ..................................................................... 23 Payment of the Assessment Not a Personal

Obligation ............................................................. 23 No County Obligation to Pay Debt Service ............. 23 Risks of Real Estate Secured Investments

Generally ............................................................... 23 Risks Related to Declines in Home Values .............. 24 Valuation of Property in the District ........................ 24 Factors Affecting Parcel Value and Aggregate

Values .................................................................... 26 

Other Possible Claims Upon the Value of an Assessment Parcel ................................................. 27 

Risks Related to Availability of Mortgage Loans ..................................................................... 27 

Foreclosure and Sale Proceedings ........................... 28 Depletion of Reserve Fund ...................................... 28 Prepayment of Assessments ..................................... 29 Bankruptcy ............................................................... 29 FDIC/Federal Government Interests in

Properties .............................................................. 29 Loss of Tax Exemption ............................................ 31 IRS Audit of Tax-Exempt Bond Issues .................... 31 No Acceleration Provision ....................................... 31 Proposition 218 ........................................................ 31 Ballot Initiatives and Legislative Measures ............. 32 Limited Secondary Market ...................................... 33 Limitations on Remedies ......................................... 33 

LEGAL MATTERS .................................................. 34 Enforceability of Remedies ..................................... 34 Approval of Legal Proceedings ............................... 34 Tax Matters .............................................................. 34 Absence of Litigation .............................................. 35 

CONCLUDING INFORMATION .......................... 36 No Rating on the Bonds; Secondary Market ........... 36 Underwriting ............................................................ 36 The Municipal Advisor ............................................ 36 Continuing Disclosure ............................................. 36 Execution ................................................................. 37 

APPENDIX A - COUNTY OF SANTA CRUZ INFORMATION STATEMENT

APPENDIX B - SUMMARY OF THE FISCAL AGENT AGREEMENT

APPENDIX C - FORM OF CONTINUING DISCLOSURE CERTIFICATE

APPENDIX D - PROPOSED FORM OF OPINION OF BOND COUNSEL

APPENDIX E - THE BOOK-ENTRY SYSTEM

San Francisco

Sacramento

Santa Cruz

San Diego

Los Angeles

San Jose

Bakersfield

Fresno

SANTA CRUZ COUNTY LOCATION MAP

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OFFICIAL STATEMENT $815,000

COUNTY OF SANTA CRUZ LIMITED OBLIGATION IMPROVEMENT BONDS

ASSESSMENT DISTRICT NO. 15-01 (ORCHARD DRIVE SEWER EXTENSION PROJECT)

This Official Statement which includes the cover page and appendices (the “Official Statement”) is provided to furnish certain information concerning the sale of the County of Santa Cruz Limited Obligation Improvement Bonds, Assessment District No. 15-01 (Orchard Drive Sewer Extension Project) (the “Bonds”).

INTRODUCTION The description and summaries of various documents hereinafter set forth do not purport to be comprehensive or definitive, and reference is made to each document for the complete details of all terms and conditions. All statements herein are qualified in their entirety by reference to each document. All capitalized terms used in this Official Statement and not otherwise defined herein have the same meaning as in the Fiscal Agent Agreement (defined below).

The County

The County was incorporated in 1850. It has a general law form of government. It is located on the coast of California, between the San Francisco Bay area and the Monterey Bay Peninsula, 74 miles south of San Francisco.

For further information concerning the County, see “APPENDIX A - COUNTY OF SANTA CRUZ INFORMATION STATEMENT” herein.

The District

Assessment District No. 15-01 (the “District”) was created by the County pursuant to proceedings taken under the Municipal Improvement Act of 1913 (Division 12 of the Streets and Highways Code) (the “1913 Act”). The District includes a total of 27 parcels, of which 23 parcels are subject to the Assessments (as defined below) securing the Bonds. See “THE DISTRICT” herein. As of the Closing Date, the Assessments total $816,500, $1,500 more than the par amount of the Bonds.

Security and Sources of Repayment for the Bonds

The Bonds will be issued under the Fiscal Agent Agreement, dated as of February 1, 2016 (the “Fiscal Agent Agreement”), between the County and The Bank of New York Mellon Trust Company, N.A., Los Angeles, California, as fiscal agent (the “Fiscal Agent”) (see “APPENDIX B - SUMMARY OF THE FISCAL AGENT AGREEMENT” herein) and pursuant to the Act.

The Bonds are limited obligations of the County secured by a first lien on the unpaid assessments (the “Assessments”) levied by the County on the parcels in the District with unpaid assessments (the “Assessment Parcels”) pursuant to the 1913 Act and the funds pledged therefor under the Fiscal Agent Agreement. Assessments levied on the property in the District are estimated to be sufficient, if paid

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timely, to pay the aggregate amount of the principal and interest on the Bonds. See “SOURCES OF PAYMENT FOR THE BONDS” and “RISK FACTORS” herein.

The County has covenanted to cause foreclosure proceedings to be commenced and prosecuted against Assessment Parcels with delinquent installments of Assessments under certain circumstances. For a more detailed description of the foreclosure covenant see “SOURCES OF PAYMENT FOR THE BONDS - Repayment of the Bonds - Foreclosure Covenant.”

The Bonds are special obligations of the County payable solely from the unpaid Assessments and other assets pledged therefor under the Fiscal Agent Agreement. The Bonds do not constitute a debt or liability of the County, the State of California or of any political subdivision thereof, other than the County to the limited extent described herein. The County shall only be obligated to pay the principal of the Bonds, and the interest thereon, from the funds described herein, and neither the faith and credit nor the taxing power of the County or the State of California or any political subdivision thereof is pledged to the payment of the principal of or the interest on the Bonds, except to the limited extent described herein. See “SOURCES OF PAYMENT FOR THE BONDS” and “RISK FACTORS” herein.

Purpose

Proceeds from the Bonds will be used to (i) finance the construction of public improvements of benefit to property within the District, (ii) pay costs related to the issuance of the Bonds, (iii) capitalize interest on the Bonds through September 2, 2016 and (iv) make a deposit to a Reserve Fund for the Bonds (see “THE FINANCING PLAN - Estimated Uses of Funds” herein).

Property Values

The County has relied on the assessed valuations of the County Assessor for the valuations for the 23 Assessment Parcels presented in this Official Statement. See “RISK FACTORS” and “THE DISTRICT - Assessed Values.”

Summary Not Definitive

The summaries and references contained herein with respect to the Fiscal Agent Agreement and other statutes or documents do not purport to be comprehensive or definitive and are qualified by reference to each such document or statute, and references to the Bonds are qualified in their entirety by reference to the form thereof included in the Fiscal Agent Agreement. Capitalized terms used herein and not defined shall have the meaning set forth in the Fiscal Agent Agreement. Copies of the documents described herein are available for inspection during the period of initial offering of the Bonds at the offices of the Municipal Advisor, Harrell & Company Advisors, LLC, 333 City Boulevard West, Suite 1430, Orange, California 92868, telephone (714) 939-1464. Copies of these documents may be obtained after delivery of the Bonds from the Auditor-Controller-Treasurer-Tax Collector, County of Santa Cruz, 701 Ocean Street, Santa Cruz, California 95060.

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THE FINANCING PLAN

Estimated Uses of Funds

The net proceeds from the sale of the Bonds, equal to $785,937.95 (par amount of $815,000.00, less net original issue discount of $12,762.05 and less Underwriter’s discount of $16,300.00), will be applied as follows:

Improvement Fund $651,741.01 Reserve Fund (1) 45,752.50Capitalized Interest Account (2) 13,244.44Costs of Issuance Fund (3) 75,200.00 Total Uses $785,937.95 __________________________________________

(1) Equal to the Reserve Requirement for the Bonds as of the closing date. See “SOURCES OF PAYMENT FOR THEBONDS - Reserve Fund.”

(2) Interest on the Bonds is capitalized through September 2, 2016.

(3) Costs of Issuance includes Bond Counsel fee, Disclosure Counsel fee, Fiscal Agent fee, Municipal Advisor fee,Assessment Engineer fee, printing costs and other miscellaneous costs of issuance.

Estimated Improvement Costs

The data shown below is the estimated costs of the public sewer facilities (the “Facilities”) contained in the Engineer’s Report prepared by Bowman & Williams, Consulting Civil Engineers and construction bids received December 10, 2015. The Facilities consist of an extension of the sanitary sewer pipeline, necessary to connect homes in the District to the existing sewer system.

Construction Costs (with contingency) $476,298 Design and Construction Administration 49,500 Connection Fees 192,978 County Administrative Costs 52,238 Total Improvement Costs 771,014 Less: Prepaid Assessments (119,273) Deposit to Improvement Fund $651,741

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THE BONDS

Authority for Issuance

The Bonds are issued by the County pursuant to the 1913 Act, the Improvement Bond Act of 1915, as amended, Division 10 of the California Streets and Highways Code (the “Bond Law”) and Resolution No. 28-2016 adopted by the Board of Supervisors on January 26, 2016 (the “Resolution”).

General Provisions

Repayment of the Bonds. The Bonds shall be issued as fully registered Bonds without coupons in the denomination of $5,000 or any integral multiple thereof, except that one Bond may contain any off amount, and shall mature as set forth on the inside front cover page. The Bonds shall bear interest at the rates set forth on the inside front cover page payable on each March 2 and September 2 (the “Interest Payment Dates”) in each year, beginning September 2, 2016. Interest shall be calculated on the basis of a 360-day year composed of twelve 30-day months. Each Bond shall bear interest from the InterestPayment Date next preceding the date of authentication thereof unless (i) it is authenticated and registeredas of an Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or(ii) it is authenticated prior to the first Interest Payment Date of September 2, 2016, in which event it shallbear interest from the Bond Date, which is the closing date of the Bonds.

Interest on the Bonds (including the final interest payment upon maturity or earlier redemption) is payable in lawful money of the United States of America by check of the Fiscal Agent mailed by first class mail on the applicable Interest Payment Date to the registered Owner thereof at such registered Owner’s address as it appears on the Bond register maintained by the Fiscal Agent at the close of business on the 15th day of the calendar month immediately preceding the applicable Interest Payment Date, whether or not such day is a Business Day (a “Record Date”), or by wire transfer made on such Interest Payment Date upon written instructions of any Owner of $1,000,000 or more in aggregate principal amount of Bonds delivered to the Fiscal Agent prior to the applicable Record Date. The principal of the Bonds and any premium on the Bonds are payable in lawful money of the United States of America upon surrender of the Bonds at the Principal Office of the Fiscal Agent, except as provided in “APPENDIX E - THE BOOK-ENTRY SYSTEM.”

Transfer or Exchange of Bonds. Any Bond may, in accordance with its terms, be transferred, upon the Bond register by the person in whose name it is registered, in person or by such person's duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a duly written instrument of transfer in a form approved by the Fiscal Agent. Whenever any Bond or Bonds are surrendered for transfer, the County shall execute and the Fiscal Agent shall authenticate and deliver a new Bond or Bonds, for like aggregate principal amount(s), maturity(ies) and interest rate(s) in the denominations authorized by the Fiscal Agent Agreement. Bonds may be presented for exchange at the Principal Office of the Fiscal Agent for a like aggregate principal amount of Bonds of authorized denominations and of the same maturity. The cost for any services rendered or any expenses incurred by the Fiscal Agent in connection with any such transfer or exchange shall be paid by the County; provided, however, that the Fiscal Agent shall collect from the Owner requesting such transfer or exchange any tax or other governmental charge required to be paid with respect to such transfer, including the costs otherwise payable by the County.

Neither the County nor the Fiscal Agent will be required to make any transfer or exchange of Bonds on or after a Record Date and before the next ensuing Interest Payment Date.

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The foregoing provisions regarding the transfer and exchange of the Bonds apply only if the book-entry system is discontinued. So long as the Bonds are in the book-entry system of The Depository Trust Company (“DTC”) as described below, the rules of DTC will apply for the transfer and exchange of Bonds.

Book-Entry System

DTC will act as securities depository for the Bonds. The Bonds will be issued as fully registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered Bond will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. Purchasers of beneficial interests in the Bonds will not receive physical certificates. For information on DTC and its book-entry system, see “APPENDIX E.”

Discontinuance of Book-Entry System. DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the County or the Fiscal Agent. Under such circumstances, in the event that a successor securities depository is not obtained, Bonds are required to be printed and delivered as described in the Fiscal Agent Agreement. The County may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, the Bonds will be printed and delivered as described in the Fiscal Agent Agreement.

Redemption

Optional Redemption. The Bonds may be redeemed prior to maturity, in whole or in part, at the option of the County beginning on September 2, 2016 and on any Interest Payment Date thereafter, from any source of available funds, at a redemption price (expressed as a percentage of the principal amount of Bonds to be redeemed) together with accrued interest to the date fixed for redemption as follows:

Redemption Dates Redemption PricesSeptember 2, 2016 through and including March 2, 2024 103%September 2, 2024 and March 2, 2025 102%September 2, 2025 and March 2, 2026 101%September 2, 2026 and any Interest Payment Date thereafter 100%

Extraordinary Redemption from Assessment Prepayments. The Bonds are subject to extraordinary redemption prior to their stated maturities, as a whole or in part on a pro-rata basis among maturities, as a result of the prepayment of Assessments, from amounts deposited in the Prepayment Account of the Redemption Fund, on any Interest Payment Date, at a redemption price (expressed as a percentage of the principal amount of the Bonds to be redeemed) plus with accrued interest to the date of redemption, as follows:

Redemption Dates Redemption PricesSeptember 2, 2016 through and including March 2, 2024 103%September 2, 2024 and March 2, 2025 102%September 2, 2025 and March 2, 2026 101%September 2, 2026 and any Interest Payment Date thereafter 100%

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Mandatory Sinking Fund Redemption of Bonds. The Bonds maturing September 2, 2019, September 2036, September 2041 and September 2, 2046, (collectively, the “Term Bonds”) are subject to mandatory redemption in part by lot from Sinking Fund Payments made by the County at a redemption price equal to the principal amount thereof to be redeemed, plus accrued interest to the redemption date, without premium, in the aggregate respective principal amounts and on the dates as set forth in the following schedules; provided, however, if some but not all of the Term Bonds have been redeemed through optional redemption or extraordinary redemption from prepayments, the total amount of all future Sinking Fund Payments shall be reduced by the aggregate principal amount of Term Bonds of such maturity so redeemed, to be allocated among such Sinking Fund Payments on a pro rata basis integral multiples of $5,000 as determined by the Fiscal Agent, notice of which determination shall be given by the Fiscal Agent to the County.

SINKING PAYMENT SCHEDULE FOR TERM BONDS MATURING SEPTEMBER 2, 2019

Redemption Date September 2 Principal Amount

2018 $20,000 2019 (maturity) 20,000

SINKING PAYMENT SCHEDULE FOR TERM BONDS MATURING SEPTEMBER 2, 2036

Redemption Date September 2 Principal Amount

2032 $25,0002033 25,0002034 30,0002035 30,0002036 (maturity) 30,000

SINKING PAYMENT SCHEDULE FOR TERM BONDS MATURING SEPTEMBER 2, 2041

Redemption Date September 2 Principal Amount

2037 $30,0002038 30,0002039 35,0002040 35,0002041 (maturity) 35,000

SINKING PAYMENT SCHEDULE FOR TERM BONDS MATURING SEPTEMBER 2, 2046

Redemption Date September 2 Principal Amount

2042 $35,0002043 35,0002044 40,0002045 40,0002046 (maturity) 40,000

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Selection of Bonds for Redemption. Whenever provision is made in the Fiscal Agent Agreement for the redemption of less than all of the Bonds, the County shall select Bonds for redemption in such a way that the ratio of Outstanding Bonds to issued Bonds shall be approximately the same in each annual series insofar as possible (i.e. on a pro rata basis among maturities of the Bonds). Within each annual maturity, the Fiscal Agent shall select Bonds for retirement by lot.

For purposes of such selection, all Bonds will be deemed to be comprised of separate $5,000 denominations and such separate denominations will be treated as separate Bonds which may be separately redeemed. Further, the provisions of Part 11.1 of the Bond Law are applicable to the advance payment of Assessments and to the calling of the Bonds.

Notice of Redemption. The Fiscal Agent shall cause notice of any redemption to be given by registered or certified mail or by personal service to the respective registered Owners of any Bonds designated for redemption, at their addresses appearing on the Bond Register in the Principal Office of the Fiscal Agent at least 30 days before the applicable Interest Payment Date. The Fiscal Agent shall also cause notice of redemption to be sent to the Securities Depositories at least one day earlier than the giving of notice to the Owners as aforesaid; provided, however, such mailing to the Securities Depositories shall not be a condition precedent to such redemption. Failure to so mail any notice of redemption, or of any person or entity to receive any such notice, or any defect in any notice of redemption, shall not affect the validity of the proceeding for the redemption of such Bonds.

Rescission of Redemption. The County may rescind any optional or extraordinary redemption by written notice to the Fiscal Agent on or prior to the date fixed for redemption. Any notice of redemption shall be cancelled and annulled if for any reason inadequate funds are on deposit in the Redemption Fund 5 days prior to the redemption date, and such cancellation shall not constitute an Event of Default. The Fiscal Agent shall mail notice of rescission of redemption in the same manner notice of redemption was originally provided.

Partial Redemption. Upon surrender of Bonds redeemed in part only, the County shall execute and the Fiscal Agent shall authenticate and deliver to the registered Owner, at the expense of the County, a new Bond or Bonds, of the same series and maturity, of authorized denominations in aggregate principal amount equal to the unredeemed portion of the Bond or Bonds.

Effect of Redemption. From and after the date fixed for redemption, if funds available for the payment of the principal of, and interest and any premium on, the Bonds or portion of Bonds so called for redemption have been deposited in the Redemption Fund on the date fixed for redemption, then such Bonds or portion of Bonds so called for redemption shall be defeased and shall cease to be entitled to any benefit under the Fiscal Agent Agreement other than the right to receive payment of the redemption price, and no interest shall accrue thereon on or after the redemption date specified in such notice.

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Scheduled Debt Service on the Bonds

The following is the scheduled annual Debt Service on the Bonds.

Bond Year Ending September 2 Principal Interest

Annual Debt Service

2016 $ - $ 13,244.44 $ 13,244.44 2017 20,000.00 25,227.50 45,227.502018 20,000.00 24,827.50 44,827.502019 20,000.00 24,427.50 44,427.502020 20,000.00 24,027.50 44,027.502021 20,000.00 23,627.50 43,627.502022 20,000.00 23,227.50 43,227.502023 20,000.00 22,827.50 42,827.502024 20,000.00 22,427.50 42,427.502025 20,000.00 21,952.50 41,952.502026 20,000.00 21,452.50 41,452.502027 20,000.00 20,927.50 40,927.502028 25,000.00 20,377.50 45,377.502029 25,000.00 19,658.76 44,658.762030 25,000.00 18,908.76 43,908.762031 25,000.00 18,158.76 43,158.762032 25,000.00 17,377.50 42,377.502033 25,000.00 16,565.00 41,565.002034 30,000.00 15,752.50 45,752.502035 30,000.00 14,777.50 44,777.502036 30,000.00 13,802.50 43,802.502037 30,000.00 12,827.50 42,827.502038 30,000.00 11,747.50 41,747.502039 35,000.00 10,667.50 45,667.502040 35,000.00 9,407.50 44,407.502041 35,000.00 8,147.50 43,147.502042 35,000.00 6,887.50 41,887.502043 35,000.00 5,618.76 40,618.762044 40,000.00 4,350.00 44,350.002045 40,000.00 2,900.00 42,900.002046 40,000.00 1,450.00 41,450.00 Total $815,000.00 $497,579.48 $1,312,579.48

DISTRICT LOCATION

COUNTY OF SANTA CRUZ

DISTRICT LOCATION

MONTEREY BAY

LOCATION MAP 9

SANTA CLARA COUNTY

MONTEREY COUNTY

ASSESSMENT DIAGRAM

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THE DISTRICT The information set forth herein regarding ownership of real property in the District and the property owners within the District was obtained through the County and others and has not been independently verified. Neither the County, the Municipal Advisor nor the Underwriter make any representation as to the accuracy or completeness of any such information. This information has been included because it is considered relevant to an informed evaluation of the District. The information should not be construed to suggest that the Bonds or the Assessments that are pledged to pay debt service on the Bonds are personal obligations of the property owners within the District. The owners of property within the District will not be personally liable for payments of the Assessments.

General

The District encompasses approximately 7 net acres in an unincorporated area of the County known as Graham Hill. The District is located 2 ½ miles north of the City of Santa Cruz. At the time of formation, the District contained 27 taxable parcels, 26 of which are developed with single family homes. The assessment on 4 parcels has been prepaid in full. Accordingly, the Bonds will be secured only by the 23 Assessment Parcels (one of which is vacant property) for which the Assessments have not been prepaid.

Assessed Values

For all Assessment Parcels, the County-determined assessed valuation is provided as an estimate for purposes of valuation. The County assessed valuation is derived from the Fiscal Year 2015/16 County Assessor’s assessed valuation of land and improvements. A complete list of Assessment Parcels, Fiscal Year 2015/16 assessed values and Assessment liens is shown below under the caption “Assessment Parcels.” The County’s assessed valuation of land and improvements is based on the base year assessed value (which may or may not be reflective of the fair market value of the land and improvements) increased by a maximum of 2% per year each year thereafter, as allowed under Article XIIIA of the Constitution of the State of California. Values may also be decreased if inflation is negative (for example, the inflation factor for Fiscal Year 2010/11 was -0.237%). Therefore, the assessor’s value typically does not accurately reflect the fair market value of the land and improvements which may be higher or lower than the Assessor’s value. Further, due to timing, the Assessor’s value may not reflect the most recent sale price of a parcel or new construction on a parcel. See “RISK FACTORS - Valuation of Property in the District” herein. The fair market value can only be established through the sale of the property or an M.A.I. appraisal of the property within the District. The County has not undertaken to obtain an M.A.I.appraisal of the property within the District.

Proposition 8 Reductions. Proposition 8 provides for the assessment of real property at the lesser of its originally determined (base year) full cash value compounded annually by the inflation factor, or its full cash value as of the lien date, taking into account reductions in value due to damage, destruction, obsolescence or other factors causing a decline in market value. Reductions based on Proposition 8 do not establish new base year values, and the property may be reassessed as of the following lien date up to the lower of the then-current fair market value or the factored base year value.

While the assessed value may be reduced by the County Assessor as a result of Proposition 8, the assessed value has no bearing on the calculation of the Assessments, only on the calculation of ad valorem taxes.

Investors must recognize the uncertainties with respect to the assessed values of the Assessment Parcels, since the Bonds are secured by the Assessment Parcels. See “RISK FACTORS” herein.

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Assessed Value Appeals. Further, property owners in the District may appeal the County Assessor’s value, and if successful, such appeals may result in a lowering of assessed values in future years. While the assessed value may be reduced by the County Assessor if an appeal is successful, the assessed value has no bearing on the calculation of the Assessments, only on the calculation of ad valorem taxes.

The County has not determined if any assessment appeals are pending for property in the District.

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Assessment Parcels

The following table contains the Assessment Parcels as of January 1, 2016. The information concerning the ownership was obtained from the County and complied by Harrell & Company Advisors, LLC and is believed to be reliable, but such information is not guaranteed as to accuracy or completeness, nor has it been independently verified and is not to be construed as a representation by the Municipal Advisor or the Underwriter.

TABLE NO. 1 ASSESSMENT DISTRICT NO 15-01

ASSESSMENT PARCEL DATA

2015/16 Value Most Most

Assessed Value to Recent Sale Recent Sale Year House Lot Size

APN Owner Name Land Improvements Total Assessment Lien Date Price Built SF (Acres)

061-412-02 Aylsworth Helen Succ Trustee ETAL $ 195,182 $ 198,776 $ 393,958 $ 35,500 11.10 1988 $252,500 1980 1,844 0.21

061-412-03 Lawrie Stacy & Craig Bray 438,822 292,551 731,373 35,500 20.60 2002 595,000 1980 1,839 0.20

061-412-04 Packer John A. H/W CP RS ETAL 496,862 331,242 828,104 35,500 23.33 2003 700,000 1972 2,582 0.21

061-412-05 Lloyd David G. & Linda K. H/W JT 274,083 243,789 517,872 35,500 14.59 2012 699,500 1973 1,797 0.35

061-412-06 Szabo Virginia Trustee ETAL 23,476 72,852 96,328 35,500 2.71 1971 1973 1,572 0.32

061-412-07 Kamian Danielle R. W/H CP RS ETAL 465,974 200,368 666,342 35,500 18.77 2006 715,000 1963 1,477 0.21

061-412-08 Maddux Marylin S. Trustee 103,437 129,300 232,737 35,500 6.56 1984 135,000 1962 1,621 0.22

061-412-09 Wilson Dennis & Bonnie Trustees (1)

061-412-10 Bachtel Pete & Marchina M. Co-Trustees (1)

061-412-11 Erlin Richard L. III & Susan M. Trustee 262,642 232,627 495,269 35,500 13.95 1990 330,000 1964 1,822 0.31

061-412-12 Miguel Victor R & Donna L 195,181 187,375 382,556 35,500 10.78 1988 122,500 1963 1,555 0.24

061-412-13 Hillaker Todd Leroy H/W CP RS ETAL 317,712 317,712 635,424 35,500 17.90 2012 608,000 1988 2,900 0.23

061-412-14 Wheatland Rand 179,560 179,560 359,120 35,500 10.12 1997 265,000 1960 1,536 0.23

061-412-18 Kessler Ira L. & Dianne F. 477,750 257,250 735,000 35,500 20.70 2014 730,000 1965 1,518 0.22

061-411-01 Thornley Lance & Kari Trustee 165,872 179,696 345,568 35,500 9.73 1996 250,000 1972 1,736 0.26 __________________________________________

(1) Property owner prepaid Assessment prior to issuance of the Bonds.

Source: County of Santa Cruz, as compiled by Harrell & Company Advisors, LLC.

Continued on next page.

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TABLE NO. 1 ASSESSMENT DISTRICT NO 15-01

ASSESSMENT PARCEL DATA

Continued from prior page.

2015/16 Value Most Most

Assessed Value to Recent Sale Recent Sale Year House Lot Size

APN Owner Name Land Improvements Total Assessment Lien Date Price Built SF (Acres)

061-411-02 Wadsworth William Howard & & Julie Callahan Trustee 441,965 294,645 736,610 35,500 20.75 2010 691,000 1962 1,708 0.23

061-411-03 Rosso Matthew & Sue 210,799 191,277 402,076 35,500 11.33 1989 257,500 1972 1,709 0.23

061-411-04 Fontana Richard Trustee ETAL (1)

061-411-05 Johnston Charles & Madeleine Larronde H/W JT 459,222 302,166 761,388 35,500 21.45 2005 829,000 1966 2,270 0.23

061-411-06 Loiler Brian R. & Shannon Y. H/W JT 522,551 348,368 870,919 35,500 24.53 2012 850,000 1965 2,616 0.41

061-411-07 Masik Donald J. & Nancy M. H/W JT 107,704 248,552 356,256 35,500 10.04 1985 215,000 1965 2,948 0.36

061-411-08 Castellanos Eric Raymond S/M AS JT ETAL 418,652 279,100 697,752 35,500 19.65 2002 579,000 1963 1,946 0.26

061-411-09 Bombardieri Michael J.& Caroline J. 205,067 146,553 351,620 35,500 9.90 1993 249,000 1960 1,724 0.26

061-411-10 Finch Evelyn B. ETAL ALL JT 9,303 - 9,303 35,500 0.26 1974 0.26

060-011-14 Meyer Jonathan J. Trustee (1)

060-011-12 Brody David G. & Megan A. 443,691 295,794 739,485 35,500 20.83 2013 725,000 1960 1,263 0.25

060-011-18 Zing Angela L. M/W SS 371,319 247,546 618,865 35,500 17.43 2012 604,000 2006 2,134 0.25

$6,786,826 $5,177,099 $11,963,925 $816,500 14.65 5.95 __________________________________________

(1) Property owner prepaid Assessment prior to issuance of the Bonds.

Source: County of Santa Cruz, as compiled by Harrell & Company Advisors, LLC.

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Assessed Value to Assessment Lien Ratios

Assessed valuation to assessment lien ratios are derived by dividing the 2015/16 Fiscal Year County assessor’s assessed valuation amount of land plus improvements, if any, by the unpaid assessments. For example, a 3:1 ratio means that the assessed value is three times the total assessment lien amount.

According to the County Assessor’s Office, the aggregate assessed valuation of land and improvements of the 23 Assessment Parcels with unpaid assessments is $11,963,925 for Fiscal Year 2015/16. The total lien on the Assessment Parcels is $816,500. The aggregate value-to-lien ratio is 14.7:1 (see “Assessment Parcels” herein). Ratios on individual Assessment Parcels range from 0.26:1 for the 0.26-acre vacant lot to 24.5:1 for a 2,600 square foot single family home on a 0.41-acre lot purchased in 2012. The aggregate value-to-lien ratio including all current overlapping tax and assessment debt of $948,835 is 12.6:1 (see “Direct and Overlapping Debt” below).

Eleven of the parcels were purchased more than 25 years ago, and assessed values may not be representative of market values. Potential purchasers of the Bonds should be aware that if an Assessment Parcel bears an Assessment in excess of its market value, then there may be little incentive for the owner of the Assessment Parcel to pay the assessment on such Assessment Parcel and little likelihood that such property would be purchased in a foreclosure sale. See “RISK FACTORS” describing risks relating to market values of Assessment Parcels.

Table No. 2 categorizes the assessed value to lien ratios for the Assessment Parcels within the District, but excluding any other overlapping debt (see “Effective Tax Rates” and “Direct and Overlapping Debt” below). One parcel is vacant land, and represents 4.3% of the Assessment lien. Table No. 2 categorizes the assessed value to lien ratios for the Assessment Parcels.

TABLE NO. 2 ASSESSMENT DISTRICT NO. 15-01

SUMMARY LIEN TO ASSESSED VALUE RATIO (VALUES AS OF JANUARY 1, 2015)

Assessed No. of % of Value-to Lien Parcels (1) Assessment (1) Total 10:1 and above 18 $639,000 78.3%

5:1 - 9.99:1 3 106,500 13.0%2.71:1 1 35,500 4.3%

0.26:1 (2) 1 35,500 4.3% Total 23 $816,500 100.0%

__________________________________________

(1) Excludes parcels on which Assessment has been prepaid.

(2) Vacant parcel.

Source: County of Santa Cruz.

No property owner in the District owns more than one Assessment Parcel. The property owners in the District will not be personally liable for payments of the Assessments to be applied to pay the principal of and interest on the Bonds. No assurance can be given that any property owner will continue to hold an interest in the Assessment Parcels.

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Delinquencies

The County intends to include the Assessments which secure the Bonds in the “Teeter Plan,” which is the County’s Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds, as provided for in Section 4701 et seq. of the California Revenue and Taxation Code. However, the County reserves the option at any time to discontinue the Teeter Plan as it relates to the Assessments, in which case collections of the Assessments will reflect actual delinquencies. See “RISK FACTORS - Foreclosure and Sale Proceedings” for a further discussion with respect to delinquent assessment payments.

A history of the County-wide delinquency rate in the payment of ordinary ad valorem property taxes is as follows:

Fiscal Year % Delinquent 2006/07 3.47%2007/08 5.15%2008/09 5.61%2009/10 5.29%2010/11 3.98%2011/12 3.90%2012/13 3.64%2013/14 2.90%2014/15 2.72%

All property owners in the District have paid the first installment of property taxes payable for 2015/16, which was due by December 10, 2015. Prior years’ property taxes for all parcels are also current, with the exception of $175 due with respect to parcel number 061-411-06 for 2012/13 supplemental taxes.

The property owners in the District are not personally liable for payments of the Assessments to be applied to pay the principal of and interest on the Bonds. No assurance can be given that any property owner will continue to hold an interest in the Assessment Parcels. See “RISK FACTORS - Payment of the Assessment Not a Personal Obligation.”

Effective Tax Rates

Each home is currently subject to 2015/16 fixed assessments of $152.94 for mosquito abatement, parks and recreation, road repair, lighting and refuse collection. The homes are also subject to septic tank maintenance and management charges of $25.40, which will be eliminated when improvements are complete and the homes are connected to the sewer system. Finally, certain homes are subject to septic tank inspections fees in 2015/16, which will also be eliminated in future years as a result of the issuance of the Bonds.

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Table No. 3 below sets forth Fiscal Year 2015/16 effective tax rates for representative single family residential homes in the District purchased at different points in time, assuming the elimination of the septic tank charges and including the estimated Assessment.

TABLE NO. 3 ASSESSMENT DISTRICT NO. 15-01

FISCAL YEAR 2015/16 EFFECTIVE TAX RATES

APN 061-411-03 060-011-12Year Purchased 1989 2013 2015/16 Assessed Value $402,076.00 $739,485.00 Homeowner’s Exemption (7,000.00) (7,000.00) Net Assessed Value for Ad Valorem Taxes 395,076.00 732,485.00 Ad Valorem Tax Rate (1) 1.111917% 1.111917% Ad Valorem Taxes 4,392.92 8,144.63

Special Assessments: Assessment District No. 15-01 Levy 2,206.00 2,206.00

Other Fixed Assessments (2) 152.94 152.94 Total $ 6,751.86 $ 10,503.57

Effective Tax Rate (based on Gross Assessed Value) 1.68% 1.42% __________________________________________

(1) Comprised of 1% general tax levy, plus debt service levies for Scotts Valley Unified School District(0.0.75224%) and Cabrillo Community College District (0.036693%) General Obligation Bonds.

(2) Includes County Service Area 9C Refuse Collection Charges of $56.92, billed on the tax bill for convenience.

Source: Municipal Advisor.

Direct and Overlapping Debt

Set forth below is the direct and overlapping debt report (the “Debt Report”) prepared by California Municipal Statistics, Inc., as of January 1, 2016. The Debt Report is included for general information purposes only.

The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the District in whole or in part. Such long-term obligations are not payable from unpaid Assessments nor are they necessarily obligations secured by property within the District. In many cases, long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency.

Presently, the Assessment Parcels are subject to $948,835 of direct and overlapping tax and assessment debt and overlapping lease obligation debt, including the outstanding amount of the Bonds. To repay the direct and overlapping tax and assessment debt and overlapping lease obligation debt, the property owners of the land within the District must pay the annual Assessments and the general property tax levy.

In addition, other public agencies whose boundaries overlap those of the District could, without the consent of the County, and in certain cases without the consent of the owners of the land within the District, impose additional taxes or assessment liens on the real property within the District in order to finance public improvements or services to be located or furnished inside of or outside of the District. The lien created on the real property within the District through the levy of such additional taxes or

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Assessments may be on a parity with the lien of the Assessments. The imposition of additional liens on a parity with the Assessments may reduce the ability or willingness of the property owners to pay the Assessments and increases the possibility that foreclosure proceeds, if any, will not be adequate to pay delinquent Assessments.

TABLE NO. 4 COUNTY OF SANTA CRUZ

ASSESSMENT DISTRICT NO. 15-01 DIRECT AND OVERLAPPING DEBT

2015/16 Assessed Valuation: $11,963,925

DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 1/1/16

Cabrillo Joint Community College District 0.031% $ 38,896

Scotts Valley Unified School District 0.330 93,439

Santa Cruz County Assessment District No. 15-01 100. 816,500 (1)

TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $948,835

OVERLAPPING GENERAL FUND DEBT:

Santa Cruz County Certificates of Participation 0.031% $ 23,657

Santa Cruz County Office of Education Certificates of Participation 0.031 3,053

Cabrillo Joint Community College District Certificates of Participation 0.031 286

Scotts Valley Unified School District Certificates of Participation 0.330 11,317

TOTAL OVERLAPPING GENERAL FUND DEBT $ 38,313

COMBINED TOTAL DEBT $987,148 (2)

(1) Excludes issue to be sold.

(2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital leaseobligations.

Ratios to 2015/16 Assessed Valuation:

Direct Debt ($816,500) .................................................................... 6.82%

Total Direct and Overlapping Tax and Assessment Debt .................... 7.93%

Combined Total Debt ......................................................................... 8.25%

__________________________________________

Source: California Municipal Statistics, Inc.

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SOURCES OF PAYMENT FOR THE BONDS

Repayment of the Bonds

The Bonds are issued upon and are secured by a first lien on and security interest in all of the Assessments (including prepayment thereof), and any other amounts held in the Redemption Fund and the Reserve Fund created under the Fiscal Agent Agreement (including the Capitalized Interest Account and the Prepayment Account therein). Principal of and interest on the Bonds are payable exclusively out of the Redemption Fund. The Assessments and all moneys deposited into those funds are dedicated under the Fiscal Agent Agreement to the payment of the principal of, and interest and any premium on, the Bonds as provided therein and in the Act and the Bond Law until all of the Bonds have been paid and retired or until moneys or Federal Securities have been set aside irrevocably for that purpose in accordance with the Fiscal Agent Agreement.

Although the unpaid Assessments constitute fixed liens on the Assessment Parcels, they are not personal indebtedness of the owners of the Assessment Parcels. Furthermore, there can be no assurance as to the willingness or ability of the property owners to pay the unpaid Assessments.

Collection of Assessments. The unpaid Assessments levied annually on the Assessment Parcels will be collected, together with interest on the declining balances, on the tax roll of the County on which general taxes on real property are collected, and the unpaid Assessments are payable and become delinquent at the same time and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do general taxes, and the Assessment Parcels are subject to the same provisions for sale and redemption as are properties for nonpayment of general taxes. The annual Assessment installments together with interest are to be paid into the Redemption Fund which will be used to pay the principal of and interest on the Bonds as they become due.

Limited Obligations. The obligations of the County under the Fiscal Agent Agreement and the Bonds are not general obligations of the County, but are special obligations, payable solely from the Assessments and other assets pledged therefor under the Fiscal Agent Agreement. Neither the faith and credit nor the taxing power of the County (except to the limited extent described herein), or the State of California, or any political subdivision thereof is pledged to the payment of the Bonds.

The Bonds are “Limited Obligation Improvement Bonds” and under Section 9603 of the Act, are payable solely from and secured solely by the Assessments and the amounts in the Redemption Fund and the Reserve Fund created under the Fiscal Agent Agreement. The County is not obligated to advance available surplus funds from its treasury to cure any deficiency in the Redemption Fund.

Teeter Plan. The County has adopted a Teeter Plan as provided for in Section 4701 et seq. of the California Revenue and Taxation Code, under which a tax distribution procedure is implemented and secured roll taxes are distributed to taxing agencies within the County on the basis of the tax levy, rather than on the basis of actual tax collections. The County intends to include the Assessments of the District in its Teeter program. However, the County reserves the option at any time to discontinue the Teeter Plan as it relates to the Assessments, in which case collections of the Assessments will reflect actual delinquencies.

Foreclosure Covenant. In the Fiscal Agent Agreement, the County will covenant with and for the benefit of the owners of the Bonds that it will order, and cause to be commenced, and thereafter diligently prosecute an action in the superior court to foreclose the lien of any Assessment or installment thereof which has been billed, but has not been paid, pursuant to and as provided in Sections 8830 and 8835, inclusive of the Bond Law and the conditions specified in the Fiscal Agent Agreement as further described below.

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The County’s Auditor-Controller-Treasurer-Tax Collector will determine if any of the conditions described below exist and will notify the County Counsel of any such delinquencies. The County Counsel will commence, or cause to be commenced, such foreclosure proceedings, including collection actions preparatory to the filing of any complaint. The County Counsel is authorized to employ outside counsel to conduct any such foreclosure proceedings.

Within 60 days of either of the following determinations, which will be made not later than October 1 each year, the County will take the following actions:

(A) If the Auditor-Controller-Treasurer-Tax Collector determines that any single parcel is, or anyparcels under common ownership are, delinquent in the payment of two or more semi-annualinstallments of Assessment payments, the County shall cause the commencement of foreclosureagainst each such delinquent parcel.

(B) If the Auditor-Controller-Treasurer-Tax Collector determines that the total amount of delinquentAssessments for the prior Fiscal Year for the entire Assessment District exceeds 5% of the totalAssessments due and payable for the prior Fiscal Year, the County shall cause the commencementof foreclosure against each parcel of land within the District with any amount of delinquency forthe prior Fiscal Year.

However, notwithstanding the foregoing, the County may elect to defer foreclosure proceedings on any parcel if the County has received funds equal to the delinquent Assessments from any other source, and those funds are available to contribute toward the payment of the principal of (including Sinking Fund Payments) and interest on the Bonds when due (including without limitation funds from the sale of the receivables associated with delinquent Assessments).

So long as the Assessments are included in the County’s Teeter Plan (see “Repayment of the Bonds - Teeter Plan” above), the County may initiate foreclosure proceedings under their customary practice for delinquent property taxes (5 years) rather than by October 1 each year.

Upon the redemption or sale of the real property responsible for such delinquencies, the County will apply the net proceeds thereof as follows: (i) pay defaulted interest or principal on the Bonds, (ii) deposit to the Reserve Fund the amount of any delinquency advanced therefrom, (iii) reimburse the County for the amount of any previously unreimbursed fees, costs and expenses incurred by the County in connection with such delinquency, (iv) deposit to the Reserve Fund an amount sufficient to cause the amount therein to be equal to the Reserve Requirement, and (v) the balance, if any, will be disbursed as set forth in the judgment of foreclosure or as required by law.

Possibility of Foreclosure Delays. No assurances can be given that any real property subject to a judicial foreclosure sale will be sold or, if sold, that the proceeds of sale will be sufficient to pay any delinquent Assessment installment. If court foreclosure proceedings are necessary, there may be a delay in payments to the owner of the Bonds pending prosecution of the foreclosure proceedings and receipt by the County of the proceeds of the foreclosure sale. It is also possible that no bid for the purchase of the applicable property would be received at the foreclosure sale. See “RISK FACTORS - Foreclosure and Sale Proceedings.”

Priority of Lien. Each Assessment (and any Assessment thereof) and each installment thereof, and any interest and penalties on each Assessment, constitute a lien against the Assessment Parcel on which it was imposed until it is paid. The lien is subordinate to all fixed special assessment liens imposed upon the same property prior to the date that the Assessments became a lien on the property assessed, but has priority over all private liens and over all fixed special assessment liens which may thereafter be created against the property. The lien is co-equal to and independent of the lien for general taxes. The direct and overlapping debt of property within the District as of January 1, 2016 is shown under the heading “THE DISTRICT - Direct and Overlapping Debt.”

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Sales of Tax-Defaulted Property Generally. If foreclosure is deemed necessary, property securing delinquent Assessment installments which is not sold pursuant to the judicial foreclosure proceedings described above may be sold, subject to redemption by the property owner, in the same manner and to the same extent as real property sold for nonpayment of general County property taxes. On or before June 30 of the year in which such delinquency occurs, the property becomes tax-defaulted. This initiates a five-year period during which the property owner may redeem the property. At the end of the five-year period the property becomes subject to sale by the County Auditor-Controller-Treasurer-Tax Collector. Except in certain circumstances, as provided in the Bond Law, the purchaser at any such sale takes such property subject to all unpaid assessments, interest and penalties, costs, fees and other charges which are not satisfied by application of the sales proceeds and subject to all public improvement assessments which may have priority.

Delinquency Resulting in Ultimate or Temporary Loss on Bonds. If amounts in the Redemption Fund are temporarily insufficient to pay Bonds that have matured or past due interest, or the principal and interest on Bonds coming due during the current tax year, but it does not appear to the Auditor-Controller-Treasurer-Tax Collector that there will be an ultimate loss to the owner of the Bonds, the Auditor-Controller-Treasurer-Tax Collector will, pursuant to the Bond Law, pay the principal of Bonds which have matured as presented and make interest payments on the Bonds when due as long as there are available funds in the Redemption Fund, in the following order of priority: All matured interest payments will be made before the principal of any other Bond is paid.

When funds become available for the payment of any Bond which was not paid upon presentment, the Auditor-Controller-Treasurer-Tax Collector will notify the registered owner of such Bond by registered mail to present the Bond for payment. If the Bond is not presented for payment within ten days after the mailing of the notice, interest will cease to accrue on the Bond.

If it appears to the Auditor-Controller-Treasurer-Tax Collector that there is a danger of an ultimate loss accruing to the Bond Owner for any reason, he or she is required pursuant to the Act to withhold payment on all matured Bonds and interest on all Bonds and report the facts to the Board of Supervisors so that the Board of Supervisors may take proper action to equitably protect the Bond Owner.

Upon the receipt of such notification from the Auditor-Controller-Treasurer-Tax Collector, the Board of Supervisors is required to fix a date for a hearing upon such notice. At the hearing the Board of Supervisors will determine whether in its judgment there will ultimately be insufficient money in the Redemption Fund to pay the principal of the unpaid Bonds and interest thereon.

If the Board of Supervisors determines that in its judgment there will ultimately be a shortage in the Redemption Fund to pay the principal of the unpaid Bonds and interest thereon (an “Ultimate Default”), the Board of Supervisors will direct the Auditor-Controller-Treasurer-Tax Collector to pay to the owner of all outstanding and unpaid Bonds such proportion thereof as the amount of funds on hand in the Redemption Fund bears to the total amount of the unpaid principal of the Bonds and interest which has accrued or will accrue thereon. Similar proportionate payments will thereafter be made periodically as moneys come into the Redemption Fund.

Upon the determination by the Board of Supervisors that an Ultimate Default will occur, the Auditor-Controller-Treasurer-Tax Collector will notify the Bond Owner to surrender its Bonds to the Auditor-Controller-Treasurer-Tax Collector for cancellation. Upon cancellation of the Bonds, the Bond Owner will be credited with the principal amount of the Bond so canceled. The Auditor-Controller-Treasurer-Tax Collector will then pay by warrant the proportionate amount of principal and accrued interest due on the Bonds of the Bond Owner as may be available from time to time out of the money in the Redemption Fund. Interest will cease to accrue on principal payments made from the date of such payment, but interest will continue to accrue on the unpaid principal at the rate specified on the Bonds until payment thereof is made. No premiums will be paid on payments of principal on Bonds made in advance of the maturity date thereon.

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If Bonds are not surrendered for registration and payment, the Auditor-Controller-Treasurer-Tax Collector will give notice to the Bond Owner by registered mail, at the Bond Owner’s last address as shown on the registration books maintained by the Registrar, of the amount available for payment. Interest on such amount will cease to accrue as of ten days after the date of mailing of such notice.

If the Board of Supervisors determines that in its judgment there will not be an Ultimate Default, it will direct the Auditor-Controller-Treasurer-Tax Collector to pay matured Bonds and interest as long as there is available money in the Redemption Fund.

Reserve Fund

The Fiscal Agent will establish the Reserve Fund on the closing date with a portion of the proceeds of the Bonds equal to the “Reserve Requirement,” which is defined as Maximum Annual Debt Service (as defined in the Fiscal Agent Agreement). The Reserve Requirement as of the Closing Date is $45,752.50. See “THE FINANCING PLAN - Estimated Uses of Funds” and “APPENDIX B - SUMMARY OF THE FISCAL AGENT AGREEMENT.”

The County will cause the Reserve Fund to be administered in accordance with Part 16 of the Act; provided, however, that proceeds from redemption or sale of properties, if and to the extent that payment of delinquent Assessments and interest thereon was made from the Reserve Fund, will be credited to the Reserve Fund.

If amounts in the Redemption Fund are insufficient to pay the principal, if any, of and interest on the Bonds, at any time, the Fiscal Agent will withdraw from the Reserve Fund, to the extent of any funds therein, the amount of such insufficiency, and will transfer any amounts so withdrawn to the Redemption Fund.

For a further description of disbursements from the Reserve Fund, see “APPENDIX B - SUMMARY OF THE FISCAL AGENT AGREEMENT - Reserve Fund.”

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RISK FACTORS

General

BEFORE PURCHASING ANY OF THE BONDS, ALL PROSPECTIVE INVESTORS AND THEIR PROFESSIONAL ADVISORS SHOULD CAREFULLY CONSIDER, AMONG OTHER THINGS, THE FOLLOWING RISK FACTORS, WHICH ARE NOT MEANT TO BE AN EXHAUSTIVE LISTING OF ALL RISKS ASSOCIATED WITH THE PURCHASE OF THE BONDS. MOREOVER, THE ORDER OF PRESENTATION OF THE RISK FACTORS DOES NOT NECESSARILY REFLECT THE ORDER OF THEIR IMPORTANCE.

The purchase of the Bonds involves investment risk. If a risk factor materializes to a sufficient degree, it could delay or prevent payment of principal of and/or interest on the Bonds. Such risk factors include, but are not limited to, the following matters.

Debt service on the Bonds is payable from installment payments of principal and interest on unpaid Assessments on the Assessment Parcels. The principal of the Assessments is the aggregate of the amounts of the individual Assessments levied against the Assessment Parcels. The individual Assessment on a parcel will be paid in annual installments, together with interest on the unpaid balance, unless the unpaid balance is subsequently prepaid. The annual installments of principal and interest with respect to an Assessment Parcel will be collected on the County tax roll at the same time and in the same manner as general real property taxes are collected. The annual installments of principal and interest with the respect to all Assessment Parcels were, at the time of initial levy of the Assessments, equal in the aggregate to the annual debt service on the Bonds.

Payment of the Assessment Not a Personal Obligation

The owners of Assessment Parcels are not personally liable for the payment of the Assessment or the Assessment installments. Rather, an assessment is a lien only on an Assessment Parcel. Accordingly, if the value of an Assessment Parcel is not sufficient to fully secure the assessment on it, the County has no recourse against the owner.

No County Obligation to Pay Debt Service

IF ASSESSMENT INSTALLMENT COLLECTIONS ARE INSUFFICIENT, THE ONLY AMOUNTS AVAILABLE TO PAY DEBT SERVICE ON THE BONDS WILL BE THE AMOUNT ON DEPOSIT FROM TIME TO TIME IN THE RESERVE FUND, AND IF SO ADVANCED WILL REDUCE THE RESERVE FUND BY THE AMOUNT OF THE FUNDS ADVANCED.

OWNERS OF BONDS MAY NOT RELY UPON THE COUNTY TO ADVANCE FUNDS TO PAY DEBT SERVICE ON THE BONDS FOLLOWING DEPLETION OF THE RESERVE FUND EVEN IF THE COUNTY MAY HAVE PREVIOUSLY DONE SO OR MAY DO SO CONTEMPORANEOUSLY WITH RESPECT TO OTHER BONDS OR OBLIGATIONS.

Risks of Real Estate Secured Investments Generally

The Bond Owners will be subject to the risks generally incident to an investment secured by real estate, including, without limitation, (i) adverse changes in local market conditions (including as a result of an economic downturn similar to that experienced in 2007 to about 2011), such as changes in the market value of real property in the vicinity of the District, the supply of or demand for competitive properties in such area, and the market value of residential property in the event of sale or foreclosure; (ii) changes in real estate tax rate and other operating expenses, governmental rules (including, without limitation, laws

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relating to hazardous materials) and fiscal policies; and (iii) natural disasters (including, without limitation, earthquakes, fires and floods), which may result in uninsured losses.

No assurance can be given that the individual homeowners will pay the Assessments in the future or that they will be able to pay such Assessments on a timely basis. See “Bankruptcy” below, for a discussion of certain limitations on the County’s ability to pursue judicial proceedings with respect to delinquent parcels

Risks Related to Declines in Home Values

Homes within the District were likely affected by the decline in market value along with the rest of the State during the recent economic crisis. Future declines in home values could result in property owner unwillingness or inability to pay mortgage payments, as well as ad valorem property taxes and Assessments, when due. Under such circumstances, bankruptcies could occur. Bankruptcy by homeowners with delinquent Assessments would delay the commencement and completion of foreclosure proceedings to collect delinquent Assessments. See “Bankruptcy.”

Valuation of Property in the District

The value of the land within the District is a critical factor in determining the investment quality of the Bonds. If there is a default in the payment of the Assessments, the County’s only remedy is to commence foreclosure proceedings on the delinquent property in an attempt to obtain funds to pay the delinquent Assessment. Further, reductions in assessed value indicating a decline in market value (as described below) may affect the willingness or ability of taxpayers to pay their Assessments prior to delinquency.

Assessed Value. The County has relied on the assessed valuations of the 2015/16 County Assessor’s rolls for the valuations for all of the property within the District presented in this Official Statement.

Article XIIIA. Pursuant to the California voter initiative process, on June 6, 1978, California voters approved Proposition 13 which added Article XIIIA to the California Constitution. This amendment imposed certain limitations on taxes that may be levied against real property to 1% of the full cash value of the property, adjusted annually for inflation at a rate not exceeding 2% annually. Full cash value is determined as of the 1975/76 assessment year, upon change in ownership (acquisition) or when newly constructed. Article XIIIA has subsequently been amended to permit reduction of the “full cash value” base in the event of declining property values caused by substantial damage, destruction or other factors, and to provide that there would be no increase in the “full cash value” base in the event of reconstruction of property damaged or destroyed in a disaster and in other special circumstances.

Reduction in Inflationary Rate. The annual inflationary adjustment, while limited to 2%, is determined annually and may not exceed the percentage change in the California Consumer Price Index (CCPI).

Because the Revenue and Taxation Code does not distinguish between positive and negative changes in the CCPI used for purposes of the inflation factor, there was a decrease of 0.237% in 2009/10 – applied to the 2010/11 tax roll – reflecting the actual change in the CCPI, as reported by the State Department of Finance. For each fiscal year since Article XIIIA has become effective (the 1978/79 fiscal year), the annual increase for inflation has been at least 2% except in nine fiscal years (including for the upcoming Fiscal Year 2015/16) as shown below:

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Tax Roll Percentage 1981/82 1.000%1995/96 1.1901996/97 1.1101998/99 1.8532004/05 1.8672010/11 (0.237)2011/12 0.7532014/15 0.4542015/16 1.998

Proposition 8 Adjustments. Proposition 8, approved in 1978, provides for the assessment of real property at the lesser of its originally determined (base year) full cash value compounded annually by the inflation factor, or its full cash value as of the lien date, taking into account reductions in value due to damage, destruction, obsolescence or other factors causing a decline in market value. Reductions based on Proposition 8 do not establish new base year values, and the property may be reassessed as of the following lien date up to the lower of the then-current fair market value or the factored base year value. While the assessed value may be reduced by the County Assessor as a result of Proposition 8, the assessed value has no bearing on the calculation of the Assessments, only on the calculation of ad valorem taxes.

The County cannot guarantee that reductions in assessed value will not occur in future years.

Value-to-Lien Ratios. Value-to-lien ratios have traditionally been used in land-secured bond issues as a measure of the “collateral” supporting the willingness of property owners to pay their special taxes and assessments (and, in effect, their general property taxes as well). The value-to-lien ratio is mathematically a fraction, the numerator of which is the value of the property (usually a market value as determined by an appraiser) and the denominator of which is the “lien” of the assessments or special taxes. A value-to-lien ratio should not, however, be viewed as a guarantee of credit-worthiness. Land values are more volatile in the early stages of a development, and are especially sensitive to economic cycles. A downturn of the economy, such as the recent economic crisis, may depress land values and hence the value-to-lien ratios, thereby increasing risk to investors and lenders. Further, the value-to-lien ratio cited for a bond issue is based on the aggregate value of all parcels in the District. Individual parcels in an assessment district may fall above or below the average, sometimes even below a 1:1 ratio. (With a ratio below 1:1, the property is worth less than the debt on it.) See “THE DISTRICT - Assessment Parcels” for information on individual parcels’ values. Although judicial foreclosure proceedings can be initiated rapidly, the process can take several years to complete, and the bankruptcy courts may impede the foreclosure action. Finally, local agencies may form overlapping community facilities districts or assessment districts. Debt issuance by another entity can dilute value-to-lien ratios. See “THE DISTRICT - Direct and Overlapping Debt.”

The values shown in Table No. 2 and discussed under the heading “THE DISTRICT - Assessment Parcels” are based on the County-determined assessed values of property in the District derived from the Fiscal Year 2015/16 County Assessor’s assessed valuation of land and improvements, which may or may not be reflective of such property’s fair market value or what a property could be sold for at judicial foreclosure. Note particularly in this regard the subsections under this caption “RISK FACTORS” which discuss matters relating to value of a parcel and the discussions under the caption “THE DISTRICT” with respect to lien to value ratios. The County has not undertaken to provide an appraisal of properties within the District.

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Factors Affecting Parcel Value and Aggregate Values

Prospective purchasers of the Bonds should not assume that the land could be sold for its original sales price or its fair market value at a foreclosure sale for delinquent Assessments. The future value of the land can be expected to fluctuate due to many different, not fully predictable, real estate related investment risk factors, including, but not limited to: general tax law changes related to real estate, changes in competition, general area employment base changes, population changes, changes in real estate related interest rates affecting general purchasing power, changes in allowed zoning uses and density, natural disasters such as floods, earthquakes, fires, landslides, and similar factors.

The facts and circumstances concerning the values of the Assessment Parcels that are of importance are not confined to those relating to individual Assessment Parcel values because the Bonds are not individually secured by particular Assessment Parcels. The Bonds are secured by all of the unpaid Assessments on all of the Assessment Parcels within the District. Therefore factors which affect all of the Assessment Parcels should be considered. The following are some of the factors which may affect the market for and value of particular Assessment Parcels individually, as well as the market for and value of all Assessment Parcels.

Hazardous Substances

One of the most serious risks in terms of the potential reduction in the value of the Assessment Parcels is a claim with regard to a hazardous substance. In general, the owners and operators of Assessment Parcels may be required by law to remedy conditions of the parcel relating to releases or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as “CERCLA” or the “Superfund Act,” is the most well-known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner or operator is obligated to remedy a hazardous substance condition of property whether or not the owner or operator has anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the Assessment Parcels be affected by a hazardous substance, is to reduce the marketability and value of the parcel by the costs of remedying the condition, because the purchaser, upon becoming owner, will become obligated to remedy the condition just as is the seller.

The property values set forth in this Official Statement do not take into account the possible reduction in value of any of the Assessment Parcels by reason of the possible liability of the owner or operator for the remedy of a hazardous substance condition of the parcel. It is possible that environmental liabilities currently exist of which the County is unaware.

Further, it is possible that liabilities may arise in the future with respect to any of the Assessment Parcels resulting from the existence, currently, on the parcel of a substance presently classified as hazardous but that has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently on the parcel of a substance not presently classified as hazardous but that may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly affect the value of Assessment Parcels that is realizable upon a delinquency.

Geologic, Topographic and Climatic Conditions

The value of the Assessment Parcels in the District in the future can be adversely affected by a variety of additional factors, particularly those which may affect infrastructure and other public improvements and private improvements on the Assessment Parcels and the continued habitability and enjoyment of such private improvements. Such additional factors include, without limitation, geologic conditions such as earthquakes, topographic conditions such as earth movements, landslides and floods and climatic conditions such as wildfires, droughts and tornadoes. It can be expected that one or more of such

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conditions may occur and may result in damage to improvements of varying seriousness, that the damage may entail significant repair or replacement costs and that repair or replacement may never occur either because of the cost or because repair or replacement will not facilitate habitability or other use, or because other considerations preclude such repair or replacement. Under any of these circumstances, the value of the Assessment Parcels may well depreciate or disappear.

The District, like most areas of California, may be subject to unpredictable seismic activity. The occurrence of seismic activity in the District could result in substantial damage to properties in the District, which, in turn, could substantially reduce the value of such properties and could affect the ability or willingness of the property owners to pay their Assessments.

The District may be subject to unpredictable climatic conditions, such as flood, droughts and destructive storms. The occurrence of climatic activity of this type in the District could result in substantial damage to properties in the District, which, in turn, could substantially reduce the value of such properties and could affect the ability or willingness of the property owners to pay their Assessments.

Legal Requirements

Other events which may affect the value of an Assessment Parcel include changes in the law or application of the law. Such changes may include, without limitation, local growth control initiatives, local utility connection moratoriums, and local application of statewide tax and governmental spending limitation measures. See “Proposition 218” and “Ballot Initiatives and Legislative Matters” herein.

Other Possible Claims Upon the Value of an Assessment Parcel

The sufficiency of tax or foreclosure sale proceeds to cover delinquent amounts may also depend on the value of any prior or parity liens and similar claims. While the Assessments are secured by the Assessments Parcels, this security only extends to the value thereof that is not subject to priority and parity liens and similar claims relative to the Assessments.

Other governmental obligations, including taxes, assessments, special taxes or other charges, may be authorized and undertaken or issued in the future may become obligations of one or more of the Assessment Parcels and may be secured by liens on a parity with the liens of the Assessments securing the Bonds.

The lien of the Assessments is subordinate to all fixed special assessment liens previously imposed upon the parcels in the District, but has priority over all private liens and over all fixed special assessment liens which may thereafter be creased against the parcels in the District. This lien is co-equal to and independent of the lien of general property taxes, including, without limitation, special taxes levied under the Mello-Roos Community Facilities Act of 1982 (being Chapter 2.5, Part 1, Division 2, Title 5 of the Government Code of the State of California,) whenever created against the property. There are currently no special tax liens imposed upon the Assessment Parcels.

The imposition of additional liens on a parity with the Assessments may reduce the ability or willingness of the landowners to pay the assessment installments and increases the possibility that foreclosure proceeds will not be adequate to pay delinquent assessment installments or the principal of and interest on the Bonds when due.

Risks Related to Availability of Mortgage Loans

Recent events in the United States and world-wide capital markets have adversely affected the availability of mortgage loans to homeowners, including potential buyers of homes within the District. Any such unavailability could hinder the ability of the current homeowners to resell their homes.

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Foreclosure and Sale Proceedings

The Board of Supervisors is obligated, under certain conditions set forth in the Fiscal Agent Agreement, to institute foreclosure and sale proceedings against Assessment Parcels which have delinquent assessment installments. See “SOURCES OF PAYMENT FOR THE BONDS - Repayment of the Bonds - Foreclosure Covenant” herein.

Foreclosure proceedings are instituted by the bringing of an action in the superior court of the county in which the Assessment Parcel lies, naming the owner and other interested persons as defendants. The action is prosecuted in the same manner as other civil actions. Upon judgment of foreclosure the Assessment Parcel may be offered for sale at a minimum price. The initially established minimum price will be sufficient to cover the amount of the delinquent installments and unpaid interest together with penalties, costs, fees and charges and the costs of execution and sale. The buyer in a foreclosure sale takes the parcel subject to the remaining assessment installments and regular taxes.

However, in the event an Assessment Parcel does not sell for the minimum price the court may modify its judgment and reduce or eliminate the minimum price. In order to do so, however, written notice of a hearing on the matter of reducing or eliminating the minimum price is required to be given to the owners of the Bonds.

If at the hearing the court determines that such a sale will not result in an ultimate loss to the owners of the Bonds, or if the owners of 75% of the outstanding Bonds by principal amount consent and the sale will not result in an ultimate loss to the non-consenting owners of Bonds, the court may reduce or eliminate the minimum price at which an Assessment Parcel may be sold. Further, if the owners of 75% of the outstanding Bonds by principal amount consent, the court may reduce or eliminate the minimum price at which an Assessment Parcel may be sold even if sale below the minimum price will result in an ultimate loss to non-consenting owners of Bonds, provided that the court makes certain additional determinations specified by statute including the reasonable unavailability of any other remedy acceptable to the owners of 75% or more of the outstanding Bonds by principal amount. Upon sale of the Assessment Parcel for less than the minimum price the remaining unpaid balance of the assessment on the Assessment Parcel will be reduced by the difference between the minimum price and the sale price. By such a reduction the aggregate principal amount of the outstanding Bonds may further exceed the aggregate principal amount of the unpaid Assessments.

Further, foreclosure proceedings may be limited in certain cases. See “Bankruptcy” and “FDIC/Federal Government Interests in Properties” herein.

Depletion of Reserve Fund

Upon the issuance of the Bonds, the Reserve Fund will contain an amount equal to $45,752.50 the initial Reserve Requirement. Whenever there are insufficient funds in the Redemption Fund to pay the next maturing installment of principal and interest on the Bonds, the amounts necessary to make up the deficiency, to the extent available, will be transferred from the Redemption Fund to the Fiscal Agent for deposit in the Redemption Fund. Amounts so transferred will be reimbursed to the Reserve Fund if, and when, available from the payments of delinquent installments and from the proceeds of redemption or sale of delinquent parcels which caused the withdrawal.

The Reserve Requirement is subject to reduction if, and when, the unpaid balance of the Assessment on an Assessment Parcel is prepaid. Upon prepayment of an Assessment, there will be a mandatory redemption of a corresponding principal amount of Bonds (see “THE BONDS - Redemption” herein). The Reserve Requirement will be reduced to the Reserve Requirement following such mandatory redemption. A reduction in the Reserve Requirement caused by prepayment of an assessment and the mandatory redemption of Bonds is a permanent reduction.

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The Reserve Fund may be invested, and the investment earnings may be retained in the Reserve Fund, to the extent necessary to maintain the amount therein at the Reserve Requirement. No sources of funds other than such investment earnings and any recoveries of delinquent Assessments are available to replenish deficiencies in the Reserve Fund. Accordingly, there is no assurance that the amount in the Reserve Fund will, at any particular time, be sufficient to pay, when due, debt service on the Bonds nor that the Reserve Fund will be fully reimbursed for any amounts expended for debt service.

Prepayment of Assessments

There is rarely a uniform relationship between the relative value of Assessment Parcels and the proportionate share of debt service on the Bonds to be borne by such Assessment Parcels.

One of the factors that may affect a significant change in the relationship between the aggregate Assessment Parcel values and the assessment is the prepayment before final bond maturity of the remaining balance of the Assessments on particular Assessment Parcels. Should the Assessments on Assessment Parcels having a relatively high ratio of assessed value to assessment be prepaid, the security for the Bonds, as evidenced by the ratio of the aggregate remaining Assessment Parcel values to the remaining outstanding Bonds, will be reduced.

Bankruptcy

Bankruptcy, insolvency and other laws generally affecting creditors’ rights could adversely impact the interests of owners of the Bonds in at least two ways. First, the payment of property owners’ taxes and the ability of the County to foreclose the lien of a delinquent unpaid Assessments pursuant to its covenant to pursue judicial foreclosure proceedings may be limited by bankruptcy, insolvency or other laws generally affecting creditors’ rights or by the laws of the State relating to judicial foreclosure. See “SOURCES OF PAYMENT FOR THE BONDS - Repayment of the Bonds.” In addition, the prosecution of a foreclosure could be delayed due to many reasons, including crowded local court calendars or lengthy procedural delays.

Although a bankruptcy proceeding would not cause the Assessments to become extinguished, the amount of any Assessment lien could be modified if the value of the property falls below the value of the lien. If the value of the property is less than the lien, such excess amount could be treated as an unsecured claim by the bankruptcy court. In addition, bankruptcy of a person or entity with an interest in the applicable property could result in a delay in prosecuting Superior Court foreclosure proceedings. Such delay would increase the likelihood of a delay or default in payment of delinquent Special Tax installments and the possibility of delinquent Assessment installments not being paid in full.

The various legal opinions to be delivered concurrently with the delivery of the Bonds (including Bond Counsel’s approving legal opinion) will be qualified, as to the enforceability of the various legal instruments, by moratorium, bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally.

Moreover, the ability of the County to commence and prosecute enforcement proceedings may be limited by bankruptcy, insolvency and other laws generally affecting creditors’ rights (such as the Soldiers’ and Sailors’ Relief Act of 1940) and by the laws of the State relating to judicial foreclosure.

FDIC/Federal Government Interests in Properties

Unless the United States Congress has otherwise provided, if the federal government has a mortgage interest in the parcel and the County wishes to foreclose on the parcel as a result of delinquent Assessments, the property cannot be sold at a foreclosure sale unless it can be sold for an amount sufficient to pay delinquent taxes and assessments on a parity with the Assessments and preserve the

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federal government’s mortgage interest. In Rust v. Johnson 597 F.2d 174 (9th Cir. 1979), the United States Court of Appeal, Ninth Circuit, held that FNMA (Fannie Mae) is a federal instrumentality for purposes of this doctrine, and not a private entity, and that, as a result, an exercise of state power over a mortgage interest held by Fannie Mae constitutes an exercise of state power over property of the United States.

FDIC. In the event that any financial institution making any loan which is secured by real property within the District is taken over by the FDIC, and prior thereto or thereafter the loan or loans go into default, resulting in ownership of the property by the FDIC, then the ability of the County to collect interest and penalties specified by State law and to foreclose the lien of delinquent unpaid Assessments may be limited. The FDIC’s policy statement regarding the payment of state and local real property taxes (the “Policy Statement”) provides that property owned by the FDIC is subject to state and local real property taxes only if those taxes are assessed according to the property’s value, and that the FDIC is immune from real property taxes assessed on any basis other than property value. According to the Policy Statement, the FDIC will pay its property tax obligations when they become due and payable and will pay claims for delinquent property taxes as promptly as is consistent with sound business practice and the orderly administration of the institution’s affairs, unless abandonment of the FDIC’s interest in the property is appropriate. The FDIC will pay claims for interest on delinquent property taxes owed at the rate provided under state law, to the extent that the interest payment obligation is secured by a valid lien. The FDIC will not pay any amounts in the nature of fines or penalties and will not pay nor recognize liens for such amounts. If any property taxes (including interest) on FDIC-owned property are secured by a valid lien (in effect before the property became owned by the FDIC), the FDIC will pay those claims. The Policy Statement further provides that no property of the FDIC is subject to levy, attachment, garnishment, foreclosure or sale without the FDIC’s consent. In addition, the FDIC will not permit a lien or security interest held by the FDIC to be eliminated by foreclosure without the FDIC’s consent.

The Policy Statement states that the FDIC generally will not pay non-ad valorem taxes, including special assessments, on property in which it has a fee interest unless the amount of tax is fixed at the time that the FDIC acquires its fee interest in the property, nor will it recognize the validity of any lien to the extent that it purports to secure the payment of any such amounts.

The County is unable to predict what effect the application of the Policy Statement would have in the event of a delinquency in the payment of Assessments on a parcel within the District, if the FDIC has or obtains an interest, although prohibiting the lien of the Assessments from being foreclosed at a judicial foreclosure sale could reduce or eliminate the number of persons willing to purchase a parcel at a foreclosure sale. Such an outcome could cause a draw on the Reserve Fund and perhaps, ultimately, if enough property were to become owned by the FDIC, a default in payment on the Bonds.

Fannie Mae or Freddie Mac. If a parcel of taxable property is owned by a federal government entity or federal government-sponsored entity, such as Fannie Mae or Freddie Mac, or a private deed of trust secured by a parcel of taxable property is owned by a federal government entity or federal government-sponsored entity, such as Fannie Mae or Freddie Mac, the ability to foreclose on the parcel or to collect delinquent Assessments may be limited.

Federal courts have held that, based on the supremacy clause of the United States Constitution, in the absence of Congressional intent to the contrary, a state or local agency cannot foreclose to collect delinquent taxes or assessments if foreclosure would impair the federal government interest. This means that, unless Congress has otherwise provided, if a federal government entity owns a parcel of taxable property but does not pay taxes and assessments levied on the parcel (including Assessments), the applicable state and local governments cannot foreclose on the parcel to collect the delinquent taxes and assessments.

Moreover, unless Congress has otherwise provided, if the federal government has a mortgage interest in the parcel and the County wishes to foreclose on the parcel as a result of delinquent Assessments, the

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property cannot be sold at a foreclosure sale unless it can be sold for an amount sufficient to pay delinquent taxes and assessments on a parity with the Assessments and preserve the federal government's mortgage interest.

No investigation has been made as to whether any governmental entity or government-sponsored entity currently owns or has an interest in any property in the District.

Loss of Tax Exemption

As discussed under the caption “LEGAL MATTERS - Tax Matters” herein, interest on the Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the Bonds were executed and delivered as a result of future acts or omissions of the County in violation of its covenants contained in the Fiscal Agent Agreement. Should such an event of taxability occur, the Bonds are not subject to special redemption or any increase in interest rate and will remain outstanding until maturity.

In addition, Congress has considered in the past, is currently considering and may consider in the future, legislative proposals, including some that carry retroactive effective dates, that, if enacted, would alter or eliminate the exclusion from gross income for federal income tax purposes of interest on municipal bonds, such as the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal tax legislation. The County can provide no assurance that federal tax law will not change while the Bonds are outstanding or that any such changes will not adversely affect the exclusion of the interest on the Bonds from gross income for federal income tax purposes. If the exclusion of the interest on the Bonds from gross income for federal income tax purposes were amended or eliminated, it is likely that the market price for the Bonds would be adversely impacted.

IRS Audit of Tax-Exempt Bond Issues

The Internal Revenue Service has initiated an expanded program for the auditing of tax-exempt bond issues, including both random and targeted audits. It is possible that the Bonds will be selected for audit by the Internal Revenue Service. It is also possible that the market value of the Bonds might be affected as a result of such an audit of the Bonds (or by an audit of similar bonds).

No Acceleration Provision

The Bonds do not contain a provision allowing for the acceleration of the Bonds in the event of a payment default or other default under the terms of the Bonds or the Fiscal Agent Agreement.

Proposition 218

Under the California Constitution, the power of initiative is reserved to the voters for the purpose of enacting statutes and constitutional amendments. Any such initiative may affect the collection of fees, taxes and other types of revenue by local agencies such as the County. Subject to overriding federal constitutional principles, such collection may be materially and adversely affected by voter-approved initiatives, possibly to the extent of creating cash flow problems in the payment of outstanding obligations such as the Bonds.

Proposition 218 - Voter Approval for Local Government Taxes - Limitation on Fees, Assessments, and Charges - Initiative Constitutional Amendment (“Proposition 218”), 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 218 states that all taxes imposed by local governments shall be deemed to be either general taxes or special taxes. No local government may impose, extend or increase any general tax unless and until such tax is submitted to the

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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.

Proposition 218 also provides that the constitutional initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local taxes, assessments, fees and charges. This provision with respect to the initiative power is not limited to taxes imposed on or after November 6, 1996, the effective date of Proposition 218. However, on July 1, 1997, a bill was signed into law by the Governor of the State enacting Government Code 5854, which states:

Section 3 of Article XIIIC of the California Constitution, as adopted at the November 5, 1996 general election, shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after that date, assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of contractual rights protection by Section 10 of Article I of the United States Constitution.

As a result, although no court has yet considered the relationship between Section 5854 and Article XIIIC, it is likely that Proposition 218 has not conferred on the voters the power to repeal or reduce the Assessments if such reduction would interfere with the timely retirement of the Bonds.

Like its antecedents, Proposition 218 is likely to undergo both judicial and legislative scrutiny before its 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 County 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 County 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. Legislative and court calendar delays and other factors may prolong any uncertainty regarding the effects of Proposition 218.

Ballot Initiatives and Legislative Measures

Proposition 218 was adopted pursuant to a measure qualified for the ballot pursuant to California’s constitutional initiative process and the State Legislature has in the past enacted legislation which has altered the spending limitations or established minimum funding provisions for particular activities. From time to time, other initiative measures could be adopted by California voters or legislation enacted by the State Legislature. The adoption of any such initiative or enactment of legislation might place limitations on the ability of the State, the County or local districts to increase revenues or to increase appropriations or on the ability of a property owner to complete the development of the property.

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Limited Secondary Market

There can be no guarantee that there will be a secondary market for the Bonds or, if a secondary market exists, that such Bonds can be sold for any particular price. Although the County has committed to provide certain statutorily-required financial and operating information, there can be no assurance that such information will be available to Bondholders on a timely basis. The failure to provide the required annual financial information does not give rise to monetary damages but merely an action for specific performance. Occasionally, because of general market conditions, lack of current information, the absence of credit rating for the Bonds or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then prevailing circumstances. Such prices could be substantially different from the original purchase price.

Limitations on Remedies

Remedies available to the owners of the Bonds may be limited by a variety of factors and may be inadequate to assure the timely payment of principal of and interest on the Bonds or to preserve the tax-exempt status of the Bonds. See “Other Possible Claims Upon the Value of an Assessment Parcel,” “No Acceleration Provision” and “FDIC/Federal Government Interests in Properties” herein.

Bond Counsel has limited its opinion as to the enforceability of the Bonds and the Fiscal Agent Agreement to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium, or other similar laws affecting generally the enforcement of creditors’ rights, by equitable principles and by the exercise of judicial discretion. The lack of availability of certain remedies or the limitation of remedies may entail risks of delay, limitation or modification of the rights of the owners of the Bonds.

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LEGAL MATTERS

Enforceability of Remedies

The remedies available to the Fiscal Agent and the Owners of the Bonds upon an event of default under the Fiscal Agent Agreement, or any other document described herein are in many respects dependent upon regulatory and judicial actions which are often subject to discretion and delay. Under existing law and judicial decisions, the remedies provided for under such documents may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the Bonds will be qualified to the extent that the enforceability of certain legal rights related to the Fiscal Agent Agreement is subject to limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally and by equitable remedies and proceedings generally.

Approval of Legal Proceedings

Jones Hall, A Professional Law Corporation, San Francisco, California, as Bond Counsel, will render an opinion which states that the Fiscal Agent Agreement and the Bonds are valid and binding obligations of the County and are enforceable in accordance with their terms. The legal opinions of Bond Counsel will be subject to the effect of bankruptcy, insolvency, moratorium and other similar laws affecting creditors’ rights and to the exercise of judicial discretion in accordance with general principles of equity.

Certain legal matters will be passed on for the County by Dana McRae, County Counsel, and by Jones Hall, A Professional Law Corporation, San Francisco, California, as Disclosure Counsel to the County.

Tax Matters

In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to the qualifications set forth below, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, provided, however, that, for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings.

The opinions set forth in the preceding paragraph are subject to the condition that the County comply with all requirements of the Internal Revenue Code of 1986, as amended (the “Tax Code”) that must be satisfied subsequent to the issuance of the Bonds. The County has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds.

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

Under the Tax Code, original issue discount is treated as interest excluded from federal gross income and exempt from State of California personal income taxes to the extent properly allocable to each owner thereof subject to the limitations described in the first paragraph of this section. The original issue discount accrues over the term to maturity of the Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates).

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The amount of original issue discount accruing during each period is added to the adjusted basis of such Bonds to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such Bond. The Tax Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the Bonds who purchase the Bonds after the initial offering of a substantial amount of such maturity. Owners of such Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of purchasers who do not purchase in the original offering, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of accrued original issue discount on such Bonds under federal individual and corporate alternative minimum taxes.

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

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

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

The complete text of the final opinion that Bond Counsel expects to deliver upon the issuance of the Bonds is set forth in “APPENDIX D - PROPOSED FORM OF OPINION OF BOND COUNSEL.”

Absence of Litigation

To the knowledge of the County, there is not now known to be pending or threatened any litigation restraining or enjoining the execution or delivery of the Fiscal Agent Agreement, or the sale or delivery of the Bonds or in any manner questioning the proceedings and authority under which the Fiscal Agent Agreement is to be executed or delivered or the Bonds are to be delivered or affecting the validity thereof.

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CONCLUDING INFORMATION

No Rating on the Bonds; Secondary Market

The County has not made, and does not contemplate making, any application for a rating on the Bonds. No such rating should be assumed based upon any other County rating that may be obtained. Prospective purchasers of the Bonds are required to make independent determinations as to the credit quality of the Bonds and their appropriateness as an investment.

Should a Bondholder elect to sell a Bond prior to maturity, no representations or assurances can be made that a market will have been established or maintained for the purchase and sale of the Bonds. The Underwriter assumes no obligation to establish or maintain a market for the purchase and sale of the Bonds and is not obligated to repurchase any of the Bonds at the request of the holder thereof.

Underwriting

Brandis Tallman LLC (the “Underwriter”) is offering the Bonds at the prices set forth on the inside front cover page hereof. The initial offering prices may be changed from time to time and concessions from the offering prices may be allowed to dealers, banks and others. The Underwriter purchased the Bonds at a price equal to $785,937.95, which amount represents the principal amount of the Bonds less a net original issue discount of $12,762.05 and less the Underwriter’s discount of $16,300.00. The Underwriter will pay certain of its expenses relating to the offering from the Underwriter’s discount.

The Municipal Advisor

The material contained in this Official Statement was prepared by the County with the assistance of the Municipal Advisor, who advised the County as to the financial structure and certain other financial matters relating to the Bonds. The information set forth herein has been obtained by the County and the Municipal Advisor from sources which are believed to be reliable, but such information is not guaranteed by the Municipal Advisor as to accuracy or completeness, nor has it been independently verified. Fees paid to the Municipal Advisor are contingent upon the sale and delivery of the Bonds.

Continuing Disclosure

The County will provide annually certain financial information and data relating to the Bonds and the District by not later than March 1 in each year commencing March 1, 2016 (the “Annual Report”), and to provide notices of the occurrence of certain other enumerated events. The Municipal Advisor will act as Dissemination Agent. The specific nature of the information to be contained in the Annual Report or the notices of listed events and certain other terms of the continuing disclosure obligation are found in the form of the County’s Disclosure Certificate attached in “APPENDIX C - FORM OF CONTINUING DISCLOSURE CERTIFICATE.”

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Execution

The execution of this Official Statement by the Assistant County Administrative Officer has been duly authorized by the County of Santa Cruz.

COUNTY OF SANTA CRUZ

By: /s/ Carlos Palacios Assistant County Administrative Officer

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APPENDIX A

COUNTY OF SANTA CRUZ INFORMATION STATEMENT

General Information

The County is situated at the northern tip of Monterey Bay, 65 miles south of San Francisco, 35 miles north of Monterey, and 35 miles south of the Silicon Valley. The County is the gateway to the Monterey Bay National Marine Sanctuary, has 29 miles of beaches and includes seven state parks and seven state beaches. It is the second smallest county in California in land area, containing a total of 440 square miles. There are four incorporated cities in the County of Santa Cruz: Capitola, Santa Cruz, Scotts Valley and Watsonville. The City of Santa Cruz was incorporated as a city in 1866. It is the county seat of the County and is the location of the Santa Cruz campus of the University of California. The City of Watsonville, established in 1868, lies 18 miles southeast of the City of Santa Cruz. It is the trading and shipping center for the Pajaro River Valley, a fertile agricultural region. The City of Watsonville is the center of the County’s agriculture region transporting fresh and processed farm crops to worldwide destinations. Watsonville’s economy has been diversifying with an influx of electronics, manufacturing, and service firms. The City of Capitola stretches along the coast east and south of the City of Santa Cruz. It was incorporated in 1949 and is a tourist destination. The City of Scotts Valley, incorporated in 1966, lies north of the City of Santa Cruz and includes community commercial areas serving local residents and a mix of industrial sites that have supported light manufacturing and research development firms predominantly in the electronics and technology industries.

Unincorporated communities in the County include: Live Oak, an urban coastal area, between the City of Santa Cruz and the City of Capitola; Soquel, which lies inland between Capitola and Santa Cruz; Aptos, south of Soquel; Felton, Ben Lomond and Boulder Creek, which are located in the San Lorenzo Valley between the City of Santa Cruz and Big Basin State Park; Davenport, which is located on the coast north of the City of Santa Cruz; Freedom, which is adjacent to and north of the City of Watsonville; and the Pajaro Valley, an agricultural area surrounding the City of Watsonville.

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Population

Approximately 50.7% of the County’s population lives in the County’s four incorporated cities: Capitola, Santa Cruz, Scotts Valley and Watsonville.

TABLE NO. A-1 COUNTY OF SANTA CRUZ

POPULATION INCORPORATED CITIES AND UNINCORPORATED COMMUNITIES

2011 – 2015

Unincorporated

Incorporated Cities Communities Santa Cruz County

January 1 Percentage Percentage Percentage

Year Population Change Population Change Population Change

2011 133,937 130,017 263,954

2012 134,862 0.7% 130,693 0.5% 265,555 0.6%

2013 136,016 0.9% 131,852 0.9% 267,868 0.9%

2014 136,538 0.4% 132,784 0.7% 269,322 0.5%

2015 137,856 1.0% 133,790 0.8% 271,646 0.9%

% Increase Between

2011 - 2015 2.9% 2.9% 2.9%

The population in the incorporated cities in Santa Cruz County is set forth in the following table:

Year Capitola Santa Cruz Scotts Valley Watsonville Total

2011 9,920 61,232 11,577 51,208 133,937

2012 9,952 61,832 11,607 51,471 134,862

2013 10,009 62,554 11,702 51,751 136,016

2014 10,004 62,860 11,800 51,874 136,538

2015 10,052 63,789 11,928 52,087 137,856

% Increase Between

2011 - 2015 1.3% 4.2% 3.0% 1.7% 2.9% __________________________________________

Source: State of California, Department of Finance, “E-4 Population Estimates for Cities, Counties and the State, 2011-2015, with 2010 Census Benchmark” Sacramento, California, May 2015.

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The County is adjacent to Santa Clara and Monterey counties. The following table sets forth the population for Santa Cruz County, Santa Clara County and Monterey County between 2011 and 2015.

TABLE NO. A-2 POPULATION

COUNTIES OF SANTA CRUZ, SANTA CLARA AND MONTEREY 2011 – 2015

SANTA CRUZ COUNTY SANTA CLARA COUNTY MONTEREY COUNTY

January 1 Percentage Percentage Percentage

Year Population Change Population Change Population Change

2011 263,954 1,794,337 416,968

2012 265,555 0.6% 1,816,519 1.2% 420,799 0.9%

2013 267,868 0.9% 1,844,389 1.5% 424,064 0.8%

2014 269,322 0.5% 1,868,038 1.3% 424,774 0.2%

2015 271,646 0.9% 1,889,638 1.2% 425,413 0.2%

% Increase Between

2011 - 2015 2.9% 5.3% 2.0% __________________________________________

Source: State of California, Department of Finance, “E-4 Population Estimates for Cities, Counties and the State, 2011-2015, with 2010 Census Benchmark” Sacramento, California, May 2015.

Per Capita Personal Income

Per capita personal income information for the County, the State of California and the United States are summarized in the following table.

TABLE NO. A-3 PER CAPITA PERSONAL INCOME

SANTA CRUZ COUNTY, CALIFORNIA AND UNITED STATES 2010 – 2014

Year Santa Cruz County (1) State of California (1) United States (1)

2010 $42,808 $42,411 $40,277

2011 45,770 44,852 42,453

2012 49,195 47,614 44,266

2013 49,942 48,125 44,438

2014 52,280 49,985 46,049 ____________________________________

(1) Per capita personal income was computed using Census Bureau midyear population estimates. Estimates for 2010-2014 reflect county population estimates available as of March 2015.

Note: All dollar estimates are in current dollars (not adjusted for inflation).

Last updated: November 19, 2015 - new estimates for 2014; revised estimates for 2001-2013.

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

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Employment and Industry

Services

Analysis prepared by the Santa Cruz County Workforce Investment Board (WIB) identified five major economic clusters that contribute significantly to the regional economy: technology, tourism, lifestyle enterprises, agriculture, and environmental technology.

The services sector is the largest economic sector in the County, and includes a wide range of activity. Hotels, other lodging places, business and finance services, personal services, automotive repairs services, amusement and recreation, and health services are all part of this sector. The sector includes very large employers such as Plantronics, which develops computer software and business computer applications, and Bluetooth Mobile headsets, the Santa Cruz Beach Boardwalk (employing 1,600 in the high season) and Dominican Hospital (about 1,000 employees), as well as very small software development and business service firms employing 10 or fewer.

New information technologies and the County’s proximity to Silicon Valley are factors that contribute to growth in the areas of computer, networking services, and software development, and the County’s location on the Monterey Bay National Marine Sanctuary contributes to growth in marine sciences’ research and development.

Agriculture

Agriculture is the region’s largest industry. The gross value of crops has increased steadily in recent years, as some segments of the industry have adapted successfully to changing consumer tastes, adopted new technologies and taken advantage of growing overseas markets. The agriculture economy has become highly diversified, producing over 2,000 kinds of crops in Santa Cruz County. According to the County’s Agricultural Commissioner, the largest producers are strawberries, raspberries, cut flowers, nursery and landscape plants and vegetables.

Tourism

Santa Cruz County is an important vacation and recreation area. Miles of coastline and accessible beaches border the second largest Marine Sanctuary in the world, an amusement park and other attractions, acres of redwood forest land, seven State Parks and 29 miles of beach, U-pick farms, wineries, and the presence of a diverse music and art scene, all in close proximity to the Bay Area.

Commercial

In addition to traditional commercial and retail businesses, Santa Cruz County is home to many recreation and personal lifestyle businesses started by local entrepreneurs with nationally-recognized brands and products, including O’Neill Wetsuits, Santa Cruz Skateboards, Annieglass, Odwalla Juices, Driscoll Berries, Santa Cruz Guitars, Marmot Clothing and Equipment, and Santa Cruz Bicycles. The County also has a diverse and productive arts community anchored by the Tannery Arts Center in Santa Cruz, the Visual, Applied and Performing Arts Division at Cabrillo College, and the Digital Arts and New Media Program at the University of California, Santa Cruz.

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Santa Cruz County is located in the Santa Cruz-Watsonville Metropolitan Statistical Area (“MSA”). As of September 2015, six major job categories constitute 80.6% of the work force. These are government (18.0%), educational and health services (16.0%), service producing (14.3%), leisure and hospitality (12.6%), farm (10.8%), and professional and business services (8.9%). The September 2015 unemployment rate in the Santa Cruz-Watsonville MSA was 5.4% (not seasonally adjusted to account for agricultural employment). The State of California September 2015 unemployment rate (unadjusted) was 5.5%. The employment in the Santa Cruz-Watsonville MSA is presented in the following table.

TABLE NO. A-4 SANTA CRUZ-WATSONVILLE MSA

WAGE AND SALARY WORKERS BY INDUSTRY (1) (in thousands)

Industry 2011 2012 2013 2014 2015

Government 17.9 17.6 18.9 18.3 19.2

Other Services 3.7 3.9 4.3 4.4 4.5

Leisure and Hospitality 11.4 12.0 12.7 13.1 13.4

Educational and Health Services 14.9 15.1 16.3 16.8 17.0

Professional and Business Services 9.5 10.0 9.6 9.5 9.5

Financial Activities 3.1 3.3 3.5 3.5 3.6

Information 0.9 0.8 0.8 0.8 0.8

Transportation, Warehousing and Utilities 1.3 1.4 1.4 1.3 1.4

Service Producing

Retail Trade 11.3 11.6 11.4 11.7 11.6

Wholesale Trade 3.3 3.4 3.5 3.6 3.6

Manufacturing

Nondurable Goods 2.5 2.8 3.0 3.2 3.3

Durable Goods 3.0 3.1 3.2 3.4 3.4

Goods Producing

Mining, Logging and Construction 3.2 3.2 3.4 3.6 3.6

Total Nonfarm 86.0 88.2 92.0 93.2 94.9

Farm 12.6 12.4 11.6 11.2 11.5

Total (all industries) 98.6 100.6 103.6 104.4 106.4 __________________________________________

(1) Annually, as of September.

Note: The unemployment rate is calculated using unrounded data. Data may not add due to rounding.

Source: State of California Employment Development Department, Labor Market Information Division, “Industry Employment & Labor Force - by month, March 2014 Benchmark.”

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The principal employers operating within the County during the Fiscal Year ended June 30, 2015 are as follows:

TABLE NO. A-5 COUNTY OF SANTA CRUZ PRINCIPAL EMPLOYERS

Number

Name of Company of Employees (1) Product/Service

University of California at Santa Cruz 1,000-4,999 Education

Pajaro Valley Unified School District 1,000-4,999 Education

County of Santa Cruz 1,000-4,999 County Services

Dominican Hospital 1,000-4,999 Hospital

Santa Cruz Beach Boardwalk 1,000-4,999 Amusement/Recreation

CB North 1,000-4,999 Sports/Recreation Clubs

Dutra Farms 1,000-4,999 Grocery/Wholesale

Cabrillo College 500-999 Education

City of Santa Cruz 500-999 City Services

Watsonville Community Hospital 500-999 Hospital

West Marine 500-999 Retail

Plantronics 500-999 Telephone Apparatus Manufacturer __________________________________________

(1) Number of Employees reflects an average range based on California Employment Development Department data.

Source: County of Santa Cruz Comprehensive Annual Financial Report.

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Commercial Activity

The following table summarizes the volume of retail and food services sales and taxable transactions for the County for 2009 through 2013 (the most recent year for which full-year statistics are available). The County’s sales tax receipts increased by approximately 9.0% for Fiscal Year 2012/13, by 7.8% in 2013/14 and by 2.5% in 2014/15.

TABLE NO. A-6 COUNTY OF SANTA CRUZ

TOTAL TAXABLE TRANSACTIONS (in $ thousands)

2009 - 2013

Retail and Retail and Total Taxable

Food Services Food Services Transactions Issued Sales

Year ($000’s) % Change Permits ($000’s) % Change Permits

2009 $1,956,754 5,557 $2,638,469 8,092

2010 2,079,236 6.3% 5,711 2,731,832 3.5% 8,222

2011 2,248,131 8.1% 5,823 2,893,395 5.9% 8,301

2012 2,375,320 5.7% 5,835 3,056,694 5.6% 8,320

2013 2,525,193 6.3% 6,074 3,270,766 7.0% 8,539 __________________________________________

Source: California State Board of Equalization, “Taxable Sales in California.”

The following table sets forth taxable transactions in the County of Santa Cruz and surrounding counties for 2009 through 2013 (the most recent year for which full-year statistics are available).

TABLE NO. A-7 TOTAL TAXABLE TRANSACTIONS

COUNTY OF SANTA CRUZ AND SURROUNDING COUNTIES (in $ thousands)

2009 - 2013

% Change from

County 2009 2010 2011 2012 2013 2009 - 2013

SANTA CRUZ $ 2,638,469 $ 2,731,832 $ 2,893,395 $ 3,056,694 $ 3,270,766 24.0%

San Mateo 11,327,022 11,966,338 13,020,643 13,906,978 14,611,618 29.0%

Santa Clara 27,427,709 30,523,322 33,431,217 36,220,445 37,621,606 37.2%

San Benito 422,942 449,872 486,490 530,017 560,238 32.5%

Monterey 4,705,845 4,955,562 5,312,732 5,637,445 5,910,531 25.6%__________________________________________

Source: California State Board of Equalization, “Taxable Sales in California.”

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Taxable transactions by type of business for the County are summarized below for 2009 through 2013 (the most recent year for which full-year statistics are available).

TABLE NO. A-8 COUNTY OF SANTA CRUZ

TAXABLE TRANSACTIONS BY TYPE OF BUSINESS (in $ thousands)

2009 – 2013

2009 2010 2011 2012 2013

Retail and Food Services

Motor Vehicle and Parts Dealers $ 202,343 $ 217,152 $ 257,320 $ 272,189 $ 300,257

Furniture and Home Furnishings Stores 42,214 42,656 47,221 47,659 52,238

Electronics and Appliance Stores 60,553 63,183 66,499 68,525 66,165

Building Material, Garden Supplies 200,782 243,660 247,364 251,652 279,264

Food and Beverage Stores 210,528 215,102 226,249 237,420 243,935

Health and Personal Care Stores 91,471 89,147 96,753 99,767 106,698

Gasoline Stations 238,382 283,133 349,163 363,261 354,464

Clothing and Accessories Stores 128,188 133,381 139,153 147,701 160,507

Sporting Goods, Hobby, Books, Music 78,106 79,066 81,319 80,702 84,288

General Merchandise 232,232 235,293 238,918 260,340 272,124

Miscellaneous Store Retailers 127,037 126,282 128,820 136,364 140,321

Nonstore Retailers 13,172 13,818 14,918 26,359 51,546

Food Services and Drinking Places 331,746 337,363 354,433 383,382 413,375

Total Retail and Food Services 1,956,754 2,079,236 2,248,131 2,375,320 2,525,183

All Other Outlets 681,715 652,596 645,264 681,374 745,583

Total All Outlets $2,638,469 $2,731,832 $2,893,395 $3,056,694 $3,270,766 __________________________________________

Note: In 2009, the classification of some categories were changed and are not directly comparable with prior years.

Source: California State Board of Equalization, “Taxable Sales in California.”

A-9

Building Activity

The following table summarizes building activity valuations for the County for the five calendar years from 2010 through 2014.

TABLE NO. A-9 COUNTY OF SANTA CRUZ

BUILDING ACTIVITY AND VALUATION (in $ thousands)

2010 - 2014

2010 2011 2012 2013 2014

Residential $ 61,446 $ 58,010 $ 68,932 $ 69,559 $ 70,444

Non-Residential 40,841 40,165 51,671 44,708 79,183

Total Valuation $102,287 $ 98,175 $120,603 $114,267 $149,627

No. of New Dwelling Units:

Single-Dwelling 92 79 80 94 113

Multi-Dwelling 23 111 173 32 5

Total New Units 115 190 253 126 118__________________________________________

Source: County of Santa Cruz Comprehensive Annual Financial Report.

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APPENDIX B

SUMMARY OF THE FISCAL AGENT AGREEMENT

The following is a brief summary of the provisions of the Fiscal Agent Agreement (“Agreement”). This Summary is not intended to be definitive. Reference is made to the actual document (a copy of which is available from the County) for the complete terms thereof.

DEFINED TERMS

The following terms have the following meanings, notwithstanding that any such terms may be elsewhere defined in this Official Statement. Any terms not expressly defined in this Summary or previously defined in this Official Statement have the respective meanings previously given. The following are not all of the terms defined in the Agreement.

“Act” means the Municipal Improvement Act of 1913, as amended, being Division 12 of the California Streets and Highways Code.

“Agreement” means the Fiscal Agent Agreement, as it may be amended or supplemented from time to time by any Supplemental Agreement executed under the provisions hereof.

“Assessment” or “Assessments” means the unpaid assessments levied within the Assessment District by the Board under the proceedings taken under the Act and Resolution of Intention for the purpose of paying Debt Service on the Bonds.

“Assessment District” means the area within the County designated “County of Santa Cruz Assessment District No. 15-01 (Orchard Drive Sewer Extension Project)” formed by the County under the Act and the Resolution of Intention, the boundaries of which are as shown in a map on file with the Clerk.

“Auditor” means the Auditor-Controller-Treasurer-Tax Collector of the County, or such other official of the County who is responsible for preparing real property tax bills, or his or her designee.

“Authorized Officer” means the County Administrative Officer, the Assistant County Administrative Officer, the Auditor-Controller-Treasurer-Tax Collector and the Clerk of the Board, or their respective deputies and designees, or any other officer or employee authorized by the Board or by an Authorized Officer to undertake the action referenced in the Agreement as required to be undertaken by an Authorized Officer.

“Board” means the Board of Supervisors of the County.

“Bond” or “Bonds” means the bonds designated “County of Santa Cruz, Limited Obligation Improvement Bonds, Assessment District No. 15-01 (Orchard Drive Sewer Extension Project)” at any time Outstanding under the Agreement or any Supplemental Agreement.

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“Bond Counsel” means any attorney or firm of attorneys acceptable to the County and nationally recognized for expertise in rendering opinions as to the legality and tax-exempt status of securities issued by public entities.

“Bond Law” means the Improvement Bond Act of 1915, as amended, being Division 10 of the California Streets and Highways Code.

“Bond Register” means the books maintained by the Fiscal Agent pursuant to the

Agreement for the registration and transfer of ownership of the Bonds. “Bond Year” means the twelve-month period beginning on September 3 in each year

and ending on September 2 in the following year except that (i) the first Bond Year shall begin on the Closing Date and end on the next September 2, and (ii) the last Bond Year may end on the date on which all of the Bonds are redeemed.

“Business Day” means any day other than (i) a Saturday or a Sunday or (ii) a day on

which banking institutions in California or in the state in which the Fiscal Agent has its principal corporate trust office are authorized or obligated by law or executive order to be closed.

“Capitalized Interest Account” means the account within the Redemption Fund and

designated “County of Santa Cruz, Limited Obligation Improvement Bonds, Assessment District No. 15-01 (Orchard Drive Sewer Extension Project), Capitalized Interest Account,” established and administered under the Agreement.

“Clerk” means the Clerk or Chief Deputy Clerk of the Board. “Closing Date” means February 23, 2016, the date upon which there is a physical

delivery of the Bonds in exchange for the amount representing the purchase price of the Bonds by the Original Purchaser.

“Continuing Disclosure Certificate” means that certain Continuing Disclosure

Certificate executed by the County and dated the date of issuance and delivery of the Bonds, as originally executed and as it may be amended from time to time in accordance with its terms.

“Costs of Issuance” means items of expense payable or reimbursable directly or

indirectly by the County and related to the formation of the Assessment District and the authorization, sale and issuance of the Bonds, including, without limitation, the following: printing costs for the Bonds and the Official Statement; costs of reproducing and binding documents; closing costs; filing and recording fees; fees and expenses of the County, the assessment engineer, and the municipal advisor; initial fees and charges of the Fiscal Agent, including its first annual administration fee; expenses incurred by the County in connection with the formation of the Assessment District and the issuance of the Bonds; underwriter's discount; legal fees and charges, including bond counsel, disclosure counsel and County Counsel; charges for execution, transportation and safekeeping of the Bonds; and other costs, charges and fees in connection with the foregoing.

“Costs of Issuance Fund” means the fund designated “County of Santa Cruz, Limited

Obligation Improvement Bonds, Assessment District No. 15-01 (Orchard Drive Sewer Extension Project), Costs of Issuance Fund” established and administered under the Agreement.

“County” means the County of Santa Cruz, California, and any successor thereto.

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“County Counsel” means the County Counsel of the County or other designated counsel to the County with respect to the Assessment District.

“Debt Service” means, for each Bond Year, the sum of (i) the interest due on the Outstanding Bonds in such Bond Year, assuming that the Outstanding Bonds are retired as scheduled, and (ii) the principal amount of the Outstanding Bonds and the Sinking Fund Payments due in such Bond Year.

“Fair Market Value” means the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm's length transaction (determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of section 1273 of the Tax Code) and, otherwise, the term "Fair Market Value" means the acquisition price in a bona fide arm's length transaction (as referenced above) if

(i) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Tax Code,

(ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations under the Tax Code,

(iii) the investment is a United States Treasury Security--State and Local Government Series that is acquired in accordance with applicable regulations of the United States Bureau of Public Debt, or

(iv) any commingled investment fund in which the County and related parties do not own more than a 10% beneficial interest therein if the return paid by the fund is without regard to the source of the investment.

To the extent required by the applicable regulations under the Code, the term “investment” will include a hedge.

“Federal Securities” means any of the following which are non-callable and which at the time of investment are legal investments under the laws of the State of California for funds held by the Fiscal Agent:

(i) direct general obligations of the United States of America (including obligations issued or held in book entry form on the books of the United States Department of the Treasury) and obligations, the timely payment of principal of and interest on which are, directly or indirectly, fully and unconditionally guaranteed by the United States of America, including, without limitation, such of the foregoing which are commonly referred to as stripped obligations and coupons; or

(ii) any of the following obligations of the following agencies of the United States of America:

(a) direct obligations of the Export-Import Bank,

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(b) certificates of beneficial ownership issued by the Farmers Home Administration,

(c) participation certificates issued by the General Services Administration (d) mortgage-backed bonds or pass-through obligations issued and

guaranteed by the Government National Mortgage Association, (e) project notes issued by the United States Department of Housing and

Urban Development, and (f) public housing notes and bonds guaranteed by the United States of

America.

“Fiscal Agent” means the Fiscal Agent appointed by the County and acting as the registrar, transfer agent, paying and registration agent for the Bonds and as an independent fiscal agent with the duties and powers provided under the Agreement, its successors and assigns, and any other corporation or association which may at any time be substituted in its place, as provided in the Agreement.

“Fiscal Year” means the twelve-month period extending from July 1 in a calendar year

to June 30 of the succeeding year, both dates inclusive. “Improvement Fund” means the fund designated “County of Santa Cruz, Limited

Obligation Improvement Bonds, Assessment District No. 15-01 (Orchard Drive Sewer Extension Project), Improvement Fund,” established and administered under the Agreement.

“Interest Payment Dates” means March 2 and September 2 of each year, commencing

September 2, 2016. “Maximum Annual Debt Service” means the largest Debt Service for any Bond Year

after the calculation is made through the final maturity date of any Outstanding Bonds. “Officer's Certificate” means a written certificate of the County signed by an

Authorized Officer of the County. “Original Purchaser” means Brandis Tallman LLC, the first purchaser of the Bonds

from the County. “Outstanding” when used as of any particular time with reference to Bonds, means,

subject to the provisions of the Agreement, all Bonds except:

(i) Bonds theretofore canceled by the Fiscal Agent or surrendered to the Fiscal Agent for cancellation;

(ii) Bonds paid or deemed to have been paid within the meaning of Article IX; (iii) Bonds in lieu of or in substitution for which other Bonds have been

authorized, executed, issued and delivered by the County pursuant to the Agreement or any Supplemental Agreement.

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“Owner” or “Bond Owner” means the registered owner of any Outstanding Bond as shown on the Bond Register of the Fiscal Agent under the Agreement.

“Participating Underwriter” has the meaning ascribed thereto in the Continuing

Disclosure Certificate. “Permitted Investments” means any of the following, but only if and to the extent

acquired at Fair Market Value:

(a) Federal Securities. (b) Federal Housing Administration debentures. (c) Unsecured certificates of deposit, time deposits, demand deposits,

overnight bank deposits, trust funds, trust accounts, interest-bearing deposits, interest-bearing money market accounts, and bankers’ acceptances (having maturities of not more than 30 days) of any bank (including those of the Fiscal Agent and its affiliates) the short-term obligations of which are rated “A-1” or better by S&P.

(d) Deposits the aggregate amount of which are fully insured by the

Federal Deposit Insurance Corporation (FDIC), in banks which have capital and surplus of at least $5 million (including those of the Fiscal Agent and its affiliates).

(e) Commercial paper (having original maturities of not more than 270

days) rated “A-1+” by S&P and “Prime-1” by Moody’s. (f) State Obligations, which means

(i) Direct general obligations of any state of the United States or any subdivision or agency thereof to which is pledged the full faith and credit of a state the unsecured general obligation debt of which is rated “A3” by Moody’s and “A” by S&P, or better, or any obligation fully and unconditionally guaranteed by any state, subdivision or agency whose unsecured general obligation debt is so rated.

(ii) Direct, general short-term obligations of any state agency

or subdivision described in (i) above and rated “A-1+” by S&P and “Prime-1” by Moody’s.

(iii) Special Revenue Bonds (as defined in the United States

Bankruptcy Code) of any state, state agency or subdivision described in (i) above and rated “AA” or better by S&P and “Aa” or better by Moody’s. (g) Pre-refunded municipal obligations rated “AAA” by S&P and “Aaa” by

Moody’s meeting the following requirements:

(i) the municipal obligations are (A) not subject to redemption prior to maturity or (B) the trustee for the municipal obligations has been given irrevocable instructions concerning their call and redemption and

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the issuer of the municipal obligations has covenanted not to redeem such municipal obligations other than as set forth in such instructions;

(ii) the municipal obligations are secured by cash or United

States Treasury Obligations which may be applied only to payment of the principal of, interest and premium on such municipal obligations;

(iii) the principal of and interest on the United States Treasury

Obligations (plus any cash in the escrow) has been verified by the report of independent certified public accountants to be sufficient to pay in full all principal of, interest, and premium, if any, due and to become due on the municipal obligations (“Verification”);

(iv) the cash or United States Treasury Obligations serving as

security for the municipal obligations are held by an escrow agent or trustee in trust for owners of the municipal obligations;

(v) no substitution of a United States Treasury Obligation shall

be permitted except with another United States Treasury Obligation and upon delivery of a new Verification; and

(vi) the cash or the United States Treasury Obligations are not

available to satisfy any other claims, including those by or against the trustee or escrow agent. (h) Investments in a money market mutual fund rated AAAm or AAAm-G

or better by S&P and having a rating in the highest investment category granted thereby from Moody's, including, without limitation any mutual fund for which the Fiscal Agent or an affiliate of the Fiscal Agent serves as investment manager, administrator, shareholder servicing agent, or custodian or subcustodian, notwithstanding that (i) the Fiscal Agent or an affiliate of the Fiscal Agent receives fees from funds for services rendered, (ii) the Fiscal Agent collects fees for services rendered pursuant to the Agreement, which fees are separate from the fees received from such funds, and (iii) services performed for such funds and pursuant to the Agreement may at times duplicate those provided to such funds by the Fiscal Agent or an affiliate of the Fiscal Agent.

(i) California's Local Agency Investment Fund (“LAIF”).

(j) Any investments permitted by the County investment policy in effect

as of the date the investment is made. “Prepayment Account” means the account within the Redemption Fund and

designated “County of Santa Cruz, Limited Obligation Improvement Bonds, Assessment District No. 15-01 (Orchard Drive Sewer Extension Project), Prepayment Account,” established and administered under the Agreement.

“Project” means the acquisitions and improvements described in the Resolution of Intention.

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“Redemption Fund” means the fund designated “County of Santa Cruz, Limited Obligation Improvement Bonds, Assessment District No. 15-01 (Orchard Drive Sewer Extension Project), Redemption Fund,” established and administered under the Agreement.

“Reserve Fund” means the fund designated “County of Santa Cruz, Limited Obligation

Improvement Bonds, Assessment District No. 15-01 (Orchard Drive Sewer Extension Project), Reserve Fund,” established and administered under the Agreement.

“Reserve Requirement” means, as of any date of calculation, an amount not to exceed

the least of

(a) Maximum Annual Debt Service on the Outstanding Bonds or (b) 10% of the original principal amount of the Bonds, or (c) 125% of average annual debt service on the Bonds.

As of the Closing Date, the Reserve Requirement equals $45,752.50, or Maximum

Annual Debt Service. “Resolution of Intention” means Resolution No. 265-2015 adopted by the Board on

October 20, 2015. “Resolution of Issuance” means the resolution adopted by the Board on January 26,

2016.

“Sinking Fund Payments” means amounts specified in the Agreement to be paid by the County with respect to any Term Bonds, as they may be adjusted pursuant to the Agreement.

“Supplemental Agreement” means an agreement the execution of which is authorized

by a resolution which has been duly adopted by the Board under the Bond Law and which agreement is amendatory of or supplemental to the Agreement, but only if and to the extent that such agreement is specifically authorized under the Agreement.

“Tax Code” means the Internal Revenue Tax Code of 1986 as in effect on the date of

issuance of the Bonds or (except as otherwise referenced in the Agreement) as it may be amended to apply to obligations issued on the date of issuance of the Bonds, together with applicable temporary and final regulations promulgated, and applicable official public guidance published, under the Tax Code.

“Term Bonds” means the Bonds maturing on September 2, 2019, September 2, 2036,

September 2, 2041, and September 2, 2046. “Treasurer” means the Auditor-Controller-Treasurer-Tax Collector of the County, or

such other official of the County who serves as the chief financial officer, or his or her deputy or designee.

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FUNDS AND ACCOUNTS

The following funds and accounts are established pursuant to the Agreement: Costs of Issuance Fund. A Costs of Issuance Fund is established as a separate fund

to be held by the Fiscal Agent. Moneys in the Costs of Issuance Fund shall be held by the Fiscal Agent for the benefit of the County and shall be disbursed for the payment or reimbursement of Costs of Issuance.

Disbursements from the Costs of Issuance Fund shall be made by the Fiscal Agent upon

receipt of an Officer's Certificate which shall:

(i) set forth the amount required to be disbursed, the purpose for which the disbursement is to be made, the person to which the disbursement is to be paid and state that such disbursement is for a Cost of Issuance; and

(ii) certify that no portion of the amount then being requested to be disbursed was

set forth in any Officer’s Certificate previously filed requesting disbursement. The Fiscal Agent shall maintain the Costs of Issuance Fund for 90 days after the Closing

Date, and then shall transfer any moneys remaining therein, including any investment earnings thereon, to the Improvement Fund.

Moneys in the Costs of Issuance Fund shall be invested and deposited in accordance

with the Authorized Investments. Pending its closing, interest earnings and profits resulting from said investment shall be retained by the Fiscal Agent in the Costs of Issuance Fund to be used for the purposes of that fund.

Improvement Fund. An Improvement Fund is established as a separate fund to be

held by the Treasurer. Moneys in the Improvement Fund shall be disbursed, except as otherwise provided in the Agreement, for the payment or reimbursement of costs of the Project.

Moneys in the Improvement Fund shall be invested and deposited in accordance with Authorized Investments. Interest earnings and profits from such investment and deposit shall be retained in the Improvement Fund to be used for the purposes of that fund.

Redemption Fund. A Redemption Fund is established as a separate fund to be held by

the Fiscal Agent. Moneys in the Redemption Fund shall be held by the Fiscal Agent for the benefit of the County and the Owners of the Bonds, shall be disbursed for the payment of the principal of (including Sinking Fund Payments), and interest and any premium on, the Bonds as provided below. Within the Redemption Fund there is established the following, separate accounts to be held in trust by the Fiscal Agent for the benefit of the County and the Owners:

(i) The Prepayment Account, which shall be used exclusively for the

administration of any prepayments of Assessments pursuant to Section 8767 of the Bond Law to assure the timely redemption of Bonds. If all of the Assessments are paid in full, the Prepayment Account shall be closed.

(ii) The Capitalized Interest Account, which shall be used exclusively for the

payment of interest on the Bonds on September 2, 2016.

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On or before each Interest Payment Date, the Fiscal Agent shall withdraw from the Redemption Fund and pay to the Owners of the Bonds the principal of (including Sinking Fund Payments), and interest and any premium, then due and payable on the Bonds; provided, however, that so long as monies remain in the Capitalized Interest Account of the Redemption Fund, the Fiscal Agent shall first withdraw from such Capitalized Interest Account for payment to the Owners of the Bonds the interest then due and payable on such Bonds.

Five Business Days prior to each Interest Payment Date, the Fiscal Agent shall determine if the amounts then on deposit in the Redemption Fund are sufficient to pay the Debt Service due on the Bonds on such Interest Payment date. If amounts in the Redemption Fund are insufficient for such purpose, the Fiscal Agent promptly shall notify the Treasurer by telephone (and confirm in writing) of the amount of the insufficiency, and on or before such Interest Payment Date, the Fiscal Agent shall transfer from the Reserve Fund to the extent of any funds therein the amount of such insufficiency to the Fiscal Agent for deposit in the Redemption Fund. Amounts so transferred from the Reserve Fund and deposited in the Redemption Fund shall be applied to the payment of the Bonds.

If, after the foregoing transfers, there are insufficient funds in the Redemption Fund to pay to the Owners of the Bonds the principal of (including Sinking Fund Payments), and interest and any premium, then due and payable on the Bonds, the Fiscal Agent shall apply the available funds first to the payment of interest on the Bonds, then to the payment of principal due on the Bonds (including Sinking Fund Payments), and then to payment of principal due on the Bonds by reason of Bonds called for optional redemption pursuant to the Agreement or extraordinary redemption from Assessment prepayments pursuant to the Agreement.

Moneys in the Redemption Fund (and the accounts therein) shall be invested and deposited in accordance with the Agreement. Interest earnings and profits resulting from such investment and deposit shall be retained in the Redemption Fund and the accounts therein, as applicable.

Reserve Fund. A Reserve Fund is established as a separate fund to be held by the Fiscal Agent to the credit of which a deposit shall be made as required by the Agreement in an amount equal to the Reserve Requirement.

Proceeds from the redemption or sale of properties with respect to which payment of delinquent Assessments and interest thereon was made from the Reserve Fund under the Agreement shall be deposited into the Reserve Fund, as provided in Section 8883 of the Bond Law.

Moneys in the Reserve Fund shall be held by the Fiscal Agent for the benefit of the County and the Bond Owners as a reserve for the payment of principal of (including Sinking Fund Payments), and interest and any premium on, the Bonds.

The County shall cause the Fiscal Agent to administer the Reserve Fund in accordance with the Agreement and Part 16 of the Bond Law.

Except as otherwise provided in the Agreement all amounts deposited in the Reserve Fund shall be used and withdrawn by the Fiscal Agent solely for the purpose of making transfers to the Redemption Fund if any deficiency exists at any time in the Redemption Fund of the amount then required for payment of the principal of (including Sinking Fund Payments), and interest and any premium on, the Bonds or, in accordance with the Agreement for the purpose of redeeming Bonds from the Redemption Fund.

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Transfers shall be made from the Reserve Fund to the Redemption Fund in the event of

a deficiency in the Redemption Fund, in accordance with the Agreement. Whenever, after the issuance of the Bonds, an Assessment is paid, in whole or in part,

as provided in the Bond Law, the Fiscal Agent shall transfer from the Reserve Fund to the Redemption Fund an amount equal to the product of the ratio of the original amount of the Assessment securing any Bonds so paid to the original amount of all unpaid Assessments securing any Bonds, times the amount of the Reserve Requirement as of the Closing Date.

Whenever, on any Interest Payment Date, or on any other date as determined by the

Fiscal Agent, the amount in the Reserve Fund exceeds the then-applicable Reserve Requirement, the Fiscal Agent shall, except as otherwise provided in the Agreement for purposes of rebate to the U.S. government, transfer on or before such Interest Payment Date an amount equal to the excess from the Reserve Fund to the Fiscal Agent for deposit in the Redemption Fund to be used in accordance with Part 16 of the Bond Law as directed in an appropriate Officer’s Certificate.

Whenever the balance in the Reserve Fund is sufficient to retire all the Outstanding

Bonds, whether by advance retirement or otherwise, collection of the principal and interest on the Assessments shall be discontinued and the Reserve Fund liquidated by the Fiscal Agent in retirement of the Outstanding Bonds, as directed by an Officer’s Certificate.

If the balance in the Reserve Fund at the time of liquidation exceeds the amount

required to retire all of the Outstanding Bonds, the Fiscal Agent shall use the excess first to pay any amounts then due to the Fiscal Agent, and shall use the remaining balance in accordance with the Act and the Bond Law, as directed by an Officer’s Certificate.

Moneys in the Reserve Fund shall be invested and deposited in accordance with the

Agreement. Interest earnings and profits resulting from this investment shall be retained in the Reserve Fund subject to the provisions of the Agreement.

COVENANTS OF THE COUNTY

Collection of Assessments. The County shall comply with all requirements of the Act, the Bond Law and the Agreement to assure the timely collection of the Assessments, including, without limitation, the enforcement of delinquent Assessments. To that end, the following shall apply:

(A) The Assessments as set forth on the list thereof on file with the Treasurer

together with the interest thereon, shall be payable in annual series corresponding in number and proportionate amount to the number of installments and principal amounts of the Bonds maturing or becoming subject to mandatory prior redemption. An annual proportion of each Assessment shall be payable in each Fiscal Year preceding the date of maturity or mandatory prior redemption date of each of the Bonds issued sufficient to pay the Bonds when due (including any Sinking Fund Payments thereon) and such proportion of each Assessment coming due in any year, together with the annual interest thereon, shall be payable in the same manner and at the same time and in the same installments as the general taxes on real property are payable, and become delinquent at the same times and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do the general

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taxes on real property. All sums received from the collection of the Assessments and of the interest and penalties thereon shall be transferred to the Fiscal Agent for deposit in the Redemption Fund.

(B) The Treasurer shall, before the final date on which the Auditor will accept the

transmission of the Assessments for the parcels within the Assessment District for inclusion on the next tax roll, prepare or cause to be prepared, and shall transmit to the Auditor, such data as the Auditor requires to include the installments of the Assessments on the next secured tax roll. The Treasurer is authorized to employ consultants to assist in computing the installments of the Assessments under the Agreement and in reconciling Assessments billed to amounts received as provided in the Subsection (C) of this Section.

(C) In addition to any amounts authorized pursuant to Section 8682 of the Bond Law

to be included with the annual amounts of installments as aforesaid, the County, pursuant to Section 8682.1 of the Bond Law, may cause to be entered on the assessment roll on which taxes will next become due, opposite each lot or parcel of land within the Assessment District in the manner set forth in said section 8682, each lot’s pro rata share of the estimated annual expenses of the County in connection with the administrative duties thereof for the Bonds, including, but not limited to, the costs of registration, authentication, transfer and compliance with the provisions of the Agreement.

Punctual Payment. The County will punctually pay or cause to be paid the principal of (including Sinking Fund Payments), and interest and any premium on, the Bonds when and as due in strict conformity with the terms of the Agreement and any Supplemental Agreement, and it will faithfully observe and perform all of the conditions, covenants and requirements of the Agreement and all Supplemental Agreements and of the Bonds.

Extension of Time for Payment. In order to prevent any accumulation of claims for interest after maturity, the County shall not, directly or indirectly, extend or consent to the extension of the time for the payment of any claim for interest on any of the Bonds and shall not, directly or indirectly, be a party to the approval of any such arrangement by purchasing or funding any claims for interest on any of the Bonds, or in any other manner.

If any such claim for interest is extended or funded, whether or not with the consent of

the County, such claim for interest so extended or funded shall not be entitled, in case of default under the Agreement, to the benefits of the Agreement, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest which have not been so extended or funded.

Against Encumbrance. The County will not encumber, pledge or place any charge or

lien upon any of the Assessments or other amounts pledged to the Bonds superior to or on a parity with the pledge and lien created for the benefit of the Bonds, except as permitted by the Resolution of Issuance, the Agreement, the Act or the Bond Law.

Books and Accounts. The County will keep, or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the County, in which complete and correct entries shall be made of all transactions relating to the Assessments and the application of amounts disbursed from the funds and accounts held by the County under the Agreement, which records shall be subject to inspection by the Fiscal Agent upon reasonable prior notice on any Business Day.

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Protection of Security and Rights of Owners. The County will preserve and protect the security of the Bonds and the rights of the Owners thereto, and will warrant and defend their rights to such security against all claims and demands of all persons. From and after the delivery of any of the Bonds by the County, the Bonds shall be incontestable by the County.

Compliance with Law; Completion of Project. The County will comply with all applicable provisions of the Act and the Bond Law in completing the acquisition and construction of the Project; provided that the County shall have no obligation to advance any funds to complete the Project in excess of the amounts available therefor in the Improvement Fund.

Further Assurances. The County will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Agreement, and for the better assuring and confirming unto the Owners of the rights and benefits provided in the Agreement.

Tax Covenants. The County covenants and agrees as follows:

(A) Private Activity Bond Limitation. [The County shall assure that the proceeds of the Bonds are not so used as to cause the Bonds to satisfy the private business tests of section 141(b) of the Tax Code or the private loan financing test of section 141(c) of the Tax Code.

(B) Federal Guarantee Prohibition. The County shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause any of the Bonds to be “federally guaranteed” within the meaning of section 149(b) of the Tax Code.

(C) Rebate Requirement. The County shall take any and all actions necessary to assure compliance with section 148(f) of the Tax Code, relating to the rebate of excess investment earnings, if any, to the federal government, to the extent that such section is applicable to the Bonds.

(D) No Arbitrage. The County shall not take, or permit or suffer to be taken by the Fiscal Agent or otherwise, any action with respect to the proceeds of the Bonds which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the date of issuance of the Bonds would have caused the Bonds to be “arbitrage bonds” within the meaning of section 148 of the Tax Code.

(E) Maintenance of Tax-Exemption. The County shall take all actions necessary to assure the exclusion of interest on the Bonds from the gross income of the Owners of the Bonds to the same extent as such interest is permitted to be excluded from gross income under the Tax Code as in effect on the date of issuance of the Bonds.

(F) Record Retention. The County will retain its records of all accounting and monitoring it carries out with respect to the Bonds for at least 3 years after the Bonds mature or are redeemed (whichever is earlier); however, if the Bonds are redeemed and refunded, the Issuer will retain its records of accounting and monitoring at least 3 years after the earlier of the maturity or redemption of the obligations that refunded the Bonds.

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(G) Compliance with Tax Certificate. The County will comply with the provisions of the Tax Certificate and the Use of Proceeds Certificate with respect to the Bonds, which are incorporated herein as if fully set forth herein. The covenants of this Section will survive payment in full or defeasance of the Bonds.

Continuing Disclosure. The County covenants and agrees that it will comply with and

carry out all of the provisions of the Continuing Disclosure Certificate. Notwithstanding any other provision of the Agreement, failure of the County to comply with the Continuing Disclosure Certificate shall not be considered an event of default under the Agreement; however, the Fiscal Agent may (and, at the request of any Participating Underwriter or the holders of at least 25% aggregate principal amount of Outstanding Bonds, and upon receipt of indemnification satisfactory to the Fiscal Agent, shall) or any holder or beneficial owner of the Bonds may, take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order.

INVESTMENTS

Deposit and Investment of Moneys in Funds. The following shall apply to the investment of funds held by the Fiscal Agent:

(i) Subject in all respects to the provisions of the Agreement, moneys in any

fund or account created or established by the Agreement and held by the Fiscal Agent shall be invested by the Fiscal Agent in Permitted Investments, as directed pursuant to an Officer’s Certificate filed with the Fiscal Agent at least two Business Days in advance of the making of such investments. In the absence of any such Officer’s Certificate directing the investment of uninvested moneys held by the Fiscal Agent, the Fiscal Agent shall invest any such moneys in the money market fund set forth in the letter of authorization and direction executed by the County and delivered to the Fiscal Agent. If no specific money market fund had been specified by the County, the Fiscal Agent shall make a request to the County for investment directions and, if no investment directions are provided, such amount shall be held in cash, uninvested, until specific investment directions are provided by the County to the Fiscal Agent.

Obligations purchased as an investment of moneys in any fund shall be deemed

to be part of such fund or account, subject, however, to the requirements of the Agreement for transfer of interest earnings and profits resulting from investment of amounts in funds and accounts.

(ii) The Fiscal Agent may act as principal or agent in the acquisition or

disposition of any investment. The Fiscal Agent shall incur no liability for losses arising from any investments made pursuant to this Section. The Fiscal Agent shall be entitled to rely upon any investment directions from the County as conclusive a certification to the Fiscal Agent that the investments described therein are so authorized under the laws of the State of California.

The Fiscal Agent shall not invest any cash held by it under the Agreement in the

absence of timely and specific written direction from the County. In no event shall the Fiscal Agent be liable for the selection of investments. The County acknowledges that regulations of the Comptroller of the Currency grant the County the right to receive brokerage confirmations of the security transactions as they occur, at no additional cost.

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To the extent permitted by law, the County specifically waives compliance with 12 C.F.R. 12 and hereby notifies the Fiscal Agent that no brokerage confirmations need be sent relating to the security transactions as they occur.

(iii) Subject in all respects to the provisions of the Agreement, investments in any and all funds and accounts may at the discretion of the Fiscal Agent be commingled in a separate fund or funds for purposes of making, holding and disposing of investments, notwithstanding provisions in the Agreement for transfer to or holding in or to the credit of particular funds or accounts of amounts received or held by the Fiscal Agent under the Agreement, provided that the Fiscal Agent shall at all times account for such investments strictly in accordance with the funds and accounts to which they are credited and otherwise as provided in the Agreement.

(iv) The Fiscal Agent shall sell, or present for redemption, any investment security whenever it is necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund or account to which such investment security is credited. The Fiscal Agent shall not be liable or responsible for any loss resulting from the acquisition or disposition of such investment security in accordance herewith.

The following shall apply to the investment of funds held by the Treasurer:

(i) The Treasurer shall invest any such moneys in Permitted Investments which by their terms mature prior to the date on which such moneys are required to be paid out under the Agreement.

Obligations purchased as an investment of moneys in any fund shall be deemed to be part of such fund or account, subject, however, to the requirements of the Agreement for transfer of interest earnings and profits resulting from investment of amounts in funds and accounts.

(ii) The Treasurer may act as principal or agent in the acquisition or disposition of any investment. The Treasurer shall incur no liability for losses arising from any investments made pursuant to this Section.

(iii) Subject in all respects to the provisions of the Agreement, investments in any and all funds and accounts may at the discretion of the Treasurer be commingled in a separate fund or funds for purposes of making, holding and disposing of investments, notwithstanding provisions herein for transfer to or holding in or to the credit of particular funds or accounts of amounts received or held by the Treasurer under the Agreement, provided that the Treasurer shall at all times account for such investments strictly in accordance with the funds and accounts to which they are credited and otherwise as provided in the Agreement.

(iv) The Treasurer shall sell at the highest price reasonably obtainable, or present for redemption, any investment security whenever it is necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund or account to which such investment security is credited. The Treasurer shall not be liable or responsible for any loss resulting from the acquisition or disposition of such investment security in accordance herewith.

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(v) The Treasurer shall keep records or accounts of all expenditures or disbursements therefrom, which shall be available for inspection during business hours on any Business Day upon prior written request.

Except as otherwise provided in the Agreement, the County covenants that all

investments of amounts deposited in any fund or account created by or pursuant to the Agreement, or otherwise containing gross proceeds of the Bonds (within the meaning of section 148 of the Tax Code), shall be acquired, disposed of and valued (as of the date that valuation is required by the Agreement or the Tax Code) at Fair Market Value.

Investments in funds or accounts (or portions thereof) that are subject to a yield

restriction under applicable provisions of the Tax Code and (unless valuation is undertaken at least annually) investments in the Reserve Fund shall be valued at their present value (within the meaning of section 148 of the Tax Code).

LIABILITY OF THE COUNTY

The County shall not incur any responsibility in respect of the Bonds or the Agreement other than in connection with the duties or obligations explicitly provided in the Agreement or in the Bonds. The County shall not be liable to any Owner in connection with the performance of its duties under the Agreement, except for its own negligence or willful default. The County shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements of the Fiscal Agent or of any of the documents executed by the Fiscal Agent in connection with the Bonds, or as to the existence of a default thereunder. Under the Agreement, the following shall apply to the County:

(A) In the absence of bad faith, the County, including the Treasurer, may

conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the County and conforming to the requirements of the Agreement. The County, including the Treasurer, shall not be liable for any error of judgment made in good faith unless it is proved that it was negligent in ascertaining the pertinent facts.

(B) No provision of the Agreement shall require the County to expend or risk its own

general funds or otherwise incur any financial liability (other than with respect to the foreclosure proceedings for delinquent Assessments and the payment of fees and costs of the Fiscal Agent) in the performance of any of its obligations under the Agreement or in the exercise of any of its rights or powers.

(C) The County may rely and shall be protected in acting or refraining from acting

upon any notice, resolution, request, consent, order, certificate, report, warrant, bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or proper parties. The County may consult with counsel, who may be the County Counsel, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it under the Agreement in good faith and in accordance therewith.

(D) The County shall not be bound to recognize any person as the Owner of a Bond

unless duly registered and until such Bond is submitted for inspection, if required, and his title thereto satisfactorily established, if disputed.

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(E) Whenever in the administration of its duties under the Agreement the County

deems it necessary or desirable that a matter be proved or established prior to taking or suffering any action under the Agreement, such matter (unless other evidence in respect thereof be therein specifically prescribed) may, in the absence of willful misconduct on the part of the County, be deemed to be conclusively proved and established by a certificate of the Fiscal Agent or other expert retained by the County for the purposes hereof, and such certificate shall be full warrant to the County for any action taken or suffered under the provisions of the Agreement or any Supplemental Agreement upon the faith thereof, but in its discretion the County may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as to it may deem reasonable.

MODIFICATION OR AMENDMENT OF THE AGREEMENT

Conditions for Amendment. The Agreement and the rights and obligations of the County and of the Owners of the Bonds may be modified or amended at any time by a Supplemental Agreement with the written consent of the Owners of at least 60% in aggregate principal amount of the Bonds then Outstanding, exclusive of Bonds disqualified as provided in the Agreement.

No such modification or amendment may:

(i) extend the maturity of any Bond or reduce the interest rate thereon, or otherwise alter or impair the obligation of the County to pay the principal of, and the interest and any premium on, any Bond, without the express consent of the Owner of such Bond, or

(ii) permit the creation by the County of any pledge or lien upon the Assessments

superior to or on a parity with the pledge and lien created for the benefit of the Bonds (except as otherwise permitted by the Act, the Resolution, the laws of the State of California or the Agreement), or

(iii) reduce the percentage of Bonds required for the amendment hereof, or (iv) amend this Section.

Any such amendment may not modify any of the rights or obligations of the Fiscal Agent

without its written consent. The Agreement and the rights and obligations of the County and of the Owners may also

be modified or amended at any time by a Supplemental Agreement, without the consent of any Owners, only to the extent permitted by law and only for any one or more of the following purposes:

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(i) Additions. To add to the covenants and agreements of the County contained in the Agreement, other covenants and agreements thereafter to be observed, or to limit or surrender any right or power therein reserved to or conferred upon the County.

(ii) Not Materially Adversely Affecting Bonds. To make modifications not

adversely affecting any outstanding Bonds in any material respect, as evidenced by an opinion of counsel delivered to the Fiscal Agent.

(iii) Corrections. To make such provisions for the purpose of curing any

ambiguity, or of curing, correcting or supplementing any defective provision contained in the Agreement, or in regard to questions arising under the Agreement, as the County may deem necessary or desirable and not inconsistent with the Agreement, and which shall not materially adversely affect the rights of the Owners of the Bonds.

(iv) Tax Exemption. To make such additions, deletions or modifications as

may be necessary or desirable to assure exemption from federal income taxation of interest on the Bonds.

DISCHARGE OF AGREEMENT

Subject to the provisions of the Agreement regarding redemption, if the County pays and discharges the entire indebtedness on all or any Bonds Outstanding in any one or more of the following ways:

(A) by well and truly paying or causing to be paid the principal of (including

any Sinking Fund Payments) and interest and any premium on, all Bonds Outstanding, as and when the same become due and payable;

(B) by depositing with the Fiscal Agent, in trust, at or before maturity, money

which, together with the amounts then on deposit in the funds and accounts provided for in the Redemption Fund and the Reserve Fund, is fully sufficient to pay such Bonds Outstanding, including all principal (including Sinking Fund Payments), interest and any applicable redemption premiums; or

(C) by irrevocably depositing with the Fiscal Agent, in trust, cash and Federal

Securities in such amount as the County may determine, as confirmed by an independent certified public accountant, which will, together with the interest to accrue thereon and moneys then on deposit in the fund and accounts provided for in the Redemption Fund and the Reserve Fund, be fully sufficient to pay and discharge the indebtedness on such Bonds, including all principal, Sinking Fund Payments, interest and any applicable redemption premiums, at or before their respective maturity dates;

and if such Bonds are to be redeemed prior to the maturity thereof notice of such redemption has been given as required by the Agreement (or provision satisfactory to the Fiscal Agent has been made for the giving of such notice), then, at the election of the County, and notwithstanding that any Bonds have not been surrendered for payment, the pledge of the Assessments and other funds provided for in the Agreement and all other obligations of the County under the Agreement with respect to all Bonds Outstanding shall cease and terminate, except only: (i) the obligation of the County to pay or cause to be paid to the Owners of the

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Bonds not so surrendered and paid all sums due thereon, (ii) the obligation of the County to assure that no action is taken or failed to be taken if such action or failure adversely affects the exclusion of interest on the Bonds from gross income for federal income tax purposes, and (iii) the obligation of the County to pay or cause to be paid all amounts owing to the Fiscal Agent pursuant to the Agreement.

If all Bonds outstanding are discharged pursuant to this Section, thereafter Assessments shall not be payable to the Fiscal Agent. Notice of such election shall be filed with the Fiscal Agent.

Any funds thereafter held by the Fiscal Agent upon payments of all fees and expenses of the Fiscal Agent, which are not required for said purpose, shall be paid over to the County to be used by the County as provided in the Act and the Bond Law.

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APPENDIX C

FORM OF CONTINUING DISCLOSURE CERTIFICATE

This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by the County of Santa Cruz (the “Issuer”) in connection with the issuance of its $815,000 County of Santa Cruz Limited Obligation Improvement Bonds, Assessment District No. 15-01 (Orchard Drive Sewer Extension Project) (the “Bonds”). The Bonds are being issued pursuant to Fiscal Agent Agreement, dated as of February 1, 2016, by and between the Issuer and The Bank of New York Mellon Trust Company, N.A. (the “Trustee”) (the “Fiscal Agent Agreement”). The Issuer covenants and agrees as follows:

Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Issuer for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriters in complying with S.E.C. Rule 15c2-12.

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

“Annual Report” means any Annual Report provided by the Issuer pursuant to, and as described in, Sections 3 and 4.

“Annual Report Date” means March 1 in each year.

“Dissemination Agent” means Harrell & Company Advisors, LLC, or any successor Dissemination Agent designated in writing by the Issuer and which has filed with the Issuer a written acceptance of such designation.

“Listed Events” means any of the events listed in Section 5(a) or 5(b).

“MSRB” means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule.

“Official Statement” means the Official Statement dated February 10, 2016 relating to the Bonds.

“Participating Underwriter” means Brandis Tallman LLC, the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds.

“Rule” means Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

Section 3. Provision of Annual Reports.

(a) The Issuer shall, or shall cause the Dissemination Agent to, not later than the Annual Report Date, commencing March 1, 2016, provide to the MSRB, in an electronic format as prescribed by the MSRB, an Annual Report which is consistent with the requirements of Section 4; provided, however, that the first Annual Report due on March 1, 2016, shall consist solely of a copy of the Official Statement. Not later than 5 days prior to the Annual Report Date, the Issuer shall provide the Annual Report to the Dissemination Agent (if other than the Issuer).

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The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4; provided that the audited financial statements of the Issuer may be submitted separately from the balance of the Annual Report, and later than the Annual Report Date if not available by that date. If the Issuer’s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c). The Dissemination Agent (if other than the Issuer) shall have no duty or obligation to review such Annual Report.

(b) If the Issuer does not provide (or cause the Dissemination Agent to provide) an Annual Report by the Annual Report Date, the Issuer shall provide a notice (or cause the Dissemination Agent to provide) to the MSRB, in an electronic format as prescribed by the MSRB.

(c) With respect to each Annual Report, the Dissemination Agent shall:

(i) determine each year prior to the Annual Report Date the then-applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and

(ii) if the Dissemination Agent is other than the Issuer, file a report with the Issuer certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided.

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

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

(b) The following information:

(i) The principal amount of Bonds Outstanding as of the December 31 next preceding the Annual Report Date;

(ii) The balance in the Reserve Fund, and a statement of the Reserve Requirement, as of the December 31 next preceding the Annual Report Date;

(iii) Total assessed value of all parcels subject to the annual installments of Assessments;

(iv) The delinquency rate in the payment of Assessments for the most recent fiscal year.

(v) If the County discontinues the Teeter Plan or determines that the Assessments will no longer be paid in full through the Teeter Plan, the following information concerning delinquent parcels:

(A) number of parcels delinquent in payment of Assessments;

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(B) amount of total delinquency;

(C) whether the County has fulfilled its covenants to pursue foreclosure proceedings upon delinquent properties and a summary of results of foreclosure sales, if available;

(D) the identity of any delinquent taxpayer obligated for more than 3% of the total annual Assessment levy and the assessed value of applicable properties;

(vi) For each parcel in the District securing more than 3% of the annual Assessment levy for the year to which the report relates (or for any individual owner owning in the aggregate parcels securing more than 3% of the Assessment levy for the fiscal year to which the report relates) the following from the most recently available County assessor’s roll: name of owner, APN number or numbers, assessed value (broken out by land, improvements and total) and the share of the percentage the Assessment levy for the year to which the report relates.

(c) In addition to any of the information expressly required to be provided under paragraphs (a) and (b) of this Section, the Issuer 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 Issuer or related public entities, which are available to the public on the MSRB’s Internet web site or filed with the Securities and Exchange Commission. The Issuer shall clearly identify each such other document so included by reference.

Section 5. Reporting of Listed Events.

(a) Reportable Events. The Issuer shall, or shall cause the Dissemination (if not the Issuer) to, give notice of the occurrence of any of the following events with respect to the Bonds:

(1) Principal and interest payment delinquencies. (2) Unscheduled draws on debt service reserves reflecting financial

difficulties. (3) Unscheduled draws on credit enhancements reflecting financial

difficulties. (4) Substitution of credit or liquidity providers, or their failure to perform. (5) Defeasances. (6) Rating changes. (7) Tender offers. (8) Bankruptcy, insolvency, receivership or similar event of the obligated

person (which event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an

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obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person).

(9) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security.

(b) Material Reportable Events. The Issuer shall give, or cause to be given, notice of

the occurrence of any of the following events with respect to the Bonds, if material:

(1) Non-payment related defaults. (2) Modifications to rights of security holders. (3) Bond calls. (4) The release, substitution, or sale of property securing repayment of the

securities.

(5) The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms.

(6) Appointment of a successor or additional trustee, or the change of name of a trustee.

(c) Time to Disclose. Whenever the Issuer obtains knowledge of the occurrence of a Listed Event, the Issuer shall, or shall cause the Dissemination Agent (if not the County) to, file a notice of such occurrence with EMMA, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of 10 business days after the occurrence of the Listed Event. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(5) and (b)(3) above need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to owners of affected Bonds under the Fiscal Agent Agreement.

Section 6. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under the Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB.

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Section 7. Termination of Reporting Obligation. The Issuer’s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds.

Section 8. Dissemination Agent. The Issuer may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be Harrell & Company Advisors, LLC. The Dissemination Agent may resign by providing thirty days prior written notice to the Issuer.

Section 9. Amendment. Notwithstanding any other provision of this Disclosure Agreement, the Issuer may amend this Disclosure Agreement, provided no amendment increasing or affecting the obligations or duties of the Dissemination Agent shall be made without the consent of such party, and any provision of this Disclosure Agreement may be waived if such amendment or waiver is supported by an opinion of counsel expert in federal securities laws acceptable to the Issuer to the effect that such amendment or waiver would not, in and of itself, cause the undertakings herein to violate the Rule if such amendment or waiver had been effective on the date hereof but taking into account any subsequent change in or official interpretation of the Rule.

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

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

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

The Dissemination Agent shall be paid compensation by the Issuer for its services provided hereunder in accordance with its schedule of fees as agreed to between the Dissemination Agent and the Issuer from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent may conclusively rely upon the Annual Report provided to it by the Issuer as constituting the Annual Report required of the Issuer in accordance with this Disclosure Certificate and shall have no duty or obligation to review such Annual Report. The Dissemination Agent shall have no duty to prepare the Annual Report nor shall the Dissemination Agent be responsible for filing any Annual Report not provided to it by the Issuer in a

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timely manner in a form suitable for filing with the MSRB. In accepting the appointment under this Agreement, the Dissemination Agent is not acting in a fiduciary capacity to the Holders or Beneficial Owners of the Certificates, the Issuer, the Participating Underwriters or any other party or person. No provision of this Disclosure Certificate shall require the Dissemination Agent to risk or advance or expend its own funds or incur any financial liability. Any company succeeding to all or substantially all of the Dissemination Agent’s business shall be the successor to the Dissemination Agent hereunder without the execution or filing of any paper or any further act.

Section 13. Beneficiaries. This Disclosure Certificate inures solely to the benefit of the Issuer, the Dissemination Agent, the Participating Underwriters and holders and beneficial owners from time to time of the Bonds, and creates no rights in any other person or entity.

Date: February 23, 2016

COUNTY OF SANTA CRUZ

By: _____________________________

County of Santa Cruz

DISSEMINATION AGENT Harrell & Company Advisors, LLC

By: _____________________________

Its: _____________________________

APPENDIX D

PROPOSED FORM OF OPINION OF BOND COUNSEL

February 23, 2016

Board of Supervisors County of Santa Cruz 701 Ocean Street Santa Cruz, CA 95060

Opinion: $815,000 County of Santa Cruz Limited Obligation Improvement Bonds Assessment District No. 15-01 (Orchard Drive Sewer Extension Project)

Members of the Board:

We have acted as bond counsel in connection with the issuance by the County of Santa Cruz (the “County”) of the limited obligation improvement bonds captioned above (the “Bonds”), under the Improvement Bond Act of 1915, Division 10 of the California Streets and Highways Code (the “Bond Law”), the County’s resolution entitled “Resolution Authorizing Issuance of Bonds, Approving and Directing the Execution of a Fiscal Agent Agreement and Related Documents and Actions” adopted on January 26, 2016 (the “Resolution”), and a Fiscal Agent Agreement dated as of February 1, 2016 (the “Fiscal Agent Agreement”), by and between the County and The Bank of New York Mellon Trust Company, N.A., as fiscal agent. We have examined the law and such certified proceedings and other papers as we deem necessary to render this opinion.

As to questions of fact material to our opinion, we have relied upon representations of the County contained in the Fiscal Agent Agreement, and in the certified proceedings and other certifications of public officials furnished to us, without undertaking to verify such facts by independent investigation.

Based upon our examination, we are of the opinion, under existing law, that:

1. The County is duly created and validly existing as a political subdivision of theState of California, with power to adopt the Resolution, enter into the Fiscal Agent Agreement, perform the agreements on its part contained therein, and issue the Bonds.

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Board of Supervisors County of Santa Cruz February 23, 2016 Page 2

2. The Fiscal Agent Agreement has been duly approved by the County andconstitutes a valid, legal and binding obligation of the County enforceable upon the County in accordance with its terms.

3. Pursuant to the Bond Law, the Fiscal Agent Agreement creates a valid lien onthe funds pledged by the Fiscal Agent Agreement for the security of the Bonds, subject to any existing prior liens granted under the Bond Law.

4. The Bonds have been duly authorized, executed and delivered by the Countyand are valid and binding special obligations of the County, payable solely from the sources provided therefor in the Fiscal Agent Agreement.

5. The interest on the Bonds is excluded from gross income for federal income taxpurposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. The opinion set forth in the preceding sentence is subject to the condition that the County comply with all requirements of the Tax Code that must be satisfied subsequent to the issuance of the Bonds in order that such interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The County has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. We express no opinion regarding other federal tax consequences arising with respect to the Bonds.

6. The interest on the Bonds is exempt from personal income taxation imposed bythe State of California.

The rights of the owners of the Bonds and the enforceability of the Bonds and the Fiscal Agent Agreement are limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights generally, and by equitable principles, whether considered at law or in equity.

This opinion is given as of the date hereof, and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention, or any changes in law that may hereafter occur. Our engagement with respect to this matter has terminated as of the date hereof.

Respectfully submitted,

A Professional Law Corporation

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APPENDIX E

THE BOOK-ENTRY SYSTEM

The following description of the Depository Trust Company (“DTC”), the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, interest and other payments on the Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be.

Neither the issuer of the Bonds (the “Issuer”) nor the trustee, fiscal agent or paying agent appointed with respect to the Bonds (the “Agent”) take any responsibility for the information contained in this Appendix.

No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC Participants are on file with DTC.

1. The Depository Trust Company (“DTC”), New York, NY, will act as securities depositoryfor the securities (the “Securities”). The Securities will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Security certificate will be issued for each issue of the Securities, each in the aggregate principal amount of such issue, and will be deposited with DTC. If, however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount, and an additional certificate will be issued with respect to any remaining principal amount of such issue.

2. DTC, the world’s largest securities depository, is a limited-purpose trust companyorganized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect

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Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. The information contained on such Internet site is not incorporated herein by reference.

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

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

5. Conveyance of notices and other communications by DTC to Direct Participants, byDirect Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

6. Redemption notices shall be sent to DTC. If less than all of the Securities within an issueare being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote withrespect to Securities unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer 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 Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy).

8. Redemption proceeds, distributions, and dividend payments on the Securities will bemade to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from Issuer or Agent, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in

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bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

9. DTC may discontinue providing its services as depository with respect to the Securities atany time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered.

10. Issuer may decide to discontinue use of the system of book-entry transfers through DTC(or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC.

11. The information in this section concerning DTC and DTC’s book-entry system has beenobtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof.