Wealth Management Research 20 May 2011

Municipal bondsState Credit EnhancementPrograms

• Local governments are facing serious budget constraints

• The scarcity of bond insurance has compounded the problemby eliminating the market’s traditional source of creditenhancement.

• To allay investor concerns, municipal bond issuers have turnedto state intercept programs with greater frequency.

Local Bond Guarantee Programs in a Post-Financial Crisis World

Joseph Krist, analyst, UBS FSjoseph.krist@ubs.com, +1 212 713 3959

Local governments are facing serious budget constraints andmunicipal bond investors are responding by demanding relativelyhigher yields for lower rated securities. The scarcity of bond insurancehas compounded the problem by eliminating the market’s traditionalsource of credit enhancement. To allay investor concern and toincrease the attractiveness of their bonds to investors, municipalbond issuers have turned to state intercept programs with greaterfrequency. Some of these programs have long and establishedhistories while others have been introduced more recently.

State credit enhancement programs employ different mechanismsto guarantee all or part of the debt service obligation of localgovernments. The provisions are set forth by statute and vary acrossthe country. Some programs provide investors with a direct guaranteeof timely debt service while others promise only that portion ofstate aid that otherwise would be directed to the governmentalborrower. School districts, in particular, tend to be among thebiggest beneficiaries of credit enhancement programs. Most stateconstitutions specify that primary and secondary education is aprincipal function of state government so the provision of a stateintercept for the payment of school district debt service is reasonablywell-established.

This report has been prepared by UBS Financial Services Inc. (UBS FS). Please see important disclaimers and disclosuresthat begin on page 22.

State credit enhancement programs employ different mechanisms to guarantee all or part of the debt service obligation of local governments. The provisions are set forth by statute and vary across the country. Some programs provide investors with a direct guarantee of timely debt service while others promise only that portion of state aid that otherwise would be directed to the governmental borrower. School districts, in particular, tend to be among the biggest beneficiaries of credit enhancement programs. Most state constitutions specify that primary and secondary education is a principal function of state government so the provision of a state intercept for the payment of school district debt service is reasonably well-established. State Aid intercept programs The programs are structured to provide full and timely payment of debt service directly to a paying agent, regardless of the amount of undisbursed state aid due to the borrower at the time of intercept. An exception is New York State where the mechanism is not triggered until an issuer has defaulted on its general obligation debt. They are usually rated on a parity with appropriation debt that is issued directly by a state. 1 (CA, CO, MA, MS, MO, NJ) Withholding programs Withholding programs provide for payment of debt service only up to an amount equal to remaining undisbursed state aid. Program ratings are on a parity with appropriation debt as the result of the requirement that a participant's available state aid cover debt service by at least 2x maximum annual debt service 1 (GA,OH,IN, KY). Intercept or withholding programs which do not provide for full and timely payment of debt service. 1 (NY, PA, VA) Standing and Annual Appropriation Programs are dependent on a state's ability to use its cash reserves to make up any debt service deficiency for a participating local government's debt service payment. There is a distinction made between standing appropriation programs which are rated on par with the state's GO rating and annual appropriation programs which are subject to appropriation risk and are notched one notch below the state GO rating level. Standing appropriation program ratings are not subject to appropriation risk and reflect both the state's sovereignty and its constitutional obligation to fund education.8 (MI, MN, NJ, OR, SC, TX Higher Ed., WA, WV) State Permanent Fund Programs are constitutionally created, and the corpus of the fund is leveraged to provide a full guaranty of a participating local government's debt service. 1 (NV, TXPSF, WY)

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California Infrastructure Bank School Aid Intercept Program S&P: A+ State Aid Intercept The program is authorized under State Law AB 1554, as amended by AB 1303. These statutes authorize the interception of state general fund money distributed to local school districts under Proposition 98. This program is open to school districts that have received emergency state loans to continue operating. The program refinances loans made to failing districts and districts receiving emergency loans must consent to state oversight until the loans are repaid. Each bond issue backed under the program is secured under a separate lease and bond indenture. Each lease requires the school district to make lease payments equal to debt service, plus operating costs for its leased asset, which is usually school buildings and land. The participating school districts provide the state controller with a schedule of future lease payments, and the state controller intercepts state school aid in an amount equal to debt service and sends it directly to the bond trustee. The remainder of state aid is then provided to the individual school district. 1 Colorado State Aid Intercept Program Moody’s: Aa3 S&P: AA- State Aid Intercept Unless a school district opts not to participate, Section 22-41-110, C.R.S. (the Bond Payment Act) applies to general obligation bonds, such as the Bonds, and certain elector authorized lease or installment purchase agreements issued or incurred by a school district on or after July 1, 1991 (the School District Obligation.). The District will notify the State of its participation in the program in connection with the issuance of the Bonds. Under the Bond Payment Act, if the paying agent with respect to a particular School District Obligation has not received a payment on the School District Obligation on the business day immediately prior to the date on which such payment is due, the paying agent is required to notify the State Treasurer and the school district that issued the School District Obligation. The State Treasurer is then required to contact the school district to determine whether the school district will make the payment by the date on which it is due. If the school district indicates to the State Treasurer that it will not make the payment on the School District Obligation by the date on which it is due, the State Treasurer is required to forward to the paying agent, in immediately available funds from any legally available funds of the State, the amount necessary to make the payment of the principal of and interest on the School District Obligation. If the State Treasurer makes a payment on a School District Obligation under the Bond Payment Act, he or she is required to withhold such amount from the next succeeding payment to that school district of the State’s share of the school district’s Total Program Funding and from property tax and specific ownership revenues collected by the county treasurer on behalf of the district (except property taxes levied for the payment of bonds) on each occasion on which the State Treasurer makes a payment on a School District Obligation on behalf of a district. The total amount withheld in each month from those sources shall not exceed one-twelfth of the amount forwarded (with certain limited exceptions). The State Treasurer shall not withhold for more than 12 consecutive months for each occasion on which the State Treasurer forwards amounts to pay School District Obligations. While the withholding of Total Program Funding and property and specific ownership tax payments by the State is limited to 12 monthly payments, the Bond Payment Act does not correspondingly limit the State’s contingent obligation to pay the School District Obligation.

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If the State Treasurer is required to make a payment on a School District Obligation, the State Department of Education is required to initiate an audit of the school district to determine the reason for the nonpayment of the School District Obligation and to assist the school district, if necessary, in developing and implementing measures to assure that future payments will be made when due. In addition, if the State is required to withhold from a school district’s Total Program Funding payment because of the school district’s failure to collect property taxes levied in accordance with law for the school district’s bond redemption fund, the school district may transfer any such delinquent property taxes later collected from the school district’s bond redemption fund to its general fund. The State has covenanted with the purchasers and owners of a School District Obligation that it will not repeal, revoke, rescind, modify or amend the Bond Payment Act so as to limit or impair the rights and remedies granted under the Bond Payment Act. The Bond Payment Act provides, however, that it shall not be deemed or construed to require the State to continue the payment of State assistance to any school district or to limit or prohibit the State from repealing, amending, or modifying any law relating to the amount of State assistance to school districts or the manner of payment or the timing thereof. The Bond Payment Act further provides that it shall not be deemed or construed to create a debt of the State with respect to any School District Obligation within the meaning of any State constitutional provision or to create any liability except as specifically provided in the Bond Payment Act. 2 Georgia State Aid Intercept Program Moody’s: Aa1 S&P: AA+ Withholding Eligible financings include any bonded indebtedness that the local school district elects to have covered by the program. (S&P) Pursuant to Section 20-2-480 of the Official Code of Georgia Annotated a school district will notify the State of Georgia Board of Education of the proposed issuance of Bonds and authorize and direct the Board to withhold from the District sufficient monies from any state appropriation to which the District may be entitled and to apply so much as shall be necessary to the payment of the principal and interest on the Bonds then due. If the Board is notified by the paying agent for the bonds that the District has failed to effect the punctual payment of the principal of or interest on the bonds, the State of Georgia Board of Education is authorized to withhold and shall withhold from any state appropriation to which the District may be entitled and apply so much thereof as shall be necessary to the payment of the principal and interest on the Bonds then due. All funds received by the paying agent from the State of Georgia Board of Education must be held by the paying agent in trust until the debt service is paid. The amounts subject to interception by the State of Georgia Board of Education for the benefit of the owners of bonds depends upon the amount and timing of annual appropriations made by the General Assembly of the State of Georgia to an issuer. 4 The paying agent must notify the board if monies held in the sinking fund are insufficient to make timely payment of principal and interest no later than the 15th day of the month before the scheduled debt service payment date. Upon notification, the state transfers to the paying agent the lesser of an amount sufficient to make the debt service payment, or the balance of any funds due the local school district under any state education appropriation authorized for the current fiscal year. 1

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Indiana State Aid Intercept Program S&P: AA+ Withholding Indiana Code Title 20, Article 48, Chapter1, Section 11 provides that the Department of Local Government Finance shall review levies and appropriations of school corporations for lease rental purposes. In the event a school corporation fails to levy and appropriate sufficient funds for such purpose, the Department of Local Government Finance shall establish levies and appropriations sufficient which are sufficient to pay such obligations. The Act further provides that upon a failure of any school corporation to make lease rental payments when due and upon notice and claim, the Treasurer of the State of Indiana shall make such payments from the funds of the State (“the State Intercept Program”). Such payments are limited to the amounts appropriated by the General Assembly for distribution to the school corporation from State funds in the calendar year. Such lease rental payments would be deducted from State distributions being made to the school corporation. 3 All school corporations are eligible for the program rating enhancement, provided state aid levels are equal to or greater than maximum annual debt service requirements. State aid coverage of maximum annual debt service on outstanding and proposed program bonds must be at least 2x. 1 Kentucky State Aid Intercept Program Moody’s: Aa2 S&P: A+ Withholding Legislation revised in 1994 covers all school district general obligation and lease-secured bonds if a district meets the following criteria: 1) it must levy a minimum equivalent tax rate of 25 cents as defined by Kentucky Revised Statutes 157-615; and 2) all new revenue generated by any tax increase required to meet the minimum equivalent tax rate must be placed in a restricted account for school building construction bonding. On June 30 of each year the district must transfer all available local revenues to a restricted account for school building construction. The program is based on the requirement for the state to withhold appropriated state aid if a school district is unable to meet debt service requirements. In connection with each program bond issue, the commission must send to each board of education at least thirty days before the due date of any payment a notice of the date and amount to become due and to require acknowledgement; and to receive from the board of education in the event of failure, satisfactory evidence that sufficient funds have been transmitted or will be transmitted to the commission or its agent, to pay debt service and administrative costs when due, as provided in the lease. The commission must also notify and request that the department withhold from the board of education a sufficient portion of any un-disbursed funds then held or allocated to it. 1 Kentucky State Aid Intercept Program for Commonwealth Universities Moody’s: Aa3 S&P: A+ Withholding State Legislation revised in 2004 (Kentucky Revised Statutes 160A.550- 164A.630) established a debt service withholding mechanism to cover debt obligations of the commonwealth's universities. Under KRS 164A.608, if a university is unable to pay principal and interest payments when due or fails to send to the paying agent bank or trustee the debt service or any payment when due as required by the bond resolution, the paying agent bank or trustee shall notify the secretary of the Finance and Administration Cabinet in writing and request that the cabinet withhold or intercept from the governing board a sufficient portion of any appropriated state funds not yet disbursed to the

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institution to satisfy the required payment on the bonds. The bond indenture must require the university to make sufficient sinking fund payments thirty days prior to debt service due date. If sufficient monies are not available 30 days prior to the debt service date, the trustee must be directed to transfer funds from a debt service reserve (to be funded at maximum annual debt service) to the sinking fund to prevent a default on the bonds. Ten days prior to the debt service due date, the trustee must notify, in writing, both the university and the commonwealth's Secretary of the Finance and Administration Cabinet of such an event and request that amounts be sent to the trustee pursuant to KRS section 164.608 to cure the deficiency or to restore the amount transferred from the debt service reserve fund. 1 Massachusetts Qualified Bond Act Moody’s: Aa3 S&P: AA- State Aid Intercept Section 19A of Chapter 44 of the Massachusetts General Laws provides a mechanism by which any sums payable (or estimated to become payable during the then current fiscal year) from the State treasury to any city, town or district, including a regional school district (hereinafter sometimes called the "issuer") may be diverted directly to the paying agent for bonds or notes of the issuer if it is determined that the issuer is unable, or is likely to be unable, to pay principal or interest, or both, on those bonds and notes when due. Sums paid to the paying agent are held by it in trust solely for payment of principal and interest and are exempt under the act from any levy, taking, sequestering or other application. The mechanism is activated when the treasurer of the issuer certifies to the manager or mayor of a city, the selectmen of a town, or the committee or commissioners of a district that it appears to the treasurer that the issuer is, or is likely to be, unable to pay the principal or interest on any bonds or notes when due. If, after investigation, such official or body agrees, he or they, must certify the inability or likely inability to the State Commissioner of Revenue. The Commissioner of Revenue must undertake an investigation of the circumstances and, if the Commissioner concurs, the amount of the shortfall and the name of the paying agent is certified to the State Treasurer who proceeds as described herein. The act does not provide for the initiation of the process by any party other than the issuer. If the sums available to be paid to the paying agent from the State treasury in any fiscal year are not sufficient to cover the entire amount of principal and interest due, payment to the paying agent must be made as soon as possible in the following year from sums otherwise payable to the issuer in such year. The sums payable from the State treasury to the issuer are determined or estimated on the basis of the total state distribution to the issuer, after deduction of any sums owed the State by the issuer and deduction of charges to and assessments made against the issuer under State law. The State has not agreed to maintain any level of distribution to cities, towns, and districts and all such distributions are subject to annual appropriation by the State Legislature. 5

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Michigan State School Bond Loan Fund Program S&P: AA- Standing Appropriation Pursuant to Article IX, Section 16 of the Michigan Constitution of 1963, if for any reason school district will be or is unable principal and interest on bonds when due, the school district shall borrow and the State of Michigan shall lend from the School Loan Revolving Fund established by the State, an amount sufficient to enable the school district to make the payment. Article IX, Section 16 of the State Constitution as implemented by Act 112 of the Public Acts of Michigan, 1961, as amended, authorizes the State, without the approval of its electors, to borrow from time to time such amounts as shall be required, pledge the State’s full faith and credit and issue its notes and bonds therefore, for the purpose of making loans to school districts as provided under such section. 1

Minnesota School District Credit Enhancement Program( MSDCE)

S&P: AAA

Standing Appropriation

Minnesota Statutes, Section 126C.55, provide for payment by the State of Minnesota in the event of a potential default of a school district obligation (the “State Payment Law” or the “Law”). The provisions of the State Payment Law shall be binding on a District as long as any obligations of the issues remain outstanding. Under the State Payment Law, if a District believes it may be unable to make a principal or interest payment for these issues on the due date, it must notify the Commissioner of Education as soon as possible, but not less than 15 working days prior to the due date, (which notice is to specify certain information) and will use the provisions of the Law to have the State of Minnesota make payment of the principal and interest when due. The District also covenants in the Resolution to deposit with the paying agent for the issues three business days prior to the date on which a payment is due an amount sufficient to make that payment or to notify the Commissioner of Education that it will be unable to make all or a portion of the payment. The Law also requires the paying agent for these issues to notify the Commissioner of Education if it becomes aware of a potential default in the payment of principal and interest on these obligations, or if, on the day two business days prior to the payment date, there are insufficient funds to make the payment or deposit with the paying agent. After receipt of a notice which requests a payment pursuant to the Law, after consultation with the paying agent and District, and after verifying the accuracy of the information provided, the Commissioner of Education shall notify the Commissioner of Finance of the potential default. The State Payment Law provides that “upon receipt of this notice...the Commissioner of Finance shall issue a warrant and authorize the Commissioner of Education to pay to the paying agent for the debt obligation the specified amount on or before the date due. The amounts needed for purposes of subdivision are annually appropriated to the Department of Education from the state general fund.” 6

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Minnesota County Credit Enhancement Program S&P: AAA Standing Appropriation For specified debt obligations of a county to be covered by Minnesota Statutes, Section 446A.086, the county must enter an agreement with the authority obligating the county to deposit with the paying agent three days before the date on which the payment is due an amount sufficient to make that payment; notify the authority, if the county will be unable to make all or a portion of the payment; and include a provision in the bond resolution and county's agreement with the paying agent for the debt obligation that requires the paying agent to inform the commissioner if it becomes aware of a default or potential default in the payment of principal or interest on that issue or if, on the day two business days before the date a payment is due on that issue, there are insufficient funds to make the payment on deposit with the paying agent. After receipt of a notice of a default or potential default in payment of principal or interest in debt obligations covered by this section or an agreement under this section, and after consultation with the county, the paying agent, and after verification of the accuracy of the information provided, the authority shall notify the commissioner of the potential default. The notice must include a final figure as to the amount due that the county will be unable to repay on the date due. Upon receipt of this notice from the authority, the commissioner shall issue a warrant and authorize the authority to pay to the paying agent for the debt obligation the specified amount on or before the date due. The amounts needed for the purposes of this subdivision are annually appropriated to the authority from the general fund. The commissioner may reduce, by the amount paid by the state under this section on behalf of the county, plus the interest due on the state payments, the county program aid under section 477A.0124. The amount of any aid reduction reverts from the appropriate account to the state general fund. A qualifying debt obligation under the statute includes a general obligation bond issued by a county, a bond to which the general obligation of a county is pledged under section 469.034, subdivision 2, or a bond payable from a county lease obligation under section 641.24, to provide funds for the construction of: (1) jails; (2) correctional facilities; (3) law enforcement facilities; (4) social services and human services facilities; (5) solid waste facilities; or (6) qualified housing development projects. 7 Mississippi State Aid Capital Improvement Bond Program S&P: AA- State Aid Intercept Section 31-25-27(13) of the Mississippi Code requires that state-appropriated monies received by a borrower must provide at least 2x maximum annual debt service (MADS) coverage on the debt service of the proposed and any other debt issued by the borrower under the program. The bond indenture must require the district to make sinking fund payments sufficient to pay upcoming debt service at least 35 days prior to any debt service due date; it must also require the trustee for the bonds to immediately notify the State Treasurer of a payment insufficiency 35 days before debt service is due and to request monies to cure the deficiency; and must also require the State Treasurer to send withheld or intercepted monies directly to the trustee, within 30 days of receipt of the notice of insufficiency from the trustee. 1

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Missouri Direct Deposit of State Aid Program Moody’s: Aa1 S&P: AA+ State Aid Intercept Pursuant to Section 360.111 et seq of the Revised Statutes of Missouri and related statutes (the “Deposit Law”), the State of Missouri (the “State”) and the District may agree to transfer to a Missouri bank, as direct deposit trustee (the “Deposit Trustee”), a portion of the District’s State aid payments and distributions normally used for operational purposes (“State Aid”) in order to provide for payment of debt service on the Bonds. On the date of issuance of the Bonds, the District will enter into a Direct Deposit Agreement (the “Deposit Agreement”) with the Office of the Treasurer of the State of Missouri (“Treasurer’s Office”), the Department of Elementary and Secondary Education of the State of Missouri (“DESE”), the Health and Educational Facilities Authority of the State of Missouri (the “Authority”) and the Deposit Trustee. Under the Deposit Agreement, the District will pledge its State Aid to the payment of the Bonds. The Deposit Agreement will provide that each month during the period March 2011 through December 2011, one-tenth (1/10th) of the debt service due on the Bonds on September 1, 2011 and March 1, 2012 will be deposited with the Deposit Trustee. Thereafter, beginning in March 2012, one-tenth (1/10) of the annual debt service to be paid on the Bonds is to be deposited with the Deposit Trustee in each month of the ten month period of March through December of each year that the Bonds are outstanding. Amounts of State Aid to the District in excess of the one-tenth (1/10th) monthly deposit will not be deposited with the Deposit Trustee but will be transferred directly to the District as has historically been the case with all State Aid. Each month, pursuant to the terms of the Deposit Agreement, DESE will advise the Treasurer’s Office of the amount of the District’s State Aid to be deposited with the Deposit Trustee for the purpose of paying the Bonds, as specified in the Deposit Agreement. If there is a shortfall in a monthly payment, it is to be made up in the succeeding monthly payment of State Aid. Following receipt of the deposits, the Deposit Trustee will invest the amounts for the benefit of the District in permitted investments under the State of Missouri Statutes. The Deposit Trustee will transfer to the Paying Agent the amount necessary for payment of debt service on the Bonds no later than one business day prior to each payment date with respect to the Bonds. The District remains obligated to provide funds to the Paying Agent for debt service on the Bonds if the amounts of State Aid transferred are not sufficient to pay the Bonds when due. 8 Nevada School District Bond Guarantee Program S&P: AAA State Permanent Fund The Permanent School Fund is funded primarily by escheated estates, gifts and proceeds from the sale of federal lands. Interest on the fund is used to support education in the State. As of March 1, 2010, the PSF had a balance of $305,388,239 consisting of a proportionate share of the State of Nevada’s general fund in the amount of $22,678,239 (the “General Fund Investments”) and $282,710,000 invested in securities with maturities ranging from March 2, 2010 through October 3, 2016 with an average maturity of 2 1/4 years (the “SPSF Investments”). The SPSF Investments had an average balance for the period of March 1, 2009 through March 1, 2010 of $272,566,940. As of March 1, 2010 the SPSF Investments were invested in Federal Home Loan Bank securities, Federal Farm Credit Bank securities, Federal National Mortgage Association securities, and United States Treasury Bills with an average yield of 2.52%. Pursuant to the provisions of the PSF Guarantee Act the maximum amount of principal that can be guaranteed by the State for any school district is limited to $40,000,000. Further, the total amount of bonds that can be guaranteed by the State is limited to 250% of the balance in the PSF. Based on the March 1, 2010 balance of

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$305,388,239, the maximum principal that can be guaranteed is approximately $763,470,598. As of March 1, 2010, $181,902,000 in bonds has been guaranteed, or authorized by the State Board of Finance to be guaranteed, by the PSF. 9 New Jersey Additional State Aid Bonds Program S&P: AA- Appropriation The New Jersey Additional State Aid Bonds Program is authorized by New Jersey Statutes 18A: 64A-22.1. Additional state aid bonds require the state to appropriate funds to pay debt service for school district bonds and for county GO bonds issued on behalf of community college districts. Within 10 days of issuing bonds secured by this program, the county treasurer or the treasurer of any other legally empowered issuer shall provide the state treasurer with a debt service schedule and the name and address of the paying agent. The state treasurer will appropriate and pay to the county, on or before the payment date, an amount equal to the payment due. The county, or other legally empowered issuer, shall use these funds solely for the timely payment of debt service to the paying agent. 1 New Jersey Fund for the Support of the Free Public Schools Program Chapter 72 S&P: AA- State Aid Intercept All school bonds are secured by the School Bond Reserve (the “School Bond Reserve”) established in the Fund for the Support of Free Public Schools of the State of New Jersey (the "Fund") in accordance with the New Jersey School Bond Reserve Act, N.J.S.A. 18A:56-17 et seq. (P.L. 1980, c. 72, approved July 16, 1980, as amended by P.L. 2003, c. 118, approved July 1, 2003 (the "Act")). The recent amendments to the Act provide that the Fund will be divided into two School Bond Reserve accounts. All bonds issued prior to July 1, 2003 shall be benefited by a School Bond Reserve account funded in an amount equal to 1-1/2% of the aggregate issued and outstanding bonded indebtedness of counties, municipalities or school districts for school purposes (the "Old School Bond Reserve Account") and all bonds, including the Bonds, issued on or after July 1, 2003 shall be benefited by a School Bond Reserve account equal to 1% of the aggregate issued and outstanding bonded indebtedness of counties, municipalities or school districts for school purposes (the "New School Bond Reserve Account"), provided such amounts do not exceed the moneys available in the Fund. If a municipality, county or school district is unable to make payment of principal of or interest on any of its bonds issued for school purposes, the trustees of the Fund will purchase such bonds at par value and will pay to the bondholders the interest due or to become due within the limits of funds available in the applicable School Bond Reserve account in accordance with the provisions of the Act. The Act provides that the School Bond Reserve shall be composed entirely of direct obligations of the United States government or obligations guaranteed by the full faith and credit of the United States government. Securities representing at least one-third of the minimal market value to be held in the School Bond Reserve shall be due to mature within one year of issuance or purchase. Beginning with the fiscal year ending on June 30, 2003 and continuing on each June 30 thereafter, the State Treasurer shall calculate the amount necessary to fully fund the Old School Bond Reserve Account and the New School Bond Reserve Account as required pursuant to the Act. To the extent moneys are insufficient to maintain each account in the School Bond Reserve at the required levels, the State agrees that the State Treasurer

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shall, no later than September 15 of the fiscal year following the June 30 calculation date, pay to the trustees for deposit in the School Bond Reserve such amounts as may be necessary to maintain the Old School Bond Reserve Account and the New School Bond Reserve Account at the levels required by the Act. No moneys may be borrowed from the Fund to provide liquidity to the State unless the Old School Bond Reserve Account and New School Bond Reserve Account each are at the levels certified as full funding on the most recent June 30 calculation date. The amount of the School Bond Reserve in each account is pledged as security for the prompt payment to holders of bonds benefited by such account of the principal of and the interest on such bonds in the event of the inability of the issuer to make such payments. In the event the amounts in either the Old School Bond Reserve Account or the New School Bond Reserve Account fall below the amount required to make payments on bonds, the amounts in both accounts are available to make payments for bonds secured by the reserve. The Act further provides that the amount of any payment of interest or purchase price of school bonds paid pursuant to the Act shall be deducted from the appropriation or apportionment of State aid, other than certain State aid which may be otherwise restricted pursuant to law, payable to the district, county or municipality and shall not obligate the State to make, nor entitle the district, county or municipality to receive any additional appropriation or apportionment. Any amount so deducted shall be applied by the State Treasurer to satisfy the obligation of the district, county or municipality arising as a result of the payment of interest or purchase price of bonds pursuant to the Act. 10 New Jersey Qualified Bond Program Moody’s: A1 S&P: AA- State Aid Intercept Bonds secured under this program are entitled to the benefits of the Municipal Qualified Bond Act, Public Law 1976,c.38 as amended. Pursuant to the Act, a portion of city, township, and other local municipality qualified state aid is to be withheld by the State Treasurer and forwarded to the paying agent for the Bonds on or before the principal and interest payment dates. Each municipality which issues qualified bonds shall certify to the State Treasurer the name and address of the paying agent, the maturity schedule, interest rate and dates of payment of debt service on such qualified bonds within 10 days after the date of issuance of such qualified bonds. After receipt of such certificate the State Treasurer shall withhold from the amount of business personal property tax replacement revenues, gross receipts tax revenues, municipal purposes tax assistance fund distributions, State urban aid, State revenue sharing and any other funds appropriated as State aid and not otherwise dedicated to specific municipal programs payable to such municipality an amount of such business personal property tax replacement revenues, gross receipts tax revenues, municipal purposes tax assistance fund distributions, State urban aid, State revenue sharing and any other funds appropriated as State aid and not otherwise dedicated to specific municipal programs which will be sufficient to pay the debt service on such qualified bonds as the same shall mature and become due. The State Treasurer shall, on or before each principal and interest payment date, forward such withheld amounts to the paying agent for such qualified bonds for deposit to the account established with such paying agent for the purpose of paying the debt service on such qualified bonds. From the time withheld by the State Treasurer all such business personal property tax replacement revenue, gross receipts tax revenues, municipal purposes tax assistance fund distributions, State urban aid, State revenue sharing and any other funds appropriated as State aid and not otherwise dedicated to specific municipal programs so withheld and paid or to be paid to and held by the paying agent shall be exempt from

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being levied upon, taken, sequestered or applied toward paying the debts of the municipality other than for payment of debt service on such qualified bonds. From the time withheld by the State Treasurer the business personal property tax replacement revenue, gross receipts tax revenues, municipal purposes tax assistance fund distributions, State urban aid, State revenue sharing and any other funds appropriated as State aid and not otherwise dedicated to specific municipal programs so withheld and paid or to be paid to the paying agent shall be deemed to be held in trust for the sole purpose of paying the debt service on such qualified bonds. 11 To qualify for this program, an issuing municipality must obtain approval from the state for the planned capital improvements and anticipated debt service schedule. The state treasurer will forward withheld amounts to the paying agent for payment of debt service on or before each principal and interest payment date. The balance of the state aid is then sent to the municipality. The aid revenue from the state must be at least equal to 1x maximum annual debt service. 1 New York State Aid Intercept Program S&P: A State Aid Intercept Section 99b of the state finance law authorizes the aid withholding and specifies the procedures that would be followed should the state be required to make a debt service payment for a participating district. All NYS school districts are eligible for this program. Upon notification of a default by a school district, the state comptroller is required to deduct from the next state aid payment due to the school district an amount sufficient to meet any debt service deficiency. If this aid payment does not cover the obligation, the balance would be deducted from the succeeding allotment. The funds would be forwarded directly to the paying agent, and the comptroller would notify the school district of the payment. A technical default can occur on New York school district GO bonds. State finance law does not contain any provisions to activate the mechanism before actual default. The minimum guarantee program, however, reflects the fact that a prompt cure of any such default is assured. 12 Ohio State Aid Intercept Program Moody’s: Aa3 S&P: AA (post 2004 bonds) AA- (pre-2004 revision bonds) The Ohio Credit Enhancement Program authorizes a school district or two-year community or technical college to enter into an agreement that allows the state to withhold state education funds due to the district under chapter 3317 of the revised Ohio Administrative Code and to apply those funds to the district's debt service payments. Additional revisions to Section 3301-8-01 of the Ohio Administrative Code adopted in March 2004 require 2.5x maximum annual debt service coverage levels. 1 To participate in the Credit Enhancement Program, school districts must meet the following Criteria: (1) The amount of Foundation Program Payments received by a school district for the current fiscal year reduced by any current year deficit reported on the five year forecast must exceed by a ratio of at least 2.5 to 1 the outstanding maximum annual debt service on the proposed obligations and on any additional outstanding obligations secured by a pledge of Foundation Program Payments; and (2) The projected amount of Foundation Program Payments remaining to be distributed in the current fiscal year reduced by any deficit reported on the five year forecast must exceed the debt charges remaining to be paid in that

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fiscal year by a ratio of 1.25 to 1. The Department, the School District, and the Bond Registrar will enter into an agreement pursuant to Revised Code Section 3317.18 (the "Agreement") providing for the withholding and deposit of funds that would otherwise be due the School District under Revised Code Chapter 3317 ("Foundation Program Payments") for the payment of debt service charges on the Bonds in the event the School District is unable to make debt service payments on the Bonds. If the School District is unable to make debt service payments on the Bonds, and payment will not otherwise be made pursuant to a credit enhancement facility, the Agreement provides that the Department will promptly pay to the Bond Registrar the lesser of: (i) the amount due for debt service charges on the Bonds or (ii) the amount of Foundation Program Payments due the School District for the remainder of the fiscal year. As part of the Agreement, the School District will covenant that it will not pledge Foundation Program Payments as primary security for any additional obligations having a claim on the Foundation Program Payments on a parity with the Bonds unless the criteria lasted above are met in regards to the proposed obligations and any obligations to which Foundation Program Payments are already pledged as primary security. This covenant will not prevent the School District from issuing obligations having a claim on Foundation Program Payments subordinate to that of the Bonds (such as a solvency assistance advance). The Agreement will be irrevocable as long as any of the School District's Bonds are outstanding. If Foundation Program Payments are paid to the Bond Registrar pursuant to the Agreement, the Department is required to evaluate the School District's inability to meet the debt service payments and to recommend corrective actions to be implemented by the School District. Under the Agreement, the Department will be obligated only to redirect funds to the Bond Registrar which would otherwise go to the School District. The existence of the Agreement does not make the Bonds obligations, debts, or pledges of the faith, credit, or taxing power of the State, and the holders or owners of the Bonds have no right to have taxes levied or appropriations made by the State legislature for the payment of debt service on the Bonds. The Agreement and any payments by the State under it do not constitute the assumption by the State of any debt of the School District. 13 Oregon School Bond Guarantee Program Moody’s: Aa3 S&P: AA- Appropriation Article XI-K of the Constitution of the State of Oregon allows the State to guarantee the general obligation bonded indebtedness of school districts, education service districts, and community college districts in order to secure lower interest costs on general obligations bonds of such districts. Payment of the principal of interest on the bonds when due is guaranteed by the full faith and credit of the State under the provisions of the Oregon School Bond Guaranty Act – Oregon Revised Statutes (ORS) 328.321 to 328.356 (the “Act”). As provided for in Section 328.326(1)(a) of the Act: The State Treasurer may, by issuing a certificate of qualification to a school district, pledge the full faith and credit and taxing power of the State to guarantee full and timely payment of the principal of, either at stated maturity or by advancement of maturity pursuant to a mandatory sinking fund payment, and interest on school bonds as such payments shall become due, except that in the event of any acceleration resulting from default or otherwise, other than an advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed shall be made in amounts and at such times as such payments would have been due had there not been such an acceleration.

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A school district that is unable to transfer the scheduled debt service payment to the paying agent 15 days before the payment date shall immediately notify the paying agent and the State Treasurer. The Act further specifies that if sufficient funds are not transferred to the paying agent as required, the paying agent shall notify the State Treasurer of that failure at least 10 days before the scheduled debt service payment. If sufficient monies to pay the scheduled debt service payment have not been transferred to the paying agent, the State Treasurer shall, on or before the scheduled payment date, transfer sufficient monies to the paying agent to make the scheduled debt service payment. If sufficient monies of the State are not on hand and available at the time the State is required to make a debt service payment under its guaranty on behalf of a school district, the State Treasurer may singly or in combination: Obtain from the Common School Fund or from any other State funds that qualify to make a loan under ORS 293.205 to 293.225, a loan sufficient to make the required payment; borrow money, if economical and convenient, as authorized by ORS 286A.045; issue State general obligation bonds as provided for in Article XI-K of the Constitution and the process for which is defined in the Act; and with the approval of the Legislative Assembly, or the Emergency Board if emergency funds are lawfully available for making the required payment in the interim between sessions of the Legislative assembly, pay monies from the General Fund or any other funds lawfully available for the purpose or from emergency funds amounts sufficient to make the required payment. 14 Pennsylvania State Aid Intercept Program Moody’s: A1 S&P: A State Aid Intercept Section 633 of the Public School Code of 1949, as amended by Act 154 of 1998 (the "Public School Code") presently provides that if any school district fails to pay or to provide for the payment of any indebtedness, at the date of maturity or mandatory redemption, or any interest due on such indebtedness, in accordance with the schedule under which the bonds or notes were issued, the Secretary of Education of the Commonwealth shall notify the board of school directors of its obligation and shall withhold from any Commonwealth appropriation due such school district an amount equal to the sum of such principal or interest due and shall pay such amount directly to the bank acting as sinking fund depositary for the bond issue. 15 South Carolina Education Finance Program Moody’s: Aa1 S&P: AA Appropriation Article X of the Constitution of the State of South Carolina, 1895, as amended, provides: If at any time any political subdivision shall fail to effect the punctual payment of the principal of or interest on its general obligation debt, then, in such instance, the State Treasurer shall withhold from such political subdivision sufficient moneys from any state appropriation to which such political subdivision may be entitled and apply so much as shall be necessary to the payment of the principal and interest on the indebtedness of the political subdivision then due. The Constitutional intercept provisions are enhanced by Section 59-71-155 of the Code of Laws of South Carolina, 1976, as amended, which applies to all school district general obligation bonds outstanding. Under the statutory enhancement, a County Treasurer is required to notify the State Treasurer on the fifteenth day prior to the due date of any payment of principal or interest on school district general obligation

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bonds if the County Treasurer or any other paying agent does not have on deposit the sum required to make that payment. On the third business day prior to due date of the payment, if the County Treasurer or any other paying agent does not have on hand the amount required to effect such payment, the State Treasurer is directed to transfer to the County Treasurer from the general fund of the State the sum necessary to effect such payment, provided that the total amount of the payments so transferred in any fiscal year may not exceed the amount appropriated in the State’s budget under the Education Finance Act for that fiscal year. Thereafter, the State Treasurer shall withhold from the School District from funds payable to it from the State amounts necessary to reimburse the general fund of the State for any amounts so advanced, plus investment earnings foregone by the State on such amounts pending reimbursement. The provision contains a mechanism to reimburse the School District for such withholdings from taxes thereafter collected. If there is an advance from the State Treasurer under these provisions, the County Auditor is directed to adjust the millage levied for the payment of debt service on the bonds for the next fiscal year in order to file a report with the State Treasurer demonstrating compliance not later than five business days after millage is set for the next fiscal year. 16 South Dakota State Aid Intercept Program S&P: A State Aid Intercept If capital outlay certificates are issued to, or a lease-purchase agreement, or other financing arrangement is entered into with the Health and Educational Facilities Authority and a school district has pledged foundation program funds or other state aid provided under Title 13 to secure its obligations under or pursuant to a lease, resolution, certificate, or other arrangement with the Health and Educational Facilities Authority and there are amounts due but not yet paid by a school district, no cash receipts from the collection of any taxes, from foundation program aid or state aid under chapter 13-13 or from the collection of tuition charges may be expended for any purpose except paying the amounts due under the lease, resolution, certificate, or other arrangement as specified by written notice by or on behalf of the Health and Educational Facilities Authority. In the event of a failure to pay amounts due the Health and Educational Facilities Authority, moneys from foundation program aid or state aid under Title 13 shall first be applied to pay the amounts which are due but not yet paid to the authority, any trustee acting as a fiduciary on behalf of any holders of bonds, notes, or other certificates in connection with any such arrangement and any such holders. If this application is insufficient, cash receipts from the collection of any pledged taxes and tuition charges shall be applied to pay the amounts which are due but not yet paid to the authority, any such trustee, and any such holders. 17 Texas Higher Education Bond Program S&P: AA Appropriation An amendment to the state's constitution enhances debt obligations of certain public institutions of higher education. In accordance with Article VII, Section 17 of the Texas Constitution and the 1985 Excellence in Higher Education Act, there is a continuing annual appropriation of $100 million to support higher education. The 26 state universities that do not benefit from the Permanent University Fund--those outside the University of Texas system and the Texas A&M system, each receive a portion of the annual $100 million appropriation. A maximum of 50% of each qualified institution's allocation may be pledged for debt service on bonds. a university's board of trustees or a university system's board

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of regents must file a claim in the amount of the next debt service payment with the state comptroller. Filing of a claim will enable the bond trustees to receive a warrant for payment directly from the state at least 15 days prior to the principal and interest payment date. Bonds issued under Article 7, Section 17 of the state constitution are payable solely from these constitutional appropriations. The legislature may not reduce the appropriation so as to impair the payment of the obligations created by the bonds or notes issued in accordance with Section 17 of the constitution. 1 Texas Permanent School Fund Program S&P: AAA State Permanent Fund The PSF was created in 1854 by the State Legislature for the benefit of public schools in Texas. Over the ensuing years, the PSF corpus has grown to $25.5 billion (market value) as of August 31, 2009, the latest fiscal year end. The Guarantee for School District Bonds (“the Guarantee Program” was authorized by an amendment to the Texas Constitution in 1983 and by Subchapter C of Chapter 45 of the Texas Education Code (“the Act”). If the conditions for the Guarantee Program are satisfied, the guarantee becomes effective upon the approval of the Bonds by the Attorney General and remains in effect until the guaranteed bonds are paid or defeased, by a refunding or otherwise. In the event of a default, holders of guaranteed bonds will receive all payments due from the corpus of the PSF. Following a determination that a district will be or is unable to pay maturing or matured principal and interest on any guaranteed bond, the Act requires the District to notify the Commissioner not later than the fifth day before the stated maturity date of such bond or interest payment. Immediately following receipt of such notice, the Commissioner must cause to be transferred from the appropriate account in the PSF to the Paying Agent/Registrar an amount necessary to pay maturing or matured principal and interest. Upon receipt of funds for payment of such principal or interest, the Paying Agent/Registrar must pay the amount due and forward the canceled bond or evidence of payment of the interest to the State Comptroller of Public Accounts (“the Comptroller”). The Commissioner will instruct the Comptroller to withhold the amount paid, plus interest, from the first State money payable to the District. The amount withheld will be deposited to the credit of the PSF. The Comptroller must hold such canceled bond or evidence of payment of interest on behalf of the PSF. Following full reimbursement of such payment by the district to the PSF with interest, the Comptroller will cancel the bond or evidence of payment of the interest and forward it to the district. The Act permits the Comptroller to order a school district to set a tax rate sufficient to reimburse the Fund for any payments made with respect to guaranteed bonds, and also sufficient to pay future payments on guaranteed bonds, and provides certain enforcement mechanisms to the Commissioner, including the appointment of a board of managers or annexation of a defaulting district to another district. If a district fails to pay principal or interest on a bond as it is stated to mature, other amounts not due and payable are not accelerated and do not become due and payable by virtue of the district’s default. The Guarantee Program does not apply to the payment of principal and interest upon redemption of bonds, except upon mandatory sinking fund redemption, and does not apply to the obligation, if any, of a school district to pay a redemption premium on bonds. The capacity of the Fund to guarantee bonds under the Program is limited by State law and by IRS regulation. In 2007, legislation was enacted that would permit the capacity of the Program to be increased to an amount not to exceed five times the cost value of the PSF, provided that the increased limit does not violate federal law and regulation and does not prevent bonds guaranteed by the Guarantee

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Program from receiving the highest available credit rating. Since 2005, the Guarantee Program has twice reached capacity under IRS limits and in each instance the Program was closed to new bond guarantee applications until relief was obtained from the IRS. The most recent closure of the Guarantee Program commenced in March 2009 and the Program reopened in February 2010. Pursuant to an IRS Notice published in December, 2009 capacity limits were proposed based on the cost value of the Fund multiplied by five. The capacity of the program will be limited to the lower of the State Capacity limit and the IRS Limit. In May, 2010, the State Capacity Limit was raised to an amount equal to three times the cost value of the PSF. The cost value of the Guarantee Program as of 12/16/2009 was USD 23,463,749,653. At 8/31/2010, the PSF guaranteed USD 49,301,683,338 of principal amount of bonds outstanding. 18

Utah School Bond Guaranty Program S&P: AAA State Aid Intercept The Guaranty Act establishes the Utah School Bond Default Avoidance Program (the “Program” or the “Utah School Bond Guaranty Program”). The State’s guaranty is contained in Section 53A–28–201(2)(a) of the Guaranty Act, which provides as follows: The full faith and credit and unlimited taxing power of the state is pledged to guarantee full and timely payment of the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, bonds as such payments shall become due (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default o[r] otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration). In addition, the Guaranty Act provides that the State pledges to and agrees with the holders of bonds guaranteed under the Guaranty Act that the State will not alter, impair, or limit the rights vested by the Program with respect to said bonds until said bonds, together with applicable interest, are fully paid and discharged. Under the Guaranty Act, the Business Administrator of the Board (the “Business Administrator”) is required to transfer moneys sufficient for scheduled debt service payments on the Bonds to the Paying Agent at least 15 days before any principal or interest payment date for the Bonds. If the Business Administrator is unable to transfer the scheduled debt service payment to the Paying Agent at least 15 days before the payment date, the Business Administrator must immediately notify the Paying Agent and the Utah State Treasurer (the “State Treasurer”) by (i) telephone and (ii) a writing sent by (a) facsimile transmission and (b) first–class United States mail. In addition, if the Paying Agent has not received the scheduled debt service payment at least 15 days prior to the scheduled debt service payment date for the Bonds, then the Paying Agent must at least 10 days before the scheduled debt service payment notify the State Treasurer of that failure by (i) telephone and (ii) a writing sent by (a) facsimile transmission and (b) first–class United States mail. The Guaranty Act further provides that if sufficient moneys to pay the scheduled debt service payment have not been transferred to the Paying Agent, then the State Treasurer shall, on or before the scheduled payment date, transfer sufficient moneys to the Paying Agent to make the scheduled debt service payment. Payment by the State of a debt service payment on the Bonds discharges the obligation of the Board to the bondholders for that payment, to the extent of the State’s payment, and transfers the Board’s obligation for that payment to the State.

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In the event the State is called upon to make payment of principal of or interest on the Bonds on behalf of the Board, the State will use cash on hand (or from other legally available moneys) to make the payment. Under the Guaranty Act, the State Treasurer is required to immediately intercept any payments from the Uniform School Fund or from any other source of operating moneys provided by the State to the Board. The intercepted payments will be used to reimburse the State until all obligations of the Board to the State, including interest and penalties, are paid in full. The State does not currently expect to have to advance moneys to the Board pursuant to its guaranty. If, however, at the time the State is required to make a debt service payment under its guaranty on behalf of the Board, sufficient moneys are not on hand and available for that purpose, then the Guaranty Act provides that the State may seek a short–term loan from the Permanent School Fund sufficient to make the required payment (the Permanent School Fund is not required to make such a loan) or issue short–term State debt in the form of general obligation notes as provided in the Guaranty Act. The provisions of the Guaranty Act relating to short–term debt provide that such debt will carry the full faith and credit of the State and will be issued with a maturity of not more than 18 months so that the State could, if necessary, obtain liquidity financing on short notice. Under the State Constitution, debt incurred for this purpose does not count toward the constitutional debt limit of the State. 19 Virginia State Aid Intercept Program S&P: A State Aid Intercept Section 633 of the Public School Code of 1949, as amended by Act 154 of 1998 (the "Public School Code") presently provides that if any school district fails to pay or to provide for the payment of any indebtedness, at the date of maturity or mandatory redemption, or any interest due on such indebtedness, in accordance with the schedule under which the bonds or notes were issued, the Secretary of Education of the Commonwealth shall notify the board of school directors of its obligation and shall withhold from any Commonwealth appropriation due such school district an amount equal to the sum of such principal or interest due and shall pay such amount directly to the bank acting as sinking fund depositary for the bond issue. Section 633 of the Public School Code of 1949, as amended by Act 154 of 1998 (the "Public School Code") presently provides that if any school district fails to pay or to provide for the payment of any indebtedness, at the date of maturity or mandatory redemption, or any interest due on such indebtedness, in accordance with the schedule under which the bonds or notes were issued, the Secretary of Education of the Commonwealth shall notify the board of school directors of its obligation and shall withhold from any Commonwealth appropriation due such school district an amount equal to the sum of such principal or interest due and shall pay such amount directly to the bank acting as sinking fund depositary for the bond issue. 20 Washington School Bond Guaranty Program S&P: AA Appropriation Article VIII, section 1(e) of the Constitution of the State and the Act allow the State to guarantee any voted general obligation bonds issued by the school district. Payment of the principal and interest on Program Bonds when due is guaranteed by the full faith, credit, and taxing power of the State under the provisions of the Act. The Act provides: The full faith, credit, and taxing power of the State is pledged to guarantee full and timely payment of the principal and interest on Program Bonds as such payments become due. However, in the event of any acceleration resulting from default, the payments guaranteed shall be made in the amounts and at the times as payments of principal would have been due had there not been any acceleration. The State

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guarantee does not extend to the payment of any redemption premium. A County Treasurer who is unable to transfer to the paying agent funds required to make any scheduled debt service payments on the Program Bonds on or prior to the payment date, due to the lack of adequate funds, is required to immediately provide notice to the State Treasurer and to the paying agent. If sufficient funds are not transferred to the paying agent at the time required to make such scheduled debt service payment in a timely manner, the paying agent is required to make such scheduled debt service payment and the State Treasurer is required to transfer sufficient money to the paying agent for such payment. 21 West Virginia Municipal Bond Commission Program S&P: AA- Appropriation Pursuant to Chapter 13, Article 3 of the Code of West Virginia, 1931, as amended, the West Virginia Municipal Bond Commission (the “Bond Commission”) shall serve as fiscal agent for all issuers of general obligation bonds issued by counties, municipalities, and school districts of the State and is charged with the administration of the interest and sinking funds created to service the debt. The proceeds of taxes levied for debt service by the Board are collected by the Sheriff, who remits the proceeds to the Board Treasurer, who forwards the proceeds thereof to the Bond Commission. The Bond Commission is required by law to render annually to each political subdivision having outstanding bonds a statement showing the levy required to pay the interest on and create a sinking fund for the retirement of the outstanding bonds. The Bond Commission customarily sets the levy rates at 110% of the annual principal and interest required so as to provide a margin to cover the statutory 2 1/2% discount for early payment of taxes and any attrition occasioned by delinquencies, improper assessments and exonerations. There has not been a default on the payment of principal or interest of any general obligation bond in the State of West Virginia since the Bond Commission commenced centralized supervision and administration in 1921. Since 1933, the annual State of West Virginia Budget Bill has embodied a protective provision for certain State agency and taxing district obligations, if deficiencies should arise. The following excerpt from the 2010 Budget Bill is indicative: [Section 14]: There is hereby appropriated to the governor a sufficient amount to meet any deficiencies that may arise in the mortgage finance bond insurance fund of the West Virginia housing development fund which is under the supervision and control of the state municipal bond commission as provided by Chapter 31, Article 18, Section 20-b, of the code of West Virginia, or in the funds of the state municipal bond commission because of the failure of any state agency for either general obligation or revenue bonds or any local taxing district for general obligation bonds to remit funds necessary for the payment of interest and sinking fund requirements. The Governor is authorized to transfer from time to time such amounts to the state municipal bond commission as may be necessary for these purposes. 22 Wyoming School District Bond Guarantee Program S&P: AAA State Permanent Fund The Wyoming School District Bond Guarantee Program (the “Guarantee Program”) was adopted by the Wyoming Legislature in 1994. The Guarantee Program currently provides state credit support for general obligation new money bonds issued by local public school districts on or before November 1, 2001 and general obligation refunding bonds to the extent that they refund bonds issued on or before November 1, 2001, and it further provides for the timely payment of principal of and interest on such bonds as the same shall become due and payable in

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accordance with their terms. In accordance with Wyo. Stat. §9-4-1001 (the “School Bond Guarantee Statute”) and the regulations (the “Bond Guarantee Regulations”) adopted by the Wyoming State Loan and Investment Board (the “State Loan and Investment Board”) pursuant thereto, a district will make the filings necessary to participate in the Guarantee Program. If the State Loan and Investment Board grants the district’s application to participate in the Guarantee Program, the State of Wyoming (the “State”) shall assume responsibility for and make all payments to the district’s paying agent in the amounts necessary to pay principal and interest on the bonds, and the district shall cause to be remitted to the State Treasurer, in immediately available funds not later than two (2) working days prior to the payment date, moneys sufficient to pay the principal of and interest on the bonds coming due. If the district fails to make such deposit, the State Treasurer is required to forward to the Paying Agent, in immediately available funds, the amount necessary to make the payment of principal of or interest on the bonds and the district’s next succeeding major maintenance payment under Wyo. Stat. §21-15-109 and payment from the School Foundation Program Account under Wyo. Stat. §21-13-313 shall be intercepted by the State Loan and Investment Board to provide for repayment. The loan shall not be deemed to be a general obligation of the district, and the State shall not require repayment from any source other than as provided in the School Bond Guarantee Statute. 23 Those programs which require the longest lead time and the least legislative action on the part of the State offer the greatest level of comfort to bondholders. However, all of these programs are designed to assure that all of the enhanced debt is repaid in full and on a relatively timely basis regardless of the particular mechanics and requirements of the individual programs. Endnotes 1 (S&P Criteria 2008, republished January, 2011) 2 (O.S. Woodland Park SD, RE-2, 3/4/11) 3 (O.S. South Bend Community School Corporation, 10/8/2010) 4 (O.S. Bartow County School District, 11/9/2010) 5 (O.S. Whitman-Hanson Regional School District, 1/4/07) 6 (O.S. Independent School District No. 706, Virginia, Minnesota, 2/18/11) 7 (Minnesota Office of the Revisor of Statutes) 8 (O.S., Carl Junction R-I School District of Jasper County, Missouri, 2/24/2011) 9 (O.S. Douglas County School District, Nevada, 3/10/2010) 10 (O.S. The Board of Education of the Township of Alexandria in the County of Hunterdon, N.J., 2/25/2011) 11 (Municipal Qualified Bond Act, N.J.S.A. 40A:3-1 et seq., 11/19/09)) 12 (Moody’s Investors Service, 2/2008) 13 (O.S. Anthony Wayne Local School District, 2/3/11) 14 (O.S. Linn County School District #9, OR, 3/1/2011) 15 (Fleetwood Area School District O.S. 1/20/11) 16 (O.S. Hampton County School District No. 1, 12/16/2010) 17 (SL 1986, ch 124, § 3; SL 1989, ch 146, § 8; SL 1999, ch 84, § 7.) 18 (O.S. Bryson Independent School District, 1/13/2011) 19 (O.S. Garfield County School District, UT, 4/21/2011) 20 (O.S. City of Norfolk, 3/9/11) 21 (O.S. Ritzville School District No. 160-167 Adams and Lincoln Counties, WA, 3/21/2011) 22 (O.S. The Board of Education of the County of Marion, West Virginia, 2/16/11) 23 (O.S. Sweetwater County School District Number 2, WY, 3/10/2009)

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Agency Ratings

Rating Agencies Credit Ratings

S&P

Moody’s

Fitch / IBCA

Definition

Investment Grade

AAA

Aaa AAA Issuers have exceptionally strong credit quality. AAA is the best credit quality.

AA+

Aa1 AA+

Issuers have very strong credit quality. AA

Aa2 AA

AA-

Aa3 AA-

A+ A1 A+

Issuers have high credit quality. A A2 A

A- A3 A-

BBB+

Baa1 BBB+

Issuers have adequate credit quality. This is the lowest Investment Grade category.

BBB

Baa2 BBB

BBB-

Baa3 BBB-

Non-Investment Grade

BB+

Ba1 BB+

Issuers have weak credit quality. This is the highest Speculative Grade category.

BB Ba2 BB

BB-

Ba3 BB-

B+ B1 B+

Issuers have very weak credit quality. B B2 B

B- B3 B-

CCC+

Caa1 CCC+

Issuers have extremely weak credit quality. CCC

Caa2 CCC

CCC-

Caa3 CCC-

CC

Ca

CC+

Issuers have very high risk of default. C CC

CC-

D C DDD Obligor failed to make payment on one or more of its financial commitments. This is the lowest quality of the Speculative Grade category.

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Appendix

Terms and AbbreviationsTerm / Abbreviation Description / Definition Term / Abbreviation Description / DefinitionGO General Obligation Bond TEY Taxable Equivalent Yield (tax free yield divided by

100 minus the marginal tax rate)MMD Municipal Market Data

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Appendix

Global Disclaimer

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Municipal bonds

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