NEW ISSUE Ratings: Standard & Poor's: AAA Book-Entry Only (See "Miscellaneous - Ratings") Insurance: MBIA In the opinion of Kronick, Moskovitz, Tiedemann & Girard, a Professional Corporation, Bond Counsel, based on an analysis of existing laws, regulations, rulings and court decisions and assuming, among other matters, compliance with certain covenants, interest on the Series 2002A Bonds is excluded from gross income for federal income taxpurposes and is exempt from all taxationin the State of California other than estate and generation skipping transfer taxes. In the further opinion of Bond Counsel, interest on the Series 2002A Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating federal corporate alternative minimum taxable income. INTEREST ON THE SERIES 2002B BONDS IS NOT EXCLUDED FROM GROSS INCOME FOR FEDERAL INCOME TAX PURPOSES, but is exempt from all taxation in the State of California other than estate and generation skipping transfer taxes. Bond Counsel expresses no opinion regarding any other taxconsequences relating to the ownership or disposition of, or theaccrual or receipt of interest on, the Series 2002 Bonds. See "Legal Matters - Tax Matters." $24,145,000 CALIFORNIA STATE UNIVERSITY, SACRAMENTO FOUNDATION AUXILIARY ORGANIZATION BONDS $9,070,000 Series 2002A Bonds $15,075,000 Series 20028 Bonds (federally taxable) (Modoc Hall) Dated: Delivery Date Due: October 1, as shown below This cover page contains certain information for general reference only. It is not intended as a summary of the issue. An investment in the Series 2002 Bonds involves certain risks. See "Investment Considerations and Risk Factors." Investors are advised to read the entire Official Statement to obtain informationessential to making an informed investment decision. California State University, Sacramento Foundation (the "Foundation") is an auxiliary organization serving California State University, Sacramento (the "University"). The Foundation is issuing its Auxiliary Organization Bonds, Series 2002A and Series 2002B (Modoc Hall) (collectively the "Series 2002 Bonds"), for the purpose of constructing a facility that is expected to be leased in part by the United States Geological Survey, used in part to the University, and used in part by the Foundation (as more fully described herein, the "Modoc Hall Facility"). The Series 2002 Bonds will be issued pursuant to the Indenture dated October 1, 1995 (the "Indenture"), between the Foundation and BNYWestern Trust Company, as trustee (the "Trustee") as supplemented by a First Supplemental Indenture dated as of May 1, 2002 by and between the Foundation and the Trustee. The Series 2002 Bonds are general corporate obligations of the Foundation payable from and secured by Revenues (as defined in the Indenture) and certain funds held by the Trustee, as more fully described herein. See "Security for the Series 2002 Bonds." The Series 2002 Bonds will be registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York ("DTC"). DTC will act as securities depository for the Series 2002 Bonds. Ownership interests in the Series 2002 Bonds may be purchased in book-entry form only, in principal amounts of $5,000 or any integral multiple thereof. Purchasers will not receive physical certificates representing their ownership interest in the Series 2002 Bonds, but will receive a credit balance on the books of the nominees of such purchasers. Interest on the Series 2002 Bonds accrues from their dated date and is payable on April 1 and October 1 of each year, commencing October 1, 2002. The Trustee will pay principal, premium (if any), and interest due on the Series 2002 Bonds to DTC, which will in turn be responsible to remit such payments to its participants (as described herein) for subsequent disbursement to the beneficial owners of interests in the Series 2002 Bonds. See Appendix G - "Book-Entry System." The Series 2002 Bonds are subject to optional, mandatory, and extraordinary redemption prior to maturity as described herein. See "The Series 2002 Bonds - Redemption of the Series 2002 Bonds."

A DETAILED MATURITY SCHEDULE IS SET FORTH ON THE INSIDE FRONT COVER

Payment of the principal of and interest on the Series 2002 Bonds when due will be insured by separate financial guaranty insurance policies to be issued by MBIA Insurance Corporation simultaneously with the delivery of the Series 2002 Bonds. ;MBIA The Series 2002 Bonds do not create a lien, charge, or liability against the State of California or against the Trustees of The California State University or against the property or funds of either. No registered owner of any Bond shall ever have the right to compel any exercise of the taxing power of the State of California to pay any Bond. Payment of the principal of and redemption premium (if any) or interest on the Series 2002 Bonds does not constitute a debt, liability, or obligation of the State of California or the Trustees of The California State University or the individual California State University campuses. The Series 2002 Bonds are offered when, as and if issued by the Foundation and received by the Underwriter, subject to prior sale, to withdrawal or modification of the offer without notice, and subject to the delivery of the legal opinion of Kronick, Moskovitz, Tiedemann & Girard, a Professional Corporation, Sacramento, California, Bond Counsel. Itis expected that delivery of the Series 2002 Bonds will be made through DTC in New York, New York, on or about May 30, 2002 against payment therefor. Subject to applicable securities laws and prevailing market conditions, the Underwriter intends, but is not obligated, to make a market in the Series 2002 Bonds. _,,AG.Edwards&Sons, Inc. This Official Statement is dated May 16, 2002. SERIES 2002 A

MATURITY SCHEDULE, INTEREST RATES, PRICES, YIELDS, AND CUSIPS $3,080,000 Serial Bonds

Due Principal Interest Price Yield CUSIP October 1 Amount Rate 130908 2005 $40,000 4.000% 104.280% 2.650% GG5 2006 55,000 4.000 104.034 3.000 GH3 2007 65,000 4.000 104.141 3.150 GJ9 2008 80,000 4.000 103.390 3.400 GK6 2009 95,000 4.000 102.230 3.650 GL4 2010 110,000 4.000 100.701 3.900 GM2 2011 130,000 4.000 100.000 4.000 GNO 2012 145,000 4.250 100.828 4.150 GP5 2013 165,000 4.250 100.000 4.250 GQ3 2014 170,000 4.400 100.000 4.400 GRl 2015 180,000 5.500 107.757 4.550 GS9 2016 190,000 5.500 106.906 4.650 GT7 2017 200,000 5.500 106.063 4.750 GU4 2018 210,000 5.500 105.227 4.850 GV2 2019 225,000 5.500 104.400 4.950 GWO 2020 235,000 5.500 103.990 5.000 GX8 2021 250,000 5.125 100.000 5.125 GY6 2022 260,000 5.150 99.742 5.170 GZ3 2023 275,000 5.250 100.229 5.220 HA7

$1,270,000, 5.500% Term Bonds Due October 1, 2027, priced at 102.367% to yield 5.200%, CUSIP 130908 HB5 $2,040,000, 5.500% Term Bonds Due October 1, 2032, priced at 102.046% to yield 5.240%, CUSIP 130908 HC3 $2,680,000, 5.500% Term Bonds Due October 1, 2037, priced at 101.647% to yield 5.290%, CUSIP 130908 HDl

SERIES 20028 BONDS (federally taxable)

MATURITY SCHEDULE, INTEREST RATES, PRICES, YIELDS AND CUSIPS

$715,000, 6.060% Term Bonds Due October 1, 2012, priced at 100.000%, to yield 6.060%. CUSIP 130908 HF6 $1,310,000, 6.450% Term Bonds Due October 1, 2017, priced at 99.316%, to yield 6.520%. CUSIP 130908 HE9 $1,815,000, 6.650% Term Bonds Due October 1, 2022, priced at 99.217%, to yield 6.720%. CUSIP 130908 HG4 $2,545,000, 6.850% Term Bonds Due October 1, 2027, priced at 99.156%, to yield 6.920%. CUSIP 130908 HH2 $3,595,000, 6.920% Term Bonds Due October 1, 2032, priced at 99.359%, to yield 6.970%. CUSIP 130908 HK5 $5,095,000, 7.020% Term Bonds Due October 1, 2037, priced at 99.340%, to yield 7.070%. CUSIP 130908 HJ8 No dealer, broker, salesperson or other person has been authorized by the Foundation or the Underwriter to give any information or to make any representations other than those contained in this Official Statement in connection with the offering of the Series 2002 Bonds, and if given or made, such information or representations must not be relied upon as having been authorized by any of the foregoing. This OfficialStatement does not constitute an offerto sell or the solicitation of an offerto buy, nor shall there be any sale of the Series 2002 Bonds by a person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation, or sale. The informationset forth herein has been obtained fromthe Foundation and other sources that are believed to be reliable, but it is not guaranteed as to accuracy or completeness. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there have been no changes in the information presented herein since the date hereof. Any statement made in this Official Statement involving matters of opinions or of estimates, whether or not expressly so stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. This Official Statement is not to be construed as a contract or agreement between the Foundation and the purchasers or owners of the Series 2002 Bonds. The Series 2002 Bonds have not been registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended, in reliance upon exemptions contained in that act. In connection with this offering, the Underwriter may overallot or effect transactions that stabilize or maintain the market prices of the Series 2002 Bonds at levels above those that might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriter may offerand sell the Series 2002 Bonds to certain dealers, institutional investors, and others at prices lower than the public offering prices stated on the cover page hereof, and the Underwriter may change the public offeringprices fromtime to time. The Foundation has entered into an undertaking for the benefit of the owners of the Series 2002 Bonds to send certain financialinformation and operating data to certain information repositories annually and to provide notice to the Municipal Securities Rulemaking Board or to certain information repositories of certain events, pursuant to the requirement of section (b)(5)(i) of Rule 15(c)2-12, of the Securities and Exchange Commission.

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 a part of, its responsibilities 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, and this Official Statement is not to be construed as the promise or guarantee of the Underwriter. CALIFORNIA STATE UNIVERSITY, SACRAMENTO FOUNDATION AUXILIARY ORGANIZATION BONDS Series 2002A Series 2002B (federally taxable) (Modoc Hall)

Members of the Board of Directors

Greg Wheeler, Doraiswamy Ramachandran, Chair Vice Chair Artemio Pimentel, Secretary/I'reasurer Marion O'Leary Edward C. Del Biaggio Bernice Bass de Martinez Peg Tomlinson-Poswell Rhonda Rios Kravitz Susanne Burton Chevelle Newsome Calvin Davis John Burklund-Fine

Executive Management

Elroy Littlefield Executive Director Nancy Pennebaker Trina Knight Special Assistant to the Executive Director Director, Human Resources Wayne Quinn Julia Milardovich Director, Financial and Business Services Director, Bookstore Services Donna Parenti Ruedi Egger Controller Director, Dining Services Meri McGraw Helen Winchester Manager, Information Technology Risk Manager

Professional Services

Bond Counsel Underwriter Kronick, Moskovitz, Tiedemann & Girard, A.G. Edwards & Sons, Inc. a Professional Corporation Los Angeles, California Sacramento, California

Trustee BNY Western Trust Company Los Angeles, California TABLE OF CONTENTS INTRODUCTORY STATEMENT ______J_ General ______J_ Use of Funds ______J_ The Series 2002 Bonds ______2 Security for the Series 2002 Bonds ______i Bond Insurance ______3 The California State University ______;,_ California State University, Sacramento . ______A The Foundation ------4 Tax Matters ------4 Continuing Disclosure ______5_ Independent Accountants______5_ Availability of Documents ______5_ Forward Looking Statements ______Q THE PROJECT ·------6 Description of the Project ______Q Location of the Modoc Hall Facility______Q SOURCES AND USES OF FUNDS ______8 THE SERIES 2002 BONDS ______8 Description of the Series 2002 Bonds ______� Redemption of the Series 2002 Bonds ______9._ Notice of Redemption ______H)_ Effect of Redemption ______U_ DEBT SERVICE SCHEDULE ______12 SECURITY FOR THE SERIES 2002 BONDS ______13 Indenture; Pledge of Revenues ______JJ_ Modoc Hall Facility Revenue ______JA Rate Maintenance Covenant . ______15 Bond Reserve Fund ______15 Additional Bonds and Parity Obligations ______J_S_ Debt Service Coverage (Pro Forma) ______n_ Subordinate Debt ______18 Events of Default and Remedies ______18 No State or CSU Board Liability ______J_�_ BOND INSURANCE______l8 Payment Pursuant to the Financial Guaranty Insurance Policies ______18 MBIA ______19 Bond Insurer Information ______20 Financial Strength Ratings of Bond Insurer______iO. THE FOUNDATION ______21 General ______21 Governance ______ii Management ______iJ Summary of Foundation's Business ______i5_ Operating Agreement ______ifi Transfers to the University ______p_ Outstanding Debt ______p_ Investment of Excess Funds______27 Insurance ______28 Financial Information Concerning the Foundation______i9_ MODOC HALL USES______30 General ______30 11 United States Geological Survey ______3.0_ University Office of Water Programs and Research and Graduate Studies ______31 CALIFORNIA STATE UNIVERSITY, SACRAMENT0 ______}7. General Description ______J7. Student Enrollment ______32 University Programs, Services and Facilities______}3_ University Budget______})_ Combined Financial Statements for the University ______JS_ THE CALIFORNIA STATE UNIVERSITY ______37 General ______3 7 Education Program ______J7_ Administration and Auxiliary Organizations ______}7_ State Budget for CSU ______JS_ INVESTMENT CONSIDERATIONS AND RISK FACTORS ______39 General ______39 Budget Risk______}9_ Construction Risk ______39 Investments of the Foundation ______40 Enforcement of Remedies______40 Continuing Compliance with Certain Covenants ______AQ Damage or Destruction of Facilities ______40. Environmental Regulation ______4J_ Factors Associated with Higher Education______4t Bond Insurer to Control Remedies in Event of Default ______41 Financial Condition of the Bond Insurer ______AJ_ Secondary Market______47. Failure to Provide Ongoing Disclosure ______A7. Book Entry______47. Risk of Loss from Nonpresentment upon Redemption ______A7. LEGAL MATTERS ______42 Litigation ______47. Approval of Legality______43_ Tax Matters ______43 MISCELLANEOUS ______44 Underwriting ______M Ratings______44 Financial Statements ______45 Additional Matters ______45 Continuing Disclosure______4S_ Authorization ______46 APPENDIX A: Audited Financial Statements of the Foundation for the Years ended June 30, 2001 and 2000 APPENDIX B: Audited Combined Financial Statement of California State University, Sacramento for the year ended June 30, 2001 APPENDIX C: Summaries of Certain Provisions of the Principal Legal Documents APPENDIX D: Proposed Form of Continuing Disclosure Agreement APPENDIX E: Proposed Form of Opinion of Bond Counsel APPENDIX F: Form of Financial Guaranty Insurance Policies APPENDIX G: Book-Entry System

111 OFFICIAL STATEMENT

$24,145,000

CALIFORNIA STATE UNIVERSITY, SACRAMENTO FOUNDATION AUXILIARY ORGANIZATION BONDS Series 2002A Series 2002B (federally taxable) (Modoc Hall)

INTRODUCTORY STATEMENT

The following introductory statement is subject in all respects to the more complete information set forth in this Official Statement. The descriptions and summaries of various documents herein 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 regarding any such document are qualified in their entirety by reference to such document. All capitalized terms used in this Official Statement and not otherwise defined herein have the same meanings as in the Indenture dated October 1, 1995 between the California State University, Sacramento Foundation (the "Foundation") and BNY Western Trust Company, as trustee (the "Trustee") as supplemented by the First Supplemental Indenture dated May 1, 2002 (as so supplemented, the "Indenture") . See Appendix C - "Summaries of Certain Provisions of the Principal Legal Documents - Definitions."

This Official Statement speaks only as of its date, and the information herein is subject to change.

GENERAL

The purpose of this Official Statement is to provide certain information in connection with the sale and delivery of $24,145,000 aggregate principal amount of California State University, Sacramento Foundation Auxiliary Organization Bonds, Series 2002A and Series 2002B (Modoc Hall) (collectively the "Series 2002 Bonds"). The Foundation is issuing the Series 2002 Bonds pursuant to California Education Code sections 89900 et seq., Resolution No. 02-3-35 adopted by the Foundation's Board of Directors on March 8, 2002, and the Indenture to finance the construction of an approximately 85,402 square foot building (the "Modoc Hall Facility") that is expected to be leased in part to the United States Geological Survey ("USGS"), used in part by the University, and used to house the Foundation's dining services and contracts offices at the California State University, Sacramento (the "University"). The Series 2002 Bonds and any additional bonds issued under the Indenture are referred to collectively as the "Bonds."

USE OF FUNDS

The proceeds of the Series 2002 Bonds are to be used (i) to finance construction of the Modoc Hall Facility; (ii) to pay the premiums for policies of bond insurance (the "Financial Guaranty Insurance Policies") to be issued by MBIA Insurance Corporation (the "Bond

1 Insurer"); (iii) to fund a debt service reserve fund for the Series 2002 Bonds; and (iv) to pay costs of issuance of the Series 2002 Bonds. See "Sources and Uses of Funds" and "The Project."

THE SERIES 2002 BONDS

The Series 2002 Bonds will be issued pursuant to the terms of the Indenture. The Series 2002 Bonds are dated, mature in the amounts and in the years, and bear interest at the rates set forth on the cover page hereof. Interest on the Series 2002 Bonds will be payable on October 1, 2002, and semiannually thereafter on each April 1 and October 1. The Series 2002 Bonds are subject to optional, mandatory, and extraordinary redemption prior to their respective maturities. See "The Series 2002 Bonds - Redemption of the Series 2002 Bonds."

The Series 2002 Bonds will be issued in fully registered formonly and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"). DTC will act as securities depository of the Series 2002 Bonds. Ownership interests in the Series 2002 Bonds may be purchased in book-entry form only in the principal amount of $5,000 or any integral multiple thereof. See Appendix G-"Book-Entry System."

SECURITY FOR THE SERIES2002 BONDS

The Series 2002 Bonds are general corporate obligations of the Foundation. Under the Indenture, the Foundation will pledge its Revenues, as defined in the Indenture, and certain other amounts held by the Trustee under the Indenture to secure payment of the principal of, premium, if any, and interest on the Series 2002 Bonds. While lease revenues from Modoc Hall are included within the definition of Revenues, the Foundation has not granted to the Trustee a security interest of any kind in any lease with the University or with USGS. See Appendix C - "Summaries of Certain Provisions of the Principal Legal Documents - The Indenture - Pledge of Revenues."

The Foundation has previously issued its Auxiliary Organization Bonds, Series 1995A and Series 1995B (the "Series 1995 Bonds") and its Auxiliary Organization Bonds, Series 2001 (Regional and Continuing Education Program) (the "Series 2001 Bonds"), issued pursuant to separate indentures. Both the Series 1995 Bonds and the Series 2001 Bonds are also secured by a pledge of the Revenues. The liens on the Revenues that secure the Series 2002 Bonds, the Series 1995 Bonds and the Series 2001 Bonds are on a parity. Payment of scheduled principal of and interest on the Series 1995 Bonds is secured by policies of financial guaranty insurance issued by MBIA Insurance Corporation. Payment of scheduled principal of and interest on the Series 2001 Bonds is secured by a financial guaranty insurance policy issued by Ambac Assurance Corporation.

Pursuant to a ground lease between the Trustees of the California State University ("CSU Board") and the Foundation dated as of May 1, 2002, the Foundation will lease from the CSU Board the site on which the Modoc Hall Facility will be constructed. The term of the Modoc Hall Ground Lease extends to the finalscheduled maturity of the Bonds.

The Foundation expects to receive rental payments from two tenants (each a "Modoc Hall User" and collectively the "Modoc Hall Users.") The Foundation and USGS have entered into a Letter of Intent dated as of March 15, 2002 setting forth the parties' expectation for USGS to lease approximately 35,606 square feet of the Modoc Hall Facility from the Foundation. The initial

2 term of the lease is expected to be for 10 years from the commencement of occupancy and USGS would have the option to renew the lease for an additional 10 year term. USGS expects that it would be obligated to pay rent at the agreed rate during the initial 10-year term; payment of rent during any additional terms of lease with USGS may be subject to annual appropriation of funds. The Trustees of The California State University (the "CSU Board") expects to use approximately 17,485 square feet of the Modoc Hall Facility from the Foundation. The obligation of the University to make payments to the Foundation, however, is subject to annual appropriation of funds. See "Security for the Series 2002 Bonds" and Appendix C - "Summaries of Certain Provisions of the Principal Legal Documents - The Modoc Hall Users." At the end of the term of the Modoc Hall Ground Lease, title to the Modoc Hall Facility will vest in the University.

The Indenture establishes a Bond Reserve Fund, which is required to be funded in an amount equal to the Bond Reserve Requirement, which is equal to the sum of the reserve requirement for each series of Bonds outstanding, which is equal to the least of (i) 10% of the proceeds of the Bonds of that series, (ii) maximum annual debt service with respect to the Bonds outstanding of that series, and (iii) 125% of average annual debt service with respect to the Bonds of that series. The Indenture permits the Foundation to satisfy the Bond Reserve Fund funding requirement by delivering a surety bond securing the amount of the Bond Reserve Requirement to the Trustee. See "Security forthe Series 2002 Bonds."

The Indenture imposes certain restrictions on the actions of the Foundation forthe benefit of all holders of the Bonds issued thereunder including, among other things, restrictions on the incurrence of additional indebtedness and provisions governing the establishment of rates, fees and charges. See Appendix C - "Summary of Certain Provisions of the Principal Legal Documents - The Indenture - Certain Covenants of the Foundation."

In certain circumstances the Foundation may issue Additional Bonds under the Indenture and Parity Debt, as permitted by the terms of the Indenture and the indenture under which the Series 2001 Bonds were issued (the "Series 2001 Indenture"), in each case payable from the Revenues and secured by a lien thereon that ranks on a parity with the lien that secures the Bonds issued and outstanding under the Indenture. See Appendix C - "Summary of Certain Provisions of the Principal Legal Documents - The Indenture - Issuance of Additional Series of Bonds."

BOND INSURANCE

Payment of the principal of and interest on the Series 2002 Bonds when due will be insured by the Financial Guaranty Insurance Policies to be issued by the Bond Insurer simultaneously with the issuance of the Series 2002 Bonds. See "Bond Insurance," and Appendix F - "Form of Financial Guaranty Insurance Policies."

THE CALIFORNIA STATE UNIVERSITY

The 23-campus California State University (CSU) system is an agency of the State of California governed by the CSU Board. During the fallterm of the 2000-2001 academic year, CSU provided instruction to approximately 368,252 undergraduate and graduate students. The State's 2001-2002 Budget Act provided a General Fund allocation to the California State University system of $2.6 billion. See "The California StateUniversit y."

3 CALIFORNIA STATE UNIVERSITY, SACRAMENTO

California State University, Sacramento, is a member of the CSU system. The University campus is situated on approximately 300 acres along the American River in Sacramento, California, about five miles from the State Capitol building. The University was founded in 1947 and presently offers60 undergraduate programs and 40 graduate programs. Approximately 26,923 students were enrolled at the University in the Fall 2001 semester. See "The California State University, Sacramento."

THE FOUNDATION

The Foundation was organized in 1951 as a California nonprofit corporation and is currently operating under the Nonprofit Public Benefit Corporation Law of the State of California. The Foundation is an auxiliary organization of The California State University ("CSU") and is authorized to perform certain services pursuant to the California Education Code and regulations promulgated thereunder. The Internal Revenue Service has determined that the Foundation is exempt from federal income taxation as an organization described in Section 501(c)(3) of the InternalRevenue Code of 1986, as amended (the "Code") and has classified the Foundation as an organization that is not a private foundation as definedin Section 509(a) of the Code.

The Foundation's corporate purposes include, among other things, promoting and assisting in the development, maintenance and operation of the California State University, Sacramento, furthering the education objectives of the University, providing equipment and facilities for the students and faculty of the University and establishing and operating cafeterias, bookstores and other facilities on the campus of the University. The Foundation also provides contract services including administrative, personnel and payroll functions for University research and sponsored programs, projects and accounts. Pursuant to an operating agreement dated as of October 1, 1995 and amended as of October 1, 2001 (the "Operating Agreement") by and between the Foundation and the CSU Board, and pursuant to a lease agreement with the CSU Board, the Foundation currently operates a bookstore, various food service facilities, a copy center, and convenience stores on the University campus. The Operating Agreement will be amended as of May 1, 2002 to extend its term to the final maturity of the Series 2002 Bonds. The Foundation also has financed the construction and acquisition of classroom and office space in three buildings (Placer Hall, the Adams Building, and the Regional and Continuing Education Facility), which it leases to the University and other tenants. See "The Foundation - General."

TAX MATTERS

In the opinion of Kronick, Moskovitz, Tiedemann & Girard, a Professional Corporation, Bond Counsel, based on an analysis of existing laws, regulations, rulings and court decisions and assuming, among other matters, compliance with certain covenants, interest on the Series 2002A Bonds is excluded from gross income for federal income tax purposes and is exempt from all taxation in the State of California other than estate and generation skipping transfer taxes. In the opinion of Bond Counsel, interest on the Series 2002A Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings in calculating federal corporate

4 alternative minimum taxable income. Bond Counsel expresses no opinion regarding any other tax consequences caused by the ownership or disposition of, or the accrual or receipt of interest on, the Series 2002A Bonds. Interest on the Series 2002B Bonds is not excluded from gross income for federal income tax purposes, but is exempt from all taxation in the State of California other than estate and generation skipping transfer taxes. See "Legal Matters - Tax Matters."

CONTINUING DISCLOSURE

The Foundation has covenanted for the benefit of the Holders and beneficial owners of the Series 2002 Bonds to provide, or cause to be provided, certain financial information and operating data relating to the Foundation by not later than six months after the end of each of the Foundation's fiscal years (which presently end on June 30), commencing with the report forthe 2001-2002 fiscal year (the "Annual Report"). The Foundation has also covenanted to give, or cause to be given, notices of the occurrenceof certain enumerated events, if material. The Annual Report is to be filed with each Repository. The notices of material events are to be filed with the Municipal Securities Rulemaking Board and with the State Repository, if any. The specific nature of the information to be contained in the Annual Report or the notices of material events is set forth in Appendix D - "Proposed Form of Continuing Disclosure Agreement." These covenants have been made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5). The Foundation has never failed to comply in all material respects with any previous undertaking with regard to Rule 15c2-12 to provide financial reports or notice of material events.

INDEPENDENT ACCOUNTANTS

The Foundation's financial statements as of June 30, 2001 and 2000, and for the years then ended, have been audited by PricewaterhouseCoopers LLP, independent accountants, as stated in their report appearing herein. PricewaterhouseCoopers LLP has agreed to the inclusion of the Foundation's audited financial statements in the Official Statement.

Appendix B sets forth audited combined financial statements of California State University, Sacramento for the year ended June 30, 2001, which have been audited by KPMG LLP, as stated in their report included with the financial statement. The Foundation has not requested KPMG LLP to consent to the inclusion of the University's audited financial statement in this Official Statement. Consequently, KPMG LLP has not performed any additional auditing procedures with respect to the financial statement since the date of their report. See "Miscellaneous - Financial Statements". These financial statements are included for general information purposes. No revenues of the University are pledged for the security of the Series 2002 Bonds. See "Security for the Series 2002 Bonds."

AVAILABILITY OF DOCUMENTS

This Official Statement contains brief descriptions of the Series 2002 Bonds and the Indenture. Such descriptions do not purport to be comprehensive or definitive and are qualified in their entirety by reference to such documents. Until the issuance of the Series 2002 Bonds, copies of the documents described herein may be obtained from the Underwriter of the Series 2002 Bonds, A.G. Edwards & Sons, Inc., 1675 Broadway, Suite 2700, Denver, CO 80202, Telephone: (303)

5 893-5300. After the delivery of the Series 2002 Bonds, copies of such documents will be available at the office of the Foundation, 6000 "J" Street, Sacramento, California 95819, Telephone: (916) 278-6672.

FORWARD -LOOKINGSTATEMENTS

This Official Statement contains statements relating to future results that are "forward­ looking statements" as defined in the Private Securities Litigation Reform Act of 1995. When used in this Official Statement, the verbs "estimate," "intend," "expect," "project," and similar expressions identify forward-looking statements. Any forward-looking statement is subject to uncertainty and risks that could cause actual results to differ, possibly materially, from those contemplated in such forward-looking statements. Inevitably, some assumptions used to develop forward-looking statements will not be realized or unanticipated events and circumstances may occur. Therefore, investors should be aware that there are likely to be differences between forward-looking statements and actual results; those differencescould be material.

THE PROJECT

DESCRIPTION OF THE PROJECT

The Modoc Hall Facility is to be constructed on the southeast side of the University campus along a major entry road to the campus. The four-story building is expected to provide approximately 85,402 square feet of space that is expected to be leased in part to USGS, used in part by the University for its Office of Water Programs and Office of Research, Graduate and Extended Programs, and used in part by the Foundation for its dining services and contracts offices. The estimated cost to construct the project is $19,437,000. Funding for the project costs will be provided by (i) proceeds of the Series 2002 Bonds deposited into the Construction Fund established under the Indenture and held by the Foundation, and (ii) interest earningsaccruing on the funds held in the Construction Fund. See "Sources and Uses of Funds."

LOCATION OF MODOC HALL FACILITY

The Modoc Hall Facility will be located on the southeast side of the University campus as shown on the following map of the campus.

6 Modoc Hall Facility

I

--...J

CSUS VISITOR INFORMATION CENTER

Regional and Continuing Education Facility (under construction) SOURCES AND USES OF FUNDS

The following table shows the sources and uses of funds in connection with the issuance of the Series 2002 Bonds. Sources of Funds: Par Amount of Series 2002 Bonds $24,145,000 Construction Fund Earnings1 188,542 Plus Net Original Issue Premium 97,463 TOTAL $24,431,005 Uses of Funds: Modoc Hall Facility Construction Costs $19,437,000 Capitalized Interest Fund2 1,867,028 Bond Reserve Fund 1,825,017 Underwriter's Discount 193,160 Costs of Issuance Fund3 1,108,800 TOTAL $24,431,005 Earnings calculation is based on investments yielding 1.8% per annum. 2 Interest accruing on the Series 2002 Bonds through October 1, 2003, will be funded. Includes the premium paid to obtain the Financial Guaranty Insurance Policies, trustee and legal fees and certain other fees, costs and expenses related to the issuance of the Series 2002 Bonds. Payment of certain fees and expenses is contingent upon the issuance of the Series 2002 Bonds.

THE SERIES 2002 BONDS DESCRIPTION OF THE SERIES 2002 BONDS

Payment Terms. The Series 2002 Bonds mature on October 1 in the years and in the amounts set forth on the cover page of this Official Statement. Interest on the Series 2002 Bonds accrues from their dated date and is payable to Bondholders on October 1, 2002, and semiannually thereafter on each April 1 and October 1 (to and including the respective maturities of the Series 2002 Bonds or the date of prior redemption thereof) at the respective rates per annum set forth on the cover page.

Book-Entry Form. The Series 2002 Bonds will be issued in fully registered form and will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"). Individual purchases may be made in book-entry form only in denominations of $5,000 or any integral multiple thereof. Purchasers will not receive physical certificates representing their interest in the Series 2002 Bonds purchased. So long as the Series 2002 Bonds are registered in the name of the nominee of DTC, principal and interest payments on the Series 2002 Bonds are payable to DTC for subsequent disbursement to beneficial owners of the Series 2002 Bonds as described in Appendix G-"Book-Entry System."

Transfer and Exchange of Physical Certificates. If the book-entry-only system is discontinued, the Series 2002 Bonds will be issued in certificated form to the Holders and thereafter a person in whose name a Bond is registered may, in accordance with the terms of the Bond, transfer the Bond, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation at the corporate trust office of the Trustee in Los Angeles, California, accompanied by delivery of a duly executed written instrument of transfer in a form approved by the Trustee. Series

8 2002 Bonds may be exchanged at the corporate trust office of the Trustee in Los Angeles, California, for a like aggregate principal amount of Series 2002 Bonds of the same series of other authorized denominations of the same maturity and interest rate. The Trustee is not required to exchange or transfer any Series 2002 Bonds during the period of time established by the Trustee for the selection of Series 2002 Bonds to be redeemed, and the Trustee is not required to transfer or exchange any Bond selected for redemption in whole or in part. The Trustee may require the payment by the Holder requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange.

REDEMPTION OF THE SERIES 2002 BONDS

The Series 2002 Bonds are subject to optional, mandatory, and extraordinary redemption as described below.

Optional Redemption. The Series 2002A Bonds maturing on or after October 1, 2013 are subject to redemption prior to their respective stated maturities, at the option of the Foundation, from any source of available funds, as a whole on any date, or in part on any Interest Payment Date (by such maturities as may be specified by the Foundation and by lot within a maturity), on or after October 1, 2012, at par plus accrued interest to the date fixedfor redemption.

The Series 2002B Bonds maturing on or after October 1, 2013 are subject to redemption prior to their respective stated maturities, at the option of the Foundation, from any source of available funds, as a whole on any date, or in part on any Interest Payment Date (by such maturities as may be specified by the Foundation and by lot within a maturity), on or after October 1, 2012, at par plus accrued interest to the date fixedfor redemption.

Mandatory Sinking Fund Redemption. The Series 2002A Bonds maturing on October 1, 2027, 2032 and 2037, are subject to mandatory sinking fund redemption in part, by lot, prior to their respective stated maturities, at a redemption price equal to the principal amount thereof plus accrued and unpaid interest thereon to the date fixed for redemption, without premium, on October 1 in the years and in the amounts specified below.

Series A Series A Series A 2027 Term Bond 2032 Term Bond 2037 Term Bond Year Amount Year Amount Year Amount 2024 $290,000 2028 $365,000 2033 $480,000 2025 310,000 2029 385,000 2034 505,000 2026 325,000 2030 405,000 2035 535,000 20271 345,000 2031 430,000 2036 565,000 20321 455,000 20371 595,000

1 Final payment, not a sinking fund payment.

Series 2002A Term Bonds optionally redeemed by the Foundation will be credited to reduce the amount of future sinking fund payments; the amount allocated to each sinking fund payment will be specifiedby the Foundation.

9 The Series 2002B Bonds maturing on October 1, 2012, 2017, 2022, 2027, 2032 and 2037, are subject to mandatory sinking fund redemption in part, by lot, prior to their respective stated maturities, at a redemption price equal to the principal amount thereof plus accrued and unpaid interest thereon to the date fixed for redemption, without premium, on October 1 in the years and in the amounts specified as follows.

Series B Series B Series B 2012 Term Bond 2017 Term Bond 2022 Term Bond Year Amount Year Amount Year Amount 2006 $25,000 2013 $230,000 2018 $315,000 2007 45,000 2014 245,000 2019 340,000 2008 70,000 2015 260,000 2020 360,000 2009 100,000 2016 280,000 2021 385,000 2010 125,000 20171 295,000 20221 415,000 2011 160,000 20121 190,000

Series B Series B Series B 2027 Term Bond 2027 Term Bond 2037 Term Bond Year Amount Year Amount Year Amount 2023 $440,000 2028 $625,000 2033 $880,000 2024 475,000 2029 670,000 2034 945,000 2025 505,000 2030 715,000 2035 1,015,000 2026 545,000 2031 765,000 2036 1,090,000 20271 580,000 20321 820,000 20371 1,165,000

1 Final payment, not a sinking fundpayment.

Series 2002B Term Bonds optionally redeemed by the Foundation will be credited to reduce the amount of future sinking fund payments; the amount allocated to each sinking fund payment will be specifiedby the Foundation.

Extraordinary Redemption. The Foundation has the right to redeem Series 2002 Bonds prior to their respective stated maturities, as a whole or in part (in inverse order of maturity and by lot within a maturity) on any date, from insurance or condemnation proceeds with respect to the Modoc Hall Facility, at a redemption price equal to the principal amount thereof plus accrued and unpaid interest thereon to the date fixed forredemption, without premium. See "Certain Covenants of the Foundation - Insurance" and " - Eminent Domain" under Appendix C - "Summaries of Certain Provisions of the Principal Legal Documents - The Indenture."

NOTICE OF REDEMPTION

Notice of redemption is to be mailed to the respective registered owners of any Series 2002 Bonds designated for redemption at their addresses appearing on the registration books, at least thirty (30) days, but not more than sixty (60) days, prior to the redemption date, which

10 notice shall in addition to setting forth the above information, set forth, in the case of each registered Bond called only in part, the portion of the principal thereof which is to be redeemed; provided however, that neither failure of a holder to receive notice nor any defect in any notice so mailed will affect the sufficiency of the proceedings for the redemption of such Series 2002 Bonds.

If DTC or its nominee is the registered owner of any Bond to be redeemed, notice of redemption will be given to DTC or its nominee as the registered owner of such Bond. Any failure on the part of DTC or failure on the part of a nominee of a Beneficial Owner (having received notice from a DTC Participant or otherwise) to notify the Beneficial Owner of any Bond to be redeemed shall not affect the validity of the redemption of such Bond. See Appendix G-"Book-Entry System." EFFECT OF REDEMPTION

From and after the date designated for redemption, if funds sufficient to pay the redemption price of the Series 2002 Bonds are held by the Trustee, interest on the Series 2002 Bonds called for redemption will cease to accrue. Such Series 2002 Bonds will cease to be entitled to any benefit or security under the Indenture, and the Holders of such Series 2002 Bonds will have no rights in respect thereof except to receive payment of the redemption price.

11 DEBT SERVICE SCHEDULE The following table sets forth the debt service for the Series 2002 Bonds, the Series 1995 Bonds, and the Series 2001 Bonds for each year ending June 30 . Debt Debt Debt Year Series Series Service on Service on Service on Ending 2002A 2002B the Series the Series Series 2001 Total Debt June 30 Bonds Bonds 2002 Bonds 1995 Bonds Bonds Service 2002 $1,194,929 $134,924 $1,329,853 2003 $402,960 $860,607 $1,263,567 1,187,040 269,848 2,720,455 2004 481,945 1,029,297 1,511,242 1,188,309 269,848 2,969,399 2005 481,945 1,029,297 1,511,242 1,188,430 388,348 3,088,020 2006 521,145 1,029,297 1,550,442 1,187,454 385,273 3,123,169 2007 534,245 1,053,540 1,587,785 1,184,560 386,901 3,159,246 2008 541,845 1,071,419 1,613,264 1,184,384 383,151 3,180,799 2009 553,945 1,092,934 1,646,879 1,187,478 384,004 3,218,361 2010 565,445 1,117,783 1,683,228 1,188,872 384,448 3,256,548 2011 576,345 1,135,966 1,712,311 1,178,834 384,458 3,275,603 2012 591,545 1,162,330 1,753,875 1,177,366 384,291 3,315,532 2013 600,864 1,181,725 1,782,589 1,179,003 383,573 3,345,165 2014 614,276 1,208,551 1,822,827 1,178,553 382,473 3,383,853 2015 612,030 1,208,232 1,820,262 1,180,822 385,866 3,386,950 2016 613,340 1,206,946 1,820,286 1,175,750 383,535 3,379,571 2017 613, 165 1,209,531 1,822,696 1,173,338 385,480 3,381,514 2018 612,440 1,205,987 1,818,427 1,173,316 381,856 3,373,599 2019 611,165 1,205,999 1,817,164 1,170,491 383,075 3,370,730 2020 614,202 1,209,221 1,823,423 1,169,609 384,075 3,377,107 2021 611,552 1,205,946 1,817,498 1,175,209 384,625 3,377,332 2022 613,684 1,206,174 1,819,858 1,026,188 379,700 3,225,746 2023 610,583 1,209,574 1,820,157 1,022,753 379,150 3,222,060 2024 611,669 1,205,705 1,817,374 1,020,756 382,869 3,220,999 2025 611,475 1,209,367 1,820,842 1,019,869 380,994 3,221,705 2026 614,975 1,205,802 1,820,777 1,014,897 378,644 3,214,318 2027 612,513 1,209,839 1,822,352 1,015,453 380,700 3,218,505 2028 614,089 1,206,308 1,820,396 1,016,016 382,044 3,218,456 2029 614,563 1,209,818 1,824,381 377,794 2,202,175 2030 613,938 1,210,011 1,823,949 377,950 2,201,899 2031 612,213 1,207,090 1,819,303 377,394 2,196,697 2032 614,250 1,205,882 1,820,132 381,006 2,201,138 2033 614,913 1,206,041 1,820,954 378,788 2,199,742 2034 614,200 1,206,781 1,820,981 1,820,981 2035 612,112 1,207,724 1,819,836 1,819,836 2036 613,512 1,208,928 1,822,440 1,822,440 2037 613,263 1,210,042 1,823,305 1,823,345 2038 611,362 1,205,892 1,817,254 1,817,254

12 SECURITY FOR THE SERIES 2002 BONDS

INDENTURE; PLEDGE OF REVENUES

The Series 2002 Bonds are to be issued pursuant to and secured by the Indenture. The Series 2002 Bonds are general corporate obligations of the Foundation. Under the Indenture, the Foundation is to grant, assign and transfer a security interest in, and pledge, in trust for the benefit of the Holders of the Series 2002 Bonds, (i) the Revenues, and (ii) any amounts (including proceeds of the sale of the Series 2002 Bonds) held in any fund or account established under the Indenture, except for moneys on deposit in the Rebate Fund. The Trustee, on behalf of the Holders of the Series 2002 Bonds, is to have a senior lien on and security interest in the Revenues, which lien is on a parity with the lien on Revenues that secures the Series 1995 Bonds, the Series 2001 Bonds, and which is subject to the issuance of Additional Bonds and other obligations payable from and having a parity lien on the Revenues. There is no mortgage on the Modoc Hall Facility, nor has the Foundation granted nor will the it grant to the Trustee any security interest in any lease of the Modoc Hall Facility to secure the Bonds.

Revenues. "Revenues" means all proceeds, charges, income, rents, receipts, profits, benefits of the Foundation, exclusive of any gifts, grants, bequests, donations, and contributions to the extent specifically restricted by the donor to a particular purpose inconsistent with their use for the payment of debt service and exclusive of funds received for deposit into the Campus Programs Fund (as that term is used in the audited financialstatements of the Foundation).

Gross Revenue Fund. Under the Indenture, the Foundation agrees that all of the Revenues will be deposited in the "Gross Revenue Fund" that was established under the Series 1995 Indenture. The Foundation has pledged and granted a security interest to the Trustee in the Gross Revenue Fund to secure the payment of the Series 2002 Bonds and any payments required with respect to Parity Debt. In any fiscal year of the Foundation, the Foundation (i) may not transfer without consideration any moneys held in the Gross Revenue Fund to the Board, the University or any other auxiliary organization of the Board and (ii) will retain the first $750,000 of funds otherwise payable to the University as indirect cost recovery related to sponsored programs until all deposits required by the Indenture and the Series 2001 Indenture for the then current Fiscal Year have been made. Otherwise, so long as the Foundation is not delinquent in its payment of the Series 1995 Bonds, the Series 2001 Bonds, or the Series 2002 Bonds, it may withdraw and use funds held in the Gross Revenue Fund for any lawful purpose. If the Gross Revenue Fund is transferred to the control of the Trustee on account of a payment default, the Foundation may withdraw funds only to pay current or past due operating expenses. See the description of the Gross Revenue Fund in Appendix C - "Summaries of Certain Provisions of the Principal Legal Documents - The Indenture - Pledge of Revenues."

Operating Revenue Fund. Under the Indenture, the Foundation agrees to deposit $1,000,000 from its unrestricted assets into the Operating Revenue Fund, which is to be held by the Trustee and used to make up any deficiencies in the Bond Reserve Fund. On or after July 1, 2005, the balance held in the Operating Revenue Fund shall be transferred to the Foundation if an independent certified public accountant certifies that Net Income Available for Debt Service for each of the three prior Fiscal Years immediately preceding the certification has been at least equal to 1.25 times Maximum Annual Debt Service on all Series of Bonds and Parity Debt then

13 Outstanding. See the description of the Operating Revenue Fund in Appendix C - "Summaries of Certain Provisions of the Principal Legal Documents - The Indenture - Certain Covenants of the Foundation."

MODOC HALL FACILITY REVENUES

In addition to the revenues from its current operations (as described below under "The Foundation"), the Foundation expects to receive rental payments from two tenants (collectively, the "Modoc Hall Users") of the Modoc Hall Facility that will be used to pay a portion of the debt service on the Series 2002 Bonds.

The Modoc Hall Lease with USGS. As described in a Letter of Intent dated as of March 15, 2002, USGS expects to enter into a lease with the Foundation for a ten-year initial term commencing upon occupancy, with an option to renew for a ten-year period. The USGS expects to lease from the Foundation approximately 35,606 square feet of the Modoc Hall Facility for an annual rent (paid in equal monthly installments) of $1,282, 160, with an inflation adjustment made annually commencing July 1, 2004.

Use of Modoc Hall by the University. The University will use approximately 16,700 square feet of the Modoc Hall Facility to house its Office of Water Programs and Office of Research, Graduate and Extended Programs and is expected to pay an annual rent (paid in equal monthly installments) of $559,310 with an inflation adjustment made annually commencing July 1, 2004.

Budgeting Risk. The obligations of the University to make payments will be subject to annual budgeting of funds. The State Legislature has the right to not budget funds for the payment of scheduled rental forthe University's space in Modoc Hall. Moreover, the University does not have any obligation to pay rental payments if moneys are not lawfully available therefor and the State has exercised its right not to budget funds forthat purpose. Failure to budget funds pursuant to this right is not a breach of or default under the University's obligation; however, if the University fails to make a payment when due, then the Foundation may require the University to relinquish possession of its space in the Modoc Hall Facility. In that event, the Foundation may experience a loss of rental income because of delays in finding other tenants or its inability to lease the space at the same rent paid. Because of the Foundation's covenant to preserve the tax-exempt status of the Series 2002A Bonds, the University will be limited to subleasing its space only to other governmental entities and related non-profitcorporations.

After the proposed ten-year lease term of the USGS lease, if the lease is extended, the obligation of USGS to pay rent during the additional term may similarly be subject to annual appropriation of funds by the United States Congress.

No Mortgage on Modoc Hall Facility. Although payments made to the Foundation for the Modoc Hall Facility constitute Revenues under the Indenture, no part of the Modoc Hall Facility will be subject to any lien or mortgage in favor of the holders of the Series 2002 Bonds. However, it is anticipated that once the Modoc Hall Facility has been completed, revenues generated by the Modoc Hall Users (assuming the rental payments are budgeted) will be sufficientto pay debt service on the Series 2002 Bonds on an annual basis.

14 RA TE MAINTENANCE COVENANT

The Foundation will covenant in the Indenture that it will fix, charge, and collect, or cause to be fixed, charged, and collected, subject to applicable requirements or restrictions imposed by law, such rates, fees, prices for goods and services, and charges that, together with all other receipts and revenues of the Foundation and any other funds available therefor, will be budgeted for the next Fiscal Year to be sufficient to produce Net Income Available forDebt Service equal to at least 1.20 times Aggregate Annual Debt Service for all Bonds and Parity Debt then Outstanding forthe next Fiscal Year.

BOND RESERVE FUND

The Indenture establishes a Bond Reserve Fund, which is required to be funded in an amount equal to the Bond Reserve Requirement. See Appendix C - "Summaries of Certain Provisions of the Principal Legal Documents - Definitions." Upon issuance of the Series 2002 Bonds, Bond proceeds in an amount sufficient to increase the amount on deposit therein to the Bond Reserve Requirement will be deposited to the Bond Reserve Fund. Amounts on deposit in the Bond Reserve Fund (including all amounts that may be obtained from letters of credit, insurance policies and surety bonds on deposit therein) are to be used for the purpose of making up any deficiency in the Interest Fund or the Principal Fund or (together with any other moneys available therefor) for the payment or redemption of all Bonds then Outstanding. Amounts on deposit in the Bond Reserve Fund are not available to pay debt service on the Series 2001 Bonds, other parity debt issued under the Series 2001 Indenture, or Parity Debt as defined in the Indenture, but are available to pay debt service on the Series 1995 Bonds.

If any moneys in the Bond Reserve Fund are transferred to make up a deficiency in the Interest Fund or Principal Fund, the Foundation is required, starting in the first month after the date of such transfer, to deposit Revenues in an amount equal to (i) one-twelfth of the aggregate amount necessary to repay any and all obligations due and payable under the terms and conditions of any letter of credit, insurance policy or surety bond used to satisfy the Bond Reserve Requirement by the end of the twelfth month after the date of such transfer; and (ii) one­ twelfth of the aggregate amount of each unreplenished prior withdrawal of cash from the Bond Reserve Fund and the full amount of any deficiency due to any required valuations of the investments in the Bond Reserve Fund until the balance in the Bond Reserve Fund is at least equal to the Bond Reserve Requirement. See Appendix C - "Summaries of Certain Provisions of the Principal Legal Documents - The Indenture - Application of Funds - Bond Reserve Fund."

ADDITIONAL BONDS AND PARITY OBLIGATIONS

The Indenture provides that the Foundation may, by Supplemental Indenture, establish one or more additional series of Bonds secured under the Indenture equally and ratably with the Bonds previously issued thereunder. The issuance of such Additional Bonds is subject to, among other things, the following conditions:

(a) no Event of Default shall have occurred and be continuing under the Indenture;

15 (b) the balance in the Bond Reserve Fund shall be increased, if necessary, to an amount at least equal to the Bond Reserve Account Requirement with respect to all Bonds Outstanding under the Indenture upon the issuance of the additional series of Bonds; and

(c) the Foundation shall have certified to the Trustee that (1) the Net Income Available for Debt Service for a period of twelve (12) consecutive months during the eighteen (18) months immediately preceding the date on which such additional Series of Bonds will become Outstanding shall have been at least equal to 1.0 times the amount of Maximum Annual Debt Service on all Series of Bonds and Parity Debt then Outstanding and the additional Series of Bonds then proposed to be issued, and (2) the Net Income Available for Debt Service for the same twelve-month period, calculated including projected revenues and expenses associated with any facility to be financed by such additional Series of Bonds (based on the assumption that the facility was placed in service and operating at the beginning of such twelve-month period) but excluding any lease revenues from the Science II Facility (i.e., Placer Hall), shall have been at least equal to 1.2 times the amount of Maximum Annual Debt Service on all Series of Bonds and Parity Debt then Outstanding and the additional Series of Bonds then proposed to be issued.

If the Additional Bonds refund any Outstanding Bonds, the foregoingrequirement in clause ( c) shall not apply if Annual Debt Service for all the Bonds is not increased in any year following the issuance of such refunding Additional Bonds.

The Indenture and the Series 2001 Indenture also permit the Foundation to issue any indebtedness, installment sale obligation, lease obligation or other obligation of the Foundation forborrowed money having an equal lien and charge upon the Revenues and payable on a parity with the Bonds ("Parity Debt") upon compliance with, among other things, the conditions set forthin clauses (a) and (c) above (applying such provisions as if the obligations were Bonds). "Net Income Available for Debt Service" is defined to mean, with respect to any period, the excess of income over expenses (before extraordinary items) of the Foundation for such period, determined in accordance with generally accepted accounting principles, to which shall be added interest, amortization, and depreciation expense and other non-cash charges, each item determined in accordance with generally accepted accounting principles, and to which shall also be added transfers (that are treated as expenses) to funds designated for expenditure at the discretion of the President of the California State University, Sacramento, or University faculty, centers, institutes, schools, or departments to be used for research and internal/external relations, and excluding (a) any profits or losses on the sale or disposition, not in the ordinary course of business, of investments or fixed or capital assets or resulting from the early extinguishment of debt, (b) gifts, grants, bequests, donations, and contributions to the extent specifically restricted by the donor to a particular purpose inconsistent with their use for the payment of debt service, (c) the net proceeds of insurance (other than business interruption insurance) and condemnation awards, and (d) amounts deposited into Restricted Funds (as that term is used in the audited financial statementsof the Foundation).

16 DEBT SERVICE COVERAGE (PRO FORMA). The following table sets forth the coverage of maximum annual debt service on the Series 1995 Bonds, Series 2001 Bonds, and Series 2002 Bonds that would have been provided by the Foundation's Net Income Available for Debt Service during the last three years as well as projections of such coverage through fiscal year ending June 30, 2006. See "Introductory Statement; Forward­ Looking Statements." Historical and Projected Debt Service Coverage of Series 1995 Bonds, Series 2001 Bonds and Series 2002 Bonds (Pro Forma) Fiscal Years Ending June 30

1999 2000 2001 2002 2003 2004 2005 2006 Change in Unrestricted Fund Balance $109,434 $2,342,302 $2,797,830 $1,252,550 $1,199,360 $1,213,390 $1,252,960 $1,152,290 Add Back: Transfers to University Sponsored Research 350,000 350,000 554,259 350,000 350,000 350,000 350,000 350,000 University Programs 125,000 125,000 125,000 125,000 125,000 125,000 125,000 125,000 Proj ect Activities 176,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 Debt service payment 1,198,333 1,192,543 1,201,236 2,055,650 1,929,809 2,931,078 3,049,699 3,109,620 Depreciation & Amortization 1,647,761 1,403,844 1,019,024 1,012,937 1,049,160 1,569,654 1,609,344 1,650,484 Plus Net Revenue fromModoc Hall Facility* 2,007,407 2,007,407 2,007,407 2,007,407 2,007,407 1,497,000 1,534,424 1,572,782 Plus Net Revenue fromRCE Facility** 385,866 385,866 385,866 134,924 269,848 269,848 388,348 385,273 Net Income Available forDebt Service $5,999,801 $7,881,962 $8,165,622 $7,013,468 $7,005,584 $8,030,970 $8,384,775 $8,420,449 Maximum Annual Debt Service $3,386,950 $3,386,950 $3,386,950 $3,386,950 $3,386,950 $3,386,950 $3,386,950 $3,386,950 Coverage Ratio 1.77x 2.33x 2.41x 2.07x 2.07x 2.37x 2.48x 2.49x * For those years during which there is no actual debt service on the Series 2002 Bonds (1999-2001) or all debt service is paid from capitalizedinter est (2002- 2003), the amount shown is the expected total annual rental, net of expected operations and maintenance expenses, of the Modoc Hall Facility in the year in which aggregate Annual Debt Service on the Series 1995 Bonds, the Series 2001 Bonds, and Series 2002 Bonds is highest. For years 2004-2006, the amount shown is the actual expected net rental revenue. ** The rental under the RCE Building Lease is set at the amount of debt service on the Series 2001 Bonds plus estimated operations and maintenance costs for the RCE Facility, so this quantity is shown, foryears 1999 through 2001, as the debt service on the Series 2001 Bonds in the year in which aggregate Annual Debt Service on the Series 1995 Bonds, the Series 2001 Bonds, and Series 2002 Bonds is highest. Source: Foundation, based on audited financial statements and anticipated debt service on the Series 2002 Bonds. The prospective financialinformation was not prepared with a view toward compliance with published guidelines of the Securities and Exchange Commission or the guidelines forforecasts established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information and, accordingly, neither KPMG LLP nor PricewaterhouseCoopers LLP expresses any opinion nor any other form of assurance with respect thereto. The PricewaterhouseCoopers LLP report included in this official statement relates to the Foundation's historical financialinformation. The KMPG LLP report included in this official statement relates to the University's historical financial information. Neither PricewaterhouseCoopers LLP's nor KPMG LLP's report included in this official statement extends to the prospective financial informationof the Foundation and should not be read to do so.

17 SUBORDINATE DEBT The Indenture permits the Foundation to issue obligations that are junior and subordinate to the payment of the principal of, premium, interest and reserve fund requirements for the Bonds and all Parity Debt, without compliance with any of the limitations set forth above under "Additional Bonds and Parity Obligations." EVENTS OF DEFAULT AND REMEDIES

Upon the occurrence of certain events, payment of the principal of the Series 2002 Bonds may be accelerated under the Indenture. See Appendix C - "Summary of Certain Provisions of the Principal Legal Documents - The Indenture - Events of Default and Remedies of Bondholders."

No STATE OR CSU BOARD LIABILITY

The Series 2002 Bonds do not create a lien, charge or liability against the State of California or against the Trustees of The California State University or against the property or funds of either, and no registered owner of any Bond shall ever have the right to compel any exercise of the taxing power of the State of California to pay any Bond and neither the payment of the principal thereof nor any redemption premium or interest thereon constitutes a debt, liability or obligation of the State of California, the Trustees of The California State University or the individual California State University campuses.

BOND INSURANCE

The following information has been furnished by the Bond Insurer for use in this Official Statement. Reference is made to Appendix F for a specimen of the Bond Insurer's Financial Guaranty Policies. No representation is made herein by the Foundation as to the accuracy or the adequacy of the following information or as to the absence of material adverse changes in such information subsequent to the date hereof. PAYMENT PURSUANT TO THE FINANCIAL GUARANTY POLICIES

The Bond Insurer's policies unconditionally and irrevocably guarantee the full and complete payment required to be made by or on behalf of the Foundation to the Trustee or its successor of an amount equal to (i) the principal of (either at the stated maturity or by an advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Series 2002 Bonds as such payments shall become due but shall not be so paid ( 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 or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed by the Bond Insurer's policies 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); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner of the Series 2002 Bonds pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law ( a "Preference").

18 The Bond Insurer's policies do not insure against loss of any prepayment premium which may at any time be payable with respect to any Bonds. The Bond Insurer's policies do not, under any circumstance, insure against loss relating to: (i) optional or mandatory redemptions (other than mandatory sinking fund redemptions); (ii) any payments to be made on an accelerated basis; (iii) payments of the purchase price of Bonds upon tender by an owner thereof; or (iv) any Preference relating to (i) through (iii) above. The Bond Insurer's policies also do not insure against nonpayment of principal of or interest on the Series 2002 Bonds resulting from the insolvency, negligence or any other act or omission of the Trustee or any other paying agent for the Bonds.

Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the Bond Insurer from the Trustee or any owner of a Series 2002 Bond the payment of an insured amount for which is then due, that such required payment has not been made, the Bond Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with State Street Bank and Trust Company, N.A., in New York, New York, or its successor, sufficient for the payment of any such insured amounts that are then due. Upon presentment and surrender of such Bonds or presentment of such other proof of ownership of the Series 2002 Bonds, together with any appropriate instruments of assignment to evidence the assignment of the insured amounts due on the Bonds as are paid by the Bond Insurer, and appropriate instruments to effect the appointment of the Bond Insurer as agent for such owners of the Bonds in any legal proceeding related to payment of insured amounts on the Series 2002 Bonds, such instruments being in a form satisfactory to State Street Bank and Trust Company, N.A., State Street Bank and Trust Company, N.A. shall disburse to such owners or the Trustee payment of the insured amounts due on such Bonds, less any amount held by the Trustee for the payment of such insured amounts and legally available therefor.

MBIA

The Bond Insurer is the principal operating subsidiary of MBIA Inc., a New York Stock Exchange listed company (the "Company"). The Company is not obligated to pay the debts of or claims against the Bond Insurer. The Bond Insurer is domiciled in the State of New York and licensed to do business in and subject to regulation under the laws of all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United States and the Territory of Guam. The Bond Insurer has three branches, one in the Republic of France, one in the Republic of Singapore and one in the Kingdom of Spain. New York has laws prescribing minimum capital requirements, limiting classes and concentrations of investments and requiring the approval of policy rates and forms. State laws also regulate the amount of both the aggregate and individual risks that may be insured, the payment of dividends by the Bond Insurer, changes in control and transactions among affiliates. Additionally, the Bond Insurer is required to maintain contingency reserves on its liabilities in certain amounts and forcertain periods of time.

The Bond Insurer does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom,

19 other than with respect to the accuracy of the information regarding the Bond Insurer's policies and the Bond Insurer set forth under the heading "Bond Insurance." Additionally, the Bond Insurer makes no representation regarding the Bonds or the advisability of investing in the Bonds.

The Bond Insurer Information

The Company's Annual Report on Form 10-K for the year ended December 31, 2001, filed by the Company with the Securities and Exchange Commission (the "SEC") is incorporated herein by reference.

Any documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act of 1934, as amended, after the date of this Official Statement and prior to the termination of the offering of the Bonds offered hereby shall be deemed to be incorporated by reference in this Official Statement and to be a part hereof. Any statement contained in a document incorporated or deemed to be incorporated by reference herein, or contained in this Official Statement, shall be deemed to be modified or superseded for purposes of this Official Statement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modifiedor superseded, to constitute a part of this OfficialStatement.

The Company files annual, quarterly and special reports, information statements and other informationwith the SEC under File No. 1-9583. Copies of the SEC filings(including the Company's Annual Report on Form 10-K for the year ended December 31, 2001) is available (i) over the Internet at the SEC's web site at http://www.sec.gov; (ii) at the SEC's public reference room in Washington D.C.; (iii) over the Internet at the Company's web site at http://www.mbia.com; and (iv) at no cost, upon request to MBIA Insurance Corporation, 113 King Street, Armonk, New York 10504. The telephone number of the Bond Insurer is (914) 273-4545.

As of December 31, 2001, the Bond Insurer had admitted assets of $8.5 billion (unaudited), total liabilities of $5.6 billion (unaudited), and total capital and surplus of $2.9 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. As of December 31, 2000,, the Bond Insurer had admitted assets of $7 .6 billion (audited), total liabilities of $5.2 billion (audited), and total capital and surplus of $2.4 billion (audited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities.

Financial Strength Ratings of the Bond Insurer

Moody's Investors Service, Inc. rates the financialstrength of the Bond Insurer "Aaa."

Standard & Poor's, a division of The McGraw-Hill Companies, Inc. rates the financial strength of the Bond Insurer "AAA."

20 Fitch, Inc. rates the financial strength of the Bond Insurer "AAA."

Each rating of the Bond Insurer should be evaluated independently. The ratings reflect the respective rating agency's current assessment of the creditworthiness of the Bond Insurer and its ability to pay claims on its policies of insurance. Any further explanation as to the significanceof the above ratings may be obtained only fromthe applicable rating agency.

The above ratings are not recommendations to buy, sell or hold the Series 2002 Bonds, and such ratings may be subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the Series 2002 Bonds. The Bond Insurer does not guaranty the market price of the Series 2002 Bonds nor does it guaranty that the ratings on the Series 2002 Bonds will not be revised or withdrawn.

In the event the Bond Insurer were to become insolvent, any claims arising under a policy of financialguaranty insurance are excluded fromcoverage by the California Insurance Guaranty Association, established pursuant to Article 14.2 (commencing with Section 1063) of Chapter 1 of Part 2 of Division 1 of the California Insurance Code.

THE FOUNDATION

GENERAL

The Foundation was originally organized in 1951 as a California nonprofit corporation under the name Hornet Foundation, Inc. In 1993, the Foundation changed its name to the California State University, Sacramento Foundation. The Foundation is an auxiliary organization of The California State University and is authorized to perform certain services pursuant to the California Education Code, Sections 89900 et seq. (the "Education Code"), and the California Code of Regulations, Title 5, Sections 42500 et seq. (the "Regulations"). The Internal Revenue Service has determined that the Foundation is exempt from federal income taxation by virtue of being an organization described in Sections 501( a) and 501( c )(3) of the Internal Revenue Code of 1986, as amended (the "Code"). The Foundation is not a private foundation under Section 509 of the Code.

Pursuant to its articles of incorporation (the "Articles of Incorporation"), the Foundation is organized to promote and assist in the development, maintenance and operation of the University; to further the educational objectives of the University; to provide necessary and desirable equipment and facilities for the students and faculty of the University; to establish and operate on or near the campus of the University cafeterias, bookstores and such other facilities as would aid, assist or supplement the educational or extracurricular activities of the personnel of the University; to acquire and dispose of such properties; to borrow and lend money when, through doing so, the requirements of the purposes of the Foundation can be promoted or enhanced; and to do such other acts as may be permissible of corporations under the laws of the State of California which shall foster, facilitateor assist in the performance of these purposes.

21 Presently, the Foundation operates the Hornet Bookstore, which is the main bookstore located on campus, a merchandise store in the University Union, a copy graphics center, a computer store and cash food service operations, which include several eateries and vending machines located throughout the University campus, catering and food service to the residence halls located on campus. The Foundation also provides contract services including administrative, personnel and payroll functions for University research and sponsored programs, projects and accounts.

The Foundation has adopted the following mission statement.

The California State University Sacramento Foundation, a non­ profit corporation, provides quality services, programs, products, and resources which support and strengthen the California State University, Sacramento mission of teaching and learning, research and public service. The Foundation serves the campus community by fostering a business-like and entrepreneurial environment and by shaping its activities to meet the evolving needs of the University.

GOVERNANCE

The Foundation is governed by a twelve-member Board of Directors (the "Board"). Pursuant to its Bylaws, four members of the Board are required to be members of the faculty of the University; two members are required to be members of the administration of the University; four Board members are required to be members of the student body; and two Board members are required to be local community members.

The faculty members are required to be nominated by the Faculty Senate of the University and appointed by the President of the University. The administration and community members on the Board are appointed by the President of the University.

One student member must be the President of the Associated Students of California State University, Sacramento ("ASI"). One student member is a representative of the Campus Residence Halls, nominated by residents and appointed by the President of the University. The two remaining student members are nominated by the Board of Directors of ASI, upon the recommendation of the ASI President, and appointed by the President of the University. (Because the Foundation maintains a license to sell alcoholic beverages, a student member of the Board is not a voting member unless she or he is at least twenty-one years old.)

In addition to the foregoing twelve voting members of the Board, the University's Vice President for Administration serves ex offi cio as a non-voting member of the Board. The President of the University may also appoint one other non-voting, at-large member of the Board for a one-year term. (The latter position and one student member position are currently vacant.)

No member of the Board is to receive compensation for serving on the Board, except that actual and necessary expenses that are incurred in the discharge of a member's duties as such and as approved by the Board of Directors may be paid.

22 The current Directors, their position with the University or other employment, and the expiration of their tenure on the Board are set forthbelow.

Name Position Term Expiration Elizabeth Moulds, Vice President & Chief of Staff President Appointment Continuous Edward C. Del Biaggio, Vice President forAd ministration Ex Officio Member Continuous Susanne Burton, S. Burton International, Inc. Community Member June 30, 2002 Peg Tomlinson-Poswell Community Member June 30, 2003 Marion O'Leary, Dean, College of Natural Sciences & President Appointment June 30, 2002 Mathematics Rhonda Rios Kravitz, Access Service Librarian Faculty Member June 30, 2002 Chevelle Newsome, Assistant Professor Faculty Member June 30, 2005 Doraiswamy Ramachandran, Professor Faculty Member June 30, 2004 Greg Wheeler, Professor Faculty Member June 30, 2003 Calvin Davis, Student Student Member June 30, 2002 Artemio Pimentel, ASI President Student Member June 30, 2002 John Burklund-Fine, Residence Hall Associate Student Member June 30, 2002 (Vacant) Student Member (Vacant) Member at Large

Pursuant to its Bylaws, the Foundation has established the following two committees of the Board: the Executive Committee and the Budget and Finance Committee. These committees have been established to assist the Board in gathering and interpreting information, and to report back to the Board. Unless otherwise delegated, final decision making authority is with the Board.

Issuance of the Series 2002 Bonds was approved by the Board on March 8, 2002.

MANAGEMENT

The following individuals provide the day-to-day management of the Foundation.

Elroy Littlefield, Executive Director. Mr. Littlefield is the Foundation's most senior employee with 39 years of service and has served as executive director since June of 2000. Acting with the leadership and guidance of the Foundation Board of Directors, Mr. Littlefield governs and directs the activities of the Foundation, with 225 full-time and 1,600 part-time employees, in fulfilling its mission of service to California State University, Sacramento. Mr. Littlefield is a CSUS alumnus with a Bachelor of Arts degree in Mathematics (minor English) and a past president of both the California Association of College Stores (CACS) and the National Association of College Stores (NACS).

Nancy Pennebaker, Special Assistant to the Executive Director. Ms. Pennebaker is Director of Marketing Services and also is Special Assistant to the Executive Director. Ms. Pennebaker has been with the Foundation (and in this capacity) for 13 years and has more

23 than 25 years of marketing and public relations experience in higher education. Ms. Pennebaker has a Masters degree in Journalism with a special emphasis/major in Public Relations in higher education from the University of Oregon. In addition to overseeing the marketing component of the Foundation, she works closely with the Board of Directors and is assigned numerous special projects that result in new programs and enterprises for the Foundation and the University.

Wayne Quinn, Director, Financial and Business Services. Mr. Quinn is the Director of Financial and Business Affairs and has served CSUS and the Foundation in an administrative/financial capacity for 19 years. Mr. Quinn was previously employed by the University of Hawaii and by the University of Wisconsin. With a Master of Science in School Business Management (Northern Illinois University) and an EdD (all but dissertation) Educational Administration (University of the Pacific), Mr. Quinn has served in higher education for34 years. Mr. Quinn will be retiring as of May 31, 2002. Currently, the Foundation has hired Brigett Reilly to assume responsibility for all property management issues on behalf of the Foundation.

Donna Parenti, Controller. Ms. Parenti, the Controller of the Foundation, has 15 years experience in the fields of nonprofit and for-profit accounting and advanced knowledge of state and federal government regulations and principles applicable to grant and contract activities, and accounting systems. Ms. Parenti is a CertifiedPublic Accountant in good standing, with a minor in Communication Studies. She is a member of various business organizations. Ms. Parenti has a Bachelor of Science degree in Business Administration with a concentration in Accounting. Brigett L. Reilly, Property Manager. Ms. Reilly, RPA, has worked in the commercial real estate field for 20 years. Ms. Reilly has been involved in managing the Foundation's property issues since 1993 in her position as a third party property manager for the Foundation's property located at 7750 College Town Drive, Sacramento (the Aroline McKeever Adams Building). As of May 7, 2002, Ms. Reilly works directly for the Foundation and will be assuming a portion of Mr. Quinn's duties upon his retirement. Her past experience includes real estate development, project management and administration, commercial leasing and sales and all areas of property management. Ms. Reilly is active in the professional association Building Owners and Managers Association International (BOMA) and has taught numerous seminars for the association. She is a candidate for the CPM (Certified Property Manager) designation and is a licensed California real estate broker. Trina Knight, Director, Human Resources. Ms. Knight is the Foundation's Director of Human Resources. With more than 14 years experience in the personnel and human resources field, Ms. Knight is responsible for more than 1,800 Foundation staff members. Ms. Knight has a Bachelor of Arts (Business Administration) from California State University, Chico, and is pursuing a Master's degree (Business Administration) at CSUS. She is a member of several human resources and compensation organizations and has served the Foundation since 1989.

Julia Milardovich, Director, Bookstore Services. Ms. Milardovich is the Foundation's Director of Bookstore Services. Ms. Milardovich oversees the Hornet Bookstore, The Store in the University Union and the Copy Graphics Center at CSUS, and has served the Foundation for 21 years. She attended CSU Sacramento with a major in Criminal Justice and is active in regional and national College Store Trade Associations.

24 Ruedi Egger, Director, Dining Services. Mr. Egger is the Foundation's Director of Dining Services. Mr. Egger oversees the 23 self-operated and contracted campus eateries at CSUS. Originally from Switzerland, Mr. Egger is a Certified Executive Chef (Schweizerische Eidengossenshaft Fahigkeitszeugnis N° 254) and has more than 32 years of experience in the hospitality industry around the world. With a Master of Arts (Marketing) and Master of Business Administration from Schweizerische Hotelfachschule Luzern, Mr. Egger has served the Foundation since 1996. Meri McGraw, Manager, Information Technology. Ms. McGraw is the Foundation's Information Technology Manager and has more than 18 years experience in the Information Technology field. Ms. McGraw is a Microsoft Certified Professional and holds a Bachelor of Science in Management Science and Computer Systems from Oklahoma State University. Helen Winchester, Risk Manager. Ms. Winchester is the Foundation's Risk Manager and administrator of the organization's Workers' Compensation and Safety Training programs. As Risk Manager, Ms. Winchester administers the liability and workers' compensation insurance policies. She is also the designer, developer, and trainer of Workers' Compensation training courses delivered throughout the California State University Auxiliary System and to public and private enterprises. Ms. Winchester is a graduate of the University of California, Davis Workers' Compensation Certification Program and has served the Foundation for more than 14 years. Ms. Winchester serves as president of the California Employers Advisory Council.

The position of Director, Contract Services Division, is currently vacant.

SUMMARY OF FOUNDATION'S BUSINESS

Generally, the Foundation's purpose is to further the educational m1ss10n of the University by providing needed services to the campus community. It operates the Hornet Bookstore and campus food services, provides administrative support and contract services for the University's research and sponsored programs, provides marketing and graphics support to various University functions, and manages a number of facilities (including classroom, office, and warehouse facilities) forUniversity-related functions. The following is a brief description of the services provided by the Foundation.

• Hornet Bookstore - carries all required textbooks, a variety of general interest books, and general merchandise, including convenience items. The computer department offers personal computers, printers and software (available through special contract with selected vendors) forstudents, staff and faculty.

• Copy Graphics Center - provides photocopying and other production services (binding, folding, and laminating). The Copy Graphics Center also offers graphic services such as creation of resumes, newsletters, banners, and certificates.

• The Store in the University Union - carries basic school supplies, snacks, newspapers, magazines, health and beauty aids, and greeting cards.

• Dining Commons - provides full-meal service for students living in the residence halls (also available to off-campusresidents).

25 • Other Campus Eateries - provide a wide variety of choices at a food court and a full-service restaurant in the University Union, a food court at the Riverfront Center, and smaller eateries and through vending services at other locations on campus.

• Catering - provides planning, preparing and serving event needs of the campus community.

• Contract Services - provides administrative support for more than 750 university research and sponsored programs and accounts.

• Personnel and Payroll Services - acts as employer-of-record for University sponsored projects and auxiliary departments.

• Marketing Services - in addition to supporting the Foundation's other business operations, provides graphics production and event planning services to the University.

• Property Management - develops, operates, and maintains classroom, office, and other facilities for University departments and programs and related users (such as the U.S. Geological Survey, the State Department of Water Resources, and the Regional and Continuing Education Program).

• Julia Morgan House - The Foundation sponsored the restoration of this historic Sacramento mansion and manages it as a facility for a variety of special events and community relations activities.

The Foundation is self-financed, and surplus funds from the Foundation's operations are allocated to the University in the form of grants, in-kind services, equipment and donations.

OPERA TING AGREEMENT

The Foundation operates as an auxiliary organization on the University campus pursuant to the Operating and Lease Agreement dated as of October 1, 1995, amended as of October 1, 2001, which will be amended as of May 1, 2002 to extend its term to the final maturity of the Series 2002 Bonds.

The Operating and Lease Agreement sets forth the terms and conditions under which the Foundation operates as an auxiliary organization of CSU. Pursuant to the Operating and Lease Agreement, the Foundation (i) leases certain real property on the University campus, (ii) operates the Hornet Bookstore and certain food service facilities, (iii) provides contract services to the University for research and sponsored projects, (iv) provides loans, scholarships, stipends and related financial assistance, and (v) administers externally funded projects, gifts, bequests, endowments, trusts and similarly funds. The Operating and Lease Agreement term will end on October 1, 2032, unless sooner terminated or extended. The Operating and Lease Agreement may be terminated sooner if (i) the CSU Board notifies the Foundation that an administrative necessity or emergency exists requiring termination; (ii) the Foundation ceases its operations; (iii) a violation of any substantial provision of the Operating and Lease Agreement occurs; or (iv) the retirement of the Series 1995 Bonds, the Series 2001 Bonds, and the Series 2002 Bonds.

26 Upon the termination of the Operating and Lease Agreement, the CSU Board, at its sole discretion, may require the Foundation to transfer all assets in its possession to a successor nonprofitcorporation qualifying as an auxiliary organization.

TRANSFERS TO THE UNIVERSITY The Foundation transfers donations to University groups and to student groups on an annual basis. Transfers are reviewed initially by separate committees and ultimately approved by the Board of Directors. All transfers are budgeted by the Director, Contracts & Grants, submitted to the Budget & Finance Committee, and then forwarded to the Board of Directors with a recommendation of approval/disapproval from the Budget & Finance Committee. Any transfer of funds, however, is subject to the provisions of the Indenture that states that in any fiscal year of the Foundation, the Foundation may not transfer without consideration any moneys held in the Gross Revenue Fund or the Facilities Revenue Fund to the CSU Board, the University, or any other auxiliary organization of the CSU Board unless all payments due with respect to the Bonds and all Parity Debt (including the Series 2001 Bonds), for such fiscal year of the Foundation have been made and the Foundation is not otherwise in default under the Indenture.

OUTSTANDING DEBT Other than the Series 2002 Bonds, the Foundation's long-term indebtedness consists of the Series 1995A Bonds (final payment due October 1, 2027), the Series 1995B Bonds (final payment due October 1, 2027), the Series 2001 Bonds (final payment due October 1, 2032) and an interfund note payable to sponsored programs (with a final payment due June 2030). The total balance of the Foundation's long-term outstanding indebtedness was $20,912,588 as of December 31, 2001 (See Appendix A, Note 9). INVESTMENT OF EXCESS FUNDS The Foundation invests excess funds not needed for operation and other funds earmarked for capital improvements and equipment purchases. The Foundation has established specific goals and guidelines for investment and the Foundation's Investment Committee has the responsibility to implement and conduct periodic reviews of the investment guidelines. The investment guidelines permit the use of a wide variety of investment options, including both equity and debt securities. However, the investment guidelines prohibit certain transactions without prior approval from the Board of Directors, such as short sales, purchase of derivatives, margin purchases, acting as an underwriter, purchase of real estate (with the exception of real estate securities), options trading, purchase of restricted or private placement investments, purchase of foreign securities ( except those traded on an organized exchange), purchases of securities of the investment manager's firm or affiliated firms, and investment in futures, commodities, and currency hedges. The Foundation's general investment objective is to optimize returnwhile utilizing asset diversification to control risk.

27 The Foundation's portfolio was appraised as of December 31, 2001 by the Savant Group. The table below summarizes the appraisal. Summary of Investment Portfolio* Percentage Funds Market Value of Assets Mutual Funds - Equity $2,785,625 54.8% Mutual Funds - Fixed Income 1,003,956 19.8 Mutual Funds - International 988,664 19.5 Mutual Funds - Real Estate 298,006 5.9 Cash and Equivalents 76 0.0 Portfolio Value as of 12/31/01 $5,076,327 * Unaudited. INSURANCE The Foundation carries property, general liability, crime, inland marine and automobile insurance policies through Fireman's Fund and a boiler and machinery insurance policy with Travelers Property Casualty. Pursuant to the requirements of the Modoc Hall Ground Lease, the Foundation will obtain property insurance forthe Modoc Hall Facility during the term of the Modoc Hall Ground Lease. The Foundation's liability coverage limit is $1,000,000 with an umbrella policy in the amount of $5,000,000.

28 FINANCIAL INFORMATION CONCERNING THE FOUNDATION

Historical Financial Information. The following table presents a historical, comparative summary of the revenues, expenses and changes in fund balances for the Foundation's unrestricted funds for its Fiscal Years 1999 through 2001 and for the six-month periods ending December 31, 2000 and December 31, 2001. CSUS FOUNDATION COMPARATIVE SUMMARY OF THE REVENUES, EXPENSES AND CHANGES IN FUND BALANCES FOR THE UNRESTRICTED FUNDS FOR FISCAL YEARS ENDED JUNE 30, 1999 THROUGH 2001 * AND UNAUDITED SIX-MONTH PERIODS ENDED DECEMBER 31, 2000 AND 2001

Audited Unaudited Fiscal Year ended 6-Month period ended June 30 December 31 ** 1999 2000 2001 2000 2001 Revenue and Support Sales and vending commissions $17,958,635 $18,448,062 $19,618,856 9,841,992 10,527,636 Administration fees 3,536,039 4,114,758 5,317,185 2,356,711 2,653,010 Interest and investment 442,365 715,655 (139,526) (6,059) (52,817) income/(loss) Rental income 2,005,798 2,114,969 2,481,664 1,060,673 1,338,068 Contributions and other income 398,051 427,841 756,293 466,949 42,412

Total Revenue and Support $24,340,888 $25,821,285 $28,034,472 13,720,266 14,508,309 Expenses: Cost of sales 10,441,226 10,212,486 11,111,332 5,594,306 5,991,737 Operating expenses 8,366,537 8,143,918 9,144,290 4,285,910 4,540,567 General and administrative 3,124,930 3,168,735 3,207,737 1,642,090 1,801,368 Sponsored research 350,000 350,000 554,259 363,261 350,000 University programs 125,000 125,000 125,000 125,000 125,000 Other programs 176,000 75,000 75,000 75,000 75,000 Depreciation and amortization 1,647,761 1,403,844 1,019,024 500,000 504,362

Total Expenses $24,231,454 $23,478,983 $25,236,642 12,585,567 13,388,034 Fund balance, beginning of period 16,408,437 16,517,871 18,860,173 18,860,173 21,658,003 Change in fund balance: 109,434 2,342,302 2,797,830 1,134,699 1,120,275 Fund balance, end of period 16,517,871 18,860,173 21,658,003 19,994,872 22,778,278 * Source: Derived fromFoundation 's audited financialstatemen ts. ** Source: Foundation. Management's Discussion. The following summary of material trends in the Foundation's financeshas been provided by the Foundation. For the past three fiscal years, 1999 through 2001, the Foundation has consistently maintained adequate financial reserves. In the fiscal year 1998/1999, total assets were $53,531,656, and unrestricted fund balances increased to $16,517,871. Growth and expansion during the fiscal year 2000 reflected a total asset base of $57,812,912 and an increase in the

29 unrestricted fund balance to $18,860,173. Net revenues over expenses reported in the fiscal year 2001 continued in an upward trend as the asset base was reported at $64,327,608. The unrestricted fund balance of $21,658,003 was a fund balance increase exceeding fourteen percent (14%). The increases each year are consistent with administrative plans to accommodate a growing campus population and expansion of services to support the increased student enrollment. Year Round Operations (YRO) on the Sacramento campus, expected to be fully operational during the Summer Session 2002 and thereafter, will impact the Foundation operations by providing more opportunities for revenue generation and facilities expansion to accommodate a growing student population. As enrollment increases revenue will followa trend of growing additional annual net revenue. As research grants grow to accommodate an increasingly sophisticated faculty, income is expected to be impacted positively. The property division's continued expansion to serve University needs is also expected to contribute a significant portion of net revenue to the growth in assets of the Foundation.

Financial Statements. The audited financial statements of the Foundation for its Fiscal Years ended June 30, 2001 and 2000 are included in Appendix A to this Official Statement, attached hereto and made a part hereof. The financial statements have been audited by PricewaterhouseCoopers LLP, independent accountants, as stated in their report appearing herein. PricewaterhouseCoopers LLP has agreed to the inclusion of the Foundation's audited financial statement in this Official Statement. See "Miscellaneous: Financial Statements." These financial statements are included for general information purposes. See "Security for the Series 2002 Bonds."

MODOC HALL USES

GENERAL

Modoc Hall is expected to be leased by the Foundation in part to USGS and will be used in part by the University and the Foundation. Approximately 5,332 square feet of Modoc Hall will be utilized by the Foundation to house its contracts and dining services offices.

UNITED STATES GEOLOGICAL SURVEY

USGS is an agency of the United States Department of the Interior. Created by an act of Congress in 1879, the USGS has evolved over time, supporting the progress of science and technology. Currently, the USGS is the sole science agency for the Department of the Interior. It services thousands of partners and customers through its natural science expertise and its vast earth and biological data holdings. The USGS has approximately 10,000 scientists, technicians and support staff located in nearly 400 offices in every state and in several foreign countries. With a budget of more than $1 billion dollars a year, the USGS leverages its resources and expertise in partnership with more than 2,000 agencies of State, local and tribal government, the academic community, other federal allies, non-governmental organizations, and the private sector. Field investigations, direct observations of natural science processes and phenomena, and monitoring and data collection at the local scale are the scientific hallmarks of the USGS. The

30 diversity of scientific issues that demand attention has prompted the USGS to focus its efforts into four major areas: natural hazards, resources, the environment, information and data management. The USGS works cooperatively with federal, state, and local agencies to assist in emergency response efforts when catastrophes strike. USGS science provides information needed by the public to understand the hazards that may exist in their community and to help mitigate losses and damages when they occur.

On November 5, 2001, the Department of the Interior and Related Agencies Appropriation Act, 2002 was enacted as Public Law 107-63. For USGS, PL 107-63 provides a total of $914 million for FY 2002 compared to $882.2 million, which had been appropriated for FY 2001.

The USGS Water Resources Discipline has been leasing space fromthe Foundation since 1996. The Water Resources Discipline trains technicians and engineers and offers certificate programs through the University's Regional and Continuing Education program.

Use of Modoc Hall Facility.

The Foundation expects USGS to utilize approximately 60% of Modoc Hall to house portions of the USGS Office of Western Regional Services, portions of the USGS Water Resources Discipline including the Office's of the Regional Hydrologist, and portions of the USGS Western Ecological Resource Center, Biological Resource Discipline. Approximately 161 USGS staff will be located in Modoc Hall. Additionally, the USGS intends to interact with University programs and research as applicable to USGS programs. If, for any reason, USGS does not lease space in Modoc Hall as intended, the Foundation intends to seek other tenants for that space, including other University programs or activities.

UNIVERSITY'S OFFICE OF WATER PROGRAMS AND OFFICE OF RESEARCH, GRADUATE AND EXTENDED PROGRAMS The Office of Water Programs at the University offers training courses for operators of water and wastewater treatment facilities. The training programs were developed for the U.S. Environmental Protection Agency by persons who operate and maintain water-treatment facilities. Home study, self-instruction manuals were developed for persons who want to prepare for employment, upgrade their existing work skills, and learn about new technologies, or prepare for licensing certification examinations. The University administers, monitors, and upgrades these training programs.

The University's Office of Research, Graduate and Extended Programs is a program center of the Office of Academic Affairs at the University. Its primary functions involve the administration of programs related to research, sponsored projects, scholarly and creative activity, graduate studies, Regional and Continuing Education, and International Programs. It is under the direction of an Associate Vice President who is assisted by the Director of Research and Sponsored Programs, the Director of the Graduate Center, the Dean and Director of Regional and Continuing Education, and the Director of Global Education

31 Use of Modoc Hall Facility. The University will house both the Office of Water Programs and the Officeof Research, Graduate and Extended Programs in the Modoc Hall Facility. The University will use approximately 30% of the Modoc Hall Facility. Collectively, approximately 95 University staff will located in Modoc Hall. The University intends to associate with USGS on certain water and educational programs as appropriate.

THE CALIFORNIA STATE UNIVERSITY, SACRAMENTO

GENERAL DESCRIPTION

The University, located five miles from the State Capitol in Sacramento along the American River, was founded in 1947. The campus is approximately 300 acres in size with facilities that include a one-million volume library, numerous labs equipped with the latest computers, a 21,195-seat stadium, two gymnasiums, playing fields for baseball and softball, an arboretum, and three theaters. The University's most recent additions include four new classroom buildings, a major expansion of the University Union, the Steven Lee Yamshon Alumni Center, and Placer Hall, a high-tech scientificfacility built in partnership with the United States Geological Survey. Additionally, a world-class, $1.5 million track and field facility was installed at HornetStadium forthe 2000 United States Olympic Track and Field Trials.

The University is a regional comprehensive public institution that is authorized to offer educational programs at the baccalaureate and master's levels, and jointly with the University of California or approved private institutions, at the doctorate level. It fulfills related research and public service roles and maintains support services for students. The University presently offers 60 undergraduate degrees and 40 graduate degrees in seven Colleges: Arts & Letters, Business Administration, Education, Engineering & Computer Science, Health & Human Services, Natural Sciences and Mathematics, and Social Sciences and Interdisciplinary Studies. The University employs approximately 818 full-time faculty, approximately 703 part-time faculty, and approximately 1,276 administrators and staff members.

STUDENT ENROLLMENT

Enrollment at the University has increased steadily over the past five years in terms of total headcount and full-time equivalent students ("FTES"), as shown in the table below. California State University, Sacramento: Historical Fall Term Enrollment by Class Level 1997 1998 1999 2000 2001 Freshman 3,045 3,123 3,615 4,127 4,648 Sophomore 1,579 1,641 1,676 1,826 1,905 Junior 6,062 5,985 6,104 6,360 6,608 Senior 7 ,953 7 ,953 7 ,948 8,029 8,342 Total Undergraduate 18,639 18,702 19,343 20,342 21,503 Graduate 4,839 4,974 5,187 5,372 5,420 Total Headcount 23,478 23,676 24,530 25,714 26,923 Total FTES 18,254.1 18,536.4 19,158.6 19,970.8 20,984.8 Source: CSU Analytical Studies Division.

32 UNIVERSITY PROGRAMS, SERVICES AND FACILITIES

Academic Programs and Facilities. The University's programs incorporate three curricular objectives reflecting the values that underlie its emphasis on a liberal education. These objectives are the acquisition of knowledge, the development of critical thought processes, and the synthesis of knowledge.

The University offers undergraduate programs in the traditional liberal arts disciplines and selected professional studies programs in business, education, engineering and health and human services. Emphasis is placed on general education, which provides fundamental knowledge in areas of universal interest and applicability -- natural sciences, social sciences, humanities and fine arts -- as well as a foundation for a broad range of studies including pre­ professional and professional programs. At the graduate level, the University offers master's degrees, numerous post-baccalaureate certificate programs, and a doctoral degree program in cooperation with the University of California, Santa Barbara. Major research centers based at the University assist its graduate programs and serve the region and the state.

The six-story University Library, with floor space of approximately 300,000 square feet and seating for almost 4,000 students, has holdings of about a million volumes and many thousands of maps, slides and pamphlets. The University Library also maintains a collection of over 5,000 magazines, technical and scholarly journals, and newspapers. Additional University Library collections include millions of pieces of microforms and non-print media. The University Library is a depository for CaliforniaState Publications and forselected United States government materials. The library also provides free online access to the archives of thousands of periodicals.

The University Computing and Communications Services ("UCCS") is responsible forall University-wide computing and data communications equipment, software and networking. UCCS operates major computer systems accessible to University students, faculty and administrative staff. Virtually all campus computers are tied together into local area and wide area networks by a campus-wide, fiber-optic-based backbone. These networks support instruction, research and administrative functionality and provide connectivity to workstations located in campus instructional laboratories and faculty administrative offices. In addition, a dedicated data communications dial-up network is maintained by the University for students and faculty for off-campus access to University computing facilities and information resources. The UCCS backbone network is linked to the internet, connecting the University to all major education and research sites in the world.

The Officeof Global Education at the University develops and administers the University study abroad programs, manages international faculty exchanges, and assists faculty in obtaining grants for curriculum development projects. International students from more than 70 nations come to the University to pursue academic programs; the Officeof Global Education administers a variety of programs aimed at integrating them into campus and community life.

Since its origin, the University has developed numerous educational equity programs, including the Educational Opportunity Program, the College Assistance Migrant Program, the MESA Engineering and Computer Science Program, the Business Education Equity Program,

33 and the Faculty/Student Mentor Program. These programs, and the University's reputation, have helped attract a diverse student body not only from Northern California but from all across the United States and around the world.

Student Services and Activities. The University Residence Halls provide housing accommodations, services and programs, including special events, hall self-governance, discussion groups, campus and community service, intramural sports, faculty and guest speakers, movies, arts and crafts, dances and trips to sporting events. There are currently five residence halls - Sutter, Sierra, Draper, Desmond, and Jenkins. Each of the residence halls is coeducational and provides living accommodations for 200-250 students. Facilities include study rooms, a recreation room, a lounge, and a kitchen. The Residence Hall complex includes a Dining Commons, which offers a wide variety of foods and flexible meal times, and is operated by the Foundation.

Lassen Hall houses most of the services, resources and information to help University students achieve their academic goals and to resolve their nonacademic problems. The University also offers numerous other student services including a health center, psychological counseling services, a learning skills center, a rape prevention education program, and a women's resource center.

The University Union provides activity programs and other support to the campus. The facility contains lounge, meeting, recreational, and special event spaces and food services for the entire campus community, as well as offices for the Associated Students Incorporated ("ASI"). The University Union, in cooperation with ASI and the State Departments of Boating and Waterways and Parks and Recreation, operates the Aquatic Center at Lake Natoma. The Aquatic Center, established in 1981, has provided a venue for physical education classes, leisure classes, competitive teams, and a series of summer youth camps. The Aquatic Center provides boating and water safety instruction for students, faculty, staff and alumni of the University and other educational institutions.

ASI is a non-profit corporation and an auxiliary of the University. ASI's function is to promote and advance the common interest of the student body and the welfare of the University. Services provided by ASI include child care at the Children's Center, free legal aid, outdoor education and recreation programs, and a free transit program. ASI also operates the Student Access Center, which provides information on housing, employment, and University services. Through grants and contracts, ASI provides financial support for athletics and other University programs.

The University offers comprehensive and competitive intercollegiate athletics programs. Approximately 500 student-athletes participate in one or more of the University's 20 men's and women's intercollegiate sports. The University offers scholarships for students in many of the sports. The University's athletics facilities include the recently renovated Hornet Field, a field house, and track and field facilities. Two gyms, two pools and 16 tennis courts are located throughout the University. The University competes in the National Collegiate Athletic Association (NCAA) Division I for all sports, except football, which is at Division IAA. The University Intercollegiate Athletics Program includes the following sports: Men's baseball, basketball, football, golf, soccer, tennis, indoor and outdoor track and field, and cross country;

34 and Women's basketball, golf, soccer, cross country, gymnastics, indoor and outdoor track and field, softball, tennis, rowing, and volleyball.

The CSUS Recreational Sports Program, funded by grants from ASI, provides fitness, aquatic, and sports activities for students. Recreational facilities such as swimming pools, weight room, racquetball courts, tennis courts, and gyms are also available for student use.

Capital Public Radio, another auxiliary organization, operates KXPR, KXJZ, KSCR, and KKTO (which are licensed to the University) and KUOP (which is licensed to the University of the Pacific) as a public service for the Sacramento and Stockton regions. KXPR features classical music and news, while KXJZ provides a jazz and news/public affairs format. Capital Public Radio also provides internship programs for qualified University students who wish to gain experience by working in a professional broadcasting environment. UNIVERSITY'S BUDGET

The University is planning a 2002-2003 Fiscal Year budget that includes approximately $154 million in General Fund expenditures, an assumed enrollment of 21,820 full-time equivalent students and a total student population of 27,400. It is expected by the University that student fee revenues for the 2002-03 Fiscal Year will total approximately $42 million.

According to the University, despite the fiscal uncertainties surrounding the State Budget and the attendant increases in the student fees over the last several years, student demand for classes at the University remains strong and is projected to grow into the next several years. The commitment of both CSU and the State that financial aid funding will be sufficient to meet student needs, help to assure the continuation of this demand.

COMBINED FINANCIAL STATEMENTS FOR THE UNIVERSITY

Attached as Appendix B are the audited combined financial statements of California State University, Sacramento for the year ended June 30, 2001, which were audited by KPMG LLP. The Foundation has not requested KPMG LLP to consent to the inclusion of the University's audited financial statements in this Official Statement. Consequently, KPMG LLP has not performed any additional auditing procedure with respect to the financial statements since the date of their report. See "Miscellaneous - Financial Statements." These financial statements are included for general information purposes. No revenues of the University are pledged for the security of the Series 2002 Bonds. See "Security for the Series 2002 Bonds." The following table shows comparative changes in unrestricted fund balances and net assets for Fiscal Years ended June 30, 1998 through June 30, 2001.

35 California State University, Sacramento Combined Statement of Changes in Unrestricted Fund Balances and Net Assets* Year ended June 30,

Audited 1998 1999 2000 2001 Revenues and other additions : State appropriations $112,056,486 $123,405,341 $124,542,445 139,178,306 Fees and tuition 52,169,805 51,831,318 52,094,331 55,199,401 Investment income 5,454,880 1,767,162 1,729,056 4,680,933 Endowment income 242,016 48,992 51,395 58,310 Federal grants & contracts 29,602 State grants & contracts 156,384 Private gifts, grants, contracts 2,735,022 3,387,687 3,384,654 3,105,724 Sales & service of ed. Activities 7,924,279 8,230,220 7,516,560 7,295,639 Sales & service of auxiliary enterprises 6,570,193 7,196,741 8,703,539 8,342,516 Other 1,406,618 2,343,671 2,898,319 4,326,064 Total revenues & other additions 188,745,285 198,211,132 200,920,299 222,186,893

Expenditures Instruction 84,811,607 93,613,038 92,023,477 99,910,000 Research 662,688 668,412 781,270 1,257,589 Public service 5,316,409 4,660,556 5,467,654 2,742,254 Academic support 22,971,082 24,868,186 22,005,438 26,553,105 Student services 17,567,554 17,711,018 16,982,677 19,316,847 Institutional support 16,664,561 18,981,772 22,355,559 23,571,443 Operation & maintenance of plant 12,648,773 13,438,120 12,736,570 14,558,757 Student grants & scholarships 6,926,778 9,161,747 9,665,110 10,216,926 Auxiliary enterprise expenditures 7,089,790 6,866,654 10,797,533 10,087,233 Total expenditures 174,659,242 189,969,503 192,815,288 208,214,154

Transfers among funds - additions (deletions) Federal program matching (48,636) (41,657) (29,842) (235,476) Principal and interest (1,845,728) (1,147,807) (2,397,466) (1,796,011) Payment on capital lease obligations (1,833,024) (1,909,016) (2,252,893) (1,905,629) Other 791,033 63,017 (617,272) (33,859) Total transfers (2,936,355) (3,035,463) (5,297,473) (3,970,975)

Net increase in fund balances (net assets) 11,149,688 5,206,166 2,807,538 10,001,764

Fund Balances & Net Assets: Beginning of Year 7,093,142 18,242,830 23,448,996 26,256,534 End of Year $18,242,830 $23,448,996 $26,256,534 36,258,298 *Source: KPMG, LLP audited financialstatements forCalifornia State University, Sacramento. See, "Miscellaneous: Financial Statements."

36 THE CALIFORNIA STATE UNIVERSITY

GENERAL

The CSU system is an agency of the State of California created by statute in 1960. At that time twelve existing schools, previously under the jurisdiction of the State Board of Education, were brought under the stewardship of the CSU Board. This legislation reorganized higher education in California and established the formal name "California State Colleges" in 1960. During 1971, such legislation was amended and beginning March 4, 1972, the California State Colleges became known as The California State University and Colleges. On September 23, 1981, legislation was enacted changing the name to The California State University. Presently, there are twenty-three campuses of CSU.

EDUCATION PROGRAM

Generally, the educational responsibilities of CSU are to provide undergraduate and graduate instruction through bachelor's and master's degrees in the liberal arts and sciences, in applied fields and the professions. The two polytechnic schools emphasize applied fields of agriculture, engineering, business, home economics and other occupational and professional programs. A limited number of doctoral degrees are offered jointly with the University of California and with private institutions in California. During the fall term of the 2000-2001 academic year, CSU provided instruction to approximately 368,252 graduate and undergraduate students (more than 286,931 students on a full-time equivalent basis).

ADMINISTRATION AND AUXILIARY ORGANIZATIONS

Responsibility for CSU is vested in the CSU Board of Trustees. The Governor, Lieutenant Governor, Speaker of the State Assembly, State Superintendent of Public Instruction and Chancellor of CSU are ex-officio members of the CSU Board. There are sixteen additional CSU Trustees appointed by the Governor for eight-year terms, two additional CSU Trustees appointed by the Governor for two-year terms, and one additional Trustee appointed by the Alumni Council of CSU for a two-year term.

The CSU Board appoints the Chancellor, who is the chief executive officer of CSU, and the presidents who are the chief executive officers of the respective campuses. The CSU Board, the Chancellor and the presidents develop system-wide policy, with actual implementation at the campus level taken place through broadly based consultative procedures. CSU campus presidents are responsible for oversight of all activity on their respective campuses, including the operations of campus auxiliary organizations. Statutes within the Education Code, policies of the CSU Board, and campus regulations form a structural framework within which each auxiliary organization performs the functions it has been authorized to carry out. The Operating Agreements and the Modoc Hall Ground Lease have been approved by the Foundation and the University campus president.

37 STATE BUDGET FOR CSU

2001-02 Budget Act. The CSU Chancellor's Office reports that the 2001/02 State Final Budget provides a General Fund allocation of $2,607,425,000, an increase of $197.2 million (8.2%) over the 2000/01 adjusted General Fund allocation. The annual CSU State University Fee will be $1,428 for full-time undergraduate students and $1,506 for full-time graduate students. The 2001/02 General Fund Final Budget for CSU system includes, among other items: 1) $62.3 million for enrollment increases; 2) $55.5 million for compensation and benefit increases; 3) $11.6 million for long term budget needs for technology; and, 4) $34.1 million for natural gas cost increases ($18.6 million one-time and $15.5 million permanent).

The 2002-03 Governor's Budget projection provides a $2.63 billion General Fund allocation to the CSU. This represents a total net State General Fund increase of $28.1 million to the 2001-02 $2.6 billion general fund final budget. The current CSU 2002-03 budget projection reflects funding increase and reductions that include 4 percent enrollment growth funding and 1.5 percent base budget increase, as well as removal of 2001-02 one-time funding and program and undesignated reductions to address the current economic situation. As the budget proceeds through the legislative process toward the release of 2002-03 Governor's Budget May revision 2002-03 final budget, the CSU will continue to support a request for additional funding provided in the CSU 2002-03 Trustees Budget.

Future Budgets. In recent years, improving State revenues have allowed increases in funding for the CSU system. The California economy began to slow in 2001 and State general fund revenues in the current fiscal year have been below those forecast when the 2001-02 Budget Act was approved. In October 2001, in response to the weak revenue results, the Governor announced a hiring freeze for most State positions and directed State agencies to make cuts in operating expenses totaling at least $150 million in 2001-02 expenditures. The Governor also asked agencies to prepare for cuts of up to 15 percent in expenditures in the 2002-03 fiscal year budget. On November 14, 2001, the Governor issued a letter to all State departments and agencies instituting immediate action to further reduce expenditures in the 2001-02 fiscal year. On February 2, 2002, the Governor approved an amendment to the 2001-02 Budget Act to reduce current fiscal year appropriations by $2.2 billion. Only $20 million was cut from the CSU system's budget.

During 2001, a significant portion of the State's general fund surpluswas used to acquire electricity as a result of adverse conditions affecting the supply of electricity to the State. The State has planned to sell revenue bonds to repay approximately $6.3 billion to the State's general fund for these purchases. To date, the bonds have not been sold, and, if the sale of bonds is not completed by the beginning of fiscal year 2002-03, it will further increase the budget shortfall projected by the State Department of Finance.

The Foundation cannot predict what actions will be taken in the future by the State Legislature and the Governor to address changing State revenues and expenditures. The State budget will be affected by national and state economic conditions and other factors over which the Foundation has no control. Reduced State revenues and potential deficits could have an adverse financial impact on the CSU system in future fiscal years.

38 INVESTMENT CONSIDERATIONS

GENERAL

In considering the matters set forth in this Official Statement, prospective investors should carefully consider certain risks associated with the Series 2002 Bonds.

The ability of the Foundation to realize revenues in amounts sufficientto pay debt service on the Series 2002 Bonds when due is affected by and subject to conditions that may change in the future to an extent and with effects that cannot be determined at this time. No guarantee is given that USGS will enter into a lease for space in Modoc Hall. No representation or assurance is given or can be made that revenues will be realized by the Foundation in amounts sufficientto pay debt service when due on the Series 2002 Bonds and the other obligations of the Foundation.

The receipt of future revenues by the Foundation is subject to, among other factors, student enrollment at the University, the capability of the management of the Foundation, and future economic conditions. Disruptions in the economy (such as those precipitated by the recent terrorist attacks in New York or other national emergencies) or a downturn in general economic activity may adversely affect discretionary spending by the Foundation's customers and, to that extent, demand for its services. Other general economic conditions may include an inability to control expenses in a period of inflation, an inability to predict or control energy expenses, and other conditions that are impossible to predict. The Foundation's ability to generate future revenues will have a direct impact upon the payment of principal of and interest on the Series 2002 Bonds.

BUDGET RISK

Rental payments from the University are subject to annual appropnat10n. Rental payments pursuant to a lease with USGS may be subject to annual appropriation following the initial IO-year term.

CONSTRUCTION RISKS

Construction of the Modoc Hall Facility is subject to the usual risks associated with construction projects, including, but not limited to, delays in issuance of required occupancy and operating permits or other necessary approvals or permits, strikes, shortages or materials, adverse weather conditions, damage or destruction. Such events could result in delaying occupancy of the Modoc Hall Facility and thus the revenue flow from the Modoc Hall Facility. It is anticipated that the proceeds from the sale of the Series 2002 Bonds, together with additional funds of the Foundation and anticipated investment earnings thereon, will be sufficient to complete the construction and equipping of the Mococ Hall Facility. However, cost overrunsfor any project may occur due to change orders and other factors. In addition, the date of substantial completion may be extended by reason of changes authorized by the Foundation, delays due to acts or neglect of the Foundation or by independent contractors employed by the Foundation or by labor disputes, fire, unusual delay in transportation, adverse weather conditions not reasonably anticipated, unavoidable casualties or any causes beyond the control of the contractors. If the period of substantial completion is extended for any of the above designated

39 reasons the contractors may not be responsible for liquidated damages for the period of excusable delays.

INVESTMENTS OF THE FOUNDATION

Amounts on deposit in the funds and accounts held by the Trustee under the Indenture are required to be invested in Investment Securities (as defined in the Indenture). With respect to other investments of the Foundation, the Foundation's current investment policy provides, among other things, that the Foundation may invest in every type of property or investment. In the event that the Foundation were to liquidate investments at a time when such investments had declined significantly in market value or the Foundation were otherwise to incur a significant investment loss, the ability of the Foundation to pay debt service on the Series 2002 Bonds may be adversely affected. For further information regarding investments of the Foundation, see the financial statements of the Foundation contained in Appendix A hereto.

ENFORCEMENT OF REMEDIES

The effectiveness of the security interest in the Revenues granted pursuant to the Indenture and of the covenant of the Foundation to deliver its Gross Revenue Fund to the Trustee in certain circumstances contained in the Indenture may be limited by a number of factors, including: (i) statutory liens; (ii) rights arising in favor of the United States of America or any agency thereof; (iii) constructive trusts, equitable or other rights impressed or conferred by a federal or state court in the exercise of its equitable jurisdiction; (iv) federal bankruptcy laws which may affect the enforceability of the security interest in the Revenues which are earned by the Foundation within 90 days preceding and after any effectual institution of bankruptcy proceedings by or against the Foundation; (v) rights of third parties in the Revenues converted to cash and not in the possession of the Trustee; and (vi) claims that might arise if appropriate financing or continuation statements are not filed in accordance with the California Uniform Commercial Code as fromtime to time in effect.

CONTINUING COMPLIANCE WITH CERTAIN COVENANTS

Failure by the Foundation to comply with certain covenants in the Indenture on a continuous basis prior to the maturity of the Series 2002 Bonds could result in an Event of Default and require the Trustee to take certain remedial action that could impact a Bondholder. See Appendix C - "Summary of Certain Provisions of the Principal Legal Documents - The Indenture - Events of Defaultand Remedies of Bondholders."

DAMAGE OR DESTRUCTION OF FACILITIES

Agreements to use Modoc Hall Facility will require that the Modoc Hall Facility be insured against certain risks. There can be no assurance that the amount of insurance required to be obtained with respect to the Modoc Hall Facility will be adequate or that the cause of any damage or destruction to the Modoc Hall Facility will be as a result of a risk which was insured. Further, there can be no assurance of the ongoing creditworthiness of the insurance companies with which the Foundation obtains insurance policies. Use of the Modoc Hall Facility may be terminated if a casualty renders the Modoc Hall Facility totally or partially unfit for its purposes, and if insurance proceeds are insufficient to restore the Modoc Hall Facility to a tenantable

40 condition. The Modoc Hall Facility will be insured by the Foundation until title to the Facility transfers to the University.

ENVIRONMENTAL REGULATION

The Modoc Hall Facility is subject to various federal, State and local laws and regulations governing health and the environment. In general, these laws and regulations could result in liability to the owner of the Modoc Hall Facility for remediating adverse environmental conditions on or relating to the Modoc Hall Facility, whether arising from preexisting conditions or conditions arising as a result of the activities conducted in connection with the ownership and operation of the Modoc Hall Facility. Costs incurred by the Foundation with respect to environmental remediation or liability could adversely impact its financial condition and its ability to operate the Modoc Hall Facility.

FACTORS ASSOCIATED WITH HIGHER EDUCATION

There are a number of factors affecting institutions of higher education in general that could have an adverse effecton the Foundation's and the University's financial position and their ability to make the payments for use of the Modoc Hall Facility. These factors include, but are not limited to, the continuing rising costs of providing higher education services; competition for students from other institutions of higher education; the failure to maintain or increase in the future the funds obtained from the State Legislature or from other sources, including gifts and contributions from donors, grants or appropriations from governmental bodies and income from investment of endowment funds; adverse results from the investment of endowment funds and the University's treasure; imposition of federal or State unrelated business income or local property taxes; increasing costs of compliance with federal or State regulatory laws or regulations, including, without limitation, laws or regulations concerning environmental quality, work safety and accommodating persons with disabilities; changes in federal governmental policy relating to the reimbursement of overhead costs of government contracts; any unionization of the work force with consequent impact on wage scales and operating costs of the University; changes in existing statutes pertaining to the powers of the University and legislation or regulations affecting student aid and other program funding. Neither the Foundation nor the University can assess or predict the ultimate effect of these factors on their operations or financial results of operations.

BOND INSURER TO CONTROL REMEDIESIN EVENT OF DEFAULT

Pursuant to the Indenture, after an Event of Default, the Bond Insurer has the complete and exclusive right to direct the Trustee to pursue and enforce any and all remedies established by the Indenture. The Bond Insurer, if it is not in default with respect to the Financial Guaranty Insurance Policies, also has the exclusive right to waive any Event of Default pursuant to the Loan Agreement.

FINANCIALCONDITION OF THE BOND INSURER

The Bond Insurer will issue the Financial Guaranty Insurance Policies pursuant to which it will unconditionally guarantee the payment of principal of and interest on the Series 2002

41 Bonds when due. The ongoing stability and financial condition of the Bond Insurer and the Bond Insurer's ability to pay the principal of and interest on the Series 2002 Bonds and otherwise perform its obligations under the Financial Guaranty Insurance Policies are the basis for the rating assigned to the Series 2002 Bonds as set forth on the cover page hereof. Upon the occurrence and continuation of an Event of Default under the Indenture, proceeds of claims under the Financial Guaranty Insurance Policies are the registered owners' primary expected source of payment of principal of and interest on the Series 2002 Bonds.

SECONDARY 1\1ARKET

There is no guarantee that a secondary trading market will develop for the Bonds. Consequently, prospective Bond purchasers should be prepared to hold their Bonds to maturity or prior redemption. Subject to applicable securities laws and prevailing market conditions, the Underwriter intends but is not obligated to make a market in the Series 2002 Bonds.

FAILURE TO PROVIDE ONGOING DISCLOSURE

The Foundation and the University have both entered into the undertaking pursuant to the Rule (as such terms are defined herein). Failure to comply with the undertaking and the Rule may adversely affectthe transferability and liquidity of the Bonds and their market price.

BOOK ENTRY

Persons who purchase Bonds through broker-dealers become creditors of the broker­ dealer with respect to the Bonds. Records of the investor's holdings are maintained only by the broker-dealer and the investor. In the event of the insolvency of the broker-dealer, the investor would be required to look to the broker-dealer's estate, and to any insurance maintained by the broker-dealer, to make good the investor's loss.

RISK OF Loss FROM NONPRESENTMENT UPON REDEMPTION

The rights of the registered owners of the Bonds to receive interest will terminate on the date, if any, on which the Bonds are to be redeemed pursuant to a call for redemption, notice of which has been given under the terms of the Indenture.

LEGAL l\1ATTERS

LITIGATION

There is not now pending or, to the knowledge of the Foundation, threatened, any litigation seeking to restrain or enjoin the issuance or delivery of the Series 2002 Bonds or questioning or affecting the validity of the Series 2002 Bonds or the proceedings or authority under which they are to be issued. There is no litigation pending or, to the Foundation's knowledge, threatened which in any manner questions the right of the Foundation to enter into the Indenture, to secure the Series 2002 Bonds in the manner provided in the Indenture, or to construct and equip the Modoc Hall Facility. In addition, the Foundation is not a party to any pending litigation or proceedings and, to its knowledge, there are no litigation proceedings

42 threatened against it, which would have a material impact on the financial position, results of operations, or cash flowsof the Foundation.

APPROVAL OF LEGALITY

Legal matters incident to the authorization and issuance of the Series 2002 Bonds are subject to the delivery of the opinion of, Kronick, Moskovitz, Tiedemann and Girard, Sacramento, California, Bond Counsel. See Appendix E - "Proposed Form of Opinion of Bond Counsel."

TAX MATTERS

In the opinion of Kronick, Moskovitz, Tiedemann & Girard, a Professional Corporation, Bond Counsel, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other things, the accuracy of certain representations and compliance with certain covenants, interest on the Series 2002A Bonds is excluded from gross income for federal income tax purposes and is exempt from all taxation in the State of California other than estate and generation skipping taxes. Bond Counsel is also of the opinion that interest on the Series 2002A Bonds is not a specific preference item for purposes of the federal individual and corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings in calculating federal corporate alternative minimum taxable income. Interest on the Series 2002B Bonds is not excluded from gross income for federal income tax purposes but is exempt from all taxation in the State of California other than estate and generation skipping transfer taxes.

Series 2002A Bonds purchased, whether at original issuance or otherwise, for an amount greater than their principal amount payable at maturity ( or, in some cases, at their earlier call date) ("Premium Bonds") will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium for bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, a purchaser's basis in a Premium Bond and, under Treasury Regulations, the amount of tax-exempt interest received will be reduced by the amount of amortizable bond premium properly allocable to such purchaser. Beneficial Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances.

The Internal Revenue Code of 1986, as amended, imposes various restrictions, conditions, and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Series 2002A Bonds. The Foundation has covenanted to comply with certain restrictions designed to assure that interest on the Series 2002A Bonds will not be included in federal gross income. Failure to comply with these covenants may result in interest on the Series 2002A Bonds being included in federal gross income, possibly from the date of issuance of such Series 2002A Bonds. The opinion of Bond Counsel assumes compliance with these covenants. Bond Counsel has not undertaken to determine ( or to inform any person) whether any actions taken ( or not taken) or events occurring ( or not occurring) after that date of issuance of the Series 2002A Bonds may adversely affect the tax status of the interest on the Series 2002A Bonds.

43 Although Bond Counsel expects to render an opinion that interest on the Series 2002A Bonds is excluded from gross income for federal income tax purposes and interest on the Bonds is exempt from all taxation in the State of California other than estate and generation skipping transfer taxes, the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may otherwise affect a Beneficial Owner's federal or state tax liability. The nature and extent of these other tax consequences will depend upon the particular tax status of the Beneficial Owner or the Beneficial Owner's other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences.

In addition, no assurance can be given that any future legislation, including amendments to the Code, if enacted into law, or changes in interpretation of the Code, will not cause interest on the Series 2002A Bonds to be subject, directly or indirectly, to federal income taxation or otherwise prevent Beneficial Owners of the Series 2002A Bonds from realizing the full current benefit of the tax status of such interest. Prospective purchasers of the Series 2002A Bonds should consult their own tax advisers regarding any pending or proposed federal tax legislation. Further, no assurance can be given that the introduction or enactment of any such future legislation, or any action of the Internal Revenue Service ("IRS"), including but not limited to regulation, ruling, or selection of the Series 2002A Bonds for audit examination, or the course or result of any IRS examination of the Series 2002A Bonds, or obligations that present similar tax issues, will not affectthe market price or liquidity of the Series 2002A Bonds.

MISCELLANEOUS

UNDERWRITING

The Underwriter has agreed to purchase the Series 2002 Bonds from the Foundation at a purchase price of $24,049,303, which represents the aggregate principal amount of the Series 2002 Bonds, less an Underwriter's discount of $193,160, and plus net original issue premium of $97,463. The Underwriter reserves the right to join with dealers and other underwriters in offering the Series 2002 Bonds to the public. The obligation of the Underwriter to accept delivery of the Series 2002 Bonds is subject to the various conditions of the bond purchase agreement.

RATINGS

Standard & Poor' s has assigned the rating of "AAA," to the Series 2002 Bonds with the understanding that upon delivery of the Series 2002 Bonds the Financial Guaranty Insurance Policies insuring the payment when due of the principal of and the interest on the Series 2002 Bonds will be issued by the Bond Insurer. Such rating reflects only the views of such rating agency and does not constitute a recommendation to buy, sell or hold the Series 2002 Bonds. Any desired explanation of the significance of such rating should be obtained from the ratin� agency furnishing the same, at the following address: Standard & Poor's, 55 Water Street, 45t Floor, New York, New York 10041. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance such rating will continue for any given period of time or that such rating will not be revised downward or withdrawn entirely by the rating agency, if in the judgment of such rating agency, circumstances so warrant. The Foundation undertakes no

44 responsibility to oppose any such revision or withdrawal. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Series 2002 Bonds.

FINANCIAL STATEMENTS

The audited financial statements of the Foundation for its fiscal years ended June 30, 2001 and 2000, are attached as Appendix A Prior years' financial statements are available upon request. The Foundation's financial statements have been audited by PricewaterhouseCoopers LLP, independent accountants, as stated in their report included with the financial statements. PricewaterhouseCoopers LLP has agreed to the inclusion of the Foundation's audited financial statements in this Official Statement.

The audited combined financialstatements of California State University, Sacramento, for its fiscalyear ended June 30, 2001, are attached as Appendix B. The University's financial statements have been audited by KPMG LLP, independent auditors, as stated in their report included with the financial statements. The Foundation has not requested KPMG LLP to consent to the inclusion of the University's audited financial statements in this Official Statement; consequently, KPMG LLP has not performed any additional auditing procedures with respect to the financial statements since the date of their report. These financial statements are included for general information purposes. No revenues of the University are pledged for the security of the Series 2002 Bonds. See "Security forthe Series 2002 Bonds."

ADDITIONAL MATTERS

Neither any advertisement of the Series 2002 Bonds nor this Official Statement is to be construed as constituting an agreement with the purchasers of the Series 2002 Bonds. So far as any statements are made in the Official Statement involving estimates, projections or matters of opinion, whether or not expressly so stated, they are intended merely as such and not as representations of fact.

CUSIP identification numbers will be printed on the Series 2002 Bonds, but no error in the printing of such numbers shall constitute cause for a failure or refusal by the purchaser thereof to accept delivery of and pay forany Series 2002 Bonds.

The attached Appendices are integral parts of this Official Statement and should be read together with all of the foregoing statements.

CONTINUING DISCLOSURE

The Foundation has covenanted for the benefit of the Holders and beneficial owners of the Series 2002 Bonds to provide certain financial information and operating data relating to the Foundation by not later than six months following the end of the Foundation's Fiscal Year (presently June 30), commencing with the report for the 2001-2002 Fiscal Year (the "Annual Report"), and to provide notices of the occurrence of certain enumerated events, if material. The Annual Report will be filed by the Trustee on behalf of the Foundation with each Nationally Recognized Municipal Securities Information Repository and the State Repository, if any. The notices of material events will be filed by the Trustee on behalf of the Foundation with each of

45 the Municipal Securities Rulemaking Board and the State Repository, if any. The specific nature of the information to be contained in the Annual Report or the notices of material events is set forth in APPENDIX D - PROPOSED FORM OF CONTINUING DISCLOSURE AGREEMENT. These covenants have been made in order to assist the Underwriter in complying with S.E.C. Rule 15c2-12(b)(5), as amended.

AUTHORIZATION

The execution and delivery of this Official Statement dated as of the date set forthon the cover page has been duly authorized by the Foundation.

CALIFORNIA STATE UNIVERSITY, SACRAMENTO FOUNDATION

By: /s/ Elroy Littlefield Executive Director

46 APPENDIX A

AUDITED FINANCIAL STATEMENTS OF CALIFORNIA STATE UNIVERSITY, SACRAMENTO FOUNDATION FOR THE FISCAL YEARS ENDED JUNE 30, 2001 AND 2000 California State University Sacramento Foundation Reporton Audit of Financial Statements For the year ended June 30, 2001 PricewaterhouseCoopenLLP Suite1200 SSS Capital Mall SacrnmcnlO,95814 CA

Telephone (916)930 8100 Facsimile (916)930 8450

Reportof Independent Accountants

Board of Directois California State UniversitySacramento Foundation

Inour opinion, the accompanyingbalance sheet andthe related statements of activityand changes in fundbalance andcash flows pres ent fairly, in all material respects, financialthe position of the CaliforniaState University SacramentoFo undation (Foundation) at June30, 2001, andthe results ofits operationsand its cash flowsfor the year then ended inconf ormitywith accounting principles generally accepted inthe United States of America. Thesefinancial statements are the responsibilityof theFoundati on's management; our responsibility is to express anopinion on these financialstatements based on our audil We conducted ouraudit of these statements inaccordance with auditing standards generally accepted in theUnited States of America, which require that we plan and perform theaudit to obtain reasonableassurance about whetherthe financial statements are free of materialmisstatement. Anaudit includes examining, on a test basis, evidence supportingthe amountsand disclosures in the financialstatements, assessing the accounting principlesused andsi gnificant estimatesmade by management, and evaluatingthe overall fm ancial statement presentation. Webelieve that ouraudit provides a reasonable basis fo r our opinion. We previously examinedand reported on the financial statements of the Foundation for the year ended June 30, 2000, the totals of which are included for comparativepmposes only.

September 18, 2001 California State University Sacramento Foundation Balance Sheet June 30, 2001

TotalAD Funds Restricted �emo Onlll Unrestricted Sponsored Campas Opentine Programs Programs Assets Funds Fund Fund 2001 2000 Currentassets; Cash $ 118,459 s � s . s 118,459 s 316,989 Short-term investments 4,411,294 4,411,294 5,275,953 Receivables 2,395,383 15,530,688 398.434 18,324,SOS 13,710,304 Due fromother funds 6,053,211 4,440,436 10,493,647 8,414,877 Inventories 1,862.362 1,862;362 1,792.61 1 fupaid expenses 70,0SO 70,050 62.949 Net investmentin directfinanc ing leases 31,289 31,289 Total cwre.ntassets 14,942,048 15,530,688 4,838,870 35,3 11.606 29,573,,683

Long-tenn investments 5,278,045 5,278,045 4,901,954 Restricted cashheld m trust 556,973 556,973 517,938 Fix ed assets. net 9,584,855 9,584,855 19,981,518 Net investment in directfinancing leases 10,659,733 10,659,733 Otherassets 1,775,026 1,137,920 23,450 2,936,396 2,837,819 Total assets $ 42,796,680 $ 16,668,608 $ 4,862,320 $ 64,327,608 S 57,812,912

Liabilitiesand Fund Balances Liabilities: Cmrent liabilities: Accountspayable $ 1,816,628 $ . s . $ 1,816,628 $ 2,086,353 Accrued liabilities 2.946,298 113,670 262.333 3,322,301 2,966,782 Dueto other fimds 10,404,237 89,410 10,493,647 8,414,877 Depositmyaccounts 4,5 10,577 4,510,577 4,532,800 Deferredrevenue 640,307 2,646,344 3,286,651 2,815,627 Receipts inexcess of expenditures on specified sponsoredprograms 3,504,357 3,504,357 2,127,870 Liabilityfor disallow.mces and overruns 725,198 725,198 778,430 Current portion long-termdebt 240,508 240,508 205,000 Total current liabilities 6,368,939 16,668,608 4,862,320 27,899,867 23:J27,739

Long-tenn debt, net of currentportion 14,769,738 14,769,738 15,025,000 Total liabilities 21,138,677 16,668,608 4,862,320 42,669,605 38,952,739

Commitments andcontingencies (Notes 1.1 and 15)

UnrestrictedFund Balances 21,658,003 21,658,003 18,860,173 Total liabilitiesand fundbalances S 42,796,680 S 16,668,608 s 4,862,320 $ 64,327,608 S 57,8 12,912

Theaccompanying notes arean integral part of these financial statements. California State University Sacramento Foundation Statement of Activity and Changes in Fund Balance For the year ended June 30, 2001

TotalAD Funds Restricted {Memo OnJI} Unrestricted Sponsored Operating Programs Fonds Fund 2001 2000 Revenue and support: Sales and vending commissions $ 19,61 8,856 $ - $19,618,856 $18,448,062 Grants and contracts 43,888,639 43,888,639 38,171,529 Administration fees 5,317,185 5,317,185 4,1 14,758 Interest and investment (loss)!mcome (139,526) 50,665 (88,861) 730,162 Rental income 2,481,664 2,481,664 2,114,969 Contributionsand otherincome 756,293 316,393 1,072,686 986,667 Total revenue and support 28,034,472 44,255,697 72,290,169 64,566,147

Expenses: Cost of sales 11,111,332 11,1 1 1,332 10,212,486 Grantsand contracts 43,888,639 43,888,639 38,171,529 Operating expenses 9,144,290 9,144,290 8,143,918 General and administrative 3,207,737 3,207,737 3,168,735 Sponsoredresearch 554,259 202,127 756,386 61 1,879 Universityprograms 125,000 125,000 125,000 Otherprograms 75,000 164,931 239,931 386,454 Depreciationand amortization 1,019,024 1,019:024 1,403,844 Totalexpenses 25,236,642 44,255,697 69,492,339 62,223,845

Excess of revenue and supportover expensesbefore capitalreductions 2,797,830 2,797,830 2,342,302

Capital reductions: Investment loss (13,659) Transfer toCSUS TrustFoundation {395,523} Excess ofrevenue andsupport over expenses aftercapital reductions 2,797,830 2,797,830 1,933,120

Fm1dbalance, beginning of period 18,860,173 18,860,173 16,927,053

Fm1dbalance, end ofperiod $ 21,658,003 $ - $ 21,658,003 $ 18,860,173

The accompanyingnotes are an integralpart of thesefinancial statements . California State University Sacramento Foundation Statement of Cash Flows For the year ended June 30, 2001

Total AllFunds Restricted {MemoOnlI} Unrestricted Sponsored Campus Operating Programs Programs Cashflows from operating activities: Funds Fund Fund 2001 2000 Excessof revenue and support O'Wiir expensesafter cap italadditions (reductions ) $ 2,797,830 s . $ . $2,797,830 $ l,933,120 Adjustments to reconcile excessof revenue and supportover expensesafter capita] additions (reductions) to cashprovided by operating activities: Depreciationand amortiz.ation expense 1,019,024 1,019,024 1,403,844 Transfer to CSUS Trust Foundation 395,523 Changein fuirvalue of investments "691,821 691,821 66,512 Amort:iz.ation of lease unearned income (l,018,985) (1,018,985) Net effectof changes inoperating assets and liabilities: (Increases)decreases in assets: Receivables (714.918) (3,813,082) (103,084) (4,631,084) (2,113.303) Inventories (69,751) (69,751) (146,686) Prepaidexpense and otherassets (107,937) (45,399) (153,336) (33,433) Increases(decreases) in liabilities: Accoimts payableand accrued liabilities 37,669 35,130 29,878 102,677 257,042 Deferred revenue 100,801 370,223 (22,223) 448,801 (378,114) Receiptsof inexcess expenditmes on specifiedsponsored programs 1,376,487 1,376,487 806,797 Liabilityfor disaUowances andoverruns !53,232} (53.232} {14,122} Netcash provided byin) (used operating activities 2,682,322 {2,076!641} (951429} 510J52 211771]80 Cashflows investingfrom activities: Disbursementofloans receivable (750,000) Proceedsfrom saleoflo ng-terminvestments 634,303 634,303 1,516,923 Long-term investments purchased (],702,21� {1.702,2]� (4,607,229} Net cash(used provided in) by investing activities !1 ,067z912} {1 1067,912} Qz840,32§} Cashflows from financingactivities: Due to (from)other funds (2, 172,070) 2,076,641 95,429 TransferCSUS to Trust Foundation (395,523) Repaymentdebt of (205,000) (205,000) (2 12,454) Capitalexpenditures (1,318,114) (1,318,114) (l,647,698) Paymentson directfinancing lease 1,056,620 ),056,620 Net cash(used providedin) by financingactivities (2,638,564) 2,076,641 95,429 (466,494} (2,255,675)

Net decreasein cashcash and equivalents including short-terminvestments (1,024,154) (1,024, 154) (3,918,801)

Cash and equica.sh valents,beginning of year 6:110,880 6,110:880 1010291681 Cash equivalents,and cash end of year $ 5,086,726 s . $ . $5,086,726 S 6,110,880

SupplementaJdisclosure of cash flowinfo rmation: Cash pa.id for intea:st $ 1,032,523 s . s . $1,032,523 $ 1,003,400

Theaccom panyingnotes are an integralpart of these financial statements. California State University Sacramento Foundation Notes to Financial Statements June 30, 2001

I. Organizationand SignificantAcco untingPolicies

ReportingEn tity California State UniversitySa cramento Foundation (Foundation) is a governmentalnot-for -profit, tax-exempt California State University auxiliaryorganization located on thecampus of California State University, Sacramento (Universityor CSUS). The Foundationis a component unit of the University.

The Foundation administers various campus programfunds and grants. operates campus bookstore and food service facilities,and perf orms otheracti vities supportingthe Un iversitycommunity, including students, facultyand staff.

Basis of Presentation As allowed underGo vernmentalAccounting Standards Board (GASB) Statement No. 29, The Us e of No t-for-ProfitAc counting and financial Reporting Principles by GovernmentalEntities (GASB 29), the Foundationfo)]ows the AmericanInstitute of Certified PublicAccountants' (AICPA)Not-for­ Profit model of accounting. Underthe AICPA model, the Foundation follows the accoW1ting and fi nancialrep ortingprinciples contained in AICPA Statement of Position 18-10,Accounting Principles and ReportingPractices fo r Certain No nprofit Organizations, as modifiedby all applicable · Statements of the Financial AccountingStand ards Boardissued throughNovember 30, 1989, and as modifiedby all applicable GASB pronouncementsiss ued afterGASB Statement No. 1 and footnote disclosurerequirements of the Codification of Governmental Accountingand Financial Reporting Standards. As allowed by governmental accountingstandards, the Foundationhas elected not to apply statementsand related interpretationsissued by the Financial Accounting StandardsBoard after November 30, 1989.

Toe Foundationuses theaccrual bas is of accountingwhich, among otherthings , requiresmanagement to make estimates and assumptionsthat affect the amounts reported in the financial statements and accompanying notes. Under this method, revenues are recorded when earnedand expenses are recorded at the time liabilities are incurred.The accompanying financial statements combine the accounts and the results of operations and activities in the followingfunds:

Operating Funds- The Operating Funds are used to accountfor the businessactivities of the Foundationinclu ding the bookstore and food serviceopera tions,grants andcontracts administration,proper ty development and otheractivities.

Sp onsored Programs- The Sponsored Programs Fund accounts forfunds and contnbutions, the use of which is restrictedby persons or organizationsnot under Foundationcon trol,to support instructional, research,or public service functions of the University. This fund comprises all grants and contracts, aswell asexpendable gifts and contributionsthat are restrictedas to use.

CampusPrograms - The Campus Programs Fundrepresents funds heldand administeredby the Foundation on behalfof University programs. Theresid ualbalance of such fundsis restrictedfor programsbe nefiting specificUnivers ityacademic and administrative unitsand othercampus organizations and is held or disbursed at thedirection of theacademic or administrativeunits or campus organizations. California State University Sacramento Foundation Notes to Financial Statements June 30, 2001

Endowment- Duringthe year ended June 30, 2000, theendowment fundwas transferredto the CaliforniaState University, SacramentoTrust Foundation, anotherCSUS auxiliary organi:zation, that administersUniversity contn1m tions. TheEndo wment Fund accounted fora single contributionfor whichthe donor specifiedthat the principa l be invested in perpetuity. Income from investmentof thiscontn bution was generallyex pendable for CSUS studentscholarships whichhave been accountedfor in the SponsoredPrograms Fund.

Cash and Cash Equivalents Cash and cash equivalents, forpurposes of the statement of cash flows,includes cash on hand, cashin commercial bank accounts, restricted cash held in trustand amounts in short-terminvestments. Amountsin short-terminvestments include depositsin the State of California Investment Pooled Money InvestmentAcco unt-LocalAgency InvestmentFund (LAIF) and instrumentswith original maturitiesof three months or less.

Restricted Cash Held in Trust Restrictedcash held in trustconsists of debt service reserve fundsheld with a major national bankfo r the Series 1995 bonds.

Investmentsand Marketable Securities Excess cash of the various fimds is pooled forinve sting purposes. Interest,dividend income andnet realizedgains andlosses from the sale of such marketable securities areallocated to the Operating and Sponsored Programs Funds based on thefund's average investedbalance duringthe year. The Foundation'spolici es authorize investment of excess funds in a range of investments or property, specificallyincluding but not limitedto corporate andgovernment obligations, commonstock and preferred stock withincertain short-, mid- and long-termparameters.

These investmentsecurities are exposed to variousrisks , such as interest rate, market, andcredit risks. Due to thelevel of risk associated with certain investment securities,it is at least reasonably possible that changes inthe values of investmentsecurities may occur in the nearterm and that such changes could materiallyaff ect thefinancial sta tements.

Marketable equity and debt securitiesand other short-term and long-terminvestments are earned at fairvalue. Fairvalue is theamount at which a financial instrument could be exchanged in a current transactionbetween willingparties, andis detenninedfrom pub lished data providedby the exchanges, computerizedpricing sources, the National Associationof SecuritiesDealers ' National Market System, securities custodiansand otherauthoritative sources.

TheFoundation invests itsavailable cash in LAIF and inmarketable equityand debt securities. The investments in LAIF arecarried at fairvalue, which approximatesamortized cost. Generally, the investmentsin LAIF areavailable for withdrawal on demand.

LAIFhas an equity interest inthe State of California Pooled Money Investment Account (PMIA). PMIAfunds are on deposit with theState 's CentralizedTreasury System and are managedin compliancewith the California Government Code Sections 16430 and 16480, accordingto a statement of investmentpolicy which setsforth permitted investmentvehicle s, liquidity parameters andmaxnnum maturity of investments. These investments consist of U.S. governmentse curities, securitiesof federally-sponsoredagen cies, U.S. corporatebonds, interestbearing time depositsin California banks, prime·rated commercial paper, bankers'acce ptances, negotiable certjficatesof California State University Sacramento Foundation Notes to Financial Statements June 30, 2001

deposit, repurchase and reverse repurchase agreements. The PMIApolicy limitsthe use ofreveISC repurchase agreements subject to limits ofno more than 10% of P111A. The PlvllA does not invest in leveragedproducts or inverse floatingrate securities. ThePMIA cash andinvestments are recorded at amortized cost, which approximatesmarket.

Grants and Contracts Grants and contracts are obtainedfrom fe deral andstate governmentsand various private organizations. Revenue is recognizedat the time the grant and contract funds are expended forthe pmposes specifiedby the termsof the grant or contract. Expenditures inexc ess of cash received on specificgrants andcontracts areincl uded in receivables. Receipts in excessof expenditures on specificgrants and contracts are recorded as deferred revenue. Of total grants and contracts awarded, the Wlexpendedbalance is $22,073,380 at June 30, 2001, of which $3,504,357had been received and is recorded as deferredrevenue and thebalance of $18,569,023 had not yet beenreceived.

The majority of accounts receivable relates to amounts due fromgrants and contracts under which awards were granted to the Foundation from a varietyof governmentand private sources throughout theUnited States. Collection of grant and contract receivables generally follows expenditures. The Foundationevaluates thegrantor's fm ancial conditionbefo reaccepting each grant.

The Foundationreceives a fee to cover indirect overhead costs incurred in the administration of the grantsand contracts and recognizesthi s as income over the termof thegrant or contract. Administration fees are calculatedas a percentage of grant expenditures or salaries and wages, as specified eachin grant or contract.

Inventories Bookstore inventories are valued at the lower of average cost (retail method) ormark et. Food Service inventories are valued at the lower of cost (first-in, first-out) or mark.el

Fixed Assets, Depreciation and Amorthation Property, buildings,leasehold improvements and equipment arestate d at cost, if purchased, or at estimatedmarket value as of thedate ofreceipt if acquired by giftor grant. Interest costson fixed assetsare capitalized during theperiod of construction.

Buildingsand equipment are depreciated using the straight-line method over theirestimated useful lives, rangingfrom three to thirtyyears. Leasehold improvements are amortizedusing the straight­ line method over theirestimated useful lives or the term of the lease, whichever is shorter. Gains and losses on assets sold or retired are reported inthe Operating Funds�

Fixed asset purchases underthe Campus ProgramsFund are charged against the depositoryliability of the related program. Fixed assets purchased with grantfunds are expensed to the grant All such fixedassets have been or willbe donat ed to the University.

DepositoryAccounts As a service to organizations and projects affiliatedwith theUniversity, the Foundation acts as a collectingand disbursing agent forcertain special activities of campuso rganizations andreceives a fee based on the levelof monthlyex penditures. Funds held on behalf of otherorganizati onsare classifiedas depository liabilitiesof the Campus Programs Fund. California State University Sacramento Foundation Notes to Financial Statements June 30, 2001

Deferred Revenue Student residence ball boardcharges applicable to periods subsequent to year-end are deferred and recognized as income in theOperating Funds in the yearearned.

Restricted contributions arerecorded in the Sponsored ProgramsFu nd andare recognized as revenue to the extent expenseshave been incurredfor the purposespecified by the donor. Unexpended restrictedcontribu tions and unexpended investment income earned on investmentsrelated to restricted contributions areclassified as deferred revenue until expended.

Donationsand Contributions Properties contributedto the Foundationare valued at their estimatedmarket value at the date of donation. Umestrictedcontn lmtionsare reco rded as revenue of the OperatingFu nds when received Unexpendable contnoutions, induding endowments, giftsand donations of fixedassets, are recorded as capital additions. Capital additions also include legally restrictedinvestment income andgains or iosses on investments held insuch fundsthat mustbe added to theprincipal.

Designationof Fund Balances Certainfund bala nces of the Foundationhave been designated by theBoa rd of Directors withthe intention of providing fundsto meet currentobligatio ns, establishing operatingreserve funds and providingfor future plantimprovem ents and replacements.

Income Taxes The Foundationis exempt from federal and state income taxunder Section501 (c)(3) of the Internal Revenue Code and similar Californiastatutes and is not classified as aprivate foundationunder (509)(a) of theInt ernalRevenue Code. Contnbutions to the Foundation are eligible forthe charitable contributions deduction.

Memo Only - Total Columns Included in the financial statements aretotal columnscaptione d "Memo Only" to indicate theyare presented for informationalpurposes only. Data in these columns do not presentfinancial position, results of operations or cash flows in confonnity with generally accepted accmmtingprinciples. Interfundtransac tionshave not been eliminated inthe aggregation of data.

FuturePron ouncements Effectivefor years beginning afterJune 15, 2001, the Foundation willbe required to implement GovernmentalAccounting Standards Board Statement No. 34, Basic Financial Statements- and Management's Discussion and Analysis -fo r State and Local Governmen'ls. GASB 34 establishes new reportingrequirements forthe annual financ ial statements of state and local governments.GASB 34 continues many of the characteristicsof the traditional fm ancial reportingmodel, but changes and adds others. Itis anticipated that the Foundationwill continue presentingthe balance sheetand the statements of activityand changes infund balances and cash flows inthe current multi-fundformat. The statement of cashflows will be required to be preparedusing the directmeth� ratherthan the indirect method. Additionally,there is a new requirement forboth a "management's discussion and analysis" andother exp anded"requ ired supplementaryinfo rmation". Califo rnia State University Sacramento Foundation Notes to Financial Statements June 30, 2001

2. Cash and Investments

At June 30 the Foundation's cash deposits, including interest-bearing deposits, were asfollows:

Carrying Bank Value Balance

Cashin banks and on hand s 118,459 s 252,333 Restrictedcash held in trust 556,973 556,973 $ 675,432 s 809,306

Thebank balance andcarrying amounts differdue to deposits-in-transit, outstandingchecks andcash on hand. Of the bankbalance, $100,000 is federallyinsured and appro ximately$709,000 is uncollateralized. At June 30, 2001, investments include equity mutualfunds of $4,306,829 and debt based mutual funds of$971,216. Theinvestment in LAIFamounted to $4,411,294.

Interest on deposits in LAIFvaries with the rateof return of theunderlying portf olio and approximatedS.32% at June 30, 2001. For the year ended June 30, 2001, interestearned on the deposit with LAIFapp roximated$30 1;161. Total interest and investment Qoss)fmcome of $(40,975) forthe year ended June 30, 200 1, includes $47,886 as increases indeferred revenue and is comprised of interest, dividends, realized gainsand losses, andunrealized gains and losses due to changes inthe fair value of investments held at year­ end The change infair value of investments is calculatedas follows: Fair value of investments atJune 30 , 2001 s 9,689,339 Add: Proceedsof investments sold in fiscal2001 1,498,962 . Less: Cost of investmentspurchas ed infiscal 2001 (1,702,215) Less: Fair value of investmentsat June 30,2000 (10,177,907) Change infa irvalue ofinvestments during fiscal 200 1 s (691,821)

Change in fairvalue of investmentsreported as:

Component of interestand investment income $ (643,935) Component of deferredrevenue (47,886) S (691,821) California State University Sacramento Foundation Notes to Financial Statements June 30, 2001

3. Inventories

At June 30 inventoriesconsist of:

Bookstore merchandise $ 1,785,871 Food serviceproducts 76,491 $ 1,862,362

4. Fixed Assets At June 30 fixedassets consist of:

Accumulated Depreciation and Cost Amorti7.3tion Total

Land s 581�000 $ $ 581,000 Buildings · · 4,719,183 2;386,938 2,332,245 Buildingsleased to others 4,8 17,359 883,093 3,934,266 Equipment 5,230,209 4,081.207 1,149,002 Leasehold improvements 2,459,184 1)59,847 1,099,337 17,806,935 8,711,085 9,095,850 Construction in progress 489,005 489,005 $ 18,295,940 $ 8,711,085 $ 9,584,855

5. Net Investment in Direct Financing Leases

Effective July I, 2000, theFoun dationand its tenants arneridedlease agreementsrelated to Placer Hall, resulting in capitallease treatment of thetwo amendedagre ements. Previously, thelease agreementswere classifiedas op eratingleases.

TheFoundation has leased approximately 80% of Placer Hall to theU.S. Department of the Interior GeologicalSurvey (USGS) forperiod of 27 years,at an initiallease paymentof $1,050,000 per year. Thelease payment increases $50,000 peryear untilfiscal year 2008, when it reaches $1,400,000. Thereafter, and through 2026, the amount of the annual increasewill be determinedthrough negotiation between USGS andthe Foundation. Funding foreach yearis subjectto thefederal government's availabilityof funds.

The Foundation has leased the remaining20% of PlacerHall to the University Geology Departmentfor a period of 17 years, witha monthly lease paymentof $20, 760. California State University Sacramento Foundation Notes to Financial Statements June 30, 2001

Thefollowing lists thecomponents of thenet investment in direct financing leases asof June 30:

Total minimumlease payments to be received $ 3 8,407 ,453

Less amounts representing estimated executorycosts (such as taxes, maintenance, and insurance), included intotal minimumlease payments (12,622,539)

Minimum )ease payments receivable 25,784,914

Less unearnedincome ( 15,093 ,892)

Net investment in direct financingleases $ 10,691,022

6. Depository Accounts

Transactions in depository accounts during theyear ended June 30 were:

Depository accounts,beginning of year $ 4,532,800 Receipts andreceivables fromdepo sitocy agencies: Private gifts,grants and contracts 82,351 Sales and services of educational activities 7,295,639 Disbursements for depositoryagencies: Public service (1,584,471) Instructional programs (2,614,123) Research (1,256,957) Academic support (95,397) Studentservices (8,761) Institutional support (1,840,504) Depository accounts, end of year S 4,510,577 California State University Sacramento Foundation Notes to Financial Statements June 30, 2001

7. DeferredRevenue

Transactions in deferredrevenue consist of the followingduring the yearended June 30:

Sponsored Operating Programs Funds Fund Total

Deferredrevenu e, beginning of year $ 539,506 $ 2,276,121 $ 2,815,627 Receipts 640,307 737,282 1,377,589 Revenue earned (539,506) (367,059) (906,565} Deferredreven ue, end of year $ 640,307 $ 2,646,344 $ 3,286,651

8. Receipts in Excess of Expenditures on Specified Sponsored Programs Transactionsreceipts in in excess of expendituresspe on cifiedspon sored programs representactivity related to grantand contractfunds received in advance ofrelated expenditmesand consisted of the following during the yearended June 30:

Receipts in excess of expenditures,beginning of year $ 2,127,870 Receipts 6,070,286 Revenueearned (4,693,799} Receipts in excess of expenditures, end of year $ 3,504,357 California State University Sacramento Foundation Notes to Financial Statements June 30, 2001

9. Long-term Debt

Long-tellll debt consists of thefollowing at June30:

Series 1995A bonds (tax-exempt), interest at various ratesper annumranging from 4.55% to 5.375%, scheduled principalpayments due annually on October I, withfinal payment due October1, 2027, collateralizedby certainrevenues asdefined. $ 4,180,000 Series 1995B bonds (federally taxable), interest at various fixedrates per annumranging from 6.45% to 7. 75%, scheduled principal paymentsdue annuallyon October I, withfinal payment due October l, 2027, collateralized by certainrevenues as defined. 9,845,000 Interfundnote payable to sponsored programs fund,interest at 5%, scheduled principal and interest payments of $16,000 due quarterly withfinal payment due June2030. 985,246 15,010,246 Less: Current portion 240,508 Total long-term debt $ 14,769,738

Bonds The Series 1995A andB Bonds aregeneral cmporate obligations of theFoundation paya ble from revenues. Revenues aredefined by thebond indenturesto include all proceeds,charg es, fund balances, rents, receipts, profits and benefits,exclusive of restrictedgifts, grants,bequ estsand donations, andfunds received fordeposit into the Campus ProgramsFund, afterpa yment of its operation and maintenance costs. The Bond Indenture includesa requirement that limits the Foundation1s ability toborrow additionalfimds.

Interfund Note Payable During theyear ended June 30, 2000, the operatingfunds borrowed S 1 millionfrom the sponsored programs fund inorder to complete therenovation of an historicbuilding owned by theFo undation. California State University Sacramento Foundation Notes to Financial Statements June 30, 2001

Futureprincipal paymentrequirements on long-tenndebt areas follows:

Principal Fiscal year ended June 30, Amount

2002 S 240,508 2003 246,302 2004 262,136 2005 278,013 2006 . 293,934 Thereafter 13,689,353 $ 15,010,246

Interest expense for the year ended June 30, 2001, was $1,029,728.

10. UnrestrictedDesignated Fund Balance The Foundation'sBoard of Directorshas established designationsofits fund balance for certain pwposes. As of June 30, 2001, the components of unrestricteddesignated fundbalances consisted of:

Working capital reserve S 5,984,670 Reserve forpo st-retirementhealth benefits 3,200,000 Reservefor cash restricted fordebt service 556,973 Reservefor contingencies 1,000,000 Reservefor future business development l,194,327 Reservefor future building projects 1,194,327 Reserve forplant impr ovements andreplacements 2,388,6S4 Net investment in fixed assets 6,139,052 Total unrestricted fund balance S 21,658,003 California State University Sacramento Foundation Notes to Financial Statements June 30, 2001

11. Related PartyTra nsactions

Leases TheCentral Food Servicebuilding, certainequipment used inthe Foundati on's operations and certain land (includingthe land on which theFoundation's bookstorebu ilding is constructed)are leased for a nominal amount from theState of California(State) forperiods generally rangingthree from to thirty years. The Foundationexpects to renew theseleases upon their expiration.

Among otherprovisions, theleases require thatthe Foundation:

(1) Operate underthe general supervision of theCalif orniaState University system. (2) Use its fundbalance andresidual amounts only foroperati onsof theFoundation and for the benefit ofthe University, facultyand students. (3) Make annualpayments of upto 2% of grossincome fromthe Central Food Serviceto the State'sCafeteria Eq uipment Replacement Fund, undercertain circumstances. Forthe year ended June30, 2001, no payments to theState's Cafeteria Equipment Replacement Fund were required to bemade.

Additionally, the residence hall dining commons are operatedunder a serviceagreement with the University, and portionsof theUniversity Union building areleased from another auxiliary organiz.ationof theUniversity. These agreements aregenerally renewable on anannual basis and cancelable upon 60to 90 days'notice. TheFo undationhas no obligationto replace or provide a replacement fund forState-owned equipment utilized inthe diningcommons or UniversityUnion.

Certainother operatingassets, wh ich have previouslybeen donated by theFoundation to the University,are usedby theFoundati on rent-free.

Operatingexpens es include rent expense of $433,924.

In 1996, the Foundation enteredinto a cooperative agreementwith the U.S. Department of the Interior Geological Survey (USGS), whereby the Foundationpr ovides facilities necessaryfor USGS and theUniversity to operate a joint research program on theUniversity campus. The joint research programfocuses on surface-water, groundwater andwater-q ualityissues. Currently,USGS occupies a significantportion of the Foundation's Placer Hall building and awarehouse. Theterm of the current cooperative agreementex pireson September30, 2001. TheFoundation has submitted a request for anext ensionof the 2001 fiscalbudget through December31, 2001.

TheFoundation also leases buildingspace to Universityrelated entities and non.:relatedentities, undercancelable leases. Lease agreementsare renewa ble annually.

Leaseincome from all partiesfor the yearended June 30, 2001,was $2,380,622.

OtherSponsored programs expenses include facultyrelease time of$719,487. Amounts payable at June30, 200 l, to the Universityunder these agreements andfor otherpass-through costs, primarily faculty releasetime, was $390,753. California State University Sacramento Foundation Notes to Financial Statements June 30, 2001

Sales includeresidence halls board revenuefrom the University of $2,067 ,474. Amounts receivable at June 30, 2001, fromthe Univers ity under these and otheragreements was $1,912,376.

Amounts receivableat June 30, 2001 fromthe UniversityUni on was $290,160. Thereceivable balance is primarilyrelated to buildingoperations.

12. Defined BenefitPension Plan

Plan Description TheFoundation contributes to the California Public Employees'Retiremen t System (PERS), an agent multiple-employerpub lic employee definedbenefit pension plan (the Plan) that acts as a common investment and administrative agent forpartici pating public agencies withinthe State of California. PERS providesretirement and disability benefits, annual cost-of-living adjustments and death benefitsto plan members andbenefi ciaries. The Foundation's share ofassets andpension obligations is separately accounted forby PERS. Benefitpro visionsand all otherrequirements are established by statestatute . Copies of PERS annualfina ncial reportmay be obtained :fromtheir Executive Office at 400 P Street,. SacramentoCA 95814.

Certainsalaried Foundation employees are eligible to participate·in PERS. Benefits vest afterfive yearsof service. Foundation employees who retire atage 55 receive 2% of theirhighest average pay (calculated based on theem ployee's highest 12--consecutive-month period)for each yearof credited service. Thepercentage is decreased forem ployees retiring beforeage 55 and is increased for employeesretiring after age 55 with the maximum being 2.418% foremployees retiring at age 63 and over. Benefits are coordinated with Social Securityso no member contn"butionsare made on the first . $133.33 of monthlyearnings and final compensationis reduced by $133.33.

FundingPolicy Activemembers in theFoundation 's plan arerequired to contn"bute 5.0% of theirannual covered salary afterexcluding the first$5 13 of gross monthlypay. The Foundationis required to contn"bute theactuarially detenninedremaining amounts necessaryto fund the benefitsfor its members. The actuarialmethods and assumptionsused arethose adopted by the PERS Boardof Administration. The required employer contnbutionrate for thefiscal year ended June 30, 2001, was 00/o . The contribution requirements of the plan members are established by State statuteand the employer contnbutionrate is establishedand may be amendedby PERS. The Foundation1s payrollfor employees covered by PERS for the year ended June 30, 2001, was $6,340,043. Total payrollwas $36,182,897.

Annual Pension Cost PERS uses theEntry Age NormalActuarial Cost Method, which is a projectedbenefit cost method. That is, it takes into account those benefitsthat are expected to be earnedin the future as well as those already accroed. According to this cost method,the normal cost foran employee is thelevel amount which would fundthe projected benefit ifit were paid annually from date of employment until retirement PERS uses a modificationof theEntry Age Cost Methodin whichthe em ployer'stotal normal cost is expressed as a level percentage of payroll. California State University Sacramento Foundation Notes to Financial Statements June 30, 2001

ActuariallyDete rminedContribution Requirements and Contributions Made For the year ended June 30, 2001, there were no required annual pension costs or actual contnoutions made by the Foundation. The required contribution for the 2001 fiscal year was determined as partof the June 30, 1998, actuarialval uation using the entry age normal actuarial cost method withthe contnbutions detennined as a percent of pay. The actuarial assumptions included (a) 8.25% investmentrate ofreturn (net of administrative expenses), (b)pro jected sal8l}'increases that varyby durationof service ranging from 3. 75% to 14.20% formiscellaneous members, and (c) 3.5% cost-of­ living adj ustment. The actuarial value of theFounda tion'sassets was determinedusing a technique that smoothes the effect of short-term volatility in the market value of investment over a two to five yearperiod depending on the size of investment gains and/or losses.

The significant actuarial assumptions used to compute the actuarially determined contnoution requirementare the same asthose used to compute the pensionbenefit obligation, as previously described.

For the year ended June 30, 2001, employee contributions am01mtedto $268,058.

Trend Information Trend information gives anindication of theprogre ss made in accwnulating sufficientassets to pay benefitswh en due. Infonnation as to the Fmmdation's Net Pension Obligation determined :in accordance withGovernmental Accounting Standards Board Statement No. 21, AccountingFor Pensions bySt ate and Local GovernmentalEmp loyers, for three years ended June 30, 1999 (the date most recent actuarialvaluation information isavailab le), is as follows:

Three-Year Trend Information

Annual Percentageof Net Pension FiscalYear Pension APC Obligation EndedJune 30 Cost (APC) Contn"buted (NPO) 1999 s 328,269 100.()()IIA. s 2000 s 63,043 100.00% $ 2001 s 100.00% s

Analysisof Funding Progress

(A) (B) (C) (D) (E) (F) Unfunded Actuarial Unfunded Liability Actuarial (Excess Asset) Entry Age Accrued as Percentage Actuarial Actuarial Actuarial Liability Funded of Covered Valuation Asset Accrued (ExcessAsset ) Ratio Covered Payroll Date Value Liability l(B)-(A)] [(A)/(B)] Payroll {l(B},(A))/(E)}

June 30, 1997 S 12,640,652 $10,043,927 S (2,596,725) 125.90-' S 4,405,185 (58.947%) 1998 S 15,365,357 $11,021,247 S (4,344,110) 139.4% $ 5,180,144 (83.861%) 1999 $ 18,406,802 $13,810,233 S (4,596,569) 133.3% $ 5,614,608 (81.868%) California State Univers ity Sacramento Foundation Notes to Financial Statements June 30, 2001

TheFmmdation's contnoutionsto PERS, made inaccordance withactuarially determined requirements, as a percentage of annualcovered payroll, were 1.061 % and 00/ofor 2000 and 2001, respectively. Othertrend inf onnationfor 2000 and 2001 is not yet available.

13 .. DefinedContribution Plans

The Foundationsponsors two Section 403(b) retirementplans. One plan is availableto substantially all benefitedemployees who work 20 hours ormore perweek. This plan allows participating employees to contnl,ute up to 20% of theirgross salary, subjectto certainlimitations, into tax sheltered annuityor tax-deferredmu tualfund custodia l accounts. Under thisplan the Foundation makes no contributionto the employees' accounts. Employee contnbutionsfor the yearended June 30, 2001, were $219,114.

The Foundationalso sponsors a definedcontn lmtion 403(b)retirement plan for certainemployees which are not eligiole to participate in PERS. Employees who are subject to collectivebargaining agreements, and work 1,000 hoursor more duringthe yearare eligibleto participate inthe plan. Pursuantto the plan, the Foundationcontributes toem ployee accountsat a rate of 6% of grosswages subject tocertain limitations. Contnbutions for theyear ended June30, 2001, were $28,343.

14. Post-retirementHealth Care Benefits Inaddition to providingpension benefits,the Foundationprovides certain medicaJ and dental care insurancebenefits for eligibleretir ees and their spouses. The post-retirementhealth care benefits are fundedon a pay-as-you-go basis. Thecost recognizedfor providing medi cal and dentalbenefits to retireesduring the yearended June 30, 2001, was $45,864. At June 30, 2001, 21 retirees were receiving post-retirementhealth care benefits and 7 employees wereeligible to receive such benefits upon theirretirement.

15. ContingentLiabilities The Foundationadministers severalcampus programs and participatesin a numberof fe deral and state assistedgrant and contract programs. The federal and state assisted programs are subject to program complianceau ditsby the grantors/contractors or theirrepre sentatives. TheFoundation has accrued arese rve for disalJowances and overruns which management believesis sufficientto provide for the potential losses in connectionwith (1) grants and contracts such as those descn"bedabove as well as for(2) the possibility that expenditureson behalf of campus programsadministered by the Foundationmay not be fundedby the sponsoringprogram. APPENDIX B

COMBINED FINANCIAL STATEMENTS OF CALIFORNIA STATE UNIVERSITY, SACRAMENTO FOR THE FISCAL YEAR ENDED JUNE 30, 2001 (AUDITED) CALIFORNIA STA1'E UNIVERSITY, SACRAMENTO Combined Financial Statements June 30, 2001 (With Independent Auditors' ReportThereon) Three Embarcadero Center San Francisco, CA941 11

Independent Auditors' Report

Dr. Donald R. Gerth, President CaliforniaState University, Sacramento:

We have audited the accompanying combined balance sheet of California State University, Sacramento (the University) as of June 30, 200 1 and the related combined statements·of changes in fund balances and net assets and current fu nds revenues. expenditures and other changes for the year then ended. These combined financial statementsare the responsibility of the University's management. Our responsibility is to express an opinion on these combined financial statements based on our audit. We did not audit the financial statements of the discretely presented auxiliary organizations. Those statementswere audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for the discretely presented auxiliaryorga nizations, is based solely on the reports of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and performthe audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financiaJ statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overaJI financial statement presentation. We believe that our audit and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion,based on our audit and the reports of the other auditors, the combined financial statements referred to above present fairly; in all material respects, the financial position of California State University, Sacramento as of June 30, 2001, and the changes in its fund balances and net assets and current funds revenues, expenditures and other changes for the year then ended in conformity with accounting principles generally accepted in the United States of America.

October24, 2001

1111m111, KPMGl:PMG llP. UP.• U.S. -edlill:llll!v_...... ii CALIFORNIA STATE UNIVERSITY, SACRAMENTO Corl'bined Balnnce Sheet June30. 2001

Total Total Reporting ·unlvuslty Entity Current li'IHlds Lllan Endowment Ageney Plant (Memorandum Auxlllary (Memorandum Assm llnrestrided llnirlci;I Funds Funds Funds Funds Onl;i:) !?!J!nlzatlons Onl;i:) Cash nndcash equivalents s 3,892.784 123.970 224.747 - 21.008 - 4,262,:109 4,554,076 8,816,585 Pledges rea:iwble.net - -- � - - - 370.589 370.589 Accounts�vable, net 23,942.383 1.378,923 6,359�151 m.s2S 27.477 1,470,26 1 33.949.920 18.673,060 52.622,980 lnYelitnw:nt:s 37, 190,23:'I 1,662,222 357,201 6,229,470 272,5 16 8,323 45.7 19,967 16,095,271 61.815,238 Due from otherfunds 291.520 18,148 -- - - 3()1).668 10.493.647 10,803.315 Prepaid expenses andOlherasseu 7S7.37 1 - -- - - 757.371 5.128.526 5,885,897 Property,pl antand equipment - - -- - 319,452.440 319,452,440 24,127,056 343,.579.496 TDIIII usets $ 07 3,1 83,263 6,941,299 66, 4,293 71000.995 321,001 320,931,024 404.451,875 79.442.225 483,894,100 LlllbllHles. Fund � ....Nl!t Assets Liabilities: Accounts. l)!lynble $ 3.737,038 1,269.683 656 - !i,350 10,106 5.022.833 3.623.753 8;646.586 Accrued salnriesand benefit:s payable 10,817.878 24. 196 - - - 10.842.074 1.901.179 12,743,253 Due to other funds - - 10.800 - 18,148 280.720 309,668 10.493.647 · 10,803,315 Def'em:d revenues 5,921,696 - -- - - 5,92 1,696 4,545,436 10,467,132 Accruedcompensated absences 7.495.874 - - - - 7.495.874 1.141.464 8.637.338 Capimlized lease obligarions - - - - - 5,202.85 1 5.202.85 1 6)99 s.209:250 Leng-term debtobUg ations - - -- - 27,775.000 27.775.000 15,236,539 43,011.539 Self-insurance claimsliability 1,493,000 -- - 1,493.000 - 1,493,000 Deposiloty accounts - - -- 263.191 - 263,191 7,1 1 6,012 7.379,203 Olher6a bi61ies 350,509 34.430 2.937 - 34.3 12 473,095 895.283 4.496,098 5.391,381 Totalliabilities 29,815,995 1.328,30'} 14.393 - 321,001 33,741 ,772 · 65,221 ,470 48,S60,527 _!.!l,:181.997 Fundbalances and netassets: Fund tiolonces: Unreslricted- designated 36.258.298 - -- _, '- 36.258,298 21.689,735 57,948.033 Unreslricled - undesignoted ------219.771 219,771 Restricted - 1.8.'W,9S4 6,926.906 7,000,

See11CCOQ1NU1ying notes to coniiincdfinancial statern1mtt.

2 CALIFORNIA STATEUNIVERSrr\', SACRAMENTO ColllbiMdof Statement Clump,1 in Fund Bnlnncesnnd Net Assets Yem-endedJune 30, 2001 IOUII Tolal Reporting University Endty CurnntFunds Loa• Endo-t l'llllnt (Memorandum Auxllla17 \Memorandum Uimblcted lfltftded Junds ,... Funds Onlzl 2!:l!nbatkml Onlzl R9venues andDiiier Ddditkms: Sl!Ue appropriotioos $ 139,178,306 - - - 2�'41,360 141,519.666 141��19.666 Fees IUilionand S5,199,40r - - - - 5!!, 199,401 6,99 1,876 62, 191,2n IIIYeslmentincome (loss) 4,680,933 79,.'142 164.197 - 109.8 19 5.()34.49 1 (1 15,779) 4.9 18,712 Endowmentincome 58,3 10 197.337 - 24.939 - 280.586 58.212 338,798 m:lml !!JUlll5 andrornmcts - 18.687.708 243.827 - - J8,93 l,53S 14.020,91 I 32.952.446 State zmn1Sand ccmtmcts - 6.440.666 - - - 6.440.666 27.832.089 34.272.755 Pri•alegj fta,gmnts nnd conlr.lcls 3,105,724 317�139 B!'i7 222,359 29, 1 70,726 32.821.705 8,605.962 41.427.667 Slllesaeivice and or educalilllllll i£1ivirie$ 7,295.639 - - 7,295,639 - 7.295.639 Salesand service of nuxilioryenfftpli ses 8,.342.5 16 - - - - 8,3425 16 30,448,28!'i 38,790.80! Expendedfor plnnt fllcililies ngfincludi Clllfflll funds of $2.880,7 16) - - - 5.694.494 5.694,494 - 5,694,494 Retirementof indebledneu - - - - 2,104,562 2.104562 - 2. 104.562 Other 4,326.064 1,7:2S,129 6,944 !1386 360,1!14 6,42.',677 268:3!!6 6.692.033 Total revenuesadditions and other 222.186.893 27,447.72 1 420,!125 2$2.684 39,78 1.IIS 290,088,938 88,109,912 378. 1 98,850 Ellpendilures lllldother deduction&: (Sdu,;alio,mlfind g,,m,nd : lnsrruc:oon 99,968,742 !144,024 - - - 100512,766 4.070.501 104.583.267 Rest-h 1.257.589 - - - l.2S7.589 7,.'\2:1.213 MB0.802 Public: service 2,813,770 2.167.124 - - - 4,980.894 33,005.289 37.986,183 - - - 26.896,463 16.059 26.9 12.522 Academic support 26.608,139 288�'24 - Student ser11ices 19.352,784 307.885 77.626 - 19,738.295 199,598 19.937,893 lns!itutional support 23,!183.368 44.640 - - - 23.628.008 3,.566.283 27,194,291 OpernrionQlld mailllenllneeof plant 14�m.019 8.552 - - - 14,!169,631 - 14.S69,631 StudentplllllS and scholanhi ps 10,216.926 24,068,T.!J - - 34.285,649 171,!123 34,457, 172 To lDI edUCDtionalQlld genenil expendirures 198,362,397 27.429.272 77,626 - .- 225,869.295 48,3!'i2.466 274,22 1,76 1 Olherex penditures: - - 10.087.233 :'3,18B47 43,274,780 Aullilioryen terpriseex penditu= IO.o87,233 - - - Lo1111i:ancelll!lions mid wri1e-off5 - - 236.670 - - 236,670 236,670 - 2.1!73.295 E, pendedfor plnnlfac ilitiesCiPCludi ngnonc:api lllliudof $59,517) - - - - 2.873,295 2,873.295 - - - - l. t04.S62 2.104,562 - 2.104.$62 Rdimnentof indcbledness - - 3.195.667 llllereslon inde!JEdlies& - - l,163.244 2,163.244 1.032.423 - !'i,860,251 Dilposalof plantlill.� litiel - - - - !i,860.25 1 5.860,l!il - 568,299 1,019,022 l,!187,321 Other - - 7!1,427 492,872 z:! 35.238,992 !19. 132.$46 Totlll otherex pendlrumi 10,0S7,233 - 312.097 492.872 13.001 .3!12 23.893 � ,, 3 Toto! ellpendiiuresdeducliom and ocher 208,449,630 27,429,272 389.723 492,872 13,001 152 249,762,849 83.591,458 3 3.354�m7 Tnll'ISfm IUIIOng funds - oddilions (deductions): Mondotoryll'llnlfers: - - l,796.QI I Prindpaland interell (1.796,011) - Payment& Oiicapital lease obli pionl (t,905,629) - 1,90S,629 NoimBldatoly lnllllfers; C3).859J - 33.859 -� TOllll llBlllfen (3, 735.499J - 33,859 - 3,70 1.640 (240, 188) 30.48 1,403 40.326,089 4.518,4.54 44.844,!143 Net i- (deemlse) in ftllldblllances (netauetJJ 10.00 1.764 18.4411 64.66 1 k 256.707.849 298.904k'\16 26.36.'\ ,244 32S,267.s60 Fund balance andginni netAS9eDatbe ngof year 26.256.534 l,836 � 6,862.24!1 7.241,183 .2 339 .230,40!1 30.88 1,ffl 370. 112.103 Flllld balance and ofnet auellDIend year $ 36.2S8.298_ I ,8!14,954 -�926.906 7.000,99:'i 287,189 $2

Seeareompllll)'i ngl10l5 combined to financial llalemenlll.

3 CALIFORNIA STATE UNIVERSITY, SACRAMENlO Combined Statement of CurrentFu nds Revenues, Expenditures and Other Changes Year ended June 30, 2001

Total Current Funds (Memorandum Unrestricted Restrictetl Onl2:) Revenues: State appropriations $ 1 39, 178,306 139 .178.306 Fees and tuition 55,199.401 55,199,401 Investmentincome 4,680,933 79.542 4.760,475 Endowment income 58,310 197.337 255,647 Federal grants and contracts 18,687.708 18,687.708 State grants and contracts 6,440,666 6,440.666 Prlvate gifts, grants, and contracts 3, 105.724 317,339 3,423,063 Sales and service of educational activities 7,295.639 7,295,639 Sales and serviceof auxiliary enterprises 8,342.516 8,342,516 Other 4,326,064 1.706,680 6,032,744 Total current revenues 222.186.893 27.429.272 249.616.165 Expenditures and mandatory transfers: Educational and general: Instruction 99,968,742 544,024 I 00.5 12,766 Research 1,257,589 1,257,589 Public service 2.813.770 2,167.124 4,980,894 Academic support 26,608.139 288,324 26.896.463 Student services 19,352.784 307.885 19,660,669 Institutional support 23,583,368 44,640 23,628,008 Operation and maintenance of plant 14,561 .079 8,552 14,569,631 Student grants and scholarships 10,21 6,926 24,068.723 34,285,649 Total educational and general expenditures 198.362,397 27,429.272 225,791,669 Auxiliary enterprisesexpenditures 10.087.233 10.087,233 Transfers among funds - additions (deductions): Mandatory transfers: Principal and interest (1.796,01 1) (1,796.011) Payments on capital lease obligations (1.905.629) (1,905,629) Nonmandatory transfers: Other (33,859) (33,859) Total transfers (3,735,499) t3,735,499l Excessof restricted receipts over transfers to i;-evenues 18,449 18,449 Net increase (decrease) in fund balances $ 10,001,764 18.449 10,020.213

See accompanying notes to combined financial statements.

4 CALIFORNIASTATE UNIVERSITY, SACRAMENTO Notes to Combined FinancialStat ements June 30, 2001

(1) Organization TheCa1 ifomia State University, Sacramento (the University) was estab1ished under the State of California Education Code as apublic university to offer undergraduate and graduate instruction forpr ofessional and occupational goaJs emphasizing a broad Jiberal arts education. As one of 23 campuses in the California State University system (the System}, the University is included in the combined financial statements of the System. Responsibility for the University is vested. in the Trustees of California State University (the Trustees) who, in tum, appoint the Chancellor, the chief executive officer of the CaliforniaState University system, and the University President, the executive officerof the University.

The University provides instruction for baccalaureate, master's and certificate programs, and operates various auxiliary enterprises such as student dormitories and parking facilities. In addition, the University administers a variety of financial aid programs which are funded primarily through state and Federal programs. (2) Summary of SignificantAcco untingPolicies (a) FinancialRe porting Entity The _accompanying combined financial statements include the accounts of the University and the University's five recognized Auxiliary Organizations. These Auxi1iary Organizations are legaUy separate entities that provide services primarily to the University's students. Separate financial statements are issued foreach of the recognized Auxiliary Organizations and may be obtained from the University. The discretely presented Auxi1iaryOrgan izations are asfollows: • Associated Students of CaliforniaState University, Sacramento • Ca1ifomiaState University, Sacramento, Trust Foundation, Inc. • CaliforniaState Univ ersity, Sacramento Foundation • University Union Operation of CaliforniaState University, Sacramento • Capital Public Radio, Inc.

5 (Continued) CALIFORNIA STATE UNIVERSITY, SACRAMENTO Notes to Combined Financial Statements June 30, 2001

Summary informationfor the discrete1y presented AuxiliaryOrgan izations is as follows:

California State· University, All Other Sacramento Auxiliary Foundation Organizations Total Current assets $ 44,083,020 1 1,232, 149 55,315,169 Investmentin plant 20,244,588 3,882,468 24,127,056 Total assets . 64,327,608 15,114,617 79,442,225 Currentliabilities 27,899,867 5,672,656 33,572,523 Long-term Jiabilities 14,769,738 218,266 14,988,004 Total liabilities 42,669,605 5,890,922 48,560,527 Revenues 72,290,169 15,819,743 88,109,912 Expenditures 69,492,339 14,099,119 83,591 ,458 Excess of revenues over expenditures 2;797,830 1,720,624 4,518,454 The Auxiliary Organizations are presented in the accompanying combined financial statements as component units due_ to the nature and significance of their relationship with the University. The relationships are such that exc1usion of these organiZl;l.tions from the reporting entity would render the financial statements incomplete, primari1y due to their c1ose affiliation to the University. The Auxi1iary Organizationsare discretely presented to allow the financial statement users to distinguish between the University and the Auxiliary Organizations.

(b) Basis of Presentation The accompanying combined financial statements are prepared on the accrual basis of accounting in accordance with generally accepted accounting principles promulgated by the Governmental Accounting StandardsBo ard and the financial statementmode) of the American Institute of Certified Public Accountants' Industry Audit Guide, Audits of Colleges and Universities. The accompanying combined statement of current funds revenues, expenditures and other changes is a statement of financial activities of funds related to the current reportingperi od. It doesnot purport to present the results of operations or the net income or loss for the period as would a statement of income and expenses.

6 (Continued): CALIFORNiA STATEUNIVERSITY, SACRAMENTO Notes to Combined Financial Statements June 30, 2001

(c) FundAccounting In order to ensure observance of limitations and restrictions placed on the use of the resources availabJe to the University, the accounts are maintained in accordance with the principles of fund accounting. Resources for various purposes are classified for accounting and reporting purposes into fu nds that are in· accordance with specified activities or objectives. This is done in accordance with ·regulations, restrictions or limitations imposed by donors or sponsoring agencies outside the University, or in accordance with directives issued by the Trustees.

A fund is an accounting entity with a self-balancing set of accounts for recording assets. liabilities, fu nd balance and changes in the fund balance. Separate accounts are maintained for each fund; however, funds with simiJar characteristics are combined into fund groups for reporting purposes. The fundsmaintained by the University areas follows: • Current Funds - Used primarily to account for transactions that are expended in performing the primary and support objectives of the University, i.e., instruction, research, public service, academic support, student services, institutional support, operation and maintenance of plant, scholarships and fe11owships and auxiliaryenterpri se activities. Current funds are segregated into separately balanced fund groups as follows: Unrestricted - Used to account for transactions related to the University's general fund appropriations, its operation of extended education programs, its portion of State of California lottery revenues allocated to the System and the activities of auxiliary enterprises and other substantiaJly self-supporting activities. Extended education instructional programs include masters, certificate and other nondegree programs. Lottery revenues are used to support augmented instructional programs for specific purposes not necessarilyfunded from general fund appropriations. Auxiliary enterprises include, but are not limited to, parking and student housing and are separate and distinct from the recognized Auxiliary Organizations discussed in the Financial Reporting Entity section above. Whereas assets. liabilities and fund balances of auxi1iary enterprises are combined with other unrestricted current funds for reporting purposes, revenues and expenditures of auxiliary enterprises are reported separately. Self-supporting activities primarily provide services for students, faculty and staff and are funded by fees, unrestricted gifts and other income designated forspecific purposes by the Trustees. ·Fund balances. even though considered unrestricted for reporting purposes, have legislative or bond indenture requirements associated with their use. These requirements Jimit the area of operations for which expenditures from the funds may be made, and designate fundbalances to support future operations in those areas. Primary among the funds which have designated uses are those related to the operations of housing programs. Restricted - Used to account for current funds expended for operating purposes but restricted by donors· or other outside agencies as to the specific purpose for which they may be expended.

7 (Continued) CALIFORNIA STA TEUNIVERSITY, SACRAMENTO Notes to Combined Financial Statements June 30, 2001

• Loan Funds - Consist primarily of funds received from the Federal government for student loans. Funds under the Federal loan programs may be reloaned after colJection, but are u1timately refundable to the Federal government. • Endowment Funds - Consist of donated funds that, as a condition of gift instruments, generally require princip�l to be invested in perpetuity. • Agency Funds - Consist primarily of resources held by the University on behalf of others. As these funds are custodial in nature and transactions do not represent activities carried out by the University, such transactions are not inc1uded in the combined statementof changes in fund balances and net assetst • Plant Funds - Consist primarily of property, plant, equipment, Jibrary books, bound periodica1s and co11ections and the related debt. This fund also accounts for transactions relate� to the University's State of Californiacapital outlay appropriations. (d) Cash and Cash Equivalents Cash equivalents incJude all highly liquid investments with an original maturity of three months or less.

(e) Investments University investments are reflected at fairvalue. Gains and losses on the investmentsare included in the accompanying combined statement of changes in fund balances and net assets as investment income.

({) Property, Plantand Equipment Property, plant and equipment are stated at cost or estimated historical cost when purchased and at estimated fair value when donated. Equipment with a va]ue of Jess than $5,000 is not capitalized. Title to all campus assets, whether purchased, constructed or donated, is held by the state of Ca1ifom1a. The University does not provide for depreciation in the accompanying combined financialstat ements.

(g) Due To/From Other Funds All interfund borrowings and claims are generally payable within one yearwithout interest. (h) Deferred Revenues Deferred revenues consist primarily of fees co1Iected in advancefor fall and summer sessions as wen as continuing education fees. (i) Compensated Absences University employees accrue annual leave at rates based on length of service and job classification.

8 (Continued) CALIFORNIA STATE UNIVERSITY, SACRAMENTO Notes to Combined FinancialStatemen ts June 30, 200t

Q) State Appropriations The state of Californiaappr opriates funds to the System on an annuaJ basis. The appropriations are, · in tum, allocated· among the campuses by the Office of the Chancellor. Appropriations are recognized as revenue when authorization is received and are reported in either the current unrestricted fund when used to support general operations or in the plant fund when used for capital projects.

(k) Income Taxes The System was established under the State of California Education Code as an agency of the State of California. As a campus of the Syst�m, the University is generally not subject to Federal or state income taxes. However, the University remains subject to income taxes on any net income which is derived from a trade or business, regularly carried on and not in furtherance of the purpose for which it was granted exemption. No income tax provision has been recorded as the net income, if any, from any unrelated trade or business. in the opinion of management, is not material to the combined financial statements taken as a whole. The University has not undergone any recent Internal Revenue Service or state income tax audits, and no taxes have been provided forany assessments that may result fromsu�h audits. In the opinion of management, any such possible assessments would not be material to the combined financial statements taken as a whole.

(l) Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts in the accompanying combined financial statements. Actual results could differ from those estimates. (m) Total Columns The total columns on the accompanying combined financial statements are captioned (memorandum only) to indicate that they are presented only to facilitate financial analysis. Such data is not comparable to a consolidation as interfund eliminations have not been made. Therefore, amounts in these columns do not present financial position or resu]ts of operations in conformity with accounting principles generally accepted in the United States of America.

(3) Cash, Cash Equivalents and Investments The deposits of the University that are maintained at financial institutions are fullyin sured or collateralized as required by state law.

State Jaw and regulations stipulate the eligible securities for investment of surplus monies of the University. The University's investment policy authorizes excess fundsto be invested in obligations of the Federal and California state governments. certificates of deposit and certain other investment instruments.

9 (Continued) CALIFORNIASTA TE UNIVERSITY, SACRAMENTO Notes to Combined Financial Statements June 30, 200I

The investment portfolio includes investments in collateralized mortgage obligations, asfo1lows:

• Inverse floaters, which are securities in which the investor recei_ves cash flow representing principal from underlying mortgages plus a rate of interest calculated under fonnu]as which vary inversely to the stipulated short-term interest market rate index. Inverse floaters are guaranteed by the issuer (FNMAor FHLMC) as to return of principal and timely payment of interest calculated in accordance with the terms of the investments. At June 30, 2001,' the University's investments are pooled; however, separate accounting is maintained as to the amounts aJlocable to the various funds and programs. Investments consisted of the following at June 30, 2001:

Met Wes_t Long-Term Fund $ 5,358,095 Met West Total ReturnFund 8,504,420 Met West Short-Terin Fund 11,1 16,619 Co1latera1ized mortgage obligations - inverse floaters 3,855,343 State of CaliforniaSu rplus Money InvestmentFund 16,687,229 Other investments 198,26) $ 45,719,967

For information regarding the investments of the discretely presented Auxiliary Organizations, please refer to the separately issued AuxiliaryOrgan izations' repc,rts.

10 {Continued} CALIFORNIA STATE UNIVERSITY, SACRAMENTO Notes to Combined FinanciaJ Statements June 30, 2001

(4) Receivables Receivables at June 30, 2001, by fund, consisted of the following: Currentunr estricted funds: State appropriations $ 15,399,693 Auxiliaryor ganizations 7,337,683 Other, net of a11owance fordoubtful accounts of $36,738 1,075,338 Student accounts, net of aJlowance fordoubtful accounts of $143,528 129,669 $ 23,942,383 Restricted funds: Government contracts and grants net of allowance of $17,659 $ 1,372,154 Other 6,769 $ 1,378,923 Loan funds: Student loans receivable, net of allowance fordoubtful accounts of $600,821 $ 6,) 22,505 Other 236,846 $ 6,359,351

Endowment funds- Auxiliary deposit liability $ 771 ,525 Agency Funds: Student receivables net al1owance fordoubtful accounts of $430· $ 9,304 Government grants and contracts net of allowance fordoubtf ul accounts of $25 18,173 $ 27.477 · Plant fu nds: State appropriations $ 1,470,261

11 (Continued) CALIFORNIASTA TE UNIVERSITY, SACRAMENTO Notes to Combined Financial Statements June 30, 2001

(5) Property, Plant.and Equipment Property, plant and equipment at June 30, 2001 consisted of the fo11owing:

Land $ 940,898 Buildings and building improvements 194,926,800 Improvements, other than buildings 25,117,844 Equipment 70,332,007 Library books, bound periodicals and co1lections 28,134,891 $ 319,452,440

(6) Lease Obligations Capital ]eases consist primarily of leases of campus facilities, but also inc1ude certain computers, energy efficiency and telecommunications equipment. Tota] assets related to capital ]eases have a carrying value of $12,096,553 at June 30, 2001. Substantia11y all of these assets are pledged as security for the related leases. The ]eases bear interest at rates ranging from 4.56% to 6.50% and have terms expiring in various years through 2009. Operating ]eases consist primarily of leases for the use of real property. The University's operating leases having remaining terms of more than one year wi11 expire in various fiscal years through 2017. The leases can be canceled if the state does not provide adequate funding. Some of these ]eases are with related Auxiliary Organizations for the rental of office space used in the operations of the University. Total operating lease expenditures for the year ended June 30, 2001 were approximately $610,616 which $482, 729 was paid to related Auxiliary Organizations.

12 (Continued) CALIFORNIASTA TEUNIVE RSITY, SACRAMENTO Notes to Combined Financial Statements June 30, 2001

Future minimum lease payments under capita] and operating leases having remaining terms in excess of one year as of Jrine 30, 2001 areas fo11ows:

Capital Operating Leases Leases YearEnding June 30: 2002 $ 1,267,569 647,710 2003 739,708 342,25 1 2004 667,193 307,433 2005 683,800 267,092 2006 605.482 262,092 Thereafter 2,427,812 2,720,890 Total minimum lease payments $ 6,391,564 4,547,468 Less amount representing interest (1,188,713) Presentvalue of future minimum lease payments $ -====...-5,202,851 ...... Lease financing is provided to the System for the construction of various system and campus facilities through its participation with the state of Californiain the State Public Works Board .Lease Revenue Bond Program. Certain capital assets recorded by the University may have been financed under these arrangements. However, since the obligation forthe repayment of this financing rests with the System, and the proceeds of such financingis not readily identifiable with a campus or project, a substantia1 portion of such financing is not a1located to the individual campuses of the System. Unallocated Lease Revenue Bonds outstanding for the System as of June 30, 200 1 totaled approximately $667,901,000.

(7) Long-Tenn DebtObli gations (a) General Obligation BondPr ogram The General Obligation Bond program of the State of California has provided capital outlay funds for the th�e segments of California Higher Educati(?n through voter-approved bonds. Each of the approved bond programs provides a pool of available fundswhich is allocated on a project-by-project basis among the University of California, the California State University and the Community Colleges. Financing provided to the University through State of Ca1ifomiaGeneral Obligation Bonds is not a1located to the System by the State of California.This debt re mains the obligation of the state and is funded by state tax revenues. Accordingly, such debt is not reflected in the accompanying combined financia1 statements. Total General Obligation Bond debt carried by the state related to Califorriia StateUniversity projects is approximately $483,003,000.

13 (Continued) CALIFORNIA STATE UNIVERSITY, SACRAMENTO Notes to Combined Financia] Statements June 30, 2001

(b) ·Revenue Bond Programs The Revenue Bond Act of 1947 provides the. Board of Trustees with the ability to issue revenue bonds to fu nd fourspe cificself-suppor ting programs. The statute has enabled the Trustees to finance student housing, parking facilities, student unions and hea1th centers. Outstanding bonds as of June 30, 2001 consist of campus student housing and student union bonds. The housing program provides on-campus housing primari]y for students. Housing is a self­ supporting program deriving its revenues from fees co1lected for the use of the residence facilities. Funds are used for current operating expenses, maintenance and repair, improvements to facilities, and interest and principa1 payments on outstanding bonds. A vai]ab]e baJances after payment of all operating expenses and required charges remain available for future program expenses and capital needs. Thestudent union program provides faci1itiesand programs aimed at creating and enhancing learning experiences outside the classroom by promoting interaction among students, faculty and staff. The student union program is self-supporting and derives its revenues primarily from student fees and interest income. Funds are used for maintenance and repair, improvements to facilities, and interest and principal payments on outstanding bonds. Afterpayment of all authorized charges, the balances of these funds are available fortransfer to the campus auxiHary organization that has contracted with the University to operate the facility. The operating entity may derive additional revenue from facilitysubrental, recreational and commercia] activities, and interest income.

14 (Continued) CALIFORNIA STATE UNIVERSITY, SACRAMENTO Notes to Combined Financial Statements June 30, 200 1

Long-term debt obJigations of the University as of June 30, 2001 consist of the foHowing: Fiscal Year Original Issue Amount Descri:etion Interest Rate .Maturitl'.Date Amount Outstanding Housing System Revenue Bonds: Series AV - 1996 RefundingBonds 4.70% - 5.90% 202 1122 $ 5,810,000 5,810,000

Student Union Revenue Bonds: Series B 5.50%-7.00% 202 1/22 900,000 790,000 Series C 5.00%-7.00% 2025/26 22,275,000 21,175,000 23,175,000 21,965,000 $ 28,985,000 27,775,000

The University has pledged the net revenues from the housing program and student union fees to retire the related revenue bonds.

Long-term debt principal obligations outstanding at June 30, 2001 mature in the followingfiscaJ years: 2002 $ 590,000 2003 620,000 2004 650,000 2005 685,000 2006 725,000 2007 and thereafter 24,505,000

$ 27,775,0

15 (Continued) , CALIFORNIA STA TEUNIVERSITY, SACRAM:ENTO Notes to Combined Financia] Statements June 30, 2001

CaJPERS issues a pub]k]y availab]e comprehensive annual financia] report that incJudes financial statements and required supplementary information. Copies of the CalPERS annual financiaJ report may be obtained from the CaJifomiaPubJic Emp]oyees' Retirement System Executive Office- 400P Street- Sacramento,California 958 14.

(b) Funding Policy University personnel are required to contribute 5% of their earnings in excess of $5 13 per month to CalPERS. · The University is required to contribute at an actuarially determined rate. The contribution requirements of the plan members are established and may be amendedby Cal PERS . The University's contributions to CalPERS for the most recent three fiscal years were equal to the required contributions and were as follows: 1999 $ 8,285,321 2000 1,184,631 2001 84,087 (9) Se]f-Insurance Claims Liability The University System and certain Auxiliary Organizations have established a public entity risk pool to manage centrally workers' compensation, industrial and nonindustrial disability and genera] organizational risks. The liability included in the accompanying combined financial statements reflects the University's portion of the estimated ultimate cost of settling claims relating to events that have occurred on or before June 30, 2002. The liability includes the amount that wi11 be required for fu ture payments of claims that have been reported and cJaims related to events that have occurred but have not been reported. The liability is estimated through an actuarial cakulation using individual-case basis valuations and statistical analyses. Although considerable variability is inherent in such estimates, management believes that the liabiJity is reasonably adequate at June 30, 2001. Changes in the System's self-insurance claims liability for the two years ended June 30, 2001 are as follows:

Liability at July 1, 1999 $ 72,123,000 Incurredclaims and changes in estimates 17,612,000 C]aim payments (28,058,000) Liabi1ity at June 30, 2000 61,677,000 Incurredclaims and changes in estimates 43,779,000 Claim payments (33,305,000) Liability at June 30, 2001 $ _..._-=---72,151,000

· 16 (Continued) CALIFORNIA STA TEUNIVERSITY, SACRAMENTO Notes to Combined Financial Statements June 30, 2001

At June 30, 2001, approximately $30,496,000 in assets have been set aside to fund the claims Jiability. The University maintains excess general liability insurance coverage provided by Schools Excess Liability Fund (SELF), a Joint Powers Authority, with coverage for individual claims between $1,000;000 and $24,000,000 per occurrence. The University also maintains excess workers' compensation insurance provided by SELF for individual c1aims over $350,000per occurrence. There have been no settlements in the mos.t recent three fisca] years that have exceeded insurance Jimits. The University's a1location of the unfunded self-insurance cJaims liability as of June 30, 2001 was approximately 3.6%, or $1,493,000 has been recorded in the accompanying combined financial statements. (10) Commitments and Contingencies Federal grant programs are subject to review by the grantor agencies, which could result in requests for reimbursement to grantor agencies for disa11owed expenditures. Management believes that it has adhered to the terms of its grants and that any disallowed expenditures resulting from such reviews would not have a material effect on the financialposi tion of the University. (11) Transactions with Related Entities The CaliforniaState University is an agency of the state of California and, as such, processes substantially a11 of its revenue and expenditure activity through the Office of the California State Controller. State appropriations a11ocated to the University through the Chance1Ior' s Officeagg regated $141,519,666 for the year ended June 30, 2001. State appropriations receiyable aggregated $16,869,954 at June 30, 2001. As headquarters for the California State University. the Office of the Chance1Ior administers certain activities centra1Jy forthe individual campuses. Primary among these activities are debt administration and risk pool administration. The costs associated with the operations of the Office of the Chancellor are not a1located to the individual campus' financial statements. Reimbursements from recognized Auxiliary Organization for salaries of University personnel working on contract, grant and other programs, was $1,260,522 forthe year ended June 30, 2001 . Payments made to recognized Auxiliary Organization for services, space and programs amounted to $1,759,059 during the year ended June 30, 2001.

17 (Continued) CALIFORNIA STATE UNIVERSITY, SACRAMENTO Notes to Combined Financial Statements June 30, 200 I

(12) New Accounting Pronouncements In November 1999, the Governmental Accounting Standards Board (GASB) issued Statement No. 35, Basic Financial Statements-and Management's Discussion and Analysis-fo r Public Colleges and Universities. This statement will require extensive changes in the way public colleges and universities report financial position and results _in their external financial statements. Specifically, it estabJishes a new format for the basic financial statements, fullaccrua1 accounting, management discussion and analysis, and other required supplementary information. This statement becomes effective for the fiscal year ending June 30, 2002. In June 200I, the GASB also issued Statements Nos. 37 and 38, Basic Financial Statements-and Management's Discussion and Analysis-fo r State and Local Governments: Omnibus and Certain Financial Statement Note Disclosures. These statements further define the presentation and note disclosures required under Statement No. 35. These statements are required to be implemented simuhaneously with the implementation of Statement No. 35. The University will adopt Statements Nos. 35, 37, and 38 as of July l, 2001 . The effect of these statements on the University's financial statements has not yet been determined.

18 APPENDIX C

SUMMARIES OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS

The following is a summary of selected provisions of the Indenture and the Modoc Hall Ground Lease that are not described elsewhere in this Official Statement. These summaries do not purport to be comprehensive and reference should be made to the documents for a full and complete statement of their provisions. All capitalized terms not defined in this Official Statement have the meanings set forth in the Indenture.

DEFINITIONS

Additional Project means any additions, extensions, alterations, or improvements to the facilities of the Foundation that are financed with the proceeds of an additional Series of Bonds.

Annual Debt Service means for each Fiscal Year (or other designated 12-month period of time) the aggregate amount (without duplication) of principal of and interest on all Bonds and Parity Debt to which reference is made becoming due and payable calculated using the principles and assumptions set forth under the definition of Maximum Annual Debt Service.

Bond Reserve Requirement means, as of any date of calculation, the sum of the reserve amounts determined with respect to each Series of Bonds Outstanding, which shall be equal to:

(A) with respect to a Series of Bonds the interest on which is excluded fromgr oss income for federal income tax purposes, (1) the least of (a) Maximum Annual Debt Service, calculated on all Bonds of such Series Outstanding as of such date, (b) 125% of average annual debt service on all Bonds of such Series Outstanding as of such date, and ( c) 10% of the proceeds of the sale of such Series of Bonds, or (2) such larger amount as may be established as the Bond Reserve Requirement by any Supplemental Indenture and that, in the opinion of Bond Counsel, may be funded from Bond proceeds and be invested at an unrestricted yield in accordance with the Code, or

(B) with respect to a Series of Bonds the interest on which is federally taxable, Maximum Annual Debt Service, calculated on all Bonds of such Series Outstanding as of such date.

Bonds means the California State University, Sacramento Foundation Auxiliary Organization Bonds authorized by, and at any time Outstanding pursuant to, the Indenture. Serial Bonds means the Bonds, maturing in specified years, forwhich no Mandatory Sinking Account Payments are provided. Term Bonds means the Bonds payable at or before their specified maturity date or dates from Mandatory Sinking Account Payments established for that purpose and calculated to retire such Bonds on or before their specifiedmaturity date or dates.

Business Day means any day other than a Saturday, Sunday, or a day on which banking institutions in the State are authorized or obligated by law or executive order to be closed.

CSU Board means the Board of Trustees of The California State University.

Defeasance Securities means the following: (A) United States Treasury Certificates, Notes, and Bonds (including State and Local Government Series -- "SLGS").

(B) Direct obligations of the Treasury that have been stripped by the Treasury itself, CATS, TGRS, and similar securities.

(C) Only the interest component of Resolution Funding Corp. (REFCORP) strips that have been stripped by request to the Federal Reserve Bank of New York in book-entry formare acceptable.

C-1 (D) Pre-refunded municipal bonds rated "Aaa" by Moody's and "AAA" by Standard & Poor's. If, however, the bonds are rated by Standard & Poor' s but are not rated by Moody's, then the pre-refunded bonds must have been pre-refunded with cash, direct U.S. or U.S. guaranteed obligations, or Aaa-rated pre-refunded municipal bonds to satisfy this condition.

(E) Obligations issued or guaranteed by the following agencies that are backed by the full faith and credit of the U.S.:

(1) U.S. Export-Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership

(2) Farmers Home Administration (FmHA) Certificates of beneficial ownership

(3) Federal Financing Bank

( 4) General Services Administration Participation certificates

(5) U.S. Maritime Administration Guaranteed Title XI financing

(6) U.S. Department of Housing and Urban Development (HUD) Proj ect Notes Local Authority Bonds New Communities Debentures - U.S. Government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. Government guaranteed public housing notes and bonds

Foundation Board means the Board of Directors of the Foundation.

Indebtedness means any indebtedness or obligation of the Foundation that, in accordance with generally accepted accounting principles, is classified as a liability on a balance sheet.

Indenture means the Indenture dated as of October 1, 1995 by and between the Foundation and BNY Western Trust Company as amended by the First Supplemental Indenture dated as of May 1, 2002 by and between the Foundation and BNY Western Trust Company. Investment Securities means the following: A. Direct obligations of the United States of America (including obligations issued or held in book-entry formon the books of the Department of the Treasury, and CATS and TIGRS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America.

B. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself):

1. U.S. Export-Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership 2. Farmers Home Administration (FmHA): Certificates of beneficial ownership 3. Federal Financing Bank 4. Federal Housing Administration Debentures (FHA) 5. General Services Administration: Participation certificates 6. Government National Mortgage Association (GNMA or "Ginnie Mae") GNMA - guaranteed mortgage-backed bonds

C-2 GNMA - guaranteed pass-through obligations (not acceptable forcertain cash-flow sensitive issues.) 7. U.S. Maritime Administration: Guaranteed Title XI financing 8. U.S. Department of Housing and Urban Development (HUD): Proj ect Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds

C. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following non­ full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself): 1. Federal Home Loan Bank System Senior debt obligations 2. Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac") Participation Certificates Senior debt obligations 3. Federal National Mortgage Association (FNMA or "Fannie Mae") Mortgage-backed securities and senior debt obligations 4. Student Loan Marketing Association (SLMA or "Sallie Mae") Senior debt obligations 5. Resolution Funding Corp. (REFCORP) obligations 6. Farm Credit System Consolidated systemwide bonds and notes

D. Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of AAAm-G; AAA-m; or AA-m and if rated by Moody's rated Aaa, Aal or Aa2.

E. Certificates of deposit secured at all times by collateral described in (A) and/or (B) above. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks. The collateral must be held by a third party and the bondholders must have a perfected firstsecurity interest in the collateral.

F. Certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by FDIC, including BIF and SAIF.

G. Investment Agreements, including GIC's, Forward Purchase Agreements and Reserve Fund Put Agreements acceptable to MBIA (Investment Agreement criteria is available upon request).

H. Commercial paper rated, at the time of purchase, "Prime - 1" by Moody's and "A-1" or better by S&P.

I. Bonds or notes issued by any state or municipality which are rated by Moody's and S&P in one of the two highest rating categories assigned by such agencies.

J. Federal funds or bankers acceptances with a maximum term of one year of any bank which has an unsecured, uninsured and unguaranteed obligation rating of "Prime - 1" or "A3" or better by Moody's and "A-1" or "A" or better by S&P.

K. Repurchase Agreements for30 days or less must follow the following criteria. Repurchase Agreements which exceed 30 days must be acceptable to MBIA (criteria available upon request)

Repurchase agreements provide for the transfer of securities from a dealer bank or secuntles firm (seller/borrower) to a municipal entity (buyer/lender), and the transfer of cash from a municipal entity to the

C-3 dealer bank or securities firm with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the municipal entity in exchange for the securities at a specifieddate.

1. Repos must be between the municipal entity and a dealer bank or securities firm a. Primary dealers on the Federal Reserve reporting dealer list which are rated A or better by Standard & Poor's and Moody's Investor Services, or b. Banks rated "A" or above by Standard & Poor's and Moody's Investor Services.

2. The written repo contract must include the following: a. Securities which are acceptable for transfer are: (1) Direct U.S. governments, or (2) Federal agencies backed by the full faith and credit of the U.S. government (and FNMA & FHLMC) b. The term of the repo may be up to 30 days c. The collateral must be delivered to the municipal entity, trustee (if trustee is not supplying the collateral) or third party acting as agent for the trustee (if the trustee is supplying the collateral) before/simultaneous with payment (perfection by possession of certificatedsecurities). d. Valuation of Collateral (1) The securities must be valued weekly, marked-to-market at currentmarket price plus accrued interest (a) The value of collateral must be equal to 104% of the amount of cash transferred by the municipal entity to the dealer bank or security firm under the repo plus accrued interest. If the value of securities held as collateral slips below 104% of the value of the cash transferred by municipality, then additional cash and/or acceptable securities must be transferred. If, however, the securities used as collateral are FNMA or FHLMC, then the value of collateral must equal 105%. 3. Legal opinion which must be delivered to the municipal entity: a. Repo meets guidelines under state law for legal investment of public funds.

Mandatory Sinking Account Payment means, with respect to Bonds of any Series and maturity, the amount required by the Indenture or a Supplemental Indenture to be deposited by the Foundation in a Sinking Account forthe payment of Term Bonds of such Series and maturity.

Maximum Annual Debt Service means the greatest amount of principal and interest becoming due and payable on all Bonds and Parity Debt in any Fiscal Year including the Fiscal Year in which the calculation is made or any subsequent Fiscal Year; provided, however, that for the purposes of computing Maximum Annual Debt Service: (a) Debt Secured by Letter of Credit: if the Bonds or Parity Debt is secured by an irrevocable letter of credit issued by a bank having a combined capital and surplus of at least one hundred million dollars ($100,000,000), principal payments or deposits with respect to such indebtedness nominally due in the last Fiscal Year in which such indebtedness matures may, at the option of the Foundation, be treated as if they were due as specified in any loan agreement or reimbursement agreement issued in connection with such letter of credit or pursuant to the repayment provisions of such letter of credit; and interest on such indebtedness after such Fiscal Year shall be assumed to be payable pursuant to the terms of such loan agreement or reimbursement agreement or repayment provisions; (b) Variable Rate Indebtedness: if the Bonds or Parity Debt is Variable Rate Indebtedness, the interest rate on such indebtedness for periods when the actual interest rate cannot yet be determined shall be assumed to be equal to the greater of

(i) the current interest rate calculated pursuant to the provisions of the agreement by which the indebtedness was created, and

(ii) if available, the weekly average interest rate on the indebtedness during the 36 months preceding the date of calculation; or, if the indebtedness has not been outstanding for that 36-month period,

C-4 the weekly average interest rate on comparable debt (as determined by the Foundation), as set forth in a certificate filedwith the Trustee and the Foundation; ( c) Funded Interest: principal and interest payments on Bonds and Parity Debt shall be excluded to the extent such payments are to be paid from amounts on deposit with the Trustee or other fiduciary in escrow specifically therefor and to the extent that such interest payments are to be paid from the proceeds of Bonds or Parity Debt held by the Trustee or other fiduciary as funded (capitalized) interest specifically to pay such interest by the Trustee or other fiduciary; (d) Amortization Schedule: in determining the principal amount due in each Fiscal Year, payment shall (unless a different subsection of this definition applies for purposes of determining principal maturities or amortization) be assumed to be made in accordance with any amortization schedule established for such debt, including any Mandatory Sinking Account Payments. Net Income Available for Debt Service means, with respect to any period, the excess of income over expenses (before extraordinary items) of the Foundation, determined in accordance with generally accepted accounting principles, to which shall be added interest, amortization, and depreciation expense and other non-cash charges, each item determined in accordance with generally accepted accounting principles, and to which shall also be added transfers (that are treated as expenses) to funds designated for expenditure at the discretion of the President of California State University, Sacramento, or University faculty, centers, institutes, schools, or departments to be used for research and internal/external relations, and excluding (a) any profits or losses on the sale or disposition, not in the ordinary course of business, of investments or fixed or capital assets or resulting from the early extinguishment of debt, (b) gifts, grants, bequests, donations, and contributions, to the extent specifically restricted by the donor to a particular purpose inconsistent with their use forthe payment of debt service, ( c) the net proceeds of insurance (other than business interruption insurance) and condemnation awards, and (d) amounts deposited into Restricted Funds (as that term is used in the audited financial statements of the Foundation).

Operating Agreement means that certain Operating and Lease Agreement dated as of October 1, 1995, as amended as of October 1, 2001, and as further amended as of May 1, 2002 by and between the Foundation and the CSU Board.

Opinion of Counsel means a written opinion of counsel selected by the Foundation and not objected to by the Trustee.

Outstanding, when used as of any particular time with reference to Bonds, means all Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under the Indenture except (1) Bonds theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation; (2) Bonds with respect to which all liability of the Foundation shall have been discharged; and (3) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Trustee pursuant to the Indenture.

Parity Debt means any indebtedness, installment sale obligation, lease obligation, or other obligation of the Foundation for borrowed money having an equal lien and charge upon the Revenues and therefore payable on a parity with the Bonds.

Person means a Foundation, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof.

Project means the Series 2002 Project and all Additional Projects.

Rating Category means (i) with respect to any long-term rating category, all ratings designated by a particular letter or combination of letters, without regard to any numerical modifier, plus or minus sign or other modifier and (ii) with respect to any short-term or commercial paper rating category, all ratings designated by a particular letter or combination of letters and taking into account any numerical modifier, but not any plus or minus sign or other modifier.

C-5 Redemption Price means, with respect to any Bond ( or portion thereof) the principal amount of such Bond ( or portion) plus the applicable premium, if any, payable upon redemption thereof pursuant to the provisions of such Bond and the Indenture.

Revenues means all proceeds, charges, income, rents, receipts, profits, and benefits of the Foundation, exclusive of any gifts, grants, bequests, donations, and contributions to the extent specificallyrestricted by the donor or grantor to a particular purpose inconsistent with their use for debt service on the Bonds and exclusive of funds received fordeposit into the Campus Programs Fund (as that term is used in the audited financial statements of the Foundation).

Series, whenever used with respect to Bonds, means all of the Bonds designated as being of the same series, authenticated and delivered in a simultaneous transaction, regardless of variations in maturity, interest rate, redemption, and other provisions, and any Bonds thereafter authenticated and delivered upon transfer or exchange or in lieu of or in substitution for(but not to refund) such Bonds

Series 1995 Bonds means the Foundation's Auxiliary Organization Bonds, Series 1995A and Series 1995B.

Series 2001 Bonds means the Foundation's Auxiliary Organization Bonds, Series 2001 (Regional and Continuing Education).

Series 2001 Indenture means the indenture dated October 1, 2001, between the Foundation and BNY Western Trust Company, pursuant to which the Foundation issued the Series 2001Bonds.

Series 2002 Policies means the separate Financial Guaranty Insurance Policies issued by the Series 2002 Bond Insurer insuring the payment when due of the principal of and interest on the Series 2002A Bonds and Series 2002B Bonds as provided therein.

State means the State of California.

Supplemental Indenture means any indenture duly executed and delivered, supplementing, modifying, or amending the Indenture, but only if and to the extent that such Supplemental Indenture is specifically authorized under the Indenture.

Variable Rate Indebtedness means any indebtedness the interest rate on which is not fixed at the time of incurrence of such indebtedness, and has not at some subsequent date been fixed, at a single numerical rate for the entire term of the indebtedness.

THE INDENTURE

Pledge of Revenues; Gross Revenue Fund; Payments to Trustee; Bond Fund

A. Pledge of Revenues. Subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, the Foundation pledges to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms and the provisions of the Indenture, all of the Revenues and any other amounts (including proceeds of the sale of Bonds) held in any fund or account established pursuant to the Indenture ( other than the Rebate Fund). Said pledge constitutes a lien on and security interest in such assets forthe payment of the Bonds in accordance with their terms.

B. Gross Revenue Fund. The Foundation agrees that, so long as any of the Bonds remain Outstanding, all of the Revenues of the Foundation shall be deposited as soon as practicable upon receipt in a fund designated as the "Gross Revenue Fund," which the Foundation has established and maintains under the Indenture and will continue to maintain under the Indenture subject to the provisions described below under the heading "Use of Gross Revenue Fund," in an account or accounts at such banking or financial institution or institutions as the Foundation shall from

C-6 time to time designate in writing to the Trustee for such purpose (the "Depository Bank(s)"). Subject only to the provisions of the Indenture and the Series 2001 Indenture permitting the application thereof forthe purposes and on the terms and conditions set forth therein, the Foundation pledges and, to the extent permitted by law, grants a security interest to the Trustee in the Gross Revenue Fund to secure the payment of the principal of, premium, if any, and interest on the Bonds.

C. Use of Gross Revenue Fund. Amounts in the Gross Revenue Fund may be used and withdrawn by the Foundation at any time forany lawful purpose, except as provided in the Indenture. Except forpayments made in the ordinary course of business for goods and services received by the Foundation or rent payable by the Foundation, the Foundation shall not transfer any Revenues held in the Gross Revenue Fund to the CSU Board, California State University, Sacramento, or any other auxiliary organization of the CSU Board or to an account from which such parties may draw funds unless all deposits described below under the heading "Payments to Trustee" in the current fiscal year have been made. The Foundation shall be entitled to use or withdraw any amounts in the Gross Revenue Fund that do not constitute Revenues.

D. Transfer on Default In the event that on the tenth day prior to any Interest Payment Date, the Trustee does not have amounts sufficientto pay the principal, interest or required Redemption Price of any Bond on such Interest Payment Date, the Trustee shall notify the Foundation and the Depository Bank(s) of such delinquency, and unless such payment is made on the same day the Foundation receives such notice, the Foundation shall cause the Depository Bank(s) to Depository Bank(s) transfer the Gross Revenue Fund to the name and credit of the Trustee. The Gross Revenue Fund shall remain in the name and to the credit of the Trustee fora period of at least six months and until: (1) the amounts on deposit in said fund are sufficient to pay in full (or have been used to pay in full) all transfers and deposits due as described below under the heading "Payments to Trustee" and any deficiencies in the Bond Reserve Fund, and (2) any events of default known to the Trustee shall have been made good or cured or provision shall have been made therefor, whereupon the Gross Revenue Fund (except for the Revenues required to make such payments or cure such defaults) shall be returned to the name and credit of the Foundation. During any period that the Gross Revenue Fund is held in the name and to the credit of the Trustee, the Trustee shall use and withdraw fromtime to time amounts in said fund to make the transfers and deposits required by the Indenture and to such other payments in the order as directed by the Holders of a majority in aggregate principal amount of Bonds then Outstanding. During any period that the Gross Revenue Fund is held in the name and to the credit of the Trustee, all Revenues shall continue to be deposited in the Gross Revenue Fund but the Foundation shall not be entitled to use or withdraw any of the Revenues unless and to the extent that the Trustee, at the direction of the Holders of a majority in aggregate principal amount of Bonds then Outstanding, so directs for the payment of currentor past-due operating expenses of the Foundation.

E. Payments to Trustee. On or before the fifteenth day of each month and so long as any of the Bonds remain Outstanding, the Foundation shall pay to the Trustee such amount as is required by the Trustee to make the debt service transfers and deposits required in such month by the Indenture described below under the heading "Allocations of Moneys."). The Trustee shall forthwith deposit in a trust fund, designated as the "Bond Fund," which fund the Trustee shall designate and maintain, all such payments when and as received by the Trustee. All moneys at any time held in the Bond Fund shall be disbursed, allocated, and applied solely for the uses and purposes set forthin the Indenture.

F. Notice of Deficiency in Monthly Transfer. If by the sixteenth day of each month the Trustee has not received moneys sufficient to make the debt service transfers and deposits required in such month by the Indenture, the Trustee shall immediately notify the Foundation of such insufficiency by telegram, telecopy or telephone (confirmed in writing).

G. Notice of Deficiency Before Interest Payment Date. If on the fifteenth day of the month immediately preceding an Interest Payment Date or principal payment date there are insufficient amounts in the Bond Fund to pay the interest or principal becoming due on such Interest Payment Date or principal payment date, the Trustee shall immediately notify the Foundation. Said notice shall request the Foundation to deposit an amount equal to the deficiency into the Principal Account and/or Interest Account at least eleven days prior to the date on which said payment is due.

C-7 Allocation of Moneys

So long as any Bonds are Outstanding, the Trustee shall set aside the moneys in the Bond Fund in the following respective funds (each of which the Trustee shall establish, maintain, and hold in trust for the benefit of the Holders of the Bonds) in the following amounts, in the following order of priority, the requirements of each such fund (including the making up of any deficiencies in any such fund resulting from lackof moneys sufficientto make any earlier required deposit) at the time of deposit to be satisfiedbefore any deposit is made to any fund subsequent in priority; provided that on a parity with such deposits the Trustee may set aside or transfer amounts with respect to outstanding Parity Debt as provided in the proceedings forsuch Parity Debt delivered to the Trustee (which shall be proportionate in the event such amounts are insufficient to provide for all deposits required as of any date to be made with respect to the Bonds and such Parity Debt):

1. Interest Fund. Commencing in May, 2002, the Trustee shall set aside in the Interest Fund as soon as practicable in each month an amount equal to at least one-sixth of the aggregate half-yearly amount of interest becoming due and payable on the Outstanding Bonds during the next ensuing six months (less the amount of any interest for which there is moneys deposited in the Interest Fund from the proceeds of any Series of Bonds or other source and reserved as capitalized interest to pay such interest during said next ensuing six months), until the requisite half-yearly amount of interest on all such Outstanding Bonds is on deposit in such fund; provided that from the date of delivery of a Series of Bonds until the first Interest Payment Date with respect to such Series the amounts so paid with respect to such Series shall be sufficient on a monthly pro rata basis to pay the aggregate amount of interest becoming due and payable on said Interest Payment Date with respect to such Series.

2. Principal Fund; Sinking Accounts. Commencing in May, 2002, the Trustee shall deposit in the Principal Fund as soon as practicable in each month an amount equal to at least (a) one-sixth of the aggregate semiannual amount of principal becoming due and payable on the Outstanding Serial Bonds of all Series having semiannual maturity dates within the next six months, plus (b) one-twelfth of the aggregate yearly amount of principal becoming due and payable on the Outstanding Serial Bonds of all Series having annual maturity dates within the next twelve months, plus (c) one-sixth of the aggregate of the Mandatory Sinking Account Payments to be paid during the next six-month period into the respective Sinking Accounts forthe Term Bonds of all Series forwhich Sinking Accounts have been created and forwhich semiannual mandatory redemption is required fromsa id Sinking Accounts, plus (d) one-twelfth of the aggregate of the Mandatory Sinking Account Payments to be paid during the next twelve-month period into the respective Sinking Accounts forthe Term Bonds of all Series forwhich Sinking Accounts shall have been created and for which annual mandatory redemption is required from such Sinking Accounts; provided that from the date of delivery of a Series of Bonds until the first principal payment date with respect to such Series the amounts so paid with respect to such Series shall be sufficient on a monthly pro rata basis to pay the aggregate amount of principal becoming payable on said principal payment date with respect to such Series.

3. Bond Reserve Fund. The Trustee shall deposit as soon as possible in each month in the Bond Reserve Fund upon the occurrence of any deficiency therein (i) one-twelfth of the aggregate amount necessary to repay any and all obligations due and payable under the terms and conditions of any letter of credit or any insurance policy used to satisfy the Bond Reserve Requirement by the end of the twelfth month after a draw has been made thereunder and (ii) one-twelfth of the aggregate amount of each unreplenished prior withdrawal of cash from the Bond Reserve Fund and the full amount of any deficiencydue to any required valuations of the investments in the Bond Reserve Fund until the balance in the Bond Reserve Fund is at least equal to the Bond Reserve Requirement.

Any moneys remaining in the Bond Fund after the foregoing transfers described in (1), (2), and (3) above, except as otherwise provided in a Supplemental Indenture, shall be transferred on the same Business Day to the Foundation.

Application of Funds

Interest Fund. All amounts in the Interest Fund shall be used and withdrawn by the Trustee solely forthe purpose of paying interest on the Bonds as it shall become due and payable (including accrued interest on any Bonds purchased or redeemed prior to maturity pursuant to the Indenture).

C-8 Principal Fund. All amounts in the Principal Fund shall be used and withdrawn by the Trustee solely for the purposes of paying the principal of the Bonds when due and payable, except that all amounts in the Sinking Accounts shall be used and withdrawn by the Trustee solely to purchase or redeem or pay at maturity Term Bonds, as provided in the Indenture.

Bond Reserve Fund. A. Letter of Credit. In lieu of making the Bond Reserve Requirement deposit in cash, or in replacement of moneys then on deposit in the Bond Reserve Fund (which shall be transferred by the Trustee to the Foundation), the Foundation may deliver to the Trustee an irrevocable letter of credit issued by a financial institution having unsecured debt obligations rated in one of the two highest Rating Categories of Moody's and Standard & Poor' s, in an amount, together with moneys, Investment Securities, insurance policies, or surety bonds (as described below under the heading "Insurance Policy") on deposit in the Bond Reserve Fund, equal to the Bond Reserve Requirement. Such letter of credit shall have a term no less than three years or, if less, the maturity of the Series of Bonds in connection with which such letter of credit was obtained and shall provide by its terms that it may be drawn upon as described below. At least one year prior to the stated expiration of such letter of credit, the Foundation shall either (i) deliver a replacement letter of credit, (ii) deliver an extension of the letter of credit forat least an additional year or, if less, the maturity of the Series of Bonds in connection with which such letter of credit was obtained, or (iii) deliver to the Trustee an insurance policy or surety bond satisfying the requirements described below under the heading "Insurance Policy." Upon delivery of such replacement letter of credit, extended letter of credit, insurance policy, or surety bond, the Trustee shall deliver the then-effective letter of credit to or upon the order of the Foundation. If the Foundation shall fail to deposit a replacement letter of credit, extended letter of credit, insurance policy, or surety bond with the Trustee, the Foundation shall immediately commence to make monthly deposits with the Trustee so that an amount equal to the Bond Reserve Requirement will be on deposit in the Bond Reserve Fund no later than the stated expiration date of the letter of credit. If an amount equal to the Bond Reserve Requirement as of the date following the expiration of the letter of credit is not on deposit in the Bond Reserve Fund one week prior to the expiration date of the letter of credit (excluding from such determination the letter of credit), the Trustee shall draw on the letter of credit to fund the deficiency resulting therefromin the Bond Reserve Fund.

B. Insurance Policy. In lieu of making the Bond Reserve Requirement deposit in cash, or in replacement of moneys then on deposit in the Bond Reserve Fund (which shall be transferred by the Trustee to the Foundation), the Foundation may also deliver to the Trustee an insurance policy or surety bond securing an amount, together with moneys, Investment Securities, or letters of credit on deposit in the Bond Reserve Fund, no less than the Bond Reserve Requirement issued by an insurance company that, if rated by A.M. Best & Company, is rated in the highest rating category by A.M. Best & Company and whose unsecured debt obligations ( or forwhich obligations secured by such insurance company's insurance policies or surety bonds) are rated in one of the two highest Rating Categories of Moody's and Standard & Poor' s. Such insurance policy or surety bond shall have a term of no less than the maturity of the Series of Bonds in connection with which such insurance policy or surety bond was obtained. In the event that such insurance policy or surety bond for any reason lapses or expires, the Foundation shall immediately implement (i) or (iii) of the preceding paragraph or make the required deposits to the Bond Reserve Fund.

C. Application of Bond Reserve Fund. All amounts in the Bond Reserve Fund (including all amounts that may be obtained from letters of credit, insurance policies, and surety bonds on deposit in the Bond Reserve Fund) shall be used and withdrawn by the Trustee for the purpose of making up any deficiency in the Interest Fund or the Principal Fund. The portion of the Bond Reserve Fund held in cash or Investment Securities may be used (together with any other moneys available therefor) for the payment or redemption of all Bonds then Outstanding; such portion also may be used for the payment of the final principal and interest payment of a Series of Bonds if, following such payment, the amounts in the Bond Reserve Fund (including the amounts that may be obtained from letters of credit, insurance policies, and surety bonds on deposit therein) will equal the Bond Reserve Requirement. The Trustee shall first draw on the portion of the Bond Reserve Fund held in cash or Investment Securities and then, on a pro rata basis with respect to the portion of the Bond Reserve Fund held in the form of letters of credit, insurance policies, and surety bonds (calculated by reference to the maximum amounts of such letters of credit, insurance policies, and surety bonds), draw on each letter of credit and collect under each insurance policy or surety bond issued with respect to the Bond Reserve Fund, in a timely manner and pursuant to the terms of such letter of credit, insurance policy, or surety bond to the extent necessary in order to obtain sufficient funds on or prior to the

C-9 date such funds are needed to pay the principal of, Mandatory Sinking Account Payments with respect to, and interest on the Bonds when due.

In the event that the Trustee has notice that any payment of principal of or interest on a Bond has been recovered from a Bondholder pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with the final, nonappealable order of a court having competent jurisdiction, the Trustee, pursuant to and provided that the terms of the letter of credit, insurance policy, or surety bond, if any, securing the Bonds so provide, shall so notify the issuer thereof and draw on such letter of credit or collect under such insurance policy or surety bond to the lesser of the extent required or the maximum amount of such letter of credit, insurance policy, or surety bond in order to pay to such Bondholders the principal and interest so recovered. If and to the extent that the Bond Reserve Requirement is satisfied by a deposit of cash or Investment Securities and one or more letters of credit, insurance policies, or surety bonds (or any combination thereof), the Trustee shall first draw on the portion of the Bond Reserve Fund held in cash or Investment Securities and then make drawings under such letters of credit, insurance policies, or surety bonds shall be made on a pro rata basis ( calculated by reference to the maximum amounts of such letters of credit, insurance policies, and surety bonds). Any amounts in the Bond Reserve Fund in excess of the Bond Reserve Requirement shall be transferred by the Trustee to the Foundation on October 1 of each year; provided that such amounts shall be transferred only from the portion of the Bond Reserve Fund held in the formof cash or Investment Securities.

If a drawing is made on a letter of credit, insurance policy, or surety bond, the Trustee shall use amounts deposited in the Bond Reserve Fund by the Foundation following such draw first to make the payments required by the terms of the letter of credit, insurance policy, surety bond, or related reimbursement or loan agreement so that the letter of credit, insurance policy, or surety bond shall, absent the delivery to the Trustee of a substitute letter of credit, insurance policy, or surety bond satisfying the requirements of this Section or the deposit in the Bond Reserve Fund of an amount sufficient to increase the balance in the Bond Reserve Fund to the Bond Reserve Requirement, be reinstated in the amount of such drawing within one year of the date of such drawing. After such reinstatement, the Trustee shall use amounts deposited in the Bond Reserve Fund by the Foundation for the replenishment of the portion of Bond Reserve Fund held in cash or Investment Securities.

Redemption Fund. The Trustee will establish, maintain, and hold in trust the Redemption Fund. All moneys deposited by the Foundation with the Trustee for the purpose of optionally redeeming Bonds shall, unless otherwise directed by the Foundation, be deposited in the Redemption Fund. All amounts deposited in the Redemption Fund shall be used and withdrawn by the Trustee solely forthe purpose of redeeming Bonds or for the purchase of Bonds by the Foundation at public or private sale, in the manner, at the times and upon the terms and conditions specifiedin the Indenture.

Rebate Fund. The Trustee shall establish and maintain the Rebate Fund as a fund separate from any other fund held by the Trustee. The Trustee shall disburse moneys fromthe Rebate Fund pursuant to written instructions from the Foundation for the purpose of satisfying the Rebate Requirement (as defined in the Tax Certificate). The Bondholders have no rights in or claim to any moneys deposited in the Rebate Fund.

Construction Fund. The Foundation shall establish and maintain the Construction Fund. The Foundation will establish a separate construction account in the Construction Fund with respect to the Series 2002 Project and each Additional Project. The moneys in each Construction Account will be applied to the payment of the costs of acquisition and construction of the related project (and costs incidental thereto). When a project has been completed, the Foundation shall transfer any remaining balance in the related Construction Account to another Construction Account or to the Trustee for deposit into the Redemption Fund.

Investment of Money in Funds and Accounts

All moneys in any of the funds and accounts held by the Trustee and established pursuant to the Indenture shall be invested solely as directed by the Foundation, solely in Investment Securities.

Moneys in the Bond Reserve Fund shall be invested in Investment Securities maturing or available on demand within fiveyears of the date of such investment, but in no event later than the final maturity of the Bonds.

C-10 Moneys in the remaining funds and accounts shall be invested in Investment Securities maturing or available on demand not later than the date on which it is estimated that such moneys will be required by the Trustee.

Unless otherwise provided in the Indenture or in a Supplemental Indenture, all interest, profits, and other income received from the investment of moneys in any fund or account held by the Trustee shall be transferred to the Bond Fund.

Issuance of Additional Series of Bonds

Authority to Issue Additional Series of Bonds. The Foundation may by Supplemental Indenture establish and issue one or more additional Series of Bonds, secured under the Indenture equally and ratably with Bonds previously issued, subject to, among other things, the following specificcondition s:

1. No Event ofDefault shall have occurred and then be continuing.

2. The Supplemental Indenture providing for the issuance of such Series shall require that the balance in the Bond Reserve Fund, forthwith upon the receipt of the proceeds of the sale of such Series, be increased, if necessary, to an amount at least equal to the Bond Reserve Requirement with respect to all Bonds to be considered Outstanding upon the issuance of such Series. The deposit may be in the form of a letter of credit or insurance policy as described above.

3. The Foundation shall have certifiedto the Trustee that:

(a) the Net Income Available for Debt Service for a period of twelve (12) consecutive months during the eighteen (18) months immediately preceding the date on which such additional Series of Bonds will become Outstanding shall have been at least equal to 1.0 times the amount of Maximum Annual Debt Service on all Series of Bonds and Parity Debt then Outstanding and the additional Series of Bonds then proposed to be issued, and (b) the Net Income Available for Debt Service for the same twelve-month period, calculated including projected revenues and expenses associated with any facility to be financed by such additional Series of Bonds (based on the assumption that the facility was placed in service and operating at the beginning of such twelve-month period) but excluding any lease revenues from the Science II Facility (i.e., Placer Hall), shall have been at least equal to 1.2 times the amount of Maximum Annual Debt Service on all Series of Bonds and Parity Debt then Outstanding and the additional Series of Bonds then proposed to be issued.

If the Additional Bonds refund any Outstanding Bonds, the foregoing requirement shall not apply if Annual Debt Service for all the Bonds is not increased in any year following the issuance of such refunding Additional Bonds. Certain Covenants of the Foundation

Consolidation, Merger. Sale, or Transfer Under Certain Conditions. The Foundation covenants and agrees that it will not dissolve, sell, lease, or otherwise dispose of all or substantially all of its assets, or consolidate with or merge into another Person, or permit one or more other Persons to consolidate with or merge into it; provided, that the Foundation may, without violating the foregoing covenants, consolidate with or merge into, sell, or lease all or substantially all of its assets to another Person, or permit one or more other Persons to consolidate with or merge into it, if:

a. Such actions are permitted by law;

b. The surviving, resulting or transferee Person, as the case may be (1) assumes in writing, if such Person is not the Foundation, all of the obligations of the Foundation under the Indenture and agrees to fulfill and comply with the terms, covenants, and conditions thereof; and (2) is not, after such transaction, otherwise in default under any provision of the Indenture.

C-11 Upon compliance with the foregoing provisions, (i) the Foundation and such Person shall be considered to be one entity forpur poses of the Indenture, (ii) all computations under the Indenture shall be made on a combined basis forthe Foundation and such Person, and (iii) no provision of the Indenture shall apply to transactions between the Foundation and such Person.

A Person may also agree to become a co-obligor and jointly and severally liable with the Foundation (without the necessity of merger, consolidation or transfer of assets) under the Indenture if the foregoing provisions are satisfied. In such event, references in the Indenture to Indebtedness of the Foundation shall be considered to refer to the combined Indebtedness of the Foundation and such Person and references to the financial condition or results of operation of the Foundation shall be considered to refer to the Foundation and such Person, and the Foundation and such Person shall be considered to be the Foundation forall purposesof the Indenture.

Construction of the Series 2002 Project. The Foundation covenants that it will construct the Series 2002 Proj ect in conformity with the plans and specifications prepared by its architects (subject to any changes approved in accordance with the terms of the construction contracts entered into by the Foundation) and with law and all requirements of all governmental authorities having jurisdiction. The Foundation will cause the work of construction of the Series 2002 Proj ect to be diligently prosecuted to completion.

Operating Agreement. The Foundation will not alter, modify, or cancel, or agree or consent to alter, modify, or cancel the Operating Agreement without the written consent of the Holders of a majority in aggregate principal amount of Bonds then Outstanding; provided, however, that the Foundation may, without notice to or the consent of any Holders of the Bonds, consent to alterations or modifications thereof that do not materially adversely affect theinter ests of the Holders of the Bonds then Outstanding.

Without allowance for any days of grace that may or might exist or be allowed by law or granted pursuant to any terms or conditions of the Operating Agreement, the Foundation will in all respects promptly and faithfully keep, perform, and comply with all the terms, provisions, covenants, conditions, and agreements of the Operating Agreement to be kept, performed and complied with by it. The Foundation will not do or permit anything to be done, or omit or refrain from doing anything, in the case where any such act done or permitted to be done, or any such omission of or refraining from action, would or might be a ground for declaring a forfeiture of the Operating Agreement.

Rates and Charges. The Foundation covenants and agrees to fix,charge, and collect, or cause to be fixed, charged, and collected, subject to applicable requirements or restrictions imposed by law, such rates, fees, prices for goods and services, and charges that, together with all other receipts and revenues of the Foundation and any other funds available therefor, will be budgeted forthe next Fiscal Year to be sufficient to produce Net Income Available for Debt Service equal to at least 1.20 times Aggregate Annual Debt Service for all Bonds and Parity Debt then Outstanding for the next Fiscal Year.

Limitations on Liens. The Foundation will not create or incur or sufferor permit to be created or incurred or to exist any mortgage, lien, charge, or encumbrance on or pledge of Revenues, Operating Agreements, or any other property of the Foundation unless the Foundation secures its obligations under the Indenture prior thereto, except that:

1. the Foundation may create, incur, or suffer to exist purchase money mortgages or other purchase money liens upon any real property purchased by the Foundation or acquire real property subject to mortgages and liens existing thereon at the date of acquisition, or acquire or agree to acquire and own personal property subject to or upon chattel mortgages, security agreements, conditional sales agreements, or other title retention agreements; provided that:

a. the principal amount of the indebtedness secured by each such mortgage, lien or agreement shall not exceed 100% of the cost or fair value to the Foundation at the time of the acquisition thereof by the Foundation, whichever is less, of the property subject thereto, as determined by the Foundation Board; and

C-12 b. each such mortgage, lien, or agreement shall apply only to the property originally subject thereto and fixed improvements erected on such real property or affixed to such personal property or equipment used in connection with such real or personal property;

2. the Foundation may modify, extend, renew or replace any mortgage, lien or agreement permitted as described in ( 1) above upon the same property theretofore subject thereto, or modify, replace, renew or extend the indebtedness secured thereby, provided that in any such case the principal amount of such indebtedness so modified, replaced, extended or reviewed shall not be increased; and

3. the Foundation may create or incur liens securing indebtedness permitted by the Indenture or the Series 2001 Indenture.

Payment of Taxes. The Foundation shall pay or cause to be paid as they become due and payable all taxes, assessments, and other governmental charges lawfully levied or assessed or imposed upon any property of the Foundation or its income.

Limitations on Indebtedness. The Foundation will not, so long as any of the Bonds are Outstanding, issue any obligations or securities, howsoever denominated, except the following:

1. Bonds of any Series authorized pursuant to the Indenture.

2. Parity Debt, provided that the following conditions to the issuance of such Parity Debt are satisfied:

a. Such Parity Debt has been duly and legally authorized for any lawful purpose;

b. No Event of Default shall have occurred and then be continuing, as evidenced in a Certificate of the Foundation filed with the Trustee;

c. The Foundation shall have filedan accountant's report with the Trustee ( on the basis of calculations as of the date of delivery of such Parity Debt) that the debt service coverage requirements with respect to additional Bonds have been met with respect to such Parity Debt; and

d. The Foundation shall have filed with the Trustee an Opinion of Counsel to the effect that such Parity Debt has been duly authorized in accordance with law for a lawful purpose and all prior proceedings of the Foundation.

3. Obligations that are junior and subordinate to the payment of the principal, premium, interest, and reserve fund requirements for the Bonds and all Parity Debt.

4. Obligations that are permitted by the Series 2001 Indenture.

Indirect Cost Recovery. In each Fiscal Year, the Foundation will retain the first $750,000 otherwise payable to CaliforniaState University, Sacramento, as indirect cost recovery related to sponsored programs until all deposits required by Section 9.l(E) (Payments to Trustee) of this Indenture and Section 8. l(E) (Payments to Trustee) of the Series 2001 Indenture in that Fiscal Year have been made.

Operating Revenue Fund, (A) Funding and Application of the Operating Revenue Fund. The Trustee shall establish, maintain, and hold in trust forthe benefit of the Holders of the Bonds a fund designated as the "Operating Revenue Fund." On the date of delivery of the Series 2002 Bonds, the Foundation shall transfer from its unrestricted assets the amount of $1,000,000 (the "Required Balance") to the Trustee, and the Trustee shall deposit that amount into the Operating Revenue Fund. The Trustee shall use amounts in the Operating Revenue Fund for the purpose of making up any deficiencies in the Bond Reserve Fund. The Trustee shall deposit as soon as possible in each month in the Operating Revenue Fund, if the balance therein is reduced below the Required Balance, (i) one­ twelfth (I/12th) of the aggregate amount of each unreplenished prior withdrawal of cash fromthe Operating Revenue Fund and the full amount of any deficiency due to any required valuations of the investments in the Operating

C-13 Revenue Fund until the balance in the Operating Revenue Fund is at least equal to the Required Balance. All Investment Securities credited to the Operating Revenue Fund shall be valued at the same time and in the same manner as Investment Securities credited to the Bond Reserve Fund.

(B) Return of Funds to Foundation. On or after July 1, 2005, if the Foundation files with the Trustee a Certificate of an independent certified public accountant certifying that Net Income Available forDebt Service for each of the three Fiscal Years immediately preceding the date of the Certificate has been at least equal to 1.25 times Maximum Annual Debt Service on all Series of Bonds and Parity Debt then Outstanding, the Trustee shall transfer the balance held in the Operating Revenue Fund to the Foundation.

Maintenance of Properties. The Foundation will cause all its properties to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgement of the Foundation may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times.

Insurance. A. Casualty Insurance. The Foundation will at all times keep all its property of an insurable nature of the character usually insured by organizations operating similar properties insured in amounts customarily carried, and against loss or damage from such causes as are customarily insured against, by similar organizations, and will carry the following additional amounts and types of insurance: fire, lightning, and extended coverage insurance, including vandalism and malicious mischief insurance, sprinkler system leakage insurance and boiler explosion insurance, in an amount equal to one hundred percent of the replacement cost of such properties (except that such insurance may be subject to deductible clauses forany one loss of not to exceed the lesser of $100,000 or the amount in the Bond Reserve Fund in excess of one-fourth of the Maximum Annual Debt Service and available for that purpose) or, in the alternative, in an amount and in a form sufficient (together with moneys in the Bond Reserve Fund and available forthat purpose), in the event of total or partial loss, to enable the Foundation either to retire all Bonds then outstanding or to restore such properties to the condition existing before such loss. Said extended coverage endorsement shall, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such endorsement. Each such policy of insurance shall contain a clause making all losses payable to the Trustee as its interest may appear. All such insurance shall be effected with responsible insurance carriers.

B. Application of the Proceeds of Casualty Insurance. In the event of any damage to or destruction of any property caused by the perils covered by such insurance, the Foundation, except as described below, shall cause the proceeds of such insurance to be utilized forthe repair, reconstruction, or replacement of the damaged or destroyed portion of the property, and the Trustee shall hold proceeds separate and apart from all other funds in a special fund it is authorized to establish, to the end that such proceeds shall be applied to the repair, reconstruction, or replacement of the property to at least the same good order, repair, and condition as it was in prior to the damage or destruction, insofar as the same may be accomplished by the use of such proceeds. The Trustee shall permit withdrawals of said proceeds from time to time upon receiving the Written Request of the Foundation, stating that the Foundation has expended moneys or incurred liabilities in an amount equal to the amount requested to be paid over to it forthe purpose of repair, reconstruction, or replacement, and specifying the items of which such moneys were expended, or such liabilities incurred. Any balance of said proceeds not required for such repair, reconstruction, or replacement shall be paid over to the Foundation by the Trustee. Alternatively, the Foundation, at its option, and if the proceeds of such insurance together with any other moneys then available for the purpose are at least sufficient to redeem an aggregate principal amount of Outstanding Bonds of the series whose proceeds were used to acquire or construct such property, equal to the amount of Outstanding Bonds of the series attributable to such property ( determined by reference to the proportion which the reconstruction or replacement cost of such property bears to the construction or acquisition cost of all property included in the phase of the Proj ect of which said property is a part), may elect not to repair, reconstruct, or replace the damaged or destroyed portion of the Proj ect and thereupon shall cause said proceeds to be used forthe redemption of Outstanding Bonds of such series pursuant to the provisions of the Indenture or of the Supplemental Indenture pursuant to which such series was issued and Article 5; provided, however, that the excess, if any, of the proceeds of such insurance over the amounts used for the redemption of Outstanding Bonds is to be remitted to the Foundation.

C-14 C. Liability Insurance. (1) Except as described in subparagraph (2) below, the Foundation shall maintain or cause to be maintained, at all times while any of the Bonds are outstanding, public liability insurance, with limits of not less than $1,000,000 for one person and $3,000,000 for more than one person involved in one accident, to protect the Foundation and its members, directors, officers, agents and employees and the Trustee from all direct or contingent loss or liability for damages for bodily injury or death occasioned by reason of the Foundation's operations including any use or occupancy of its properties. The Foundation shall also maintain or cause to be maintained, so long as any of the Bonds are outstanding, insurance against liability forproperty damage resulting from anycasua lty attributable to the Foundation's operations, in an amount not less than $200,000 foreach accident. Such public liability insurance and such property damage insurance may be subject to a deductible clause of not to exceed $50,000 for any one accident. Such public liability insurance and such property damage insurance may, however, be in the form of a single limit policy in the amount of $3,000,000 covering all such risks.

(2) The Foundation shall have the right, exercisable fromtime to time, to provide other kinds of insurance or methods or plans of protection against risk or loss, which shall be in substitution, or partial substitution, for any of the kinds of insurance required to be maintained by the Foundation under the Indenture, providing such other kinds of insurance, plans or methods shall afford reasonable protection to the Foundation, its directors, officers, agents and employees and the Trustee in light of all circumstances giving consideration to cost availability, and plans or methods of protection adopted by California Foundations similar to the Foundation. Before another method or plan may be provided by the Foundation, there shall be filed with the Trustee a certificate of an actuary, or other qualified person, stating that, in the opinion of the signer, the substitute method or plan of protection is in accordance with the requirements described in this paragraph and, when effective, would afford adequate protection to the Foundation, its directors, officers, agents and employees and the Trustee against loss and damage from hazards and risks covered thereby. There shall also be filed with the Trustee a Certificate of the Foundation setting forththe details of such substitute method or plan.

D. Business Interruption Insurance. The Foundation shall maintain or cause to be maintained, at all times while any of the Bonds are Outstanding, business interruption insurance in an amount not less than Maximum Annual Debt Service; in either case insuring against loss caused by the perils covered by the required insurance described in (A) above, except that such insurance may be subject to a deductible clause of not to exceed the aggregate total amount payable during the first thirty days of any loss. Any such insurance policy shall contain a loss payable clause making any loss thereunder payable to the Trustee, as its interest may appear.

E. Bond Insurance. The Foundation may purchase, on all or any of the Bonds of any series, insurance assuring the Bondholders that the principal of and interest on the insured Bonds will be paid when due and payable. The purchase of any such insurance shall not constitute a preference or priority of the insured Bonds over any Bonds not so insured, and all Bonds outstanding, irrespective of the providing of such insurance on some of the Bonds, shall be equally and proportionately secured by the Indenture.

Eminent Domain. If any property of the Foundation shall be taken by eminent domain proceedings ( or sold to a government threatening to exercise the power of eminent domain), the proceeds therefrom shall be deposited with the Trustee in a special fund in trust, which shall be applied and disbursed by the Trustee as follows:

1. a. If the Trustee is furnished with a report to the effect that such eminent domain proceedings have not materially affected the ability of the Foundation to meet any of its obligations under the Indenture, and if such report states that such proceeds are not needed for repair or rehabilitation of Foundation facilities the Trustee shall deliver such proceeds to the Foundation.

b. If the Trustee is furnished with a report to the effect that such eminent domain proceedings have not materially affected the ability of the Foundation to meet any of its obligations under the Indenture, and if such report states that such proceeds are needed for repair or rehabilitation of Foundation facilities, the Trustee shall pay to the Foundation, or to its order, from said proceeds such amounts as the Foundation may expend for such repair or rehabilitation, upon the filing with the Trustee of such Written Requisitions of the Foundation, certificates of architects or engineers.

C-15 c. In making any such application (including the application mentioned in the following paragraph (2)), the Trustee shall be provided, at the expense of the Foundation, the report of an independent engineer or other independent professional consultant. Any such application by the Trustee shall be final.

2. If less than all of the property of the Foundation shall have been taken in such eminent domain proceedings, and if the Trustee is furnished a report of an independent engineer concluding that such eminent domain proceedings have materially affected the ability of the Foundation to meet any of its obligations under the Indenture, the Trustee shall apply such proceeds to the redemption of Bonds of such series as specified by the Foundation in the manner provided in the Indenture.

3. a. If all of the property of the Foundation shall have been taken in such eminent domain proceedings and if such proceeds, together with any other moneys then available to the Trustee for the purpose, are sufficient to provide for the payment of the entire amount of principal then due or to become due upon the Bonds, together with the interest thereon, so as to enable the Foundation to retire all of the Bonds then Outstanding by redemption or by payment at maturity, the Trustee shall apply such proceeds to the payment of such interest and to such retirement.

b. If all of the property of the Foundation shall have been taken in such eminent domain proceedings and if such proceeds, together with any other moneys then available to the Trustee forthe purpose, are insufficient to provide moneys for the purposes specifiedin subparagraph (a) of this paragraph (3), the Trustee shall declare that an Event of Default exists and take such actions as may be appropriate.

4. After all of the Bonds have been retired and the entire amount of principal due or to become due upon the Bonds, together with the interest thereon, have been paid in full, the Trustee shall pay the remainder of such proceeds to the Foundation.

Federal Income Tax Covenants. The Foundation covenants that it will at all times do and performall acts and things permitted by law and the Indenture that are necessary and desirable in order to assure that interest on the Series 2002A Bonds will be excluded from gross income for federal income tax purposes and will take no action that would result in such interest not being so excluded.

Events of Defaultand Remedies of Bondholders

Events of Default. The following events shall be Events of Default:

1. default in the due and punctual payment of the principal or Redemption Price of any Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption, by declaration or otherwise, or default in the redemption from any Sinking Account of any Bonds in the amounts and at the times provided therefor;

2. default in the due and punctual payment of any installment of interest on any Bond when and as such interest installment shall become due and payable;

3. failure by the Foundation to observe or perform any covenant, condition, agreement, or provision in the Indenture on its part to be observed or performed, other than as referred to in paragraph (1) or (2) above, for a period of 60 days after written notice, specifying such failure and requesting that it be remedied, has been given to the Foundation by the Trustee; except that, if such failure can be remedied but not within such 60-day period and if the Foundation has taken all action reasonably possible to remedy such failure within such 60-day period, such failure shall not become an Event of Default forso long as the Foundation shall diligently proceed to remedy same in accordance with and subject to any directions or limitations of time established by the Trustee;

4. any default under the Indenture or any agreement governing any Parity Debt and such defaultshall continue beyond the grace period, if any, provided forwith respect to such default;

C-16 5. filing by the Foundation of a petition in voluntary bankruptcy, forthe composition of its affairs, or for its corporate reorganization under any state or federal bankruptcy or insolvency law, or makes an assignment forthe benefit of creditors, or admits in writing to its insolvency or inability to pay debts as they mature, or consents in writing to the appointment of a trustee or receiver;

6. entry by a court of competent jurisdiction of an order, judgment or decree declaring the Foundation insolvent, or adjudging it bankrupt, or appointing a trustee or receiver of the Foundation, or approving a petition filed against the Foundation seeking reorganization of the Foundation under any applicable law or statute of the United States of America or any state thereof, and such order, judgment or decree shall not be vacated or set aside or stayed within 60 days fromthe date of the entry thereof; or

7. assumption of custody or control of the Foundation by any court of competent jurisdiction under the provisions of any other law forthe relief or aid of debtors and such custody or control shall not be terminated within 60 days from the date of assumption of such custody or control.

Acceleration of Maturities. If an Event of Default shall occur, then, and in each and every such case during the continuance of such Event of Default, the Trustee may or, upon the receipt of written instructions from the Holders of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding, shall, upon notice in writing to the Foundation, declare the principal of all of the Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in the Indenture or in the Bonds contained to the contrary notwithstanding.

Any such declaration, however, is subject to the condition that if, at any time after such declaration and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, the Foundation shall deposit with the Trustee a sum sufficient to pay all the principal or Redemption Price of the Bonds due prior to such declaration and all matured installments of interest on the Bonds payment of which is overdue, with interest on such overdue payments of principal and interest installments at the rate borne by the respective Bonds, and the reasonable charges and expenses of the Trustee, and any and all other defaults of which the Trustee has actual knowledge (other than in the payment of principal of and interest on the Bonds due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, if such declaration was made by the Trustee in accordance with written instructions of the Holders, the Trustee shall, upon receipt of written instructions of the Holders of not less than a majority in aggregate principal amount of the Bonds then Outstanding, by written notice to the Foundation, or, if such declaration was made by the Trustee, the Trustee may, on behalf of the Holders of all of the Bonds, rescind and annul such declaration and its consequences and waive such default; but no such rescission and annulment shall extend to or shall affect any subsequent default or shall impair or exhaust any right or power consequent thereon.

The provisions described in the preceding two paragraphs are subject to the right of the Bond Insurer to control and direct the enforcement of all rights and remedies granted to the Bondholders or the Trustee. See "Consent of the Series 2002 Bond Insurer" below.

Application of Money Collected. If an Event of Default shall occur and be continuing, the Trustee shall apply all funds then held or thereafter received by the Trustee under any of the provisions of the Indenture (except as otherwise provided in the Indenture) as follows and in the following order:

1. To the payment of any expenses necessary in the opinion of the Trustee to protect the interests of the Holders of the Bonds and Parity Debt, including the costs and expenses of the Trustee and the Bondholders in declaring such Event of Default, and payment of reasonable fees and expenses of the Trustee (including reasonable fees and disbursements of its counsel and other agents) incurredin and about the performance of its powers and duties under the Indenture;

C-17 2. To the payment of the whole amount of principal then due on the Bonds and Parity Debt (upon presentation of the Bonds and Parity Debt to be paid, and stamping thereon of the payment if only partially paid, or surrender thereof if fully paid) subject to the provisions of the Indenture, with interest on such principal, at the rate or rates of interest borne by the respective Bonds and Parity Debt as follows:

a. Unless the principal of all of the Bonds and Parity Debt shall have become or have been declared due and payable, to the payment to the persons entitled thereto of all installments of interest then due and the unpaid principal or Redemption Price of any Bonds and Parity Debt that shall have become due, whether at maturity or by call for redemption, in the order of their due dates, with interest on the overdue principal at the rate borneby the respective Bonds and Parity Debt, and, if the amount available shall not be sufficient to pay in full all the Bonds and Parity Debt due on any date, together with such interest, then to the payment thereof ratably, according to the amounts of principal or interest due on such date to the persons entitled thereto, without any discrimination or preference.

b. If the principal of all of the Bonds and Parity Debt shall have become or have been declared due and payable, to the payment of the principal and interest then due and unpaid upon the Bonds and Parity Debt, with interest on the overdue principal at the rate or rates borne by the respective Bonds and Parity Debt, and, if the amount available shall not be sufficient to pay in full the whole amount so due and unpaid, then to the payment thereof ratably, without preference or priority of principal over interest, or of interest over principal, or of any installment of interest over any other installment of interest, or of any Bond over any other Bond, according to the amounts due respectively for principal and interest, to the persons entitled thereto without any discrimination or preference.

Trustee to Represent Bondholders. The Trustee is irrevocably appointed (and the successive respective Holders of the Bonds, by taking and holding the same, shall be conclusively deemed to have so appointed the Trustee) as trustee and true and lawful attorney-in-fact of the Holders of the Bonds forthe purpose of exercising and prosecuting on their behalf such rights and remedies as may be available to such Holders under the provisions of the Bonds, the Indenture and applicable provisions of law. Upon the occurrence and continuance of an Event of Default or other occasion giving rise to a right in the Trustee to represent the Bondholders, the Trustee in its discretion may, and upon the written request of the Holders of not less than 25% in aggregate principal amount of the Bonds then Outstanding (provided that, if more than one such request is received by the Trustee from Holders, the Trustee shall follow the written request executed by the Holders of the greatest percentage of principal amount of the Bonds then Outstanding in excess of 25% ), and upon being indemnified to its satisfaction therefor, shall, proceed to protect or enforce its rights or the rights of such Holders by such appropriate action, suit, mandamus, or other proceedings as it shall deem most effectual to protect and enforce any such right, at law or in equity, either for the specific performance of any covenant or agreement contained in the Indenture, or in aid of the execution of any power granted in the Indenture, or for the enforcement of any other appropriate legal or equitable right or remedy vested in the Trustee or in such Holders under the Indenture or any law.

Limitation on Suits. No Holder of any Bond shall have the right to institute any suit, action, or proceeding at law or in equity, forthe protection or enforcement of any right or remedy under the Indenture or any applicable law with respect to such Bond, unless (1) such Holder shall have given to the Trustee written notice of the occurrence of an Event of Default; (2) the Holders of not less than 25% in aggregate principal amount of the Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers granted under the Indenture or to institute such suit, action or proceeding in its own name (provided that, if more than one such request is received by the Trustee from Holders, the request referred to above shall mean the request executed by the Holders of the greatest percentage of principal amount of the Bonds then Outstanding in excess of 25% and any suit, action, or proceeding instituted by an Holder shall conformto that contemplated by the request); (3) such Holder or said Holders shall have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee shall have refused or omitted to comply with such request for a period of 60 days after such written request shall have been received by, and said tender of indemnity shall

C-18 have been made to, the Trustee; and (5) the Trustee shall not have received contrary directions fromthe Holders of a majority in aggregate principal amount of the Bonds then Outstanding.

Such notification, request, tender of indemnity, and refusal or omission are conditions precedent to the exercise by any Holder of Bonds of any remedy under the Indenture or under law; it being understood and intended that no one or more Holders of Bonds shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of the Indenture or the rights of any other Holders of Bonds or to enforce any right under the Indenture or applicable law with respect to the Bonds, except in the manner provided in the Indenture, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner provided in the Indenture and for the benefit and protection of all Holders of the Outstanding Bonds, subject to the provisions of the Indenture.

Control by Bondholders. Anything in the Indenture to the contrary notwithstanding, the Holders of a majority in aggregate principal amount of the Bonds then Outstanding shall have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee and upon furnishing the Trustee with indemnification satisfactory to it, to direct the method of conducting all remedial proceedings taken by the Trustee, provided that such direction shall not be otherwise than in accordance with law and the provisions of the Indenture, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction, and that the Trustee shall have the right to decline to follow any such direction that in the opinion of the Trustee would be unjustly prejudicial to Bondholders or owners of Parity Debt not parties to such direction.

Modificationor Amendment of the Indenture

Suoolemental Indentures Without Consent of Bondholders. The Indenture and the rights and obligations of the Foundation, of the Trustee, and of the Holders of the Bonds may be modifiedor amended from timeto time and at any time by a Supplemental Indenture, which the Foundation may adopt without the consent of any Bondholders but only to the extent permitted by law and only for any one or more of the following purposes:

1. to add to the covenants and agreements of the Foundation contained in the Indenture other covenants and agreements thereafter to be observed, to pledge or assign additional security forthe Bonds ( or any portion thereof), or to surrender any right or power reserved to or conferred upon the Foundation in the Indenture; 2. to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision, contained in the Indenture, or in regard to matters or questions arising under the Indenture, as the Foundation may deem necessary or desirable, and that shall not materially and adversely affect the interests of the Holders of the Bonds; 3. to modify, amend, or supplement the Indenture in such manner as to permit the qualification of the Indenture under the Trust Indenture Act of 1939, as amended, or any similar federal statute in effect at any time, and to add such other terms, conditions, and provisions as may be permitted by said act or similar federal statute, and that shall not materially and adversely affect the interests of the Holders of the Bonds; 4. to provide for the issuance of Bonds in book-entry form, provided that no such provision shall materially and adversely affect the interests of the Holders of the Bonds; 5. to make modifications or adjustments necessary, appropriate, or desirable to accommodate credit enhancements including letters of credit, insurance policies, and surety bonds delivered with respect to the Bond Reserve Fund; 6. to create any additional Series of Bonds in accordance with the requirements of the Indenture; and 7. for any other purpose that does not materially and adversely affect the interests of the Holders of the Bonds.

C-19 Supplemental Indentures with Consent of Bondholders or Credit Providers. A. The Indenture and the rights and obligations of the Foundation, the Holders of the Bonds, and the Trustee may be modified or amended from time to time and at any time by a Supplemental Indenture, which the Foundation and the Trustee may enter into with the written consent of the Holders of a majority in aggregate principal amount of the Bonds (or, if such Supplemental Indenture is only applicable to a Series of Bonds, such Series of Bonds) then Outstanding shall have been filed with the Trustee; provided that, if such modification or amendment will, by its terms, not take effect so long as any Bonds of any particular maturity remain Outstanding, the consent of the Holders of such Bonds shall not be required and such Bonds shall not be deemed to be Outstanding for the purpose of any calculation of Bonds Outstanding.

B. The Indenture and the rights and obligations of the Foundation and of the Holders of the Bonds and of the Trustee may also be modified or amended at any time by a Supplemental Indenture entered into by the Foundation and the Trustee, which shall become binding when the written consents of each provider of a letter of credit or a policy of bond insurance forthe Bonds shall have been filed with the Trustee, provided that at such time the payment of all the principal of and interest on all Outstanding Bonds shall be insured by a policy or policies of municipal bond insurance or payable under a letter of credit the provider of which shall be a financial institution or association having unsecured debt obligations rated, or insuring or securing other debt obligations rated on the basis of such insurance or letters of credit, in one of the two highest Rating Categories of Moody's and Standard & Poor's.

C. No such modification or amendment shall extend the fixed maturity of any Bond, or reduce the amount of principal thereof, or extend the time of payment or reduce the amount of any Mandatory Sinking Account Payment provided for the payment of any Bond, or reduce the rate of interest thereon, or extend the time of payment of interest thereon, or reduce any premium payable upon the redemption thereof, without the consent of the Holder of each Bond so affected, or c. reduce the aforesaid percentage of Bonds the consent of the Holders of which is required to effect any such modification or amendment, or permit the creation of any lien on the assets pledged under the Indenture prior to or on a parity with the lien created by the Indenture, or deprive the Holders of the Bonds of the lien created by the Indenture on such assets (in each case, except as expressly provided in the Indenture), without the consent of the Holders of all of the Bonds then Outstanding.

Defeasance

Discharge of Indenture. Bonds of any Series may be paid by the Foundation in any of the following ways:

a. by paying or causing to be paid the principal of and interest on such Bonds, as and when the same become due and payable;

b. by depositing with the Trustee, an escrow agent or other fiduciary, in trust, at or before maturity, money or securities in the necessary amount to pay or redeem such Bonds; or

c. by delivering such Bonds to the Trustee forcancellation by it.

If the Foundation shall pay all Series for which any Bonds are Outstanding and also pay or cause to be paid all other sums payable under the Indenture by the Foundation, then and in that case, at the election of the Foundation, evidenced by a Certificate of the Foundation filed with the Trustee signifying the intention of the Foundation to discharge all such indebtedness and the Indenture, and notwithstanding that any Bonds shall not have been surrendered forpayment, the Indenture, the pledge of assets made under the Indenture, all covenants and agreements and other obligations of the Foundation under the Indenture, and the rights and interests created by the Indenture (except as to any surviving rights of transfer or exchange of Bonds and rights to payment from moneys deposited with the Trustee) shall cease, terminate, become void, and be completely discharged and satisfied.

In such event, upon Request of the Foundation, the Trustee shall cause an accounting for such period or periods as may be requested by the Foundation to be prepared and filed with the Foundation and shall execute and deliver to the Foundation all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over, transfer, assign, or deliver to the Foundation all moneys or securities or

C-20 other property held by it pursuant to the Indenture that, as evidenced by a verification report (upon which the Trustee may conclusively rely) from a firm of certified public accountants, or other firm acceptable to the Trustee, are not required for the payment or redemption of Bonds not theretofore surrendered for such payment or redemption.

Discharge of Liability on Bonds. Upon the deposit with the Trustee, escrow agent or other fiduciary, in trust, at or before maturity, of money or Defeasance Securities in the necessary amount to pay or redeem any Outstanding Bond (whether upon or prior to its maturity or the redemption date of such Bond), then all liability of the Foundation in respect of such Bond shall cease, terminate, and be completely discharged, except that thereafter (i) the Holder thereof shall be entitled to payment of the principal of and premium, if any, and interest on such Bond by the Foundation and the Foundation shall remain liable forsuch payment, but only out of such money or securities deposited with the Trustee as aforesaid fortheir payment and (ii) the Holder thereof shall retain its rights of transfer or exchange of Bonds.

The Foundation may at any time surrender to the Trustee forcancellation by it any Bonds previously issued and delivered, which the Foundation may have acquired in any manner whatsoever, and such Bonds, upon such surrender and cancellation, shall be deemed to be paid and retired.

Consent of the Series 2002 Bond Insurer

So long as the Policies are in effect and the Series 2002 Bond Insurer is not in default with respect to its payment obligations thereunder, the following provisions shall be in effect:

(A) Control of Remedies. Upon the occurrence and continuance of an Event of Default, the Series 2002 Bond Insurer shall be entitled to control and direct the enforcement of all rights and remedies granted to the Holders of the Series 2002 Bonds, including, without limitation, (1) the right to accelerate the principal of the Series 2002 Bonds and (2) the right to annul any declaration of acceleration; and the Series 2002 Bond Insurer shall also be entitled to approve all waivers of Events of Default concerning the Series 2002 Bonds.

(B) Amendments and Supplements. The Series 2002 Bond Insurer's consent (which consent shall not be unreasonably withheld) shall be required (in addition to the consent of the Holders of the Bonds when required) for the following purposes: (1) the execution and delivery of any Supplemental Indenture that requires the consent of Bondholders and (2) the execution and delivery of any Supplemental Indenture for the issuance of an additional Series of Bonds.

THE MODOC HALL GROUND LEASE

Lease of Site. Pursuant to the Modoc Hall Ground Lease, the CSU Board will lease to the Foundation the site on which the Modoc Hall Facility will be constructed (the "Site"). The CSU Board covenants to deliver possession of the Site to the Foundation upon commencement of the term of the Modoc Hall Ground Lease and further covenants that, subject to the limitations expressly set forth therein, the Foundation, upon performing all covenants in the Modoc Hall Ground Lease, may quietly have, hold, and enjoy the Site during the term of the Modoc Hall Ground Lease and any extended term thereof, without hindrance or interruption of the CSU Board.

The Site shall be used by the Foundation during the term of the Modoc Hall Ground Lease solely forthe purpose of constructing, owning, operating, and maintaining the Modoc Hall Facility and adj acent grounds and other purposes related thereto. The Modoc Hall Facility shall be used primarily to provide space for use by the United States Geological Survey, use by the University, use by the Foundation, and for such other purposes as may be ancillary and related thereto.

Term. The term of the Modoc Hall Ground Lease shall commence on the earlier of the date of recordation of the Modoc Hall Ground Lease in the office of the County Recorder of Sacramento County and May 1, 2002, and shall terminate on October 1, 2037 unless such term is extended or sooner terminated. If on October 1, 2037, any Bonds or other indebtedness of the Foundation incurred to pay forthe financing or refinancing of the Modoc Hall

C-21 Facility shall not be fully paid or no longer outstanding under the terms of the Indenture or other borrowing documents authorizing such other indebtedness shall not be discharged by its terms, then the term of the Modoc Hall Ground Lease shall be extended until ten days after all Bonds and other indebtedness of the Foundation incurred to pay for the Modoc Hall Facility shall be fully paid or no longer outstanding and any such indenture shall be discharged by its terms, except that the term of the Modoc Hall Ground Lease shall in no event be extended beyond October 1, 2037. If prior to October 1, 2037, all Bonds and other indebtedness of the Foundation relating to the Modoc Hall Facility shall be fully paid or no longer outstanding under the terms of the Indenture and any other borrowing document shall be discharged by its terms, the term of the Modoc Hall Ground Lease shall end ten days thereafter or ten days after written notice by the Foundation to the CSU Board, whichever is earlier.

The Modoc Hall Facility shall become the property of the CSU Board without additional cost at the termination of the Modoc Hall Ground Lease.

Charges for Services Provided by the CSU Board. The Foundation shall reimburse the CSU Board for reasonable expenditures incurred by the CSU Board as a result of activities of the Foundation under the terms of the Modoc Hall Ground Lease. This reimbursement shall include, but not be limited to, utility costs, custodial services, maintenance cost, and supplies.

Insurance. The Foundation shall maintain or cause to be maintained, at all times during the term of the Modoc Hall Ground Lease and all extensions thereof, fire, lightning, and extended coverage insurance, including vandalism and malicious mischief insurance, sprinkler system leakage insurance and boiler explosion insurance, and, following completion of construction of the Modoc Hall Facility, earthquake insurance (but only if such insurance is available at reasonable cost on the open market fromreputable insurance companies), either as a part of comprehensive insurance carried by the Foundation or as a part of insurance carried by a contractor under a construction contract, on all structures constituting any part of the Modoc Hall Facility, in an amount equal to 100% of the replacement cost of such structures or, in the alternative, in an amount and in a form sufficient (together with other moneys available forthat purpose), in the event of total or partial loss, to enable the Foundation either to retire all Bonds then outstanding or to restore such structures to the condition existing before such loss. Said extended coverage endorsement shall, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such endorsement.

The proceeds of said casualty insurance received in connection with damage to or destruction of the Modoc Hall Facility, including any additions thereto, will, subject to the terms and conditions of the Indenture, (a) be used to reconstruct the Modoc Hall Facility, regardless of whether the insurance proceeds are sufficient to pay for the reconstruction, or (b) be remitted to the CSU Board.

The Foundation shall maintain in force during the term of the Modoc Hall Ground Lease and all extensions thereof public liability and property damage insurance in the sum of $1,000,000 for injury to or death of any one person for each occurrence, in the sum of $3,000,000 for injury to or death of more than one person for each occurrence, and in the sum of $200,000 for damages to property for each occurrence, except that such public liability and property damage insurance may be subject to a deductible clause not to exceed $50,000. Such public liability insurance and such property damage insurance may, however, be in the form of a single limit policy in the amount of $3,000,000 covering all such risks.

Termination. The Modoc Hall Ground Lease shall terminate upon the occurrence of any of the following conditions: a. Expiration of the lease term; b. Failure to perform any substantial provision of the Modoc Hall Ground Lease; c. Cessation of operations of the Foundation; d. The assignment or subleasing of any part of the Site or the Modoc Hall Facility without the written permission of the CSU Board; provided, however, that with respect to any of the foregoing events described in clauses (b) through (d), inclusive, the CSU Board and the Foundation agree that the Trustee shall have the right, but shall not be obligated to, cure any default by the Foundation under the Modoc Hall Ground Lease. Upon the occurrence of an event described in clauses (b) through (d), inclusive, and prior to terminating the Modoc Hall Ground Lease, the CSU Board shall take

C-22 all reasonable action to approve a successor Foundation or entity to the Foundation and assign and transfer the net assets of the Foundation including, without limitation, the Modoc Hall Ground Lease) to such successor Foundation or entity. The CSU Board and the Foundation shall provide notice to the Trustee in the event of any failure to perform any provision of the Modoc Hall Ground Lease.

Right of Entry. The CSU Board shall have the right to enter upon the Site and the Modoc Hall Facility for the purposes of inspection, or any other lawful purpose, including, without being limited to, the right to enter to inspect construction work during the course of construction forcompliance with the provisions of the Modoc Hall Ground Lease.

Liens. In the event the Foundation shall at any time during the term of the Modoc Hall Ground Lease cause any changes, alterations, additions, improvements, or other work to be done or performed or materials to be supplied, in or upon the Site and Modoc Hall Facility, the Foundation shall pay, when due, all sums of money that may become due for any labor, services, materials, supplies or equipment furnished to or forthe Foundation in, upon or about the Site and Modoc Hall Facility and which may be secured by any mechanics', materialmen's or other lien against the Site and Modoc Hall Facility or the Foundation interest therein, and will cause each such lien to be fully discharged and released at the time the performance of any obligation secured by any such lien matures or comes due, except that, if the Foundation desires to contest any such lien, it may do so.

Encumbrance of Leasehold. With the exception of the Modoc Hall Ground Lease and the Indenture, the Foundation shall not encumber the CSU Board's fee title. Other than the indenture, the Foundation shall not have the right to subject the Modoc Hall Ground Lease to any mortgage nor subject the Modoc Hall Ground Lease to any trust deed or other security device, without the prior written consent of the CSU Board, which consent shall not be unreasonably withheld.

Amendments. The Modoc Hall Ground Lease may not be amended, changed, modified or altered without the prior written consent of the Foundation and the CSU Board.

Non-Liability of CSU Board. Any obligation of the CSU Board created by or arising out of the Modoc Hall Ground Lease shall not impose a debt or pecuniary liability upon the CSU Board or the State of California or a charge upon the general credit or taxing powers thereof but shall be payable solely out of funds duly authorized and appropriated by the State of California.

The delivery of the Modoc Hall Ground Lease shall not, directly or indirectly, or contingently, obligate the CSU Board or the State of California to levy any form of taxation therefor or to make any appropriation. Nothing in the Modoc Hall Ground Lease or in the proceedings of the CSU Board shall be construed to authorize the CSU Board to create a debt of the CSU Board or the State of California within the meaning of any constitutional or statutory provision of the State of California. No breach of any pledge, obligation, or agreement made or incurred in connection with the Modoc Hall Ground Lease may impose any pecuniary liability upon, or any charge upon the general credit or against the taxing power of, the CSU Board or the State of California.

C-23 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX D

PROPOSED FORM OF CONTINUING DISCLOSURE AGREEMENT

This Continuing Disclosure Agreement ( the "Disclosure Agreement") is entered into by the California State University, Sacramento Foundation (the "Foundation") and BNY Western Trust Company (the "Trustee" and the "Dissemination Agent"), in connection with the issuance of California State University, Sacramento Foundation Auxiliary Organization Bonds, Series 2002A and Series 2002B (federally taxable) (Modoc Hall) (the "Series 2002 Bonds"). The Series 2002 Bonds are being issued pursuant to an Indenture dated October 1, 1995 as supplemented by a First Supplemental Indenture dated May 1, 2002 (as so supplemented, the "Indenture"), between the Foundation and BNY Western Trust Company, as trustee. The Foundation and the Dissemination Agent covenant and agree as follows: SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Foundation and the Dissemination Agent for the benefit of the Holders and Beneficial Owners of the Series 2002 Bonds and in order to assist the Participating Underwriters in complying with S.E.C. Rule 15c2-12(b)(5).

SECTION 2. Definitions. The terms defined in this Section shall, for all purposes of this Disclosure Agreement, have the meanings herein specified. Capitalized terms used in this Disclosure Agreement and not otherwise defined in this Section shall have the meanings specifiedin the Indenture.

Annual Report means any annual report provided by the Foundation pursuant to, and as described in, Sections 3 (Provision of Annual Reports) and 4 (Content of Annual Reports) of this Disclosure Agreement.

Beneficial Owner means any person that (a) has or shares the power, directly or indirectly, to make investment decisions concerning ownership of, any Series 2002 Bonds (including persons holding Series 2002 Bonds through nominees, depositories, or other intermediaries), or (b) is treated as the owner of any Series 2002 Bonds for federal income tax purposes.

Disclosure Representative means the Executive Director of the Foundation or his or her designee, or such other officer or employee as the Foundation shall designate in writing to the Dissemination Agent from time to time.

Dissemination Agent means BNY Western Trust Company acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Foundation and that has filedwith the Trustee a written acceptance of such designation.

Listed Events means any of the events listed in Section 5(a) (Listed Events) of this Disclosure Agreement

National Repository means any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The National Repositories currently approved by the Securities and Exchange Commission are set forth in Exhibit B.

D-1 Participating Underwriter means any of the original underwriters of the Series 2002 Bonds required to comply with the Rule in connection with offeringof the Series 2002 Bonds.

Repository means each National Repository and each State Repository.

Rule means Rule 15c2-12(b)(5), as amended, adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended fromtime to time.

State means the State of California.

State Repository means any public or private repository or entity designated by the State as a state information depository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Agreement, there is no State Repository.

SECTION 3. Provision of Annual Reports.

a. Delivery of Annual Report to Repositories. The Foundation shall, or shall cause the Dissemination Agent to, not later than six months after the end of the Foundation's fiscal year (which currently ends on June 30), commencing with the report for the 2001-2002 fiscal year, provide to the Participating Underwriter and to each Repository an Annual Report that is consistent with the requirements of Section 4 (Content of Annual Report) of this Disclosure Agreement. The Annual Report may be submitted as a single document or as separate documents within a package and may include by reference other information, as provided in Section 4 (Content of Annual Reports) of this Disclosure Agreement; provided that the audited financial statements of the Foundation may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date.

b. Change of Fiscal Year. If the fiscal year of the Foundation changes, the Foundation shall give notice of such change in the same manner as for a Listed Event under Section 5(f) (Notice of Material Events).

c. Delivery of Annual Report to Dissemination Agent and Trustee. Not later than fifteen (15) Business Days prior to the date specified in subsection (a) (Delivery of Annual Report to Repositories) for providing the Annual Report to the Repositories, the Foundation shall provide the Annual Report to the Dissemination Agent and the Trustee (if the Trustee is not the Dissemination Agent). The Foundation shall provide a written certification with each Annual Report furnishedto the Dissemination Agent to the effectthat such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent may conclusively reply upon such certificationof the Foundation and shall have no duty or obligation to review such Annual Report. If by such date, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall notify the Disclosure Representative.

d. Report of Non-Compliance. If the Dissemination Agent is unable to verify that an Annual Report has been provided to the Repositories by the date required in subsection (a) (Delivery of Annual Report to Repositories), the Dissemination Agent shall send a notice to the

D-2 Participating Underwriter, to the Municipal Securities Rulemaking Board, and to the State Repository, if any, in substantially the form attached as Exhibit A.

e. Annual Compliance Certification. The Dissemination Agent shall:

(1) determine each year prior to the date for providing the Annual Report the name and address of each Repository; and

(2) to the extent that it can confirmthe same, file a report with the Trustee and the Disclosure Representative certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided and listing all the Repositories to which it was provided.

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

a. Financial Statements. The audited financial statements of the Foundation for the prior fiscal year, prepared in accordance with generally accepted accounting principles. If the Foundation's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a) (Delivery of Annual Report to Repositories), the Annual Report shall contain unaudited financial statements of the Foundation in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filedin the same manner as the Annual Report when they become available.

b. Student Enrollment. Total student enrollment and full-time equivalent student enrollment at the University for the fallterm of the current year.

c. Debt Service Coverage. A calculation of the Net Facilities Revenue Available for Debt Service and Maximum Aggregate Annual Debt Service on all Bonds and Parity Debt. 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 Foundation or related public entities, that have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Foundation shall clearly identify each such other document so included by reference.

SECTION 5. Reporting of Significant Events.

a. Listed Events. Pursuant to the provisions of this Section, the Foundation shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Series 2002 Bonds, if material:

(1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; ( 4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform;

D-3 (6) adverse tax opinions or events affecting the tax-exempt status of the Series 2002 Bonds; (7) modificationsto rights of Bondholders; (8) bond calls (other than mandatory sinking fund redemption); (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Series 2002 Bonds; and (11) rating changes.

b. Notice by Trustee to Foundation. The Trustee shall, within one (1) Business Day of obtaining actual knowledge of the occurrence of any of the Listed Events, contact the Disclosure Representative, inform such person of the event, and request that the Foundation promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (f) (Notice of Material Events). For purposes of this Disclosure Agreement, "actual knowledge" of such Listed Events shall mean knowledge by an officer of the Trustee at its corporate trust office with regular responsibility for matters related to the Indenture and the Series 2002 Bonds.

c. Determination of Materiality of Listed Events. Whenever the Foundation obtains knowledge of the occurrence of a Listed Event whether because of a notice from the Trustee pursuant to subsection (b) (Notice by Trustee to Foundation) or otherwise, the Foundation shall as soon as possible determine if such event would be material under applicable federal securities laws. The Dissemination Agent shall have no responsibility for such determination and shall be entitled to conclusively reply on the Foundation's determination.

d. Notice to Dissemination Agent (Material Events). If the Foundation has determined that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the Foundation shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (f) (Notice of Material Events).

e. Notice to Dissemination Agent (Non-material Events). If, in response to a request under subsection (b) (Notice by Trustee to Foundation), the Foundation determines that the Listed Event would not be material under applicable federal securities laws, the Foundation shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrencepursuant to subsection (f)(Notice of Material Events).

f. Notice of Material Events. The Foundation shall file, or cause the Dissemination Agent to file, a notice of the occurrence of a Listed Event, if material, with the Municipal Securities Rulemaking Board, the Participating Underwriter, and the State Repository, if any, and with the Trustee. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) (bond calls) and (9) (defeasances) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Holders of affected Series 2002 Bonds pursuant to the Indenture.

SECTION 6. Termination of Reporting Obligation. The Foundation's and the Dissemination Agent's obligations under this Disclosure Agreement shall terminate upon the

D-4 legal defeasance, prior redemption, or payment in full of all of the Series 2002 Bonds or upon the delivery to the Dissemination Agent of an opinion of nationally recognized bond counsel to the effect that continuing disclosure is no longer required by the Rule. If such termination occurs prior to the final maturity of the Series 2002 Bonds, the Foundation shall give notice of such termination in the same manner as for a Listed Event under Section 5(f) (Notice of Material Events).

SECTION 7. Dissemination Agent.

a. Appointment of Dissemination Agent. The Foundation may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the Foundation pursuant to this Disclosure Agreement. The initial Dissemination Agent shall be BNY Western Trust Company.

b. Compensation of Dissemination Agent. The Dissemination Agent shall be paid compensation by the Foundation for its services provided hereunder in accordance with its schedule of fees as agreed to between the Dissemination Agent and the Foundation from time to time and all expenses, legal fees and advances reasonably made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the Foundation, Holders or Beneficial Owners or any other party. The Dissemination Agent may rely and shall be protected in acting or refraining fromacting upon any direction from the Foundation or an opinion of nationally recognized bond counsel. The Dissemination Agent may at any time resign by giving written notice of such resignation to the Foundation.

SECTION 8. Amendment; Waiver. Notwithstanding any other prov1s10n of this Disclosure Agreement, the Foundation, the Dissemination Agent and the Trustee may, with notice to the Participating Underwriter, amend this Disclosure Agreement (and the Trustee and the Dissemination Agent shall agree to any amendment so requested by the Foundation that shall not impose any greater duties, nor risk of liability, on the Trustee), and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied:

a. Change in Circumstances. If the amendment or waiver relates to the provisions of Sections 3(a) (Delivery of Annual Report to Repositories), 4 (Content of Annual Reports), or 5(a) (Listed Events), it may only be made in connection with a change in circumstances that arises form a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Series 2002 Bonds, or the type of business conducted;

b. Compliance as of Issue Date. The undertaking as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Series 2002 Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

D-5 c. Consent of Holders, Non-impairment Opinion. The amendment or waiver either (i) is approved by the Holders of the Series 2002 Bonds in the same manner as provided in the Indenture for amendments to the Indenture with the consent of Holders, or (ii) does not, in the opinion of a nationally recognized bond counsel, materially impair the interests of the Holders or BeneficialOwners of the Series 2002 Bonds.

In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Foundation shall describe such amendment in the next Annual Report and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principals, on the presentation) of financial information or operating data being presented by the Foundation. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(f) (Notice of Material Events), and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financialstatements as prepared on the basis of the new account principles and those prepared on the basis of the former accounting principles. The Dissemination Agent may rely on an opinion of counsel that the amendment or waiver complies with the requirements of the Rule.

SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Foundation from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the Foundation 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 Agreement, the Foundation shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Any such information disseminated by the Foundation or Dissemination Agent shall also be delivered to the Participating Underwriter.

SECTION 10. Default. In the event of a failure of the Foundation or the Dissemination Agent to comply with any provision of this Disclosure Agreement, the Trustee shall, at the request of any Participating Underwriter or the Holders of at least 25% aggregate principal amount of Outstanding Series 2002 Bonds, and upon receipt of satisfactory indemnification, or any Holder or Beneficial Owner of the Series 2002 Bonds may, take such actions as may be necessary and appropriate, including seeking mandate or specific performanceby court order, to cause the Foundation or Dissemination Agent, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Agreement in the event of any failure of the Foundation or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance.

SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. All of the immunities, indemnities, and exceptions from liability in the Indenture, insofar as they relate to the Trustee shall apply to the Trustee and the Dissemination Agent in this Disclosure Agreement. The Dissemination Agent shall have only such duties as are specifically set forth in this

D-6 Disclosure Agreement, and the Foundation agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense, and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the Foundation, Holders or Beneficial Owners or any other party. The Dissemination Agent shall not be responsible in any manner for the format or content of any notice or Annual Report prepared by the Foundation pursuant to this Disclosure Agreement. The Dissemination Agent may rely and shall be protected in acting or refraining from acting upon any direction from the Foundation or an opinion of nationally recognized bond counsel. The obligations of the Foundation under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Series 2002 Bonds. No person shall have any right to commence any action against the Trustee or Dissemination Agent seeking any remedy other than to compel specific performance of this Agreement. Any company succeeding to all or substantially all of the Dissemination Agent's corporate trust business shall be the successor to the Dissemination Agent hereunder without the execution or filing of any paper or any further act.

SECTION 12 Notices. Any notices or communications to or among any of the parties to this Disclosure Agreement may be given as follows:

To the Foundation:

California State University, Sacramento Foundation 6000 J Street Sacramento, California Telephone/Fax: (916) 278-6730 I (916) 278-4884

To the Trustee/Initial Dissemination Agent:

BNY Western TrustCompany Corporate Trust Division 700 South Flower Street Los Angeles, California 90017 Telephone/Fax: (213) 630-6407 I (213) 630-6210

Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent.

SECTION 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Foundation, the Trustee, the Dissemination Agent, the Participating Underwriters, and Holders and Beneficial Owners from time to time of the Series 2002 Bonds, and shall create no rights in any other person or entity.

D-7 SECTION 14 Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Date: [closing date] CALIFORNIA STATE UNIVERSITY, SACRAMENTO FOUNDATION

Executive Director

BNY WESTERN TRUST COMPANY

Authorized Officer

D-8 Exhibit A Form of Notice to Municipal Securities Rulemaking Board and State Repository of Failure to File Annual Report

To: Municipal Securities Rulemaking Board 1900 Duke Street Alexandria, VA 22314 Attention: MSIL Department

State Information Depository [if any] [address]

Name of Issuer: CaliforniaState University, Sacramento Foundation Name of Issue: Auxiliary Organization Revenue Bonds, Series 2002A and Series 2002B (federally taxable) (Modoc Hall) Date of Issuance: [Closing Date]

NOTICE IS HEREBY GIVEN that California State University, Sacramento Foundation (the "Foundation") has not provided an Annual Report with respect to the above-named Bonds as required by Section 17 .5 (Continuing Disclosure Agreement) of the Indenture dated October 1, 1995, as supplemented by the First Supplemental Indenture dated May 1, 2002, each between the Foundation and BNY Western Trust Company, as trustee. [The Foundation anticipates that the Annual Report will be filedby . ]

Dated: [sample only] on behalf of the Foundation

Exhibit B Nationally Recognized Municipal Securities Information Repositories approved by the Securities and Exchange Commission as of [Closing Date] :

Bloomberg Municipal Repository Standard & Poor's J.J. Kenny Repository 100 Business Park Drive 55 Water Street, 45th Floor Skillman, NJ 08558 New York, NY 10041 Phone: (609) 279-3225 Phone: (212) 438-4595 Fax: (609) 279-5962 Fax: (212) 438-3975 E-mail: [email protected] E-Mail: nrmsir [email protected]

DPC Data, Inc. FT Interactive Data One Executive Drive Attn: NRMSIR Fort Lee, NJ 07024 100 Williams Street Phone: (201) 346-0701 New York, NY 10038 Fax: (201) 947-0107 Phone: (212) 771-6999 E-Mail: [email protected] Fax: (212) 771-7390 E-Mail: [email protected] Website: http://www.InteractiveData.com

D-9 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX E

PROPOSED FORM OF OPINION OF BOND COUNSEL

Upon issuance and delivery of the Series 2002 Bonds, Kronick, Moskovitz, Tiedemann & Girard, a Professional Corporation, Sacramento, California, proposes to render its final approving opinion with respect to the Series 2002 Bonds in substantially the following form:

May 30, 2002

Trustees of The CaliforniaState University 401 Golden Shore Long Beach, California

California State University, Sacramento Foundation 6000 J Street Sacramento, California

Re: California State University, Sacramento Foundation Auxiliary Organization Bonds, Series 2002A and Series 2002B (Modoc Hall) (Final Approving Opinion)

Ladies and Gentlemen:

We have acted as bond counsel in connection with the issuance by the California State University, Sacramento Foundation (the "Foundation") of $24,145,000 principal amount of California State University, Sacramento Foundation Auxiliary Organization Bonds, Series 2002A and Series 2002B (Modoc Hall) (the "Series 2002A Bonds" and the "Series 2002B Bonds") (collectively the "Bonds"), pursuant to an indenture dated October 1, 1995 as supplemented by the First Supplemental Indenture dated May 1, 2002 ( as so supplemented, the "Indenture"), each by and between the Foundation and BNY Western Trust Company, as trustee (the "Trustee"). Capitalized terms not otherwise defined herein have the meanings ascribed to such terms in the Indenture.

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 the representations of the Foundation contained in the Indenture and the certified proceedings and upon other certifications of public officialsfurnished to us without undertaking to verify the same by independent investigation.

We have not been engaged or undertaken to review the accuracy, completeness, or sufficiency of the Official Statement or other offering material relating to the Bonds and we express no opinion relating thereto.

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

E-1 1. The Bonds constitute the valid and binding obligations of the Foundation.

2. The aggregate principal amount of the Bonds that have been issued under the Indenture is permitted under and does not exceed any limitation imposed by law, the Indenture, or the Series 2001 Indenture.

3. The Indenture has been duly authorized, executed, and delivered by the Foundation and is a valid and binding obligation of the Foundation. The Indenture creates a valid pledge of the Revenues to secure the payment of the principal of and interest on the Bonds, to the extent set forth in the Indenture and subject to the provisions of the Indenture that permit the Foundation to apply the Revenues for the purposes and on the terms and conditions set forth in the Indenture.

4. The Bonds are not a lien or charge upon the funds or property of the State of California or the Trustees of The California State University (the "CSU Board"). The Bonds are not a debt of the State of California or the CSU Board and neither is liable for the payment thereof.

5. Interest on the Series 2002A Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and Foundations; it should be noted, however, that, for purposes of calculating the alternative minimum tax imposed on Foundations (as defined for federal income tax purposes), such interest is taken into account when determining adjusted current earnings. The opinions set forth in the preceding sentence are subject to the condition that the Foundation comply with all requirements of the Internal Revenue Code of 1986 that must be satisfied subsequent to the issuance of the Series 2002A Bonds in order that interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The Foundation has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Series 2002A 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. Interest on the Series 2002A and the Series 2002B Bonds is exempt from all taxation in the State of California other than estate and generation skipping transfer taxes.

The opinions set forthabove are further qualifiedas follows:

a. It is to be understood that the rights of the holders of the Bonds and the enforceability of the Bonds and the Indenture may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium, and other similar laws affecting creditors' rights heretofore or hereafter enacted, to the extent constitutionally applicable, to the application of general principles of equity, including without limitation concepts of materiality, reasonableness, good faith, and fair dealing, to the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law, and to the limitations on legal remedies imposed on actions against public agencies in the State of California.

E-2 b. We express no opm10n as to the enforceability under certain circumstances of contractual provisions respecting various summary remedies without notice or opportunity for hearing or correction, especially if their operation would work a substantial forfeiture or impose a substantial penalty upon the burdened party.

c. We express no opinion as to the effect or availability of any specific remedy provided for in the Indenture under particular circumstances, except that we believe such remedies are, in general, sufficientfor the practical realization of the rights intended thereby.

d. We express no opinion as to the enforceability of any indemnification, contribution, choice of law, choice of forum, or waiver provisions contained in the Indenture.

e. The opinions expressed herein are based on an analysis of existing laws, regulations, rulings, and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine or to inform any person whether any such actions are taken or omitted or events do occur. We disclaim any obligation to update this opinion for events occurring after the date hereof.

Very truly yours,

KRONICK, MOSKOVITZ, TIEDEMANN & GIRARD A Professional Corporation

E-3 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX F

FORM OF FINANCIAL GUARANTY INSURANCE POLICIES [THIS PAGE INTENTIONALLY LEFT BLANK] �EIIA FINANCIAL GUARANTY INSURANCE POLICY MBIA Insurance Corporation Armonk,New York 10504 PolicyNo. [NUMBER] MBIA Insurance Corporation(1he "Insurer"), in consideration of 1he payment of the premhnn and subject to the terms of this policy, hereby unconditionally andirrevocably guaranteesowner, toany as hereinafterdefined, ofthe following described obligations. the fulland complete pa)1l1eJ1t requiredmade tobe by or behalfon of 1heIssuer [PA to YING AGENT!fR USTEE] or its(the successor ''Payingof Agent") an ammmtequal to (Q 1he principal of (either at 1hematurity stmed or by anyadvancement maturity of pursuant to a mandatorypayment) sinkingfimd and interest on,the Obligations (asthatt enn is definedbelow) as such paymentsshall shallbecomeduebut not be sopaid (except that inevent the of anyacceleration of the duedate of such principalof byreason mandatory optional or redemptionor acceleration resulting from anydefuult orotherwise,ofuer1han advancement of maturityto pursuant a mandatorythe sinkingfimdpayment. payments guaranteedsuch herebyshallbemadein amounts and suchat timessuch as payments of principal would have beendue had1here not anybeen such acceleration); and(ii) the reimbUIBement of any such payment which is subsequentlyrecovered fromowner any pursuantto afinal judgment by a courtof competentjurisdiction that such payment constitutesavoidable an preferenceto such ownerwithin the ofmeaning anyapplicable bankruptcy law. Theamounts referredclauses toin (i) and(ii) of1he preceding sentence shallbe referredherein to ly collective as the Amo"Insured unts." "Obligations"shall mean;

[PAR] [LEGALNAME OF ISSUE]

Upon receiptof telephonic ortelegraphic notice. suchnotice subsequently confirmed by inwriting registeredor certifiedupon mail,or receipt of written notice by registeredmail. orcertified by 1he InsurerPaying fromthe Agent orany ownerof an Obligation the ofpa}111eilt an InsuredAmount for whichis then due, thatsuch required been paymenthasnot made, the lnslUerthe oo due date of such paymentwithin or one business dayafter receipt of noticeof suchnonpayment, whicheveris later, will makeof adeposit funds, in � accomrtState with StreetBank Trust and Company, NA, inNew YOl'k, New Yol'k, orits successor, sufficientfur theof payment anysuch Insuredmuch Amounts � thendue. Uponpresentment and ofsurrender suchObligations orpresentment of sucholher proof of ownership of the Obligations,with together any appropriateinslnunems of assignmentto evidence the assignment of the Insured ObligationsAmounts dueonthe as arepaid by theInsurer, and appn::piatethe instrumentstoeffect appointmentof !he Insureragent as for suchowners ofthe Obligations in any legalrelated proceeding to pa:ymentAmmmts ofInsured on the Obligations,in suchinmrument:sbeing a fonn satisfuctrnySlate to StreetTrust Bankand Company, NA, State StreetTrust Bankand Company, NA shall disburse tosuch owners, orthe Paying Agentof payment the Insuredsuch Ammmtsdueon Obligations., less any amount held byAgent thePaying for theof payment such Insured Amounts and availablelegally therefor. Thisp:,licy does not insureof againstloss any prepaymentwhich premium may at any payabletime be with respect toany Obligation. As used herein,"owner" thetenn shall mean the registeredany ownerof Obligation as indicated in the books maintamed1he bythePayingAgent, Issuer, orany designee of theIssuer fur purpose.such Thetenn owner shall not include the Issuerwhose oranyparty agreementwith 1he Isruer constitutesthe underlyingObligations. secureyfurthe Any serviceof process on themade Insurermaybe tothe Insurerits at offices locatedat 11 3 KingStreet, New Annonk, York l 0504and suchservice of processshall bevalid and binding. Thispolicy is non-cancellablefur any reason. The premiumon 1hispolicy is not refundable furany includingreason thepayment prior to maturityof the Obligations.

In theevent theInsurer \.Wfe tobecome insolvent, anyclaims arising a under policy of financialguaran1y excluded insuranceare fromcoverage by the CalifumiaGuaranty Insurance Association, established ptmllllllltto Article 142 (commencing with Section 063) l of Chapter Iof Pmt2 ofDivision 1 of theCalifornia�urance Code. IN WITNESSWHEREOF, theInsurer 1his bascaused p:,licy toexecuted be in facsimile on itsbehalf by its dulyauth · [DAY] day of [MONTII,YEAR]. � n111J9�,,.,,illfJ'i"ation

SIDR-CA-6 495 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX G

BOOK-ENTRY SYSTEM

The information in this appendix concerning DTC and DTC's book-entrysystem has been obtained from DTC; the Underwriter and the Foundation take no responsibility for the accuracy thereof The Foundation and the Underwriter cannot and do not give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners ( a) payments of principal of or interest and premium, ifany, on the Series 2002 Bonds, (b) Series 2002 Bonds representing ownership interest in or other confirmation of ownership interest in the Series 2002 Bonds, or (c) redemption or other notices sent to DTC or Cede & Co. , its nominee, as the registered owner of the Series 2002 Bonds, or that they will so do on a timely basis, or that DTC Participants or DTC Indirect Participants will act in the manner described in this Official Statement. DTC will act as securities depository for the Series 2002 Bonds. The Series 2002 Bonds will be delivered initially in the form of 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 certificate will be executed for each maturity date, each in the aggregate principal amount maturing on such date, and will be deposited with DTC. DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that its participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly­ owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation (NSCC, GSCC, MBSCC, and EMCC are also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest ranking: AAA. The Rules applicable to DTC and its Direct and Indirect Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.

G-1 Purchases of Series 2002 Bonds under the DTC system must be made by or through the Direct Participants, which will receive a credit forthe Series 2002 Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in tum to be recorded on the Direct and Indirect Partcipants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners, however, are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participants through which the Beneficial Owner entered into the transaction. Transfer of ownership interests in the Series 2002 Bonds are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificatesrepresenting their ownership interest in Series 2002 Bonds, except in the event that use of the book-entry system for the Series 2002 Bonds is discontinued. To facilitate subsequent transfers, all Series 2002 Bonds deposited by Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other names as may be requested by an authorized representative of DTC. The deposit of Series 2002 Bonds 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 Series 2002 Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Series 2002 Bonds are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Partaicipants, 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 effectfrom time to time. Redemption notices shall be sent to DTC. If less than all of the Series 2002 Bonds within a maturity are being redeemed, DTC' s practice is to determine by lot of the amount of the interest of each Direct Participant in such maturity to be redeemed. Beneficial Owners of the Series 2002 Bonds may wish to take certain steps to augment the Beneficial Owners of the Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Series 2002 Bonds, such as redemptions, tenders, defaults and proposed amendments to the Series 2002 Bond documents. For example, Beneficial Owners of the Series 2002 Bonds may wish to ascertain that the nominee holding the Series 2002 Bonds for their benefit has agreed to obtain and transmit notices to BeneficialOwners. Redemption notices shall be sent to DTC. If less than all of the Series 2002 Bonds within a maturity are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Series 2002 Bonds unless authorized by a Direct Participant in accordance with DTC' s Procedures. Under its usual procedures, DTC mails an omnibus proxy (the "Ominibus Proxy") to the Foundation as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Series 2002 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

G-2 Principal and interest payments on the Series 2002 Bonds will be made to Cede & Co. or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the Trustee, on each payment date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC (nor its nominee), the Trustee, or the Foundation, subject to any statutory or regulatory requirements as may be in effectfrom time to time. Payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representativeof DTC) is the responsibility of the Trustee, disbursement of such payments to Direct Participants is the responsbility of DTC, and disbursement of such payments to Beneficial Owners will be the responsbility of Direct and Indirect Participants.

G-3 [THIS PAGE INTENTIONALLY LEFT BLANK]

Recycled Paper - Printed by IMAGEMASTER 800-452-5152