California Educational Facilities Authority

NEW ISSUE - BOOK-ENTRY ONLY RATINGS: See “RATINGS” herein In the opinion of Hawkins Delafield & Wood LLP, Bond Counsel, under existing statutes and court decisions and assuming continuing compliance with certain tax covenants described herein, (i) interest on the Bonds is excluded from gross income for Federal income tax purposes pursuant to Section 103 of the Internal Revenue Code of 1986, as amended (the “Code”); and (ii) interest on the Bonds is not treated as a preference item in calculating the alternative minimum tax imposed on individuals and corporations under the Code; such interest, however, is included in the adjusted current earnings of certain corporations for purposes of calculating the alternative minimum tax imposed on such corporations. In addition, in the opinion of Bond Counsel, interest on the Bonds is exempt from personal income taxes imposed by the State of California. See “TAX MATTERS” herein. $41,595,000 CALIFORNIA EDUCATIONAL FACILITIES AUTHORITY 5.00% Revenue Bonds (University of Southern California), Series 2012A CUSIP1: 130178R81 Dated: Date of Delivery Yield: 2.220% Due: October 1, 2023 This cover page contains certain information for general reference only. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. Capitalized terms used in this cover page shall have the meanings given such terms herein. The Bonds are being issued as fully-registered bonds registered in the name of a nominee of The Depository Trust Company (“DTC”), which is acting as securities depository for the Bonds. Purchases of the Bonds may be made in book-entry form only, through brokers and dealers who are, or who act through, DTC Participants (as defined herein). Beneficial owners of the Bonds will not receive physical delivery of bond certificates. Payments of the principal of and interest on the Bonds will be made to DTC by The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). Disbursement of payments to DTC Participants is the responsibility of DTC and disbursement of payments to the beneficial owners is the responsibility of DTC Participants. See APPENDIX F - “BOOK-ENTRY SYSTEM” herein. The Bonds are being issued by the California Educational Facilities Authority (the “Authority”), which will loan the proceeds of the Bonds to the UNIVERSITY OF SOUTHERN CALIFORNIA (the “University”) pursuant to the Loan Agreement (as defined herein) to provide funds which the University will use to refinance various University facilities. The Bonds will be available in denominations of $5,000 or any integral multiple thereof. The Bonds will be dated their date of issuance and will mature in the amount and on the date, and bear interest at the rate as shown above. Interest on the Bonds will be computed on the basis of a 360-day year consisting of twelve 30-day months. Interest on the Bonds will be payable on April 1 and October 1, commencing October 1, 2012, until maturity or redemption. The Bonds are subject to redemption prior to maturity at the Make-Whole Redemption Price, as described herein. The Authority is obligated to pay the Bonds solely from the Revenues (as defined herein) received from the University under the Loan Agreement and the other funds available therefor under the Indenture (as defined herein) pursuant to which the Bonds will be issued. The University’s payment obligations under the Loan Agreement are general, unsecured obligations of the University. THE BONDS DO NOT CONSTITUTE A DEBT OR LIABILITY OF THE STATE OF CALIFORNIA (THE “STATE”) OR OF ANY POLITICAL SUBDIVISION THEREOF OTHER THAN THE AUTHORITY, BUT SHALL BE PAYABLE SOLELY FROM THE FUNDS PROVIDED THEREFOR BY THE UNIVERSITY. NEITHER THE STATE NOR THE AUTHORITY SHALL BE OBLIGATED TO PAY THE PRINCIPAL OF OR INTEREST ON THE BONDS, EXCEPT FROM THE FUNDS PROVIDED UNDER THE LOAN AGREEMENT AND THE INDENTURE, AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OR OF ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE BONDS. THE BONDS ARE PAYABLE ONLY OUT OF FUNDS PLEDGED UNDER THE INDENTURE. THE ISSUANCE OF THE BONDS SHALL NOT DIRECTLY, INDIRECTLY OR CONTINGENTLY OBLIGATE THE STATE OR ANY POLITICAL SUBDIVISION THEREOF TO LEVY OR TO PLEDGE ANY FORM OF TAXATION WHATSOEVER OR TO MAKE ANY APPROPRIATION FOR THEIR PAYMENT. THE AUTHORITY HAS NO TAXING POWER. The Bonds are offered by Morgan Stanley & Co. LLC, as the Underwriter, when, as and if issued by the Authority and accepted by the Underwriter, subject to the approval of legality by Hawkins Delafield & Wood LLP, Bond Counsel, and subject to certain other conditions. Certain legal matters will be passed upon for the Underwriter by Nixon Peabody LLP, for the Authority by the Attorney General of the State of California, and for the University by the General Counsel to the University. It is expected that the Bonds will be available for delivery through the facilities of DTC in New York, New York on or about August 29, 2012. Morgan Stanley Dated: August 15, 2012 ______1 CUSIP® is a registered trademark of the American Bankers Association. None of the Authority, the University or the Underwriter is responsible for the selection or uses of this CUSIP number, and no representation is made as to its correctness. ______OFFICE OF THE TREASURER OF THE STATE OF CALIFORNIA, AS AGENT FOR SALE ______

This Official Statement does not constitute an offer to sell the Bonds in any jurisdiction in which or to any person to whom it is unlawful to make such an offer. No dealer, salesperson or other person has been authorized by the Authority, the University or the Underwriter to give any information or to make any representations, other than those contained herein, in connection with the offering of the Bonds and, if given or made, such information or representations must not be relied upon.

The information set forth herein under the captions “THE AUTHORITY” and “ABSENCE OF MATERIAL LITIGATION” (solely as it relates to the Authority) has been obtained from the Authority. All other information set forth herein has been obtained from the University and other sources which are believed to be current and reliable, but the accuracy or completeness of such information is not guaranteed by, and is not to be construed as a representation by, the Authority or Morgan Stanley & Co. LLC, as the Underwriter.

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

The order and the placement of materials in this Official Statement, including the Appendices, are not deemed to be a determination of relevance, materiality or importance, and this Official Statement, including the Appendices, must be considered in its entirety. ______

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. ______

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS IN THIS OFFICIAL STATEMENT

Certain statements included or incorporated by reference in this Official Statement constitute “forward- looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “project,” “budget” or other similar words. Such forward-looking statements include, but are not limited to, certain statements contained in the information in APPENDIX A - “THE UNIVERSITY OF SOUTHERN CALIFORNIA.”

THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. NEITHER THE AUTHORITY NOR THE UNIVERSITY PLANS TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD-LOOKING STATEMENTS IF OR WHEN ITS EXPECTATIONS, OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE BASED OCCUR.

TABLE OF CONTENTS

INTRODUCTION ...... 1 General ...... 1 The Bonds ...... 1 Book-Entry System ...... 1 Purposes ...... 2 Security and Sources of Payment for the Bonds ...... 2 The University ...... 2 Financial Condition of the University ...... 2 Covenants of the University ...... 3 Certain Information Related to this Official Statement ...... 3 PLAN OF REFUNDING ...... 3 SOURCES AND USES OF FUNDS ...... 4 THE BONDS ...... 4 Description of the Bonds ...... 4 Optional Redemption ...... 4 BOOK-ENTRY SYSTEM ...... 6 SECURITY AND SOURCES OF PAYMENT FOR THE BONDS ...... 6 Revenues and Base Loan Payments ...... 6 Investment Considerations ...... 7 THE AUTHORITY ...... 10 Organization and Membership of the Authority ...... 10 Indebtedness of the Authority ...... 11 ENFORCEABILITY OF REMEDIES ...... 11 LEGALITY FOR INVESTMENT IN CALIFORNIA ...... 11 TAX MATTERS ...... 11 Opinion of Bond Counsel ...... 11 Certain Ongoing Federal Tax Requirements and Covenants ...... 12 Certain Collateral Federal Tax Consequences ...... 12 Bond Premium ...... 12 Information Reporting and Backup Withholding ...... 13 Miscellaneous ...... 13 APPROVAL OF LEGAL PROCEEDINGS ...... 13 ABSENCE OF MATERIAL LITIGATION ...... 13 UNDERWRITING ...... 13 RATINGS ...... 14 INDEPENDENT ACCOUNTANTS ...... 14 CONTINUING DISCLOSURE ...... 14 VERIFICATION ...... 15 MISCELLANEOUS ...... 15

APPENDIX A THE UNIVERSITY OF SOUTHERN CALIFORNIA ...... A-1 APPENDIX B CONSOLIDATED FINANCIAL STATEMENTS OF THE UNIVERSITY ...... B-1 APPENDIX C CERTAIN PROVISIONS OF PRINCIPAL DOCUMENTS ...... C-1 APPENDIX D PROPOSED FORM OF OPINION OF BOND COUNSEL ...... D-1 APPENDIX E FORM OF CONTINUING DISCLOSURE AGREEMENT ...... E-1 APPENDIX F BOOK-ENTRY SYSTEM ...... F-1

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OFFICIAL STATEMENT

$41,595,000 CALIFORNIA EDUCATIONAL FACILITIES AUTHORITY Revenue Bonds (University of Southern California), Series 2012A

INTRODUCTION

This Introduction contains only a brief summary of certain of the terms of the Bonds being offered, and a full review should be made of the entire Official Statement, including the cover page and the Appendices (this “Official Statement”), in order to make an informed investment decision. All statements contained in this Introduction are qualified in their entirety by reference to the entire Official Statement. References to, and summaries of, provisions of the Constitution and laws of the State of California (the “State”) or any documents referred to herein do not purport to be complete and such references are qualified in their entirety by reference to the complete provisions thereof.

General

This Official Statement, including the cover page and the Appendices hereto, provides certain information in connection with the offering of $41,595,000 aggregate principal amount of Revenue Bonds (University of Southern California), Series 2012A (the “Bonds”), of the California Educational Facilities Authority (the “Authority”).

The Bonds will be issued pursuant to the provisions of the California Educational Facilities Authority Act, constituting Chapter 2 (commencing with Section 94100) of Part 59 of Division 10 of Title 3 of the Education Code of the State, as amended (the “Act”), and the Indenture (defined below). Certain terms used herein are defined in APPENDIX C – “CERTAIN PROVISIONS OF PRINCIPAL DOCUMENTS – DEFINITIONS.”

The Bonds will be issued pursuant to and will be secured by an Indenture, dated as of August 1, 2012 (the “Indenture”), between the Authority and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). The Authority will lend the proceeds of the Bonds to the University of Southern California (the “University”) pursuant to a Loan Agreement, dated as of August 1, 2012 (the “Loan Agreement”), between the Authority and the University.

The University may from time to time incur additional debt to finance or refinance its facilities.

The Bonds

The Bonds will be issued in denominations of $5,000 or any integral multiple thereof in the aggregate principal amount shown on the cover page of this Official Statement. The Bonds will be dated their date of delivery and will mature in the amounts and on the dates, and bear interest at the rates as shown on the cover of this Official Statement. Interest on the Bonds shall be payable on April 1 and October 1 of each year, commencing October 1, 2012. See “THE BONDS” herein.

Redemption

The Bonds are subject to optional redemption by the University prior to maturity at the Make-Whole Redemption Price described herein. See “THE BONDS – Optional Redemption” herein.

Book-Entry System

When delivered, the Bonds will be registered in the name of a nominee of The Depository Trust Company (“DTC”) which is acting as securities depository for the Bonds. Purchases of the Bonds may be made in book-entry form only, through brokers and dealers who are, or who act through, DTC Participants (as defined in Appendix F).

Beneficial Owners (as defined in Appendix F) of the Bonds will not receive physical delivery of certificated securities. Payments of the principal of and interest on the Bonds are payable by the Trustee to DTC, which will in turn remit such payments to the DTC Participants, which will in turn remit such payments to the Beneficial Owners of the Bonds. See APPENDIX F – “BOOK-ENTRY SYSTEM.”

Purposes

The Authority will lend the proceeds of the Bonds to the University pursuant to the Loan Agreement to provide funds which the University will use to advance refund the Authority’s $50,000,000 currently outstanding principal amount of Revenue Bonds (University of Southern California), Series 2003A, dated March 20, 2003 (the “Prior Bonds”), as described under “PLAN OF REFUNDING” herein, and to pay certain costs of issuance. See “PLAN OF REFUNDING” and “SOURCES AND USES OF FUNDS” herein.

Security and Sources of Payment for the Bonds

The Authority is obligated to pay principal of and interest on the Bonds solely from the Revenues received from the University under the Loan Agreement and the other funds available under the Indenture. Pursuant to the Indenture, the Authority has pledged to the Trustee for the benefit of the Bondholders all of the Revenues.

Under the Loan Agreement, the University has an unconditional general obligation to pay the Base Loan Payments to be made thereunder, which are due in the amounts and at the times necessary to pay the principal (whether at maturity or upon acceleration or prior redemption) of and interest to the date of maturity or redemption of the Bonds, when due. The University’s payment obligations under the Loan Agreement are general, unsecured obligations of the University. There is no reserve fund with respect to the Bonds, and the University has not pledged or provided any other form of security for the Bonds.

THE BONDS DO NOT CONSTITUTE A DEBT OR LIABILITY OF THE STATE OR OF ANY POLITICAL SUBDIVISION THEREOF OTHER THAN THE AUTHORITY, BUT SHALL BE PAYABLE SOLELY FROM THE FUNDS PROVIDED THEREFOR BY THE UNIVERSITY. NEITHER THE STATE NOR THE AUTHORITY SHALL BE OBLIGATED TO PAY THE PRINCIPAL OF OR INTEREST ON THE BONDS, EXCEPT FROM THE FUNDS PROVIDED UNDER THE LOAN AGREEMENT AND THE INDENTURE, AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OR OF ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE BONDS. THE BONDS ARE PAYABLE ONLY OUT OF FUNDS PLEDGED UNDER THE INDENTURE. THE ISSUANCE OF THE BONDS SHALL NOT DIRECTLY, INDIRECTLY OR CONTINGENTLY OBLIGATE THE STATE OR ANY POLITICAL SUBDIVISION THEREOF TO LEVY OR TO PLEDGE ANY FORM OF TAXATION WHATEVER OR TO MAKE ANY APPROPRIATION FOR THEIR PAYMENT. THE AUTHORITY HAS NO TAXING POWER. ALTHOUGH THE BONDS ARE BEING ISSUED BY THE AUTHORITY, THE BONDS SHOULD BE VIEWED AS DIRECT OBLIGATIONS OF THE UNIVERSITY FOR PURPOSES OF EVALUATING THEIR SECURITY.

The University

The University is a nonprofit, coeducational university with its principal campus located near downtown Los Angeles, California. It currently has the largest enrollment of any private university in the State of California. In the fall of 2011, approximately 17,500 undergraduate and 20,500 graduate, professional and other students were enrolled at the University. See APPENDIX A – “THE UNIVERSITY OF SOUTHERN CALIFORNIA” for a more detailed description of the University.

Financial Condition of the University

For the fiscal year ended June 30, 2011, total revenues, net of student aid, of the University were $3,922,665,000. At June 30, 2011, the University’s total assets were $7,652,732,000 and total liabilities were $1,923,874,000. The University’s audited consolidated financial statements for the fiscal year ended June 30, 2011

are contained in APPENDIX B hereto and should be carefully reviewed by prospective investors in their entirety. See also APPENDIX A - “THE UNIVERSITY OF SOUTHERN CALIFORNIA.”

Covenants of the University

The University has agreed to certain covenants for the protection of the Bondholders, including covenants to maintain its accredited status, and not to take any action that would impair the tax-exempt status of interest on the Bonds. These and other covenants of the University are described further in APPENDIX C – “CERTAIN PROVISIONS OF PRINCIPAL DOCUMENTS – CERTAIN PROVISIONS OF THE AGREEMENT.”

Certain Information Related to this Official Statement

Included in this Official Statement and the Appendices hereto are descriptions of the Authority, the University, the Bonds, the Indenture and the Loan Agreement, as well as the Continuing Disclosure Agreement relating to the Bonds. All references herein to the Indenture, the Loan Agreement, and the Continuing Disclosure Agreement, are qualified in their entirety by reference to such documents, and the description herein of the Bonds is qualified in its entirety by the forms thereof and the information with respect thereto included in such documents. See APPENDIX C – “CERTAIN PROVISIONS OF PRINCIPAL DOCUMENTS – CERTAIN PROVISIONS OF THE INDENTURE,” for a brief summary of the rights and duties of the Authority, the rights and remedies of the Trustee and the Bondholders upon an event of default, provisions relating to amendments of the Indenture and procedures for defeasance of the Bonds.

All capitalized terms used in this Official Statement and not otherwise defined herein have the same meanings as in the Indenture. See APPENDIX C – “CERTAIN PROVISIONS OF PRINCIPAL DOCUMENTS – DEFINITIONS” for definitions of certain words and terms used but not otherwise defined herein.

The information and expressions of opinion herein speak only as of their date and are subject to change without notice. Neither the delivery of this Official Statement nor any sale made hereunder nor any future use of this Official Statement shall, under any circumstances, create any implication that there has been no change in the affairs of the Authority or the University.

PLAN OF REFUNDING

The Authority will lend the proceeds of the Bonds to the University to provide funds which the University intends to use to advance refund the Prior Bonds. Pursuant to a Refunding Escrow Deposit Agreement, the Prior Bonds will be defeased upon issuance of the Bonds, and will be redeemed on April 1, 2013, at a redemption price of 100%.

SOURCES AND USES OF FUNDS

The proceeds of the Bonds are expected to be used as follows:

Estimated Sources of Funds: Par Amount of the Bonds $41,595,000.00 Plus Original Issue Premium 11,309,680.50 Total Sources $52,904,680.50

Estimated Uses of Funds: Refunding of Prior Bonds $52,329,715.26 Costs of Issuance(1) 574,965.24 Total Uses $52,904,680.50

(1) Includes Underwriter’s fees, legal, financing and consulting fees, rating agency fees, printing costs and other miscellaneous expenses.

THE BONDS

Description of the Bonds

The Bonds are to be issued in fully registered form in denominations of $5,000 and any integral multiple thereof. The Bonds will be dated their date of delivery, will bear interest from that date and will mature in the amount and on the date, and bear interest at the rate, set forth on the cover of this Official Statement.

Interest on the Bonds will be payable on April 1 and October 1 of each year, commencing October 1, 2012, by check mailed by first class mail by the Trustee to the person whose name appears on the registration books of the Trustee as the registered owner thereof at the close of business on the Record Date for such interest installment; provided, however, that payment of such interest will be made by wire transfer to any registered owner of any Bonds in an aggregate principal amount of at least $1,000,000 if such registered owner shall have requested in writing payment by such method to such bank or trust company located within the United States at least 15 days before the applicable interest payment date. Interest will be calculated on the basis of a 360-day year comprised of twelve 30- day months. Principal of the Bonds will be payable by check of the Trustee denominated in lawful money of the United States upon presentation and surrender of the Bonds at the principal corporate trust office of the Trustee in Los Angeles, California.

The Bonds will be registered in the name of Cede & Co., the nominee of DTC, and held in DTC’s book- entry system. So long as the Bonds are held in the book-entry system, DTC or its nominee will be the registered owner of the Bonds for all purposes of the Indenture and the Bonds. So long as the Bonds are held in book-entry form through DTC, all payments with respect to principal of and interest on each Bond will be made pursuant to DTC’s rules and procedures. See “BOOK-ENTRY SYSTEM” and APPENDIX F – “BOOK-ENTRY SYSTEM” herein.

The Bonds may be transferred or exchanged at the principal corporate trust office of the Trustee for other Bonds to the extent and upon the conditions set forth in the Indenture. The Trustee will require payment of a sum sufficient to cover any tax or other governmental charge required to be paid with respect to any such transfer or exchange.

The Bank of New York Mellon Trust Company, N.A., is the Trustee, Registrar and Paying Agent for the Bonds.

Optional Redemption

Make-Whole Redemption. The Bonds are subject to optional redemption prior to maturity on any date at the direction of the University, in whole or in part, at a redemption price equal to the greater of:

(i) one hundred percent (100%) of the Amortized Value (as described below) of such Bonds to be redeemed, plus accrued and unpaid interest to the date of redemption; or

(ii) an amount equal to the sum of the present values of the remaining unpaid payments of principal and interest to be paid on such Bonds to be redeemed from and including the date of redemption to the stated maturity date of such Bonds, discounted to the date of redemption on a semiannual basis at a discount rate equal to the Applicable Tax-Exempt Municipal Bond Rate (as described below) for such Bonds (the “Make-Whole Redemption Price”).

The “Applicable Tax-Exempt Municipal Bond Rate” for the Bonds will be the “Comparable AAA General Obligations” yield curve rate for the stated maturity date of the Bonds as published by Municipal Market Data five (5) Business Days prior to the date of redemption. If no such yield curve rate is established for the applicable year, the “Comparable AAA General Obligations” yield curve rate for the two published maturities most closely corresponding to the applicable year will be determined, and the “Applicable Tax-Exempt Municipal Bond Rate” will be interpolated or extrapolated from those yield curve rates on a straight-line basis. Currently, this rate is made available daily by Municipal Market Data and is available to its subscribers through its internet address: www.tm3.com.

In calculating the Applicable Tax-Exempt Municipal Bond Rate, should Municipal Market Data no longer publish the “Comparable AAA General Obligations” yield curve rate, then the Applicable Tax-Exempt Municipal Bond Rate will equal the Consensus Scale yield curve rate for the applicable year. Currently, the Consensus Scale yield curve rate is made available daily by Municipal Market Advisors and is available to its subscribers through its internet address: www.mma-research.com.

In the further event Municipal Market Advisors no longer publishes the Consensus Scale, the Applicable Tax-Exempt Municipal Bond Rate will be determined by an investment banking firm selected by the University, as the quotation agent, based upon the rate per annum equal to the semi-annual equivalent yield to maturity of those tax-exempt general obligation bonds rated in the highest rating category by Moody’s and S&P with a maturity date equal to the stated maturity date of the Bonds having characteristics (other than the ratings) most comparable to those of the Bonds in the judgment of the quotation agent. The quotation agent’s determination of the Applicable Tax-Exempt Bond Rate will be final and binding in the absence of manifest error.

The “Amortized Value” will equal the principal amount of the Bonds to be redeemed multiplied by the price of such Bonds expressed as a percentage, calculated five (5) Business Days prior to the date of redemption based on the industry standard method of calculating bond prices, with a delivery date equal to the date of redemption, a maturity date equal to the stated maturity date of such Bonds and a yield equal to 2.220%.

The Amortized Value and the Make-Whole Redemption Price of the Bonds described above will be determined by an independent accounting firm, investment banking firm or financial advisor (which accounting firm or financial advisor will be retained by the University at the expense of the University) to calculate such Amortized Value and Make-Whole Redemption Price. The Trustee, the Authority and the University may conclusively rely on such accounting firm’s, investment banking firm’s or financial advisor’s determination of such Amortized Value and Make-Whole Redemption Price and shall bear no liability for such reliance.

Selection of Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the Bonds, the Trustee shall select the Bonds by lot within a maturity in such manner as may be determined by the Trustee; provided, however, while the Bonds are held by DTC in the book-entry system, such selection shall be made by lot in such manner as shall be determined in accordance with DTC’s procedures.

Notice and Effect of Redemption. Notice of redemption shall be given by the Trustee as hereinafter provided to: (i) the respective Holders of any Bonds designated for redemption at their addresses shown on the registration books of the Trustee; (ii) the Authority; (iii) the Municipal Securities Rulemaking Board’s EMMA System; and (iv) the Securities Depositories. Any notice of redemption shall be mailed by first class mail to Bondholders not less than thirty (30) days or more than sixty (60) days prior to the date fixed for redemption. Failure by the Trustee to give notice, or the insufficiency of any such notice, shall not affect the sufficiency of the proceedings for redemption of any Bond for which notice has been properly given. Notice of redemption having

been duly given as aforesaid, and moneys for payment of the redemption price of, together with interest accrued to the redemption date on, the Bonds (or portions thereof) so called for redemption being held by the Trustee, on the redemption date designated in such notice, the Bonds (or portions thereof) so called for redemption shall become due and payable at the redemption price specified in such notice and interest accrued thereon to the redemption date, interest on the Bonds so called for redemption shall cease to accrue from and after the redemption date, said Bonds (or portions thereof) shall cease to be entitled to any lien, benefit or security under the Indenture, and the Holders of said Bonds shall have no rights in respect thereof except to receive payment of said redemption price and accrued interest to the redemption date.

Any notice of redemption given under the Indenture may be rescinded upon written request of the University at any time up to and including the fifth (5th) Business Day prior to the date fixed for redemption. The Trustee shall give notice of such rescission in the same manner as for notices of redemption.

BOOK-ENTRY SYSTEM

The information in this section and in APPENDIX F – “BOOK-ENTRY SYSTEM” concerning DTC and DTC’s book-entry system has been obtained from sources that the University believes to be reliable, but neither the University, the Authority, nor the Underwriter take any responsibility for the accuracy thereof.

The Bonds are in book-entry form, without coupons, and will be initially registered in the name of Cede & Co., as nominee of DTC. Purchasers of the Bonds will not receive instruments representing their interests in the Bonds purchased. DTC will act as securities depository for the Bonds. Payments of principal of and interest on the Bonds will be payable by the Trustee to DTC, which will in turn remit such payments to DTC Participants for the benefit of the Beneficial Owners of the Bonds, all as more fully described herein. See APPENDIX F –“BOOK- ENTRY SYSTEM” herein.

In the event that (i) DTC determines not to continue to act as securities depository for the Bonds, (ii) DTC shall no longer so act and gives notice to the Trustee of such determination or (iii) the Authority determines, with the consent of the University, that it is in the best interest of the Beneficial Owners that they be able to obtain Bonds and delivers a written certificate to the Trustee to that effect, DTC’s services will be discontinued. If the Authority determines to replace DTC with another qualified securities depository, the Authority shall prepare or direct preparation of a new single, separate, fully registered Bond for each maturity, registered in the name of such successor or substitute qualified securities depository or its nominee. If the Authority fails to identify another qualified securities depository to replace DTC, then the Bonds shall no longer be restricted to being registered in the Bond registration books in the name of Cede & Co., but shall be registered in whatever name or names Beneficial Owners transferring or exchanging Bonds shall designate, in accordance with the Indenture.

If the Authority fails to identify another qualified securities depository to replace DTC, or if the book-entry system is discontinued, principal of and interest on the Bonds shall be paid as described herein under the heading “THE BONDS – Description of the Bonds.”

SECURITY AND SOURCES OF PAYMENT FOR THE BONDS

Revenues and Base Loan Payments

The Authority is obligated to pay the principal of and interest on the Bonds solely from the Revenues received from the University under the Loan Agreement and the other funds available therefor under the Indenture. Pursuant to the Indenture, the Authority has pledged to the Trustee for the benefit of the Bondholders all of the Revenues. “Revenues” mean all payments received by the Authority or the Trustee from the University pursuant to or with respect to the Loan Agreement (except Additional Payments, certain other expenses incurred by the Authority and the Trustee, indemnification payments and amounts received for or on deposit in the Rebate Fund) including, without limiting the generality of the foregoing, the applicable Base Loan Payments (including both timely and delinquent payments), prepayments and all income derived from the investment of any money in any fund or account established pursuant to the Indenture. There will be no reserve fund with respect to the Bonds.

Under the Loan Agreement, the University has an unconditional general obligation to pay the Base Loan Payments to be made thereunder, which payments are due in the amounts and at the times necessary to pay the principal (whether at maturity or upon acceleration or prior redemption) of, and interest to the date of maturity or redemption of the Bonds, when due. The University’s payment obligations under the Loan Agreement are general, unsecured obligations of the University.

THE BONDS DO NOT CONSTITUTE A DEBT OR LIABILITY OF THE STATE OR OF ANY POLITICAL SUBDIVISION THEREOF OTHER THAN THE AUTHORITY, BUT SHALL BE PAYABLE SOLELY FROM THE FUNDS PROVIDED THEREFOR BY THE UNIVERSITY. NEITHER THE STATE NOR THE AUTHORITY SHALL BE OBLIGATED TO PAY THE PRINCIPAL OF OR INTEREST ON THE BONDS, EXCEPT FROM THE FUNDS PROVIDED UNDER THE LOAN AGREEMENT AND THE INDENTURE, AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE BONDS. THE BONDS ARE PAYABLE ONLY OUT OF FUNDS PLEDGED UNDER THE INDENTURE. THE ISSUANCE OF THE BONDS SHALL NOT DIRECTLY, INDIRECTLY OR CONTINGENTLY OBLIGATE THE STATE OR ANY POLITICAL SUBDIVISION THEREOF TO LEVY OR TO PLEDGE ANY FORM OF TAXATION WHATEVER OR TO MAKE ANY APPROPRIATION FOR THEIR PAYMENT. THE AUTHORITY HAS NO TAXING POWER. ALTHOUGH THE BONDS WILL BE ISSUED BY THE AUTHORITY, THE BONDS SHOULD BE VIEWED AS DIRECT OBLIGATIONS OF THE UNIVERSITY FOR PURPOSES OF EVALUATING THEIR SECURITY.

Pursuant to the Act, the State will not limit, alter or restrict the rights vested by the Act in the Authority and the University with respect to the collection of the Revenues pledged under the Indenture, nor will it in any way impair the rights or remedies of the Bondholders.

Investment Considerations

Except as noted herein, the Bonds are payable solely from and secured by the Authority’s pledge of the Revenues, which consist primarily of payments to be made by the University under the Loan Agreement. There can be no assurance that income and receipts will be realized by the University in amounts sufficient to make payments under the Loan Agreement and thus sufficient to pay the principal of or interest on the Bonds.

Future economic and other conditions, including, without limitation, the loss by the University of one or more of its accreditations, destruction or loss of a substantial portion of the University’s facilities, litigation, competition, reduction in the amounts received by the University through fundraising efforts, reduction of the value of endowment funds, changes in the demand for post-high school education and changes in tuition rates and/or tuition discounting, may adversely affect income and receipts of the University. There can be no assurance that University income and receipts will not decrease.

The University operates hospital and health care facilities. As such, the University has hospital and health care operating risks, in addition to the University’s significant higher educational operations. See APPENDIX A hereto. With respect to the operations of hospital facilities, there is a risk that costs of providing health care and hospital services will increase faster than the ability to recover such costs from Medicare, Medi-Cal and other third party payers.

The following are certain investment considerations and risk factors that have been identified by the University and should be carefully considered by prospective purchasers of the Bonds. The following should not be considered to be exhaustive. Investors should read this Official Statement in its entirety. Inclusion of certain factors below is not intended to signify that there are not other investment considerations or risks attendant to the Bonds. See APPENDIX A for additional information on the University.

Both the University’s stature in the educational community and its consolidated revenues, expenses, assets and liabilities may be affected by events, developments and conditions relating generally to, among other things, the ability of the University (a) to provide educational and research services of the types and quality required to maintain its stature; (b) to generate sufficient revenues, while controlling expenses, so that these services can be

provided at a cost acceptable to the University’s consumers; (c) to attract faculty, staff and management necessary to provide these services and a student body of commensurate quality; and (d) to build and maintain the facilities necessary to provide these services.

In turn, success in these areas depends upon the ability of the University and its management to respond to substantial challenges in a rapidly changing environment including, among others: (i) competition in the provision of educational services particularly through new educational media and distance learning and an increasing number of international programs and collaborative projects; (ii) developments in the regional, national and international economies, such as the high regional cost of living, the limited availability of affordable housing within reasonable commuting distance and increases in regional energy costs; (iii) volatility in the financial markets, variations in economic growth, changes in monetary policy and taxation, and the adequacy of the University’s investment management policies and the performance of its investments in the face of such challenges, all of which may negatively impact funds available from the University’s endowment, other investments and its donors to support University operations and capital needs; and (iv) legislation and regulation by governmental authorities, including developments affecting the tax-exempt status of educational institutions like the University, changes in levels of governmental research funding and reimbursement for administrative overhead and infrastructure, regulation of tuition levels, and limitations imposed by the City of Los Angeles General Plan and Zoning Code on the University’s expansion and use of facilities. The preservation and growth of the University’s endowment are affected not only by the factors noted above but by discretionary increases in the annual payout to operations from endowment earnings, transfers of expendable funds and other distributions, all of which are subject to changes in policies and practices made by the Board and University management.

A variety of risks, uncertainties and other factors may affect the financial strength and stature of the University. By its nature, the University is an open environment, potentially vulnerable to disruption of operations, injury and damage notwithstanding its security and public safety programs. It is subject to governmental investigations and enforcement action and private suits, and may incur substantial costs of defense, sanctions, penalties and reputational harm for violation of laws applicable to the University in its routine operations. The University is a large landowner; it routinely stores, uses and produces hazardous substances in its operations; it houses several thousand students, faculty and others. The University purchases third-party insurance for losses resulting from fire and related natural hazards to the extent such losses exceed a deductible of $75,000 per occurrence. While the University’s property insurance coverage is believed by University management to be adequate and commensurate with an acceptable standard for comparable universities, the limits purchased are for expected losses and would fall short of covering the damage caused by a catastrophic event. The University carries limited third-party insurance for damage to facilities sustained from flooding and no third party insurance for damage to facilities due to seismic events. The University is located in a region that is subject to significant seismic activity. In the event of a significant seismic event, the University could suffer substantial damage to its facilities and disruption to its operations.

The University, as described above, operates certain hospital and health care facilities. The future financial condition of the University and its health care operations could be adversely affected by, among other things, increased competition from other health care entities, the costs associated with responding to governmental inquiries and investigations, demand for health care, other forms of care or treatment, changes in the methods by which employers purchase health care for employees, capability of management, future changes in the economy, demographic changes, health care reform and related changes in the structure of how health care is delivered and financed, availability of physicians and nurses, and malpractice claims and other litigation. These factors and others may adversely affect payment by the University under the Loan Agreement.

As a result of the Patient Protection and Affordable Care Act, enacted in March 2010, as amended by the Health Care and Education Reconciliation Act (the “ACA”), substantial changes are anticipated in the United States health care system. Some of the provisions of the ACA took effect immediately, while others will take effect at later dates or will be phased in over time. Such legislation includes numerous provisions affecting the delivery of health care services, the financing of health care costs, reimbursement of health care providers and the legal obligations of health insurers, providers, employers and consumers. These provisions are slated to take effect at specified times over approximately the next decade, and, therefore, the full consequences of the ACA on the health care industry will not be immediately realized. Due to the complexity of the ACA, the ramifications of federal health care reform legislation may also become apparent only following implementation or through later regulatory and judicial

interpretations. Portions of the ACA may also be limited or nullified as a result of legal challenges or amendments. In addition, the uncertainties regarding the implementation of the ACA create unpredictability for the strategic and business planning efforts of health care providers, which in itself constitutes a risk. The changes in the health care industry brought about by the ACA will likely have both positive and negative effects, directly and indirectly, on the nation’s hospitals and other health care providers, including the University’s hospitals and health care facilities.

The ACA has been subject to opposition in the political and judicial arenas. Multiple challenges to the constitutionality of the ACA were filed by private and state parties in federal courts, culminating in a hearing by the Supreme Court in March 2012 and a decision on June 28, 2012, which largely upheld the ACA as constitutional. The Supreme Court limited the scope of the ACA in one important respect, restricting the federal government’s ability to condition Medicaid funding on state’s participation in the Medicaid expansion. As a result, states effectively have the option but not the obligation to extend Medicaid coverage to the indigent adult population specified in the ACA. Although the Supreme Court’s ruling removed a significant source of uncertainty surrounding the implementation of federal health care reform, legislative repeal under a future Congress or Presidential administration remains a possibility. The practical consequences of the ACA, as well as of other future federal and state actions to cut costs and change the health care delivery system in the United States, cannot be foreseen.

Health care providers rely to a high degree on payment from the federal Medicare program and the State’s Medicaid program, known as the Medi-Cal program. Future changes in the underlying law and regulations, as well as payment policy and timing, create uncertainty and could have a material adverse impact on a hospital’s payment streams from these sources. With health care and hospital spending reported to be increasing faster than the rate of general inflation, and with federal budgetary allocations in a tenuous state due to the sustained national financial crisis, Congress and/or the Centers for Medicare and Medicaid Services may take action in the future to decrease or restrain Medicare outlays for hospitals and other health care providers. As Medi-Cal is partially funded by the State, the financial condition of the State is also likely to affect funding levels and/or cause payment delays. This could have a material adverse impact on health care providers, including the University. Moreover, State funding for specialized programs for which a hospital may be eligible may be particularly susceptible to changes in State budgetary constraints.

“Fraud” in government funded health care programs is a significant concern of many states and is one of the federal government's prime law enforcement priorities. The federal government and, to a lesser degree, state governments, impose a wide variety of extraordinarily complex and technical requirements intended to prevent overutilization based on economic inducements, misallocation of expenses, overcharging and other forms of “fraud” in the Medicare and Medicaid programs, as well as other state and federally-funded health care programs. This body of regulation impacts a broad spectrum of hospital activities and functions, including billing, accounting. recordkeeping, medical staff oversight, physician contracting and recruiting, cost allocation, clinical trials, discounts and other functions and transactions. Violations and alleged violations may occur in circumstances where management is unaware of the conduct in question, as a result of mistake, or where the individual participants do not know that their conduct is in violation of law. Violations may occur and be prosecuted in circumstances that do not have the traditional elements of fraud, and enforcement actions may extend to conduct that occurred in the past. The government and/or private “whistleblowers” often pursue aggressive investigative and enforcement actions. The government may impose a wide array of civil, criminal and monetary penalties, including withholding essential hospital payments from the Medicare or Medicaid programs, or exclusion from those programs. Aggressive investigation tactics, negative publicity and threatened penalties can be, and often are used to force settlements, payment of fines and prospective restrictions that may have a material adverse impact on hospital operations, financial condition and reputation. Multi-million dollar fines and settlements are common. These risks are generally uninsured. Government enforcement and private whistleblower suits may increase in the hospital sector.

In recent years the number of professional and general liability suits and the dollar amounts of damage recoveries have increased in health care nationwide, resulting in substantial increases in malpractice insurance premiums, higher deductibles and generally less coverage. Professional liability and other actions alleging wrongful conduct and seeking punitive damages are often filed against hospitals and other health care providers. Insurance does not provide coverage for judgments for punitive damages. Litigation also arises from the corporate and business activities of hospitals, from a hospital’s status as an employer or as a result of medical staff or provider network peer review or the denial of medical staff or provider network privileges. As with professional liability,

many of these risks are covered by insurance, but some are not. For example, some antitrust claims or business disputes are not covered by insurance or other sources and may, in whole or in part, be a liability of the hospital or other health care provider, such as the University, if determined or settled adversely.

Medical liability litigation is subject to public policy determinations and legal procedural rules that may be altered from time to time, with the result that the frequency and cost of such litigation, and resultant liabilities, may increase in the future. Hospitals, including those owned and operated by the University, may be affected by negative financial and liability impacts on physicians. Costs of insurance, including self-insurance, may increase dramatically.

THE AUTHORITY

The Authority is a public instrumentality of the State created pursuant to the provisions of the Act. The Authority is authorized to issue the bonds under the Act, to make the loan contemplated by the Loan Agreement and to secure the Bonds by the pledge of the Revenues received by the Authority pursuant to the Loan Agreement and certain other sources of payment as provided in the Indenture, including amounts held in specified funds or accounts pursuant to such Indenture (excluding the Rebate Fund).

Organization and Membership of the Authority

The members of the Authority consist of the Treasurer, the Controller and the Director of Finance of the State and two members appointed by the governor of the State. Of the two appointed members, one must be affiliated with a public institution of higher education and the other must be affiliated with a private institution of higher education.

The members of the Authority serve without compensation but are entitled to reimbursement of actual and necessary expenses incurred in the performance of their duties.

The present members and officers of the Authority and their occupations are as follows:

Bill Lockyer Chairman, Treasurer of the State of California1

John Chiang Member, Controller of the State of California

Ana J. Matosantos Member, Director of Finance of the State of California

William G.McGinnis Member, Trustee, Butte-Glenn Community College District Board of Trustees

Michael L. Jackson Member, Vice President, Student Affairs, University of Southern California2

Ronald L. Washington is the Executive Director of the Authority and is responsible to the Authority for the management of its affairs. Public Financial Management, Inc., San Francisco, California, serves as financial advisor and pricing advisor to the Authority. The Attorney General of the State of California is counsel to the Authority.

1 Treasurer Bill Lockyer is currently teaching a class at the University and therefore did not participate in any discretionary action of the Authority or of the State Treasurer’s Office relating to the University. 2 Mr. Jackson did not participate in any action of the Authority relating to the University.

Indebtedness of the Authority

The Act does not limit the amount of indebtedness the Authority may have outstanding from time to time. As of June 30, 2012, the Authority had outstanding $4,381,328,079 aggregate principal amount of bonds and notes (excluding certain bonds and notes which have been defeased) issued on behalf of various California independent colleges and universities.

ENFORCEABILITY OF REMEDIES

The remedies available to the Trustee or the Bondholders upon an Event of Default under the Indenture or the Loan Agreement are in many respects dependent upon judicial actions which are often subject to discretion and delay, and such remedies may not be readily available or may be limited. In particular, under the United States Bankruptcy Code, a bankruptcy case may be filed by or against the University or by or against any of its affiliates. In general, the filing of any such petition operates as a stay against enforcement of the terms of the agreements to which the bankrupt entity is a party. The various legal opinions delivered in connection with the issuance of the Bonds (including Bond Counsel’s approving opinion) are qualified, as to the enforceability of the various legal instruments, by limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally and by general principles of equity applied in the exercise of judicial discretion.

LEGALITY FOR INVESTMENT IN CALIFORNIA

Obligations issued by the Authority under the Act are, under California law, securities in which all banks, savings banks, trust companies, savings and loan associations, investment companies and other persons carrying on a banking business, all insurance companies, insurance associations and other persons carrying on an insurance business, and all administrators, executors, guardians, trustees and other fiduciaries and all other persons whatsoever, who now are or may hereafter be authorized to invest in bonds or other obligations of the State, may properly and legally invest any funds, including capital belonging to them or within their control; and such obligations are securities which may properly and legally be deposited with and received by any state or municipal officer or agency of the State for any purpose for which the deposit of bonds or notes or other obligations of the State is now or may hereafter be authorized by law.

TAX MATTERS

Opinion of Bond Counsel

In the opinion of Hawkins Delafield & Wood LLP, Bond Counsel, under existing statutes and court decisions and assuming continuing compliance with certain tax covenants described herein, (i) interest on the Bonds is excluded from gross income for Federal income tax purposes pursuant to Section 103 of the Internal Revenue Code of 1986, as amended (the “Code”), and (ii) interest on the Bonds is not treated as a preference item in calculating the alternative minimum tax imposed on individuals and corporations under the Code; such interest, however, is included in the adjusted current earnings of certain corporations for purposes of calculating the alternative minimum tax imposed on such corporations. In rendering its opinion, Bond Counsel has relied on certain representations, certifications of fact, and statements of reasonable expectations made by the Authority, the University and others in connection with the Bonds, and Bond Counsel has assumed compliance by the Authority and the University with certain ongoing covenants to comply with applicable requirements of the Code to assure the exclusion of interest on the Bonds from gross income under Section 103 of the Code. In addition, in rendering its opinion, Bond Counsel has relied on the opinion of counsel to the University regarding, among other matters, the current qualification of the University as an organization described in Section 501(c)(3) of the Code.

In addition, in the opinion of Bond Counsel, under existing statutes, interest on the Bonds is exempt from State of California personal income taxes.

Bond Counsel expresses no opinion regarding any other Federal or state tax consequences with respect to the Bonds. Bond Counsel renders its opinion under existing statutes and court decisions as of the issue date, and assumes no obligation to update, revise or supplement its opinion to reflect any action hereafter taken or not taken, or any facts or circumstances that may hereafter come to its attention, or changes in law or interpretations thereof

that may hereafter occur, or for any other reason. Bond Counsel expresses no opinion on the effect of any action hereafter taken or not taken in reliance upon an opinion of other counsel on the exclusion from gross income for Federal income tax purposes of interest on the Bonds, or under state and local tax law.

Certain Ongoing Federal Tax Requirements and Covenants

The Code establishes certain ongoing requirements that must be met subsequent to the issuance and delivery of the Bonds in order that interest on the Bonds be and remain excluded from gross income under Section 103 of the Code. These requirements include, but are not limited to, requirements relating to use and expenditure of gross proceeds of the Bonds, yield and other restrictions on investments of gross proceeds, and the arbitrage rebate requirement that certain excess earnings on gross proceeds be rebated to the Federal government. Noncompliance with such requirements may cause interest on the Bonds to become included in gross income for Federal income tax purposes retroactive to their issue date, irrespective of the date on which such noncompliance occurs or is discovered. The Authority and the University have covenanted to comply with certain applicable requirements of the Code to assure the exclusion of interest on the Bonds from gross income under Section 103 of the Code.

Certain Collateral Federal Tax Consequences

The following is a brief discussion of certain collateral Federal income tax matters with respect to the Bonds. It does not purport to address all aspects of Federal taxation that may be relevant to a particular owner of a Bond. Prospective investors, particularly those who may be subject to special rules, are advised to consult their own tax advisors regarding the Federal tax consequences of owning and disposing of the Bonds.

Prospective owners of the Bonds should be aware that the ownership of such obligations may result in collateral Federal income tax consequences to various categories of persons, such as corporations (including S corporations and foreign corporations), financial institutions, property and casualty and life insurance companies, individual recipients of Social Security and railroad retirement benefits, individuals otherwise eligible for the earned income tax credit, and taxpayers deemed to have incurred or continued indebtedness to purchase or carry obligations the interest on which is excluded from gross income for Federal income tax purposes. Interest on the Bonds may be taken into account in determining the tax liability of foreign corporations subject to the branch profits tax imposed by Section 884 of the Code.

Bond Premium

In general, if an owner acquires a Bond for a purchase price (excluding accrued interest) or otherwise at a tax basis that reflects a premium over the sum of all amounts payable on the Bond after the acquisition date (excluding certain “qualified stated interest” that is unconditionally payable at least annually at prescribed rates), that premium constitutes “bond premium” on that Bond (a “Premium Bond”). In general, under Section 171 of the Code, an owner of a Premium Bond must amortize the bond premium over the remaining term of the Premium Bond, based on the owner’s yield over the remaining term of the Premium Bond, determined based on constant yield principles (in certain cases involving a Premium Bond callable prior to its stated maturity date, the amortization period and yield may be required to be determined on the basis of an earlier call date that results in the lowest yield on such bond). An owner of a Premium Bond must amortize the bond premium by offsetting the qualified stated interest allocable to each interest accrual period under the owner’s regular method of accounting against the bond premium allocable to that period. In the case of a tax-exempt Premium Bond, if the bond premium allocable to an accrual period exceeds the qualified stated interest allocable to that accrual period, the excess is a nondeductible loss. Under certain circumstances, the owner of a Premium Bond may realize a taxable gain upon disposition of the Premium Bond even though it is sold or redeemed for an amount less than or equal to the owner’s original acquisition cost. Owners of any Premium Bonds should consult their own tax advisors regarding the treatment of bond premium for Federal income tax purposes, including various special rules relating thereto, and state and local tax consequences, in connection with the acquisition, ownership, amortization of bond premium on, sale, exchange, or other disposition of Premium Bonds.

Information Reporting and Backup Withholding

Information reporting requirements will apply to interest paid on tax-exempt obligations, including the Bonds. In general, such requirements are satisfied if the interest recipient completes, and provides the payor with, a Form W-9, “Request for Taxpayer Identification Number and Certification”, or if the recipient is one of a limited class of exempt recipients. A recipient not otherwise exempt from information reporting who fails to satisfy the information reporting requirements will be subject to “backup withholding”, which means that the payor is required to deduct and withhold a tax from the interest payment, calculated in the manner set forth in the Code. For the foregoing purpose, a “payor” generally refers to the person or entity from whom a recipient receives its payments of interest or who collects such payments on behalf of the recipient.

If an owner purchasing a Bond through a brokerage account has executed a Form W-9 in connection with the establishment of such account, as generally can be expected, no backup withholding should occur. In any event, backup withholding does not affect the excludability of the interest on the Bonds from gross income for Federal income tax purposes. Any amounts withheld pursuant to backup withholding would be allowed as a refund or a credit against the owner’s Federal income tax once the required information is furnished to the Internal Revenue Service.

Miscellaneous

Tax legislation, administrative actions taken by tax authorities, or court decisions, whether at the Federal or state level, may adversely affect the tax-exempt status of interest on the Bonds under Federal or state law or otherwise prevent beneficial owners of the Bonds from realizing the full current benefit of the tax status of such interest. In addition, such legislation or actions (whether currently proposed, proposed in the future, or enacted) and such decisions could affect the market price or marketability of the Bonds.

Prospective purchasers of the Bonds should consult their own tax advisors regarding the foregoing matters.

APPROVAL OF LEGAL PROCEEDINGS

The validity of the issuance of the Bonds under California law is subject to the approval of Hawkins Delafield & Wood LLP, Bond Counsel. The proposed form of the legal opinion of Bond Counsel to be delivered upon the issuance of the Bonds is attached hereto as APPENDIX D. Bond Counsel undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Certain legal matters pertaining to the Authority will be passed upon by the Attorney General of the State of California. The Attorney General undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Certain legal matters will be passed upon for the University by the University’s General Counsel. Certain legal matters will be passed upon for the Underwriter by Nixon Peabody LLP, counsel to the Underwriter.

ABSENCE OF MATERIAL LITIGATION

There is no litigation now pending, with service of process having been accomplished or, to the knowledge of their respective officers, threatened, against the Authority or the University, which in any way seeks to restrain or enjoin the sale, execution or delivery of the Bonds, or in any way contests or affects the validity of the Bonds or the validity of any proceedings or transaction relating to their sale and issuance. To the knowledge of the University, there is no litigation pending or threatened which in any manner questions the right of the University to make payments under the Loan Agreement in order to repay the Bonds in accordance with the provisions of the Indenture or which would have a material adverse impact on the University’s financial position or results of operations. See APPENDIX A - “THE UNIVERSITY OF SOUTHERN CALIFORNIA - Litigation” for additional information relating to the University.

UNDERWRITING

Morgan Stanley & Co. LLC, as the underwriter (the “Underwriter”), has agreed, subject to certain conditions, to purchase the Bonds from the Authority at a price equal to $52,695,805.68, which represents the par

amount of the Bonds of $41,595,000.00, less an Underwriter’s discount of $208,874.82, and plus an original issue premium of $11,309,680.50. The Underwriter is obligated under the purchase contract to purchase all of the Bonds if any are purchased. The Bonds may be offered and sold by the Underwriter to certain dealers and others at yields lower than the public offering prices or yields indicated in the cover hereof, and such public offering prices or yields may be changed, from time to time, by the Underwriter.

Morgan Stanley, parent company of Morgan Stanley & Co. LLC, the Underwriter, has entered into a retail brokerage joint venture with Citigroup Inc. As part of the joint venture, Morgan Stanley & Co. LLC will distribute municipal securities to retail investors through the financial advisor network of a new broker-dealer, Morgan Stanley Smith Barney LLC. This distribution arrangement became effective on June 1, 2009. As part of this arrangement, Morgan Stanley & Co. LLC will compensate Morgan Stanley Smith Barney LLC for its selling efforts with respect to the Bonds.

RATINGS

Moody’s Investors Service, Inc. (“Moody’s”) and Standard & Poor’s Rating Services (“S&P”), a Standard & Poor’s Financial Services LLC business, have assigned the Bonds long-term ratings of “Aa1” and “AA”, respectively. Any explanation of the significance of such ratings may only be obtained from the rating agency furnishing the same.

Generally, rating agencies base their ratings on information and materials furnished and on investigation, studies, and assumptions by the rating agencies. There is no assurance that the ratings mentioned above will remain in effect for any given period of time or that a rating might not be lowered or withdrawn entirely, if in the judgment of the rating agency originally establishing the rating, circumstances so warrant. Except as otherwise provided in the Continuing Disclosure Agreement relating to the Bonds, the Authority, the University, and the Underwriter have not undertaken any responsibility to bring to the attention of the Bondholders any proposed change in or withdrawal of a rating or to oppose any such proposed revision or withdrawal. Any such downward change in or withdrawal of a rating might have an adverse effect on the market price or marketability of the Bonds.

INDEPENDENT ACCOUNTANTS

The consolidated financial statements of the University and its subsidiaries as of and for the year ended June 30, 2011, included in APPENDIX B of this Official Statement, have been audited by PricewaterhouseCoopers LLP, independent accountants, as stated in their report appearing herein.

CONTINUING DISCLOSURE

Because the Bonds are limited obligations of the Authority, payable solely from amounts received from the University, financial or operating data concerning the Authority is not material to any evaluation of the offering of the Bonds or to any decision to purchase, hold or sell the Bonds. Accordingly, the Authority is not providing any such information. The University has undertaken all responsibilities for any continuing disclosure to Bondholders as described below, and the Authority shall have no liability to the Holders of the Bonds or any other person with respect to Rule 15c2-12 promulgated by the Securities and Exchange Commission (the “Rule”).

The University has covenanted for the benefit of the Holders and beneficial owners of the Bonds to provide to the Trustee for dissemination as described below certain financial information and operating data relating to the University by not later than 210 days following the end of the University’s fiscal year (which fiscal year currently begins on July 1 of each year and ends on the next succeeding June 30 (each such twelve-month period a “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 University or the Trustee, as dissemination agent, on behalf of the University as required by the Continuing Disclosure Agreement. The notices of material events will be filed by the University or the Trustee, as dissemination agent, on behalf of the University with the Municipal Securities Rulemaking Board (“MSRB”) through its Electronic Municipal Market Access (“EMMA”) system or as otherwise required by the Continuing Disclosure Agreement. The specific nature of the information to be contained in the Annual Report or the notices of material events is set forth in the form of the Continuing Disclosure Agreement attached hereto as

APPENDIX E - “FORM OF CONTINUING DISCLOSURE AGREEMENT.” These covenants have been made in order to assist the Underwriter in complying with the Rule.

In the past five years, the University has timely filed its audited financial statements and complied with its undertakings to report on certain events in a timely manner. The University believes that its required annual updates to certain financial information for fiscal years 2007 through 2011 were prepared on a timely basis; however, such updates for fiscal years 2008, 2009 and 2011 were either not available to investors or proper references to other publicly available updated material were not properly filed. All of the required annual financial information updates have now been filed with the MSRB and are available on the EMMA website.

VERIFICATION

On the date of issuance of the Bonds, a portion of the proceeds of the Bonds will be used to purchase U.S. Treasury Securities – State and Local Government Series (the “Government Obligations”) to be held in trust by the Trustee, as Refunding Escrow Deposit Agent (the “Refunding Escrow Deposit Agent”) to provide for the payment of principal of and interest and premium, if any, on the Prior Bonds to their call date. The arithmetical accuracy of certain computations included in the schedules provided by or on behalf of the Authority and the University relating to (a) computations of anticipated receipts of principal and interest on the Government Obligations to pay the regularly scheduled debt service on the Prior Bonds until the call date and to redeem the Prior Bonds on the call date, and (b) computations of yields on the Prior Bonds and the Government Obligations will be verified by Chris D. Berens, CPA, P.C., a firm of independent public accountants, as verification agent. Such computations are based solely upon assumptions and information supplied by or on behalf of the Authority and the University. The verification agent has restricted its procedures to verifying the arithmetical accuracy of certain computations and has not made any study or evaluation of the assumptions and information upon which the computations are based and, accordingly, has not expressed an opinion on the data used, the reasonableness of the assumptions, or the achievability of future events.

In the event that the securities and amounts held in the Refunding Escrow Deposit Fund are restructured at any time prior to the redemption of the Prior Bonds, the Refunding Escrow Deposit Agreement requires that the verification agent, or its successor or assigns, or another verification agent, will provide a new mathematical report containing the information set forth above with respect to any such restructuring.

MISCELLANEOUS

All quotations from and summaries and explanations of the Act, the Indenture, the Loan Agreement and the Continuing Disclosure Agreement, and of other statutes and documents contained herein, do not purport to be complete, and reference is made to said documents and statutes for full and complete statements of their provisions. Copies in reasonable quantities of the Indenture and the Loan Agreement may be obtained upon request directed to the Trustee, the Underwriter or the University.

Information relating to DTC and the book-entry system described under the heading “BOOK-ENTRY SYSTEM” and APPENDIX F - “BOOK-ENTRY SYSTEM” is based upon information furnished by DTC and is believed to be reliable, but neither the Authority, the University nor the Underwriter make any representations or warranties whatsoever with respect to such information.

The Authority has reviewed the information contained under the captions “THE AUTHORITY” and “ABSENCE OF MATERIAL LITIGATION” (as it relates solely to the Authority) and has approved the information under those captions for use in this Official Statement. The purchase contract for the Bonds contain provisions constituting the agreement of the University to indemnify the Authority and the Underwriter against losses, claims, damages and liabilities arising out of any incorrect or misleading statements or information contained in this Official Statement pertaining to the University and supplied by it. APPENDIX A has been prepared by the University, and APPENDIX B, the University’s consolidated financial statements, was furnished by the University. APPENDIX C, Certain Provisions of Principal Documents, and APPENDIX D, Proposed Form of Opinion of Bond Counsel, have been prepared by Hawkins Delafield & Wood LLP, Bond Counsel. APPENDIX E, Form of Continuing Disclosure Agreement, has been prepared by Nixon Peabody LLP. All of the Appendices hereto are incorporated as an integral part of this Official Statement.

Any statements in this Official Statement involving matters of opinion are intended as such and not as representation of fact. This Official Statement is not to be construed as a contract or agreement between the Authority or the University and the holders of any of the Bonds. The Appendices hereto contain certain information with respect to the University. The information contained in the Appendices has been furnished by the University and officers and officials of the University, and by other sources the University believes to be current and reliable, and the Authority makes no representations or warranties whatsoever with respect to the information contained in the Appendices or any other information contained in this Official Statement, except for information set forth under the captions “THE AUTHORITY” and “ABSENCE OF MATERIAL LITIGATION” (solely as it relates to the Authority).

The execution and delivery of this Official Statement by the undersigned have been duly authorized by the Authority.

CALIFORNIA EDUCATIONAL FACILITIES AUTHORITY

By /s/ Ronald L. Washington Ronald L. Washington Executive Director

This Official Statement has been reviewed and approved by the University of Southern California. Concurrently with the delivery of the Bonds, the University will furnish a certificate executed on behalf of the University by its Senior Vice President, Finance, and Chief Financial Officer (or other authorized officer) to the effect that this Official Statement, except for the sections “BOOK-ENTRY SYSTEM,” “THE AUTHORITY,” “UNDERWRITING” and “ABSENCE OF MATERIAL LITIGATION,” and APPENDIX D and APPENDIX F (solely as such sections relate to DTC, the book-entry system, and the Authority) as of the date of this Official Statement and as of the date of delivery of the Bonds, does not contain any untrue statement of a material fact relating to the University or omit to state such a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

UNIVERSITY OF SOUTHERN CALIFORNIA

By /s/ Robert Abeles Robert Abeles Senior Vice President, Finance, and Chief Financial Officer Dated: August 15, 2012

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APPENDIX A

THE UNIVERSITY OF SOUTHERN CALIFORNIA

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APPENDIX A

THE UNIVERSITY OF SOUTHERN CALIFORNIA

Introduction

The University of Southern California (the “University” or “USC”) is a nonprofit, coeducational university with its principal campus located near downtown Los Angeles, California. The University currently has the largest enrollment of any private university in California. In the fall of 2011, 17,414 undergraduate and 20,596 graduate, professional and other students were enrolled at the University and the University expects Fall 2012 enrollment to be substantially the same. The University is an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code”).

Financial Information

The audited financial statements of the University are prepared in accordance with generally accepted accounting principles. Audited financial statements for the fiscal year ended June 30, 2011, are set forth in Appendix B to the Official Statement. The Consolidated Balance Sheet presents the financial position of the University as of the end of the fiscal year. The Statement of Activities presents financial activities during the fiscal year, thereby reconciling the beginning and end-of-year net asset positions contained in the Consolidated Balance Sheet. The Statement of Cash Flows summarizes cash related activities during the fiscal year, thereby reconciling the beginning and end-of-year cash balances contained in the Consolidated Balance Sheet. The audited financial statements are an integral part hereof and should be read in their entirety.

Five years of certain comparative financial data for the University are set forth below under the table captioned “Consolidated Balance Sheet Summary.”

Consolidated Balance Sheet Summary

As of June 30, (dollars in thousands)

2007 2008 2009 2010 2011 Total Assets $6,342,621 $6,363,326 $5,933,398 $6,464,226 $7,652,732 Total Liabilities 1,135,025 1,186,883 1,627,341 1,727,294 1,923,874

Total Net Assets $5,207,596 $5,176,443 $4,306,057 $4,736,932 $5,728,858

From June 30, 2007, to June 30, 2011, total net assets increased by approximately 10.0%. This increase is largely attributable to the net appreciation in the fair value of investments of the endowment, consistent with the gains seen in the underlying equity markets over that period. See “Investments” below.

Sponsored Research

Fiscal Years Ended June 30, (dollars in millions)

2007 2008 2009 2010 2011 Project Awards $415 $485 $464 $560 $590 Annual Direct Expenditures for Sponsored Research 329 328 353 357 287 Indirect Cost Recovery 101 104 112 119 132

Total $845 $917 $929 $1,036 $1,009

As reflected in Note 10 to the financial statements included in Appendix B to the Official Statement, executed contracts, grants, subcontracts and cooperative agreements for future sponsored research activity not reflected in the financial statements totaled approximately $1,077 million as of June 30, 2011.

Unlike direct costs, indirect costs are usually incurred for purposes common to several University projects, programs or activities, and include such expense items as utilities, facilities and general and administrative expenses. Accordingly, it is difficult to allocate indirect costs to specific projects for purposes of reimbursement. The United States Office of Management and Budget has acknowledged this difficulty and has established reimbursement principles and procedures in its “Circular No. A-21” to address the issue. Circular No. A-21 recognizes the following categories of indirect costs: (1) depreciation and use allowances; (2) operations and maintenance; (3) general administration expenses; (4) departmental administrative expenses; (5) sponsored projects administration; (6) library expenses; and (7) student administration and services.

The University uses the “predetermined rate” model to negotiate and recover indirect costs from the federal government, with the Department of Health and Human Services (“DHHS”) as its cognizant governmental agency for audit, negotiation and approval. Under the “predetermined rate” model, rates are negotiated in advance for an agreed upon period, which typically lasts several years. For example, following the most recent rate negotiation with DHHS, the University’s annual indirect cost recovery rates over the period from July 1, 2011, to June 30, 2016, will be 63.0%, 64.0%, 64.0%, 64.5% and 65.0% of the modified total direct costs, respectively. The rate for the fiscal year starting in July 1, 2016, will default to 65.0% as a provisional rate until the University and DHHS negotiate a new series of predetermined rates.

An alternative methodology, the “fixed overhead rate with a roll forward” model, is used by institutions that work with the Department of Defense’s Office of Naval Research as their cognizant agency. Unlike the “predetermined rate” model, this latter approach utilizes a budgeted rate that is subject to future audits and adjustments when actual costs become available. Thus, under the “predetermined rate” model, the University does not remain exposed to future audits of indirect costs and the uncertainty of “open years” common to those institutions that use the “fixed overhead rate with a roll forward” model.

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Investments

Investments of University funds are stated at market value (except for mortgages and gifts of real estate, which are stated at cost or fair market value on the date of gift) and are presented below by restriction. Unrestricted investments are those available to the University for any lawful purpose. Temporarily restricted investments consist of contributions received with donor restrictions that have not yet been satisfied, but that will ultimately be satisfied by passage of time, expenditure for a specified purpose, or both, and include such items as life income and annuity net assets. Permanently restricted investments consist of contributions received with donor restrictions that will not expire as a result of passage of time or expenditure for a specified purpose and include such items as true endowment and revolving student loan net assets.

Investment Summary

As of June 30, (dollars in thousands)

2007 2008 2009 2010 2011 Unrestricted Investments $2,832,222 $2,655,604 $ 752,322 $ 880,533 $1,074,341 Temporarily Restricted Investments 59,505 54,306 765,177 874,835 1,187,095 Permanently Restricted Investments 1,179,367 1,226,887 1,258,977 1,315,029 1,389,181

Total Investments $4,071,094 $3,936,797 $2,776,476 $3,070,397 $3,650,617

Total investments have decreased by approximately 10% over the period from June 30, 2007, to June 30, 2011, due to the decline and subsequent gain in the equity markets from fall 2008 to the present. At June 30, 2011, the market value of the University’s endowment totaled approximately $3.5 billion, of which approximately $3.4 billion was in the endowment pool component and the remainder separately invested. The remainder of the total investments is primarily related to charitable vehicles of which the University is the ultimate beneficiary. Between June 30, 2010, and June 30, 2011, the market value of the endowment pool increased by 19.9%. See “Summary of Recent Events and Certain Potential Future Events” below for a discussion of more recent investment activity.

The University hired its first Chief Investment Officer (the “CIO”) in April 2011. See “Management – Senior Administration” for a biography of the appointee to this position. As part of the CIO’s review of the University endowment’s policies and procedures, the University’s Investment Policy Statement (the “IPS”), which governs the management of the endowment, was updated. As well documented procedures and controls provide the basic foundation for strong risk management practices, the updated IPS (i) focuses on the roles and responsibilities of the Investment Committee of the Board of Trustees and the Investment Office’s staff, (ii) clearly identifies the endowment’s performance measures, the asset allocation policy and rebalancing parameters, and (iii) includes a new section regarding risk management which identifies key risks and provides a framework for managing these risks.

Effective January 1, 2009, the State of California adopted its version of the Uniform Prudent Management of Institutional Funds Act (“UPMIFA”). This Act revised previously existing legislation relating to charitable endowment funds of not-for-profit organizations. In response to UPMIFA’s adoption across the country, in August 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position 117-1 entitled “Endowment of Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act, and Enhanced Disclosure for All Endowment Funds.” The University adopted this FASB Staff Position in its fiscal year 2009 financial statements. As a result, cumulative returns associated with donor-restricted endowment funds of approximately $675 million as of June 30, 2009, which previously had been reported as unrestricted net assets, were reclassified as temporarily restricted net assets. The University does not believe that this change in classification will affect the creditworthiness of its Bonds. See Appendix B to the Official Statement—“Financial Statements of the University of Southern California.”

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Property, Plant and Equipment

Property, plant and equipment are comprised of the University’s property, buildings, library collections and equipment. Property, plant and equipment are funded by gifts, grants, unrestricted funds, proceeds from the sale of bonds and other borrowings.

Property, Plant and Equipment1

As of June 30, (dollars in thousands)

2007 2008 2009 2010 2011 Property, Plant and Equipment $2,469,513 $2,665,561 $3,148,705 $3,382,719 $3,648,887 Less: Accumulated Depreciation 1,024,947 1,118,898 1,213,474 1,333,521 1,476,457 Property, Plant and Equipment (net of accumulated depreciation) $1,444,566 $1,546,663 $1,935,231 $2,049,198 $2,172,430 ______1 Beginning in fiscal year 2009, Property, Plant and Equipment and Accumulated Depreciation reflects the purchase of two hospitals in 2009 for approximately $275 million. See “USC Hospitals” below.

Debt Service Requirements

The University’s outstanding bonds and notes were approximately $973 million as of June 30, 2011. The University continually examines its overall liability management strategy in light of its project and working capital requirements, interest rates, and other factors.

For a summary of the debt service requirements on the University’s outstanding bonds and notes on a fiscal year basis which were payable as of June 30, 2011, see Note 5 set forth in Appendix B to the Official Statement— “Financial Statements of the University of Southern California.”

The University has also established a $200,000,000 unsecured line of credit with a major bank. This line, which matures on November 30, 2013, is for liquidity purposes and has not been used to date.

On August 17, 2011, the University issued $300 million of taxable bonds. The debt service payments on such bonds are interest only through 2110, at an interest rate of 5.25%, with a single principal payment due in 2111. See “Summary of Recent Events and Certain Potential Future Events” below.

Management

Board of Trustees

The University is governed by a self-perpetuating Board of Trustees presently comprised of 53 voting members. Life Trustees and Honorary Trustees, elected by the Board of Trustees pursuant to the bylaws of the University, may serve life terms and attend meetings of the Board of Trustees and its committees, but they are not members of the Board of Trustees and do not have votes on matters considered by the Board of Trustees. The Board of Trustees is responsible for the overall management of the University including its academic policy, University development, long-range land use and resource planning, and supervision of financial and budgetary affairs.

The Board of Trustees annually elects a Chairman. The Board has several standing committees, including a Finance Committee, an Audit and Compliance Committee and an Executive Committee. The Executive Committee may act with the full power of the Board in most matters between meetings of the Board of Trustees. The Board of Trustees holds regular meetings on the first Wednesday in June (the Annual Meeting), October, December, and February.

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Current voting members of the Board of Trustees are as follows:

BOARD OF TRUSTEES

Wallis Annenberg ...... Chairman, President and Chief Executive Officer, The Annenberg Foundation Wanda M. Austin ...... President and Chief Executive Officer, The Aerospace Corporation Lisa Barkett ...... Attorney and Community Leader Thomas J. Barrack Jr...... Founder, Chairman and Chief Executive Officer, Colony Capital, LLC Marc R. Benioff ...... Chairman and Chief Executive Officer, salesforce.com Joseph M. Boskovich...... Chairman and Chief Investment Officer, Old West Investment Management, LLC Gregory P. Brakovich ...... Chief Executive Officer, Crossroads Capital Group, LLC Rick J. Caruso ...... President and Chief Executive Officer, Caruso Affiliated Alan I. Casden ...... Chairman and Chief Executive Officer, Casden Properties LLC Ronnie C. Chan ...... Chairman, Hang Lung Group Limited and Hang Lung Properties Limited Yang Ho Cho ...... Chairman and Chief Executive Officer, Korean Air Christopher Cox ...... President, Bingham Consulting LLC, and Partner, Bingham McCutchen LLP Frank H. Cruz ...... President, Cruz & Associates Richard A. DeBeikes, Jr...... President, DeBeikes Investment Company David H. Dornsife...... Chairman and Chief Executive Officer, The Herrick Corporation Daniel J. Epstein ...... Chairman and Founder, ConAm Management Corporation Carol Campbell Fox ...... Educational Consultant Chengyu Fu ...... Chairman, China Petrochemical Corporation (Sinopec Group) Stanley P. Gold ...... President and Chief Executive Officer, Shamrock Holdings, Inc. Tamara Hughes Gustavson ...... Partner, American Commercial Equities Jane Harman ...... Director, President and Chief Executive Officer, Woodrow Wilson International Center for Scholars Ming Hsieh ...... Chief Executive Officer, President and Chairman, Cogent, Inc. Ray R. Irani ...... Executive Chairman, Occidental Petroleum Corporation Suzanne Nora Johnson ...... Former Vice Chairman, The Goldman Sachs Group, Inc. Lydia H. Kennard ...... Chairman, KDG Development & Construction Consulting Kenneth R. Klein ...... Chairman, President and Chief Executive Officer, Wind River Systems John Kusmiersky ...... President, The Brickstone Companies Daniel D. Lane ...... Chairman, Lane/Kuhn Pacific, Inc. Mónica C. Lozano ...... Publisher and Chief Executive Officer, ImpreMedia John C. Martin ...... Chairman and Chief Executive Officer, Gilead Sciences, Inc. Kathleen L. McCarthy ...... Chairperson, Thomas and Dorothy Leavey Foundation Jamie McCourt ...... Founder, Jamie Enterprises John Mork ...... Chief Executive Officer, Energy Corporation of America Jerry W. Neely ...... Chairman and Chief Executive Officer (Retired), Smith International, Inc. C.L. Max Nikias ...... President, University of Southern California Robert Padgett ...... Emergency Physician (Retired) Jane Hoffman Popovich ...... Chairman, Hoffman Properties Blake Quinn ...... Chairman, President and Chief Executive Officer, Quinn Group, Inc. Lorna Y. Reed ...... Community Leader Edward P. Roski, Jr. (Chairman) ...... Chairman and Chief Executive Officer, Majestic Realty Company Barbara J. Rossier ...... President, Rossier Enterprises William J. Schoen ...... Chairman, Health Management Associates, Inc. William E. B. Siart ...... Chairman, Excellent Education Development Robert H. Smith ...... Robert H. Smith Investments and Consulting Jeffrey H. Smulyan ...... Chairman, Emmis Communications Corp. Steven Spielberg ...... Principal Partner, DreamWorks SKG Mark A. Stevens ...... Managing Partner, SCubed Capital, and Former Managing Partner, Sequoia Capital Ronald D. Sugar ...... Chairman Emeritus, Northrop Grumman Corporation Ratan N. Tata ...... Chairman, Tata Sons Limited Daniel M. Tsai ...... Chairman and Chief Executive Officer, Fubon Financial Holding Co., Ltd. Ronald N. Tutor ...... Chairman and Chief Executive Officer, Tutor-Perini Corporation

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Andrew J. Viterbi ...... President, Viterbi Group, LLC Willis B. Wood, Jr...... Chairman and Chief Executive Officer (Retired), Pacific Enterprises

LIFE TRUSTEES (Non-Voting)

Malcolm R. Currie Joan Payden Gavin S. Herbert Frank Price B. Wayne Hughes, Sr. Allen E. Puckett John F. King Bruce M. Ramer William Lyon Carl E. Reichardt Alfred E. Mann Steven B. Sample Gordon S. Marshall Forrest N. Shumway Harlyne J. Norris Richard J. Stegemeier Toshiaki Ogasawara Peter V. Ueberroth J. Douglas Pardee Gin D. Wong

HONORARY TRUSTEES (Non-Voting)

Verna B. Dauterive Merwyn C. Gill Helene J. Galen Carmen H. Warschaw

Senior Administration

The President of the University is appointed by the Board of Trustees and, as Chief Executive Officer, is charged with the principal responsibility for administration of the University. The Provost and Senior Vice President for Academic Affairs, the Senior Vice President, Finance and Chief Financial Officer, the Senior Vice President, University Advancement, the Senior Vice President, Administration, the Senior Vice President, University Relations, and the Secretary are officers of the University elected by the Board of Trustees upon nomination by the President and are subject to the day-to-day direction of the President. The Athletic Director, the Chief Investment Officer and the Senior Vice President and Chief Executive Officer for USC Health, are appointed by the President. The following table sets forth the names of the senior administration of the University, the current position held by each of them, and the year of appointment to that position. A brief statement of each individual’s background is included below the table.

SENIOR ADMINISTRATION

Year of Appointment/ Name Position Election

C. L. Max Nikias President of the University 2010 Elizabeth Garrett Provost and Senior Vice President, Academic Affairs 2010 Robert Abeles Senior Vice President, Finance, and Chief Financial Officer 2010 Albert R. Checcio Senior Vice President, University Advancement 2010 Todd R. Dickey Senior Vice President, Administration 2005 Patrick C. Haden Athletic Director 2010 Thomas Jackiewicz Senior Vice President and Chief Executive Officer for USC 2012 Health Lisa Mazzocco Chief Investment Officer 2011 Thomas S. Sayles Senior Vice President, University Relations 2011 Carol Mauch Amir General Counsel and Secretary of the University 2008

C. L. MAX NIKIAS – President of the University of Southern California. Dr. Nikias became the eleventh president of the University on August 3, 2010. He is the holder of the Robert C. Packard President’s Chair and the Malcolm R. Currie Chair in Technology and the Humanities. As president, Dr. Nikias has committed to establishing

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USC as a major engine of American economic, cultural and social development; as a preeminent global American university and a dynamic crossroads within an emerging Pacific era; as a top center for academic medicine; and as a world leader in innovations that are fueled by the creative encounter of a vast range of disciplines. Dr. Nikias’ first year as president was highlighted by the donation of seven transformative gifts to the University, including (a) a $200 million gift from Dana and David Dornsife to name USC’s College of Letter, Arts and Sciences, the single largest donation in the University’s history, (b) a $150 million gift from the W.M. Keck Foundation for medicine, and (c) a $110 million gift from Julie and John Mork to support student scholarships. These gifts contributed to the University raising an unprecedented total of approximately $1 billion during Dr. Nikias’ first year.

In his second year as president, USC attracted another series of major gifts, highlighted by a $50 million gift from the Price Family Charitable Fund to USC’s School of Policy, Planning, and Development, which was renamed the USC Sol Price School of Public Policy. The University also expanded its partnerships with academic institutions from China to Israel, recruited world-class leadership for its academic medical enterprise and continued to expand its facilities through the construction of the John McKay Center and numerous new academic buildings.

Dr. Nikias was instrumental in bringing the Shoah Foundation, originally established by filmmaker and USC trustee Steven Spielberg, to USC. The USC Shoah Foundation Institute’s repository of 52,000 testimonies of Holocaust survivors represents the world’s largest visual archives digital library. Dr. Nikias also established the Edward R. Roybal Institute for Applied Gerontology, the USC Stevens Center for Innovation, the U.S.-China Institute, and the Levan Institute for Humanities and Ethics. He launched Visions and Voices, USC’s campus-wide arts and humanities initiative, as well as a grant program to advance scholarship in the humanities and social sciences. Dr. Nikias spearheaded the integration of the Keck School of Medicine’s faculty practice plans, oversaw the transfer of USC University Hospital (now known as Keck Hospital of USC) and Norris Cancer Hospital from Tenet Healthcare Corporation to the University, and recruited a new leadership team for USC’s medical enterprise. He currently chairs the USC Hospitals Governing Board.

Dr. Nikias previously served as USC’s provost and chief academic officer since June 2005, in which role he was charged with accelerating the academic momentum that the University has experienced in recent years. He was credited with recruiting new academic leadership; strengthening the academic medical enterprise; attracting a series of major donations to the institution; creating innovative cross-disciplinary programs, enhancing the university’s globalization efforts; and increasing support for students at the undergraduate, graduate and doctoral levels. Dr. Nikias joined the University faculty in 1991 and, from 2001 to 2005, served as dean of the USC Viterbi School of Engineering.

Over his two-decade career as an active scholar, Dr. Nikias was internationally recognized for his pioneering research on digital signal processing, digital media systems, and biomedicine. He was founding director of two national research centers at USC: the NSF-funded Integrated Media Systems Center and the Department of Defense-funded Center for Research on Applied Signal Processing. He served as a senior consultant to a range of corporations and as a high-level consultant to the U.S. government, holding a security clearance for 15 years. The author of more than 275 journal articles and conference papers, three textbooks, and eight patents, Dr. Nikias has mentored more than 30 Ph.D. and postdoctoral students. Before coming to USC, he held faculty appointments at the University of Connecticut and Northeastern University.

Dr. Nikias is a member of the National Academy of Engineering and a fellow of the Institute of Electrical and Electronics Engineers, the American Association for the Advancement of Science, and the California Council on Science and Technology. Among other honors, he has received the IEEE Simon Ramo Medal, the University at Buffalo’s Clifford C. Furnas Memorial Award, the American Hellenic Council’s Aristeio Award, and the USC Black Alumni Association’s Thomas Kilgore Service Award. He also received a commendation for cutting-edge research from the governor of California. Dr. Nikias graduated with honors from Famagusta Gymnasium, and received a diploma from the National Technical University of Athens, also known as National Metsovion Polytechnic, and later earned his M.S. and Ph.D. from the State University of New York at Buffalo. He holds an honorary doctorate from the University of Cyprus.

ELIZABETH GARRETT – Provost and Senior Vice President, Academic Affairs for the University. Ms. Garrett was elected provost on October 28, 2010. She is the holder of the Frances R. and John J. Duggan Professor in the USC Gould School of Law. As the University’s second-ranking officer, she oversees the USC Dornsife

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College of Letters, Arts and Sciences as well as the Keck Medical Center of USC and 16 other professional schools, in addition to the divisions of student affairs, libraries, information technology, research, student religious life and enrollment services. Since her election, Provost Garrett has directed substantial new efforts to hire transformative faculty, with the goal of catalyzing targeted fields of interdisciplinary scholarship and invigorating USC’s research environment. She has accelerated the recruitment of Provost Professors and created the Provost’s Post-Doctoral Scholars Program in the Humanities. She was also instrumental in the University’s purchase of two hospitals, which now comprise much of the clinical practice of the Keck Medical Center of USC.

Before joining the faculty of USC, Provost Garrett was a professor of law at the University of Chicago, where she also served as deputy dean for academic affairs. She has been a visiting professor at Harvard Law School, the University of Virginia Law School, Central European University in Budapest, and the Interdisciplinary Center Law School in Israel. Her primary scholarly interests include the legislative process, direct democracy and the design of democratic institutions, the federal budget process and tax policy. Provost Garrett is a fellow of the American Law Institute, a life fellow of the American Bar Foundation, and a member of the Pacific Council for International Policy. In 2011, she was elected a Harold Lasswell Fellow of the American Academy of Political and Social Science. Before entering academics, she clerked for Justice Thurgood Marshall on the U.S. Supreme Court, and she served as legal counsel and legislative director for Senator David L. Boren (D-Okla.).

ROBERT ABELES – Senior Vice President, Finance, and Chief Financial Officer of the University. Mr. Abeles was elected in August 2010, having served a 19-month term as interim senior vice president and chief financial officer since January 2009. Reporting directly to the president, he oversees a wide variety of financial functions at the University, including budget and planning, the treasury department, the University comptroller, financial and business services, and facilities management services and capital construction.

Mr. Abeles’ background in strategic planning, corporate finance and business development spans both the commercial and nonprofit sectors. He began a 24-year tenure at First Interstate Bank in 1972, rising to the position of executive vice president and chief financial officer. Subsequent positions have included service as director, executive vice president and chief financial officer of Transamerica Life Companies, executive vice president and chief financial officer of KinderCare Learning Centers, Inc., and, most recently, interim executive vice president for finance and administration and chief financial officer of The J. Paul Getty Trust.

He currently serves as a member of the board of directors for ExED, a development, business and management services company that specializes in charter school creation and enhancement, and as a member of the board of trustees for Flintridge Preparatory School in La Cañada, California. Mr. Abeles holds a B.A. degree in economics as well as an M.B.A. from the University of California, Los Angeles.

ALBERT R. CHECCIO – Senior Vice President, University Advancement. Mr. Checcio was elected on August 23, 2010, and is responsible for overseeing advancement operations and directing USC’s relations with the philanthropic and volunteer communities, including prominent individual supporters, charitable foundations, corporate donors and alumni. He reports directly to the president, works closely with the provost and the deans in developing plans and infrastructure to support the University’s development ambitions, and staffs the Development Committee of the USC Board of Trustees. He is also charged with organizing and launching the largest fundraising campaign in USC’s history.

For five years before joining USC, Mr. Checcio was vice president of development and university relations at Fordham University. His previous experience encompasses the design and execution of fundraising campaigns at a number of universities – including American University in Washington, D.C., Temple University in Philadelphia, the University of Pittsburgh and Drexel University – and service as vice president of development at the Children’s Hospital of Philadelphia. Mr. Checcio holds a Bachelor of Science degree from Drexel University.

TODD R. DICKEY – Senior Vice President, Administration of the University. Mr. Dickey is responsible for providing leadership for the University’s administrative departments, including: general counsel; auxiliary services (bookstore, housing, transportation, hospitality services, hotel); administrative operations (human resources, compensation, benefits, employee relations, equity and diversity, childcare, center for work and family life); career and protective services (public safety, risk management, environmental health and safety, fire safety and emergency

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planning, recruitment, professional development); compliance; internal audit; trademarks and licensing services; real estate and asset management; information security; athletic compliance; and university secretary.

Mr. Dickey joined USC in the general counsel’s office in 1996, was made interim general counsel in 1998, was named general counsel in 1999, was elected vice president and secretary of the university in 2001 and became senior vice president for administration in April 2005. From 1994 to 1996, he was an associate at the law firm of Latham & Watkins LLP. In 1993-1994, he was judicial clerk to the Honorable Ronald S. W. Lew, U.S. District Court judge for the Central District of California in Los Angeles.

Mr. Dickey is a member of the California State Bar, the Los Angeles County Bar Association, the National Association of College and University Attorneys, the National Association of College and University Business Officers and the Council on Governmental Relations. He is certified to appear before the 9th U.S. Circuit Court of Appeals and the U.S. District Court, Central and Northern districts of California. He is a past member of the Executive Committee of the Corporate Law Department of the Los Angeles County Bar Association. Mr. Dickey earned his B.A. degree in political science from UC Irvine in 1987 and his J.D. degree from the USC Gould School of Law in 1993, where he graduated Order of the Coif and was a member of the law review.

PATRICK C. HADEN – Athletic Director of the University. Mr. Haden was named USC’s seventh athletic director effective August 3, 2010, charged with overseeing the University’s 19 women’s and men’s athletic teams. Mr. Haden also holds a joint faculty appointment in the USC Marshall School of Business and the USC Annenberg School for Communication and Journalism, where he is available to lecture and teach courses as well as to work with faculty on developing new curricula in areas such as sports business and sports journalism.

A Trojan alumnus, Mr. Haden played a prominent role as quarterback and team leader during one of USC’s golden eras of athletic achievement. He was a two-time Academic All-American in football, graduated magna cum laude, Phi Beta Kappa, from USC, and received a Rhodes Scholarship to study philosophy, politics and economics at Oxford University. He earned his law degree from Loyola Law School in 1982.

Mr. Haden played professionally in the NFL for the Los Angeles Rams from 1976 to 1981. He then moved on to take a position as a sportscaster at CBS, later becoming well known as NBC’s color commentator for Notre Dame football.

Since 1987, Mr. Haden has been a general partner at Riordan, Lewis & Haden, a private equity firm that invests in high-growth middle-market companies, playing a key role in the development of privately held and publicly traded portfolio companies. A noted civic leader, Mr. Haden has served on many nonprofit boards, including those of the Rose Hills Foundation and the Fletcher Jones Foundation, both of which support California colleges and universities. As a member of the USC Board of Trustees from 1991 to 2010, Mr. Haden was a longtime chairman of the Academic Affairs and Student Affairs committees, serving as a key adviser to two University provosts. He also chaired a fund-raising initiative for the USC Dana and David Dornsife College of Letters, Arts and Sciences.

THOMAS JACKIEWICZ – Senior Vice President and Chief Executive Officer for USC Health. Effective as of January 1, 2012, Mr. Jackiewicz serves as the Senior Vice President and Chief Executive Officer for USC Health, reporting directly to the president. Mr. Jackiewicz is primarily responsible for oversight of the University’s private-practice clinical activities, including the Keck Hospital of USC, USC Norris Cancer Hospital and Keck Medical Center of USC. He is also a member of the Keck Medicine Oversight Committee and serves as Vice Chair of the USC Hospitals Governing Board.

Before joining USC, Jackiewicz was chief executive officer of UC San Diego Health System (encompassing UC San Diego Medical Center, UC San Diego Thornton Hospital, UC San Diego Moores Cancer Center, UC San Diego Shiley Eye Center, and UC San Diego Sulpizio Cardiovascular Center) and associate vice chancellor of University of California, San Diego, Health Sciences. Prior to this, he served as chief operating officer of Columbia University Medical Center and as senior associate chair for finance and administration for the department of medicine at Stanford University School of Medicine. Earlier in his career, he held leadership positions at Oregon Health Sciences University and the University of Pennsylvania Health System.

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Mr. Jackiewicz has served as national chair of the Association of American Medical Colleges’ Group on Business Affairs. He is currently a board member of the University Health System Consortium and the Hospital Association of San Diego and Imperial Counties, and a member of the Council of Teaching Hospitals and Health Systems. He also serves on the board of the American Heart Association/American Stroke Association, San Diego. In addition, he was elected to serve as chair of the Founder’s Board of the Dr. Foster 2011 Global Comparators Project, a board composed of CEOs and other leaders from 31 top-ranked hospitals in five countries. He earned his master of public health in health policy and management from Columbia University and his bachelor’s degree in business administration from the University of Georgia.

LISA MAZZOCCO – Chief Investment Officer of the University. Ms. Mazzocco was named USC’s first chief investment officer effective April 18, 2011. Reporting directly to the president and working closely with the University’s chief financial officer and the investment committee of the USC Board of Trustees, Ms. Mazzocco is charged with building a staff that will bolster the investment function of USC’s endowment in support of the University’s academic aspirations. She also advises the investment and finance committees of the USC Board of Trustees with respect to endowment performance, and chairs the University’s retirement oversight committee.

Before joining USC, Ms. Mazzocco was chief investment officer for the Los Angeles County Employees Retirement Association (“LACERA”), where she had worked since 1992. At LACERA, she was responsible for asset allocation of a $31 billion pension fund, working with the association’s Board of Investments to develop implementation plans for its investment strategies. She previously served as a senior analyst at Security Pacific National Bank, and began her career at Wilshire Associates. Ms. Mazzocco holds an M.B.A. from California State Polytechnic University, Pomona, and a bachelor’s degree from San Diego State University.

THOMAS S. SAYLES – Senior Vice President, University Relations. Mr. Sayles was elected senior vice president for University relations effective July 1, 2011. In this capacity, he provides strategic direction and leadership for USC’s public relations, outreach and reputation.

From March 2009 until July 2011, Mr. Sayles served as vice president for government and civic engagement. He continues to oversee the University’s civic-engagement and government-relations enterprise as well as efforts to strengthen USC’s relationships with external stakeholders.

Previously, Mr. Sayles practiced law in the private and public sectors. He left the practice of law to serve as California’s commissioner of corporations and later as secretary of business, transportation and housing. He then returned to the private sector to work for many years for Sempra Energy as vice president of government and community affairs and as senior vice president of consumer marketing. Immediately prior to joining USC, Sayles was senior vice president for government affairs and corporate communications at Rentech, Inc., an alternative fuels company headquartered in Los Angeles. In July 2009, he was appointed by Los Angeles mayor Antonio Villaraigosa to serve on the governing board of the Los Angeles Department of Water and Power, the country’s largest municipally-owned utility. Mr. Sayles also has been appointed by three different California governors to serve on boards and commissions, including the University of California Board of Regents, the California Community Colleges Board of Trustees and the Commission on Building for the 21st Century.

Mr. Sayles currently is a member of the board of directors of Unified Grocers, the largest buying cooperative for independent grocers in the Western United States. He previously served on the boards of directors of Golden State Bancorp (California Federal Bank) and Glendale Federal Bank. Born and raised in South Los Angeles, not far from USC’s University Park campus, Mr. Sayles earned a law degree from Harvard Law School and a bachelor’s degree “with distinction” from Stanford University, where he was elected to Phi Beta Kappa.

CAROL MAUCH AMIR – General Counsel and Secretary of the University. Ms. Amir was elected secretary of the University by the USC Board of Trustees in October 2006 and named general counsel by the president in March 2008. As general counsel, Ms. Amir is responsible for: overseeing all legal matters for the University and hospitals, which include advising the University’s president, board of trustees and senior administrators regarding legal issues; supervising University attorneys and general counsel’s office staff; representing USC in legal proceedings and negotiations; overseeing litigation management, corporate transactions, and University grievance and complaint processes; and assessing legal risks of University activities and making

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policy recommendations to reduce those risks. She oversees the provision of legal services on tax issues, personnel matters, corporate formalities and conflicts of interest, healthcare regulatory issues, intellectual property matters, NCAA issues, research issues and corporate compliance programs. She is also responsible for supervision of the University’s office of trademarks and licensing services. As secretary of the University, she is responsible for maintaining all corporate records and monitoring corporate filings of USC and its numerous subsidiaries.

Ms. Amir joined the University as a University counsel in 1999, before becoming associate general counsel in 2001 and managing general counsel in 2005. From 1994 to 1999, she was an associate at the law firm of Latham & Watkins LLP, specializing in healthcare-related corporate transactions. Ms. Amir earned a B.A. in psychology from Wesleyan University in 1990, and graduated cum laude from New York University School of Law in 1994.

Applications, Enrollments, Tuition and Financial Aid

Applications

The following table provides a five-year summary of undergraduate and graduate applications, admissions and enrollments at the University.

Historical Application Pool

For Undergraduate(1) Graduate(2) Academic Year Applications Admissions Enrollments Applications Admissions Enrollments

2007-08 42,109 10,337 4,077 35,153 10,243 5,039 2008-09 44,207 10,311 4,280 36,746 10,595 5,686 2009-10 45,277 11,189 4,239 39,993 12,318 6,502 2010-11 45,401 11,274 4,458 45,046 13,011 6,988 2011-12 47,664 11,150 4,374 34,420 13,692 6,281 ______(1) In 1996, the University adopted a two-part undergraduate application process for the class entering in the fall of 1997. Using this process, undergraduate applicants may initially apply to the University by submitting Part 1 of the application. In order to be eligible for admission, however, students must also submit the remainder of the application contained in Part 2. 33,045 of the 41,757 applicants for the undergraduate class entering the fall of 2006 completed the application process by submitting Part 2. 33,909 of the 42,109 applicants for the undergraduate class entering the fall of 2007 completed the application process by submitting Part 2. 35,500 of the 44,207 applicants for the undergraduate class entering the fall of 2008 completed the application process by submitting Part 2. 36,496 of the 45,277 applicants for the undergraduate class entering the fall of 2009 completed the application process by submitting Part 2. 38,228 of the 45,401 applicants for the undergraduate class entering the fall of 2010 completed the application process by submitting Part 2. 41,211 of the 47,664 applicants for the undergraduate class entering the fall of 2011 completed the application process by submitting Part 2. (2) Graduate data for 2011-12 does not include professional students.

Last year, USC adopted the Common Application for all prospective undergraduate students wishing to enroll during the 2012-13 academic year. The Common Application provides prospective students with an easy-to- use online platform that allows them to apply to many colleges while only completing one set of forms (as well as supplemental information for each college). The result is less confusion and more efficiency for students, high school counselors and college admission offices. Not only has the Common Application introduced much efficiency into our application processing, it has allowed us to expose USC to tens of thousands more high school seniors than USC’s previous application did.

The Common Application Association develops and maintains the Common Application system. This nonprofit membership organization was established in 1975 by 15 private colleges that aimed to provide a common, standardized undergraduate application form for use at any member institution. Since its founding, the association’s membership has grown to 456 colleges and universities. Member schools represent a broad cross-section of the American higher education landscape, both public and private. The Common Application is almost universally

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accepted by elite private colleges and universities (presently, the only highly selective private universities not using the Common Application are Georgetown and MIT).

See “Summary of Recent Events and Certain Potential Future Events” below for a discussion of recent application increases.

In fall 2011, the mean grade point average for enrolled freshmen was 3.72 (on a 4.0 scale) and the 25th to 75th range of Scholastic Aptitude Test scores (math plus verbal) was 1970 to 2180.

Enrollments

The following table lists total regular session student headcount enrollments for the fall semester for the current and each of the past four academic years. Based on information on applicants for the Fall of 2011 presented above, the University expects that the enrollment of both undergraduate and graduate students will remain relatively consistent with only slight increases and/or decreases as reflected below for prior years.

Student Enrollments

Students 2007-08 2008-09 2009-10 2010-11 2011-12

Undergraduate 16,384 16,608 16,751 17,380 17,414 Graduate/Law/Professional/Other 17,024 17,139 18,073 19,516 20,596

Total Enrollment 33,408 33,747 34,824 36,896 38,010

Tuition

The following table presents full-time undergraduate tuition rates for the upcoming and each of the past five academic years.

Undergraduate Tuition Rates1

Academic Year Tuition Per Full-Time2 Student Percent Increase

2007-08 35,212 5.7% 2008-09 37,096 5.4% 2009-10 38,570 4.0% 2010-11 40,384 4.7% 2011-12 42,162 4.4% 2012-13 43,722 3.7% ______1 Graduate tuition rates, while significant, are not included due to the wide range of programs offered at varying tuition rates. 2 Full-time undergraduate students are those who carry 24-36 units per academic year.

Tuition rates are determined in the University’s budgeting process in conjunction with an analysis of projected expenses and the revenues necessary to satisfy such expenses, and, similar to previous academic years, the University will institute an increase in tuition rates for the Fall of 2012 (as reflected in the table above). For the 2011-12 academic year, other undergraduate student expenditures include a mandatory fee of $656, average room and board expenses of $12,078, and other expenses of approximately $2,980, including books, transportation and personal expenses. The total annual cost per full-time residential undergraduate student was approximately $57,876 in the 2011-12 academic year. In academic year 2012-13, mandatory fees will increase to $741 and room and board will increase to $12,440.

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Financial Aid

To assist families with financing a USC education, the University’s undergraduate financial aid policy is designed to meet 100% of student demonstrated financial need (as verified by the University) for all undergraduate students. The Financial Aid Office provides student aid and services to all students through the awarding of University, federal and state need-based grants, merit scholarships, self-help (including federal work-study and federal direct loans), and other student and parent financing options.

During the academic year 2011-12, 68% of all undergraduate students attending the University received some form of financial assistance. The University awarded over $450 million of financial aid to undergraduate students from federal, state, University, and private sources. The largest single source of non-University grant aid in the fiscal year ended June 30, 2011, the California State Scholarship Program (“Cal Grants”), provided approximately $18.8 million in grants to undergraduate students. Graduate students were awarded more than $659 million in financial assistance in 2011-12, including federal direct loans, state, federal and private grants, University scholarships, fellowships, and assistantships, as well as private loans.

Federal and state financial aid programs are subject to changing laws and regulations, and accordingly, future financial assistance from these sources is difficult to forecast. Should federal or state financial aid be reduced dramatically, there could be an adverse impact on University enrollment or finances. While the University does not expect dramatic fluctuations in state or federal funding, some reductions may be expected given the current budget climate. The California state budget for fiscal year 2013 recently approved by the governor includes a 5% reduction in Cal Grants for 2012-13, with further reductions planned in future years. Due to the political climate around the state budget process, it is difficult to predict whether the approved reductions will be made. Congress continues to debate Pell Grant funding, but no major reductions have been proposed or passed, and it is not likely that there will be any further changes at the federal level until after the 2012 presidential election.

The University funds undergraduate grant aid from tuition revenue and expects enrollment and tuition to be consistent with previous years. Therefore, the University does not anticipate a reduction in the amount of University aid that will be available for the 2012-13 academic year. In fact, the amount budgeted for student aid has increased over the last three years, in order to meet the University’s priority to provide adequate financial aid packages to its students. The University anticipates strong continued University funding of student aid.

Insurance

The University maintains insurance with such coverage as it believes is customarily carried by similar private colleges and universities in California. Due to the prohibitive industry-wide cost of earthquake insurance and the size of required deductibles, the University does not carry earthquake insurance. The major structures, at the time of construction, met then-current building code standards, and substantially all of the buildings on campus have been upgraded as required by City of Los Angeles ordinances. Nonetheless, a major earthquake affecting the Los Angeles area could have an impact on the structural integrity of the buildings on the University’s campus.

Litigation

The University is currently involved in various lawsuits involving liability claims. Management believes that no litigation currently pending against the University, even if decided unfavorably to the University, would have a material adverse impact on the financial position of the University.

USC Hospitals

In April of 2009, the University purchased two hospitals, USC University Hospital (“UH”) and USC Norris Cancer Hospital (“Norris” and together with UH collectively referred to as the “Hospitals”), that are located on the University’s Health Sciences Campus to create an integrated academic medical center, enhancing the quality of patient care and elevating the Keck School of Medicine of USC to a nationally acclaimed leader among the nation’s medical schools. In fiscal year 2011, the revenues from the Hospitals contributed approximately 15% of the University’s total revenues.

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UH opened in 1991 as a 261-bed hospital. In 2007, a 150-bed clinical tower was added to increase capacity at UH to 411 beds. UH is a tertiary/quaternary referral hospital that specializes in cardiac, oncology, transplant, neurosurgical, urological and orthopedic surgery.

Norris, a 60-bed hospital, is home to a National Cancer Institute designated comprehensive cancer center and is one of eleven hospitals in the nation having an exemption from the Medicare prospective payment system.

The UH facility is 21 years old and does not require substantial repairs or upgrades in order to remain in compliance with building codes and other applicable laws. Norris is housed in a facility that is 30 years old, and it is the University’s intention to make additional improvements to the Norris facility for modernization and service- related upgrades. University expenditures for the Hospitals for working capital and capital improvements, including the costs associated with the implementation of an electronic medical record system, which is scheduled to go live the fall of 2012, was approximately $242 million through June of 2012.

In 2011, the University received a $150 million naming gift from the W. M. Keck Foundation to accelerate groundbreaking medical, clinical and translational research and education. In recognition of this transformative gift, USC’s academic medical enterprise was named Keck Medicine of USC. Keck Medicine of USC includes the Keck School of Medicine and the Keck Medical Center of USC. The Keck Medical Center is comprised of UH, which was renamed Keck Hospital of USC (“Keck Hospital”), Norris and USC’s faculty practice plan, USC Care Medical Group, Inc.

In 2012, the University hired a Senior Vice President and Chief Executive Officer for USC Health who reports directly to the University President. The Senior Vice President and Chief Executive Officer for USC Health is responsible for oversight of the University’s private-practice clinical activities, including those at Keck Hospital and Norris. The University also appointed the long-standing Chief Operating Officer for the Hospitals as the new Chief Executive Officer for the Hospitals, to whom the existing hospital management team reports, and who reports to the Senior Vice President and Chief Executive Officer for USC Health.

The Hospitals are staffed by University-employed physicians. The University’s faculty practice plan includes approximately 645 physicians, and, in addition to staffing Keck Hospital and Norris, University physicians staff LAC+USC Medical Center, which is owned and operated by the County of Los Angeles. Located adjacent to the University's Health Sciences Campus, LAC+USC Medical Center is the site of the nation's largest single-site residency training program at Los Angeles County Hospital and is co-sponsored by the University.

See “Summary of Recent Events and Certain Potential Future Events” below for a discussion of a potential hospital acquisition.

The following table shows data regarding the utilization at both Hospitals.

As of June 30,

2007 2008 2009 2010 2011

Licensed Beds 396 471 471 471 471 Percent Occupancy 45% 39% 40% 43% 44% Admissions 8,987 8,854 9,088 9,816 10,140 Average Length of Stay 7.19 7.61 7.58 7.48 7.46 Patient Days 64,648 67,371 68,909 73,463 75,605 Surgeries 5,364 5,387 5,388 6,109 6,316 Ambulatory Surgeries 5,387 5,300 5,961 6,799 6,962

The University intends to continue Keck Medical Center’s relationships with all third party payers, including participation in the Medicare and Medicaid programs. As of May 2012, the current payer mix, based on

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admissions, at the Hospitals is 38% Medicare, 53% managed care and commercial insurance, 6% Medicaid, and 3% other.

Keck Medical Center is a priority of the University as it implements necessary or appropriate strategic investments. Physician recruiting is a key component of the growth strategy and has been successful to date. Occupancy at the Hospitals is expected to further increase with physician recruiting. Development of a new strategic plan for Keck Medical Center is underway with completion scheduled for the end of calendar year 2012 or the beginning of calendar year 2013.

Summary of Recent Events and Certain Potential Future Events

The University’s fiscal year ended on June 30, 2012. While fiscal year 2012 audited financial results are not yet available, the University anticipates that its operating results will be consistent with recent audited fiscal year results.

As of July 2012, undergraduate application totals have reached record highs. The number of freshman applicants has surpassed 46,000, exceeding last year’s freshman total by more than 20%. This significant increase is due primarily to increased high school recruitment activity, as well as USC’s adoption of the Common Application (see discussion under “Applications” above). Transfer applications hit USC record levels as well, exceeding 8,200, a modest increase over the previous year. Undergraduate tuition has been increased by 3.7% to $43,722, and mandatory fees, room and board rates have also been increased.

The University expects investment returns to remain low and relatively flat for the immediate term, consistent with industry benchmarks and the University’s peer groups. The estimated fiscal year 2012 returns on the endowment pool are 0%.

Fundraising performance has also been strong over the past fiscal year. It is expected that USC will complete its second highest fundraising year ever in its fiscal year 2012, with $600 million in commitments. The University is in its second year of a historic campaign that is expected to raise $6 billion. USC had a record fundraising year in the campaign’s first year, fiscal year 2011, with over $1 billion raised. Since the start of the campaign, 25 gifts of $10 million or more have been announced, three of which were $100 million or more.

Funding from sponsored contracts and grants over the past fiscal year has been consistent with fiscal year 2011 performance.

On August 17, 2011, the University issued $300 million of taxable bonds. The bonds were issued utilizing a unique financing structure referred to as “Century Bonds.” These bonds were issued with a 100-year maturity structure scheduled to mature on October 1, 2111. The debt service payments on the bonds are interest only through 2110 with a single principal payment due in 2111. This unique structure provided the University with the ability to take advantage of historically-low interest rates. The bonds were well accepted by the investor community and successfully priced at an attractive interest rate of 5.25%. The bonds are also subject to optional redemption prior to their stated maturity as they were sold with a make-whole call provision. The bond proceeds will be used to support the University’s ongoing capital improvement program and refinance existing debt obligations.

In September 2009, a general IRS audit was initiated with the University. The audit was completed in May 2012 and did not have a material adverse impact on the University’s financial condition or operations or on the University’s status as an organization described in Section 501(c)(3) of the Code.

The University is considering the acquisition of Verdugo Hills Hospital in Glendale, California, a small, independent, acute-care hospital, as part of its plan for growth and expansion of Keck Medicine of USC. University management is currently conducting a preliminary analysis of the potential acquisition and a plan of action has not been yet been approved by the Board of Trustees. If pursued, the University will most likely fund the acquisition and capital improvements from working capital. If acquired, University management expects that the addition of this facility will potentially improve the overall financial results of Keck Medicine of USC and further enhance its reputation as an integrated academic medical center and leading medical school.

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The preliminary financial data (excluding financial data gathered from any audited financials for any fiscal year up to and including fiscal year 2011) included in this Appendix A has been prepared by, and is the responsibility of, the University of Southern California's management. PricewaterhouseCoopers LLP has not audited, reviewed, compiled or performed any procedures with respect to such accompanying preliminary financial data. Accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto.

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APPENDIX B

CONSOLIDATED FINANCIAL STATEMENTS OF THE UNIVERSITY

[THIS PAGE INTENTIONALLY LEFT BLANK]

Report of Independent Auditors

The Board of Trustees of the University of Southern California In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of activities, and cash flows, which appears on pages 17 through 33, present fairly, in all material respects, the consolidated financial position of the University of Southern California and its subsidiaries (the “university”) at June 30, 2011, and the changes in their consolidated net assets and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the university’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The prior year summarized comparative information has been derived from the university’s 2010 financial statements, and in our report dated September 30, 2010, we expressed an unqualified opinion on those financial statements. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

Los Angeles, California October 19, 2011

B-1 Consolidated Balance Sheet in thousands

June 30 June 30 2011 2010 Assets A B 1 Cash and cash equivalents $889,233 $742,409 2 Accounts receivable 273,988 229,614 3 Notes receivable, net of allowance for doubtful accounts, $7,367 (2011), $9,841 (2010) 83,620 84,433 4 Pledges receivable 434,356 177,095 5 Investments 3,650,617 3,070,397 6 Inventories, prepaid expenses and other assets 148,488 111,080 7 Property, plant and equipment, net 2,172,430 2,049,198 8 Total Assets $7,652,732 $6,464,226

Liabilities 9 Accounts payable $145,338 $138,686 10 Accrued liabilities 273,122 187,797 11 Refundable advances 18,501 41,187 12 Current portion of long-term debt 5,280 3,885 13 Deposits and deferred revenue 131,673 121,663 14 Actuarial liability for annuities payable 143,303 137,195 15 Federal student loan funds 67,812 67,825 16 Asset retirement obligations 97,691 93,831 17 Capital lease obligation 60,696 0 18 Long-term debt 968,081 919,890 19 Other liabilities 12,377 15,335 20 Total Liabilities 1,923,874 1,727,294

Net Assets 21 Unrestricted 2,644,220 2,288,314 22 Temporarily restricted 1,449,152 1,039,472 23 Permanently restricted 1,635,486 1,409,146 24 Total Net Assets 5,728,858 4,736,932

25 Total Liabilities and Net Assets $7,652,732 $6,464,226

The accompanying notes are an integral part of this statement.

B-2 Consolidated Statement of Activities in thousands

Year Ended Year Ended June 30, 2011 June 30, 2010 Temporarily Permanently Unrestricted Restricted Restricted Total Total Net Assets Net Assets Net Assets Net Assets Net Assets Revenues A B C D E 1 Student tuition and fees $1,267,545 $1,267,545 $1,152,480 2 Less financial aid (356,859) (356,859) (325,467) 3 Net student tuition and fees 910,686 910,686 827,013 4 Endowment income 53,200 53,200 50,094 5 Investment and other income 4,505 $184 4,689 10,885 6 Net appreciation in fair value of investments 218,946 $386,211 19,801 624,958 296,456 7 Government contracts and grants 350,827 350,827 285,571 8 Recovery of indirect costs 132,254 132,254 118,896 9 Gifts and pledges 318,325 145,990 216,952 681,267 491,309 10 Sales and service 31,029 31,029 31,221 11 Auxiliary enterprises 243,011 243,011 225,363 12 Health care services 811,538 811,538 713,291 13 Other 95,705 95,705 89,813 14 Present value adjustment to annuities payable (3,194) (13,305) (16,499) (10,764) 15 Net assets released from restrictions/redesignations 116,619 (119,327) 2,708 16 Total Revenues 3,286,645 409,680 226,340 3,922,665 3,129,148

Expenses 17 Educational and general activities 1,931,735 1,931,735 1,800,354 18 Health care services 799,944 799,944 714,606 19 Depreciation and amortization 153,647 153,647 142,471 20 Interest on indebtedness 45,413 45,413 40,842 21 Total Expenses 2,930,739 2,930,739 2,698,273

22 Increase in Net Assets 355,906 409,680 226,340 991,926 430,875 23 Beginning Net Assets 2,288,314 1,039,472 1,409,146 4,736,932 4,306,057 24 Ending Net Assets $2,644,220 $1,449,152 $1,635,486 $5,728,858 $4,736,932

Nature of specific net assets: 25 Internally designated $71,225 $71,225 $52,049 26 Gift and departmental 454,026 454,026 444,993 27 Externally restricted $38,953 $35,053 74,006 81,659 28 Pledges 223,104 211,252 434,356 177,095 29 Unexpended endowment income 181,710 181,710 163,490 30 Annuity and living trusts 46,628 81,782 128,410 114,763 31 True endowment and net appreciation 1,140,467 1,307,399 2,447,866 2,075,101 32 Funds functioning as endowment 1,069,307 1,069,307 872,877 33 Debt service funds 71,794 71,794 70,887 34 Invested in plant 796,158 796,158 684,018 35 $2,644,220 $1,449,152 $1,635,486 $5,728,858 $4,736,932

The accompanying notes are an integral part of this statement.

B-3 Consolidated Statement of Cash Flows in thousands

Year Ended Year Ended June 30, 2011 June 30, 2010 Cash Flows from Operating Activities A B 1 Change in Net Assets $991,926 $430,875 Adjustments to reconcile change in net assets to net cash provided by operating activities: 2 Depreciation and amortization 153,647 142,471 3 Loss on the disposal/sale of plant assets 2,606 6,247 4 In-kind receipt of securities, property, plant and equipment (26,946) (30,097) 5 Present value adjustment to annuities payable 16,536 10,723 6 Increase in accounts receivable (44,374) (50,018) 7 Increase in pledges receivable (281,494) (11,421) 8 Increase in inventories, prepaid expenses and other assets (27,878) (17,277) 9 Increase in accounts payable 5,813 13,189 10 Increase in accrued liabilities 22,579 32,310 11 Decrease in refundable advances (22,686) (2,679) 12 Increase in deposits and deferred revenue 10,010 9,794 13 (Decrease) increase in other liabilities (2,958) 315 14 Contributions restricted for property, plant and equipment and permanent investment (89,958) (119,366) 15 Net realized gain on sale of investments (162,941) (103,475) 16 Net unrealized (appreciation) in investments (462,197) (193,212) 17 Net cash provided by operating activities 81,685 118,379

Cash Flows from Investing Activities 18 Proceeds from note collections 12,551 10,987 19 Notes issued (9,264) (8,831) 20 Proceeds from sale and maturity of investments 1,980,419 1,350,095 21 Purchase of investments (1,859,665) (1,314,906) 22 Purchase of property, plant and equipment (212,238) (248,036) 23 Net cash used by investing activities (88,197) (210,691)

Cash Flows from Financing Activities Contributions restricted for permanent investment: 24 Endowment 69,468 63,104 25 Plant 40,743 79,633 26 Trusts and other 3,980 4,768 27 Repayment of long-term debt (3,885) (94,050) 28 Proceeds from issuance of long-term debt 53,471 104,558 29 (Decrease) increase in federal student loan funds (13) 167 30 Investment losses on annuities payable (1,856) (2,106) 31 Payments on annuities payable (13,358) (12,659) 32 Increase to annuities payable resulting from new gifts 4,786 8,907 33 Net cash provided by financing activities 153,336 152,322

34 Net increase in cash and cash equivalents 146,824 60,010 35 Cash and cash equivalents at beginning of year 742,409 682,399 36 Cash and cash equivalents at end of year $889,233 $742,409

The accompanying notes are an integral part of this statement.

B-4 Notes to Consolidated Financial Statements

Note 1 Invested in plant: Invested in plant assets, including collections of works Significant accounting policies followed by the University of of art and historical treasures, are stated at cost or fair value at the date Southern California are set forth below: of gift, plus the estimated value of any associated legal retirement obligations, less accumulated depreciation, computed on a straight-line The University of Southern California is a not-for-profit, major basis over the estimated useful or component lives of the assets (equip- private research university. The consolidated financial statements ment and library books useful lives ranging from 4 to 10 years and have been prepared on the accrual basis of accounting, in accordance buildings component lives ranging from 5 to 50 years). Equipment is with accounting principles generally accepted in the United States of removed from the records at the time of disposal. The university fol- America and with the provisions of the American Institute of Certified lows the policy of recording contributions of long-lived assets directly Public Accountants’ Audit and Accounting Guide, “Not-for-Profit in invested in plant assets when the purpose or time restriction is met Entities,” which requires the university to classify its net assets into instead of recognizing the gift over the useful life of the asset. three categories according to donor-imposed restrictions or provisions of law: unrestricted, temporarily restricted, or permanently restricted. Long-term investment: Long-term investments include gifts and Board All material transactions between the university and its subsidiaries of Trustee designations to funds functioning as endowment, realized have been eliminated. and unrealized gains and reinvested income (income earned in excess of the spending rule) on all endowment funds. The university is generally exempt from federal income taxes under the provisions of Internal Revenue Code Section 501 (c) (3). The Student loan: Student loan net assets include lending activity to university is also generally exempt from payment of California state students utilizing university resources designated for that purpose. income, gift, estate and inheritance taxes. Temporarily restricted net assets: Unrestricted net assets: Gifts for which donor imposed restrictions have not been met (pri- Education and general: Education and general include the revenues marily future capital projects), charitable remainder unitrusts, pooled and expenses associated with the principal educational mission of income funds, gift annuities, net appreciation on true endowment and the university. pledges receivable for which the ultimate purpose of the proceeds is not permanently restricted are included in temporarily restricted net assets. Health care services: Health care services are reflective of the revenues and expenses associated with USC University Hospital, USC Norris Permanently restricted net assets: Cancer Hospital, the Health Care Consultation Center, the Profes- Gifts, charitable remainder unitrusts, pooled income funds, gift sional Services Agreement with Los Angeles County and USC Care annuities and pledges receivable which require by donor restriction Medical Group, Inc., a primary care and multi-specialty physician the investment of the corpus in perpetuity, net appreciation on true practice corporation. endowment and only the income be made available for program Sponsored research and departmental activities: Sponsored research operations in accordance with donor restrictions and gifts which agreements recognize revenue as it is earned through expenditure in have been donor stipulated to provide loans to students are included accordance with the agreement. Any funding received in advance in permanently restricted net assets. of expenditure is recorded as refundable advances. Departmental net Other accounting policies: assets include gifts to the university and its various schools and departments. The university has determined that any donor-imposed Cash equivalents consist of resources invested in money market funds. restrictions of gifts for current or developing programs and activities Investments are stated at fair value. Net appreciation (depreciation) are generally met within the operating cycle of the university and, in the fair value of investments, which consists of the realized gains or therefore, the university’s policy is to record these net assets as unre- losses and the unrealized appreciation (depreciation) on those invest- stricted. Internally designated net assets are those which have been ments, is shown in the Consolidated Statement of Activities. Realized appropriated by the Board of Trustees or designated by management. gains and losses upon the sale of investments are calculated using the Unexpended plant and debt service funds: Unexpended plant and debt specific identification method and trade date. service net assets include gifts and income earned on unexpended Alternative investment holdings and certain other limited partnership balances for capital projects which are currently under construc- interests are invested in both publicly traded and privately owned tion and transfers from the operating budget to fund the debt service securities. The fair values of private investments are based on estimates requirements for outstanding bonds, notes and mortgages payable. The and assumptions of the general partners or partnership valuation com- university follows the policy of lifting the restrictions on contributions mittees in the absence of readily determinable market values. Such of cash or other assets received for the acquisition of long-lived assets valuations generally reflect discounts for illiquidity and consider vari- when the restrictions are fulfilled or the assets are placed in service. ables such as financial performance of investments, recent sales prices of investments and other pertinent information. B-5 Notes to Consolidated Financial Statements

Note 1 (continued) Gifts from donors, including contributions receivable (unconditional Inventories are valued at the lower of cost (first in, first out) or market. promises to give), are recorded as revenues in the year received. Gifts are valued using quoted market prices, market prices for similar assets, The university receives federal reimbursement for a portion of the independent appraisals, or by university management. Contributions costs of its facilities and equipment used in organized sponsored receivable are reported at their discounted value using credit-adjusted research. The Office of Management and Budget, Circular A-21, borrowing rates and an allowance for amounts estimated to be uncol- establishes principles for determining such reimbursable costs, requires lectible is provided. Donor-restricted gifts, which are received and conformity of the lives and methods used for federal cost reimburse- either spent, or deemed spent, within the same year, are reported as ment accounting and financial reporting purposes. The university’s unrestricted revenue. Gifts of long-lived assets with no donor-imposed policies and procedures are in conformity with these principles. time restrictions are reported as unrestricted revenue in the year Student tuition and fees are recorded as revenues during the year the received. Gifts restricted to the acquisition or construction of long- related academic services are rendered. Student tuition and fees received lived assets or subject to other time or purpose restrictions are reported in advance of services to be rendered are recorded as deferred revenue. as temporarily restricted revenue. The temporarily restricted net assets resulting from these gifts are released to unrestricted net assets when The university’s split interest agreements with donors consist primarily the donor-imposed restrictions are fulfilled or the assets are placed in of gift annuities, unitrusts, pooled income funds and life estates. For service. Gifts received for endowment investment are held in perpetu- irrevocable agreements, assets contributed are included in the uni- ity and recorded as permanently restricted revenue. versity’s investments and stated at fair value. Contribution revenue is recognized at the date each trust is established after recording liabilities Health care services revenues included the net patient service revenues for the actuarially-determined present value of the estimated future associated with the USC University Hospital, USC Norris Cancer payments to be made to the beneficiaries. The actuarial liability is Hospital and USC Care Medical Group, Inc.. Net patient service discounted at an appropriate risk-adjusted rate at the inception of each revenue is reported as estimated net realizable amounts from patients, agreement and the applicable actuarial mortality tables. Discount rates third party payors, government programs and other in the period in on split-interest agreements range from 3.3% to 9.5%. The liabilities which services are provided. The majority of the health care services are adjusted during the terms of the trusts for changes in the fair value are rendered to patients with commercial or managed care insurance, of the assets, accretion of discounts, and other changes in the estimates or under the federal Medicare and California State Medi-Cal pro- of future benefits. The Retired Pensioners 2000 Mortality Table was grams. Reimbursement from these various payors is based on a com- used for annuities. California Statutory Reserve for annuities issued bination of prospectively determined rates, discounts from charges and on or before December 31, 2004 used the 1983 Individual Annuity historical costs. Amounts received under the Medicare program are Mortality Table and the Annuity 2000 Mortality Table was used for subject to retroactive settlements based on review and final determina- annuities issued on or after January 1, 2005. tion by program intermediaries or their agents. Provisions for contractual adjustments and retroactive settlements related to those payors The university has recorded conditional asset retirement obligations are accrued on an estimated basis in the period the related services associated with the legally required removal and disposal of certain are rendered and adjusted in future periods as additional information hazardous materials, primarily asbestos, present in our facilities. When becomes known or as final settlements are determined. Health care an asset retirement obligation is identified, the university records the services revenues also include the revenues associated with the profes- fair value of the obligation as a liability. The fair value of the obliga- sional services agreement with the County of Los Angeles. tion is also capitalized as property, plant and equipment and then amortized over the estimated remaining useful life of the associated Allowances for doubtful accounts are based upon management’s assess- asset. The fair value of the conditional asset retirement obligations was ment of historical and expected net collections considering historical estimated using a probability weighted, discounted cash flow model. business and economic conditions. Periodically throughout the year The present value of future estimated cash flows was calculated using management assesses the adequacy of the allowances for doubtful the credit adjusted, interest rate applicable to the university in order accounts based upon historical write-off experience. The results of this to determine the fair value of the conditional asset retirement obliga- review are then used to make any modifications to the allowance for tions. For the year ended June 30, 2011, the university recognized doubtful accounts. accretion expense related to the conditional asset retirement obligation of approximately $4,876,000. For the year ended June 30, 2011, the university settled asset retirement obligations of approximately $1,017,000. As of June 30, 2011, included in the Consolidated Bal- ance Sheet is an asset retirement obligation of $97,691,000.

B-6 Notes to Consolidated Financial Statements

Note 1 (continued) The university has adopted the authoritative guidance contained The preparation of financial statements in conformity with account- in FASB ASC 820-10, Fair Value Measurements and Disclosures, ing principles generally accepted in the United States of America for estimating the fair value of investments in investment funds that requires management to make estimates and assumptions that affect have calculated Net Asset Value (“NAV”) per share in accordance the reported amounts of assets and liabilities and disclosure of con- WITH&!3"!3# &INANCIAL3ERVICES )NVESTMENT#OMPANIES tingent assets and liabilities at the date of the financial statements and FORMERLYTHE!MERICAN)NSTITUTEOF#ERTIFIED0UBLIC!CCOUNTANTS the reported amounts of revenues and expenses during the reporting !UDITAND!CCOUNTING'UIDE )NVESTMENT#OMPANIES !CCORDING period. Actual results could differ from these estimates. TOTHISGUIDANCE WHICHWASFORMERLYREFERREDTOAS&30&!3 G or ASU 2009-12, in circumstances in which NAV per share of an The financial statements include certain prior-year summarized investment is not determinative of fair value, a reporting entity is comparative information in total but not by net asset category. Such permitted to estimate the fair value of an investment in an investment information does not include sufficient detail to constitute a presenta- fund using the NAV per share of the investment (or its equivalent) tion in conformity with accounting principles generally accepted in without further adjustment, if the NAV per share of the investment is the United States of America. Accordingly, such information should determined in accordance with FASB ASC 946-10 as of the report- be read in conjunction with the university’s financial statements for ing entity’s measurement date. Accordingly, the university uses the the year ended June 30, 2010 from which the summarized financial NAV, as reported by the money managers as a practical expedient, to information was derived. Certain reclassifications have been made to determine the fair value of investments in investment funds which (a) summarized financial information for comparative purposes. do not have a readily determinable fair value and (b) either have the attributes of an investment fund or prepare their financial statements The university applies the provision of Financial Accounting Standards consistent with the measurement principles of an investment fund. Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair At June 30, 2011, the fair value of all such investments in investment Value Measurements, which defines fair value as the exchange price funds has been determined by using NAV as a practical expedient. that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset Additionally, in accordance with ASU 2009-12, the university consid- or liability in an orderly transaction between market participants on ers several additional factors in appropriately classifying the investment the measurement data. funds in the fair value hierarchy. An investment is generally classified - The following describes the hierarchy of inputs used to measure fair AS,EVEL))IFTHEUNIVERSITYHASTHEABILITYTOWITHDRAWITSINVEST ment with the investment fund at NAV at the measurement date. An value and the primary valuation methodologies used by the university for financial instruments measured at fair value on a recurring basis. INVESTMENTISGENERALLYCLASSIFIEDAS,EVEL)))IFTHEUNIVERSITYDOESNOT have the ability to withdraw its investment with the investment fund The three levels of inputs are as follows: at NAV, such as investments in closed-end funds, “side pockets,” or s ,EVEL) 1UOTEDPRICESINACTIVEMARKETSFORIDENTICALASSETSOR FUNDSWITHSUSPENDEDWITHDRAWALSIMPOSED)FTHEUNIVERSITYCANNOT liabilities. withdraw its investment with the investment funds at NAV when such investment is subject to “lock-up” or gate, or its withdrawal s ,EVEL)) )NPUTSOTHERTHAN,EVEL)THATAREOBSERVABLE EITHER period does not coincide with the university’s measurement date, directly or indirectly, such as quoted prices for similar assets or lia- the university considers the length of time until the investment will bilities; quoted prices in markets that are not active; or other inputs become redeemable in determining whether the fair value measure- that are observable or can be corroborated by observable market MENTOFTHEINVESTMENTSHOULDBECLASSIFIEDASA,EVEL))OR,EVEL))) data for substantially the same term of the assets or liabilities. fair value measurement. s ,EVEL))) 5NOBSERVABLEINPUTSTHATARESUPPORTEDBYLITTLEORNO market activity and that are significant to the fair value of the assets Note 2 or liabilities. Accounts receivable (in thousands):

A financial instrument’s categorization within the valuation hierarchy U.S. Government $23,967 is based upon the lowest level of input that is significant to the fair Student and other, net of allowance for value measurement. doubtful accounts of $8,078 76,059 Patient care, net of allowance for doubtful accounts of $22,497 173,962 $273,988

B-7 Notes to Consolidated Financial Statements

Note 3 Investments (in thousands): Cost Fair Value Equities $1,065,862 $1,228,567 Fixed income securities 460,615 456,039 Alternative investments: Hedge funds 512,750 648,840 Private capital 1,001,388 1,011,197 Real estate and other 247,678 178,375 Assets held by other trustees 114,176 127,599 Total $3,402,469 $3,650,617

The following table summarizes the financial instruments carried at fair value as of June 30, 2011, by the ASC 820 valuation hierarchy defined above:

Level I Level II Level III Total Investments: Equities $851,009 $324,748 $52,810 $1,228,567 Fixed income securities 173,729 264,996 17,314 456,039 Hedge funds 648,840 648,840 Private capital 1,011,197 1,011,197 Real estate and other 178,375 178,375 Assets held by other trustees 127,599 127,599 Total investments $1,024,738 $589,744 $2,036,135 $3,650,617

The university has classified all cash and cash equivalents as Level I financial instruments. The following table summarizes the university’s Level III reconciliation of investments for the year ended June 30, 2011:

Balance at July 1, 2010 $1,475,101 Net realized gains 67,154 Net unrealized gains 223,380 Transfers in* 108,501 Net purchases, sales and settlements 161,999 Balance at June 30, 2011 $2,036,135

*Transfers were due to an increase or decrease in price transparency or the availability of dealer quotations at the end of each month.

B-8 Notes to Consolidated Financial Statements

Note 3 (continued) The university uses the NAV to determine the fair value of all the underlying investments which (a) do not have a readily determinable fair value and (b) prepare their financial statements consistent with the measurement principles of an investment company or have the attributes of an investment company. The following table lists investments in other investment companies (in partnership format) by major category:

Redemption Fair Value Redemption Restrictions and Category of Determined Unfunded Restrictions Terms in Place Investment Investment Strategy Using NAV Commitments Remaining Life Redemption Terms and Terms at Year End Assets Held Miscellaneous $127,599,000 Not Applicable Not Applicable Redemptions Not Applicable Not Applicable by Other investments held are not permitted Funds outside USC during the life where USC has of the fund. no authority over the fund

Distressed US and Non-US $87,695,000 $26,655,000 Approximately Redemptions Not Applicable Not Applicable Obligation Distressed Debt 5 Years are not permitted Partnerships Securities during the life of the fund.

Equity Funds US and Non-US $327,175,000 Not Applicable Open Ended Minimum None None Equity Securities Monthly

Fixed Income US and Non-US $14,145,000 Not Applicable Open Ended Minimum None None Funds Fixed Income Monthly Securities

Hedge Funds US and Non-US $648,840,000 $1,670,000 96.5% of NAV Ranges between 12% of NAV None Investments in has an open ended monthly redemption is locked up Relative Value, life, 3% of NAV with 90 days notice, for 3 months, Event Driven, will be liquidated quarterly redemption 66% of NAV is Long/Short, on 12/31/11, and with up to 90 days locked up for and Directional 0.5% of NAV will notice, semi-annual 6 months, and Strategies be liquidated on redemption with 22% of NAV is an undetermined 60 days notice, and locked up for at basis. annual redemption least 1 year. with up to 180 days notice.

Natural US and Non-US $320,683,000 $192,028,000 Approximately Redemptions Not Applicable Not Applicable Resources Investments in 7 Years are not permitted Partnerships Upstream, Midstream, during the life and Downstream of the fund. Natural Resources Investments

Other Funds US and Non-US $186,000 Not Applicable Open Ended Monthly None None Investments in Securities Other than Equity and Fixed Income

Private Capital US and Non-US $602,819,000 $287,640,000 Approximately Redemptions Not Applicable Not Applicable Partnerships Private Equity and 6 Years are not permitted Venture Capital during the life Investments of the fund.

Private US and Non-US $146,831,000 $102,338,000 Approximately Redemptions Not Applicable Not Applicable Real Estate Real Estate 6 Years are not permitted Partnerships during the life of the fund.

Total $2,275,973,000 $610,331,000

B-9 Notes to Consolidated Financial Statements

Note 4 Property, plant and equipment (in thousands):

Land and improvements $137,226 Buildings and improvements 2,573,792 Buildings under capital leases 60,696 Equipment 534,558 Library books and collections 239,424 Construction-in-progress 103,191 3,648,887

Less: Accumulated depreciation 1,476,457 $2,172,430

Note 5 Bonds and note payable (in thousands): Interest % Maturity California Educational Facilities Authority (CEFA) Revenue Bonds and Notes: Series 2003A 4.75 2024 $50,000 Premium 1,028 Series 2003B 5.00 2012-2016 5,705 Premium 430 Series 2005 4.00-5.00 2012-2029 66,545 Premium 2,280 Series 2007A 4.00-4.75 2012-2038 258,995 Premium 2,290 Series 2009A 5.00-5.25 2039-2040 217,605 Discount (900) Series 2009B 5.00-5.25 2039-2040 197,900 Premium 3,127 Series 2009C 5.25 2025 82,305 Premium 7,932

University of Southern California Bonds Series 1998 5.87-6.26 2014-2019 8,585 Discount (22)

California Infrastructure Revenue Bonds USC (USC – Soto Street Health Sciences) Series 2010 2.00-5.00 2012-2032 36,975 Premium 2,581

Notes Payable 5.00 2014-2015 30,000 973,361 Less current portion of long-term debt 5,280 $968,081

Principal payment requirements relating to bonds and notes pay- was implemented with a bank. The credit agreement was amended on able, after giving effect to refunding, for the next five fiscal years are June 24, 2010 to increase the revolving line of credit to $200,000,000. approximately: 2012 $5,280,000; 2013 $5,495,000; 2014 $24,730,000; The line of credit, which matures on June 30, 2013, accrues inter- 2015 $20,995,000; 2016 $6,265,000. est based on LIBOR and contains a fee on the unused portion of the line of credit. During the years ended June 30, 2011 and 2010, the Interest payments for fiscal year 2011 were $45,390,000. university did not draw down on the line of credit. The line of credit On April 6, 2009, a $100,000,000 revolving line of credit agreement contains certain restrictive covenants required in the agreement.

B-10 Notes to Consolidated Financial Statements

Note 6 Financial aid is awarded to students based on need and merit. Financial aid does not include payments made to students for services rendered to the university. Financial aid for the year ended June 30, 2011 consists of the following (in thousands):

Undergraduate Graduate Total Institutional scholarships $205,639 $95,551 $301,190 Endowed scholarships 21,015 9,765 30,780 External financial aid 16,993 7,896 24,889 $243,647 $113,212 $356,859

Note 7 Endowment net assets are subject to the restrictions of gift instruments requiring that the principal be invested in perpetuity and only the income and realized gains be utilized for current and future needs. Long-term investment net assets (funds functioning as endowment and departmentally designated funds) have been established from restricted gifts whose restrictions have been met and unrestricted gifts which have been designated by the Board of Trustees or management for the same purpose as endowment. The university also has a beneficial interest in the net income earned from assets which are held and managed by other trustees. Endowment and long-term investment net assets functioning as endowment are summarized as follows (in thousands):

Funds functioning Departmentally Endowment as endowment designated funds Total Pooled $2,372,460 $990,226 $9,641 $3,372,327 Non-pooled 75,406 69,440 144,846 $2,447,866 $1,059,666 $9,641 $3,517,173

Pooled investments represent endowment and long-term investment net assets which have been commingled in a unitized pool (unit market value basis) for purposes of investment. The pool is comprised of cash and cash equivalents (7.81%), equities (37.99%), fixed income securities (7.16%), alternative investments (42.88%) and real estate and other investments (4.16%). Access to or liquidation from the pool is on the basis of the market value per unit on the preceding monthly valuation date. The unit market value at June 30, 2011 was $562.81. The Board of Trustees has interpreted the “Uniform Prudent Management of Institutional Funds Act” (“UPMIFA”) as requiring the preservation of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the university classifies as permanently restricted net assets, (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the university considers various factors in making a determination to appropriate or accumulate endowment funds including: duration and preservation of the fund, economic conditions, effects of inflation or deflation, expected return on the funds and other economic resources of the university. Endowment net asset composition by type of fund as of June 30, 2011 (in thousands):

Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted endowment funds $1,140,467 $1,307,399 $2,447,866 Board-designated endowment funds $1,069,307 1,069,307 $1,069,307 $1,140,467 $1,307,399 $3,517,173

B-11 Notes to Consolidated Financial Statements

Note 7 (continued) Changes in endowment net assets for the year ended June 30, 2011 (in thousands):

Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets at July 1, 2010 $872,877 $835,920 $1,239,181 $2,947,978 Investment return: Investment income 53,200 53,200 Net appreciation 217,053 374,219 591,272 Total investment return 270,253 374,219 0 644,472

Gifts and transfers 10,793 68,218 79,011 Appropriation of endowment assets for expenditure (84,616) (69,672) (154,288) Endowment net assets at June 30, 2011 $1,069,307 $1,140,467 $1,307,399 $3,517,173

Endowments classified as permanently restricted net assets and tempo- The university has adopted endowment investment and spending rarily restricted net assets are to be utilized for the following purposes: policies that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain Permanently restricted net assets (in thousands): the purchasing power of endowment assets. Under these policies, the return objective for the endowment assets, measured over a full The portion of perpetual endowment funds that is required to be market cycle, shall be to maximize the return against a blended index, retained permanently either by explicit donor stipulation or by based on the endowment’s target allocation applied to the appropriate UPMIFA: individual benchmarks. The university expects its endowment funds Restricted for scholarship support $333,791 over time, to provide an average rate of return of approximately 8.0% Restricted for faculty support 343,035 annually. Actual returns in any given year may vary from this amount. Restricted for program support 630,573 To achieve its long-term rate of return objectives, the university Total endowment assets classified relies on a total return strategy in which investment returns are as permanently restricted net assets $1,307,399 achieved through both capital appreciation (realized and unrealized gains) and current yield (interest and dividends). The university targets Temporarily restricted net assets (in thousands): a diversified asset allocation that places greater emphasis on equity- based investments to achieve its long-term objectives within prudent The portion of permanent endowment funds subject to a time restric- risk constraints. tion under UPMIFA: The university utilizes a spending rule for its pooled endowment in Restricted for scholarship support $278,544 order to maximize the current and long-term investments of the Restricted for faculty support 391,302 endowment pool. The spending rule determines the endowment Restricted for program support 470,621 income and realized gains to be distributed currently for spending Total endowment assets classified with the provision that any amounts remaining after the distribution as temporarily restricted net assets $1,140,467 be transferred and reinvested in the endowment pool as funds functioning as endowment. From time to time, the fair value of assets associated with individual For the 2011 fiscal year, the Board of Trustees approved current donor-restricted endowment funds may fall below the value of the distribution of 100% of the prior year’s payout, within a minimum of initial and subsequent donor gift amounts (deficit). When donor 4% and a maximum of 6% of the average market value for the previ- endowment deficits exist, they are classified as a reduction of unre- ous 12 calendar quarters. Under the provisions of the spending rule, stricted net assets. Deficits of this nature reported in unrestricted net $25.42 was distributed to each time-weighted unit for a total spending assets were $13,303,000 as of June 30, 2011. These deficits resulted rule allocation of $152,320,000. Investment income amounting to from unfavorable market fluctuations that occurred shortly after the $8.55 per time-weighted unit was earned, totaling $51,232,000, and investment of newly established endowments, and authorized appro- $101,088,000 was appropriated for current operations from cumula- priation that was deemed prudent. tive gains of pooled investments. Endowment pool earnings allocated for spending in fiscal year 2011 represent 4.4% of the market value of the endowment pool at June 30, 2011. B-12 Notes to Consolidated Financial Statements

Note 8 At June 30, 2011, the university has adopted the required disclosures under ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. According to this guidance, the university is required to disclose the nature of credit risk inherent in the portfolio of financing receivables, its analysis and assessment in arriving at the allowance for credit losses (doubtful accounts), and the changes and reasons for those changes in the allowance for credit losses. Long-term financing receivables as of June 30, 2011 consist of the following (in thousands):

June 30, 2011 Financing Allowance Receivables, for Doubtful at Gross Accounts Net Perkins loans $49,727 $49,727 University direct student loans 25,342 ($7,367) 17,975 Other student loans 15,918 15,918 Total student loans 90,987 (7,367) 83,620 Faculty and other loans 29,357 29,357 Total $120,344 ($7,367) $112,977

Management regularly assesses the adequacy of the allowance for credit losses by performing ongoing evaluations of the student loan portfolio, including such factors as the differing economic risks associated with each loan category, the financial condition of specific borrowers, the economic environment in which the borrowers operate, the level of delinquent loans, the value of any collateral and, where applicable, the existence of any guarantees or indemnifications. The university’s Perkins receivable represents the amounts due from current and former students under the Federal Perkins Loan Program. Loans disbursed under the Federal Perkins Loan Program are able to be assigned to the Federal Government in certain non-repayment situations. In these situations the Federal portion of the loan balance is guaranteed. Included in other loans are loans related to the Federal Health Professional Student Loan Program (“HPSL”) and Loans for Disadvantaged Students (“LDS”). Factors also considered by management when performing its assessment, in addition to general economic conditions and the other factors described above, included, but were not limited to, a detailed review of the aging of the student loan receivable detail and a review of the default rate by loan category in comparison to prior years. The level of the allowance is adjusted based on the results of management’s analysis. It is the university’s policy to write off a loan only when it is deemed to be permanently uncollectible. The following table illustrates the aging analysis of receivables as of June 30, 2011 (in thousands):

1-60 Days 61-90 Days > 91 Days Total Financing Past Due Past Due Past Due Current Receivables Perkins loans $1,727 $445 $6,231 $41,325 $49,728 University direct student loans 473 222 10,203 14,443 25,341 Other student loans 1,091 102 484 14,241 15,918 Total student loans 3,291 769 16,918 70,009 90,987 Faculty and other loans 29,357 29,357 Total $3,291 $769 $16,918 $99,366 $120,344

Considering the other factors already discussed herein, management considers the allowance for credit losses to be prudent and reasonable. Furthermore, the university’s allowance is general in nature and is available to absorb losses from any loan category. Management believes that the allowance for credit losses at June 30, 2011 is adequate to absorb credit losses inherent in the portfolio as of that date. As part of the program to attract and retain exemplary faculty and senior staff, the university provides home mortgage financing assistance. Notes receivable amounting to $29,357,200 were outstanding as of June 30, 2011 and are collateralized by deeds of trust. No allowance for doubtful accounts has been recorded against these loans based on their collateralization and prior collection history. At June 30, 2011, there were no amounts past due under the faculty and staff loan program.

B-13 Notes to Consolidated Financial Statements

Note 9 Note 12 Unconditional promises are included in the consolidated financial Retirement benefits for employees are provided through the Teachers statements as pledges receivable and revenue of the appropriate net Insurance and Annuity Association and the College Retirement Equities asset category. Pledges are recorded after discounting using rates rang- Fund, The Vanguard Group, AIG SunAmerica, Fidelity Investments ing from 1% to 6% to the present value of the future cash flows. and Prudential Financial. Under these defined contribution plans, the university and plan participants make contributions to purchase Unconditional promises are expected to be realized in the following individual, fixed or variable annuities equivalent to retirement benefits periods (in thousands): earned or to participate in a variety of mutual funds or commingled In one year or less $97,550 funds. Benefits commence upon termination or retirement and pre- Between one year and five years 256,695 retirement survivor death benefits are also provided. Charges to edu- More than five years 213,245 cation and general activities expenses for the university’s share of costs Less: discount of $123,389 and allowance of $9,745 (133,134) were approximately $101,353,000 during the year ended June 30, 2011. $434,356 Retirement benefits for hospital union employees are provided by a defined contribution plan through Fidelity Investments. Under the Pledges receivable at June 30, 2011 have the following restrictions defined contribution plan, participants make contributions to purchase a (in thousands): variety of mutual funds. The university makes its contribution following the end of the calendar year and matches the participants’ contributions Endowment for departmental up to 3% of eligible earnings providing the participant was employed programs and activities $201,309 on the last day of the calendar year. In addition, the university makes Endowment for scholarship 10,915 a 1% retiree medical benefit contribution to all participants who were Building construction 107,768 both employed on the last day of the calendar year and worked 1,500 Departmental programs and activities 114,364 hours in that calendar year. The university contribution is subject to $434,356 a five year vesting schedule although previously credited years from before the acquisition have been carried over. Benefits commence at Note 10 age 591/2; termination of employment, or retirement and pre-retirement Executed contracts, grants, subcontracts and cooperative agreements survivor death benefits are also provided. Charges to education and for future sponsored research activity which are not reflected in the general activities expenses for the university’s share of costs were consolidated financial statements at June 30, 2011 are summarized as approximately $3,117,000 during the year ended June 30, 2011. follows (in thousands): Retirement benefits for non-exempt employees are provided through Current sponsored awards $493,964 a non-contributory defined benefit pension plan. The following table Executed grants and contracts for future periods 583,602 sets forth the plan’s funded status at June 30, 2011 (in thousands): $1,077,566 Obligations and Plan Assets

Note 11 Change in Projected Benefit Obligation At June 30, 2011, the university had remaining commitments of Benefit obligation at end of prior year $167,715 approximately $610,331,000 with alternative investment managers Interest cost 9,887 and/or limited partnerships. Actuarial loss 10,520 Contractual commitments for educational plant amounted to approxi- Benefits paid (5,797) mately $64,572,000 at June 30, 2011. It is expected that the resources Benefit obligation at end of year $182,325 to satisfy these commitments will be provided from certain unexpended plant net assets, anticipated gifts and/or debt proceeds. Change in Plan Assets

During the year ended June 30, 2007, the university entered into Fair value of plan assets at end of prior year $138,235 an agreement with the County of Los Angeles to provide profes- Actual return on plan assets 25,466 sional services at LAC+USC Medical Center. Under the terms of Benefits paid (5,797) the agreement the contract automatically renews on an annual basis Fair value of plan assets at end of year $157,904 unless either party gives four years’ notice of the termination. No such notice has been provided by either party.

B-14 Notes to Consolidated Financial Statements

Note 12 (continued) Plan Assets Reconciliation of Funded Status In managing the plan assets, our objective is to be a responsible fidu- ciary while minimizing financial risk. Plan assets include a diversified Accumulated benefit obligation at end of year $182,325 mix of fixed income securities and equity securities across a range of

sectors and levels of capitalization to maximize the long-term return Projected benefit obligation at end of year ($182,325) for a prudent level of risk. In addition to producing a reasonable Fair value of plan assets at end of year 157,904 Funded status ($24,421) return, the investment strategy seeks to minimize the volatility in our expense and cash flow. The target allocation for pension benefit plan Components of Net Periodic Benefit Cost assets is 65% equity securities and 35% fixed income securities.

Interest cost $9,887 As described in Note 1, the university uses a hierarchy to report Expected return on plan assets (10,825) invested assets, including the invested assets of the plan. Following is Amortization of net loss 4,054 a description of the valuation methodologies used for assets measured Total benefit cost $3,116 at fair value.

Fair Value Amounts recognized in the Statement of Financial Position The plan’s interest in collective trusts is valued based on the net asset Noncurrent liabilities ($24,421) value information reported by the investment advisor. The fund is Amounts not yet recognized as components of Net Periodic Benefit Cost valued at the normal close of trading on the New York Stock Exchange every day the Exchange is open (a “Business Day”). Equity Net loss $58,747 securities are valued at the official closing price of, or the last reported sales price on, the exchange or market on which such securities are Changes in the net reduction to Unrestricted Net Assets traded, as of the close of business on the day the securities are being Net gain ($4,119) valued or at the last available bid price. In cases where equity securi- Amortization of net gain (4,054) ties are traded on more than one exchange, the securities are valued Total ($8,173) on the exchange or market determined to be the most representative market, which may be either a securities exchange or the over-the- counter market. Short term investments are carried at market value. The estimated net loss/(gain) and prior service cost for the USC Securities and other assets for which representative market quotations Support Staff Retirement Plan that will be recognized as components are not readily available or are considered unreliable by the investment of net periodic benefit cost over the next fiscal year are $3,496,000 advisor are fair valued as determined in good faith under guidelines and $0, respectively. approved by Capital Guardian Trust Company. Various factors may The plan was amended to freeze benefit accruals for all remaining be reviewed in order to make a good faith determination of a secu- active union participants effective December 23, 2009, and to provide rity’s fair value. full vesting for those participants. The methods described above may produce a fair value calculation No special accounting for curtailments, settlements or termination that may not be indicative of net realizable value or reflective of future benefits was required during the year ended June 30, 2011. fair values. Furthermore, while the plan believes its valuation methods are appropriate and consistent with other market participants, the use Assumptions of different methodologies or assumptions to determine the fair value Weighted-average assumptions used to determine net periodic benefit of certain financial instruments could result in a different fair value cost for year ended June 30: measurement at the reporting date.

Discount rate 6.00% Expected return on plan assets 8.00% Rate of compensation increase N/A

Weighted-average assumptions used to determine net year-end benefit obligations at June 30:

Discount rate 5.60% Rate of compensation increase N/A

B-15 Notes to Consolidated Financial Statements

Note 12 (continued) A summary of fair value measurements by level for investments measured at fair value on a recurring basis is as follows (in thousands):

Level I Level II Level III Total Collective Trust Funds: Short-term investment fund $284 $284 Equities 102,729 102,729 Fixed income securities 54,891 54,891 Total $157,904 $157,904

Allocation of Assets Contributions The year-end asset allocation, which approximates the weighted-aver- No contribution to the pension plan was required during the year age allocation for the plan assets as of June 30, 2011 and in comparison ended June 30, 2011. The university may make discretionary con- to target percentages for each asset category, is as follows: tributions to its pension plan during the next fiscal year. This will be

reassessed during the year. Tar get at Asset Category June 30, 2011 June 30, 2011 Estimated Future Benefit Payments Equity securities 65.1% 65.0% Debt securities 34.9% 35.0% The following benefit payments, which reflect expected future ser- Total 100.0% 100.0% vice, as appropriate, are expected to be paid (in thousands): Fiscal Year Ending June 30,

The portfolio is evaluated annually, or when the actual allocation 2012 $6,674 percentages are plus or minus 2% of the stated target allocation per- 2013 $7,268 centages. Changes in policy may be indicated as a result of changing 2014 $7,900 market conditions or anticipated changes in the pension plan’s needs. 2015 $8,504 Prohibited transactions include investment transactions prohibited by 2016 $9,060 the Employee Retirement Income Security Act of 1974 and specula- 2017 – 2021 $52,237 tive investments including commodities or unregistered stock without specific prior approval by the Investment Committee.

B-16 Notes to Consolidated Financial Statements

Note 13 The university is the lessee of various equipment and space under noncancelable operating and capital leases. Operating lease rental expense for the year ended June 30, 2011 was approximately $21,176,000. Space leases contained customary escalation clauses, which are included in annual aggregate minimum rentals. Future aggregate minimum rental payments under operating and capital leases are as follows (in thousands): Future minimum rental payments:

Operating Capital 2012 $26,645 $3,659 2013 25,842 3,713 2014 26,024 3,769 2015 23,924 3,826 2016 19,207 3,883 Thereafter 119,566 89,790 241,208 108,640 Less: Interest on capital leases (47,944) Total $241,208 $60,696

Note 14 Expenses are presented by functional classification in accordance with the overall service mission of the university. Each functional classification displays all expenses related to the underlying operations by natural classification. Depreciation expense is allocated based on square footage occupancy. Interest expense on external debt is allocated to the functional categories which have benefited from the proceeds of the external debt. Plant operations and maintenance represents space related costs which are allocated to the functional categories directly and/or based on the square footage occupancy. Functional expense consists of the following (in thousands):

Academic, Health Care and Support Fund Raising Year Ended Student Services Services Activities June 30, 2011 Compensation $1,138,664 $223,961 $18,890 $1,381,515 Fringe benefits 284,377 72,414 6,260 363,051 Operating expenses 603,041 241,381 9,597 854,019 Cost of goods sold 28,133 56,617 84,750 Travel 39,751 8,061 532 48,344

Allocations: Depreciation 111,843 41,645 159 153,647 Interest 15,158 30,255 45,413 Plant operations and maintenance 121,031 (121,314) 283 $2,341,998 $553,020 $35,721 $2,930,739

B-17 Notes to Consolidated Financial Statements

Note 15 Note 17 The university is contingently liable as guarantor on certain obliga- Members of the Board of Trustees and senior management may, from tions relating to equipment loans, student and parent loans, and time to time, be associated, either directly or indirectly, with compa- various campus organizations. The university receives funding or nies doing business with the university. For senior management, the reimbursement from governmental agencies for various activities, university requires annual disclosure of significant financial interest in which are subject to audit. In addition, certain litigation has been filed entities doing business with the university. These annual disclosures against the university and in the opinion of university management, cover both senior management and their immediate family members. after consultation with legal counsel, the liability, if any, for the afore- When such relationships exist, measures are taken to appropriately mentioned matters will not have a material effect on the university’s manage the actual or perceived conflict in the best interests of the financial position. university. The university has a written conflict of interest policy that requires, among other things, that no member of the Board of Trust- Note 16 ees can participate in any decision in which he or she or an immediate family member has a material financial interest. Each trustee is The estimated fair value of the university’s bonds, notes and mort- required to certify compliance with the conflict of interest policy on gages payable was $995,143,000 at June 30, 2011. This fair value was an annual basis and indicate whether the university does business with estimated based upon the discounted amount of future cash outflows an entity in which a trustee has a material financial interest. When using the rates offered to the university for debt of the same remaining such relationships exist, measures are taken to mitigate any actual or maturities. perceived conflict, including requiring the recusal of the conflicted Determination of the fair value of notes receivable, which are primar- trustee and that such transactions be conducted at arm’s length, for ily federally sponsored student loans with U.S. Government mandated good and sufficient consideration, based on terms that are fair and interest rates and repayment terms and subject to significant restric- reasonable to and for the benefit of the university, and in accordance tions as to their transfer or disposition, could not be made without with applicable conflict of interest laws. As part of a competitive pro- incurring excessive costs. cess the university entered into a contract for the construction of a building with a company associated with a trustee. The value of the contract was approximately $36,000,000.

Note 18 The university has performed an evaluation of subsequent events through October 19, 2011, which is the date the financial statements were issued. On August 17, 2011 the university issued $300,000,000 of University of Southern California 5.25% Taxable Bonds, Series 2011. The bonds will mature on October 1, 2111.

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APPENDIX C

CERTAIN PROVISIONS OF PRINCIPAL DOCUMENTS

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APPENDIX C

CERTAIN PROVISIONS OF PRINCIPAL DOCUMENTS

The following are definitions of certain words and terms used in this Official Statement and excerpts of certain provisions of the Indenture and the Agreement. The following excerpts do not purport to set forth all of the provisions of said documents to which reference is made for the complete and actual terms thereof. Words and terms used herein that are not defined herein shall have the same meanings as set forth in the Indenture and the Agreement as the case may be.

DEFINITIONS

The term “ABA” means the American Bar Association or its successor.

The term “Act” means the California Educational Facilities Authority Act, constituting Chapter 2 (commencing with Section 94100) of Part 59 of Division 10 of Title 3 of the Education Code of the State, as now in effect and as it may from time to time hereafter be amended or supplemented.

The term “Act of Bankruptcy” of the Authority or the Borrower means any of the following with respect to such party:

(1) the commencement by such party of a voluntary case under the federal bankruptcy laws, as now in effect or hereafter amended, or any other applicable federal or state bankruptcy, insolvency or similar laws;

(2) the filing of a petition with a court having jurisdiction over such party to commence an involuntary case against such party under the federal bankruptcy laws, as now in effect or hereafter amended, or any other applicable federal or state bankruptcy, insolvency or similar laws, which shall not have been stayed or dismissed within 60 days;

(3) such party shall admit in writing its inability to pay its debts generally as they become due;

(4) a receiver, trustee or liquidator of such party shall be appointed in any proceeding brought against such party;

(5) assignment by such party for the benefit of its creditors; or

(6) the entry by such party into an agreement of composition with its creditors.

The term “Additional Payments” means the payments to be made by the Borrower to the Trustee or the Authority in accordance with Section 6 of the Agreement.

The term “Agreement” means that certain loan agreement, dated as of August 1, 2012, between the Authority and the Borrower, as originally executed or as it may from time to time be supplemented, modified or amended subject to and in accordance with the terms thereof and of Section 6.07(B) of this Indenture.

The term “Authority” means the California Educational Facilities Authority, a public instrumentality of the State established by the Act.

The term “Authorized Denomination” means $5,000 or any integral multiple thereof.

The term “Base Loan Payments” means the payments required to be made by the Borrower to the Trustee for the account of the Authority in accordance with Section 5 of the Agreement for the payment of the

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principal (whether at maturity, by redemption or upon acceleration) of and interest to the date of maturity or redemption and premium, if any, on Bonds.

The term “Bond Fund” means the fund by that name established pursuant to Section 5.02.

The term “Bondholder” or “Holder” means, with respect to any Bond, the person in whose name such Bond is registered.

The term “Bonds” means the $41,595,000 California Educational Facilities Authority Revenue Bonds (University of Southern California), Series 2012A.

The term “Borrower” means the University of Southern California, a nonprofit public benefit corporation organized and existing under the laws of the State, and its successors or assigns or any co-obligor permitted pursuant to Section 11 of the Agreement.

The term “Business Day” means any day other than a Saturday or a Sunday or a day on which banking institutions located in the cities of Los Angeles, California, or New York, New York, or the city or cities in which the corporate trust office of the Trustee is located, are authorized or obligated by law or executive order to be closed.

The terms “Certificate of the Authority,” “Consent of the Authority,” “Order of the Authority” or “Request of the Authority” mean, respectively, a written certificate, consent, order or request of the Authority signed by or on behalf of the Authority by its Chairman or a deputy thereto, its Executive Director, or by any other person who is specifically authorized by a resolution of the Authority to execute such a document on its behalf.

The terms “Certificate of the Borrower,” “Request of the Borrower,” “Requisition of the Borrower” or “Statement of the Borrower” mean, respectively, a certificate, request, requisition or statement of the Borrower executed by its chief financial officer, its treasurer, its controller, the chief executive officer, any senior vice president, or such other person as may be designated by any of such officials or by a resolution of the Borrower’s Board of Trustees or the Executive Committee thereof to sign for the Borrower.

The term “Code” means the Internal Revenue Code of 1986, as amended, or any successor code or law, and any regulations in effect or promulgated thereunder.

The term “Consent of the Authority” has the meaning specified under the definition herein of the terms “Certificate of the Authority,” “Consent of the Authority,” “Order of the Authority” or “Request of the Authority.”

The term “Continuing Disclosure Agreement” means that certain Continuing Disclosure Agreement by and between the Borrower and the Trustee dated as of August 1, 2012, as originally executed and as it may be amended from time to time in accordance with the terms thereof.

The term “Costs of Issuance” means all items of expense directly or indirectly payable by or reimbursable to the Borrower and related to the original authorization, execution, sale and delivery of the Bonds, including but not limited to costs of preparation and reproduction of documents, fees and expenses of the Authority, initial fees, expenses and charges of the Trustee, legal fees and charges of bond counsel, Trustee’s counsel and Borrower’s counsel and any other cost, charge or fee in connection with the original delivery of the Bonds.

The term “Depository” means The Depository Trust Company, 55 Water Street, 50th Floor, New York, New York 10041-0099, Attention: Call Notification Department, Fax (212) 855-7232; and its successors and assigns, or any other depository selected as set forth in Section 2.09 of the Indenture which agrees to follow the procedures required to be followed by such depository in connection with the Bonds.

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The term “Eligible Securities” means any of the following, to the extent the obligations are legal investments under the Act:

(1) direct obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of the Treasury of the United States of America or any Federal Reserve Bank) or obligations the timely payment of the principal of and interest on which are fully guaranteed by the United States of America;

(2) obligations, debentures, bonds, notes or other evidence of indebtedness issued or guaranteed by any of the following: Federal Home Loan Bank System, Government National Mortgage Association, Federal Home Loan Mortgage Corporation, Federal National Mortgage Association and Federal Housing Administration;

(3) bonds of any state in the United States or of any county or city of the State for which each Rating Agency then rating the Bonds maintains a rating at least equal to “A” (or the equivalent) or its highest short-term rating;

(4) repurchase agreements

(a) with any corporation or other entity that falls under the jurisdiction of the Bankruptcy Code provided that

(i) the term of such repurchase agreement is less than one year or due on demand,

(ii) the Trustee or third party acting solely as agent for the Trustee has possession of the collateral,

(iii) the market value of the collateral is maintained at an amount equal to at least 102% of the amount of cash transferred by the Trustee to the dealer bank or securities firm under the repurchase agreement plus interest,

(iv) failure to maintain the requisite collateral levels will require the Trustee to liquidate the collateral immediately,

(v) the repurchase securities are either obligations of, or fully guaranteed as to principal and interest by, the United States or any United States agency, certificates of deposit or bankers’ acceptances,

(vi) the repurchase securities are free and clear of any third-party lien or claim, and

(vii) such corporation or other entity’s long-term debt obligations are rated in one of the two highest long-term rating categories of each Rating Agency then rating the Bonds; and

(b) with financial institutions including the Trustee and its affiliates insured by the Federal Deposit Insurance Corporation or any broker-dealer with “retail customers” which falls under the jurisdiction of the Securities Investors Protection Corporation (“SIPC”) provided that:

(i) the requirements specified in clause (a)(ii), (iii) and (iv) are met;

(ii) the Trustee has a perfected first priority security interest in the collateral; and

(iii) the collateral is free and clear of third-party liens and, in the case of a SIPC broker, was not acquired pursuant to a repurchase agreement or reverse repurchase agreement;

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(5) interest bearing bankers acceptances and demand or time deposits (including certificates of deposit) in banks (including the Trustee, its parent company, and their affiliates), provided such deposits are either (a) secured at all times, in the manner and to the extent provided by law, by collateral security described in clause (1) or (2) of this definition of a market value no less than the amount of moneys so invested and are maintained with banks the debt obligations of which are rated in one of the two highest rating categories of each Rating Agency then rating the Bonds; or (b) fully insured by the Federal Deposit Insurance Corporation;

(6) United States Treasury Receipts and Stripped Treasury Coupons;

(7) taxable government money market portfolios composed of obligations issued or guaranteed as to payment of principal and interest by the full faith and credit of the United States of America, including without limitation any portfolio for which the Trustee’s parent, affiliates or subsidiaries provide investment advisory or other management services, which are rated “AAAm” or “AAAm-G” by S&P;

(8) commercial paper rated at the time of the initial investment in the highest rating category of each Rating Agency then rating the Bonds and issued by corporations organized and operating within the United States and having total assets in excess of $500,000,000;

(9) collateralized investment agreements or other collateralized contractual arrangements with corporations, financial institutions or national associations within the United States with such entities which are rated within the two highest rating categories of each Rating Agency then rating the Bonds and fully secured by collateral security described in clause (1) or (2) of this definition;

(10) investments in a money market fund rated “AAAm” or “AAAm-G” or better by S&P or an equivalent rating by Moody’s or any other nationally recognized rating agency, including funds for which the Trustee, its parent holding company, if any, or any affiliates or subsidiaries of the Trustee or such holding company provide investment advisory or other management services; and

(11) any other investment approved in writing by the Authority.

The term “Escrow Deposit Agreement” shall have the meaning ascribed thereto in Section 3.02(b) of the Indenture.

The term “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

The term “ERISA Plan” means any “employee benefit plan” as defined in Section 3(3) of ERISA and subject to Section 412 of the Code or Title IV of ERISA.

The term “Events of Default” means any of the events denominated as such which are specified in Section 7.01 of the Indenture.

The term “Facilities” means, as of any date, those domestic California facilities then owned and operated by the Borrower as educational or healthcare facilities.

The term “Indenture” means the Indenture, dated as of August 1, 2012, as originally executed or as it may from time to time be supplemented, modified or amended by any Supplemental Indenture entered into pursuant to the provisions hereof.

The term “Information Services” means Financial Information, Inc.’s “Daily Called Bonds Service,” 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention: Editor; Mergent Incorporated’s “Municipal and Government,” 5250 77 Center Drive, Suite 150, Charlotte, North Carolina 28271, Attention: Called Bonds Department; and Xcitek Inc., 5 Hanover Square, 25th Floor, New York, New York 10004, Attention: Called Bond Department; or, in accordance with then current guidelines of the Securities and Exchange

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Commission, to such other services providing information with respect to called bonds, or no such services, as the Authority may indicate in a certificate of the Authority delivered to the Trustee.

The term “Interest Payment Date” means each April 1 and October 1 commencing with October 1, 2012.

The term “Loan Default Event” means any of the events of default specified in Section 17 of the Agreement.

The term “Moody’s” means Moody’s Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “Moody’s” shall be deemed to refer to any other nationally recognized securities rating agency designated by the Trustee, at the written direction of the Borrower given to the Trustee and the Authority.

The term “Notice by Mail” or “notice” of any action or condition “by Mail” means a written notice meeting the requirements of the Indenture mailed by first-class mail to the Holders of specified registered Bonds, at the addresses shown on the registration books maintained pursuant to Section 2.06 of the Indenture.

The term “Opinion of Bond Counsel” means an Opinion of Counsel by a nationally recognized bond counsel firm experienced in matters relating to the exclusion from gross income for federal income tax purposes of interest payable on obligations of state and political subdivisions.

The term “Opinion of Counsel” means a written opinion of counsel (which may be counsel for the Authority) selected by the Authority or by the Trustee with the written consent of the Authority. If and to the extent required by the provisions of Section 1.02 of the Indenture, each Opinion of Counsel shall include the statements provided for in Section 1.02.

The term “Order of the Authority” has the meaning specified under the definition herein of the terms “Certificate of the Authority,” “Consent of the Authority,” “Order of the Authority” or “Request of the Authority.”

The term “Outstanding,” when used as of any particular time with reference to Bonds, means (subject to the provisions of Section 11.09 of the Indenture) 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 Authority shall have been discharged in accordance with Section 10.02 of the Indenture; and

(3) Bonds for the transfer or exchange of which, or in lieu of or in substitution for which, other Bonds shall have been authenticated and delivered by the Trustee pursuant to the Indenture.

The term “Paying Agent” means a paying agent other than the Trustee, if any, appointed by the Trustee in accordance with the provisions of Section 8.07 under the Indenture and any paying agent appointed by the Authority under the Indenture at the time serving as such.

The term “Principal Office” means the principal corporate trust office of the Trustee, initially located at the address specified in Section 11.07 of the Indenture, provided, however, for the purpose of maintenance of the registration books and presentation of Bonds for payment, transfer or exchange, such term shall mean the office at which the Trustee conducts its corporate agency business, or such other office as the Trustee shall designate from time to time.

The term “Prior Bonds” shall have the meaning ascribed thereto in the recitals to the Indenture.

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The term “Project” shall have the meaning ascribed thereto in Exhibit A to the Agreement.

The term “Rating Agency” means either Moody’s or S&P.

The term “Rebate Fund” means the fund by that name established pursuant to Section 5.03 of the Indenture.

The term “Record Date” means, with respect to any Interest Payment Date, the close of business on the fifteenth day of the calendar month immediately preceding such Interest Payment Date, whether or not such day is a Business Day.

The term “Registrar” means a registrar other than the Trustee, if any, appointed by the Trustee in accordance with the provisions of Section 8.07 under the Indenture and any Registrar appointed by the Authority under the Indenture at the time serving as such.

The term “Reportable Event” means a “reportable event” within the meaning of Section 4043 of ERISA and the regulations issued thereunder.

The term “Request of the Authority” has the meaning specified under the definition herein of the terms “Certificate of the Authority,” “Consent of the Authority,” “Order of the Authority” or “Request of the Authority.”

The term “Request of the Borrower” has the meaning specified under the definition herein of the terms “Certificate of the Borrower,” “Request of the Borrower,” “Requisition of the Borrower” or “Statement of the Borrower.”

The term “Requisition of the Borrower” has the meaning specified under the definition herein of the terms “Certificate of the Borrower,” “Request of the Borrower,” “Requisition of the Borrower” or “Statement of the Borrower.”

The term “Responsible Officer” of the Trustee means and includes every Vice President, Assistant Vice President, or Trust Officer having responsibilities for the administration of the duties of the Trustee hereunder.

The term “Revenues” means all payments received by the Authority or the Trustee from the Borrower pursuant or with respect to the Agreement (except Additional Payments paid by the Borrower pursuant to Section 6 of the Agreement, any amounts paid by the Borrower pursuant to Section 19 of the Agreement and amounts received for or on deposit in the Rebate Fund), including, without limiting the generality of the foregoing, Base Loan Payments (including both timely and delinquent payments), prepayments and all income derived from the investment of any money in any fund or account established pursuant to the Indenture.

The term “S&P” means Standard & Poor’s Ratings Services, a division of the McGraw Hill Corporation, a corporation organized and existing under the laws of the State of New York, its successors and their assigns, and if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, “S&P” shall be deemed to refer to any other nationally recognized securities rating agency designated by the Trustee, at the written direction of the Borrower given to the Trustee and the Authority.

The term “Special Record Date” means the date established by the Trustee pursuant to Section 2.02 of the Indenture as a record date for the payment of defaulted interest on Bonds.

The term “State” means the State of California.

The term “Statement of the Borrower” has the meaning specified under the definition herein of the terms “Certificate of the Borrower,” “Request of the Borrower,” “Requisition of the Borrower” or “Statement of the Borrower.”

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The term “Supplemental Indenture” or “Indenture Supplemental Hereto” means any indenture amending or supplementing the Indenture that is hereafter duly authorized and entered into between the Authority and the Trustee in accordance with the provisions of the Indenture.

The term “Tax Regulatory Agreement” means the Tax Regulatory Agreement between the Authority and the Borrower dated the date of issuance of the Bonds, as the same may be amended, modified or supplemented in accordance with the terms thereof.

The term “Trustee” means The Bank of New York Mellon Trust Company, N.A., a national banking association organized and existing under the laws of the United States, or its successor as Trustee under the Indenture as provided in Section 8.01 or 8.02 of the Indenture.

The term “WASC” means the Western Association of Schools and Colleges or its successor.

CERTAIN PROVISIONS OF THE INDENTURE

THE BONDS

SECTION 2.04. Transfer of Bonds. The registration of any Bond may, in accordance with its terms, be transferred, upon the books required to be kept pursuant to the provisions of Section 2.06 hereof, by the person in whose name it is registered, in person or by his or her duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a written instrument of transfer in a form acceptable to the Trustee, duly executed. The Trustee shall require the payment by the Holder requesting such transfer of any tax or other governmental charge required to be paid with respect to such transfer, and there shall be no other charge to any Holder for any such transfer. The cost of printing Bonds and any services rendered or expenses incurred by the Trustee in connection with any transfer shall be paid by the Borrower.

No registration of transfers of Bonds shall be required to be made during the period established hereunder for selection of Bonds for redemption or after a Bond has been selected for redemption.

SECTION 2.05. Exchange of Bonds. Bonds may be exchanged at the Principal Office of the Trustee for a like aggregate principal amount of the Bonds of other Authorized Denominations. The Trustee shall 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, and there shall be no other charge to any Holder for any such exchange. The cost of printing Bonds and any services rendered or expenses incurred by the Trustee in connection with any exchange shall be paid by the Borrower.

No exchanges of Bonds shall be required to be made during the period established hereunder for selection of Bonds for redemption or after a Bond has been selected for redemption.

SECTION 2.08. Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond shall become mutilated, the Authority, at the expense of the Holder of said Bond, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee shall be cancelled by it. If any Bond issued hereunder shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence be satisfactory to it and indemnity satisfactory to it shall be given, the Authority, at the expense of the Holder, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor in lieu of and in substitution for the Bond so lost, destroyed or stolen. If any Bond mutilated, lost, destroyed or stolen shall have matured or shall have been called for redemption, instead of issuing a substitute Bond, the Trustee may pay the same without surrender upon receipt of indemnity satisfactory to the Trustee. The Trustee may require payment from the Holder of a sum not exceeding the actual cost of preparing each new Bond issued under this Section and of the expenses which may be incurred by the Authority and the Trustee. Any Bond issued under the provisions of this Section in lieu of any Bond alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the Authority whether or not the Bond so

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alleged to be lost, destroyed or stolen be at any time enforceable by anyone, and shall be entitled to the benefits of this Indenture with all other Bonds secured by this Indenture.

SECTION 2.09. Use of Depository. Notwithstanding any provision of this Indenture to the contrary:

(a) The Bonds shall initially be registered as provided in Section 2.02. Registered ownership of the Bonds, or any portion thereof, registered in the name of the Depository or its nominee may not thereafter be transferred except:

(i) to any successor of the Depository or its nominee, or to any substitute depository designated pursuant to clause (ii) of this subsection (a) (“substitute depository”); provided that any successor of the Depository or substitute depository shall be qualified under any applicable laws to provide the service proposed to be provided by it;

(ii) to any substitute depository designated by the Authority (at the direction of the Borrower), upon (1) the resignation of the Depository or its successor (or any substitute depository or its successor) from its functions as depository or (2) a determination by the Authority (at the direction of the Borrower) that the Depository or its successor (or any substitute depository or its successor) is no longer able to carry out its functions as depository; provided that any such substitute depository shall be qualified under any applicable laws to provide the services proposed to be provided by it; or

(iii) to any person as provided below, upon (1) the resignation of the Depository or its successor (or substitute depository or its successor) from its functions as depository; or (2) a determination by the Authority (with the concurrence of the Borrower) that it is in the best interests of the Authority to remove the Depository or its successor (or any substitute depository or its successor) from its functions as depository.

(b) In the case of any transfer pursuant to clause (i) or clause (ii) of subsection (a) hereof, upon receipt of the Outstanding Bonds by the Trustee, together with a Request of the Authority to the Trustee, a single new Bond shall be authenticated and delivered in the aggregate principal amount of the Bonds of each maturity then Outstanding, registered in the name of such successor or such substitute depository, or their nominees, as the case may be, all as specified in such Request of the Authority. In the case of any transfer pursuant to clause (iii) of subsection (a) hereof, upon receipt of the Outstanding Bonds by the Trustee, new Bonds shall be authenticated and delivered in such Authorized Denominations numbered in consecutive order from R-1 up and registered in the names of such persons as are requested in a Request of the Authority, subject to the limitations of Section 2.02 hereof, provided that the Trustee shall not be required to deliver such new Bonds within a period less than sixty (60) days from the date of receipt of such a Request of the Authority.

(c) In the case of a partial redemption or an advance refunding of the Bonds evidencing all or a portion of the principal amount then Outstanding, the Depository shall make an appropriate notation on the Bonds indicating the date and amounts of such reduction in principal. The Authority and the Trustee shall incur no liability for any failure or error by the Depository in making such notation and the records of the Trustee as to the outstanding principal amount of Bonds shall be controlling.

(d) The Authority and the Trustee shall be entitled to treat the person in whose name any Bond is registered as the Bondholder thereof for all purposes of the Indenture and any applicable laws, notwithstanding any notice to the contrary received by any such party; and the Authority and the Trustee shall have no responsibility for transmitting payments to, communication with, notifying, or otherwise dealing with any beneficial owners of the Bonds. Neither the Authority nor the Trustee will have any responsibility or obligations, legal or otherwise, to the beneficial owners or to any other party including the Depository or its successor (or substitute depository or its successor), except for the Holder of any Bond.

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(e) So long as the outstanding Bonds are registered in the name of Cede & Co. or its registered assigns, the Authority and the Trustee shall cooperate with Cede & Co., as sole registered Bondholder, and its registered assigns in effecting payment of the principal of and interest on the Bonds by arranging for payment in such manner that funds for such payments are properly identified and are made immediately available on the date they are due.

REDEMPTION

SECTION 4.04. Partial Redemption of Bonds. Upon surrender of any Bond redeemed in part only, the Trustee shall provide a replacement Bond in a principal amount equal to the portion of such Bond not redeemed, and deliver it to the registered owner thereof. The Bond so surrendered shall be cancelled by the Trustee as provided herein. The Authority and the Trustee shall be fully released and discharged from all liability to the extent of payment of the redemption price for such partial redemption.

SECTION 4.05. Effect of Redemption. Notice of redemption having been duly given as aforesaid, and moneys for payment of the redemption price being held by the Trustee, the Bonds so called for redemption shall, on the redemption date designated in such notice, become due and payable at the redemption price specified in such notice, interest on the Bonds so called for redemption shall cease to accrue, said Bonds shall cease to be entitled to any lien, benefit or security under this Indenture, and the Holders of said Bonds shall have no rights in respect thereof except to receive payment of the redemption price thereof. If such moneys are invested, they shall be invested only in Eligible Securities having a maturity of thirty (30) days or less. The receipt by any Bondholder of any notice mailed pursuant to the provisions of this Article IV shall not be a condition precedent to the redemption of any Bond. Failure by the Trustee to give notice of redemption, or the insufficiency of any such notice, shall not affect the sufficiency of the proceedings for redemption of any Bond for which notice has been properly given.

All Bonds fully redeemed pursuant to the provisions of this Article IV shall be cancelled upon surrender thereof and may be destroyed by the Trustee, which shall, upon Request of the Authority, deliver to the Authority a certificate evidencing such destruction.

PLEDGE AND ASSIGNMENT; ESTABLISHMENT OF BOND FUND AND REBATE FUND

SECTION 5.01. Pledge and Assignment. (A) Subject only to the provisions of this Indenture permitting the application thereof for the purposes and on the terms and conditions set forth herein and, subject to the rights of the Holders of the Bonds, there are hereby pledged to secure the payment of the principal of and interest on the Bonds in accordance with their terms and the provisions of this Indenture, all of the Revenues and any other amounts (including proceeds of the sale of Bonds but excluding Additional Payments paid by the Borrower pursuant to Section 6 of the Agreement and any amounts paid by the Borrower pursuant to Section 19 of the Agreement) held in any fund or account established pursuant to this Indenture other than the Rebate Fund. Said pledge shall constitute a lien on and security interest in such assets and shall attach, be perfected and be valid and binding from and after delivery of the Bonds, without any physical delivery thereof or further act.

(B) The Authority hereby assigns to the Trustee, for the benefit of the Holders from time to time of the Bonds, all of the Revenues and other amounts pledged in paragraph (A) of this Section and all of the right, title and interest of the Authority in the Agreement (except for the right to receive any administrative fees and expenses payable to the Authority, the right of the Authority to receive any indemnification, the right to receive any notices, certificates and reports, the right to give approvals, consents or waivers, and the right to inspect the premises, books and records of the Borrower). The Trustee shall be entitled to and shall collect and receive all of the Revenues, and any Revenues collected or received by the Authority shall be deemed to be held, and to have been collected or received, by the Authority as the agent of the Trustee and shall forthwith be paid by the Authority to the Trustee. The Trustee also shall be entitled to and shall (subject to the provisions of this Indenture) take all steps, actions and proceedings following any Event of Default reasonably necessary in its judgment to enforce, either jointly with the Authority or separately, all of the rights of the Authority assigned to the Trustee and all of the obligations of the Borrower under the Agreement.

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(C) All Revenues shall be held in trust for the benefit of the Holders from time to time of the Bonds but shall nevertheless be disbursed, allocated and applied solely for the uses and purposes hereinafter in this Article V set forth.

(D) If the Trustee has not received any payment required to be made by the Borrower under the Agreement to pay the principal of or redemption price of or interest on the Bonds by the due date, the Trustee shall immediately notify the Borrower and the Authority of such insufficiency by telephone, telecopy, facsimile or telegram and confirm such notification by written notice. Failure by the Trustee to give notice pursuant to this paragraph, or the insufficiency of any such notice, shall not affect the payment obligations of the Borrower under the Loan Agreement, including without limitation the timing thereof.

(E) The Bonds shall not constitute a debt or liability, or a pledge of the faith and credit, of the State or of any political subdivision thereof, other than the Authority, which shall only be obligated to pay the Bonds solely from the Revenues and funds herein provided therefor. The issuance of the Bonds shall not directly or indirectly or contingently obligate the State or any political subdivision thereof to levy or to pledge any form of taxation whatever therefor or to make any appropriation for their payment.

SECTION 5.02. Bond Fund. (A) Except as otherwise provided in Sections 3.02, 5.03 and 5.04 hereof, upon the receipt thereof, the Trustee shall deposit all Revenues in the Bond Fund, which the Trustee shall establish and maintain and hold in trust. The Trustee shall disburse and apply amounts in the Bond Fund only as hereinafter in this paragraph (A) authorized in the following order of priority:

(1) The Trustee shall apply moneys in the Bond Fund to pay the interest on the Bonds as such interest shall become due and payable (including accrued interest on any Bonds purchased on the open market for cancellation or redeemed prior to maturity pursuant to this Indenture).

(2) The Trustee shall apply moneys in the Bond Fund to pay the principal of the Bonds as such principal becomes due and payable (including principal due upon the optional redemption of the Bonds).

(B) At least six (6) but not more than twenty (20) Business Days before each Interest Payment Date, the Trustee shall determine the amount, if any, credited or to be credited to the Bond Fund during the period from the day after the last Interest Payment Date to the next succeeding Interest Payment Date from any source and remaining unpaid by the Borrower pursuant to the Agreement. The Trustee shall give notice to the Borrower of such amount and the amount due, which notice shall be mailed, telecopied (facsimile) or delivered in such a manner that the Borrower will receive such notice by the fifth (5th) Business Day before such next succeeding Interest Payment Date. Any verbal notice shall be supplemented by notice given in accordance with the preceding sentence. Failure by the Trustee to give notice pursuant to this paragraph, or the insufficiency of any such notice, shall not affect the payment obligations of the Borrower under the Agreement, including without limitation the timing thereof.

SECTION 5.04. Investment of Moneys in Funds. Except as otherwise provided in Section 10.03 hereof, all moneys in any of the funds and accounts established pursuant to this Indenture shall be invested by the Trustee solely in such Eligible Securities as are specified in a Request of the Borrower, provided, however, that, if the Borrower does not file such a Request with the Trustee, the Trustee shall invest to the extent practicable in investments described in clause (11) of the definition of the term “Eligible Securities” in Section 1.01, provided that as long as the Trustee is The Bank of New York Mellon Trust Company, N.A., the Trustee shall invest such moneys in the money market fund set forth in the letter of authorization and direction executed by the Borrower and delivered to the Trustee. If no specific money market fund has been specified by the Borrower, the Trustee shall make a request to the Borrower for investment directions. Such moneys shall be held in cash, uninvested, until specific investment directions are provided by the Borrower to the Trustee.

Except as otherwise provided in written instructions of the Borrower which the Borrower states in writing are given in accordance with the Tax Regulatory Agreement, all interest, profits and other income received from the investment of moneys (1) in the Rebate Fund shall remain in such fund and (2) in any other fund or account established under this Indenture shall be credited to the Bond Fund. C-10

Subject to Section 10.03, investments in any and all funds and accounts established pursuant to this Indenture (other than the Rebate Fund) may be commingled for purposes of making, holding and disposing of investments, notwithstanding provisions herein for transfer to or holding in a particular fund amounts received or held by the Trustee hereunder, provided that the Trustee shall at all times account for such investments strictly in accordance with the particular funds to which they are credited and otherwise as provided in this Indenture. The Trustee and its affiliates may act as sponsor, principal or agent in the making or disposing of any investment. The Trustee may sell or present for redemption, any securities so purchased whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund or account to which such securities are credited, and the Trustee shall not be liable or responsible for any loss resulting from such investment. The Authority and the Borrower (by its execution of the Agreement) acknowledge that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the Authority or the Borrower the right to receive brokerage confirmations of security transactions as they occur, the Authority and the Borrower specifically waive receipt of such confirmations to the extent permitted by law. The Trustee will furnish the Authority and the Borrower periodic transaction statements which include detail for all investment transactions made by the Trustee hereunder.

COVENANTS

SECTION 6.01. Punctual Payment. The Authority shall punctually pay, but only out of Revenues and pledged funds as herein provided, the principal and interest to become due in respect of every Bond issued hereunder at the times and places and in the manner provided herein and in the Bonds, according to the true intent and meaning thereof.

SECTION 6.02. Extension of Payment of Bonds. The Authority shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any of the claims for interest by the purchase or funding of such Bonds or claims for interest or by any other arrangement except with the written consent of the Bondholders in accordance with Section 9.02 hereof and, if the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended without the written consent of the Bondholders, such Bonds or claims for interest shall not be entitled, in case of any default hereunder, to the benefits of this Indenture, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended. Nothing in this Section shall be deemed to limit the right of the Authority to issue bonds for the purpose of refunding any Outstanding Bonds, and such issuance shall not be deemed to constitute an extension of maturity of Bonds.

SECTION 6.03. Encumbrance Upon Revenues. The Authority shall not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Revenues and other assets pledged or assigned under this Indenture while any of the Bonds are Outstanding, except the pledge and assignment created by this Indenture. Subject to this limitation, the Authority expressly reserves the right to enter into one or more other indentures for any of its corporate purposes, including other programs under the Act, and reserves the right to issue other obligations for such purposes.

SECTION 6.06. Tax Covenants. (A) The Authority shall not take any action, or fail to take any action, if such action or failure to take such action would result in the interest on the Bonds not being excluded from gross income for federal income tax purposes under Section 103 of the Code. Without limiting the generality of the foregoing, the Authority will comply with the requirements of the Tax Regulatory Agreement, which is incorporated herein as if fully set forth herein. This covenant shall survive the payment in full or the defeasance of the Bonds.

(B) Notwithstanding any provisions of this Section, if the Authority shall provide to the Trustee an Opinion of Bond Counsel to the effect that any specified action required under this Section is no longer required or that some further or different action is required to maintain the exclusion from federal income tax of interest on the Bonds, the Trustee and the Authority may conclusively rely on such opinion in complying with the requirements of this Section and the Tax Regulatory Agreement, and the covenants hereunder shall be deemed to be modified to that extent.

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SECTION 6.07. Other Covenants; Amendment of Agreement.

(A) Subject to the provisions of this Indenture, the Trustee shall promptly collect all amounts due from the Borrower pursuant to the Agreement and diligently enforce and take all steps, actions and proceedings reasonably necessary for the enforcement of all of the rights of the Authority under the Agreement and assigned to it pursuant to Section 5.01(B) hereof.

(B) The Authority shall not amend, modify or terminate any of the terms of the Agreement, or consent to any such amendment, modification or termination, without the prior written consent of the Trustee. The Trustee shall give such written consent if but only if (1) it has received a written representation from the Borrower to the effect that such amendment or modification will not materially and adversely affect the interests of the Holders of the Bonds; provided that, if an Event of Default has occurred and is continuing, the Trustee rather than the Borrower shall make a determination that such amendment or modification will not materially and adversely affect the interests of the Holders of the Bonds (provided that, in making such determination, the Trustee may conclusively rely on written representations of financial consultants or advisors or an Opinion of Counsel or advice of counsel), or (2) the Holders of a majority in aggregate principal amount of the Bonds then Outstanding consent in writing to such amendment, modification or termination, provided that no such amendment, modification or termination shall reduce the amount of Base Loan Payments to be made to the Authority or the Trustee by the Borrower pursuant to the Agreement, or extend the time for making such payments, without the written consent of all of the Holders of the Bonds then Outstanding.

SECTION 6.10. Continuing Disclosure. Pursuant to Section 16(g) of the Agreement, the Borrower has undertaken all responsibility for compliance with continuing disclosure requirements pursuant to Securities and Exchange Commission Rule 15c2-12(b)(5), and the Authority shall have no liability to the Holders of the Bonds or any other person with respect to Securities and Exchange Commission Rule 15c2-12. The Trustee hereby covenants and agrees that, subject to the provisions of this Indenture, it will comply with and carry out all of the provisions of the Continuing Disclosure Agreement and Section 16(g) of the Agreement applicable to it. Notwithstanding any other provision of this Indenture, failure of the Borrower or the Trustee to comply with the Continuing Disclosure Agreement shall not be considered an Event of Default; however, the Trustee at the written request of any Participating Underwriter (as defined in the Continuing Disclosure Agreement) or the Holders of at least a majority in aggregate principal amount of Outstanding Bonds, shall (but only to the extent the Trustee has been tendered funds in an amount satisfactory to it or it has been otherwise indemnified from and against any loss, liability, cost or expense, including without limitation, fees and expenses of its counsel and agents and additional fees and charges of the Trustee) or any Bondholder or Beneficial Owner may, take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Borrower to comply with its obligations under Section 16(g) of the Agreement or, as to any Bondholder or Beneficial Owner, to cause the Trustee to comply with its obligations under this Section 6.10. For purposes of this Section, “Beneficial Owner” means any person which (1) has or shares the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (2) is treated as the owner of any Bonds for federal income tax purposes.

EVENTS OF DEFAULT; REMEDIES ON DEFAULT

SECTION 7.01. Events of Default; Acceleration; Waiver of Default. If one or more of the following events (“Events of Default”) shall happen, that is to say:

(a) if default shall be made in the due and punctual payment of the principal of any Bond as the same shall become due and payable (whether at maturity, by declaration of acceleration or otherwise);

(b) if default shall be made 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;

(c) if default shall be made by the Authority in the performance or observance of any other of the covenants, agreements or conditions on its part in this Indenture or in the Bonds contained, and such default shall have continued for a period of thirty (30) days after written notice thereof, specifying such default and requiring the same to be remedied, shall have been given to the Authority by the Trustee, or to C-12

the Authority and the Trustee by the Holders of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding, provided, with respect to any such failure covered by this subsection (c), no Event of Default shall be deemed to have occurred so long as a course of action adequate to remedy such failure shall have been commenced within such thirty (30) day period and shall thereafter be diligently prosecuted to completion and the failure shall be remedied thereby; or

(d) if a Loan Default Event has occurred and is continuing;

then and in each and every such case during the continuance of such Event of Default, unless the principal of all the Bonds shall have already become due and payable, the Trustee, by notice in writing to the Authority, may and, upon the written request of the Holders of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding, shall declare the principal of all 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 this Indenture or in the Bonds contained to the contrary notwithstanding. The Trustee shall give Notice of any such declaration to each Rating Agency then rating the Bonds; provided that the failure to give any such Notice shall not affect the sufficiency of the proceedings for such declaration.

This provision, however, is subject to the condition that if, at any time after the principal of the Bonds shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, there shall have been deposited with the Trustee a sum sufficient to pay all principal on the Bonds matured prior to such declaration and all matured installments of interest (if any) upon all the Bonds, with interest on such overdue installments of principal at the rate borne by the respective Bonds, and the reasonable fees and expenses of the Trustee and the Authority (including but not limited to those of their respective attorneys), and any and all other defaults known to the Trustee (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, the Holders of at least a majority in aggregate principal amount of the Bonds then Outstanding, by written notice to the Authority and to 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.

SECTION 7.02. Institution of Legal Proceedings by Trustee. If one or more Events of Default shall happen and be continuing, the Trustee in its discretion may, and upon the written request of the Holders of a majority in aggregate principal amount of the Bonds then Outstanding, and upon being indemnified to its reasonable satisfaction therefor, shall, proceed to protect or enforce its rights or the rights of the Holders of Bonds under the Act or under the Agreement or this Indenture by a suit in equity or action at law, either for the specific performance of any covenant or agreement contained herein, or in aid of the execution of any power herein granted, or by mandamus or other appropriate proceeding for the enforcement of any other legal or equitable remedy as the Trustee shall deem most effectual in support of any of its rights or duties hereunder.

SECTION 7.03. Application of Moneys. Any moneys collected by the Trustee pursuant to Section 7.02 hereof or otherwise held by the Trustee shall be applied in the following order, at the date or dates fixed by the Trustee and, in the case of distribution of such moneys on account of principal, upon presentation of the Bonds, and stamping thereon the payment, if only partially paid, and upon surrender thereof, if fully paid:

First: To the payment of costs and expenses of collection and reasonable compensation to the Trustee for its own services and for the services of counsel, agents and employees by it properly engaged and employed, and all other expenses and liabilities incurred, and for advances and any outstanding sums owed pursuant to Section 8.06 herein, together with interest on such advances at a rate per annum equal to the Bond yield, made pursuant to the provisions of this Indenture.

Second: In case none of the principal of any of the Bonds shall have become due and unpaid, to the payment of interest in default, such payments to be made ratably and proportionately to the persons entitled thereto without discrimination or preference. C-13

Third: In case the principal of any of the Bonds shall have become due by declaration or otherwise and remains unpaid, first to the payment of interest in default and then to the payment of the principal of all Bonds then due and unpaid; in every instance such payment to be made ratably to the persons entitled thereto without discrimination or preference.

Whenever moneys are to be applied pursuant to the provisions of this Section, such moneys shall be applied at such times, and from time to time, as the Trustee shall determine, having due regard to the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future. Whenever the Trustee shall apply such funds, it shall fix the date (which shall be an Interest Payment Date unless the Trustee shall deem another date more suitable) upon which such application is to be made and upon such date interest on the amounts of principal and past due interest to be paid on such date shall cease to accrue.

Subject to Section 5.03 hereof, whenever all principal of and interest on all Bonds have been paid under the provisions of this Section and all fees, expenses and charges of the Trustee and the Authority (including without limitation those of their respective attorneys), any amounts owed under Sections 18(c) and 19 of the Agreement, and the Rebate Requirement, have been paid, any balance remaining in the funds and accounts hereunder shall be paid to the Borrower.

SECTION 7.04. Effect of Delay or Omission to Pursue Remedy. No delay or omission of the Trustee or of any Holder of Bonds to exercise any right or power arising from any default shall impair any such right or power or shall be construed to be a waiver of any such default or acquiescence therein, and every power and remedy given by this Article VII to the Trustee or to the Holders of Bonds may be exercised from time to time, and as often as shall be deemed expedient. In case the Trustee shall have proceeded to enforce any right under this Indenture, and such proceedings shall have been discontinued or abandoned because of waiver or for any other reason, or shall have been determined adversely to the Trustee, then and in every such case the Authority and the Trustee, and the Holders of the Bonds, severally and respectively, shall be restored to their former positions and rights hereunder with respect to the trust estate; and all remedies, rights and powers of the Authority, the Trustee and the Holders of the Bonds shall continue as though no such proceedings had been taken.

SECTION 7.05. Remedies Cumulative. No remedy herein conferred upon or reserved to the Trustee or to any Holder of the Bonds is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity.

SECTION 7.06. Covenant to Pay Bonds in Event of Default. The Authority covenants that, upon the happening of any Event of Default, the Authority will pay, but only out of Revenues, to the Trustee, upon demand, for the benefit of the Holders of the Bonds, the whole amount then due and payable thereon (by declaration or otherwise) for interest or for principal, or both, as the case may be, and all other sums which may be due hereunder or secured hereby, including reasonable compensation to the Trustee and its agents and counsel and any expenses or liabilities incurred by the Trustee hereunder and, its agents and counsel. In case the Authority shall fail to pay the same forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled to institute proceedings at law or in equity in any court of competent jurisdiction to recover judgment for the whole amount due and unpaid, together with costs and reasonable attorneys’ fees, subject, however, to the condition that such judgment, if any, shall be limited to, and payable solely out of, Revenues as herein provided and not otherwise. The Trustee shall be entitled to recover such judgment as aforesaid, either before or after or during the pendency of any proceedings for the enforcement of this Indenture, and the right of the Trustee to recover such judgment shall not be affected by the exercise of any other right, power or remedy for the enforcement of the provisions of this Indenture.

SECTION 7.07. Trustee Appointed Agent for Bondholders. The Trustee is hereby appointed the agent and attorney-in-fact of the Holders of all Bonds Outstanding hereunder for the purpose of filing any claims relating to the Bonds.

SECTION 7.08. Power of Trustee to Control Proceedings. In the event that the Trustee, upon the happening of an Event of Default, shall have taken some action, by judicial proceedings or otherwise, pursuant C-14

to its duties hereunder, whether upon its own discretion or upon the request of the Holders of a majority in aggregate principal amount of the Bonds then Outstanding, it shall have full power, in the exercise of its discretion for the best interests of the Holders of the Bonds, with respect to the continuance, discontinuance, withdrawal, compromise, settlement or other disposal of such action; provided, however, that the Trustee shall not, unless there no longer continues an Event of Default hereunder, discontinue, withdraw, compromise or settle, or otherwise dispose of any litigation pending at law or in equity, if at the time there has been filed with it a written request signed by the Holders of at least a majority in aggregate principal amount of the Bonds Outstanding hereunder opposing such discontinuance, withdrawal, compromise, settlement or other disposal of such litigation.

SECTION 7.09. Limitation on Bondholders’ Right to Sue. Notwithstanding any other provision hereof, no Holder of any Bond issued hereunder shall have the right to institute any suit, action or proceeding at law or in equity, for any remedy under or upon this Indenture, unless (a) such Holder shall have previously given to the Trustee written notice of the occurrence of an Event of Default hereunder; (b) the Holders of at least a majority in aggregate principal amount of all the Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such action, suit or proceeding in its own name; (c) said Holders shall have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; and (d) the Trustee shall have refused or omitted to comply with such request for a period of sixty (60) days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee.

Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Holder of Bonds of any remedy hereunder; 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 enforce any right under this Indenture, except in the manner herein provided, and that all proceedings at law or in equity to enforce any provision of this Indenture shall be instituted, had and maintained in the manner herein provided and for the equal benefit of all Holders of the Outstanding Bonds.

The right of any Holder of any Bond to receive payment of the principal of and interest on such Bond out of Revenues and the funds pledged herein, as herein provided, on and after the respective due dates expressed in such Bond, or to institute suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder, notwithstanding the foregoing provisions of this Section or Section 7.08 hereof or any other provision of this Indenture.

THE TRUSTEE

SECTION 8.01. Duties, Immunities and Liabilities of Trustee.

(A) The Trustee shall perform such duties and only such duties as are specifically set forth in this Indenture. The Trustee shall, during the existence of any Event of Default which has not been cured, exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a reasonable person would exercise or use under the circumstances in the conduct of his or her own affairs.

(B) The Authority may, and upon written Request of the Borrower shall, remove the Trustee at any time unless an Event of Default shall have occurred and then be continuing, and shall remove the Trustee if at any time requested to do so by an instrument or concurrent instruments in writing signed by the Holders of not less than a majority in aggregate principal amount of the Bonds then Outstanding (or their attorneys duly authorized in writing) or if at any time the Trustee shall cease to be eligible in accordance with subsection (E) of this Section, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or its respective property shall be appointed, or any public officer shall take control or charge of the Trustee or of its respective property or affairs for the purpose of rehabilitation, conservation or liquidation, in each case by giving written notice of such removal to the Trustee, as the case may be, and thereupon shall appoint, with the consent of the Borrower, a successor Trustee by an instrument in writing.

(C) The Trustee may at any time resign by giving thirty (30) days’ prior written notice of such resignation to the Authority, the Bondholders by mail at the addresses shown on the Bond registration books C-15

maintained by the Trustee and each Rating Agency then rating the Bonds. Upon receiving such notice of resignation, the Authority shall promptly appoint, with the consent of the Borrower (which consent shall not be unreasonably withheld), a successor Trustee by an instrument in writing.

(D) Any removal or resignation of the Trustee and appointment of a successor thereto shall become effective upon acceptance of appointment by the successor Trustee. If no successor Trustee shall have been appointed and have accepted appointment within forty-five (45) days of giving notice of removal or notice of resignation as aforesaid, the resigning Trustee or any Bondholder (on behalf of himself and all other Bondholders) may petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under this Indenture shall signify its acceptance of such appointment by executing and delivering to the Authority and to its predecessor Trustee a written acceptance thereof, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee herein; but, nevertheless at the Request of the Authority or the request of the successor Trustee, such predecessor Trustee shall execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Trustee all the right, title and interest of such predecessor Trustee in and to any property held by it under this Indenture and shall pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions herein set forth. Upon request of the successor Trustee, the Authority shall execute and deliver any and all instruments as may be reasonably required for more fully and certainly vesting in and confirming to such successor Trustee all such moneys, estates, properties, rights, powers, trusts, duties and obligations. Upon acceptance of appointment by a successor Trustee as provided in this subsection, such successor Trustee shall mail a notice of the succession of such Trustee to the trusts hereunder to the Bondholders at the addresses shown on the bond registration books maintained by the Trustee, to the Borrower and to each Rating Agency then rating the Bonds.

(E) Any Trustee appointed under the provisions of this Indenture shall be a trust company, association, corporation or bank having trust powers, having a principal corporate trust office in California or, if it shall not have a principal corporate trust office in California, having the power under California law to perform all the duties of the Trustee hereunder as evidenced by an opinion of its counsel, having a combined capital (exclusive of borrowed capital) and surplus (or the parent holding company of which has a combined capital and surplus) of at least $50,000,000 and subject to supervision or examination by State or federal authorities. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this subsection (E), the Trustee shall resign immediately in the manner and with the effect specified in this Section.

SECTION 8.03. Rights of Trustee. (A) The recitals of facts herein and in the Bonds contained shall be taken as statements of the Authority, and the Trustee does not assume any responsibility for the correctness of the same or for any statement contained in any offering memorandum or disclosure material prepared in connection with the issuance of the Bonds or make any representations as to the validity or sufficiency of this Indenture, the Agreement or the Bonds, or incur any responsibility in respect thereof, other than in connection with the duties or obligations herein or in the Bonds assigned to or imposed upon it. The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the Bonds. The Trustee shall not be liable in connection with the performance of its respective duties hereunder, except for its own negligence or willful misconduct.

(B) The Trustee shall not be liable for any error of judgment made in good faith unless it shall be proved that such party was negligent in ascertaining the pertinent facts.

(C) The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture. The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty.

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(D) The Trustee shall not be under any obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Bondholders pursuant to the provisions of this Indenture unless such Bondholders shall have offered to the Trustee reasonable (in the sole discretion of the Trustee) security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby.

(E) The Trustee shall not be deemed to have knowledge of any Event of Default or Loan Default Event unless and until a Responsible Officer shall have actual knowledge thereof, or shall have received written notice thereof, at its principal corporate trust office located in Los Angeles, California, or, if there is no such office, at its Principal Office. Except as otherwise expressly provided herein, the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements herein or of any of the documents executed in connection with the Bonds or as to the existence of an Event of Default hereunder.

(F) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of its rights or powers. The Trustee has no obligation or liability to the Bondholders for the payment of the principal of or the interest or redemption premium, if any, on the Bonds.

(G) The Trustee shall not be bound to ascertain or inquire as to the validity or genuineness of any collateral given to or held by it. The Trustee shall not be responsible for the recording or filing of any document relating to this Indenture or of financing statements (or continuation statements in connection therewith) or of any supplemental instruments or documents of further assurance as may be required by law in order to perfect the security interests in any collateral given to or held by it.

(H) The Trustee shall not be concerned with or accountable to anyone for the subsequent use or application of any moneys which shall be released or withdrawn in accordance with the provisions hereof.

(I) The Trustee makes no representation or warranty, express or implied as to the title, value, design, compliance with specifications or legal requirements, quality, durability, operation, condition, merchantability or fitness for any particular purpose for the use contemplated by the Authority or the Borrower of the Project. In no event shall the Trustee be liable for incidental, indirect, special or consequential damages in connection with or arising from the Agreement or this Indenture for the existence, furnishing or use of the Project.

(J) The Trustee agrees to accept and act upon instructions or directions pursuant to this Indenture sent by unsecured e-mail, facsimile transmission or other similar unsecured electronic methods, provided, however, that, the Trustee shall have received an incumbency certificate listing persons designated to give such instructions or directions and containing specimen signatures of such designated persons, which such incumbency certificate shall be amended and replaced whenever a person is to be added or deleted from the listing. If the Borrower elects to give the Trustee e-mail or facsimile instructions (or instructions by a similar electronic method) and the Trustee in its discretion elects to act upon such instructions, the Trustee’s understanding of such instructions shall be deemed controlling. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee’s reliance upon and compliance with such instructions notwithstanding such instructions conflict or are inconsistent with a subsequent written instruction. The Borrower agrees to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Trustee, including without limitation the risk of the Trustee acting on unauthorized instructions, and the risk of interception and misuse by third parties.

(K) From the effective date of this Indenture, the Trustee, or any successor in interest, shall not be considered in breach of or in default in its obligations with respect to any obligations created hereunder or progress in respect thereto, in the event of enforced delay (“unavoidable delay”) in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence, including, but not limited to, acts of God, or of the public enemy, acts of a government, acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources of energy, material or supplies in the open market, litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the Project, malicious mischief, condemnation, and unusually severe weather or delays of C-17

supplies or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee.

SECTION 8.05. Preservation and Inspection of Documents. Until all liability of the Trustee with respect to the moneys hereunder shall have ceased in accordance with Section 10.04 hereof, all documents received by the Trustee under the provisions of this Indenture shall be retained in its possession and shall be subject at all reasonable times to the inspection of the Authority, the Borrower and any Bondholder, and their agents and representatives duly authorized in writing, at reasonable hours, upon reasonable notice and under reasonable conditions.

MODIFICATION OF INDENTURE

SECTION 9.01. Modification without Consent of Bondholders. Subject to the conditions and restrictions in this Indenture contained, the Authority and the Trustee, from time to time and at any time, may enter into an Indenture or Indentures Supplemental Hereto, which Indenture or Indentures thereafter shall form a part hereof, including, without limitation, for one or more of the following purposes, provided that the Authority and the Trustee shall have received the written consent of the Borrower and, in the case of clauses (a), (b), (c), (e) and (g) below, an Opinion of Bond Counsel to the effect that such amendment or modification will not cause interest on the Bonds to be included in the gross income of the Holder thereof for federal income tax purposes and the Trustee shall have received a written representation from the Borrower to the effect that such amendment or modification will not materially and adversely affect the interests of the Holders of the Bonds; provided that, if an Event of Default has occurred and is continuing, the Trustee rather than the Borrower shall make a determination that such amendment or modification will not materially and adversely affect the interests of the Holders of the Bonds (provided that, in making such determination, the Trustee may conclusively rely on written representations of financial consultants or advisors or the opinion or advice of counsel):

(a) to add to the covenants and agreements of the Authority in this Indenture contained, other covenants and agreements thereafter to be observed, or to assign or pledge additional security for the Bonds, or to surrender any right or power herein reserved to or conferred upon the Authority;

(b) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing, correcting or supplementing any defective provision, contained in this Indenture, or in regard to such matters or questions arising under this Indenture as the Authority may deem necessary or desirable and not inconsistent with this Indenture;

(c) to modify, amend or supplement this Indenture or any Indenture Supplemental Hereto in such manner as to permit the qualification hereof or thereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, and, if they so determine, to add to this Indenture or any Indenture Supplemental Hereto such other terms, conditions and provisions as may be permitted by said Trust Indenture Act of 1939, as amended, or similar federal statute;

(d) to provide for the procedures required to permit any Bondholder, at its option, to utilize an uncertificated system of registration of its Bond or to facilitate the registration of the Bonds in the name of a nominee of the Depository in accordance with the provisions of Section 2.09 hereof;

(e) to provide for any additional procedures, covenants or agreements necessary to maintain the exclusion from gross income for federal income tax purposes of the Bonds;

(f) to provide for the procedures required to permit any Bondholder to separate the right to receive interest on the Bonds from the right to receive principal thereof and to sell or dispose of such rights, as contemplated by Section 1286 of the Code; or

(g) in connection with an amendment of the Agreement permitted by Section 6.07 hereof for the purpose of conforming the terms, conditions and covenants of this Indenture to the corresponding or related provisions of such amended Agreement.

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Any Supplemental Indenture authorized by the provisions of this Section 9.01 may be executed by the Authority and the Trustee without the consent of the Holders of any of the Bonds at the time Outstanding, notwithstanding any of the provisions of Section 9.02, but the Trustee shall not be obligated to enter into any such Supplemental Indenture which affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise.

The Trustee shall mail an executed copy of a Supplemental Indenture authorized by this Section 9.01 to the Borrower and the Rating Agencies then rating the Bonds promptly after execution by the Authority and the Trustee.

SECTION 9.02. Modification with Consent of Bondholders. With the written consent of the Borrower and the Holders of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding, the Authority and the Trustee may from time to time and at any time, with an Opinion of Bond Counsel to the effect that such amendment or modification will not cause interest on the Bonds to be included in the gross income of the Holder thereof for federal income tax purposes, enter into an Indenture or Indentures Supplemental Hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any Supplemental Indenture; provided, however, that no such Supplemental Indenture shall (1) extend the fixed maturity of any Bonds or reduce the rate of interest thereon or extend the time of payment of interest, or reduce the amount of the principal thereof or reduce any premium payable on the redemption thereof, or (2) reduce the aforesaid percentage of Holders of Bonds whose consent is required for the execution of such Supplemental Indentures, or (3) extend the time of payment or permit the creation of any lien on the Revenues or the funds pledged herein prior to or on a parity with the lien of this Indenture, or (4) deprive the Holders of the Bonds of the lien created by this Indenture upon the Revenues or the funds pledged herein, in each case, without the consent of the Holders of all the Bonds then Outstanding. Upon receipt by the Trustee of a Certificate of the Authority authorizing the execution of any such Supplemental Indenture, and upon the filing with the Trustee of evidence of the consent of the Borrower and the Bondholders, as aforesaid, the Trustee shall join with the Authority in the execution of such Supplemental Indenture unless such Supplemental Indenture affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such Supplemental Indenture.

It shall not be necessary for the consent of the Borrower and the Bondholders under this Section 9.02 to approve the particular form of any proposed Supplemental Indenture, but it shall be sufficient if such consent shall approve the substance thereof.

Promptly after the execution by the Authority and the Trustee of any Supplemental Indenture pursuant to the provisions of this Section 9.02, the Trustee shall mail a notice, setting forth in general terms the substance of such Supplemental Indenture, to the Borrower and the Bondholders at the addresses shown on the Bond registration books maintained by the Trustee. Any failure of the Trustee to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplemental Indenture.

The Trustee shall mail an executed copy of such Supplemental Indenture and any amendment to the Agreement to the Borrower and the Rating Agencies then rating the Bonds promptly after execution by the Authority, the Trustee, and in the case of the Agreement, the Borrower.

DEFEASANCE

SECTION 10.01. Discharge of Indenture. Bonds may be paid by the Authority in any of the following ways, provided that the Authority also pays or causes to be paid any other sums payable hereunder by the Authority:

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

(b) by depositing with the Trustee, in trust, at or before maturity, money or securities in the necessary amount (as provided in Section 10.03 hereof) to pay or redeem all Bonds Outstanding; or

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If the Authority shall pay all Bonds then Outstanding as provided above and shall also pay or cause to be paid all other sums payable hereunder by the Authority, then and in that case, at the election of the Authority (evidenced by a Certificate of the Authority, filed with the Trustee, signifying the intention of the Authority to discharge all such indebtedness and this Indenture), and notwithstanding that any Bonds shall not have been surrendered for payment, this Indenture and the pledge of Revenues made under this Indenture and all covenants, agreements and other obligations of the Authority under this Indenture shall cease, terminate, become void and be completely discharged and satisfied, except only as provided in Section 10.02 hereof and the obligations set forth in Section 8.06 hereof. In such event, upon Request of the Authority, the Trustee shall cause an accounting for such period or periods as may be requested by the Authority to be prepared and filed with the Authority and shall execute and deliver to the Authority 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 Borrower all moneys or securities or other property held by it pursuant to this Indenture which are not required for the payment or redemption of Bonds not theretofore surrendered for such payment or redemption and which are not required for the payment of fees and expenses of the Trustee or the Authority, the Rebate Requirement or payments required under Sections 18(c) and 19 of the Agreement.

SECTION 10.02. Discharge of Liability on Bonds. Upon the deposit with the Trustee, in trust, at or before maturity, of money or securities in the necessary amount (as provided in Section 10.03 hereof) to pay or redeem any Outstanding Bond, whether upon or prior to the maturity of such Bond or the redemption date of such Bond (provided that, if such Bond is to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in Article IV hereof or provision satisfactory to the Trustee shall have been made for the giving of such notice prior to its maturity or redemption date), then all liability of the Authority in respect of such Bond shall cease, terminate and be completely discharged, except only that thereafter the Holder thereof shall be entitled to payment of the principal of and interest on such Bond by the Authority, and the Authority shall remain liable for such payment but only out of the money or securities deposited with the Trustee as aforesaid for its payment, provided further, however, that the provisions of Section 10.04 hereof shall apply in all events.

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

SECTION 10.03. Deposit of Money or Securities with Trustee. Whenever in this Indenture it is provided or permitted that there be deposited with or held in trust by the Trustee money or securities in the amount necessary to pay or redeem any Bonds, such amount (which may include money or securities held by the Trustee in the funds established pursuant to this Indenture) shall be equal (taking into account income which will accrue from the investment thereof on the date of deposit of such funds but without taking into account any income from the subsequent reinvestment thereof) to the principal amount of such Bonds and all unpaid interest thereon to maturity, except that, in the case of Bonds which are to be redeemed prior to maturity and in respect of which notice of such redemption shall have been given as provided in Article IV hereof or provision satisfactory to the Trustee shall have been made for the giving of such notice, the amount to be deposited or held shall be the principal amount of such Bonds and all unpaid interest thereon to the redemption date, together with the redemption premium, if any, and shall be:

(a) lawful money of the United States of America; or

(b) non-callable notes, bills and bonds issued by the Department of the Treasury (including without limitation (1) obligations issued or held in book-entry form on the books of the Department of the Treasury and (2) the interest component of Resolution Funding Corporation strips for which separation of principal and interest is made by request to the Federal Reserve Bank of New York in book-entry form), United States Treasury Obligations State and Local Government Series and Zero Coupon United States Treasury Bonds;

provided, in each case, that the Trustee shall have been irrevocably instructed (by the terms of this Indenture or by Request of the Authority) to apply such money to the payment of such principal of and interest on C-20

such Bonds and provided, further, that the Authority and the Trustee shall have received (1) an Opinion of Bond Counsel to the effect that such deposit shall not cause interest on the Bonds to be included in the gross income of the Holder thereof for federal income tax purposes and (2) a verification report of a firm of certified public accountants or other financial services firm acceptable to the Authority and the Trustee verifying that the money or securities so deposited or held together with earnings thereon will be sufficient to make all payments of principal of and interest on the Bonds to be discharged to and including the earlier of their maturity date or the date they are to be redeemed.

SECTION 10.04. Payment of Bonds after Discharge of Indenture. Notwithstanding any provision of this Indenture, and subject to applicable escheat laws, any moneys held by the Trustee in trust for the payment of the principal of or interest on any Bonds and remaining unclaimed for one year after the principal of all the Outstanding Bonds has become due and payable (whether at maturity or upon call for redemption or by declaration as provided in this Indenture), if such moneys were so held at such date, or two years after the date of deposit of such moneys if deposited after said date when all of the Bonds became due and payable, shall be repaid to the Borrower free from the trusts created by this Indenture, and all liability of the Trustee with respect to such moneys shall thereupon cease; provided, however, that before the repayment of such moneys to the Borrower as aforesaid, the Trustee shall (upon the Request of the Authority) first mail to the Holders of Bonds which have not yet been paid, at the addresses shown on the registration books maintained by the Trustee, a notice, in such form as may be deemed appropriate by the Trustee, with respect to the Bonds so payable and not presented and with respect to the provisions relating to the repayment to the Borrower of the moneys held for the payment thereof.

MISCELLANEOUS

SECTION 11.01. Liability of Authority Limited to Revenues. Notwithstanding anything in this Indenture or in the Bonds contained, neither the State nor the Authority shall be required to advance any moneys derived from any source other than the Revenues and other assets pledged under this Indenture for any of the purposes in this Indenture mentioned, whether for the payment of the principal of or redemption price of or interest on the Bonds or for any other purpose of this Indenture. The issuance of the Bonds shall not directly or indirectly or contingently obligate the State or any political subdivision thereof to levy or to pledge any form of taxation whatever therefore or to make any appropriation for their payment. Nevertheless, the Authority may, but shall not be required to, advance for any of the purposes hereof any funds of the Authority which may be made available to it for such purposes.

SECTION 11.13. Waiver of Personal Liability. No member, officer, agent or employee of the Authority shall be individually or personally liable for the payment of the principal of or interest on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof; but nothing herein contained shall relieve any such member, officer, agent or employee from the performance of any official duty provided by law or by this Indenture.

SECTION 11.17. Action Not on Business Day. Except as otherwise specifically provided in this Indenture, if any date specified for the payment of any principal of or interest on any Bond or the performance of any act falls on a day which is not a Business Day, such payment or performance shall be made on the next succeeding Business Day with the same effect as if made on such date. In the case of the payment of the principal of or the interest on any Bond which shall be due on a day which is not a Business Day, and such payment is made on the next succeeding Business Day, no additional interest shall accrue as a result of such delayed payment.

CERTAIN PROVISIONS OF THE LOAN AGREEMENT

SECTION 5. Payment of Bonds. (a) The Borrower agrees that it will pay to the Trustee, for the account of the Authority, all sums necessary for the payment of the debt service on the Bonds (the “Base Loan Payments”) as follows:

(i) By the Business Day next preceding each Interest Payment Date and principal payment date (whether at maturity or upon acceleration or prior redemption) with respect to the Bonds and continuing until the principal of and interest on the Bonds shall have been fully paid (or provision for the payment thereof shall have been made as provided in the Indenture), the Borrower shall pay in funds which C-21

will be immediately available as of such time and date, as an installment in repayment of the loan from the Authority under this Agreement, a sum equal to the aggregate amount payable on such date as principal of (whether at maturity, by redemption or upon acceleration as provided in the Indenture) and interest on the Bonds.

(ii) Any amount at the time held by the Trustee in the Bond Fund (including any investment income credited to the Bond Fund pursuant to Section 5.04 of the Indenture) for the payment of debt service on the Bonds shall be credited against the aforesaid Base Loan Payments then required to be made by the Borrower, to the extent such amount is in excess of the amount required for payment of (A) any Bonds theretofore matured or called for redemption and (B) interest accrued to the date of redemption or maturity, in all cases where the Bonds have not been presented for payment.

(iii) Any amount at the time held by the Trustee in any special fund established in connection with any refunding, which amount is available and designated for payment of debt service on the Bonds on such Interest Payment Date, may also, at the election of the Borrower, be credited against such Base Loan Payments.

(b) If on any Interest Payment Date or principal payment date the balance in the Bond Fund is insufficient or unavailable to make required payments of principal of (whether at maturity, by redemption or upon acceleration as provided in the Indenture) and interest due on the Bonds on such date, the Borrower shall forthwith pay any such deficiency to the Trustee for deposit in the Bond Fund.

(i) to the Borrower in accordance with Section 5.02(B) of the Indenture at least six (6) Business Days (so long as such notice will be received by the Borrower by the fifth Business Day) before each Interest Payment Date of the amount, if any, credited or to be credited to the Bond Fund by such next Interest Payment Date and the amount of the Base Loan Payment then due from the Borrower; and

(ii) to the Borrower and the Authority in accordance with Section 5.01(D) of the Indenture if the Borrower fails to make any payment required hereunder by the due date, such notice to be given by telephone, telecopy or telegram followed by written notice.

SECTION 6. Additional Payments. In addition to the Base Loan Payments required to be made by the Borrower, the Borrower shall also pay to the Trustee or to the Authority, as the case may be, the following (the “Additional Payments”):

(a) All taxes and assessments of any type or character charged to the Authority or to the Trustee affecting the amount available to the Authority or the Trustee from payments to be received hereunder or in any way arising due to the transactions contemplated hereby (including taxes and assessments assessed or levied by any public agency or governmental authority of whatsoever character having power to levy taxes or assessments) but excluding any taxes based upon the capital and/or income of the Trustee or any other person other than the Borrower; provided, however, that the Borrower shall have the right to protest any such taxes or assessments and to require the Authority or the Trustee, as the case may be, at the Borrower’s expense, to protest and contest any such taxes or assessments assessed or levied upon them and that the Borrower shall have the right to withhold payment of any such taxes or assessments pending disposition of any such protest or contest unless such withholding, protest or contest would materially adversely affect the rights or interests of the Authority or the Trustee;

(b) The reasonable annual (or other regular) fees and expenses of the Trustee, and all reasonable fees, charges and expenses of the Trustee for any extraordinary services rendered by the Trustee under the Indenture, including without limitation any amounts payable to the Trustee by the Borrower from Additional Payments pursuant to Section 8.06 of the Indenture, as and when the same become due and payable;

(c) The reasonable fees and expenses of such accountants, consultants, attorneys and other experts as may be engaged by the Authority or the Trustee to prepare audits, financial statements or opinions or

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provide such other services as are reasonably required under this Agreement, the Indenture or the Tax Regulatory Agreement;

(d) Annual fees and reasonable expenses of the Authority and any agency of the State selected by the Authority to act on its behalf in connection with the loan to the Borrower under this Agreement, the Bonds, the Indenture or any other documents contemplated hereby or thereby, including without limitation reasonable expenses incurred by the Authority in supervision and inspection of the Borrower and its operations with respect to the use and application of such loans;

(e) Such amounts as may be necessary to satisfy the rebate requirements in accordance with the Tax Regulatory Agreement; and

(f) All amounts due under Section 19 of this Agreement.

Such Additional Payments shall be billed to the Borrower by the Authority or the Trustee from time to time, together with (i) a statement executed by a duly authorized officer or agent of the Authority or the Trustee, as the case may be, stating that the amount billed has been incurred or paid by the Authority or the Trustee for one or more of the above items and (ii) a copy of the invoice or statement for the amount so incurred or paid. Amounts so billed shall be paid by the Borrower within thirty (30) days after receipt of the bill by the Borrower. Payment by the Borrower to either the Authority or the Trustee of the amount so billed by either such party shall fulfill such payment obligation of the Borrower.

SECTION 7. Obligations of the Borrower Unconditional. The obligations of the Borrower to make the Base Loan Payments and Additional Payments and to perform and observe the other agreements on its part contained in this Agreement shall be absolute and unconditional general obligations of the Borrower. Until such time as the principal of and interest on all Bonds shall have been fully paid (or provision for the payment thereof shall have been made as provided in the Indenture), the Borrower (i) will not suspend or discontinue any Base Loan Payments or Additional Payments, (ii) will perform and observe all of its other agreements contained in this Agreement and (iii) will not terminate this Agreement for any cause, including, without limiting the generality of the foregoing, any change in the laws of the United States of America or of the State or any political subdivision of either or any failure of the Authority to perform and observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or connected with this Agreement. This Agreement shall be deemed and construed to be a “net contract,” and the Borrower shall pay absolutely net the Base Loan Payments, Additional Payments and all other payments required hereunder, free of any deductions, without abatement, diminution or set-off other than those herein expressly provided.

SECTION 10. No Liability of the State or the Authority. (a) The Authority shall not be obligated to pay the principal of, and premium, if any, or interest on the Bonds, except from Revenues and other assets pledged under the Indenture. Neither the faith and credit nor the taxing power of the State or of any political subdivision thereof shall be pledged to the payment of the principal of, premium, if any, or the interest on the Bonds. The issuance of the Bonds shall not directly or indirectly or contingently obligate the State or any political subdivision thereof to levy or to pledge any form of taxation whatever therefor or to make any appropriation for their payment. The Authority shall not be liable for any costs, expenses, losses, damages, claims or actions, of any conceivable kind or any conceivable theory, under or by reason of or in connection with this Agreement, the Bonds or the Indenture, except only to the extent amounts are received for payment thereof from the Borrower under this Agreement. Neither the members of the Authority nor any officer, agent or employee thereof nor any person executing the Bonds shall be liable personally on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof.

(b) The Borrower hereby acknowledges that the Authority’s sole source of moneys to repay the Bonds will be provided by the payments made by the Borrower hereunder and other Revenues, together with investment income on certain funds and accounts held by the Trustee under the Indenture, and hereby agrees that if the payments to be made hereunder shall ever prove insufficient to pay all principal of, and premium, if any, and interest on the Bonds as the same shall become due (whether by maturity, redemption, acceleration or otherwise), then upon notice from the Trustee, the Borrower shall pay such amounts as are required from time to time to prevent any deficiency or default in the payment of such principal, premium or interest including, but not limited to, any C-23

deficiency caused by acts, omissions, nonfeasance or malfeasance on the part of the Trustee, the Borrower, the Authority or any third party

SECTION 11. Maintenance of Corporate Existence; Consolidation, Merger, Sale or Transfer Under Certain Conditions. (a) The Borrower covenants and agrees that, so long as any of the Bonds are Outstanding, it will maintain its existence as a nonprofit public benefit corporation qualified to do business in the State and will not dissolve, sell or otherwise dispose of all or substantially all of its assets or consolidate with or merge into another corporation or permit one or more other corporations to consolidate with or merge into it. Notwithstanding the foregoing, the Borrower may, without violating the covenants contained in this Section, consolidate with or merge into another corporation, or permit one or more other corporations to consolidate with or merge into it, or sell or otherwise transfer to another corporation all or substantially all of its assets as an entirety and thereafter dissolve, if:

(i) The surviving, resulting or transferee corporation, as the case may be:

(A) qualifies under the Act as a “participating college”;

(B) assumes in writing, if such corporation is not the Borrower, all of the obligations of the Borrower under this Agreement and the Tax Regulatory Agreement;

(D) is an organization described in Section 501(c)(3) of the Code, or a corresponding provision of the federal income tax laws then in effect;

(ii) The Authority and the Trustee shall have received a Certificate of the Borrower to the effect that the covenants hereunder will be met after such consolidation, merger, sale or transfer; and

(iii) The Trustee and the Authority shall have received an Opinion of Bond Counsel to the effect that such merger, consolidation, sale or other transfer will not cause interest on the Bonds to be included in gross income for federal income tax purposes under Section 103 of the Code.

(b) If a merger, consolidation, sale or other transfer is effected, as provided in this Section, the provisions of this Section shall continue in full force and effect, and no further merger, consolidation, sale or transfer shall be effected except in accordance with the provisions of this Section.

(c) Another entity may also agree to become a co-obligor and jointly and severally liable with the Borrower (without the necessity of merger, consolidation or transfer of assets) under this Agreement if the foregoing provisions (other than (a)(i)(A) of this Section 11) are satisfied. In such event, references in this Agreement to indebtedness of the Borrower shall apply to the combined indebtedness of the Borrower and such other entity, references to the financial condition or results of operation of the Borrower shall apply to the combined financial condition and results of operation of the Borrower and such other entity, and the Borrower and such other entity shall be considered to be the Borrower for all purposes of this Agreement.

SECTION 12. Insurance. (a) So long as any Bonds remain Outstanding, the Borrower will maintain or cause to be maintained with respect to the Facilities, with insurance companies or by means of self- insurance, insurance of such type, against such risks and in such amounts as are customarily carried by private colleges and universities and hospital facilities, as applicable, located in the State of a nature similar to that of the Borrower, which insurance shall include property damage, fire and extended coverage, public liability and property damage liability insurance in amounts estimated to indemnify the reasonably anticipated damage, loss or liability. This Section shall not be construed to require earthquake insurance. The Borrower shall at all times also maintain worker’s compensation coverage as required by the laws of the State.

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(b) If the Authority shall so request in a Request of the Authority, the Borrower shall provide to the Authority summaries or other evidence of its insurance coverage and shall obtain endorsements reasonably requested by the Authority.

SECTION 15. Tax Covenants. (a) The Borrower shall not take any action, or fail to take any action, if such action or failure to take such action would result in the interest on the Bonds not being excluded from gross income for federal income tax purposes under Section 103 of the Code. Without limiting the generality of the foregoing, the Borrower covenants that it shall comply with the requirements of the Tax Regulatory Agreement, which is incorporated herein as if fully set forth herein. This covenant shall survive the payment in full or the defeasance of the Bonds.

(b) In the event that at any time the Borrower is of the opinion that for purposes of this Section it is necessary or helpful to restrict or limit the yield on the investment of any moneys held by the Trustee under the Indenture, the Borrower shall so instruct the Authority and the Trustee in a Request of the Borrower accompanied by an Opinion of Bond Counsel.

(c) Notwithstanding any provisions of this Section, if the Borrower provides to the Trustee and the Authority an Opinion of Bond Counsel to the effect that any specified action required under this Section is no longer required or that some further or different action is required to maintain the exclusion from federal income tax of interest on the Bonds, the Trustee and the Authority may conclusively rely on such opinion in complying with the requirements of this Section and the Tax Regulatory Agreement, and the covenants hereunder shall be deemed to be modified to that extent.

SECTION 16. Other Covenants of the Borrower. The Borrower covenants as follows so long as any Bonds are Outstanding:

(a) Maintenance, Operation and Use of the Project and the Facilities.

(i) The Borrower shall use reasonable efforts to cause the Project to be maintained in good condition and repair, will maintain, operate and use the Project, during the useful life thereof, as an integral part of the Facilities and will not alienate, sell, convey or transfer the Project unless it provides to the Trustee and the Authority an Opinion of Bond Counsel to the effect that such alienation, sale, conveyance or transfer will not cause interest on the Bonds to be included in the gross income of the Holders thereof for federal income tax purposes.

(ii) The Borrower covenants and agrees that it will not restrict the admission of a student based on his or her race or ethnicity and that it will not include in any portion of the Project any facility, place or building used or to be used for sectarian instruction or as a place for religious worship or for any class that includes as part of the instruction information or coursework that promotes or opposes a particular religion or religious beliefs, or any facility, place or building used or to be used primarily in connection with any part of the programs of a school or department of theology or divinity, in each case through the useful life of the facility, place or building. The Authority and its designees shall have the right, but shall not be obligated, to inspect the Borrower’s educational facilities at all reasonable times and following reasonable notice for the purpose of verifying the foregoing and due compliance by the Borrower with its annual certificate of compliance delivered as required by this Agreement and with the Constitutions of the United States and of the State. This covenant shall survive the payment in full or defeasance of the Bonds.

(iii) The Borrower shall operate the Facilities as a postsecondary educational institution, and as hospital and healthcare facilities, as applicable, and shall maintain the Facilities in good repair, working order and condition to achieve this function and otherwise to meet the covenants and obligations contained herein.

(iv) The Borrower shall provide the Authority such information concerning the Project as may be reasonably requested by the Authority.

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(b) Compliance with Laws. The Borrower shall comply with all material laws, statutes, ordinances, regulations, covenants, conditions and restrictions now or hereafter affecting the Project, the Borrower or the operations thereof, and it will not commit, suffer or permit any act to be done in violation of any law, ordinance or regulation, except, in each case, where such noncompliance or act would not have a material adverse effect upon the Borrower’s assets, operations or financial condition.

(i) The Borrower shall not, with respect to any ERISA Plan:

(A) fail to meet the minimum funding standard of Section 412 of the Code, whether or not waived in accordance with Section 412(c) of the Code; provided that the failure to meet the minimum funding standards of Section 412 of the Code will not be an “event of default” under Section 17 hereof if the failure to meet the minimum funding standard of Section 412 of the Code is eliminated within ninety (90) days after the date upon which the Borrower becomes aware of such failure to meet such minimum funding standard; or

(B) terminate any such ERISA Plan in a manner which could result in the imposition of a material lien on the property of the Borrower pursuant to Section 4068 of ERISA and which could materially adversely affect the business, earnings, properties or financial condition of the Borrower; or

(C) withdraw from a Multiemployer Plan in a “complete withdrawal” or a “partial withdrawal” as defined in Sections 4203(a) and 4205(a), respectively, of ERISA, if such withdrawal could materially adversely affect the Borrower’s ability to comply at any time with any of the provisions of this Agreement.

(ii) The Borrower shall:

(A) comply in all material respects with the provisions applicable to its ERISA Plans contained in ERISA, the Code and the regulations published thereunder, except to the extent that non-compliance would not have a material adverse effect on the assets and the properties of the Borrower; and

(B) notify the Trustee and the Authority promptly after the Borrower knows or has reason to know (i) of the happening of any material Reportable Event with respect to any ERISA Plan for which the thirty (30) day Notice Requirement has not been waived by the PBGC and, in any event, concurrently with any notification of such material Reportable Event given to the PBGC pursuant to the terms of Section 4043 or (ii) of an assessment against the Borrower or any Common Control Entity of any withdrawal liability to a Multiemployer Plan. Notwithstanding anything herein to the contrary, the Borrower need not notify the Trustee or the Authority of such material Reportable Event or withdrawal liability unless it might materially adversely affect the business, prospects, earnings, properties or condition (financial or otherwise) of the Borrower.

For purposes of this paragraph (c) and the representations and warranties of the Borrower contained in paragraph (n) of Section 2, the following terms shall have the following meanings. The term “Multiemployer Plan” has the meaning set forth in Section 4001(a)(3) of ERISA and all rules and regulations promulgated from time to time thereunder. The term “Common Control Entity” means any entity which is a member of a “controlled group of corporations” with, or is under “common control” with, the Borrower as defined in Section 414(b) or (c) of the Code. The term “PBGC” means the Pension Benefit Guaranty Corporation.

(d) Taxes, Assessments, Other Governmental Charges and Utility Charges. The Borrower shall pay and discharge all taxes, assessments, governmental charges of any kind whatsoever, water rates, meter charges and other utility charges which may be or have been assessed or which may have become liens upon the Facilities, and will make such payments or cause such payments to be made, respectively, in due time to prevent any

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delinquency thereon or any forfeiture or sale of the Facilities or any part thereof, provided, however, that the Borrower shall not be required to pay any tax, assessment, rate or charge as herein provided as long as it shall in good faith contest the validity thereof by a proceeding which operates to prevent any forfeiture or sale of the Facilities or any part thereof.

(e) Accreditation. The Borrower shall maintain its accreditation by WASC. The Borrower shall provide to the Authority, within thirty (30) days of receipt thereof, copies of any action letter, sent to the Borrower by each such accrediting body following its review of the report of each team which visited the Borrower’s campus, which apprises the Borrower that such accrediting body is issuing a warning to the Borrower or placing the Borrower on probation.

(f) Notice of Event of Default. The Borrower shall furnish, as soon as practicable and in any event within ten (10) days after it has knowledge thereof, to the Authority and the Trustee notice of any event which constitutes, or which with the giving of notice or the passage of time or both would constitute, an event of default under Section 17 hereof, which notice shall set forth the nature of such event and the action which the Borrower proposes to take with respect thereto.

(g) Continuing Disclosure. So long as any of the Bonds are Outstanding, the Borrower covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Agreement. Notwithstanding any other provision of this Agreement, failure of the Borrower to comply with the Continuing Disclosure Agreement shall not be considered an event of default hereunder and the Trustee shall have no right to accelerate amounts due hereunder as a result thereof; however, the Trustee at the written request of any Participating Underwriter (as defined in the Continuing Disclosure Agreement) or the Holders of at least a majority of the aggregate principal amount in Outstanding Bonds, shall, (but only to the extent the Trustee has been tendered funds in an amount satisfactory to it or it has been otherwise indemnified from and against any loss, liability, cost or expense, including without limitation, fees and expenses of its counsel and agents and additional fees and charges of the Trustee) or any Bondholder or Beneficial Owner may take such actions as may be necessary and appropriate, including seeking specific performance by court order, to cause the Borrower to comply with its obligations under this Section. For purposes of this Section, “Beneficial Owner” means any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes.

(h) Approval of Indenture. The execution of this Loan Agreement shall constitute conclusive evidence of approval of the Indenture by the Borrower. Whenever the Indenture by its terms imposes a duty or obligation upon the Borrower, such duty or obligation shall be binding upon the Borrower to the same extent as if the Borrower were an express party to the Indenture, and the Borrower shall carry out and perform all of its obligations under the Indenture as fully as if the Borrower were a party to the Indenture. Without limiting the foregoing, the Authority may assign its rights under this Agreement as set forth in the Indenture. The Borrower hereby approves the initial appointment under the Indenture of the Trustee.

SECTION 17. Events of Default. The following shall be “events of default” under this Agreement, and the terms “events of default” or “default” shall mean, whenever they are used in this Agreement, any one or more of the following events:

(a) The Borrower fails to make any Base Loan Payment or Additional Payment by its due date; or

(b) The Borrower fails to observe and perform any covenant, condition or agreement on its part to be observed or performed under this Agreement other than as referred to in paragraph (a) above for a period of forty-five (45) days after written notice specifying such failure and requesting that it be remedied is given to the Borrower by the Authority; provided, however, if the failure stated in the notice (other than a failure to pay fees and expenses of the Trustee, which may only be waived by the Trustee) is correctable but cannot be corrected within the applicable period, the Authority will not unreasonably withhold its consent to an extension of such time if corrective action is instituted by the Borrower within the applicable period and diligently pursued until the default is corrected; or C-27

(c) Any of the representations or warranties of the Borrower made herein or in any other document, certificate or writing furnished by the Borrower to the Authority in connection with the application for or the negotiation of this Agreement or the issuance of the Bonds is false or incorrect in any material respect; or

(d) There is an unexcused default by the Borrower under any agreement or instrument to which it is a party relating to the borrowing of money either (i) in failing to pay any installment of principal or interest in an aggregate amount of $5,000,000 or more, which default shall not have been cured, waived or excused within ninety (90) days after the Borrower received notice of such default or (ii) as a result of which indebtedness in an amount of $10,000,000 or more shall have been accelerated and declared to be due and payable prior to its date of maturity; or

(e) The Borrower applies for or consents to the appointment of any receiver, trustee, or similar officer for itself or for all or any substantial part of its property or admits in writing its inability to pay its debts as they mature; or such a receiver, trustee or similar officer is appointed without the application or consent of the Borrower and such appointment continues undischarged for a period of sixty (60) days; or the Borrower institutes (by petition, application, answer, consent or otherwise) any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceeding relating to it under the laws of any jurisdiction; or any such proceeding is instituted (by petition, application or otherwise) against the Borrower and remains undismissed for a period of sixty (60) days; or the Borrower makes a general assignment for the benefit of creditors; or

(f) An Event of Default shall have occurred under the Indenture, other than an Event of Default described in Section 7.01(c) or (d) of the Indenture.

SECTION 18. Remedies on Default. (a) In the event any of the Bonds shall at the time be Outstanding and unpaid (and provision for the payment thereof shall not have been made as provided in the Indenture) and any event of default referred to in Section 17 hereof shall have happened and be continuing, the Authority or the Trustee may take any one or more of the following remedial steps:

(i) The Authority or the Trustee may, at its option, declare all installments of Base Loan Payments payable for the remainder of the term of this Agreement to be immediately due and payable, whereupon the same shall become immediately due and payable.

(ii) The Authority or the Trustee may take whatever action at law or in equity may appear necessary or desirable to collect the payments then due and thereafter to become due hereunder, whether on the stated due date or by declaration of acceleration or otherwise, for damages or for specific performance or otherwise to enforce performance and observance of any obligation, condition or covenant of the Borrower under this Agreement.

The term “all installments” shall mean an amount equal to the entire principal amount of the then Outstanding Bonds, together with all interest accrued or to accrue on the Bonds on and to the acceleration payment date and (less moneys available for such purpose then held by the Trustee) plus any other payments due or to become due under this Agreement, including, without limitation, any unpaid fees and expenses of the Authority, the Trustee and any paying agents of the Bonds which are then due or will become due prior to the time that the Bonds are paid in full and the trust established by the Indenture is terminated.

(b) No remedy herein conferred upon or reserved to the Authority or the Trustee is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement or now or hereafter existing at law or in equity or by statute. No delay in exercising or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right or power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Authority or the Trustee to exercise any remedy reserved to it by this Section, it shall not be necessary to give any notice, other than such notice as may be herein expressly required. The Trustee shall be deemed a third party beneficiary of all covenants and conditions herein contained.

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(c) In the event the Borrower should default under any of the provisions of this Agreement and the Authority or the Trustee should employ attorneys or incur other expenses for the collection of the payments due under this Agreement or the enforcement of performance or observance of any obligation or agreement on the part of the Borrower herein contained, the Borrower agrees that it will on demand therefor pay to the Authority or the Trustee the reasonable fee of such attorneys and such other reasonable expenses so incurred by the Authority or the Trustee.

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APPENDIX D

PROPOSED FORM OF OPINION OF BOND COUNSEL

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APPENDIX D

[PROPOSED FORM OF OPINION OF BOND COUNSEL] August 29, 2012 California Educational Facilities Authority 915 Capitol Mall, Room 590 Sacramento, California 95814

Ladies and Gentlemen:

We have examined a record of proceedings relating to the issuance of $41,595,000 Revenue Bonds (University of Southern California), Series 2012A (the “Bonds”) of the California Educational Facilities Authority (the “Authority”), a public instrumentality of the State of California.

The Bonds are issued under and pursuant to the provisions of the California Educational Facilities Authority Act of the State of California, comprising Chapter 2 of Part 59 of Division 10 of Title 3 (commencing with Section 94100) of the Education Code of the State of California (the “Act”), and an Indenture, dated as of August 1, 2012 (the “Indenture”), between the Authority and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). The Indenture provides that the Bonds are issued for the purpose of making a loan of the proceeds thereof to the University of Southern California (the “University”) pursuant to a Loan Agreement, dated as of August 1, 2012 (the “Loan Agreement”), between the Authority and the University. The University has agreed in the Loan Agreement, among other things, to make payments to the Authority in the amounts and at the times stated therein that will be applied to pay the principal of and interest on the Bonds when due. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture.

In such connection, we have reviewed the Indenture, the Loan Agreement, the Tax Regulatory Agreement dated the date hereof (the “Tax Regulatory Agreement”), executed by the Authority and the University, opinions of counsel to the University, certificates of the Authority, the Trustee, the University and others, and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein.

We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the Authority. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents, and of the legal conclusions contained in the opinions, referred to herein. We have not undertaken to verify through independent investigation the accuracy of the representations made in the foregoing documents.

We call attention to the fact that the rights and obligations under the Bonds, the Indenture, the Loan Agreement and Tax Regulatory Agreement and their enforceability may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against public entities in the State of California. We express no opinion with respect to any indemnification, contribution, penalty, choice of law, choice of forum or waiver provisions contained in the foregoing documents, nor do we express any opinion with respect to the state or quality of title to or interest in any of the real or personal property described in or subject to the lien of the Indenture or the Loan Agreement or the accuracy or sufficiency of the description contained therein of, or the remedies available to enforce liens on, any

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such property. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Bonds and express no opinion with respect thereto.

The Bonds are dated their date of delivery, bear interest from their date at a rate equal to 5.00% per annum, payable on April 1 and October 1, commencing on October 1, 2012, and mature on October 1, 2023 in the aggregate principal amount of $41,595,000. The Bonds are in the form of fully-registered bonds in denominations of $5,000 and integral multiples thereof as provided in the Indenture and are numbered separately from R-1 upward in order of issuance.

Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions:

1. The Authority is duly created and validly existing under the provisions of the Act and has good right and lawful authority to utilize proceeds of the Bonds to assist the University in the financing and refinancing of the Project (as defined in the Indenture).

2. The Authority is duly authorized and entitled to issue the Bonds and the same have been duly and validly authorized and issued by the Authority in accordance with the Indenture and the Constitution and statutes of the State of California, including the Act, and the Bonds constitute valid, binding, limited obligations of the Authority, enforceable in accordance with their terms and the terms of the Indenture and entitled to the benefits of the Act and of the Indenture. The Bonds are not a lien or charge upon the funds or property of the Authority except to the extent of the aforementioned pledge. Neither the faith and credit nor the taxing power of the State of California or of any political subdivision thereof is pledged to the payment of the principal of or the interest on the Bonds.

3. The Indenture creates the valid pledge which it purports to create of the Revenues (as defined in the Indenture) and all income and receipts earned on funds held or set aside under the Indenture, subject only to the application thereof to the purposes and on the conditions permitted by the Indenture.

4. The Loan Agreement has been duly executed and delivered by the Authority and, assuming due authorization, execution and delivery by the University, constitutes a valid and legally binding agreement by and between the parties thereto, enforceable in accordance with its terms.

5. The Indenture has been duly executed and delivered by the Authority and, assuming due authorization, execution and delivery by the Trustee, constitutes a valid and legally binding agreement by and between the parties thereto, enforceable in accordance with its terms.

6. Under existing statutes and court decisions and assuming continuing compliance with certain tax covenants described herein, (i) interest on the Bonds is excluded from gross income for Federal income tax purposes pursuant to Section 103 of the Internal Revenue Code of 1986, as amended (the “Code”); and (ii) interest on the Bonds is not treated as a preference item in calculating the alternative minimum tax imposed on individuals and corporations under the Code; such interest, however, is included in the adjusted current earnings of certain corporations for purposes of calculating the alternative minimum tax imposed on such corporations. In rendering our opinion, we have relied on certain representations, certifications of fact, and statements of reasonable expectations made by the Authority, the University, and others in connection with the Bonds, and we have assumed compliance by Authority and the University with certain ongoing covenants to comply with applicable requirements of the Code to assure the exclusion of interest on the Bonds from gross income under Section 103 of the Code.

The Code establishes certain requirements that must be met subsequent to the issuance of the Bonds in order that, for Federal income tax purposes, interest on the Bonds be not included in gross income pursuant to Section 103 of the Code. These requirements include, but are not limited to, requirements relating to the use and expenditure of Bond proceeds, restrictions on the investment of Bond proceeds prior to expenditure and the requirement that certain earnings be rebated to the Federal government. Noncompliance with such requirements may cause interest on the Bonds to become subject to Federal income taxation retroactive to their date of issue, irrespective of the date on which such noncompliance occurs or is ascertained.

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On the date of delivery of the Bonds, the Authority and the University will execute the Tax Regulatory Agreement containing provisions and procedures pursuant to which such requirements can be satisfied. In executing the Tax Regulatory Agreement, the Authority and the University covenant that they will comply with the provisions and procedures set forth therein and that they will do and perform all acts and things necessary or desirable to assure that interest paid on the Bonds will, for Federal income tax purposes, be excluded from gross income.

In rendering the opinion in paragraph 6 hereof, we have relied upon and assumed (i) the material accuracy of the representations, statements of intention and reasonable expectation, and certifications of fact contained in the Tax Regulatory Agreement with respect to matters affecting the status of interest paid on the Bonds, and (ii) compliance by the University with the procedures and covenants set forth in the Tax Regulatory Agreement as to such tax matters.

7. Under existing statutes, interest on the Bonds is exempt from State of California personal income taxes.

Except as stated in paragraphs 6 and 7 above, we express no opinion as to any other Federal, state or local tax consequences arising with respect to the Bonds or the ownership or disposition thereof. We render our opinion under existing statutes and court decisions as of the date hereof, and we assume no obligation to update, revise or supplement this opinion after the date hereof to reflect any action hereafter taken or not taken, or any facts or circumstances, or any change in law or in interpretations thereof, or otherwise, that may hereafter arise or occur, or for any other reason. Furthermore, we express no opinion herein as to the effect of any action hereafter taken or not taken in reliance upon an opinion of counsel other than ourselves on the exclusion from gross income for Federal income tax purposes of interest on the Bonds.

In rendering our opinion, have relied on the opinion of the General Counsel to the University, regarding, among other matters, the current qualification of the University as an organization described in Section 501(c)(3) of the Code. We note that such opinion is subject to a number of qualifications and limitations. Failure of the University to be organized and operated in accordance with the Internal Revenue Service’s requirements for the maintenance of the status of the University as an organization described in Section 501(c)(3) of the Code may result in interest on the Bonds being included in gross income for Federal income tax purposes, possibly from the date of issuance of the Bonds.

We have examined an executed Bond, and in our opinion the form of said Bond and its execution are regular and proper.

Very truly yours,

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APPENDIX E

FORM OF CONTINUING DISCLOSURE AGREEMENT

[THIS PAGE INTENTIONALLY LEFT BLANK] CONTINUING DISCLOSURE AGREEMENT

This Continuing Disclosure Agreement (this “Agreement”) dated as of August 1, 2012, by and between the University of Southern California (the “University”) and The Bank of New York Mellon Trust Company, N.A., as bond trustee (the “Trustee”), under an Indenture, dated as of August 1, 2012 (the “Indenture”), between the California Educational Facilities Authority (the “Authority”) and the Trustee, is executed and delivered in connection with the issuance of the Authority’s $41,595,000 principal amount of Revenue Bonds (University of Southern California), Series 2012A, to be dated their date of delivery (the “Bonds”). The proceeds of the Bonds are to be loaned by the Authority to the University pursuant to a Loan Agreement, dated as of August 1, 2012, between the Authority and the University (the “Loan Agreement”). Capitalized terms used in this Agreement that are not otherwise defined herein (including, without limitation, in Article IV hereof) shall have the meanings ascribed to such terms in the Indenture. The parties agree as follows:

ARTICLE I The Undertaking

Section 1.1. Purpose; No Authority Responsibility or Liability. This Agreement shall constitute a written undertaking for the benefit of the holders of the Bonds and is being executed and delivered solely to assist the Underwriters in complying with subsection (b)(5) of the Rule. The University and the Trustee acknowledge that the Authority has undertaken no responsibility, and shall not be required to undertake any responsibility, with respect to any reports, notices or disclosures required by or provided pursuant to this Agreement, and shall have no liability to any person, including any holder of the Bonds, with respect to any such reports, notices or disclosures.

Section 1.2. Annual Financial Information. (a) The University shall provide Annual Financial Information with respect to each fiscal year of the University, commencing with fiscal year ended June 30, 2012, by no later than two hundred and ten (210) days after the end of the respective fiscal year, to the Trustee (such 210th day presently being January 26th of each year). The University shall provide a written certification with each Annual Financial Information furnished to the Trustee to the effect that such Annual Financial Information constitutes the Annual Financial Information required to be furnished by it hereunder. The Trustee may conclusively rely upon such certification of the University and shall have no duty or obligation to review such Annual Financial Information. The Trustee shall provide such Annual Financial Information to (i) the MSRB through the EMMA System, and (ii) the Authority, in each case within two Business Days after receipt by the Trustee.

(b) The Trustee shall provide, in a timely manner, notice of any failure of the University or the Trustee to provide the Annual Financial Information by the date specified in subsection (a) above, in each case to (i) the MSRB through the EMMA System, (ii) the Authority, (iii) the University, and (iv) the University’s General Counsel.

Section 1.3. Audited Financial Statements. If not provided as part of the Annual Financial Information by the date required by Section 1.2 hereof, the University shall provide Audited Financial Statements when and if available, to the Trustee. The Trustee shall provide any such Audited Financial Statements to (i) the MSRB through the EMMA System, and (ii) the Authority, in each case within two Business Days after receipt by the Trustee.

Section 1.4. Significant Event Notices. (a) If a Significant Event occurs, the University shall provide notice of such Significant Event to the Trustee within the time required as set forth in the definition of Significant Event herein. The Trustee shall provide notice of each such Significant Event to the MSRB through the EMMA System no later than one Business Day after receipt by the Trustee.

(b) Any such notice of a defeasance of Bonds shall state whether the Bonds have been escrowed to maturity or to an earlier redemption date and the timing of such maturity or redemption.

(c) The Trustee shall promptly advise the University and the Authority whenever, in the course of performing its duties as Trustee under the Indenture, the Trustee has actual notice of an occurrence which would require the University to provide notice of a Significant Event hereunder; however, the Trustee has no obligation to determine the materiality thereof, if applicable; provided, however, that the failure of the Trustee so to

E-1 advise the University or the Authority shall not constitute a breach by the Trustee of any of its duties and responsibilities under this Agreement or the Indenture.

For purposes of this Agreement, “actual knowledge” shall mean actual knowledge at the corporate trust office of the Trustee by an officer of the Trustee with the responsibility for the matters related to the administration of the Indenture.

Section 1.5. Additional Disclosure Obligations. The University acknowledges and understands that other state and federal laws, including, but not limited to, the Securities Act of 1933 and Rule l0b-5 promulgated under the Securities Exchange Act of 1934, may apply to the University and that, under some circumstances, additional disclosures or other action may be required to enable the University to fully discharge all of its duties and obligations under such laws.

Section 1.6. Additional Information. Nothing in this Agreement shall be deemed to prevent the University from disseminating any other information, using the means of dissemination set forth in this Agreement or any other means of communication, or including any other information in any Annual Financial Information or notice of Significant Event hereunder, in addition to that which is required by this Agreement. If the University chooses to do so, the University shall have no obligation under this Agreement to update such additional information or include it in any future Annual Financial Information or notice of a Significant Event hereunder.

Section 1.7. No Previous Non-Compliance. Except as disclosed in the Preliminary Official Statement dated August 8, 2012, and in the Official Statement dated August 15, 2012, relating to the Bonds (the “Official Statement”), the University represents that it has not failed to comply in any material respect with any previous undertaking in a written contract or agreement specified in paragraph (b)(5)(i) of the Rule.

ARTICLE II Operating Rules

Section 2.1. Reference to Other Documents. It shall be sufficient for purposes of Section 1.2 hereof if the University provides Annual Financial Information by specific reference to documents (i) either (1) provided to the MSRB through the EMMA System or (2) filed with the SEC, or (ii) if such document is a Final Official Statement, available from the MSRB.

Section 2.2. Submission of Information. Annual Financial Information may be provided in one document or multiple documents, and at one time or in part from time to time.

Section 2.3. Significant Event Notices. Each notice of a Significant Event hereunder shall be captioned “Notice of Significant Event” and shall prominently state the title, date and CUSIP numbers of the Bonds.

Section 2.4. Transmission of Information and Notices. Unless otherwise required by law and, in the Trustee’s sole determination, subject to technical and economic feasibility, the Trustee shall employ such methods of information and notice transmission as shall be requested or recommended by the herein-designated recipients of the University’s information and notices.

Section 2.5. Fiscal Year. (a) The University’s current fiscal year is July 1 to June 30, and the University shall promptly notify the Trustee in writing of each change in its fiscal year. The Trustee shall provide such notice to (i) the MSRB through the EMMA System, and (ii) the Authority, in each case within two Business Days after receipt by the Trustee.

(b) Annual Financial Information shall be provided at least annually notwithstanding any fiscal year longer than 12 calendar months.

E-2 ARTICLE III Effective Date, Termination, Amendment, Default and Enforcement

Section 3.1. Effective Date, Termination. (a) This Agreement shall be effective upon the issuance of the Bonds.

(b) The University’s and the Trustee’s obligations under this Agreement shall terminate upon a legal defeasance, prior redemption or payment in full of all of the Bonds.

(c) If the University’s obligations under the Loan Agreement are assumed in full by some other entity, such person shall be responsible for compliance with this Agreement in the same manner as if it were the University, and thereupon the original University shall have no further responsibility hereunder.

(d) This Agreement, or any provision hereof, shall be null and void in the event that (1) the University delivers to the Trustee an opinion of Counsel, addressed to the University, the Authority and the Trustee, to the effect that those portions of the Rule which require this Agreement, or such provision, as the case may be, do not or no longer apply to the Bonds, whether because such portions of the Rule are invalid, have been repealed, or otherwise, as shall be specified in such opinion, and (2) the Trustee delivers copies of such opinion to (i) the MSRB through the EMMA System, and (ii) the Authority. The Trustee shall so deliver such opinion within one Business Day after receipt by the Trustee.

Section 3.2. Amendment. (a) This Agreement may be amended, by written agreement of the parties, without the consent of the holders of the Bonds (except to the extent required under clause (4)(ii) below), if all of the following conditions are satisfied: (1) such amendment is made in connection with a change in circumstances that arises from a change in legal (including regulatory) requirements, a change in law (including rules or regulations) or in interpretations thereof, or a change in the identity, nature or status of the University or the type of business conducted thereby, (2) this Agreement as so amended would have complied with the requirements of the Rule as of the date of this Agreement, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances, (3) the University shall have delivered to the Trustee an opinion of Counsel, addressed to the University, the Authority and the Trustee, to the same effect as set forth in clause (2) above, (4) either (i) the University shall have delivered to the Trustee an opinion of Counsel or a determination by a person, in each case unaffiliated with the Authority or the University (such as bond counsel or the Trustee) and acceptable to the University, addressed to the University, the Authority and the Trustee, to the effect that the amendment does not materially impair the interests of the holders of the Bonds or (ii) the holders of the Bonds consent to the amendment to this Agreement pursuant to the same procedures as are required for amendments to the Indenture with consent of holders of Bonds pursuant to Section 9.02 of the Indenture as in effect on the date of this Agreement, and (5) the Trustee shall have delivered copies of such opinion(s) and amendment to (i) the MSRB through the EMMA System, and (ii) the Authority; provided that the Trustee shall not be obligated to enter into any amendment increasing or affecting its duties or obligations. The Trustee shall so deliver such opinion(s) and amendment within one Business Day after receipt by the Trustee.

(b) In addition to subsection (a) above, this Agreement may be amended by written agreement of the parties, without the consent of the holders of the Bonds, if all of the following conditions are satisfied: (1) an amendment to the Rule is adopted, or a new or modified official interpretation of the Rule is issued, after the effective date of this Agreement which is applicable to this Agreement, (2) the University shall have delivered to the Trustee an opinion of Counsel, addressed to the University, the Authority and the Trustee, to the effect that performance by the University and the Trustee under this Agreement as so amended will not result in a violation of the Rule and (3) the Trustee shall have delivered copies of such opinion and amendment to (i) the MSRB through the EMMA System, and (ii) the Authority. The Trustee shall so deliver such opinion and amendment within one Business Day after receipt by the Trustee.

(c) To the extent any amendment to this Agreement results in a change in the type of financial information or operating data provided pursuant to this Agreement, the first Annual Financial Information provided thereafter shall include a narrative explanation of the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided.

E-3 (d) If an amendment is made to the accounting principles to be followed by the University in preparing its financial statements, the Annual Financial Information for the fiscal year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. Such comparison shall include a qualitative and, to the extent reasonably feasible, quantitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information.

Section 3.3. Default. In the event of a failure of the University to comply with any provision of this Agreement, the rights of the holders of the Bonds to enforce the provisions of this Agreement shall be limited solely to the right, by action in mandamus or for specific performance, to cause the University to comply with obligations under this Agreement. A default under this Agreement shall not be deemed an Event of Default under the applicable Indenture with respect to the Bonds, and the sole remedy under this Agreement in the event of any failure of the University to comply with this Agreement shall be an action to compel performance, and no person or entity shall be entitled to recover monetary damages under this Agreement.

Section 3.4. Benefit: Third-Party Beneficiaries: Enforcement. (a) The provisions of this Agreement shall constitute a contract with and inure solely to the benefit of the holders from time to time of the Bonds, except that beneficial owners of Bonds shall be third-party beneficiaries of this Agreement and shall be deemed to be holders of Bonds for purposes of Section 3.4(b) hereof. The provisions of this Agreement shall create no rights in any person or entity except as provided in this subsection (a).

(b) The obligations of the University to comply with the provisions of this Agreement shall be enforceable in the case of enforcement of obligations to provide financial statements, financial information, operating data and notices, by any holder of Outstanding Bonds, or by the Trustee on behalf of the holders of Outstanding Bonds; provided, however, that the Trustee shall not be required to take any enforcement action except at the direction of the holders of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding, who shall have provided the Trustee with adequate security and indemnity. The holders’ and Trustee’s rights to enforce the provisions of this Agreement shall be limited solely to a right, by action in mandamus or for specific performance, to compel performance of the University’s obligations under this Agreement.

(c) This Agreement shall be construed and interpreted in accordance with the laws of the State, and any suits and actions arising out of this Agreement shall be instituted in a court of competent jurisdiction in the State; provided, however, that to the extent this Agreement addresses matters of federal securities laws, including the Rule, this Agreement shall be construed in accordance with such federal securities laws and official interpretations thereof.

ARTICLE IV Definitions

Section 4.1. Definitions. The following terms used in this Agreement shall have the following respective meanings:

(a) “Annual Financial Information” means, collectively, (i) the financial information and operating data with respect to the University, for each fiscal year of the University, to be provided in any reasonable manner and containing, in substance, such information and data as set forth under the headings “Financial Information – Consolidated Balance Sheet Summary,” “Sponsored Research,” “Investments – Investment Summary,” “Property, Plant and Equipment – Property, Plant and Equipment,” “Applications, Enrollments, Tuition and Financial Aid – Historical Application Pool,” “Applications, Enrollments, Tuition and Financial Aid – Student Enrollments,” “Applications, Enrollments, Tuition and Financial Aid – Undergraduate Tuition Rates,” and the table set forth in the section titled “USC Hospitals” in Appendix A to the Official Statement; and (ii) the information regarding amendments to this Agreement required pursuant to Sections 3.2(c) and (d) of this Agreement. Annual Financial Information shall include Audited Financial Statements, if available, or Unaudited Financial Statements.

The descriptions contained in clause (i) above of financial information and operating data constituting Annual Financial Information are of general categories of financial information and operating data.

E-4 When such descriptions include information that no longer can be generated because the operations to which it related have been materially changed or discontinued, or because information is instead being presented in a different format, a statement to that effect shall be provided in lieu of such information.

(b) “Audited Financial Statements” means the annual financial statements, if any, of the University, audited by the University’s independent public accountants. Audited Financial Statements shall be prepared in accordance with GAAP.

(d) “EMMA System” means the MSRB’s Electronic Municipal Market Access system.

(e) “Final Official Statement” means a “final official statement,” as defined in paragraph (f)(3) of the Rule.

(f) “GAAP” means generally accepted accounting principles as prescribed from time to time by the Financial Accounting Standards Board or any successor to the duties or responsibilities thereof.

(g) “MSRB” means the Municipal Securities Rulemaking Board or any other entity designated or authorized by the SEC to receive reports pursuant to the Rule. Unless otherwise designated by the MSRB or the SEC, filings with the MSRB are to be made through the EMMA System, currently located at http://emma.msrb.org.

(h) “Participating Underwriter” means Morgan Stanley & Co. LLC.

(i) “Rule” means Rule 15c2-12 promulgated by the SEC under the Securities Exchange Act of 1934 (17 CFR Part 240, §240.l5c2-12), as in effect on the date of this Agreement, including any official interpretations thereof issued either before or after the effective date of this Agreement which are applicable to this Agreement.

(i) “SEC” means the United States Securities and Exchange Commission.

(j) “Significant Event” means any of the events listed in paragraphs (1) or (2) below with respect to the Bonds, whether relating to the University or otherwise:

(1) The University shall give, or cause to be given to, the Trustee notice of the occurrence of any of the following events with respect to the Bonds not later than nine (9) business days after the occurrence of such event:

(i) principal or interest payment delinquencies; (ii) tender offers; (iii) defeasances; (iv) rating changes; (v) adverse tax opinions or the issuance by the Internal Revenue Service of proposed or final determinations of taxability or of a Notice of Proposed Issue (IRS Form 5701- TEB); (vi) unscheduled draws on debt service reserves reflecting financial difficulties; (vii) unscheduled draws on credit enhancements reflecting financial difficulties; (viii) substitution of credit or liquidity providers, or their failure to perform; or

E-5 (ix) bankruptcy, insolvency, receivership or similar proceedings of the University, as further described below. Note: for the purposes of the event described in subparagraph (ix) above, the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the University in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the University or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the University. (2) The University shall give, or cause to be given to, the Trustee notice of the occurrence of any of the following events with respect to the Bonds, if material, not later than nine (9) business days after the occurrence of such event:

(i) unless described in subparagraph (1)(v) above, other notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other events affecting the tax status of the Bonds;

(ii) non-payment related defaults;

(iii) modifications to the rights of holders thereof;

(iv) optional, contingent, or unscheduled bond calls;

(v) release, substitution, or sale of property securing repayment of the Bonds;

(vi) appointment of a successor or additional trustee or the change of the name of a trustee; or

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

(k) “Unaudited Financial Statements” means the same as Audited Financial Statements, except that they shall not have been audited.

ARTICLE V Miscellaneous

Section 5.1. Duties, Immunities and Liabilities of Trustee. Article VIII of the Indenture is hereby made applicable to this Agreement as if this Agreement were (solely for this purpose) contained in the Indenture. The Trustee shall be entitled to the protections and limitations from liability afforded to the Trustee thereunder. The Trustee shall have only such duties under this Agreement as are specifically set forth in this Agreement, and the University agrees to indemnify and save the Trustee, 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 reasonable costs and expenses (including reasonable attorneys’ fees) of defending against any claim of liability, but excluding liabilities due to the Trustee’s negligence or willful misconduct in the performance of its duties hereunder. Such indemnity shall be separate from and in addition to that provided to the Trustee under the Indenture. The obligations of the University under this Section shall survive resignation or removal of the Trustee and payment of the Bonds.

E-6 The Trustee shall have no duty or obligation to review the Annual Financial Information. The Trustee may resign from performing the duties hereunder by providing thirty (30) days written notice to the Authority, the University and the University’s General Counsel, provided, however, that the effective date of such resignation is subject to the University’s appointment of a successor trustee. Upon receiving notice of such resignation, the University shall promptly appoint a successor to perform such duties. The Trustee shall be paid compensation by the University for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all reasonable expenses, legal fees and advances made or incurred by the Trustee in the performance of its duties hereunder. Any company succeeding to all or substantially all of the Trustee’s corporate trust business shall be the successor to the Trustee hereunder without the execution or filing of any paper or any further act.

Section 5.2. Counterparts. This 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.

IN WITNESS WHEREOF, the parties have each caused this Continuing Disclosure Agreement to be executed by their duly authorized representatives, all as of the date first above written.

UNIVERSITY OF SOUTHERN CALIFORNIA

By Robert Abeles Senior Vice President, Finance, and Chief Financial Officer

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee

By Authorized Representative

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APPENDIX F

BOOK-ENTRY SYSTEM

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APPENDIX F

BOOK-ENTRY SYSTEM

The information in this section concerning The Depository Company, New York, New York ("DTC") and DTC’s book-entry system has been obtained from sources that the Authority, the University and the Underwriter believe to be reliable, but the Authority, the University and the Underwriter take no responsibility for the accuracy thereof DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of the Bonds of such maturity, and will be deposited with DTC. DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book- entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor's rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for such Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in turn to be recorded on the Direct Participants and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct Participant or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of 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 Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as defaults, and proposed amendment to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the bonds for their benefit has

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agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (or any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC's MMI procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Authority as soon as possible after the record date. The Omnibus Proxy to the Authority assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Payments of principal of and interest on the 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 Authority or the Trustee, on the payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name”, and will be the responsibility of such Participant and not of DTC or its nominee, the Trustee, the University, or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payments of principal of and interest on the Bonds to DTC is the responsibility of the Authority or the Trustee, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct Participants and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the Authority or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, Bond certificates are required to be printed and delivered. The Authority or the University may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered. AS LONG AS CEDE & CO., OR ITS SUCCESSOR AS DTC'S PARTNERSHIP NOMINEE, IS THE OWNER OF THE BONDS, REFERENCES HEREIN TO “OWNERS” OF THE BONDS SHALL MEAN CEDE & CO., AS AFORESAID, AND SHALL NOT MEAN THE BENEFICIAL OWNERS OF THE BONDS. THE BENEFICIAL OWNERS WILL NOT RECEIVE BONDS REPRESENTING THEIR BENEFICIAL OWNERSHIP INTERESTS IN THE BONDS. IT IS ANTICIPATED THAT EACH BENEFICIAL OWNER WILL RECEIVE A WRITTEN CONFIRMATION OF THE OWNERSHIP INTEREST ACQUIRED BY SUCH BENEFICIAL OWNER IN THE BONDS FROM THE PERSON OR ENTITY FROM WHOM SUCH OWNERSHIP INTEREST IS ACQUIRED. The Authority, the University and the Trustee cannot and do not give any assurances that DTC will distribute to Participants, or that Participants or others will distribute payments of principal or interest with respect to the Bonds paid to DTC or its nominee as the registered owner or any redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis or will serve and act in the manner described in this Official Statement. The Authority, the University and the Trustee are not responsible or liable for the failure of DTC or any Participant to make any payment or give any notice to a Beneficial Owner with respect to the Bonds or any error or delay relating thereto. Beneficial Owners of the Bonds may experience some delay in the receipt of distributions of principal of and interest on the Bonds since such distributions will be forwarded by the Trustee to DTC and DTC will credit such distributions to the accounts of the Beneficial Owners either directly or indirectly through Indirect Participants. The Authority and the Trustee shall be entitled to treat Cede & Co. (or any Bondholder in whose name the Bonds are subsequently registered) as the Bondholder for all purposes of the Indenture and any applicable laws, notwithstanding any notice to the contrary received by any such party; and the Authority and the Trustee shall have no responsibility for transmitting payments to, communication with, notifying or otherwise dealing with any Beneficial Owners of the Bonds.

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