will be investedin auditsof ta:r-exempt IRS officials haverecently indicatedthat more resources bondsin the charitableorgarizationsector,with specificreviews of private

use. Recordretention,which is the IRS has particularly emphasized, likely to be an object of scrutiny. The IRS recently sent several hundredpost-issuance compliancequestionnaires nonprofit corporations to that havepreviouslyborrowed pertainto post-issuance compliancerelatingto the Corporation's(i) basis. The questions on a ta:c-exempt record retention,(ii) qualified use of bond-financedproperty, (iii) arbitrageyield restriction and rebate (iv) debt managementpolicies and (v) voluntary compliance and education. IRS requirementso from the first wave of responses, thousands more representatives indicatethat after analyzingresponses will be sent. Although the Corporationbelievesthat its expenditureand investmentof bond proceeds, of use property financed and refinancedwith tax-exemptdebt and record retention practiceshave complied with that of all applicablelaws and regulations, there can be no assurance the issuance surveyswill not leadto that could adverselyaffect the marketvalue of the Bondsor of other outstanding taxan IRS examination exempt indebtedness the Corporation. The Bonds or other tax-exempt obligations issued for the of benefit of the Corporation may be, from time to time, subject to examinationsby the IRS. The Corporation believes that the Bonds and other tax-exemptobligations issued for its benefit properly comply with the tax laws. In addition, Bond Counselwill render an opinion with respectto the taxexemptstatusof the Bonds,as described underthe caption*TAX MATTERS." No ruling with respect to the tax-exemptstatusof the Bonds has been or will be sought from the IRS, however,and opinions of counselare not binding on the IRS or the courts. First Amendment Issues of The Corporationoperates religious orientededucationalinstitution and proceeds the Bonds a by relatedfacilities operated the Corporation. The will be usedto financeand refinancethe educational Corporationhas covenanted that no portion of the proceedsof the Bonds shall be used to finance and instructionor study or as a place refinanceany facility, place or building usedor to be usedfor sectarian with any part of the programsof any school for devotionalactivitiesor religious worship or in connection of or department divinity for the durationof the useful life of the project financedwith the proceeds the of Bonds. The "EstablishmentClause" of the First Amendmentto the United StatesConstitutionhas been institutionsgenerally to interpretedby somecourtsto restrict public financial assistance cer*ainsectarian referred to as "pervasively sectarian" institutions. The California Constitution also contains certain provisionsthat no govemmental societyor for any entity can usepublic fundsto aid any church,sectarian the sectarianpurpose. The United State SupremeCourt has not directly addressed question of whether sectarian"institutionsof the proceeds a of the Establishment Clauserestrictsthe lending to oopervasively tax-exemptof taxable bond issue involving no expenditureof public funds. However, the California the SupremeCourt has recently addressed questionof whetherthe Califomia Constitutionprohibits the institution or the financing of a financingby an agencyof the Stateof California on behalf of a sectarian projectsor a sectarian institution involving no expenditure public funds. The action entitled Califomia of StatewideQommunitiesDevelopmentAuthoritv v. All PersonsIntergstedin the Yalidiff gf,,a Purchase Asreement,40 Cal. 4th 788 (2007) setsforth certaincriteria underwhich bondsmay be issuedto benefit a institution,suchasthe Corporation,without violation of the California Constitution. sectarian If a court were to find the issuanceof the Bonds and the use of the proceedsto finance or refinance the Project described in this Official Statementunconstitutionalunder the federal and/or California Constitution, and if such an adversedecision were to become final, the Bonds could be declaredunenforceable and/orvoid. Suchan adverse decisioncould becomefinal if the Corporationdoes the upon appealbecause adverse not appealthe adversedecisionor if the Corporationwere unsuccessful

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