NEW ISSUE - BOOK-ENTRY-ONLY RATINGS: S&P: AAA Underlying Rating: A+ In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Special Counsel, under existing statutes, regulations, rulings and judicial decisions and assuming the accuracy of certain representations and compliance with certain covenants and requirements discussed herein, interest (and original issue discount) with respect to the Certificates is excluded from gross income for federal income tax purposes, and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Special Counsel, interest (and original issue discount) with respect to the Certificates is exempt from State of Californiapersonal income tax. See "TAX MATTERS" herein with respect to other tax consequences with respect to the Certificates. $25,955,000 2004 CERTIFICATE S OF PARTICIPATION (CAPITAL IMPROV EMENT PROJECTS) Evidencing the Fractional Interests of the Owners Thereof In Lease Payments to be Made by the CITY OF SIMI VALL EY As Rental for Certain Leased Property Pursuant to a Lease/Purchase Agreement With SIMI VALLEY PUBLIC FINANCING AUTHORITY Dated: Delivery Date Due: September 1, as shown below The City of Simi Valley (the "City") 2004 Certificates of Participation (Capital Improvement Projects) (the "Certificates") are being executed and delivered to (i) provide funds for an expansion of, equipping of and certain improvements to the City's Senior Citizens' Center and for the acquisition, construction and equipping of certain public capital improvements related to the construction of a shopping mall to be known as "Simi Valley Town Center" planned within the City or other substitute capital improvements ( collectively, the "Project") (ii) fund a reserve fund forthe Certificates, and (iii) pay the costs of issuance incurred in connection with the execution and delivery of the Certificates. See "DESCRIPTION OF THE PROJECT" herein. The Certificates represent fractional and undivided interests of the Owners in the lease payments (the "Lease Payments") to be made by the City to the Simi Valley Public Financing Authority (the "Authority") under a Lease/Purchase Agreement dated as of Augnst 1, 2004, between the Authority as lessor and the City as lessee (the "Lease") under which the City will lease certain existing assets of the City (the "Leased Property"). See "DESCRIPTION OF THE LEASED PROPERTY" herein. Interest represented by the Certificates is payable semiannually on March 1 and September 1 of each year, commencing on March 1, 2005. The Certificates will be executed and delivered in denominations of $5,000 and any integral multiple thereof. See "THE CERTIFICATES - General" herein. The Certificates will be executed and delivered in book-entry form only and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"), which will act as securities depository for the Certificates. Purchasers of the Certificates will not receive certificates representing their ownership interests in the Certificates purchased. Principal, premium, if any, and interest payments due with respect to the Certificates are payable directly to DTC by BNY Western Trust Company, as Trustee. Upon receipt of payments of principal, premium, if any, and interest, DTC will in turn distribute such payments to the beneficial owners of the Certificates. See APPENDIX G - "DTC BOOK-ENTRY SYSTEM" herein. The Certificates are subject to extraordinary, mandatory sinking fund and optional prepayment prior to maturity, as described herein. See "THE CERTIFICATES - Prepayment" herein. THE CERTIFICATES DO NOT CONSTITUTE AN OBLIGATION OF THE AUTHORITY OR THE CITY FOR WHICH THE AUTHORITY OR THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE AUTHORITY OR THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE OBLIGATION OF THE CITY TO MAKE LEASE PAY MENTS UNDER THE LEASE DOES NOT CONSTITUTE AN OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. NEITHER THE CERTIFICATES NOR THE OBLIGATION OF THE CITY TO MAKE LEASE PAY MENTS CONSTITUTES AN INDEBTEDNESS OF THE AUTHORITY, THE CITY, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. Payment of the principal of and interest with respect to the Certificates when due will be insured by a financial guaranty insurance policy to be issued by Ambac Assurance Corporation simultaneously with the delivery of the Certificates. See "FINANCIAL GUARANTY INSURANCE POLICY" herein. Ambac MATURITY SCHEDUL E Maturity (September 1) CUSIPt: 828626 $11,720,000 Serial Certificates Maturity Principal Interest Maturity Principal Interest (September 1) Amount Rate Yield CUSIP1 (September 1) Amount Rate Yield CUSIP1 2006 $460,000 4.00% 1.55% AQ4 2015 $ 655,000 3.750% 3.87% AZ4 2007 480,000 4.00 1.93 AR2 2016 685,000 4.000 4.00 BAS 2008 495,000 4.00 2.30 ASO 2017 710,000 4.000 4.09 BB6 2009 520,000 4.00 2.65 ATS 2018 740,000 4.000 4.20 BC4 2010 540,000 4.00 3.03 AUS 2019 775,000 5.000 4.30 BD2 2011 560,000 4.00 3.25 AV3 2020 810,000 4.250 4.40 BEO 2012 585,000 4.00 3.46 AWl 2021 845,000 4.375 4.47 BF7 2013 610,000 4.00 3.65 AX9 2014 635,000 4.00 3.77 AY 7 2034 1,615,000 4.750 4.87 BL4 $2,800,000 5.00% Term Certificates due September 1, 2024 Yield 4.65% CUSIPI 828626BJ9 $7,040,000 5.00% Term Certificates due September 1, 2030 Yield 4.85% CUSIPI 828626BK6 $4,395,000 5.00% Term Certificates due September 1, 2033 Yield 4.87% CUSIPI 828626BH3 The purchase of the Certificates involves certainrisks which should be considered by investors. See "RISK FACTORS" for a discussion of certain risk factors that should be considered in addition to the other matters set forthherein. This cover page contains information for quick reference only. It is not a summary of this issue. Potential purchasers must read the entire Official Statement to obtain information essential to making an informed investment decision. The Certificates will be offered when, as and if executed and delivered, and received by the Underwriter, subject to the approval as to their legality by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Special Counsel, and certain other conditions. Certain legal matters will be passed upon for the City and the Authority by the City Attorney, and by Stradling Yocca Carlson & Rauth, a Professional Corporation, as Disclosure Counsel. It is anticipated that the Certificates will be available in book-entry form for delivery to DTC in New York, New York, on or about September 2, 2004. STONE & YOUNGBERG LLC The date of this Official Statement is August 19, 2004. t Copyright 2004, American Bankers Association. CUSIP data herein in provided by Standard & Poor's, CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. The City takes no responsibility for the accuracy of such data. CITY OF SIMI VALLEY

CITY COUNCIL

Bill Davis, Mayor Paul Miller, Mayor Pro Tem Barbra Williamson, Council Member Glen T. Becerra, Council Member Steven T. Sojka, Council Member

CITY OFFICIALS

Mike Sedell, CityManager Brian Gabler, Assistant CityManager Dan Paranick, Deputy CityManager Debbie Solomon, Director of CommunityServices Al Boughey, Director of Environmental Services Steve Elam, Director ofAdministrative Services Mark Layhew, Police Chief Timothy P. Nanson, Director of Public Works David H. Hirsch, Esq., CityAttorney

BOND AND DISCLOSURE COUNSEL

Stradling Y occa Carlson & Rauth, a Professional Corporation Newport Beach, California

TRUSTEE

BNY Western Trust Company Los Angeles, California No dealer, broker, salesperson or other person has been authorized by the City or the Authority to give any information or to make any representations in connection with the offer or sale of the Certificates other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by the City or the Authority. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Certificates by a person in any jurisdiction in which it is unlawful for such person to make such an offer,solicitation or sale.

This Official Statement is not to be construed as a contract with the purchasers or owners of the Certificates. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact.

This Official Statement and the information contained herein are subject to completion or amendment without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or any other parties described herein since the date hereof. These securities may not be sold nor may an offer to buy be accepted prior to the time the Official Statement is delivered in final form. This Official Statement is being submitted in connection with the sale of the Certificatesreferred to herein and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the City. All summaries of documents and laws are made subject to the provisions thereof and do not purport to be complete statements of any or all such provisions.

The Underwriter has provided the following sentencefor inclusion in this OfficialStatement:

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

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 ReformAct 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 similar words. Such forward­ looking statements include, but are not limited to certain statements contained in the information under the captions "CITY FINANCIAL INFORMATION."

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. THE CITY DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. IN EVALUATING SUCH STATEMENTS, POTENTIAL INVESTORS SHOULD SPECIFICALLY CONSIDER THE VARIOUS FACTORS WHICH COULD CAUSE ACTUAL EVENTS OR RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS.

IN CONNECTION WITH THE OFFERING OF THE CERTIFICATES, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE CERTIFICATES TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AND OTHERS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICE STATED ON THE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICE MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER.

THE CERTIFICATES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT AND HA VE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. TABLE OF CONTENTS

INTRODUCTION...... 1 General ...... 1 Security and Sources of Payment for the Certificates...... 1 Certificate Insurance ...... 2 The Certificates...... 2 Prepayment ...... 2 Tax Matters ...... 3 Continuing Disclosure...... 3 Professionals Involved in the Offering ...... 3 CertificateOwners' Risks ...... 3 Miscellaneous ...... 3 Update of Certain Information since the Date of the Preliminary Official Statement ...... 4 DESCRIPTION OF THE PROJECT ...... 4 DESCRIPTION OF THE LEASED PROPERTY ...... 5 ESTIMATED SOURCES AND USES OF FUNDS ...... 6 THE CERTIFICATES ...... 6 General ...... 6 Prepayment ...... 6 Prepayment Procedures ...... 8 SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES ...... 9 General ...... 9 Lease Payments ...... 9 Reserve Fund ...... 10 Additional Payments ...... 10 Insurance ...... 11 Additional Certificates...... 11 CERTIFICATE PAYMENT SCHEDULE ...... 13 FINANCIAL GUARANTY INSURANCE POLICY ...... 14 Payment Pursuant to the Financial Guaranty Insurance Policy ...... 14 Ambac Assurance Corporation ...... 15 Available Information ...... 15 Incorporation of Certain Documents by Reference...... 16 CITY FINANCIAL INFORMATION...... 16 Accounting and Financial Reporting ...... 16 Budget Procedure, Current Budget and Historical Budget Information...... 17 Comparative Change in Fund Balance of the City General Fund ...... 19 Comparative General Fund Balance Sheets of the City ...... 20 Tax Receipts ...... 20 Sales and Use Taxes ...... 21 State of California Motor Vehicle In-Lieu Payments ...... 22 Property Taxes ...... 22 Outstanding General Fund Debt and Lease Obligations ...... 26 Direct and Overlapping Debt ...... 27 Investment of City Funds ...... 27 Insurance ...... 28 Retirement Programs ...... 29 Labor Status ...... 30 LIMIT A TIO NS ON TAX REVENUES ...... 30 Property Tax Rate Limitations - Article XI IIA ...... 30 Appropriation Limitation - Article XI IIB ...... 31 California Constitution Article XI IIC and Article XI IID (Proposition 218) ...... 31 Proposition 62 ...... 32 Future Initiatives ...... 32 State Budgets ...... 33 RISK FACTORS ...... 34 Not a Pledge of Taxes ...... 34 Additional Obligations of the City ...... 35 Default...... 35 Abatement ...... 35 Earthquakes ...... 36 Limitations on Remedies; Bankruptcy ...... 36 Release or Substitution of Property ...... 36 Economic Conditions in California; Impact of State Budget on City ...... 37 THE AUTHORITY ...... 39 TAX MATTERS ...... 39 FINANCIAL STATEMENTS OF THE CITY ...... 41 CERTAIN LEGAL MATTERS ...... 41 LITIGATION ...... 41 RATINGS ...... 41 UNDERWRITING...... 41 CONTINUING DISCLOSURE ...... 42 MISCELLANEOUS ...... 43

APPENDIX A ECONOMIC AND DEMOGRAPHIC INFORMATION REGARDING THE CITY OF SIMI VALLEY ...... A-1 APPENDIXB AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2003...... B-1 APPENDIXC SUMMARY OF PRINCIPALLEGAL DOCUMENTS ...... C-1 APPENDIXD FORM OF LEGAL OPINION...... D-1 APPENDIXE SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY ...... E-1 APPENDIXF FORM OF CONTINUING DISCLOSURE AGREEMENT ...... F-1 APPENDIXG DTC BOOK-ENTRY SYSTEM ...... G-1

ii Regional Location Map Siini Valley, CA Ventura County $25,955,000 2004 CERTIFICATES OF PARTICIPATION (CAPITAL IMPROVEMENT PROJECTS)

Evidencing the Fractional Interests of the Owners Thereof In Lease Payments to be Made by the

CITY OF SIMI VALLEY

As Rental for Certain Leased Property Pursuant to a Lease/Purchase Agreement With SIMI VALLEY PUBLIC FINANCING AUTHORITY

INTRODUCTION

This introduction contains only a brief summary of certain of the terms of the Certificates being offered, and a brief description of the Official Statement. 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") and 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. Capitalized terms used in this Official Statement and not defined elsewhere herein have the meanings given such terms in APPENDIX C- "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS." This OfficialStatement speaks only as of its date, and the information contained herein is subject to change.

General

This Official Statement, including the cover page and the Appendices attached hereto (the "Official Statement"), provides certain information concerning the execution and delivery of the City of Simi Valley 2004 Certificatesof Participation (Capital Improvement Projects) (the "Certificates")in the aggregate principal amount of $25,955,000. The Certificates will be executed and delivered under a Trust Agreement dated as of August 1, 2004 (the "Trust Agreement") by and among the City of Simi Valley (the "City"), the Simi Valley Public Financing Authority (the "Authority") and BNY Western Trust Company, as trustee (the "Trustee"). The Certificates represent fractional interests of the owners thereof (the "Owners") in the lease payments ("Lease Payments") to be made by the City to the Authority under that certain Lease/Purchase Agreement between the Authority, as lessor, and the City, as lessee, dated as of August 1, 2004 (the "Lease"). See "SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES- Lease Payments" herein. The Certificates are being delivered to (i) provide funds for an expansion of, equipping of and certain improvements to the City's Senior Citizens' Center and for the acquisition, construction and equipping of certain public capital improvements related to the construction of a shopping mall to be known as "Simi Valley Town Center" planned within the City or other substitute capital improvements (collectively, the "Project") (ii) fund a reserve fund for the Certificates, and (iii) pay the costs of issuance incurred in connection with the execution and delivery of the Certificates. See "DESCRIPTION OF THE PROJECT" herein. The City and the Project are located in the County of Ventura (the "County").

Security and Sources of Payment for the Certificates

The Certificates are being executed and delivered under the Trust Agreement. The City will lease certain real property and improvements thereon (the "Leased Property") to the Authority under a Site Lease dated as of August 1, 2004, between the City as Lessor, and the Authority, as Lessee (the "Site Lease"). Under the Lease, the Authority will lease the Leased Property back to the City. The Leased Property consists generally of certain existing land and facilities which are currently owned by the City, consisting of the land, building, and improvements related to the wastewater treatment plant of the City (the "Wastewater Treatment

1 Plant"). The City is required under the Lease to pay Lease Payments for the use and possession of the Leased Property, as further described under the caption "DESCRIPTION OF THE LEASED PROPERTY" herein. The City is also required to pay any taxes and assessments and the cost of maintenance and repair of the Leased Property.

Under an Assignment Agreement, dated as of August 1, 2004 (the "Assignment Agreement"), between the Authority and the Trustee, the Authority will assign to the Trustee, for the benefit of the Owners, substantially all of its rights under the Lease, including its rights to receive and collect Lease Payments and prepayments from the City under the Lease and rights as may be necessary to enforce payment of Lease Payments and prepayments. All rights assigned by the Authority under the Assignment Agreement will be administered by the Trustee in accordance with the provisions of the Trust Agreement for the equal and proportionate benefitof all Owners.

The Certificates evidence fractional interests in the right to receive Lease Payments and prepayments thereof to be made by the City to the Authority under the Lease. The Lease Payments are structured to be sufficient to pay, when due, the principal and interest with respect to the Certificates. The City has covenanted in the Lease that it will take such action as may be necessary to include the Lease Payments and other payments due under the Lease in its annual budgets and to make the necessary annual appropriations therefor. The City's obligation to make Lease Payments is subject to abatement in the event of the taking of, damage to or loss of use and possession of the Leased Property. See "RISK FACTORS- Abatement" herein.

The obligation of the City to make Lease Payments does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. Neither the Certificates nor the obligation of the City to make Lease Payments constitutes an indebtedness of the Authority, the City, the State of California or any of its political subdivisions within the meaning of any constitutional or statutory debt limitation or restriction.

Certificate Insurance

Payment of the principal of and interest with respect to the Certificates when due will be insured by a financial guaranty insurance policy to be issued by Ambac Assurance Corporation ("Ambac" or the "Insurer") simultaneously with the delivery of the Certificates. See "FINANCIAL GUARANTY INSURANCE POLICY" and APPENDIX E- "SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY" herein.

The Certificates

Interest represented by the Certificates is payable semiannually on March 1 and September 1 of each year, commencing on March 1, 2005 (each an "Interest Payment Date"). See "THE CERTIFICATES - General" herein. The Certificates will be executed and delivered in book-entry form only and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"), which will act as securities depository for the Certificates. Individual purchases of the Certificates will be made in book-entry form only. Purchasers of the Certificates will not receive certificates representing their ownership interests in the Certificates purchased. The Certificates will be executed and delivered in the principal amount of $5,000 and integral multiples thereof. Principal, premium, if any, and interest payments due with respect to the Certificates are payable directly to DTC by the Trustee. Upon receipt of payments of principal, premium, if any, and interest, DTC will in turn distribute such payments to the beneficial owners of the Certificates. See "THE CERTIFICATES - General" and APPENDIX G - "DTC BOOK-ENTRY SYSTEM" herein.

Prepayment

The Certificatesare subject to extraordinary, mandatory sinking fund and optional prepayment prior to maturity, as described herein. See "THE CERTIFICATES- Prepayment" herein.

2 Tax Matters

In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California ("Special Counsel"), under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, the interest (and original issue discount) with respect to the Certificates is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Special Counsel, the interest (and original issue discount) with respect to the Certificates is exempt from State of California personal income tax. See "TAX MATTERS" herein.

Continuing Disclosure

The City has covenanted for the benefit of the holders and beneficial owners of the Certificates to provide, or cause to be provided, to each nationally recognized municipal securities information repository and any public or private repository or entity designated by the State as a state repository for purposes of Rule 15c2-12(b)(5) (the "Rule") adopted by the Securities and Exchange Commission (each, a "Repository") certain annual financial information and operating data and, in a timely manner, notice of certain material events. These covenants have been made in order to assist the Underwriter in complying with the Rule. See "CONTINUING DISCLOSURE" and APPENDIX F - "FORM OF CONTINUING DISCLOSURE AGREEMENT" herein for a description of the specific nature of the annual report and notices of material events and a summary description of the terms of the disclosure agreement under which such reports are to be made.

Professionals Involved in the Offering

BNY Western Trust Company, Los Angeles, California, will act as Trustee with respect to the Certificates. The Certificates will be delivered subject to the approval as to their legality by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Special Counsel. Certain legal matters will be passed upon for the City and the Authority by the City Attorney and by Stradling Y occa Carlson & Rauth, a Professional Corporation, Newport Beach, California, Disclosure Counsel. The City's financial statements for the fiscal year ended June 30, 2003 included as APPENDIX B hereto have been audited by Diehl, Evans & Company, LLP, Certified Public Accountants and Consultants, Irvine, California (the "Auditor"). See APPENDIXB - "AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2003" herein. The City's financial statements are included within this Official Statement with the approval of the Auditor. However, the Auditor has not performed any post-audit of the financial condition of the City.

Certificate Owners' Risks

Certain events could affect the ability of the City to make the Lease Payments when due. See "RISK FACTORS" for a discussion of certain factors that should be considered, in addition to other matters set forth herein, in evaluating an investment in the Certificates.

Miscellaneous

It is anticipated that the Certificates in book-entry form will be available for delivery to DTC on or about September 2, 2004 (the "Delivery Date").

The descriptions herein of the Trust Agreement, the Lease, the Site Lease, the Assignment Agreement and any other agreements relating to the Certificates are qualified in their entirety by reference to such documents, and the descriptions herein of the Certificatesare qualified in their entirety by the form thereof and the information with respect thereto included in the aforementioned documents. See APPENDIX C -

3 "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS" herein. Copies of the documents are on file and available for inspection at the offices of the Trustee at 700 South Flower Street, Suite 500, Los Angeles, California900 I 7 Attention: Corporation Trust.

All capitalized terms used in this Official Statement and not otherwise defined herein have the meanings given such terms in APPENDIXC- "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS."

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 City since the date hereof.

The presentation of information , including tables of receipt of revenues, is intended to show recent historical information and is not intended to indicate future or continuing trends in the financial position or other affairs of the City. No representation is made that past experience, as it might be shown by such financial and other information, will necessarily continue or be repeated in the future.

Update of Certain Information since the Date of the Preliminary OfficialStatement

This Official Statement includes certain changes since the date of the Preliminary Official Statement, including, (i) changes concerning the City's adopted fiscal year 2004-05 budget, and (ii) changes concerning the City's investment policy and permitted investments pursuant to the Trust Agreement. The changes concerning the City's adopted fiscal year 2004-05 budget reflect that the City's adopted fiscal year 2004-05 budget does not include salary increases for swornemployees which have not yet been determined. Once such salary increases are determined, the City will amend the adopted fiscal year 2004-05 budget to include such increases. See the caption "CITY FINANCIAL INFORMATION - Budget Procedure, Current Budget and Historical Budget Information" and Table 1 herein. The changes concerning the City's investment policy and permitted investments under the Trust Agreement reflect the deletion of certain types of investments. See the caption "CITY FINANCIAL INFORMATION -Investment of City Funds" and APPENDIX C - "SUMMARY OF LEGAL DOCUMENTS - DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE TRUST AGREEMENT- DEFINITIONS- Permitted Investments."

DESCRIPTION OF THE PROJECT

The proceeds of the Certificates are expected to be used to finance(1) an expansion of and equipping of certain improvements to the City's Senior Citizens' Center located at 3900 Avenida Simi, and (2) certain public capital improvements relating to the construction of a shopping mall to be known as "Simi Valley Town Center."

The expansion of the City's existing Senior Citizens' Center consists of a 26,061 square foot addition on the west end of the existing Senior Citizens' Center located in the Civic Center complex. The additions consist of a new lobby, classrooms and activity areas and offices. The existing walls, flooring and fixtures of the Senior Citizens' Center will be upgraded and improved. Additionally, the parking lots to the west of the City's Police Station and the Senior Citizens' Center will be expanded by 201 parking spaces. The improvements to the City's Senior Citizens' Center include new landscaping, new walkways, seating areas, amphitheater light fixtures and two fountains within the Senior Citizens' Center campus.

The Simi Valley Town Center is a shopping center planned to be located between First Street and Erringer Road directly north of the 118 Freeway in the City. The Simi Valley Town Center is planned to consist of 630,000 square feet of commercial-retail and entertainment space and is planned to be anchored by Macy's and May Company.

4 The City and the developer of the project (the "Developer") have agreed that the City will pay the cost for certain public capital improvements relating to the acquisition, construction and equipping of the Simi Valley Town Center, including backbone road improvements relating to earthwork, water system facilities, storm drainage facilities, sewer facilities, street lighting facilities, landscaping facilities, retaining walls, traffic signals, street improvements and air quality and other permits and fees and the value of land related to these improvements (collectively, the "Town Center Improvements"). The City expects to disburse Certificate proceeds for the Town Center Improvements in accordance with a Funding, Construction and Acquisition Agreement with Escrow Instructions dated as of February 1, 2004 (the "Acquisition Agreement") between the City and Simi Valley Town and Country, Inc., or its successors or assigns. The City estimates that the City will spend approximately $15.5 million on the Town Center Improvements and that Project Fund moneys will be transferred to other funds and accounts pursuant to the Acquisition Agreement prior to the completion of acquisition of the Town Center Improvements.

The Simi Valley Town Center project involves improvements and financial assistance which might implicate a state law ("SB 114") designed to prevent local agencies from providing financial assistance to big box retailers to induce relocation from one jurisdiction to another within a common market area. (California Government Code Section 53084 and California Health and Safety Code Section 33426.7). The City believes no violation will occur, but if a violation is asserted and found to occur, the impact on the Simi Valley Town Center project could be significant.

Subject to compliance with the covenants of the Lease, the City may substitute alternate items for any portion of the Project at any time, including public capital improvements described in the City's 5-Year Capital Improvement Plan, as amended from time to time. See APPENDIX C - "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS" herein.

DESCRIPTION OF THE LEASED PROPERTY

Under the terms of the Site Lease, the City will lease the Leased Property to the Authority. Under the terms of the Lease, the Authority will concurrently lease the Leased Property back to the City. Under the Lease, the City and the Authority have agreed and determined that the Lease Payments required to be made under the Lease represent the fair rental value of the Leased Property. Under the terms of the Lease, the City may substitute other property for the Leased Property, or any portion thereof, provided that certain conditions set forth in the Lease are met. See APPENDIX C - "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS - DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE LEASE - COVENANTS WITH RESPECT TO THE LEASED PREMISES - Substitution or Release of the Leased Premises" and "RISK FACTORS- Release or Substitution of Property" herein.

The Leased Property consists of the City's Wastewater Treatment Plant located on approximately 34 acres at 600 West Los Angeles Street in the City. The Wastewater Treatment Plant is part of the sanitation system of the City (the "Sanitation System"). The City has operated the Sanitation System as the Simi Valley County Sanitation District since 1970. The District has subsequently dissolved and merged with the City in 1995. The Sanitation System provides for wastewater collection and treatment services in all the incorporated areas within the City, as well as adjacent unincorporated areas.

The Wastewater Treatment Plant includes the following structures and facilities: operations and storage building, four digesters, pretreatment and grit facilities, primary sediment tanks and blower pumps, four secondary sediment tanks, original chlorine contact tank, chlorination and storage building, filter structure, electrical vault, sludge centrifuge, bar screen building, rotating bio contact, west side electric building, two flowequal basins, dewatering facility, and miscellaneous facilities and structures.

5 ESTIMATED SOURCES AND USES OF FUNDS

The following table summarizes the estimated sources and uses of Certificate proceeds:

Sources of Funds Par Amount of Certificates $ 25,955,000.00 Net Premium 386,593.85 Total Sources $ 26,341,593.85

Uses of Funds Project Fund $ 23,985,200.00 Reserve Fund 1,656,268.76 Underwriter's Discount 168,707.50 Insurance Premium<1 l 352,959.21 Cost of Issuance<2l 178 458.38 Total Uses $ 26,341,593.85

(1) Includes the Ambac commitment extension feewhich will be reimbursed to City forthe advance in June, 2004. (2) Includes Special Counsel fees,Disclosure Counsel fees,printing costs, and other issuance costs.

THE CERTIFICATES

General

The Certificates will be executed and delivered in the form of fully registered Certificates in principal amounts of $5,000 each or any integral multiple thereof. The Certificates will be dated the Delivery Date and mature on September 1 in the years set forth on the cover page hereof. Each Certificate will be payable with respect to interest on March 1 and September 1 of each year, commencing on March 1, 2005 at the respective rates of interest set forth on the inside front cover page hereof.

The Certificates will be executed and delivered in book-entry form only and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"), which will act as securities depository for the Certificates. Individual purchases of the Certificates will be made in book-entry form only. Purchasers of the Certificates will not receive certificates representing their ownership interests in the Certificates purchased. Principal, premium, if any, and interest payments due with respect to the Certificates are payable directly to DTC by the Trustee. Upon receipt of payments of principal, premium, if any, and interest, DTC will in turn distribute such payments to the beneficial owners of the Certificates. See APPENDIX G- "DTC BOOK-ENTRY SYSTEM" herein.

Prepayment

Extraordinary Prepayment. The Certificates are subject to prepayment prior to their respective maturity dates on any date, in whole or in part, from Net Proceeds of insurance or condemnation awards which the Trustee shall deposit in the Prepayment Fund as provided in the Lease at least 45 days prior to the date fixed for prepayment, at a prepayment price equal to the principal amount thereof together with accrued interest to the date fixed for prepayment, without premium.

Optional Prepayment. The Certificates maturing on or after September 1, 2015 are subject to prepayment prior to maturity in whole or in part on any date on or after September 1, 2014 at the option of the City, in the event the City exercises its option under the Lease to prepay all or a portion of the principal component of the Lease Payments, at a prepayment price of par, plus accrued interest to the date fixed for prepayment, without premium.

6 In the event the City gives notice to the Trustee of its intention to exercise such option, but fails to deposit with the Trustee on or prior to the prepayment date an amount equal to the prepayment price, the City will continue to pay the Lease Payments as if no such notice had been given.

MandatorySinking Fund Prepayment. The Certificates maturing September 1, 2024 (the "2024 Term Certificates") will be subject to prepayment in part by lot, on September 1 in each of the following years from sinking account payments as set forth below at a prepayment price equal to the principal amount thereof to be prepaid, without premium; provided, however, that if some but not all of the 2024 Term Certificates have been prepaid pursuant to an optional or extraordinary prepayment, the total amount of all future sinking account payments will be reduced pro rata by the aggregate principal amount of the 2024 Term Certificates so prepaid. In addition, in lieu of prepayment thereof, the 2024 Term Certificates may be purchased by the City and tendered to the Trustee pursuant to the provisions of the Trust Agreement.

CertificatesMaturing September 1, 2024

Sinking Fund Prepayment Date (September 1) Sinking Account Prepayment 2022 $885,000 2023 935,000 2024* 980,000

* Final maturity.

The Certificates maturing September 1, 2030 (the "2030 Term Certificates") will be subject to prepayment in part by lot, on September 1 in each of the following years fromsinking account payments as set forth below at a prepayment price equal to the principal amount thereof to be prepaid, without premium; provided, however, that if some but not all of the 2030 Term Certificates have been prepaid pursuant to an optional or extraordinary prepayment, the total amount of all future sinking account payments will be reduced pro rata by the aggregate principal amount of the 2030 Term Certificates so prepaid. In addition, in lieu of prepayment thereof, the 2030 Term Certificates may be purchased by the City and tendered to the Trustee pursuant to the provisions of the Trust Agreement.

CertificatesMaturing September 1, 2030

Sinking Fund Prepayment Date (September 1) Sinking Account Prepayment 2025 $1,030,000 2026 1,085,000 2027 1,140,000 2028 1,200,000 2029 1,260,000 2030* 1,325,000

* Final maturity.

The Certificates maturing September 1, 2033 (the "2033 Term Certificates") will be subject to prepayment in part by lot, on September 1 in each of the following years fromsinking account payments as set forth below at a prepayment price equal to the principal amount thereof to be prepaid, without premium; provided, however, that if some but not all of the 2033 Term Certificates have been prepaid pursuant to an optional or extraordinary prepayment, the total amount of all future sinking account payments will be reduced pro rata by the aggregate principal amount of the 2033 Term Certificates so prepaid. In addition, in lieu of

7 prepayment thereof, the 2033 Term Certificates may be purchased by the City and tendered to the Trustee pursuant to the provisions of the Trust Agreement.

CertificatesMaturing September 1, 2033

Sinking Fund Prepayment Date (September 1) Sinking Account Prepayment 2031 $1,390,000 2032 1,465,000 2033* 1,540,000

* Final maturity. Prepayment Procedures

Whenever provision is made forthe optional prepayment of Certificates and less than all Outstanding Certificates are called for prepayment, the Trustee shall select Certificates for optional prepayment from among maturities selected by the City and by lot within any maturity. For extraordinary prepayment of Certificates, the Trustee will select Certificates for prepayment pro rata among maturities and by lot within any maturity and for mandatory sinking account prepayment by lot.

Notice of prepayment will be mailed by first-class mail, postage prepaid, not less than 30 nor more than 60 days prior to the prepayment date to the respective Owners of any Certificates designated for prepayment at their addresses appearing on the Certificate registration books, and will be sent by first class mail or delivery service, postage prepaid, or by telecopy or by such other method acceptable to such institutions, to the Municipal Securities Depositories (as defined in the Trust Agreement) and to the Information Services (as defined in the Trust Agreement) which the City will designate to the Trustee. Neither failure to receive such notice nor any defect in any notice so mailed will affect the sufficiency of the proceedings for the prepayment of such Certificates. Such notice will specify: ( a) the prepayment date, (b) the prepayment price, ( c) if less than all of the Outstanding Certificatesare to be prepaid, the Certificate numbers (and in the case of partial prepayment, the respective principal amounts), (d) the CUSIP numbers of the Certificates to be prepaid, (e) the place or places where the prepayment will be made, (f) the original date of execution and delivery of the Certificates, (g) any other descriptive information regarding the Certificates needed to identify accurately the Certificates being prepaid. Such notice will further state that on the specified date there will become due and payable upon each Certificateto be prepaid, the portion of the principal amount of such Certificate to be prepaid, together with interest accrued to said date and that fromand after such date, provided that moneys therefor have been deposited with the Trustee, interest with respect thereto will cease to accrue and be payable. Provided, in the case of optional redemption, if the City fails to deliver the prepayment price on or before the specifieddate, the optional call shall be deemed revoked and of no further effect, and the Certificateswill continue to be payable as if no such notice had been given.

So long as DTC is the registered Owner of the Certificates, all such notices will be provided to DTC as the Owner, without respect to the beneficial ownership of the Certificates. See APPENDIX G - "DTC BOOK-ENTRY SYSTEM" herein.

Notice having been given to the Owners of any Certificates being prepaid, and the moneys for the prepayment (including the interest to the applicable date of prepayment), having been set aside in the Prepayment Fund, the Certificates will become due and payable on the date of prepayment, and upon presentation and surrender thereof at the Principal Office of the Trustee such Certificates will be paid at the prepayment price with respect thereto, plus interest accrued and unpaid to the date of prepayment.

8 If, on the date of prepayment moneys for the prepayment of all the Certificates to be prepaid, together with interest to the date of prepayment, are held by the Trustee so as to be available therefor on such date of prepayment, and, if notice of prepayment thereof has been given as described above, then, from and after the date of prepayment, interest with respect to the Certificates to be prepaid will cease to accrue and become payable. All moneys held by or on behalf of the Trustee forthe prepayment of Certificateswill be held in trust for the account of the Owners of the Certificates so to be prepaid, without liability for interest thereon.

SECURITY AND SOURCES OF PAYMENT FOR THE CERTIFICATES

Neither the Certificates nor the obligation of the City to make Lease Payments constitutes an obligation of the City for which the City is obligated to levy or pledge, or for which the City has levied or pledged, any form of taxation. Neither the Certificates nor the obligation of the City to make Lease Payments constitutes an indebtedness of the Authority, the City, the State of California or any of its political subdivisions within the meaning of any constitutional limitation or violates any statutory debt limitation or restriction.

General

Each Certificaterepresents a fractionalinterest in the Lease Payments and prepayments to be made by the City to the Trustee under the Lease. The City is obligated to pay Lease Payments from any source of legally available funds, and has covenanted in the Lease to include all Lease Payments coming due in its annual budgets and to make the necessary annual appropriations therefor. The Authority, under the Assignment Agreement, has assigned all of its rights under the Lease ( excepting certain rights as specified therein), including the right to receive Lease Payments and prepayments, to the Trustee for the benefit of the Owners. By three Business Days (as defined in the Trust Agreement) prior to March 1 and September 1, the City must pay to the Trustee a Lease Payment (to the extent required under the Lease) which is expected to equal the amount necessary to pay the principal and interest with respect to the Certificates on the next succeeding Interest Payment Date.

The City's obligation to make Lease Payments will be abated in whole or in part, in the event of, and to the extent of, substantial interference with use and possession of the Leased Property arising from damage, destruction, title defect or taking by eminent domain or condemnation of the Leased Property. Abatement would not constitute a default under the Lease and the Trustee would not be entitled in such event to pursue remedies against the City. See "RISK FACTORS- Abatement" herein.

Under the Lease, the City agrees to pay certain taxes, assessments, utility charges, and insurance premiums charged with respect to the Leased Property and the Certificates and fees and expenses of the Trustee. The City is responsible for repair and maintenance of the Leased Property during the term of the Lease. The City may at its own expense in good faith contest such taxes, assessments and utility and other charges if certain requirements set forth in the Lease are satisfied, including obtaining an opinion of counsel that the Leased Property will not be subjected to loss or forfeiture.

Should the City default under the Lease, the Trustee, as assignee of the Authority, may terminate the Lease and re-lease the Leased Property or may retain the Lease and hold the City liable for all Lease Payments thereunder on an annual basis. Under no circumstances will the Trustee have the right to accelerate Lease Payments. See "RISK FACTORS- Default" herein.

Lease Payments

Subject to the provisions of the Lease regarding abatement in the event of loss of use and possession of any portion of the Leased Property (see "RISK FACTORS - Abatement" herein) and prepayment of Lease Payments (see the provisions relating to prepayment under the caption "THE CERTIFICATES" above), the City agrees to pay to the Authority, its successors and assigns, as annual rental for the use and possession of

9 the Leased Property, the Lease Payments to be due and payable three Business Days (as defined in the Trust Agreement) prior to March 1 and September 1 of each year (each, a "Lease Payment Date").

Any monies held in the Lease Payment Fund on any Lease Payment Date ( other than amounts resulting from the prepayment of the Lease Payments in part but not in whole pursuant to the Lease and other amounts required for payment of past due principal or interest with respect to any Certificates not presented for payment) shall be credited to the payment of Lease Payments due and payable on such Lease Payment Date.

The Trust Agreement requires that Lease Payments be deposited in the Lease Payment Fund maintained by the Trustee. Under the Trust Agreement, on March 1 and September 1 of each year, commencing March 1, 2005, the Trustee will apply such amounts in the Lease Payment Fund as are necessary to make interest and principal payments, respectively, with respect to the Certificatesas the same shall become due and payable, in the amounts specifiedin the Lease.

Reserve Fund

A Reserve Fund is established by the Trust Agreement which is to be maintained in an amount equal to the least of (i) maximum aggregate annual Lease Payments payable under the Lease in any Certificate Year (exclusive of Lease Payments attributable to Certificates that have been defeased), (ii) 125% of the average annual aggregate Lease Payments (in any Certificate Year) then payable under the Lease (exclusive of Lease Payments attributable to Certificates that have been defeased), or (iii) 10% of the face amount of the Certificates and/or the Additional Certificates, as applicable (less original issue discount if in excess of two percent of the stated payment amount at maturity) (the "Reserve Requirement"). The full amount available in the Reserve Fund may be used by the Trustee in the event of abatement or a failure by the City to make Lease Payments when due. Initially, the Reserve Fund is expected to equal maximum annual Lease Payments.

Interest or income received by the Trustee on investment of monies in the Reserve Fund will be retained in the Reserve Fund so long as amounts on deposit in the Reserve Fund are less than the Reserve Requirement. In the event that amounts on deposit in the Reserve Fund exceed the Reserve Requirement, subject to the requirement of transfers to the Rebate Fund, such excess shall be transferred to the Lease Payment Fund one Business Day (as defined in the Trust Agreement) prior to each Lease Payment Date.

The Reserve Requirement, or any portion thereof, may be satisfied by the City by crediting to the Reserve Fund moneys or, with the prior written consent of the Insurer and with notice to S&P, a letter of credit, a bond insurance policy, or any other comparable credit facility or any combination thereof which in the aggregate make funds available in the Reserve Fund in an amount equal to the Reserve Requirement; however, the long-term unsecured debt or claim-paying ability, as the case may be, of the provider of any such letter of credit, bond insurance policy or any other comparable credit facility, must have a rating of at least no less than the current rating on the Certificates and a maturity date equal to the final maturity date of the Certificates or provide fora drawing, in full, in the event of a nonrenewal of any such instrument with a shorter maturity date.

If at any time the balance in the Reserve Fund shall be reduced below the Reserve Requirement, the first payments of Lease Payments thereafter payable by the City and not needed to pay interest and principal components of Lease Payments payable to the Owners on the next Interest Payment Date shall be used to first, reimburse the provider of any insurance policy, letter of credit or comparable credit facility for any repayment obligation owing thereto for any draw on an insurance policy, letter of credit or comparable credit facility credited to the Reserve Fund and second, to increase the balance in the Reserve Fund to the Reserve Requirement.

Additional Payments

Under the Lease, the City is to pay such amounts ("Additional Payments") as are required for the payment of all administrative costs of the Authority relating to the Leased Property or the Certificates,

10 including, without limitation, all expenses, compensation and indemnification of the Trustee payable by the City under the Trust Agreement, taxes of any sort whatsoever payable by the Authority as a result of its leasehold interest in the Leased Property or undertaking of the transactions contemplated in the Lease or in the Trust Agreement, fees of auditors, accountants, attorneys or engineers, any and all amounts due to the Insurer and all other necessary administrative costs of the Authority or charges required to be paid by it in order to comply with the terms of the Certificates or of the Trust Agreement, including premiums on insurance required to be maintained by the Lease or to indemnify the Authority and its officersand directors.

Insurance

Under the Lease, the City will obtain an ALTA title policy (with western regional exceptions) on the Leased Property in an amount equal to the aggregate principal component of unpaid Lease Payments. The Lease also requires that the City maintain rental interruption insurance to insure against loss of Lease Payments caused by loss or damage to the Leased Property caused by perils covered under the City's casualty insurance in an amount not less than the maximum remaining scheduled Lease Payments in any future 24- month period. The City is obligated to obtain a standard comprehensive general public liability and property damage insurance policy or policies and workers' compensation insurance. See "CITY FINANCIAL INFORMATION - Insurance" and APPENDIX C - "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS - DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE LEASE - INSURANCE".

The proceeds of any rental interruption insurance will be deposited to (i) the Reserve Fund to make up any deficiency therein and (ii) in the Lease Payment Fund to be credited towards the payment of the Lease Payments in the order in which such Lease Payments become due and payable. The Lease requires the City to apply the Net Proceeds of any insurance award either to replace or repair the Leased Premises or to prepay Certificates if certain certifications with respect to the adequacy of the Net Proceeds to make repairs, and the timing thereof, cannot be made. See APPENDIX C - "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS - DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE LEASE - DAMAGE, DESTRUCTION AND EMINENT DOMAIN; USE OF NET PROCEEDS" herein. The amount of Lease Payments will be abated and Lease Payments due under the Lease may be reduced during any period in which by reason of damage, destruction, title defect or taking by eminent domain or condemnation there is substantial interference with the City's use and possession of all or part of the Leased Premises. See "RISK FACTORS- Abatement" herein.

Additional Certificates

The City and the Authority may require the Trustee to execute and deliver from time to time one or more series of Additional Certificatessubject to the following conditions:

(a) The parties shall have executed a supplemental agreement which (i) sets forth the terms and provisions of such Additional Certificates, including the establishment of such funds and accounts, which may be separate and apart from the funds and accounts established for the Certificates, as shall be necessary or appropriate, and (ii) requires that prior to the delivery of such Additional Certificates the Reserve Requirement with respect to such Additional Certificates shall be on deposit in the Reserve Fund or in a reserve fund established under such supplemental agreement;

(b) The scheduled principal and interest payable with respect to such Additional Certificatesshall be payable only on Interest Payment Dates applicable to the Certificates;

(c) The Lease shall have been amended, if necessary, to (i) increase or adjust the Lease Payments due and payable on each Lease Payment Date to an amount sufficient to pay the principal, premium (if any) and interest payable with respect to all Outstanding Certificates, including all Additional Certificates as and when the same mature or become due and payable (except to the extent such principal, premium and interest

11 may be payable out of moneys then in the Reserve Fund or otherwise on deposit with the Trustee in accordance with the Trust Agreement), (ii) if appropriate, amend the definition of "Leased Premises" to include as part of the Leased Premises all or any portion of additions, betterments, extensions, improvements or replacements, or such other real or personal property (whether or not located upon the Leased Premises as such Leased Premises is constituted as of the date of the Trust Agreement), to be financed, acquired or constructed by the preparation, execution and delivery of such Additional Certificates, and (iii) make such other revisions to the Lease as are necessitated by the execution and delivery of such Additional Certificates (provided, however, that such other revisions shall not prejudice the rights of the Owners of Outstanding Certificatesas granted them under the terms of the Trust Agreement);

(d) The Trustee shall have received a certificate of the Authority and the City that (i) no Event of Default ( or any event which, once all notice or grace periods have passed, would constitute an Event of Default) exists and (ii) a certificate of the City that the Lease Payments as increased or adjusted do not exceed in any year the fair rental value of the Leased Premises ( as such term is defined in the amended Lease);

(e) The Trustee shall have received an opinion of Special Counsel addressing certain issues, as required in the Trust Agreement;

(t) The City shall have received the prior written consent of the Insurer with respect to such Additional Certificates; provided that any Additional Certificates being delivered to prepay any outstanding Certificates shall not require the prior written consent of the Insurer if the aggregate maximum annual debt service with respect to the Certificates and the Additional Certificates during any remaining year that the Certificates will be outstanding does not exceed maximum annual debt service with respect to the Certificates prior to such prepayment;

(g) There shall have been delivered to the Trustee an endorsement to or reissuance of the title insurance policy delivered under the Lease providing that the insured amount is at least equal to the aggregate principal amount of all of the Certificates and Additional Certificates outstanding upon the execution and delivery of such Additional Certificates; and

(h) Upon the execution and delivery of such Additional Certificates, the amount on deposit in the Reserve Fund shall be equal to the Reserve Requirement, taking into account the execution of the Additional Certificates.

Upon satisfaction of the foregoing conditions, the Trustee shall cause to be executed and delivered Additional Certificates representing the aggregate principal amount specified in such supplemental agreement, and such Additional Certificates shall be equally and ratably secured with all Certificates, including any Additional Certificates, theretofore prepared, executed and delivered, all without preference, priority or distinction (other than with respect to maturity, payment, prepayment or sinking fund payment (if any)) of any one Certificate, including Additional Certificates, over any other.

12 CERTIFICATE PAYMENT SCHEDULE

Lease Payments are required to be made by the City under the Lease three Business Days (as defined in the Trust Agreement) prior to March I and September I of each year for the use and possession of the Leased Property. The Interest Payment Dates with respect to the Certificates are March l and September 1, commencing March 1, 2005. The aggregate annual amounts of Certificate payments, comprising interest and principal payable to the Owners, are set forth below for each fiscal year ending on June 30 of the years indicated.

Fiscal Year Ending (June30) Principal Interest Total 2005 $ 0.00 $ 598,640.02 $ 598,640.02 2006 0.00 1,203,968.76 1,203,968.76 2007 460,000.00 1,194,768.76 1,654,768.76 2008 480,000.00 1,175,968.76 1,655,968.76 2009 495,000.00 1,156,468.76 1,651 ,468.76 2010 520,000.00 1,136,168.76 1,656, 168.76 201 1 540,000.00 1,114,968.76 1,654,968.76 2012 560,000.00 1,092,968.76 1,652,968.76 2013 585,000.00 1,070,068.76 1,655,068.76 2014 610,000.00 1,046,168.76 1,656,168.76 2015 635,000.00 1,02 1,268.76 1,656,268.76 2016 655,000.00 996,287.51 1,651,287.5 1 2017 685,000.00 970,306.26 1,655,306.26 2018 710,000.00 942,406.26 1,652,406.26 2019 740,000.00 913,406.26 1,653,406.26 2020 775,000.00 879,231.26 1,654,231 .26 2021 810,000.00 842,643.76 1,652,643.76 2022 845,000.00 806,946.88 1,651 ,946.88 2023 885,000.00 766,337.50 1,651,337 .50 2024 935,000.00 720,837.50 1,655,837.50 2025 980,000.00 672,962.50 1,652,962.50 2026 1,030,000.00 622,712.50 1,652,712.50 2027 1,085,000.00 569,837.50 1,654,837.50 2028 1,140,000.00 514,212.50 1,654,2 12.50 2029 1,200,000.00 455,712.50 1,655,7 12.50 2030 1,260,000.00 394,212.50 1,654,212.50 2031 1,325,000.00 329,587.50 1,654,587.50 2032 1,390,000.00 261,7 12.50 1,651,7 12.50 2033 1,465,000.00 190,337.50 1 ,655,337 .50 2034 1,540,000.00 115,212.50 1,655,212.50 2035 1,615,000.00 38,356.25 1,653,356.25 TOTAL $25,955,000.00 $23,814,687.06 $49,769,687.06

13 FINANCIAL GUARANTY INSURANCE POLICY

The fo llowing information has been fu rnishedby the Insurer fo r use in this Official Statement. Such information has not been independently confirmed or verified by the City or the Authority. No representation is made herein by the City or the Authority as to the accuracy or adequacy of such information subsequent to the date hereof, or that the information contained and incorporated herein by reference is correct. Capitalized terms under the heading "FINANCIAL GUARANTY INSURANCE POLICY" not otherwise defined herein have the meanings ascribed thereto in the Financial Guaranty Insurance Policy. Reference is made to APPEND IX E fo r a specimen of the Insurer 's Financial GuarantyInsurance Policy.

Payment Pursuant to the Financial Guaranty Insurance Policy

The Insurer has made a commitment to issue a financial guaranty insurance policy (the "Financial Guaranty Insurance Policy") relating to the Certificates effective as of the date of execution and delivery of the Certificates. Under the terms of the Financial Guaranty Insurance Policy, the Insurer will pay to The Bank of New York, in New York, New York or any successor thereto (the "Insurance Trustee") that portion of the principal of and interest with respect to the Certificates which shall become Due for Payment but shall be unpaid by reason of Nonpayment by the City (as such terms are defined in the Financial Guaranty Insurance Policy). The Insurer will make such payments to the Insurance Trustee on the later of the date on which such principal and interest becomes Due for Payment or within one business day following the date on which the Insurer shall have received notice of Nonpayment from the Trustee. The insurance will extend for the term of the Certificatesand, once issued, cannot be cancelled by the Insurer.

The Financial Guaranty Insurance Policy will insure payment only on stated maturity dates and on mandatory sinking fund installment dates, in the case of principal, and on stated dates for payment, in the case of interest. If the Certificates become subject to mandatory prepayment and insufficientfunds are available for prepayment of all outstanding Certificates, the Insurer will remain obligated to pay principal of and interest with respect to outstanding Certificates on the originally scheduled interest and principal payment dates including mandatory sinking fund prepayment dates. In the event of any acceleration of the principal of the Certificates, the insured payments will be made at such times and in such amounts as would have been made had there not been an acceleration.

In the event the Trustee has notice that any payment of principal of or interest with respect to a Certificate which has become Due for Payment and which is made to an owner by or on behalf of the Obligor has been deemed a preferential transfer and theretofore recovered from its registered owner pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court of competent jurisdiction, such registered owner will be entitled to payment fromthe Insurer to the extent of such recovery if sufficient funds are not otherwise available.

The Financial Guaranty Insurance Policy does not insure any risk other than Nonpayment, as defined in the Financial Guaranty Insurance Policy. Specifically, the Financial Guaranty Insurance Policy does not cover:

1. payment on acceleration, as a result of a call for prepayment ( other than mandatory sinking fund prepayment) or as a result of any other advancement of maturity;

2. payment of any prepayment or acceleration premium;

3. nonpayment of principal or interest caused by the insolvency or negligence of any Trustee, Paying Agent or Certificate Registrar, if any.

If it becomes necessary to call upon the Financial Guaranty Insurance Policy, payment of principal requires surrender of Certificates to the Insurance Trustee together with an appropriate instrument of

14 assignment so as to permit ownership of such Certificates to be registered in the name of the Insurer to the extent of the payment under the Financial Guaranty Insurance Policy. Payment of interest pursuant to the Financial Guaranty Insurance Policy requires proof of owner entitlement to interest payments and an appropriate assignment of the owner's right to payment to the Insurer.

Upon payment of the insurance benefits, the Insurer will become the owner of the Certificate, appurtenant coupon, if any, or right to payment of principal or interest on such Certificate and will be fully subrogated to the surrendering owner's rights to payment.

In the event that the Insurer were to become insolvent, any claims ansmg under the Financial Guaranty Insurance Policy would be excluded from coverage by the California Insurance Guaranty Association, established pursuant to the laws of the State of California.

Ambac Assurance Corporation

The Insurer is a Wisconsin-domiciled stock insurance corporation regulated by the Office of the Commissioner of Insurance of the State of Wisconsin and licensed to do business in 50 states, the District of Columbia, the Territory of Guam and the Commonwealth of Puerto Rico, with admitted assets of approximately $8,142,000,000 (unaudited) and statutory capital of approximately $4,824,000,000 (unaudited) as of June 30, 2004. Statutory capital consists of the Insurer's policyowners' surplus and statutory contingency reserve. Standard & Poor's Credit Markets Services, a Division of The McGraw-Hill Companies, Moody's Investors Service and Fitch, Inc. have each assigned a triple-A financial strength rating to the Insurer.

The Insurer has obtained a ruling from the Internal Revenue Service to the effect that the insuring of an obligation by the Insurer will not affect the treatment for federal income tax purposes of interest on such obligation and that insurance proceeds representing maturing interest paid by the Insurer under policy provisions substantially identical to those contained in its financial guaranty insurance policy shall be treated for federal income tax purposes in the same manner as if such payments were made by the Obligor of the Certificates.

The Insurer makes no representation regarding the Certificates or the advisability of investing in the Certificates and makes no representation regarding, nor has it participated in the preparation of, the Official Statement other than the information supplied by the Insurer and presented under the caption "FINANCIAL GUARANTY INSURANCE POLICY."

Available Information

The parent company of the Insurer, Ambac Financial Group, Inc. (the "Company"), is subject to the informationalrequirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "SEC"). These reports, proxy statements and other information can be read and copied at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC maintains an internet site at http://www.sec. gov that contains reports, proxy and information statements and other information regarding companies that file electronically with the SEC, including the Company. These reports, proxy statements and other information can also be read at the offices of the New York Stock Exchange, Inc. (the "NYSE"), 20 Broad Street, New York, New York 10005.

Copies of the Insurer's financial statements prepared in accordance with statutory accounting standards are available from the Insurer. The address of the Insurer's administrative offices and its telephone number are One State Street Plaza, 19th Floor, New York, New York 10004 and (212) 668-0340.

15 Incorporation of Certain Documents by Reference

The following documents filed by the Company with the SEC (File No. 1-10777) are incorporated by referencein this Official Statement:

1. The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2003 and filedon March 15, 2004;

2. The Company's Current Report on Form 8-K dated April 21, 2004 and filed on April 22, 2004;

3. The Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended March 31, 2004 and filedon May 10, 2004;

4. The Company's Current Report on Form 8-K dated July 21, 2004 and filedon July 22, 2004; and

5. The Company's Quarterly Report on Form 10-Q for the fiscalquarterly period ended June 30, 2004 and filedon August 9, 2004.

All documents subsequently filed by the Company pursuant to the requirements of the Exchange Act after the date of this Official Statement will be available for inspection in the same manner as described above in "Available Information."

CITY FINANCIAL INFORMATION

The following is a description of the City's budget process, current budget, historical budget information, changes in fund balance, balance sheets, its major revenues and expenditures, indebtedness, investments and certain other financial information relating to the City.

The City's Financial Statements along with accompanying notes and opinions from its independent auditor for the fiscal year ended June 30, 2003, are set forth in APPENDIX B - "AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2003."

Accounting and Financial Reporting

The City maintains its accounting records in accordance with Generally Accepted Accounting Principles ("GAAP") and the standards established by the Governmental Accounting Standards Board ("GASB"). The City Council employs an independent certified public accountant, who, at such time or times as specified by the City Council, at least annually, and at such other times as they determine, examines the financialstatements of the City in accordance with generally accepted auditing standards, including tests of the accounting records and other auditing procedures as such accountant considers necessary. As soon as practicable after the end of the fiscal year, a final audit and report is submitted by the independent accountant to the City Council.

GASB issued Statement 34 in June 1999. GASB 34 requires local governments to present financial statements on an entity wide basis, in addition to the fund financial statements. GASB 34 required the city to provide the Basic Financial Statement in the new format by June 30, 2003 and the retroactive reporting of major general governmental infrastructure assets by June 30, 2006. The City met the deadline for publication of the Basic Financial Statement as required and will also meet the infrastructure asset reporting requirement by the required deadline.

16 The accounts of the City are organized on the basis of funds and account groups, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures, or expenses, as appropriate. Government resources are allocated to and accounted forin individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. The various governmentalfunds are grouped, in the City's annual financial statements, into generic fund types, which include the General Fund, Special Revenue Funds, Debt Service Funds and Capital Projects Funds. The City also uses Enterprise Funds to account for those operations that are financed and operated in a manner similar to private business or where the City has decided that the determination of revenues earned, costs incurred, and/or net income is necessary for management accountability.

The General Fund is the general operating fund of the City. It is used to account for all financial resources except those required to be accounted for in another fund. It is expected that the Lease Payments will be paid from amounts in the General Fund. Tables 1 through 4 below set forth certain historical and current fiscalyear budget information for the General Fund. Informationon the remaining governmentalfunds of the City as of June 30, 2003 is set forthin APPENDIXB.

Budget Procedure, Current Budget and Historical Budget Information

The fiscal year of the City begins on the first day of July of each year and ends on the 30th day of June of the followingyear.

The City budget report is prepared in accordance with generally accepted accounting principles under the direction of the City Manager. Annual budgets are legally adopted for the General Fund, Special Revenue Funds and Capital Project Funds. These funds are budgeted based on the modifiedaccrual basis of accounting and include proposed expenditures and the means of financing them. The City Council approves the total budgeted appropriations and any amendments to total appropriations which may be required during the year. The City Manager is authorized to transfer budgeted amounts between departments within any fund; however, any revisions which alter the total appropriations of any fund must be approved by the City Council.

17 Set forth in Table 1 below is the General Fund budget initially adopted for fiscal years 2003-04 and 2004-05. During the course of each fiscalyear, the budgets are amended and revised as necessary by the City Council.

Table 1 CITY OF SIMI VALLEY General Purpose Fund Budgets

Adopted Adopted Fiscal Fiscal Year Year 2004-05 2003-04 Budget Budget Revenues: Taxes and Franchises([) $ 27,765,400 $ 35,952,500 Licenses and Permits<2l 2,507,800 3,914,600 Fines and Forfeitures 769,000 676,000 Use of Money & Property 829,800 821,900 Revenues fromOther Governments([) 7,472,500 1,257,300 Grants 292,600 151,300 Service Charges<2l 1,925,500 3,213,000 Other Revenues<2l 686,400 1,262,600 3 Transfers rn< l 7,428,600 6,062,500 Revenue Set-Aside (800,000)

Total Revenues $ 48,877,600 $ 53,311,700

Expenditures: Administration $ 7,217,600 $ 8,208,000 Community Services 8,793,000 9,738,600 Police <4l 21,734,000 23,802,100 Public Works 11,379,000 12,644,600 Non-Departmental 2,647,600 2,729,700 Transfers to Other Funds 2,982,900 2,266,800 Anticipated Under-Expenditures (1,300,000) (1,300,000) Anticipated Reappropriations 800,000 800,000 Reimbursement Expenditures (5,378,200} (6,266,900)

Total Expenditures<4l $ 48,875,900 $ 52,622,900

Excess (deficit) of revenues over $ 1,700 $ 688,800 expenditures<4l

(ll The increase in Taxes and Franchises and decrease in Revenues from Other Governments in the adopted fiscal year 2004-2005 City budget is due in part to the elimination of the State vehicle license fee "backfill" and increased property taxes received by the City in the fiscalyear 2004-05 adopted State Budget. See "CITY FINANCIAL INFORMATION - State of California Motor Vehicle In-Lieu Payments" and "RISK FACTORS - Economic Conditions in California; Impact of State Budget on City" herein. 2 ( l Increased significantlyin the adopted fiscal year 2004-05 City budget due to increased land development activity within the City. Such increased development is expected to result in increased building permits in Licenses and Permits, plan check fees within Service Charges and developer contributions in Other Revenues. 3 ( l The decrease in Transfers in fiscal year 2004-05 is due to a one time reconciliation of capital projects funds which were transferred back into the General Fund in fiscalyear 2003-04. 4 ( l The Adopted fiscal Year 2004-05Budget does not include salary increases for swornem ployees. In accordance with the Police Officers' Association contract with the City, such increases are estimated to be $666,200. Once the final sworn officers' salary increases are determined, based on a survey of the sworn officers' salaries of other cities, in accordance with the Police Officers' Association contract with the City, the City will amend the Adopted fiscal Year 2004-05 Budget to include such increases. Source: City of Simi Valley fiscal year 2003-04 Budget and fiscal year 2004-05 Budget.

18 Comparative Change in Fund Balance of the City General Fund

Table 2 below presents the City's General Fund Statement of Revenues, Expenditures and Change in Fund Balance for the past five fiscalyears.

Table 2 CITY OF SIMI VALLEY GENERAL FUND STATEMENT OF Revenues, Expenditures and Change in Fund Balance Five Year Comparison

1998-99 1999-00 2000-01 2001-02 2002-03(]) Revenue: Taxes $19,595,224 $22,192,909 $24,289,338 $26,046,446 $27,671,729 Licenses and Permits 5,374,911 4,433,952 2,933,635 2,611,829 3,000,142 Fines and penalties 439,538 499,286 662,042 747,781 759,786 From use of money and property 1,475,656 1,736,193 2,455,186 1,270,504 956,094 From other government agencies 5,264,981 5,755,368 6,456,414 6,905,902 7,262,490 Grants 134,984 102,849 105,035 914,920 210,421 Charges for current services 2,161,026 1,892,171 1,969,063 2,184,228 1,840,129 Other revenue 1,037,828 720 498 810 345 579 299 783 483 Total Revenue $35 ,484, 148 $37,333,226 $39,681,058 $41,260,909 $42,484,274

Expenditures: Current: General government $ 3,568,125 $ 2,1 14,169 $ 3,466,368 $ 3,092,754 $ 3,651,989 Community services 2,421,805 2,674,639 2,890,978 2,998,764 4,468,175 Environmental services 3,564,358 3,988,881 4,199,883 4,219,725 3,140,989 Public works 8,714,480 8,760,335 9,541,951 10,010,872 10,185,176 Police 14 394 378 15 493 970 16,588,695 18,082,465 19,217,273 Total expenditures $32,663,146 $33,031,994 $36,687,875 $38,404,580 $40,663,602

Excess (deficiency) ofrevenue over (under) expenditures $ 2,821,002 $ 4,301,232 $ 2,993,183 $ 2,856,329 $ 1,820,672

Other financing sources (uses): Operating transfersin $ 4,326,950 $ 5,072,084 $ 5,093,649 $ 5,882,065 $ 5,450,884 Operating transfers out (4,455,510) (6,270,716) (8,271,375) (6,976,738) (5,970,201) Total Other Financing Sources $ (128,560) $ (1,198,632) $(3,177,726) $ (1,094,673) $ (519,317) (Uses)

Excess of revenue and other sources over expenditures and other uses 2,692,442 3,102,600 (184,543) 1,761,656 1,301,355

Fund balance, July 1 $20,959,870 $23,380,476 $26,447,985 $26,012,978 $27,774,634 Prior period adjustment (271,836i1) (35,09 li1) (250,464 t) 1 917 668(l) Fund balance, June 30 $23,380,476 $26,447,985 $26,012,978 $27,774,634 $30,993,657

Cl) Reflects a contribution to the Simi Valley Transit Enterprise Fund for capital acquisitions. Source: City of Simi Valley Audited Financial Statements for fiscal years 1998-99 through 2002-03.

Although final actual information for fiscal year 2003-04 was not yet available as of the date of this Official Statement, estimated results are positive. Based on anticipated estimated actual results as projected in the City's fiscalyear 2004-05 budget, total actual General Fund revenues for fiscal year 2003-04 are expected to exceed budgeted General Fund revenues by approximately $1.49 million. During fiscal year 2003-04, the City lost approximately $2.1 million in Vehicle License Fee Revenue as the result of state budgetary actions. However, such loss is anticipated to be made up by increased revenues in other revenue categories. See "­ State of California Motor Vehicle In-Lieu Payments" and "RISK FACTORS - Economic Conditions in California; Impact of State Budget on City" herein.

19 As projected, pending final results, total actual General Fund expenditures for fiscal year 2003-04 are expected to be below budget expenditures by approximately $1.5 million. The underexpenditures are primarily due to vacancies and the resulting salary savings that occurred during the fiscal year.

As a result of these results, on an anticipated budget to actual basis, the fiscal year 2003-04 actual ending General Fund balance is expected to be higher than the budget ending General Fund balance. Despite state budgetary actions, the City does not expect to have to rely on existing cash reserves to support fiscal year 2003-04 spending, as budgeted revenues are anticipated to exceed budgeted expenditures.

Comparative General Fund Balance Sheets of the City

Table 3 below presents the City's General Fund Balance Sheets for the past fivefiscal years.

Table 3 CITY OF SIMI VALLEY General Fund Balance Sheets Five Year Comparison

1998-99 1999-00 2000-01 2001-02 2002-03 ASSETS Cash and investments $ 8,933,214 $10,198,575 $ 6,736,860 $ 2,123,873 $ 6,739,049 Accounts receivable 760,040 784,470 1,203,769 1,615,911 1,677,790 Tax receivable 1,830,862 2,054,024 2,146,574 2,737,154 2,807,316 Grants receivable 5,925 11, 191 9,600 Interest receivable 235.303 296,749 347,629 208,110 114,874 Due fromother funds 3,438,559 4,328,471 7,020,558 5,801,341 4,364,781 Loans receivable 495,170 492,422 488,695 485,050 461,300 Advances to other funds 11.175.443 11.723.152 12 057 349 19 168.956 17.549 816 Total assets $26,868,591 $29,883.788 $30,001,454 $32,151,586 $33,724,526

LIABILITIES, EQUITY AND OTHER CREDITS Liabilities Accounts payable $ 1,285,761 $ 1,003,368 $ 1,333,947 $ l,311,413 $ 967,988 Accrued payroll 676,625 880,414 1,004,156 1,531 ,979 1,762,881 Accrued benefits 1,525.729 1,55202 1 l.650.373 1.713 560 Total liabilities $ 3,488,l 15 $ 3,435,803 $ 3,988,476 $ 4,376,952 $ 2,730,869

Equity and other credits: Fund balances: Reserved: $12.283,455 $12,823,990 $13, 1 83,323 $20,288,03 1 $18,743,283 Unreserved: Designated 1,000,000 1,000,000 1,000,000 1,000,000 6,622,652 Un designated 10,097,02 1 12.623.995 11.829.655 6,486,603 5,627 722 Total equity and other credits $23,380,476 $26,447,985 $26,012.978 $27,774,634 $30,993,657

Total liabilities, equity and credits $26,868,591 $29,883,788 $30,001,454 $32,l51, 586 $33,724,526

Source: City of Simi Valley Audited Financial Statements for fiscalyea rs 1998-99 through 2002-03.

Tax Receipts

Taxes received by the City include property taxes, sales and use taxes, franchise taxes, motor vehicle taxes and others. Of such taxes, sales taxes (approximately 30.2% of the City's 2002-03 tax revenues) motor vehicle taxes (approximately 16.36% of 2002-03 general fund revenues), and property taxes (approximately 20. l % of 2002-03 general fund revenues) constitute major sources of general fund revenues. Each of these sources is subject to legislative action by the State Legislature, or the people acting through the initiative

20 process, and the motor vehicle revenues and property tax revenues are the subject of current legislative adjustment that affect the 2004-05 budget and perhaps future budgets. See "LIMITATIONS ON TAX REVENUES" and "RISK FACTORS - Economic Conditions in California; Impact of State Budget on City" herein. The City believes that none of the general taxes currently imposed by or for the benefit of the City are affected by the limitations of Proposition 62 or Proposition 218. See "LIMITATIONS ON TAX REVENUES - Proposition 62" and "- California Constitution Article XI IIC and Article XI IID (Proposition 218)" herein for a brief discussion of important statewide limitations on certain revenue sources.

The following table sets forth tax revenues received by the City for fiscal years 1997-98 through 2002-03 by the major sources:

Table 4 CITY OF SIMI VALLEY Tax Revenues by Source For Fiscal Years 1997-98 through 2002-03

1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 Source: Sales Tax $ 8,483,344 $ 9,303,124 $10,629,416 $11,774,505 $ 12,683,123 $12,830,405 Transient lodging Tax 698,117 785,210 907,161 885,058 998,252 894,063 Franchise Tax 2,235,396 2,382,904 2,560,319 2,687,806 3,255,020 3,366,958 Business Tax receipts 1,225,012 1,302,925 1,433,189 1,425,466 1,397,335 1,370,609 Documentary Transfer 414,208 632,521 589,747 587,812 617,041 687,857 taxes Tax Equity allocation 1,925,663 1,976,369 2,267,001 2,639,234 2,857,275 3,948,335 Property taxes 3,083,85 1 3,266,171 3,806,076 4 289 457 4,238,400 4,573,502 Total $18,065,59 1 $19,595,224 $ 22,192,909 $24,289,338 $26,046,440 $27,761,729

Source: City of Simi Valley.

Sales and Use Taxes

Sales and use taxes represent the largest source of tax revenue to the City.

A sales tax is imposed on retail sales or consumption of personal property. The tax rate is established by the State Legislature. Effective January 1, 2002, the aggregate tax rate in the State is 7.25%. See "RISK FACTORS - Economic Conditions in California; Impact of State Budget on City" herein. The State collects and administers the tax, and makes distributions on taxes collected within the City as follows:

Table 5 CITY OF SIMI VALLEY Sales Tax Rates

State General Fund ...... 7.25% Total...... 7.25%

Source: City of Simi Valley.

The State's actual administrative costs with respect to the portion of sales taxes allocable to the City are deducted before distribution and are determined on a quarterly basis.

During calendar year 2002, total taxable transactions in the City were reported to be approximately $1.16 billion, a 6.9 percent increase over the approximate $1.12 billion of taxable transactions that were reported during calendar year 2001. Additionally, the City estimates 2003 total taxable transactions in the City have been approximately $1.24 billion, a 6.9 percent increase over the approximate $1.16 billion of taxable

21 transactions that were reported during calendar year 2002. The following table shows taxable transactions in the City during calendar years 1998 through 2002.

Table 6 CITY OF SIMI VALLEY Taxable Transactions by Type of Business For Calendar Years 1998 through 2002 (dollar amounts in Thousands)

Retail Sales Total Sales Permits Taxable Permits Taxable Year On July 1 Transactions On Ju ly 1 Transactions 1998 743 $633,347 3,117 $ 828,001 1999 788 739,082 3,097 933,700 2000 873 838,169 2,994 1,042,534 2001 939 910,997 3,025 1,127,989 2002 969 939,780 3,040 1,162,422

Source: California State Board of Equalization.

State of California Motor Vehicle In-Lieu Payments

The State imposes a vehicle license fee (the "VLF"), which is the portion of the fees paid in lieu of personal property taxes on a vehicle. The VLF is based on vehicle value (in the amount of two percent of the market value of the vehicle) and declines as the vehicle ages. In 1998, the State legislature and Governor enacted temporary laws to reduce the VLF by 25%. In 2000, the reduction was increased to a total of 35%. In 2001, legislation authorized the Department of Motor Vehicles and the State Controller to rebate an additional 32.5% of the VLF (a total of 67.5% ).

In 2003, the State triggered an increase in the VLF to be effective beginning October 1, 2003 but deferred payment to local agencies until August, 2006 of the amount of the VLF backfill for the period from June 20, 2003 to September 30, 2003, when the higher VLF went into effect. This VLF "gap up" or "loan" is estimated at approximately $1.3 billion statewide. The City used excess revenues from and othersources in the General Fund to address the $2.1 million which constitutes the City's share in the "loan" of these funds for fiscal year 2003-04. The 2004-05 Budget includes a reduction in VLF from 2% to 0.65% and eliminates the VLF backfill. Instead, cities and counties, including the City, will receive increased property tax revenues to compensate for the reduction in VLF. The State allocates the revenues equally between cities and counties, apportioned based on population. For fiscal years 2004-05 and 2005-06, each category of cities, counties and special districts will give up $350 million of property tax revenues, with redevelopment agencies contributing $250 million, for a total of $1.3 billion. The City estimates its share will be approximately $1.13 million for fiscalyear 2004-05 and $1.13 million for fiscalyear 2005-06. See "RISK FACTORS- Economic Conditions in California; Impact of State Budget on City" herein.

Property Taxes

During fiscal year 2002-03, property tax receipts provided the third largest tax revenue source of the City, contributing approximately 12% of all General Fund revenues. In California, property which is subject to ad valorem taxes is classified as "secured" or "unsecured." The secured classification includes property on which any property tax levied by a county becomes a lien on that property. A tax levied on unsecured property does not become a lien against the taxed unsecured property, but may become a lien on certain other property owned by the taxpayer. Every tax which becomes a lien on secured property has priority over all other liens, arising pursuant to State Law, on the secured property, regardless of the time of the creation of other liens.

22 The valuation of property is determined as of January 1 each year, and installments of taxes levied upon secured property become delinquent on the following April 10th and December 10th. Taxes on unsecured property are due March 1, and become delinquent August 31.

Secured and unsecured property are entered separately on the assessment roll maintained by the county assessor. The method of collecting delinquent taxes is substantially different for the two classifications of property. The exclusive means of forcing the payment of delinquent taxes with respect to property on the secured roll is the sale of the property securing the taxes of the State for the amount of taxes that are delinquent. The taxing authority has four methods of collecting unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the county clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the County Recorder's Office in order to obtain a lien on certain property of the taxpayer, and (4) seizure and sale of personal property, improvement or possessory interest belonging or taxable to the asses see.

A ten percent penalty is added to delinquent taxes which have been levied with respect to property on the secured roll. In addition, beginning on the July 1 following a delinquency, interest begins accruing at the rate of 1 1/2% per month on the amount delinquent. Such property may thereafter be redeemed by the payment of the delinquent taxes and the ten percent penalty, plus interest at the rate of 1 1/2% per month to the time of redemption. If taxes are unpaid for a period of five yearsor more, the property is deeded to the State and then is subject to sale by the county tax collector. A ten percent penalty also applies to the delinquent taxes or property on the unsecured roll, and further, an additional penalty of 1 1/2% per month accrues with respect to such taxes beginning on the varying dates related to the tax billing date.

Legislation enacted in 1984 (Section 25 et seq. of the Revenue and Taxation Code of the State of California), provides for the supplemental assignment and taxation of property as of the occurrence of a change in ownership or completion of new construction. Previously, statutes enabled the assessment of such changes only as of the next tax lien date following the change and thus delayed the realization of increased property taxes from the new assessment for up to 14 months. Collection of taxes based on supplemental assessments occurs throughout the year. Taxes due are prorated according to the amount of time remaining in the tax year, with the exception of tax bills dated January 1 through May 31, which are calculated on the basis of the remainder of the current fiscal year and the full 12 months of the next fiscal year.

In 1992-93 and 1993-94, in response to serious budgetary shortfalls, the State Legislature and administration permanently redirected over $3 billion of property taxes from cities, counties, and special districts to schools and community college districts. The Legislature, however, provided some additional funding sources (such as sales taxes) and reduced certain mandates forlocal services. Local governments sued the State (Sonoma County, et. al. v. Commission on State Mandates, et. al) over these transfers. The appeals court denied the plaintiffs' position and the subsequent appeal was not heard by the State Supreme Court.

The term "ERAF" is often used as a shorthand reference for this shift of property taxes. ERAF actually is an acronym for the fund into which redirected property taxes are deposited in each county, the Educational Revenue Augmentation Fund. The 2004-05 California State Budget includes a $1.3 billion shift of property taxes from certain local agencies, including the City. The adopted fiscalyear 2004-05 City budget excludes the City's portion of such property tax shift. The City cannot predict the impact on its General Fund resulting from future acts of the Legislature to redirect property taxes from the City to other public agencies. See "RISK FACTORS - Economic Conditions in California; Impact of State Budget on City" herein. The City cannot predict the impact on its General Fund resulting from future acts of the Legislature to redirect property taxes fromthe City to other public agencies.

23 Assessed Valuation. All property is assessed using full cash value as defined by Article XI IIA of the State Constitution. State law provides exemptions from ad valorem property taxation for certain classes of property such as churches, colleges, non-profithospitals, and charitable institutions. See "LIMITATIONS ON TAX REVENUES" above.

Future assessed valuation growth allowed under Article XI IIA (new construction, certain changes of ownership, 2% inflation) will be allocated on the basis of "situs" among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and schools will share the growth of "base" revenues from the tax rate area. Each year's growth allocation becomes part of each agency's allocation in the followingyear.

The following tables show assessed valuations and tax levies and typical total tax rates forfiscal years 1999-00 through 2003-04 and collections and delinquencies for fiscal years 1998-99 through 2002-03. Although Ventura County has implemented the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the "Teeter Plan"), the City does not participate in the Teeter Plan. Consequently, the City's tax receipts reflect actualdelinquencies.

Table 7 CITY OF SIMI VALLEY Assessed Value of Taxable Property Fiscal Years 1999-00 through 2003-04

Fiscal To tal Before Total After Year Local Secured Utility Unsecured Rdv. Increment Rdv. Increment 1999-00 $6,804,21 1,563 $4,521,505 $263,487,140 $7,072,220,208 $6,463 ,565 ,629 2000-01 7,652,960,223 4,436,680 314,152,975 7 ,97 1,549 ,878 7 ,226,517,309 2001-02 8,338,284,943 4,535,050 319,123,415 8,661,943,408 7,852,500,871 2002-03 9,001,962,570 4,738,971 309, 184,285 9,3 15,885,826 8,465,972,835 2003-04 9,674,185,767 4,137,416 311,473,006 9,989,796,189 9,029,391,498

Source: CaliforniaMunicipal Statistics, Inc.

Table 8 CITY OF SIMI VALLEY Typical Tax Rate per $100 Assessed Valuation Fiscal Years 1999-00 through 2003-04

1999-00 2000-01 2001-02 2002-03 2003-04 General Tax Rate $1.000000 $1.000000 $1.000000 $1.000000 $1.000000 Metropolitan Water District .008900 0.008800 0.007700 0.006700 0.006100 Ventura County Flood Control District, Zone 3 .003439 0.001618 0.001632 0.000624 0.000297 Ventura Community College Bonds 0.017800 0.016600 Simi Valley Unified School District Bonds .034900 .030200 0.026700 0.025700 0.024700 Total Tax Rate $1.047239 $1.040618 $1.036032 $1.050824 $1.047697

Source: CaliforniaMunicipal Statistics, Inc.

24 Table 9 CITY OF SIMI VALLEY Current Tax Levies, Collections and Delinquencies Fiscal Years 1998-99 through2002-03

Secured Amt. Del. %Del. Fiscal Year Tax Charge<1> Ju ne 30 June 30 1998-99 $172,416,397 $1,216,583 1.7% 1999-00 79,350,486 1,445,827 1.8 2000-01 89,282,371 1,606,586 1.8 2001-02 96,624,697 2,137,708 2.2 2002-03 104,460,998 1,585,206 1.5

Source: California Municipal Statistics, Inc.

Table 10 CITY OF SIMI VALLEY Top Twenty Local Secured Taxpayers Fiscal Year 2003-04

Property Owner Primary Land Use 2003-04 Assessed o/oof Va luation To tal (I! 1. Countrywide Home Loans Inc. Office Building/Industrial $ 89,612,276 0.91% 2. Fountains Apartments Ltd. Apartments 42,750,977 0.43 3. Stone Creek Investors Apartments 36,054,857 0.36 4. Simi Entertainment Plaza LP Shopping Center 30,480,434 0.31 5. Burnham PacificOperating Partnership I BPP Simi Valley LP Shopping Center 27,210,333 0.28 6. Essex Meadowood Apartments 26,065,606 0.26 7. Casden Creekside LP Apartments 25,986,692 0.26 8. Sam and Vera Menlo Shopping Center 25,578,100 0.26 9. Big Sky Country Club LLC Golf Course 25,373,962 0.26 10. FIG Holding Co. Office Building 24,000,000 0.24 11. Strategic Performance Fund II Industrial 21,641,047 0.22 12. Casa Group LLC Apartments 21,333,200 0.22 13. Casden Indian Oaks LP Apartments 19,9 18,618 0.20 14. RPP Mountaingate LLC Shopping Center 19,500,000 0.20 15. Fritz B. Burns Foundation Industrial 18,903,929 0.19 16. State Farm Office Building 17,991,856 0.18 17. Warner Elektra Atlantic Corp. Industrial 16,877,105 0.17 18. Simi Towne Centre LLC Shopping Center 15,882,090 0.16 19. PEGH Investments LLC Industrial 15,004,160 0.15 20. Paragon Tapo LLC Shopping Center 13,750,000 0. 14 $533,9 15,242 5.40%

Cl) 2003-04 Local Secured Assessed Valuation: $9,884,408,767. Source: California Municipal Statistics, Inc.

Pursuant to an Agency Public Improvement Agreement (the "Public Improvement Agreement"), between the City and the Simi Valley Community Development Agency (the "Agency"), the Agency has agreed to reimburse the City, in an amount equal to the Lease Payments attributable to the Senior Citizens' Center (approximately 37% of total Lease Payments except as otherwise limited in the Public Improvement Agreement), fromcertain tax increment received by the Agency. This reimbursement obligation is subordinate to all other obligations incurred by the Agency in the related project area, which are significant. The reimbursement payments are not pledged to the payment of the Lease Payments, and there can be no assurances that applicable tax increment will be available in any year to pay such obligation. A similar

25 reimbursement arrangement applies to certain other public facilities obligations payable from general fund supported lease payments.

Outstanding General Fund Debt and Lease Obligations

The City does not have any general obligation indebtedness. The table below summarizes the City's general long term debt supported by the General Fund:

Table 11 CITY OF SIMI VALLEY General Fund Debt and Lease Obligations

Balance Balance Due Wi thin July 1, 2002 Debt In curred Debt Retired June 30, 2003 One Year GovernmentalActivities: ! 1995 Lease Revenue Bonds( ) $ 9,300,000 $ $ (475,000) $ 8,825,000 $ 500,000 Compensated Absences 3,427,122 1 081 837 (725,070) 3 783 889 761 324 Governmental Activities Long-Term Liabilities $ 12,727,122 $ 1,081,837 $ (1,200,070) $ 12,608,889 $ 1,261,324

(ll A portion of the 1995 Lease Revenue Bonds are supported fromcontribu tions fromsources other than the General Fund, including without limitation developer impact fees and contributions from the Agency from tax increment. However, such sources of funds are not pledged to the repayment of the 1995 Lease Revenue Bonds and there can be no assurances that such other sources will be available in any year to pay such obligation. Source: City of Simi Valley.

26 Direct and Overlapping Debt

Contained within the City are overlapping local agencies providing public services which have issued general obligation Certificatesand other types of indebtedness. Direct and overlapping bonded indebtedness is shown in the following table.

Table 12 CITY OF SIMI VALLEY Statement of Direct and Overlapping Debt<1l

2003-04 Assessed Valuation: $9 ,989, 796, 189 Redevelopment Incremental Valuation: 960,404,691 Adjusted Assessed Valuation: $9,029,391,498

OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt MetropolitanWater District 0.739% $ 3,283,340 Ventura County Flood Control District, Zone No. 3 25.831 76,201 Ventura County Community College District 13.666 10,618,482 Simi Valley Unified SchoolDistrict 96.412 21,867,936 City of Simi Valley 1915 Act Bonds 100.000 9,365,000 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $45,210,959

DIRECT AND OVERLAPPING GENERAL FUND OBLIGATION DEBT: Ventura County General Fund Obligations 13.662% $14,537,051 Ventura County Pension Obligations 13.662 10,037,471 Ventura County Superintendent of Schools Certificates of Participation 13.662 1,892,870 Ventura County Community College District Certificates of Participation 13.666 1,208,758 Simi Valley Unified SchoolDistrict Certificates of Participation 96.412 13,377,165 Rancho Simi Recreation and Park District Authority 80.297 1,385,123 City of Simi Valley General Fund Obligations 100.000 8,325,000(l) TOTAL DIRECT AND OVERLAPPING GENERAL FUND OBLIGATION DEBT $50,763,438

COMBINED TOTAL DEBT $95,974,39i2)

Ratios to 2003-04 Assessed Valuation: Total Overlapping Tax and Assessment Debt ...... 0.45%

Ratios to Adjusted Assessed Valuation: Combined Direct Debt ($8,325,000) ...... 0.09% Combined Total Debt ...... 1.06%

STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/03: $0

Cl) As of February 15, 2004. Excludes certificates of participation to be sold. Cl) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations. Source: CaliforniaMunicipal Statistics, Inc.

Investment of City Funds

The City invests its funds in accordance with the City's Investment Policy and in accordance with Section 53600 et seq. of the California Government Code. The City's Investment Policy sets forth the policies and procedures applicable to the investment of City funds, and designates eligible investments. The Investment Policy sets forth a stated objective, among others, of insuring the safety of invested funds by limiting credit and interest rate risks. Funds are invested in the following order of priority: safety of principal, liquidity, and return of investment.

27 The City may invest in the following types of investments:

• GovernmentAgency Issues, including: (i) Local government bonds or other indebtedness, (ii) State bonds or other indebtedness, (iii) U.S. Treasury notes, bonds, bills, or other indebtedness secured by the full faith and credit of the United States, and (iv) Other federal agency securities including but not limited to issues by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, and the Federal Farm Credit Bank System; • Bankers acceptances; • Certificates of deposit; • California Local Agency Investment Fund ("LAIF"); • Collateralized Bank deposits; and • Negotiable certificates of deposit.

The above investments of the City are limited as follows:

• Investments in the LAIF are limited to $25 million per local government agency. • No more than 15% of the City's portfolio (exclusive of investments in government agency issues and LAIF) may be placed with any financial institution. • No more than 25% of the City's portfolio may be invested in Collateralized Certificates of Deposit issued by savings and loan institutions. • Certificates of Deposit (Negotiable and Collateralized) placed by the City not constitute more than 15% of the total assets of the institution. • Negotiable Certificates of Deposit placed by the City may not exceed 5% of the City's portfolio and no more than $1 million may be placed with any financialinstitution. Additionally, Negotiable Certificates of Deposit shall only be placed with institutions having total assets in excess of $200 million and that maintain a ratio of equity to total assets of at least 5%. • With prior approval of the City Council, investment in a reverse repurchase and/or securities lending agreement may be used in a prudent manner in order to meet an unforeseenor unexpected cash flowrequirement and all other investment securities in the portfolio at the time have a lower market value than the actual purchase cost. Under no circumstances may a reverse repurchase agreement be used as a "leveraging" tool for yield enhancement.

Additionally, the following maturity terms apply to the investment of the City's portfolio:

• No limit on the portfolio that matures in the period of up to one year. • No more than 60% of the portfolio may be invested forthe period greater than one year and less than six years, with no more than 10% of the 60% invested between the fifthand sixth year. • No investment with a maturity exceeding six years may be made unless the City Council has previously granted authority to do so.

The City has established an annual review by an external auditor to provide internal control by assuring compliance with policies and procedures. In addition, the City's Department of Administrative Services renders a monthly Investment Report to the City Council, which includes the type of investment, institution, date of maturity, amount of deposit current market values, rates of interest and amount of interest received during the month.

Insurance The City is self-insured, with some private excess insurance coverage, and maintains two internal service funds, General Liability and Workers' Compensation to account for and finance its uninsured risk of loss.

28 The General Liability Insurance Fund (the "Liability Insurance Fund") was created in fiscal year 1990-91 to provide for insurance coverages relating to general liability, property, vehicles, and employee bonds for all City-administered agencies and funds. The Liability Insurance Fund also provides for the payment of liability and unemployment claims as well as the related legal and claims adjusting services incurred by the City and the Special Districts.

Revenues for the Liability Insurance Fund are provided through interfund service charges based on an analysis of benefit from organization-wide insurance premiums as well as specific coverages. In addition to providing for insurance premiums and related expenditures, the Liability Insurance Fund also provides for adequate reserved fund balances to meet self-insured retentions under the deductible provisions of the City's various insurance policies as established by actuarial review.

The major expenditure category for the Liability Insurance Fund is the Claims and Legal Reserves category. When a claim is filed, a reserve amount, based upon the total estimated loss, is established. This reserve covers the anticipated future cost of settling the claim including legal, investigative, and other related expenses.

To mitigate exposure to the Liability Insurance Fund, the City has purchased excess liability insurance to cover losses exceeding $1 million. Since the insurance marketplace is subject to sizeable premium swings, the purchase of excess insurance may not always be feasible. For that reason, the Liability Insurance Fund retains at least $3.5 million forpotential payment of large losses.

Under the City's self-insurance program, the City is self-insured for workers' compensation for the first $500,000 per occurrence, for injury and occupational illness to City employees under the Worker's Compensation Laws of the State. Excess coverage is placed with an insurance pool for losses from $500,000 up to $50,000,000 per occurrence. The City also purchases commercial insurance for property loss. Settled claims have not exceeded such commercial insurance coverage in any of the past three fiscalyears.

Retirement Programs

The City contracts with the Public Employees Retirement System ("PERS") of the State of California. The retirement plan provides simultaneous coverage of eligible employees with PERS. The plan provides for basic retirement benefits for service which are based on the years of service, age and the average monthly qualifying wages during the last 12 month period of employment. The plan also provides for cost-of-living adjustments after retirement.

The City provides the 2.5% (per year, for each year of credited service) at 55 PERS retirement package for non-safety employees and the 3% at 50 package for its safety employees. As a result of market conditions over the past few years and the corresponding reduced rate of return on PERS investments, the City has been faced with increasing pension obligation costs. However, despite the increased costs, the City has fully funded its existing pension obligations for fiscal year 2003-04 and fiscal year 2004-05. In addition, the City will continue to fully fund its obligation in the foreseeable future. While some California cities have provide the 2.7% at 55 or 3% at 60 PERS package to non-safety employees and the 3% at 50 package for safety employees, the City has not offered its employees these enhanced packages. As a result, the City's existing pension obligations have been managed with existing revenue sources. The City cannot predict future levels of required contributions, which are dependent on a variety of factors

The system is funded by a combination of employer and employee contributions. Employees are required under PERS to contribute 7% (9% for safety employees) of their annual covered salaries. The City pays all required employer and employee contributions to PERS. Based on the actuarial valuation of PERS assets, the City's required contribution to the retirement plan for fiscal year2003-04 was 2.87% for non-safety employees and 18.14% forpolice employees.

29 The City also provides a Public Agency Retirement System, Retirement Enhancement Plan ("PARS­ REP") for executive management employees of the City. PARS-REP provides supplemental retirement benefits in addition to PERS. Upon meeting eligibility requirements, plan members receive a monthly lifetime benefit of 1/12 the sum of (i) .004 times their final average compensation multiplied by their years of City service prior to July 1, 2001, and (ii) .005 times their final average compensation multiplied by their years of City service after June 30, 2002. The City contributes 5.77% of eligible employees' gross wages to PARS­ REP.

Labor Status

Certain employees of the City are members of one of two labor unions. 108 City employees are members of the Simi Valley Police Officers' Association (the "Police Association"). The City and the Police Association are under contract through June 30, 2005. 300 City employees are members of the Service Employee International Union, Local 998 (the "General Unit"). The City and the General Unit are under contract through June 30, 2006. The City is obligated to raise the monthly salary range of General Unit members by 3% on each of June 30, 2003, June 28, 2004 and June 27, 2005.

LIMITATIONS ON TAX REVENUES

There are a number of provisions in the State Constitution that limit the ability of the City to raise and expend tax revenues.

Property Tax Rate Limitations - Article XIIIA

On June 6, 1978, California voters approved Proposition 13 ("Proposition 13"), which added Article XI IIA to the State Constitution ("Article XI IIA"). Article XI IIA limits the amount of any ad valorem tax on real property to 1 % of the full cash value thereof, except that additional ad valorem taxes may be levied to pay debt service on (i) indebtedness approved by the voters prior to July 1, 1978, (ii) (as a result of an amendment to Article XI IIA approved by State voters on June 3, 1986) on bonded indebtedness for the acquisition or improvement of real property which has been approved on or after July 1, 1978 by two-third of the voters on such indebtedness (as a result of an amendment to Article XI IIA approved by the State voters on June 3, 1986), and (iii) bonded indebtedness incurred by a school district or community college district for the construction, reconstruction, rehabilitation or replacement of school facilities or the acquisition or lease of real property for school facilities, approved by 55% of the voters of the district, but only if certain accountability measures are included in the proposition. Article XI IIA defines full cash value to mean "the county assessor's valuation of real property as shown on the 1975-76 tax bill under full cash value, or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership have occurred after the 1975 assessment." This full cash value may be increased at a rate not to exceed two percent per year to account forinflation.

Article XI IIA has subsequently been amended to permit reduction of the "full cash value" base in the event of declining property values caused by damage, destruction or other factors, to provide that there would be no increase in the "full cash value" base in the event of reconstruction of property damaged or destroyed in a disaster and in other special circumstance or technical ways.

County of Orange v. Orange CountyAssessm ent App eals Board No. 3. In a Minute Order issued on November 2, 2001 in County of Orange v. Orange County Assessment Appeals Board No. 3, case no. OOCC03385, the Orange County Superior Court held that where a home's taxable value did not increase for two years, due to a flat real estate market, the Orange County assessor violated the two percent inflation adjustment provision of Article XI IIA, when the assessor tried to "recapture" the tax value of the property by increasing its assessed value by 4% in a single year. The assessors in most California counties, including Ventura County, use a similar methodology in raising the taxable values of property beyond 2% in a single

30 year. The State Board of Equalization has approved this methodology for increasing assessed values. On December 12, 2002, the Orange County Superior Court (the "Superior Court") certified the lawsuit as a class action. On January 30, 2003, the Superior Court held a hearing and ruled that the Orange County Tax Collector must notify the affected taxpayers of their right to file tax refund claims. Implementation of the motion is pending further review by the appellate courts on the entire case. On April 18, 2003, the Superior Court entered a Final Judgment which held that the current statewide practice of restoring property assessment, after a prior assessment reduction due to an economic downturn, based on the market value was invalid.

On June 12, 2003, an appeal was filed with the Court of Appeal, Fourth District, Division Three. The Court of Appeal overturned the Superior Court's Final Judgment on March 26, 2004. The plaintiffs filed an appeal with the California State Supreme Court and on July 21, 2004, the California State Supreme Court by a 5-2 vote decided not to hear an appeal. However, a federalappeal is possible.

Legislation Implementing Article XIIIA. Legislation has been enacted and amended a number of times since 1978 to implement Article XI IIA. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter-approved indebtedness). The one percent property tax is automatically levied by the county and distributed according to a formulaamong taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to 1989.

Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or fromthe two percent annual adjustment are allocated among the various jurisdictions in the "taxing area" based upon their respective "situs." Any such allocation made to a local agency continues as part of its allocation in future years.

Beginning in the 1981-82 fiscal year, assessors in the State no longer record property values on tax rolls at the assessed value of 25% of market value which was expressed as $4 per $100 assessed value. All taxable property is now shown at full market value on the tax rolls. Consequently, the tax rate is expressed as $1 per $100 of taxable value. All taxable property value included in this Official Statement is shown at 100% of market value (unless noted differently)and all tax rates reflect the $1 per $100 of taxable value.

Appropriation Limitation - Article XIIIB

On November 6, 1979, the voters of the State approved Proposition 4, known as the Gann Initiative, which added Article XI IIB to the State Constitution. On June 5, 1990, the voters approved Proposition 111, which amended Article XI IIB in certain respects. Under Article XII IB, as amended, state and local government entities each have an annual "appropriations limit" which limits the ability to spend certain monies which are called "appropriations subject to limitation" (consisting of most tax revenues and certain state subventions, together called "proceeds of taxes," and certain other funds) in an amount higher than the "appropriations limit." Article XI IIB does not affectthe appropriation of monies which are excluded from the definition of "appropriations limit," including debt service on indebtedness existing or authorized as of January 1, 1979, or bonded indebtedness subsequently approved by two thirds of the voters. The "appropriations limit" is adjusted annually for changes in the cost of living and in population, for transfers in the financial responsibility for providing services, and in the case of certain declared emergencies. If a City receives any proceeds of taxes in excess of its appropriations limit, it may, by resolution of the City's governing board, increase its appropriations limit to equal that amount (provided that the State has excess appropriations limit of its own in that fiscal year). The City's appropriations limit for fiscal year 2003-04 is $42,112,508, and appropriations subject to limitation are estimated at $33,773,100.

California Constitution Article XIIIC and Article XIIID (Proposition 218)

On November 5, 1996, the voters of the State approved Proposition 218, the so-called "Right to Vote on Taxes Act." Proposition 218 added to the State Constitution Articles XI IIC and XI IID, which contain a number of provisions affecting the ability of local agencies, including cities, to levy and collect both existing

31 and future taxes, assessments, fees and charges. Among other things, Article XI IIC establishes that every tax is either a "general tax" (imposed for general governmental purposes ) or a "special tax" (imposed for specific purposes); prohibits special purpose government agencies such as cities from levying general taxes; and prohibits any local agency from imposing, extending or increasing any special tax beyond its maximum authorized rate without a two thirds vote. Article XI IIC also provides that no tax may be assessed on property other than ad valorem property taxes imposed in accordance with Articles XI II and XI IIA of the California Constitution and special taxes approved by a two-thirds vote under Article XI IIA, Section 4.

Article XI IIC also provides that the initiative power shall not be limited in matters of reducing or repealing local taxes, assessments, fees and charges. The State Constitution and the laws of the State impose a mandatory, statutory duty on the County Treasurer to levy a property tax sufficient to pay debt service on any Bonds coming due in each year. The initiative power cannot be used to reduce or repeal the authority and obligation to levy such taxes or to otherwise interfere with performance of the mandatory, statutory duty of the City and the County with respect to such taxes which are pledged as security for payment of the Lease Payments. Legislation adopted in 1997 provides that Article XI IIC shall not be construed to mean that any owner or beneficial owner of a municipal security assumes the risk of or consents to any initiative measure which would constitute an impairment of contractual rights under the contracts clause of the U.S. Constitution.

Article XI IID deals with assessments and property-related fees and charges. Article XI IID explicitly provides that nothing in Article XI IIC or XI IID shall be construed to affect existing laws relating to the imposition of fees or charges as a condition of property development; however it is not clear whether the initiative power is therefore unavailable to repeal or reduce developer and mitigation fees imposed by the City. No developer fees imposed by the City are pledged or expected to be used to pay the Lease Payments.

The interpretation and application of Proposition 218 will ultimately be determined by the courts with respect to a number of the matters discussed above, and it is not possible at this time to predict with certainty the outcome of such determination.

Proposition 62

On November 4, 1986, California voters adopted Proposition 62, a statutory initiative which amended the California Government Code by the addition of Sections 53720-53730. Proposition 62 requires that (i) any local tax for general governmental purposes (a "general tax") must be approved by a majority vote of the electorate; (ii) any local tax for specific purposes (a "special tax") must be approved by a two-thirds vote of the electorate; (iii) any general tax must be proposed for a vote by two-thirds of the legislative body; and (iv) proceeds of any tax imposed in violation of the vote requirements must be deducted from the local agency's property tax allocation. Provisions applying Proposition 62 retroactively from its effective date to 1985 are unlikely to be of any continuing importance; certain other restrictions were already contained in the Constitution. The requirements of Proposition 62 have generally been superseded by the enactment of Article XI IIC of the Constitution (Proposition 218) in 1996.

Most of the provisions of Proposition 62 were affirmed by the 1995 California Supreme Court decision in Santa Clara County Local Transportation Authority v. Guardino, which invalidated a special sales tax for transportation purposes because fewerthan two-thirds of the voters voting on the measure had approved the tax. By its terms, Proposition 62 applies to cities, but because the City does not receive any material amount of tax revenues from any tax levied in contradiction to Proposition 62, the City has not experienced nor does it expect to experience any substantive adverse financial impact as a result of the passage of this initiative or the Santa Clara decision.

Future Initiatives

Article XI IIA, Article XI IIB, Proposition 98, Proposition 111, Proposition 218 and Proposition 62 were each adopted as measures that qualified for the ballot pursuant to the State's initiative process. From

32 time to time other initiative measures could be adopted, further affecting the City's finances or the City's ability to raise or expend revenues.

State Budgets

The State requires that from all State revenues there first shall be set apart the moneys to be applied for support of the public school system and public institutions of higher education. Californiaschool districts receive a significant portion of their funding from State appropriations. As a result, decreases in State revenues may significantlyaffect legislative action related to City General Fund tax revenue sources.

The fo llowing information concerning the State 's budgets fo r the current and most recent preceding years has been compiled from publicly-available information provided by the State. Neither the City nor the Underwriter is responsible fo r the information relating to the State 's budgets provided in this section. Further information is available fr om the Public Finance Division of the State Treasurer 's Offi ce.

The Budget Process. The State's fiscal year begins on July 1 and ends on June 30. The annual budget is proposed by the Governor by January 10 of each year for the next fiscal year (the "Governor's Budget"). Under State law, the annual proposed Governor's Budget cannot provide for projected expenditures in excess of projected revenues and balances available from prior fiscal years. Following the submission of the Governor's Budget, the Legislature takes up the proposal.

Under the State Constitution, money may be drawn from the Treasury only through an appropriation made by law. The primary source of the annual expenditure authorizations is the Budget Act as approved by the Legislature and signed by the Governor. The Budget Act must be approved by a two-thirds majority vote of each House of the Legislature. The Governor may reduce or eliminate specific line items in the Budget Act or any other appropriations bill without vetoing the entire bill. Such individual line-item vetoes are subject to overrideby a two-thirds majority vote of each House of the Legislature.

Funds necessary to meet an appropriation need not be in the State Treasury at the time such appropriation is enacted; revenues may be appropriated in anticipation of their receipt.

Recent State Budgets. Certain information about the State budgeting process and the State Budget is available through several State of California sources. A convenient source of information is the State's website, where recent officialstatements for State bonds are posted. The references to internetwebsites shown below are shown for reference and convenience only; the information contained within the websites has not been reviewed by the City and is not incorporated herein by reference.

The California State Treasurer's Internet home page at www.treasurer.ca.gov, under the heading "Bond Information," posts various State of California Official Statements, many of which contain a summary of the current State Budget, past State Budgets, and the impact of those budgets on school districts in the State.

The California State Treasurer's Internet home page at www.treasurer.ca.gov, under the heading "Financial Information," posts the State's audited financial statements. In addition, the "Financial Information" section includes the State's Rule 15c2-12 filings for State bond issues. The "Financial Information"section also includes the "Overview of the State Economy and Government, State Finances, State Indebtedness, Litigation" from the State's most current Official Statement, which discusses the State budget and its impact on school districts.

The California Department of Finance's Internet home page at www.dof.ca.gov, under the heading "CaliforniaBudget," includes the text of proposed and adopted State Budgets.

33 The State Legislative Analyst's Office prepares analyses of the proposed and adopted State budgets. The analyses are accessible on the Legislative Analyst's Internet home page at www.lao.ca.gov under the heading "Products".

Current State budget challenges are severe, have resulted in current budgeting changes, and pose a significant threat to certain tax revenues of the City. See "RISK FACTORS - Economic Conditions in California; Impact of State Budget on City" herein.

RISK FACTORS

The following factors, along with all other information in this Official Statement, should be considered by potential investors in evaluating the Certificates.

Not a Pledge of Taxes

The obligation of the City to pay the Lease Payments and Additional Payments does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. The obligation of the City to pay Lease Payments and Additional Payments does not constitute a debt or indebtedness of the Authority, the City, the State of California or any of its political subdivisions within the meaning of any constitutional or statutory debt limitation or restriction.

Although the Lease does not create a pledge, lien or encumbrance upon the funds of the City, the City is obligated under the Lease to pay Lease Payments and Additional Payments from any source of legally available funds (subject to certain exceptions) and the City has covenanted in the Lease that, for as long as the Leased Property is available for its use and possession, it will make the necessary annual appropriations within its budget for all Lease Payments and Additional Payments. The City is currently liable on other obligations payable from general revenues, including tax and revenue anticipation notes, pension obligation bonds and various certificates of participation issued by the City. In the event of a shortfall in revenues, a court might require that the City first set aside revenues to pay the tax and revenue anticipation notes and the pension obligation bonds. See "CITY FINANCIAL INFORMATION - Outstanding General Fund Debt and Lease Obligations" herein.

Certain taxes, assessments, fees and charges presently imposed by the City could be subject to the voter approval requirements of Article XI IIC and Article XI IID of the State Constitution. Based upon the outcome of an election by the voters, such fees, charges, assessments and taxes might no longer be permittedto be imposed, or may be reduced or eliminated and new taxes, assessments fees and charges may not be approved. The City has assessed the potential impact on its financial condition of the provisions of Article XI IIC and Article XI IID of the State Constitution respecting the imposition and increase of taxes, fees, charges and assessments and does not believe that an election by the voters to reduce or eliminate the imposition of certain existing fees, charges, assessments and taxes would substantially affect its financial condition. However, the City believes that in the event that the initiative power was exercised so that all local taxes, assessments, fees and charges which may be subject to the provisions of Article XI IIC and Article XI IID of the State Constitution are eliminated or substantially reduced, the financial condition of the City, including its General Fund, could be materially adversely affected. Although the City does not currently anticipate that the provisions of Article XI IIC and Article XI IID of the State Constitution would adversely affectits ability to pay the principal of and interest with respect to the Certificates as and when due and its other obligations payable from the General Fund, no assurance can be given regarding the ultimate interpretation or effect of Article XI IIC and Article XI IID of the State Constitution on the City's finances.

34 Additional Obligations of the City

The City is permitted to enter into other obligations which constitute additional charges against its revenues without the consent of Owners of the Certificates. To the extent that additional obligations are incurred by the City, the funds available to pay Lease Payments may be decreased.

The Lease Payments and other payments due under the Lease (including payment of costs of repair and maintenance of the Leased Property, taxes and other governmental charges levied against the Leased Property) are payable fromfunds lawfully available to the City. In the event that the amounts which the City is obligated to pay in a fiscalyear exceed the City's revenues for such year, the City may choose to make some payments rather than making other payments, including Lease Payments and Additional Payments, based on the perceived needs of the City. The same result could occur if, because of California Constitutional limits on expenditures, the City is not permitted to appropriate and spend all of its available revenues or is required to expend available revenues to preserve the public health, safety and welfare.

Default

Whenever any event of default referred to in the Lease happens and continues, the Trustee, as the assignee of the Authority, is authorized under the terms of the Lease to exercise any and all remedies available under law or granted under the Lease; provided, however, that notwithstanding anything therein or in the Trust Agreement to the contrary, THERE SHALL BE NO RIGHT UNDER ANY CIRCUMSTANCES TO ACCELERATE THE LEASE PAYMENTS OR OTHERWISE DECLARE ANY LEASE PAYMENTS NOT THEN DUE OR PAST DUE TO BE IMMEDIATELY DUE AND PAY ABLE. NEITHER THE AUTHORITY NOR ITS ASSIGNEE SHALL HA VE ANY RIGHT TO REENTER OR RELET THE PROPERTY EXCEPT FOLLOWING A DEFAULT UNDER THE LEASE. Following an event of default, at the direction of the Insurer, the Authority may elect either to terminate the Lease and seek to collect damages from the City or to maintain the Lease in effect and seek to collect the Lease Payments as they become due. The Lease further provides that so long as an event of default exists under the Lease, the Authority, or its assignee, may re-enter the Leased Property for the purpose of taking possession of any portion of the Leased Property and to re-let the Leased Property and, in addition, at its option, with or without such entry to terminate the Lease as described therein. See APPENDIX C - "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS - DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE LEASE - EVENTS OF DEFAULT AND REMEDIES" herein.

No assurance can be given that the Trustee will be able to re-let the Leased Property so as to provide rental income sufficient to pay principal and interest evidenced by the Certificates in a timely manner or that such re-letting will not adversely affect the exclusion of interest with respect thereto from gross income for federalor State income tax purposes. Furthermore, it is not certain whether a court would permit the exercise of the remedies of repossession and re-letting with respect to the Leased Property.

In the event of a default, there is no remedy of acceleration of the total Lease Payments due over the term of the Lease and the Trustee is not empowered to sell the Leased Property and use the proceeds of such sale to prepay the Certificates or pay debt service with respect thereto. The City will be liable only for Lease Payments on an annual basis and, in the event of a default, the Trustee would be required to seek a separate judgment each year for that year's defaulted Lease Payments. Any such suit for money damages would be subject to limitations on legal remedies against municipalities in California, including a limitation on enforcementof judgments against funds of a fiscal year other than the fiscal year in which the Lease Payments were due and against funds needed to serve the public welfare and interest.

Abatement

Under certain circumstances related to damage, destruction, condemnation or title defectswhich cause a substantial interference with the use and occupancy of the Leased Property, the City's obligation to make

35 Lease Payments will be subject to full or partial abatement and could result in the Trustee having inadequate funds to pay the principal and interest with respect to the Certificates as and when due. See "RISK FACTORS - Abatement" and APPENDIX C - "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS - DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE LEASE - AGREEMENT TO LEASE; TERM OF LEASE; ABATEMENT OF LEASE PAYMENTS - Abatement of Lease Payments in Event of Loss of Use" herein.

Earthquakes

The City is in a seismically active area. Property in the City has been substantially damaged by earthquakes in the past, including City-owned property. The nearest known fault to the City is the Simi-Santa Rosa Fault. A portion of the fault is located within the City limits and has not been active in historic times. The Northridge earthquake of 1994 caused significant damage in the City. Several other major faults, that are located within sixty (60) miles of the City have had earthquake activity on the Richter scale of 5.0 or greater twelve (12) times since 1810 that have caused seismic shaking in the City. The City is within Seismic Zone Four of the 1997 Uniform Building Code. Further seismic activity could damage taxable property in the City, causing a reduction in taxable values and therefore tax revenues available to the General Fund to make the Lease Payments. The City is not obligated under the Lease and it does not intend to procure and maintain, or cause to be procured and maintained, earthquake insurance on the Leased Property. In the event that any portion of the Leased Property is destroyed by an earthquake, an abatement could occur and result in the Trustee having inadequate funds to pay the principal and interest with respect to the Certificates as and when due.

Limitations on Remedies; Bankruptcy

The rights of the owners of the Certificates are subject to the limitations on legal remedies against municipalities in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. Additionally, enforceability of the rights and remedies of the owners of the Certificates, and enforcement of the City's obligations under the Lease, may become subject to the federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditor's rights generally, now or hereafter in effect, equity principles which may limit the specific enforcement under State law of certain remedies, the exercise by the United States of America of the powers delegated to it by the Constitution, the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose and the limitations on remedies against cities in the State. Bankruptcy proceedings under Chapter 9 of the Bankruptcy Code (Title 11, United States Code), which governs the bankruptcy proceedings for public agencies such as the City, or the exercise of powers by the federal or State government, if initiated, could subject the owners of the Certificates to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation, or modification of their rights. See "RISK FACTORS - Default" herein.

Release or Substitution of Property

The City has the right from time to time, with the consent of the Insurer and subject to the conditions precedent set forth in the Lease, to add other real property and improvements (subject only to Permitted Encumbrances) or to substitute other real property or improvements (subject only to Permitted Encumbrances) for all or a portion of the Leased Property, or to release a portion of the real property or improvements constituting the Leased Property. See APPENDIX C - "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS - DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE LEASE - COVENANTS WITH RESPECT TO THE LEASED PREMISES - Substitution or Release of the Leased Premises" herein.

36 In connection with a substitution or release, all interests of the Authority, and its assignee, in the portion of the Leased Property released shall terminate and the City, the Authority and the Trustee shall execute and record with the County Recorder of the County all documents deemed necessary by the City to evidence such termination of interest. In connection with a substitution or release, the City must certify to the Trustee and the Insurer that the substituted property is of approximately the same degree of essentiality to the City as the portion of the Leased Property being replaced.

All costs and expenses incurred in connection with such addition, substitution or release will be borne by the City. No addition, substitution or release under the Lease will be, by itself, the basis for any reduction in or abatement of the Lease due from the City thereunder. See APPENDIX C - "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS- DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE LEASE - COVENANTS WITH RESPECT TO THE LEASED PREMISES - Substitution or Release of the Leased Premises" herein.

Economic Conditions in California; Impact of State Budget on City

Accumulated Deficit. The State continues to experience severe financial and budgetary stress. When the State's fiscal year 2003-04 Budget was adopted in July, 2003, the State estimated that, absent corrective action, the State General Fund aggregate deficit by the end of fiscal year 2003-04 would be over $38 billion, including an $8 billion structural deficiton a going forward basis. As a part of the overall legislation to enact a budget for the State in fiscal year 2003-04, the Legislature adopted a bill, AB 7X, which authorized the issuance of fiscal recovery bonds to fund the accumulated budget deficit and the parameters under which bonds could be sold and created the California Fiscal Recovery Fund as the special fund dedicated to repaying fiscal recovery bonds. The Legislature also adopted AB 1766, which would allow the State to keep Yz cent of the Bradley-Burns sales tax currently allocated to local agencies, and transfer a similar dollar amount of property tax back to the local agencies, so that the State could utilize the sales tax as a source to repay the fiscalrecovery bonds. Legal action has been filed against the State seeking to prevent the issuance of the fiscal recovery bonds.

In fiscal year 2003-04, the Legislature began to address the State's fiscal crisis by approving AB5x9 and ACA5x5 to submit the Economic Recovery Bonds and a proposed constitutional balanced budget amendment to the voters at a March 2004 statewide election. On March 2, 2004, California voters approved Proposition 57 and Proposition 58, thereby approving a constitutional balanced budget amendment and authorizing the issuance of up to $15 billion of up to $15 billion of bonds (the "Economic Recovery Bonds") to address the State's estimated accumulated budget deficit. The Economic Recovery Bonds are expected to have a 15-year term, based on a dedicated revenue source (\/,i cent of the sales tax), with complicated arrangements for the return of property tax revenues to local governments, including cities, on a basis similar to AB 1766. The State issued $2.012 billion in Economic Recovery Bonds in fiscal year 2003-04.

The 2004-05 budget was passed by the Legislature on July 29, 2004 and signed into law by the Governor Schwarzenegger (the "Governor") on July 30, 2004 (the "2004-05 Budget"). See " - Economic Conditions in California; Impact of State Budget on City- The 2004-05 State Budget" below.

Vehicle License Fee. Several years ago, the statewide Vehicle License Fee was reduced. However, the State continued to remit to cities and counties the same amount that those local agencies would have received if the VLF had not been reduced, known as the "VLF backfill." On June 19, 2003, the State triggered an increase in the VLF to be effective beginning October 1, 2003. The State Legislature adopted AB 1768 which deferred payment to local agencies, until August, 2006, of the amount of the VLF backfillfor the period from June 20, 2003 to September 30, 2003, when the higher VLF went into effect. This VLF "gap up" or "loan" is estimated at approximately $1.3 billion statewide. The City used excess revenues from and other sources in the General Fund to address the $2.1 million which constitutes the City's share in the "loan" of these funds forfiscal year 2003-04.

37 The 2004-05 Budget includes a reduction in VLF from 2% to 0.65% and eliminates the VLF backfill. Instead, cities and counties, including the City, will receive increased property tax revenues to compensate for the reduction in VLF. For fiscal years 2004-05 and 2005-06, each category of cities, counties and special districts will give up $350 million of property tax revenues, with redevelopment agencies contributing $250 million, for a total of $1.3 billion. In return, the 2004-05 Budget includes a proposed constitutional protection for over $25 billion of local revenues ("Proposition IA") for all future years, which will be put to the California voters at the November, 2004 elections. If Proposition IA is approved in November by California state voters, the City estimates the impact on the City will be approximateI y $1.13 million forfiscal year 2004- 05 and $1.13 million for fiscal year 2005-06, and no impact beyond fiscal year 2005-06. There can be no assurance that Proposition IA will be passed in November.

However, the City has approved very few new spending items and did not fund several non-critical vacant positions for fiscal year 2004-05, among other expenditure reductions. In addition, growth is expected in other revenue sources in fiscalyear 2004-05. Through these actions, the City adopted a balanced budget for fiscal year 2004-05 which includes the $1.13 million state shared revenue loss assumption. As a result, the General Fund balance remains stable fromthe previous year; no cash reserves were used to balance the budget. The $1.13 million loss is also less than the $2.1 million in VLF revenue lost during fiscal year 2003-04 resulting in less impact on the General Fund during fiscalyear 2004-05 and fiscal year 2005-06 than in fiscal year 2003-04. See "CITY FINANCIAL INFORMATION" herein.

The 2004-05 State Budget. The 2004-05 Budget was passed by the Legislature on July 29, 2004 and signed into law by the Governor on July 30, 2004. The 2004-05 Budget addresses the State's budget problems through the following: (1) up to $15 billion in Economic Recovery Bonds in order to finance the negative General Fund reserve balance and other General Fund obligations, of which $2.012 billion were issued in fiscal year 2003-04; (2) spending reductions of approximately $10 billion for the 2004-05 fiscal year; (3) a constitutional amendment to require balanced budgets with reserves in the future, which was approved by California voters on March 2, 2004; (4) a proposed constitutional protection for over $25 billion of local revenues for all future years, which will be put to the California voters at the November, 2004 elections; and (5) various initiatives to improve the business and jobs climate in the State and improve revenue growth over time, including the adoption in April, 2004 of SB 899 which comprehensively overhauls and reforms the State's workers' compensation system Additional information concerningthe 2004-05 Budget and the State's financial condition may be found on the website of the State of California Department of Finance at http://www.dof.ca.gov.

The 2004-05 Budget authorizes total spending of $77.2 billion. The 2004-05 Budget contains no tax increases, keeps in place the Governor's 2003 roll-back of the VLF, contains reforms to the PERS system, an increase to total per-pupil funding forK-12 and incorporates the Governor's agreement with local governments to prevent the State from using local revenues to balance future State budgets. The following table summarizes the 2004-05 Budget compared to the 2003-04 Budget:

38 STATE OF CALIFORNIA 2004-05 GENERAL FUND BUDGET SUMMARY (In Millions)

Fiscal Year Fiscal Year Budget 2003-04 Budget 2004-05 Prior Year Balance $ 4,178 $ 3,127 Revenues and Transfers $ 74,570 $ 77,25 1 Economic Recovery Bonds $ 2,012 $ Total Resources Available $ 80,760 $ 80,378 Expenditures $ 75,621 $ 80,693 Transfer to and Use fromDeficit Recovery Fund $ 2,012 $ (2,012) Total Expenditures $ 77,633 $ 78,681 Fund Balance $ 3,127 $ 1,697 Budget Reserves: Reserve for Liquidation of Encumbrances $ 929 $ 929 Special Fund for Economic Uncertainties $ 2,198 $ 768 Prop 98 Reserve $ 302 Non Prop 98 Reserve $ 466

Recent Events. On May 21, 2004, in response to a perceived trend of recovery in the State's economy and tax revenues and improvement in its liquidity and budget imbalance, Moody's upgraded the State's general obligation bond rating to A3 fromto aal, assigning a possible ratings outlook.

The City cannot predict the outcome of pending or future legal challenges related to the State budget, or whether the State Legislature (or the people through the initiative process) will enact any other legislation requiring shifts of sales tax, property tax or VLF to the State and/or to schools, in the current or future fiscal years and, if so, the effect on the City's General Fund. Given the level of the State of California's deficit, monies available to the City in its General Fund for payment of the Lease Payments may be substantially reduced in the future.

THE AUTHORITY

The Simi Valley Public Financing Authority was established under Articles 1 through 4 (commencing with Section 6500) of Chapter 5, Division 7, Title 1 of the California Government Code (the "JPA Act"), and a Joint Exercise of Powers Agreement dated as of October 29, 1990, by and between the City and the Simi Valley Community Development Agency. The City Council of the City is appointed as the Board of Directors. The Authority has no employees and all staff work is done by City staff as consultants to the Authority.

TAX MATTERS

In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California ("Special Counsel"), under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest with respect to the Certificates is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Special Counsel, interest with respect to the Certificates is exempt from State of California personal income tax. Special Counsel notes that, with respect to corporations, interest with respect to the Certificates may be included as an adjustment in the calculation of alternative minimum taxable income which may affect the alternative minimum tax liability of such corporations.

39 The difference between the issue price of a Certificate (the first price at which a substantial amount of the Certificates of the same series and maturity is to be sold to the public) and the stated redemption price at maturity with respect to such Certificate constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Certificate Owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by the owner of a Certificate will increase the owner's basis in the Certificate. In the opinion of Special Counsel, the amount of original issue discount that accrues to the owner of the Certificate is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and is exempt from State of California personal income tax.

Special Counsel's opinion as to the exclusion from gross income of interest (and original issue discount) on the Certificates is based upon certain representations of fact and certifications made by the Authority, the City and others and is subject to the condition that the City complies with all requirements of the Internal Revenue Code of 1986, as amended (the "Code"), that must be satisfied subsequent to the issuance of the Certificates to assure that interest (and original issue discount) on the Certificates will not become ineluctable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause the interest (and original issue discount) on the Certificates to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Certificates. The City has covenanted to comply with all such requirements.

The amount by which a Certificate Owner's original basis for determining loss on sale or exchange in any applicable Certificate (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable Certificate premium, which must be amortized under Section 171 of the Code; such amortizable Certificate premium reduces the Certificate Owner's basis in the applicable Certificate (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of Certificate premium may result in a Certificate Owner realizing a taxable gain when a Certificate is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the Certificate to the Owner. Purchasers of the Certificates should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable Certificatepremium.

Special Counsel's opinions may be affected by actions taken ( or not taken) or events occurring ( or not occurring) after the date hereof. Special Counsel has not undertaken to determine, or to informany person, whether any such actions or events are taken or do occur. The Indenture and the Tax Certificate relatingto the Certificates permit certain actions to be taken or to be omitted if a favorable opinion of Special Counsel is provided with respect thereto. Special Counsel expresses no opinion as to the exclusion fromgross income of interest (and original issue discount) on the Certificates for federal income tax purposes with respect to any Certificate if any such action is taken or omitted based upon the advice of counsel other than Stradling Y occa Carlson & Rauth.

Although Special Counsel has rendered an opinion that interest (and original issue discount) on the Certificatesis excluded from gross income forfederal income tax purposes provided that the City continues to comply with certain requirements of the Code, the ownership of the Certificates and the accrual or receipt of interest (and original issue discount) with respect to the Certificates may otherwise affect the tax liability of certain persons. Special Counsel expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any of the Certificates, all potential purchasers should consult their tax advisors with respect to collateral tax consequences relating to the Certificates.

The form of Special Counsel's Opinion with respect to the Certificates 1s attached hereto as APPENDIXD.

40 FINANCIAL STATEMENTS OF THE CITY

Included herein as APPENDIX B are the audited financialstatements of the City as of and for the year ended June 30, 2003 prepared by the Auditor. Such audited financial statements have been included herein in reliance upon the report of the Auditor. The Auditor has not undertaken to update the audited financial statements of the City or its report or to take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement.

CERTAIN LEGAL MATTERS

Certain legal matters incident to the authorization, sale, execution and delivery of the Certificates are subject to the approval of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Special Counsel. A complete copy of the proposed form of opinion of Special Counsel is contained in APPENDIX D hereto. Special Counsel has not undertaken any responsibility to the Owners for the accuracy, completeness or fairness of this Official Statement or other offering materials relating to the Certificates and expresses no opinion relating thereto. Certain legal matters will be passed upon for the City by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Disclosure Counsel, and for the City and the Authority by the City Attorney. Compensation of Special Counsel, Disclosure Counsel and the Financial Advisor is contingent upon the execution and delivery of the Certificates.

LITIGATION

There is no litigation pending or, to the City's knowledge, threatened in any way to restrain or enjoin the execution or delivery of the Certificates, the Lease Agreement or the Trust Agreement, to contest the validity of the Certificates, the Lease Agreement or the Trust Agreement, or any proceeding of the City with respect thereto. There are a number of lawsuits and claims pending against the City generally. In the opinion of the City and the City Attorney, there are no lawsuits or claims pending against the City which will materially affectthe City's finances so as to impair its ability to pay Lease Payments when due.

RATINGS

Standard & Poor's Ratings Group ("S&P") has assigned a rating of "AAA" to the Certificates, with the understanding that, upon delivery of the Certificates, a policy insuring the payment when due of principal of and interest with respect to the Certificates will be issued by Ambac Assurance Corporation. In addition, S&P has assigned an underlying rating of "A+" to the Certificates. Such ratings reflect only the views of S&P and any desired explanation of the significance of such ratings should be obtained from S&P at the following address: Standard & Poor's Corporation, 55 Water Street, New York, New York 10041. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance such ratings will continue for any given period of time or that such ratings will not be revised downward or withdrawn entirely by the rating agencies, if in the judgment of such rating agencies, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effecton the market price of the Certificates.

UNDERWRITING

The Certificates are being purchased by Stone & Youngberg LLC (the "Underwriter") for $26, 172,886.35 (representing the par amount of the Certificates, less an underwriter's discount of $168, 707 .50, and plus a net original issue premium of $386,593.85). The Underwriter is committed to purchase all of the Certificates if any are purchased. The Underwriter may offer and sell the Certificates to certain dealers

41 (including dealers depositing Certificates into investment trusts) and others at prices lower than the offering prices stated on the cover of this OfficialStatement. After the initial public offering, the public offering prices of the Certificatesmay be changed fromtime to time by the Underwriter.

CONTINUING DISCLOSURE

The City has covenanted for the benefit of holders and Beneficial Owners of the Certificates to provide certain financial information and operating data relating to the City by not later than March 1 following the end of the City's fiscal year, commencing with the report due by March 1, 2005, forthe 2003-04 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 City with each Nationally Recognized Municipal Securities Information Repository, and with the appropriate State information depository, if any. The notices of material events will be filed by the City with the Municipal Securities Rulemaking Board (and with the appropriate State information depository, if any). The specific nature of the information to be contained in the Annual Report or the notices of material events is set forth in APPENDIX F - "FORM OF CONTINUING DISCLOSURE AGREEMENT." These covenants have been made in order to assist the Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). The City has never failed to comply in all material respects with any previous undertakings with regard to said Rule to provide annual reports or notices of material events.

42 MISCELLANEOUS

Included herein are brief summaries of certain documents and reports, which summaries do not purport to be complete or definitive, and reference is made to such documents and reports forfull and complete statements of the contents thereof. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the City and the purchasers or Owners of any of the Certificates.

The execution and delivery of this Official Statement has been duly authorized by the City.

CITY OF SIMI VALLEY

By: /s/ Mike Sedell City Manager

43 (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX A

ECONOMIC AND DEMOGRAPHIC INFORMATION REGARDING THE CITY OF SIMI VALLEY

This appendix sets fo rth general information about the City of Simi Valley ("Simi Valley" or the "City") including information with respect to its finances. The fo llowing information concerning Simi Valley, the County of Ventura (the "County") and the State of California (the "State ") is included only fo r general background purposes. It is not intended to suggest that the Certificates are payable fr om any source other than Lease Payments.

General Description

The City of Simi Valley is located in the southeastern portion of Ventura County (the "County") approximately 40 miles northwest of downtown Los Angeles. The City encompasses approximately 39 square miles. The Simi Valley area was relatively undeveloped until the 1960' s. The completion of the Simi Valley Freeway (State Route 118) in 1968 increased accessibility to the area and facilitated the subsequent development of the City.

The City incorporated October 10, 1969 and operates under a council/manager form of government. A Mayor and four City Council members are elected at large.

The City is part of the Ventura Primary Metropolitan Statistical Area (the "PMSA") which comprises all of the County. The County is bordered on the north by Kern County, on the northwest by Santa Barbara County and on the south and east by Los Angeles County. Forty-two miles of PacificOcean shoreline provide the County's southwestern border.

Population

The historic population of Simi Valley, the County and the State is shown below.

City of Simi Valley, County of Ventura and State of California Population Estimates

Year City of Simi Va lley Countyof Ventura State of California 2000 110,700 750,500 33,753,000 2001 114,000 765,300 34,431,000 2002 116,000 779,400 35,049,000 2003 117,700 791,600 35,612,000 2004 118,800 802,400 36,144,000

Source: California State Department of Finance, E-4 Revised Historical City, County and State Population Estimates, 1991- 2000, with 1990 and 2000 Census Counts, Sacramento, California, March 2002; and E-4 Population Estimates for Cities, Counties and the State, 2001-2004 with 2000 DRU Benchmark, Sacramento, California, May 2004.

Building Activity

Residential building activity for the past five calendar years for Simi Valley is shown in the following table.

A-1 City of Simi Valley Total Building Permit Numbers and Valuations

1999 2000 2001 2002 2003 Permit Valuation New Single-family $ 230,261,919 $ l 85,770,503 $ 125 ,802,377 $ 52,026,748 $ L00,665,393 New Multi-family 6,706,483 0 0 0 44,862,99 I Res. Alterations/Additions 10,328 62 1 10 048 306 10 176 LOI 10,966,136 11,171,400 Total Residential $ 247,297,023 $ 195,8 1 8,809 $ 135,978,478 $ 62,992,884 $ 156,699,784

New Commercial $ 28,836,300 $ 3,620,578 $ 1,142,367 $ 24,261 ,096 $ 13,301,755 New Industrial 5,943,415 2,009,93 1 11,427,951 1,621,723 2,236,024 New Other l l,486,118 10,67 1,924 I0,268,259 14,223,077 19,576,930 Com. Alterations/ Additions 17 749 223 14 680 702 10 047 399 13 674 116 17 016 142 Total Nonresidential $ 64,015,056 $ 30,983,135 $ 33,185,976 $ 53,780,012 $ 52,080,851

Total All Construction $ 311,3 12,079 $ 226,801,944 $ 169,164,454 $ 116,772,896 $ 208,780,635

New Dwelling Units Single Family 941 776 519 188 389 Multiple Family 205 _Q _Q _Q 504 TOTAL 1,146 776 519 188 893

Source: Construction Industry Research Board.

A-2 Employment

The following table summarizes the labor force, employment and unemployment figures over the period 1999 through 2003 for Simi Valley, the County, the State and the United States.

Simi Valley, Ventura County, State of California and United States Labor Force, Employment and Unemployment Yearly Average

Civilian Civilian Civilian Civilian 2 3 Year and Area Labor Force Employmenif1 ! Unemploymenif ! Unemployment Rat/ ! 1999 Simi Valley 65,270 62,570 2,700 4.1% Ventura County 393,500 374,700 18,800 4.8% California 16,375,600 15,522,300 853,300 5.2% United StatesC4l 139,368,000 133,488,000 5,880,000 4.2% 2000 Simi Valley 67,870 65,210 2,660 3.9% Ventura County 409,100 390,600 18,500 4.5% California 16,892,000 16,056,500 835,500 4.9% United StatesC4l 142,583,000 136,891,000 5,692,000 4.0% 2001 Simi Valley 68,800 66,080 2,720 4.0% Ventura County 414,700 395,700 19,000 4.6% California 17,171,600 16,249,100 922,500 5.4% United StatesC4l 143,734,000 136,933,000 16,249,100 4.7% 2002 Simi Valley 70,310 67,010 3,300 4.7% Ventura County 424,300 40 1,300 23,000 5.4% California 17,375,800 16,160,900 1,160,900 6.7% United StatesC4l 144,863,000 136,485,000 8,378,000 5.8% 2003 Simi Valley 71,320 68,070 3,250 4.6% Ventura County 430,400 407,700 22,700 5.3% California 17,460,000 16,282,700 1,177,300 6.7% United StatesC4l 146,5 10,000 137,736,000 8,774,000 6.0%

(1) Includes persons involved in labor-management trade disputes. (2) Includes all persons without jobs who are actively seeking work. (3) The unemployment rate is computed from unrounded data; therefore, it may differ from rates computed from rounded figures in this table. (4) Not strictly comparable with data for prior years. Source: California Employment Development Department, based on March 2003 benchmark and U.S. Department of Labor, Bureau of Labor Statistics.

Ventura PMSA, which includes Simi Valley, civilian labor force and wage and salary employment figuresfor calendar years 1999 through 2003 are shown in the followingtable. These figuresare county-wide statistics and may not necessarily accurately reflectemployment trends in Simi Valley.

A-3 Ventura County PMSA Civilian Labor Force, Employment and Unemployment Annual Averages

Title 1999 2000 2001 2002 2003

Civilian Labor Force 393,500 409,100 414,700 424,300 430,400 Civilian Employment 374,700 390,600 395,700 401,300 407,700 Civilian Unemployment 18,800 18,500 19,000 23,000 22,700 Civilian Unemployment Rate 4.8% 4.5% 4.6% 5.4% 5.3%

Total Farm 17,500 19,300 19,100 19,200 20,400 Total Nonfarm 263,600 275,000 279,900 281,800 283,600 Total Private 219,700 230,700 234,800 236,600 239,100 Goods Producing 55,000 57,700 57,400 54,400 54,300 Natural Resources and Mining 1,000 800 800 700 600 Construction 14,700 15,500 16,100 15,700 16,600 Manufacturing 39,300 41,400 40,500 38,000 37,100 Service Providing 208,600 217,300 222,600 227,500 229,400 Trade, Transportation and Utilities 46,900 49,700 50,800 51,600 51,900 Wholesale Trade 9,400 10,300 11,000 11,700 11,900 Retail Trade 32,100 33,800 33,800 34,200 34,400 Transportation, Warehousing and Utilities 5,400 5,600 5,900 5,800 5,600 Information 8,200 7,900 8,400 8,100 7,100 Financial Activities 16,100 16,700 19,700 22,200 23,400 Professional and Business Services 36,600 39,600 37,200 36,600 36,600 Educational and Health Services 24,000 24,200 25,300 26,300 27,900 Leisure and Hospitality 23,500 25,200 26,600 27,200 27,500 Government 43,900 44,300 45,100 45,300 44,600 Total, All Industries 281,100 294,300 299,000 301,000 304,000 Civilian Labor Force 393,500 409,100 414,700 424,300 430,400

Source: California Employment Development Department.

A-4 The following table lists both the major manufacturing and non-manufacturing employers in the City as of June 30, 2003.

CITY OF SIMI VALLEY Major Employers June 30, 2003

Number of Principal Manufacturing Employees Product

Milgard Manufacturing Inc ...... 385 Windows and Doors Polytainer Inc ...... 318 Plastic Bottles Meggitt Safety Systems ...... 227 Fire Protection Systems Hitachi Printing Solutions ...... 223 Imaging Supplies Computer Parts Unlimited ...... 213 Computer Parts Schlumberger Technology Inc ...... 163 Memory Test Systems Cerwin Vega Inc ...... 140 Loudspeakers PSI Bearings ...... 137 Aerospace Bearings Standard Abrasives ...... 134 Abrasive Products ALCOA Fastening Systems ...... 130 Aircraft & Automotive Parts Datron/Advance Technologies ...... 103 Antenna Systems Qualstar Corp ...... 93 Tape Libraries and Tape Drives Honeywell-Hughey & Phillips ...... 92 Airport Lighting Cardkey Systems ...... 80 Security Systems

Number of Principal Services and Retail Employees Product

Countrywide Funding Corp ...... 5,063 Financing Simi Valley Unified School District...... 2,873 Education Farmers Insurance Group ...... 1,011 Regional Insurance Service Center Simi Valley Hospital & Health Care ...... 900 Health Services City of Simi Valley ...... 613 City Government Rancho Simi Recreation & Park District...... 270 Parks Services Target Department Store...... 250 Department Store Wal-Mart ...... 227 Department Store Home Depot ...... 226 Home Improvement Store Price Costco ...... 208 Warehouse Store Adventist Media Center ...... 152 Production Studio CNM Network ...... 152 Nationwide Fiberoptic Network Mervyn's Department Store ...... 141 Department Store Albertsons Grocery Store ...... 129 Grocery Store Grand Vista Hotel of Simi Valley ...... 104 Hotel Warner/Elektra/Atlantic ...... 100 Music Distribution Facility Ralphs Grocery Store ...... 99 Grocery Store Vons ...... 49 Grocery Store

Source: Department of Administrative Services, City of Simi Valley.

Effective Buying Income

"Effective Buying Income" is defined as personal income less personal tax and non-tax payments, a number often referredto as "disposable" or "after-tax" income. Personal income is the aggregate of wages and salaries, other than labor-related income (such as employer contributions to private pension funds), proprietor's

A-5 income, rental income (which includes imputed rental income of owner-occupants of non-farm dwellings), dividends paid by corporations, interest income from all sources and transfer payments (such as pensions and welfare assistance). Deducted from this total are personal taxes (federal, state and local, non-tax payments, fines, fees, penalties, etc.) and personal contributions to social insurance. According to U.S. government definitions, the resultant figureis commonly known as "disposable personal income."

The following table summarizes the total effective buying income, the median household effective buying income and the percentage of households over $50,000 for Simi Valley, the County and the State for 1998 through 2002.

Simi Valley, Ventura County and California Effective Buying Income

Median Household Effective Effe ctive Buying Percent of Households Buying Income Income $50,000 and Over 1998 Simi Valley $ 2,041,300 $54,883 57.8% Ventura County 12,978,463 47 ,200 46.4% California 551,999,317 37,091 34.6%

1999 Simi Valley $ 2,121,334 $56,859 60.0% Ventura County 13,891,170 50,324 50.4% California 590,376,663 39,492 38.3%

2000 Simi Valley $ 2,415,762 $62,650 65.8% Ventura County 15,503,930 56,574 56.7% California 652,190,282 44,464 44.3%

2001 Simi Valley $ 2,388,173 $58,005 61.9% Ventura County 15,263,005 52,048 52.3% California 650,521,407 43,532 41.9%

2002 Simi Valley $ 2,515,695 $57,560 60.3% Ventura County 15,560,415 50,485 50.7% California 647,879,427 42,484 40.5%

Source: Sales & Marketing Management Magazine, Survey of Buying Power.

A-6 APPENDIX B

AUDITED FINANCIAL STATEMENTS FOR THEFISCAL YEAR ENDED JUNE 30, 2003

B-1 (THIS PAGE INTENTIONALLY LEFT BLANK) &::i'i DIEHL, EVANS & COMPANY, LLP CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS � MICHAEL R. Lt:DI'.'-. CP, A PART/1.'ERSHIP INCLUDING ACCOUNTANCY CORPORATIONS CRAIG W. SPRAKER. CPA NITIN P. PATEL. CPA ROBERT J. CALLANA'.'-.CPA •PHILIP H. HOLTKAMP. CPA 2121 ALTON PARKWAY, SUITE JOO 'THOMAS M. PERLOWSKJ. CPA TRVINE, CALIFORNIA 92606-4906 •HARVEY J. SCHROEDER. CPA (949) 399-0600• FAX (949) 399-0610 www.diehlevans.com • A PROFESSIONAL COR.POR..\TI01'- October 1 7, 2003

INDEPENDENT AUDITORS' REPORT

City Council City of Simi Valley Simi Valley, California

We have audited the accompanying financial statements of the governmental activities, the business­ type activities, each major fund, and the aggregate remaining fund information of the City of Simi Valley, California, as of and for the year ended June 30, 2003, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City of Simi Valley's management. Our responsibility is to express opinions on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions.

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Simi Valley, California, as of June 30, 2003, and the respective changes in financial position and cash flows, where applicable, thereof and the respective budgetary comparison for the General Fund, the Merged Tapo Canyon and West End Tax Increment and the Development Related Fees Special Revenue Funds for the year then ended in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note I to the basic financial statements, the accompanying financialstatements reflect certain changes in the presentation of financial data required as a result of the Implementation of Governmental Accounting Standards Board Statement No. 34 for the year ended June 30, 2003.

- I - In accordance with Government Auditimi Standards, we have also issued our report dated October 17, 2003 on our consideration of the City of Simi Va lley's internal control over fi nancial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit.

The management's discussion and analysis and the Schedule of Funding Progress information are not a required part of the basic financial statements but are supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.

Our audit was conducted for the purpose of forming op1mons on the financial statements that collectively comprise the City of Simi Valley's basic fi nancial statements. The introductory section, other supplemental information and statistical section as listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. The other supplemental information has been subj ected to the auditing procedures appJied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory section and statistical section have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingl y, we express no opinion on them.

- 2 - Government-Wide Financial Statements

CITY OF SIMI VALLEY STATEMENT OF NET ASSETS JUNE 30, 2003

Governmental Business-Type Activities Activities Total

� Current assets: Cash and investments (note Ill A) $ 68,286,585 $ 10,684,925 $ 78,971,510 Accounts receivable (net of allowance for uncollectibles) (note Ill C) 1,758,038 3,573,312 5,331,350 Taxes receivable 2,925,606 213,994 3,139,600 Grants receivable 1,242,811 2,044,900 3,287,711 Interest receivable 313,347 141,193 454,540 Internal balances (note I D 2) 1,820,290 (1,820,290) Inventories 771 ,257 771 ,257 Prepaids (note Ill D) 2,316,563 2,316,563 Restricted cash and investments (note Ill A): Customer deposits 690,702 690,702 Connection fees 21,279,340 21.279,340 Total current assets 78,663,240 37,579,333 116.242,573 Noncurrent assets: Loans receivable (net of allowance for uncollectibles) (notes Ill B & C) 4,819,718 4,819,718 Property held for resale 163,251 163,251 Deferred charges 918,477 918,477 Capital assets (note Ill E): Land and construction-in-progress 15,775,182 15,943,776 31,718,958 Other capital assets (net of accumulated depreciation ): Buildings 24,206,464 8,658,671 32,865,135 Furnishings and equipment 554,858 1,379,871 1,934,729 Computers 1,718,239 1,718,239 Vehicles 1,546,574 3,810,426 5,357,000 Infrastructure 17,545,750 31 ,662,100 49,207,850 Intangibles 3,758,646 3,758,646 Total noncurrent assets 71,007,159 61 ,454,844 132,462,003 Total assets s 149,670,399 $ 99,034,177 $ 248,704,576 LIABILITIES Current liabilities: Accounts payable $ 2,407,675 $ 2,091,91 1 $ 4,499,586 Salaries and benefits payable 1,848,664 403,313 2,251,977 Accrued interest payable 655,686 655,686 Liabilities payable from restricted assets 778,553 778,553 Deferred revenues 4,51 1 ,234 4,511 ,234 Current portion of long-term obligations (note Ill G) 5.547,772 52,815 5,600,587 Total current liabilities 14,971,031 3,326,592 18.297,623 Noncurrent liabilities: Noncurrent portion of long-term obligations (note Ill G) 48,774,500 704,322 49,478,822 Total liabilities 63.745,531 4,030,914 67,776,445 NET ASSETS Invested in capital assets. net of related debt 25,526,553 61,454,844 86,981 ,397 Restricted for: Capital projects 15,438,915 15,438,915 Debt service 3,762,425 3,762,425 Community development 496,822 496,822 Other purposes 4,864,327 21,19 1 ,489 26,055,816 Unrestricted 35,835,826 12,356,930 48,192,756 Total net assets 85,924,868 95,003,263 180,928.131 Total liabilities and net assets $ 149,670,399 $ 99,034,177 $ 248,704,576

See accompanying independent auditors' report and notes to the basic financial statements. 15 CITY OF SIMI VALLEY STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2003

Program Revenues Indirect Operating Expenses Full Cost Charges for Grants and Expenses Allocation by Function Services Contributions

Primary government: Governmental activities: General government $ 16,213,555 $ (4,336,969) $ 11,876,586 $ 748,516 $ 304,511 Community services (CS) 4,196,666 382,800 4,579,466 130,830 122,458 Planning (ES) 5,695,344 78,550 5,773,894 3,618,017 942,002 Public ways and facilities (PW) 13,501 ,151 380,619 13,881,770 3,293,810 5,454,147 Public safety (PD) 22,380,396 22,380,396 908,274 344,425 Interest on long term debt 2,487,785 2,487,785

Total governmental activities 64,474,897 (3,495,000) 60.979,897 8.699,447 7, 167,543

Business-type activities: Sanitation 9,649,662 1,284,200 10,933,862 9,184,395 Waterworks district no. 8 17,235,501 1,509,500 18,745,001 18,854,358 Transit 3,455,148 701 ,300 4, 1 56,448 390,523 1,768.330

Total business-type activities 30,340,311 3,495.000 33,835,311 28,429,276 1,768,330

Total primary government $ 94,815,208 $ - $ 94,81 5,208 $ 37,128,723 $ 8,935,873

General revenues: Property taxes Tax Increment Sales taxes Motor vehicle in lieu Franchise taxes Business tax Other taxes Investment earnings Miscellaneous Capital contributions-unrestricted Transfers Total general revenues and transfers Change in net assets Net assets-beginning

Net assets-ending

See accompanying independent auditors' report and notes to the basic financial statements. 16 CITYOF SIMI VALLEY STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2003

Program Net (Expense} Revenue and Revenues Changes in Net Assets Capital Primary Government Grants and Governmental Business-type Contributions Activities Activities IQ!!!

Primary government: Governmental activities: $ $ (10,823,559) $ - $ (10,823,559) General government (4,326, 1 78) ( 4,326, 1 78} Community services (CS) (1,213,875) (1,213,875) Planning (ES) 2, 121,113 (3,012,700) (3,012,700) Public ways and facilities (PW) 549,500 (20,578, 1 97) (20,578, 1 97) Public safety (PO) (2,487,785) (2,487,785) Interest on long term debt

2,670,613 (42,442,294) (42,442,294) Total governmental activities

Business-type activities: (1,749 ,467) (1,749,467) Sanitation 109,357 109,357 Waterworks district no. 8 192,736 (1 ,804,859) (1 ,804,859) Transit

192,736 (3,444,969) (3,444,969) Total business-type activities

$ 2,863,349 (42, 442 ,294) (3,444,969) (45,887,263) Total primary government

General revenues: 9,747,556 9,747,556 Property taxes 9,147,579 9,147,579 Tax Increment 12,830,405 12,830,405 Sales taxes 6,951,826 6,951,826 Motor vehicle in lieu 3,366,958 3,366,958 Franchise taxes 1,370,609 1,370,609 Business tax 1,581,920 1,581 ,920 Other taxes 2,532,486 831 ,423 3,363,909 Investment earnings 23,995 23,995 Miscellaneous 12,742,118 8, 149,624 20,891 ,742 Capital contributions-unrestricted (1 ,066,859) 1,066,859 Transfers 59,204,598 10,071 ,901 69,276,499 Total general revenues and transfers 16,762,304 6,626,932 23,389,236 Change in net assets 69,162,564 88,376,331 157 ,538,895 Net assets-beginning

$ 85,924,868 $ 95,003,263 $ 180,928.131 Net assets-ending

See accompanying independent auditors' report and notes to the basic financial statements. 17 Fund Fina11cial Statements 19 CITY OF SIMI VALLEY BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2003

Merged Tapo Canyon & West End Development Streets & General Tax Increment Related Fees Roads

ASSETS Cash and investments (note Ill A): Held by city 6,739,049 s 62.432 $ 11,394,957 $ 2.544,087 Held by fiscal agents Accounts receivable (net of allowance for 1,677,790 19,849 uncollectibles) (note Ill C) Prepaids (note Ill D) Taxes receivable 2,807,31 6 50,996 Grants receivable 9,600 45,593 Interest receivable 114,874 14,044 55,749 635 Due from other funds (note Ill F) 4,364,781 Loans receivable (net of allowance for 461,300 uncollectibles) (note Ill B & C) Property held for resale Advances to other funds (note Ill F) 17.549, 816

TOT AL ASSETS $ 33.724,526 $ 147.321 $ 11.450,706 $ 2.590.31 5

LIABILITIES AND FUND BALANCES

LIABILITIES

Accounts payable $ 967,988 $ 147,323 $ 3,033 $ 7,749 Salaries and benefits payable 1,762.881 Due to other funds (note Ill F) Advances from other funds (note Ill F) 11,795,312 Deferred revenues 45.593

TOTAL LIABILITIES 2,730,869 11,942,635 3,033 53,342

FUND BALANCES Reserved (note Ill H) 18,743.283 10,413 293,458 Unreserved. designated (note Ill H) 6,622,652 11,437,260 2,243,515 Unreserved, undesignated (note Ill H) 5.627,722 (11.795.314)

TOTAL FUND BALANCES (DEFICITS) 30.993.657 (11 ,795,314) 11,447.673 2,536,973

TOTAL LIABILITIES AND FUND BALANCES $ 33.724.526 $ 147.321 $ 11,450,706 $ 2.590.315

See accompanying independent auditors' report and notes to the basic financial statements. 20 CITY OF SIMI VALLEY BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2003

Public Total Police Facility Non major Governmental Facility Improvements Governmental Funds

ASSETS Cash and investments (note Ill A): $ 4,111 $ 6.867,902 s 23.408,422 s 51 ,020,960 Held by city 3,240.463 3,240,463 Held by fiscal agents 60,399 1,758,038 Accounts receivable (net of allowance for uncollectibles) (note Ill C) 2,31 6,563 2,316,563 Prepaids (note Ill D) 67,294 2.925.606 Taxes receivable 1,187,618 1,242,81 1 Grants receivable 18 15.254 75,775 276,349 Interest receivable 4,364,781 Due from other funds (note Ill F) 4,358,41 8 4,81 9,718 Loans receivable (net of allowance for uncollectibles) (note Ill B & C) 163,251 163,251 Property held for resale 2.500.000 20.049.816 Advances to other funds (note Ill F)

s 4.129 s 6.883. 156 $ 37,378,203 $ 92.1 78.356 TOTAL ASSETS

LIABILITIES AND FUND BALANCES

LIABILITIES $ $ 12,035 $ 1,069,190 $ 2,207,31 8 Accounts payable 76,500 1,839,381 Salaries and benefits payable 1,657,992 987,878 2.645,870 Due to other 1unds (note Ill F) 3,348,380 218,124 15,361 ,81 6 Advances from other funds (note Ill F) 4,560.640 4,606,233 Deferred revenues 1,657,992 3.360,415 6.912.332 26,660.618 TOT AL LIABILITIES

FUND BALANCES 1,200 383,372 8,502.907 27.934,633 Reserved (note Ill H) 3,139,369 23,000,81 1 46,443,607 Unreserved, designated (note Ill H) (1.655.063) p.037,847) (8.860.502) Unreserved, undesignated (note Ill H) (1,653.863) 3.522.741 30.465,871 65.517,738 TOTAL FUND BALANCES (DEFICITS)

$ 4,129 $ 6.883,156 $ 37.378.203 $ 92, 1 78.356 TOTAL LIABILITIES AND FUND BALANCES

See accompanying independent auditors' report and notes to the basic financial statements. CITY OF SIMI VALLEY RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE GOVERNMENT-WIDE STATEMENT OF NET ASSETS - GOVERNMENTAL ACTIVITIES JUNE 30, 2003

Fund balances - total governmental funds $ 65,517,738

Amounts reported for governmental activities in the statement of net assets are different because:

Capital assets in governmental activities are not financial resources and, therefore, are not reported in the governmental funds (note Ill E). 65,105,713

Other long-term assets are not available to pay for current-period expenditures and, therefore, are deferred in the funds: Deferred revenue adjustment for loan receivable $ 95,000 Unamortized bond issuance costs 91 8,477 1,013,477

Internal service funds are used by management to charge the costs of workers' compensation and general liability. The assets and liabilities are included in governmental activities in the statement of net assets. (522,452)

Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported in the funds (note Ill G): Note payable (109,812) Compensated absences payable (3,941 ,285) Accrued interest payable (655,686) 1995 Lease Revenue Bonds (8,825,000) 2003 Tax Allocation Bonds (31 ,795,000) Unamortized bond premium (450,724) Unamortized bondpayable economic loss 587,899 (45, 189,608)

Net assets of governmental activities $ 85,924,868

See accompanying independent auditors' reportand notes to the basic financial statements.

22 23 CITY OF SIMI VALLEY STATEMENT OF REVENUES, EXPENDITURES ANO CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Merged Tapo Canyon & West End Development Streets & General Tax Increment Related Fees Roads

REVENUES Taxes $ 27,671 ,729 $ $ $ Tax increment revenues 9,087,901 Licenses and permits 3,000,142 Fines and forfeitures 759,786 Use of money and property 956,094 80,248 273,648 3,865 From other governments 7,262.490 Grants 210,421 848,817 Service charges 1,840,129 139,688 553,617 Other revenues 783.483 10,000 610.307 Total revenues 42,484,274 9,317,837 1.437.572 852.682

EXPENDITURES Current: General government 3,651 ,989 102,751 Community services (CS) 4,468,175 Planning (ES) 3, 1 40,989 43,295 Public ways and facilities (PW) 10,185,176 Public safety (PD) 19.217.273 Total current expenditures 40,663.602 102,751 43,295

Capital outlay: Streets and roads 1,828,988 Other capital projects Total capital outlay 1,828.988

Debt service: Refunding escrow Refunding bond issuance costs Principal Interest 346,210 Administration Total debt service 346,210

Intergovernmental 3, 1 1 0,408 Total expenditures 40.663,602 3.559.369 43.295 1,828,988

EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 1,820,672 5,758,468 1,394,277 (976,306)

OTHER FINANCING SOURCES (USES) Transfers in (note Ill F) 5,450,884 246,424 640,771 Transfers out (note Ill F) (5,970,201) (4,1 87,361) (1 ,064,761) Refunding bonds issued (note Ill G) Payment to refunded bond escrow agent (note Ill G) Total other financing sources (uses) !51 9.317) (3,940.937) p.064,761) 640,771

NET CHANGE IN FUND BALANCES 1,301 ,355 1,817,531 329,516 (335.535)

FUND BALANCES (DEFICITS)·BEGINNING, AS RESTATED 29.692,302 (1 3.61 2,845) 11,118,157 2,872,508

FUND BALANCES (DEFICITS)·ENDING $ 30.993.657 $ (11 ,795,314) $ 11,447,673 $ 2,536,973

See accompanying independent auditors' report andnotes to the basic financial statements. 24 CITY OF SIMI VALLEY STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE FISCAL YEAR ENDED JUNE 30. 2003

Public Total Police Facility Nonmajor Governmental Facility Improvements Governmental Funds

REVENUES $ $ $ 1,626.018 $ 29,297,747 Taxes 59.678 9,147,579 Tax increment revenues 3,000,142 Licenses and permits 759,786 Fines and forfeitures 95 78,636 1,062,428 2.455,014 Use of money and property 5,831 ,746 13,094,236 From other governments 2,536,691 3.595,929 Grants 846,888 3,380,322 Servicecharges 144,239 1.548,029 Other revenues 95 78,636 12.107.688 66,278,784 Total revenues

EXPENDITURES Current: 2,901 ,883 6,656,623 General government 13.636 4,481,81 1 Community services (CS) 2,392,011 5,576,295 Planning (ES) 2,279,199 12,464,375 Public ways and facilities (PW) 61 1 ,277 19,828,550 Public safety (PD) 8.198.006 49,007,654 Total current expenditures

Capital outlay: 1,828,988 Streets and roads 20, 1 00 281.681 3,414,830 3,716,611 Other capital projects 20. 100 281 .681 3.414.830 5,545,599 Total capital outlay

Debt service: 1,666,163 1 ,666, 163 Refunding escrow 930.403 930,403 Refunding bond issuance costs 1,249,101 1,249,101 Principal 2,206,713 2,552,923 Interest 7,594 7,594 Administration 6,059,974 6,406,184 Total debt service

22.149 3,132,557 Intergovernmental 20, 100 281,681 17,694,959 64,091 ,994 Total expenditures

EXCESS (DEFICIENCY) OF REVENUES !20.005) (203.045) !5 ,587,271) 2,186.790 OVER EXPENDITURES

OTHER FINANCING SOURCES {USES) 9,906.142 16,244,221 Transfers in (note Ill F) (6,446.557) (17,668,880) Transfers out (note Ill F) 32,251,576 32,251,576 Refunding bonds issued (note Ill G) (29.1 76. 958) !2 9.1 76,958) Payment to refunded bond escrow agent (note Ill G) 6.534,203 1.649.959 Total other financing sources (uses)

(20.005) (203,045) 946,932 3,836,749 NET CHANGE IN FUND BALANCES

!1 ,633.858) 3,725.786 29.518,939 61 ,680,989 FUND BALANCES (DEFICITS)-BEGINNING, AS RESTATED

$ (1.653.863l $ 3.522,741 $ 30.465,871 $ 65.51 7,738 FUND BALANCES (DEFICITS)-ENDING

See accompanying independent auditors' report and notes to the basic financial statements. 25 CITY OF SIMI VALLEY RECONCILIATION OF THE STATEMENT OF REVENUES EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES JUNE 30, 2003

Net change in fund balances - total governmental funds $ 3,836,749

Amounts re ported for governmental activities in the statement of activities are different because:

Governmental funds report capital outlay as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. Infrastructure contributed by developers $ 12,742,118 Capital outlay 4,1 1 8,207 Depreciation expense (1,965,069) Loss on disposition of assets (12,295) 14,882,961

Refunding of long-term debt affects current financial resources in governmental funds. Also governmental funds reportpr emiums, issuance costs and economic gain/loss when debt is issued. However, refunding of debt does not affect net assets, and the other costs are deferred and amortized in the statement of activities. Issuance of tax allocation refunding bonds (31 ,795,000) Unamortized premium on bonds (456,576) Unamortized economic loss on refunding 598, 121 Unamortized issuance costs 930,403 Debt issue refunded 30,245,000 (478,052)

Repayment of long-term debt is an expenditure in the governmental funds, but reduces long-term liabilities in the statement of net assets. Principal payments: Note payable 4, 101 Tax increment bonds 770,000 Lease revenue bonds 475,000 1 ,249, 101

Expenditures that do not use current financial resources are not reported in governmental funds, but are recorded as expenses in the statement of activities. Net debt service interest accrual 81,434 Amortization of bond issuance costs (1 1 ,926) Amortization of economic loss on refunding (10,222) Amortized premium on bonds 5,852 Compensated absences (345,919) (280,781)

Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. (400,299)

Internal servicefu nds are used by the City to account for liability and workers' compensation insurance. The net expense of these funds is reported with governmental activities. (2,047,375)

Change in net assets of governmental activities $ 16,762,304

See accompanying independent auditors' report and notes to the basic financial statements.

26 CITY OF SIMI VALLEY GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative)

REVENUES Taxes: Sales $ 12,533,200 $ 12,533,200 $ 12,830,405 $ 297,205 Property 7,171 ,000 7,171 ,000 8,521 ,837 1,350,837 Franchise 3,295,800 3,295,800 3,366,958 71,158 Business and other 2,900,000 2,900,000 2,952,529 52,529 Licenses and permits 2,385,200 2,385,200 3,000,142 614,942 From other governments 7,139,900 7,139,900 7,262,490 122,590 Grants 210,421 210,421 Servicecharges 1,403,400 1,403,400 1,840,1 29 436,729 Fines and forfeitures 640,000 640,000 759,786 119,786 Use of money and property 1,588,100 1 ,588, 100 956,094 (632,006) Other revenues 550,500 550,500 783,483 232,983 Total revenues 39,607,100 39,607,100 42,484,274 2,877,174

EXPENDITURES Current: City administration 2,483,300 2,546,100 2,386,343 159,757 Attorney 777,400 776,800 762,544 14,256 Administrative services and city-wide support (AS)* 984,100 1,041,851 503,102 538,749 Planning (ES) 3,312,700 3,303,420 3,140,989 162,431 Community services (CS) 4,868,900 4,899,800 4,468,175 162,431 Public ways and facilities (PW) 10,978,300 11,392,700 10, 185, 176 1,207,524 Public safety (PD) 19, 1 93,700 19.329,500 19,217,273 112,227 Total expenditures 42,598,400 43,290,171 40,663,602 2,357,375 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (2 ,991 ,300) (3,683,071) 1,820,672 5,234,549

OTHER FINANCING SOURCES (USES} Transfers in 5,444,000 5,444,000 5,450,884 6,884 Transfers out (2,936,600) (6,040,443) (5,970,201) 70,242 Total other financing sources (uses) 2,507,400 (596,443) (519,317) 77,126

NET CHANGE IN FUND BALANCE (483,900) (4,279,514) 1,301 ,355 5,31 1 ,675

FUND BALANCE-BEGINNING, AS RESTATED 29,692,302 29,692,302 29,692,302

FUND BALANCE-ENDING $ 29,208,402 $ 25,41 2,788 $ 30,993,657 $ 5,31 1 ,675

*net of reimbursements

See accompanying independent auditors' report and notes to the basic financial statements.

27 CITY OF SIMI VALLEY STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL - MERGED TAPO CANYON AND WEST END TAX INCREMENT FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative)

REVENUES Tax increment revenues $ 8,915,800 $ 8,915,800 $ 9,087,901 $ 1 72, 101 Use of money and property 139,200 139,200 80,248 (58.952) Service revenues 173,285 139,688 (33,597) Other revenues 10,000 10.000 10,000 Total revenues 9.065,000 9,238,285 9.31 7,837 79,552

EXPENDITURES Current: General government: Reimbursement to general fund 389,000 389,000 Materials, supplies and services 604,700 61 1 ,600 42,722 568,878 Contract services 77,100 77,100 60,029 17,071 Total general government 681 ,800 1,077,700 102,751 974,949

Debt service: Interest 724,300 724,300 346,210 378,090

Intergovernmental 2,813,800 3,071,952 3, 1 1 0,408 {38,456) Total expenditures 4.219,900 4,873,952 3.559,369 1,314,583

EXCESS OF REVENUES OVER EXPENDITURES 4,845, 100 4.364,333 5,758,468 1,394, 135

OTHER FINANCING SOURCES (USES} Transfers in 246,424 246,424 Transfers out {5,421, 1 00) (5,788,510) (4 ,187,361) 1,601 ,149 Total other financing sources (uses) (5,421 , 1 00) (5,788,510) (3,940,937) 1,847,573

NET CHANGE IN FUND BALANCES (576,000) (1 ,424, 1 77) 1,817,531 3,241,708

FUND BALANCES (DEFICITS)-BEGINNING, AS RESTATED (13,61 2,845) (13,612,845) (13,61 2,845)

FUNDBALANCES (DEFICITS)-ENDING $ (1 4, 188,845) $ (1 5,037,022) $(11,795,314) $ 3,241 ,708

See accompanying independent auditors' report and notes to the basic financial statements. 28 CITY OF SIMI VALLEY STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL · DEVELOPMENT RELATED FEES FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative)

REVENUES Use of money and property $ 328,700 $ 336,300 $ 273,648 $ (62,652) Service charges 408,000 418,500 553,617 135,117 Other revenues 454,100 454,100 61 0,307 156,207 Total revenues 1,190,800 1,208,900 1,437,572 228,672

EXPENDITURES Current: Environmental services: Housing programs 64,000 43,295 20,705

Capital outlay 6,300 6,300 Total expenditures 70,300 43,295 27,005

OTHER FINANCING SOURCES (USES) Transfers out (1.369,800) (1,470,200) {1 ,064, 761) 405,439

NET CHANGE IN FUND BALANCES (179,000) (331 ,600) 329,516 661 ,116

FUND BALANCES-BEGINNING 11,118,157 11,118,157 11,118,157

FUND BALANCES-ENDING $ 10,939,157 $ 10,786,557 $ 11,447,673 $ 661 ,1 16

See accompanying independent auditors' reportand notes to the basic financial statements. 29 CITY OF SIMI VALLEY STATEMENT OF NET ASSETS PROPRIETARY FUNDS JUNE 30, 2003

Business-type Activities · Enterprise Funds Governmental Ventura Count� Simi Valley Activities Simi Valley Waterworks Transit Internal Sanitation District No. 8 System Total Service Funds � Current assets: Cash and investments (note Ill A) $ 7,531 ,130 $ 3.153,795 s $ 10.684,925 s 14,025.162 Customer receivable 157,628 2,424,720 2,582,348 Other receivable 210,590 736,589 43,785 990,964 Taxes receivable 213,994 213,994 Grants receivable 2,044,900 2,044,900 Inventories 136,897 536,423 97,937 771 ,257 Interest receivable 95,485 45.708 141,193 36.998 Total current assets 8.345,724 6.897.235 2,186.622 17.429.581 14,062. 160

Noncurrent assets: Restricted cash and investments: Customer deposits 690,702 690,702 Connection fees (note Ill A) 14,015,099 7,264,241 21,279,340 Capital assets (net of accumulated depreciation) (note Ill E): Land 765,660 469,420 1,235,080 Buildings and improvements 6,284,178 633,678 1,740,815 8,658,671 Furnishings and equipment 385,730 435,913 558,228 1,379,871 Vehicles 383,510 238,260 3,188,656 3,810,426 Distribution system 20, 1 1 2,930 11,541,212 7,958 31 ,662,100 Construction-in-progress 10,874,059 3,834,637 14,708.696 Total noncurrent assets 52,821.166 25, 1 08,063 5,495,657 83,424,886

TOT AL ASSETS $ 61 , 166,890 $ 32.005,298 $ 7,682.279 $ 100,854.467 $ 14.062, 160

LIABILITIES Current liabilities: Accounts payable $ 263,210 $ 1,768,295 $ 60,406 $ 2,091,91 1 $ 200,357 Salaries and benefits payable 198,01 3 106,711 98,589 403,313 9,283 Compensated absences 29,778 15,912 7,125 52,81 5 11,941 Due to other funds (note Ill F) 1,718,911 1,718,911 Claims and legal services payable 3,803,106 Total current liabilities 491 ,001 1,890,918 1,885.031 4,266.950 4,024,687

Current liabilities payable from restricted assets: Water serviceprepayments 690,702 690,702 Accounts payable restricted 36.970 50,881 87,851 Total current liabilities from restricted assets 36,970 741 ,583 778,553

Noncurrent liabilities: Advances from other funds (note Ill F) 4,688.000 Compensated absences 301,537 182,145 220,640 704,322 3,656 Claims and legal servicespayable 5,985,245 Total noncurrent liabilities 301 ,537 182,145 220,640 704,322 10,676,901

TOTAL LIABILITIES 829,508 2.814,646 2,105,671 5,749,825 14,701 ,588

NET ASSETS Invested in capital assets 38,806,067 17,153,120 5,495,657 61,454,844 Restricted 13,978,129 7,213,360 21,191 ,489 Unrestricted 7,553,186 4,824,172 80,951 12,458,309 (639,428)

TOT AL NET ASSETS 60,337,382 29,190,652 5,576,608 95,104,642 (639,428)

TOTAL LIABILITIES AND NET ASSETS $61, 1 66,890 $32,005.298 $7,682.279 $14,062,160

Adjustment to reflect the consolidation of internal servicefund activities related to enterprise funds Beginning adjustment 520,076 Current adjustment (621 ,455)

Net assets of business-type activities $ 95,003,263

See accompanying independent auditors' reportand notes to the basic financial statements. 30 CITY OF SIMI VALLEY STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Business-type Activities • Enterprise Funds Governmental Ventura County Simi Valley Activities Simi Valley Waterworks Transit Internal Sanitation District No. 8 System Total Service Funds

OPERATING REVENUES Charges tor salesand services $ 9.1 84.395 $ 18,854,358 $ 390,523 $ 28,429.276 $ 3.681 .500 Total operating revenues 9,184,395 18,854,358 390,523 28 .429,276 3,681 ,500

OPERATING EXPENSES Salaries and benefits 4,125,007 2,302,251 2,098,189 8,525,447 239,981 Materials and supplies: Water purchases 11,465,476 11,465,476 Utilities 914,348 644,229 1,558,577 Chemicals 263,566 263,566 Other 194,549 488,824 293,952 977,325 4,685 Services: Maintenance projects 93,118 268,883 362,001 Other 1,468,470 1,109,013 411,000 2,988,483 Insurance 178,200 100,700 122,300 401 ,200 507,044 Claims and legal expenses 5,803,272 General administration 1,284,200 1,509,500 701 ,300 3,495,000 353,900 Depreciation 2.070,597 637,118 469,066 3,176,781 Total operating expenses 10,592,055 18,525.994 4,095.807 33,213,856 6,908,882

OPERAT ING INCOME (LOSS) (1 ,407,660) 328,364 (3 .705.284) (4,784.580) (3,227,382)

NONOPERATING REVENUES AND EXPENSES Grants 1,768,330 1,768,330 Interest 488,915 342,508 831,423 200,752 Other 11,099 12,896 192,736 216,731 Total nonoperating revenue (expenses) 500,014 355,404 1,961 ,066 2.816,484 200,752

INCOME (LOSS) BEFORE CONTRIBUTIONS AND TRANSFERS (907,646) 683,768 (1,7 44,218) (1,968,096) (3,026,630)

CONTRIBUTIONS AND TRANSFERS Capital contributions 3,71 9,914 4,237,242 192,468 8,149,624 Transfers in (note Ill F) 1,283,159 1,283,159 362,000 Transfers out (note Ill F) (97,300) (1 1 9,000) (216.300) (4,200) Total contributions and transfers 3,622,614 4,11 8,242 1,475,627 9,216,483 357,800

CHANGE IN NET ASSETS 2,714,968 4,802,010 (268,591) 7,248,387 (2,668,830)

TOTAL NET ASSETS-BEGINNING, AS RESTATED 57,622,414 24,388,642 5,845,199 2,029,402

TOTAL NET ASSETS-ENDING $ 60,337,382 $ 29,190,652 $ 5,576,608 $ (639,428)

Adjustment to reflect the consolidation of internal servicefund activities related to enterprise funds Current adjustment (6 21,455)

Change in net assets of business-type activities $ 6,626,932

See accompanying independent auditors' report and notes to the basic fi3i"cial statements. CITY OF SIMI VALLEY STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Business-t:t12e Activities - Enteronse Funds Governmental Ventura County Simi Valley Activities Simi Valley Waterworks Transit Internal Sanitation District No. 8 Ststem Totals Service Funds

CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from service charges and other revenues s 9,122,108 s 19,273,329 s 568,808 s 28.964,245 $ 3,681 .500 Cash paid for salaries and benefits (4,092.833) (2.259,632) · (2,060.301) (8.412,766) Cash paid for supplies and materials (1,372,463) (12,362,529) (662,832) (14,397.824) Cash paid for general administration (353,900) Cash paid for services and insurance (3,204,662) (2,988,096) ( 1 ,234,600) (7.427,358) (129.852) Cash paid for insurance premiums and claims 3.033.157 Net cash used by operating activities 452.150 1.663,072 (3.388.925) (1.273.703) 164.591

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Cash paid from operating transfers (97,300) (119,000) (216,300) Cash received from grants and other governments 12,896 1,975,273 1.988,169 Cash received from intertund borrowing 500,000 272,840 772,840 357.800 Net cash provided (used) by noncapital financing activities (97.300) 393,896 2,248,113 2.544.709 357.800

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Sewer connection fees and water capital improvement charges 3,71 9,914 4,237,242 192,468 8,149,624 Contribution received from other governments 11,099 11,099 Acquisition of fixed assets (5,942,534) (4.597,071) (217,473) (10.757,078) Net cash provided (used) by capital and related financing activities !2,211 ,521) (359,829) (25.005) (2,596,355)

CASH FLOWS FROM INVESTING ACTIVITIES: Interest on investments 588,01 5 382,825 970.840 235,218

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,268,656) 2,079,964 (1,165,817) (354,509) 757,609

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 22,814,885 9,028,774 1.165,817 33,009,476 13,267,553 CASH AND CASH EQUIVALENTS, END OF YEAR s 21,546,229 $ 11,108,738 s $ 32.654.967 $ 14.025,162

NONCASH CAPITAL AND RELATED FINANCING ACTIVITIES: Capital additions s 2,135,114 $ 3,627,746 s s 5,762,860 s Contributions in aid of construction !2,135,114) (3,627,746) (5,762,860) NET NONCASH CAPITAL AND RELATED FINANCING ACTIVITIES s s s s s

RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH USED BY OPERATING ACTIVITIES: Operating income (loss) s (1.407,660) $ 328,364 s (3,705,284) S (4,784,580) s (3,227,382)

Adjustments to reconcile operating loss to net cash used by operating activities: Depreciation 2,070,597 637,118 469,066 3,176,781 (Increase) in accounts receivable (62,287) 438,675 (14,451 ) 361,937 Increase (decrease) in accounts payable (180,674) 181,009 (368,880) (368,545) 100,746 Increase (decrease) in accrued payroll (299,141) (155,438) (189,877) (644,456) Increase (decrease} in compensated absences 331 ,315 198,057 227,765 757, 137 Increase (decrease) in water service prepayments 35,287 35,287 Increase (decrease) in claims and legal services payable 3,291,227 Adjustment tor revenues and expenses classified as nonoperating 192,736 192,736 Total adjustments 1.859,810 1.334.708 316,359 3,510,877 3,391 ,973

Net cash used by operating activities s 452,150 s 1.663.072 $ p.388.925) $ (1.273,703) $ 164.591

See accompanying independent auditors' reportand notes to the basic financial statements. 32 CITY OF SIMI VALLEY STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES FIDUCIARY FUNDS JUNE 30, 2003

Total

ASSETS

Current assets: Cash and investments (note Ill A): Held by city $ 9,278,109 Held by fiscal agents 1,500,399 Interest receivable 18.002

TOT AL ASSETS $ 10,796,510

LIABILITIES

Current liabilities: Deposits and intergovernmental payable $ 10,796,510

TOTAL CURRENT LIABILITIES $ 10,796,510

See accompanying independent auditors' report and notes to the basic financial statements. 33 34 Notes to the Basic Financial Statements

.,,5· 2 0,) 0 :::) (")- ('.'!) -· rJl QJ - Cll­-o -:::::, 9:. Cl: � 0: 3 0.: I! g (': fJl- CITY OF SIMI VALLEY • LISTING OF NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30. 2003

PAGE

I. Summary of significant accounting policies ...... 36 A. Reporting entity...... 36 B. Financial statements ...... 36 C. Measurement focus, basis of accounting, and financial statement presentation ...... 38 D. Assets, liabilities, and net assets or equity...... 40 1. Deposits and investments...... 40 2. Receivables and payables ...... 40 3. Property taxes ...... 41 4. Inventories and prepaid items ...... 41 5. Restricted assets . . . • . • • • . . . . • . . • ...... • . . • . . . . . • • • . • • . . • • • . . . . . • • • • • • • • . . . • . . . . • • . • 42 6. Capital Assets ...... 42 7. Compensated absences ...... 42 8. Long-term obligations ...... 43 9. Fund equity...... 43 II. Stewardship, compliance, and accountability...... 43 A. Budgetary information ...... 43 B. Excess of expenditures over appropriations...... 44 C. Deficit fund equity...... 44 III. Detailed notes on all funds ...... 44 A. Deposits and investments ...... 44 B. Loans receivable ...... 47 C. Allowance for uncollectible accounts...... 47 D. Prepaids...... 47 E. Capital Assets...... 47 F. Interfund receivables, payables, and transfers ...... 49 G. Long-term debt...... 51 H. Fund balance reserves and designations ...... 54 I. Accounting restatements ...... 55 J. Assessment district bonds...... 55 K. Conduit debt obligations: ...... 55 IV. Other information...... 57 A. Arbitrage rebate liability ...... 57 B. Risk Management ...... 57 C. Subsequent event ...... 58 D. Other post employment benefits ...... 58 E. Deferred compensation plans ...... 59 F. Pension plans ...... 59

35 CITY OF SIMI VALLEY • NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2003 I. Summary of significant accounting policies

A. Reporting entity

The City of Simi Valley is a municipal corporation governed by an elected mayor and four­ member council. The accompanying financial statements present the government and its component units, entities for which the government is considered to be financially accountable . Blended component units , although legally separate entities, are, in substance, part of the government's operations. The following blended component units are included in the City's financial statements:

• Ventura County Waterworks District No. 8 provides water services to the residents of the City of Simi Valley. The activity of the District is reported as an Enterprise Fund.

• Simi Valley Community Development Agency established under "Community Redevelopment Law" in the California Health and Safety Code serves to eliminate blight, enhance job creation and retention, and improve the tax base for the City by promoting development. The activity of the Agency is reported in special revenue, debt service and capital projects funds.

• Simi Valley Industrial Development Authority facilitates certain _types of development projects.

• Simi Valley Public Financing Authority provides a financing mechanism for various public projects. The activity of the Authority is reported in the debt service funds.

These entities are financially accountable to the primary government, and are governedby a board comprised of the City's elected council. Stand-alone financial statements for the Community Development Agency are available from the Department of Administrative Services. Separate financial statements are not prepared for the Ventura County Waterworks District No. 8, the Simi Valley Industrial Development Authority and the Simi Valley Public Financing Authority.

B. Financial statements

For the year-ended June 30, 2003, the City adopted the provisions of GASB Statement No. 34 (Statement 34) of the Governmental Accounting Standards Board, "Basic Financial Statements - and Management's Discussion and Analysis - For State and Local Governments ". Statement 34 established standards for external financial reporting for all state and local governmental entities which includes a statement of net assets, a statement of activities and the inclusion of a management's discussion and analysis section that provides an analysis of the City's overall financial position and changes in financial position.

It also requires the classification of net assets into three components - invested in capital assets, net of related debt; restricted; and unrestricted. These classifications are defined as follows:

• Invested in capital assets, net of related debt - This component of net assets consists of capital assets, including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable

See independent auditors' report. 36 CITY OF SIMI VALLEY • NOTES TO THE BASIC FINANCIAL ST A TEMENTS FISCAL YEAR ENDED JUNE 30, 2003 to the acqms1t1on, construction, or improvement of those assets. If there are significant unspent related debt proceeds at year-e_nd, the portion of the debt attributable to the unspent proceeds are not included in the calculation of invested in capital assets, net of related debt. Rather, that portion of the debt is included in the same net assets component as the unspent proceeds.

• Restricted - This component of net assets consists of constraints placed on net asset use through external constraints imposed by creditors (such as through debt covenants), granters, contributors, or laws or regulations of other governments or constraints imposed by law through constirutional provisions or enabling legislation.

• Unrestricted net assets - This component of net assets consists of net assets that do not meet the definition of "restricted" or "invested in capital assets, net of related debt".

When both restricted and unrestricted resources are combined in a fund, expenses are considered to be paid first from restricted resources, and then from unrestricted resources.

The basic financial statements of the City are comprised of: Government-wide financial statements, Fund financial statements, Budget to acrual comparisons for the general fundand major special revenue funds, Notes to the basic financial statements, and Required supplementary information.

In addition, supplementary information is provided for: Nonmajor governmental funds, Internal service funds, Budget to acmal comparisons fornonma jor special revenue funds, and Capital assets used in governmental operations.

The government-wide financial statements (i.e., the statement of net assets and the statement of changes in net assets) report information on all of the non-fiduciary activities of the primary government and its component units. For the most part, the effect of interfund activity has been removed from these statements. Exceptions to this general rule are payments-in-lieu of taxes and other charges between the City's water and sewer function and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significantextent on fees and charges for support.

The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offsetby program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include: (1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment; and (2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues.

See independent auditors' report. 37 CITY OF SIMI VALLEY • NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2003

Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements . Fund financial statements for the City's governmental, enterprise, and internal service funds are presented after the government-wide financial statements. These statements display information about major funds individually and nonmajor funds in the aggregate.

Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the sanitation, water and transit funds, and of the City's internal service funds are charges to customers for sales and services. Operating expenses for enterprise funds and internal service funds include the cost of sales and services_, administrative expenses, and depreciation on capital assets. All revenue and expenses not meeting this definition are reported as non-operating revenues and expenses.

Financial reporting is based upon all Governmental Accounting Standards Board (GASB) pronouncements, as well as the Financial Accounting Standards Board (FASB) Statements and Interpretations, APB Opinions, and Accounting Research Bulletins that were issued on or before November 30, 1989 that do not conflict with or contradict GASB pronouncements. FA SB pronouncements issued after November 30, 1989 are not followed in the preparation of the accompanying financial statements.

C. Measurement focus, basis of accounting, and financial statement presentation

Measurement focus is a term used to describe "which" transactions are recorded within the various financial statements. Basis of accounting refers to "when" transactions are recorded regardless of the measurement focus applied.

The government-wide financial statements are reported using the economic resources measurement fo cus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements. Under the economic resources measurement focus, all (both current and long-term) economic resources and obligations of the government are reported. Under the accrual basis of accounting, revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met.

Governmental fund financial statements are reported using the current financial resources measurement fo cus and the modified accrual basis of accounting. Under the current financial resources measurement focus, only current assets and current liabilities are generally included on their balance sheets. Their reported fund balances (net current assets) are considered a measure of "available spendable resources". Governmental fund operating statements present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Accordingly, they are said to present a summary of sources and uses of available spendable resources during a period. Under the modified accrual basis of accounting, revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough See independent auditors' report. 38 CITY OF SIMI VALLEY eNOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2003 thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due.

Property taxes, sales taxes, franchise taxes, service charges, rents, intergovernmental revenue, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the government.

The underlying accounting system of the City is based on funds. A fund is defined as an independent fiscal and accounting entity with a self-balancing set of accounts. The City reports the following major governmental and enterprise funds:

General fund:

The General fund is the City's primary operating fund. It accounts forall financial resources of the governmentexcept those required to be accounted for in another fund.

Special revenue funds:

Merged Tapo Canyon and West End Tax Increment fund accounts for tax increment revenues restricted by the State fordebt service requirements. Development Related Fees fund accounts for fees paid by developers for infrastructure construction and improvements, traffic impact mitigation, and program participation in low- and moderate-income housing programs. Capital project funds: Streets and Roads fund accounts for all street-related improvements. Grants, transfers of funds from special revenue funds, accumulated via service charges, or transfers from the general fund primarily fundthese improvements. Police Fa cility fund is utilized to account for the construction of a replacement police facility fundedby proceeds fromlease revenue bonds. Public Fa cility Improvements fund provides for the building needs of various City facilities, including the planned expansion of City Hall and Senior Center.

Enterprise funds:

Simi Valley Sanitation fund accounts for providing wastewater collection and treatment services in all the incorporated areas within the City of Simi Valley, as well as adjacent unincorporated areas.

Ventura County Waterworks District No . 8 fund accounts for the act1v1t1es of the District, a blended component unit of the government. The district provides water services to 64 % of Simi Valley residents.

See independent auditors' report. 39 CITY OF SIMI VALLEY • NOTES TO THE BASIC FINANCIAL ST A TEMENTS FISCAL YEAR ENDED JUNE 30. 2003 Simi Va lley Transit fundaccounts forthe activities of the City's transit system.

Additionally, the City reports the following fund types:

Internal service funds:

The City utilizes two internal service funds to account for risk management services provided to other departments of the City, on a cost reimbursement basis.

Liability Insurance fund provides for losses arising from general liability, property , automobile, physical damage, employee fiduciary, and unemployment claims. It is financed through contributions paid by each operating program based on factors similar to those used by insurance companies (i.e. payroll, property values, and number of employees). Wo rkers ' Compensation Insurance fund accounts for the workers' compensation program. It is financed through contributions paid by each operating program based on factors similar to those used by the State Compensation Insurance Fund in calculating premium amounts; i.e., percentage rates by class of employee applied against related payroll costs.

Fiduciary funds:

The City accounts for assets held by the City in a trustee capacity or as an agent forindividuals or private organizations in agency funds. City Agencyfund accounts for performance and other deposits held by the City. Assessment District funds account for special assessments collected on the property tax roll by the City on behalf of the property owners. Tax Increment Pass-Through funds are utilized to accumulate tax increment revenues on behalf of taxing entities in the Community Development project areas until they are remitted to these agencies.

D. Assets, liabilities, and net assets or equity

J. Deposits and investments

The government's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition.

State statutes and City Investment Policy, authorize the government to invest in obligations of the U.S. Treasury, the State and local agencies and the State Treasurer's Investment Pool .

Investments are reported at fair value. The State Treasurer's Investment Pool operates in accordance with appropriate state laws and regulations. The reported value of the pool is the same as the fair value of the pool shares.

2. Receivables and payables

See independent auditors' report. 40 CITY OF SIMI VALLEY eNOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2003 Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either "due to/from other funds" (i.e .. the current portion of interfund loans) or "advances to/from other funds" (i.e., the non-current portion of interfund loans). All other outstanding balances between funds are reported as "due to/from other funds." Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as "internal balances."

Advances between funds, as reported in the fund financial statements, are offset by a fund balance reserve account in applicable governmental funds to indicate that they are not available for appropriation and are not expendable available financial resources.

Receivables are shown net of an allowance for uncollectibles.

3. Property taxes

Property taxes in California are levied in accordance with Article 13A of the State Constitution and statutory provisions by the County Assessor for the secured and unsecured tax rolls, and State Board of Equalization for the utility property tax rolls. The tax levy to support general operations is limited to one percent of full value at time of purchase with subsequent annual increases up to two percent. Increase to full value is allowed for property improvements or upon change in ownership. Amounts required to finance voter-approved debt are excluded from this limitation and are calculated and levied each fiscal year. Property taxes are levied on both real and personal property. Secured property taxes are levied July 1, payable in two equal installments: the firstis due November 1 and delinquent with penalties afterDecem ber 10; the second is due on February 1 and delinquent with penalties after April 10. Unsecured property taxes become delinquent with penalties after August 31. Secured property taxes become a lien on the property on.January 1.

The County of Ventura bills and collects the property taxes and remits them to the City throughout the year. Property tax revenue is recognized in the fiscal year for which taxes have been levied, provided the revenue is collected in the current period, or within 60 days thereafter.

Taxes levied for all property within the Community Development Agency project areas is remitted to the Agency. The amount of tax, computed by applying the current tax rate to the assessed valuation prior to the adoption of the redevelopment plan, is paid to the various taxing agencies. The excess tax received is deposited in the Agency funds. In accordance with the Health and Safety code, 20% of gross tax increment revenues are set-aside in the Community Development Agency Housing Administration fund, to be used for replacement or improvement of low-income housing.

4. Inventories and prep aid items

In governmental funds the purchase method is used to account for inventories. Under this method inventories are recorded as expenditure when purchased rather than capitalized as an asset. If inventory amounts are significant at year-end they are reported as an asset. Inventory amounts in the governmental funds were not significant in fiscal year 2002-03.

In proprietary funds inventories are valued at cost. They are accounted for using the consumption method, on a first-in I first-outbasis . See independent auditors' report. 41 CITY OF SIMI VALLEY .NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2003

The prepaid item reflects costs applicable to future accounting periods and is recorded as a prepaid item in both the government-wide and fund financial statements.

5. Restricted assets

Customer deposits and connection fe es are classified as restricted assets on the statement of net assets, business-type activities . Customer deposits off-set the liability for water service prepayments, and the cash received for water and sewer connection fees is restricted for infrastructure or plant improvements.

6. Capital Assets

Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items), are reported in the applicable governmental or business­ type activities columns in the government-wide financial statements. Capital assets are defined by the City as assets with an initial, individual cost of more than $2,500 (the infrastructure limit is $50,000) and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fairmarket value at the date of donation.

The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized.

Major outlays forcapital assets and improvements are capitalized as projects are constructed. As per GASB Statement No. 34, the City will retroactively capitalize major general infrastructure assets by the fiscal year ended June 30, 2006.

Property, plant, and equipment is depreciated using the straight line method over the following estimated useful lives:

Assets Years Buildings 50 Building improvements 20 Vehicles 5-10 Machinery and equipment 3-10 Water sewer line 30-100 Infrastructure 25-50

7. Compensated absences

Vacation and sick leave benefits are consolidated into an annual leave benefit program. It is the City's policy to permit employees to accumulate earned but unused annual leave. All annual leave is accrued when incurred in the government-wide andproprietary fund financial statements. A liability for these amounts is reported in governmental funds only if they have matured, for example, as a result of employee resignations and retirements.

See independent auditors' report. 42 CITY OF SIMI VALLEY • NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30. 2003 8. Long-term obligations

In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fundtype statements of net assets. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the straight-line method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. The deferred gain or loss on a refunding is netted with the debt and amortized over the shorter of the remaining life of the refunded debt or the new debt using the straight-line method.

In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures.

9. Fund equity

In the fund financial statements, governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change.

II. Stewardship, compliance, and accountability

A. Budgetary information

Annual budgets are adopted on a basis consistent with generally accepted accounting principles for the general fund, enterprise funds, and all special revenue funds except the Earthquake Disaster fund. Project-length budgets are adopted for the capital project funds. Debt service fundsare not budgeted. All appropriations lapse at fiscal year end.

The appropriated budget is prepared by fund, function and department. The City Manager may make transfers of appropriations that do not have a significant policy impact or affect budgeted year-end fund balances. The City Council may amend the budget at any time during the year. The legal level of budgetary control (i.e., the level at which expenditures may not legally exceed appropriations) is the fund level for all funds except the general fund for which the legal level of budgetary control is the department level.

Encumbrance accounting is employed in the governmental funds . Encumbrances (e .g., purchase orders, contracts) outstanding at year end are reported as reservations of fund balances and do not constitute expenditures or liabilities because the commitments will be reappropriated and honored during the subsequent year.

See independent auditors' report. 43 CITY OF SIMI VALLEY • NOTES TO THE BASIC FINANCIAL ST A TEMENTS FISCAL YEAR ENDED JUNE 30, 2003 B. Excess of expenditures over appropriations

For fiscal year ended June 30, 2003, expenditures exceeded appropriations in the HOME grant. and Transportation nonmaj or special revenue funds by $18,852 and $17 ,086 respectively. These over-expenditures were funded by available fund balance in both funds.

C. Deficit fund equity

The Merged Tapo Canyon and West End Tax Increment special revenue fund had a deficit fund balance of $11 ,975,314 as of June 30, 2003. This is due to the amount advanced from the City's general fund to the Community Development Agency, a blended component unit of the City, to finance community development projects. The advance will be repaid from available tax increment revenues.

The Police Facility capital projects fund had a deficit fund balance of $1 ;653,863 as of June 30, 2003. Proceeds from certificates of participation approved for issuance in fiscal year 2003-04 will be used to eliminate this deficit.

In addition, the following nonmajor funds had deficit fund balances as of June 30, 2003: the Madera Royal Tax Increment special revenue fund ($218,125), and the Integrated Police System ($198,907), Stormwater Detention Basins ($54,200), and Regional Mall ($157,892) capital improvement funds. The deficit for the Madera Royal Tax Increment fund will be eliminated by tax increment revenues to be received in Fiscal Year 2003-04. The deficits for the Integrated Police System and Stormwater Detention Basin funds will be eliminated by grant monies anticipated to be received in Fiscal Year 2003-04. A Community Facilities District will be formed to issue bonds that will eliminate the deficit in the Regional Mall fund.

III. Detailed notes on all funds

A. Deposits and investments

The cash balances of all funds held by the City are pooled and invested for the purpose of increasing interest earnings through investment activities. The interest earned on these investments is allocated to ·participating funds based on their average cash balances. The carrying amounts of cash and investments have been increased by $284,731 in order to reflect the fair value at June 30, 2003.

All demand deposits and certificates of deposit held are entirely insured or collateralized. The California Government Code requires California banks and savings and loan associations to secure a local government agency's deposits by pledging government securities with a market value equal to 110 % of the deposits or pledging first trust deed mortgage notes with a market value equal to 150% of the total deposits.

Deposits are classifiedin three categories of credit risk as follows:

Category 1 - Insured or collateralized with securities held by the City or by the City's agent in the City 's name;

See independent auditors' report. 44 CITY OF SIMI VALLEY .NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2003 Category 2 - Collateralized with securities held by the pledging financial institution's trust department or agent in the City's name; or

Category 3 - Uncollateralized.

The California Government Code authorizes local government agencies to invest with the California State Treasurer and in obligations of the U.S. Treasury, agencies, and instrumentalities; prime commercial paper, as rated by Standard and Poor's Corporation or Moody's Investors Service, Inc.; bankers' acceptances; repurchase and reverse repurchase agreements; certificates of deposit; negotiable certificates of deposit; obligations of the State of California; obligations of local agencies within California; corporate notes; mutual funds; collateralized mortgage obligations; and financialfutures and financial option contracts.

All investment vehicles allowed by the California Government Code may be used by the City with the exception of commercial paper, repurchase agreements, corporate notes, mutual funds, collateralized mortgage obligations, financial futures, and financial option contracts.

The City maintains written investment policies that address a wide variety of investment practices, including primary investment objectives, investment authority , allowable investment vehicles, investment maturity terms, eligible financial institutions, capital preservation, and cash flow management. Under the City's policies, investments in the City's portfolio are intended to be held until maturity. Projected cash flow needs are the primary factor used in determining investment maturity terms. Investment reports are prepared monthly for the City Council that provide detailed informationpertaining to the City's investment portfolio. All investments held in the City investment pool at year-end had maturities within five years.

Investments are also categorized into three categories of credit risk:

Category 1 - Insured or registered, or the securities are held by the City or its agent in the City's name.

Category 2 - Uninsured and unregistered, with secunues held by the counterparty's trust department or agent in the City's name.

Category 3 - Uninsured and unregistered, with securities held by the counterparty's trust department or agent, but not in the City's name.

The cash and investment balances of all funds held by fiscal agents are stated at fair value and are restricted in accordance with bond indenture requirements. Investments in pools managed by other governments or held by fiscal agents in mutual funds are not required to be categorized.

See independent auditors' report. 45 CITY OF SIMI VALLEY eNOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2003 The City's cash and investments at June 30, 2003 , are categorized as follows:

Category Bank Carrying 2 3 Balances Amount Demand Accounts: Demand deposits $ 105,734 $2,886,579 $ - $ 2,992,313 $ 2, 176,386 Developer deposits 111,676 111,676 111,676 Collateralized certificates of deposit 88 ,157 88.157 88, 157 Total Deposits $ 105,734 $2,974,736 $ 111.676 $ 3, 192, 146 2,376,219

Category Fair Investments: 2 3 Value United States government agency securities $ 20,021,900 $ $ $ 20,021,900 Investments with fiscal agents: United States treasury securities 181,768 181,741 Federal home Joan mortage discount notes 1,879,460 1,879,460 $ 20,021,900 $ 181,768 $1,879,460 22,083,101

Investments with City - not required to be categorized: Money market mutual funds 2,583,645 CaliforniaLocal Agency Investment Fund 84,677,095 Total Investments 109,343,841

Total Carrying Amount/Fair Value (Book Balances) $111,720,060

The City is a voluntary participant in the CaliforniaLocal Agency Investment Fund (LAIF) that is regulated by California Code Section 16429 under the oversight of the Treasurer of the State of California. Agencies may invest up to $40,000,000 in the Fund and may also invest without limitation in special bond proceeds accounts . In addition to the primary City account, LAIF accounts are also maintained for the following blended component units of the City: Waterworks District No. 8, Community Development Agency, and Industrial Development Authority. Investments in LAIF are highly liquid, as deposits can be converted to cash within twenty-four hours without loss of interest. The City's proportionate share of the fair value of its investments in LAIF amounted to $84,677,095 . Included in LAIF's investment portfolio are certain derivative securities or similar products such as structured notes totaling $304,000 ,000 and asset-backed securities totaling $985,676,000. LAIF's and the City's exposure to credit, market or legal risk is not available.

Total cash and investments at year-end included the following: Governmental activities - unrestricted $ 68,286,585 Business-type activities - unrestricted 10,684,925 Business-type activities - restricted 21,970,042 Primary government 100,941,552 Fiduciary funds 10,778,508 Total cash and investments $ l ll ,720,060 See independent auditors' report. 46 CITY OF SIMI VALLEY .NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2003

B. Loans receivable

The City provides amortizable and deferred payment home rehabilitation loans to qualifying low­ income households under programs accounted for in the Special Revenue funds. The loan receivable is offset against deferred revenue as these amounts are dependent on future events like residual receipts and. sale of property.

C. Allowance for uncollectible accounts

Receivables as of year-end for the general fund and nonmajor governmental funds are listed net of allowances for uncollectibles as follows:_ Nonmajor General Governmental Fund Funds Accounts receivable $ 1,898,337 $ 60,399 Loans receivable 461 ,300 4,393,110

Allowance for uncollectibles (220,547) (34,692) $ 2,139,090 $ 4,418,817

D. Prepaids

The prepaids are comprised of $1,200,000, which is the unspent portion of a low/moderate loan made to a developer and held in the City Agency fund; and $1, 116,563 that was paid to the State of California related to the purchase of property through eminent domain. As of June 30, 2003 this transaction was not complete.

E. Capital Assets Beginning Ending Balance Increases Decreases Balance Governmental activities: Capital assets, not being depreciated: Land $ 10,235,613 $ $ - $ 10,235,613 Construction-in-progress 4,961,237 578,332 5,539,569 Total capital assets, not being depreciated 15, 196,850 578,332 15,775 , 182

Capital assets, being depreciated: Buildings and improvements 31,650,264 20,100 31,670,364 Furnishings and equipment 4,807,439 94,735 (16,031) 4,886, 143 Computers 253,364 1,743 ,325 1,996,689 Vehicles 4,739,925 314,856 (167,725) 4,887,056 Infrastructure 17,545,750 17,545,750 Intangibles 3,758,646 3,758,646 Total capital assets being depreciated 41,450,992 23,477,412 (183,756) 64,744,648

See independent auditors' report. 47 CITY OF SIMI VALLEY • NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2003

Beginning Ending Less accumulated depreciation for: Balance Increases Decreases Balance Buildings and improvements (6,527,561) (936,339) (7 ,463. 900) Furnishingsand equipment (4,158,674) (188,642) 16,03 1 ( 4,331,285) Computers (63,483) (214,967) (278,450) Vehicles (2,870,791) (625, 121) 155,430 (3,340,482) Infrastructure Intangibles Total accumulated depreciation (13,620,509) (1,965,069) 171,461 (15,414, 117)

Total capital assets, being depreciated, net 27,830,483 21,512,343 (12,295) 49,330,531

Governmental activities capital assets, net $ 43,027 ,333 $ 22.090,675 $ · (12,295) $ 65,105 ,713

Beginning Ending Balance Increases Decreases Balance Business-type activities: Capital assets, not being depreciated: Land $ 1,235,080 $ $ - $ 1,235,080 Construction-in-progress 14,327,573 4,784,370 (4,403,247) 14,708,696 Total capital assets, not being depreciated 15,562,653 4,784,370 (4,403,247) 15,943,776

Capital assets, being depreciated: Buildings and improvements 11,865,075 48,502 11,913,577 Furnishingsand equipment 4,553,646 383,581 (26,206) 4,911 ,021 Vehicles 5,842,028 2,530,724 (997,156) 7,375,596 Distribution system 66,940, 146 7,415,064 74,355,210 Total capital assets being depreciated 89,200,895 10,377,871 (1,023,362) 98,555,404

Less accumulated depreciation for: Buildings and improvements (2,987,223) (267 ,683) (3,254,906) Furnishings and equipment (3,256,970) (300,386) 26,206 (3,531,15 0) Vehicles (4,121,974) (438,435) 995,239 (3,565, 170) Distribution system (40,522,833) (2,170,277) (42,693,110) Total accumulated depreciation (50,889,000) (3,176,781) 1,021,445 (53,044,336)

Total capital assets, being depreciated, net 38,311 ,895 7,201 ,090 (1,917) 45,511,068

Business-type activities capital assets, net $ 53,874,548 $ 11,985,460 $( 4,405 , 164) $ 61,454,844

See independent auditors' report. 48 CITY OF SIMI VALLEY • NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2003 Depreciation expense was charged to functions/programs of the primary government as follows:

Governmental activities: General government $ 1,075,069 Community services (CS) 21,214 Planning (ES) 37 ,165 Public ways and facilities (PW) 188,147 Public safety (PD) 643 ,474 Total depreciation expense-governmental activities $ 1,965 ,069

Business-type activities: Sanitation $ 2,070,597 Transit 469,066 Waterworks District No. 8 637,118 Total depreciation expense-business-type activities $ 3,176,781

Construction commitments

The City has active construction projects as of June 30, 2003. The commitments for governmental fund projects are included in the reserved fund balances. The project commitments at year end are as follows:

Streets and roads rehabilitation, widening, and improvements $ 293,459 Sanitation plant nitrification/denitrificationupgrade project 1,173,501 Water tank oversizing projects 1,337 ,725 Total outstanding commitments $ 2,804,685

F. Interfund receivables, payables, and transfers

The composition of interfund receivable and payable balances as of June 30, 2003 is as follows: Due to I from other funds:

Receivable Fund Payable Fund Amount General Police facility $ 1,657,992 Simi Valley transit system 1,718,911 Nonmajor governmental funds 987,878 Total $ 4,364,781 Advances from I to other funds: Receivable Fund Payable Fund Amount General Merged Tapo Canyon and West End Tax Increment $ 9,295,312 Public Facility Improvements 3,348,380 Nonmajor governmental funds 218,124 Internal service funds 4,688,000 Nonmajor governmental funds Merged Tapo Canyon and West End Tax Increment 2,500,000 ___...;__--'-- Total $ 20,049,816 See independent auditors' report. 49 CITY OF SIMI VALLEY .NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30. 2003

The interfund amounts between the General fund and the Police Facility fund, the Simi Valley Transit enterprise fund, and nonmajor governmental funds are for short-term loans to cover operations.

The advances from the General fund to the Merged Tapo Canyon and West End Tax Increment funds, and nonmajor governmental funds (Madera Royal Tax Increment fund) are to fund various CDA projects. This advance will be repaid from available tax increment revenues. The advance from the General fund to the Public Facility Improvements fund is to accumulate funds for future facility improvements, and the advance to the Internal Service funds is to maintain required reserves in accordance with actuarial valuations .

The composition of interfund transfers as of June 30, 2003 is as follows:

Transfers From Transfers To Amount Purpose

Fund storm drains, minor streets, and bike

General Streets and roads $ 248,000 facility Simi Valley transit system 1,283, 159 Subsidy for transit operations Internal service funds 362,000 Subsidy for workers' compensation operations Subsidy to landscape zones, contributions to Nonmajor governmental replacement funds , regional mall project, and funds 4,077 ,042 local match for grants 5,970,201

Merged Tapo Canyon Fund CDA administration costs, 20% low and and West End tax Nonmajor governmental moderate income set-aside, debt service, and increment funds 4,187,361 CDA projects

Development related Streets and roads 100,400 Fund street projects fees funds Nonmajor governmental funds 964,361 For scheduled debt service 1,064,761

Nonmajor General fund 5,450,884 Fund transportation needs governmental funds Streets and roads 292,371 Fund street projects Merged Tapo Canyon and West End tax increment 246,424 Refund from completed project Nonmajor governmental Fund police projects, equipment replacement, funds ------456,878 and housing set-aside 6,446,557 $ 17,668,880

See independent auditors' report. 50 CITY OF SIMI VALLEY • NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30. 2003 G. Long-term debt

The Simi Valley Public Financing Authority, a blended component unit of the City, issues all bonded debt. The City does not have any general obligation bonded indebtedness. At year-end outstanding long-term bonded debt was comprised of the following:

• Simi Valley Public Financing Authority 1995 Fixed Rate Lease Revenue Bonds: Original issue amount $16,620 ,000 ; interest rates at 4.00% to 5.75 %; maturing September 1, 2000-2015. The bonds are payable in annual installments ranging from $260,000 to $920,000. These bonds were issued to finance certain capital improvements, including the police facility. • Simi Valley Public Financing Authority 2003 Revenue Refunding Bonds: Original issue amount $31,795 , 000; interest rates at 2.90 % to 5.7 5 % ; maturing September 1, 1994-2023. These bonds were issued to fullyrefund the 1993 Revenue Bond issue with a carrying amount of $30,245,000.

Other long-term debt of the City is comprised of:

• A mortgage note payable on property held for resale of $109,812, at an interest rate of 8.45 % . Monthly payments, including interest, in the amount of $1 ,027 are due on the first of each month .

• Claims and legal services payable of $9, 7 88, 351, consisting of general liability and workers' compensation liability . These liabilities are estimated based on the requirements of Governmental Accounting Standards Board Statement No. 10, and include estimated claims incurred but not yet reported as of June 30, 2003. • Compensated absences liability of $3,941,284 at fiscal year end. This liability consists of accumulated earned but unused annual leave of employees.

2003 Tax Allocation Bonds

In February 2003, the City issued $31 ,795,000 of 2003 Tax Allocation Refunding Bonds for the purpose of fullyrefunding the 1993 Revenue Bond issue with a carrying amount of $30,245,000. The 1993 Revenue Bond issue was called in full on February 20, 2003 and no defeased debt remained outstanding at June 30, 2003. The bonds were issued at a premium of $456,576. This amount is being added to the new debt and amortized over the life of the new debt. Issuance costs incurred of $930,403 are shown as deferred charges, and are being amortized over the life of the debt. The reacquisition price exceeded the carrying amount of redeemed debt by $598, 121. This amount is being netted against the new debt and amortized over the remaining life of the refunded debt, which is shorter than the life of the new debt issued.

The 2003 Tax Allocation Bonds are secured by a lien on tax increment revenues net of low- and moderate-income housing set-asides and tax sharing agreements . The bonds are payable in annual installments ranging from $360,000 to $2,000,000 with principal payments due annually on September 1 starting September 1, 2003 to final maturity at September 1, 2030. Interest payments are due on March 1 and September 1 at interest rates ranging from 2 % to 5 % . The See independent auditors' report. 51 CITY OF SIMI VALLEY eNOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2003 bonds maturing on or after September 1, 2013 are subject to early redemptions without premium. Additional security is provided by a reserve fund equal to the maximum annual debt service of $2,015, 160.

The refunding resulted in the term of the debt being extended and an interest rate reduction has been achieved, resulting in an economic gain (difference between the present values of the old and new debt service payments) of $1, 199,285. The refunding also resulted in an increase of $4,968,350 in the cash flow required to make the new debt service payments versus the old debt service payments.

Annual debt service requirements to maturity

Annual debt service requirements to maturity forthe outstanding debt are as follows:

2003 Tax Allocation Year Ending Allocation Bond Note Payable June 30: Principal Interest Principal Interest 2004 $ 360,000 $ 1,456,588 $ 3,166 $ 9,158 2005 690,000 1,402,794 3,444 8,880 2006 705 ,000 1,388,844 3,746 8,578 2007 720,000 1,374,594 4,076 8,248 2008 730,000 1,359,181 4,433 7,891 2009-2013 4,040 ,000 6,384,775 28,748 32,872 2014-2018 4,870,000 5,528,509 43,788 17 ,832 2019-2023 6,115,000 4,226,656 18,411 1,341 2024-2028 7,845,000 2,448,875 2029-2031 5,720,000 438,250 $ 31,795,000 $ 26,009,066 $ 109,812 $ 94,800

SVPF A 1995 Fixed Rate Year Ending Lease Revenue Bonds June 30: Principal Interest 2004 $ 500,000 $ 463,075 2005 520,000 439,865 2006 545,000 415,098 2007 570,000 388,610 2008 595,000 360,352 2009-2013 3,485,000 1,270,850 2014-2018 2,610,000 230,863 $ 8,825,000 $ 3,568,713

See independent auditors' report. 52 CITY OF SIMI VALLEY • NOTES TO THE BASIC FINANCIAL ST A TEMENTS FISCAL YEAR ENDED JUNE 30. 2003 Changes in long-term liabilities

Long-term liability activity forthe year ended June 30, 2003, was as follows:

Balances Debt Debt Balances Due Within July 1, 2002 Incurred Retired June 30, 2003 One Year Governmental activities: SVPFA 1993 revenue $ 31,015,000 $ - $ (31,015,000) $ - $ refunding bonds SVPFA 1995 variable rate 9,300,000 (475,000) 8,825,000 500,000 lease revenue bonds 2003 tax allocation bonds 31,795,000 31,795,000 360,000 Add (less) deferred amounts: Bond premium 456,576 (5,852) 450,724 Deferred amount (598, 121) 10,222 (587,899) Total bonds payable 40,315,000 31,653,455 (31 ,485,630) 40,482,825 860,000 Note payable 113,913 (4, 101) 109,812 3,166 Claims and legal services 6,497,124 5,812,214 (2,520,987) 9,788,351 3,803, 106 Compensated absences 3,579,769 1,201 ,007 (839,492) 3,941 ,284 881 ,500 Governmental activity long-term liabilities $ 50,505,806 $ 38,666,676 $ (34,850,210) $ 54,322,272 $ 5,547,772 Business-type activities: Compensated absences $ 872,934 $ 166,118 $ (281,915) $ 757,137 $ 52,815 Business-type activity long-term liabilities $ 872,934 $ 166,118 $ (281,915) $ 757,137 $ 52,815

See independent auditors' report. 53 CITY OF SIMI VALLEY eNOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2003 H. Fund balance reserves and designations

The following is a summary of reserved and unreserved fund balances. Reserved fund balances are not available for spending for the subsequent year's budget. The unreserved fund balances are further categorized into designated and undesignated. Designated fund balances represent amounts set aside for management's intended future use of resources. Undesignated fund balance amounts are available for current spending.

Seecial Revenue Funds Caeital Proiect Funds Merged Nonmajor Total Tapo Canyon Development Public Govern· Govern· General & West End Related Fees Streets & Police Facility mental mental Fund Tax Increment Funds Roads Facilitv Imerovements Funds Funds

FUND BALANCES

Reserved:

Encumbrances $ 732.167 $ 10,413 $ 293,458 $ 1,200 $ 383,372 $ 1,251 ,293 $ 2,671,903

Loans receivable 461,300 170,316 631,616

Property held for resale 163,251 163.251

Advances 17,549,816 2,500,000 20,049,816

Debt service 4,418,047 4,418,047

T ocal reserved 18,743,283 10.413 293.458 1,200 383.372 8.502,907 27.934.633

Unreserved, designated:

Cashflow . 1,000,000 650,000 1.650,000

Capital projects 5,622,652 11,299,932 2,243,515 8,973,705 28,139,804

Public Improvements 4, 121,134 4,121,134

Law enforcement 664,350 664,350

Special programs 1,429,340 1,429,340

Housing programs 137,328 3,139,369 7,162,282 10,438,979

Total unreserved 6.622.652 11,437,260 2,243.515 3, 139.369 23,000.811 46.443.607

Unreserved, undesignated: 5,627.722 (11,795,314) . (l.655.063) (1.037,847) (8,860,502)

Total fund balances $ 30.993.657 $ (11.795.314) $ 11.447.673 $ 2.536.973 $ (1,653,863) $ 3.522,741 $ 30,465,871 $ 65,517.738

See independent auditors' report. 54 CITY OF SIMI VALLEY • NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30. 2003 I. Accounting restatements

Accounting restatements made during the current fiscal year were as follows:

Merged Tapo Cyn. General & West End Tax Nonmajor Proprietary Fund Increment Funds Funds Fund balances (deficits) beginning of the year $27,967 ,661 $ (2 18,276) $32,975,236 $87, 084, 998 Restatements: Reduce liability for compensated absences 1,724,641 99,811 Record inventory 771 ,257 Increase deferred revenue forhousing loans (2,084,057) Move advance from City of Simi Valley long term debt to the special revenue funds (13,394,569) (1,472,05 1) Total restatements 1,724,641 (13,394,569) (3,456,297) 771 ,257 Fund balances (deficits), as restated $29,692,302 $ (13,612,845) $29,51 8,939 $87,856,255

J. Assessment district bonds

The City has formed several special assessment districts and subsequently issued bonds for the construction of public improvements within these districts. The City acts as an agent for the property owners in collecting assessments for the payment of principal and interest amounts due by the property owners to the assessment district bondholders, and initiating foreclosure proceedings, if appropriate. However, the City is not obligated in any manner for repayment of these special assessment bonds, and the bonds are not reported in the accompanying financial statements.

The outstanding assessment district bonds at June 30, 2003, consisted of the following:

Sycamore Village/Wood Ranch Improvements (District No. 94-lR) $ 3,785,000 Royal Corto Improvements (District No. 89-1) 1,705 , 000 Madera Royal (District No. 98-1) 4,600,000

K. Conduit debt obligations:

The City has been associated with the issuance of several housing, mortgage and commercial development debt issues. These debt obligations were issued under provisions of State and Federal laws that explicitly state that they do not constitute any indebtedness of the City. The total amount of conduit debt outstanding at June 30, 2003 was $203,328,140. The City is not involved with these bonds in any manner, as such the conduit debt obligations are not reflected in the accompanying financial statements. Listed below is a brief description of the bonds outstanding at year end:

See independent auditors' report. 55 CITY OF SIMI VALLEY • NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2003

• Variable Rate Multifamily Revenue Demand Bonds, 1985 Issue A, in the amount of $15,500,000 were issued to finance the Mayer Indian Oaks Project; the outstanding principal at June 30, 2003, is $15,500,000.

• Variable Rate Demand Multifamily Housing Revenue Bonds, 1987 Series A, were issued in the amount of $4,000,000 to finance the Ashlee Manor Apanments Project; the outstanding principal at June 30, 2003, is $3,650,000.

• Variable Rate Demand Multifamily Housing Revenue Bonds, Series 1989, were issued in the amount of $25,000,000 to finance the Shadowridge Apartments Project; the outstanding principal at June 30, 2003, is $24,800,000.

• Single Family Mortgage Revenue Bonds, 1989 Series A, were issued in the amount of $15,000,000 to provide housing financial assistance; the outstanding principal at June 30, 2003 , is $8,068,290.

• Variable Rate Demand Multifamily Housing Revenue Refunding Bonds, 1993 Series A, were issued in the amount of $22,070,000 to refund Multifamily Housing Revenue Bonds, 1984 Series A to finance the Creekside Village Apartments Project; the outstanding principal at June 30, 2003, is $19,070,000.

• 1995 Remarketing of the Variable Rate Demand Multifamily Housing Revenue Refunding Bonds, Series 1990, in the amount of $37,000,000 to finance the Lincoln Wood Ranch Project; the outstanding principal at June 30, 2003, is $36,000,000.

• Multifamily Housing Revenue Refunding Bonds, Issue A of 1996, were issued in the amount of $17 ,900,000 to refund the Multifamily Housing Revenue Bonds, 1985 Issue A to finance the Cochran Street Project/Meadowood Village Apartments Project; the outstanding principal at June 30, 2003, is $16, 165,000.

• Multifamily Housing Revenue Refunding Bonds, Series 1996 A, and Taxable Multifamily Housing Revenue Refunding Bonds, Series 1996 B, were issued in the amount of $16,844,850 to refund theMult ifamily Housing Revenue Bonds, 1985 Issue C to finance the Rancho Corrales Apartments Project; the outstanding principal at June 30, 2003, is $16,844,850.

• Multifamily Housing Revenue Bonds, Series 1998A, were issued in the amount of $6,165 ,000 to finance the Sorrento Villas Apartments Project; the outstanding principal at June 30, 2003, is $5,925,000.

• 1998 Commercial Mortgage Revenue Refunding Bonds were issued in the amount of $7,325,000 to refund 1981 and 1984, and refinance 1988 Commercial Mortgage revenue Bonds (Sycamore Plaza II); the outstanding principal at June 30, 2003, is $6,505,000.

• Adjustable Rate 7-Day Demand Industrial Development Revenue Bonds, Series 1984, in the amount of $3,500,000; outstanding principal at June 30, 2003, is $1,900,000.

See independent auditors' report. 56 CITY OF SIMI VALLEY .NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2003

• Subordinate Multifamily Housing Revenue Bonds, Subordinate Series 2002B were issued in the amount of $3,000,000 to finance the Vintage Paseo Senior Apartments ; the outstanding principal at June 30, 2003, is $3,000,000.

• Multifamily Housing Revenue Bonds, Series 2002A were issued in the amount of $12,000,000 to finance the Vintage Paseo Senior Apartments; the outstanding principal at June 30, 2003 , is $12,000,000.

• Variable Rate Demand Multifamily Housing Revenue Bonds, Series 2002A were issued in the amount of $30,000,000 to finance the Parker Ranch Project; the outstanding principal at June 30, 2003, is $30,000,000.

• Variable Rate Demand Multifamily Housing Revenue Bonds, Taxable Series 2002A-T were issued in the amount of $3,900,000 to finance the Parker Ranch Project; the outstanding principal at June 30, 2003, is $3,900,000.

IV. Other information

A. Arbitrage rebate liability

The City is required to rebate to the federal government the excess investment earnings on bond proceeds if the yield on those earnings exceeds the effective yield on the related bonds issued. Rebates are payable every five years or upon the maturity of the bonds, whichever is earlier. At June 30, 2003, no such amounts were due.

B. Risk Management

The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The City maintains two Internal Service Funds, General Liability and Workers' Compensation, to account for and finance its uninsured risks of loss.

Under this program, the City is self-insured for upto $1 million foreach general liability claim and up to $500,000 for each workers' compensation claim. The City purchases commercial insurance for property loss, as well as for claims in excess of the preceding coverage amounts. Settled claims have not exceeded this commercial coverage in any of the past three years.

All operating funds of the City participate in the program and make payments to the General Liability and Workers' Compensation funds based on actuarial estimates of the amounts needed to pay prior and current-year claims and legal expenses.

Liabilities are estimated when a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities also include an amount forclaims that have been incurred, but not reported as of the end of the year. Changes in the combined balances of General Liability and Workers' Compensation funds' claims and legal liability during the past two years are as follows:

See independent auditors' report. 57 CITY OF SIMI VALLEY .NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2003

Year ended Year ended June 30, 2003 June 30, 2002 Unpaid claims beginning of fiscalyear $ 6,497,124 $ 4,916,566 Incurred claims (including IBNRs) 5,812,214 1,682,495 Claims payments (2.520,987) (101,937) Unpaid claims, end of fiscal year $ 9,788.351 $ 6,497,124

Prior to July 1, 1992, the City participated in the Coachella Valley Joint Powers Insurance Authority currently known as Public Entity Risk Management Authority, a risk-sharing pool, for general liability claims. The City receives annual equity distributions from the pool's excess reserves based on all claims for policy years December 1, 1986 to July 1, 1992. These payments have averaged approximately $100,000 per year. Due to pending' litigation on a claim no reimbursement is expected in the next fiscal year.

C. Subsequent event

On September 15, 2003 the City Council approved resolutions authorizing the issuance of Certificates of Participation (COP) of approximately $26 million to provide financing for improvements to and expansion of City Hall, Senior Citizens' Center and the Civic Center site. The COP will be repaid over a thirty-year term. The annual debt service is estimated at approximately $1.6 million. The annual lease/debt service payments will be supported by contributions from various City funds based on the benefit received. The identified funds have the long-term financial capacity to support the required payments. To meet the conditions of the COP financing structure and to avoid costly capitalized interest costs during the construction period, the City's Water Quality Control Plant, which has an estimated value in excess of $50 million, is proposed to serve as the leased asset during the construction period.

D. Other post employment benefits

The City provides post-retirement health benefits to all management and sworn (police) employees per resolution numbers 2003-53 and 2001-54, respectively. The benefits vary depending upon a retiree's years of service and bargaining unit. The City pays 100 percent of premiums for health care coverage forthe two groups as follows: Number of Years Covered Less Than More Than More Than 10 Years Service 10 Years Service 20 Years Service Management employees: Employee only 4 10 I additional year for each year over 20 Employee plus one dependent 2 5 1/2 additional year for each year over 20 20-25 More Than Sworn (police) employees: Years Service* 25 Years Service* Employee only 2 10 up to 20 years life -time coverage Employee plus one dependent 5 up to 20 years life -time coverage

* Police captains and lieutenants are also eligible forthese benefits. See independent auditors' report. 58 CITY OF SIMI VALLEY .NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30. 2003

As of year end, there were 39 retirees who met the eligibility requirements and were receiving health care benefits. The City finances the plan on a pay-as-you-go basis. For the year ended June 30, 2003 , the City paid $228,941 for these benefits. However, the City is accumulating funds to pay future benefits. Assets in the amount of $235,371 had been set side as of the end of the fiscal year.

E. Deferred compensation plans

The City offers its employees deferred compensation plans in accordance with Internal Revenue Code Sections 40 1 (k) and 457 (as amended on August 20, 1996 per additional subsection (g)). The plans permit participants to defer a portion of their current salary until future years. The deferred compensation is not available to the employees until termination, retirement, death, or the occurrence of an unforeseeable emergency. Since the City neither owns the funds nor has any administrative involvement and does not perform the investing function for these plans, the assets and related liabilities are not recorded in the City's Financial Statements.

F. Pension plans

The City participates in the statewide Public Employees' Retirement System (PERS) that covers all employees, and the Public Agency Retirement System (PARS) for executive management employees.

CaliforniaPublic Employees' Retirement System

Plan Description - The City contributes to the PERS, an agent multiple-employer public employee defined benefit pension plan. PERS provides retirement and disability benefits, annual cost-of­ living adjustments, and death benefits to plan members and beneficiaries. PERS acts as a common investment and administrative agent forparticipating public entities within the State of California. Benefitprovisions and all other requirements are established by State statute and City . ordinance. Copies of PERS' annual financial report may be obtained from their executive office located at 400 P Street, Sacramento, CA 95814.

Funding Policy - Participants are required to contribute 7 % (9 % for safety employees) of their annual covered salary. The City makes the contributions required of City employees on their behalf and for their account. The City is required to contribute at an actuarially determined rate: the rate is 0.000% for non-safety employees and 4.413% for police employees of annual covered payroll for the year ended June 30, 2003. The contribution requirements of plan members and the City are established and may be amended by PERS.

Annual Pension Cost - For fiscal year 2002-03, the City's annual pension cost of $415,407 for PERS was equal to the City's required and actual contributions. The required contribution was determined as part of the June 30, 2000, actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions included: (a) 8.25 % investment rate of return (net of administrative expenses), (b) projected annual salary increases that vary from 3.75% to 14.20% by category and duration of service, (for safety members, rates are also dependent on entry age) and (c) 2 % per year cost-of-living adjustments. Both (a) and (b) included an inflation component of 3 .5 % . The actuarial value of PERS assets was determined using a technique that smooths the See independent auditors' report. 59 CITY OF SIMI VALLEY .NOTES TO THE BASIC FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30. 2003 effect of short-term volatility in the market value of investments over a three-year period. PERS unfunded actuarial accrued liability ( or excess assets) is being amortized as a level percentage of projected payroll on a closed basis. The remaining amortization period at June 30, 2003 . was 22 years for miscellaneous employees and 15 years for safety employees.

Annual Percentage Pension Cost of APC Net Pension (APC) Contributed Obligation Miscellaneous Em�lovees Fiscal Year 6/30/2001 $ 100% $ 6/30/2002 100% 6/30/2003 100% Annual Percentage Pension Cost of APC Net Pension (APC) Contributed Obligation Safety Em�lovees Fiscal Year 6/30/2001 $ 100%- $ 6/30/2002 100% 6/30/2003 415,407 100%

Public Agency Retirement System, Retirement Enhancement Plan (PARS-REP)

Plan Description - The City established a Public Agency Retirement System, Retirement Enhancement Plan (PARS-REP) for executive management employees, effective July 1, 2001. PARS is a defined benefit 401(a) tax-qualified multiple agency trust. It meets the requirements of a pension trust under California Government code. The plan provides supplemental retirement benefits in addition to PERS. Phase II Systems is the PARS Trust Administrator. Upon meeting the eligibility requirements, plan members receive a monthly lifetime benefit of one-twelfth the sum of: 0.004 times their final average compensation multiplied by their years of City service prior to July 1, 2001, and .005 times their final average compensation multiplied by their years of City service after June 30, 2002. The City has full discretionary authority to control, amend, modify or terminate this plan at any time.

Funding Policy - The City contributes 5.77 % of eligible employee gross wages. The annual covered payroll for the year ended June 30, 2003 was $1, 07 1,842 . The City's annual pension cost of $61,845 for PARS was equal to the City's required and actual contribution. Plan assets held in trust at June 30, 2003 were $120,897.

See independent auditors' report. 60 Required Supplementary Information REQUIRED SUPPLEMENTARY INFORMATION

Schedule of Funding Progress California Public Employees' Retirement System

Unfunded Actuarial Actuarial Entry Age Unfunded Liability as Valuation Actuarial Actuarial Liability/ Unfunded Covered Percentage of Date Asset Value Accrual Liability(Excess Assets) Ratio Payroll Covered Payroll

6/30/00 $74,389,076 1 $ 58,293,806 $ (16,095,270) 127.6% $21,165,085 -76.0% 2 51,5 12,239 46,958,638 (4,553,601) 109.7% 7,633,568 -59.7%

6/30/01 78,424, 1521 67,301,357 (11,122,795) 116.5% 23,239,009 -47 .9% 2 53,416,671 52,305,381 (1, 1 1 1 ,290) 102.1 % 8,330,788 -13.3%

1 6/30/02 75,705,431 74,866,283 (839,148) 101.1 % 24,023,055 -3.5% 2 50,578,817 57,165 ,005 6,586,188 88.5% 8,690,720 75.8%

1 Miscellaneous 2 Sworn

See independent auditors' report. 61 62 Supplementary Information Nonn1ajor Governn1ental Ft1nds NONMAJOR GOVERNMENT AL FUNDS

Special Revenue Funds

Community Development Agency Administration fund accounts for those financial activities of the Simi Valley Community Development Agency that are not directly related to debt service, capital projects, or designated low- and moderate-income housing program transactions. Community Development Agency Housing Administration fund accounts for housing set-aside funds used to reimburse the costs associated with the processing of affordable housing agreements, as well as any general plan amendments for affordable housing projects.

Madera Royal Tax Increment fund accounts for tax increment revenues related to the Madera Royal project area, which are restricted by the State statute for debt s�rvice requirements.

HOME Grant fund accounts for allocation of Federal funds, administered by the State of California, for low- and moderate-income housing programs. Gasoline Tax fund - Portions of the tax per gallon levied by the State of California on all gasoline purchases are allocated to cities throughout the State on a population basis. These revenues are restricted to expenditures forstreet-related purposes.

Transportation funds account for Article 3 and Article 8 funds received pursuant to State of California, Transportation Development Act. These funds are restricted for the improvement and maintenance of street systems, and State allocations for street and mass transit improvements.

Lighting Maintenance District fend accounts for street lighting services and is financed primarily through property taxes levied specificallyfor this purpose. Po lice Grants fends account for funding received from various governmental entities forpolice activities. Current programs and funding sourcesinclude : • Reimbursement for City's participation in joint agency drug enforcement efforts from the U.S. Department of Justice, Drug Enforcement Administration, and the State of California, • State funding for front-line municipal police services, including anti-gang and community crime prevention programs, and • Local Law Enforcement Block Grant funding from the Bureau of Justice Assistance, U.S. Department of Justice for purchasing police equipment, or expanding existing capabilities. Community Development Block Grant (CDBG) fendaccounts for the receipt and expenditure of CDBG funds allocated to the City by the U.S. Department of Housing and Urban Development. Retiree Benefitsfend was accounts forpost employment retirement benefits. Landscape Maintenance District No . I fend accounts for benefit assessments, primarily perimeter landscaping in the public rights-of-way . The general fund finances landscape maintenance costs not associated with specific neighborhoods.

63 Debt Service Funds

1993 Revenue Refunding Bonds fund was established to account for the debt service transactions related to the 1993 Revenue Bonds issued to advance refundthe outstanding 1983 Certificates of Participation as well as the 1987, 1988, and 1990 Tax Allocation Bonds.

1995 Lease Revenue Bond fund was established to account for the debt service transactions related to the sale of variable rate lease revenue bonds issued to finance the cost of certain public capital improvements, including a replacement police facility.

2003 Tax Allocarion Refunding Bonds fund was established to account for the debt service transactions related to this issuance.

Capital Project Funds

CDA Projects funds account for capital improvements in the Community Development Agency project areas, financedby CDA bond issues.

Cultural Arts Facility fund was established to account for the acquisition and renovation for historical preservation of the Old Methodist Church for the purpose of providing a Cultural Arts Facility. Equipment Replacement fends account for the replacement of personal computers, terminals, and printers; and establish a reserve forthe replacement of vehicles. Geographic Information System fund accounts for geographic based information related to economic development, land use, demographic information, mapping for crime analysis, traffic safety management, permit issuance, and work order administration.

Tapo Street Bridge fund accounts forthe construction of a bridge across the Arroyo Simi at the south terminus of Tapo Street.

Integrated Police System (JPS) fund accounts for a computer aided dispatch system, improved records management capability and a mobile data computer system forpol ice vehicles.

FIS Project fund was established to replace the City's legacy Financial Management Information System with a new Financial Information System (FIS), and is used to maintain the FIS system. Stormwater Detention Basins fand accounts for the construction of several stormwater detention basins. Madera Royal Improvements fand accounts for the proceeds of the Madera Royal Assessment Bonds, issued to fund public improvements. Police Capital Projects fandacc ounts for capital projects related to the police department. Unified Two-Way Radio fand accounts for the replacement of the two-way radio system with a new unified, trunked two-way radio system. Regional Mall fandaccounts forthe development of a regional mall.

64 I I.I

65 CITY OF SIMI VALLEY COMBINING BALANCE SHEET NONMAJOR GOVERNMENT AL FUNDS JUNE 30, 2003

Special Revenue Community Community Development Development Agency Agency Housing Madera Royal HOME Administration Administration Tax Increment Grant

ASSETS Cash and investments (note Ill A): Held by city $ - $ 5,528,949 $ 1,051 s 536,822 Held by fiscal agents Accounts receivable (net of allowance for 11,285 45,000 uncollectibles) (note Ill C) Prepaids (note Ill D) 2,316,563 Taxes receivable Grants receivable Interest receivable 20,260 111 Loans receivable (net of allowance for 170,316 2,009,045 1,539,594 uncollectibles) (note Ill B & C) Property held for resale 163,251 Advances to other funds (note Ill F)

TOTAL ASSETS $ 170,316 $ 10,049,353 $ 1,162 $ 2,121 ,416

LIABILITIES AND FUND BALANCES

LIABILITIES Accounts payable $ 1,776 $ 434,870 $ 1,163 $ 40,000 Salaries and benefits payable 5,108 46,638 Due to other funds (note Ill F) 163,432 Advances from other funds (note Ill F) 218,124 Deferred revenues 2,009,045 1,584,594 TOTAL LIABILITIES 170,316 2,490,553 219,287 1,624,594

FUND BALANCES Reserved for encumbrances 13,255 233,267 Reserved for loans receivable 170,316 Reservedfor property held for resale 163,251 Reserved for advances to other funds Reservedfor debt service Unreserved: Designated tor cash flow Designated for capital projects Designated for public improvements Designated for law enforcement Designated for special programs 496,822 Designated for housing programs 7,162,282 Undesignated (183,571) (218,125) TOTAL FUND BALANCES (DEFICITS) 7,558,800 (218,125) 496,822

TOTAL LIABILITIES AND FUND BALANCES $ 170,316 $ 10,049,353 $ 1,162 $ 2,121,416

66 CITY OF SIMI VALLEY COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS JUNE 30, 2003

Special Revenue

Lighting Gasoline Transportation Maintenance Police Tax Funds District Grants

ASSETS Cash and investments (note Ill A): $ - $ 380,290 $ 3,716,788 $ 699,413 Held by city Held by fiscal agents 4,1 14 Accounts receivable (net of allowance for uncollectibles) (note Ill C) Prepaids (note Ill D) 67,294 Taxes receivable 79,840 Grants receivable 2,495 18,742 Interest receivable Loans receivable (net of allowance for uncollectibles) (note Ill B & C) Property held for resale 2,500,000 Advances to other funds (note Ill F)

$ - $ 462,625 $ 6,306,938 $ 699,41 3 TOTAL ASSETS

LIABILITIES AND FUND BALANCES

LIABILITIES $ - $ - $ 83,090 $ 4,244 Accounts payable 24,754 Salaries and benefits payable Due to other funds (note Ill F) Advances from other funds (note Ill F) Deferred revenues 83,090 28,998 TOT AL LIABILITIES

FUND BALANCES 2,521 32,224 6,065 Reserved for encumbrances Reserved for loans receivable Reserved for property held for resale 2,500,000 Reservedfor advances to other funds Reservedfor debt service Unreserved: 400,000 Designated for cash flow Designated for capital projects 3,291 ,624 Designated for public improvements 664,350 Designated for law enforcement 460,104 Designated for special programs Designated for housing programs Undesignated 462,625 6,223,848 670,415 TOTAL FUND BALANCES (DEFICITS)

$ - $ 462,625 $ 6,306,938 $ 699,413 TOTAL LIABILITIES AND FUND BALANCES

(continued)

67 CITY OF SIMI VALLEY COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS JUNE 30, 2003

Special Revenue Landscape Total Community Maintenance Nonmajor Development Retiree District Special Block Grant Benefits No. 1 Revenue Funds

ASSETS Cash and investments (note Ill A): Held by city $ 588,225 $ 234,583 $ 1,1 53,259 $ 12,839,380 Held by fiscal agents Accounts receivable (net of allowance for 60,399 uncollectibles) (note Ill C) Prepaids (note Ill D) 2,316,563 Taxes receivable 67,294 Grants receivable 104,742 184,582 Interest receivable 788 4,915 47,31 1 Loans receivable (net of allowance for 639,463 4,358,418 uncollectibles) (note Ill B & C) Propertyheld for resale 163,251 Advances to other funds (note Ill F) 2,500,000

TOTAL ASSETS $ 1,332,430 $ 235,371 $ 1,158,174 $ 22,537,198

LIABILITIES AND FUND BALANCES

LIABILITIES Accounts payable $ 44,751 $ - $ 78,664 $ 688,558 Salaries and benefits payable 76,500 Due to other funds (note Ill F) 163,432 Advances from other funds (note Ill F) 218,124 Deferred revenues 639,463 4,233,102 TOTAL LIABILITIES 684,214 78,664 5,379,716

FUND BALANCES Reserved for encumbrances 175,802 463,134 Reserved for loans receivable 170,316 Reserved for propertyheld for resale 163,251 Reservedfor advances to other funds 2,500,000 Reservedfor debt service Unreserved: Designated for cash flow 250,000 650,000 Designated for capital projects Designated for public improvements 829,510 4,121,134 Designated for law enforcement 664,350 Designated for special programs 472,414 1,429,340 Designated for housing programs 7,162,282 Undesignated 235,371 (166,325) TOTAL FUND BALANCES (DEFICITS) 648,216 235,371 1,079,510 17,157,482

TOTAL LIABILITIES AND FUND BALANCES $ 1,332,430 $ 235,371 $ 1,158,174 $ 22,537,198

68 CITY OF SIMI VALLEY COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS JUNE 30, 2003

Debt Service 1993 1995 2003 Total Revenue Lease Tax Allocation Non major Refunding Revenue Refunding Debt Bonds Bonds Bonds Service

ASSETS Cash and investments (note Ill A): $ 1,802 $ - $ 1,167,049 $ 1,16 8,851 Held by city 1,092,084 2,148,379 3,240,463 Held by fiscal agents Accounts receivable (net of allowance for uncollectibles) (note Ill C) Prepaids (note Ill D) Taxes receivable Grants receivable 225 7,250 1,322 8,797 Interest receivable Loans receivable (net of allowance for uncollectibles) (note Ill B & C) Property held for resale Advances to other funds {note Ill F)

$ 2,027 $ 1,099,334 $ 3,31 6,750 $ 4,418,1 11 TOT AL ASSETS

LIABILITIES AND FUND BALANCES

LIABILITIES $ - $ - $ - $ Accounts payable Salaries and benefits payable Due to other funds (note Ill F) Advances from other funds {note Ill F) Deferred revenues TOTAL LIABILITIES

FUND BALANCES 64 64 Reserved for encumbrances Reserved for loans receivable Reserved for propertyheld for resale Reservedfor advances to other funds 2,027 1,099,270 3,316,750 4,418,047 Reserved for debt service Unreserved: Designated for cash flow Designated for capital projects Designated for public improvements Designated for law enforcement Designated for special programs Designated for housing programs Undesignated 2,027 1,099,334 3,316,750 4,418,1 11 TOTAL FUND BALANCES (DEFICITS)

$ 2,027 $ 1,099,334 $ 3,316,750 $ 4,41 8,1 11 TOTAL LIABILITIES AND FUND BALANCES

{continued)

69 CITY OF SIMI VALLEY COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS JUNE 30, 2003

Capital Projects

Geographic CDA Cultural Arts Equipment Information Projects Facility Replacement System (GIS)

ASSETS Cash and investments (note Ill A): Held by city $ 3,405,973 $ 23,806 $ 3,985,804 $ 158,326 Held by fiscal agents Accounts receivable (net of allowance for uncollectibles) (note Ill C) Prepaids (note Ill D) Taxes receivable Grants receivable Interest receivable 15,233 2,159 769 Loans receivable (net of allowance for uncollectibles) (note Ill B & C) Property held for resale Advances to other funds (note Ill F)

TOTAL ASSETS $ 3,421 ,206 $ 23,806 $ 3,987,963 $ 159 ,095

LIABILITIES AND FUND BALANCES

LIABILITIES Accounts payable $ - $ - $ 102,162 $ 1,093 Salaries and benefits payable Due to other funds (note Ill F) Advances from other funds (note Ill F) Deferred revenues TOTAL LIABILITIES 102,162 1,093

FUND BALANCES Reserved for encumbrances 62,364 100,692 104 Reserved for loans receivable Reserved for property held for resale Reserved for advances to other funds Reservedfor debt service Unreserved: Designated for cash flow Designated for capital projects 3,358,842 23,806 3,785,109 157,898 Designated for public improvements Designated for law enforcement Designated for special programs Designated tor housing programs Undesignated TOT AL FUND BALANCES (DEFICITS) 3,421 ,206 23,806 3,885,801 158,002

TOTAL LIABILITIES AND FUND BALANCES $ 3,421 ,206 $ 23,806 $ 3,987,963 $ 159,095

70 CITY OF SIMI VALLEY COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS JUNE 30, 2003

Capital Projects

Tapo Integrated Financial Stormwater Street Police Information Detention Bridge System (IPS) System (FIS) Basins

ASSETS Cash and investments (note Ill A): $ - $ - $ 170,126 $ Held by city Held by fiscal agents Accounts receivable (net of allowance for uncollectibles) (note Ill C) Prepaids (note Ill D) Taxes receivable 729,181 273,855 Grants receivable Interest receivable Loans receivable (net of allowance for uncollectibles) (note Ill B & C) Propertyheld for resale Advances to other funds (note Ill F)

$ - $ 729,181 $ 170,126 $ 273 ,855 TOTAL ASSETS

LIABILITIES AND FUND BALANCES

LIABILITIES $ - $ 69,867 $ 12,148 $ 64,856 Accounts payable Salaries and benefits payable 584,884 208,998 Due to other funds (note Ill F) Advances from other funds (note Ill F) 273,337 54,201 Deferred revenues 928,088 12,148 328,055 TOTAL LIABILITIES

FUND BALANCES 553,91 1 59,629 Reserved for encumbrances Reserved for loans receivable Reserved for property held for resale Reserved for advances to other funds Reserved for debt service Unreserved: Designated for cash flow Designated for capital projects Designated for public improvements Designated for law enforcement Designated for special programs Designated for housing programs (752,818) 157,978 (1 1 3,829) Undesignated (198,907) 157,978 (54,200) TOTAL FUND BALANCES (DEFICITS)

$ - $ 729, 181 $ 170,126 $ 273,855 TOTAL LIABILITIES AND FUND BALANCES

(continued)

71 CITY OF SIMI VALLEY COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS JUNE 30, 2003

Capital Projects

Madera Police Unified Royal Capital Two-Way Radio Regional Improvements Projects System Mall

ASSETS Cash and investments (note Ill A): Held by city $ 334,729 $ 25,000 $ 1,296,427 $ Held by fiscal agents Accounts receivable (net of allowance for uncollectibles) (note Ill C) Prepaids (note Ill D) Taxes receivable Grants receivable Interest receivable 1,506 Loans receivable (net of allowance for uncollecti bles) (note Ill B & C) Property held for resale Advances to other funds (note Ill F)

TOTAL ASSETS $ 336,235 $ 25,000 $ 1,296,427 $

LIABILITIES AND FUND BALANCES

LIABILITIES Accounts payable $ - $ - $ 3,178 $ 127,328 Salaries and benefits payable Due to other funds (note Ill F) 30,564 Advances from other funds (note Ill F) Deferred revenues TOTAL LIABILITIES 3,178 157,892

FUND BALANCES Reserved for encumbrances 6,434 4,961 Reserved for loans receivable Reserved for property held for resale Reserved for advances to other funds Reserved for debt service Unreserved: Designated for cash flow Designated for capital projects 336,235 25,000 1,286,81 5 Designated for public improvements Designated for law enforcement Designated for special programs Designated for housing programs Undesignated (162,853) TOT AL FUND BALANCES (DEFICITS) 336,235 25,000 1,293,249 (157,892)

TOTAL LIABILITIES AND FUND BALANCES $ 336,235 $ 25,000 $ 1,296,427 $

72 CITY OF SIMI VALLEY COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS JUNE 30, 2003

Total Nonmajor Total Capital Non major Projects Funds

ASSETS Cash and investments (note Ill A): $ 9,400, 191 $ 23,408,422 Held by city 3,240,463 Held by fiscal agents 60,399 Accounts receivable (net of allowance tor uncollectibles) (note Ill C) 2,316,563 Prepaids (note Ill D) 67,294 Taxes receivable 1,003,036 1,187,618 Grants receivable 19,667 75,775 Interest receivable 4,358,418 Loans receivable (net of allowance for uncollectibles) (note Ill B & C) 163,251 Property held tor resale 2,500,000 Advances to other funds (note Ill F)

$ 10,422,894 $ 37,378,203 TOT AL ASSETS

LIABILITIES AND FUND BALANCES

LIABILITIES $ 380,632 $ 1,069,190 Accounts payable 76,500 Salaries and benefits payable 824,446 987,878 Due to other funds (note Ill F) 218,1 24 Advances from other funds (note Ill F) 327,538 4,560,640 Deterred revenues 1,532,616 6,912,332 TOTAL LIABILITIES

FUND BALANCES 788,095 1,251,293 Reserved tor encumbrances 170,316 Reserved tor loans receivable 163,251 Reserved torproperty held tor resale 2,500,000 Reserved tor advances to other funds 4,418,047 Reserved tor debt service Unreserved: 650,000 Designated tor cash flow 8,973,705 8,973,705 Designated tor capital projects 4,121,134 Designated tor public improvements 664,350 Designated tor law enforcement 1,429,340 Designated tor special programs 7,162,282 Designated tor housing programs (871 ,522) (1,037 ,847) Undesignated 8,890,278 30,465,871 TOTAL FUND BALANCES (DEFICITS)

$ 10,422,894 $ 37,378,203 TOTAL LIABILITIES AND FUND BALANCES

(concluded)

73 CITY OF SIMI VALLEY COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Special Revenue Community Community Development Development Agency Agency Housing Madera Royal HOME Administration Administration Tax Increment Grant

REVENUES Taxes $ - $ $ - $ Tax increment revenues 59,678 Use of money and property 635,217 152 47,647 From other governments Grants Service charges 31 ,296 Other revenues Total revenues 666,513 59,830 47,647

EXPENDITURES Current: General government 365,300 279,041 750 13,852 Community services (CS) Planning (ES) 528,794 1,653,897 5,000 Public ways and facilities (PW) Public safety (PD) Total current expenditures 894,094 1,932,938 750 18,852

Capital outlay

Debt service: Refunding escrow Refunding bond issuance costs Principal 4,101 Interest 7,508 5,463 Other Total debt service 11,609 5,463

Intergovernmental 22,149 Total expenditures 894,094 1,944,547 28,362 18,852

EXCESS (DEFICIENCY) OF REVENUES OVER OVER EXPENDITURES (894,094) (1 ,278,034) 31 ,468 28,795

OTHER FINANCING SOURCES (USES) Transfers in (note Ill F) 879,601 1,829,517 Transfers out (note Ill F) (3,300) (2,500) (11,937) Refunding bonds issued Payment to refunded bond escrow agent Total other financing sources (uses) 876,301 1,827,017 (11 ,937)

NET CHANGE IN FUND BALANCES (1 7,793) 548,983 19,531 28,795

FUND BALANCES (DEFICITS)-BEGINNING, AS RESTATED 17,793 7,009,817 (237,656) 468,027

FUND BALANCES (DEFICITS)-ENDING $ - $ 7,558,800 $ (218,125) $ 496,822

74 CITY OF SIMI VALLEY COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS FOR THE FISCAL VEAR ENDED JUNE 30, 2003

Special Revenue

Lighting Gasoline Transportation Maintenance Police Tax Funds District Grants

REVENUES $ . $ $ 1,626,01 8 $ Taxes Tax increment revenues 10,572 170,945 2,898 Use of money and property 2.158,322 3,648,424 25,000 From other governments 317,483 Grants 20,225 Service charges 103.883 Other revenues 2,158,322 3,658,996 1,946,071 320,381 Total revenues

EXPENDITURES Current: 328,600 General government Community services (CS} Planning (ES} 32,886 1,141 ,752 Public ways and facilities (PW) 61 1 ,277 Public safety (PD) 32,886 1,470,352 61 1 ,277 Total current expenditures

237,080 Capital outlay

Debt service: Refunding escrow Refunding bond issuance costs Principal Interest Other Total debt service

Intergovernmental 32,886 1,470,352 848,357 Total expenditures

EXCESS (DEFICIENCY} OF REVENUES OVER 2,158,322 3,626, 110 475,719 (527,976) OVER EXPENDITURES

OTHER FINANCING SOURCES {USES} 983,616 Transfers in (note Ill F} (2.158,322) (3,477,962) (108,371 ) (382,185) Transfers out (note Ill F} Refunding bonds issued Payment to refunded bond escrow agent (2.158,322) (3,477,962) (108,371) 601 ,431 Total other financing sources (uses}

148,148 367,348 73,455 NET CHANGE IN FUND BALANCES

314,477 5,856,500 596,960 FUND BALANCES (DEFICITS)-BEGINNING, AS RESTATED

$ . $ 462,625 $ 6,223,848 $ 670,415 FUND BALANCES (DEFICITS}-ENDING

(continued)

75 CITY OF SIMI VALLEY COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Special Revenue

Landscape Total Community Maintenance Nonmajor Development Retiree District Special Block Grant Benefits No. 1 Revenue Funds

REVENUES Taxes $ - $ - $ - $ 1,626,018 Tax increment revenues 59,678 Use of money and property 36,975 2,371 23,463 930,240 From other governments 5,831 ,746 Grants 857,503 1,1 74,986 Service charges 795,367 846,888 Other revenues 10,800 114,683 Total revenues 894,478 13, 171 818,830 10.584,239

EXPENDITURES Current: General government 410,476 52,019 1,450,038 Community services (CS) 13,636 13,636 Planning (ES) 204,320 2,392,01 1 Public ways and facilities (PW) 232,417 872, 144 2,279.199 Public safety (PD) 611 ,277 Total current expenditures 860,849 924,163 6,746, 161

Capital outlay 237,080

Debt service: Refunding escrow Refunding_bond issuance costs Principal 4,101 Interest 12,971 Other Total debt service 17,072

Intergovernmental 22, 149 Total expenditures 860,849 924,163 7,022,462

EXCESS (DEFICIENCY) OF REVENUES OVER OVER EXPENDITURES 33,629 13, 171 (105,333) 3,561 ,777

OTHER FINANCING SOURCES {USES} Transfers in (note Ill F) 222,200 200,000 4, 114,934 Transfers out (note Ill F) (6, 144,577) Refunding bonds issued Payment to refunded bond escrow agent Total other financing sources (uses) 222,200 200,000 (2,029,643)

NET CHANGE IN FUND BALANCES 33,629 235,371 94,667 1,532,134

FUND BALANCES (DEFICITS)-BEGINNING, AS RESTATED 614,587 984,843 15,625,348

FUND BALANCES (DEFICITS)-ENDING $ 648,216 $ 235,371 $ 1,079,510 $ 17, 1 57,482

76 CITY OF SIMI VALLEY COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Debt Service

1993 1995 2003 Total Revenue Lease Tax Allocation Nonmajor Refunding Revenue Refunding Debt Bonds Bonds Bonds Service

REVENUES $ $ - $ ·$ Taxes Tax increment revenues 14.221 12,173 5,238 31,632 Use of money and property From other governments Grants Servicecharges 29,556 29,556 Other revenues 43,777 12.173 5,238 61.188 Total revenues

EXPENDITURES Current: General government Community services (CS) Planning (ES) Public ways and facilities (PW) Public safety (PD) Total current expenditures

Capital outlay

Debt service: 1,666,163 1,666. 163 Refunding escrow 930,403 930,403 Refunding bond issuance costs 770,000 475,000 1,245,000 Principal 864, 109 484.775 844,858 2, 1 93,742 Interest 3,008 4,586 7,594 Other 1,637,117 964.361 3,441 ,424 6,042,902 Total debt service

Intergovernmental 1.637,117 964,361 3,441,424 6,042,902 Total expenditures

EXCESS (DEFICIENCY) OF REVENUES OVER (1.593,340) (952,188) (3,436, 1 86) (5,981,714) OVER EXPENDITURES

OTHER FINANCING SOURCES {USES} 964,361 1,1 67,297 2,131 ,658 Transfers in (note Ill F) (55,556) (55,556) Transfers out (note Ill F) 32,251,576 32,251,576 Refunding bonds issued (2,51 1,021) (26,665,937) (29, 1 76,958) Payment to refunded bond escrow agent (2,566,577) 964.361 6,752,936 5,150,720 Total other financing sources (uses)

(4,159,917) 12,173 3,316,750 (830,994) NET CHANGE IN FUND BALANCES

4,161 ,944 1,087,161 5,249, 105 FUND BALANCES (DEFICITS)-BEGINNING, AS RESTATED

$ 2,027 $ 1,099,334 $ 3,316.750 $ 4,418,111 FUND BALANCES (DEFICITS)-ENDING

(continued)

77 CITY OF SIMI VALLEY COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Capital Projects

Geographic CDA Cultural Arts Equipment Information Projects Facility Replacement System (GIS)

REVENUES Taxes $ - $ - $ - $ Tax increment revenues Use of money and property 78,561 11,932 4,423 From other governments Grants Service charges Other revenues . Total revenues 78,561 11,932 4,423

EXPENDITURES Current: General government 82 1,593 Community services (CS) Planning (ES) Public ways and facilities (PW) Public safety (PD) Total current expenditures 82 1,593

Capital outlay 340,698 83,998 661 ,067 60,999

Debt service: Refunding escrow Refunding bond issuance costs Principal Interest Other Total debt service

Intergovernmental Total expenditures 340,698 84,080 661 ,067 62,592

EXCESS (DEFICIENCY) OF REVENUES OVER OVER EXPENDITURES (262,137) (84,080) (649,135) (58,169)

OTHER FINANCING SOURCES {USES) Transfers in (note Ill F) 340,698 1 05, 103 1,213,000 11,380 Transfers out (note Ill F) Refunding bonds issued Payment to refunded bond escrow agent Total other financing sources (uses) 340,698 105,103 1,213,000 11,380

NET CHANGE IN FUND BALANCES 78,561 21 ,023 563,865 (46,789)

FUND BALANCES (DEFICITS)-BEGINNING, AS RESTATED 3,342,645 2,783 3,321,936 204,791

FUND BALANCES (DEFICITS)-ENDING $ 3,421 ,206 $ 23,806 $ 3,885,801 $ 158,002

78 CITY OF SIMI VALLEY COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Capital Projects

Tapo Integrated Financial Stormwater Street Police Information Detention Bridge System (IPS) System (FIS) Basins

REVENUES $ - $ - $ $ Taxes Tax increment revenues 1,725 Use of money and property From other governments 455,844 905,861 Grants Service charges Other revenues 457,569 905,861 Total revenues

EXPENDITURES Current: 19,085 2,793 General government Community services (CS) Planning (ES) Public ways and facilities (PW) Public safety (PD) 19,085 2,793 Total current expenditures

1,443,726 31,289 411 ,914 Capital outlay

Debt service: Refunding escrow Refunding bond issuance costs Principal Interest Other Total debt service

Intergovernmental 1,462,81 1 34,082 41 1,914 Total expenditures

EXCESS (DEFICIENCY} OF REVENUES OVER (1,005,242) (34,082) 493,947 OVER EXPENDITURES

OTHER FINANCING SOURCES {USES} 297,269 256,700 Transfers in (note Ill F} (246,424) Transfers out (note Ill F} Refunding bonds issued Payment to refunded bond escrow agent (246,424) 297,269 256,700 Total other financing sources (uses)

(246,424) (707,973) 222,618 493,947 NET CHANGE IN FUND BALANCES

246,424 509,066 (64,640) (548,147) FUND BALANCES(DEFICI TS)-BEGINNING, AS RESTATED

$ - $ (198,907) $ 157,978 $ (54,200) FUND BALANCES(DE FICITS)-ENDING

(continued)

79 CITY OF SIMI VALLEY COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Capital Projects

Madera Police Unified Royal Capital Two-Way Radio Regional Improvements Projects System Mall

REVENUES Taxes $ $ $ - $ Tax increment revenues Use of money and property 3,915 From other governments Grants Service charges Other revenues Total revenues 3,915

EXPENDITURES Current: General government 1,428,292 Community services (CS) Planning (ES) Public ways and facilities (PW) Public safety (PD) Total current expenditures 1,428,292

Capital outlay 107,308 36,751

Debt service: Refunding escrow Refunding bond issuance costs Principal Interest Other Total debt service

Intergovernmental Total expenditures 107,308 36,751 1,428,292

EXCESS (DEFICIENCY) OF REVENUES OVER OVER EXPENDITURES (103,393) (36,751 ) (1,428,292)

OTHER FINANCING SOURCES {USES) Transfers in (note Ill F) 25,000 140,000 1,270,400 Transfers out (note Ill F) Refunding bonds issued Payment to refunded bond escrow agent Total other financing sources (uses) 25,000 140,000 1,270.400

NET CHANGE IN FUND BALANCES (103,393) 25,000 103,249 (157,892)

FUND BALANCES (DEFICITS)-BEGINNING, AS RESTATED 439;628 1,190,000

FUND BALANCES (DEFICITS)-ENDING $ 336,235 $ 25,000 $ 1,293,249 $ (157,892)

80 CITY OF SIMI VALLEY COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Total Nonmajor Total Capital Project Nonmajor Funds Funds

REVENUES s s 1,626,018 Taxes 59,678 Tax increment revenues 100,556 1,062,428 Use of money and property 5,831 ,746 From other governments 1,361 ,705 2,536,691 Grants 846,888 Service charges 144,239 Other revenues 1,462,261 12,107,688 Total revenues

EXPENDITURES Current: 1,451 ,845 2,901,883 General government 13,636 Community services (CS) 2,392,01 1 Planning (ES) 2,279,1 99 Public ways and facilities (PW) s11 ,2n Public safety (PD) 1,451 ,845 8,198,006 Total current expenditures

3, 1 77,750 3,414,830 Capital outlay

Debt service: 1,666,163 Refunding escrow 930,403 Refunding bond issuance costs 1,249,101 Principal 2,206,713 Interest 7,594 Other 6,059,974 Total debt service

22,149 Intergovernmental 4,629,595 17,694,959 Total expenditures

EXCESS (DEFICIENCY) OF REVENUES OVER (3, 167 ,334) ( 5,587 ,271) OVER EXPENDITURES

OTHER FINANCING SOURCES {USES} 3,659,550 9,906,142 Transfers in (note Ill F) (246,424) (6,446,557) Transfers out (note Ill F) 32,251,576 Refunding bonds issued (29, 176,958) Payment to refunded bond escrow agent 3,41 3, 126 6,534,203 Total other financing sources (uses)

245,792 946,932 NET CHANGE IN FUND BALANCES

8,644,486 29,518,939 FUND BALANCES (DEFICITS)-BEGINNING, AS RESTATED

$ 8,890,278 s 30,465,871 FUND BALANCES (DEFICITS)-ENDING

(concluded)

81 City- of c" SII\-II ,�CALIFLLEYORNIA

82 SchedLlles-Budget and ActL1al-Individual FL1nds CITY OF SIMI VALLEY SUPPLEMENTAL SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL · COMMUNITY DEVELOPMENT AGENCY ADMINISTRATION FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative)

REVENUES $ $ Other revenues . $ - $

EXPENDITURES Current: General government: Reimbursement to general fund 327,200 365,300 365,300

Environmental services: Personnel 383,600 391 ,900 364,847 27,053 Materials, supplies and services 224,300 224,300 163,947 60,353 Total environmental services 607,900 616,200 528,794 87,406

Capital outlay Total expenditures 935, 100 981 ,500 894.094 87,406

(DEFICIENCY) OF REVENUES OVER EXPENDITURES (935,100) (981 ,500) (894,094) 87.406

OTHER FINANCING SOURCES (USES} Transfers in 938,400 938,400 879,601 (58,799) Transfers out (3,300) (3,300) (3,300) Total other financing sources (uses) 935, 100 935, 100 876,301 (58,799)

NET CHANGE IN FUND BALANCES (46,400) (17,793) 28,607

FUND BALANCES-BEGINNING, AS RESTATED 17,793 17,793 17,793

FUND BALANCES (DEFICITS)-ENDING $ 17,793 $ (28,607) $ - $ 28,607

83 CITY OF SIMI VALLEY SUPPLEMENTAL SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL - COMMUNITY DEVELOPMENT AGENCY HOUSING ADMINISTRATION FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Use of money and property $ 386,800 $ 386,800 $ 635,217 $ 248,417 Service charges 18,600 18.600 31 .296 12.696 Total revenues 405,400 405.400 666,513 261,113

EXPENDITURES Current: General government: Reimbursement to general fund 374,500 382,800 382,800 Reimbursement from CDBG (89,900) (89,900) (89,906) 6 Reimbursement from HOME grant {307,500) {307,500) (13,853) {293,647) Total general government (22.900) (14,600) 279.041 {293,641)

Environmental services: Personnel 642,500 644,400 662,996 (18,596) Materials, supplies and services 2,872,000 7,808,500 990,901 6,817,599 Total environmental services 3,514,500 8,452,900 1.653,897 6,799,003

Capital outlay 1,104.000 1,1 04,000

Debt service: Principal 4,375 4,375 4,101 274 Interest 8,125 8,125 7,508 617 Total debt service 12,500 12,500 11,609 891 Total expenditures 3.504,100 9,554,800 1,944,547 7,610,253

EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES {3 ,098,700) l9, 1 49.400) (1,278,034) 7,871 ,366

OTHER FINANCING SOURCES Transfers in 1,795,700 1,795,700 1,829,517 33,817 Transfers out {2,500) (2,500) (2,500) Total other financing sources (uses) 1,793,200 1,793,200 1,827,017 33,817

NET CHANGE IN FUND BALANCES (1,305,500) (7 ,356,200) 548,983 7,905,183

FUND BALANCES-BEGINNING, AS RESTATED 7,009,817 7,009,817 7,009,817

FUND BALANCES (DEFICITS)-ENDING $ 5,704,317 $ (346,383) $ 7,558,800 $ 7,905,183

84 CITY OF SIMI VALLEY SUPPLEMENTAL SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL - MADERA ROYAL TAX INCREMENT FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative)

REVENUES Tax increment revenues $ 62,300 $ 62,300 $ 59,678 $ (2,622) Use of money and property 600 600 152 (448) Total revenues 62,900 62,900 59,830 (3.070)

EXPENDITURES Current: General government: Materials, supplies. and services 700 700 750 (50)

Debt service: Interest 14,400 14.400 5,463 8,937

Intergovernmental 22,900 22,900 22,149 751 Total expenditures 38,000 38,000 28,362 9,638

EXCESS OF REVENUES OVER EXPENDITURES 24.900 24,900 31 ,468 6,568

OTHER FINANCING SOURCES (USES} Transfers out (1 2.500) (1 2,500) (1 1 ,937) 563

NET CHANGE IN FUND BALANCES 12,400 12,400 19,531 7,131

FUND BALANCES (DEFICITS)-BEGINNING, AS RESTATED (237,656) (237,656) (237,656)

FUND BALANCES (DEFICITS)-ENDING $ (225,256) $ (225,256) $ (21 8, 1 25) $ 7,131

85 CITY OF SIMI VALLEY SUPPLEMENTAL SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL · HOME GRANT FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative)

REVENUES Use of money and property $ . $ - $ 47,647 $ 47.647

EXPENDITURES Current: General government: Reimbursement to housing fund 13,852 (13,852)

Environmental services: Housing programs 5,000 (5,000) Total expenditures 18,852 (18,852)

EXCESS OF REVENUES OVER EXPENDITURES 28,795 28,795

FUND BALANCES (DEFICITS)-BEGINNING, AS RESTATED 468.027 468,027 468,027

FUND BALANCES (DEFICITS)-ENDING $ 468.027 $ 468.027 $ 496,822 $ 28 ,795

86 CITY OF SIMI VALLEY SUPPLEMENTAL SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL · GASOLINE TAX FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative)

REVENUES From other governments $ 2. 193,ooo $ 2. rn3,ooo s 2.158.322 s (34,678)

OTHER FINANCING SOURCES (USES) Transfers out (2, 1 93,000) (2, 1 93,000) (2, 1 58,322) 34,678

NET CHANGE IN FUND BALANCES

FUND BALANCES-BEGINNING

FUND BALANCES-ENDING $ - $ - $ - $

87 CITY OF SIMI VALLEY SUPPLEMENTAL SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL · TRANSPORTATION FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative)

REVENUES Use of money and property $ • $ • $ 10,572 $ 10,572 From other governments 3,251 .000 3,251 ,000 3,648,424 397,424 Total revenues 3.251 .000 3,251 ,000 3,658,996 407.996

EXPENDITURES Current: Public works: Materials, supplies, and services 15,800 32,886 (17,086)

OTHER FINANCING (USES) Transfers out (3,251 ,000) (3,436,400) (3,477,962) (41,562)

NET CHANGE IN FUND BALANCES (201 ,200) 148,148 349,348

FUND BALANCES (DEFICITS)-BEGINNING 314,477 314,477 314,477

FUND BALANCES-ENDING $ 314,477 $ 113.277 $ 462,625 $ 349,348

88 CITY OF SIMI VALLEY SUPPLEMENTAL SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL · LIGHTING MAINTENANCE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative)

REVENUES Taxes $ 1,455,200 $ 1,455,200 $ 1,626,018 $ 170,818 Use of money and property 235,400 235,400 170,945 (64,455) From other governments 25,600 25,600 25,000 (600) Service charges 3,000 3,000 20,225 17,225 Other revenues 103,883 103,883 Total revenues 1,71 9,200 1,719.200 1,946,071 226,871

EXPENDITURES Current: General government: Reimbursement to general fund 290,600 328,600 328,600

Public works: Utilities 923,300 923,300 798,942 124,358 Supplies and materials 1,000 1,000 241 759 Services 456,700 456,700 342,569 114,131 Total public works 1,381 ,000 1,381 ,000 1,141 ,752 239,248 Total expenditures 1,671 ,600 1,709,600 1,470,352 239,248

EXCESS OF REVENUES OVER EXPENDITURES 47,600 9,600 475,719 466,119

OTHER FINANCING SOURCES {USES} Transfers out (342,400! (347, 1 00) {1 08,371) 238,729

NET CHANGE IN FUND BALANCES (294,800) (337,500) 367,348 704,848

FUND BALANCES (DEFICITS)·BEGINNING 5,856,500 5,856,500 5,856,500

FUND BALANCES-ENDING $ 5,561 ,700 $ 5,519,000 $ 6,223,848 $ 704,848

89 CITY OF SIMI VALLEY SUPPLEMENTAL SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL • POLICE GRANTS FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative)

REVENUES Use of money and property $ 4,300 $ 4,300 $ 2,898 $ (1,402) Grants 429.600 462.521 317,483 (145,038) Total revenues 433,900 466,821 320,381 (1 46,440)

EXPENDITURES Current: Police: Personnel 648,100 648,100 581 ,181 66,91 9 Material, supplies and services 25,200 26,700 30,096 (3,396) Capital purchases 292.979 237,080 55;899 Total expenditures 673.300 967.779 848,357 119,422

EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (239,400) (500,958) (527,976) (27,018}

OTHER FINANCING SOURCES {USES} Transfers in 323,400 91 1,158 983,616 72,458 Transfers out (8.800) (259,558) (382,185) (122,627) Total other financing sources (uses) 314,600 651 .600 601 ,431 (50, 1 69)

NET CHANGE IN FUND BALANCES 75,200 150,642 73,455 (77, 1 87)

FUND BALANCES (DEFICITS)-BEGINNING, AS RESTATED 596,960 596,960 596,960

FUND BALANCES-ENDING $ 672,160 $ 747.602 $ 670,415 $ (77,187)

90 CITY OF SIMI VALLEY SUPPLEMENTAL SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL - COMMUNITY DEVELOPMENT BLOCK GRANT FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative)

REVENUES Use of money and property $ - $ - s 36,975 $ 36,975 Grants 1,1 40.822 1,140,822 857,503 (283,319) Total revenues 1.1 40,822 1,1 40.822 894.478 (246,344)

EXPENDITURES General government: Reimbursement to general fund 88,550 88,600 78,550 10,050 Public facility improvements 466,000 331 ,926 134,074 Total general government 88,550 554,600 410,476 144,124

Community services: Senior programs 3,000 68,949 1,636 67,313 Other programs 66,206 66.706 12,000 54,706 Total community services 69,206 135,655 13,636 122,019

Environmental services: Reimbursement to housing fund 89,906 89,900 89,906 (6) Social programs 170,714 227,449 82,772 144,677 Housing programs 39,000 167,975 31 ,492 136,483 Other programs 38,842 150 38,692 Total environmental services 299,620 524,166 204,320 319,846

Public works: Curbs, gutters, sidewalks, and street repair 683,446 985,669 188,972 796,697 Other repairs 39,322 43,445 {4 ,123) Total public works 683.446 1,024,991 232,417 792,574 Total expenditures 1,140,822 2,239,412 860,849 1,378,563

EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (1,098,590) 33,629 1,132,219

FUND BALANCES (DEFICITS)-BEGINNING, AS RESTATED 614.587 614.587 614,587

FUND BALANCES (DEFICITS)-ENDING $ 614.587 $ (484.003) $ 648,216 $ 1,132,219

91 CITY OF SIMI VALLEY SUPPLEMENTAL SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL - RETIREE BENEFITS FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative)

REVENUES Use of money and property $ - $ 3,500 $ 2,371 $ (1, 1 29) Other revenues 10,800 10,800 Total revenues 3,500 13, 171 9.671

OTHER FINANCING SOURCES (USES} Transfers in 236.500 233,000 222,200 (10,800}

NET CHANGE IN FUND BALANCES 236,500 236,500 235,371 (1 , 1 29)

FUND BALANCES-BEGINNING

FUND BALANCES (DEFICITS)-ENDING $ 236.500 $ 236,500 $ 235,371 $ (1 , 129)

92 CITY OF SIMI VALLEY SUPPLEMENTAL SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL • LANDSCAPE MAINTENANCE DISTRICT NO. 1 FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative)

REVENUES Use of money and property $ 25,700 $ 25,684 $ 23,463 $ (2,221 ) Service charges 828.800 828,759 795,367 (33,392) Total revenues 854.500 854.443 818.830 (35,613)

EXPENDITURES Current: General government: Reimbursement to general fund 109,200 52,649 52.01 9 630

Public works: Utilities 298,500 298,456 295,889 2,567 Landscape maintenance contract 562,800 562,761 550,867 11,894 Other contract services 68,800 68 ,815 25,388 43,427 Total public works 930,100 930,032 872,144 57,888 Total expenditures 1,039,300 982,681 924,163 58,51 8

EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (184,800) (128,238) (105,333) 22,905

OTHER FINANCING SOURCES Transfers in 98.900 200,000 200,000

NET CHANGE IN FUND BALANCES (85,900) 71 ,762 94,667 22,905

FUND BALANCES (DEFICITS)-BEGINNING 984,843 984,843 984,843

FUND BALANCES (DEFICITS)-ENDING $ 898,943 $ 1,056,605 $ 1,079,510 $ 22,905

93 94 In ternal Service and FidL1ciary Funds CITY OF SIMI VALLEY STATEMENT OF NET ASSETS INTERNAL SERVICE FUNDS JUNE 30, 2003

Workers' Liability Compensation Insurance Insurance Total

ASSETS Current assets: Cash and investments (note Ill A) $ 8,840,366 S 5,184,796 $ 14,025,162 Interest receivable 28.570 8.428 36.998

TOTAL ASSETS 8,868,936 5.193.224 14,062,160

LIABILITIES Current liabilities: Accounts payable 25,649 174,708 200,357 Salaries and benefits payable 9,283 9,283 Compensated absences 11,941 11,941 Claims and legal services payable 1,055,522 2,747.584 3,803,106 Total current liabilities 1,081 .171 2,943,516 4.024,687

Noncurrent liabilities: Advances from other funds (note Ill F) 2,344,000 2,344,000 4,688,000 Compensated absences 3,656 3,656 Claims and legal services payable 1.287.194 4,698.051 5.985,245 Total noncurrent liabilities 3,631 ,194 7,045,707 10,676,901

TOTAL LIABILITIES 4,712,365 9,989,223 14,701 ,588

NET ASSETS Invested in capital assets Unrestricted 4,156,571 (4,795,999) (639.428)

TOT AL NET ASSETS 4,156,571 (4,795.999) (639,428)

TOTAL LIABILITIES AND NET ASSETS $8.868,936 $5,193.224 $14,062.160

95 CITY OF SIMI VALLEY STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS INTERNAL SERVICE FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Workers' Liability Compensation Insurance Insurance Total

OPERATING REVENUES Charges for sales and services s 1,383,300 s 2.298,200 s 3.681 ,500 Total operating revenues 1,383.300 2,298,200 3.681 .500

OPERATI NG EXPENSES Salaries and benefits 239,981 239,981 Excess insurance premiums 333,364 173,680 507,044 Claims and legal expenses 637,01 1 5,166,261 5,803,272 General administration 217,900 136.000 353,900 Other 4.685 4.685 Total operating expenses 1 .188,275 5.720.607 6.908.882

OPERATING INCOME (LOSS) 195,025 (3.422.407) (3.227,382)

NONOPERATING REVENUES AND EXPENSES: Interest 154,017 46,735 200.752 Total nonoperating revenue (expenses) 154,017 46,735 200,752

INCOME (LOSS) BEFORE CONTRIBUTIONS AND TRANSFERS 349,042 (3,375,672) (3,026,630)

TRANSFERS Transfers in (note Ill F) 362,000 362,000 Transfers out (note Ill F) (1.400) (2.800) (4,200) Total transfers (1 .400) 359,200 357,800

CHANGE IN NET ASSETS 347,642 (3,016,472) (2,668,830)

TOT AL NET ASSETS-BEGINNING 3,808,929 \1 ,779,527) 2,029,402

TOT AL NET ASSETS-ENDING $ 4,156,571 $ (4,795.999! $ (639,428!

96 CITY OF SIMI VALLEY COMBINING STATEMENT OF CASH FLOWS INTERNAL SERVICE FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Workers' Liability Compensation Insurance Insurance Totals

CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from service charges and other revenues (net of refunds) s 1,383,300 s 2.298.200 s 3.681 .500 Cash paid for general administration (21 7,900) (136.000) (353.900) Cash paid for services (125,167) (125,167) Cash paid for insurance premiums and claims (721,523) (2,31 1 ,634) (3.033.157) Cash paid for insurance services (4.685) (4.685) Net cash provided (used) by operating activities 443,877 (279.286) 164,591

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers from other funds 362.000 362,000 Transfers to other funds (1.400) (2,800) (4.200) Net cash provided (used) by noncapital financing activities (1 .400) 359.200 357,800

CASH FLOWS FROM INVESTING ACTIVITIES: Interest on investments 175.443 59.775 235.218

NET INCREASE IN CASH AND CASH EQUIVALENTS 617,920 139,689 757.609

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 8,222.446 5,045.107 13.267,553

CASH AND CASH EQUIVALENTS, END OF YEAR $ 8,840,366 $ 5,184.796 $ 14,025.162

RECONCILIATION OF OPERATI NG INCOME (LOSS) TO NET CASH USED BY OPERATI NG ACTIVITIES: Operating income (loss) $ 195,025 $ (3.422,407) $ (3.227,382)

Adjustments to reconcile operating loss to net cash provided (used) by operating activities: Increase (decrease) in accounts payable (14,068) 114,814 100,746 Increase (decrease) in claims and legal service payable 262,920 3,028,307 3,291,227 Total adjustments 248,852 3,143, 121 3.391,973

Net cash provided (used) by operating activities $ 443,877 $ (279.286l $ 164,591

97 CITY OF SIMI VALLEY COMBINING STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES FIDUCIARY FUNDS JUNE 30, 2003

Tax Increment Tax Increment Pass-Through Pass-Through City Assessment Simi Valley Ventura County Agency District - City Unified School Community Total Fund of Simi Valley District College District Current Year

ASSETS

Current assets: Cash and investments {note Ill A): Held by city $ 6,384,217 $ 2,739,289 $ 41 ,963 $ 112,640 $ 9,278,109 Held by fiscal agents 95,989 1,404.410 1,500,399 Interest receivable 93 16.615 864 430 18.002

TOTAL ASSETS $ 6.480,299 $ 4,160.314 $ 42,827 $ 113,070 $ 10.796.510

LIABILITIES

Current liabilities: Deposits and intergovernmental payable $ 6,480,299 $ 4.160,314 $ 42,827 $ 113,070 $ 10,796,510

TOTAL CURRENT LIABILITIES $ 6.480,299 $ 4,160,314 $ 42,827 $ 113.070 $ 10.796,510

98 Capital Assets­ Governn1ental FL111ds CITY OF SIMI VALLEY CAPITAL ASSETS USED IN THE OPERATION OF GOVERNMENTAL FUNDS COMPARATIVE SCHEDULES BY SOURCE JUNE 30, 2003 AND 2002

2003 2002 Governmental funds capital assets: Land $ 10,235,61 3 $ 10,235,613 Buildings and improvements 31,670,364 31,650,264 Furnishings and equipment 4,886, 143 4,807,439 Computers 1,996;689 253,365 Vehicles 4,887,056 4,739,925 Infrastructure 17,545,750 Intangibles 3,758,646 Construction-in-progress 5,539,569 4,961,237 Total governmental funds capital assets $ 80,519,830 $ 56,647,843

Investments in governmental funds capital assets by source: General fund $ 23,977, 117 $ 24,096,912 Special revenue funds 7,339,423 7,1 03,088 Capital proj ects funds 36,431 ,838 25,418,508 Donations 12,771 ,453 29,335 Total governmental funds capital assets $ 80,519,830 $ 56,647,843

99 CITY OF SIMI VALLEY CAPITAL ASSETS USED IN THE OPERATION OF GOVERNMENTAL FUNDS SCHEDULE BY FUNCTION AND ACTIVITY JUNE 30, 2003

Buildings Furnishings and and Land lmerovements Eguiement Comeuters Vehicles Function and Activi!}:'. GENERALGOVERNMENT: City council $ - $ - $ 88,788 $ - $ City manager 32.829 25,000 City attorney 12,542 General services 2,073,151 255,510 18,559 General government 9,244,413 11,523,822 Total general government 9,244,413 11,523,822 2,207,310 255,510 43,559

COMMUNITY SERVICES 991 ,200 6,814,073 54,936 111,952

ENVIRONMENTAL SERVICES 115.274 251 ,816

PUBLIC WORKS: Administration 109,142 166,405 Engineering services 107,300 5,032 33,260 Parkway and treemaint enance 15,198 375,578 Street and storm drain maintenance 60.980 782,699 Building maintenance 15,272 148,579 Traffic maintenance 19.342 Vehicle maintenance 37.924 22,493 Source control 6,576 3, 110 Sanitation 32.251 229,479 Total public works 403,985 8,142 1,758,493

POLICE 13,332,469 2,104,638 1,733,037 2,721.236

TOTAL GOVERNMENTAL FUNDS CAPITAL ASSETS $ 10,235,613 $ 31 .670,364 $ 4,886,143 $ 1,996,689 $ 4,887,056

100 CITY OF SIMI VALLEY CAPITAL ASSETS USED IN THE OPERATION OF GOVERNMENTAL FUNDS SCHEDULE BY FUNCTION AND ACTIVITY JUNE 30, 2003

Construction in Infrastructure Intangibles Progress Totals Function and Activity GENERAL GOVERNMENT: $ - $ - $ - $ 88,788 City council 57,829 City manager 12,542 City attorney 104,904 2.452,124 General services 17,545,750 3,758,646 5,249,785 47,322,416 General government 17,545,750 3,758,646 5,354,689 49,933,699 Total general government

81,543 8,053,704 COMMUNITY SERVICES

367,090 ENVIRONMENTAL SERVICES

PUBLIC WORKS: 275,547 Administration 145,592 Engineering services 390,776 Parkway and tree maintenance 843,679 Street and storm drain maintenance 163,851 Building maintenance 19,342 Traffic maintenance 60.417 Vehide maintenance 9,686 Source control 261,730 Sanitation 2,170,620 Total public works

103,337 19,994,717 POLICE

TOT AL GOVERNMENTAL FUNDS $ 17,545,750 $ 3,758.646 $ 5,539,569 $ 80,519,830 CAPITAL ASSETS

101 CITY OF SIMI VALLEY CAPITAL ASSETS USED IN THE OPERATIONOF GOVERNMENTAL FUNDS SCHEDULE OF CHANGES BY FUNCTION ANO ACTIVITY FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Governmental Governmental Funds Capital Funds Capital Assets Assets JUI:)'. 1, 2002 Additions Deductions June 30, 2003 Function and Activi� GENERALGOVE RNMENT: City council $ 88,788 $ - $ - $ 88,788 City manager 57,829 57,829 City attorney 12,542 12,542 General services 2,357,162 94,962 2,452,124 General government 25,543,693 21,778,723 47,322,416 Total general government 28,060,014 21 ,873,685 49,933,699

COMMUNITYSER VICES 7,969,706 83,998 8,053,704

ENVIRONMENTAL SERVICES 354,329 29,623 16,862 367,090

PUBLIC WORKS: Administration 234,931 40,616 275,547 Engineering services 154,246 8,654 145,592 Parkway and tree maintenance 429,519 38,743 390,776 Street and storm drain maintenance 904,173 2,925 63,419 843,679 Building maintenance 191 ,849 27,998 163,851 Trafficmaintenance 19,342 19,342 Vehicle maintenance 60,417 60,417 Source control 9,686 9,686 Sanitation 272,324 10,594 261 ,730 Total public works 2,276,487 43,541 149,408 2,170,620

POLICE 17,987,307 2,024,896 17,486 19,994,717

TOTAL GOVERNMENTAL FUNDS CAPITAL ASSETS $ 56,647,843 $ 24,055,743 $ 183,756 $ 80,519,830

102 (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX C

SUMMARY OF PRINCIPAL LEGAL DOCUMENTS

The fo llowing is a summary of certain provisions of the Trust Agreement and the Lease which are not described elsewhere. This summary does not purport to be comprehensive and reference should be made to the respective agreement fo r a fu ll and complete statement of the provisions thereof.

DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE TRUST AGREEMENT

DEFINITIONS

Unless the context otherwise requires, the terms defined below will for all purposes below have the meanings defined below, the following definitions to be equally applicable to both the singular and plural forms of any of the terms defined below. All capitalized terms used below and not defined below shall have the meanings ascribed thereto in the Lease.

"Acquisition Agreement" means the Funding, Construction and Acquisition Agreement with Escrow Instructions dated as of February 1, 2004, between the City and Simi Valley Town and Country, Inc., or successors and assigns, as it may be amended fromtime to time.

"Additional Certificates" means certificates of participation authorized by a supplemental Trust Agreement that are executed and delivered by the Trustee under and pursuant to the Trust Agreement.

"Additional Payments" means all amounts payable by the City as Additional Payments as defined in the Lease.

"Assignment Agreement" means the Assignment Agreement related to the Certificates, dated as of the date of the Trust Agreement, by and between the Trustee and the Authority, and any duly authorized and executed amendments thereto.

"Authority" means the Simi Valley Public Financing Authority, a joint exercise of powers authority organized under the laws of the State, its successors and assigns.

"Authority Representative" means the Chair, Secretary, Treasurer or Executive Director of the Authority, or any other person authorized to act on behalf of the Authority under or with respect to the Lease.

"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 Certificates (including persons holding Certificates through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Certificates for federal income tax purposes.

"Business Day" means any day other than (i) a Saturday or Sunday, or (ii) a day on which banking institutions in the State of New York or the State of California are authorized or required by law or executive order to remain closed.

"Certificates" means the $25,955,000 aggregate principal amount of City of Simi Valley 2004 Certificates of Participation (Capital Improvement Projects) to be executed and delivered by the Trustee pursuant to the Trust Agreement.

C-1 "Certificate of Completion" means a certificate of the City Representative stating that all components of the Project have been completed or concluded in conformitywith the requirements of the Lease.

"CertificateYear" means the period extending from September 2 each calendar year to September 1 of the subsequent calendar year provided that the first Lease Year will commence on the Closing Date and end on September 1, 2005.

"City" means the City of Simi Valley, a municipal corporation and general law city organized and existing under the laws and Constitution of the State, and its successors and assigns.

"City Representative" means the City Manager or Assistant City Manager of the City or any other person authorized by the City Manager of the City to act on behalf of the City with respect to the Lease or the Trust Agreement.

"Closing Date" means the date on which the Certificates, duly executed by the Trustee, are delivered to the Original Purchaser thereof.

"Code" means the Internal Revenue Code of 1986, and the regulations issued under the Trust Agreement, as the same may be amended fromtime to time, and any successor provisions of law.

"Continuing Disclosure Agreement" means that certain Continuing Disclosure Agreement dated as of the date of the Trust Agreement, by the City and BNY Western Trust Company, as Dissemination Agent, as it may be amended fromtime to time in accordance with the terms thereof.

"Delivery Cost Requisition" means a written requisition substantially in the form attached to the Trust Agreement.

"Delivery Costs" means and includes all items of expense directly or indirectly payable by or reimbursable to the City or the Authority relating to the financing of the Project from the proceeds of the Certificates, including but not limited to costs provided in the contract of purchase with the Original Purchaser, the premium for the Insurance Policy or any insurance policies purchased to satisfy the Reserve Requirement, filing and recording costs, settlement costs, printing costs, word processing costs, reproduction and binding costs, initial fees and charges of the Trustee, including its first annual administration fee and the fees of its counsel, legal fees and charges, financing and other professional consultant fees, fees of auctioning the Certificates, costs of rating agencies and costs of providing information to such rating agencies, any computer and other expenses incurred in connection with the Certificates, fees for execution, transportation and safekeeping of the Certificatesand charges and feesin connection with the foregoing.

"Delivery Date" means September 2, 2004.

"Depository" means the securities depository acting as depository pursuant to the Trust Agreement.

"DTC" means The Depository Trust Company, New York, New York, a limited purpose trust company organized under the laws of the State of New York in its capacity as securities depository for the Certificates.

"Event of Default" means an event of default under the Lease, as definedtherein.

"Fiscal Year" means the fiscal year of the City commencing July 1 and ending June 30 of the next year.

"Government Obligations" means Permitted Investments of the type described in paragraph (I) of the definition thereof.

C-2 "Independent Counsel" means an attorney duly admitted to the practice of law beforethe highest court of the state in which such attorney maintains an office and who is not an employee of the Authority, the Trustee or the City.

"Insurance Business Day" means any day other than (i) a Saturday or Sunday, or (ii) a day on which the Insurer's Fiscal Agent or lending institutions in the State of New York are authorized or required by law or executive order to remain closed.

"Insurance Policy" means the financial guaranty insurance policy issued by the Insurer insuring the payment when due of the principal of and interest with respect to the Certificates as provided therein.

"Insurer" means Ambac Assurance Corporation, a Wisconsin-domiciled stock insurance company incorporated under the laws of the State of Wisconsin, and licensed to do business in the State of California, or any successor thereto or assignee thereof.

"Interest Payment Date" means March 1 and September 1 of each year commencing March 1, 2005.

"Lease" means the Lease/Purchase Agreement related to the Certificates, dated as of the date of the Trust Agreement, by and between the City and the Authority, and any duly authorized and executed amendments thereto.

"Lease Payment" means any payment required to be paid by the City to the Authority pursuant to the Lease.

"Lease Payment Date" means three (3) Business Days preceding each Interest Payment Date commencing with the Interest Payment Date on March 1, 2005.

"Lease Payment Fund" means the fund by that name established and held by the Trustee pursuant to the Trust Agreement.

"Leased Premises" means the Property and the Project leased by the Authority to the City pursuant to the Lease.

"Letter of Representations" means the letter of the City delivered to and accepted by the Depository on or prior to delivery of the Certificates as book-entry certificates making reference to the DTC Operational Arrangements memorandum, as it may be amended from time to time, setting forth the basis on which the Depository serves as depository for such book-entry certificates, as such letters were originally executed or as they may be supplemented or revised or replaced by letters from the City and the Trustee delivered to and accepted by the Depository.

"Moody's" means Moody's Investors Service or any successors or assigns thereto.

"Net Proceeds" means any proceeds of any insurance, performance bonds or taking by eminent domain or condemnation paid with respect to the Leased Premises remaining after payment therefrom of any expenses (including attorneys' fees) incurred in the collection thereof.

"Net Proceeds Fund" means the fund by that name established and held by the Trustee pursuant to the Trust Agreement.

"Nominee" means the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to the Trust Agreement.

C-3 "Original Purchaser" means Stone & Youngberg LLC as original purchaser of the Certificates on the Closing Date.

"Outstanding" when used as of any particular time with respect to Certificates, means (subject to the provisions of the Trust Agreement) all Certificates theretofore executed and delivered by the Trustee under the Trust Agreement except:

(a) Certificates theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation;

(b) Certificates for the payment or prepayment of which funds or Government Obligations, together with interest earned thereon, in the necessary amount will have theretofore been deposited with the Trustee (whether upon or prior to the maturity or prepayment date of such Certificates), provided that, if such Certificates are to be prepaid prior to maturity, notice of such prepayment will have been given as provided in the Trust Agreement or provision satisfactory to the Trustee will have been made forthe giving of such notice; and

(c) Certificates in lieu of or in exchange for which other Certificates will have been executed and delivered by the Trustee pursuant to the Trust Agreement.

Notwithstanding anything herein to the contrary, in the event that the principal and/or interest with respect to the Certificates is paid by the Insurer pursuant to the Insurance Policy, the Certificates will remain Outstanding for all purposes, not be defeased or otherwise satisfied and not be considered paid by the City.

"Owner" or "Certificate Owner" or "Owner of a Certificate", or any similar term, when used with respect to a Certificate means the person in whose name such Certificate is registered on the registration books maintained by the Trustee.

"Participants" means those broker-dealers, banks and other financialinstitutions from time to time for which the Depository holds book-entry certificatesas securities depository.

"Permitted Investments" " means, if and to the extent permitted by law and by any policy guidelines promulgated by the City:

(1) For all purposes including defeasance investments in refunding escrow accounts (the Trustee is entitled to rely upon investment direction of the City as a certification that such investment is a Permitted Investment):

(a) cash (insured at all times by the Federal Deposit Insurance Corporation); or

(b) obligations of, or obligations guaranteed as to principal and interest by, the United States of America or any agency or instrumentality thereof, when such obligations are backed by the full faith and credit of the United States of America including: U.S. treasury obligations; all direct or fully guaranteed obligations; Farmers Home Administration; General Services Administration; Guaranteed Title XI financing; Government National Mortgage Association (GNMA); State and Local GovernmentSeries.

Any security used for defeasance must provide for the timely payment of principal and interest and cannot be callable or prepayable prior to maturity or earlier redemption of the rated debt (excluding securities that do not have a fixed par value and/or whose terms do not promise a fixed dollar amount at maturity or call date).

C-4 (2) For all purposes other than defeasance investments in refunding escrow accounts:

(a) obligations of any of the following federal agencies which obligations represent the full faith and credit of the United States of America, including: Export-Import Bank, Rural Economic Community Development Administration, U.S. Maritime Administration, Small Business Administration, U.S. Department of Housing & Urban Development (PHA's), Federal Housing Administration and Federal Financing Bank;

(b) direct obligations of any of the followingfederal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America: senior debt obligations rated "Aaa" by Moody's or "AAA" by S&P issued by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC), obligations of the Resolution Funding Corporation (REFCORP), senior debt obligations of the Federal Home Loan Bank System and senior debt obligations of other Government Sponsored Agencies approved by the Insurer;

(c) U.S. dollar denominated deposit accounts and bankers' acceptances with domestic commercial banks (including those of the Trustee and its affiliates) which have rating on their short term certificates of deposit on the date of purchase of "A-1" or "A-1+" by S&P and "P-1" by Moody's and maturing no more than 360 days after the date of purchase (ratings on holding companies are not considered as the rating of the bank);

(d) investments in a money market fund rated "AAAm" or "AAAm-G" or better by S&P, including funds for which the Trustee or its affiliates provide investment advisory or other management services;

(e) pre-refunded Municipal Obligations defined as follows: Any bonds or other obligations or any state of the United States of America of any agency, instrumentality or local governmental unit of any such state, which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice; and

(i) which are rated, based on an irrevocable escrow account or fund (the "escrow"), in the highest rating category of S&P or Moody's or any successors thereto; or

(ii) (1) which are fully secured as to principal and interest and redemption premium, if any, by an escrow consisting only of cash or obligations described in paragraph (1)(b) above, which escrow may be applied only to the payment of such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (2) which escrow is sufficient, as verifiedby a nationally recognized independent certified public accountant, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates specified in the irrevocable instructions referred to above, as appropriate;

(t) municipal obligations rated "Aaa/AAA" or general obligations of states with a rating of at least "A2/A" or higher by both Moody's and S&P;

C-5 (g) the Local Agency Investment Fund of the State, created pursuant to Section 16429 .1 of the California Government Code, to the extent the Trustee is authorized to register such investment in its name; and

(h) other forms of investments approved in writing by the Insurer.

The value of the above investments will be determined as follows:

"Value" which will be determined as of the end of each month, means that the value of any investments will be calculated as follows:

(a) for the purpose of determining the amount of any fund, all Permitted Investments credited to such fund will be valued at fair market value. The Trustee will determine the fair market value based on accepted industry standards and from accepted industry providers. Accepted industry providers will include, but are not limited to, pricing services provided by Financial Times Interactive Data Corporation, Merrill Lynch, Salomon Smith Barney, Bear Stearns, or Lehman Brothers.

(b) As to certificates of deposit and bankers' acceptances: the face amount thereof, plus accrued interest.

(c) As to any investment not specified above: the value thereof established by prior agreement between the City, the Trustee and the Insurer.

"Prepayment" means any payment made by the City pursuant to the Lease as a prepayment of Lease Payments.

"Prepayment Fund" means the fund by that name established and held by the Trustee pursuant to the Trust Agreement.

"Principal Officeor Corporate Trust Office" means the corporate trust office of the Trustee located in Los Angeles, California; provided, that for the purposes of prepayment, payment, transfer, exchange or surrender of Certificates such term means the office located in Los Angeles, California or such other office or offices as the Trustee may designate from time to time, or the office of any Successor Trustee where it principally conducts it corporate trust and agency business.

"Project" means the improvements described in the Lease.

"Project Cost Requisition" means a written requisition substantially in the form attached to the Trust Agreement.

"Project Costs" means, with respect to any item or portion of the Project, the contract price paid or to be paid therefor upon acquisition, construction, procurement or improvement thereof, in accordance with a purchase order or contract therefor. Project Costs include, but are not limited to, the administrative, engineering, legal, financial and other costs incurred by the City and the Authority in connection with the acquisition, construction, procurement, remodeling or improvement of the Project, all applicable sales taxes and other charges resulting from such construction, procurement, remodeling or improvement of the Project and the costs associated with making rebate calculations required by the Code. Project Costs will not include any costs of the City or the Authority to enforce remedies under the Trust Agreement or under the Lease.

"Project Fund" means the fund by that name established and held by the Trustee pursuant to the Trust Agreement.

C-6 "Property" means the real property described in the Lease being leased to the City by the Authority under the terms of the Lease.

"Record Date" means the close of business on the fifteenth day of the month preceding each Interest Payment Date, whether or not such fifteenthday is a Business Day.

"Reserve Fund" means the fund by that name established and held by the Trustee pursuant to the Trust Agreement.

"Reserve Requirement" means, as of any calculation date, the least of (1) the maximum aggregate annual Lease Payments (in any Certificate Year) then payable under the Lease (exclusive of Lease Payments attributable to Certificatesthat have been defeased), (2) 125% of the average annual aggregate Lease Payments (in any CertificateYear) then payable under the Lease (exclusive of Lease Payments attributable to Certificates that have been defeased), or (3) 10% of the face amount of the Certificates and/or the Additional Certificates, as applicable (less original issue discount if in excess of two percent of the stated prepayment amount at maturity).

"S&P" means Standard & Poor's Ratings Services or any successors or assigns thereto.

"Site Lease" means the Site Lease related to the Certificates, dated the date of the Trust Agreement, by and between the Authority and the City.

"Special Counsel" means Stradling Y occa Carlson & Rauth, a Professional Corporation, or any other attorney or firm of attorneys of nationally recognized standing in matters pertaining to the tax-exempt status of interest on obligations issued by states and their political subdivisions and acceptable to the City.

"State" means the State of California.

"Tax Certificate" means the Tax Certificate, dated as of the Closing Date, concerning matters pertaining to the use and investment of proceeds of the Certificates executed and delivered to the City on the date of execution and delivery of the Certificates, including any and all exhibits attached thereto.

"Term" means the time during which the Lease is in effect, as provided in the Lease.

"Trustee" means BNY Western Trust Company, a banking corporation organized and existing under and by virtue of the laws of the State of California and having a corporate trust office in Los Angeles, California, and any successor trustee.

"Trust Agreement" means the Trust Agreement, together with any amendments thereof or supplements thereto permitted to be made under the Trust Agreement.

THE CERTIFICATES OF PARTICIPATION

Transfer and Exchange

Transfer of Certificates. Any Certificate may, in accordance with its terms, be transferred upon the books required to be kept pursuant to the provisions of the Trust Agreement by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Certificatefor cancellation at the Principal Office accompanied by delivery of a written instrument of transfer in a form acceptable to the Trustee, duly executed. Whenever any Certificate or Certificates will be surrendered for transfer, the Trustee will execute and deliver a new Certificate or Certificates of the same tenor and maturity, for like aggregate principal amount in authorized denominations. The Trustee may require the payment by the CertificateOwner

C-7 requesting such transfer of any tax or other governmental charge required to be paid with respect to such transfer.

Exchange of Certificates. Certificates may be exchanged at the Principal Office for a like aggregate principal amount of Certificates of other authorized denominations of the same tenor and maturity. The Trustee may require the payment by the Certificate Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange.

Time for Transfer or Exchange. The Trustee will not be obligated to transfer or exchange any Certificateafter a Record Date and before the following Interest Payment Date, or during the period in which it is selecting Certificates for prepayment, or after notice of prepayment has been given as provided in the Trust Agreement.

Certificate Register

The Trustee will keep or cause to be kept at its Principal Office sufficient books for the registration and transfer of the Certificates which will, during normal working hours and upon reasonable notice, be open to inspection by the City and the Authority; and, upon presentation for such purpose, the Trustee will, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on said books, Certificates.The City, the Authority and the Trustee will be entitled to treat the registered owner of a Certificate as the absolute owner thereof forall purposes, whether or not a Certificatewill be overdue and the City, the Authority and the Trustee will not be affected by any notice to the contrary.

Additional Certificates

Subsequent to the execution and delivery by the Trustee of the Certificates, the Trustee will, upon written request or requests of the City Representative and of the Authority Representative, execute and deliver from time to time one or more series of Additional Certificates in such aggregate principal amount as may be set forth in such written request or requests, provided that there has been compliance with all of the following conditions, which are conditions precedent to the preparation, execution and delivery of such Additional Certificates:

(a) The parties to the Trust Agreement have executed a supplemental agreement which (i) sets forth the terms and provisions of such Additional Certificates, including the establishment of such funds and accounts, which may be separate and apart from the funds and accounts established under the Trust Agreement for the Certificates, as are necessary or appropriate, and (ii) requires that prior to the delivery of such Additional Certificates the Reserve Requirement with respect to such Additional Certificates is on deposit in the Reserve Fund established under the Trust Agreement or in a reserve fund established under such supplemental agreement;

(b) The scheduled principal and interest payable with respect to such Additional Certificates will be payable only on Interest Payment Dates applicable to the Certificates;

(c) The Lease will have been amended, if necessary, to (i) increase or adjust the Lease Payments due and payable on each Lease Payment Date to an amount sufficient to pay the principal, premium (if any) and interest payable with respect to all Outstanding Certificates, including all Additional Certificates, as and when the same mature or become due and payable ( except to the extent such principal, premium and interest may be payable out of moneys then in the Reserve Fund or otherwise on deposit with the Trustee in accordance with the Trust Agreement), (ii) if appropriate, amend the definition of "Leased Premises" to include as part of the Leased Premises all or any portion of additions, betterments, extensions, improvements or replacements, or such other real or personal property (whether or not located upon the Leased Premises as such Leased Premises is constituted as of the date of the Trust Agreement), to be financed, acquired or constructed by the preparation,

C-8 execution and delivery of such Additional Certificates, and (iii) makesuch other revisions to the Lease as are necessitated by the execution and delivery of such Additional Certificates (provided, however, that such other revisions will not prejudice the rights of the Owners of Outstanding Certificates as granted them under the terms of the Trust Agreement);

(d) There has been delivered to the Trustee a counterpart of the amendments required by the Trust Agreement;

(e) The Trustee has received a certificate of the Authority Representative that there exists on the part of the Authority no Event of Default ( or any event which, once all notice or grace periods have passed, would constitute an Event of Default);

(t) The Trustee has received a certificate of the City Representative that (i) there exists on the part of the City no Event of Default ( or any event which, once all notice or grace periods have passed, would constitute an Event of Default) and (ii) the Lease Payments as increased or adjusted do not exceed in any year the fair rental value of the Leased Premises;

(g) The Trustee has received an opinion of Special Counsel substantially to the effect that (i) said supplemental agreement and said amendments to the Lease comply in all respects with the requirements of the Trust Agreement, (ii) said supplemental agreement and said amendments to the Lease have been duly authorized, executed and delivered by each of the respective parties thereto (provided that said opinion of Special Counsel, in rendering the opinions set forth in this clause (ii), will be entitled to rely upon one or more other opinions of counsel, including counsel to any of the respective parties to said supplemental agreement or said amendments to the Lease), (iii) assuming that no Event of Default has occurred and is continuing, the Trust Agreement, as amended by said supplemental agreement, and the Lease, as amended by the respective amendments thereto, constitute the legal, valid and binding obligations of the respective parties thereto, enforceable against said parties in accordance with their respective terms (except to the extent that enforcement thereof may be limited by bankruptcy, insolvency, moratorium, debt adjustment or other laws affecting creditors' rights generally, and except to the extent that enforcement thereof may be limited by general principles of equity, regardless of whether enforcement is sought in a legal or equitable proceeding) and (iv) the execution of such supplemental agreement and said amendments to the Lease, and performance by the parties under the Trust Agreement, will not result in the inclusion of the interest portion of any Lease Payments payable with respect to any Certificates, including Additional Certificates, theretofore prepared, executed and delivered, in the gross income of the Owners of the Certificatesfor purposes of federal income taxation;

(h) The City will have provided the Insurer written notice of the proposed execution and delivery of such Additional Certificates at the addresses indicated in the Trust Agreement and will have received prior written consent of the Insurer with respect to such Additional Certificates; provided that any Additional Certificates being delivered to prepay any outstanding Certificates will not require the prior written consent of the Insurer if the aggregate maximum annual debt service with respect to the Certificates and the Additional Certificates during any remaining year that the Certificates will be outstanding does not exceed maximum annual debt service with respect to the Certificatesprior to such prepayment.

(i) There will have been delivered to the Trustee an endorsement to or reissuance of the title insurance policy delivered under the Lease providing that the insured amount is at least equal to the aggregate principal amount of all of the Certificates and Additional Certificates outstanding upon the execution and delivery of such Additional Certificates;

C-9 (j) Upon the execution and delivery of such Additional Certificates, the amount on deposit in the Reserve Fund will be equal to the Reserve Requirement, taking into account the execution of the Additional Certificates; and

(k) Such other conditions will have been satisfied, and such other instruments will have been duly executed and delivered to the Trustee (with a copy to the Insurer), as the City or the Authority will have reasonably requested.

Upon delivery to the Trustee of the foregoing instruments, the Trustee will cause to be executed and delivered Additional Certificates representing the aggregate principal amount specified in such supplemental agreement, and such Additional Certificates will be equally and ratably secured with all Certificates, including any Additional Certificates, theretofore prepared, executed and delivered, all without preference, priority or distinction (other than with respect to maturity, payment, prepayment or sinking fund payment (if any)) of any one Certificate, including Additional Certificates, over any other; provided, however, that no provision of the Trust Agreement will require the City to consent to or otherwise permit the preparation, execution and delivery of Additional Certificates, it being understood and agreed that any such consent or other action of the City to permit the preparation, execution and delivery of Additional Certificates, or lack thereof, will be in the sole discretion of the City.

PROJECT FUND

Establishment of Project Fund

The Trustee will establish a special fund designated as the "City of Simi Valley (Capital Improvement Projects) Project Fund," referred to in the Trust Agreement as the "Project Fund"; will keep the Project Fund separate and apart fromall other funds and moneys held by it; and will administer such fund as provided in the Trust Agreement.

Purpose

Moneys in the Project Fund will be expended forProject Costs and Delivery Costs.

Deposit of Moneys; Payment of Project Costs and Delivery Costs

Deposits. There will be credited to the Project Fund the following amounts: (1) the proceeds of sale of the Certificatesrequired to be deposited therein pursuant to the Trust Agreement; (2) all investment earnings on moneys held in the Project Fund, which will remain in the Project Fund until expended for Project Costs or applied to the prepayment of Certificates; and (3) any other funds fromtime to time deposited with the Trustee to pay Project Costs.

Disbursements. The Trustee will disburse moneys in the Project Fund from time to time to pay Project Costs directly or to reimburse the City for payment of Project Costs including to fund amounts for the Town Center Project pursuant to the Acquisition Agreement, upon receipt by the Trustee of a Project Cost Requisition substantially in the form attached to the Trust Agreement signed by the City Representative. The Trustee has no duty or liability to monitor the application of any moneys disbursed under the Trust Agreement. The Trustee will disburse moneys from the Project Fund to pay Delivery Costs or to reimburse the City for payment of such Delivery Costs upon receipt by the Trustee of a Delivery Cost Requisition substantially in the form attached to the Trust Agreement signed by the City Representative. Any remaining balance in the Delivery Costs Account of the Project Fund on December 31, 2004 will be transferred by the Trustee to the Project Fund.

Transfers of Unexpended Proceeds. Upon the filing with the Trustee of the Certificate of Completion pursuant to the Lease, the Trustee will withdraw all remaining moneys in the Project Fund ( other than any

C-10 moneys retained therein to pay Project Costs not then due and payable and certified by the City Representative) and will transfer such moneys to the Lease Payment Fund to be applied to the payment of principal and interest with respect to the Certificates as prescribed in the Trust Agreement or, at the written election of the City delivered to the Trustee, will transfer such moneys to the City for the purpose of capital expenditures of the City, and following such transfer, the Project Fund will be closed.

PREPAYMENT FUND

Establishment of Prepayment Fund.

The Trustee will establish a special fund designated as the "City of Simi Valley (Capital Improvement Projects) Prepayment Fund," referred to in the Trust Agreement as the "Prepayment Fund"; will keep such fund separate and apart from all other funds and moneys held by it; and will administer such fund as provided in the Trust Agreement. Moneys to be used for prepayment of the Certificates will be deposited into the Prepayment Fund and used solely for the purpose of prepaying the Certificates in advance of their maturity on the date designated for prepayment and upon presentation and surrenderof such Certificates to the Trustee.

Surplus

Any funds remaining in the Prepayment Fund after prepayment and payment of all Certificates Outstanding, including accrued interest and payment of any applicable fees and expenses to the Trustee pursuant to the Trust Agreement and any other Additional Payments payable under the Lease or provision made therefor satisfactory to the Trustee, and provision for any amounts required to be transferred to the Rebate Fund pursuant to the Trust Agreement, will be withdrawn by the Trustee and remittedto the City.

LEASE PAYMENTS; LEASE PAYMENT FUND

Assignment of Rights in Lease

The Authority has, pursuant to the Assignment Agreement, assigned and set over to the Trustee certain of its rights in the Lease, including but not limited to all of the Authority's rights to receive and collect all of the Lease Payments, the Prepayments and all other amounts required to be deposited in the Lease Payment Fund pursuant to the Lease or pursuant to the Trust Agreement. All Lease Payments, Prepayments and such other amounts to which the Authority may at any time be entitled ( other than Additional Payments due to the Authority under the Lease) are to be paid directly to the Trustee, and all of the Lease Payments and Prepayments collected or received by the Authority are to be deemed to be held and to have been collected or received by the Authority as the agent of the Trustee and if received by the Authority at any time are to be deposited by the Authority with the Trustee within five (5) Business Days after the receipt thereof, and all such Lease Payments are to be deposited by the Trustee upon the receipt thereof in the Lease Payment Fund, all such Prepayments are to be deposited by the Trustee upon the receipt thereof in the Prepayment Fund. If the City fails to deposit with the Trustee a Lease Payment on the applicable Lease Payment Date, the Trustee will, within three Insurance Business Days after such Lease Payment Date, notify the Insurer of such failure. The Insurance Policy will be held by the Trustee and will be deemed to be held in the Lease Payment Fund.

Security Interest in Moneys and Funds

The Authority and the City, as their interests may appear, grant to the Trustee for the benefit of the Owners a lien on and a security interest in all moneys in the funds held by the Trustee under the Trust Agreement (excepting only the Rebate Fund and any moneys to be deposited into the Rebate Fund), including without limitation, the Lease Payment Fund, the Reserve Fund, the Prepayment Fund, the Project Fund and the Net Proceeds Fund, and all such moneys are to be held by the Trustee in trust and applied to the purposes specified in the Trust Agreement and in the Lease.

C-11 Pledge of Lease Payments and Proceeds

The Lease Payments and any proceeds from the re-letting or any other disposition of the Leased Premises pursuant to the Lease (the "Lease Proceeds") are irrevocably pledged to and will be used for the punctual payment of the interest and principal represented by the Certificates and the Lease Payments and Lease Proceeds will not be used for any other purpose while any of the Certificates remain Outstanding. This pledge will constitute a first lien on the Lease Payments and Lease Proceeds in accordance with the terms of the Lease, subject to the Trust Agreement.

Establishment of Lease Payment Fund

The Trustee will establish a special fund designated as the "City of Simi Valley ( Capital Improvement Projects) Lease Payment Fund." All moneys at any time deposited by the Trustee in the Lease Payment Fund will be held by the Trustee in trust forthe benefitof the Owners of the Certificates. So long as any Certificates are Outstanding, neither the City nor the Authority will have any beneficial right or interest in the Lease Payment Fund or the moneys deposited therein, except only as provided in the Trust Agreement, and such moneys will be used and applied by the Trustee as provided in the Trust Agreement.

Deposits

There will be deposited in the Lease Payment Fund all Lease Payments and in the Prepayment Fund all Prepayments received by the Trustee, including any moneys received by the Trustee for deposit therein pursuant to the Trust Agreement and the Lease, and any other moneys required to be deposited therein pursuant to the Lease, including without limitation that portion of the Lease regarding proceeds of rental interruption insurance or pursuant to the Trust Agreement, which moneys will be applied as a credit towards any Lease Payment then due.

Application of Moneys

Except as provided in the Trust Agreement, all amounts in the Lease Payment Fund will be used and withdrawn by the Trustee solely for the purpose of paying the principal and interest with respect to the Certificates as the same will become due and payable, in accordance with the provisions of the Trust Agreement, subject to the requirement that investment earnings not required to make payments due from the Lease Payment Fund may be transferred to the Rebate Fund, to the extent necessary to comply with the provisions under the heading "Rebate Fund" below, as provided in the Trust Agreement.

On or before each Interest Payment Date, the Trustee will set aside an amount sufficient to pay the interest becoming due and payable on such Interest Payment Date on all Outstanding Certificates. Moneys so set aside will be used and withdrawn by the Trustee solely for the purpose of paying the interest on the Certificates as it will become due and payable (including, accrued interest on any Certificates prepaid prior to maturity).

On or before each Interest Payment Date on which the principal of the Certificateswill be payable, the Trustee will set aside an amount equal to (i) the principal amount of the Certificates coming due and payable on such Interest Payment Date pursuant to the Trust Agreement, (ii) the prepayment price of the Certificates (consisting of the principal amount thereof and any applicable premiums) required to be prepaid on such Interest Payment Date pursuant to any of the provisions of the Trust Agreement. Moneys so set aside will be used and withdrawn by the Trustee solely forthe purpose of (i) paying the principal of the serial Certificates at the maturity thereof, or (ii) paying the principal of and premium (if any) on any Certificates upon the prepayment thereof pursuant to the Trust Agreement.

C-12 Surplus

Any funds remaining in the Lease Payment Fund after payment of all Certificates Outstanding, including accrued interest and payment of any applicable fees to the Trustee pursuant to the Trust Agreement and any other Additional Payments due under the Lease, or provision made therefor satisfactory to the Trustee, and provision for any amounts required to be transferred to the Rebate Fund pursuant to the Trust Agreement, will be withdrawn by the Trustee and remittedto the City.

RESERVE FUND

Establishment of Reserve Fund

The Trustee will establish a special fund designated as the "City of Simi Valley (Capital Improvement Projects) Reserve Fund," referred to in the Trust Agreement as the "Reserve Fund." All moneys at any time on deposit in the Reserve Fund will be held by the Trustee in trust for the benefit of the Owners of the Certificates, as a reserve forthe payment when due of all the Lease Payments to be paid pursuant to the Lease and of all payments on the Certificates and applied solely as provided in the Trust Agreement.

Certain Net Proceeds

Net Proceeds of rental interruption insurance will be deposited first to the Reserve Fund to make up any deficiencies therein and second to the Lease Payment Fund to be credited to the payment of the Lease Payments in the order in which they become due.

Transfers of Excess

The Trustee will, on or before each Lease Payment Date, provide written notice to the City of any moneys which will be on hand in the Reserve Fund (including investment earnings) in excess of the Reserve Requirement on the next succeeding March 1 or September 1, as the case may be, and one Business Day immediately preceding any Lease Payment Date, the Trustee will transfer such excess moneys to the Lease Payment Fund to be applied to the Lease Payment then due from the City. In the event of the partial Prepayment of Lease Payments the City may instruct the Trustee to reduce the amounts on deposit in the Reserve Fund to the Reserve Requirement as of such date and may direct the Trustee to transfer excess amounts fromthe Reserve Fund for any lawful purpose.

The transfers described above are in each case subject to the requirement that if the Certificate proceeds will have become subject to the arbitrage rebate provisions of the Code as described in the Trust Agreement then investment earnings in excess of the Reserve Requirement may be transferred to the Rebate Fund at the direction of the City as provided in the Trust Agreement.

Application of Reserve Fund in Event of Deficiencyin Lease Payment Fund

Whether or not Lease Payments are then in abatement, if one (1) business day immediately preceding any Interest Payment Date, the moneys available in the Lease Payment Fund do not equal the amount of the principal, and interest with respect to the Certificates thencoming due and payable, the Trustee first will apply the moneys available in the Reserve Fund to make delinquent Lease Payments on behalf of the City by transferring the amount necessary for such purpose to the Lease Payment Fund. The Trustee will take whatever action is necessary to liquidate or draw upon investments of funds held in the Reserve Fund or draw upon any insurance policy, letter of credit or comparable credit facility securing the Reserve Fund to make such funds available for application as provided under the Trust Agreement on the Interest Payment Date.

C-13 Transfer to Make All Lease Payments

If on any Interest Payment Date the moneys on deposit in the Reserve Fund and the Lease Payment Fund ( excluding amounts required for payment of principal or interest with respect to Certificates not presented for payment) are sufficient to pay all Outstanding Certificates, including all principal, interest and prepayment premiums (if any), the Trustee will, upon the written direction of the City Representative, transfer all amounts in the Reserve Fund to the Lease Payment Fund or the Prepayment Fund, as applicable, to be applied to the payment of the Lease Payments or Prepayments on behalf of the City and such moneys will be distributed to the Owners of Certificates in accordance with the Trust Agreement. Any amounts remaining in the Reserve Fund upon payment in full of all Outstanding Certificates and the Trustee's fees and expenses pursuant to the Trust Agreement and any other Additional Payments due under the Lease, or upon provision for such payments as provided in the Trust Agreement and provisions for any amounts required to be transferred to the Rebate Fund pursuant to the Trust Agreement, will at the written direction of the City be withdrawn by the Trustee and paid to the City.

NET PROCEEDS FUND

Establishment of Net Proceeds Fund: Deposits

The Trustee will establish when required a special fund designated as the "City of Simi Valley (Capital Improvement Projects) Net Proceeds Fund," referred to in the Trust Agreement as the "Net Proceeds Fund," to be maintained and held in trust for the benefit of the Owners, subject to disbursement therefrom as provided in the Trust Agreement. The Trustee will deposit Net Proceeds in the Net Proceeds Fund as provided in the Lease.

Casualty Insurance. The Trustee will disburse Net Proceeds for replacement or repair of the Leased Premises as provided in the Lease, or transfer such proceeds to the Prepayment Fund upon notification of the City Representative as provided in the Lease. Pending such application, such Net Proceeds may be invested by the Trustee as directed by the City in Permitted Investments that mature not later than such times moneys are expected to be needed to pay such costs of repair or replacement. After all of the Certificates have been paid and the entire amount of principal and interest with respect to the Certificates has been paid in full, or provision made for payment satisfactory to the Trustee, including provision for all amounts required to be transferred to the Rebate Fund pursuant to the Trust Agreement, the Trustee will pay any remaining moneys in the Net Proceeds Fund to the City after payment of any amounts due to the Trustee pursuant to the Trust Agreement and any other Additional Payments due under the Lease.

Title Insurance. Proceeds of any policy of title insurance received by the Trustee with respect to the Leased Premises will be applied and disbursed by the Trustee upon the Written Request of the City as follows:

(a) If the City determines that the title defect giving rise to such proceeds has not substantially interfered with its use and occupancy of the Leased Premises and will not result in an abatement of Lease Payments and Additional Payments payable by the City under the Lease (such determination to be certified by the City in writing), such proceeds will, with the written approval of the Insurer, be remitted to the City and used for any lawful purpose thereof; or

(b) If the City determines that the title defect giving rise to such proceeds has substantially interfered with its use and occupancy of the Leased Premises and will result in an abatement of Lease Payments and Additional Payments payable by the City under the Lease; then the Trustee will, with the written approval of the Insurer, immediately deposit such proceeds in the Prepayment Fund and such proceeds will be applied to the prepayment of Certificates in the manner provided in the Trust Agreement.

C-14 MONEYS IN FUNDS; INVESTMENT

Held in Trust

The moneys and investments held by the Trustee under the Trust Agreement, other than in the Rebate Fund, are irrevocably held in trust for the benefit of the Owners and, in the case of the Rebate Fund, for payment as required to the United States Treasury, and for the purposes in the Trust Agreement, and such moneys, and any income or interest earned thereon, will be expended only as provided in the Trust Agreement, and will not be subject to levy or attachment or lien by or for the benefit of any creditor of the Authority, the Trustee or the City, or any of them.

Investments Authorized

By Trustee. Subject to the further provisions of the Trust Agreement, moneys held by the Trustee under the Trust Agreement will be invested and reinvested on maturity thereof by the Trustee pursuant to the Trust Agreement. The Trustee will report any such investments to the City on a monthly basis in its regular statements.

Upon Direction of City. The City Representative will direct by facsimile, to the designated trust officer responsible for the administration of the Trust Agreement, followed by oral notification and distribution by U.S. Mail or overnight courier service of such notice, such investment in specificPermitted Investments not less than two Business Days prior to the date that such Permitted Investment is to take effect.Such investments and reinvestments will be made giving full consideration for the time at which funds are required to be available based upon, among other things, scheduled completion of the various components of the Project. In the event that the City Representative does not so direct the Trustee, the Trustee will invest in the Permitted Investments described in paragraph 2(c) or ( d) of the definitionthereof.

Investments purchased with funds on deposit in the Lease Payment Fund and Prepayment Fund are to mature not later than the Interest Payment Date or prepayment date, as appropriate, immediately succeeding the investment. Investments purchased with funds on deposit in the Project Fund will mature not later than the dates upon which such funds will be needed to be expended for the payment of Project Costs. Notwithstanding anything to the contrary contained in the Trust Agreement, investments purchased with funds on deposit in the Reserve Fund will have an average aggregate weighted term to maturity of not greater than five years; provided that no such investment of amounts in the Reserve Fund allocable to the Certificates or a series of Additional Certificates will mature later than the respective final maturity date of the Certificates or the series of Additional Certificates, as applicable.

Registration. Such investments, if registrable, will be registered in the name of the Trustee for the benefitof the Owners and held by the Trustee or its nominee.

Trustee as Purchaser or Agent. The Trustee may purchase or sell to itself or any affiliate, as principal or agent, investments authorized by the Trust Agreement. The Trustee may act as purchaser or agent in the making or disposing of any investment. The Trustee or any of its affiliates may act as a sponsor of, or as an advisor to any provider of, Permitted Investments under the Trust Agreement. The City acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the City the right to receive brokerage confirmations of security transactions as they occur, the City specifically waives receipt of such confirmations to the extent permitted by law. The Trustee will furnish the City periodic cash transaction statements which include detail for all investment transactions made by the Trustee under the Trust Agreement.

C-15 Disposition of Investments

Any income, profit or loss on the investment of moneys held by the Trustee under the Trust Agreement will be credited to the respective fund for which it is held, except as otherwise provided in the Trust Agreement.

Accounting

The Trustee will furnish to the City, not less than monthly, an accounting (which may be in the form of its regular statements) of all investments made by the Trustee and all funds and amounts held by the Trustee; provided, that the Trustee will not be obligated to deliver an accounting for any fund or account that (i) has a balance of zero and (ii) has not had any activity since the last reporting date. The Trustee will keep accurate records of all funds administered by it and of all Certificatespaid and discharged.

Valuation and Disposition of Investments

Valuation. Subject to the provisions of the Trust Agreement, for the purpose of determining the amount in any fund, all Permitted Investments (except investment agreements) credited to such fund will be valued in accordance with the definition of "Value" with respect to Permitted Investments in the Trust Agreement. With respect to all funds and accounts, investments will be valued by the Trustee (i) as frequently as deemed necessary by the Insurer but not less often than annually nor more often than monthly, and (ii) upon any draw upon the Reserve Fund. In making any such valuations, the Trustee may utilize, and conclusively rely upon such valuation services as may be available to the Trustee, including those within its regular accounting system.

Disposition. Subject to the provisions of the Trust Agreement, the Trustee will sell, or present for prepayment, any Permitted Investment so purchased by the Trustee whenever it will be necessary in order to provide moneys to meet any required payment, transfer, withdrawal or disbursement fromthe fund to which such Permitted Investment is credited.

Commingling of Moneys in Funds

The Trustee may, and upon the written request of the City Representative will, commingle any of the funds held by it pursuant to the Trust Agreement into a separate fund or funds for investment purposes only; provided, however, that all funds or accounts held by the Trustee under the Trust Agreement will be accounted for separately notwithstanding such commingling by the Trustee.

Tax Covenants

General. The City and the Authority have covenanted with the holders of the Certificates that, notwithstanding any other provisions of the Trust Agreement, they will not take any action, or fail to take any action, if any such action or failure to take action would adversely affect the exclusion from gross income of interest with the Certificates under the Code. The City and the Authority (to the extent that the Authority may have control over the Project or the proceeds of the Certificates) will not, directly or indirectly, use or permit the use of proceeds of the Certificates or the Project, or any portion thereof, by any person other than a governmental unit (as such term is used in the Code), in such manner or to such extent as would result in the loss of exclusion fromgross income for federal income tax purposes of interest with respect to the Certificates.

Use of Proceeds. The City and the Authority (to the extent that the Authority may have control over the Project or the proceeds of the Certificates) will not take any action, or fail to take any action, if any such action or failure to take action would cause the Certificates to be "private activity bonds" within the meaning of the Code, and in furtherance thereof, will not make any use of the proceeds of the Certificates or the Project, or any portion thereof, or any other funds of the City, that would cause the Certificatesto be "private activity

C-16 bonds" within the meaning of the Code. To that end, so long as any Certificates are outstanding, the City and the Authority, with respect to such proceeds and the Project and such other funds, will comply with applicable requirements of the Code and all regulations of the United States Department of the Treasury issued under the Trust Agreement and under the Code, to the extent such requirements are, at the time, applicable and in effect. The City will establish reasonable procedures necessary to ensure continued compliance with the Code and the continued qualificationof the Certificatesas "governmentalbonds. "

Arbitrage. The City and the Authority (to the extent that the Authority may have control over the Project or the proceeds of the Certificates) will not, directly or indirectly, use or permit the use of any proceeds of any Certificates, or of the Project, or other funds of the City, or take or omit to take any action, that would cause the Certificates to be "arbitrage bonds" within the meaning of the Code. To that end, the City and the Authority will comply with all requirements of the Code and all regulations of the United States Department of the Treasury issued under the Trust Agreement to the extent such requirements are, at the time, in effect and applicable to the Certificates.

Federal Guarantee. The City and the Authority (to the extent that the Authority may have control over the proceeds of the Certificates) will not make any use of the proceeds of the Certificates or any other funds of the City, or take or omit to take any other action, that would cause the Certificates to be "federally guaranteed" within the meaning of the Code.

Compliance with Tax Certificate. In furtherance of the foregoing tax covenants of the Trust Agreement, the City covenants that it will comply with the provisions of the Tax Certificate, which is incorporated in the Trust Agreement as if fully set forth in the Trust Agreement. These covenants will survive payment in full or defeasanceof the Certificates.

Rebate Fund

General. The Trustee will establish a special fund designated the "City of Simi Valley (Capital Improvement Projects) Rebate Fund" (the "Rebate Fund"). All amounts at any time on deposit in the Rebate Fund will be held by the Trustee in trust, to the extent required to satisfy the requirement to make rebate payments to the United States (the "Rebate Requirement") pursuant to the Code and the Treasury Regulations promulgated thereunder (the "Treasury Regulations"). Such amounts will be free and clear of any lien under the Trust Agreement and will be governed by the Trust Agreement and by the Tax Certificate.

The Trustee will be deemed conclusively to have complied with the Rebate Requirement if it follows the directions of the City, and will have no independent responsibility to, or liability resulting from its failure to, enforcecompliance by the City with the Rebate Requirement.

(i) Within 45 days of the end of the fifth Certificate Year and each fifth Certificate Year thereafter, (1) the City shall calculate or cause to be calculated with respect to the Certificates the amount that would be considered the "rebate amount" within the meaning of Section 1.148-3 of the Treasury Regulations, and (2) the City shall make an Additional Payment under the Lease and transfer to the Trustee fordeposit in the Rebate Fund, if and to the extent required, amounts sufficientto cause the balance in the Rebate Fund to be equal to the "rebate amount" so calculated. The City may direct that such amount be transferred from the Prepayment Fund and the Reserve Fund to the extent permitted by the Trust Agreement.

(ii) The City shall not be required to deposit any amount to the Rebate Fund in accordance with preceding sentence if the amount on deposit in the Rebate Fund prior to the deposit required to be made under the Trust Agreement equals or exceeds the "rebate amount" calculated in accordance with the preceding sentence. Such excess may be withdrawn fromthe Rebate Fund to the extent permitted under "Withdrawals of Excess Amounts" below.

C-17 (iii) The City shall not be required to calculate the "rebate amount," and shall not be required to deposit any amount to the Rebate Fund in accordance with the Trust Agreement, with respect to all or a portion of the proceeds of the Certificates (including amounts treated as proceeds of the Certificates) (1) to the extent such proceeds satisfy the expenditure requirements of Section 148(f)(4)(B) or Section 148(f)(4)(C) of the Code or Section 1.148-7(d) of the Treasury Regulations, whichever is applicable, and otherwise qualify for the exception to the Rebate Requirement pursuant to whichever of said sections is applicable, (2) to the extent such proceeds are subject to an election by the City under Section 148(f)(4)(C)(vii) of the Code to pay a 1 1/2% penalty in lieu of arbitrage rebate in the event any of the percentage expenditure requirements of Section 148(f)(4)(C) are not satisfied, or (3) to the extent such proceeds qualify for the exception to arbitrage rebate under Section 148(f)(4)(A)(ii) of the Code for amounts in a "bona fide debt service fund."

Withdrawal Following Payment of Certificates. Any funds remaining in the Rebate Fund after prepayment of all the Certificates and any amounts described in paragraph (ii) under the heading "Withdrawal for Payment of Rebate" below, or provision made therefor satisfactory to the Trustee, including accrued interest and payment of any applicable fees to the Trustee, will be withdrawn by the Trustee and remitted to the City.

Withdrawal for Payment of Rebate. Upon the City's written direction, but subject to the exceptions described under the heading "General" above, to the requirement to calculate the "rebate amount" and make deposits to the Rebate Fund, the Trustee shall pay to the United States, from amounts on deposit in the Rebate Fund,

(i) not later than 60 days after the end of (1) the fifth Certificate Year, and (2) each fifth Certificate Year thereafter, an amount that, together with all previous rebate payments, is equal to at least 90% of the 'rebate amount" calculated as of the end of such Certificate Year in accordance with Section 1.148-3 of the Treasury Regulations; and

(ii) not later than 60 days after the payment of all Certificates, an amount equal to 100% of the "rebate amount" calculated as of the date of such payment ( and any income attributable to the "rebate amount" determined to be due and payable) in accordance with Section 1.148-3 of the Treasury Regulations.

Rebate Payments. Each payment required to be made pursuant to the Trust Agreement shall be made to the Internal Revenue Service Center, Ogden, Utah 84201 (or such other address as is permitted or required by the Internal Revenue Service) on or before the date on which such payment is due, and shall be accompanied by Internal Revenue Service Form 8038-T, which shall be completed by the arbitrage rebate consultant for execution by the City and provided to the Trustee.

Deficiencies in the Rebate Fund. In the event that, prior to the time any payment is required to be made fromthe Rebate Fund, the amount in the Rebate Fund is not sufficient to make such payment when such payment is due, the City will calculate the amount of such deficiency and direct the Trustee to deposit an amount received fromthe City equal to such deficiency into the Rebate Fund prior to the time such payment is due.

Withdrawals of Excess Amounts. In the event that immediately following the calculation required by the Trust Agreement, but prior to any deposit made under said subsection, the amount on deposit in the Rebate Fund exceeds the "rebate amount" calculated in accordance with the Trust Agreement, upon written instructions from the City, the Trustee will withdraw the excess from the Rebate Fund and credit such excess to the Lease Payment Fund.

C-18 THE TRUSTEE

Appointment of Trustee

Appointment. BNY Western Trust Company, a banking corporation organized and existing under and by virtue of the laws of the State of California, has been appointed Trustee by the Authority and the City.

Qualifications. The Authority and the City agree that they will maintain a Trustee having a corporate trust office in New York, New York, San Francisco, California, Seattle, Washington, or Los Angeles, California capable of exercising trust powers in the State of California, with a combined capital (exclusive of borrowed capital) and a surplus of at least $75,000,000, or be a member of a bank holding company system, which will have a combined capital and surplus of at least $75,000,000, and subject to supervision or examination by federalor state authority, so long as any Certificatesare Outstanding.

Removal. The Insurer and, so long as there is no Event of Default, the City, may remove the Trustee initially appointed, and any successor thereto, and may appoint a successor or successors thereto.

Resignation. The Trustee may, upon prior written notice to the City, the Insurer and the Authority, resign; provided that such resignation will not take effect until the successor Trustee is appointed as provided in the Trust Agreement. Upon receiving such notice of resignation, the City will promptly appoint a successor Trustee subject to written approval of the Insurer.

Successor. Any successor Trustee will be a bank or trust company meeting the qualifications as set forth above. Any resignation or removal of the Trustee and appointment of a successor Trustee will become effective upon acceptance of appointment by the successor Trustee and upon receipt of writtenapproval of the Insurer. Upon such acceptance, the successor Trustee will mail notice thereof to the Owners at their respective addresses set forth on the Certificateregistration books.

Rights of the Trustee

Ownership of Certificates. The Trustee may become the Owner with the same rights it would have if it were not Trustee; may acquire and dispose of other bonds or evidence of indebtedness of the City with the same rights it would have if it were not the Trustee; and may act as a depository for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Owners, whether or not such committee will represent the Owners of the majority in principal amount of the Certificatesthen Outstanding.

Attorneys, Agents, Receivers. The Trustee may execute any of the trusts or powers and perform the duties required of it under the Trust Agreement by or through attorneys, agents, or receivers, will not be responsible for the actions or omissions of such attorneys, agents or receivers if appointed by it with reasonable care, and will be entitled to advice of counsel concerning all matters of trust and its duty under the Trust Agreement.

Standard of Care. So long as there is no Event of Default, (a) the Trustee will not be liable in connection with the performance of its duties under the Trust Agreement, except for its own negligence or willful misconduct, and (b) the Trustee will only perform those duties specifically set forth in the Trust Agreement and no implied duties, covenants or obligations whatsoever will be read into the Trust Agreement. In the event of and during the continuance of an Event of Default, the Trustee will exercise such care in performing its duties under the Trust Agreement as a corporate trustee would exercise in such event.

Indemnification of Trustee. The City will, to the extent permitted by law, indemnify and save the Trustee and its officers, directors, agents, and employees harmless from and against (whether or not litigated) all claims, losses, costs, expenses, liability and damages, including legal fees and expenses, arising out of

C-19 (i) the use, maintenance, condition or management of, or from any work or thing done on, the Leased Premises by the City, (ii) any breach or default on the part of the City in the performance of any of its obligations under the Trust Agreement and any other agreement made and entered into for purposes of the Leased Premises, (iii) any act of negligence of the City or of any of its agents, contractors, servants, employees or licensees with respect to the Leased Premises, (iv) any act of negligence of any assignee of, or purchaser from, the City or of any of its or their agents, contractors, servants, employees or licensees with respect to the Leased Premises, (v) the construction or acquisition of the Project or the expenditure of Project Costs, or (vi) the exercise and performance by the Trustee of its powers and duties under the Trust Agreement or any related document, (vii) the sale of the Certificates and the carrying out of any of the transactions contemplated by the Certificates or the Trust Agreement, or (viii) any untrue statement or alleged untrue statement of any material fact or omission or alleged omission to state a material fact necessary to make the statements made in light of the circumstances in which they were made, not misleading in any official statement or other disclosure document utilized in connection with the sale of the Certificates. No indemnification will be made in the Trust Agreement or other agreements for willful misconduct or negligence by the Trustee, its officers, agents, employees, successors or assigns.

In accepting the trust created by the Trust Agreement, the Trustee acts solely as Trustee for the Owners and not in its individual capacity, and all persons, including, without limitation, the Owners, Authority and City, having any claim against the Trustee arising from the Trust Agreement will look only to the funds and accounts held by the Trustee under the Trust Agreement for payment, except as otherwise provided in the Trust Agreement or where the Trustee has breached its standard of care as described in the Trust Agreement. Under no circumstances will the Trustee be liable in its individual capacity for the obligations evidenced by the Certificates.

No provision of the Trust Agreement will require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties under the Trust Agreement or in the exercise of any of its rights or powers.

The Trustee will 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 Owners of not less than a majority in aggregate principal amount of the Certificatesat the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee or in the exercise of any right under the Trust Agreement.

The Trustee will have no responsibility with respect to any information, statement or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed with respect to the Certificates.

The Trustee will not to be deemed to have knowledge of any Event of Default under the Trust Agreement or under the Lease unless it has actual knowledge thereof at its Principal Office.

The Trustee shall not be considered in breach of or in default in its obligations 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 or terrorists, 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 suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee.

The Trustee agrees to accept and act upon facsimile transrruss1on of written instructions and/or directions pursuant to the Trust Agreement provided, however, that: (a) subsequent to such facsimile

C-20 transmission of written instructions and/or directions the Trustee shall forthwith receive the originally executed instructions and/or directions, (b) such originally executed instructions and/or directions shall be signed by a person as may be designated and authorized to sign for the party signing such instructions and/or directions, and ( c) the Trustee shall have received a current incumbency certificate containing the specimen signature of such designated person.

MODIFICATION OR AMENDMENT OF AGREEMENTS

Amendments Permitted

With Consent. The Trust Agreement and the rights and obligations of the Owners, and the Lease and the rights and obligations of the parties thereto, may be modified or amended at any time, with notice to any rating agency then rating the Certificates, by a supplemental agreement or amendment thereto which will become effective when the written consents of the Insurer (so long as the Insurer is not in default in its payment obligations under the Insurance Policy) and Owners of a majority in aggregate principal amount of the Certificates then Outstanding, exclusive of Certificates disqualified as provided in the Trust Agreement, will have been filed with the Trustee. No such modification or amendment will:

(a) extend or have the effect of extending the fixed maturity of any Certificate or reducing the interest rate with respect thereto or extending the time of payment of interest, or reducing the amount of principal thereof or reducing any premium payable upon the prepayment thereof, or diminish the security afforded by the Insurance Policy without the express consent of the Owner of such Certificate and the Insurer (so long as the Insurer is not in default in its payment obligations under the Insurance Policy), or

(b) reduce or have the effect of reducing the percentage of Certificates required for the affirmative vote or written consent to an amendment or modification of the Trust Agreement or the Lease, or

( c) modify any of the rights or obligations of the Trustee without its written assent thereto, or

(d) amend the Trust Agreement dealing with permitted amendments without the prior written consent of the Owners of all Certificates then outstanding and the Insurer (so long as the Insurer is not in default in its payment obligations under the Insurance Policy).

Without Consent. The Trust Agreement and the rights and obligations of the Owners, and the Lease and the rights and obligations of the parties thereto, may be modified or amended at any time by a supplemental agreement or amendments thereto, with the prior written consent of the Insurer (so long as the Insurer is not in default in its payment obligations under the Insurance Policy) without the consent of any such Owners, but only to the extent permitted by law and only:

(a) to add to the covenants and agreements of the City under the Trust Agreement,

(b) to cure, correct or supplement any ambiguous or defective provision contained in the Trust Agreement or in the Lease,

(c) in regard to matters ansmg under the Trust Agreement or under the Lease Agreement, as the parties thereto may deem necessary or desirable, will not adversely affect the interests of the Owners or the Insurer,

(d) to substitute the Leased Premises, or a portion thereof, in accordance with the Lease,

C-21 (e) to make such additions, deletions or modifications as may be necessary or appropriate to assure the exclusion from gross income for federal income tax purposes of the interest component of Lease Payments and the interest payable with respect to the Certificates,

(t) to add to the rights of the Trustee,

(g) to provide for the execution and delivery of Additional Certificates in accordance with the provisions of the Trust Agreement.

Any such supplemental agreement will become effective upon execution and delivery by the parties thereto.

Procedure for Amendment with Written Consent of the Owners

The Trust Agreement or the Lease may be amended by supplemental agreement as provided in the Trust Agreement. In the event the consent of the Owners is required pursuant to the Trust Agreement, a copy of such supplemental agreement, together with a request to the Owners for their consent thereto, will be mailed by the Trustee to each Owner of a Certificateat his address as set forthin the Certificate registration books, but failure to receive copies of such supplemental agreement and request so mailed will not affect the validity of the supplemental agreement when assented to as provided in the Trust Agreement.

Such supplemental agreement will not become effective unless there will be filed with the Trustee the written consent of the Owners of at least a majority in aggregate principal amount of the Certificates then Outstanding (exclusive of Certificates disqualified as provided in the Trust Agreement) and notices will have been mailed as provided the Trust Agreement. Any such consent will be binding upon the Owner of the Certificate giving such consent and on any subsequent Owner (whether or not such subsequent Owner has notice thereof) unless such consent is revoked in writing by the Owner giving such consent or a subsequent Owner by filing such revocation with the Trustee prior to the date when further notice has been mailed as provided in the Trust Agreement.

Effectof Supplemental Agreement

From and after the time any supplemental agreement becomes effective pursuant to the Trust Agreement, the Trust Agreement or the Lease, as the case may be, will be deemed to be modifiedand amended in accordance therewith, the respective rights, duties and obligations of the parties thereto and all Owners of Certificates Outstanding, as the case may be, will thereafter be determined, exercised and enforced under the Trust Agreement subject in all respects to such modification and amendment, and all the terms and conditions of any supplemental agreement will be deemed to be part of the terms and conditions of the Trust Agreement or the Lease, as the case may be, forany and all purposes.

COVENANTS

Compliance With and Enforcement of the Lease

The City has covenanted to perform all obligations and duties imposed on it under the Lease. The Authority has covenanted to perform all obligations and duties imposed on it under the Lease. The City will not do or permit anything to be done, or omit or refrain from doing anything, in any case where any such act done or permitted to be done, or any such omission of or refraining from action, would or might be a ground for cancellation or termination of the Lease by the Authority.

C-22 Observance of Laws and Regulations

The City will observe and perform all valid and lawful obligations or regulations imposed on it by contract, or prescribed by any law of the United States, or of the State, or by any officer, board or commission having jurisdiction or control, as a condition of the continued enjoyment of any and every right, privilege or franchise owned or acquired by the City, including its right to exist and carry on business as a municipal corporation, to the end that such rights, privileges and franchises will be maintained and preserved, and will not become abandoned, forfeited or in any manner impaired.

Prosecution and Defense of Suits

The City will promptly, and also upon request of the Trustee, the Insurer or any Owner, from time to time take such action as may be necessary or proper to remedy or cure any defect in or cloud upon the title to the Leased Premises, and will prosecute all such suits, actions and other proceedings as may be appropriate for such purpose.

City Budgets

In accordance with the Lease, the City Representative will certify to the Trustee on or before September 1 of each year that the City has included all Lease Payments ( other than Lease Payments of advance rental) and Additional Payments due under the Lease in the Fiscal Year covered by its annual budget. If the City fails to certify that it has included all such Lease Payments and Additional Payments in such annual budget, the Trustee will promptly provide the City written notice specifying that the City has failed to observe and perform its covenant and agreement in the Lease and requesting that such failure be remedied within 30 days, or such failure will constitute an Event of Default under the Lease.

LIMITATION OF LIABILITY

Limited Liability of the City

Except for the payment of Lease Payments, Additional Payments and Prepayments when due in accordance with the Lease and the performance of the other covenants and agreements of the City contained in the Trust Agreement and in the Lease, the City will have no obligation or liability to any of the other parties to the Trust Agreement or to the Owners with respect to the Trust Agreement or the terms, execution, delivery or transfer of the Certificates, or the distribution of Lease Payments to the Owners by the Trustee.

No Liability of the City or Authority for Trustee Performance

Except as expressly provided in the Trust Agreement, neither the City nor the Authority will have any obligation or liability to any other parties thereto or to the Owners with respect to the performance by the Trustee of any duty imposed upon it under the Trust Agreement.

Limitation of Rights to Parties and Certificate Owners

Nothing in the Trust Agreement or in the Certificates expressed or implied is intended or will be construed to give any person other than the City, the Authority, the Trustee, the Insurer and the Owners, any legal or equitable right, remedy or claim under or in respect of the Trust Agreement or any covenant, condition or provision of the Trust Agreement; and all such covenants, conditions and provisions are and will be for the sole and exclusive benefitof the City, the Authority, the Trustee, the Insurer and the Owners.

Except as expressly provided in the Trust Agreement, the Authority will not have any obligation or liability to the Owners with respect to the payment when due of the Lease Payments by the City or with respect

C-23 to the observance or performance by the City of the other agreements, conditions, and covenant imposed upon the City by the Lease or by the Trust Agreement.

EVENTS OF DEFAULT AND REMEDIES OF CERTIFICATE OWNERS

Events of Default

Remedies. If an Event of Default occurs, then, and in each and every such case during the continuance of such Event of Default, the Trustee may exercise any and all remedies available pursuant to law or granted pursuant to the Lease; provided, however, that notwithstanding anything in the Trust Agreement or in the Lease to the contrary, THERE WILL BE NO RIGHT UNDER ANY CIRCUMSTANCES TO ACCELERATE THE MATURITIES OF THE CERTIFICATES OR OTHERWISE TO DECLARE ANY LEASE PAYMENTS NOT THEN IN DEFAULT TO BE IMMEDIATELY DUE AND PAYABLE; provided further that so long as the Insurer will not be in default in its payment obligations under the Insurance Policy, the Insurer will control all remedies upon an Event of Default.

Actual Knowledge. The Trustee will not be deemed to have knowledge of any Event of Default unless and until the trust officer responsible for the administration of the Trust Agreement will have actual knowledge thereof, or will have received written notice thereof at the Principal Office.

Application of Funds

All moneys received by the Trustee pursuant to any right given or action taken under the provisions of the Trust Agreement or the Lease, will be deposited into the Lease Payment Fund and be applied by the Trustee after payment of all amounts due and payable to the Trustee pursuant to the Trust Agreement and the Lease in the following order upon presentation of the several Certificates, and the stamping thereon of the payment if only partially paid, or upon the surrender thereof if fully paid -

First, Costs and Expenses: to the payment of the costs, fees and expenses of the Trustee in declaring such Event of Default and in performing its duties under the Trust Agreement, including reasonable compensation to its or their agents, attorneys and counsel and then any of such amounts incurred by the Owners;

Second, Interest: to the payment to the persons entitled thereto of all installments of interest then due in the order of the maturity of such installment, and, if the amount available is not sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably according to the amounts due thereon, to the persons entitled thereto, without any discrimination or preference;

Third, Principal: to the payment to the persons entitled thereto of the unpaid principal with respect to any Certificates which will have become due, whether at maturity or by call for prepayment, in the order of their due dates, with interest on the overdue principal and interest at a rate equal to the rate paid with respect to the Certificates and, if the amount available will not be sufficientto pay in full all the amounts due with respect to the Certificates on any date, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on such date to the persons entitled thereto, without any discrimination or preference; and

Fourth, Insurer: to the extent not included in clauses First, Second or Third above, to the payment of all amounts then due to the Insurer, as certified in writing to the Trustee.

Institution of Legal Proceedings

If one or more Events of Default will happen and be continuing, the Trustee, with the prior written consent of the Insurer, may, and upon the written request of the Owners of a majority in principal amount of

C-24 the Certificates then Outstanding, and upon being indemnified to its satisfaction therefor, will, proceed to protect or enforce its rights or the rights of the Owners by a suit in equity or action at law, either for the specific performance of any covenant or agreement contained in the Trust Agreement or in the Lease, or in aid of the execution of any power in the Trust Agreement granted, or by mandamus or other appropriate proceeding for the enforcement of any other legal or equitable remedy as the Trustee will deem most effectual in support of any of its rights or duties under the Trust Agreement; provided that such written request will not be otherwise than in accordance with provisions of law and the Trust Agreement and that the Trustee will have the right to decline to follow any such written request if the Trustee will be advised by counsel that the action or proceeding so requested may not be taken lawfully or if the Trustee in good faith will determine that the action or proceeding so requested would be unjustly prejudicial to the Certificate Owners not a party to such written request or expose the Trustee to liability.

Non-Waiver

Nothing in the Trust Agreement or in the Certificates will affect or impair the obligation of the City which is absolute and unconditional, to pay or prepay the Lease Payments as provided in the Lease. So long as the Insurer is not in default in its payment obligations under the Insurance Policy, the Trustee will not waive any default or breach of duty or contract under the Trust Agreement without the prior written consent of the Insurer. No delay or omission of the Trustee or of any Owner of any of the Certificates to exercise any right or power arising upon the happening of any Event of Default will impair any such right or power or will be construed to be a waiver of any such Event of Default or an acquiescence therein, and every power and remedy given by the Trust Agreement to the Trustee or to the Owners may be exercised from time to time and as often as will be deemed expedient by the Trustee or the Owners.

Remedies Not Exclusive

No remedy conferred or reserved to the Trustee or to the Owners in the Trust Agreement is intended to be exclusive of any other remedy, and every such remedy will be cumulative and will be in addition to every other remedy given under the Trust Agreement, at law or in equity or by statute or otherwise.

Power of Trustee to Control Proceedings

Subject to the Insurer's right to control all remedies upon an Event of Default, in the event that the Trustee, upon the happening of an Event of Default, will have taken any action, by judicial proceedings or otherwise, pursuant to its duties under the Trust Agreement, whether upon its own discretion, upon the request of the Insurer, or upon the request of the Owners of a majority in principal amount of the Certificates then Outstanding, it will have full power, in the exercise of its discretion for the best interest of the Owners of the Certificates, with respect to the continuance, discontinuance, withdrawal, compromise, settlement or other disposal of such action; provided, however, that the Trustee will not, unless there no longer continues an Event of Default, 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 Owners of at least a majority in principal amount of the Outstanding Certificates under the Trust Agreement opposing such discontinuance, withdrawal, compromise, settlement or other disposal of such litigation.

Limitation on Certificate Owners' Right to Sue

No Owner of any Certificate executed under the Trust Agreement will have the right to institute any suit, action or proceeding at law or in equity, for any remedy under or upon the Trust Agreement, unless (a) such Owner will have previously given to the Trustee written notice of the occurrence of an Event of Default under the Lease; (b) so long as the Insurer is not in default in its payment obligations under the Insurance Policy, such Owner will have obtained the Insurer's consent to such institution or appointment; (c) the Owners of a majority in aggregate principal amount of all the Certificates then Outstanding will have made written request upon the Trustee to exercise the powers granted or to institute such action, suit or

C-25 proceeding in its own name; (d) said Owners will have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; ( e) the Trustee will have refused or omitted to comply with such request for a period of 60 days after such written request will have been received by, and said tender of indemnity will have been made to, the Trustee; and (t) there has been a default in the payment of such Owner's proportionate interest in the Lease Payments as the same become due.

Such notification, request, tender of indemnity, refusal or omission, and default are, in every case, to be conditions precedent to the exercise by any Owner of any remedy under the Trust Agreement; it being understood and intended that no one or more Owners will have any right in any manner whatever by his or their action to enforce any right under the Trust Agreement, except in the manner provided in the Trust Agreement and for the equal benefitof all Owners of the Outstanding Certificates.

The right of any Owner of any Certificate to receive payment of said Owner's proportionate interest in the Lease Payments as the same become due, or to institute suit for the enforcementof such payment, will not be impaired or affected without the consent of such Owner, notwithstanding any provision of the Trust Agreement.

MISCELLANEOUS

Defeasance

Methods. If and when any Outstanding Certificates are paid and discharged in any one or more of the followingways:

(i) Payment or Prepayment: by well and truly paying or causing to be paid the principal, interest and prepayment premiums (if any) with respect to such Certificates Outstanding, as and when the same become due and payable;

(ii) Cash: if prior to maturity and having given at least 30 days prior written notice of prepayment by depositing with the Trustee, in trust, concurrent with the giving of such notice, an amount of cash which (together with cash then on deposit in the Lease Payment Fund and the Reserve Fund together with the interest to accrue thereon, in the event of payment or provision for payment of all Outstanding Certificates) is sufficient to pay such Certificates Outstanding, including all principal and interest and premium, if any; or

(iii) Government Obligations: by irrevocably depositing with the Trustee, in trust, Government Obligations together with cash, if required, in such amount as will, in the opinion of an independent certified public accountant, together with interest to accrue thereon (and, in the event of payment or provision for payment of all Outstanding Certificates, moneys then on deposit in the Lease Payment Fund and the Reserve Fund together with the interest to accrue thereon), be fully sufficientto pay and discharge such Certificates (including all principal and interest represented thereby and prepayment premiums if any) at or beforetheir maturity date; and all other amounts due under the Trust Agreement have been paid in full, then, notwithstanding that any Certificates will not have been surrendered for payment, all obligations of the Authority, the Trustee and the City with respect to such Certificates will cease and terminate, except only the obligation of the City and the Authority to comply with the Code and the obligation of the Trustee to pay or cause to be paid, from Lease Payments paid by or on behalf of the City fromfunds deposited pursuant to paragraphs (ii) and (iii) above, to the Owners of the Certificates not so surrendered and paid all sums due with respect thereto, and in the event of deposits pursuant to paragraphs (ii) and (iii) above, the Certificates will continue to represent direct and proportionate interests of the Owners thereof in Lease Payments under the Lease.

C-26 Surplus Moneys. Any funds held by the Trustee, at the time of payment or provision for payment of all Outstanding Certificates pursuant to the one of the procedures described in the Trust Agreement, which are not required for the payment to be made to Owners, will be paid over to the City, after the payment of any amounts due to the Trustee pursuant to the Trust Agreement, any amounts due and owing to the Insurer, and any other Additional Payments due under the Lease.

Surviving Provisions. The Trustee will retain such rights, powers and privileges under the Trust Agreement as may be necessary or convenient for the payment of the principal, interest and prepayment premium, if any, on the Certificatesand for the registration, transferand exchange of the Certificates.

Non-Presentment of Certificates. In the event any Certificate will not be presented for payment when the principal with respect thereto becomes due, either at maturity, or at the date fixedfor prepayment thereof, if moneys sufficient to pay such Certificate will have been deposited in the Prepayment Fund or Lease Payment Fund, as applicable, all liability of the City and the Trustee to the Owner thereof for payment of such Certificate will forthwith cease, terminate and be completely discharged, and thereupon it will be the duty of the Trustee to hold such moneys, without liability for interest thereon, for the benefit of the Owner of such Certificate who will thereafter be restricted exclusively to such moneys, for any claim of whatever nature on his or her part under the Trust Agreement or on, or with respect to, said Certificate.

Any moneys so deposited with and held by the Trustee not so applied to the payment of Certificates within two years after the date on which the same will have become due will be paid by the Trustee to the City, free from the trusts created by the Trust Agreement. Prior to forwarding any such moneys to the City, the Trustee may publish notice of its intention to transfer such funds in The Bond Buyer or another financial newspaper of general circulation in New York, New York. In addition, Trustee will be indemnified fromand against any and all liabilities to third parties resulting from its actions under the Trust Agreement. Thereafter, Owners will be entitled to look only to the City for payment, and then only to the extent of the amount so repaid by the Trustee. The City will not be liable for any interest on the sums paid to it pursuant to the defeasanceprovisions of the Trust Agreement and will not be regarded as a trustee or trustees of such money.

RIGHTS OF THE INSURER

Notwithstanding any provision of the Trust Agreement to the contrary, the rights of the Insurer to direct or consent to City, Trustee or Owner actions under the Trust Agreement will be suspended during any period in which the Insurer is in default in its payment obligations under the Insurance Policy and will be of no force or effect in the event the Insurance Policy is no longer in effect or the Insurer asserts that the Insurance Policy is not in effector the Insurer will have provided written notice that it waives such rights.

Any provision of the Trust Agreement expressly recognizing or granting rights in or to the Insurer may not be amended in any manner which affects the rights of the Insurer under the Trust Agreement without the prior written consent of the Insurer.

The Insurer is a third-party beneficiary of the Trust Agreement, the Lease and the Site Lease and may enforceany right, remedy or claim given, conferred or granted under the Trust Agreement.

Nothing in the Trust Agreement expressed or implied is intended or will be construed to confer upon, or to give or grant to, any person or entity, other than the City, the Trustee, the Insurer, and the Owners, any right, remedy or claim under or by reason of the Trust Agreement or any covenant, condition or stipulation of the Trust Agreement, and all covenants, stipulations, promises and agreements in the Trust Agreement contained by and on behalf of the City will be for the sole and exclusive benefit of the Trustee, the Insurer and the Owners.

Unless other provided in the Trust Agreement, the Insurer's consent will be required in addition to Owner consent, when required, forthe following purposes; (i) execution and delivery of any supplement to the

C-27 Trust Agreement or any amendment, supplement or change to or modification of the Lease, the Site Lease or the Assignment Agreement, (ii) removal of the Trustee and selection and appointment of any successor trustee, and (iii) initiation or approval of any action not described in (i) or (ii) above which requires Owner consent.

Any reorganization or liquidation plan with respect to the City must be acceptable to the Insurer. In the event of any reorganization or liquidation, the Insurer will have the right to vote on behalf of all Owners who hold Insurer-insured Certificates absent a default by the Insurer under the applicable Insurance Policy insuring such Certificates.

Notwithstanding any other provision of the Trust Agreement, in determining whether the rights of the Owners will be adversely affected by any action taken pursuant to the terms and provisions of the Trust Agreement, the Trustee will consider the effecton the Owners as if there were no Insurance Policy.

The Trustee may be removed at any time at the request of the Insurer for any breach of the provisions of the Trust Agreement.

The Insurer will receive prior written notice of any resignation by the Trustee.

Notwithstanding any other provision of the Trust Agreement, no removal, resignation or termination of the Trustee will take effect until a successor, acceptable to the Insurer, is appointed.

Claims Under Insurance Policy: Payments by and to Insurer. As long as the Insurance Policy will be in full forceand effect, the City and the Trustee agree to comply with the following provisions:

(a) at least one (1) day prior to all Interest Payment Dates, the Trustee will determine whether there will be sufficient funds in the funds and accounts established under the Trust Agreement to pay the principal of or interest with respect to the Certificates on such Interest Payment Date. If the Trustee determines that there will be insufficient funds in such funds and accounts, the Trustee will so notify the Insurer. Such notice will specify the amount of the anticipated deficiency, the Certificates to which such deficiency is applicable and whether such Certificates will be deficient as to principal or interest, or both. If the Trustee has not so notified the Insurer one (1) day prior to an Interest Payment Date, the Insurer will make payments of principal or interest due with respect to the Certificates on or before the first day next following the date on which the Insurer will have received notice of nonpayment fromthe Trustee;

(b) the Trustee will, after giving notice to the Insurer as provided in (a) above, make available to the Insurer and, at the Insurer's direction, to The Bank of New York, in New York, New York, as insurance trustee for the Insurer or any successor insurance trustee (the "Insurance Trustee"), the registration books maintained by the Trustee and all records relating to the funds and accounts maintained under the Trust Agreement;

(c) the Trustee will provide the Insurer and the Insurance Trustee with a list of Owners of Certificates entitled to receive principal or interest payments from the Insurer under the terms of the Insurance Policy, and will make arrangementswith the Insurance Trustee (i) to mail checks to the Owners of Certificates entitled to receive full or partial interest payments from the Insurer and (ii) to pay principal upon Certificates surrendered to the Insurance Trustee by the Owners of Certificates entitled to receive full or partial principal or payments from the Insurer;

(d) the Trustee will, at the time it provides notice to the Insurer pursuant to (a) above, notify Owners of Certificates entitled to receive the payment of principal or interest with respect thereto from the Insurer (i) as to the fact of such entitlement, (ii) that the Insurer will remit to them all or a part of the interest payments next coming due upon proof of Certificate Owner entitlement to interest payments and delivery to the Insurance Trustee, in form satisfactory to the Insurance Trustee, of an appropriate assignment of such Owner's right to payment, (iii) that should they be entitled to receive full payment of principal from the

C-28 Insurer, they must surrender their Certificates (along with an appropriate instrument of assignment in form satisfactory to the Insurance Trustee to permit ownership of such Certificates to be registered in the name of the Insurer) for payment to the Insurance Trustee, and not the Trustee, and (iv) that should they be entitled to receive partial payment of principal from the Insurer, they must surrender their Certificates for payment thereon first to the Trustee who will note on such Certificates the portion of the principal paid by the Trustee and then, along with an appropriate instrument of assignment in formsatisfactory to the Insurance Trustee, to the Insurance Trustee, which will then pay the unpaid portion of principal;

(e) in the event that the Trustee has actual notice that any payment of principal or interest with respect to a Certificate which has become due for payment and which is made to an Owner of Certificates by or on behalf of the City has been deemed a preferential transfer and theretofore recovered from its Owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with the final, nonappealable order of a court having competent jurisdiction, the Trustee will, at the time the Insurer is notified, notify all Certificate Owners that in the event that any Certificate Owner's payment is so recovered, such Owner will be entitled to payment from the Insurer to the extent of such recovery if sufficient funds are not otherwise available, and the Trustee will furnish to the Insurer its records evidencing the payments of principal and interest with respect to the Certificates which have been made by the Trustee, and subsequently recovered fromOwners of Certificatesand the dates on which such payments were made; and

(t) in addition to those rights granted the Insurer under the Trust Agreement, the Insurer will, to the extent it makes payment of principal or interest with respect to Certificates, become subrogated to the rights of the recipients of such payments in accordance with the terms of the Insurance Policy, and to evidence such subrogation (i) in the case of subrogation as to claims for past due interest, the Trustee will note the Insurer's rights as subrogee on the registration books maintained by the Trustee upon receipt from the Insurer of proof of the payment of interest with respect to Certificates to the Owners of the Certificates, and (ii) in the case of subrogation as to claims for past due principal, the Trustee will note the Insurer's rights as subrogee on the Certificate Registrar maintained by the Trustee upon surrender of the Certificates by the Owners thereof together with proof of the payment of principal thereof.

DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE LEASE

DEFINITIONS

Unless the context otherwise requires, the terms defined below shall for all purposes below have the meanings defined below, the following definitions to be equally applicable to both the singular and plural forms of any of the terms defined below. All capitalized terms used below and not defined below shall have the meanings ascribed thereto in the Trust Agreement.

"Environmental Regulations" means all Laws and Regulations, with respect to Hazardous Materials, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act, as amended (together with the regulations promulgated thereunder, "CERCLA"), the Resource Conservation and Recovery Act, as amended (together with the regulations promulgated thereunder, "RCRA"), the Emergency Planning and Community Right-to-Know Act, as amended (together with the regulations promulgated thereunder, "Title III"), the Clean Water Act, as amended (together with the regulations promulgated thereunder, "CW A"), the Clean Air Act, as amended (together with the regulations promulgated thereunder, "CAA") and the Toxic Substances Control Act, as amended (together with the regulations promulgated thereunder, "TSCA"), and any state or local similar laws and regulations and any so-called local, state or federal "superfund" or "superlien" law.

"Permitted Encumbrances" means, as of any particular time: (i) liens for general ad valorem taxes and assessments, if any, not then delinquent, or which the City may, pursuant to provisions of the Lease, permit to remain unpaid; (ii) the Assignment Agreement; (iii) the Lease; (iv) the Site Lease; (v) any contested right or claim of any mechanic, laborer, materialman, supplier or vendor filedor perfected in the manner prescribed by

C-29 law to the extent permitted under the Lease; (vi) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions, liens or restrictions which exist of record as of the Closing Date and which the City certifies will not materially impair the use of the Property by the City; and (vii) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions established following the date of recordation of the Lease and to which the Insurer, the Authority, the City and the Trustee consent in writing.

"Project" and "Town Center Project" means the Project and Town Center Project, respectively, described in Exhibit C hereto, and any and all additions or substitutions thereto made as provided in the Lease.

"Title Insurance Company" means First American Title Insurance Company, and its successors and assigns.

"Vendors" or "Contractors" means the persons with whom the Authority, or the City as agent of the Authority, has contracted for completion of the Project.

ACQUISITION, CONSTRUCTION AND INSTALLATION OF THE PROJECT

Completion of the Project

The Authority agrees to acquire and install the Project pursuant to the requirements of the City. The City, as agent of the Authority, will arrange for, supervise and provide for, or cause to be supervised and provided for, the acquisition, installation and completion of the Project. The City will enter into one or more contracts or purchase orders providing for completion of the Project. The City may provide for completion of the Town Center Project pursuant to the Acquisition Agreement.

Payment of Project and Delivery Costs

Payment of the Project Costs and Delivery Costs will be made from the moneys deposited with the Trustee in the Delivery Costs Account of the Project Fund as provided in the Lease and the Trust Agreement, which will be disbursed in accordance and upon compliance with the Trust Agreement.

Completion Certification

Upon the completion of all portions of the Project, satisfactory to the City, the City will deliver to the Trustee and the Insurer a Certificate of Completion with respect thereto. On the date of filing the Certificate of Completion, all excess moneys remaining in the Project Fund will be applied in accordance with the provisions of the Trust Agreement.

Substitution of or Addition to the Project

The City will have the right to substitute alternate items for any portion of the Project listed in the Lease or provide for additional components of the Project (including public capital improvements described in the City's 5-year Capital Improvement Plan, as amended from time to time) by providing the Trustee with a written certificate in the form contained in the Lease and so long as the City provides notice of such substitution to S&P and so long as the City provides notice of such substitution to S&P and so long as such substitution or addition does not cause, in and of itself, the interest represented by the Certificateto be included in gross income for federal income tax purposes or result in a reduction in the fair rental value of the Leased Premises.

C-30 AGREEMENT TO LEASE; TERM OF LEASE; LEASE PAYMENTS

Term

The term of the Lease will commence on the date of execution thereof and will end on September 1, 2034, unless extended pursuant to the Lease, or unless terminated prior thereto upon the earliest of any of the followingevents:

Default and Termination. A default by the City and the Authority's election to terminate the Lease under the termination provisions of the Lease;

Payment of All Lease Payments. The payment by the City of all Lease Payments and any Additional Payments required under the Lease; or

Prepayment. The deposit of funds or Government Obligations with the Trustee in amounts sufficient to pay all Lease Payments as the same will become due, as provided in the Lease and the Trust Agreement.

Purchase. Upon the exercise by the City of its option to purchase all of the Authority's interest in the Leased Premises as provided in the Lease; provided, however, that upon exercise by the City of its option to purchase the Authority's interest in a portion of the Leased Premises, as provided in the Lease, the Lease will be terminated only with respect to the portion of the Leased Premises purchased.

Extension of Lease Term

The Term of the Lease may be extended in connection with the execution and delivery of any Additional Certificates. If on the final maturity date of the Certificates or any Additional Certificates all interest components and principal components represented thereby have not been fully paid by the City, or if the Lease Payments or Additional Payments under the Lease have been abated at any time as permitted by the terms thereof, then the Term will be extended until all Certificates and Additional Certificates will be fully paid, except that the Term will in no event be extended beyond September 1, 2044.

Lease Payments

Time and Amount. Subject to the provisions of the Lease regarding abatement in event of loss of use of any portion of the Leased Premises, regarding option to purchase and regarding prepayment of Lease Payments, the City has agreed to pay to the Authority, its successors and assigns, as annual rental for the use and possession of the Leased Premises, the Lease Payments ( denominated into components of principal and interest, the interest component being paid semiannually) in the amounts specifiedin Exhibit A to the Lease, to be due and payable in arrears on the third Business Day prior to each Interest Payment Date specified in Exhibit A to the Lease (the "Lease Payment Date") which are sufficient in both time and amount to pay when due the annual principal and interest represented by the Certificates. In the event that any Additional Certificates are executed and delivered pursuant to the Trust Agreement, the City and the Trustee will execute an amendment to state the Lease Payments due under the Lease as a result of the execution and delivery of such Additional Certificates.

The obligation of the City to pay Lease Payments will commence on the Closing Date for the Certificates. In the event the City does not pay a Lease Payment due on the respective Lease Payment Date, the Trustee will provide prompt written notice to the City of such failure to pay; provided, however, that failure to give such notice will not excuse any event of default under the Lease.

Credits. Any amount held in the Lease Payment Fund on any Lease Payment Date (other than capitalized interest, if any, which will be credited in accordance with the Trust Agreement, and other than amounts resulting from the prepayment of the Lease Payments in part but not in whole pursuant to the Lease

C-31 and other amounts required for payment of principal with respect to any Certificates or Additional Certificates that have matured or been called for payment and have not been presented for payment or interest) will be credited towards the Lease Payment then due and payable. No Lease Payment need be made on any Lease Payment Date if the amounts then held in the Lease Payment Fund ( other than those amounts excluded under the prior sentence) are at least equal to the Lease Payment then required to be paid.

Rate on Overdue Payments. In the event the City should fail to make any of the Lease Payments required in the Lease, the Lease Payment in default will continue as an obligation of the City until the amount in default will have been fully paid, and the City agrees to pay the same with interest thereon, to the extent permitted by law, from the date such amount was originally payable at the rate equal to the original interest rate payable with respect to each Certificate then represented by such delinquent Lease Payment.

No Withholding. Notwithstanding any dispute between the Authority and the City, including a dispute as to the failure of any portion of the Property in use by or possession of the City to perform the task for which it is leased, the City will make all Lease Payments and Additional Payments when due and will not withhold any Lease Payments pending the finalresolution of such dispute.

Fair Rental Value

The Lease Payments and Additional Payments will be paid by the City in consideration of the right of possession of, and the continued quiet use and enjoyment of, the Leased Premises during each such period for which said Lease Payments are to be paid. The parties to the Lease have agreed and determined that such total rental represents the fair rental value of the Leased Premises. In making such determination, consideration has been given to the fair market value and replacement cost of the Leased Premises, other obligations of the parties under the Lease (including but not limited to costs of maintenance, taxes and insurance), the uses and purposes which may be served by the Leased Premises and the benefitstherefrom whichwill accrue to the City and the general public, and the transfer of the Authority's leasehold interest in the Leased Premises at the end of the Term.

Budget and Appropriation

The City has covenanted to take such action as may be necessary to include all Lease Payments and Additional Payments (to the extent the amounts of such Additional Payments are known to the City at the time its annual budget is proposed), due under the Lease in its annual budget and to make the necessary annual appropriations therefor, and to maintain such items to the extent unpaid for that Fiscal Year in its budget throughout such Fiscal Year. To the extent the amount of such payments becomes known after the adoption of the annual budget, such amounts will be included and maintained in such budget as amended. During the Term, the City will furnish annually, on or before September 1 of each year, to the Trustee a certificate of the City Representative stating that all Lease Payments and Additional Payments due under the Lease for the applicable Fiscal Year have been included in its annual budget. The covenants on the part of the City contained in the Lease will be deemed to be and will be construed to be duties imposed by law and it will be the ministerial duty of each and every public officialof the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform the covenants and agreements in the Lease agreed to be carried out and performed by the City.

Abatement of Lease Payments in Event of Loss of Use

In the Event of Damage, Destruction, Condemnation or Title Defect. Except to the extent that proceeds of the type described in the following paragraph are available, the amount of Lease Payments and Additional Payments will be abated during any period in which by reason of damage, destruction or taking by eminent domain or condemnation of the Leased Premises or defects in the title with respect to the Leased Premises there is substantial interference with the use and possession of all or a portion of the Leased Premises by the City. The amount of such abatement will be such that the resulting Lease Payments, exclusive of the

C-32 amounts described in the following paragraph, do not exceed the fair rental value (as determined by an independent real estate appraiser selected by the City, who is not an employee of the City) for the use and possession of the portion of the Leased Premises not damaged, destroyed, interfered with or taken. Such abatement will continue for the period commencing with such damage, destruction, interference or taking and ending with the substantial completion of the replacement or work of repair or the removal of the title defect causing such interference with use. Except as provided the Lease, in the event of any such damage, destruction, interferenceor taking, the Lease will continue in full force and effect and the City waives any right to terminate the Lease by virtue of any such damage, destruction, interference or taking.

Notwithstanding a substantial interference with the use and possession of all or a portion of the Leased Premises, the City will remain obligated to make Lease Payments which would otherwise be abated (i) to the extent that moneys derived fromany person as a result of any delay in the reconstruction, replacement or repair of the Leased Premises, or any portion thereof, are available to pay the amount which would otherwise be abated; and (ii) to the extent that moneys are available in the Reserve Fund or the Lease Payment Fund to pay the amount which would otherwise be abated. The Lease Payments will be payable from such amounts paid under (i) and (ii) above as an obligation of the City payable froma special fund.

Repair or Replacement. In the event of such abatement, unless the abatement will be avoided as a result of a prepayment of Lease Payments from Net Proceeds, the City will use its best efforts to repair or replace the damaged or destroyed or taken portion of the Leased Premises, as the case may be, from Net Proceeds or special funds of the City or other moneys the application of which would, in the opinion of Special Counsel, not result in the obligations of the City under the Lease constituting indebtedness of the City in contravention of the Constitution and laws of the State.

Additional Payments. In addition to the Lease Payments, the City will also pay such amounts ("Additional Payments") as will be required for the payment of all administrative costs of the Authority relating to the Leased Premises or the Certificates and any Additional Certificates, including without limitation all expenses, compensation and indemnification of the Trustee payable by the City under the Trust Agreement, taxes of any sort whatsoever payable by the Authority as a result of its interest in the Leased Premises or undertaking of the transactions contemplated in the Lease or in the Trust Agreement, fees of auditors, accountants, attorneys or engineers and any and all other amounts due to the Insurer and all other necessary administrative costs of the Authority or charges required to be paid by it in order to maintain its existence or to comply with the terms of the Certificates and any Additional Certificates or of the Trust Agreement including premiums or insurance maintained pursuant to the Lease or to indemnify the Authority and its employees, officers and directors and the Trustee. All such Additional Payments to be paid under the Lease will be paid when due directly by the City to the respective parties to whom such Additional Payments are owing.

Net-Net-Net Lease

The Lease will be deemed and construed to be a "net-net-net lease" and the City has agreed that the Lease Payments will be an absolute net return to the Authority, free and clear of any expenses, charges or set­ offs whatsoever, except as expressly provided in the Lease.

INSURANCE

Public Liability and Property Damage

Coverage. The City will maintain or cause to be maintained, throughout the Term of the Lease, a standard comprehensive general public liability and property damage insurance policy or policies in protection of the City, its officers, agents and employees. Said policy or policies will provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the use or operation of any City property or portion thereof.

C-33 Limits. Said policy or policies will provide coverage in the minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in each accident or event, and in a minimum amount of $500,000 in each case for damage to property resulting from each accident or event (subject to a deductible clause of not to exceed $250,000 or such higher amount as is consented to by the Insurer). Such public liability and property damage insurance may, however, be in the form of a single limit policy covering all such risks in an amount equal to the liability limits set forth in the Lease.

Joint or Self-Insurance. Such liability insurance, including the deductible, may be maintained as part of or in conjunction with any other insurance coverage carried by the City, and, subject to compliance with the Lease, may be maintained in the formof self-insurance by the City.

Payment of Net Proceeds. The proceeds of such liability insurance will be applied toward extinguishment or satisfaction of the liability with respect to which the insurance proceeds will have been paid.

Workers' Compensation

The City will also maintain workers' compensation insurance issued by a responsible carrier authorized under the laws of the State to insure its employees against liability for compensation under the Workers' Compensation Insurance and Safety Act now in force in the State, or any act enacted as an amendment or supplement thereto (with provision for self-insurance).

Casualty and Theft Insurance

Casualty and Theft Insurance; Coverage. The City will procure and maintain, or cause to be procured and maintained, throughout the Term of the Lease, insurance against loss or damage to any portion of the Leased Premises caused by fire and lightning, with extended coverage and theft, vandalism and malicious mischief insurance. Said extended coverage insurance will, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such insurance, excluding flood and earthquake; provided, however, that a flood andearthquake rider will be purchased if the City, in its reasonable discretion, determines that such coverage is available from reputable insurers at commercially reasonable rates.

Amount. Leased Premises, subject to a "deductible clause" not to exceed two hundred fifty thousand dollars ($250,000) or such higher amount as is consented to by the Insurer for any one loss, or in the case of a flood and earthquake rider, ten percent (10%) of the coverage obtained. The term "full replacement value" as used in this paragraph will mean the actual replacement cost of the improvements constituting the Leased Premises.

Joint or Self-Insurance. Such insurance may be maintained as part of or in conjunction with any other insurance carried or required to be carried by the City, and, subject to compliance with the Lease, may be maintained in the form of self-insurance by the City through a Californiajoint powers authority.

Payment of Net Proceeds. The Net Proceeds of such insurance will be paid to the Trustee and deposited in the Net Proceeds Fund and applied as provided in the Lease.

Rental Interruption Insurance

Coverage and Amount. Throughout the term of the Lease, the City will maintain or cause to be maintained rental income or use and occupancy insurance in an amount not less than the maximum remaining scheduled Lease Payments in any future 24-month period, to insure against loss of rental income from the Leased Premises caused by perils covered by the insurance required to be maintained as provided in the Lease.

C-34 Joint Insurance. Such insurance may be maintained as part of or in conjunction with any other rental income or use and occupancy of insurance carried by the City.

Payment of Net Proceeds. The Net Proceeds of such rental interruption insurance will be paid to the Trustee and deposited (1) in the Reserve Fund to make up any deficiencies therein, and (2) deposited in the Lease Payment Fund, to be credited towards the payment of the Lease Payments in the order in which such Lease Payments come due and payable.

Title Insurance

The City will obtain and, throughout the Term of the Lease, maintain or cause to be maintained title insurance on the Leased Premises, in the form of an ALTA title policy (with western regional exceptions), in an amount equal to the aggregate principal amount of the Certificates and Additional Certificates Outstanding, issued by a company of recognized standing, duly authorized to issue the same, payable to the Trustee for the benefit of the Owners, subject only to Permitted Encumbrances. Said policy or policies will insure the City's leasehold estate under the Lease in the Leased Premises, subject only to Permitted Encumbrances. All Net Proceeds received under said policy or policies will be deposited with the Trustee and applied as provided in the Trust Agreement. So long as any of the Certificates and Additional Certificates remain Outstanding, each policy of the title insurance obtained pursuant to the Lease or required thereby will provide that all proceeds thereunder will be payable to the Trustee for the benefit of the Certificate Owners and the owners of any Additional Certificates. The Net Proceeds of such insurance will be applied as provided in the Lease.

General Insurance Provisions

Form of Policies. All policies of insurance required to be procured and maintained pursuant to the Lease and any statements of self-insurance will be in a form certified by an insurance agent, broker or consultant to the City to comply with the provisions of the Lease. All such policies will provide that the City will give the Trustee 30 days' notice of each expiration, any intended cancellation thereof or reduction of the coverage provided thereby. Each policy of insurance required to be procured and maintained pursuant to the Lease regarding casualty and theft insurance, regarding rental interruption insurance and regarding title insurance will provide that all proceeds thereunder will be payable to the Trustee forthe benefit of the Owners.

Payment of Premiums. The City will pay or cause to be paid when due the premiums for all insurance policies required by the Lease.

Self Insurance. The City may only elect to self insure as permitted by the Lease if and to the extent such self-insurance method or plan of protection will afford reasonable protection to the Authority and the Trustee, in light of all circumstances, giving consideration to cost, availability and similar plans or methods of protection adopted by other municipal corporations in the State other than the City. Insurance provided through a California joint powers authority of which the City is a member or with which the City contracts for insurance will be not deemed to be self-insurance for purposes of the Lease where the insurance above the deductible limits described in the Lease is provided by commercial carriers. Any self-insurance maintained by the City pursuant to the Lease, unless otherwise consented to by the Insurer, will comply with the following terms:

(a) The self-insurance program will be approved in writing by the City Manager or Finance Director in accordance with the California Labor Code and the California Government Code;

(b) The self-insurance program will include an actuarially sound claims reserve fund out of which each self-insured claim will be paid; the adequacy of such fund will be evaluated on an annual basis by the City Manager or Finance Director; and any deficiencies in any self-insured claims reserve fund will be remedied in accordance with the recommendation of the City Manager or Finance Director; and

C-35 (c) In the event the self-insurance program will be discontinued, the actuarial soundness of its claims reserve fund, as determined by the City Manager or Finance Director, will be maintained.

DAMAGE, DESTRUCTION AND EMINENT DOMAIN; USE OF NET PROCEEDS

Application of Net Proceeds

Deposit in Net Proceeds Fund. The City will remit promptly to the Trustee any Net Proceeds received by the City from its casualty and theft insurance and its title insurance and the Trustee, pursuant to the Trust Agreement, will deposit such Net Proceeds of insurance in the Net Proceeds Fund. The City and/or the Authority will transfer to the Trustee any other Net Proceeds received by the City and/or Authority in the event of any accident, destruction, theft or taking by eminent domain or condemnation with respect to the Project, for deposit in the Net Proceeds Fund.

Disbursement for Replacement or Repair of the Leased Premises. Upon receipt of the prior written consent of the Insurer and the certification described in paragraph (a) below and the requisition described in paragraph (b) below, the Trustee will disburse moneys in the Net Proceeds Fund to the person, firm or corporation named in the requisition as provided in the Lease.

(a) Certification. As a precondition to the disbursement of Net Proceeds, the City Representative must certify to the Authority and the Trustee within 45 days after the event causing the receipt of the Net Proceeds ( or such later date as is consented to by the Insurer) that:

(i) Sufficiency of Net Proceeds. The Net Proceeds available for such purpose, together with any other funds supplied by the City to the Trustee in a subaccount of the Net Proceeds Fund for such purpose, are expected to equal at least 110% of the projected costs of replacement or repair (or such lesser percentage as may be consented to by the Insurer), as demonstrated in an attached reconstruction budget, and

(ii) Timely Completion. In the event that damage, destruction or taking results or is expected to result in an abatement of Lease Payments, such replacement or repair can be fully completed within a period not in excess of the period in which rental interruption insurance proceeds, as described in the Lease together with other identifiedavailable moneys, will be available to pay in full all Lease Payments coming due during such period as demonstrated in an attached reconstruction schedule.

(b) Requisition. The City Representative must state with respect to each payment to be made (1) the requisition number, (2) the name and address of the person, firmor corporation to whom payment is due, (3) the amount to be paid and (4) that each obligation mentioned therein has been properly incurred, is a proper charge against the Net Proceeds Fund, has not been the basis of any previous withdrawal, and specifying in reasonable detail the nature of the obligation.

Any balance of the Net Proceeds remaining after such replacement or repair has been completed and after payment or provision for payment of all Certificates as provided in the Trust Agreement will be paid to the City after payment of amounts due the Trustee pursuant to the Trust Agreement.

Disbursement for Prepayment. If the City Representative notifies the Trustee in writing of the City's determination that the certificationprovided above cannot be made or that replacement or repair of any portion of the Leased Premises is not economically feasible or in the best interest of the City, then the Trustee will promptly transfer the Net Proceeds to the Prepayment Fund as provided in the Trust Agreement and apply them to prepayment of the Certificatesas provided in the Trust Agreement and prepayment of Lease Payments as provided in the Lease; provided that in the event of damage or destruction in whole of the Leased Premises and in the event such Net Proceeds, together with funds then on hand in the Lease Payment Fund and Reserve

C-36 Fund are not sufficient to prepay all the Certificates then Outstanding, then the City will not be permitted to certify that repair, replacement or improvement of all of the Leased Premises is not economically feasible or in the best interest of the City. In such event, the City will proceed to repair, replace or improve the Leased Premises as described in the Lease from legally available funds in the then-current Fiscal Year and will make the required notificationto the Trustee pursuant to the Trust Agreement and the Trustee will disburse moneys in the Net Proceeds Fund to the person, firm, or corporation named in the Requisition as provided therein.

COVENANTS WITH RESPECT TO THE LEASED PREMISES

Option to Purchase

The City may exercise an option to purchase the Authority's interest under the Site Lease and the Lease in the Leased Premises by depositing with the Trustee cash and/or Government Obligations as provided in the Trust Agreement. In such event, all or a portion of the obligations of the City under the Lease, and the security provided by the Lease for said obligations or said portion of the obligations, will cease and terminate as provided in the Lease, excepting in the case all of the Authority's interest has been purchased, only the obligation of the City to make, or cause to be made, such Lease Payments from such deposit. In the event Lease Payments and Additional Payments under the Lease have been paid in full, on the date of said deposit, the Authority's interest in the Leased Premises will revert and transfer to the City automatically and without further action by the City or the Authority, and the Authority will execute and deliver such further instruments and take such further action as may reasonably be requested by the City for carrying out the reversion and transfer of the Authority's interests in the Leased Premises. In the event Lease Payments under the Lease have been paid in part only, on the date of said deposit, the City will specify a discrete portion of the Authority's interest in the Leased Premises for reversion and transferto the City and the Authority will execute and deliver such further instruments and take such further action as may reasonably be requested by the City for carrying out the reversion and transfer of such portion of the Authority's interest in the Leased Premises; provided, that such portion will revert and transfer to the City only if (i) the reduction in the fair rental value of the Leased Premises effected by such reversion and transfer at the time of such reversion and transfer ( as determined by an independent appraisal acceptable to the Authority and the Insurer) is proportionately less than or equal to the reduction in the maximum annual Lease Payments under the Lease effected by such purchase and (ii) the Insurer will have provided its written consent to such reversion and transfer. Any such deposit will be deemed to be and will constitute a special fund forthe payment of Lease Payments in accordance with the Lease.

Maintenance, Utilities, Taxes and Assessments

(a) Maintenance; Repair and Replacement. Throughout the Term of the Lease, as part of the consideration for the rental of the Leased Premises, all repair and maintenance of the Leased Premises will be the responsibility of the City, and the City will pay for or otherwise arrange for the payment of the cost of the repair and replacement of the Leased Premises resulting from ordinary wear and tear or want of care on the part of the City or any sublessee thereof. The City waives the benefits of subsections 1 and 2 of Section 1932 of the California Civil Code, but such waiver will not limit any of the rights of the City under the terms of the Lease.

(b) Tax and Assessments; Utility Charges. The City will also pay or cause to be paid all taxes and assessments, including but not limited to utility charges, of any type or nature charged to the Authority or the City or levied, assessed or charged against any portion of the Leased Premises or the respective interests or estates therein; provided that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the City will be obligated to pay only such installments as are required to be paid during the Term of the Lease as and when the same become due.

(c) Contests. The City may, at its expense and in its name, in good faith contest any such taxes, assessments, utility and other charges and, in the event of any such contest, may permit the

C-37 taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom; provided that prior to such nonpayment it will furnish the Authority and the Trustee with the opinion of an Independent Counsel acceptable to the Authority, to the effect that, by nonpayment of any such items, the interest of the Authority in such portion of the Leased Premises will not be materially endangered and that the Leased Premises will not be subject to loss or forfeiture. Otherwise, the City will promptly pay such taxes, assessments or charges or make provisions for the payment thereof in form satisfactory to the Authority. The Authority will cooperate fully in such contest, upon the request and at the expense of the City.

Modification of the Leased Premises

Additions, Modifications and Improvements. The City will, at its own expense, have the right to make additions, modifications, and improvements to any portion of the Leased Premises if such improvements are necessary or beneficial for the use of such portion of the Leased Premises. All such additions, modifications and improvements will thereafter comprise part of the Leased Premises and be subject to the provisions of the Lease. Such additions, modifications and improvements will not in any way damage any portion of the Leased Premises or cause it to be used for purposes other than those authorized under the provisions of State and federal law or in any way which would impair the State tax-exempt status or the exclusion from gross income for federal income tax purposes of the interest components of the Lease Payments; and the Leased Premises, upon completion of any additions, modificationsand improvements made pursuant to the Lease, will be of a value which is not substantially less than the value of the Leased Premises immediately prior to the making of such additions, modifications and improvements.

No Liens. Except for Permitted Encumbrances, the City will not permit any mechanic's or other lien to be established or remain against the Leased Premises for labor or materials furnished in connection with any additions, modifications or improvements made by the City pursuant to the Lease; provided that if any such lien is established and the City will first notify or cause to be notified the Authority of the City's intention to do so, the City may in good faith contest any lien filed or established against the Leased Premises, and in such event may permit the items so contested to remain undischarged and unsatisfied during the period of such contest and any appeal therefrom and will provide the Authority with full security against any loss or forfeiture which might arise from the nonpayment of any such item, in formsatisfactory to the Trustee (as assignee of the Authority). The Authority will cooperate fully in any such contest, upon the request and at the expense of the City.

Replacements, Redevelopment and Renovation. The City will, at its own expense, have the right to make replacements, redevelopment or renovation of all or a portion of the Leased Premises if the following conditions precedent are satisfied:

(a) The City receives an opinion of Special Counsel, a copy of which the City will furnish to the Authority and the Trustee, that (1) such replacement does not adversely affect the federal income tax exclusion or the State tax-exempt status of the interest with respect to the Certificates, and (2) the Lease will remain the legal, valid, binding and enforceable obligation of the City;

(b) In the event such replacement, redevelopment or renovation would result in the temporary abatement of Lease Payments as provided in the Lease, the City will notify the Insurer and any rating agency then providing a rating on the Certificates and will deposit moneys with the Trustee in advance for payment of Lease Payments from special funds of the City or other moneys, the application of which would not, in the opinion of Special Counsel (a copy of which will have been delivered to the Trustee), result in such Lease Payments constituting indebtedness of the City in contravention of the Constitution and laws of the State;

C-38 (c) The City will certify to the Trustee that it has sufficient funds to complete such replacement, redevelopment or renovation; and

(d) In the case of replacement or redevelopment, the City and the Trustee receive an independent appraisal from a California certified general appraiser that the annual fair rental value of the replacements will be at least equal to the annual fair rental value of the Leased Premises immediately prior to such replacement or redevelopment.

Encumbrances; Alternative Financing Methods

Encumbrances. Except as provided in the Lease, the City will not, directly or indirectly, create, incur, assume or suffer to exist any mortgage, pledge, liens, charges, encumbrances or claims, as applicable, on or with respect to the Leased Premises, other than Permitted Encumbrances and other than the respective rights of the Authority and the City as provided in the Lease. Except as expressly provided in the Lease, the City will promptly, at its own expense, take such action as may be necessary to duly discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim, for which it is responsible, if the same will arise at any time; provided that the City may contest such liens if it desires to do so. The City will reimburse the Authority for any expense incurred by it in order to discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim.

Alternative Financing Methods. Notwithstanding the foregoing, the City may create or suffer to create any mortgage, pledge, liens, charges, encumbrances or claims upon the Leased Premises or any improvements thereto, provided that (1) any such mortgage, pledge, liens, charges, encumbrances or claims will at any time while any of the Certificates remain Outstanding be and remain subordinate in all respects to the Site Lease and Lease and any security interest given to the Trustee for the benefitof the Owners and (2) the City will have first delivered to the Trustee an opinion of Special Counsel substantially to the effect that such mortgage, pledge, liens, charges, encumbrances or claims would not result in the inclusion of the interest with respect to the Certificates in the gross income of the owners of the Certificates for purposes of federal income taxation or impair the State tax-exempt status of such payments.

Substitution or Release of the Leased Premises

The City will have the right to substitute alternate real property for any portion of the Leased Premises described in the Lease or to release a portion of the Leased Premises from the lien of the Lease by providing the Trustee with a supplement to the Lease substantially in the form attached as Exhibit D to the Lease and by satisfying the conditions set forth in paragraphs (i) through (viii) below. All costs and expenses incurred in connection with such substitution or release will be borne by the City. Notwithstanding any substitution pursuant to the Lease, there will be no reduction in or abatement of the Lease Payments due from the City under the Lease as a result of such substitution. No substitution or release will be permitted under the Lease unless:

(i) the City provides prior written notice thereof to the Insurer, together with a certificate that the substituted real property has an equivalent or greater useful life as the Leased Premises to be released and that the useful life of the substituted real property exceeds the remaining term of the Lease Payments under the Lease;

(ii) an independent California Certified General Appraiser or equivalent certified real estate appraiser selected by the City finds (and delivers a certificateto the City and the Trustee setting forth its findings) that the substituted real property has a fair rental value greater than or equal to the fair rental value of the Leased Premises to be released so that the Lease Payments payable by the City pursuant to the Lease will not be abated;

C-39 (iii) the City obtains or causes to be obtained an ALTA title insurance policy (with western regional exceptions) with endorsement so as to be payable to the Trustee for the benefitof the Owners showing no prior liens thereon other then Permitted Encumbrances. Such policy will comply with the Lease, will be in a form satisfactory to the Insurer, the Trustee and the Authority, will be in the amount equal to the principal component of Lease Payments attributable to the substituted real property, and will insure the leasehold interest or the fee simple interest of the Authority or the City, as applicable, to the substituted real property;

(iv) the City provides the Authority and the Trustee with an opinion of Special Counsel that such substitution does not cause, in and of itself, the interest evidenced and represented by the Certificatesto be included in gross income forfederal income tax purposes;

(v) the City will give, or cause to be given, any notice of the occurrence of such substitution required to be given pursuant to the Continuing Disclosure Agreement;

(vi) upon the substitution of any real property and improvements thereon for all or a portion of the Leased Premises then existing, the City, the Authority and the Trustee will execute and the City will record with the office of the County Recorder, County of Ventura, California, any document necessary to reconvey to the City the portion of the Leased Premises being substituted and to include the substituted real property and/or improvements thereon as all or a portion of the Leased Premises;

(vii) unless waived by the Insurer, the City will certify to the Trustee and the Insurer that the substituted real property is of approximately the same degree of essentiality to the City as the portion of the Leased Premises being replaced; and

(viii) the Trustee will receive the Insurer's prior written consent to such substitution and will proved a copy of such notice to S&P.

Condemnation of Leased Premises

The City has agreed, to the extent it may lawfully do so, that so long as any of the Certificates remain outstanding and unpaid, the City will not exercise the power of condemnation with respect to the Leased Premises. The City has agreed, to the extent it may lawfully do so, that if for any reason the foregoing covenant is determined to be unenforceable or if the City will fail or refuse to abide by such covenant and condemns the Leased Premises, then the appraised value of the Leased Premises will not be less than the greater of: (i) if the Certificatesare then subject to optional prepayment, the principal and interest components of the Certificates outstanding through the date of their prepayment, or (ii) if the Certificates are not then subject to optional prepayment, the amount necessary to defease the Certificates to the first available prepayment date in accordance with the Trust Agreement.

ASSIGNMENT, SUBLEASING AND AMENDMENT

Assignment by the Authority

Except as provided in the Lease, in the Trust Agreement and the Assignment Agreement, the Authority will not assign the Lease to any other person, firm or corporation so as to impair or violate the representations, covenants and warranties contained in the Lease.

Assignment and Subleasing by the City

Assignment. The Lease may be assigned by the City, with the consent of the Insurer, so long as such assignment does not, in the opinion of Special Counsel, adversely affect the State tax-exempt status or the

C-40 exclusion from gross income for federal income tax purposes of the interest with respect to the Certificates or affect the validity of the Lease. In the event that the Lease is assigned by the City, the obligation to make Lease Payments under the Lease will remain the obligation of the City.

Sublease. The City may sublease all or any portion of the Leased Premises, with the consent of the Trustee (as assignee of the Authority) and the Insurer, subject to (i) the Lease and the obligation of the City to make Lease Payments under the Lease will remain obligations of the City; (ii) the City will, within 30 days after the delivery thereof, furnish or cause to be furnished to the Authority, the Trustee and the Insurer a true and complete copy of such sublease (iii) no sublease by the City will cause the Leased Premises to be used for a purpose other than a governmental or proprietary function authorized under the provisions of the laws of the State; and (iv) no sublease will cause the interest due with respect to the Certificates to become ineluctable in gross income forfederal income tax purposes or subject to State personal income taxes.

Amendments and Modifications. The Lease may be amended or any of its terms modified with the written consent of the Insurer, the City and the Trustee (as assignee of the Authority), in accordance with the Trust Agreement.

EVENTS OF DEFAULT AND REMEDIES

Events of Default Defined

The following will be "events of default" under the Lease and the terms "events of default" and "default"means, whenever they are used in the Lease, any one or more of the followingevents:

Payment Default. Failure by the City to pay any Lease Payment required to be paid under the Lease by the corresponding Lease Payment Date; and

Covenant Default. Failure by the City to observe and perform any warranty, covenant, condition or agreement on its part to be observed or performed in the Lease or otherwise with respect thereto or in the Trust Agreement or in the Site Lease, other than as referred to in the foregoing paragraph, for a period of 30 days after writtennotice specifying such failure and requesting that it be remedied has been given to the City by the Authority, the Insurer, the Trustee, or the Owners of not less than 50% in aggregate principal amount of Certificates then Outstanding; provided, however, if the failure stated in the notice cannot be corrected within the applicable period, the Authority, the Insurer or such Owners, as the case may be, will not unreasonably withhold their consent to an extension of such time if corrective action is instituted by the City within the applicable period and diligently pursued until the default is corrected, except that such grace period will not exceed 60 days without the prior written consent of the Insurer.

Bankruptcy or Insolvency. The filing by the City of a case in bankruptcy, or the subjection of any right or interest of the City under the Lease to any execution, garnishment or attachment, or adjudication of the City as a bankrupt, or assignment by the City for the benefit of creditors, or the entry by the City into an agreement of composition with creditors, or the approval by a court of competent jurisdiction of a petition applicable to the City in any proceedings instituted under the provisions of the federal bankruptcy code, as amended, or under any similar act which may be enacted.

Remedies on Default

Whenever any event of default referred to in the Lease will have happened and be continuing, it will be lawful for the Authority to exercise any and all remedies available pursuant to law or granted pursuant to the Lease. Notwithstanding anything in the Lease or in the Trust Agreement to the contrary, THERE WILL BE NO RIGHT UNDER ANY CIRCUMSTANCES TO ACCELERATE THE LEASE PAYMENTS OR OTHERWISE DECLARE ANY LEASE PAYMENTS NOT THEN IN DEFAULT TO BE IMMEDIATELY DUE AND PAYABLE. After the occurrence of an event of default under the Lease, the City will surrender

C-41 possession of the Leased Premises to the Authority, if requested to do so by the Authority, the Trustee or the Owners, in accordance with the provisions of the Trust Agreement. So long as the Insurer is not in default under the Insurance Policy, the Insurer will control all remedies upon an event of default under the Lease. The Owners' direction of remedies upon default are subject to the prior written consent of the Insurer. The Insurer, acting alone, will have the right to direct all remedies upon an event of default.

No Termination; Repossession and Re-Lease on Behalf of City. In the event the Authority does not elect to terminate the Lease in the manner provided forin the Lease, the Authority may, with the consent of the City, which consent has been irrevocably given, repossess the Leased Premises and re-lease it for the account of the City, in which event the City's obligation will accrue from year to year in accordance with the Lease and the City will continue to receive the value of the use of the Leased Premises from year to year in the form of credits against its obligation to pay Lease Payments. The obligations of the City will remain the same as prior to such default, to pay Lease Payments and Additional Payments whether the Authority re-enters or not. The City will remain liable for the payment of all Lease Payments and Additional Payments and the performance of all conditions contained in the Lease and will reimburse the Authority for any deficiency arising out of the releasing of the Leased Premises, or, in the event the Authority is unable to re-lease the Leased Premises, then for the full amount of all Lease Payments and Additional Payments to the end of the Term of the Lease, but said Lease Payments and Additional Payments and/or deficiency will be payable only at the same time and in the same manner as provided for the payment of Lease Payments and Additional Payments under the Lease, notwithstanding such repossession by the Authority or any suit brought by the Authority for the purpose of effecting such repossession of the Leased Premises or the exercise of any other remedy by the Authority.

The City has irrevocably appointed the Authority as the agent and attorney-in-fact of the City to repossess and re-lease the Leased Premises in the event of default by the City in the performance of any covenants contained in the Lease to be performed by the City and to remove all personal property whatsoever situated upon the Leased Premises, to place such property in storage or other suitable place in the County of Ventura, for the account of and at the expense of the City, and the City has exempted and agreed to save harmless the Authority from any costs, loss or damage whatsoever arising or occasioned by any such repossession and re-leasing of the Leased Premises.

The City will retain the portion of rental obtained by the Trustee, as assignee of the Authority, that is in excess of the Lease Payments and Additional Payments, the fees, expenses and costs of the Trustee of re­ leasing the Leased Premises, and all amounts payable by the City under the Lease and the Trust Agreement.

In the event that the liability of the City described under the heading "- No Termination; Repossession and Re-Lease on Behalf of City" is held to constitute indebtedness or liability in any year exceeding in any year the income and revenue provided for such year, the Authority, or the Trustee or the Owners, as assignees of the Authority, will not exercise the remedies provided above.

Termination; Repossession and Re-Lease. In the event of the termination of the Lease by the Authority at its option and in the manner provided on account of default by the City (and notwithstanding any repossession of the Leased Premises by the Authority in any manner whatsoever or the re-leasing of the Leased Premises), the City nevertheless has agreed to pay to the Authority all costs, losses or damages howsoever arising or occurring payable at the same time and in the same manner as is provided in the Lease in the case of payment of Lease Payments and Additional Payments. Any proceeds of the re-lease or other disposition of the Leased Premises by the Authority will be deposited into the Lease Payment Fund and be applied in accordance with the provisions of the Trust Agreement. Any surplus received by the Trustee, as assignee of the Authority, from such re-leasing over total Lease Payments will be remitted to the City. Additional Payments that would have been due the Lease and the fees, expenses and costs of the Trustee as assignee of the Authority on re­ leasing the Leased Premises will be remitted to the City.

Opinion of Special Counsel. The re-leasing of the Leased Premises as provided in the Lease will be subject to the opinion of Special Counsel that such re-leasing will not cause the interest with respect to the

C-42 Certificates to be subject to State personal income tax or adversely affect the exclusion from gross income for federalincome tax purposes of such amounts.

No Termination by City

Under no circumstances may the City terminate the Lease as a remedy for a default by the Authority in the performance of any obligation of the Authority under the Lease.

No Remedy Exclusive

No remedy conferred in the Lease upon or reserved to the Authority is intended to be exclusive and every such remedy will be cumulative and will be in addition to every other remedy given under the Lease existing at law or in equity. No delay or omission to exercise any right or power accruing upon any default will impair any such right or power or will be construed to be a waiver thereof, but any such right and power may be exercised fromtime to time and as often as may be deemed expedient.

No Additional Waiver Implied by One Waiver

In the event any agreement contained in the Lease should be breached by either party and thereafter waived by the other party; such waiver will be limited to the particular breach so waived and will not be deemed to waive any other breach under the Lease.

Application of the Proceeds fromthe Re-Lease of the Leased Premises

All amounts received by the Authority under the Lease will be used in accordance with the provisions of the Trust Agreement summarized herein under the heading "DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE TRUST AGREEMENT-EVENTS OF DEFAULT AND REMEDIES OF CERTIFICATEOWNERS -Application of Funds."

Trustee and Owners to Exercise Rights

Such rights and remedies as are given to the Authority under the Lease have been assigned by the Authority to the Trustee under the Assignment Agreement, to which assignment the City has consented. Such rights and remedies will be exercised by the Trustee and the Owners as provided in the Trust Agreement.

PREPAYMENT OF LEASE PAYMENTS

Security Deposit

Notwithstanding any other provision of the Lease, the City may, on any date, secure the payment of Lease Payments and Additional Payments by a deposit by it with the Trustee of cash and/or Government Obligations as provided in the Trust Agreement. In such event, and provided that the City has paid any other amounts due and owing under the Lease and the Trust Agreement, all obligations of the City under the Lease, and all security provided by the Lease for said obligations, will cease and terminate, excepting only the obligation of the City to make, or cause to be made, Lease Payments and Additional Payments from such deposit. On the date of said deposit title to the Leased Premises will vest in the City automatically and without further action by the City or the Authority (except as provided in the Lease). Said deposit will be deemed to be and will constitute a special fund for the payment of Lease Payments in accordance with the provisions of the Lease.

C-43 Extraordinary Prepayment

The City will be obligated to prepay the Lease Payments in whole or in part on any date, from and to the extent of any Net Proceeds or other moneys theretofore deposited in the Prepayment Fund (at least 45 days prior to the date fixed for prepayment of the Certificates) pursuant to the Trust Agreement. The City and the Authority have agreed that such Net Proceeds or other moneys will be credited towards the City's obligations under the Lease ( except in the case of such prepayment of the Lease Payments in whole) pro rata among Lease Payments so that following Prepayment, the remaining annual Lease Payments will be proportional to the initial annual Lease Payments.

Optional Prepayment

Subject to the terms and conditions of the Lease, the Authority has granted an option to the City to prepay all or a portion of the Lease Payments to the extent and on the dates at the prepayment prices set forth in the Trust Agreement, provided that no amounts are owed to the Insurer under the Insurance Policy. The City and the Authority have agreed that such prepayments will be credited toward City's obligations under the Lease corresponding to the resulting prepayment of the Certificates and Additional Certificates in accordance with the Trust Agreement on the dates and at the prepayment prices provided therein.

C-44 APPENDIX D

FORM OF LEGAL OPINION

September _, 2004

City Council of the City of Simi Valley Simi Valley, California

Board of Directors of the Simi Valley Public Financing Authority Simi Valley, California

Re: $25,955,000 City of Simi Valley 2004 Certificates of Participation (Capital Improvement Projects)

Ladies and Gentlemen:

We have reviewed the Constitution and the laws of the State of California and certain proceedings taken by the City of Simi Valley, California (the "City") in connection with the authorization, execution and delivery by the City of the Lease/Purchase Agreement dated as of August 1, 2004 (the "Lease"), by and between the Simi Valley Public Financing Authority (the "Authority") and the City. We have also reviewed the Trust Agreement dated as of August 1, 2004 (the "Trust Agreement"), by and among BNY Western Trust Company, as trustee (the "Trustee"), the Authority and the City. All capitalized terms used herein shall have the meaning given them in the Trust Agreement unless otherwise defined.

Pursuant to the Trust Agreement, the Trustee has agreed to execute and deliver the above-referenced certificates of participation (the "Certificates") evidencing proportionate interests of the Owners of the Certificatesin lease payments (the "Lease Payments") to be made by the City pursuant to the Lease. Pursuant to an Assignment Agreement dated as of August 1, 2004, by and between the Authority and the Trustee, the Authority has assigned to the Trustee the Authority's right to receive Lease Payments from the City under the Lease.

The Certificates are dated the Closing Date. The Certificates mature on the dates and in the amounts set forth in the Trust Agreement. Interest due with respect to the Certificates is payable on the dates and at the rates per annum set forth in the Trust Agreement. The Certificates are registered Certificates in the form set forth in the Trust Agreement and are subject to optional, mandatory and extraordinary redemption prior to maturity in the manner and upon the terms set forthin the Trust Agreement.

Based upon our examination of the foregoing, and in reliance thereon and on all matters of fact as we deem relevant under the circumstances, and upon consideration of applicable laws, we are of the opinion that:

1. The obligation of the City to pay Lease Payments in accordance with the terms of the Lease is a valid and binding obligation payable from the funds of the City lawfully available therefor, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights, by equitable principles, by the exercise of judicial discretion in appropriate cases and by the limitations on legal remedies against cities in the State of California. The obligation of the City to make Lease Payments under the Lease does not constitute a debt of the City, the State of California or any political subdivision thereof within the

D-1 meaning of any statutory or constitutional debt limitation or restriction and does not constitute a pledge of the faith and credit or taxing power of the City, the State of Californiaor any political subdivision thereof.

2. The Lease and the Trust Agreement have been duly authorized, executed and delivered by the City and constitute valid and legally binding agreements of the City enforceable against the City in accordance with their terms, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights, by equitable principles, by the exercise of judicial discretion in appropriate cases and by the limitations on legal remedies against cities in the State of California, except that we express no opinion as to any provisions in the Lease or the Trust Agreement with respect to indemnification.

3. Under existing statutes, regulations, rulings and judicial decisions, interest (and original issue discount) due with respect to the Certificates is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, it should be noted that, with respect to corporations, such interest (and original issue discount) will be included as an adjustment in the calculation of alternative minimum taxable income, which may affect the alternativeminimum tax liability of such corporations. The foregoingopinion is subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986, as amended, that must be satisfied subsequent to the execution and delivery of the Certificates to assure that the portion of the Certificates designated as and comprising interest (and original issue discount) will not become ineluctable in gross income for federal income tax purposes. Failure to comply with such requirements may cause the portion of the Certificates designated as and comprising interest (and original issue discount) to be included in gross income for federal income tax purposes retroactive to the date of execution and delivery of the Certificates. The City has covenanted to comply with all such requirements.

4. The portion of the Certificates designated as and comprising interest (and original issue discount) as described in paragraph (3) above is exempt fromState of Californiapersonal income tax.

5. The difference between the issue price of a Certificate (the first price at which a substantial amount of the Certificates of a maturity are to be sold to the public) and the stated redemption price at maturity with respect to such Certificate constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Certificate owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a Certificate owner will increase the Certificate owner's basis in the applicable Certificate. Original issue discount that accrues for the Certificate owner is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals or corporations (as described in paragraph (3) above) and is exempt from State of California personal income tax.

6. The amount by which a Certificate owner's original basis for determining loss on sale or exchange in the applicable Certificate (generally the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable Certificate premium which must be amortized under Section 171 of the Code; such amortizable Certificate premium reduces the Certificate owner's basis in the applicable Certificate (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of Certificate premiummay result in a Certificate owner realizing a taxable gain when a Certificate is sold by the owner for an amount equal to or less (under certain circumstances) than the original cost of the Certificate to the owner.

Except as expressly set forth in paragraphs (3), (4), (5) and (6), we express no opinion regarding any tax consequences with respect to the Certificates.

Certain agreements, requirements and procedures contained or referred to in the Trust Agreement, the Tax Certificate executed by the City and other documents related to the Certificates may be changed and

D-2 certain actions may be taken or omitted, under the circumstances and subject to the terms and conditions set forth in such documents. We express no opinion as to the exclusion from gross income of the portion of each Certificate designated as and constituting interest (and original issue discount) forfederal income tax purposes if any such change occurs or action is taken or omitted upon advice or approval of counsel other than Stradling Y occa Carlson & Rauth, a Professional Corporation.

We have not made or undertaken to make an investigation of the state of title to any of the real property described in the Lease or of the accuracy or sufficiency of the description of such property contained therein, and we express no opinion with respect to such matters.

We express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Certificates, and purchasers of the Certificates should not assume that we have reviewed the Official Statement on their behalf.

The opinions expressed herein are based upon our analysis and interpretation of existing statutes, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. The opinions expressed herein may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. In rendering this opinion, we have relied upon certain representations of fact and certifications made by the City, the Authority, and others. We have not undertaken to verify through independent investigation the accuracy of the representations and certifications relied upon by us.

Respectfully submitted,

D-3 (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX E

SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY

E-1 (THIS PAGE INTENTIONALLY LEFT BLANK) Amba:Assur ance Corporation One StateStreet Plaza, 15th Floor NwYork, NwYork 10004 Financial Guaranty Insurance Policy Telephone: (212) 668-0340

Obliger: PolicyNu mber:

Obligatiais: Prerri um:

Ambac Assurance Corporation (Ambac), a Wiscaisin sta:k insurance cerporatiai, in caisideratia, cf the pa{,(llfflt of the premi um and subjectto the terms thiof s Policy , herebycgrees to pay to The Bankof N e,vYork, astrustee, er its�essor (the "I nsurance Trustee''),for the benefit ofthe Holders, that portia,cf the pri nci pal of and interest a,the abcwe-descri oo:i""ch! igatiais (the "Obligatiais')which shal l becane forDue Payment but shal l beunpaid °>' reason cfNai payment 1::rf«iJ;ie Obligd\. \ � .....,,�...... ,,,,,�. "' "+, Amba: will make such paymentsto the I nsuranceTrustee wi thin a,e (1) busi nessday fol lcwi ng written !\ti · "·,t of N aipayment. U pan a aldH er'spresen tatia,and surrender theto I nsuranceTrustee cf such unpaip;G.bligati ' ·atJ. ... ,s, uncancela::I and in bearer form and free cf any adverse clai m, the I nsurance Trustee wi 11 qi,sby.r.slto the H , . the �)�f pri nci pal and inter� �ich is then Due fer Payment but is unpaid. Uponsuch disburse�nt{�mra:shal l �. the cwner of the surrendera::I Obi 1gat1ais and pr coopa,sand shal I beful ly subrogata::Ial to I of th deler\ n "t9 payment,tliereon. 1:1;. "%. r , ·, '.1. In caseswhere the Obligatiais are issua::I in regi stera::1 form, the InsuranceTrustee isbO�se· cipal to a Holtfer ailyupon presentatia,and surrenderto the InsuranceTrustee cf the unpaidObl igatiai, unca\:i �dr,c ,, ���se clai m, together with an instrument cfassignment, in for m satisfcctory to Amba: and tpe·lt:1suranc ,dulY,•execwt-E:q,J19 the Holder or such Hdder's duly authori2!::d representative, so as toperrrit cwner ship cf�h • 1. ati sr�!ste�1:i;,i, tfie nameAmba: cf or its nominee. The Insurance Trustee shal l disburse interest to a fj,�<;Jer cJ., i�fv, orlfy upon presentatia,to the I nsuranceTrustee cf pra:f that the clai mant isthe personent itla\tc5\he · '" Cf.ltfile Ob ligatia,and del ivery to the I nsuranceTrustee of an instrument ofassig nment, in fer sf�,to i A .. • ,,, e�� nsurance Trustee, duly exec uta::I °>' the Holder or such Holder's duly authori2!::d representcy�' ·· sferri ng, t�,Arrbf\JI I ri¥,'ts under such Obligatia,to receive the interest in respect ofwhich the insurance di sbur� was rra::le. A.J:ri�shalJ � subrogata::I to al I of the Halders' rights to payment a, registera::I Obi i gatiais to the extent a(iycl insurance di sbu�ts5'6'rra::le. j f, 1i:c. -,,,, I n the etent that a trustee er payi ng �for die\p bl i gatiais h� notf�tt1: hat any payment of pri nci pal of er interest a, an Obi i gatia, which has becaneDue fg:;1'�nt an&!.wi';li ch is rra::le)'b;a H alder °>' er a, behalfthe cf O bl i gar has been deerm::I a preferential transfer and theret · era::! from t� f'+Qderf to8µ,syirt: the Unita::IStates BankruptcyCode in a:cordance with a final, naiappealabl e erder cf a cor1Went jurr�jcfof(iiJ.,dl Holderwi II beent itla::Ito paymentfrom Amba: tot heextent ofsuch reccwery if suffi cientfu nds . � seavai Ian�···" As usa::I herei n, the ,,,.····;;""'•,. . , er'' �s� perSQR... other than (i) the Obligor or (i i) any personwhose obligatiais caistitute the underlyi ng securi �paymeht,. (� th,�0e:JJ;,ffgatiaiswho, atthe time ofNai payment, is the cwnerof an Obligatia,or of a coopa, rel ating 9 .1 �i m As '�"O,Elf"ei n, "Due for Payment" , when referri ng to the pri nci pal Obiof i gatiais, is when the sch�l a::I matu · .,� ,.!if mandatay\r-Etlemptia,date fer the appl icatia,of a ra:;iui ra::1 sinki ng fund instal l ment has been reac�.� dee; not . r.f-6' any earl ier datea, which payment is due °>' reason ofcal l fer ra::lemptia,(ct:her than °>'appl icatia, of �ra::I sinki ng furlq i'�al lments), a:celeratia, or ct:heradvancement of maturity; and, when referri ng to interest a, the Ol:ii9etiais, iswhen the%1i�ula::Idate for payment cf in terest hasbeen reacha::I. As usa::Iherei n, "Naipayment" meansthe fai l ure of i�l)o1i§cr -to""'�e pr<=MciEtl suffi cient fundsto the trusteeor payi ngcgent for payment in ful I ofal I pri nci pal andcf interest a,the "O'btfga!Joi;;is\vhich are Due for Payment. j t This Pd icy is n "cahcel able. The premi um a,thi s Pol icyis not refundable for anyreason, incl uding payment cfthe Obligatiais prier to �u This Pol icydee; not insure cgai nst loss of any prepayment or other a:celeratia,payment which at any time Ille:¥ inbee� e respect ofObi any igatiai, otherthan atthe soleoptia, of Amba:, ner cgainst any riskother thanN aipayment. In witnesswherrof, Amba: hascausa::I this Pol icyto beaffi xed with a facsimile of its corporate seal and to besig na::I °>' its duly autheri2!::d offi cers in fa:si mi le to becaneeff ective as its eriginal seal andsig naturesand bi ndi ng upon Amba: °>' vi rtue ofthe countersignature ofits duly authori2!::d representative. fd jl2L President Secretary

Effective Date: Authori21::d Representative

TH E BAN K OF NEW YORK a:kncwla::lgesthat it has cgreed to perform the dutiesof I nsuranceTrustee under this Pd icy. Form No.: 28-0012(1; 01) A- Ambac Assurance Corporation One State Street Plaza, Ambac New York, New York 10004 Telephone: (212) 668-0340

Endorsement

Policy for: Attached to and forming part of Policy No.:

In the event that Ambac Assurance Corporation were under the Policy would be excluded from covera by H Association, established pursuant to the laws of t

r ter, waive or extend any of the terms, conditions, provisions, agreements other than as above stated.

hf'\'Jl'ltmtess' \IIVh.11!1'11�� Ambac has caused this Endorsement to be affixed with a facsimile of its corporate seal and to a h ized officers in facsimile to become effective as its original seal and signatures and binding e countersignature of its duly authorized representative.

Ambac Assu.raace Corporation

..-...... ->"" 11C'i ...... r�"' ,.,... ..� ..., ... o"� I 1' . oe,,vR'i,-::,. AO, _. , � .··,� • ,.J"/,(..• - ...... ,t,:1 I "iot1-i:., : SEAL .. : ' t�\ \ j 1 \ - /...... • '•, ••• •• ... 'sco"1� ... .. \4 , •' " " President ,",, ...... Secretary

Authorized Representative Form No.: 213-00M (7/97) APPENDIX F

FORM OF CONTINUING DISCLOSURE AGREEMENT

This Continuing Disclosure Agreement, dated as of August 1, 2004 (the "Disclosure Agreement") is executed and delivered by the City of Simi Valley (the "City") and BNY Western Trust Company, as dissemination agent (the "Dissemination Agent") in connection with the execution and delivery of $25,955,000 City of Simi Valley 2004 Certificates of Participation (Capital Improvement Projects) (the "Certificates"). The Certificates are being executed pursuant to a Trust Agreement, dated as of August 1, 2004, by and among the City, BNY Western Trust Company, as trustee (the "Trustee") and the Simi Valley Public Financing Authority (the "Authority"). The City covenants as follows:

SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the City for the benefit of the Holders and Beneficial Owners of the Certificates and in order to assist the Participating Underwriter in complying with the Rule.

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

"Annual Report" shall mean any Comprehensive Annual Financial Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.

"Beneficial Owner" shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Certificates (including persons holding Certificates through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Certificates for federal income tax purposes.

"Disclosure Representative" shall mean the City Manager of the City, the Finance Director of the City or their designee, or such other officeror employee as the City shall designate in writing fromtime to time.

"Dissemination Agent" shall mean BNY Western Trust Company, or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation.

"Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Agreement.

''National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule.

"Official Statement" shall mean the Official Statement relating to the Certificates, dated August 19, 2004.

"Participating Underwriter" shall mean the original underwriter of the Certificates required to comply with the Rule in connection with the offering of the Certificates.

"Repository" shall mean each National Repository and each State Repository.

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

"State" shall mean the State of California.

F-1 "State Repository" shall mean any public or private repository or entity designated by the State as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Agreement, there is no State Repository.

SECTION 3. Provision of Annual Reports.

(a) The City shall, or, upon delivery of the Annual Report to the Dissemination Agent, shall cause the Dissemination Agent to, not later than each March 1 of each year commencing September 1, 2004, provide to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Agreement; provided that the audited financial statements of the City may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. If the City's fiscal year changes, it shall give notice of such change in the same manner as fora Listed Event under Section 5(c).

(b) Not later than fifteen (15) business days prior to said date, the City shall provide the Annual Report to the Dissemination Agent (if other than the City). If the City is unable to provide to the Repositories an Annual Report by the date required in subsection (a), the City shall send a notice to each Repository in substantially the formattached as Exhibit A.

(c) The Dissemination Agent shall:

(i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and the State Repository, if any; and

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

SECTION 4. Content of Annual Reports. The City's Annual Report shall contain or include by reference the City's audited financial statements, prepared in accordance with generally accepted auditing standards for municipalities in the State of California. If the City's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.

Any or all of the items listed above may be included by specific reference to other documents, including officialstatements of debt issues of the City or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final officialstatement, it must be available from the Municipal Securities Rulemaking Board. The City shall clearly identify each such other document so included by reference.

SECTION 5. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Certificates, if material:

(i) Principal and interest payment delinquencies.

(ii) Non-payment related defaults.

F-2 (iii) Modifications to rights of Certificateholders.

(iv) Optional, contingent or unscheduled certificate calls.

(v) Defeasances.

(vi) Rating changes.

(vii) Adverse tax opinions or events affecting the tax-exempt status of the Certificates.

(viii) Unscheduled draws on the debt service reserves reflecting financial difficulties.

(ix) Unscheduled draws on the credit enhancements reflecting financial difficulties.

(x) Substitution of the credit or liquidity providers or their failure to perform.

(xi) Release, substitution or sale of property securing repayment of the Certificates.

(b) Whenever the City obtains knowledge of the occurrence of a Listed Event, the City shall as soon as possible determine if such event would be material under applicable federalsecurities laws.

(c) If the City determines that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the City shall promptly file a notice of such occurrence with the Repositories. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(iv) and (v) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Holders of affected Certificatespursuant to the Trust Agreement.

SECTION 6. Termination of Reporting Obligation. The City's obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Certificates. If such termination occurs prior to the finalmaturity of the Certificates, theCity shall give notice of such termination in the same manner as for a Listed Event under Section 5(c).

SECTION 7. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the City pursuant to this Disclosure Agreement. The Dissemination Agent may resign by providing thirty days written notice to the City and the Trustee. The Dissemination Agent shall not be responsible forthe content of any report or notice prepared by the City and shall have no duty to review any information provided to it by the City. The Dissemination Agent shall have no duty to prepare any information report nor shall the Dissemination Agent be responsible for filing any report not provided to it by the City in a timely manner and in a form suitable for filing.

SECTION 8. Amendment: Waiver. Notwithstanding any other prov1s1on of this Disclosure Agreement, the City may amend this Disclosure Agreement, and any provision of this Disclosure Agreement may be waived, provided that, in the opinion of nationally recognized bond counsel, such amendment or waiver is permitted by the Rule; provided, the Dissemination Agent shall have first consented to any amendment that modifies or increases its duties or obligations hereunder. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the City shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the City. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be

F-3 given in the same manner as for a Listed Event under Section 5(c), and (ii) the Annual Report for the year in which the change is made shall present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the formeraccounting principles.

SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the City shall have no obligation under this Certificate to update such information or include it in any future Annual Report or notice of occurrenceof a Listed Event.

SECTION 10. Default. In the event of a failure of the City or the Dissemination Agent to comply with any provision of this Disclosure Agreement, any Holder or Beneficial Owner of the Certificates may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Trust Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the City or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance.

No Certificate holder or Beneficial Owner may institute such action, suit or proceeding to compel performance unless they shall have first delivered to the City satisfactory written evidence of their status as such, and a written notice of and request to cure such failure, and the City shall have refused to comply therewith within a reasonable time.

SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the City agrees, to the extent permitted by law, to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorney's fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the City for its services provided hereunder in accordance with its schedule of fees as amended from time to tome and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. In performing its duties hereunder, the Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the City, the Certificate holders, or any other party. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Certificates.

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

To the City: City of Simi Valley 2929 Tapo Canyon Road Simi Valley, California 93063-2199 Attention: City Manager

To the Dissemination Agent: BNY WesternTrust Company 700 South Flower Street, Suite 500, Los Angeles, California 90017 Attention: Corporation Trust

F-4 SECTION 13. Beneficiaries. This Disclosure Agreement solely to the benefit of the City, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Certificates, and shall create no rights in any other person or entity.

SECTION 14. Signature. This Disclosure Agreement has been executed by the undersigned on the date hereof, and such signature binds the City to the undertaking herein provided.

CITY OF SIMI VALLEY

By: Its: City Manager

BNY WESTERN TRUST COMPANY, as Dissemination Agent

By: Its: Authorized Officer

F-5 EXHIBIT A

NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT

Name of Obligor: City of Simi Valley

Name of Certificates: $25,955,000 City of Simi Valley 2004 Certificatesof Participation (Capital Improvement Projects)

Date of Execution and Delivery: September 2, 2004

NOTICE IS HEREBY GIVEN that the City has not provided an Annual Report with respect to the above­ named Certificates as required by the Continuing Disclosure Agreement executed by the City on the date of execution and delivery of the Certificates. The City anticipates that the Annual Report will be filed by

Dated: ______BNY WESTERN TRUST COMPANY, Dissemination Agent

By: ______

F-6 APPENDIX G

DTC BOOK-ENTRY SYSTEM

The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Certificates (the "Certificates"). The Certificates 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 certificate will be issued for each maturity of the Certificates, each in the aggregate principal amount 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 17 A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates thepost-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in tum, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission.

Purchases of Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the Certificates on DTC's records. The ownership interest of each actual purchaser of each Certificate ("Beneficial Owner") is in tum to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. BeneficialOwners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Certificates 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 Certificates, except in the event that use of the DTC Book-Entry System forthe Certificates is discontinued.

To facilitate subsequent transfers, all Certificates deposited by Direct 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 Certificates 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 Certificates; DTC's records reflect only theidentity of the Direct Participants to whose accounts such Certificates 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.

G-1 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 Certificates may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Certificates, such as redemptions, tenders, defaults, and proposed amendments to the Certificate documents. For example, Beneficial Owners of Certificates may wish to ascertain that the nominee holding the Certificates for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

Prepayment notices shall be sent to DTC. If less than all of the Certificates within a maturity are being prepaid, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be prepaid.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Certificates unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Certificatesare credited on the record date (identified in a listing attachedto the Omnibus Proxy).

Prepayment proceeds, distributions, and dividend payments on the Certificates 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 City or the Trustee, on payment date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC nor its nominee, the Trustee, or the City, subject to any statutory or regulatory requirements as may be in effect fromtime to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

A Beneficial Owner shall give notice to elect to have its Certificates purchased or tendered, through its Participant, to the Trustee, and shall effect delivery of such Certificates by causing the Direct Participant to transfer the Participant's interest in the Certificates, on DTC's records, to the Trustee. The requirement for physical delivery of Certificates in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Certificates are transferred by Direct Participants on DTC's records and followed by a book-entry credit of tendered Certificates to the Trustee's DTC account.

DTC may discontinue providing its services as depository with respect to the Certificates at any time by giving reasonable notice to the City or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, physical Certificatesare required to be printed and delivered.

The City may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, physical Certificates will be printed and delivered.

The information in this section concerning DTC and DTC's DTC Book-Entry System has been obtained fromsources that the City believes to be reliable, but the City takes no responsibility for the accuracy thereof.

G-2