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HomeMy WebLinkAbout0013_3_Exhibit B - Preliminary Official StatementPRELIMINARY OFFICIAL STATEMENT DATED JULY 27, 2016 Jones Hall Draft 7-18-16 NEW ISSUE—BOOK-ENTRY ONLY NO RATING In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, and assuming certain representations and compliance with certain covenants and requirements described in this Official Statement, interest (and original issue discount) on the 2016 Bonds 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 Bond Counsel, interest (and original issue discount) on the 2016 Bonds is exempt from State of California personal income tax. See the caption “TAX EXEMPTION” with respect to tax consequences relating to the 2016 Bonds. $16,495,000* CITY OF LAKE ELSINORE COMMUNITY FACILITIES DISTRICT NO. 2003-2 (CANYON HILLS) SPECIAL TAX BONDS, 2016 SERIES A (IMPROVEMENT AREA D) Dated: Delivery Date Due: September 1, as shown on inside cover page The 2016 Bonds.The City of Lake Elsinore Community Facilities District No. 2003-2 (Canyon Hills) Special Tax Bonds, 2016 Series A (Improvement Area D) (the “2016 Bonds”) are being issued by the City of Lake Elsinore Community Facilities District No. 2003-2 (Canyon Hills) (the “District”) to (i) finance a portion of certain public facilities eligible to be financed by the District for Improvement Area D of the District (“Improvement Area D”), (ii) fund a reserve account for the 2016 Bonds and (iii) pay costs of issuing the 2016 Bonds. The 2016 Bonds are authorized to be issued by the District for Improvement Area D pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (Section 53311 et seq. of the Government Code of the State of California) (the “Act”), and pursuant to that certain Fiscal Agent Agreement, dated as of January 1, 2014 (the “Original Fiscal Agent Agreement”), as supplemented by a First Supplement to Fiscal Agent Agreement, dated as of August 1, 2016 (the “First Supplement to Fiscal Agent Agreement” and together with the Original Fiscal Agent Agreement, the “Fiscal Agent Agreement”), by and between the District and Wilmington Trust, N.A., as fiscal agent (the “Fiscal Agent”). The 2016 Bonds will be issued in fully registered form and when issued will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). Individual purchases of the 2016 Bonds may be made in principal amounts of $5,000 and integral multiples thereof and will be in book-entry form only. Purchasers of Bonds will not receive certificates representing their beneficial ownership of the 2016 Bonds but will receive credit balances on the books of their respective nominees. The 2016 Bonds will not be transferable or exchangeable except for transfer to another nominee of DTC or as otherwise described herein. Interest on the 2016 Bonds will be payable on _____ 1, 20__ and each March 1 and September 1 thereafter. Principal of and interest on the 2016 Bonds will be paid by the Fiscal Agent to DTC for subsequent disbursement to DTC Participants, who will remit such payments to the Beneficial Owners of the 2016 Bonds. Redemption Prior to Maturity. The 2016 Bonds are subject to optional redemption, special mandatory redemption and mandatory sinking fund redemption prior to maturity. See the caption “THE 2016 BONDS—Redemption.” Security for the 2016 Bonds.The 2016 Bonds are payable from Net Taxes (as defined herein) derived from an annual Special Tax (as defined in this Official Statement) to be levied on taxable parcels within Improvement Area D and from certain other funds held under the Fiscal Agent Agreement, all as further described in this Official Statement. The Special Tax is levied according to the rate and method of apportionment approved by the City Council of the City and the qualified electors within Improvement Area D. See the caption “SOURCES OF PAYMENT FOR THE 2016 BONDS—Special Taxes” and Appendix A— “RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX.” Existing Parity Bonds; Future Parity Bonds.The 2016 Bonds are secured by a pledge of Special Tax Revenues and Redemption Revenues and payable from Net Taxes on a parity basis with the outstanding $7,505,000 City of Lake Elsinore Community Facilities District No. 2003-2 (Canyon Hills) Special Tax Bonds, 2014 Series (Improvement Area D) (the “2014 Bonds”). The District has covenanted in the Fiscal Agent Agreement not to issue additional indebtedness payable from Net Taxes on a parity with the 2016 Bonds and the 2014 Bonds except to refund all or a portion of the 2014 Bonds, the 2016 Bonds or any other Parity Debt. Limited Obligation.NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY, THE COUNTY OF RIVERSIDE, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE 2016 BONDS. EXCEPT FOR THE SPECIAL TAX REVENUES AND THE REDEMPTION REVENUES AND OTHER MONEYS HELD UNDER THE FISCAL AGENT AGREEMENT, NO OTHER REVENUES OR TAXES ARE PLEDGED TO THE PAYMENT OF THE 2016 BONDS. THE 2016 BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE CITY OR GENERAL OBLIGATIONS OF THE DISTRICT BUT ARE LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM NET TAXES AND OTHER AMOUNTS HELD UNDER THE FISCAL AGENT AGREEMENT AS MORE FULLY DESCRIBED HEREIN. Risk Factors. Investment in the 2016 Bonds involves risks that are not appropriate for certain investors. Certain events could affect the ability of the District to pay the principal of and interest on the 2016 Bonds when due. See the caption “SPECIAL RISK FACTORS” for a discussion of certain risk factors that should be considered, in addition to the other matters set forth in this Official Statement, in evaluating the investment quality of the 2016 Bonds. THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR GENERAL REFERENCE ONLY. IT IS NOT INTENDED TO BE A SUMMARY OF THE SECURITY OR TERMS OF THIS ISSUE. INVESTORS ARE ADVISED TO READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION. MATURITY SCHEDULE (See Inside Cover Page)This Preliminary Official Statement and the information contained herein are subject to completion or amendment. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or a solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. The 2016 Bonds are offered when, as and if issued and accepted by the Underwriter, subject to approval as to their legality by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel, and subject to certain other conditions. Certain legal matters will be passed on for the City and the District by Leibold McClendon, & Mann, Irvine, California, Issuer Counsel, and by Jones Hall, A Professional Law Corporation, Disclosure Counsel, and for the Underwriter by Nossaman LLP. It is anticipated that the 2016 Bonds in book-entry form will be available for delivery on or about __, 2016. [STIFEL LOGO] Dated: _______, 2016 ________________________________ *Preliminary; subject to change. $__________ CITY OF LAKE ELSINORE COMMUNITY FACILITIES DISTRICT NO. 2003-2 (CANYON HILLS) SPECIAL TAX BONDS, 2016 SERIES A (IMPROVEMENT AREA D) MATURITY SCHEDULE BASE CUSIP®†*______ Maturity Date (September 1)Principal Amount Interest Rate Yield CUSIP®† $_____ % Term Bonds Due September 1, 20__ – Price % CUSIP ®†____ $_____ % Term Bonds Due September 1, 20__ – Price % CUSIP ®†___ *†CUSIP® is a registered trademark of the American Bankers Association. Copyright© 1999-2016 Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business. All rights reserved. CUSIP® data in this Official Statement is provided by Standard & Poor’s CUSIP Service Bureau. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Service Bureau. CUSIP® numbers are provided for convenience of reference only. Neither the City, the District nor the Underwriter takes any responsibility for the accuracy of such numbers. CITY OF LAKE ELSINORE COUNTY OF RIVERSIDE, CALIFORNIA CITY COUNCIL Brian Tisdale, Mayor Robert Magee, Mayor Pro Tem Daryl Hickman, Councilmember Steve Manos, Councilmember Natasha Johnson, Councilmember CITY ADMINISTRATORS Grant Yates, City Manager Jason Simpson, Assistant City Manager PROFESSIONAL SERVICES Leibold McClendon & Mann Irvine, California Issuer Counsel Stradling Yocca Carlson & Rauth, a Professional Corporation Newport Beach, California Bond Counsel Jones Hall, A Professional Law Corporation San Francisco, California Disclosure Counsel Wilmington Trust, N.A. Costa Mesa, California Fiscal Agent SCG - Spicer Consulting Group Murrieta, California Special Tax Consultant Urban Futures Incorporated Orange, California Financial Advisor Harris Realty Appraisal Newport Beach, California Appraiser Except where otherwise indicated, all information contained in this Official Statement has been provided by the City and the District. No dealer, broker, salesperson or other person has been authorized by the City, the District, the Fiscal Agent or the Underwriter to give any information or to make any representations in connection with the offer or sale of the 2016 Bonds other than those contained in this Official Statement and, if given or made, such other information or representations must not be relied upon as having been authorized by the City, the District, the Fiscal Agent or the Underwriter. 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 2016 Bonds 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 2016 Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described in this Official Statement, are intended solely as such and are not to be construed as representations of fact. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities 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. The information and expressions of opinion in this Official Statement are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City, the District or any other parties described in this Official Statement since the date hereof. All summaries of the Fiscal Agent Agreement or other documents are made subject to the provisions of such documents respectively and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the City for further information in connection therewith. IN CONNECTION WITH THE OFFERING OF THE 2016 BONDS, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF SUCH BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE 2016 BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE 2016 BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as a “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 caption “THE COMMUNITY FACILITIES DISTRICT.” 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 DISTRICT 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. The City maintains a website. However, the information presented on such website is not part of this Official Statement and should not be relied upon in making an investment decision with respect to the 2016 Bonds. i TABLE OF CONTENTS Page INTRODUCTION...............................................................................................................................................................................1 The Act.........................................................................................................................................................................................1 The City, District and Improvement Area D...................................................................................................................................2 Current and Proposed Development Within Improvement Area D.................................................................................................2 Sources of Payment for the 2016 Bonds.......................................................................................................................................3 Description of the 2016 Bonds......................................................................................................................................................4 Tax Exemption..............................................................................................................................................................................5 Appraisal Report...........................................................................................................................................................................5 Continuing Disclosure...................................................................................................................................................................6 Bond Owners’ Risks......................................................................................................................................................................6 Professionals Involved in the Offering...........................................................................................................................................7 Other Information..........................................................................................................................................................................7 THE 2016 BONDS.............................................................................................................................................................................8 General Provisions........................................................................................................................................................................8 Debt Service Schedule................................................................................................................................................................ 10 Redemption................................................................................................................................................................................ 11 Registration, Transfer and Exchange..........................................................................................................................................14 SOURCES OF PAYMENT FOR THE 2016 BONDS........................................................................................................................ 14 Limited Obligations .....................................................................................................................................................................14 Special Taxes.............................................................................................................................................................................15 Flow of Funds under the Fiscal Agent Agreement.......................................................................................................................20 Reserve Account of the Special Tax Fund ..................................................................................................................................21 Existing and Future Parity Bonds................................................................................................................................................ 22 THE COMMUNITY FACILITIES DISTRICT AND IMPROVEMENT AREA D.................................................................................... 24 General Description of the District...............................................................................................................................................24 History of the District and Improvement Area D...........................................................................................................................24 Appraisal Report.........................................................................................................................................................................25 Direct and Overlapping Indebtedness .........................................................................................................................................27 Estimated Appraised Value-To-Lien Ratios.................................................................................................................................29 Estimated Tax Burden on Single Family Home ...........................................................................................................................32 Concentration of Taxpayers........................................................................................................................................................ 33 Property Tax Delinquencies........................................................................................................................................................ 33 CURRENT AND PROPOSED DEVELOPMENT OF PROPERTY WITHIN IMPROVEMENT AREA D .............................................33 General Description of Development; Pardee .............................................................................................................................33 Ownership by Pardee .................................................................................................................................................................34 Status of Development................................................................................................................................................................ 35 Financing Plan............................................................................................................................................................................ 36 History of Pardee’s Property Tax Payments; Loan Defaults; Litigation; Bankruptcy.....................................................................37 SPECIAL RISK FACTORS..............................................................................................................................................................39 Risks of Real Estate Secured Investments Generally..................................................................................................................39 Limited Obligations .....................................................................................................................................................................39 Insufficiency of Special Taxes.....................................................................................................................................................40 Natural Disasters ........................................................................................................................................................................ 40 Concentration of Property Ownership .........................................................................................................................................41 Failure to Complete Proposed Development...............................................................................................................................41 Payment of the Special Tax is not a Personal Obligation of the Landowners...............................................................................42 Appraised Value .........................................................................................................................................................................42 Parity Taxes and Special Assessments.......................................................................................................................................43 Disclosures to Future Purchasers ...............................................................................................................................................43 Special Tax Delinquencies..........................................................................................................................................................44 FDIC/Federal Government Interests in Properties.......................................................................................................................44 Bankruptcy and Foreclosure .......................................................................................................................................................46 No Acceleration Provision...........................................................................................................................................................47 Loss of Tax Exemption................................................................................................................................................................47 Limited Secondary Market ..........................................................................................................................................................47 Proposition 218...........................................................................................................................................................................47 Ballot Initiatives...........................................................................................................................................................................49 Limitations on Remedies.............................................................................................................................................................49 CONTINUING DISCLOSURE..........................................................................................................................................................49 TAX EXEMPTION.......................................................................................................................................................................51 LEGAL OPINION.............................................................................................................................................................................53 ABSENCE OF LITIGATION.............................................................................................................................................................53 NO RATING UNDERWRITING............................................................................................................................................................................ 54 FINANCIAL INTERESTS.................................................................................................................................................................54 ii ADDITIONAL INFORMATION .........................................................................................................................................................55 APPENDIX A RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX .................................A-1 APPENDIX B ECONOMIC AND DEMOGRAPHIC INFORMATION REGARDING THE CITY OF LAKE ELSINORE.....................................................................................B-1 APPENDIX C FORM OF OPINION OF BOND COUNSEL ................................................................... C-1 APPENDIX D SUMMARY OF THE FISCAL AGENT AGREEMENT .................................................... D-1 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE ...............................................E-1 APPENDIX F BOOK-ENTRY ONLY SYSTEM.......................................................................................F-1 APPENDIX G APPRAISAL REPORT....................................................................................................G-1 [INSERT MAP of Improvement Area D] 1 $16,495,000* CITY OF LAKE ELSINORE COMMUNITY FACILITIES DISTRICT NO. 2003-2 (CANYON HILLS) SPECIAL TAX BONDS, 2016 SERIES A (IMPROVEMENT AREA D) INTRODUCTION The purpose of this Official Statement, which includes the cover page, the table of contents and the attached appendices (collectively, the “Official Statement”), is to provide certain information concerning the issuance by the City of Lake Elsinore Community Facilities District No. 2003-2 (Canyon Hills) (the “District”) of its Special Tax Bonds, 2016 Series A (the “2016 Bonds”). The proceeds of the 2016 Bonds will be used to (i) finance a portion of certain public facilities eligible to be financed by the District for Improvement Area D of the District (“Improvement Area D”), (ii) fund a reserve account for the 2016 Bonds and (iii) pay costs of issuing the 2016 Bonds. The 2016 Bonds are authorized to be issued pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (Section 53311 et seq. of the Government Code of the State of California) (the “Act”), and a Fiscal Agent Agreement, dated as of January 1, 2014 (the “Original Fiscal Agent Agreement”), as supplemented by a First Supplement to Fiscal Agent Agreement, dated as of August 1, 2016 (the “First Supplement to Fiscal Agent Agreement” and together with the Original Fiscal Agent Agreement, the “Fiscal Agent Agreement”), by and between the District and Wilmington Trust, N.A., as fiscal agent (the “Fiscal Agent”). The 2016 Bonds are secured under the Fiscal Agent Agreement by a pledge of and lien upon Special Tax Revenues and Redemption Revenues (as such terms are defined in this Official Statement) and all moneys deposited in the Bond Fund (including a Reserve Account in the Bond Fund) and, until disbursed pursuant to the Fiscal Agent Agreement, in the Special Tax Fund, the Redemption Fund and the Delinquency Management Fund as described in the Fiscal Agent Agreement. The 2016 Bonds are payable from Net Special Taxes (as that term is defined in this Official Statement). The 2016 Bonds are secured by a pledge of Special Tax Revenues and Redemption Revenues and payable from Net Taxes on a parity basis with the outstanding $7,505,000 City of Lake Elsinore Community Facilities District No. 2003-2 (Canyon Hills) Special Tax Bonds, 2014 Series (Improvement Area D) (the “2014 Bonds”). The District may issue additional bonds payable on a parity basis with the 2014 Bonds and the 2016 Bonds (“Parity Bonds”), but only for the purpose of refunding the 2016 Bonds, the 2014 Bonds or any Parity Bonds. This Introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement and the documents summarized or described in this Official Statement. A full review should be made of the entire Official Statement. The sale and delivery of Bonds to potential investors is made only by means of the entire Official Statement. All capitalized terms used in this Official Statement and not defined have the meanings set forth in Appendix D. The Act *Preliminary; subject to change. 2 The District and Improvement Area D were formed, and the District is issuing the 2016 Bonds, under the Act. The Act was enacted to provide an alternative method of financing certain public capital facilities and services, especially in developing areas of the State. Any local agency (as defined in the Act) may establish a community facilities district to provide for and finance the cost of eligible public facilities and services. Generally, the legislative body of the local agency which forms a community facilities district acts on behalf of such district as its legislative body. Subject to approval by two-thirds of the votes cast at an election and compliance with the other provisions of the Act, a legislative body of a local agency may issue bonds for a community facilities district and may levy and collect a special tax within such district to repay such indebtedness. The City, District and Improvement Area D City. The City is located in the western portion of Riverside County (the “County”), California (the “State”). More information about the City is found in Appendix B - “Economic and Demographic Information Regarding the City of Lake Elsinore.” District.The District includes a portion of Canyon Hills, a planned residential community located in the southeast portion of the City, to the east of Lake Elsinore. Pardee Homes, a California corporation (“Pardee”), acquired the partially-developed Canyon Hills project in 1988 and serves as the master developer and primary merchant builder. At build-out, the Canyon Hills project is expected to include approximately 154 multi-family and 3,609 detached single family dwelling units. The District includes the development of 51 planning areas containing a total of approximately 2,040 gross acres and 1,021 net acres. See the caption “THE COMMUNITY FACILITIES DISTRICT AND IMPROVEMENT AREA D - General Description of the District” for further information with respect to the District. Improvement Area D. Improvement Area D consists of planning areas 25, 28A, 28B, 31, 32, and 37 of the Canyon Hills Specific Plan, which are planned for 780 single family detached homes. Development activities have occurred or are currently occurring in Planning Areas 25, 28A, 28B, 32 and 37. Planning Area 31 consists entirely of raw land, with 125 dwelling units planned for construction. See “- Current and Proposed Development Within Improvement Area D” below. Current and Proposed Development Within Improvement Area D Public Infrastructure.The public infrastructure is completely built in Planning Areas 25, 28A, 28B, 32 and 37. No public infrastructure has been built in Planning Area 31. Private Development. The single-family residential lots in Planning Areas 25, 28A, 28B, 32 and 37 are being developed by Pardee, as the primary merchant builder. Planning Area 31 is not being developed at this time. A summary of planned units and property development in Improvement Area D as of June 30, 2016, is set forth below: 3 Construction Stages PA 25 PA 37 PA 28A PA 28B PA 32 PA 31 Total Model Units Completed 0 6 7 0 3 0 16 Under Construction 0 0 0 0 0 0 0 Production Units Completed 132 79 179 123 94 0 607* Under Construction 0 0 11 14 0 0 25 Physically Finished Lots 0 2 0 0 5 0 7 Raw Land (Planned Lots) 0 0 0 0 0 125 125 Total Planned Units 132 87 197 137 102 125 780 *506 are owned by individual homeowners. Source: Special Tax Consultant. Ownership by Pardee.As of June 30, 2016, 610 homes had been built and sold to individual purchasers, and Pardee owned within Improvement Area D: 9 completed model homes 4 near-complete but unsold homes 25 homes under construction 7 physically finished lots 1 parcel of raw land in Planning Area 31 that is entitled for 125 single-family homes. In fiscal year 2016-17, the property owned by Pardee in Improvement Area D is expected to be responsible for approximately 4.64% of the estimated Special Tax levy. See “CURRENT AND PROPOSED DEVELOPMENT OF PROPERTY WITHIN IMPROVEMENT AREA D” for more detailed information about the current and proposed development in Improvement Area D. Sources of Payment for the 2016 Bonds Special Taxes. As used in this Official Statement, the term “Special Tax” means the annual Special Tax which has been authorized pursuant to the Act and the Rate and Method to be levied upon taxable property within Improvement Area D. See the caption “SOURCES OF PAYMENT FOR THE 2016 BONDS—Special Taxes” and Appendix A—“RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX.” Under the Fiscal Agent Agreement, the District will repay the 2016 Bonds from the Special Tax revenues remaining after the payment of certain annual Administrative Expenses of the District (the “Net Taxes”) and from other amounts in the Bond Fund (including the Reserve Account), the Special Tax Fund, the Redemption Fund and the Delinquency Management Fund established under the Fiscal Agent Agreement. Funds Held by the Fiscal Agent.The Special Taxes are the primary source of security for the repayment of the 2016 Bonds. In the event that the Special Taxes are not paid when due, the only sources of funds available to pay the debt service on the 2016 Bonds are amounts held by the Fiscal Agent in the Special Tax Fund, including amounts held in the Reserve 4 Account of the Bond Fund, as established by the Fiscal Agent Agreement, to the limited extent described in the Fiscal Agent Agreement. See the caption “SOURCES OF PAYMENT FOR THE 2016 BONDS—Reserve Account of the Bond Fund.” The Reserve Account of the Bond Fund is available only to pay debt service on the 2016 Bonds. Foreclosure Proceeds. The District has covenanted for the benefit of the owners of the 2016 Bonds to undertake judicial foreclosure in certain instances. See the caption “SOURCES OF PAYMENT FOR THE 2016 BONDS - Proceeds of Foreclosure Sales; Covenant to Foreclose.” EXCEPT FOR THE SPECIAL TAX REVENUES AND THE REDEMPTION REVENUES AND OTHER MONEYS HELD UNDER THE FISCAL AGENT AGREEMENT, NO OTHER REVENUES OR TAXES ARE PLEDGED TO THE PAYMENT OF THE 2016 BONDS. THE 2016 BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE CITY OR GENERAL OBLIGATIONS OF THE DISTRICT BUT ARE LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM NET TAXES AND OTHER AMOUNTS HELD UNDER THE FISCAL AGENT AGREEMENT AS MORE FULLY DESCRIBED HEREIN. Parity Bonds. The 2016 Bonds are secured by a pledge of Special Tax Revenues and Redemption Revenues and payable from Net Taxes on a parity basis with the outstanding 2014 Bonds. In addition, the District may issue additional indebtedness secured by the Net Taxes on a parity with the 2014 Bonds and the 2016 Bonds (“Parity Bonds”), but only for the purpose of refunding all or a portion of the 2014 Bonds, the 2016 Bonds and any Parity Bonds. See the caption “SOURCES OF PAYMENT FOR THE 2016 BONDS— Existing and Future Parity Bonds.” Other Taxes and Assessments. Property in Improvement Area D is subject to other taxes and/or special assessments with liens equal in priority to the continuing lien of the Special Taxes, and additional such taxes and/or special assessments may be levied in the future. These other taxes and/or special assessments, when combined with the Special Taxes, could adversely impact the willingness of the Improvement Area D landowners to pay the Special Taxes when due. See the captions “THE COMMUNITY FACILITIES DISTRICT AND IMPROVEMENT AREA D—Direct and Overlapping Indebtedness” and “SPECIAL RISK FACTORS—Parity Taxes and Special Assessments.” Description of the 2016 Bonds The 2016 Bonds will be issued and delivered as fully registered Bonds, registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”), and will be available to actual purchasers of the 2016 Bonds (the “Beneficial Owners”) in the denominations of $5,000 or any integral multiple thereof, under the book-entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants as described in this Official Statement. Beneficial Owners will not be entitled to receive physical delivery of the 2016 Bonds. In the event that the book-entry only system described in this Official Statement is no longer used with respect to the 2016 Bonds, the 2016 Bonds will be 5 registered and transferred in accordance with the Fiscal Agent Agreement. See Appendix F— “BOOK-ENTRY ONLY SYSTEM.” Principal of, premium, if any, and interest on the 2016 Bonds is payable by the Fiscal Agent to DTC. Disbursement of such payments to DTC Participants is the responsibility of DTC and disbursement of such payments to the Beneficial Owners is the responsibility of DTC Participants. See Appendix F—“BOOK-ENTRY ONLY SYSTEM.” The 2016 Bonds are subject to optional redemption, special mandatory redemption and mandatory sinking fund redemption prior to maturity as described in this Official Statement. See the caption “THE 2016 BONDS—Redemption.” For a more complete description of the 2016 Bonds and the basic documentation pursuant to which they are being sold and delivered, see the caption “THE 2016 BONDS” and Appendix D—“SUMMARY OF THE FISCAL AGENT AGREEMENT.” Tax Exemption In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California (“Bond Counsel”), under existing statutes, regulations, rulings and judicial decisions, and assuming certain representations and compliance with certain covenants and requirements described in this Official Statement, interest (and original issue discount) on the 2016 Bonds 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 Bond Counsel, interest (and original issue discount) on the 2016 Bonds is exempt from State of California personal income tax. See the caption “TAX EXEMPTION.” Set forth in Appendix C is the form of opinion of Bond Counsel expected to be delivered in connection with the issuance of the 2016 Bonds. For a more complete discussion of Bond Counsel’s opinion and certain tax consequences incident to the ownership of the 2016 Bonds, see the caption “TAX EXEMPTION.” Appraisal Report Initial Appraisal Report. An MAI appraisal of the land and existing improvements within Improvement Area D was prepared Harris Realty Appraisal, Newport Beach, California (the “Appraiser”). The appraisal is dated February 25, 2016 and is entitled “Appraisal Report Lake Elsinore Public Financing Authority Local Agency Revenue Bonds CFD No. 2003-2, Improvement Area D 2016 Series A” (the “Initial Appraisal Report”). See “THE COMMUNITY FACILITYIES DISTRICT AND IMPROVEMENT AREA D - Appraisal Report” and APPENDIX G — “APPRAISAL REPORT.” The Initial Appraisal Report provides an estimate of the minimum market value of the as- is condition and ownership of the taxable property within Improvement Area D as of the date of value, February 15, 2016 (the “Date of Value”). The Initial Appraisal Report reached the following market value conclusions: 6 Construction Stages Total Minimum Market Value Completed Sold 505 $179,400,000 Model Homes 13 4,600,000 In Escrow 34 9,700,000 Under Construction 85 16,400,000 Physically Finished Lots 18 2,200,000 Raw Land (planned units) 125 4,400,000 Total 780 $216,700,000 Supplement to Appraisal Report. The Appraiser subsequently issued a supplement to the Initial Appraisal Report dated June 30, 2016 (the “Supplement to Appraisal Report”), in which the Appraiser looked at development and ownership as of June 30, 2016 and concluded that the market values of the taxable property in Improvement Area D are not less than the concluded values in the Initial Appraisal Report. Together, the Initial Appraisal Report and the Supplement to Appraisal Report are referred to in this Official Statement as the “Appraisal Report”. See “THE COMMUNITY FACILITIES DISTRICT AND IMPROVEMENT AREA D - Appraisal Report” and APPENDIX G - “APPRAISAL REPORT”. Continuing Disclosure The District has agreed to provide, or cause to be provided, to the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access system (“EMMA”), maintained on the Internet at http://emma.msrb.org, certain annual financial information and operating data and notices of certain enumerated events. These covenants have been made in order to assist the Underwriter in complying with subsection (b)(5) of Rule 15c2-12 adopted by the Securities and Exchange Commission (“Rule 15c2-12”). See Appendix E—“FORM OF CONTINUING DISCLOSURE CERTIFICATE.” Bond Owners’ Risks Certain events could affect the ability of the District to pay the principal of and interest on the 2016 Bonds when due. See the caption “SPECIAL RISK FACTORS” for a discussion of certain factors which should be considered, in addition to other matters set forth in this Official Statement, in evaluating an investment in the 2016 Bonds. The purchase of the 2016 Bonds involves risks, and the 2016 Bonds may not be appropriate investments for some types of investors. 7 Professionals Involved in the Offering Wilmington Trust, N.A., Costa Mesa, California, will act as Fiscal Agent under the Fiscal Agent Agreement. Stifel, Nicolaus & Company, Incorporated (the “Underwriter”) is the Underwriter of the 2016 Bonds. All proceedings in connection with the issuance and delivery of the 2016 Bonds are subject to the approval of Bond Counsel. Certain legal matters will be passed on for the City and the District by Leibold McClendon & Mann, Irvine, California, Issuer Counsel, and by Jones Hall, A Professional Law Corporation, San Francisco, California, Disclosure Counsel, and for the Underwriter by Nossaman LLP, Irvine, California. Other professional services have been performed by SCG - Spicer Consulting Group, Murrieta, California, as Special Tax Consultant (the “Special Tax Consultant”), Harris Realty Appraisal, Newport Beach, California, as Appraiser (the “Appraiser”) and Urban Futures Incorporated, Orange, California, as Financial Advisors (the “Financial Advisor”). For information concerning circumstances in which certain of the above-mentioned professionals, advisors, counsel and consultants may have a financial or other interest in the offering of the 2016 Bonds, see the caption “FINANCIAL INTERESTS.” Other Information This Official Statement speaks only as of its date, and the information contained in this Official Statement is subject to change. Brief descriptions of the 2016 Bonds and the Fiscal Agent Agreement are included in this Official Statement. Such descriptions and information do not purport to be comprehensive or definitive. All references in this Official Statement to the Fiscal Agent Agreement, the 2016 Bonds and the Constitution and laws of the State, as well as the proceedings of the City Council, acting as the legislative body of the District, are qualified in their entirety by references to such documents, laws and proceedings, and with respect to the 2016 Bonds, by reference to the Fiscal Agent Agreement. Capitalized terms not otherwise defined in this Official Statement have the meanings set forth in Appendix D. Copies of the Fiscal Agent Agreement and other documents and information are available for inspection and copies may be obtained from the City, 130 S. Main Street, Lake Elsinore, California, 92530, Attention: City Clerk. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 8 ESTIMATED SOURCES AND USES OF FUNDS The District is issuing the 2016 Bonds to finance a portion of certain public facilities eligible to be financed by the District, fund a reserve account for the 2016 Bonds, and pay costs of issuing the 2016 Bonds. The following table sets forth the expected sources and uses of Bond proceeds. Sources of Funds Principal Amount of Bonds Plus/Less Net Original Issue Premium/Original Issue Discount Total Sources Uses of Funds: Costs of Issuance Fund(1) Improvement Fund Reserve Account of the Bond Fund Underwriter’s Discount Total Uses $ (1)To pay costs of issuance, including legal fees, printing costs, Special Tax Consultant and Fiscal Agent fees. THE 2016 BONDS General Provisions The 2016 Bonds will be dated their date of delivery and will bear interest at the rates per annum set forth on the inside cover page hereof, payable semiannually on ____ 1, 20__ and each March 1 and September 1 thereafter (each, an “Interest Payment Date”), and will mature in the amounts and on the dates set forth on the inside cover page of this Official Statement. The 2016 Bonds will be issued in fully registered form in denominations of $5,000 or any integral multiple thereof. Interest will be calculated on the basis of a 360-day year comprised of twelve 30-day months. Interest on any Bond will be payable from the Interest Payment Date next preceding the date of authentication of that Bond, unless: (i) such date of authentication is an Interest Payment Date, in which event interest will be payable from such date of authentication; (ii) the date of authentication is after the fifteenth day of the month preceding an Interest Payment Date, regardless of whether such day is a Business Day (each, a “Record Date”) but prior to the immediately succeeding Interest Payment Date, in which event interest will be payable from the Interest Payment Date immediately succeeding the date of authentication; or (iii) the date of authentication is prior to the close of business on the first Record Date, in which event interest will be payable from the dated date of the 2016 Bonds; provided, however, that if at the time of authentication of a 2016 Bonds, interest is in default, interest on such Bond will be payable from the last Interest Payment Date to which the interest has been paid or made available for 9 payment, or, if no interest has been paid or made available for payment on such Bond, interest on such Bond will be payable from its dated date. Interest on the 2016 Bonds (including the final interest payment upon maturity or earlier redemption) is payable by check of the Fiscal Agent mailed on the Interest Payment Dates by first-class mail to the registered Owner thereof at such registered Owner’s address as it appears on the registration books maintained by the Fiscal Agent at the close of business on the Record Date preceding the Interest Payment Date, or by wire transfer made on such Interest Payment Date upon instructions of any Owner of $1,000,000 or more in aggregate principal amount of Bonds. The principal of and premium, if any, on the 2016 Bonds are payable to the Registered Owner of the 2016 Bond in lawful money upon presentation and surrender of the 2016 Bond at the Principal Office of the Fiscal Agent, initially Wilmington Trust, N.A. The 2016 Bonds are issued as fully registered bonds and will be registered in the name of Cede & Co., as nominee for the DTC. DTC will act as securities depository of the 2016 Bonds. Ownership interests in the 2016 Bonds may be purchased in book-entry form only in denominations of $5,000 and any integral multiple thereof. See Appendix F—“BOOK-ENTRY ONLY SYSTEM.” 10 Debt Service Schedule The following table presents the annual debt service on the 2016 Bonds (including sinking fund redemptions), assuming that there are no optional or special mandatory redemptions. See the caption “—Redemption” below. Date (September 1)Principal Interest Total Total _________________________________ Source: Underwriter. 11 Redemption Optional Redemption. The 2016 Bonds may be redeemed at the option of the District from any source of funds, other than Special Tax prepayments, on any Interest Payment Date on or after September 1, 20__, in whole or in part (in such amounts and maturities as may be designated by the District, with the particular 2016 Bonds of such maturities to be selected by the Fiscal Agent by lot) at the following redemption prices, expressed as a percentage of the principal amount to be redeemed, together with accrued interest to the date of redemption: Redemption Date Redemption Price % In the event that the District elects to redeem 2016 Bonds as provided above, the District will give written notice to the Fiscal Agent of its election to so redeem, the redemption date and the maturity dates of the 2016 Bonds to be redeemed. The notice to the Fiscal Agent will be given at least 45 but no more than 60 days prior to the redemption date, or by such later date as is acceptable to the Fiscal Agent, in its sole discretion. Mandatory Sinking Fund Redemption. The 2016 Bonds maturing on September 1, 20__ and September 1, 20__ (the “Term Bonds”) will be called before maturity and redeemed, from the Sinking Fund Payments that have been deposited into the Principal Account established by the Fiscal Agent Agreement, on September 1, 20__ and September 1, 20__, respectively, and on each September 1 thereafter prior to maturity, in accordance with the schedule of Sinking Fund Payments set forth below. The Term Bonds so called for redemption will be selected by the Fiscal Agent by lot and will be redeemed at a redemption price for each redeemed Term Bond equal to the principal amount thereof, plus accrued interest to the redemption date, without premium, as follows: Term Bonds Maturing September 1, 20__ Sinking Fund Redemption Date (September 1)Sinking Payments †Maturity. 12 Term Bonds Maturing September 1, 20__ Sinking Fund Redemption Date (September 1)Sinking Payments †Maturity. If the District purchases Term Bonds and delivers them to the Fiscal Agent at least 45 days prior to an applicable redemption date, the principal amount of the Term Bonds so purchased will be credited to reduce the sinking fund payment due on such redemption date for the applicable maturity of the Term Bonds. All Term Bonds purchased by the District and delivered to the Fiscal Agent pursuant to the Fiscal Agent Agreement will be canceled pursuant to the Fiscal Agent Agreement. In the event of a partial optional redemption or special mandatory redemption of the Term Bonds, each of the remaining Sinking Fund Payments for such Term Bonds will be reduced, as nearly as practicable, on a pro rata basis. Special Mandatory Redemption from Special Tax Prepayments. The 2016 Bonds are subject to special mandatory redemption as a whole or in part on a pro rata basis among maturities, and pro rata among each series of Bonds, on any Interest Payment Date on and after _______ 1, 20__ from the proceeds of the prepayment of the Special Taxes deposited in the Redemption Fund pursuant to the Fiscal Agent Agreement and amounts transferred from the Reserve Account of the Bond Fund in connection with such prepayment. Such special mandatory redemption of the 2016 Bonds will be at the following redemption prices, expressed as percentages of the principal amount of the 2016 Bonds to be redeemed, together with accrued interest to the date of redemption: Redemption Date Redemption Price Notice of Redemption. So long as the 2016 Bonds are held in book-entry form, notice of redemption will be mailed by the Fiscal Agent to DTC and not to the Beneficial Owners of the 2016 Bonds under the DTC book-entry only system. Neither the District nor the Fiscal Agent is responsible for notifying the Beneficial Owners, who are to be notified in accordance with the procedures in effect for the DTC book-entry system. See Appendix F—“BOOK-ENTRY ONLY SYSTEM.” The Fiscal Agent will cause notice of any redemption to be mailed by first-class mail, postage prepaid, at least 30 days but no more than 60 days prior to the date fixed for redemption, to the respective registered Owners of any Bonds designated for redemption, at 13 their addresses appearing on the 2016 Bond registration books in the Corporate Trust Office of the Fiscal Agent; but such mailing will not be a condition precedent to such redemption and failure to mail or to receive any such notice, or any defect therein, shall not affect the validity of the proceedings for the redemption of such Bonds. Such notice will state the redemption date and the redemption price and, if less than all of the then Outstanding Bonds are to be called for redemption, will designate the 2016 Bond numbers of the 2016 Bonds to be redeemed or will state that all Bonds between two stated Bond numbers, both inclusive, are to be redeemed or that all of the 2016 Bonds of one or more maturities have been called for redemption, will state as to any Bond called in part the principal amount thereof to be redeemed, and will require that such Bonds be then surrendered at the Corporate Trust Office of the Fiscal Agent for redemption at said redemption date. The cost of mailing any such redemption notice and any expenses incurred by the Fiscal Agent in connection therewith will be paid by the District. Upon payment of the redemption price of Bonds being redeemed, each check or other transfer of funds issued for such purpose will, to the extent practicable, bear the number identifying, by issue and maturity, the 2016 Bonds being redeemed with the proceeds of such check or other transfer. Whenever provision is made in the Fiscal Agent Agreement for the redemption of less than all of the 2016 Bonds or any given portion thereof, the Fiscal Agent will select the 2016 Bonds to be redeemed, from all Bonds or such given portion thereof not previously called for redemption, among maturities as specified by the District in written certificate delivered to the Fiscal Agent, and by lot within a maturity in any manner which the District in its sole discretion shall deem appropriate and fair. In providing such certificate, the District will provide for the redemption of Bonds such that the remaining Debt Service payable on the 2016 Bonds will remain as level as possible. Upon surrender of bonds redeemed in part only, the District will execute and the Fiscal Agent will authenticate and deliver to the registered Owner, at the expense of the District, a new Bond or Bonds, of the same series and maturity, of authorized denominations in aggregate principal amount equal to the unredeemed portion of the 2016 Bonds or Bonds. Selection of Bonds for Redemption. If less than all of the 2016 Bonds Outstanding are to be redeemed, the portion of any Bond of a denomination of more than $5,000 to be redeemed will be in the principal amount of $5,000 or an integral multiple thereof. In selecting portions of such Bonds for redemption, the Fiscal Agent will treat such Bonds, as applicable, as representing that number of 2016 Bonds of $5,000 denominations which is obtained by dividing the principal amount of such 2016 Bonds to be redeemed in part by $5,000. The procedure for the selection of Parity Bonds for redemption may be modified as set forth in the Supplemental Fiscal Agent Agreement for such Parity Bonds. The Fiscal Agent will promptly notify the District in writing of the 2016 Bonds, or portions thereof, selected for redemption. Partial Redemption of Bonds. If in any event only a portion of any 2016 Bond is called for redemption, then upon surrender of such 2016 Bond the City will execute, on behalf of the District, and the Fiscal Agent will authenticate and deliver to the 2016 Bond Owner thereof, at the expense of the District, a new 2016 Bond or 2016 Bonds of the same series and maturity date, of authorized denominations in an aggregate principal amount equal to the unredeemed portion of the 2016 Bond to be redeemed. 14 Effect of Notice and Availability of Redemption Money. From and after the date fixed for redemption, if funds available for the payment of the principal of, and interest and any premium on, the 2016 Bonds so called for redemption will have been deposited in the Bond Fund, such Bonds so called will cease to be entitled to any benefit under the Fiscal Agent Agreement other than the right to receive payment of the redemption price, and no interest will accrue thereon on or after the redemption date specific in such notice. Registration, Transfer and Exchange Registration. The Fiscal Agent will keep sufficient books for the registration and transfer of the 2016 Bonds. The ownership of the 2016 Bonds will be established by the 2016 Bond registration books held by the Fiscal Agent. Transfer or Exchange. Subject to the limitations set forth in the following paragraph, the registration of any Bond may, in accordance with its terms, be transferred upon the 2016 Bond Register by the person in whose name it is registered, in person or by his or her duly authorized attorney, upon surrender of such Bond or Parity Bond for cancellation, accompanied by delivery of written instrument of transfer in a form approved by the Fiscal Agent. Bonds may be exchanged at the Corporate Trust Office of the Fiscal Agent for a like aggregate principal amount of Bonds of authorized denominations and of the same maturity. The Fiscal Agent will collect from the owner requesting such exchange any tax or other governmental charge required to be paid with respect to such exchange. No exchange of Bonds will be required to be made: (i) fifteen (15) days prior to the date established by the Fiscal Agent for selection of Bonds for redemption, (ii) with respect to a 2016 Bonds, after such Bond has been selected for redemption or, (iii) between the 15th day of the month next preceding any Interest Payment Date and such Interest Payment Date. SOURCES OF PAYMENT FOR THE 2016 BONDS Limited Obligations The 2016 Bonds are special, limited obligations of the District payable only from amounts pledged under the Fiscal Agent Agreement and from no other sources. The Special Taxes are the primary source of security for the repayment of the 2016 Bonds. The 2016 Bonds are secured under the Fiscal Agent Agreement by a pledge of and lien upon Special Tax Revenues and Redemption Revenues and all moneys deposited in the Bond Fund (including a Reserve Account in the Bond Fund) and, until disbursed pursuant to the Fiscal Agent Agreement, in the Special Tax Fund, the Redemption Fund and the Delinquency Management Fund as described in the Fiscal Agent Agreement. The 2016 Bonds are payable from Net Special Taxes (as that term is defined in this Official Statement). The Fiscal Agent Agreement defines the following terms: Special Taxes: the special taxes levied within Improvement Area D of the District pursuant to the Act, the Fiscal Agent Agreement and the Rate and Method. Special Tax Revenues: the proceeds of the Special Taxes received by the District, (b) income and gains with respect to the investment of amounts on deposit in the funds and accounts established under the Fiscal Agent Agreement for the 2016 15 Bonds, the 2014 Bonds and any Parity Bonds, and (c) proceeds of the redemption or sale of property sold as result of foreclosure of the lien of the Special Taxes. Special Tax Revenues does not include any penalties or interest in excess of the interest payable on the 2016 Bonds, the 2014 Bonds and any Parity Bonds collected in connection with delinquent Special Taxes. Redemption Revenues: (a) prepayments of the Special Taxes, (b) any amounts transferred pursuant to the Authority Indenture for the redemption of Bonds, (c) amounts transferred from the Delinquency Management Fund for the redemption of Bonds and (d) any amounts deposited for the special mandatory redemption of Bonds pursuant to the Fiscal Agent Agreement. The 2016 Bonds are secured by a pledge of Special Tax Revenues and Redemption Revenues and payable from Net Taxes on a parity basis with the outstanding 2014 Bonds and any future Parity Bonds. In the event that the Special Tax revenues are not received when due, the only sources of funds available to pay the debt service on the 2016 Bonds are amounts held by the Fiscal Agent in the Special Tax Fund (other than the Administrative Expense Account therein), including amounts held in the Reserve Account of the Bond Fund, for the exclusive benefit of the Owners of the 2016 Bonds. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY, THE COUNTY OF RIVERSIDE, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE 2016 BONDS. EXCEPT FOR THE SPECIAL TAX REVENUES AND THE REDEMPTION REVENUES AND OTHER MONEYS HELD UNDER THE FISCAL AGENT AGREEMENT, NO OTHER REVENUES OR TAXES ARE PLEDGED TO THE PAYMENT OF THE 2016 BONDS. THE 2016 BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE CITY OR GENERAL OBLIGATIONS OF THE DISTRICT BUT ARE LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM NET TAXES AND OTHER AMOUNTS HELD UNDER THE FISCAL AGENT AGREEMENT AS MORE FULLY DESCRIBED IN THIS OFFICIAL STATEMENT. Special Taxes At a special election held on January 13, 2004, the qualified electors within Improvement Area D authorized the District to incur indebtedness in an amount not to exceed $24,000,000 for Improvement Area D and approved the rate and method of apportionment of special tax for Improvement Area D (the “Original Rate and Method”). The Original Rate and Method was amended in 2009 (as amended, the “Rate and Method”). See “THE COMMUNITY FACILITIES DISTRICT AND IMPROVEMENT AREA D - History of the District and Improvement Area D.” The Special Taxes levied in any fiscal year may not exceed the maximum rates authorized pursuant to the Rate and Method. See Appendix A—“RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX.” There is no assurance that the Net Taxes will, in all circumstances, be adequate to pay the principal of and interest on the 2016 Bonds when due. See the caption “SPECIAL RISK FACTORS—Insufficiency of Special Taxes.” Rate and Method of Apportionment of Special Tax. The District is legally authorized to levy the Special Taxes in Improvement Area D in an amount determined according to the Rate and Method. The Rate and Method apportions the total amount of Special Taxes to be 16 collected among the taxable parcels in Improvement Area D as more particularly described below. The full text of the Rate and Method is set forth in Appendix A. Property to be taxed pursuant to the Rate and Method of Apportionment is classified as “Taxable Property.” Taxable Property consists of the following categories: “Developed Property”: all Assessor’s Parcels of Taxable Property that: (i) are included in a Final Map that was recorded prior to the January 1st preceding the Fiscal Year in which the Special Tax is being levied and (ii) a building permit was issued on or before March 1st preceding the Fiscal Year in which the Special Tax is being levied. “Approved Property”: all Assessor’s Parcels of Taxable Property: (i) that are included in a Final Map that was recorded prior to the January 1st preceding the Fiscal Year in which the Special Tax is being levied, and (ii) that have not been issued a building permit on or before March 1st preceding the Fiscal Year in which the Special Tax is being levied. “Undeveloped Property”: all Assessor’s Parcels of Taxable Property which are not Developed Property, Approved Property or Provisional Undeveloped Property. “Provisional Undeveloped Property”: all Assessor’s Parcels of Taxable Property that would otherwise be classified as Exempt Property pursuant to the Rate and Method, but cannot be classified as Exempt Property because to do so would reduce the Acreage of all Taxable Property below the required minimum Acreage set forth in the Rate and Method for Zone 1 (69.2 acres) or Zone 2 (39.1 acres) as applicable. The amount of Special Tax that the District may levy is limited by the Maximum Special Tax rates set forth in the Rate and Method. The Maximum Special Tax for each Assessor’s Parcel of Developed Property shall be the greater of (i) the amount derived by application of the Assigned Annual Special Tax or (ii) the amount derived by application of the Backup Annual Special Tax. 17 Estimated Fiscal Year 2016-17 Special Tax Levy by Land Use. The following table presents the estimated Special Tax levy for fiscal year 2016-17 for each parcel in Improvement Area D by land use. The District currently expects to levy 100% of the Assigned Annual Special Tax in fiscal year 2016-17 on Developed Property. TABLE 1 CITY OF LAKE ELSINORE COMMUNITY FACILITIES DISTRICT NO. 2003-2 (CANYON HILLS) (IMPROVEMENT AREA D) MAXIMUM SPECIAL TAX BY LAND USE Land Use Type Residential Floor Area (sq. ft.) Assigned Special Tax Rate FY 2016-17 Estimated Special Tax Rates FY 2016-17(1)No. of Units Aggregate Estimated Special Taxes FY 2016-17 Percent of Total Single Family Unit < 1,175 $1,449.34 $1,449.34 0 $0.00 0.0% Single Family Unit 1,175-1,324 1,581.74 1,581.74 10 15,817.40 0.9 Single Family Unit 1,325-1,449 1,847.71 1,847.71 0 0.00 0.0 Single Family Unit 1,450-1,549 1,905.12 1,905.12 16 30,481.92 1.8 Single Family Unit 1,550-1,649 1,962.53 1,962.53 25 49,063.25 2.9 Single Family Unit 1,650-1,749 2,021.11 2,021.11 0 0.00 0.0 Single Family Unit 1,750-1,949 2,077.35 2,077.35 75 155,801.25 9.2 Single Family Unit 1,950-2,199 2,135.94 2,135.94 129 275,536.26 16.3 Single Family Unit 2,200-2,449 2,400.73 2,400.73 122 292,889.06 17.3 Single Family Unit 2,450-2,699 2,534.30 2,534.30 66 167,263.80 9.9 Single Family Unit 2,700-2,949 2,611.63 2,611.63 38 99,241.94 5.9 Single Family Unit 2,950-3,299 2,810.81 2,810.81 77 216,432.37 12.8 Single Family Unit 3,300-3,649 4,164.08 4,164.08 0 0.00 0.0 Single Family Unit > 3,650 4,829.58 4,829.58 80 386,366.40 22.9 Apartment Unit N/A 775.64 775.64 0 0.00 0.0 Non-Residential Property N/A 22,261.53 22,261.53 0 0.00 0.0 Total 638 $1,688,893.65 100.0% (1)Includes estimated Administrative Expenses of $55,000. Source: Special Tax Consultant. For each fiscal year, the City Council will determine the Special Tax Requirement. The Special Tax will be levied pursuant to the Rate and Method on each Assessor’s Parcel of Taxable Property, up to the applicable Maximum Special Tax, to satisfy the Special Tax Requirement. Notwithstanding the foregoing, under no circumstances will the Special Taxes levied against any Assessor’s Parcel used as a private residence be increased as a consequence of delinquency or default by the owner or owners of any other Assessor’s Parcel or Assessor’s Parcels within Improvement Area D by more than 10% above the amount that would have been levied in such fiscal year had there never been any such delinquencies or defaults. The Rate and Method provides that Special Taxes may be prepaid in whole under the circumstances described in Section G of the Rate and Method. Estimated Debt Service Coverage. In connection with the issuance of the 2016 Bonds, the Special Tax Consultant will certify that the Maximum Special Tax that may be levied in each fiscal year on Assessor’s Parcels within Improvement Area D classified as Taxable Property as of March 1, 2016 will be at least equal to the sum of: (i) 110% of Maximum Annual Debt Service on the 2014 Bonds and the 2016 Bonds; plus (ii) estimated Administrative Expenses of $55,000 escalating at 2.00% per year for each Bond Year). Actual collections of the Special Tax will depend on the amount of Special Tax delinquencies. 18 The Rate and Method provides that the Special Tax may not be levied on a parcel of Taxable Property after fiscal year 2052-53. See the caption “SPECIAL RISK FACTORS—Proposition 218” for a discussion of certain provisions of State law that could allow property owners within Improvement Area D to reduce the maximum amount of Special Taxes that may be levied. Levy, Collection and Application of Special Taxes. The Special Taxes are levied and collected by the Treasurer and Tax Collector of the County in the same manner and at the same time as ad valorem property taxes, although it is possible that the District could elect to provide handbills to property owners within Improvement Area D for the initial fiscal year in which the Special Taxes are levied. The District has covenanted in the Fiscal Agent Agreement that each year it will levy Special Taxes in Improvement Area D up to the maximum rates permitted under the Rate and Method in an amount sufficient, together with other amounts on deposit in the Special Tax Fund, to pay the principal of and interest on any Outstanding Bonds and Parity Bonds, to replenish the Reserve Account to the Reserve Requirement and to pay Administrative Expenses. Although the Special Taxes constitute liens on taxed parcels within Improvement Area D, they do not constitute a personal indebtedness of the owners of property within Improvement Area D. Moreover, other liens for taxes and assessments already exist on the property located within Improvement Area D and others could come into existence in the future in certain situations without the consent or knowledge of the City or the landowners therein. See the captions “THE COMMUNITY FACILITIES DISTRICT AND IMPROVEMENT AREA D —Direct and Overlapping Indebtedness” and “SPECIAL RISK FACTORS—Parity Taxes and Special Assessments.” There is no assurance that property owners in Improvement Area D will be financially able to pay the annual Special Taxes or that they will pay such taxes even if financially able to do so, all as more fully described under the caption “SPECIAL RISK FACTORS.” Proceeds of Foreclosure Sales; Covenant to Foreclose. The net proceeds received following a judicial foreclosure sale of property within Improvement Area D resulting from a property owner’s failure to pay the Special Taxes when due are included within the Special Tax Revenues pledged to the payment of principal of and interest on the 2016 Bonds under the Fiscal Agent Agreement; provided, however, Special Tax Revenues does not include any penalties or interest in excess of the interest payable on the 2016 Bonds, the 2014 Bonds and any Parity Bonds collected in connection with delinquent Special Taxes. The District has covenanted in the Fiscal Agent Agreement that the District will review the public records of the County of Riverside, California, in connection with the collection of the Special Tax not later than July 31 of each year to determine the amount of Special Tax collected in the prior fiscal year, and: (i)with respect to individual delinquencies, the District will send or cause to be sent a notice of delinquency and a demand for immediate payment thereof to the property owner within 45 days of such determination, (ii)if the District determines that any single property owner subject to the Special Tax is delinquent in the payment of Special Taxes in the aggregate of $10,000 19 or more or delinquent in the payment of three consecutive installments of Special Tax or that the delinquent Special Taxes represent more than 5% of the aggregate Special Taxes levied within Improvement Area D or if there has been a draw on the funds on deposit in the Reserve Account established under the Fiscal Agent Agreement, and if the delinquency remains uncured, the District will cause judicial foreclosure proceedings to be filed in the superior court against all properties for which the Special Taxes remain delinquent. Prior to commencement of any judicial foreclosure proceedings, the District will continue with its efforts to collect the delinquent Special Taxes by sending subsequent notice of delinquency and a demand for immediate payment thereof. The Fiscal Agent Agreement provides that, notwithstanding any provision of the Act or other law of the State to the contrary, in connection with any foreclosure related to delinquent Special Taxes: (i)The City, or the Fiscal Agent, is expressly authorized to credit bid at any foreclosure sale, without any requirement that funds be placed in the Bond Fund or otherwise be set aside in the amount so credit bid, in the amount specified in Section 53356.5 of the Act, or such less amount as determined under clause (ii) below or otherwise under Section 53356.6 of the Act. (ii)The District may permit, in its sole and absolute discretion, property with delinquent Special Tax payments to be sold for less than the amount specified in Section 53356.6 of the Act, if it determines that such sale is in the interest of the 2016 Bond Owners. The 2016 Bond Owners, by their acceptance of the 2016 Bonds, thereby consent to such sale for such lesser amounts (as such consent is described in Section 53356.6 of the Act), and thereby release the District and the City, and their respective officers and agents from any liability in connection therewith. (iii)The District is expressly authorized to use amounts in the Special Tax Fund to pay costs of foreclosure of delinquent Special Taxes. (iv)The District may forgive all or any portion of the Special Taxes levied or to be levied on any parcel in Improvement Area D of the District, so long as the District determines that such forgiveness is not expected to adversely affect its obligations to pay principal of and interest on the 2016 Bonds under the Fiscal Agent Agreement. If foreclosure is necessary and other funds (including amounts in the Reserve Account) have been exhausted, debt service payments on the 2016 Bonds could be delayed unless the foreclosure proceedings produce sufficient net foreclosure sale proceeds. There is no assurance that the property within Improvement Area D can be sold for the appraised values described in this Official Statement, or for a price sufficient to pay the principal of and interest on the 2014 Bonds, the 2016 Bonds and any Parity Bonds in the event of a default in payment of Special Taxes by the current or future landowners within Improvement Area D. See the caption “SPECIAL RISK FACTORS—Appraised Value.” Judicial foreclosure actions are subject to the normal delays associated with court cases and may be further slowed by bankruptcy actions, involvement by agencies of the federal government and other factors beyond the control of the City and the District. See the caption 20 “SPECIAL RISK FACTORS—Bankruptcy and Foreclosure.” Moreover, no assurances can be given that the real property subject to foreclosure and sale at a judicial foreclosure sale will be sold or, if sold, that the net proceeds of such sale will be sufficient to pay any delinquent Special Tax installment. See the caption “SPECIAL RISK FACTORS—Appraised Value.” Although the Act authorizes the District to cause such an action to be commenced and diligently pursued to completion, the Act does not impose on the District or the City any obligation to purchase or acquire any lot or parcel of property sold at a foreclosure sale if there is no other purchaser at such sale. The Act provides that, in the case of a delinquency, the Special Tax will have the same lien priority as is provided for ad valorem taxes. Collection of Special Taxes. The Special Taxes will be levied and collected by the Treasurer and Tax Collector of the County in the same manner and at the same time as ad valorem property taxes, although it is possible that the District could elect to provide handbills to property owners within Improvement Area D of the District for the initial Fiscal Year in which the Special Taxes are levied. Flow of Funds under the Fiscal Agent Agreement General.The City will deposit Special Taxes when received in the account established for the District and immediately thereafter transfer such amounts to the Fiscal Agent for deposit in the Special Tax Fund. Moneys in the Special Tax Fund will be held by the Fiscal Agent for the benefit of the District and the Owners of the 2016 Bonds, will be disbursed as provided below and, pending any disbursement, will be subject to a lien in favor of the Owners of the 2016 Bonds. After depositing an amount of Special Taxes budgeted for Administrative Expenses to the Administrative Expense Fund pursuant to a written direction of the District, no later than 10 Business Days prior to each Interest Payment Date, the Fiscal Agent will withdraw from the Special Tax Fund and transfer to the Bond Fund as follows: First: To the Interest Account of the Bond Fund, an amount such that the balance in the Interest Account will be equal to the installment of interest due on the 2014 Bonds, the 2016 Bonds and any Parity Bonds on said Interest Payment Date. Second: To the Principal Account of the Bond Fund, an amount such that the balance in the Principal Account will at least equal the principal payment (including mandatory sinking payments, if any) due on the 2014 Bonds, the 2016 Bonds and any Parity Bonds on said Interest Payment Date. Third: To the Reserve Account of the Bond Fund and the 2014 Authority Bonds Reserve Account, without preference or priority and in the event of any insufficiency of such moneys ratably without any discrimination or preference, the amount, if any, necessary to cause the balance of the Reserve Account of the Bond Fund to equal the reserve Requirement and the 2014 Authority Bonds Reserve Account to equal the reserve requirement with respect thereto. Notwithstanding the foregoing, amounts will be transferred to the Principal Account or the Interest Account from the Special Tax Fund and immediately be paid to the owners of the 2014 Bonds, the 2016 Bonds and any Parity Bonds in respect of past due payments on such bonds. 21 Any amounts remaining in the Special Tax Fund following the payment of each disbursement required pursuant to the Fiscal Agent Agreement will be transferred, as soon as practicable after September 2 of the fiscal year, to the Delinquency Management Fund. Delinquency Management Fund.The Fiscal Agent Agreement establishes the Delinquency Management Fund to be held by the Fiscal Agent. Moneys in the Delinquency Management Fund will be disbursed as follows: (i)The Fiscal Agent will transfer to the appropriate accounts within the Bond Fund to pay debt service on the 2014 Bonds, the 2016 Bonds and any Parity Bonds to the extent Special Taxes are insufficient for that purpose (ii)The Fiscal Agent will transfer from any amounts in the Delinquency Management Fund to the Administrative Expense Fund an amount determined by the District to pay Administrative Expenses to the extent amounts in the Administrative Expense Fund are insufficient therefor. (iii) Upon the written direction of the District, the Fiscal Agent will transfer all remaining amounts in the Delinquency Management Fund in excess of the Delinquency Management Fund Requirement to the Special Mandatory Redemption Account of the Redemption Fund for redemption of the District Bonds on the next redemption date for which notice of redemption can timely be given unless the Fiscal Agent has received written direction from the District to expend such remaining funds held in the Delinquency Management Fund for any lawful purposes of the District including but not limited to paying costs of public capital improvements or reducing the Special Taxes which are to be levied in the current or the succeeding Fiscal Year upon the properties which are subject to the Special Tax. “Delinquency Management Fund Requirement” is defined as an amount equal to 15% of the Maximum Annual Debt Service on the 2014 Bonds, the 2016 Bonds and any Parity Bonds. Reserve Account of the Special Tax Fund In order to secure further the payment of principal of and interest on the 2016 Bonds, the District will deposit in the Reserve Account and thereafter maintain in the Reserve Account an amount equal to the Reserve Requirement. “Reserve Requirement” is defined in the Fiscal Agent Agreement to mean, as of any date of calculation, the lesser of: (i) 10% of the initial principal amount of the 2016 Bonds; (ii) the Maximum Annual Debt Service on the then Outstanding 2016 Bonds; or (iii) 125% of average Annual Debt Service on the then Outstanding 2016 Bonds. Subject to the limits on the maximum annual Special Tax levy set forth in the Rate and Method and in the Fiscal Agent Agreement, the District has covenanted that to the extent there is draw upon the Reserve Account of the Bond Fund, the 2014 Authority Bonds Reserve Account or any reserve fund established for any Parity Bonds as a result of delinquency in the collection of Special Taxes the District will cause the Treasurer to effect the next annual levy of Special Taxes in an amount sufficient to replenish such delinquency and in addition to amounts that would be levied if there were no such delinquency. Existing and Future Parity Bonds 22 The 2016 Bonds are secured by a pledge of Special Tax Revenues and Redemption Revenues and payable from Net Taxes on a parity basis with the outstanding 2014 Bonds. The 2014 Bonds were purchased by the Lake Elsinore Public Financing Authority (the “Authority”) with proceeds of its $7,505,000 Lake Elsinore Public Financing Authority Local Agency Revenue Bonds (Canyon Hills IA D), 2014 Series A (the “2014 Authority Bonds”). The Authority issued the 2014 Authority Bonds under an Indenture of Trust, dated as of January 1, 2014 (the “2014 Authority Indenture”). The District did not establish a debt service reserve fund for the 2014 Bonds, but it did establish a debt service reserve fund for the 2014 Authority Bonds under the 2014 Authority Indenture (the “2014 Authority Bonds Reserve Account”). In addition, the District may issue additional indebtedness secured by the Net Taxes on a parity with the 2014 Bonds and the 2016 Bonds (“Parity Bonds”), but only for the purpose of refunding all or a portion of the 2014 Bonds, the 2016 Bonds and any Parity Bonds. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 23 [INSERT AERIAL PHOTOGRAPH] 24 THE COMMUNITY FACILITIES DISTRICT AND IMPROVEMENT AREA D General Description of the District The District comprises a portion of Canyon Hills, a planned residential community located in the southeast portion of the City, to the east of Lake Elsinore. The topography of the District is relatively flat with only gradual sloping down to the south and west. The District is within an area covered by the Canyon Hills Specific Plan (the “Specific Plan”), which was originally adopted by the City Council in 1989. In 2016, the City completed proceedings to annex into the District approximately 21 acres of land owned by Pardee and designate the area as Improvement Area E of the District. Such land is not included within the Specific Plan but is expected to be developed with 74 homes as part of the Canyon Hills project. At build-out, the Canyon Hills project is expected to include approximately 154 multi-family and 3,609 detached single family dwelling units. The District includes the development of 51 planning areas containing a total of approximately 2,040 gross acres and 1,021 net acres. Improvement Area D General.Improvement Area D includes six Planning Areas: 25, 28A, 28B, 31, 32 and 37. Planning Areas 25, 28A, 28B, 32 and 37 include single-family subdivisions in various stages of development from actively selling and occupied production homes to lots in a physically finished condition. Public Infrastructure.All in-tract infrastructure necessary to complete the planned development within all planning areas except Planning Area 31 in Improvement Area D has been constructed. Planning Area 31 consists entirely of raw land. Utilities.Water and sewer service to the property within Improvement Area D is currently supplied by the Elsinore Valley Municipal Water District. Electricity is currently supplied by Southern California Edison, gas by Southern California Gas Company and telephone services by Frontier Communications. Although, like all of Southern California, the land within Improvement Area D is subject to seismic activity, it is not located within an Alquist-Priolo Earthquake Fault Zone. Development of Single-Family Lots.Information about the ownership and planned development of the single-family lots in Improvement Area D is set forth under the caption “CURRENT AND PROPOSED DEVELOPMENT OF PROPERTY WITHIN IMPROVEMENT AREA D.” History of the District and Improvement Area D On January 13, 2004, the City of Lake Elsinore (the “City”) formed the District by the adoption of Resolution No. 2004-6. The District originally consisted of four improvement areas (Improvement Areas A through D) (each an “Improvement Area” and collectively, the “Improvement Areas”). As described above, Improvement Area E was added to the District in 2016. Each Improvement Area has a separate rate and method of apportionment of special tax approved by the City and the qualified electors within each respective Improvement Area. 25 On January 13, 2004, the qualified electors within each Improvement Area voted in favor of the incurring of bonded indebtedness and each improvement area has a separate bond authorization. The qualified electors in Improvement Area D authorized, among other things, the issuance of bonds in an amount not to exceed $24,000,000, to finance public improvements. On January 13, 2004, the City Council, acting as the legislative body of the District, introduced Ordinance No. 1114 (the “Ordinance”), which provides for Original Rate and Method. The Ordinance was adopted on January 27, 2014. On July 14, 2009, the City Council adopted Resolution No. 2009-39, considering modifications to the Original Rate and Method. A special election was called on August 25, 2009, and the qualified electors in Improvement Area D voted in favor of amending the Original Rate and Method. An amendment to the Notice of Special Tax Lien for Improvement Area D was filed with the County Recorder’s Office on September 3, 2009. Appraisal Report Initial Appraisal.An MAI appraisal of the land and existing improvements within Improvement Area D was prepared by Harris Realty Appraisal, Newport Beach, California (the “Appraiser”). The appraisal is dated February 25, 2016 and is entitled “Appraisal Report Covering Community Facilities District No. 2003-2 of the City of Lake Elsinore, Improvement Area D (Canyon Hills)” (the “Initial Appraisal Report”). See APPENDIX H — “APPRAISAL REPORT.” The Initial Appraisal Report provides an estimate of the minimum market value of the as- is condition and ownership of the taxable property within Improvement Area D as of the date of value, February 15, 2016 (the “Date of Value”). Construction Stages Total Minimum Market Value Completed Sold 505 $179,400,000 Model Homes 13 4,600,000 In Escrow 34 9,700,000 Under Construction 85 16,400,000 Physically Finished Lots 18 2,200,000 Raw Land (planned units) 125 4,400,000 Total 780 $216,700,000 The information in the table above is accurate as of February 15, 2016; updated development and ownership information was included in the Supplement to Appraisal Report (described below) and is included elsewhere in this Official Statement. The Initial Appraisal Report utilizes the following methods of valuation of the various properties in Improvement Area D: 26 Completed-sold homes: The analysis of the completed-sold homes is of the aggregate value and on a mass appraisal basis by means of the Sales Comparison Approach. The Appraisal Report notes that the Appraiser used an average conservative value, for the average size unit for the sold dwellings, that, by utilizing average value estimates, individual home values cold be higher or lower, depending on unit size and that the Appraiser believes the value conclusions are reasonable and meet attainable standards of accuracy. Completed-unsold homes: The Appraiser valued the 13 model homes as of February 15, 2016 at 100% of the reported base price. For the 34 completed dwellings that had not closed escrow as of February 15, 2016, the Appraiser estimated a value of 80% of the sold/closed dwelling value. Homes under construction: For the 36 dwelling units under construction as of February 15, 2016, the Appraiser estimated 60% of the sold-closed dwellings value for the under-construction units in stucco condition and 50% of the closed dwellings value for the under-construction units in framing condition. Finished lots: For the 18 physically finished lots as of February 15, 2016, as a result of limited comparable sales and the weak market conditions, the Appraiser used the Direct Comparison Approach and the Static Residual Analysis to estimate finished lot values. Vacant lots: Planner Area 31 is in a raw condition, with an approved Tentative Tract Map. Pardee did not provide the Appraiser with the estimated costs to bring the 125 proposed single family lots to finished lot condition, so the Appraiser relied on market data of raw land sales. Supplement to Appraisal Report.The Appraiser prepared a supplement to the Initial Appraisal Report, dated June 30, 2016 (the “Supplement to Appraisal Report”). The purpose of the Supplement to Appraisal Report is to re-analyze the market, subject property and site construction within Improvement Area D that has occurred since February 15, 2016. The Supplement to Appraisal Report is intended to determine that, if the taxable property in Improvement Area D were to be re-appraised as of June 30, 2016, the property would have a Not Less Than Value of the Minimum Market Value estimate included in Initial Appraisal Report. The Supplement to Appraisal Report concluded that the market values of the taxable property in Improvement Area D are not less than the concluded values in the Initial Appraisal Report. The Supplement to Appraisal Report reports on the status of development and ownership as of June 30, 2016: Improvement Area D included 655 residential lots ranging from a physically finished lot condition to sold and occupied dwellings. There was one parcel that has not been developed that is entitled for development of 125 dwellings. 610 of the completed units had been sold to individual purchasers. Pardee owns the remaining 45 finished lots/dwellings. Pardee owned 9 model homes, 4 near-complete dwellings, 25 dwellings under construction and 7 physically finished lots. Pardee owned 28 dwellings that were in escrow and 17 unsold dwellings. 27 The Supplement to Appraisal Report reports that the 105 escrow closings since February 15, 2016 indicate an average absorption of 6.6 dwellings per month, which is higher than the average absorption for the four products reported on the table in the Highest and Best Use section of the Initial Appraisal Report. See “APPENDIX G - APPRAISAL REPORT.” Updated Ownership Information. Ownership information as of June 30, 2016 is presented elsewhere in this Official Statement. See “CURRENT AND PROPOSED DEVELOPMENT OF PROPERTY WITHIN IMPROVEMENT AREA D.” Direct and Overlapping Indebtedness The ability of an owner of land within Improvement Area D to pay the Special Taxes could be affected by the existence of other taxes and assessments imposed upon the property. Certain of those taxes and assessments relate to direct and overlapping debt which is set forth in Table 2 below (the “Debt Report”). The Debt Report includes the principal amount of the 2016 Bonds. The Debt Report has been derived from data assembled and reported to the District by the Special Tax Consultant as of June 30, 2016. Neither the District, the City nor the Underwriter has independently verified the information in the Debt Report or guarantees its completeness or accuracy. The Debt Report sets forth those entities which have issued debt and does not include entities which only levy or assess fees, charges, ad valorem taxes or other special taxes. The Debt Report is included for general information purposes only. 28 TABLE 2 CITY OF LAKE ELSINORE COMMUNITY FACILITIES DISTRICT NO. 2003-2 (CANYON HILLS) (IMPROVEMENT AREA D) DIRECT AND OVERLAPPING DEBT(1) AS OF JUNE 30, 2016 I. Appraisal Value(1)$216,700,000 II. Land Secured Bond Indebtedness Outstanding Direct and Overlapping Bonded Debt Type Issued Outstanding % Applicable Parcels in CFD No. 2003-2 IA D(4) Amount Applicable CITY OF LAKE ELSINORE CFD No. 2003-2 IA D, 2014 SERIES A CFD $7,505,000 $7,495,000 100.000%656 $7,495,000 CITY OF LAKE ELSINORE CFD NO. 2003-2 IA D, 2016 SERIES A CFD $16,495,000 $16,495,000 100.000%656 $16,495,000 CITY OF LAKE ELSINORE AD NO. 93-1 AD $15,345,000 $13,445,000 18.796%656 $2,527,120 PERRIS UNION HIGH SCHOOL CFD NO. 92-1 CFD $40,000,000 $35,625,000 5.055%656 $1,800,816 ELSINORE VALLEY MUNICIPAL WATER DISTRICT CFD NO. 98-1 CFD $0 $0 8.010%656 $0 TOTAL OUTSTANDING LAND SECURED BONDED DEBT(2)(3)$28,317,936 III. General Obligation Bond Indebtedness Outstanding Direct and Overlapping Bonded Debt Type Issued Outstanding % Applicable Parcels in CFD No. 2003-2 IA D(4) Amount Applicable METROPOLITAN WATER DEBT SERVICE GO $850,000,000 $110,420,000 0.004%656 $4,691 MENIFEE UNION SCHOOL DISTRICT DEBT SERVICE GO $13,065,000 $13,065,000 1.323%656 $172,797 PERRIS UNION HIGH SCHOOL DISTRICT DEBT SERVCE GO $26,510,000 $24,815,000 0.808%656 $200,608 MT. SAN JACINTO JR. COLLEGE DEBT SERVICE GO $70,000,000 $70,000,000 0.142%656 $99,351 TOTAL OUTSTANDING GENERAL OBLIGATION BONDED DEBT(2)$477,447 Authorized but Unissued Direct and Overlapping Indebtedness Type Authorized Unissued % Applicable Parcels in CFD No. 2003-2 IA D(4) Amount Applicable METROPOLITAN WATER DEBT SERVICE GO $850,000,000 $0 0.004%656 $0 MENIFEE UNION SCHOOL DISTRICT DEBT SERVICE GO 13,065,000 0 1.323 656 0 ELSINORE VALLEY MUNICIPAL WATER DISTRICT CFD NO. 98-1 CFD 30,000,000 30,000,000 8.010 656 2,403,000 PERRIS UNION HIGH SCHOOL DISTRICT DEBT SERVICE GO 40,000,000 0 0.808 656 0 CITY OF LAKE ELSINORE CFD NO. 2003-2 IAD CFD 24,000,000 0 0.000 656 0 MT. SAN JACINTO JR. COLLEGE DEBT SERVICE GO 295,000,000 225,000,000 0.142 656 319,343 TOTAL UNISSUED GENERAL OBLIGATION BOND INDEBTEDNESS(2)$2,722,343 TOTAL OUTSTANDING AND UNISSUED GENERAL OBLIGATION BOND INDEBTEDNESS $32,652,726 TOTAL OF ALL OUTSTANDING DIRECT AND OVERLAPPING BONDED DEBT $28,795,383 TOTAL OF ALL OUTSTANDING DIRECT AND UNISSUED DIRECT AND OVERLAPPING INDEBTEDNESS $31,040,280 IV. Ratios to Appraisal Value Outstanding Land Secured Bonded Debt 7.65:1 Total Outstanding Bonded Debt 7.53:1 (1)Based on the Appraisal Report as of June 30, 2016, date of value. (2)SCG - Spicer Consulting Group is not aware of any additional bonded debt for parcels in CFD No. 2003-2 IA D for the reference Fiscal Year 2016-17 issued, Outstanding and Authorized amounts are for Improvement Area D. (3)Amount includes $7,505,000 Special Tax Revenue Bonds Series 2014A and $16,495,000 Special Tax Revenue Bonds, Series 2016A. Additional Bonds will be issued for refunding only. (4)All but one parcel has been subdivided into 655 individual parcels for Fiscal Year 2016-17 for Improvement Area D. As of the date of the appraisal, June 30, 2016, 638 parcels are Developed Property, 17 parcels are Approved Property and 1 parcel of 146.99 acres of raw land is Undeveloped Property (Planning Area 31), and is proposed for 125 dwelling units. Source: Special Tax Consultant. 29 Estimated Appraised Value-To-Lien Ratios The total appraised value of the Taxable Property in Improvement Area D is $216,700,000. The aggregate estimated appraised value-to-lien ratio for the Taxable Property based on (i) the appraised values and (ii) the 2014 Bonds, the 2016 Bonds and the overlapping land-secured debt described in the previous table is 7.65:1*. The following tables describe the estimated appraised value-to-lien ratios for parcels of Taxable Property in Improvement Area D based upon each parcel’s share of the estimated fiscal year 2016-17 Special Taxes and overlapping land-secured debt. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] *Preliminary; subject to change. 30 TABLE 3 CITY OF LAKE ELSINORE COMMUNITY FACILITIES DISTRICT NO. 2003-2 (CANYON HILLS) (IMPROVEMENT AREA D) ESTIMATED APPRAISED VALUE-TO-LIEN RATIOS ALLOCATED BY PROPERTY OWNER * Preliminary; subject to change. (1) Reflects Appraised Value for 9 Model Homes which have building permits issued, 4 Homes Completed but not Sold, and 25 Homes in Stucco or Framing Condition, and 7 Finished Lots which have building permits issued and are therefore considered Developed Property under the Rate and Method. (2) Reflects 1 parcel consisting of 146.99 acres of raw land. Planning Area 31 is conditioned for 125 dwelling units. (3) Reflects the appraised value based on ownership status as of June 30, 2016, the date of value of the Appraisal. (4) Estimated Fiscal Year 2016-17 Special Tax Levy based upon development status as of June 30, 2016 and preliminary debt service with priority administration of $55,000. The District expects to levy 100% of the Assigned Annual Special Tax for fiscal year 2016-17. (5) Includes the principal amount of the 2016 Bonds. Responsibility for the principal amount of the 2016 Bonds has been allocated based on the projected Fiscal Year 2016-17. Special Tax levy based on development status in Improvement Area D as of March 1, 2016. Source: Special Tax Consultant. Property Owner No. of Parcels Appraised Property Value(3) % of Appraised value Maximum Tax Percentage of Maximum Tax Estimated FY 2016-17 Levy(4) % of Estimated FY 2016-17 Levy Other Overlapping Land Secured Debt CFD 2003-2 IA D Proposed 2016 Bonds(5)* Aggregate Outstanding and Proposed Land Secured Debt Appraised Value-to- Lien Ratio* Developed Property Individually Owned 610 $203,682,223 93.99%$2,325,866 40.32%$1,610,585 95.36%$11,274,741 $15,730,175 $27,004,916 7.54:1 Pardee Owned (1)28 6,539,999 3.02 107,070 1.86 78,309 4.64 548,195 764,825 1,313,020 4.98:1 Subtotal Developed Property 638 $210,222,222 97.01%$2,432,936 42.18%$1,688,894 100.00%$11,822,936 $16,495,000 $28,317,936 7.42:1 Approved Property Pardee Owned 17 $2,077,778 0.96%$62,778 1.09%$0 0.00%$0 $0 $0 N/A Undeveloped Property Pardee Owned (2)1 $4,400,000 2.03%$3,272,222 56.73%$0 0.00%$0 $0 $0 N/A Subtotal Developer Owned 18 $6,477,778 2.99%$3,335,000 57.82%$0 0.00%$0 $0 $0 N/A Total 656 $216,700,000 100.00%$5,767,936 100.00%$1,688,894 100.00%$11,822,936 $16,495,000 $28,317,936 7.65:1 7.65: 1 31 TABLE 4 CITY OF LAKE ELSINORE COMMUNITY FACILITIES DISTRICT NO. 2003-2 (CANYON HILLS) (IMPROVEMENT AREA D) FY 2016-17 ESTIMATED APPRAISED VALUE-TO-LIEN STRATA FOR DEVELOPED PROPERTY * Preliminary; subject to change. (1)Reflects the appraised value for all developed homes as of June 30, 2016, the date of value of the Appraisal. (2)Responsibility for the par amount has been allocated based on the estimated FY 2016-17 special tax levy, based on development status as of March 1, 2016, and preliminary bond sizing as provided by the Underwriter. (3)The minimum value to lien in the less than 5.00:1 category is 2.64:1. (4)The maximum value to lien in the greater than 12.01:1 category is 13.39:1. (5)Totals do not include 17 parcels of Approved Property or 1 parcel of Undeveloped Property owned by Pardee because they are not responsible for any of the FY 2016-17 levy. The District expects to levy 100% of the Assigned Annual Special Tax for fiscal year 2016-17. Source: Special Tax Consultant. Value-to-Lien Category No. of Parcels of Developed Property % of Developed Property Appraised Value (1) % of Appraised Value CFD 2003-2 IA D Estimated FY 2016-17 Levy Percent Share of Estimated FY 2016-17 Levy Other Overlapping Land Secured CFD 2003-2 IA D Proposed 2016 Bonds (2)* Aggregate Outstanding and Proposed Land Secured Debt* Percent Share of Proposed 2016 Bonds Aggregate Value-to- Lien* Less than 5.00:1 (3)131 20.53%$36,499,848 17.36%$513,739 30.42%$3,596,378 $5,017,557 $8,613,935 30.42%4.24:1 Between 5.01:1 to 8.00:1 107 16.77 32,257,381 15.34 275,874 16.33 1,931,231 2,694,395 4,625,626 16.33 6.97:1 Between 8.01:1 to 12.00:1 390 61.13 137,912,518 65.60 883,463 52.31 6,184,599 8,628,564 14,813,162 52.31 9.31:1 Greater than 12.01:1 (4)10 1.57 3,552,475 1.69 15,817 0.94 110,728 154,485 265,213 0.94 13.39:1 Totals(5)638 100.00%$210,222,222 100.00%$1,688,894 100.00%$11,822,936 $16,495,000 $28,317,936 100.00%7.42:1 32 Estimated Tax Burden on Single Family Home The following table shows a sample property tax bill for a single parcel of Taxable Property in Improvement Area D, based on estimated tax rates for fiscal year 2016-17. Table 5 Fiscal Year 2016-17 Sample Property Tax Bill* Individually Owned(2) Planning Area 32 (TR 36115)Planning Area 28A (TR 36116-1)Planning Area 28B (36116-1) Average Parcel Meadow Ridge Amberleaf Summerfield Meadow Glen Plan Type 1 2 3 4 5 1 2 3 4 1 2 3 1 2 3 4 CFD Tax Category 2,200 to 2,950 to 3,650 to 3,650 to 3,650 to 1,550 to 1,950 to 2,200 to 2,450 to 1,450 to 1,750 to 1,750 to 1,950 to 2,450 to 2,700 to 2,950 to 2,449 S.F.3,299 S.F.or Greater or Greater or Greater 1,649 S.F.2,199 S.F.2,449 S.F.2,699 S.F.1,549 S.F.1,949 S.F.1,949 S.F.2,199 S.F.2,699 S.F.2,949 S.F.3,299 S.F. Home Size 2,321 2,385 3,246 3,681 4,001 4,241 1,646 2,117 2,251 2,629 1,538 1,817 1,948 2,023 2,516 2,806 3,066 Base Price (1)$355,248 $389,475 $407,673 $424,926 $454,335 $463,450 $348,525 $343,950 $365,425 $385,925 $350,000 $311,450 $328,950 $340,479 $384,100 $378,245 $417,525 $379,393 Ad Valorem Property Taxes: General Purpose $3,552 $3,895 $4,077 $4,249 $4,543 $4,635 $3,485 $3,440 $3,654 $3,859 $3,500 $3,115 $3,290 $3,405 $3,841 $3,782 $4,175 $3,794 Perris Union High School District (0.06236%)$222 $243 $254 $265 $283 $289 $217 $214 $228 $241 $218 $194 $205 $212 $240 $236 $260 $237 Menifee Union School District (0.03010%)$107 $117 $123 $128 $137 $139 $105 $104 $110 $116 $105 $94 $99 $102 $116 $114 $126 $114 Metro Water West (0.00350%)$12 $14 $14 $15 $16 $16 $12 $12 $13 $14 $12 $11 $12 $12 $13 $13 $15 $13 Mt. San Jacinto Jr. College (0.01394%)$50 $54 $57 $59 $63 $65 $49 $48 $51 $54 $49 $43 $46 $47 $54 $53 $58 $53 Total General Property Taxes $3,943 $4,323 $4,525 $4,716 $5,043 $5,144 $3,868 $3,818 $4,056 $4,283 $3,885 $3,457 $3,651 $3,779 $4,263 $4,198 $4,634 $4,211 Assessment, Special Taxes & Parcel Charges: Flood Control Stormwater/Cleanwater/Santa Ana $4 $4 $4 $4 $4 $4 $4 $4 $4 $4 $4 $4 $4 $4 $4 $4 $4 $4 CSA #152 City of Lake Elsinore Stormwater $14 $14 $14 $14 $14 $14 $14 $14 $14 $14 $14 $14 $14 $14 $14 $14 $14 $14 City of Lake Elsinore CFD Public Safety $380 $380 $380 $380 $380 $380 $380 $380 $380 $380 $380 $380 $380 $380 $380 $380 $380 $380 City of Lake Elsinore Citywide LLMD $22 $22 $22 $22 $22 $22 $22 $22 $22 $22 $22 $22 $22 $22 $22 $22 $22 $22 City of Lake Elsinore AD 93-1 $433 $433 $433 $433 $433 $433 $433 $433 $433 $433 $433 $433 $433 $433 $433 $433 $433 $433 Perris Union High School CFD No. 92-1 $282 $282 $282 $282 $282 $282 $282 $282 $282 $282 $282 $282 $282 $282 $282 $282 $282 $282 Northwest Mosquito and Vector Control $8 $8 $8 $8 $8 $8 $8 $8 $8 $8 $8 $8 $8 $8 $8 $8 $8 $8 MWD Standby Charge $9 $9 $9 $9 $9 $9 $9 $9 $9 $9 $9 $9 $9 $9 $9 $9 $9 $9 Elsinore Valley Muni Water District Standby $55 $55 $55 $55 $55 $55 $55 $55 $55 $55 $55 $55 $55 $55 $55 $55 $55 $55 Elsinore Valley CFD 98-1 Temescal Project $55 $55 $55 $55 $55 $55 $55 $55 $55 $55 $55 $55 $55 $55 $55 $55 $55 $55 City of Lake Elsinore CFD 2009-1 Parks and Lighting $365 $365 $365 $365 $365 $365 $365 $365 $365 $365 $365 $365 $365 $365 $365 $365 $365 $365 City of Lake Elsinore CFD 2003-2 IA D (3)$2,401 $2,401 $2,811 $4,830 $4,830 $4,830 $1,963 $2,136 $2,401 $2,534 $1,905 $2,077 $2,077 $2,136 $2,534 $2,612 $2,811 $2,782 Total Assessments & Taxes $4,028 $4,028 $4,438 $6,457 $6,457 $6,457 $3,590 $3,763 $4,028 $4,161 $3,532 $3,704 $3,704 $3,763 $4,161 $4,239 $4,438 $4,409 Projected Total Property Tax $7,971 $8,350 $8,963 $11,173 $11,499 $11,600 $7,458 $7,560 $8,084 $8,445 $7,417 $7,161 $7,355 $7,542 $8,424 $8,437 $9,072 $8,619 Projected Effective Tax Rate 2.24%2.14%2.20%2.63%2.53%2.50%2.14%2.20%2.21%2.19%2.12%2.30%2.24%2.22%2.19%2.23%2.17%2.27% *Preliminary; subject to change. (1) Reflects the appraised value based on ownership status as of June 30,2016 date of value of the Appraisal. (2) Planning Area 25 (TR 30495) consists of 132 individually owned and Planning Area 37 (TR 36447) consists of 79 individually owned, 6 models, and 2 finished lots. The average appraised value and square footage for individually owned units is included. (3) Reflects estimated Fiscal Year 2016-17 Special Tax levy based on development as of June 30,2016 and includes estimated Administrative Expenses in the amount of $55,000. Source: Special Tax Consultant. 33 Concentration of Taxpayers Based on the ownership and development status of the Taxable Property within Improvement Area D as of June 30, 2016 (and assuming no further development or sales to individual homeowners), approximately 4.64% of the estimated fiscal year 2016-17 Special Tax levy will be levied on property owned by Pardee and the remaining approximately 95.36% will be levied on individual property owners. Until the construction and sale of all homes to individual homeowners, the receipt of the Special Taxes is dependent, in part, on the willingness and the ability of Pardee, or its successors, to pay the Special Taxes when due. See the caption “SPECIAL RISK FACTORS— Concentration of Property Ownership” for a description of the risks associated with a concentration of ownership within. Property Tax Delinquencies As of June 30, 2016, four parcels were delinquent in an amount equal to 0.76% of the fiscal year 2015-16 Special Tax levy ($8,128.66) in Improvement Area D. CURRENT AND PROPOSED DEVELOPMENT OF PROPERTY WITHIN IMPROVEMENT AREA D The information about the property in Improvement Area D contained in this Official Statement has been provided by representatives of Pardee, and others, and has not been independently confirmed or verified by the Underwriter, the City or the District. The Underwriter, the City, and the District make no representation as to the accuracy or adequacy of the information contained in this caption. There may be material adverse changes in this information after the date of this Official Statement. Neither the 2016 Bonds nor the Special Taxes securing the 2016 Bonds, or any bonds issued to refund the foregoing are personal obligations of Pardee, or any affiliate thereof or any other property owner and, in the event that any property owner defaults in the payment of its Special Taxes, the District may proceed with judicial foreclosure but has no direct recourse to the assets of any property owner or any affiliate thereof. See the caption “SPECIAL RISK FACTORS.” General Description of Development; Pardee Canyon Hills; Improvement Area D. Pardee acquired Canyon Hills, a portion of which is included in Improvement Area D, in 1988, and Pardee has been the master developer and primary merchant builder within Canyon Hills since its acquisition. Pardee’s development within Improvement Area D is planned for 780 residential dwelling units. Entitlement Status. Pardee reports that it has all the necessary entitlements to construct the 655 planned residential in Planning Areas 25, 37, 28A, 28B and 32. For Planning Area 31, which is currently undeveloped, Pardee reports that it has received City approval of a Tentative Tract Map for development of 125 single family homes. The Tentative Tract Map will expire if a Final Tract Map is not approved by the City prior to July 1, 2030. Pardee is a party to a Development Agreement with the City of Lake Elsinore related to the Canyon Hills project, which vests Pardee’s development of the property in Improvement Area D in accordance with the Specific Plan (as amended, the “Development Agreement”). In 34 2010, the term of the Development Agreement was extended to July 1, 2030. See “ABSENCE OF LITIGATION” for a summary of certain potential litigation related to Transportation Uniform Mitigation Fees related to development in Improvement Area D. Pardee. Pardee Homes is a California Corporation. It is an indirect, wholly-owned subsidiary of TRI Pointe Group, Inc., a Delaware corporation (“TRI Pointe Group”), a publicly traded company whose common stock is traded on the New York Stock Exchange under the symbol ““TPH.” TRI Pointe Group is engaged in the design, construction and sale of single- family homes through its portfolio of six quality brands across eight states, including Maracay Homes in Arizona, Pardee Homes in Nevada, Quadrant Homes in Washington, Trendmaker Homes in Texas, TRI Pointe Homes in California and Colorado and Winchester Homes in Maryland and Virginia. TRI Pointe Group is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and in accordance therewith files reports, proxy statements and other information, including financial statements, with the Securities and Exchange Commission (the “SEC”). Such filings, particularly TRI Pointe Group’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, as filed by TRI Pointe Group with the SEC on _______, 2016 and a Quarterly Report on Form 10-Q for the quarter ending March 31, 2016 as filed with the SEC on _______, 2016, set forth certain data relative to the consolidated results of operations and financial position of TRI Pointe Group and its subsidiaries, including Pardee, as of such dates. The SEC maintains an Internet web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC, including TRI Pointe Group. The address of such Internet web site is www.sec.gov. All documents subsequently filed by TRI Pointe Group pursuant to the requirements of the Exchange Act after the date of this Official Statement will be available for inspection in such manner as the SEC prescribes. Copies of TRI Pointe Group’s Annual Report and each of its other quarterly and current reports, including any amendments, are available from TRI Pointe Group’s website at www.tripointegroup.com. The foregoing Internet addresses and references to filings with the SEC are included for reference only, and the information on these Internet sites and on file with the SEC are not a part of this Official Statement and are not incorporated by reference into this Official Statement. Ownership by Pardee As of June 30, 2016, Pardee owned within Improvement Area D: 9 completed model homes 4 near-complete but unsold homes 25 homes under construction 7 physically finished lots raw land in Planning Area 31 that is entitled for 125 single-family homes. 35 Status of Development Current Status of Development.A summary of property development in Improvement Area D as of June 30, 2016, is set forth on the next page: Construction Stages PA 25 PA 37 PA 28A PA 28B PA 32 PA 31 Total Model Units Completed 0 6 7 0 3 0 16 Under Construction 0 0 0 0 0 0 0 Production Units Completed 132 79 179 123 94 0 607* Under Construction 0 0 11 14 0 0 25 Physically Finished Lots 0 2 0 0 5 0 7 Raw Land 0 0 0 0 0 125 125 Total 132 87 197 137 102 125 780 *506 are owned by individual homeowners. Source: Special Tax Consultant. Development in the six Planning Areas as of June 30, 2016 is summarized below: Planning Area 25: All 132 homes planned for Planning Area 25 have been built and have closed escrow to individual homeowners. Planning Area 37: In Planning Area 37, 85 of 87 homes have been built with Living Smart Hillside and Meadow Ridge floor plans. As of June 30, 2016, 79 homes were built and had closed escrow to individual homeowners. Three model homes for the Meadow Ridge floor plan and three model homes for the Meadow Glen floor plan have also been constructed in this Planning Area, with escrows closed on four of the six model homes. The remaining two homes on the two remaining finished lots are expected to commence construction in July, 2016. Planning Area 28A: In Planning Area 28A, 182 of the 197 homes have been built with Summerfield and Amberleaf floor plans. As of June 30, 2016, 182 homes have been sold to homeowners. Four homes are completed but have not yet closed escrow. 11 homes are under construction. Pardee expects that all homes will be built and sold by the end of calendar year 2016. Planning Area 28B: In Planning Area 28B, 123 of the 137 homes have been built with the Meadow Glen floor plan. As of June 30, 2016, 123 homes were built and had sold to homeowners. No model homes are built in this Planning Area. 14 homes are under construction, nine are in escrow Pardee expects that all homes will be built and sold by the end of calendar year 2016. Planning Area 32: In Planning Area 32, 97 out of the 102 homes have been built with the Meadow Ridge and Senterra floor plans. As of June 30, 2016, 94 homes were built and had been sold to homeowners. Three homes are completed (Senterra 36 models) and have not been sold. There are 5 finished lots which will not have homes constructed until mid-2017, with closings anticipated by the end of calendar year 2017. Planning Area 31: Planning Area 31 is in a raw, undeveloped condition. 125 homes are proposed for Planning Area 31 pursuant to an approved Tentative Tract Map. Current Floor Plans of For-Sale Homes.Pardee is currently offering four floor plans for the homes it is building and selling in Improvement Area D: Meadow Ridge: The Meadow Ridge homes currently range in size from 2,385 square feet to 4,241 square feet and currently range in price from $389,475 to $463,450. Meadow Glen: The Meadow Glen homes currently range in size from 2,023 square feet to 3,066 square feet and currently range in price from $340,479 to $417,525. Summerfield: The Summerfield homes currently range in size from 1,538 square feet to 1,948 square feet and currently range in price from $311,450 to $322,450. Amberleaf: The Amberleaf homes currently range in size from 1,646 square feet to 2,629 square feet and currently range in price from $348,525 to $385,925. See “APPENDIX H - Appraisal Report” for additional information regarding the floor plans being offered. Estimated Absorption Schedule. Pardee expects that construction of the [149] residential dwelling units completed or still under construction (including the [18] finished lots) as of June 30, 2016 will be complete and conveyed to individual homeowners by the end of calendar year 2016 and the remaining eight homes within Planning Area 32 will be built and sold by the end of calendar year 2017. Pardee expects that development of the raw land in Planning Area 31 will be complete and conveyed to individual homeowners by the end of calendar year 2021. However, Pardee has not provided a development or financing plan for Planning Area 31 and the sizing of the 2016 Bonds assumes no development in Planning Area 31. There can be no assurance that Pardee’s development plans described in this Official Statement will be completed or that the development plans will not be modified in the future. Additionally, there can be no assurances of the absorption rate of the homes remaining to be built and sold. In changing market conditions, builders will often revise their product lines and prices and the rate of sales can fluctuate. Pardee continuously evaluates its product lines and prices in light of the then current market conditions. Financing Plan As of June 30, 2016, Pardee expects its remaining home construction costs and other development, marketing and sales costs within Improvement Area D, excluding Planning Area 31, to be approximately $2.2 million. To date, Pardee has financed its land acquisition and various site development and home construction costs related to its property in Improvement Area D with cash generated from its home building operations and, where necessary, internal corporate financing. Pardee expects to finance its remaining home construction costs in Improvement Area D, excluding 37 Planning Area 31, with a combination of cash generated from its home building operations (including revenues generated from home sales in Improvement Area D) and, where necessary, internal corporate financing. Pardee has warned the District that there can be no assurance that Pardee will have timely access to the sources of funds which will be necessary to complete the remaining proposed development in Improvement Area D, and that no assurance can be given that Pardee will carry out development activities, as currently anticipated. While Pardee has made such internal financing available in the past, there can be no assurance whatsoever of its willingness or ability to do so in the future. Pardee has no legal obligation to Bond Owners to make any funds available to pay for the remaining development costs or to pay ad valorem property taxes or Special Taxes related to Pardee’s property in Improvement Area D. Many factors beyond Pardee’s control, or a decision by Pardee to alter its current plans, may cause the actual sources and uses to differ from the projections. If and to the extent that internal funding, including but not limited to home sales revenues are inadequate to pay the costs to complete the planned development by Pardee within Improvement Area D and other financing by Pardee is not put into place, there could be a shortfall in the funds required to complete the proposed development by Pardee in Improvement Area D and the remaining portions of the project in Improvement Area D may not be developed. No assurances can be made that Pardee will have the resources, willingness and ability to successfully complete development activities on the property that it owns within Improvement Area D as currently planned. History of Pardee’s Property Tax Payments; Loan Defaults; Litigation; Bankruptcy Pardee has represented to the District as follows: 1.Except as described in this Official Statement, there is no material indebtedness of Pardee that is secured by an interest in the Property (defined below). Pardee is not in default on any obligation to repay borrowed money, which default is reasonably likely to materially and adversely affect Pardee’s ability to complete the development of the Property as proposed in this Official Statement or to pay the Special Taxes due with respect to the Property. 2.Except as set forth in this Official Statement, no action, suit, proceeding, inquiry or investigation at law or in equity, before or by any court, regulatory agency, public board or body is pending against Pardee (with proper service of process or proper notice to Pardee having been accomplished) or to the Actual Knowledge of Pardee is threatened in writing against Pardee which if successful, is reasonably likely to materially and adversely affect Pardee’s ability to complete the development of the Property as described in this Official Statement or to pay the Special Tax or ad valorem tax obligations on its property within Improvement Area D when due. 3.Pardee has been developing or has been involved in the development of numerous projects over an extended period of time. It is likely that Pardee has been delinquent at one time or another in the payment of ad valorem property taxes, special assessments or special taxes. To the Actual Knowledge of Pardee, Pardee is not delinquent to any material extent in the payment of ad valorem property taxes, special assessments or special taxes on the Property. Except as disclosed in this Official Statement, to the Actual Knowledge of Pardee, in the last five years, Pardee has not, during the period of its ownership, been delinquent to any material extent in the payment of special assessments or special taxes on property owned by 38 Pardee that is included within the boundaries of a community facilities district or assessment district within California that (a) would have caused a draw on a reserve fund relating to such assessment district or community facilities district financing or (b) resulted in a foreclosure action being commenced against the Pardee. 4.There are no Affiliates of Pardee the financial viability of which could have a materially adverse impact on the ability of Pardee to complete its development within Improvement Area D as described in this Official Statement or to pay the Special Tax or ad valorem tax obligations on its Property when due. As used in the above representations of Pardee, the following defined terms and phrases have the following meanings: “Actual Knowledge of Pardee” shall mean the knowledge of the authorized officer of Pardee signing the certificate containing the above representations (the “Pardee Letter of Representations”) as of the date of the Pardee Letter of Representations obtained from interviews with such current officers and responsible employees of Pardee and its Affiliates as the authorized officer signing the Pardee Letter of Representations has determined are likely, in the ordinary course of their respective duties, to have knowledge of the matters set forth in the Pardee Letter of Representations. The authorized officer of Pardee signing the Pardee Letter of Representations has not conducted any extraordinary inspection or inquiry other than such inspections or inquiries as are prudent and customary in connection with the ordinary course of Pardee’s current business and operations. Pardee and its Affiliates have undergone restructurings, including office closures and consolidations, and certain employees previously tasked with the payment of property taxes and certain continuing disclosure compliance for Pardee are no longer employed by Pardee and have not been contacted. “Affiliate” means, with respect to a Person (i) any other Person directly, or indirectly through one or more intermediaries, controlling, controlled by or under common control with such Person, and (ii) for whom information, including financial information or operating data, concerning such Person referenced in clause (i) is material to an evaluation of the District and the 2016 Bonds (i.e., information relevant to Pardee’s development plans with respect to its Property and its payment of Special Taxes, or such Person’s assets or funds that would materially affect Pardee’s ability to develop its Property as described in this Official Statement or to pay its Special Taxes). “Person” means an individual, a corporation, a partnership, a limited liability company, an association, a joint stock company, a trust, any unincorporated organization or a government or political subdivision thereof. “Control” (including the terms “controlling,” “controlled by” or “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. “Property” means the property within Improvement Area D held in the name of Pardee. 39 SPECIAL RISK FACTORS The purchase of the 2016 Bonds involves significant risks and, therefore, the 2016 Bonds are not suitable investments for many investors. The following is a discussion of certain risk factors which should be considered, in addition to other matters set forth in this Official Statement, in evaluating the investment quality of the 2016 Bonds. This discussion does not purport to be comprehensive or definitive and does not purport to be a complete statement of all factors which may be considered as risks in evaluating the credit quality of the 2016 Bonds. In addition, the order in which the following information is presented is not intended to reflect the relative importance of any such risks. The occurrence of one or more of the events discussed in this Official Statement could adversely affect the ability or willingness of property owners in Improvement Area D to pay their Special Taxes when due. Such failures to pay Special Taxes could result in the inability of the District to make full and punctual payments of debt service on the 2016 Bonds. In addition, the occurrence of one or more of the events discussed in this Official Statement could adversely affect the value of the property in Improvement Area D. See the caption “—Appraised Value.” Risks of Real Estate Secured Investments Generally The 2016 Bond Owners will be subject to the risks generally incident to an investment secured by real estate, including, without limitation: (i) adverse changes in local market conditions, such as changes in the market value of real property in the vicinity of the District, the supply of or demand for competitive properties in such area and the market value of property in the event of sale or foreclosure; (ii) changes in real estate tax rates and other operating expenses, governmental rules (including, without limitation, zoning laws and laws relating to endangered species and hazardous materials) and fiscal policies; and (iii) natural disasters (including, without limitation, wildfire, earthquakes and floods), which may result in uninsured losses. See the caption “—Natural Disasters.” No assurance can be given that the individual landowners will pay Special Taxes in the future or that they will be able to pay such Special Taxes on a timely basis. See the caption “— Bankruptcy and Foreclosure” for a discussion of certain limitations on the District’s ability to pursue judicial proceedings with respect to delinquent parcels. Limited Obligations The 2016 Bonds and interest thereon are not payable from the general funds of the City. Except with respect to the Special Tax Revenues and the Redemption Revenues, neither the credit nor the taxing power of the District or the City is pledged for the payment of the 2016 Bonds or the interest thereon, and, except as provided in the Fiscal Agent Agreement, no Owner of the 2016 Bonds may compel the exercise of any taxing power by the District or the City or force the forfeiture of any City or District property. The principal of, premium, if any, and interest on the 2016 Bonds are not a debt of the City or a legal or equitable pledge, charge, lien or encumbrance upon any of the City’s or the District’s property or upon any of the City’s or the District’s income, receipts or revenues, except the Net Taxes and other amounts pledged under the Fiscal Agent Agreement. The District’s legal obligations with respect to any delinquent Special Taxes are limited to: (i) payments from the Reserve Account to the extent of funds on deposit therein; and (ii) the institution of judicial foreclosure proceedings under certain circumstances with respect to any 40 parcels for which Special Taxes are delinquent. See the caption “SOURCES OF PAYMENT FOR THE 2016 BONDS—Special Taxes—Proceeds of Foreclosure Sales; Covenant to Foreclose.” The 2016 Bonds cannot be accelerated in the event of any default. The obligation to pay Special Taxes does not constitute a personal obligation of the current or subsequent owners of the respective parcels which are subject to such liens. See the caption “—Payment of the Special Tax is Not a Personal Obligation of the Landowners.” Enforcement of Special Tax payment obligations by the District is limited to judicial foreclosure in the Superior Court of California, County of Riverside. There is no assurance that any current or subsequent owner of a parcel subject to a Special Tax lien will be able to pay the amounts due or that such owner will choose to pay such amounts even though financially able to do so. Failure by owners of the parcels to pay Special Tax installments when due, delay in foreclosure proceedings, or the inability of the District to sell parcels that have been subject to foreclosure proceedings for amounts sufficient to cover the delinquent installments of Special Taxes levied against such parcels may result in the inability of the District to make full or timely payments of debt service on the 2016 Bonds, which may in turn result in the depletion of the Reserve Account. See the caption “—Bankruptcy and Foreclosure.” Insufficiency of Special Taxes The Rate and Method governing the levy of the Special Tax establishes certain categories of property use that are not subject to the Special Tax. The Rate and Method also provides for prepayment of Special Taxes. The Act provides that, if any property within Improvement Area D not otherwise exempt from the Special Tax is acquired by a public entity through a negotiated transaction, or by gift or devise, the Special Tax will continue to be levied on and enforceable against the public entity that acquired the property. In addition, the Act provides that, if property subject to the Special Tax is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Tax with respect to that property is to be treated as if it were a special assessment and to be paid from the eminent domain award. The constitutionality and operation of these provisions of the Act have not been tested in the courts. Due to problems of collecting taxes from public agencies, if a substantial portion of land within Improvement Area D were to become owned by public agencies, collection of the Special Tax might become more difficult and could result in collections of the Special Tax which might not be sufficient to pay principal of and interest on the 2016 Bonds when due, and a default could occur with respect to the payment of such principal and interest. In the event of significant delinquencies causing a default in payment of debt service on the 2016 Bonds and depletion of all amounts on deposit in the Reserve Account, there would not be sufficient Special Taxes to pay the full amount of annual debt service on the 2016 Bonds until the delinquent Special Taxes were collected through foreclosure action or otherwise. See the caption “—Bankruptcy and Foreclosure” for a discussion of potential delays in foreclosure actions. Natural Disasters The land within Improvement Area D, like all California communities, may be subject to unpredictable seismic activity, fires, floods or other natural disasters. The occurrence of one of the foregoing natural disasters in Improvement Area D could result in substantial damage to properties 41 in Improvement Area D, which, in turn, could substantially reduce the value of such properties and could affect the ability or willingness of the property owners to pay their Special Taxes. Any major damage to structures as a result of natural disasters could result in a greater reliance on undeveloped property in the payment of Special Taxes. Concentration of Property Ownership Based on the ownership and development status of the Taxable Property within Improvement Area D as of June 30, 2016 (and assuming no further development or sales to individual homeowners), approximately 4.64% of the estimated fiscal year 2016-17 Special Tax levy will be levied on property owned by Pardee and the remaining approximately 95.36% will be levied on individual property owners. Until the construction and sale of all homes to individual homeowners, the receipt of the Special Taxes is dependent, in part, on the willingness and the ability of Pardee, or its successors, to pay the Special Taxes when due. Failure of Pardee or its successors to pay the annual Special Taxes prior to delinquency could be a material factor in a default in payments of the principal of, and interest on, the 2016 Bonds, when due. See the caption “—Failure to Complete Proposed Development.” No assurance can be given that Pardee or its successors will complete the remaining construction and development in Improvement Area D in the timeframe or for estimated costs predicted in this Official Statement or that they will complete it at all. See the caption “—Failure to Complete Proposed Development.” No assurance can be given that the individual homeowners, Pardee or its successors will pay Special Taxes in the future or that they will be able to pay such Special Taxes on a timely basis. See the caption “—Bankruptcy and Foreclosure” for a discussion of certain limitations on the District’s ability to pursue judicial proceedings with respect to delinquent parcels. Failure to Complete Proposed Development Development of property within Improvement Area D may be subject to unexpected delays, disruptions and changes which may affect the willingness and ability of Pardee or any property owner to pay the Special Taxes when due. See the caption “CURRENT AND PROPOSED DEVELOPMENT OF PROPERTY WITHIN IMPROVEMENT AREA D” for a discussion of the remaining lots and homes to be developed and sold within Improvement Area D. No assurance can be given that the remaining proposed residential development will be partially or fully completed, and for purposes of evaluating the investment quality of the 2016 Bonds, prospective purchasers should consider the possibility that such parcels will remain vacant and only partially improved. See the caption “CURRENT AND PROPOSED DEVELOPMENT OF PROPERTY WITHIN IMPROVEMENT AREA D.” There can be no assurance that property development within Improvement Area D will not be adversely affected by a future deterioration of the real estate market and economic conditions or future local, State and federal governmental policies relating to real estate development, an increase in mortgage interest rates, the income tax treatment of real property ownership, or the national economy. In that event, there could be a default in the payment of principal of, and interest on, the 2016 Bonds, when due. 42 Hazardous Substances The presence of hazardous substances on a parcel may result in a significant reduction in the value of a parcel. In general, the owners and operators of a parcel may be required by law to remedy conditions of the parcel relating to releases or threatened releases of hazardous substances. The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as “CERCLA” or the “Superfund Act,” is the most well-known and widely applicable of these laws, but State laws with regard to hazardous substances are also stringent and similar in effect. Under many of these laws, the owner or operator is obligated to remedy a hazardous substance condition of property whether or not the owner or operator has anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the taxed parcels be affected by a hazardous substance, is to reduce the marketability and value of the parcel by the costs of remedying the condition, because the purchaser, upon becoming owner, will become obligated to remedy the condition just as is the seller. The Appraiser, in its Appraisal Report, assumes that there are no hazardous substances in Improvement Area D. The District has not independently verified, but is not aware of, the presence of any hazardous substances within Improvement Area D. Hazardous substance liabilities may arise in the future with respect to any of the parcels within Improvement Area D resulting from the existence, currently, of a substance presently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently, on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. Additionally, such liabilities may arise from the method of handling such substance. These possibilities could significantly affect the value of a parcel and could result in substantial delays in completing planned development on parcels that are currently undeveloped. Payment of the Special Tax is not a Personal Obligation of the Landowners An owner of a parcel of Taxable Property is not personally obligated to pay the Special Tax. Rather, the Special Tax is an obligation which is secured only by a lien against the taxable parcel. If the value of a taxable parcel is not sufficient, taking into account other liens imposed by public agencies, to secure fully the Special Tax, the District has no recourse against the owner and its only remedy is to pursue judicial foreclosure on the delinquent parcel. Appraised Value The Appraisal Report attached in Appendix G estimates the market value of the taxable property within Improvement Area D as of the stated date of value. This market value is merely the present opinion of the Appraiser as of such date, and is subject to the assumptions and limiting conditions stated in the Appraisal Report. The City has not sought the present opinion of any other appraiser of the value of the taxable parcels. A different present opinion of value might be rendered by a different appraiser. The opinion of value relates to sale by a willing seller to a willing buyer, each having similar information and neither being forced by other circumstances to sell or to buy. 43 Consequently, the opinion is of limited use in predicting the selling price at a foreclosure sale, because the sale is forced and the buyer may not have the benefit of full information. In addition, the opinion is a present opinion, based upon present facts and circumstances. Differing facts and circumstances may lead to differing opinions of value. The appraised value is not evidence of future value because future facts and circumstances may differ significantly from the present. No assurance can be given that any of the Taxable Property in Improvement Area D could be sold for the estimated market value contained in the Appraisal Report if that property should become delinquent in the payment of Special Taxes and be foreclosed upon. See the caption “SOURCES OF PAYMENT FOR THE 2016 BONDS—Special Taxes— Proceeds of Foreclosure Sales; Covenant to Foreclose.” Parity Taxes and Special Assessments Property within Improvement Area D is subject to taxes, charges and assessments imposed by public agencies other than the District that also have jurisdiction over the land within Improvement Area D. See the caption “THE COMMUNITY FACILITIES DISTRICT AND IMPROVEMENT AREA D—Direct and Overlapping Indebtedness.” The Special Taxes and any penalties thereon will constitute a lien against the lots and parcels of land on which they will be annually imposed until they are paid. Such lien is on a parity with all special taxes and special assessments levied by other agencies and is co-equal to and independent of the lien for general property taxes, regardless of when they are imposed upon the same property. The Special Taxes have priority over all existing and future private liens imposed on the property except, possibly, for liens or security interests held by the Federal Deposit Insurance Corporation (the “FDIC”). See the captions “—Bankruptcy and Foreclosure” and “—FDIC/Federal Government Interests in Properties” below. Neither the District nor the City has control over the ability of other entities and districts to issue indebtedness secured by special taxes, ad valorem taxes, special taxes or assessments levied on all or a portion of the property within Improvement Area D. In addition, the landowners within Improvement Area D may, without the consent or knowledge of the District or the City, petition other public agencies to issue public indebtedness secured by special taxes, ad valorem taxes or assessments. Any such special taxes or assessments may have a lien on such property on a parity with the Special Taxes and could reduce the estimated value-to-lien ratios for the property within Improvement Area D described in this Official Statement. See the captions “SOURCES OF PAYMENT FOR THE 2016 BONDS,” “THE COMMUNITY FACILITIES DISTRICT AND IMPROVEMENT AREA D—Estimated Assessed Value-To-Lien Ratios” and “THE COMMUNITY FACILITIES DISTRICT AND IMPROVEMENT AREA D—Direct and Overlapping Indebtedness.” Disclosures to Future Purchasers The willingness or ability of an owner of a parcel to pay the Special Tax even if the value of the property is sufficient to justify payment may be affected by whether or not the owner was given due notice of the Special Tax authorization at the time the owner purchased the parcel, whether or not the owner was informed of the amount of the Special Tax on the parcel should the Special Tax be levied at the maximum tax rate and whether or not the owner, at the time of 44 such a levy, has the ability to pay it as well as other expenses and obligations. The City has caused notices of the Special Tax to be recorded in the Office of the Recorder for the County against each parcel in Improvement Area D. While title companies normally refer to such notices in title reports, there can be no guarantee that such reference will be made or, if made, that a prospective purchaser or lender will consider such Special Tax obligation in the purchase of a property within Improvement Area D or lending of money thereon. California Civil Code Section 1102.6b requires that, in the case of transfers, the seller must at least make a good faith effort to notify the prospective purchaser of the special tax lien in a format prescribed by statute. Failure by an owner of the property to comply with the above requirements, or failure by a purchaser or lessor to consider or understand the nature and existence of the Special Tax, could adversely affect the willingness and ability of the purchaser or lessor to pay the Special Tax when due. Special Tax Delinquencies Under provisions of the Act, the Special Taxes, from which funds necessary for the payment of principal of and interest on the 2016 Bonds are derived, are customarily billed to the properties within Improvement Area D on the ad valorem property tax bills sent to owners of such properties. The Act currently provides that such Special Tax installments are due and payable, and bear the same penalties and interest for non-payment, as do ad valorem property tax installments. See the caption “SOURCES OF PAYMENT FOR THE 2016 BONDS—Special Taxes— Proceeds of Foreclosure Sales; Covenant to Foreclose,” for a discussion of the provisions which apply, and procedures which the District is obligated to follow under the Fiscal Agent Agreement, in the event of delinquencies in the payment of Special Taxes. See the captions “— Bankruptcy and Foreclosure” and “—FDIC/Federal Government Interests in Properties” below for a discussion of limitations on the District’s ability to foreclosure on the lien of the Special Taxes in certain circumstances and the policy of the FDIC regarding the payment of special taxes and assessments. FDIC/Federal Government Interests in Properties General. The ability of the District to foreclose the lien of delinquent unpaid Special Tax installments may be limited with regard to properties in which the Federal Deposit Insurance Corporation (the “FDIC”), the Drug Enforcement Agency, the Internal Revenue Service, or other federal agency has or obtains an interest. Federal courts have held that, based on the supremacy clause of the United States Constitution, in the absence of Congressional intent to the contrary, a state or local agency cannot foreclose to collect delinquent taxes or assessments if foreclosure would impair the federal government interest. The supremacy clause of the United States Constitution reads as follows: “This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the contrary notwithstanding.” 45 This means that, unless Congress has otherwise provided, if a federal governmental entity owns a parcel that is subject to Special Taxes within Improvement Area D but does not pay taxes and assessments levied on the parcel (including Special Taxes), the applicable state and local governments cannot foreclose on the parcel to collect the delinquent taxes and assessments. Moreover, unless Congress has otherwise provided, if the federal government has a mortgage interest in the parcel and the District wishes to foreclose on the parcel as a result of delinquent Special Taxes, the property cannot be sold at a foreclosure sale unless it can be sold for an amount sufficient to pay delinquent taxes and assessments on a parity with the Special Taxes and preserve the federal government’s mortgage interest. In Rust v. Johnson (9th Circuit; 1979) 597 F.2d 174, the United States Court of Appeal, Ninth Circuit held that the Federal National Mortgage Association (“FNMA”) is a federal instrumentality for purposes of this doctrine, and not a private entity, and that, as a result, an exercise of state power over a mortgage interest held by FNMA constitutes an exercise of state power over property of the United States. The District has not undertaken to determine whether any federal governmental entity currently has, or is likely to acquire, any interest (including a mortgage interest) in any of the parcels subject to the Special Taxes within the Improvement Area D, and therefore expresses no view concerning the likelihood that the risks described above will materialize while the 2016 Bonds are outstanding. FDIC. In the event that any financial institution making any loan which is secured by real property within Improvement Area D is taken over by the FDIC, and prior thereto or thereafter the loan or loans go into default, resulting in ownership of the property by the FDIC, then the ability of the District to collect interest and penalties specified by State law and to foreclose the lien of delinquent unpaid Special Taxes may be limited. The FDIC’s policy statement regarding the payment of state and local real property taxes (the “Policy Statement”) provides that property owned by the FDIC is subject to state and local real property taxes only if those taxes are assessed according to the property’s value, and that the FDIC is immune from real property taxes assessed on any basis other than property value. According to the Policy Statement, the FDIC will pay its property tax obligations when they become due and payable and will pay claims for delinquent property taxes as promptly as is consistent with sound business practice and the orderly administration of the institution’s affairs, unless abandonment of the FDIC’s interest in the property is appropriate. The FDIC will pay claims for interest on delinquent property taxes owed at the rate provided under state law, to the extent the interest payment obligation is secured by a valid lien. The FDIC will not pay any amounts in the nature of fines or penalties and will not pay nor recognize liens for such amounts. If any property taxes (including interest) on FDIC-owned property are secured by a valid lien (in effect before the property became owned by the FDIC), the FDIC will pay those claims. The Policy Statement further provides that no property of the FDIC is subject to levy, attachment, garnishment, foreclosure or sale without the FDIC’s consent. In addition, the FDIC will not permit a lien or security interest held by the FDIC to be eliminated by foreclosure without the FDIC’s consent. The Policy Statement states that the FDIC generally will not pay non-ad valorem taxes, including special assessments, on property in which it has a fee interest unless the amount of tax is fixed at the time that the FDIC acquires its fee interest in the property, nor will it recognize the validity of any lien to the extent it purports to secure the payment of any such amounts. 46 Special taxes imposed under the Law and a special tax formula which determines the special tax due each year are specifically identified in the Policy Statement as being imposed each year and therefore covered by the FDIC’s federal immunity. The Ninth Circuit has issued a ruling on August 28, 2001 in which it determined that the FDIC, as a federal agency, is exempt from special taxes levied pursuant to the Law. The District is unable to predict what effect the application of the Policy Statement would have in the event of a delinquency in the payment of Special Taxes on a parcel within Improvement Area D in which the FDIC has or obtains an interest, although prohibiting the lien of the Special Taxes to be foreclosed out at a judicial foreclosure sale could reduce or eliminate the number of persons willing to purchase a parcel at a foreclosure sale. Such an outcome could cause a draw on the Reserve Fund and perhaps, ultimately, if enough property were to become owned by the FDIC, a default in payment on the 2016 Bonds. Bankruptcy and Foreclosure Bankruptcy, insolvency and other laws generally affecting creditors’ rights could adversely impact the interests of owners of the 2016 Bonds in at least two ways. First, the payment of property owners’ taxes and the ability of the District to foreclose the lien of a delinquent unpaid Special Tax pursuant to its covenant to pursue judicial foreclosure proceedings may be limited by bankruptcy, insolvency or other laws generally affecting creditors’ rights or by the laws of the State relating to judicial foreclosure. See the caption “SOURCES OF PAYMENT FOR THE 2016 BONDS—Special Taxes—Proceeds of Foreclosure Sales; Covenant to Foreclose.” In addition, the prosecution of a foreclosure could be delayed due to many reasons, including crowded local court calendars or lengthy procedural delays. Second, the United States Bankruptcy Code might prevent moneys on deposit in the Special Tax Fund from being applied to pay interest on the 2016 Bonds and/or to redeem Bonds if bankruptcy proceedings were brought by or against a landowner and if the court found that any of such landowner had an interest in such moneys within the meaning of Section 541(a)(1) of the Bankruptcy Code. Although a bankruptcy proceeding would not cause the lien of the Special Taxes to become extinguished, the amount and priority of any Special Tax lien could be modified if the value of the property falls below the value of the lien. If the value of the property is less than the lien, such excess amount could be treated as an unsecured claim by the bankruptcy court. In addition, bankruptcy of a property owner could result in a delay in procuring Superior Court foreclosure proceedings. If enough parcels were involved in bankruptcy proceedings, court delays would increase the likelihood of a delay or default in payment of the principal of, and interest on, the 2016 Bonds and the possibility of delinquent tax installments not being paid in full. The various legal opinions to be delivered concurrently with the delivery of the 2016 Bonds (including Bond Counsel’s approving legal opinion) will be qualified as to the enforceability of the various legal instruments, including the 2016 Bonds, by moratorium, bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally, by the application of equitable principles and by the exercise of judicial discretion in appropriate cases. Other laws generally affecting creditors’ rights or relating to judicial foreclosure may affect the ability to enforce payment of Special Taxes or the timing of enforcement of Special 47 Taxes. For example, the Soldiers and Sailors Civil Relief Act of 1940 affords protections such as a stay in enforcement of the foreclosure covenant, a six-month period after termination of military service to redeem property sold to enforce the collection of a tax or assessment and a limitation on the interest rate on the delinquent tax or assessment to persons in military service if a court concludes that the ability to pay such taxes or assessments is materially affected by reason of such service. No Acceleration Provision Neither the 2016 Bonds, the Fiscal Agent Agreement nor the Act contain a provision allowing for the acceleration of the 2016 Bonds in the event of a payment default or other default under the terms of the 2016 Bonds or the Fiscal Agent Agreement or in the event that interest on the 2016 Bonds becomes included in gross income for federal income tax purposes. Pursuant to the Fiscal Agent Agreement and further subject to the prior lien of owners of Bonds, an owner is given the right for the equal benefit and protection of all owners of a series similarly situated to pursue certain remedies described in Appendix D. Loss of Tax Exemption As discussed under the caption “TAX EXEMPTION,” in order to maintain the exclusion from gross income for federal income tax purposes of the interest on the 2016 Bonds, the District has covenanted in the Fiscal Agent Agreement, not to take any action, or fail to take any action, if such action or failure to take such action would adversely affect the exclusion from gross income of interest on the 2016 Bonds under Section 103 of the Internal Revenue Code of 1986, as amended (the “Code”). Interest on the 2016 Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date that the 2016 Bonds were issued, as a result of acts or omissions of the City or the District in violation of the Code. Should such an event of taxability occur, the 2016 Bonds are not subject to early redemption and will remain outstanding to maturity or until redeemed under the optional or mandatory sinking fund redemption provisions of the Fiscal Agent Agreement. Limited Secondary Market There can be no guarantee that there will be a secondary market for the 2016 Bonds or, if a secondary market exists, that such 2016 Bonds can be sold for any particular price. Although the District has committed to provide certain statutorily required financial and operating information, there can be no assurance that such information will be available to Bondowners on a timely basis. See the caption “CONTINUING DISCLOSURE.” Any failure to provide annual financial information, if required, does not give rise to monetary damages but merely an action for specific performance. Occasionally, because of general market conditions, lack of current information, the absence of a credit rating for the 2016 Bonds or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then prevailing circumstances. Such prices could be substantially different from the original purchase price. Proposition 218 Proposition 218, an initiative measure entitled the “Right to Vote on Taxes Act” (the “Initiative”), was approved by the voters of the State at the November 5, 1996 general election. The Initiative added Articles XIIIC and XIIID to the State Constitution. According to the “Title 48 and Summary” of the Initiative prepared by the California Attorney General, the Initiative limits “the authority of local governments to impose taxes and property-related assessments, fees and charges.” Provisions of the Initiative have been and will continue to be interpreted by the courts. The Initiative could potentially impact the Special Taxes otherwise available to the District to pay the principal of and interest on the 2016 Bonds as described below. Among other things, Section 3 of Article XIIIC states that “…the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge.” The Act provides for a procedure, which includes notice, hearing, protest and voting requirements to alter the rate and method of apportionment of an existing special tax. However, the Act prohibits a legislative body from adopting any resolution to reduce the rate of any special tax or terminate the levy of any special tax pledged to repay any debt incurred pursuant to the Act unless such legislative body determines that the reduction or termination of the special tax would not interfere with the timely retirement of that debt. On July 1, 1997, a bill was signed into law by the Governor of the State enacting Government Code Section 5854, which states that: “Section 3 of Article XIIIC of the California Constitution, as adopted at the November 5, 1996, general election, shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after that date, assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of contractual rights protected by Section 10 of Article I of the United States Constitution.” Accordingly, although the matter is not free from doubt, it is likely that Article XIIIC has not conferred on the voters the power to repeal or reduce the Special Taxes if such reduction would interfere with the timely retirement of the 2016 Bonds. The provisions of the Initiative relating to the exercise of the initiative power have not been interpreted by the courts and no assurance can be given as to the outcome of any such litigation. It may be possible, however, for voters of Improvement Area D or the City Council, acting as the legislative body of the District, to reduce the Special Taxes in a manner which does not interfere with the timely repayment of the 2016 Bonds, but which does reduce the maximum amount of Special Taxes that may be levied in any year below the existing levels. Furthermore, no assurance can be given with respect to the future levy of the Special Taxes in amounts greater than the amount necessary for the timely retirement of the 2016 Bonds. Therefore, no assurance can be given with respect to the levy of Special Taxes for Administrative Expenses. Nevertheless, to the maximum extent that the law permits it to do so, the District has covenanted that it will not approve any reduction of the Assigned Special Taxes as provided in the Rate and Method that would prohibit the District from levying the Special Taxes in any Fiscal Year at level that would generate Net Taxes at least equal to 110% of annual debt service in such Fiscal Year for the 2014 Bonds, the 2016 Bonds and any Parity Bonds expected to be issued. However, no assurance can be given as to the enforceability of the foregoing covenants or as to the outcome of any legal action taken by the District. The interpretation and application of Article XIIIC and Article XIIID 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 or the timeliness of any remedy afforded by the courts. See the caption “—Limitations on Remedies.” 49 Ballot Initiatives Articles XIIIC and XIIID of the State Constitution were adopted pursuant to measures that qualified for the ballot pursuant to the State’s Constitutional initiative process and the State Legislature has in the past enacted legislation which has altered the spending limitations or established minimum funding provisions for particular activities. On March 6, 1995 in the case of Rossi v. Brown, the State Supreme Court held that an initiative can repeal a tax ordinance and prohibit the imposition of further such taxes and that the exemption from the referendum requirements does not apply to initiatives. From time to time, other initiative measures could be adopted by voters or legislation enacted by the State Legislature. The adoption of any such initiative or legislation might place limitations on the ability of the State, the City, or local districts to increase revenues or to increase appropriations. Limitations on Remedies Remedies available to the Owners may be limited by a variety of factors and may be inadequate to assure the timely payment of principal of and interest on the 2016 Bonds or to preserve the tax-exempt status of the 2016 Bonds. Bond Counsel has limited its opinion as to the enforceability of the 2016 Bonds and of the Fiscal Agent Agreement to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium, or others similar laws affecting generally the enforcement of creditors’ rights, by equitable principles, by the exercise of judicial discretion and by limitations or remedies against public agencies in the State. Additionally, the 2016 Bonds are not subject to acceleration in the event of the breach of any covenant or duty under the Fiscal Agent Agreement. The lack of availability of certain remedies or the limitation of remedies may entail risks of delay, limitation or modification of the rights of the Owners. Enforceability of the rights and remedies of the Owners of the 2016 Bonds, and the obligations incurred by the District, may become subject to the federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors’ rights generally, now or later 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 federal 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 governmental entities in the State. See the captions “—Bankruptcy and Foreclosure,” and “—FDIC/Federal Government Interests in Properties.” Potential Early Redemption of Bonds from Prepayments Property owners within Improvement Area D are permitted to prepay their Special Taxes at any time. Such prepayments will result in a redemption of the 2016 Bonds on the Interest Payment Date following the receipt of the prepayment. CONTINUING DISCLOSURE 50 District Continuing Disclosure Certificate General. Pursuant to a Continuing Disclosure Certificate, dated the date of issuance of the 2016 Bonds (the “Disclosure Certificate”), executed by the District, the District has covenanted for the benefit of the holders and Beneficial Owners of the 2016 Bonds to provide certain financial information and operating data relating to the District by December 31 of each year (the “Annual Report”), commencing December 31, 2016 for the report for the fiscal year ended June 30, 2016, and to provide notices of the occurrence of certain enumerated events. The Annual Report and the notices of enumerated events will be filed by the City with EMMA. The specific nature of the information to be contained in the Annual Report and the notice of material events is set forth in Appendix E—“FORM OF CONTINUING DISCLOSURE CERTIFICATE.” These covenants have been made in order to assist the Underwriter in complying with subsection (b)(5) of Rule 15c2-12 (“Rule 15c2-12”). The requirement that the District file its audited financial statements, which constitute a part of the audited financial statements of the City, as a part of the Annual Report has been included in the Disclosure Certificate solely to satisfy the provisions of Rule 15c2-12. The inclusion of such information does not mean that the 2016 Bonds are secured by any resources or property of the City or any entity other than the District or that the 2016 Bonds are payable from any source other than Net Taxes and the other funds pledged under the Fiscal Agent Agreement. See the captions “SOURCES OF PAYMENT FOR THE 2016 BONDS” and “SPECIAL RISK FACTORS—Limited Obligations.” Five-Year Compliance History. During the past five years, the District [UPDATE TO COME] In addition, although the City and its affiliated entities other than the District (such as the Lake Elsinore Public Financing Authority, the City’s former redevelopment agency and its successor agency, and other community facilities district formed by the City) are not obligated persons pursuant to Rule 15c2-12 with respect to the 2016 Bonds, during the last five years the City and such affiliated entities failed to comply in certain respects with continuing disclosure obligations related to outstanding bonded indebtedness. The failures to comply include late filings with respect to several annual reports and incomplete filings with respect to other annual reports. The incomplete filings omitted one or more of the following items: (1)Comprehensive audited financial statements, including the audited financial statements for fiscal years 2010-11 through 2012-13, which were not linked on EMMA to all required CUSIPs until July 1, 2014; (2)Updated tabular and other operating information; and (3)Material event notices of changes in bond ratings. The City and its affiliated entities have made additional filings to provide certain of the previously omitted information (including the existing ratings of the outstanding bonds). In order to promote compliance by the District with its obligations under the District Continuing Disclosure Certificate, the City has retained SCG - Spicer Consulting Group to serve as the dissemination agent for the 2016 Bonds. Additionally, the City had adopted formal policies and procedures with respect to its continuing disclosure practices and has reported the 51 failures to comply with its prior continuing disclosure obligations under the current Municipalities Continuing Disclosure Cooperation Initiative of the U.S. Securities Exchange Commission. TAX EXEMPTION In the opinion of Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described in this Official Statement, interest (and original issue discount) on the 2016 Bonds 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 Bond Counsel, interest (and original issue discount) on the 2016 Bonds is exempt from State personal income tax. Bond Counsel notes that, with respect to corporations, interest on the 2016 Bonds 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. The difference between the issue price of a 2016 Bonds (the first price at which a substantial amount of the 2016 Bonds of a maturity is to be sold to the public) and the stated redemption price at maturity with respect to such Bond constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a 2016 Bonds Owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a 2016 Bonds Owner will increase the 2016 Bond Owner’s basis in the 2016 Bond. In the opinion of Bond Counsel, the amount of original issue discount that accrues to the Owner of the 2016 Bond 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 personal income tax. The amount by which a 2016 Bonds Owner’s original basis for determining loss on sale or exchange in the applicable Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable Bond premium, which must be amortized under Section 171 of the Code; such amortizable Bond premium reduces the 2016 Bond Owner’s basis in the applicable Bond (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 Bond premium may result in a 2016 Bonds Owner realizing a taxable gain when a 2016 Bonds is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the 2016 Bond to the Owner. Purchasers of the 2016 Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable Bond premium. Bond Counsel’s opinion as to the exclusion from gross income for federal income tax purposes of interest (and original issue discount) on the 2016 Bonds is based upon certain representations of fact and certifications made by the District and others and is subject to the condition that the District complies with all requirements of the Code that must be satisfied subsequent to the issuance of the 2016 Bonds to assure that interest (and original issue discount) on the 2016 Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest (and original issue discount) on the 2016 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2016 Bonds. The District has covenanted to comply with all such requirements. 52 The Internal Revenue Service (the “IRS”) has initiated an expanded program for the auditing of tax-exempt bond issues, including both random and targeted audits. It is possible that the 2016 Bonds will be selected for audit by the IRS. It is also possible that the market value of the 2016 Bonds might be affected as a result of such an audit of the 2016 Bonds (or by an audit of similar municipal obligations). No assurance can be given that in the course of an audit, as a result of an audit, or otherwise, Congress or the IRS might not change the Code (or interpretation thereof) subsequent to the issuance of the 2016 Bonds to the extent that it adversely affects the exclusion from gross income of interest (and original issue discount) on the 2016 Bonds or their market value. Bond Counsel’s opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. Bond Counsel has not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. Bond Counsel’s engagement with respect to the 2016 Bonds terminates upon their issuance and Bond Counsel disclaims any obligation to update the matters set forth in its opinion. The Fiscal Agent Agreement, the Resolution of Issuance and the Tax Certificate relating to the 2016 Bonds permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. Bond Counsel expresses no opinion as to the effect on the exclusion from gross income for federal income tax purposes of interest (and original issue discount) with respect to any Bond as to which any such action is taken or omitted based upon the advice of counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation. SUBSEQUENT TO THE ISSUANCE OF THE 2016 BONDS, THERE MIGHT BE FEDERAL, STATE OR LOCAL STATUTORY CHANGES (OR JUDICIAL OR REGULATORY INTERPRETATIONS OF FEDERAL, STATE OR LOCAL LAW) THAT AFFECT THE FEDERAL, STATE OR LOCAL TAX TREATMENT OF THE 2016 BONDS OR THE MARKET VALUE OF THE 2016 BONDS. LEGISLATIVE CHANGES HAVE BEEN PROPOSED IN CONGRESS, WHICH, IF ENACTED, WOULD RESULT IN ADDITIONAL FEDERAL INCOME TAX BEING IMPOSED ON CERTAIN OWNERS OF TAX-EXEMPT STATE OR LOCAL OBLIGATIONS, SUCH AS THE 2016 BONDS. THE INTRODUCTION OR ENACTMENT OF ANY OF SUCH CHANGES COULD ADVERSELY AFFECT THE MARKET VALUE OR LIQUIDITY OF THE 2016 BONDS. NO ASSURANCE CAN BE GIVEN THAT, SUBSEQUENT TO THE ISSUANCE OF THE 2016 BONDS, SUCH CHANGES (OR OTHER CHANGES) WILL NOT BE INTRODUCED OR ENACTED OR INTERPRETATIONS WILL NOT OCCUR. BEFORE PURCHASING ANY OF THE 2016 BONDS, ALL POTENTIAL PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING POSSIBLE STATUTORY CHANGES OR JUDICIAL OR REGULATORY CHANGES OR INTERPRETATIONS, AND THEIR COLLATERAL TAX CONSEQUENCES RELATING TO THE 2016 BONDS. Although Bond Counsel has rendered an opinion that interest (and original issue discount) on the 2016 Bonds is excluded from gross income for federal income tax purposes provided that the District continues to comply with certain requirements of the Code, the ownership of the 2016 Bonds and the accrual or receipt of interest (and original issue discount) with respect to the 2016 Bonds may otherwise affect the tax liability of certain persons. Bond Counsel expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any of the 2016 Bonds, all potential purchasers should consult their tax advisors with respect to collateral tax consequences relating to the 2016 Bonds. A copy of the proposed form of opinion of Bond Counsel is attached hereto as Appendix C. 53 LEGAL OPINION The legal opinion of Bond Counsel approving the validity of the 2016 Bonds, in substantially the form set forth as Appendix C hereto, will be made available to purchasers of the 2016 Bonds at the time of original delivery of the 2016 Bonds. Certain legal matters will be passed upon for the City and the District by Liebold McClendon & Mann, Irvine, California, Issuer Counsel, and by Jones Hall, A Professional Law Corporation, San Francisco, California, Disclosure Counsel, for the Underwriter by Nossaman LLP, Irvine, California and for the Fiscal Agent by its counsel. Bond Counsel undertakes no responsibility to the purchasers of the 2016 Bonds for the accuracy, completeness or fairness of this Official Statement. ABSENCE OF LITIGATION [No litigation is pending or threatened concerning the validity of the 2016 Bonds, and a certificate of the District to that effect will be furnished to the Underwriter at the time of the original delivery of the 2016 Bonds. Neither the City nor the District is aware of any litigation pending or threatened which questions the existence of the District or the City or contests the authority of the District to levy and collect the Special Taxes or to issue and retire the 2016 Bonds.][TO BE CONFIRMED] On March 25, 2016, Pardee submitted a formal protest and claim to the City concerning the imposition of Transportation Uniform Mitigation Fees (“TUMF”) on certain lots within Planning Area 32 located within Improvement Area D. Generally, the TUMF is imposed on residential units as a condition of issuing a certificate of occupancy. The City has not previously imposed the TUMF on residential development within Canyon Hills.However, the regional TUMF administrator, Western Riverside Council of Governments (“WRCOG”), has determined that the exemption from TUMF is improper and compelled the City to impose the TUMF on new residential units within Canyon Hills, including Improvement Area D. The City and Pardee dispute WRCOG’s determination. Pardee has stated that it intends to pay the TUMF under protest for future residential units within Improvement Area D and may elect to pursue legal action to recover those protested fees at a later date. The City and WRCOG have elected to submit to non-binding arbitration of the portion of the dispute involving the collection of TUMF on previously built residential units within Canyon Hills along with other development projects unrelated to the Canyon Hills. The non-binding arbitration is set for September 15, 2016. Pardee is not a party to the non-binding arbitration. While formal legal action has been separately threatened by the City, Pardee and WRCOG, no suit is currently pending in Superior Court. The likely outcome of the non-binding arbitration or any future litigation is unknown. However, the payment of TUMF and any dispute related to such TUMF will not affect the right or ability of the District to collect or pledge the Special Taxes levied within the Improvement Area for the repayment of the Bonds. In addition, Pardee would only be obligated to pay the TUMF for future units in Improvement Area D, if at all, and no property owner will be obligated to pay the TUMF. 54 NO RATING The District has not made and does not contemplate making an application to any rating agency for the assignment of a rating on the 2016 Bonds. UNDERWRITING The 2016 Bonds are being purchased by Stifel, Nicolaus & Company, Incorporated (the “Underwriter”), pursuant to a Bond Purchase Agreement, dated [_______], 2016 (the “Bond Purchase Agreement”), by and between the District and the Underwriter. The Underwriter has agreed to purchase the 2016 Bonds at a price of $[______] (being the $[______] aggregate principal amount of the 2016 Bonds, less an Underwriter’s discount of $[______] and less net original issue discount of $[______]). The 2016 Bond Purchase Agreement provides that the Underwriter will purchase all of the 2016 Bonds if any are purchased. The obligation to make such purchase is subject to certain terms and conditions set forth in the 2016 Bond Purchase Agreement, the approval of certain legal matters by counsel and certain other conditions. The Underwriter may offer and sell the 2016 Bonds to certain dealers and others at prices lower than the offering price stated on the cover page thereof. The offering price may be changed from time to time by the Underwriter. FINANCIAL INTERESTS The fees being paid to the Underwriter and its counsel, Bond Counsel, Disclosure Counsel and the Fiscal Agent are contingent upon the issuance and delivery of the 2016 Bonds. From time to time, Bond Counsel and Disclosure Counsel represent the Underwriter on matters unrelated to the 2016 Bonds. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 55 ADDITIONAL INFORMATION The purpose of this Official Statement is to supply information to prospective buyers of the 2016 Bonds. Quotations, summaries and explanations of the 2016 Bonds and documents contained in this Official Statement do not purport to be complete, and reference is made to such documents for full and complete statements and their provisions. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representatives of fact. The execution and delivery of this Official Statement by the City Manager of the City has been duly authorized by the City Council of the City acting in its capacity as the legislative body of the District. CITY OF LAKE ELSINORE COMMUNITY FACILITIES DISTRICT NO. 2003-2 (Canyon Hills) (IMPROVEMENT AREA D) By:_________________ City Manager of the City of Lake Elsinore A-1 APPENDIX A RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX CITY OF LAKE ELSINORE COMMUNITY FACILITIES DISTRICT NO. 2003-2 (Canyon Hills) (IMPROVEMENT AREA D) B-1 APPENDIX B ECONOMIC AND DEMOGRAPHIC INFORMATION REGARDING THE CITY OF LAKE ELSINORE The following information relating to the City of Lake Elsinore (the “City”) and the County of Riverside (the “County”), California (the “State”) is supplied solely for purposes of information. Neither the City nor the County is obligated in any manner to pay principal of or interest on the 2016 Bonds or to cure any delinquency or default on the 2016 Bonds. The 2016 Bonds are payable solely from the sources described in the Official Statement. General Description The City was founded in 1883 and incorporated as a general law city effective April 23, 1888 in San Diego County. In 1893, the Elsinore Valley, previously located in San Diego County, became part of the new County of Riverside. The City encompasses approximately 43 square miles, with over 10 miles of lakeshore, and is located at the southwestern end of the County, 73 miles east of downtown Los Angeles and 74 miles north of downtown San Diego. As of January 1, 2015 the City’s population was approximately 58,426 people. Population The population of the City, the County and the State is shown below for 2011 through 2015. City of Lake Elsinore, County of Riverside and State of California Population Estimates Source:California Department of Finance estimates (as of January 1). Year (January 1)City of Lake Elsinore County of Riverside State of California 2011 52,294 2,205,731 37,427,946 2012 53,183 2,234,209 37,668,804 2013 55,444 2,255,653 37,966,471 2014 56,688 2,280,191 38,357,121 2015 58,426 2,308,441 38,714,725 B-2 Employment and Industry The County of Riverside is a part of the Riverside-San Bernardino-Ontario Metropolitan Statistical Area (the “MSA”). The unemployment rate in the MSA was 5.9 percent in December 2015, down from a revised 6.1 percent in November 2015, and below the year-ago estimate of 7.0 percent. This compares with an unadjusted unemployment rate of 5.8 percent for California and 4.8 percent for the nation during the same period. The unemployment rate was 6.1 percent in Riverside County and 5.8 percent in San Bernardino County. The following table summarizes the civilian labor force, employment and unemployment in the County for the calendar years 2010 through 2014. These figures are county-wide statistics and may not necessarily accurately reflect employment trends in the City. RIVERSIDE-SAN BERNARDINO-ONTARIO METROPLITAN STATISTICA AREA (Riverside and San Bernardino Counties) Civilian Labor Force, Employment and Unemployment (Annual Averages) March 2014 Benchmark 2010 2011 2012 2013 2014 Civilian Labor Force (1)1,815,800 1,866,200 1,882,900 1,897,000 1,919,900 Employment 1,610,200 1,623,100 1,665,600 1,710,500 1,763,300 Unemployment 255,500 243,100 217,300 186,500 156,600 Unemployment Rate 13.7%13.0%11.5%9.8%8.2% Wage and Salary Employment (2) Agriculture 15,000 14,900 15,000 14,500 14,300 Mining and Logging 1,000 1,000 1,200 1,200 1,300 Construction 59,700 59,100 62,600 70,000 77,000 Manufacturing 85,200 85,100 86,700 87,300 90,200 Wholesale Trade 48,700 49,200 52,200 56,400 59,000 Retail Trade 155,500 158,500 162,400 164,800 168,700 Transportation, Warehousing & Utilities 66,600 68,800 73,900 79,400 87,300 Information 14,000 12,200 11,700 11,500 11,200 Finance & Insurance 25,500 25,300 26,000 26,500 26,500 Real Estate & Rental & Leasing 15,500 14,600 14,900 15,600 16,200 Professional & Business Services 123,600 126,000 127,500 132,400 137,800 Educational & Health Services 154,100 157,600 167,200 184,500 193,600 Leisure & Hospitality 122,800 124,000 129,400 135,900 144,300 Other Services 38,200 39,100 40,100 41,100 43,200 Federal Government 22,800 21,300 20,600 20,300 20,200 State Government 29,300 29,100 28,200 27,800 28,200 Local Government 182,300 177,200 175,800 177,100 180,400 Total, All Industries 1,159,700 1,162,900 1,193,300 1,246,400 1,299,500 (1)Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (2)Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (3)Totals may not add due to rounding. Source: State of California Employment Development Department. B-3 Major Employers The following table sets forth the top twenty employers located in the County: COUNTY OF RIVERSIDE Largest Employers (Listed Alphabetically) As of March 2015 Employer Name Location Industry Abbott Vascular Inc Temecula Physicians & Surgeons Equip & Supls- Whls Boston Scientific Corp Temecula Physicians & Surgeons Equip & Supls- Mfrs Corona Regional Medical Ctr Corona Hospitals Corrections Dept Norco Government Offices-State Desert Regional Med Ctr Inc Palm Springs Hospitals Eisenhower Medical Ctr Rancho Mirage Hospitals Hemet Valley Medical Ctr Hemet Hospitals Hotel At Fantasy Springs Indio Casinos Inland Valley Medical Ctr Wildomar Hospitals J W Marriott-Desert Spgs Resrt Palm Desert Hotels & Motels Kaiser Permanente Riverside MD Riverside Hospitals La Quinta Golf Course La Quinta Golf Courses Morongo Casino Resort & Spa Cabazon Casinos Morongo Tribal Gaming Ent Banning Business Management Consultants Pechanga Resort & Casino Temecula Resorts Riverside Community Hospital Riverside Hospitals Riverside County Public Health Riverside Government Offices-County Riverside County Regl Med Ctr Moreno Valley Hospitals Robertson's Ready Mix Corona Concrete-Ready Mixed Spa Resort Casino Palm Springs Casinos Starcrest Products Perris Gift Shops Sun World Intl LLC Coachella Fruits & Vegetables-Wholesale Universal Protection Svc Palm Desert Security Guard & Patrol Service US Air Force Dept March Air Reserve Base Military Bases UTC Aerospace Systems Riverside Aircraft Components-Manufacturers Source: State of California Employment Development Department; America’s Labor Market Information System (ALMIS) Employer Database, 2016 1st Edition. B-4 Effective Buying Income “Effective Buying Income” is defined as personal income less personal tax and nontax payments, a number often referred to as “disposable” or “after-tax” income. Personal income is the aggregate of wages and salaries, other labor-related income (such as employer contributions to private pension funds), proprietor’s 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), nontax payments (fines, fees, penalties, etc.) and personal contributions to social insurance. According to U.S. government definitions, the resultant figure is commonly known as “disposable personal income.” The following table summarizes the total effective buying income for the City, the County, the State and the United States for the period 2010 through 2014. CITY OF LAKE ELSINORE COUNTY OF RIVERSIDE Effective Buying Income As of January 1, 2010 through 2014 Year Area Total Effective Buying Income (000’s Omitted) Median Household Effective Buying Income 2010 City of Lake Elsinore $887,513 $43,665 County of Riverside 38,492,225 44,253 California 801,393,028 47,177 United States 6,365,020,076 41,368 2011 City of Lake Elsinore $823,005 $43,961 County of Riverside 39,981,683 44,116 California 814,578,458 47,062 United States 6,438,704,664 41,253 2012 City of Lake Elsinore $846,888 $45,195 County of Riverside 40,157,310 43,860 California 864,088,828 47,307 United States 6,737,867,730 41,358 2013 City of Lake Elsinore $852,698 $45,712 County of Riverside 40,293,518 44,784 California 858,676,636 48,340 United States 6,982,757,379 43,715 2014 City of Lake Elsinore $907,205 $48,563 County of Riverside 41,199,300 45,576 California 901,189,699 50,072 United States 7,357,153,421 45,448 Source: The Nielsen Company (US), Inc. B-5 Commercial Activity A summary of historic taxable sales within the County during the past five years in which data is available is shown in the following table. Total taxable sales during the first three quarters of calendar year 2014 in the County were reported to be $23,479,455,000, a 6.70% increase over the total taxable sales of $22,004,581,000 reported during the first three quarters of calendar year 2013. The following table shows total taxable retail sales, total taxable sales from all outlets and related number of permits in the County on an annual basis for calendar years 2009 through 2013. Annual figures for calendar year 2014 are not yet available. COUNTY OF RIVERSIDE Taxable Transactions Number of Permits and Valuation of Taxable Transactions (Dollars in Thousands) Retail Stores Total All Outlets Number of Permits on August 1 Taxable Transactions Number of Permits on August 1 Taxable Transactions 2009 29,829 $16,057,488 42,765 $22,227,877 2010 32,534 16,919,500 45,688 23,152,780 2011 33,398 18,576,285 46,886 25,641,497 2012 34,683 20,016,668 48,316 28,096,009 2013 33,391 21,306,774 46,805 30,065,467 Source:California State Board of Equalization, Taxable Sales in California (Sales & Use Tax). A summary of historic taxable sales within the City during the past five years in which data is available is shown in the following table. Total taxable sales during the first three quarters of calendar year 2014 in the City were reported to be $532,160,000, a 5.27% increase over the total taxable sales of $505,504,000 reported during the first three quarters of calendar year 2013. The following table shows total taxable retail sales, total taxable sales from all outlets and related number of permits in the City on an annual basis for calendar years 2009 through 2013. Annual figures for calendar year 2014 are not yet available. B-6 CITY OF LAKE ELSINORE Taxable Transactions Number of Permits and Valuation of Taxable Transactions (Dollars in Thousands) Retail Stores Total All Outlets Number of Permits on August 1 Taxable Transactions Number of Permits on August 1 Taxable Transactions 2009 778 $514,746 1,112 $560,924 2010 863 546,623 1,197 599,836 2011 897 578,301 1,248 634,553 2012 923 604,846 1,274 665,409 2013 828 620,558 1,176 688,483 Source:California State Board of Equalization, Taxable Sales in California (Sales & Use Tax). Construction Activity Provided below are the building permits and valuations for the County and the City for calendar years 2010 through 2014. COUNTY OF RIVERSIDE Total Building Permit Valuations (Valuations in Thousands) 2010 2011 2012 2013 2014 Permit Valuation New Single-family $914,057.4 $647,070.8 $904,156.2 $1,138,738.1 $1,296,552.8 New Multi-family 71,151.9 113,170.4 87,878.6 138,636.0 178,116.7 Res. Alterations/Additions 94,427.5 188,468.9 87,370.5 98,219.3 147,081.2 Total Residential 1,079,636.8 948,710.1 1,079,405.3 1,375,593.4 1,621,750.7 New Commercial 191,323.7 166,714.4 508,192.8 263,837.7 197,674.9 New Industrial 6,685.5 10,000.0 26,432.5 141,184.4 161,321.1 New Other 98,104.6 16,576.8 11,115.5 109,795.2 128,666.9 Com. Alterations/Additions 243,265.5 297,356.4 171,263.2 369,502.4 327,327.1 Total Nonresidential 539,379.3 490,647.6 717,004.0 884,319.7 814,990.0 New Dwelling Units Single Family 4,031 2,659 3,720 4,716 5,007 Multiple Family 526 1,061 909 1,427 1,931 TOTAL 4,557 3,720 4,629 6,143 6,938 Source: Construction Industry Research Board, Building Permit Summary. B-7 CITY OF LAKE ELISNORE Total Building Permit Valuations (Valuations in Thousands) 201 0 201 1 201 2 201 3 201 4 Permit Valuation New Single-family $57,633.7 $12,168.7 $17,061.9 $113,359.4 $79,497.9 New Multi-family 0.0 8,020.6 0.0 0.0 0.0 Res. Alterations/Additions 704.7 1,872.4 858.0 502.0 661.4 Total Residential 58,228.4 22,061.7 71,919.9 113,861.4 80,159.3 New Commercial 0.0 206.8 4,701.2 2,520.7 260.2 New Industrial 0.0 0.0 0.0 0.0 0.0 New Other 1,591.4 0.0 40.0 440.8 3,319.0 Com. Alterations/Additions 470.9 1,859.0 3,300.5 1,301.5 1,811.0 Total Nonresidential 1,962.3 2,065.8 8,041.7 4,272.0 5,390.2 New Dwelling Units Single Family 318 67 401 685 429 Multiple Family 0 113 0 0 0 TOTAL 318 180 401 685 429 Source: Construction Industry Research Board, Building Permit Summary. B-8 Transportation Easy access to job opportunities in the County and nearby Los Angeles, Orange and San Diego Counties is important to the County’s employment figures. Several major freeways and highways provide access between the County and all parts of Southern California. The Riverside Freeway (State Route 91) extends southwest through Corona and connects with the Orange County freeway network in Fullerton. Interstate 10 traverses the width of the County, the western-most portion of which links up with major cities and freeways in the eastern part of Los Angeles County and the southern part of San Bernardino County. Interstate 15 and 215 extend north and then east to Las Vegas, and south to San Diego. The Moreno Valley Freeway (U.S. 60) provides an alternative (to interstate 10) east-west link to Los Angeles County. The County seat, located in the City of Riverside, is within 20 miles of the Ontario International Airport in neighboring San Bernardino County. This airport is operated by the Los Angeles Department of Airports. Four major airlines schedule commercial flight service at Palm Springs Regional Airport. County-operated general aviation airports include those in Thermal, Hemet, Blythe, and French Valley. The cities of Riverside, Corona and Banning also operate general aviation airports. Education There are four elementary school districts, one high school district, eighteen unified (K-12) school districts and four community college districts in the County. Ninety-five percent of all K-12 students attend schools in the unified school districts. The three largest unified districts are Riverside Unified School District, Moreno Valley Unified School District and Corona-Norco Unified School District. There are eight two-year community college campuses located in the communities of Riverside, Moreno Valley, Norco, San Jacinto, Menifee, Coachella Valley and Palo Verde Valley. There are also two universities and a four-year college located in the City of Riverside -- the University of California, Riverside, La Sierra University and California Baptist College. C-1 APPENDIX C FORM OF OPINION OF BOND COUNSEL Upon issuance of the 2016 Bonds, Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, proposes to render its final approving opinion in substantially the following form: [TO COME] D-1 APPENDIX D SUMMARY OF THE FISCAL AGENT AGREEMENT The following is a summary of certain provisions of the Fiscal Agent Agreement which are not described elsewhere. This summary does not purport to be comprehensive and reference should be made to the Fiscal Agent Agreement for a full and complete statement of the provisions thereof. [TO COME] E-1 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE THIS CONTINUING DISCLOSURE CERTIFICATE (this “Disclosure Certificate”), dated ____, 2016, is executed and delivered by City of Lake Elsinore Community Facilities District No. 2003-2 (Canyon Hills) (the “District”) in connection with the issuance of the City of Lake Elsinore Community Facilities District No. 2003-2 (Canyon Hills) Special Tax Bonds, 2016 Series A (Improvement Area D) (the “2016 Bonds”). The 2016 Bonds are being issued pursuant to a resolution adopted by the City Council of the City of Lake Elsinore, acting as the legislative body of the District, on _____, 2016 and a Fiscal Agent Agreement, dated as of January 1, 2014 (the “Original Fiscal Agent Agreement”), as supplemented by a First Supplement to Fiscal Agent Agreement, dated as of August 1, 2016 (the “First Supplement to Fiscal Agent Agreement” and together with the Original Fiscal Agent Agreement, the “Fiscal Agent Agreement”). The District covenants as follows: SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered, for the benefit of the Owners and Beneficial Owners of the 2016 Bonds 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 Fiscal Agent Agreement and the Rate and Method of Apportionment, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: “Annual Report” shall mean any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. “Beneficial Owner” shall mean any person who (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bond (including a person holding Bond through a nominee, depository or other intermediary), or (b) is treated as the owner of any Bond for federal income purposes. “City” shall mean the City of Lake Elsinore, County of Riverside, California. “Disclosure Representative” shall mean the Director of Administrative Services of the City, or such other officer or employee as the District shall designate in writing to the Dissemination Agent from time to time. “Dissemination Agent” shall mean, initially, SCG - Spicer Consulting Group, or any successor Dissemination Agent designed in writing by the District. “EMMA” shall mean the Electronic Municipal Market Access System of the Municipal Securities Rulemaking Board, which can be found at www.emma.msrb.org, or any other repository of disclosure information that may be designated by the Securities and Exchange Commission in the future. “Listed Events” shall mean any of the events listed in Section 5(a) of this Disclosure Certificate. E-2 “Official Statement” shall mean the District’s official statement with respect to the 2016 Bonds. “Participating Underwriter” shall mean Stifel, Nicolaus & Company, Incorporated as the original underwriter of the Bonds required to comply with the Rule. “Rate and Method of Apportionment” means that certain Rate and Method of Apportionment of Special Tax approved pursuant to the Resolution of Formation, as amended in accordance with the Act. “Resolution of Formation” means the Resolution adopted by the City Council pursuant to which the City Council undertook certain change proceedings with respect to the District and established Improvement Area D therein. “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 from time to time. “Tax-exempt” shall mean that interest on the 2016 Bonds is excluded from gross income for federal income tax purposes, whether or not such interest is includable as an item of tax preferences or otherwise includable directly or indirectly for purposes of calculating any other tax liability, including any alternative minimum tax or environmental tax. SECTION 3. Provision of Annual Reports. (a)Not later than December 31 of each year commencing December 31, 2016, the District shall, or shall cause the Dissemination Agent to, provide to EMMA and the Participating Underwriter an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. If the Dissemination Agent is other than the District, then not later than 15 business days prior to the date referred to in the prior sentence hereof, the District shall provide the Annual Report (in a form suitable for filing with EMMA) to the Dissemination Agent. The Annual Report may be submitted as a single document or as separate documents comprising a package and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the District may be submitted separately from and later than the balance of the Annual Report if they are not available by the date required above for the filing of the Annual Report. (b)In the event that the Dissemination Agent is an entity other than the District, then the provisions of this Section 3(b) shall apply. Not later than fifteen (15) Business Days prior to the date specified in subsection (a) for providing the Annual Report, the District shall provide the Annual Report to the Dissemination Agent. If by fifteen (15) Business Days prior to the due date for an Annual Report the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall contact the District to determine if the District will be filing the Annual Report in compliance with subsection (a). The District shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent may conclusively rely upon such certification of the District and shall have no duty or obligation to review such Annual Report. (c)If the Dissemination Agent is other than the District and if the Dissemination Agent is unable to verify that an Annual Report has been provided to EMMA by the date E-3 required in subsection (a), the Dissemination Agent shall send in a timely manner a notice to EMMA, in the form required by EMMA. (d)If the Dissemination Agent is other than the District, the Dissemination Agent shall: (i)determine each year prior to the date for providing the Annual Report the name and address of the repository if other than the MSRB through EMMA; and (ii)promptly after receipt of the Annual Report, file a report with the District certifying that the Annual Report has been provided to EMMA and the date it was provided. (e)Notwithstanding any other provision of this Disclosure Certificate, all filings shall be made in accordance with the MSRB’s EMMA system or in another manner approved under the Rule. SECTION 4. Content of Annual Reports. The District’s Annual Report shall contain or include by reference: (a)Financial Statements. The audited financial statements of the District, if any, for the prior fiscal year, prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the District’s audited financial statements, if any are prepared, are not available by the time the Annual Report is required to be filed pursuant to Section 3, the Annual Report shall contain unaudited financial statements, and the audited financial statements shall be filed in the same manner as the Annual Report when they come available. For purposes of this section, the financial statements of the City shall not be deemed to be the financial statements of the District, unless such audited financial statements contain specific information as to such District, its revenues, expenses and account balances. (b)Financial and Operating Data. The Annual Report shall contain or incorporate by reference the following information: (i)the principal amount of Bonds outstanding as of the September 2 preceding the filing of the Annual Report; (ii)the balance in each fund under the Fiscal Agent Agreement as of the September 2 preceding the filing of the Annual Report; (iii)the aggregate assessed valuation of the Taxable Property within Improvement Area D; (iv)any changes to the Rate and Method of Apportionment of the Special Tax approved or submitted to the qualified electors for approval prior to the filing of the Annual Report; (v)a table setting forth the annual Special Tax delinquency rate within Improvement Area D at June 30 for each fiscal year on which a delinquency exists, listing for each fiscal year the total Special Tax levy, the amount delinquent and the percent delinquent; E-4 (vi)the status of any foreclosure actions being pursued by the District with respect to delinquent Special Taxes within Improvement Area D; (vii)if Special Taxes are levied on Undeveloped Property, the amount of Special Taxes levied on Undeveloped Property and the amount of Special Taxes levied on Developed Property (as such terms are defined in the Rate and Method of Apportionment); and (viii)until all of the homes have been built and sold by the builders in Improvement Area D, a summary table identifying status of home development and sales. (c)Any or all of the items listed in (a) or (b) above may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities, which have been submitted to EMMA or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the MSRB through EMMA. The District 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 District shall give, or cause the Dissemination Agent to give, notice not less than ten (10) business days after the occurrence of any of the following events with respect to the 2016 Bonds: 1.principal and interest payment delinquencies; 2.unscheduled draws on debt service reserves reflecting financial difficulties; 3.unscheduled draws on credit enhancements reflecting financial difficulties; 4.substitution of credit or liquidity providers, or their failure to perform; 5.adverse tax opinions or the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the 2016 Bonds; 6.defeasances; 7.tender offers; 8.bankruptcy, insolvency, receivership or similar proceedings; and 9.ratings changes. (b)Additionally, the District shall give or cause the Dissemination Agent to give notice to EMMA of the occurrence of any of the following events with respect to the 2016 Bonds, if material: 1.mergers, consolidations, acquisitions, the sale of all or substantially all of the assets of the obligated persons or their termination; E-5 2.appointment of a successor or additional fiscal agent or the change of the name of a fiscal agent; 3.nonpayment related defaults; 4.modifications to the rights of Bondholders; 5.Bond calls; and 6.release, substitution or sale of property securing repayment of the 2016 Bonds. (c)In the event that the District’s fiscal year changes, the District shall report or shall instruct the Dissemination Agent to report such change in the same manner and to the same parties as Listed Events would be reported pursuant to this Section. (d)The District hereby agrees that the undertaking set forth in this Disclosure Certificate is the responsibility of the District, and the Dissemination Agent, if other than the District, shall not be responsible for determining whether the District’s instructions to the Dissemination Agent under this Section comply with the requirements of the Rule. SECTION 6. Termination of Reporting Obligation. The obligations of the District and the Dissemination Agent under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the 2016 Bonds. If such termination occurs prior to the final maturity of the 2016 Bonds, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5. SECTION 7. Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under the Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be SCG - Spicer Consulting Group. The Dissemination Agent may resign by providing (i) thirty days written notice to the District, and (ii) upon appointment of a new Dissemination Agent hereunder. SECTION 8. Amendment. (a)This Disclosure Certificate may be amended, by written agreement of the parties, without the consent of the Owners, and any provision of this Disclosure Certificate may be waived, if all of the following conditions are satisfied: (1) such amendment or waiver is made in connection with a change in circumstances that arises from a change in legal (including regulatory) requirements, a change in law, or a change in the identity, nature or status of the District or the type of business conducted thereby, (2) the undertakings in this Disclosure Certificate as so amended or waived would, in the opinion of a nationally recognized bond counsel, have complied with the requirements of the Rule as of the date of this Disclosure Certificate, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances, and (3) the amendment or waiver either (i) is approved by the Owners of the 2016 Bonds in the same manner as provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of Owners or (ii) does not, in the determination of the District, materially impair the interests of the Owners or Beneficial Owners of the 2016 Bonds. E-6 (b)To the extent any amendment to this Disclosure Certificate results in a change in the type of financial information or operating data provided pursuant to this Disclosure Certificate, the first Annual Report provided thereafter shall include a narrative explanation of the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. (c)If an amendment is made to the basis on which financial statements are prepared, the Annual Report for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. Such comparison shall include a quantitative and, to the extent reasonably feasible, qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information. SECTION 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate 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 Certificate. If the District 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 Certificate, the District shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 10. Default. In the event of a failure of the District or the Dissemination Agent to comply with any provision of this Disclosure Certificate, any Owner or Beneficial Owner of the 2016 Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District and/or the Dissemination Agent to comply with their respective obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Fiscal Agent Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the District or the Dissemination Agent to comply with this Disclosure Certificate shall be an action to compel performance. SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. Where an entity other than the District is acting as the Dissemination Agent, the Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the District agrees to indemnify and save the Dissemination Agent and its officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of their 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. Any Dissemination Agent shall be paid (i) compensation by the District for its services provided hereunder in accordance with a schedule of fees to be mutually agreed to; and (ii) all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall have no duty or obligation to review any information provided to it by the District pursuant to this Disclosure Certificate. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the 2016 Bonds. No person shall have any right to commence any action against the Dissemination Agent seeking any remedy other than to compel specific performance of this E-7 Disclosure Certificate. The Dissemination Agent shall not be liable under any circumstances for monetary damages to any person for any breach under this Disclosure Certificate. SECTION 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Dissemination Agent, the Participating Underwriter and Owners and Beneficial Owners from time to time of the 2016 Bonds; and it shall create no rights in any other person or entity. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.] E-8 SECTION 13. Merger. Any person succeeding to all or substantially all of the Dissemination Agent’s corporate trust business shall be the successor Dissemination Agent without the filing of any paper or any further act. This Disclosure Certificate is executed as of the date and year first set forth above. CITY OF LAKE ELSINORE COMMUNITY FACILITIES DISTRICT NO. 2003-2 (Canyon Hills) By: _______________________ Disclosure Representative F-1 APPENDIX F BOOK-ENTRY ONLY SYSTEM The information in this Appendix concerning DTC and DTC’s book-entry only system has been obtained from sources that the District and the Underwriter believe to be reliable, but neither the District nor the Underwriter takes any responsibility for the completeness or accuracy thereof. The following description of the procedures and record keeping with respect to beneficial ownership interests in the 2016 Bonds, payment of principal, premium, if any, accreted value and interest on the 2016 Bonds to DTC Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the 2016 Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the 2016 Bonds. The 2016 Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered bond will be issued for each annual maturity of the 2016 Bonds, each in the aggregate principal amount of such annual maturity, and will be deposited with DTC. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2016 Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into F-2 the transaction. Transfers of ownership interests in the 2016 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the 2016 Bonds, except in the event that use of the book-entry system for the 2016 Bonds is discontinued. To facilitate subsequent transfers, all Bonds 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 Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 2016 Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the 2016 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the 2016 Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the 2016 Bonds 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. Redemption notices shall be sent to DTC. If less than all of the 2016 Bonds within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District 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 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the 2016 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the District or the Fiscal Agent, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Fiscal Agent, or the District, subject to any statutory or regulatory requirements as may be in effect from time 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 District or the Fiscal Agent, disbursement of such payments to F-3 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 Bond Owner shall give notice to elect to have its Bonds purchased or tendered, through its Participant, to the Fiscal Agent, and shall effect delivery of such Bonds by causing the Direct Participant to transfer the Participant’s interest in the 2016 Bonds, on DTC’s records, to the Fiscal Agent. The requirement for physical delivery of Bonds in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the 2016 Bonds are transferred by Direct Participants on DTC’s records and followed by a book- entry credit of tendered Bonds to the Fiscal Agent’s DTC account. DTC may discontinue providing its services as depository with respect to the 2016 Bonds at any time by giving reasonable notice to the District or the Fiscal Agent. Under such circumstances, in the event that a successor depository is not obtained, physical certificates are required to be printed and delivered. The District may decide to discontinue use of the system of book-entry only transfers through DTC (or a successor securities depository). In that event, bonds will be printed and delivered to DTC. THE FISCAL AGENT, AS LONG AS A BOOK-ENTRY ONLY SYSTEM IS USED FOR THE 2016 BONDS, WILL SEND ANY NOTICE OF REDEMPTION OR OTHER NOTICES TO OWNERS ONLY TO DTC. ANY FAILURE OF DTC TO ADVISE ANY DTC PARTICIPANT, OR OF ANY DTC PARTICIPANT TO NOTIFY ANY BENEFICIAL OWNER, OF ANY NOTICE AND ITS CONTENT OR EFFECT WILL NOT AFFECT THE VALIDITY OF SUFFICIENCY OF THE PROCEEDINGS RELATING TO THE REDEMPTION OF THE 2016 BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE. G-1 APPENDIX G APPRAISAL REPORT