NEW ISSUE-BOOK-ENTRY ONLY RATINGS: (See "RATINGS" herein)

In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the City, interest on the Series 2007 Bonds is exempt from State of California personal income taxes. Interest on the Series 2007 Bonds is not excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986. Bond Counsel expresses no opinion regarding any other federal or state tax consequences relating to the ownership or disposition of, or the accrual or receipt of interest on, the Series 2007 Bonds. See "TAX MATTERS" herein.

Dated: Date of Delivery

$22,000,000 CITY OF FRESNO

AIRPORT REVENUE BONDS Th.XABLE SERIES 2007

Due: July 1, as shown on inside cover

The City of Fresno (the "City") will issue $22,000,000 principal amount of its City of Fresno Airport Revenue Bonds, Taxable Series 2007 (the "Series 2007 Bonds"). The Series 2007 Bonds are being issued pursuant to an Indenture of Trust dated as of June 15, 2000 (the "Original Indenture"), by and between the City and The Bank of New York Trust Company, N.A., as successor in interest to BNY Western Trust Company, as trustee (the "Trustee"), as amended and supplemented by a First Supplemental Indenture dated as of May 1, 2007 (the "Supplemental Indenture"), by and between the City and the Trustee. The Original Indenture as supplemented and amended by the Supplemental Indenture is referred to as the "Indenture." The Series 2007 Bonds are being issued to: (i) finance the costs of constructing a consolidated rental car facility and related improvements at the Fresno Yosemite International Airport (the "2007 Project"); (ii) capitalize interest on the Series 2007 Bonds through January 1, 2009; (iii) purchase a debt service reserve insurance policy for deposit into a debt service reserve fund for the Series 2007 Bonds; and (iv) pay certain costs associated with the issuance of the Series 2007 Bonds. See "THE 2007 PROJECT."

The Series 2007 Bonds will be issued in book-entry only fonn, registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York ("DTC"), who will act as securities depository for the Series 2007 Bonds. Individual pmchases of the Series 2007 Bonds will be made in book-entry fonn only, in denominations of $5,000 or any integral multiple thereof. Purchasers will not receive physical certificates representing their interests in the Series 2007 Bonds. Principal of and interest on the Series 2007 Bonds will be paid by the Trustee directly to DTC, which in tum is obligated to remit such payments to DTC Participants for subsequent disbursement to the Beneficial Owners of the applicable Series 2007 Bonds. See APPENDIX E-"INFORMATIONREGARDING DTCANDTHE BOOK-ENTRY ONLY SYSTEM." So long as Cede & Co. is the registered owner of the Series 2007 Bonds, as nominee of DTC, references herein to the registered owners shall mean Cede & Co., and shall not mean the Beneficial Owners of the Series 2007 Bonds.

Interest on the Series 2007 Bonds will be payable on January 1 and July 1 of each year, commencing July 1, 2007, at the respective rates set forth on the inside cover page.

The Series 2007 Bonds are subject to optional and mandatory sinking fund redemption prior to maturity as described herein. See "THE SERIES 2007 BONDS-Redemption Provisions."

The Series 2007 Bonds are equally secured by a pledge of, lien on and security interest in Revenues of the City Airports (each as defined herein), including any fee imposed by the City from time to time under California Civil Code Section 1936 (the "CFC Revenues"), and certain funds and accounts held under the Indenture and have a parity lien with the City's $39,735,000 aggregate outstanding amount of Airport Revenue Bonds, Series 2000A and Series 2000B (collectively, the "Series 2000 Bonds" and together with the Series 2007 Bonds, the "Bonds"), subject to the provisions of the Indenture regarding limitations on the use of certain Revenues. Following the issuance of the Series 2007 Bonds, there will be $61,735,000 aggregate principal amount of Bonds Outstanding under the Indenture. See "SECURITY FOR THE BONDS-Parity Debt."

For a discussion of some of the risks associated with an investment in the 2007 Series Bonds, see "CERTAIN RISKS FACTORS."

The scheduled payment of principal and interest on the Series 2007 Bonds when due will be guaranteed under a financial guaranty insurance policy to be issued simultaneously with the delivery of the Series 2007 Bonds by XL Capital Assurance Inc. See "FINANCIAL GUARANTY INSURANCE."

~APITAL ASSURANCE.

THE SERIES 2007 BONDS ARE LIMITED OBLIGATIONS OF THE CITY, PAYABLE AS TO PRINCIPAL, INTEREST AND REDEMPTION PREMIUM, IF ANY, SOLELY OUT OF, AND SECURED BY A PLEDGE OF AND LIEN ON, THE REVENUES OF THE AIRPORT AND CERTAIN FUNDS AND ACCOUNTS PROVIDED FOR IN TIIB INDENTURE NEITHER TIIB FULL FAITH AND CREDIT NOR TAXING POWER OF THE CITY, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION TIIBREOF IS PLEDGED TO TIIB PAYMENT OF TIIB PRINCIPAL OF, REDEMPTION PREMIUM, IF ANY, AND INTEREST ON TIIB SERIES 2007 BONDS. NO HOLDER OF A SERIES 2007 BOND SHALL HAVE THE RIGITT TO COMPEL TIIB EXERCISE OF TIIB TAXING POWER OF TIIB CITY, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION TIIBREOF TO PAY THE SERIES 2007 BONDS OR TIIB INTEREST THEREON.

The Series 2007 Bonds are offered when, as and if issued by the City and received by the Underwriter, subject to the approval of validity by Orrick, Herrington & Sutcliffe LLP, Bond Counsel, and certain other conditions. Certain legal matters will be passed upon for the City by the City Attorney and by Lofton & Jennings, San Francisco, California, Disclosure Counsel, and for the Underwriter by its counsel Hawkins De Infield & Wood LLP, Los Angeles, California. It is expected that the Series 2007 Bonds will be delivered through the facilities of DTC on or about June 14, 2007, in New York, New York against payment therefor.

Citi Dated: May 31, 2007

$22,000,000 CITY OF FRESNO AIRPORT REVENUES BONDS TAXABLE SERIES 2007

$22,000,000 5.833% Term Bonds Due July I, 2037-Yield: 5.833%-Price: 100.00%-CUSIP1: 358100DJI

t Copyright, American Bankers Association. CUSIP data herein is provided by Standard and Poor's, CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Service. CUSIP numbers are provided for convenience ofreference only. Neither the City nor the Underwriter takes any responsibility for the accuracy of such CUSIP numbers. The CUSIP number for a specific maturity is subject to being changed after the issuance of the Series 2007 Bonds as a result of various subsequent actions including, but not limited to, a refunding in part of such maturity.

CITY OF FRESNO

MAYOR AND CHIEF EXECUTIVE OFFICER

Alan Autry

CITY COUNCIL

Henry T. Perea, President, District 7 Blong Xiong, Acting President, District I

Brian Calhoun, District 2 Cynthia Sterling, District 3

Larry Westerlund, District 4 Mike Dages, District 5 Jerry Duncan, District 6

CHIEF CITY ADMINISTRATIVE PERSONNEL

Andrew T. Souza, City Manager Jon Ruiz, Assistant City Manager and Interim Public Works Director

Bruce A. Rudd, Assistant City Manager James C. Sanchez, City Attorney

Jean M. Rousseau, Controller/Finance Director Karen M. Bradley, Assistant Controller

AIRPORTS DEPARTMENT

Russell C. Widmar, AAE Director of Aviation

SPECIAL SERVICES

TRUSTEE The Bank of New York Trust Company, N.A.

San Francisco, California

BOND COUNSEL Orrick, Herrington & Sutcliffe LLP

San Francisco, California

FINANCIAL ADVISOR KNN Public Finance,

A Division of Zions First National Bank Oakland, California

DISCLOSURE COUNSEL Lofton & Jermings

San Francisco, California

AIRPORT CONSULTANT Jacobs Consultancy, Inc. Burlingame, California

No dealer, broker, salesperson or other person has been authorized by the City or the Underwriter to give any information or to make any representations other than those contained herein and, if given or made, such other information or representation must not be relied upon as having been authorized by any of the foregoing. 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 Series 2007 Bonds by a person 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 information set forth herein has been obtained from the City and from other sources and 1s

believed to be reliable but is not guaranteed as to accuracy or completeness. The information and expressions of opinions herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or the City Airports since the date hereof This Official Statement is submitted in connection with the sale of the Series 2007 Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the City. All summaries of the documents and laws are made subject to the provisions thereof and do not purport to be complete statements of any or all such provisions. All capitalized terms used herein, unless noted otherwise, shall have the meanings prescribed in the Indenture. This Official Statement, including any supplement or amendment hereto, is intended to be deposited with one or more nationally recognized municipal securities information repositories.

Certain statements included or incorporated by reference in this Official Statement constitute "forward­looking" statements. Such statements are generally identifiable by the words "plans," "expects," "forecasts," "projects," "intends," "anticipates," "estimates," "assumes," "budgets" and analogous expressions. The achievement of certain results or other expectations contained in such forward-looking statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those that have been projected. No assurance is given that actual results will meet the forecasts of the City in any way, regardless of the optimism communicated in the information, and such statements speak only as of the date of this Official Statement. The City disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any changes in the expectations of the City with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

The Series 2007 Bonds have not been registered under the Securities Act of 1933, as amended, m reliance upon an exemption from the registration requirements contained in such Act. The Series 2007 Bonds have not been registered or qualified under the securities laws of any state.

In making an investment decision investors must rely on their own examination of the City and the terms of the offering, including the merits and risks involved. These securities have not been approved or disapproved by the Securities and Exchange Commission or any State securities commission nor has the Securities and Exchange Commission or any State securities commission passed upon the accuracy or adequacy of this Official Statement. Any representation to the contrary is a criminal offense.

In connection with this offering, the Underwriter may overallot or effect transactions that stabilize or maintain the market price of the Series 2007 Bonds at levels above those which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriter may offer and sell the Series 2007 Bonds to certain dealers and banks at prices lower than the public offering price stated on the cover page hereof and said public offering price may be changed from time to time by the Underwriter.

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

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TABLE OF CONTENTS

Page Page

INTRODUCTION ............................................. 1 Organization and Management. .............. 22

Authority for Issuance .............................. 1 Purpose ..................................................... 1 The City Airports ...................................... 2 Security for the Bonds .............................. 2 Bondholders' Risks ................................... 2

Certain Federal, State, and Local Laws and Regulations ............................. 23

Noise Mitigation ..................................... 25 Employee Relations ................................ 26 Hazardous Material Management.. ......... 26

Report of the Airport Consultant .............. 3 THE 2007 PROJECT ....................................... 26 Continuing Disclosure .............................. 3 Enviromnental Matters and Land Use Summaries and Additional Approvals ...................................... 27

Information ...................................... 3 Construction Contract.. ........................... 27

DESCRIPTION OF THE SERIES 2007 THE AIRPORT ............................................... 28 BONDS .................................................... 4 Current Airport Facilities ....................... 28 General.. .................................................... 4 Airport Security ...................................... 30 Redemption Provisions ............................. 4 Airline Service ........................................ 30

ESTIMATED SOURCES AND USES OF Passenger Traffic .................................... 31

FUNDS .................................................... 6 Cargo Traffic and Landed Weight.. ........ 32

DEBT SERVICE SCHEDULE .......................... 7

SECURITY FOR THE SERIES 2007 BONDS .................................................... 8

Airline Agreements ................................ 34 Car Rental Agreements ........................... 35

CHANDLER AIRPORT ................................. 37

Limited Obligation .................................... 8 CAPITAL PROJECTS AND PLANNING ..... 37

Pledge of Revenues ................................... 8 AIRPORT FINANCIAL INFORMATION ..... 38 Flow of Airport Revenues ......................... 9 Revenues ................................................ 38 Rate Covenant.. ....................................... 12 PFC Revenues ........................................ 41 Debt Service Reserve Fund ..................... 12 Principal Revenues Sources .................... 42 Additional Obligations ............................ 13 Operating Expenses ................................ 42 Other Obligations .................................... 14 Payments to the City ............................... 43

FINANCIAL GUARANTY INSURANCE ..... 15 GASB 45 ................................................ 46

General.. .................................................. 15 Noise Mitigation ..................................... 47

Financial Strength and Financial Enhancement Ratings of XLCA .... 15

Reinsurance ............................................. 16

Enviromnental Contamination ................ 47 FAA Audit of the Airport ....................... 47 Investment of City Airports Funds ......... 48

Capitalization of the Bond Insurer .......... 16 Risk Management and Insurance ............ 48

Incorporation by Reference of REPORT OF THE AIRPORT Financials ....................................... 16 CONSULTANT ..................................... 49

Regulation of the Bond Insurer. .............. 17 General ................................................... 49

CERTAIN RISK FACTORS ........................... 17 Historical Debt Service Coverage .......... 49

Uncertainties of the Aviation Industry .... 18 Forecast of Debt Service Coverage ........ 51

Bankruptcy Risks .................................... 18 ABSENCE OF MATERIAL LITIGATION ... 51 Expiration of the Airline Agreements ..... 20 General ................................................... 51 Airport Security ...................................... 21 Other Matters .......................................... 52 Natural Disasters ..................................... 21 RATINGS ........................................................ 52 Construction and Completion Risk ......... 21 Defeasance of the Series 2007 Bonds ..... 22

UNDERWRITING .......................................... 52

Uncertainties of Projections, Forecasts and Assumptions ........................... 22

Future Legislation ................................... 22

CITY AIRPORTS ............................................ 22 Overview ................................................. 22

TAX MATTERS ............................................. 53 Tax Status of the Series 2007 Bonds ...... 53 Sale and Exchange of Series 2007

Bonds ............................................ 54 Foreign Investors .................................... 54 Circular 230 ............................................ 54

111

Page Page

APPROVAL OF LEGAL PROCEEDINGS .... 55

PROFESSIONALS INVOLVED IN THE

FINANCIAL STATEMENTS ......................... 55

CONTINUING DISCLOSURE ....................... 55 OFFERING ............................................ 55 MISCELLANEOUS ........................................ 56

APPENDICES

APPENDIXA - REPORTOFTHEAIRPORTCONSULTANT ................................................................ A-1

APPENDIX B - FUND FINANCIAL STATEMENTS - PROPRIETARY FUNDS

- AIRPORTS - FOR THE FISCAL YEAR ENDED JUNE 30, 2006 ............................ B-1 APPENDIX C - SUMMARY OF CITY INVESTMENT POLICY ......................................................... C-1

APPENDIXD - SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE ............................. D-1

APPENDIX E - FORM OF THE CONTINUING DISCLOSURE CERTIFICATE ................................... E-1 APPENDIX F - INFORMATION REGARDING DTC AND THE BOOK-ENTRY

ONLY SYSTEM .................................................................................................................. F-1

APPENDIX G - PROPOSED FORM OF OPINION OF BOND COUNSEL ............................................. G-1 APPENDIX H - SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY .................................. H-1

APPENDIX I - SPECIMEN DEBT SERVICE RESERVE INSURANCE POLICY ................................ I-1

LIST OF MAPS AND TABLES

City Location Map ........................................................................................................................................ v Airport and 2007 Project Location Map ...................................................................................................... vi Table 1 - Mandatory Sinking Fund Redemption .......................................................................................... 5 Table 2 - Estimated Sources and Uses of Funds ........................................................................................... 6 Table 3 - Debt Service Schedule ................................................................................................................... 7 Table 4 - Flow of Funds Chart .................................................................................................................... 11 Table 5 - Collective Bargaining Units ........................................................................................................ 26 Table 6 - Budgeted 2007 Project Construction Costs and Sources of Funds .............................................. 27 Table 7 - Scheduled Airlines Serving the Airport ....................................................................................... 31 Table 8 - Enplaned Passengers by Airline .................................................................................................. 32 Table 9 - Historical Enplaned Cargo ........................................................................................................... 33 Table 10 - Airline Shares of Landed Weight .............................................................................................. 34 Table 11 - Projected CFC Revenues ........................................................................................................... 39 Table 12 - Historical and Current Landing Fees and Terminal Rental Rates .................................................. 39 Table 13 - Principal Concessionaires ................................................................................................................ 40 Table 14 - Principal Revenue Producers ........................................................................................................... 42 Table 15 - Airport Enterprise Funds .................................................................................................................. 48 Table 16 - Historical Debt Service Coverage .................................................................................................... 50 Table 17 - Forecast of Debt Service Coverage ................................................................................................. 51

IV

CITY LOCATION MAP

1{resno

V

$22,000,000 CITY OF FRESNO

AIRPORT REVENUE BONDS TAXABLE SERIES 2007

INTRODUCTION

This Official Statement is furnished in connection with the offering by the City of Fresno (the "City") of $22,000,000 principal amount of its City of Fresno Airport Revenue Bonds, Taxable Series 2007 (the "Series 2007 Bonds"). All capitalized terms used in this Official Statement, including on the cover page hereof, and not herein defined shall have the meanings given such terms in the Indenture. See APPENDIX D-"SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE-Certain Definitions."

Authority for Issuance

The Series 2007 Bonds will be issued under an Indenture of Trust dated as of June 15, 2000 (the "Original Indenture") between the City and The Bank of New York Trust Company, N.A., as successor in interest to BNY Western Trust Company, as trustee (the "Trustee"), as amended and supplemented by a First Supplemental Indenture dated as of May I, 2007 (the "Supplemental Indenture" and together with the Original Indenture, the "Indenture"). The City Council of the City, acting pursuant to powers reserved to the City under Sections 3.5 and 7 of Article XI of the Constitution of the State of California and Section 1223 of the Charter of the City, has enacted the City of Fresno Municipal Improvements Revenue Bond Law, being Article 7 of Chapter 18 of the Municipal Code of the City (the "Bond Law"), which incorporates, to the extent made applicable by such law, the Revenue Bond Law of 1941, being Chapter 6 of Division 2 of Title 5 of the California Government Code, as enacted and as thereafter amended. The Series 2007 Bonds are being issued pursuant to the Bond Law, which authorizes the City to issue its revenue bonds for the acquisition and construction of municipal airport facilities and for the refunding of such bonds.

The Series 2007 Bonds have a parity lien on Revenues with the $39,735,000 aggregate outstanding amount of Airport Revenue Bonds, Series 2000, consisting of $10,815,000 outstanding principal amount of Series 2000A (Non-AMT) and $$28,920,000 outstanding principal amount of Series 2000B (AMT) (collectively, the "Series 2000 Bonds" and together with the Series 2007 Bonds, the "Bonds"), subject to the provisions of the Indenture regarding limitation on the use of certain Revenues. Following the issuance of the Series 2007 Bonds, there will be $61,735,000 aggregate principal amount of Bonds Outstanding under the Indenture. See "SECURITY FOR THE BONDS-Additional Obligations."

Purpose

The Series 2007 Bonds are being issued to: (i) finance the costs of constructing a consolidated rental car facility (the "CRCF") and related improvements at the Fresno Yosemite International Airport ( collectively, the "2007 Project"); (ii) capitalize interest on the Series 2007 Bonds through January I, 2009; (iii) purchase a debt service reserve insurance policy for deposit in a debt service reserve fund for the Series 2007 Bonds (the "2007 Debt Service Reserve Fund"); and (iv) pay certain costs associated with the issuance of the Series 2007 Bonds. See "THE 2007 PROJECT."

The City Airports

The City owns and operates two airports: the Fresno Yosemite International Airport (the "Airport"), a commercial airport located approximately 7.5 miles northeast of the downtown area of the City, and Fresno-Chandler Executive Airport ("Chandler Airport" and together with the Airport the "City Airports"), a general aviation airport located approximately 1.5 miles southwest of the downtown area of the City and nine miles southwest of the Airport. The Airport is the only major commercial air carrier airport in Fresno County (the "County") and the central San Joaquin Valley. See "CITY AIRPORTS," "THE AIRPORT" and "CHANDLER AIRPORT."

Security for the Bonds

Pledge of Revenues. The Series 2007 Bonds are payable from, and secured by, Revenues and amounts on deposit in certain funds and accounts held under the Indenture ( other than the Rebate Fund and any Debt Service Reserve Fund created for any other series of Bonds), including the 2007 Debt Service Reserve Fund. The term "Revenues" also includes CFC Revenues (defined herein), provided that under California law such moneys can only be used to (i) pay the Debt Service on the Series 2007 Bonds or any other Bonds issued to finance or refmance facilities designated in the CFC Act (defined herein), (ii) replenish the 2007 Debt Service Reserve Fund, and (iii) transfer to the Surplus Fund to be applied for any purpose allowed under the CFC Act. See also "SECURITY FOR THE SERIES 2007 BONDS-Pledge of Revenues.''

The Series 2007 Bonds are not secured by a pledge of, or charge or lien upon, any property of the City or any of its income or receipts, except Revenues and certain funds and accounts held pursuant to the Indenture. Neither the full faith and credit nor the taxing power of the City is pledged to the payment of the principal of, redemption premium, if any, and interest on the Series 2007 Bonds. Neither the payment of the principal of, nor the interest on the Series 2007 Bonds constitutes a debt, liability or obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which it has levied or pledged any form of taxation.

Debt Service Reserve Fund. The Supplemental Indenture establishes the 2007 Debt Service Reserve Fund as additional security solely for the Series 2007 Bonds. Upon the issuance of the Series 2007 Bonds, a debt service reserve insurance policy (the "Reserve Policy") issued by XL Capital Assurance Inc. (the "Bond Insurer") will be deposited in the 2007 Debt Service Reserve Fund in satisfaction of the Debt Service Reserve Requirement for the Series 2007 Bonds. See "SECURITY FOR THE SERIES 2007 BONDS-Debt Service Reserve Fund," APPENDIX D-"SUMMARY OF CERTAIN PROVISIONS OF THE lNDENTURE-2007 Debt Service Reserve Fund" and APPENDIX !-"SPECIMEN DEBT SERVICE RESERVE INSURANCE POLICY."

Bond Insurance. Payment of the principal of and interest on the Series 2007 Bonds when due will be insured by a fmancial guaranty insurance policy (the "Insurance Policy") to be issued by the Bond Insurer simultaneously with the execution and delivery of the Series 2007 Bonds. See "FINANCIAL GUARANTY INSURANCE FOR THE SERIES 2007 BONDS" and APPENDIX H-"SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY."

Bondholders' Risks

There are important investment considerations and other risk factors associated with the purchase of the Series 2007 Bonds. See "CERTAIN RISK FACTORS" for a discussion of some of these considerations and risks. Any one or more of the risks discussed, and others, could lead to a decrease in the market value and/or in the liquidity of the Series 2007 Bonds. Potential purchasers of the Series 2007

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Bonds are advised to review this Official Statement carefully and to conduct such due diligence and other review as they deem necessary and appropriate under the circumstances.

Report of the Airport Consultant

In connection with the issuance of the Series 2007 Bonds, Jacobs Consultancy, Inc. (formerly Leigh Fisher Associates) (the "Airport Consultant") has prepared the Report of the Airport Consultant, dated May 22, 2007, attached hereto as APPENDIX A. The Report of the Airport Consultant should be read in its entirety for a discussion of key factors that could affect future airline traffic, forecasts of passenger enplanements for the Airport, forecasts of Net Revenues for Fiscal Years 2006-07 through 2011-12, and assumptions and rationale underlying the forecasts. These assumptions were provided by, or reviewed with and agreed to by, Airport management and the forecasts reflect Airport management's expected course of action during the forecast period. In the opinion of the Airport Consultant, such assumptions provide a reasonable basis for the forecasts.

As noted in the Report of the Airport Consultant, all forecasts set forth therein are subject to uncertainties. Some of the assumptions used to develop the forecast of Net Revenue may not be realized, and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between the forecast and actual results, and those differences may be material. Neither the City nor the Airport Consultant makes any representation or gives any assurance that these assumptions will prove to be correct or that the forecasts contained in the Report of the Airport Consultant will reflect actual results.

Continuing Disclosure

The City has covenanted for the benefit of the holders and beneficial owners of the Series 2007 Bonds to provide certain financial information and operating data and to give notices of certain events, if material, to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b )(5). See "CONTINUING DISCLOSURE" and APPENDIX E-"FORM OF THE CONTINUING DISCLOSURE CERTIFICATE."

The City has never failed to comply in all material respects with any previous undertakings with regard to said Rule to provide annual reports or notices of material events.

Summaries and Additional Information

There follows in this Official Statement a description of the Airport, the 2007 Project and certain information relating to the City and sources of payment for the Series 2007 Bonds, together with summaries of the terms of the Series 2007 Bonds and certain provisions of the Indenture. All references herein to agreements and documents are qualified in their entirety by reference to the defmitive forms thereof, and all references to the Series 2007 Bonds are further qualified by reference to the information with respect thereto contained in the Indenture.

This Official Statement speaks only as of its date. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale on the basis hereof shall, under any circumstances, create any implication that there has been no change in the affairs of the City or the Airport since the date hereof.

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DESCRIPTION OF THE SERIES 2007 BONDS

General

The Series 2007 Bonds will be issued in fully registered form, without coupons, and, when issued will be registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York ("DTC"), as registered owner of all Series 2007 Bonds. Ownership interests in the Series 2007 Bonds may be purchased in book-entry form only. Purchasers will not receive certificates representing their interests in the Series 2007 Bonds purchased. Payments of principal of and the interest on the Series 2007 Bonds will be paid by the Trustee to DTC, which is obligated in tum to remit payments to its DTC Participants for subsequent disbursement to the beneficial owners of the Series 2007 Bonds. See APPENDIX F-"INFORMATION REGARDING DTC AND THE BOOK-ENTRY ONLY SYSTEM." Ownership may be changed only upon the registration books maintained by the Trustee as provided in the Indenture.

The Series 2007 Bonds will be dated the date of delivery, issued in denominations of $5,000 or any integral multiple thereof and will bear interest at the rates per annum and mature in the amounts and on the dates shown on the inside cover of this Official Statement. Interest on the Series 2007 Bonds will be payable on July 1 and January 1 of each year, commencing July 1, 2007. Interest will be calculated on the basis of a year of360 days and twelve 30-day months.

Redemption Provisions

Optional Redemption at Make-Whole Redemption Price. The Series 2007 Bonds are subject to optional redemption prior to their maturity at the option of the City in whole or in part pro rata among owners of the Series 2007 Bonds called for redemption on any date, at a redemption price equal to the greater of:

(i) 100% of the principal amount of the Series 2007 Bonds to be redeemed; or

(ii) the sum of the present values of the remaining scheduled payments of principal and interest on the Series 2007 Bonds to be redeemed ( exclusive of interest accrued to the date fixed for redemption) discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate (defined below) plus 12.5 basis points and accrued and unpaid interest on the Series 2007 Bonds being redeemed to the date fixed for redemption.

"Comparable Treasury Issue" means, with respect to any redemption date for a particular Series 2007 Bond, the US Treasury security or securities selected by the Independent Investment Banker which has an actual or interpolated maturity comparable to the remaining average life of the applicable Series 2007 Bond to be redeemed, and that would be utilized in accordance with customary financial practice in pricing new issues of debt securities of comparable maturity to the remaining average life of the Series 2007 Bond to be redeemed.

"Comparable Treasury Price" means, with respect to any redemption date for a particular Series 2007 Bond, (i) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest Reference Treasury Deal Quotations, or (ii) if the Trustee obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such quotations.

"Independent Investment Banker" means one of the Reference Treasury Dealers appointed by the Trustee in consultation with the City.

4

"Reference Treasury Dealer" means Citigroup and its respective successor and three other firms, specified by the City from time to time, that are primary U.S. Government securities dealers in the City of New York ( each a "Primary Treasury Dealer"); provided, however, that if any of them ceases to be a Primary Treasury Dealer, the City will substitute another Primary Treasury Dealer.

"Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date for a particular Series 2007 Bonds , the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue ( expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 3 :30 p.m., New York City time, on the third business date preceding such redemption date.

"Treasury Rate" means, with respect to any redemption date for a particular Series 2007 Bonds Bond, the rate per annum equal to the semiannual equivalent yield to maturity or interpolated maturity of the Comparable Treasury Issue, assuming that the Comparable Treasury Issue is purchased on the redemption date for a price equal to the Comparable Treasury Price.

Mandatory Sinking Fund Redemption. The Series 2007 Bonds are also subject to redemption prior to their respective stated maturities in part pro rata among the owners of the Series 2007 Bonds, from mandatory sinking fund payments at a redemption price equal to 100% thereof plus accrued and unpaid interest to the date fixed for redemption as set forth below:

t Maturity.

TABLE 1 MANDATORY SINKING FUND REDEMPTION

Red em pt ion Date (July 1)

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Amount $15,000

50,000 90,000

125,000 170,000 215,000 265,000 315,000 370,000 435,000 500,000 570,000 645,000

Redemption Date (July 1)

2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037t

Amount $725,000 810,000 905,000

1,005,000 1,110,000 1,220,000 1,345,000 1,475,000 1,610,000 1,760,000 1,920,000 2,085,000 2,265,000

Selection of Series 2007 Bonds for Redemption. If less than all of a maturity of a Series 2007 Bonds are to be redeemed, the Series 2007 Bonds to be redeemed shall be selected on a pro rata basis. If any Series 2007 Bonds are optionally redeemed or purchased and cancelled by the City prior to maturity, the principal amount of such Series 2007 Bonds redeemed or purchased shall be credited against the Mandatory Sinking Fund Payments of such Series 2007 Bonds in such manner as the City shall determine.

Notice of Redemption. The Trustee is required to give notice of redemption by first class mail, postage prepaid, at least 30 days but not more than 60 days prior to the redemption date, to the Owners of any Series 2007 Bonds or portions thereof that are to be redeemed, all organizations registered with the

5

Securities and Exchange Commission as secunbes depositories, at least two information services of national recognition which disseminate redemption information with respect to municipal securities and the Bond Insurer. In addition, the City has covenanted to give notice of optional, unscheduled and contingent bond calls with respect to the Series 2007 Bonds to the Municipal Securities Rulemaking Board and to the applicable state repository, if any, and to provide a copy of such notice to the Trustee. See APPENDIX E-"FORM OF THE CONTINUING DISCLOSURE CERTIFICATE."

So long as the Series 2007 Bonds are in book-entry only form through the facilities of DTC, notice of redemption will be provided to Cede & Co., as the registered owner of the Series 2007 Bonds, and not directly to the Beneficial Owners.

Any notice of optional redemption may be cancelled and annulled if for any reason funds are not available on the date fixed for redemption for the payment in full of the Series 2007 Bonds then called for redemption. Such cancellation does not constitute an event of default under the Indenture.

ESTIMATED SOURCES AND USES OF FUNDS

The following table sets forth the estimated sources and uses of funds from the sale of the Series 2007 Bonds. See also "THE 2007 PROJECT."

(])

(2)

(3)

TABLE2

ESTIMATED SOURCES AND USES OF FUNDS

SOURCES OF FUNDS: Principal Amount of Series 2007 Bonds ...................................... .

TOTAL ....................................................................................... .

USES OF FuNDS: Deposit to 2007 Project Account<n .............................................. . Deposit to Series 2007 Bonds Capitalized Interest Account<2l ..... .

Deposit to the Series 2007 Costs oflssuance Fund<3l ................... .

Underwriter's Discount ................................................................... . TOTAL .......................................................................................... .

For a description of the 2007 Project, see ''THE 2007 PRomcT."

$22,000,000.00 $22,000,000.00

19,280,395.06 1,869,232.29

725,728.65 _124,644.00

$22,000,000.00

Represents capitalized interest on the Series 2007 Bonds through January 1, 2009, the estimated Date of Beneficial Occupancy of the 2007 Project. Includes fees and costs of Bond Counsel, Disclosure Cmmsel, the Financial Advisor, the Airport Consultant, the Trustee, accountants, printing costs, the premiums for the Insurance Policy and Reserve Policy and other miscellaneous costs of issuance associated with the issuance of the Series 2007 Bonds.

(Remainder of this Page Intentionally Left Blank)

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DEBT SERVICE SCHEDULE

The following table presents the debt service requirements for the Bonds following the issuance of the Series 2007 Bonds.

TABLE3 DEBT SERVICE SCHEDULE

Series 2007 Bonds Debt Service Total

Date on Outstanding Scheduled (July l} Bondst Princi11al Interest Total Debt Service

2007 $3,007,910.00 $60,598.39 $60,598.39 $1,947,053.39 2008 3,009,660.00 1,283,260.00 1,283,260.00 4,292,920.00 2009 3,009,410.00 1,283,260.00 1,283,260.00 4,292,670.00 2010 3,012,160.00 1,283,260.00 1,283,260.00 4,295,420.00 2011 3,012,660.00 1,283,260.00 1,283,260.00 4,295,920.00 2012 3,011,560.00 $15,000.00 1,283,260.00 1,298,260.00 4,309,820.00 2013 3,012,160.00 50,000.00 1,282,385.06 1,332,385.06 4,344,545.06 2014 3,009,160.00 90,000.00 1,279,469.56 1,369,469.56 4,378,629.56 2015 3,012,560.00 125,000.00 1,274,219.86 1,399,219.86 4,411,779.86 2016 3,011,760.00 170,000.00 1,266,928.60 1,436,928.60 4,448,688.60 2017 3,008,010.00 215,000.00 1,257,012.50 1,472,012.50 4,480,022.50 2018 3,010,685.00 265,000.00 1,244,471.56 1,509,471.56 4,520,156.56 2019 3,009,235.00 315,000.00 1,229,013.10 1,544,013.10 4,553,248.10 2020 3,008,660.00 370,000.00 1,210,639.16 1,580,639.16 4,589,299.16 2021 3,008,685.00 435,000.00 1,189,057.06 1,624,057.06 4,632,742.06 2022 3,010,900.00 500,000.00 1,163,684.50 1,663,684.50 4,674,584.50 2023 3,007,710.00 570,000.00 1,134,519.50 1,704,519.50 4,712,229.50 2024 3,009,115.00 645,000.00 1,101,270.40 1,746,270.40 4,755,385.40 2025 3,009,535.00 725,000.00 1,063,648.56 1,788,648.56 4,798,183.56 2026 3,008,695.00 810,000.00 1,021,358.30 1,831,358.30 4,840,053.30 2027 3,011,305.00 905,000.00 974,111.00 1,879,111.00 4,890,416.00 2028 3,011,785.00 1,005,000.00 921,322.36 1,926,322.36 4,938,107.36 2029 3,009,860.00 1,110,000.00 862,701.70 1,972,701.70 4,982,561.70 2030 6,020,240.00 1,220,000.00 797,954.40 2,017,954.40 8,038,194.40 2031 1,345,000.00 726,792.80 2,071,792.80 2,071,792.80 2032 1,475,000.00 648,338.96 2,123,338.96 2,123,338.96 2033 1,610,000.00 562,301.20 2,172,301.20 2, 172,301..20 2034 1,760,000.00 468,390.90 2,228,390.90 2,228,390.90 2035 1,920,000.00 365,729.10 2,285,729.10 2,285,729.10 2036 2,085,000.00 253,736.50 2,338,736.50 2,338,736.50 2037 2,265,000.00 132,117.46 2 397 117.46 2 397 117.46

TOTAL $75,253,420.00 $22,000,000.00 $29,908,059.49 $51,908,059.49 $126,161,479.49

t Reflects debt service on the Series 2000 Bonds.

7

SECURITY FOR THE SERIES 2007 BONDS

Limited Obligation

The Series 2007 Bonds are not secnred by a pledge of, or charge or lien npon, any property of the City or any of its income or receipts, except the Revennes and certain other fnnds and acconnts held pnrsnant to the lndentnre. Neither the fnll faith and credit nor the taxing power of the City is pledged to the payment of the principal of, redemption preminm, if any, and interest on the Series 2007 Bonds. The payment of the principal of, or the interest on the Series 2007 Bonds does not constitnte a debt, liability or obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which it has levied or pledged any form of taxation.

Pledge ofRevennes

The Series 2007 Bonds are secured by a pledge of, lien on and security interest in the Revenues derived by the City from the operation of the City Airports on a parity with the pledge and lien on and security interest securing the Series 2000 Bonds and any Additional Bonds issued under the Indenture, subject to the provisions of the Indenture regarding limitation on the use of certain Revenues.

"Revenues" are def med in the Indenture as all charges received for and all other income and receipts derived by the City from the ownership, operation and use of and otherwise pertaining to the City Airports, or any part thereof, whether resulting from extensions, enlargements, repairs, betterments or other improvements to the City Airports, or otherwise, and includes, except to the extent hereinafter expressly excluded, all revenues received by the City from the City Airports, including, without limitation, all rentals, rates, fees and other charges for the use of the City Airports, or for any service rendered by the City in the operation thereof, investment income deposited in the Revenue Fund, the Debt Service Fund or the Surplus Fund but, unless and until deposited in the Revenue Fund, excluding certain amounts described in the Indenture. See APPENDIX D-"SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE-DEFINITIONS." The term "Revenues" also includes CFC Revenues (defined below), provided that under California law such moneys can only be used to ( i) pay the Debt Service on the Series 2007 Bonds or any other Bonds issued to fmance or refinance facilities designated in the CFC Act, (ii) replenish the 2007 Debt Service Reserve Fund, and (iii) transfer to the Surplus Fund to be applied for any purpose allowed under the CFC Act.

"City Airports" is defmed as the Airport and the Chandler Airport, each located within the City, and each as it now exists, including, without limitation, runways, taxiways, landing pads, aprons, beacon sites, obstruction lights, navigational and landing aids, control towers, facilities for storage of aircraft and for parking of automobiles, roadways, passenger and freight terminals, land, easements and rights in land for clear zone and approach purposes, maintenance hangars and related facilities and all equipment, buildings, grounds, facilities, utilities and structures owned, leased or operated in connection with or for the promotion or the accommodation of air commerce and air navigation and services in connection therewith, together with all additions, betterments, extensions, replacements, renewals and improvements thereto which may hereafter be undertaken, and any future airport or aviation facilities, or any interest therein, from time to time hereafter owned, operated or controlled in whole or in part by the City and determined by the City to be a part of the City Airports. See also "CITY AIRPORTS."

"Operating Expenses" is defined as the reasonable and necessary costs of operating, maintaining and administering the City Airports, paid or accrued, including ( among other things) salaries and wages, fees for services, costs of materials, supplies and fuel, reasonable expenses of management, repairs and other expenses necessary to maintain and preserve the City Airports in good repair and working order, reasonable amounts for administration, overhead, insurance, taxes (if any) and other similar costs, capital outlays to the extent budgeted by the City to be paid from the Operating Fund, the fees and expenses of

8

the Fiduciaries, the regularly scheduled fees (but not the repayment of advances or the interest on advances) to be paid pursuant to any Reimbursement Agreement, expenses incurred in connection with the purchase or redemption of Bonds (but not the purchase price or Redemption Price of such Bonds), the amounts required to be paid into the Rebate Fund, and all other costs (including overhead) properly allocable to the operation, maintenance or administration of the City Airports, but excluding in all cases depreciation and obsolescence charges or reserves therefor, amortization of intangibles or other bookkeeping entries of a similar nature, amortization and depreciation of Capital Improvements, charges for the payment of principal and interest on any Bonds or other obligations hereafter issued for City Airports purposes, and costs and expenses attributable to Special Facilities to the extent required to be paid by lessees pursuant to the terms of any Special Facility lease.

Net Revenues are defined in the Indenture as "Revenues" less "Operating Expenses."

"CFC Revenues" is defined in the Supplemental Indenture as any customer facility charge or fee ( a "CFC") imposed by the City from time to time pursuant to California Civil Code Section 1936, including any amendment, successor or replacement thereto (the "CFC Act"). The CFC Act authorizes the collection of a CFC in an amount that does not exceed the reasonable costs of financing, designing or constructing a rental car facility or common use transportation systems or services and not for any other purpose. See also "AIRPORT FINANCIAL INFORMATION-Revenues-Customer Facility Charge."

Flow of Airport Revenues

The Indenture creates a special fund designated as the "Revenue Fund," into which the City is required to set aside and credit all Revenues, including, CFC Revenues, upon receipt thereof, provided that CFC Revenues will only be applied as described in "Ninth" below. The Indenture requires that moneys or deposits in the Revenue Fund be transferred monthly ( except in the case of the Rebate Fund) solely to the following created funds in order of priority:

First: To the Operating Fund the amount which, together with any amount therein, is equal to the total amount required for Operating Expenses ( other than deposits to the Rebate Fund) in such month;

Second: To the Debt Service Fund, (i) the amount, if any, required so that the balance in the fund will equal the Adjusted Debt Service to accrue on all Outstanding Bonds through and including the last day of such month (and if Debt Service is payable on any Bonds during the next succeeding month, the amount, if any, required so that the balance in the fund will be sufficient to make such payment of Debt Service); (ii) to the extent not included in Debt Service on Bonds representing or securing Primary Reimbursement Obligation, pay to each provider of Credit Enhancement the Primary Reimbursement Obligation, if any, accruing to the last day of such month in accordance with each applicable Reimbursement Agreement; and (iii) pay to each Qualified Provider the amount, if any, accrued by the City as of the last day of such month in accordance with each applicable Swap Agreement; provided that, for the purposes of computing the amount on deposit in the fund, there will be excluded from the balance of the fund: (i) the amount, if any, set aside in the fund from the proceeds of Bonds (including amounts, if any, transferred thereto from the Construction Fund) for the payment of the Principal Amount, Redemption Price, or purchase price of, or interest on, Bonds less that amount of such proceeds to be applied in accordance with the Indenture to the payment of the Principal Amount, Redemption Price or purchase price of, or interest accrued and unpaid to accrue on, Bonds to the last day of the then current calendar month; and (ii) the amount, if any, set aside in the fund for the payment of Principal Installments or Redemption Price of, or interest on, Bonds which are then due and payable;

Third: To each Debt Service Reserve Fund: (i) an amount sufficient, if deposits are made in 12 equal monthly instalhnents to make the amount on deposit in such Debt Service Reserve Fund equal to the applicable Debt Service Reserve Requirement or (ii) an amount sufficient to reimburse a' drawing on

9

a Financial Guaranty relating to such Debt Service Reserve Fund in accordance with any Financial Guaranty Agreement; and (ii) the amount, if any, required to pay interest accruing with respect to a drawing on a Financial Guaranty relating to such Debt Service Reserve Fund;

Fourth: To the Operating Reserve Fund an amount equal to one-twelfth of the applicable Operating Reserve Requirement;

Fifth: To the Subordinated Indebtedness Fund the amount, if any, required to be deposited therein in such month pursuant to each Subordinated Indebtedness Indenture to pay the principal, redemption price, and purchase price of, and interest on, Subordinated Indebtedness and any amounts due with respect to the repayment of advances made by any provider of credit enhancement for Subordinated Indebtedness, and the interest thereon, which will accrue to the end of such month and any amounts required to replenish any reserve fund with respect to such Subordinated Indebtedness;

Sixth: To the Renewal and Replacement Fund the amount, if any, equal to one-twelfth of the amount needed to maintain the balance in such fund equal to the Renewal and Replacement Fund Requirement;

Seventh: Within 45 days of the end of each Bond Year, to the Rebate Fund the amount to be paid therein pursuant to any Tax Certificate;

Eighth: On the last Business Day of each month after making the deposits described in first through seventh paragraphs above, to the Surplus Fund the balance, if any, of moneys remaining in the Revenue Fund; and

Ninth: From CFC Revenues, solely to pay Debt Service on the Series 2007 Bonds and to replenish the 2007 Debt Service Reserve Fund, and to pay Debt Service on and to replenish debt service reserve funds for any other Bonds issued to finance or refinance facilities described in the CFC Act. Any CFC Revenues not transferred from the Revenue Fund applied as described in this clause Ninth will be deposited into the Surplus Fund and (i) transferred to the 2007 Debt Service Account or the 2007 Debt Service Reserve Fund as provided in the Indenture and applied as described in the first sentence of this clause Ninth; (ii) designated as Other Available Funds in an amount not to exceed 25% of Debt Service on the Series 2007 Bonds and transferred to the Revenue Fund and applied a described in the first sentence of this clause Ninth or (iii) applied to financing, designing and constructing facilities described in the CFC Act or applied for any other purpose permitted by the CFC Act.

(Remainder of this Page Intentionally Left Blank)

10

APPLICATION OF REVENUES

CURRENT FISCAL YEAR NEXT FISCAL YEAR

Fund or Account Fund or Account

PFC Revenue Fund CFC Revenue: Fund Discribution oi all PFC collections revenues r+

to various funds and accounts (a) Depository ior all Revenues

I • ! L Operating Fund

Covenanted PFC Project Additional PFC PFC Account - Account -Project Account To pay Operating Expenses

Depository 1or To accumulate Depository 1o r J, covenanted portion PFC revenue PF-C collections

of PFC revenue for pay-as-you-go greater Than Debi Service Fund (a) project costs Covenanted .

Porcion To pay Deb, Service on Bonds

! • PFC Debt Service Escrow Fund Debt Service: Reserve Fund To accumulme annual debt service on To rnaintain the Debt Service Reserve

PFC-eligible coses (equal to no less ttmn the Requirement on Bonds Minir1:ur1: PFC Contribwion and no greater

• than PFC-eligible debt setvice)

Operating Reserve Fund

To rnaintain a reserve equal w 20% oi Operating Expenses

* Subordinated lndebtednsss Fund

To pay debt setvice on Subordinate Bonds

+ Renewal and Replacement Fund

To maintain a reserve for rebuilding, reconst11Jcting, repairing, altering, replacing,

and renewing the Airporc

J, Roba!o Fune!

To pay amounts pursuant to any Tax Certificate

/a) Under State of California law, CFCs can only be used to pay costs + associated with financing, designing, and constructing a new Surplus Fund

consolidated rental car facility. At the Airport, CFC revenues are To accurnulate any rnonies rernaining to be used to pay Debt Se Nice on the 2007 Bonds, replenish the in The Revenue Fund and interest earned in

2007 Debt Service Reserve Fund. and then be transferred to the certain other iunds; to pay costs of capital

Surplus Fund to be applied for the purposes mentioned earlier in improvements; to pay costs for other la11.rlul

this re ort. Airport System purposes

~ '----------------------------------------------'' p

Source: City of Fresno Indenture of Trust, June 1. 2000, as supplemented.

11

Rate Covenant

The City has covenanted in the Indenture to establish, fix, revise, prescribe and collect rentals, rates, fees and charges, and cause to be collected, amounts in connection with the services and facilities of the City Airports, as shall be required to provide Revenues at least sufficient in each Fiscal Year for the payment of all of the following: (i) Operating Expenses during such Fiscal Year; (ii) an amount equal to Adjusted Debt Service for such Fiscal Year; (iii) the amount, if any, to be paid during such Fiscal Year, into each Debt Service Reserve Fund; (iv) the amount, if any, to be paid in such Fiscal Year into the Operating Reserve Account, (v) the amount, if any, to be paid in such Fiscal Year into the Subordinated Indebtedness Fund, (vi) the amount, if any, to be paid during such Fiscal Year into the Renewal and Replacement Fund; and (vii) all other charges or other amounts payable out of Revenues during such Fiscal Year.

In addition to the requirements described in the preceding paragraph, the City will establish, fix, revise, prescribe and collect rentals, rates, fees and charges in connection with the services and facilities of the City Airports so as to yield Net Revenues during the then current Fiscal Year in an amount, together with Other Available Funds, which is equal to at least 125% of Adjusted Debt Service for all Outstanding Bonds for said Fiscal Year. The City may make adjustments from time to time in such rentals, rates, fees and charges and may make such classification thereof as it deems necessary. In the event that Operating Expenses or other costs in connection with the operation and maintenance of the City Airports exceed the amounts estimated by the City when establishing rentals, rates, fees and charges in connection with the services and facilities of the City Airports or the Revenues are less than the amounts estimated by the City when establishing such rentals, rates, fees and charges, the City shall as soon as practical revise such rentals, rates, fees and charges so as to satisfy the foregoing requirements. The City shall not reduce rentals, rates, fees and charges in connection with the services and facilities of the City Airports below those then in effect unless the Revenues from such reduced rates will at all times be sufficient to meet the foregoing requirements

Debt Service Reserve Fund

General. The Original Indenture created a Debt Service Reserve Fund and within such Debt Service Reserve Fund, one or more funds or accounts relating to one or more series of Bonds. The Supplemental Indenture establishes the 2007 Debt Service Reserve Fund as security for the Series 2007 Bonds and no other Bonds of the City. The Debt Service Reserve Requirement for the Series 2007 Bonds is equal to $2,159,436.70. Upon the issuance of the Series 2007 Bonds, the Reserve Policy in the amount of the Debt Service Reserve Requirement will be deposited into the 2007 Debt Service Reserve Fund. Amounts in the 2007 Debt Service Reserve Fund will be used to make up deficiencies in the amounts available to pay principal of, premium, if any, or interest on the Series 2007 Bonds when due.

The Indenture defmes "Debt Service Reserve Requirement" as of any date of calculation by the City: with respect to any Series of Bonds, an amount which, when added to the amount of any Financial Guaranties then in effect and delivered pursuant to the Indenture or any Supplemental Indenture then in effect, is equal to the least of (A) 10% of the initial offering price of such Series of Bonds (determined in accordance with the Code); (B) Debt Service for the Outstanding Bonds of such Series for the then current or any future Fiscal Year in which such Debt Service is a maximum, or (C) 125% of the average annual Debt Service on such Series of Bonds. In the event a Debt Service Reserve Fund is maintained to secure more than one Series of Bonds, these calculations may be made on a composite basis.

See APPENDIX D-"SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE-2007 Debt Service Reserve Fund" for a more detailed description of provisions of the Indenture pertaining to the 2007 Debt Service Reserve Fund.

12

Reserve Policy. The Reserve Policy is issued in the amount of the Debt Service Reserve Requirement and provides that upon the later of the Business Date on which principal and interest becomes due for payment or on the Business Day next following the Business Day on which the Bond Insurer receives notice of nonpayment, the Bond Insurer will pay to the Trustee the portion of the principal of and interest on the Series 2007 Bonds that become due for payment but remain unpaid by the City. For a specimen of the Reserve Policy see APPENDIX I.

Additional Obligations

Additional Bonds. Additional Bonds on a parity with the lien on Revenues with the Series 2007 Bonds and the Series 2000 Bonds may be issued under the Indenture for the purpose of paying all or a portion of the cost of any Capital Improvement. The Indenture requires, among other things, that one of the following three conditions be satisfied prior to the issuance of Additional Bonds:

(i) the Net Revenues, together with Other Available Funds, as determined from the accounting records of the City, for the last Fiscal Year or last 12 month period for which fmancial statements were prepared whichever is later, preceding the date of the issuance of such Series of Bonds, plus:

(a) An allowance for additional Net Revenues from any additions or improvements to the City Airports to be made from any source, including the proceeds of such Series of Bonds or Bonds previously issued, but which, during all or any part of such Fiscal Year or reported 12 month period, were not in service (but less any Net Revenues attributable to any such additions or improvements and received during such Fiscal Year or reported 12 month period), all in an amount equal to 100% of the estimated additional average annual Net Revenues to be derived from such additions and improvements for the first 24 months in which each addition or improvement is respectively to be in operation, all as shown by the certificate or opinion of a Qualified Independent Airport Consultant; and

(b) An allowance for additional Net Revenues ansmg from any increase in the charges made for the use of the City Airports which has become effective prior to the issuance of such Series of Bonds, but which, during all or any part of such Fiscal Year or reported 12 month period, was not in effect, in an amount equal to 100% of the amount by which the Net Revenues would have been increased if such increase in charges had been in effect during the whole of such Fiscal Year or reported 12 month period, as shown by the certificate or opinion of a Qualified Independent Airport Consultant;

shall have produced a sum equal to at least 125% of Maximum Annual Adjusted Debt Service with respect to the Bonds to be Outstanding upon the issuance of such Series of Bonds. For the purposes of calculating Maximum Annual Adjusted Debt Service, the City may assume that PFC Revenues to be deposited into the PFC Debt Service Escrow Fund for each future Fiscal Year shall equal the PFC Revenues deposited in such Fund in the Fiscal Year Preceding the year in which such calculation is made.

(ii) With respect to any Series of Additional Bonds issued to pay the Cost of a Capital Improvement and in lieu of satisfying the requirements described in Paragraphs (i) or (iii) of this section, a written report of a Qualified Independent Airport Consultant setting forth projections indicating that the estimated annual Net Revenues, together with Other Available Funds, as then estimated by the Qualified Independent Airport Consultant, for each of the first three complete Fiscal Years immediately following the estimated Date of Beneficial Occupancy of the Capital Improvement to be fmanced from the proceeds of such Series of Additional Bonds, will produce a sum equal to at least 125% of Maximum Annual Adjusted Debt Service in each of such years with respect to the Bonds to be Outstanding upon the issuance of such Series of Bonds. For the purposes of calculating Maximum Annual Adjusted Debt

13

Service in each of the three Fiscal Years referenced above, the City shall reduce Maximum Annual Adjusted Debt Service by the amount of PFC Revenues projected to be deposited in the PFC Debt Service Escrow Fund in each of such Fiscal Years. Notwithstanding the above, such three-year period shall be deemed to end no later than the date which is five years after the end of the Fiscal Year in which such calculation is made.

( iii) With respect to any Series of Bonds issued to pay the Cost of completing any Capital Improvement for which Bonds have previously been issued, which Series of Bonds in the aggregate shall not exceed 10% of the outstanding principal amount of the Bonds previously issued for the Cost of such Capital Improvement, and in lieu of satisfying the requirements described in paragraphs (i) or (ii) above, a certificate of an Authorized Representative certifying that the amount of proceeds to be available for such Cost of such Capital Improvement will be sufficient to pay the remaining estimated Cost of such Capital Improvement and a certificate of a Qualified Independent Airport Consultant to the effect that the scope of such Capital Improvement has not been materially increased since the last issuance of Bonds in connection with the issuance of which the requirements described in paragraphs (i) or (ii) above were satisfied.

Refunding Bonds. Refunding Bonds may be issued under the Indenture to refund all Outstanding Bonds of one or more Series or all or any Outstanding Bonds within a Series. The Indenture requires that Refunding Bonds be issued in a principal amount sufficient, together with other moneys available therefor, to accomplish such refunding including providing amounts for the costs of issuance of such Refunding Bonds and the making of any deposits into the funds and accounts required by the provisions of the Supplemental Indenture authorizing such Series of Refunding Bonds. With respect to any Series of Refunding Bonds, the Trustee must receive a certificate of an Authorized Representative to the effect that the Debt Service for all Outstanding Bonds in each Fiscal Year after the issuance of such Refunding Bonds, and the application of the proceeds thereof to the refunding of Bonds, shall not be greater than the Debt Service for all Outstanding Bonds immediately prior to the issuance of such Refunding Bonds.

Subordinated Indebtedness. The City may, at any time or from time to time, issue Subordinated Indebtedness for any purpose of the City in connection with the City Airports, including, without limitation, the financing of a part of the cost of a Special Facility or the refunding or payment of any Subordinated Indebtedness or Outstanding Bonds, subject to the terms and conditions of the Indenture. Such Subordinated Indebtedness may be payable out of and may be secured by a pledge of Revenues and such amounts in the Subordinated Indebtedness Fund as may from time to time be available therefor, provided that any such payment and pledge shall be, and shall be expressed to be, subordinate and junior in all respects to the payment of the Bonds.

Swap Agreements. The City may enter into an Integrated Swap Agreement in connection with the issuance of a Series of Bonds if, among other things, the conditions described in paragraphs (i) or (ii) of the section "-Additional Obligations" are satisfied in connection with the issuance of such Bonds taking into account such Integrated Swap Agreement. In addition to the right to enter into Integrated Swap Agreements, the City may also, at any time or from time to time, enter into one or more Swap Agreements, including Integrated Swap Agreements, subject to the satisfaction of certain conditions contained in the Indenture. As of the date of this Official Statement, the City has not entered into any Integrated Swap Agreements.

Other Obligations

Nothing in the Indenture is intended to restrict or limit the right of the City to issue Grant Bonds or Special Facility Bonds, or to incur other indebtedness or obligations which are payable from any source of funds not included in the Trust Estate established pursuant to the Indenture.

14

FINANCIAL GUARANTY INSURANCE

The following information has been supplied by the Bond Insurer for inclusion in this Official Statement. No representation is made by City or the Underwriter as to the accuracy or completeness of the information.

The Bond Insurer accepts no responsibility for the accuracy or completeness of this Official Statement or any other information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the Bond Insurer and its affiliates set forth under this heading. In addition, the Bond Insurer makes no representation regarding the Series 2007 Bonds or the advisability of investing in the Series 2007 Bonds. See APPENDIX H for a specimen of the Insurance Policy to be issued by the Bond Insurer.

General

XL Capital Assurance Inc. (the "Bond Insurer" or "XLCA") is a monoline financial guaranty insurance company incorporated under the laws of the State of New York. The Bond Insurer is currently licensed to do insurance business in, and is subject to the insurance regulation and supervision by, all 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands and Singapore.

The Bond Insurer is an indirect wholly owned subsidiary of Security Capital Assurance Ltd ("SCA"), a company organized under the laws of Bermuda. Through its subsidiaries, SCA provides credit enhancement and protection products to the public finance and structured finance markets throughout the United States and internationally. XL Capital Ltd ("XL") currently beneficially owns approximately 63% of SCA's outstanding shares. On May 16, 2007 SCA announced it has filed a registration statement with the SEC following SCA's receipt from XL of a notice of its intention to reduce its economic ownership in SCA through a proposed underwritten secondary offering. After the proposed offering, which is subject to market conditions, XL would beneficially own approximately 47.5% of SCA's outstanding voting common shares (which would be further reduced if the underwriters' option to purchase additional common shares were to be exercised). SCA will not receive any proceeds from the offering.

The common shares of SCA are publicly traded in the United States and listed on the New York Stock Exchange (NYSE: SCA). SCA is not obligated to pay the debts of or claims against the Bond Insurer.

Financial Strength and Financial Enhancement Ratings ofXLCA

The Bond Insurer's insurance fmancial strength is rated "Aaa" by Moody's and "AAA" by Standard & Poor's and Fitch, Inc. ("Fitch"). In addition, the Bond Insurer has obtained a fmancial enhancement rating of "AAA" from Standard & Poor's. These ratings reflect Moody's, Standard & Poor's and Fitch's current assessment of the Bond Insurer's creditworthiness and claims-paying ability as well as the reinsurance arrangement with XL Financial Assurance Ltd. ("XLFA") described under "'Reinsurance" below.

The above ratings are not recommendations to buy, sell or hold securities, including the Series 2007 Bonds and are subject to revision or withdrawal at any time by Moody's, Standard & Poor's or Fitch. Any downward revision or withdrawal of these ratings may have an adverse effect on the market price of the Series 2007 Bonds. The Bond Insurer does not guaranty the market price of the Series 2007 Bonds nor does it guaranty that the ratings on the Series 2007 Bonds will not be revised or withdrawn.

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Reinsurance

The Bond Insurer has entered into a facultative quota share reinsurance agreement with XLF A, an insurance company organized under the laws of Bermuda, and an affiliate of the Bond Insurer. Pursuant to this reinsurance agreement, the Bond Insurer expects to cede up to 75% of its business to XLF A. The Bond Insurer may also cede reinsurance to third parties on a transaction-specific basis, which cessions may be any or a combination of quota share, first loss or excess of loss. Such reinsurance is used by the Bond Insurer as a risk management device and to comply with statutory and rating agency requirements and does not alter or limit the Bond Insurer's obligations under any financial guaranty insurance policy. With respect to any transaction insured by XLCA, the percentage of risk ceded to XLF A may be less than 75% depending on certain factors including, without limitation, whether XLCA has obtained third party reinsurance covering the risk. As a result, there can be no assurance as to the percentage reinsured by XLFA of any given fmancial guaranty insurance policy issued by XLCA, including the Policy.

Based on the audited financials of XLFA, as of December 31, 2006, XLFA had total assets, liabilities, redeemable preferred shares and shareholders' equity of $2,007,395,000, $874,028,000, $54,016,000 and $1,079,351,000, respectively, determined in accordance with generally accepted accounting principles in the United States ("US GAAP"). XLFA's insurance financial strength is rated "Aaa" by Moody's and "AAA" by S&P and Fitch. In addition, XLFA has obtained a fmancial enhancement rating of"AAA" from S&P.

The ratings of XLF A or any other member of the SCA group of companies are not recommendations to buy, sell or hold securities, including the Series 2007 Bonds and are subject to revision or withdrawal at any time by Moody's, Standard & Poor's or Fitch.

Notwithstanding the capital support provided to the Bond Insurer described in this section, the Bondholders will have direct recourse against the Bond Insurer only, and XLFA will not be directly liable to the Bondholders.

Capitalization of the Bond Insurer

Based on the audited financials of XLCA, as of December 31, 2006, XLCA had total assets, liabilities, and shareholder's equity of $1,224,735,000, $974,230,000, and $250,505,000, respectively, determined in accordance with US GAAP.

Based on the unaudited statutory fmancial statements for XLCA as of December 31, 2006 filed with the State of New York Insurance Department, XLCA has total admitted assets of $429,073,000, total liabilities of $222,060,000, total capital and surplus of $207,013,000 and total contingency reserves of $20,876,000 determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities ("SAP").

Based on the audited statutory financial statements for XLCA as of December 31, 2005 filed with the State of New York Insurance Department, XLCA has total admitted assets of $328,231,000, total liabilities of $139,392,000, total capital and surplus of $188,839,000 and total contingency reserves of $13,031,000 determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities ("SAP").

Incorporation by Reference of Financials

For further information concerning XLCA and XLF A, see the financial statements of XLCA and XLFA, and the notes thereto, incorporated by reference in this Official Statement. The financial statements of XLCA and XLF A are included as exhibits to the periodic reports filed with the Securities

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and Exchange Commission (the "Commission") by SCA and may be reviewed at the EDGAR website maintained by the Commission. All financial statements of XLCA and XLF A included in, or as exhibits to, documents filed by SCA or XL Capital Ltd pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 on or prior to the date of this Official Statement, or after the date of this Official Statement but prior to termination of the offering of the Series 2007 Bonds, shall be deemed incorporated by reference in this Official Statement. Except for the financial statements of XLCA and XLF A, no other information contained in the reports filed with the Commission by SCA is incorporated by reference. Copies of the statutory quarterly and annual statements filed with the State of New York Insurance Department by XLCA are available upon request to the State of New York Insurance Department.

Regulation of the Bond Insurer

The Bond Insurer is regulated by the Superintendent of Insurance of the State of New York. In addition, the Bond Insurer is subject to regulation by the insurance laws and regulations of the other jurisdictions in which it is licensed. As a financial guaranty insurance company licensed in the State of New York, the Bond Insurer is subject to Article 69 of the New York Insurance Law, which, among other things, limits the business of each insurer to financial guaranty insurance and related lines, prescribes minimum standards of solvency, including minimum capital requirements, establishes contingency, loss and unearned premium reserve requirements, requires the maintenance of minimum surplus to policyholders and limits the aggregate amount of insurance which may be written and the maximum size of any single risk exposure which may be assumed. The Bond Insurer is also required to file detailed annual financial statements with the New York Insurance Department and similar supervisory agencies in each of the other jurisdictions in which it is licensed.

The extent of state insurance regulation and supervision varies by jurisdiction, but New York and most other jurisdictions have laws and regulations prescribing permitted investments and governing the payment of dividends, transactions with affiliates, mergers, consolidations, acquisitions or sales of assets and incurrence of liabilities for borrowings.

THE FINANCIAL GUARANTY INSURANCE POLICIES ISSUED BY THE BOND INSURER, INCLUDING THE INSURANCE POLICY, ARE NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.

The principal executive offices of the Bond Insurer are located at 1221 Avenue of the Americas, New York, New York 10020 and its telephone number at this address is (212) 478-3400.

CERTAIN RISK FACTORS

This section provides a general overview of certain risk factors which should be considered, in addition to the other matters set forth in this Official Statement, in evaluating an investinent in the Series 2007 Bonds. This section is not meant to be a comprehensive or definitive discussion of the risks associated with an investinent in the Series 2007 Bonds, and the order in which this information is presented does not necessarily reflect the relative importance of various risks. Potential investors in the Series 2007 Bonds are advised to consider the following factors, among others, and to review this entire Official Statement to obtain information essential to the making of an informed investinent decision. Any one or more of the risk factors discussed below, among others, could lead to a decrease in the market value and/or in the marketability of the Series 2007 Bonds. There can be no assurance that other risk factors not discussed herein will not become material in the future.

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Uncertainties of the Aviation lndnstry

The principal determinants of passenger demand at the Airport include the growth in the population and economy of the Airport service region; national economic conditions; political conditions, including, wars, other hostilities and acts of terrorism; airline airfares, and competition from surrounding airports; airline service and route networks; the capacity of the national air transportation system and the Airport; accidents involving commercial passenger aircraft; and the occurrence of pandemics. For a discussion of certain of these factors and related considerations, see APPENDIX A-"REPORT OF THE AIRPORT CONSULTANT."

In addition to revenues received from the airlines, the Airport derives a substantial portion of its revenues from parking and concessionaires including merchandisers, car rental companies, food outlets and others. See "AIRPORT FINANCIAL AND RELATED INFORMATION-Concessions." Declines in Airport passenger traffic have, and may in the future, adversely affect the commercial operations of many of such concessionaires. Severe financial difficulties affecting a concessionaire could lead to a failure to pay rent due under its lease agreement with the Airport or could lead to the cessation of operations of such concess1ona1re.

The ability of the Airport to derive revenues from its operations depends in part upon the fmancial health of the airline industry and international relations. Since the economic deregulation of the airline industry in 1978, the industry has undergone significant changes, including numerous airline mergers, acquisitions, bankruptcies and liquidations. The financial results of the airline industry have been subject to substantial volatility since deregulation, and many carriers have not been profitable, particularly after the events of September 11, 200 I, the SARS epidemic, the war in Iraq, recessions, availability of aviation fuel and increases in aviation fuel prices. Additional bankruptcy filings, mergers, consolidations and other major restructuring by airlines are possible. See also "THE AIRPORT-Airline Bankruptcies" and APPENDIX A-"REPORT OF THE AIRPORT CONSULTANT-Financial Analysis."

Bankruptcy Risks

The rights of the owners of the Series 2007 Bonds and the enforceability of the City's obligation to make payments on the Series 2007 Bonds may be subject to bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights under existing law or under laws enacted in the future and may also be subject to the exercise of judicial discretion under certain circumstances. The opinions of Bond Counsel and the City Attorney as to the enforceability of the obligations of the City will be qualified as to bankruptcy and similar events and as to the application of equitable principles and the exercise of judicial discretion in appropriate cases and to common law and statutes affecting the enforceability of contractual obligations generally and to principles of public policy concerning, affecting or limiting the enforcement of rights or remedies against governmental entities such as the City.

Regardless of any specific adverse determination in a bankruptcy proceeding, the fact of a bankruptcy proceeding for a rental car company, an airline or the City could have an adverse effect on the liquidity and value of the Series 2007 Bonds, which may result in delays or reductions in payment on the Series 2007 Bonds. Such bankruptcy proceedings, if any, may have other possible effects that could result in delays or reductions in payment to the holders of the Series 2007 Bonds.

Rental Car Company Bankruptcies. The automatic stay provisions of the United States Bankruptcy Code (the "Bankruptcy Code") could prevent (unless approval of the bankruptcy court was obtained) any action to collect any amount owing by the rental car company to the City or any action to enforce any obligation of the rental car company to the City. With the authorization of the bankruptcy court, the rental car company may be able to repudiate some or all of its agreements with the City and stop performing its obligations (including payment obligations) under such agreements. Such a

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repudiation could also excuse the other parties to such agreements from performing any of their obligations. The rental car company may be able, without the consent and over the objection of the City, the Trustee, and the Owners of the Series 2007 Bonds, to alter the terms, including the payment terms, of its agreements with the City, as long as the bankruptcy court determines that the alterations are fair and equitable. In addition, with the authorization of the bankruptcy court, the rental car company may be able to assign its rights and obligations under any of its agreements with the City to another entity, despite any contractual provisions prohibiting such an assignment. The Trustee and the Owners of the Series 2007 Bonds may be required to return to the rental car company as preferential transfers any money that was used to make payments on the Series 2007 Bonds and that was received by the City or the Trustee from the rental car company during the 90 days immediately preceding the filing of the bankruptcy petition. Claims by the City under any lease with the rental car company may be subject to limitations.

A rental car company is likely to be in possession of CFCs at the time it goes into bankruptcy. While there are provisions in the agreements between the City and the rental car companies requiring the rental car companies to treat CFCs as trust funds, the enforceability and application of these provisions in a bankruptcy case is not clear. A rental car company in bankruptcy may not be required to turn over to the City or the Trustee any CFCs in its possession at the time it goes into bankruptcy. Even while the rental car company is in bankruptcy, it may not be required to tum over CFCs that it collects to the City or the Trustee. There may be delays in payments on the Series 2007 Bonds while the court considers any of these issues.

For a discussion of the effects of bankruptcy on the collection of the CFC, see "AIRPORT'S FINANCIAL AND RELATED INFORMATION-Revenues-Customer Facility Charge."

Airline Bankruptcy. The automatic stay provisions of the Bankruptcy Code could prevent (unless approval of the bankruptcy court was obtained) any action to collect any amount owing by the airline to the City or any action to enforce any obligation of the airline to the City. With the authorization of the bankruptcy court, the airline may be able to repudiate some or all of its agreements with the City and stop performing its obligations (including payment obligations) under such agreements. Such a repudiation could also excuse the other parties to such agreements from performing any of their obligations. The airline may be able, without the consent and over the objection of the City, the Trustee, and the Owners of the Series 2007 Bonds, to alter the terms, including the payment terms, of its agreements with the City, as long as the bankruptcy court determines that the alterations are fair and equitable. In addition, with the authorization of the bankruptcy court, the airline may be able to assign its rights and obligations under any of its agreements with the City to another entity, despite any contractual provisions prohibiting such an assignment. The Trustee and the Owners of the Series 2007 Bonds may be required to return to the airline as preferential transfers any money that was used to make payments on the Series 2007 Bonds and that was received by the City or the Trustee from the airline during the 90 days immediately preceding the filing of the bankruptcy petition. Claims by the City under any lease with the airline may be subject to limitations.

The airline is likely to be in possession of PFCs at the time it goes into bankruptcy. While there are provisions in the law requiring airlines to treat PF Cs as trust funds, the application of these provisions in a bankruptcy case is not clear. The airline may not be required to tum over to the City or the Trustee any PFCs in its possession at the time it goes into bankruptcy. Even while the airline is in bankruptcy, it may not be required to tum over PFCs that are collected prior to the time that the City or the Trustee demands the turnover of the PFCs. Even after a demand is made, it is possible that the airline would not be required to turn over subsequently-collected PFCs. There may be delays in payments on the Series 2007 Bonds while the court considers any of these issues.

City Bankruptcy. The enforceability of the rights and remedies of the Owners of the Series 2007 Bonds and of the obligations of the City under the Indenture are subject to the United States Bankruptcy

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Code (the "Bankruptcy Code") and to other applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditors' rights generally, to equitable principles that may limit the enforcement under California law of certain remedies and to exercise by the United States of America of powers delegated to it by the United States Constitution.

The City is able to file for bankruptcy under Chapter 9 of the Bankruptcy Code. A bankruptcy of the City could result in delays or reductions in payments on the Series 2007 Bonds. Should the City become the debtor in a bankruptcy case, the Owners of the Series 2007 Bonds will not have a lien on Net Revenues received by the City or the Trustee after the commencement of the bankruptcy case unless such revenues constitute "special revenues" within the meaning of the Bankruptcy Code. "Special revenues" are defined to include receipts from the ownership, operation, or disposition of projects or systems that are primarily used to provide transportation services, as well as other revenues or receipts derived from particular functions of the debtor. While the City believes that the Net Revenues should be treated as special revenues, a court may find that Net Revenues should not be treated as special revenues. If Net Revenues are not special revenues, there could be delays or reductions in payments to the Owners of the Series 2007 Bonds. Even if a court determines that Net Revenues are special revenues, the City will be able to use such revenues to pay operation and maintenance costs at the Airport, notwithstanding any provision of the Indenture to the contrary, that requires the application of such revenues to the payment of the Series 2007 Bonds.

The automatic stay provisions of the Bankruptcy Code could prevent (unless approval of the bankruptcy court was obtained) any action to collect any amount owing by the City to the Trustee or any action to enforce any obligation of the City to the Trustee. With the authorization of the bankruptcy court, the City may be able to repudiate some or all of its agreements with the Trustee, the airlines, and the rental car companies, and stop performing its obligations under such agreements. Such a repudiation could also excuse the other parties to such agreements, including the rental car companies and the airlines, from performing any of their obligations.

The City may be able to cause any of its property, that is subject to the lien of the Indenture or that of any of the other agreements relating to the Series 2007 Bonds, to be released to the City, free and clear of such lien, as long as the bankruptcy court determines that the rights of the Trustee and the Owners of the Bonds will be adequately protected.

The City may be able, without the consent and over the objection of the Trustee and the Owners of the Bonds, to alter the priority, interest rate, payment terms, collateral, maturity dates, payment sources, covenants (including tax-related covenants), and other terms or provisions of the Indenture, the Bonds, or any other agreement relating to the Bonds to which the City is a party, as long as the bankruptcy court determines that the alterations are fair and equitable. In addition, with the authorization of the bankruptcy court, the City may be able to assign its rights and obligations under the Indenture, or any other agreement to which the City is a party, to another entity, despite any contractual provisions prohibiting such assignment. There may be delays in payments on the Bonds while the court considers any of these issues.

Expiration of the Airline Agreements

Upon the expiration of Airline Agreements on June 30, 2010, the City will have various options, including (a) extending the long-term agreements, (b) negotiating new long-term agreements, (c) entering into month-to-month agreements, or (d) not entering into new agreements and setting rates and charges by resolution. In any event, the City intends to continue to establish rates and charges that will comply with the requirements of the rate covenant under the Indenture and that will allow the continued safe and efficient operation of the Airport and additional capital investment. If the City and the airlines do not finalize new long-term agreements by the time the existing Airline Agreements expire, the City intends to

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set rates and charges by resolution that are consistent with any applicable parameters established by the FAA and the U.S. DOT or their successors. However, the City cannot predict what form any new agreements may take, whether the existing residual rate-setting system will be continued or whether the balance of risks and benefits between the City and the airlines will be the same as in the current Airline Agreements.

Airport Security

The September 11, 200 I terrorist attacks resulted in increased safety and security measures at the Airport mandated by the Aviation and Transportation Security Act passed by the U.S. Congress in November 2001 and by directives of the Federal Aviation Administration. In addition, certain safety and security operations at the Airport have been assumed by the Transportation Security Administration. These measures may cause passenger delays from time to time and require significant expenditures by the City in order to comply with these directives. In spite of the increased security measures, there is no assurance that there will not be additional acts of terrorism resulting in further disruption to the North American air traffic system, increased passenger and flight delays, and further reductions in Airport passenger traffic and/or Airport revenues. See "THE AIRPORT-Airport Security."

Natural Disasters

Earthquake. There are several active geological faults in the State that have potential to cause serious earthquakes that could result in damage within the City and to the Airport, buildings, roads, bridges, and other property.

While the City is not located in any existing Alquist-Priolo special study zone delineated by the State Division of Mines and Geology as an area of known active faults, it is possible that new geological faults could be discovered in the area and that an earthquake occurring on such faults could result in damage of varying degrees of seriousness to property and infrastructure in the City, including the Facilities.

Any natural disaster or other physical calamity, including earthquake, may have the effect of damaging the Airport and/ or adversely impacting the economy of the City and the surrounding area.

Flooding. In 2004 the U.S. Army Corps of Engineers (the "Corps of Engineers") released and the Federal Emergency Management Agency, which administers the federal government's flood insurance programs, approved a revised floodplain map indicating that while portions of the County are located within a 100-year floodplain ( an area expected to be inundated during a flood event of the magnitude for which there is a 1% (or 1-in-100) probability of occurrence in any year), the City is not. The floodplain maps are updated periodically and while the City is not currently located within a floodplain, the City can make no representation that future maps will not be revised to include the City within an area deemed subject to flooding.

Construction and Completion Risk

Completion of the 2007 Project may be delayed by a number of factors or costs could increase significantly due to, among other factors, litigation, the need to obtain approvals, permit delays by contractors, labor and material shortages, labor disputes, weather, unforeseen engineering, environmental or geological problems or other events. The City will enter into a fixed price construction contract with respect to the 2007 Project. This contract will include a maximum 10% contingency for change orders and a completion and delivery date of no later than January I, 2009. See also "THE 2007 PROJECT­Construction Contract." A delay in the completion of the 2007 Project is not expected to have a material

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adverse effect on Net Revenues or the ability of the City to pay principal of or interest on the Series 2007 Bonds.

Defeasance of the Series 2007 Bonds

Defeasance of any Series 2007 Bond may result in a reissuance thereof, in which event a holder will recognize taxable gain or loss equal to the difference between the amount realized from the sale, exchange or retirement (less any accrued qualified stated interest which will be taxable as such) and the holder's adjusted tax basis in such Series 2007 Bond.

Uncertainties of Projections, Forecasts and Assumptions

Projected compliance with certain of the covenants contained in the Indenture is also based upon assumptions and projections. Projections and assumptions are inherently subject to significant uncertambes. Inevitably, some assumptions will not be realized and unanticipated events and circumstances may occur and actual results are likely to differ, perhaps materially, from those projected. Accordingly, the projections contained in the Report of the Airport Consultant are not necessarily indicative of future performance, and neither the City nor the Airport Consultant assumes any responsibility for the accuracy of such projections.

Future Legislation

The Airport is subject to various laws, rules and regulations adopted by the local, State and federal govermnents and their agencies. The City is unable to predict the adoption or amendment of any such laws, rules or regulations, or their effect on the operations or fmancial condition of the Airport.

CITY AIRPORTS

Overview

The City owns and operates two airports; the Fresno Yosemite International Airport (the "Airport"), a commercial airport, and Fresno-Chandler Executive Airport ("Chandler Airport" and together with the Airport, the "City Airports"), a general aviation reliever airport. The Airport is a commercial service airport with precision instrument approaches and a 24-hour air traffic control tower that principally serves commercial, military and high performance aircraft. The Chandler Airport is classified by the FAA as a "reliever airport" and is intended to complement service at the Airport by serving lower performance general aviation aircraft of less than 12,500 pounds gross weight. The City Airports serve a six-county region in central San Joaquin Valley. For information regarding the City Airports, see "THE AIRPORT" and "CHANDLER AIRPORT."

Organization and Management

Management of the City Airports is led by the Director of Aviation, who has the authority to administer the affairs of the City Airports as the Manager thereof. The Director of Aviation is appointed by the City Manager from candidates following a nationwide search. Once appointed, the Director of Aviation serves at the pleasure of the City Manager.

Brief biographies of the principal members of the senior management at the Airport are set forth below:

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Russell C. Widmar, AAE was appointed Director of Aviation in 2004. Mr. Widmar has more than 30 years of experience in the management and development of air carrier and general aviation airports. From 1999 to 2003 he served as the director of aviation for the City of Kansas City and from 1996 to 1999 he served as executive director to the Salt Lake City International Airport. Prior to that Mr. Widmar served as Director of Operations at Hughes Aircraft Company, as Vice President Western Region and Airport Director for Burbank, Glendale and Pasadena Airport for 14 years and held various management positions with the Los Angeles and Ontario International Airports for seven years. Mr. Widmar has a Masters of Arts in Executive Management from Claremont Graduate University, a Bachelors of Arts in Economics from California State University, Northridge and is an Accredited Airport Executive ("AAE"). He is also a past member of the Board of Directors of the Airports Council International (the "ACI"), North America and holds a commercial pilots license.

Michael Lima was appointed Airports Finance Manager - Airports Department in 2002. Mr. Lima is responsible for revenue and payment accounting, grant and capital project accounting, budget and fmance for the Airports Department. From 2000 through 2002, he was an Adjunct Professor at National University in Governmental, University and Hospital Accounting; and he served as a Senior Budget Analyst from 1999 through 2002 and as Budget Analyst from 1994 through 1998 with the City. He also served as a senior accountant for one year and an accountant for Fresno County Auditor­Controller/Treasurer-Tax Collector's office for four years. Mr. Lima has a Masters of Science degree in Business Administration and a Bachelor of Science degree in Business Administration from California State University, Fresno.

Brendan Carmody was appointed Airports Properties Manager in 2003. Mr. Carmody is responsible for negotiating, drafting and managing the contracts between the City and all entities doing business on or at the City Airports. Prior to this appointment, he served as Transition Manager of the Airports Authority of Trinidad and Tobago; as President and Chief Executive Officer of Orlando Sanford International Corp.; and as a Principal Consultant with Newton & Associates Aviation Consultants .. Mr. Carmody began his aviation career at the Port Authority of New York and New Jersey, where he served for 18 years in various positions, including Assistant Manager of La Guardia Airport and Assistant Business Manager of JFK and La Guardia. Mr. Carmody holds a Bachelor of Arts degree in Philosophy from Iona College in New Rochelle, New York and a Juris Doctor degree from St. John's University School of Law. He is admitted to the practice of law in the State Courts of New York and Texas; the Federal District Courts for the Southern and Eastern Districts of New York and the Northern District of Texas; and the U.S. Supreme Court.

Kevin Meikle was appointed Airports Planning Manager in 2002. Mr. Meikle is responsible for planning, studies, design, and construction of the capital improvement programs at the Airport and Chandler Airport. Prior to this appointment, he spent 12 years in the City Planning and Development Department, interfacing directly with architects, engineers, construction managers and contractors for all private and public commercial projects. He also taught for seven years at Fresno City College in the Building Code and Administration program as an Adjunct Professor. Mr. Meikle has a Bachelor of Science degree in Architecture from California Polytechnic State University in San Luis Obispo, California, he is a licensed architect in the State and has over 30 years experience in the design and construction industry.

Certain Federal, State, and Local Laws and Regulations

Aviation Act In November 2001, the President of the United States signed into law the Aviation Act which requires airports in the nation to make certain modifications to securities procedures. For a discussion of certain requirements of the Aviation Act, see "THE AIRPORT-Airport Security."

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Federal Law Prohibiting Revenue Diversion. Federal law requires that all revenues generated by a public airport be expended for the capital or operating costs of the airport, the local airport system, or other local facilities which are owned or operated by the airport owner or operator and directly and substantially related to the air transportation of passengers or property. The City is the "sponsor" of the Airport for purposes of these federal requirements.

In February 1999, the FAA adopted a policy that applies to airport sponsors that receive federal grants for airport development from the FAA, including the Airport. The policy specifies that use of airport revenues for: (1) land rental to, or use of land by, the sponsor for non-aeronautical purposes at less than the fair market rate; (2) impact fees assessed by any govermnental body that exceed the value of services or facilities provided to the airport; or (3) direct subsidy of air carrier operations, constitutes unlawful revenue diversion, unless that use is "grandfathered" pursuant to a law controlling financing by the airport owner or operator, or a covenant or assurance in a debt obligation issued by the airport owner prior to September 1982.

The City Airports make payments to the City for services provided by the Fire, Police, Finance, City Attorney's Office, Personnel, General Services and Information Technology departments. The FAA has authority to order the City to reimburse to the Airport any improper payments made to the City, and to suspend or terminate pending FAA grants to the Airport and/ or any then-existing PFC authorizations as a penalty for any violation of the revenue diversion rules. The U.S. DOT may also withhold non-aviation federal funds that would otherwise be made available to the City as a penalty for violation of the revenue diversion rules. See also "FINANCIAL AND RELATED INFORMATION-Payments to the City" and "-FAA Audit of the Airport."

State Proposition 218. On November 5, 1996, the voters of the State approved Proposition 218, known as the "Right to Vote on Taxes Act." Proposition 218 added Articles XIII C and XIII D to the California Constitution, and contains a variety of interrelated provisions concerning the ability of local govermnents, including the City, to impose both existing and future taxes, assessments, fees and charges.

Article XIII C removes limitations on the initiative power in matters of local taxes, assessments, fees and charges. Consequently, the voters of the City could, by future initiative, seek to repeal, reduce, or prohibit the future imposition or increase of, any local tax, assessment, fee or charge. "Assessment," "fee," and "charge" are not defined in Article XIII C and it is unclear whether the definitions of such terms contained in Article XIII D (which are generally property-related as described below) are so limited under Article XIII C.

Article XIII D conditions the imposition of a new or increased "fee" or "charge" on either voter approval or the absence of a majority protest, depending upon the nature of the fee or charge. The terms "fee" and "charge" are defined to mean levies ( other than ad valorem taxes, special taxes and assessments) imposed by a local government upon a parcel or upon a person as an incident of the ownership or tenancy of real property, including a user fee or charge for a "property-related service." No assurance can be given that the voters of the City will not, in the future, approve initiatives which seek to repeal, reduce, or prohibit the future imposition or increase of, assessments, fees, or charges, including the fees and charges of the Airport, which are the source of Net Revenues pledged to the payment of debt service on the Series 2007 Bonds. The City believes that Article XIII D does not apply to Airport fees and charges imposed by the Airport.

The interpretation and application of the Proposition 218 will ultimately be determined by the courts or through implementing legislation. The City is unable to predict the outcome of any such litigation or legislation.

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Noise Mitigation

General The Airport has had an FAA approved Noise Compatibility Program (an "NCP") in place since 1990. The NCP provides for the protection and safe operation of the Airport and improves the quality of life for surrounding inhabitants. The NCP addresses aircraft operations, airport operations, airspace use, land use, and program management.

Noise Abatement Procedures. The NCP focuses on: (i) military hours of operation and power management; (ii) minimizing reverse thrusters for jet aircraft, helicopter routes and training times; (iii) military and civilian flight training; (iv) preferential runway usage, controlled intersection use and engine run-ups; (v) flight paths and arrival altitudes; (vi) updating Specific Plans around the Airport for compatible land use; (vii) providing for school sound proofmg studies in noise impacted areas; (viii) purchasing land developed with non-compatible land uses; and (ix) acoustic treatment and execution of avigation (i.e. aerial

easements for homes in noise impacted areas. The NCP also established a community outreach program to assist in building trust and cooperation with the public and to inform the public in understanding the purpose and elements of the NCP, the history, successes, challenges and opportunities for participation.

Aircraft Noise Insulation Program. The City Airports also established an aircraft noise insulation program, known locally as the Sound Mitigation Acoustical Remedy Treatment ("SMART") program. This program is available to residential property owners and businesses located within the 65-75 decibel ( dB) Community Noise Equivalent Level (the "CNEL") noise contour of the Airport. In 1990, the Airport created an implementation manual outlining the process to acoustically treat residences within the CNEL. The process includes execution of an Owner Participation Agreement and an Avigation Easement. This is an ongoing program of the City Airports and approximately 800 homes and four elementary schools have been insulated to date. Approximately 2,000 homes remain to be insulated. Funding for the SMART program has been provided from FAA Airport Improvement Program grants and matched by internal Airport sources. Since 1990, the FAA has provided approximately $1 million annually to fund this program. In Fiscal Year 2005-06, the Airport increased the funding request for the SMART program to $2 million per year. Commencing in Fiscal Year 2007-08, funding for the City match component of the SMART program grants will be provided by funds derived from the passage of Measure C. Measure C is a ½ cent sales tax approved by the voters to fund highway, capital improvements and local transportation projects.

(Remainder of this Page Intentionally Left Blank)

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Employee Relations

As of July 1, 2006, there were 79 full-time equivalent budgeted employee positions at the City Airports. Of these employees, 75 are represented by one of six collective bargaining units. The bargaining unit, the number of employees and contract expiration dates are set forth in the following table:

TABLES

COLLECTNE BARGAINING UNITS (As OF JULY 1, 2006)

Bargaining Unit City of Fresno Management Employees Association/Unit 14 City of Fresno Professional Employees Association/Unit 13 Fresno Airport Public Safety Supervisors Fresno City Employee Association/Unit C3 IBEW, Local Union 100/Unit 107 I.U.O.E. Sanitary Engineers, Local 39/Unit 1

Source: City of Fresno Labor Relations Division.

Hazardous Material Management

Employees Represented

8 9 4 18 2 34

Contract Expiration (June 30)

2010 2009 2008 2008 2007 2007

The City Fire Department is responsible for on-site enviromnental compliance at the City Airports and is supported by ERM West, a company providing environmental assessment remediation, compliance and other enviromnental risk services, to provide rapid cleanup where contamination is unexpectedly encountered. The City Airports contract with a licensed and qualified third party hazardous materials contractors for the disposal of hazardous materials.

THE 2007 PROJECT

The 2007 Project consists of the construction of the CRCF and related improvements.

The CRCF will be an approximately 46,000 square foot, single-story structure located on an approximately 15 acre site adjacent to the Airport terminal baggage claim facility. The CRCF will include ready/return parking spaces and service centers for the servicing, storing and maintenance of rental cars. The CRCF has been designed to accommodate the six car rental companies currently operating at the Airport. The CRCF is designed to accommodate additional car rental companies without any major reconfiguration of the existing structure, however there are no plans to amend current Airport policy that limits the number of on-Airport rental car companies to six. For the location of the 2007 Project, see the map on page vi.

In addition to the architectural, engineering, design and construction of the CRCF, the 2007 Project includes site preparation, paving, installation of utilities and roadway improvements to the CRCF.

The City retained the architectural firm of Carter & Burgess, Inc., Oakland, California (the "Architect") to design the CRCF. The Architect completed the design in 2005 and has received all necessary approvals from the relevant governmental agencies. Pre-construction work is expected to

26

commence in July 2007, including site demolition, leveling and grading. All development costs to date have been funded from Airport reserves and cash on hand.

Environmental Matters and Land Use Approvals

Projects undertaken by the City, including the 2007 Project, are generally subject to the California Environmental Quality Act, as amended (Division 13 of the California Public Resources Code) ("CEQA"). Under CEQA, a public agency is required, following preparation of an initial assessment, to determine whether an environmental impact report ( an "EIR"), a negative declaration or a mitigated negative declaration is required for a project. If there is substantial evidence that significant environmental effects may occur, an EIR is required to be prepared. The City Planning and Development Department conducted a CEQA Environmental Assessment and made a mitigated negative declaration fmding that was recorded with the County of Fresno in late 2005. All other land use approvals necessary to proceed with the 2007 Project have been obtained or are expected to be received in due course.

The total budgeted construction costs for the 2007 Project and the sources of funds are set forth in the following table.

TABLE6

BUDGETED 2007 PROJECT CONSTRUCTION COSTS AND SOURCES OF FUNDS

Total Component Series 2007 Bonds CFC Revenuest Budgeted Cost

CRCF: Site work $6,103,450 $1,460,394 $7,563,844 Buildings 6,613,701 1,582,484 8,196,185 Storage Areas 218,441 218,441 Utilities I 716 205 410 642 2,126,847

SUBTOTAL $14,433,356 $3,671,961 $18,105,317

Related lmJJrovements: Landscaping and Irrigation $480,436 $114,956 $595,392 Fencing 348,089 83,289 431,378 Fueling Systems 660,347 158,004 818,351 Security Systems 360,608 86,284 446,892 Roadways and Signs 179,408 42,927 222,335 Miscellaneous and Contingency 2 571 270 615 237 3 186 507

TOTAL $19,033,514 $4,772,658 $23,806,172

Represents CFC revenues prior to January 1, 2009, the expected date of beneficial occupancy of the CRCF and includes interest on such amounts.

Source: The Airport.

Construction Contract

The City expects to award the construction contract for the 2007 Project (the "Construction Contract") in July 2007 to the contractor who submitted the lowest responsive bid (the "Contractor") based upon a fixed price. Pursuant to the Construction Contract, the City is obligated to pay only those increased construction costs greater than the fixed price to the extent such increased construction costs are a result of changes approved by the City. The City has budgeted more than $3.1 million for contingencies and change orders. The Construction Contract provides that the contractor will complete construction of the 2007 Project within 258 working days from the date of the Notice to Proceed. The Notice to Proceed

27

is expected to be issued on July 9, 2007. Completion of construction is expected in summer 2008 and beneficial occupancy of the 2007 Project is expected in fall 2008.

The Construction Contract requires that the Contractor provide: (i) commercial general liability insurance which includes bodily injury and property damage liability insurance with combined single limits of not less than $5 million per occurrence, (ii) commercial automobile liability insurance with combined single limits of liability of not less than $5 million per occurrence, and (iii) worker's compensation insurance as required under the California Labor Code. In addition, the "all risk" ( excluding earthquake and flood) builders risk insurance in an amount of 100% of the replacement value thereof, is provided under the City's insurance policy and the contractor is responsible for paying all applicable deductibles in connection with the 2007 Project. In the event of a partial or total destruction by the perils insured against, each contractor agrees to promptly reconstruct, repair, replace and restore all work or material so destroyed or injured. The Construction Contract also requires the Contractor to maintain (i) material and labor bonds in an amount of not less than 100% of its contract price, to satisfy claims of material suppliers and of mechanics and laborers employed by the Contractor and (ii) performance bonds in the amount of 100% of the contract price to guarantee faithful performance of all of its work.

THE AIRPORT

Current Airport Facilities

General The Airport is operated as a self-supporting enterprise of the City. The Airport occupies approximately 1,728 acres and is located approximately 7.5 miles northeast of the downtown area of the City.

Airfield. The runway and taxiway system at the Airport occupies approximately 550 acres and includes two parallel runways. The primary runway, 29R-11L, is 9,227 feet long and 150 feet wide with 1,000 by 500 foot runway safety areas at the departure ends of runway 29R. This runway, together with its associated taxiways, can accommodate most aircraft in service today and has been designed for Group IV aircraft in accordance with FAA criteria for future generations of aircraft. There is a 675 foot separation between the runways. If required, runway 1 IL/29R can be extended to 10,000 feet on property within the present boundaries of the Airport. Runway 11R/29L, the secondary runway at the Airport, is 7,206 feet long and 100 feet wide with an 850 foot by 500 foot runway safety area on each end.

Runway 29R-11L is equipped with a Category III(b) instrument landing system (an "ILS"), a 3,000 foot Approach Light System with Runway Alignment Indicator Lights, high-intensity strobe approach light lane, high-intensity runway edge, centerline, and touchdown zone lights, runway end identification lights, and visual approach slope indicators. This system permits qualified pilots operating appropriately equipped aircraft to land in near-zero visibility conditions. The system enhances the air service capability at the Airport during the winter months when tule fog is prevalent in the Central Valley.

Passenger Terminal Facilities. The passenger terminal facilities (the "Terminal") consist of the terminal, baggage claim, and concourse buildings together with associated aircraft boarding aprons, access and service roadway systems and parking areas. The terminal building, originally completed in 1962 and remodeled in 1993, covers approximately 63,000 square feet and contains airline ticket counters, baggage handling areas, administrative offices, concessions and other passenger services. The concourse building, originally constructed in 1962, remodeled in both 1978 and 1997, and expanded in 2002, covers approximately 88,000 square feet and contains passenger boarding lounges, security areas, airline offices and concessions. The terminal complex also includes a separate building for air cargo (to be demolished as part of the 2007 Project) and related activities. The enclosed baggage claim facility was

28

completed in 1988 and comprises an area of approximately 14,000 square feet and includes car rental counters and two baggage carousels.

A two-level concourse expansion opened in late fall 2002, and includes six passenger loading bridges, an expanded food court, business center and a children's play area.

In December 2004, wireless internet (Wi-Fi) access was installed in the terminal, allowing cable­free laptop access for guests throughout the Airport and the Flight Information Display System, which lists current airline arrival and departure information on kiosks and screens located in high traffic areas of baggage claim, the terminal lobby, restaurants and concourse gates.

Gates. The Airport has 15 gates that are used by the airlines on a preferential basis.

Fuel System. Fuel is delivered by truck to airlines, corporate and private aircraft, the U.S. Forest Service, the California Highway Patrol, the Fresno County Sheriff and the military aircraft operating at the Airport by third party contractors authorized by the City to provide such fueling services.

Ground Transportation and Parking Facilities. A new Airport entryway to align with a planned freeway 180 extension was completed in April 200 I. A 2,233-space surface public parking lot connects to the passenger terminal facilities by at-grade walkways. Approximately 260 spaces are reserved for employee parking. The Airport provides a free, 13-space, Cell Phone Waiting Area located east of terminal that permits motorists to remain in their vehicles for up to 60 minutes to pick up incoming passengers when called by cell phone. The Cell Phone Waiting Area is in compliance with the Aviation Act requirements that restricts vehicles from waiting at the curbside of terminals.

Cargo and Maintenance Facilities. Cargo carried by commercial airlines is processed through an approximately 15,000 square foot building located in the Terminal area near the baggage claim areas. Cargo carried by freight forwarders and consolidators is located on an approximately 87 acre "Air Cargo Park" located on the north side of the Airport. The Air Cargo Park was constructed by the Airport in 2004 and includes an approximately 15.5 acre aircraft ramp and cargo processing area, ground service equipment storage, truck loading and unloading areas, administrative support spaces, and storage and maintenance facilities.

Pursuant to the terms of a IO-year land lease, Federal Express constructed an approximately three acre cargo processing facility adjacent to the Air Cargo Park. United Parcel Service, currently operating in the cargo building located east of the Terminal on a month-to-month lease, expects to enter into a IO­year and lease with the City. United Parcel Services expects to construct its cargo processing facilities and relocate its cargo operations to the Air Cargo Park in late 2007.

Approximately 264,000 square feet in maintenance facilities are located on the northeast side of the airfield. Two airlines operating at the Airport occupy these facilities pursuant to the terms of long­term leases.

General Aviation. General Aviation facilities at the Airport are located primarily west of the Terminal on approximately 13 acres. The General Aviation area consists of private and corporate aircraft hangar facilities, as well as nine aviation-related businesses, offering fueling, flight training, flight schools, aircraft sales and rentals, aircraft storage and maintenance, avionics services, charters and hangar rentals.

There are also two other General Aviation hangars located at the Airport, one is operated by the California Highway Patrol and the other is operated by Rogers Helicopter.

29

Military Facilities. There are four military operations areas located at the Airport: the California Air National Guard, which operates out of two areas and has 15 aircraft based at their facilities; the California Army National Guard and the United State Marine Corps Reserve.

Airport Security

In the immediate aftermath of September 11, 200 I, the FAA mandated stringent new safety and security requirements, which have been implemented by the airlines serving the Airport. In addition, Congress passed the Aviation and Transportation Security Act (the "Aviation Act"), which imposed additional safety and security measures. Certain safety and security functions at the Airport have been assumed by the TSA, established by the Aviation Act. Among other things, the Aviation Act required that (i) as of January 18, 2002, all checked baggage be screened and that by December 31, 2002, explosive detection screening be conducted on all checked baggage; (ii) all individuals, goods, property, vehicles and other equipment entering secured areas of airports be screened; (iii) security screeners be federal employees, United States citizens and satisfy other specified requirements; and (iv) that vehicles be parked at least 300 feet from airport terminals.

The Airport, the TSA and the airlines have satisfied all of these requirements. A portion of the mandated law enforcement costs, in the amount of approximately $200,000 per year, is paid for by the TSA. The agreement with the TSA to reimburse the Airport for these costs expires September 30, 2007.

Airline Service

General. In Fiscal Year 2006-07, 10 certificated carriers provided nonstop service from the Airport to nine domestic destinations and to Guadalajara, Mexico. These airlines primarily offered flights to the regional hubs of major airlines, including Los Angeles (United Express and American Eagle Airlines), Denver (United Express and Frontier Airlines), San Francisco (United Express), Phoenix (US Airways Express), Salt Lake City (Delta Connection), Seattle (Alaskaffiorizon) and Dallas/Forth Worth (American).

(Remainder of this Page Intentionally Left Blank)

30

The table below sets forth the air carriers serving the Airport in Fiscal Year 2006-07.

Mainline JetC•J Allegiant Air American Airlines Frontier Airlines<') Mexicana de Aviaci6n US Airways<')

TABLE?

FRESNO YOSEMITE INTERNATIONAL AIRPORT

SCHEDULED AIRLINES SERVING THE AIRPORT

(FISCAL YEAR 2006-07)

Regional JetC2l American Eagle Delta Connection (SkyWest Airlines) United Express (SkyWest Airlines) US Airways Express (Mesa Airlines )<'l Horizon Air ExpressJet Airlines<')

(1) Defined as aircraft with greater than 90 seats. (2) Defined as aircraft with less than or equal to 90 seats.

All-Cargo Airlines Ameriflight FedEx Martinaire Partners UPS Cargo

(3) Frontier Airlines annmmced that effective hme 8, 2007 it would cease its once daily flight to Denver International Airport, constituting all of its operations at the Airport.

( 4) Under its plan of reorganization, which was effective in September 2005, US Airways created a new subsidiary ("US "Airways Group, Inc.") that merged with and into America West Holdings Corporation and America West Holdings Corporation and became a wholly-owned subsidiary of US Airways Group, Inc.

(5) Formerly America West Express. America West Airlines and US Airways were merged effective September 25, 2005. ( 6) Express Jet announced it expects to initiate service at the Airport in April 2007. Source: Official Airlines Guides, Incl. online database, December 2006.

Low Cost Carriers. There are three airlines operating at the Airport offering low-cost carrier service: Allegiant Airlines, Frontier Airlines and US Airways.

The combined market share of the low-cost carrier increased from approximately 21.5% of enplaned passengers in Fiscal Year 2004-05 to approximately 26.2% of enplaned passengers in Fiscal Year 2005-06. For the first seven months (July through January) of Fiscal Year 2006-07, the combined market share of low-cost carriers increased to approximately 28.9% of enplaned passengers compared to approximately 26.2% during the same period of Fiscal Year 2005-06.

Other Air Service. Other users of the Airport include more than 200 corporate and privately owned aircraft operating from three major Fixed Base Operators ("FBOs"). Both the U.S. Forest Service and the California Department of Fores try operate aerial tankers from their Air Attack Base, fighting forest fires throughout the western states. The California Highway Patrol, Fresno County Sheriff, and Fresno Police Department maintain flight facilities for helicopter and fixed-wing operations. The Airport is also home to three military aviation activities. The largest is the California Air National Guard which maintains its headquarters for the 144th Fighter Wing. Five subsidiary air defense command units operate 15 F-16 aircraft. The California Army National Guard operates an Aviation Classification Repair Activity Depot (AVCRAD), and the U.S. Marine Corps Reserve maintains an air defense activity on the field.

Passenger Traffic

During Fiscal Year 2005-06 (July through June) the Airport handled 619,512 total enplaned passengers, representing an 8.2% increase compared to total enplaned passengers in Fiscal Year 2004-05.

Compared with the first seven months (July through January) of Fiscal Year 2005-06, enplaned passengers increased 7. 8% during the first seven months of Fiscal Year 2006-07.

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Enplaned passengers by airline for Fiscal Years 2001-02 through 2005-06 and for the first seven months (July through January) of Fiscal Year 2005-06 and Fiscal Year 2006-07 are shown in the table below.

TABLES

FRESNO YOSEMITE INTERNATIONAL AIRPORT

ENPLANED PASSENGERS BY AIRLINE

(FISCAL YEARS)

First Seven Months o/o of (July through January)

2001-02 2002-03 2003-04 2004-05 2005-06 2005-061 2005-06 Mainline Jets

American Airlines 43,355 65,343 75,806 72,329 73,817 11.9% 43,022 Frontier Airlines0) 80 506 28,986 4.7 13,070 Allegiant Air 18,516 32,274 35,701 30,420 25,536 4.1 13,329 US AirwaysC2

) 8,034 1.3 Mexicana de Aviaci6n (Mexicana)°) ~ _LQ_

SUBTOTAL MAINLINE JEf 63,871 97,697 111,507 103,255 142,571 23.0% 69,421

Regional Jet/Commuter Aircraft United Express/SkyWest 196,830 186,371 202,664 206,368 204,749 33.1% 118,746 US Airways Express/MesaC4

) 54,754 67,295 69,837 92,742 110,295 17.8 68,343 Horizon Air 44,435 47,999 48,546 52,973 53,408 8.6 31,997 American Eagle 55,858 55,775 53,947 55,672 55,903 9.0 32,694 Delta Connection/SkyWest 48,614 55,418 55,145 58,727 51,120 8.3 34,105 Air Wisconsin 4 002 ----1,l'U_

SUBTOTAL REGIONAL JET 404,493 414,251 430,139 466,482 475,475 76.7% 285,885

Charters cs) ____L_2TI_ 1 686 ___LlQI 2 483 1 288c0 0.2% ___l,_'lfil

TOTAL 470,317 513,634 542,953 572,220 619,334 100.0% 358,771

Percent Change 9.2% 5.7% 5.4% 8.3%

(1) Frontier Airlines initiated scheduled service at the Airport in August 2005. All enplanernent data prior to that date are for charter passengers. Frontier Airlines announced that effective hme 8, 2007 it would cease its once daily flight to Denver International Airport, constituting all of its operations at the Airport.

(2) Under its plan of reorganization, which was effective in September 2005, US Airways created a new subsidiary ("US "Airways Group, Inc.") that merged with and into America West Holdings Corporation and America West Holdings Corporation became a wholly-owned subsidiary of US Airways Group, Inc.

(3) Mexicana initiated scheduled service at the Airport in April 2006. (4) Formerly America West Express. America West Airlines and US Airways were merged effective September 25, 2005. (5) Charter flights operated by scheduled airlines are included in the airline's total passenger number. These airlines are

Allegiant Air, America West, Delta Airlines, Frontier Airlines, Horizon Air and United Airlines. (6) Restated. Reflects a downward revision of 178 enplaned charter passengers. t Column does not total due to rounding. Source: Airport Management Records.

Cargo Traffic and Landed Weight

Cargo Traffic. The major cargo carriers serving the Airport are Ameriflight, Federal Express and United Parcel Service. Federal Express is the dominant cargo carrier representing approximately 35% of the total cargo operations at the Airport during Fiscal Year 2005-06. Since Fiscal Year 2001-02, mail activity at the Airport has continued to decline, due primarily to, the increased use of truck to transport mail. In addition, the contract between Federal Express and the US Postal Service signed in late 2001, has essentially eliminated mail activity at the Airport.

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2006-07

45,553 21,076 18,981 10,840 15 676

112,126

123,324 60,800 33,240 31,870 24,244

273,478

____LQlQ

386,634

7.8%

In Fiscal Year 2005-06, total air cargo was approximately 14.98 million pounds, representing an increase of 11.91% compared to Fiscal Year 2004-05. For the first seven months (July through January) of Fiscal Year 2006-07 total air cargo decreased 4.29 million pounds (39.4%) compared to the first seven months of Fiscal Year 2005-06, due primarily to the consolidation by DHL of its west coast operations to the former March Air Reserve Base located in Riverside County, California.

The table below summarizes cargo traffic at the Airport for the last five Fiscal Years and for the first seven months (July through January) of Fiscal Year 2005-06 and Fiscal Year 2006-07.

TABLE9 FRESNO YOSEMITE INTERNATIONAL AIRPORT

HISTORICAL ENPLANED CARGO

(IN POUNDS) (FISCAL YEARS)

First Seven Months

2001-02 2002-03 2003-04 Airmail 124,176t 44,046 41,485 Freight and Express 14 142 925 12 575 507 12 257 792

TOTAL 14,267,101 12,619,553 12,298,777

Percent Change (11.55%) (2.54%)

t Includes enplaned cargo weight carried on passenger aircraft. Source: The Airport.

{Jul:1: through Januarv) 2004-05 2005-06 2005-06 2006-07

34,565 5,800 0 303 13 352 171 14975 800 10 887 542 6604105 13,386,736 14,981,600 10,887,542 6,604,460

8.85% 11.91% (39.4%)

Landed Weight. During Fiscal Year 2005-06 (July through June) total landed weight at the Airport decreased by 21,002 pounds (-2.12%) compared to total landed weight during Fiscal Year 2004-05.

Compared with the first seven months (July through January) Fiscal Year 2005-06, total landed weight in Fiscal Year 2006-07 decreased by 19,966,000 pounds (-3.43%).

(Remainder of this Page Intentionally Left Blank)

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Total landed weight by airline share for Fiscal Years 2001-02 through 2005-06 and for the first seven months (July through January) of Fiscal Year 2005-06 and Fiscal Year 2006-07 are shown in the table below.

TABLE10 FRESNO YOSEMITE INTERNATIONAL AIRPORT

AIRLINE SHARES OF LANDED WEIGHT (FISCAL YEARS)

First Seven Months o/o of (July through January)

2001-02 2002-03 2003-04 2004-05 2005-06 2005-061 2005-06 Passenger Airlines(l)

SkyWest(') 343,620 339,886 338,207 343,905 330,903 34.12% 201,655 US Airways Express/MesaC3

) 75,332 93,757 98,279 125,396 139,353 14.37 85,079 American Airlines 57,720 96,850 110,240 101,790 94,510 9.75 55,640 American Eagle 83,306 78,214 76,653 78,062 80,500 8.30 47,054 Horizon Air 65,465 67,261 71,961 71,807 72,143 7.44 42,261 Frontier AirlinesC4

) 39,061 4.03 19,363 Allegiant Air 34,487 52,806 45,210 39,320 37,386 3.85 22,320 US Airwayscs) 11,667 1.20 Mexicana de Aviaci6n (Mexicanai6) 8 446 0.87 SUBTOTAL PASSENGER AIRLINES 659,929 728,774 740,550 760,280 813,969 83.93% 473,372

All Cargo Airlines United Parcel Service 55,191 56,070 55,860 56,555 58,590 6.04% 35,070 FedEx 38,684 41,676 40,964 42,873 41,065 4.23 24,237 Airborne Express 151,389 131,504 134,023 117,522 39,589 4.08 39,589 Ameriflight 14,710 13,243 11,928 11,604 14,287 1.47 8,177 Union Flights _bill ----1222 ----1222 1 989 ---2.Rl 0.24 1 352

SUBTOTAL ALL CARGO AIRLINES 262,447 244,453 244,772 230,543 155,852 16.07 108,425

TOTAL 922,376 973,227 985,322 990,823 969,821 100.00% 581,797

Percent Change 5.51% 1.30% 0.56% (2.12%)

(1) Charter flights operated by scheduled airlines are included in the airline's total passenger number. These airlines are Allegiant Air, America West, Delta Airlines, Frontier Airlines, Horizon Air and United Airlines.

(2) Represents total landed weight for United Express and Delta Connection flights. (3) Formerly America West Express. America West Airlines and US Airways were merged effective September 25, 2005. (4) Frontier Airlines initiated scheduled service at the Airport in August 2005. All enplanement data prior to that date are for

charter passengers. Frontier Airlines announced that effective June 8, 2007 it would cease its once daily flight to Denver International Airport, constituting all of its operations at the Airport.

(5) Under its plan of reorganization, which was effective in September 2005, US Airways created a new subsidiary ("US "Airways Group, Inc.") that merged with and into America West Holdings Corporation and America West Holdings Corporation became a wholly-owned subsidiary of US Airways Group, Inc.

(6) Mexicana initiated scheduled service at the Airport in April 2006. (7) Airborne Express ceased flight operations at the Airport in December 2005. \Vhile Airborne continues ground based

operations at the Airport, flight operations have been consolidated in Riverside, California. t Column does not total due to rounding. Source: Airport Management Records.

Airline Agreements

All scheduled airlines operating at the Airport consisting of Allegiant Air, American Airlines, American Eagle, Delta Connection (SkyWest Airlines), Express Jet, Frontier Airlines, Horizon Air, Mexicana de Aviaci6n (Mexicana), United Express (SkyWest Airlines) and US Airways Express (Mesa Airlines) (collectively, the "Signatory Airlines") have each signed an Airline Operations Agreement, as

34

2006-07

179,502 74,277 54,730 41,477 42,384 28,690 26,505 15,955 22,682

486,202

39,690 25,523

(7)

9,126 1 290

75,629

561,831

(3.43%)

amended (each an "Airline Agreement" and collectively the "Airline Agreements"). Each Airline Agreement is tenninable by either party with 60 days written notice and expires in June 2010. In accordance with each Airline Agreement, rates are set by ordinance, and reviewed annually by the Airport and approved by the City Council. The City uses a compensatory cost center approach for calculating terminal rents and a residual cost center approach for calculating landing fees, including the recovery of debt service allocable to the airfield and tenninal net of any PFC revenue credit. Due to increasing passenger traffic and revenues, and cost controls implemented by the Airport, there have been no increases in airline rents, fees or charges since Fiscal Year 2004-05. The Airline Agreements require a majority-in-interest of the Signatory Airlines to approve of any capital improvement project to be funded with the proceeds of Additional Bonds if, in the opinion of the Director of Aviation, it is likely that the cost of such capital improvement project will have a material effect on the operations and/or rates and charges payable by the Signatory Airlines. The Series 2007 Bonds are not expected to have a material effect on the rates and charges paid by the Signatory Airlines.

Car Rental Agreements

Each of the six on-Airport rental car companies at the Airport (Avis Rent A Car System, LLC, Budget Rent A Car System, Inc., Dollar Rent A Car Inc., Enterprise-Rent-A-Car Company, Hertz Corporation and Vanguard Car Rental USA Inc. (collectively, the "Car Rental Companies") currently operates at the Airport pursuant to a concession agreement and a service facility lease agreement (collectively, the "Existing Agreements"). Pursuant to the Existing Agreements, the City receives privilege fees in the amount equal to 10% of the gross revenues against a minimum annual guarantee ( a 'MAG"), plus rental fees for counter space in the terminals, and rent for ready/return and service facilities. The Existing Agreements continue in full force and effect until the date of beneficial occupancy (the "DBO") of the CRCF, which is expected on or about January I, 2009.

The City and each Car Rental Company will enter into a Restated Concession Agreement (the Concession Agreement") governing the non-exclusive right to conduct a car rental business at the Airport, and an Extended and Restated Service Facility Lease Agreement (the "Service Facility Lease" and together with the "Concession Agreement, the "Car Rental Agreements") governing the use of the CRCF, including certain non-exclusive use and common use areas. Each Car Rental Agreement will be dated as of March 2007 and will become effective on the DBO. The Car Rental Agreements require each Car Rental Company to continue to collect the CFC from its customers and to remit such amounts to the City monthly and to separately account for on its books and records the CFCs collected for and on behalf of the City.

Concession Agreement. Each Concession Agreement will expire on August 31, 2014. The City may tenninate a Concession Agreement only upon written notice following the occurrence of certain events, including, but not limited to, such Car Rental Company becoming insolvent, failing in business, or making any general arrangement or assignment for the benefit of creditors; filing a bankruptcy action or a petition for reorganization; appointment of a receiver; failure to pay rent, concessions fees or the security deposit when due; cessation of services at the Airport for 72 consecutive hours; and failure to maintain in full force and effect a Service Facility Lease.

Payment of Terminal Rent and Contingent Rent. Each Car Rental Company operating in the CRCF is required to: (i) pay rent for its exclusive use area in the Terminal, for non-exclusive use of ready/return areas and pro rata rent for common use areas; and (ii) pay "Contingent Rent," if any, defmed as any amount by which Debt Service on the Series 2007 Bonds exceeds the sum of (A) CFC fees collected in such year, and (B) funds in the Excess CFC Revenue Account, plus restricted funds in the Surplus Fund.

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Payment of Annual Concession Fees. In addition to the rents described above, each Car Rental Company is required to pay annual fees (the "Annual Concession Fees") in an amount equal to the greater of: (i) 10% of the gross revenues of such Car Rental Company or (ii) the applicable MAG. Following the first anniversary of the DBO and for each year thereafter, the MAG will be established at an amount equal to the greater of the MAG for the prior contract year or 85% of the Annual Concession Fees due from the Car Rental Company for the prior contract year.

Security Deposit. To guarantee timely payment of the Annual Concession Fees, each Car Rental Company is required to deposit with the City a security deposit in the amount equal to one-fourth of its MAG in the form of a payment bond, irrevocable letter of credit, renewable annually, cash or other form deemed acceptable by the City.

Adjustment of Rentals and Fees. In accordance with each Concession Agreement, the City may adjust the rental rates specified in the Concession Agreement by official City action. The rental payments will be adjusted annually commencing on the first anniversary following DBO based upon the annual percentage change in the Consumer Price Index for [San Francisco All Urban Consumer, Base Year 2009] index or any successor of that index calculated on a calendar year basis and published by the Bureau of Labor Statistics, U.S. Department of Labor (the "CPI-U-Index"), but in no event will that annual adjustment in rent payments result in rent being charged that is less than the amount charged in the prior contract year or more than 2% above the amount charged during the prior contract year.

Permitted Changes to Exclusive Use Areas. Pursuant to the Concession Agreements, and subject to certain restrictions contained therein, the City reserves the right to reallocate the ready/return area allocated to any Car Rental Company commencing with the second year following DBO at which time rental payments due under the Concession Agreement will be calculated.

Service Facility Lease. Each Service Facility Lease will expire on January 1, 2029. The City may terminate a Service Facility Lease only upon written notice following the occurrence of certain events, including, but not limited to, such Car Rental Company becoming insolvent, failing in business, or making any general arrangement or assigrnnent for the benefit of creditors; filing of a bankruptcy action or a petition for reorganization; appointment of a receiver; failure to make any payment of rent or fees required under the Service Facility Lease or furnish any security deposit when due; cessation of services at the Airport for 72 consecutive hours; and failure to maintain in full force and effect a Concession Agreement.

Payment of Rent and Fees. Commencing on the DBO, each Car Rental Company operating in the CRCF is required to pay rent for their exclusive use area, non-exclusive use area within the CRCF and pro rata rent and maintenance costs for common use areas within the CRCF.

Security Deposit. To guarantee timely payment of the rent under the Service Facility Lease, each Car Rental Company is required to deposit with the City a security deposit in the amount equal to three months of estimated rent.

Adjustment of Rent. In accordance with each Service Facility Lease, the rental rates specified in the Service Facility Leases will be adjusted annually commencing on the first anniversary following DBO based upon the annual percentage change in the CPI-U-Index, but in no event will the annual adjustment in rent result in rent being charged that is less than the amount charged in the prior contract year or more than 2% above the amount charged during the prior contract year.

Potential Effects of a Rental Car Company Bankruptcy. The bankruptcy of a Car Rental Company could result in delays or reductions in payments on the Series 2007 Bonds. See "CERTAIN RISK FACTORS-Bankruptcy Risks-Rental Car Company Bankruptcies."

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CHANDLER AIRPORT

Chandler Airport is located on approximately 187 acres, approximately 1.5 miles southwest of the downtown area of the City and six miles southeast of the Airport. Chandler Airport is also classified to handle 95% of all general aviation aircraft weighing less than 12,500 pounds. The historic terminal building at Chandler Airport, a WP A project built in 1937, was put on the National, State and Local Historic Registers in 2005.

The operation of Chandler Airport has historically been subsidized by the Airport in the amount of approximately $150,000 per year. It is expected that Chandler Airport will require subsidies from the Airport for several more years. However, the annual amount of the subsidy is expected to decline as new development occurs.

Since 2000, takeoffs and landings at Chandler Airport have increased approximately 5% per year. Sixty-six new general aviation hangars were constructed, opened and fully occupied in 2003.

In 1999, the Chandler Airport Master Plan was approved and an update was completed in 2005 for development of the northern side of Chandler Airport. The projects included in the 1999 Chandler Master Plan and 2005 north side update include closure of an underutilized secondary runway, extension of the primary runway, improved instrument approaches, taxiway reconstruction, development of the north side of the airfield for aircraft storage, FBO fueling facilities, a flight school, taxiway and infrastructure to accommodate the extension of the runway and development of the north side, additional aircraft parking facilities and rehabilitation of the terminal building. With the increase in funding made available by the FAA for general aviation airports, significant progress has been made in completing the 2005 Chandler Master Plan projects. Recently completed projects include: runway, taxiway, and electrical improvements to upgrade existing infrastructure, the first of two runway extensions and the first phase of terminal rehabilitation work.

CAPITAL PROJECTS AND PLANNING

The Airport maintains a master plan that is typically updated once every IO years ( a 'Master Plan"). The current Master Plan was updated in 2005 (the "2005 Master Plan") and outlines growth at the Airport for the next 20 years. In October 2006, the FAA approved the Airport Layout Plan (an "ALP") for the Airport, which details all of the projects in the 2005 Master Plan and is the precursor to obtaining FAA funding for qualified projects.

The 2005 Master Plan includes approximately $79.1 million in capital projects including terminal expansion and rehabilitation; the CRCF, which comprises a component of the 2007 Project, installation of a solar energy system, taxiway reconstruction, runway extension for the secondary runway, rehabilitation of air carrier and general aviation aircraft aprons, public and employee parking lot improvements, runway extension for the primary runway, new taxiways related to runway extensions, storm water drainage systems, low visibility lighting systems, and related infrastructure improvements.

The Airports Department also manages all capital projects at Chandler Airport. As described under "CHANDLER AIRPORT," Chandler Airport has a master plan in place and an FAA approved ALP. All projects are subject to required environmental documentation, which is an ongoing process and is based on individual project schedules. The Chandler Airport master plan includes approximately $14.8 million in capital projects.

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The FAA requires the Airports Department to submit an Airport Capital Improvement Program ( an "ACIP") annually for both the Airport and Chandler Airport. The ACIP is a rolling five-year plan that represents the planned execution of the Master Plan projects subject to FAA funding. Each year, both City Airports have the ability to revise the five year ACIP if necessary. An example of an adjustment is the sequence of airfield pavement work at the Airport, which is subject to an ongoing pavement management program that tracks wear and tear of runways, taxiways, and aircraft aprons. The ACIP is the final step in securing funding and must represent what is identified in the Master Plan and on the ALP for each of the Airport and Chandler Airport.

Master Plan project cost estimates are updated annually and the Airports Department reviews the status of all projects and includes necessary funding in each Fiscal Year. The Airport applies for and receives FAA funding annually for projects identified in the ACIP for the current federal fiscal year. Once funding is in place, each project is designed, competitively bid, and eventually awarded through City Council action to the lowest responsive and responsible bidder. During construction, the Airports Department plays an active role in the construction management process through project completion.

AIRPORT FINANCIAL INFORMATION

The City does not prepare separate financial statements for the City Airports, and financial information relating to the City Airports is included with the general purpose financial statements of the City. The financial statements of the City are prepared in conformity with accounting principles generally accepted in the United States as applied to goverrnnental agencies, including those established by the Goverrnnent Accounting Standards Board ("GASB"), the standard-setting body for establishing goverrnnental accounting and financial reporting principles.

The accounts of the City are organized on the basis of funds. A fund is a separate accounting entity with a self-balancing set of accounts. Each fund was established for the purpose of accounting for specific activities in accordance with applicable regulations, restrictions or limitations.

Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds. Major individual goverrnnental funds and major individual enterprise funds (including the Airports Fund), are reported as separate colunms in the fund financial statements. Enterprise funds, such as the Airports Fund, account for operations that are financed and operated in a manner similar to private business enterprises and for which costs are financed or recovered primarily through user charges. The Statement of Net Assets, Statement of Revenues, Expenses, and Changes in Fund Net Assets and the Statement of Cash Flows for the City Airports as of June 30, 2006 are included as APPENDIX B.

The Series 2007 Bonds are limited obligations of the City and are not secured by a pledge of, or charge or lien upon, any property of the City or any of its income or receipts, except the Net Revenues and certain funds and accounts held pursuant to the Indenture. See "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2007 BONDS."

Revenues

General The Airport operates as a self-supporting enterprise of the City. From Fiscal Year 1989 to Fiscal Year 1999 the landing fees and terminal rental rates were not increased due to sufficient revenue being generated to support the operation and maintenance of the Airport.

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Operating revenues for the Airport have been relatively stable, increasing approximately 13.0% each year over the past five Fiscal Years. Gross revenues for the Airport in Fiscal Year 2005-06 were $19,670,456, representing an increase of approximately 13.5% compared to gross revenues in Fiscal Year 2004-05. The Airport has implemented a number of measures to increase revenues, including, but not limited to, renegotiating long-term leases, leasing undeveloped land and revising parking rates and policies. See also APPENDIX A-"REPORT OF AIRPORT CONSULTANT."

Customer Facility Charge. The CFC Act, which became effective January 1, 2002 authorizes the collection of a $10 CFC for each on-airport rental car transaction to fund the reasonable costs of fmancing, designing or constructing consolidated rental car facilities and common use transportation systems. The City began collecting a CFC on July 1, 2005. As of June 30, 2006, CFC revenues in the amount of $1,223,520 had been collected.

Set forth in the table below is an estimate of the Fiscal Year 2006-07 CFC revenues and a five­year projection of CFC revenues assuming DBO is of the CRCF is January 1, 2009.

2006-07t $1,254,000

T Estimated. Source: The Airport.

2007-08 $1,285,000

TABLEll PROJECTED CFC REVENUES

(FISCAL YEARS)

2008-09 $1,318,000

2009-10 $1,351,000

2010-11 $1,384,000

2011-12 $1,419,000

Landing Fees and Terminal Rental Rates. Landing fees and terminal rental rates are reviewed annually and adjusted as necessary. A summary of historical and current landing fees and terminal rental rates for the last five Fiscal Years is set forth below.

TABLE 12 HISTORICAL AND CURRENT LANDING FEES AND TERMINAL RENT AL RATES

(FISCAL YEARS)

Landing Fees (per 1,000 pounds) Terminal Rental Rate (per square foot)

Source: The Airport.

2002-03 $1.35

$29.00

2003-04 $1.55

$32.00

2004-05 $1.75

$35.00

2005-06 $1.75

$35.00

2006-07 $1.75

$35.00

Terminal Concessions. The City leases terminal space to concessionaires pursuant to concession agreements, which provide for the payment to the City of the greater of a percentage of gross revenue or a minimum annual guarantee ( a "MAG"). The concession agreements also contain a re-establishment clause that permits the City to adjust rental rates, within certain parameters, if necessary to satisfy the Rate Covenant.

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""" 0

TABLE 13 PRINCIPAL CONCESSIONAIRES

Concessionaire Anton Air Foods Interspace Airport Advertising Hudson Group Avis Rent A Car System, LLC Budget Rent A Car System, Inc. Dollar Rent A Car Inc. Enterprise-Rent-A-Car Company<4l

Payless Rent-A-Car The Hertz Corporation Vanguard Car Rental USA Inc. <4J<5J ACE Parking Management, Inc.

SUB TOTAL Other Revenue

TOTAL CONCESSION REVENUE

t *

Column does not total due to rmmding. Estimated.

Concession Food Beverage Advertising Newsstand and Gifts Rental Car Rental Car Rental Car Rental Car Off-Site Rental Car Rental Car Rental Car Parking

Agreement does not have an extension option.

Contract Exriration

4/30/18(!)

3/30/15 1/30/19 8/31/09 8/31/09 8/31/09 8/31/09 8/31/09 8/31/09 8/31/09 2/28/09(')

Agreement provides for payment of the greater of the MAG or 36% of gross revenues.

FY 2004-05 Concession Revenue

($ in thousands)t $97 102 87

416 203 272

96 4

473 238

3,686 5,673

34 $5,707

Agreement provides for payment of percentage revenues ranging from 5% to 8% of sales subject to the MAG.

FY 2005-06 FY 2006-07 Concession Revenue Concession Revenue

($ in thousands)t ($ in thousands )1 * $105 $143

110 121 85 96

407 411 240 246 321 367 232 234

23 34 588 593 286 278

4 044 4,227 6,442 6,750

73 67 $6,515 $6,817

(])

(2)

(3)

(4) In March 2007, Enterprise-Rent-A-Car Company entered into an agreement to purchase Vanguard Car Rental Group Inc. which is expected to close in the fourth quarter of 2007.

C5) In 2002, Alamo-Rent-A-Car Inc. and National Car Rental USA Inc. consolidated their operations under the name "ANC Rental Corporation." In 2003, Vanguard Car Rental USA Inc. purchased the "Alamo-Rent-A-Car" and "National Car Rental" brand names from ANC Rental Corporation.

(6) Agreement provides for an extension option until February 28, 2009. Source: Airport Management Records.

In Fiscal Year 2005-06, revenues from terminal concessions represented 48% of Revenues.

PFC Revenues

No PFC Revenues will be applied to the repayment of the Series 2007 Bonds.

Overview. The PFC Act, which was enacted in 1990 and amended in 1994, 1996 and 2000, permits a public agency that controls a commercial service airport to charge each paying passenger enplaning at the airport, with certain limited exceptions, a PFC of $1.00, $2.00, $3.00 or $4.50. The proceeds from passenger facility charges ("PFCs") are to be used to fmance approved eligible airport­related projects that preserve or enhance capacity, safety or security of the national air transportation system, reduce noise from an airport that is part of the system or provide an opportunity for enhanced competition between or among air carriers or foreign air carriers. "Eligible airport-related projects" include airside development, planning, terminal development, airport noise compatibility measures and planning and construction of gates and related areas ( other than restaurants, rental car facilities, automobile parking or other concessions) for the movement of passengers and baggage. PF Cs received by the City are subject to audit and final acceptance by the FAA and costs reimbursed with PFC collections are subject to adjustment upon audit by the FAA.

Pursuant to the Indenture, PFCs collected by the airlines attributable to the first $3.00 per enplaned passenger (the "Covenanted PFC Revenues") are defined as Revenues. Any PFCs collected in an amount greater than the Covenanted PFC Revenues in any year are considered Revenues under the Indenture only to the extent such amounts are designated as Revenues by the City may be (i) retained in the Covenanted PFC Account established under the Indenture, (ii) transferred to the Trustee for deposit into the PFC Debt Service Escrow Fund, (iii) transferred to the PFC Project Account for pay-as-you-go Project Costs, or (iv) transferred to another account established by the City and used for any lawful purpose.

Pursuant to various FAA approvals, the City is authorized to collect and use PFCs in the amount of $4.50 per enplaned passenger until the amount of $55.9 million is received. In Fiscal Year 2005-06 the City designated $1.5 million and in Fiscal Year 2006-07 the City designated $0.7 million in non­covenanted PFC Revenues as Revenues.

Collection of PFCs. PFCs are collected by air carriers, certain foreign air carriers and their agents on behalf of a public agency from each eligible passenger enplaning at such agency's airport. The PFC Regulations require each Collecting Carrier to remit PFC collections (net of collection fees and any investment earnings) to the public agency not later than the last day of the calendar month following the month in which the PFC collections are recorded in the carrier's accounting system.

Termination of Authority to Impose and Use PFCs. The FAA may terminate the City's authority to impose PFCs, subject to informal and formal procedural safeguards if the FAA determines that (i) the City is in violation of certain provisions of the Noise Act relating to airport noise and access restrictions, (ii) PFC collections and investment income thereon are not being used for PFC-Approved Project Costs in accordance with the FAA's approvals or with the PFC Act and the PFC Regulations (iii) implementation of the PFC-Approved Projects does not commence within the time periods specified in the PFC Act and PFC Regulations or (iv) the City is otherwise in violation of the PFC Act, the PFC Regulations or the PFC Approvals.

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Principal Revennes Sonrces

Set forth in the table below is a description of the Airport's principal revenue sources. Only one tenant accounted for more than 20% of total operating revenue in Fiscal Year 2005-06.

TABLE 14 PRINCIPAL REVENUE PRODUCERS

FY 2005-06 FY 2004-05 Percent of Percent of Revenues Revenues Operating Total

Company ($ in thousands) ($ in thousands) Revenue Revenue<1)

Ace Parking Management Inc. $3,686 $4,044 29.14% 20.56% Skywest Airlines 1,965 2,023 14.58 10.28 Hertz Rental Car 540 669 4.82 3.40 Mesa Air 483 573 4.13 2.91 Avis Rent A Car 453 469 3.38 2.38 American Eagle Airline 399 427 3.08 2.17 AVCRAD<2l 399 410 2.95 2.08 Dollar Rent A Car 315 370 2.67 1.88 Vanguard Car Rental 292 347 2.50 1.76 Horizon Air 324 345 2.49 1.75

SUBTOTAL TEN HIGHEST 8,856 9,677 69.73 49.19 Other Operating Revenue<3l 3 686 4 201 30.27 21.36

TOTAL OPERATING REVENUE $12,542 $13,878 100.00% 70.55%

Other Revenue Passenger Facility Charges<') 1,765 2,537 12.90 Customer Facility Charges 1,224 6.22 Operating Grant - SCASDG<'l 716 3.64 Operating Grant - Noise<') 2,886 1,019 5.18 Interest Income 144 297 1.51 T0TALOTHERREVENUE 4 795 5 793 29.45

TOT AL AIRPORT REVENUE $17,337 $19,671 100.00%

(1) Numbers do not total due to rmmding. (2)

(3) The Aviation Classification Repair Activity Depot (A VCRAD) is operated by the California Anny National Guard. Includes ammmts received from the lease of other Airport buildings, grounds and facilities to aviation and non-aviation tenants.

(4)

(5)

(0

PFC Revenues are available to pay debt service on "eligible airport-related projects" as defined in the PFC Act. PFC Revenues are not pledged the repayment of the Series 2007 Bonds. See "-PFC Revenues." Represents reimbursements received from the Small Community Airport Service Development Grant program. Represents amounts received from the FAA for the SMART Program. See also "CITY Arn.PoRTs-Noise Mitigation."

Source: Airport Management Records.

Operating Expenses

Operating expenses at the Airport are accounted for by cost center allocation and include direct and indirect expenses of the Airport System ( airfield, terminal, tower, general aviation, corporate aviation, military, non aviation south, non aviation north, airport rescue and fire fighting ("ARFF"), and security) and two indirect cost centers (general administration and general shop). Approximately 80% of expenses are allocable to the terminal, airfield and ARFF cost centers. The terminal, airfield and ARFF cost centers include expenses directly associated with the operation of those areas and any general administration or shop expenses derived from the two indirect cost centers.

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Operating expenses have been increasing approximately 10.7% per year over the past five Fiscal Years. In Fiscal Year 2005-06 operating expenses for the City Airports were $11,497,488, a 24.0% increase compared to Fiscal Year 2004-05. This increase was due to the costs associated with the commencement of international air service to Guadalajara, Mexico.

Operating expenses for the City Airports for Fiscal Year 2006-07 are projected to be $11.6 million a 1.3% increase compared to Fiscal Year 2005-06. Factors behind this increase include increases in employee compensation and incremental growth in operational costs. See also APPENDIX A-"REPORT OF AIRPORT CONSULTANT."

Payments to the City

Payments for Services. The City Airports make payments to the City for the cost of certain direct services provided by the City, including those provided by the Police Department, the Fire Department, the City Attorney, the Human Resources Department, and other city departments. In Fiscal Year 2005-06 the aggregate amount of those payments was $1,384,000, and are expected to be $1,865,000 in Fiscal Year 2006-07.

Airport labor costs include funding of health and retirement benefits for employees who participate in the Fresno City Employees Health and Welfare Trust Fund, the City of Fresno Fire and Police Retirement System and the City of Fresno Employees Retirement System.

Compensated Absences. Vacation pay, which may be accumulated up to 600 hours depending on an employee's bargaining unit and length of service, is payable upon termination. Sick leave, which may be accumulated up to 12 hours per month, has no maximum. Several bargaining units have payoff provisions at retirement based on formulas specific to the groups. The majority of employees however, do not have sick leave payoff provisions in their bargaining unit's contract. Annual leave, which may be accumulated up to 800 - 1,000 hours (depending upon the employee bargaining unit), is payable upon termination or retirement. Commencing July I, 2006, the ceiling was increased from 1,000 to 1,200 hours. Holiday leave may be accumulated indefmitely depending upon the bargaining units and is payable for active employees as well as at termination or retirement. Annual leave allows for the cashing out of the greater of 48 hours or 25% of the accumulated balance once each Fiscal Year. Supplemental sick leave is awarded to unrepresented management, middle management, professionals and to white collar employees at the rate of 40 hours at the beginning of each Fiscal Year. The balance can only be used after other leave balances are exhausted, or for other specific reasons outlined in the various memoranda of understanding or Salary Resolutions. The balance is payable at termination or retirement.

Commencing in Fiscal Year 2005-06, members of certain bargaining units are permitted to transfer some or all of their sick leave and supplemental sick leave balances to a Health Reimbursement Arrangement. The cash value of these balances is placed into a separate account (by employee), administered by HealthComp, earns interest, and is used to pay health premiums for the employee, spouses and dependents until the individual balance therein is exhausted.

The portion of the City's obligation relating to employees' rights to receive compensation for future absences, that is attributable to services already rendered, is accrued when incurred in the government-wide, proprietary and fiduciary fund financial statements. In Fiscal Year 2005-06, payments for compensated absences on termination were budgeted and paid from the department incurring the liability.

Accrued Employee Leave balances for the City Airports as of June 30, 2006 was $771,032, of which $137,821 is the current portion.

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City Health and Welfare Trust Self Insurance Program. The City created the Fresno City Employees Health and Welfare Trust Fund (the "Trust Fund") in 1972 to provide and maintain a health and welfare plan for eligible City employees. Currently, the Trust Fund covers represented employees (those employees represented by a bargaining unit and for whom payments into the Trust Fund are being made pursuant to a Memorandum of Understanding) and unrepresented employees (those employees not represented by a bargaining unit or not covered by a Memorandum of Understanding for whom payments into the Trust Fund are being made). In addition to represented and unrepresented employees, the employees of the Redevelopment Agency were added to the Trust Fund in 2002.

All of the City Airports employees are covered by the Fresno City Employees Health and Welfare Trust Plan.

Pursuant to the Trust Agreement with respect to the Trust Fund, the City is not liable to make payments into the Trust Fund and is not under any other liability to the Trust Fund with respect to the Health and Welfare Plan, other than as required by a Memorandum of Understanding. The City is not liable or responsible for any debts, liabilities or obligations of the Trust Fund or its Board of Trustees. The City's only liability to the Trust Fund is to provide the contribution defined in the Memorandum of Understanding for each bargaining unit.

City Retirement Systems. The City currently maintains two retirement systems for its employees, pursuant to Article XI of the City's Charter. A two tiered system covers all full-time fire fighters and police officers (the "Fire and Police Retirement System"), with Tier 1 covering all fire fighters and police officers hired between October 27, 1927 and August 26, 1990; and Tier 2 covering all fire fighters and police officers hired after August 27, 1990. A separate system covers all other permanent full-time employees (the "Employees Retirement System," and together with the Fire and Police Retirement System, the "Systems").

The Systems are single-employer defined benefit pension plans administered by the City of Fresno Fire and Police Retirement Board with respect to the Fire and Police Retirement System and the City of Fresno Employees Retirement Board with respect to the Employees Retirement System (collectively, the "Retirement Boards"). The Systems provide retirement, disability and death benefits to their respective plan members and beneficiaries. The Retirement Boards each consist of five members, selected as follows: two members elected by and from City employees affected, two members from management appointed by the Mayor with approval of the City Council, and the fifth member chosen by the previously designated four members.

As of June 30, 2006, there were five City Airports employees in the Fire and Police Retirement System and 74 City Airports employees in the Employees Retirement System. As of June 30, 2006, the total membership in the Fire and Police Retirement System was 1,955 comprised of 1,095 active members, 807 retirees and beneficiaries receiving benefits and 53 inactive vested members) and the total membership in the Employees Retirement System was 3,742 (comprised of2,318 active members, 1,250 retirees and beneficiaries receiving benefits and 17 4 inactive vested members).

Defined benefit retirement plans have the potential of developing unfunded liabilities. New unfunded liabilities may arise if, among other things, the investments in the Systems' funds under-realize their assumed rates of return, if the City adopts retroactive benefit increases or the City's compensation rates exceed actuarial projections.

The Systems use the accrual basis of accounting. Investment income is recognized when it is earned and expenses are recognized when they are incurred. Contributions are recognized when due. Benefits and refunds are recognized when due and payable under the terms of the Systems pursuant to the City Municipal Code.

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Securities lending transactions by the Systems are accounted for in accordance with GASB Statement No. 28, Accounting and Financial Reporting for Securities Lending Transactions ("GASB 28"), which establishes reporting standards for securities lending transactions. In accordance with GASB No. 28, cash received as collateral on securities lending transactions and investments made with that cash are reported as assets and liabilities resulting from these transactions and are both reported in the Statement of Plan Net Assets. In addition, the costs of securities lending transactions are reported as an expense in the Statement of Changes in Plan Net Assets.

The contribution requirement for members of the Systems and the City is established by the City Municipal Code and is administered by the Retirement Boards. The contribution rates, which are based upon calculations of the independent actuary of the Systems and adopted by the respective Retirement Boards, are presented as a percentage of the annual covered salary/payroll. Employer contributions consist of two components Normal Cost (i.e. the annual contribution rate that, if paid annually from a member's first year of membership through the year of retirement, would accumulate to the amount necessary to fully fund the member's retirement-related benefits) and contributions to the unfunded actuarial accrued liability (the "UAAL") (i.e. the annual contribution rate that, if paid over the UAAL amortization period, would accumulate to the amount necessary to fully fund the UAAL). The contribution rate for the Fire and Police System Tier I was 25.12%, for the Fire and Police System Tier II was 17.43% and for the Employees System was 10.42%. For the Fiscal Year 2005-06, the contribution rate for the Fire and Police System Tier I was 25.66%, for the Fire and Police System Tier II was 16.28% and for the Employees System was 10.51%. For Fiscal Year 2005-06, the City Airports contributed $34,700 for the Fire and Police System Tier I, contributed $13,700 for the Fire and Police System Tier II and made no contribution for the Employees System because the rate for the Employees System is currently offset by the pre-funded actuarial accrued liability resulting in a net zero contribution from the City since Fiscal Year 1998-99.

The annual required contribution for the Systems for Fiscal Year 2006-07 was determined as part of the June 30, 2005 actuarial valuation using the entry age actuarial cost method for the Fire and Police System and the projected unit credit actuarial cost method for the Employees System. The actuarial assumptions included an 8.25% investment rate of return; projected annual salary increases at 4.25% plus merit and longevity increases based on completed years of service for both Systems; and an inflation rate of 4.25%. The actuarial value of assets was determined using techniques that smooth the effects of short term volatility in the market value of investments over a period of five years. For Fiscal Year 2006-07, the contribution rate for the Fire and Police System Tier I is 5.57%, for the Fire and Police System Tier II is 9.00% and for the Employees System is 10.93%. The Systems do not have any unfunded actuarial liabilities as of June 30, 2006. As of June 30, 2006, the Fire and Police Retirement System was 125% funded and the Employees Retirement System was 138.1 % funded.

Each System issues publicly available fmancial reports that include fmancial statements and required supplementary information for the related System. Copies of the reports may be obtained by writing the City of Fresno Employees Retirement Office, 2828 Fresno Street, Suite 20 I, Fresno, California 93721.

Post Retirement Supplemental Benefit Program. The Post-Retirement Supplemental Benefit Program (the "PRSB") was created effective January I, 1999 to provide assistance to eligible retirees to pay for various post-retirement expenses which in most cases consists of premiums for health insurance or medications. Each Retirement Board annually reviews its actuarial valuation report and declares an actuarial surplus, if available, in accordance with the procedures set forth in the City Municipal Code. The PRSB is distributed to eligible retirees if and only if a distributable actuarial surplus is available or if a balance exists in the PRSB reserve to provide for the payment of the post-retirement expenses.

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If an actuarial surplus is declared in either of the systems, the surplus is allocated to the respective system into two components: the first component is composed of two-thirds of the declared surplus which is used to reduce or eliminate the City's pension contributions, with any unused portion deposited in the City Surplus Reserve for offset of required City contributions in subsequent years. The second component, representing the remaining one-third of the declared surplus, is distributed among eligible post-retirement supplemental benefit recipients in accordance with procedures set forth in the City Municipal Code, with any unused portion deposited in the PRSB Reserve and available for use in subsequent years if needed.

Deferred Compensation Plan. The City offers its employees, including City Airports employees, a deferred compensation plan (the "Deferred Compensation Plan") administered by a Deferred Compensation Board in accordance with Internal Revenue Code Section 457. The plan, which is available to all permanent full-time and part-time employees and Council Members, permits deferral of a portion of the employee's salary into a tax-deferred program. The deferred compensation is not available to employees or other beneficiaries for withdrawal until termination, retirement, death, or unforeseeable emergency. Upon separation from employment with the City, the individual may roll over its deferred account into another Section 457 plan, or upon receipt, the distribution will become taxable.

The Deferred Compensation Board contracted with Fidelity Management Trust Company ("Fidelity") to serve as the trustee and plan administrator. The City, pursuant to a contract with the Systems, pays the Systems to assist Fidelity in the administration of the Deferred Compensation Plan. Additionally, City staff in the Payroll section of the Finance Department, the City Attorney's Office, and Information Services Division all assist in the administration of the Deferred Compensation Plan. The City has no fiduciary accountability for the Deferred Compensation Plan and, accordingly, its assets and related liabilities to plan participants in the Deferred Compensation Plan are not included in the basic fmancial statements of the City.

Health Benefit Plan. The City offers its employees, including City Airports employees, participation in the Fresno City Employees Health and Welfare Trust Plan (the "Trust"). The Trust offers a self-insured medical plan for full-time and permanent part-time employees and their dependents. The medical plan is a PPO plan with a $200 individual annual deductible and a $600 annual family maximum. The Trust also provides dental, vision, pharmacy and chiropractic coverage. Employees have the opportunity, on an annual basis, to elect a reduced benefit level in which the plan pays 60% of covered medical charges and the employee pays 40%, or they may elect a higher benefit level in which the plan pays 80% of covered charges and the employee pays 20%. Employees electing the lower benefit level pay nothing for their coverage. Employees electing the higher benefit level pay 20% of the monthly premium through payroll deductions.

GASB45

In August 2004, the Governmental Accounting Standards Board ("GASB") issued Statement No. 45 ("GASB 45"), "Accounting and Financial Reporting by Employers for Post-Employment Benefits Other than Pensions" which addresses how state and local governments should account for and report the annual cost of Other Post-Employment Benefits ("OPEB"). GASB 45 generally requires that employers account for and report the annual cost of OPEB and the outstanding obligations and commitments related to OPEB in essentially the same manner as they currently do for pensions. Annual OPEB cost for most employers will be based on actuarially determined amounts that, if paid on an ongoing basis, generally would provide sufficient resources to pay benefits as they come due. The provisions of GASB 45 may be applied prospectively and do not require governments to fund their OPEB plans. An employer may establish its OPEB liability at zero as of the beginning of the initial year of implementation; however, the unfunded actuarial liability is required to be amortized over future periods on the income statement. The City will be required to implement GASB 45 for the Fiscal Year ending June 30, 2008. The City has

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retained the services of an independent actuary to determine the extent of its OPEB liability. Upon acceptance of the actuarial report, the City will develop an approach to comply with its GASB 45 liability.

Noise Mitigation

The Airport, pursuant to its SMART Program, has been pro-active in its application of FAA grants to fund the insulation of dwellings within sensitive noise contours. Through Fiscal Year 2005-06, the more than 200 homes and four elementary schools have been insulated. See also, "CITY AIRPORTS­Noise Mitigation and Variance."

Environmental Contamination

In 1989 and 1990, the State of California (the "State") identified a portion of the Airport property as a State Superfund site. The contaminants, primarily trichloroethylene ("TCE"), a solvent used for cleaning metal parts, were identified in soils and groundwater. The site of the contaminants, known as Old Hammer Field, was formerly an Army military base and is the subject of investigation and clean up efforts jointly funded by The Boeing Company ("Boeing"), the United States Army Corps of Engineers (the "Corps"), on behalf of itself and the California Air National Guard (the "National Guard") and the City. All contaminants on the site were discharged by parties other than the City.

The California Department of Toxic Substances Control (the "DTSC") is the lead regulatory agency and is responsible for overseeing clean up of the site. As a non-contributory, current overlaying landowner, the City has limited financial liability for clean up efforts. The DTSC issued a preliminary nonbinding allocation of responsibility on December 22, 2003 establishing the costs to the City for cleanup at 5%, which is consistent with the independent analysis commissioned by the City. Clean up efforts could last between 20 to 50 years, with total remaining costs estimated to range from $13 to $18 million (net present value of capital, operations and management) of which the City's share is estimated to range from $650,000 to $900,000 (i.e. 5% of the total estimated cost). A Final Remediation Action Plan was approved by the DTSC in May 2004. Construction of the remedial systems continues and is expected to be completed in the 2007 to 2008 time period.

There can be no guarantee that certain factors, including actual total cleanup costs and the City's share thereof, would not result in a higher annual cost or require a substantial payment at any one time from Airport funds. However, Airport staff believe that payments from Airport funds for the cleanup will not have a material impact on Airport Revenues or operations.

FAA Audit of the Airport

In early calendar year 2006, the Airports Compliance Division of the FAA's Office of Airport Safety and Standards (the "Compliance Division") performed an on-site review of the Airport. In August 2006, the Compliance Division issued a letter report (an "Audit Letter") with the results of the review, including, several suggested corrective actions and noting that City decisions regarding these actions could adversely impact the availability of future FAA Airport Improvement Program grants and new PFCs approvals.

The FAA suggested, based upon their understanding of the facts, that the City's General Fund should transfer certain sums to the Airport enterprise fund for past financial and real estate transactions, including a conveyance of Airport property. The City has submitted a formal response to the Audit Letter indicating potential offsets to the FAA's requested transfer of funds from General Fund of the City to the City Airports. The City is negotiating with the FAA regarding the extent, if any, of such transfer of funds.

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The final outcome of this audit is not presently determinable and the City Attorney cannot opine as to the ultimate enforceability of the outcome of any negotiations with the FAA.

Investment of City Airports Funds

The Indenture provides that the Revenue Fund and the accounts and funds established therein, are held by the City. Amounts in the Revenue Fund are accounted for separately from all other funds of the City. The Indenture further provides that moneys in all funds and accounts ( including Revenues) established under the Indenture which are held by the City may be invested in Investment Securities in accordance with the policies and procedures of the Treasurer in effect from time to time. For defmitions of "Revenues" and "Investment Securities" under the Indenture, see APPENDIX D-"SUMMARIES OF CERTAIN PROVISIONS OF THE INDENTURE-Certain Definitions." For a summary of the Investment Policy of the City, see APPENDIX C-"SUMMARY OF CITY INVESTMENT POLICY."

Payments due from the Revenue Fund are made from the City's larger pooled investment fund, which serves as a disbursement account for expenditures from the City's various segregated and pooled funds, including those of the Airport held in the Airport Enterprise Funds. The objectives of the City's current investment policy, in order of priority, are preservation of capital, maintenance of liquidity and yield. Investments generally are made so that securities can be held to maturity.

Set forth in the table below are the approximate cash values, as of March 31, 2007, of amounts in the Airport Enterprise Funds. These amounts include certain minimum balances maintained in the City Pool for liquidity purposes. The Indenture requires that amounts on deposit in the Revenue Fund be transferred monthly in order of priority set forth therein. See "SECURITY FOR THE SERIES 2007 BONDS­Flow of Airport Revenues."

Funds Revenue Fund Operating Fund Capital Fund Surplus Fund

TOTAL

Risk Management and Insurance

TABLE15 AIRPORT ENTERPRISE FUNDS

(As OF MARCH 31, 2007)

Cash Value $1,820,318

0 0

5,129,241 $6,949,559

Under the Indenture and provided such insurance is obtainable at reasonable rates and upon reasonable terms and conditions, the City is required to procure and maintain at all times while any of Bonds are outstanding, insurance on the City Airports against such risks as are usually insurable in connection with other major airports and to file with the Trustee each year a certificate describing all insurance coverage then in effect, including any self-insurance fund. Such insurance is required to be adequate in amount as to the risks insured against, and shall be maintained with reasonable insurers, the Indenture also requires the City to procure and maintain so long as Bonds are outstanding; public liability insurance, with combined limits of not less than $60,000,000 per occurrence to protect the City from claims for bodily injury or death which may arise from the operations of the City Airports, which insurance may be combined in one or more policies with one or more insurers and may include hangarkeepers' legal liability and excess insurance with such limits of liability as may be determined by the City; and adequate fidelity insurance or bonds on all officers and employees handling or responsible for funding of the City Airports.

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Although insurance coverage for war, terrorism and hijacking is available for commercial insurers, since September 11, 200 I, the scope of coverage for such insurance is limited and the premiums prohibitive. Due to these factors, the City, in consultation with the City's Risk Manager, has elected not to secure such coverage.

The City may provide in satisfaction of, or in connection with, any insurance required to be maintained under the Indenture a self-insured deductible or a self insurance method or plan of protection so long as such plan is (i) a funded program and actuarially sound and (ii) reviewed for adequacy no less often than every two years by an independent insurance consultant nationally recognized as qualified to survey risks and determine the adequacy of self-insurance reserves for self-insurance programs.

REPORT OF THE AIRPORT CONSULTANT

General

The Report of the Airport Consultant dated May 22, 2007 is included in its entirety as APPENDIX A and sets forth historical and forecasted Net Revenues of the City Airports and Net Revenues for the five Fiscal Years ending June 30, 2012. Historical information was provided by Airport Management. The forecasts included in the analysis are based on assumptions concerning future events and circumstances. These assumptions were provided by, or reviewed with and agreed to by, Airport management and the forecasts reflect Airport management's expected course of action during the forecast period. In the opinion of the Airport Consultant, such assumptions provide a reasonable basis for the forecasts.

Historical Debt Service Coverage

The following table reflects historical Net Revenues and the calculation of debt service coverage on the Bonds by the Airport Consultant based on such Net Revenues for Fiscal Years 2001-02 through 2005-06. The historical net revenues and calculation of debt service coverage for Fiscal Year 2005-06 were calculated by the City.

(Remainder of this Page Intentionally Left Blank)

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TABLE 16 HISTORICAL DEBT SERVICE COVERAGE

(FISCAL YEARS ENDED JUNE 30) ($ IN THOUSANDS)

2001-02 2002-03 2003-04 2004-05 2005-06 Revenues<1l $8,687,797 $11,468,196 $11,433,666 $12,593,868 $14,890,486 Operating Expenses<2J (7,797,760) (8,972,602) (8,653,045) (9,276,186) (11,497,488) Net Revenues $890,037 $2,495,594 $2,780,621 $3,317,682 $3,392,998

Other Available Funds<') 69 753 153 568 Total amount available for Debt Service $890,037 $2,495,594 $2,780,621 $3,387,435 $3,546,566

Debt Service coverage on Series 2007 Bonds Adjusted Debt Service<') $377,773 $1,589,158 $1,747,925 $1,898,231 $477,802 Debt Service coverage<') 236% 157% 159% 178% Debt Service coverage requirement 125% 125% 125% 125%

(1) Excludes CFC revenues, which are defined as Revenues under the Indenture, but can only be used llllder State law to pay the costs to finance, design and construct consolidated rental car facilities in the State. As such, those revenues could not be used to pay Operating Expenses or Debt Service on any Bonds other than the Series 2007 Bonds, which were not outstanding in the years presented in this table.

(2) Operating Expenses are identified on a cash basis and include costs associated with the Chandler Executive Airport, but exclude costs that are reimbursed through PFC or grant fimding.

(3) Other available fimds reflect interest received on the 2000 Bonds that are offset with credit card fees which are not included in the operating revenues of the Airport but are used to offset annual debt service.

( 4) Debt service is net of capitalized interest, ammmts on deposit in the PFC Debt Service Escrow Flllld, and other funds irrevocably committed to the payment of Debt Service.

(5) Represents the total amollllt available for Debt Service divided by the Adjusted Debt Service. Sources: City of Fresno audited financial statements, and Airport management records for the years shown.

(Remainder of this Page Intentionally Left Blank)

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742% 125%

Revenues0)

Forecast of Debt Service Coverage

The following table updates the forecast of Net Revenues as set forth in the Report of the Airport Consultant in the Preliminary Official Statement to reflect actual debt service on the Series 2007 Bonds, and the calculation of debt service coverage on the Bonds (including the Series 2007 Bonds) based on such Net Revenues for Fiscal Years 2006-07 through 2011-12.

TABLE 17 FORECAST OF DEBT SERVICE COVERAGE

As OF JANUARY 30, 2007 (FISCAL YEAR ENDED JUNE 30)

($ IN THOUSANDS)

2006-07 2007-08 2008-09 --- --- ---$16,281,000 $16,436,000 $17,060,000

2009-10 2010-11 --- ---$17,618,000 $18,003,000

Less: CFC revenues prior to DBO(l) Less: CFC revenues in excess of annual Debt Service(2

)

(1,254,000) (1,285,000) (659,000) 0 0 15,000 (87,000) (120,000)

2011-12 ---$18,987,000

0 (140,000)

Less: Operat:in§ Expenses (12,905,000) (13,255,000) (13,686,000) (13,488,000) (14,231,000) (15,017,000) Net Revenues 3) $2,122,000 $1,896,000 $2,715,000 $4,043,000 $3,652,000

Other Available FundsC2) $150,000 $630,000 $630,000 $630,000 $630,000

Net Revenues and Other Available Funds $2,272,000 $2,526,000 $3,345,000 $4,673,000 $4,282,000

Adjusted Debt ServiceC4) $595,000 $595,000 $1,227,000 $1,859,000 $1,859,000

Calculated Debt Service Coverage 382% 425% 273% 251% 230%

Required Debt Service Coverage 125% 125% 125% 125% 125%

(1) CFC revenues prior to DBO are excluded from the calculation of debt service coverage. DBO is expected to be January 1, 2009. See "SECURITY AND SouRCES OF PAYMENT FOR THE SERIES 2007 BoNns---CFC Revenues" and "AIRPORT FINANCIAL

INFORMATION-Revenues-Customer Facility Charge." (2) CFC Revenues in excess of debt service payable with respect to the CRCF are excluded from the calculation of debt service

coverage. (3) Reflects rolling debt service coverage fimded from the Series 2007 Bond proceeds ($480,499), assumed interest received in

connection with the 2000 Bonds ($200,000), and annual credit card fees ($50,000) that are assumed to offset debt service coverage.

( 4) Includes application of certain PFC revenues with respect to the Series 2000 Bonds. Sources: Citigroup Global Markets Inc. with respect to debt service for the Series 2007 Bonds and the Report of the Airport

Consultant with respect to all other information.

ABSENCE OF MATERIAL LITIGATION

General

There is no action, suit or proceeding pending concerning the validity of the Indenture or the Series 2007 Bonds or the issuance and delivery thereof, the existence of the City, the title of the officers thereof who shall execute the Series 2007 Bonds to their respective offices, or the pledge of Net Revenues to the payment of the Series 2007 Bonds.

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$3,830,000

$630,000

$4,460,000

$1,874,000

238%

125%

Other Matters

In the regular course of its business, the City is a party to a variety of pending and threatened lawsuits and administrative proceedings with respect to the Airport's operations and other matters, in addition to those specifically discussed herein. The City does not believe that any such lawsuits or proceedings will have a material adverse effect on the business operations or financial condition of the Airport.

RATINGS

Moody's Investors Service ('Moody's") has assigned a rating of "Aaa" to the Series 2007 Bonds, Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc. ("Standard & Poor's"), has assigned a rating of "AAA" to the Series 2007 Bonds and Fitch, Inc., doing business as Fitch Ratings ("Fitch"), has assigned a rating of "AAA" to the Series 2007 Bonds, with the understanding that upon delivery of the Series 2007 Bonds, the Insurance Policy will be delivered by the Bond Insurer. See "FINANCIAL GUARANTY INSURANCE," APPENDIX H-"SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY." Moody's, Standard & Poor's and Fitch have also assigned uninsured ratings of "Baal," "BBB" and "BBB+," respectively, to the Series 2007 Bonds. A rating reflects only the view of the agency giving such rating and is not a recommendation to buy, sell or hold the Series 2007 Bonds. An explanation of the significance of each rating may be obtained from the rating agencies at their respective addresses, as follows: Moody's Investors Service, 99 Church Street, New York, New York 10007; Standard & Poor's, 55 Water Street, New York, New York 10041 and Fitch, One State Street Plaza, New York, New York 10004. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance that a rating will apply for any given period of time, or that the rating will not be revised downward or withdrawn if, in the judgment of the agency providing such rating, circumstances so warrant. The City undertakes no responsibility to oppose any such revision or withdrawal. A downward revision or withdrawal of a rating may have an adverse effect on the marketability or market price of the Series 2007 Bonds.

UNDERWRITING

Pursuant to the terms of a bond purchase agreement dated May 31, 2007 (the "Purchase Agreement"), between the City and Citigroup Global Markets Inc. (the "Underwriter"), the Underwriter will purchase all of the Series 2007 Bonds, if any are purchased, however, the obligation of the Underwriter to make such purchase is subject to certain terms and conditions set forth in the Purchase Agreement. The Underwriter purchased the Series 2007 Bonds, at a price of $21,875,356.00 (representing the principal amount of the Series 2007 Bonds, less an Underwriter's discount in the amount of $124,644.00).

The public offering prices of the Series 2007 Bonds may be changed from time to time by the Underwriter. The Underwriter may offer and sell Series 2007 Bonds to certain dealers and others at a price lower than the offering price stated on the inside cover page hereof.

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TAX MATTERS

In the op1mon of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the City ("Bond Counsel"), interest on the Series 2007 Bonds is exempt from State of California personal income taxes. Interest on the Series 2007 Bonds is not excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986. Bond Counsel expresses no opinion regarding any other federal or state tax consequences relating to the ownership or disposition of, or the accrual or receipt of interest on, the Series 2007 Bonds. The proposed form of opinion of Bond Counsel is contained in APPENDIX G.

The following is a summary of certain of the United States federal income tax consequences of the ownership of the Series 2007 Bonds as of the date hereof. Each prospective investor should consult with its own tax advisor regarding the application of United States federal income tax laws, as well as any state, local, foreign or other tax laws, to its particular situation.

This summary is based on the Code, as well as Treasury regulations and administrative and judicial rulings and practice. Legislative, judicial and administrative changes may occur, possibly with retroactive effect, that could alter or modify the continued validity of the statements and conclusions set forth herein. This summary is intended as a general explanatory discussion of the consequences of holding the Series 2007 Bonds generally and does not purport to furnish information in the level of detail or with the investor's specific tax circumstances that would be provided by an investor's own tax advisor. For example, it generally is addressed only to original purchasers of the Series 2007 Bonds that are "U.S. holders" (as defined below), deals only with Series 2007 Bonds held as capital assets within the meaning of Section 1221 of the Code and does not address tax consequences to holders that may be relevant to investors subject to special rules, such as individuals, trusts, estates, tax-exempt investors, foreign investors, cash method taxpayers, dealers in securities, currencies or commodities, banks, thrifts, insurance companies, electing large partnerships, mutual funds, regulated investment companies, real estate investment trusts, FASITs, S corporations, persons that hold Series 2007 Bonds as part of a straddle, hedge, integrated or conversion transaction, and persons whose "functional currency" is not the U.S. dollar. In addition, this summary does not address alternative minimum tax issues or the indirect consequences to a holder of an equity interest in a holder of Series 2007 Bonds.

As used herein, a "U.S. holder" is a "U.S. person" that is a beneficial owner of a Series 2007 Bond. A "non-U.S. investor" is a holder (or beneficial owner) of a Series 2007 Bond that is not a U.S. Person. For these purposes, a "U.S. person" is a citizen or resident of the United States, a corporation or partnership created or organized in or under the laws of the United States or any political subdivision thereof ( except, in the case of a partnership, to the extent otherwise provided in Treasury regulations), an estate the income of which is subject to United States federal income taxation regardless of its source or a trust if (i) a United States court is able to exercise primary supervision over the trust's administration and (ii) one or more United States persons have the authority to control all of the trust's substantial decisions.

Tax Status of the Series 2007 Bonds

The Series 2007 Bonds will be treated, for federal income tax purposes, as a debt instrument. Accordingly, interest will be included in the income of the holder as it is paid ( or, if the holder is an accrual method taxpayer, as it is accrued) as interest.

Holders of the Series 2007 Bonds that allocate a basis in the Series 2007 Bonds that is greater than the principal amount of the Series 2007 Bonds should consult their own tax advisors with respect to whether or not they should elect to amortize such premium under section 171 of the Code.

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If a holder purchases the Series 2007 Bonds for an amount that is less than the principal amount of the Series 2007 Bonds, and such difference is not considered to be de minimis, then such discount will represent market discount that ultimately will constitute ordinary income (and not capital gain). Further, absent an election to accrue market discount currently, upon a sale or exchange of a Series 2007 Bond, a portion of any gain will be ordinary income to the extent it represents the amount of any such market discount that was accrued through the date of sale. In addition, absent an election to accrue market discount currently, the portion of any interest expense incurred or continued to carry a market discount bond that does not exceed the accrued market discount for any taxable year, will be deferred.

Although the Series 2007 Bonds are expected to trade "flat," that is, without a specific allocation to accrued interest, for federal income tax purposes, a portion of the amount realized on sale attributed to the Series 2007 Bonds will be treated as accrued interest and thus will be taxed as ordinary income to the seller (and will not be subject to tax in the hands of the buyer).

Sale and Exchange of Series 2007 Bonds

Upon a sale or exchange of a Series 2007 Bond, a holder generally will recognize gain or loss on the Series 2007 Bonds equal to the difference between the amount realized on the sale and its adjusted tax basis in such Series 2007 Bond. Such gain or loss generally will be capital gain ( although any gain attributable to accrued market discount of the Series 2007 Bond not yet taken into income will be ordinary). The adjusted basis of the holder in a Series 2007 Bond will (in general) equal its original purchase price and decreased by any payments received on the Series 2007 Bond. In general, if the Series 2007 Bond is held for longer than one year, any gain or loss would be long term capital gain or loss, and capital losses are subject to certain limitations.

See also, "CERTAIN RISK FACTORS" regarding re1ssuance of the Series 2007 Bonds upon defeasance.

Foreign Investors

Distributions on the Series 2007 Bonds to a non-U.S. holder that has no connection with the United States other than holding its Series 2007 Bond generally will be made free of withholding tax, as long as that the holder has complied with certain tax identification and certification requirements.

Circular 230

Under 31 C.F.R. part 10, the regulations governing practice before the Internal Revenue Service (Circular 230), we and our tax advisors are (or may be) required to inform you that:

• Any advice contained herein, including any opinions of counsel referred to herein, is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer;

• Any such advice is written to support the promotion or marketing of the Series 2007 Bond and the transactions described herein ( or in such opinion or other advice); and

Each taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor.

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APPROVAL OF LEGAL PROCEEDINGS

Certain legal matters incident to the authorization, issuance and sale of the Series 2007 Bonds are subject to the approval of Orrick, Herrington & Sutcliffe LLP, San Francisco, California, Bond Counsel to the City. Certain legal matters will be passed upon for the City by the City Attorney and by Lofton & Jennings, San Francisco, California, Disclosure Counsel; and certain legal matters will be passed upon for the Underwriter by Hawkins Delafield & Wood LLP, Los Angeles, California, Underwriter's Counsel. Bond Counsel assumes no responsibility for the fairness, accuracy or completeness of this Official Statement. Bond Counsel expects to deliver an opinion at the time of issuance of the Series 2007 Bonds substantially in the form set forth in APPENDIX G.

PROFESSIONALS INVOLVED IN THE OFFERING

The City has retained KNN Public Finance, A Division of Zions First National Bank, Oakland, California, to serve as Financial Advisor with respect to the Series 2007 Bonds.

The Financial Advisor, Bond Counsel, Disclosure Counsel and Underwriter's Counsel will each receive compensation with respect to the Series 2007 Bonds which is contingent upon the sale and delivery of the Series 2007 Bonds. The Airport Consultant receives compensation from the City which is not contingent upon the sale and delivery of the Series 2007 Bonds.

FINANCIAL STATEMENTS

The City does not prepare separate fmancial statements for the City Airports. Financial information relating to the City Airports is included in the fund financial statements of the Comprehensive Annual Financial Reports of the City. The fund fmancial statements for the City Airports, extracted from the City of Fresno Comprehensive Annual Financial Report for the Fiscal Year ended June 30, 2006, are included as APPENDIX B attached hereto. In accordance with State statutes and Section 804(c) of the City Charter, the Comprehensive Annual Financial Report of the City is subject to audit.

The auditor has not been engaged to perform and has not performed any procedures on the fmancial statements contained in APPENDIX B since the date thereof, nor has the auditor performed any procedures relating to this Official Statement.

CONTINUING DISCLOSURE

The City has covenanted for the benefit of the Holders and Beneficial Owners (as defined in the Continuing Disclosure Certificate) of the Series 2007 Bonds to provide certain financial information and operating data relating to the City Airports (the "Annual Disclosure Report") by not later than 270 days following the end of each Fiscal Year, commencing with the report for Fiscal Year 2006-07, and to provide notices of certain enumerated events, if material. The Annual Disclosure Report will be filed by the City with each Nationally Recognized Municipal Securities Information Repository and the State Repository, if any. The notices of material events will be filed by the City with the Municipal Securities Rulemaking Board and the State Repository, (if any). The specific nature of the information to be contained in the Annual Disclosure Report or the notices of material events is summarized in APPENDIX E-"FORM OF THE CONTINUING DISCLOSURE CERTIFICATE."

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The City has never failed to comply in any material respect with any previous undertakings in accordance with said Rule to provide Annual Disclosure Reports or notices of material events.

MISCELLANEOUS

This Official Statement has been duly authorized, executed and delivered by the City.

The summaries and descriptions of provisions of the Indenture, the Continuing Disclosure Certificate, the Airline Agreements, the purchase contract pursuant to which the Underwriter is purchasing the Series 2007 Bonds, and all references to other materials not purporting to be quoted in full are qualified in their entirety by reference to the complete provisions of the documents and other materials summarized or described. Copies of such documents may be obtained from the Trustee or, during the offering period, from the Underwriters. The Appendices are integral parts of this Official Statement and must be read together with all other parts of this Official Statement.

So far as any statements made in this Official Statement involve matters of opinion, forecasts or estimates, whether or not expressly stated, they are set forth as such and not as representations of fact.

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CITY OF FRESNO

By: Isl Andrew T. Souza City Manager

APPENDIX A

REPORT OF THE AIRPORT CONSULTANT

A-1

(THIS PAGE INTENTIONALLY LEFT BLANK)

FYI509

Appendix A

REPORT OF THE AIRPORT CONSULTANT

on the proposed issuance of

CITY OF FRESNO AIRPORT REVENUE BONDS,

TAXABLE SERIES 2007 A

Prepared for

City of Fresno Fresno, California

Prepared by

Jacobs Consultancy Inc. Burlingame, California

May 22, 2007

(THIS PAGE INTENTIONALLY LEFT BLANK)

JACOBS CONSULTANCY

!:>b!:> Airport Boulevard, Smfi, '.iDO

Burl1ng!me C!li'omi~ 9'1010 U,S A, 1 650,579.7722 Fa,. 1.650.343.5220

Mr. Russell C. Widmar Director of Aviation City of Fresno-Airports 4995 East Clinton Way Fresno, California 93727

May 22, 2007

Re: Report of the Airport Consultant, City of Fresno Airport Revenue Bonds, Taxable Series 2007 A

Dear Mr. Widmar:

We are pleased to submit this Report of the Airport Consultant on certain aspects of the proposed issuance by the City of Fresno (the City) of approximately $22.1 million of Airport Revenue Bonds, Taxable Series 2007 A (the 2007 Bonds). This letter and the accompanying attachment and exhibits constitute our report.

The City owns and, through its Airports Department, operates an Airport System that consists of Fresno Yosemite International Airport (the Airport) and its general aviation reliever airport, Fresno Chandler Executive Airport (Chandler).

THE INDENTURE

The 2007 Bonds are being issued under the terms of an Indenture of Trust, dated as of June 1, 2000, as supplemented (collectively, the Indenture)*, and a resolution authorizing the issuance of the 2007 Bonds.

The Indenture sets forth the covenants of the City for the Airport System with respect to, among other things: (a) issuing Additional Bonds, (b) establishing rentals, fees, and charges, and (c) paying Operating Expenses and Adjusted Debt Service, among other expenses.

SERIES 2007 BONDS

The 2007 Bonds are to be issued by the City on a parity with the Airport Revenue Bonds, Series 2000A and Series 2000B (collectively, the 2000 Bonds and, together with the 2007 Bonds, the Outstanding Airport Revenue Bonds). The 2007 Bonds are to be

*Except as defined otherwise, the capitalized terms in this report are used as defined in the Indenture or the Airline Operations Agreements.

Mr. Russell C. Widmar May 22, 2007

payable from and secured by the Net Revenues (equal to Revenues less Operating Expenses) and Other Available Funds of the Airport System.

The City intends to use the net proceeds of the 2007 Bonds to pay certain costs associated with construction of a consolidated rental car facility at the Airport, as discussed below.

AIRPORT CAPITAL PROGRAM

The City maintains an ongoing process of evaluating the capital requirements necessary to expand Airport System facilities to keep pace with increasing airline traffic demand and has developed a Capital Program for the Airport System for Fiscal Year (FY) 2008 through FY 2012 (the FY 2008-2012 Capital Program), as discussed below. The cost of the 2008-2012 Capital Program is estimated to be approximately $117.7 million.

New Consolidated Rental Car Facility

The new consolidated rental car facility (CRCF) consists of the following elements:

• Architectural and engineering/ design of the new CRCF and roadway improvements

• Site preparation, installation of utilities, and associated paving

• Construction of ready/ return parking spaces

• Construction of service centers for servicing, storing, and maintaining rental cars

• Improvements to roadways serving the new CRCF

The City estimates that the total cost of the CRCF will be approximately $23.8 million and that it will be substantially completed by January 1, 2009-the estimated Date of Beneficial Occupancy (DBO).

The new CRCF is to be located on approximately 15 acres of Airport property adjacent to the Terminal Building. When it opens, the CRCF will enable the six rental car companies currently operating on-Airport to consolidate their operations, which will result in increased customer convenience and operating efficiency in the CRCF.

On July 1, 2005, the City began to impose and collect a customer facility charge (CFC) of $10 per transaction from all on-Airport rental car customers. Under the Indenture, revenues from the CFC are considered Revenues of the Airport System. Under State of

A-2

Mr. Russell C. Widmar May 22, 2007

California law, however, revenues from the $10 CFC can only be used for purposes related to financing, designing, and constructing consolidated rental car facilities. CFC revenues are expected to be used by the City as follows:

• Prior to DBO, CFC revenues are to be used to pay a portion of the $23.8 million in project costs (essentially to pay for that portion of the CRCF that is not to be funded from the net proceeds of the 2007 Bonds).

• As of DBO, CFC revenues are to be pledged to the payment of Debt Service, but for the reasons stated above, can only be used by the City to pay Debt Service on the 2007 Bonds and be applied for purposes related to financing, designing, and constructing the new CRCF.

As discussed later in the "Financial Analysis" section of this report, the City expects to enter into amended and restated concession and service facility agreements with the six rental car companies currently operating on-Airport prior to or shortly after the issuance of the 2007 Bonds. The agreements are to become effective upon DBO of the CRCF.

Other Projects

In addition to the CRCF, the City currently plans to undertake or has in process other Airport System projects in the 2008-2012 Capital Program. These other projects were estimated by the City to cost approximately $93.9 million and are described later in the "Financial Analysis" section of this report.

According to the City, these other projects in the 2008-2012 Capital Program would be implemented as necessary, based on demand and available funds, which currently include, but are not limited to, federal and State of California grants and Airport discretionary funds. The City does not expect to issue any additional Bonds (other than the 2007 Bonds) during the forecast period (ending in FY 2012) to implement the other projects in the 2008-2012 Capital Program.

ADDITIONAL BONDS TEST

The Indenture sets forth certain conditions to be met by the City before it can issue Additional Bonds. In general, these conditions require, among other things, a written report of a Qualified Independent Airport Consultant, which states that estimated Net Revenues and Other Available Funds would not be less than 125% of the Maximum Annual Adjusted Debt Service during the term of the Bonds. In general, Adjusted Debt Service equals Debt Service less certain Passenger Facility Charge (PFC) Revenues. This provision must be met for each of the 3 complete Fiscal Years immediately

A-3

Mr. Russell C. Widmar May 22, 2007

following the Fiscal Year in which the Capital Improvement-the new CRCF for the 2007 Bonds-is to be placed in use, in this case, FY 2010 through FY 2012.

For purposes of the Additional Bonds test, Jacobs Consultancy has been retained as the Qualified Independent Airport Consultant, and we have demonstrated compliance with the Additional Bonds test in a separate letter to the City.

RATE COVENANT

The Indenture states that the City will establish, fix, revise, prescribe, and collect rentals, fees, and charges and cause to be collected amounts in connection with the services and facilities of the Airport so that, in each Fiscal Year, Net Revenues together with Other Available Funds will, at all times, be at least sufficient to provide for the payment of Operating Expenses for such Fiscal Year in addition to 125% of Adjusted Debt Service (equal to Debt Service less certain PFC Revenues) for all Outstanding Bonds for such Fiscal Year. This provision is referred to as the Rate Covenant in this report.

In the Indenture, "Other Available Funds" is defined to include unencumbered funds accumulated in the Surplus Fund, which, prior to the beginning of any Fiscal Year, are designated by the City as Other Available Funds and are transferred to the Revenue Fund up to a maximum of 25% of Debt Service for the Fiscal Year.

AIRLINE AGREEMENTS

In FY 2006, the rentals, fees, and charges collected from the airlines operating under the terms of the Airline Operations Agreements (Airline Agreements) or other agreements with the City constituted approximately 23.1 % of Airport Revenues. Nonairline revenues from public parking operations, concession fees, building and ground rentals, and other sources represented 67.5% of Airport Revenues. Interest income and CFC Revenues accounted for the remaining 1.8% and 7.6%, respectively.

The following airlines have signed amended Airline Agreements with the City: Allegiant Air, American Airlines and American Eagle, Delta Connection (SkyWest Airlines), ExpressJet Airlines, Frontier Airlines and Frontier JetExpress, Horizon Air, Mexicana de Aviacion, United Express (SkyWest Airlines), and US Airways Express (Mesa Airlines) (collectively, the Signatory Airlines.) The Airline Agreements are scheduled to expire in June 2010.

The Airline Agreements provide the basis for, among other things, the use and occupancy of the Airport by the Signatory Airlines.

The two largest sources of airline revenues at the Airport-airline landing fees and Terminal Building space rentals-are not calculated pursuant to a rate-making

A-4

Mr. Russell C. Widmar May 22, 2007

methodology defined in the Airline Agreements, but are determined each year by the City and approved by City Council. Only a small portion of airline rentals, fees, and charges at the Airport (less than 1 % of FY 2006 Revenues) are calculated pursuant to the Airline Agreements.

The City uses a cost center residual rate-making methodology to establish the airline landing fee rate, whereby all Airfield Area Cost Center expenses are reduced by certain revenues in the Airfield to determine the net amount to be paid by the Signatory Airlines through landing fees. For Terminal Building space, the City uses a modified­compensatory rate-making methodology to establish rental rates per square foot of leased space, whereby Terminal Building costs are reduced by loading bridge fees and then divided by square feet of usable* space in the Terminal Building.

The City has historically offset expenses allocated to the Airfield Area and Terminal Building cost centers with nonairline revenues and may continue to do so to stabilize airline rentals, fees, and charges at the Airport, subject to meeting its Rate Covenant and other obligations pursuant to the Indenture.

PASSENGER FACILITY CHARGE REVENUES

As approved by the Federal Aviation Administration (FAA), the City imposes a $4.50 PFC per eligible enplaned passenger at the Airport. Under various FAA approvals, the City has the authority to use approximately $55.9 million in PFC Revenues for PFC-eligible project costs. Through June 30, 2006, the City had collected approximately $15.1 million of the $55.9 million in PFC Revenue collection authorized by the FAA. The City does not expect to reach its $55.9 PFC Revenue collection authority during the forecast period.

PFC Revenues are not currently defined as Revenues of the Airport System. Under the Indenture, the City has covenanted to dedicate no less than $1.1 million per year in PFC Revenues to pay PFC-eligible Debt Service.

SCOPE OF STUDY

In preparing this report, we analyzed the following, among other things:

• Future airline traffic demand at the Airport, giving consideration to the population and economy of the geographic region served, historical trends in airline traffic, and key factors that will affect future airline traffic

*In general, usable space is defined as all space in the Terminal Building less mechanical and electrical space.

A-5

Mr. Russell C. Widmar May 22, 2007

• Sources and uses of funds for the new CRCF and associated principal and interest on the 2007 Bonds, and sources and uses of funds for other capital improvements planned during the forecast period

• Historical relationships among Airport System revenues, expenses, and airline traffic and other factors that may affect future revenues and expenses

• The City's audited financial results for the Airport System for FY 2006, FY 2007 year-end estimates (based on 7 months of actual results), and other operational considerations

• The City's policies and contractual agreements relating to the use and occupancy of the Airport; the calculation and adjustment of airline rentals, fees, and charges; the operation of public automobile parking, rental car, and other concession and consumer service privileges; and the leasing of buildings and grounds

• Historical and forecast PFC Revenues, PFC Revenue Fund interest income, and PFC uses

We identified for City staff the key factors upon which the future financial results of the Airport System may depend and the formulation of assumptions about those factors. On the basis of those assumptions, we assembled the financial forecasts presented in the exhibits accompanying this report.

SUMMARY OF FORECAST RESULTS

Exhibit G and the table below summarize forecast Net Revenues and Other Available Funds, Debt Service, and Debt Service coverage, taking into consideration the estimated Debt Service on the 2007 Bonds and Debt Service on the Outstanding 2000 Bonds.

DEBT SERVICE COVERAGE CALCULATION (in thousands, except coverage)

Estimated Forecast

FY 2007 FY 2008 FY 2009 FY 2010

Net Revenues and Other Available Funds (a)Jb) [AJ $2,272,000 $2,526,000 $3,345,000 $4,756,000

Adjusted Debt Service (c) [BJ 595 000 595 000 1269 000 1 942 000

Debt Service coverage [A/BJ 382% 425% 264% 245%

Required Debt Service coverage 125% 125% 125% 125%

(a) Includes CFC revenues to be used to pay annual debt associated with the new CRCF. (b) Reflects rolling Debt Service coverage to be funded from the net proceeds of the 2007 Bonds. (c) Equal to Debt Service less funds in the PFC Debt Service Escrow Fund. See Exhibit C.

A-6

FY 2011 FY 2012

$4,365,000 $4,528,000

1 942 000 1 942 000

225% 233%

125% 125%

Mr. Russell C. Widmar May 22, 2007

The calculation of Debt Service coverage through the forecast period indicates compliance with the Rate Covenant of the Indenture.

Assumptions Underlying the Financial Forecasts

The accompanying financial forecasts are based on information and assumptions that were either provided by, or reviewed with and agreed to by, Airport management. Accordingly, the forecasts reflect management's expected course of action during the forecast period and, in management's judgment, present fairly the expected financial results of the Airport System.

The key factors and assumptions that are significant to the forecasts are set forth in the attachment, "Background, Assumptions, and Rationale for the Financial Forecasts." The attachment should be read in its entirety for an understanding of the forecasts and the underlying assumptions.

In our opinion, the assumptions underlying the financial forecasts provide a reasonable basis for the forecasts. However, any forecast is subject to uncertainties. Inevitably, some assumptions will not be realized, and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between the forecast and actual results, and those differences may be material. We have no responsibility to update this report for events and circumstances occurring after the date of the report.

* * * * *

We appreciate the opportunity to assist the City in connection with this proposed financing.

Respectfully submitted,

J

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F'r1509 A-8

F'r1509

Attachment

BACKGROUND, ASSUMPTIONS, AND RATIONALE FOR THE FINANCIAL FORECASTS

City of Fresno, California

A-9

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F'r1509 A-10

CONTENTS

Page

AIRLINE TRAFFIC ANALYSIS................................................................................. A-17

Airport Facilities........................................................................................................... A-17 Airport Service Region................................................................................................ A-17 Economic Basis for Passenger Demand.................................................................... A-19 Population..................................................................................................................... A-21 Employment................................................................................................................. A-21 Agribusiness................................................................................................................. A-27 Per Capita Income........................................................................................................ A-28 Tourism......................................................................................................................... A-30 Historical Airline Traffic............................................................................................. A-30

Airlines Serving the Airport.................................................................................. A-30 Airline Market Shares of Enplaned Passengers................................................. A-31 Low-Cost Carrier Market Shares.......................................................................... A-34 Historical Trends in Passenger Traffic................................................................. A-35 Origin-Destination Markets................................................................................... A-39 Relationship between Numbers of Passengers, Economic Activity, and

Airfares.................................................................................................................. A-42 Air Cargo.................................................................................................................. A-45

Key Factors Affecting Future Airline Traffic........................................................... A-46 Economic and Political Conditions...................................................................... A-47 Aviation Security Concerns................................................................................... A-47 Financial Health of the Airline Industry............................................................. A-48 Airline Service and Routes.................................................................................... A-50 Airline Competition and Airfares......................................................................... A-50 Airline Consolidation and Alliances.................................................................... A-51 Availability and Price of Aviation Fuel............................................................... A-52 Capacity of the National Air Traffic Control System........................................ A-53 Capacity of the Airport.......................................................................................... A-53

Airline Traffic Forecasts.............................................................................................. A-53 Assumptions............................................................................................................ A-53 Airline Traffic Forecasts......................................................................................... A-55

Enplaned Passengers................................................................................................... A-57 Landed Weight............................................................................................................. A-58

F'r1509 A-11

CONTENTS (continued)

Page

FINANCIAL ANALYSIS............................................................................................ A-59

Framework for Airport System Financial Operations............................................ A-59 The Indenture.......................................................................................................... A-59 Airline Agreements................................................................................................. A-60

Passenger Facility Charge Revenues......................................................................... A-60 PFC Approvals........................................................................................................ A-60 PFC Framework...................................................................................................... A-61

Capital Program........................................................................................................... A-61 New Consolidated Rental Car Facility................................................................ A-62 Other Projects .......................................................................................................... A-62

Plan of Financing.......................................................................................................... A-63 Debt Service.................................................................................................................. A-64 Operating Expenses..................................................................................................... A-65

FY 2006 Operating Expenses................................................................................. A-66 FY 2007 Operating Expenses................................................................................. A-67 FY 2008-FY 2012 Operating Expenses.................................................................. A-68

Revenues....................................................................................................................... A-69 Airline Rentals, Fees, and Charges............................................................................ A-69 Nonairline Revenues................................................................................................... A-71

Terminal Concession Revenues............................................................................ A-72 Outside Terminal Building Nonairline Revenues.............................................. A-73 Other Terminal Rental Revenues.......................................................................... A-78 Airfield Area Revenues.......................................................................................... A-79 Other Areas.............................................................................................................. A-80 Interest Income........................................................................................................ A-81

Application of Revenues............................................................................................. A-81 Application of PFC Revenues............................................................................... A-83

Debt Service Coverage................................................................................................ A-84

F'r1509 A-12

TABLES

Page

1 Driving Distances to and Scheduled Service at Airports Surrounding the Airport Service Region............................................................................... A-19

2 Historical and Projected Population Data..................................................... A-22

3 Major Employers............................................................................................... A-23

4 Historical and Projected Nonagricultural Employment Data.................... A-25

5 Value of Agricultural Production................................................................... A-28

6 Historical and Projected per Capita Income Data........................................ A-29

7 Airlines Scheduled to Serve the Airport in June 2007.................................. A-31

8 Enplaned Passengers by Airline...................................................................... A-32

9 Historical Enplaned Passengers ..................................................................... A-36

10 Top 20 Domestic Origin-Destination Passenger Market Shares and Airline Service.................................................................................................... A-40

11 Daily Scheduled Nonstop Airline Departures.............................................. A-41

12 Historical Enplaned Cargo............................................................................... A-46

13 Airline Traffic Forecasts.................................................................................... A-56

14 Sources of Airport System Revenues by Cost Center.................................. A-70

15 Current Airport Public Parking Facilities and Rates.................................... A-73

16 Parking Revenues per Transaction ................................................................ A-74

17 Historical Net Revenues and Debt Service Coverage under the Indenture............................................................................................................ A-85

F'r1509 A-13

FIGURES

Page

1 Airport Service Region .. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... .. A-18

2 Summary of Economic Growth....................................................................... A-20

3 Historical Unemployment Rates .................................................................... A-24

4 Comparative Distribution of Nonagricultural Employment...................... A-26

5 Historical Enplaned Passenger Market Shares............................................. A-33

6 Low-Cost Carrier Market Shares of Enplaned Passengers.......................... A-34

7 Annual Change in Total Enplaned Passengers............................................. A-37

8 Average Annual Increases in Enplaned Passengers and Economic Indicators............................................................................................................ A-38

9 Propensity to Travel.......................................................................................... A-39

10 Annual Change in Average Domestic Airfares, Enplaned Passengers, and Economic Activity...................................................................................... A-43

11 Airfares and Enplaned Passsengers................................................................ A-44

12 Nominal Airline Domestic Yields at Fresno Yosemite International Airport and in the Nation................................................................................. A-45

13 Forecast Enplaned Passengers and Projected Economic Growth .............. A-57

14 FY 2006 Operating Expense Distribution....................................................... A-67

15 Budgeted FY 2007 Operating Expense Distribution..................................... A-69

16 Rental Car Company Gross Revenue Market Shares, FY 2006................... A-76

17 Trends in Rental Car Transactions per Domestic Enplaned Passenger.... A-78

18 Summary of Application of Revenues under the Indenture ...................... A-82

F'r1509 A-14

EXHIBITS

Page

A Estimated Project Costs and Sources of Funding, Airport Capital Program .............................................................................................................. A-86

B Sources and Uses of Funds for 2007 Bonds................................................... A-87

C Debt Service Requirements.............................................................................. A-88

D Operating Expenses.......................................................................................... A-89

E Revenues............................................................................................................. A-90

F Application of Revenues.................................................................................. A-92

G Debt Service Coverage...................................................................................... A-93

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F'r1509 A-16

AIRLINE TRAFFIC ANALYSIS

Fresno Yosemite International Airport (the Airport) is located in the City of Fresno, California, in San Joaquin Valley. Fresno is classified by the Federal Aviation Administration (FAA) as a small air traffic hub.* Fresno is the principal center of business, culture, and government for a large portion of the San Joaquin Valley and the adjacent western slopes of the Sierra Nevada Mountains.

AIRPORT FACILITIES

The Airport encompasses approximately 2,300 acres. A two-level concourse building and a terminal building with 15 ground-level gates and approximately 97,000 square feet of space opened in 2002. The terminal building is accessed via a dedicated roadway. Approximately 2,200 automobile parking spaces are provided in surface lots adjacent to the terminal building.

The Airport has two runways: Runway 11L-29R (9,222 feet long) and Runway 11R-29L (7,206 feet long). Runway 29R is equipped with a Category IIlb instrument landing system.

AIRPORT SERVICE REGION

As shown on Figure 1, the primary airport service region is defined as the Fresno Metropolitan Area, which consists of Fresno and Madera counties. The limits of the secondary area, consisting of Kings, Mariposa, Merced, and Tulare counties, are generally determined by the driving distance or travel time to other commercial service airports surrounding the Fresno Metropolitan Area, as well as by the availability, price, and quality of airline service at those other airports.

The airports defining the secondary area of the Airport Service Region are those in Bakersfield, 107 miles to the south, and Modesto, 91 miles to the northwest. Currently, these airports provide only regional airline service. The air carrier airports in the San Francisco Bay Area, Sacramento, and the Los Angeles area are each about 2.5 to 3.5 hours drive time from Fresno. These airports offer extensive domestic and international service. The closest airport with significant passenger service is Mineta San Jose International Airport, as presented in Table 1.

*A small hub is defined by the FAA as a community enplaning 0.050% to 0.249% of the total passengers enplaned on U.S. certificated route air carriers in scheduled service in the 50 states, the District of Columbia, and designated territorial possessions of the United States.

F'r1509 A-17

Road miles ftom Fresno to:

Bakersfielct-----------107 Los Angeles 215 Merce-..- 66 Modesto-- 91 Oaklan 175 Sacramento------- 164 San Francisco---- 182 San Jose- - 155 Stockto , 116

Sacramento

Pacific Ocean

LEGEND

~ Air carrier airport

T Commuter/general aviation airport

Primary area

Secondary area

County boundary

, , , , ,

......... ..................

,

20 0 20 40

Graphic Scale in Miles

, ,

, , ,

CALIFORNIA

Los Angeles

Figure 1

AIRPORT SERVICE REGION

Fresno Yosemite International Airport

May 2007

Table 1

DRIVING DISTANCES TO AND SCHEDULED SERVICE AT AIRPORTS SURROUNDING THE AIRPORT SERVICE REGION

June 2007

Road miles Daily Daily City from Fresno departures seats

Fresno 49 2,595 Bakersfield 107 15 681 Modesto 91 9 267 San Jose 155 180 21,113

Note: Stockton Metropolitan Airport is scheduled to provide an average of less than one daily departure in June 2007.

Source: Official Airline Guides, Inc., online database, for June 2007.

ECONOMIC BASIS FOR PASSENGER DEMAND

The Fresno Metropolitan Area is a business center and regional transportation hub for the San Joaquin Valley, which includes the counties of Fresno, Kern, Kings, Madera, Merced, San Joaquin, Stanislaus, and Tulare. In 2005, the Fresno Metropolitan Area accounted for 27% of the San Joaquin Valley's population and 39% of its employment.

The Airport and its primary service region, with access to the major inter-regional transportation corridors-State Highway 99 and Interstate 5, the San Joaquin Valley's two major north-south arterials-and two major railways, as well as its passenger and cargo service, are important to the State and national economies. The Fresno Metropolitan Area has experienced sustained growth in economic indicators­-population, nonagricultural employment, and per capita income--since 1990. While the Fresno Metropolitan Area is nationally recognized for its agricultural business and production, it is also a major distribution center for transporting goods to destinations throughout the western United States. The rapidly growing population of the San Joaquin Valley is a primary factor driving the regional economy, with most of the population growth reflecting migration from California's coastal regions.

Figure 2 summarizes historical growth in the economic indicators-population, nonagricultural employment, and per capita income-for the Fresno Metropolitan Area, the State of California, and the nation for 1990 through 2006. The Fresno Metropolitan Area has experienced faster growth in population and nonagricultural

F'r1509 A-19

employment than the State and the nation since 1990, but slower growth in per capita income.

Figure 2

SUMMARY Of ECONOMIC GROWTH Fresno Metropolitan Aroa, State of California, and Unitod States

1990-2006 5%~----------------------------~

0

2.0%

Population Nonagricultural Employment

Per capita Income (a)

- Fresno Metropolitan Area (b) - State of CaI,10,rna II United Stales

(a) Hiatorlc:al par capita income data am for 1990 through 2004 and were not adjusted ror 1n1iation,

(b) Con!llete. at Fre,eno and Madera counties.

Sources: Popula1on-U.S. Deportment of Commerce, Bureau of the C0nsus.. Nonagricul1ul'iilJ aITl)t-avrmmt-U.S. Dapartmant of Labor, Bureau of Labor Statistlcs, Emp1oyrnenr sM E&>i,~. Pet c:ap'ta lncome--U S Department of Commerce, Bureau of Ec:onomlc Analysis, R1;ifPO'ltl AOC'Q{JfllS Data,

Data for 1990 through 2000 were analyzed to determine long-term economic trends; more recent trends were analyzed using calendar year 2000 as the base year. Calendar year 2000 was selected as the base year because it is the year prior to the economic slowdowns in the State and the nation in 2001 and the terrorist attacks on September 11, 2001.

Tables 2, 4, and 6 present data on historical and projected population, nonagricultural employment, and per capita income, respectively, for the Fresno Metropolitan Area, the State, and the nation. Population, employment, and per

F'r1509 A-20

capita income data were projected by the National Planning Association (NP A), Data Services Inc.*

POPULATION

The population of the Fresno Metropolitan Area has historically grown at faster rates than that of the State and the nation as a whole, as shown in Table 2. The population of the Fresno Metropolitan Area increased from 926,000 in 2000 to 1,038,000 in 2006, an average of 1.9% per year compared with 1.2% for the State of California and 1.0% for the nation.

The Fresno County Economic Development Corporation attributes the population increase between 2000 and 2005 to the San Joaquin Valley's high quality of life, including its central California location, low cost of living, affordable real estate (relative to the San Francisco Bay Area and Los Angeles region), small town atmosphere, comparatively low traffic congestion (compared to the San Francisco Bay Area and Los Angeles region), and growing retail trade.

Much of the population growth in California and the Fresno Metropolitan Area can also be attributed to the immigration of new residents. The relatively low housing costs in the Fresno Metropolitan Area have encouraged this immigration. As of 2006, international migration to the Fresno Metropolitan Area accounted for 1.9 % of the total migration into the State of California.

Population growth in the Fresno Metropolitan Area is projected to increase an average of 1.3% per year between 2006 and 2012, higher than that for the State (an average of 1.2% per year) and the nation (1.0% per year), according to the NPA.

EMPLOYMENT

Nonagricultural employment in the Fresno Metropolitan Area increased from 243,000 in 1990 to 298,000 in 2000, an average of 2.1% per year, compared with 1.5% per year for California and 1.9% per year for the nation, as shown in Table 4. Between 2000 and 2006, nonagricultural employment in the Fresno Metropolitan Area increased at an annual average rate of 2.1 % per year, higher than that for the State (0.7%) and that of the nation (0.6%). Slower nonagricultural employment growth in the State and nation reflects the impact of the nation-wide economic recession and September 11 terrorist attacks.

*The National Planning Association is a nationally recognized private organization that analyzes and projects trends by county across the United States. The most recent projections were published in October 2006.

F'r1509 A-21

The Fresno County Economic Development Corporation attributes strong employment growth in the Fresno Metropolitan Area since 2000 to the diversification of business sectors and commercial development in the San Joaquin Valley. In 2002, two major manufacturers, Sinclair Systems and Rayovac Corporation, moved their headquarters to the Fresno Metropolitan Area.

Table 2

HISTORICAL AND PROJECTED POPULATION DATA Fresno Metropolitan Area, State of California, and United States

1990-2012

Fresno Metropolitan Area (a) State of California United States

Average Average Average annual annual annual

Number increase Number increase Number increase (thousands) (thousands) (thousands)

Historical (b) 1990 756 --% 29,811 --% 249,623 --%

1995 847 2.3 31,484 1.1 266,278 1.3 1996 859 1.4 31,697 0.7 269,394 1.2 1997 875 1.8 32,019 1.0 272,647 1.2 1998 888 1.5 32,486 1.5 275,854 1.2 1999 898 1.1 32,988 1.5 279,040 1.2

2000 926 3.1 34,008 3.1 282,217 1.1 2001 940 1.6 34,550 1.6 285,226 1.1 2002 961 2.2 34,988 1.3 288,126 1.0 2003 984 2.4 35,457 1.3 290,796 0.9 2004 1,005 2.1 35,842 1.1 293,638 1.0 2005 1,020 1.6 36,132 0.8 296,507 1.0 2006 1,038 1.7 36,458 0.8 299,398 1.0

1990-2000 2.1% 1.3% 1.2% 2000-2006 1.9 1.2 1.0

1990-2006 2.0 1.3 1.1

Projected (c) 2012 1,122 1.3 39,199 1.2 318,093 1.0

(a) Consists of Fresno and Madera counties. (b) U.S. Department of Commerce, Bureau of the Census. (c) National Planning Association, Data Services, Inc., Key Indicators of County Growth, 1970-2030,

2006 edition. Projected average annual increases are for 2006 through 2012.

F'r1509 A-22

According to the State Employment Development Department, the businesses located in the Fresno Metropolitan Area are diverse, including agricultural producers, manufacturers and distributors, and federal and local government centers. Table 3 lists the major employers in the Fresno Metropolitan Area in 2006.

Table 3

MAJOR EMPLOYERS IN 2006 Fresno Metropolitan Area

Employers

Fresno Unified School District Fresno County Community Medical Centers City of Fresno Clovis Unified School District

Foster Farms Saint Agnes Medical Center Kaiser Permanente Medical Center California State University· Fresno Pelco

Gottschalks Zacky Farms

Type of business

Education (K-12) Local government Healthcare Local government Ed uca lion (K-12)

Food processing (poultry) General acute care hospital Hospital Post secondary education Video security systems

Department stores Poultry growing and processing

Number of employees

7,418 7,050 4,630 3,610 3,221

2,500 2,383 2,000 1,993 1,900

1,005 997

Source: Fresno County Economic Development Corporation, The Business Journal, 2006 Book of Lists.

Civilian unemployment rates in the Fresno Metropolitan Area and San Joaquin Valley counties have been higher than the State and national averages. As shown on Figure 3, the unemployment rate in the Fresno Metropolitan Area was 10.2% in 2000, reached a high of 11.6% in 2003, and has declined since then to 8.2% in 2006. These unemployment rates are significantly higher than those for the State and the nation (4.9% and 4.0%, respectively, in 2000 and 4.9% and 4.6%, respectively, in 2006). The increase in the unemployment rate from 2000 to 2003 was due to seasonal layoffs in the agriculture sector as well as a slower rate of job creation in relation to population growth.

Since 2003, the unemployment rate in the Fresno Metropolitan Area has been decreasing, reducing the difference between the unemployment rates of the Fresno Metropolitan Area and those of the State and the nation. According to the Fresno County Economic Development Corporation, although the unemployment rate is still high in some areas of the Fresno Metropolitan Area, it has decreased as a result

F'r1509 A-23

of better training and the generation of jobs for residents, both from new businesses and the expansion of local business, especially in the construction sector.

Figure 3

HISTORICAL UNEMPLOYMENT RATES

10

2

0 2000 2001 2002 2003 2004 2006

Fresno Metropolitan Area State of California - Unlted Stales

Note; Fresno Metropolitan Area consists of Fresno and Madera counties,

Source. U.S. Department of Labor, Bureau of Labor Statlstics,Loca/ Area Unempfoynwru Statistics, 2006.

In 2005 and 2006, unemployment rates improved from the double-digit levels that occurred from 2000 through 2004 as the result of a combination of a diversifying economy and growth in the construction, information technology, and other industry sectors.

Figure 4 presents a comparison of nonagricultural employment by industry sector for the Fresno Metropolitan Area in 1990 and 2006 and for the State of California and the nation in 2006.

Services. The services sector is the largest and fastest growing nonagricultural employment sector in the Fresno Metropolitan Area (as well as in California and the nation). In 2006, the services sector accounted for a smaller share of total nonagricultural employment in the Fresno Metropolitan Area (34.9%) than in California (38.9%) and in the nation as a whole (39.6%). From 1990 through 2006, employment in the services sector in the Fresno Metropolitan Area increased an average of 3.1 % per year.

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Table 4

HISTORICAL AND PROJECTED NONAGRICULTURAL EMPLOYMENT DATA Fresno Metropolitan Area, State of California, and United States

1990-2012

Fresno Metropolitan Area (a) State of California United States

Average Average Average annual annual annual

Number increase Number increase Number increase (thousands) (decrease) (thousands) (decrease) (thousands) (decrease)

Historical (b)

1990 243 --% 12,500 --% 109,487 --%

1995 267 1.9 12,422 (0. 1) 117,298 1.4 1996 271 1.5 12,743 2.6 119,709 2.1 1997 274 1.2 13,130 3.0 122,777 2.6 1998 279 1.8 13,596 3.6 125,930 2.6 1999 289 3.5 13,992 2.9 128,995 2.4

2000 298 3.2 14,488 3.5 131,785 2.2 2001 304 2.0 14,602 0.8 131,826 0.0 2002 311 2.3 14,458 (1.0) 130,341 (11) 2003 314 1.0 14,392 (0.5) 129,999 (0.3) 2004 320 1.9 14,530 1.0 131,435 1.1 2005 328 2.4 14,798 1.8 133,703 1.7 2006 337 2.8 15,073 1.9 136,174 1.8

1990-2000 2.1% 1.5% 1.9% 2000-2006 2.1 0.7 0.6

1990-2006 2.1 1.2 1.4

Projected (c)

2012 382 2.1 16,973 2.0 151,495 1.8

( a) Consists of Fresno and Madera counties. (b) U.S. Department of Labor, Bureau of Labor Statistics. (c) National Planning Association, Data Services, Inc., Key Indicators of County Growth 1970-2030,

2006 edition. Projected average annual increases are for 2006 through 2012.

F'r1509 A-25

Figure 4

COMPARATIVE DISTRIBUTION OF NONAGRICULTURAL EMPLOYMENT

100%

29.8% 34.9% 80 38.9% 39.6% Services

!! OY .c ., - 60 0

g Government ., "' .I:, 40 17.8% II) 15.8% 15.6% Trade ::, 15.7% "t! .E 11.3% 10.1)%

9.1% 10.4% Manutacturing 20

Other

0 1990 2006 2006 2006

Fresno Metropolitan California United States Area

Noto: Fresno Metropolitan Arau consists ot Fresno and Madera counties.

/a) Includes in natural resources, mining1 construction 1 !nformation, finance, and

Source: US. Department of Labor, Burnuu of Labor Statistics, www.bls.gov,

Government. A large share of economic activity in the Fresno Metropolitan Area has historically been tied to the government sector, traditionally a stable employment base. Government services accounted for 23.1 % of total nonagricultural employment in the Fresno Metropolitan Area in 2006, compared with 16.2% in the State and 16.1% in the nation. Employment in this sector increased an average of 2.1 % per year in the Fresno Metropolitan Area between 1990 and 2006. This increase is attributed to the location of (1) regional offices of State and federal government agencies serving a major portion of central California and (2) the Internal Revenue Service's Western Processing Center.

Wholesale and Retail Trade. Trade has historically been the third largest nonagricultural employment sector in the Fresno Metropolitan Area, with a 15.7% share in 2006, which is similar to the 15.8% share in the State and the 15.6% share in the nation. Employment in retail trade in the Fresno Metropolitan Area grew 1.8% per year between 2000 and 2005, compared with an average annual increase of 1.2% in California during the same period. However, the trade sector's share of total nonagricultural employment in the Fresno Metropolitan Area decreased from 17.8% in 1990 to 15.7% in 2006, reflecting changes in the State's regulatory environment for businesses, according to the Madera County Economic Development Commission.

F'r1509 A-26

Manufacturing. Manufacturing accounted for 9.1 % of total nonagricultural employment in the Fresno Metropolitan Area in 2006, compared with 10.0% in the State and 10.4% in the nation. The Fresno County Economic Development Corporation expects manufacturing employment to increase in the Fresno Metropolitan Area in the future through new business developments. According to a Regional Jobs Initiative, employment in the manufacturing sector is expected to increase an average of 3.2% per year between 2004 and 2008, resulting in 1,500 direct jobs and 2,000 indirect jobs.

Construction. The construction industry benefits from population and economic growth in the Fresno Metropolitan Area, which generates demand for new residential and commercial properties. Construction employment in Fresno County alone increased from 14,800 in 1990 to 21,500 in 2005 ( data for construction employment in Madera County are not presented separately). In September 2006, 22,700 people worked in the building trades, representing 7.5% of the nonagricultural jobs in Fresno County. Many of these workers were former seasonal farm laborers who now work in construction.

AGRIBUSINESS

According to the California Department of Food and Agriculture, the market value of agricultural goods (i.e., crops, livestock, and dairy) produced in the Fresno Metro­politan Area in 2005 was about $5.7 billion, accounting for about 18% of the total value of agricultural goods produced in California. The Fresno Metropolitan Area is located along Highway 99 in the San Joaquin region of the Central Valley. The Central Valley is 300 miles long and supplies approximately one-quarter of the nation's food. Agribusiness is vitally important to the Fresno Metropolitan Area's economy.

Fresno County has long been the most productive county in the nation in terms of the value of agricultural production. According to the Fresno County Farm Bureau, the Fresno County currently leads the nation in number of farms (6,592), number of farms with annual sales of $100,000 or more (2,321), and area of harvested cropland (1.16 million acres). In 2005, Fresno County accounted for $4.6 billion in agricultural production, more than any other county in California. Agricultural commodities include grapes, raisins, figs, cotton, alfalfa, citrus, various fruit, nuts, canning tomatoes, vegetables, and livestock.

In 2005, agricultural cash receipts totaled $5.7 billion in the Fresno Metropolitan Area and totaled $31.7 billion in the State of California, as shown in Table 5. The growth in agricultural cash receipts in the Fresno Metropolitan Area has more than doubled that in the State in recent years-an average annual increase of 7.3% per year in the Fresno Metropolitan Area between 2000 and 2005 compared with an average increase of 3.3%per year in the State.

F'r1509 A-27

Table 5

VALUE OF AGRICULTURAL PRODUCTION

Calendar year

1990

1995 1996 1997 1998 1999

2000 2001 2002 2003 2004

2005

1990-2000 2000-2005

Agricultural cash receipts (in billions)

Fresno Metropolitan Area State of California

$3.5 $23.1

3.7 23.6 4.0 25.2 4.2 27.6 3.9 25.6 4.2 27.0

4.0 27.0 3.8 28.1 4.2 27.0 4.8 28.4 5.6 31.6

5.7 31.7

Average annual increase (decrease)

1.3% 7.3

1.6% 3.3

Notes: The Fresno Metropolitan Area consists of Fresno and Madera counties. Data for 2005 are the latest available.

Sources: Fresno County Agricultural Commissioner, www.fresno.ca.gov and California Department of Food and Agriculture, www.cdfa.ca.gov.

Agricultural employment in Fresno County constitutes approximately 30% of all jobs in the Fresno Metropolitan Area. The agriculture workforce contributes more than $3.5 billion to the local economy and more jobs are tied to the agricultural industry than any other industry in the Fresno Metropolitan Area, according to the California Association of Resource Conservation Districts.

PER CAPITA INCOME

As shown in Table 6, per capita income has historically been lower in the Fresno Metropolitan Area than in California and the nation. Between 1990 and 2004, per capita income in the Fresno Metropolitan Area increased an average of 3.0% per year

F'r1509 A-28

compared to increases of 3.6% per year in California and 3.9% per year in the nation. From 2000 to 2004, per capita income in the Fresno Metropolitan Area increased at a higher rate (3.9%) than in California (2.1%) and the nation as a whole (2.6%).

Table 6

HISTORICAL AND PROJECTED PER CAPITA INCOME DATA Fresno Metropolitan Area, State of California, and United States

1990-2012

Fresno Metropolitan Area (a) State of California United States Average Average Average annual annual annual

increase increase increase Amount (decrease) Amount (decrease) Amount (decrease)

Historical (b)

1990 $16,565 --% $21,638 --% $19,477 --%

1995 18,098 1.8 24,161 2.2 23,076 3.4 1996 18,582 2.7 25,312 4.8 24,175 4.8 1997 18,841 1.4 26,490 4.7 25,334 4.8 1998 19,675 4.4 28,374 7.1 26,883 6.1 1999 20,304 3.2 29,828 5.1 27,939 3.9

2000 21,487 5.8 32,463 8.8 29,845 6.8 2001 22,333 3.9 32,882 1.3 30,574 2.4 2002 23,160 3.7 32,803 (0.2) 30,810 0.8 2003 23,753 2.6 33,406 1.8 31,463 2.1 2004 25,072 5.6 35,278 5.6 33,090 5.2

1990-2000 2.6% 4.1% 4.4% 2000-2004 3.9 2.1 2.6 1990-2004 3.0 3.6 3.9

Projected ( c) (d) 2012 30,029 2.3 41,600 2.1 39,664 2.3

Note: Dollar amounts are in nominal values.

(a) Consists of Fresno and Madera counties. (b) U.S. Department of Commerce, Bureau of Economic Analysis, Regional Accounts Data. (c) National Planning Association, Data Services, Inc., Key Indicators of County Growth,

1970-2030, 2006 edition. Average annual increases are projected for 2004 through 2012. (d) Projected average annual increase between 2004 and 2012.

The National Planning Association projects a 2.3% average annual increase in per capita income for the Fresno Metropolitan Area and the nation from 2004 through 2012. According to the Fresno County Economic Development Corporation, per capita income has steadily increased over the past 5 years and will continue to grow

F'r1509 A-29

with the diversification of the Fresno Metropolitan Area's economy. The other economic development corporation serving the Fresno Metropolitan Area, the Madera County Economic Development Commission, expects that future per capita income growth will come from the development of service sector jobs.

TOURISM

Tourism is a growing industry in the Fresno Metropolitan Area. Visitors can choose from various attractions, such as three national parks, amusement parks, gardens, historical sites, casinos, museums, performing arts, outdoor recreation, sports venues, golf, skiing, zoos, and shopping. The Fresno Metropolitan Area is surrounded by Yosemite National Park, Kings Canyon National Park, and Sequoia National Park and Forest. According to the National Parks Conservation Association, visitors to the State of California's 23 national parks generated approximately $1.2 billion in total spending and 30,000 jobs in 2001. In 2001 (the latest data available), the three national parks surrounding the Fresno Metropolitan Area generated a combined total of over $400 million in visitor spending and over 11,000 jobs.

According to the Fresno Regional Jobs Initiative, employment in the tourism sector in Fresno County is expected to increase an average of 2.4% per year between 2004 and 2008, resulting in 1,200 direct jobs and 1,600 indirect jobs annually. In 2004, Fresno County accounted for almost $1 billion in tourism-related spending and $60 million in State and local taxes as a result of tourism activity, with 11,900 people working in tourism-related fields.

HISTORICAL AIRLINE TRAFFIC

Airlines Serving the Airport

In June 2007, the following passenger and all-cargo airlines are scheduled to serve the Airport:

F'r1509 A-30

Table 7

AIRLINES SCHEDULED TO SERVE THE AIRPORT IN JUNE 2007 Fresno Yosemite International Airport

Mainline jet aircraft

Allegiant Air American Airlines Frontier Airlines Mexicana de Aviacion

Regional jet/ commuter aircraft

American Eagle Delta Connection (SkyWest Airlines) United Express (SkyWest Airlines) US Airways Express (Mesa Airlines) Horizon Air ExpressJet Airlines

All-cargo aircraft

Ameriflight FedEx Martinaire Partners UPS Air Cargo

Note: Aircraft with more than 90 seats are referred to as mainline jets, and those with less than or equal to 90 seats are referred to as regional jets/ commuter aircraft. ExpressJet Airlines initiated service at the Airport in April 2007.

Sources: Official Airline Guides, Inc., online database and Airport management records.

For purposes of this report, aircraft with more than 90 seats are referred to as "mainline jets" and those with less than or equal to 90 seats are referred to as "regional jets/ commuter aircraft." All traffic data presented in this report are for the Fiscal Year ended June 30, unless otherwise noted. Charter passenger airlines also serve the Airport, and some of the airlines that provide scheduled service also provide charter service.

Airline Market Shares of Enplaned Passengers

Airline market shares of enplaned passengers at the Airport from FY 2002 through the first 7 months of FY 2007 are shown in Table 8 and on Figure 5.

Between FY 2002 and the first 7 months of FY 2007, the share of passengers enplaned on mainline jets more than doubled, and the share of passengers on regional jets and commuter aircraft decreased. American Airlines contributed to the increased numbers of passengers on mainline jets as the airline increased its mainline jet service to Dallas/Fort Worth International Airport between FY 2000 and FY 2004. Frontier Airlines began service at the Airport in FY 2005, and in January 2007,

F'r1509 A-31

Table 8

ENPLANED PASSENGERS BY AIRLINE Fresno Yosemite International Airport FY 2002-First 7 Months of FY 2007

First Enplaned passengers 7months

FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007

Mainline jet aircraft American Airlines 45,355 65,343 75,806 72,329 73,817 45,553 Frontier Airlines 80 506 28,986 21,076 Allegiant Air 18,516 32,274 35,701 30,420 25,536 18,981 Mexicana de Aviacion 6,198 15,676 US Airways 8034 10 840

63,871 97,697 111,507 103,255 142,571 112,126 Regional jet/ commuter aircraft

United Express/SkyWest Airlines 196,830 186,371 202,664 206,368 204,749 123,324 US Airways Express/Mesa Airlines 54,754 67,295 69,837 92,742 110,295 60,800 Horizon Air 44,435 47,999 48,546 52,973 53,408 33,240 American Eagle 55,858 55,775 53,947 55,672 55,903 31,870 Delta Connection/SkyWest Airlines 48,614 55,418 55,145 58,727 51,120 24,244 Air Wisconsin 4002 1393

404,493 414,251 430,139 466,482 475,475 273,478

Charter aircraft ~ 1686 1307 2483 1288 1 030 Total 470,317 513,634 542,953 572,220 619,334 386,634

Percent of total

Mainline jet aircraft American Airlines 9.6% 12.7% 14.0% 12.6% 11.9% 11.8% Frontier Airlines 0.0% 0.1 4.7 5.5 Allegiant Air 3.9 6.3 6.6 5.3 4.1 4.9 Mexicana de Aviacion 1.0 4.1 US Airways _Ll 2.8

13.6% 19.0% 20.6% 18.0% 23.0% 29.0% Regional jet/ commuter aircraft

United Express (SkyWest Airlines) 41.9% 36.3% 37.3% 36.1% 33.1% 31.9% US Airways Express (Mesa Airlines) 11.6 13.1 12.9 16.2 17.8 15.7 Horizon Air 9.4 9.3 8.9 9.3 8.6 8.6 American Eagle 11.9 10.9 9.9 9.7 9.0 8.2 Delta Connection (SkyWest) 10.3 10.8 10.2 10.3 8.3 6.3 Air Wisconsin __Q2_ ____Q,J

86.0% 80.7% 79.2% 81.6% 76.8% 70.7%

Charter aircraft ___M ____Q,J _Q1_ ___M _Q1_ ____Q,J

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Notes: Charter flights operated by the scheduled airlines are included in the airlines' total passenger numbers. These airlines are Allegiant, America West, Delta, Frontier, Horizon, and United, Frontier initiated scheduled service at the Airport in August 2005; all passengers reported prior to that date were charter passengers. Mexicana initiated scheduled service at the Airport in April 2006. America West merged with US Airways in July 2005.

Columns may not add to totals shown because of rounding.

Source: Airport management records.

F'r1509 A-32

Figure 5

HISTORICAL AIRLINE MARKET SHARES OF ENPLANED PASSENGERS Fresno Yosemite International Airport

Other

Allegiant , .4% 7 3.9%

Horizon Air 9.4% --

Della , / Connection ;<. (SkyWest)

10.3%

USAlrw•ll" Express (Me••) 11.6%

American Airline• Group 21.5%

American 9.6%

[First.7.months.ofFY.2007 ... 1

US Airways Me:dcana 2.8% Charters

4.1%\ , 03M Allegiant \ ; · -./0'

4.9%

Frontier 5,5%

SkvWe•t (Della

Connection) 6.31%,

HoriZQn Air S.6%

US Airways Express

15.7% E,igle 8.2%

Notes: In 2005, America West Airlines and America West Express merged with US Airways Nurnbers may not add totals shown because of rounding.

Source: Airport management records.

Frontier began to replace service previously operated using 70-seat regional jets with service using 132-seat A319 mainline jets. According to the City, Frontier has stated that it will no longer provide service at the Airport effective June 8, 2007. Currently, Frontier only operates one flight per day with service from the Airport to Denver International Airport, which is also served nonstop by United Express.

Mexicana has operated A318, A319, and A320 mainline jet service since April 2006, but is scheduled to operate all flights from the Airport using the larger A320 mainline jets beginning in April 2007.

In the first 7 months of FY 2007, United Express accounted for 31.9% of total passengers enplaned at the Airport, followed by the American Airlines Group (American and American Eagle) with a combined share of 20.0%, and US Airways and US Airways Express (a combined share of 18.5%). Frontier Airlines initiated service at the Airport in August 2005, and enplaned a 5.5% share of passengers in the first 7 months of FY 2007. As a result of Frontier Airlines' new service, the number of passengers enplaned at the Airport by the low-cost carriers, as defined on Figure 6, increased 48.8% in FY 2006, the largest-ever fiscal year increase in enplaned passengers on the low-cost carriers at the Airport.

F'r1509 A-33

Low-Cost Carrier Market Shares

A significant trend at the Airport in FY 2005 and FY 2006 was the increased enplaned passenger market share of the low-cost carriers, as shown on Figure 6. The low-cost carriers serving the Airport are Allegiant Air, America West Express, Frontier Airlines, US Airways, and US Airways Express/Mesa Airlines (formerly America West Express).

l!! ., ,: ., ..., .. "' ... ., E ., .5 .:: <

80

60

40

20

0

Figure 6

LOW-COST CARRIER MARKET SHARES OF ENPLANED PASSENGERS For Fiscal Year ended June 30

2002 2003 2004 2005 2006 2007 Fiscal y,;,ar First 7 months

11 Low~st carriers (a) - AH other airlines

Note: In Seplemt':w,r 2006, Americ,a West Airlines and America West Expma& merged with US AiNMy5. US Airwli1¥i initialed i1C::h4i-dullild ~fir1,11c• in addilion io the uiil1ng Atnilnca West E:-.:pril'ii :ilfilrvica in Ap(il 2006, And by August 2008-, America WR-~f E:xpreiss activity ware. being rx.porled M US Airw~.,,a Exprvn acllv1tY.. Ttiertt is ~m11 deb~te reg11.rding US Alrwwy1' 1datu~ 121 a low~colilt illrline; howevsr, given ·the spoo1lc service flat US Airways initiated at the Airport in April 2006 (1!:ierwice- to America West's hub, Lna Yegna, opern1eid on A31 Siie-tm expm,ei:ion a Amerias Wel:11 ExpntH" exieling service), it io considored loW-G.'()S11or purposes of this report

{a) Low-co1t carriers serving the Airport: Allegiant Air, America West Expre&.:; 1 Frontier Airlines (inilit11A11 li!C=hvdof.i-d service August 2005), and US Airways. Southwest Airlines and ATA A!rtines are lowTcO:it e&.rriera tult do not provide scheduled :service at the Airport but have provided small amm.Jnt,; of d1arter service, which is included in the low-oost carrier market shares, I

i =

The combined enplaned passenger market share of the low-cost carriers serving the Airport increased from 15.4% in FY 2002 to 28.9% in the first 7 months of FY 2007. In the first 7 months of FY 2007, 15.5% more passengers were enplaned on low-cost carriers than in the first 7 months of FY 2006. Service provided by the low-cost carriers has stimulated growth in the total number of enplaned passengers at the Airport rather than capturing market shares from other carriers.

F'r1509 A-34

Frontier Airlines initiated service at the Airport in FY 2005 and, in January 2007, Frontier began to replace service previously operated using 70-seat regional jets with 132-seat A319 mainline jets. As discussed previously, Frontier Airlines has informed the City that it plans to cease service at the Airport effective June 8, 2007.

According to the U.S. Department of Transportation (DOT) T-100 database, the national share of passengers enplaned on the low-cost carriers-consisting of AirTran Airways, Allegiant Air, America West Airlines, ATA Airlines, Frontier Airlines, JetBlue Airways (beginning in 2004), Independence Air (2004 and 2005 only), Southwest Airlines, and Spirit Airlines (2002 through 2004, only)-increased from approximately 21 % in FY 2001 to approximately 26% in FY 2006, similar to the 26.2% low-cost carrier share at the Airport in FY 2006.

Historical Trends in Passenger Traffic

Table 9 summarizes historical enplaned passenger trends at the Airport, organized by mainline jet aircraft, regional jet/ commuter aircraft, and charter aircraft. The Airport is an origin-destination market, meaning that no passengers connect on other flights at the Airport to journey to other airports.

From FY 1990 through FY 2006, the number of total enplaned passengers at the Airport increased an annual average of 2.1 %. Following the terrorist attacks on September 11, 2001, passenger traffic at the Airport decreased through FY 2002, but began to recover in FY 2003, and has increased every year since then through the first 7 months of FY 2007. The number of enplaned passengers increased 7.8% in the first 7 months of FY 2007 compared to the same period in FY 2006.

F'r1509 A-35

Table 9

HISTORICAL ENPLANED PASSENGERS Fresno Yosemite International Airport

Regional jet/ Annual Mainline jet Commuter Charter increase

Fiscal Year (a) aircraft aircraft aircraft Total (decrease)

1990 185,846 257,788 2,558 446,192 --% 1991 207,951 250,403 3,159 461,513 3.4 1992 209,473 218,349 3,269 431,091 (6.6) 1993 213,634 231,600 4,481 449,715 4.3 1994 264,400 248,153 6,866 519,419 15.5

1995 170,703 282,482 10,992 464,177 (10.6) 1996 171,785 350,627 5,948 528,360 13.8 1997 171,669 359,855 5,412 536,936 1.6 1998 130,626 362,803 5,493 498,922 (71) 1999 67,388 404,443 21,468 493,299 (1.1)

2000 44,216 458,350 20,964 523,530 6.1 2001 66,892 431,728 3,450 502,070 (4.1) 2002 62,699 404,020 3,598 470,317 (6.3) 2003 96,530 414,251 2,853 513,634 9.2 2004 111,255 430,019 1,679 542,953 5.7

2005 101,624 466,417 4,179 572,220 5.4 2006 139,679 475,475 4,180 619,334 8.2

First 7 months 2006 69,421 285,885 3,465 358,771 --% 2007 110,803 273,274 2,557 386,634 7.8

Average annual increase (decrease)

1990-2006 (1.8%) 3.9% 3.1% 2.1% 2000-2006 21.1 0.6 (23.6) 2.8

First 7 months 2006-2007 59.6 (4.4) (26.2) 7.8

Note: Passengers on charter flights operated by airlines that provide scheduled service at the Airport are included in the charter numbers. These numbers differ from those in Table 8, which presents airline market shares, where these passengers were included in the airline's count of passengers and excluded from the charter total.

(a) For Fiscal Years ended June 30.

Source: Airport management records.

F'r1509 A-36

Figure 7 presents a comparison of growth in the number of enplaned passengers at the Airport and in the nation from FY 1990 through FY 2006, indexed from FY 1990 for ease of comparison. From FY 1990 through FY 2006, the number of enplaned passengers at the Airport increased an average of 2.1 % per year, while the number of enplaned passengers nationwide increased an average of 3.0% per year. Between FY 1995 and FY 2002, the number of enplaned passengers increased at a slower rate at the Airport than in the nation. This could be partly a result of higher increases in employment and per capita income in the nation than in the Fresno Metropolitan Area over that same period. Beginning in FY 2003 and continuing through FY 2005, increases in passenger traffic at the Airport kept pace with increases in the nation. In FY 2006, increases in passenger traffic at the Airport outpaced increases in the nation. From FY 2000 through FY 2006, the number of enplaned passengers at the Airport increased an annual average of 2.8%, compared with the national annual average increase of 1.6%.

7

ANNUAL CHANGE IN TOTAL ENPLANED PASSENGERS For Fiscal Years ended June 30

1.8~--------------------------~

1A

ii 1.2 -

0.6

,ef!Ju ,,f,"' '°"°''I .,_c;,°"'o ,0:ic;,°' 'l.<!i>"' '1?" "'"""" '),",;:,"> 'l."0;"- 'l,c;;.;:;""' '1,.;:;"'"'

Fiscal Vear

_,.__ Fresno Yoserrnte International Airport Natnonwide

Sources: Airport management records and U.S. Department of Transportation, T~i 00 database.

The use of mainline jets at the Airport decreased between FY 1994 and FY 2000, but began to increase in FY 2003 and continued to increase through the first 7 months of FY 2007, reflecting an attempt by some airlines to reduce service frequency while maintaining seat capacity and making routes more profitable.

F'r1509 A-37

As previously mentioned, all of the passengers that use the Airport are origin­destination passengers, meaning that every passenger at the Airport is either a resident or a visitor to the Fresno Metropolitan Area or the surrounding area. While the economy of the region served is important to all airports, passenger traffic at the Airport is even more closely linked to the economic growth of its service region than an airport with a significant number of connecting passengers.

Figure 8 presents the average annual increases in enplaned passengers* at the Airport compared with average annual increases in population, nonagricultural employment, and per capita income in the Fresno Metropolitan Area. Population and nonagricultural employment data are provided for FY 1990 through FY 2005; enplaned passenger data are presented for FY 1990 through FY 2006; and per capita income data are presented for 1990 through 2004. Since FY 1990, the number of enplaned passengers, population, and nonagricultural employment increased at similar rates.

Figure 8

AVERAGE ANNUAL INCREASES IN ENPLANED PASSENGERS AND ECONOMIC INDICATORS

Airporl and Fresno Metropolitan Area 1990-2006

4,0% ~---------------------------~

3.5

3.0

c 2.s

~ if

2.0

1.5

1.0

0.5

0.0 Enplaned

passengers (a) Population Employment

3.0%

Per capita income (b)

Note: Data for eopll!lned p!!l!!:eengers are for the Airport and data for employment population, and par capita incomlli' are tor the Airport w1-vlce region.

(a) Paesengar data are for fist.al years endAd June 30 and are presented thro11gh FY 2006 (b) Historit..al per capita income data are lhrough 2004 and were not adjusted for inftatfon.

Soumes: Enplan!!KI p11ae:engerdl!III! br FY 1990-FY 200£1rom Airport management r&:::ords. ' See Tables 2. 4. and 6 of this repor1 for the popL1lai'on and economic data prooonted -above. f

*For purposes of this report, originating passengers and enplaned passengers are the same.

F'r1509 A-38

Figure 9 presents the estimated propensity of the Fresno Metropolitan Area population to travel, which is a function, among other things, of (1) the destinations served from the Airport, (2) population and economic growth in the Fresno Metropolitan Area, and (3) airfares at the Airport. The propensity to travel was derived by dividing the number of enplaned passengers at the Airport by the population of the Fresno Metropolitan Area.

C 0 0] '; :i & 0.6

s 111

0.5 ... ~ C:

I 0.3 "' "' C: t 0.2 C: .. 0 0.1

i

Figure 9

PROPENSITY TO TRAVEL Fresno Yosemite International Airport

Sources: Fresno MetropoHtan Area population-tlS. Department of Commerce, Bureau of the Census., PopulaOon Estimates Proarai11.

Enplaned passengens-1>.irporl management records.

Origin-Destination Markets

Table 10 presents the top 20 domestic origin-destination passenger markets for the Airport and the percent of enplaned passengers by market in FY 2006, and daily scheduled nonstop departures from the Airport to those markets in June 2007. For June 2007, nonstop service is scheduled to be provided to 10 of the Airport's top 20 domestic origin-destination markets (with nonstop service to two airports in the Los Angeles market).

F'r1509 A-39

Table 10

TOP 20 DOMESTIC ORIGIN-DESTINATION PASSENGER MARKET SHARES AND AIRLINE SERVICE

Fresno Yosemite International Airport FY 2006 ( except as noted)

FY 2006 percent Average scheduled of originating daily nonstop

Air miles airline departures Rank Origin-destination market from Fresno passengers June 2007

1 Las Vegas 257 10.9% 6.7 2 Los Angeles (a) 209 6.8 15.3 3 Seattle-Tacoma 749 5.9 2.0 4 Phoenix 491 5.2 4.8 5 Dallas-Fort Worth (b) 1,326 5.0 2.0 6 Denver 842 4.4 4.0 7 Washington D.C. (c) 2,288 3.0 8 Chicago (d) 1,725 2.9 9 New York (e) 2,461 2.9

10 Portland 627 2.8 1.0 11 San Francisco (f) 158 2.2 7.9 12 Atlanta 1,991 2.1 13 Minneapolis-St. Paul 1,485 1.9 14 Salt Lake City 501 1.8 2.9 15 San Diego 313 1.6 2.0 16 Orlando 2,289 1.5 17 Miami (g) 2,427 1.4 18 Houston (h) 1,477 1.4 19 Honolulu 2,519 1.3 20 Philadelphia 2,394 ___ll

Cities listed 66.1% 48.7

Other cities 33.9 0.0

All cities 100.0% 48.7

Notes: Columns may not add to totals shown because of rounding. Data are most recent available data for origin-destination passengers and scheduled departures. Scheduled daily nonstop departure data reflect domestic destinations only. An additional 0.7 scheduled daily departure is provided to Guadalajara, Mexico.

(a) Los Angeles International, Bob Hope, Ontario International, John Wayne (Orange County), and Long Beach airports.

(b) Dallas/Fort Worth International Airport and Love Field. (c) Reagan Washington National, Baltimore/Washington International Thurgood Marshall, and Washington

Dulles International airports. (d) Chicago O'Hare and Midway international airports. (e) Newark Liberty International, LaGuardia, and John F. Kennedy International aitports. (J) San Francisco, Oakland, and Mineta San Jose international airports. (g) Fort Lauderdale-Hollywood and Miami international airports. (h) Bush Intercontinental/Houston, and William P. Hobby aitports.

Sources: Originating percentage: U.S. Deparbnent of Transportation, Origin-Destination Survey of Airline Passenger Traffic, Domestic, for FY 2006. Average daily departures: Official Airlines Guides, Inc. online database for June 2007, for domestic destinations.

FYI509 A-40

Table 11 presents information on scheduled daily nonstop departures from the Airport by the passenger airlines in June 2007. The airlines serving the Airport primarily offer flights to the regional hubs of the major airlines, including Dallas/Fort Worth, Denver, Las Vegas, Los Angeles, Phoenix, Salt Lake City, San Francisco, and Seattle-Tacoma. As noted earlier in Table 7, ExpressJet Airlines is scheduled to initiate service at the Airport at the end of April 2007. ExpressJet plans to provide two flights per day to both Ontarioand San Diego international airports.

Table 11

DAILY SCHEDULED NONSTOP AIRLINE DEPARTURES Fresno Yosemite International Airport

June 2007

Average daily

Destination Airline departures

Dallas-Fort Worth American 2.0 Denver Frontier (b) 1.0

United Express/ SkyWest 3.0 Guadalajara, Mexico Mexicana 0.7 Las Vegas Allegiant 0.7

United Express/ SkyWest 4.0 US Airways Express/ Mesa 2.0

Los Angeles American 6.4 United Express/ SkyWest 7.0

Ontario, California ExpressJet 2.0 Portland Horizon 1.0 Phoenix US Airways Express/ Mesa 4.8 San Diego ExpressJet 2.0 San Francisco United Express/ SkyWest 7.9 Salt Lake City Delta Connection/SkyWest 2.9 Seattle-Tacoma Horizon __2Q

Total daily flights 49.4

Average seats per

departure (a)

140 132

56 150 164

30 69 34 33 50 70 57 50 33 50 70

(a) United Express/SkyWest and US Airways/Mesa operate more than one type of aircraft on all nonstop routes they serve.

(b) The information shown for Frontier does not reflect the airline's announced elimination of service at the Airport effective June 8, 2007, which has not been published by Official Airline Guides, Inc.

Source: Official Airline Guides, Inc., online database.

According to Official Airline Guides, Inc., of the average 49 daily departures from the Airport, 15 were destined for the Los Angeles area, 8 were destined for San Francisco, 7 were destined for Las Vegas, and 5 were destined for Phoenix.

F'r1509 A-41

Other major cities served nonstop from Fresno include Dallas-Fort Worth (2), Denver (4), Guadalajara, Mexico (1), Portland (1), San Diego (2), Salt Lake City (3), and Seattle-Tacoma (2).

Approximately 60 daily departures were scheduled from the Airport in June 2000, 11 more than the number scheduled for June 2007. Although fewer departures are scheduled, about 13% more total daily seats are scheduled for June 2007 than June 2000. As previously mentioned, this shift is due to the increased used of mainline jets between FY 2000 and FY 2006. American Airlines has accounted for the highest increase in the use of mainline jets. Frontier Airlines also transitioned from regional jets to mainline jets and Mexicana de Aviacion upgraded to larger mainline jets shortly after initiating service at the Airport. As mentioned previously, the number of passengers enplaned on mainline jets increased an annual average of 21.1 % between FY 2000 and FY 2006. Of the 49 average daily flights scheduled for June 2007, 45 are scheduled to be operated by regional jet and commuter aircraft and 4 are scheduled to be operated by mainline jet aircraft.

Relationship between Numbers of Passengers, Economic Activity, and Airfares

Figure 10 shows the relationship between growth in the number of enplaned passengers and population, nonagricultural employment, per capita income, and average domestic airfares between FY 1990 and FY 2005, using an index where FY 1990 equals 1.0 for all data (data for economic activity are in calendar years).

The number of enplaned passengers decreased in FY 2001 and FY 2002, following the national economic downturn and the terrorist attacks in 2001. Average airfares decreased in FY 2001 through FY 2003. Between FY 2003 and FY 2005, the number of enplaned passengers increased an annual average of 5.6%. Average airfares increased in FY 2004 and FY 2005 at rates slightly lower than the increases in numbers of passengers. It is generally expected that the number of enplaned passengers and average airfares will have an inverse relationship, as was the case in FY 1992, FY 1993, and FY 1995 through FY 1999. The number of enplaned passengers and average airfares did not reflect an inverse relationship between FY 2000 and FY 2005 (except in FY 2003), likely as a result of the national economic recession, the September 11, 2001, terrorist attacks, and the subsequent national economic and airline traffic recovery. Economic activity increased steadily in the Fresno Metropolitan Area between 1990 and 2005.

F'r1509 A-42

10

ANNUAL CHANGE IN AVERAGE DOMESTIC All"lr-Anc::,,

ENPLANED~A:,~t:N~ AND

u;~--------------------------~

1A

1.2

1.0

0.8

Enplaned passengers (a)

• - •- Per capita income (b)

Average fare

Data are for Fiscal Years ended June 30.

Year Population

Nonagricultural employment

Data are available through 2004. Per capita !ncon1>e not adjusted for inflatfort

SourCA..o;: Airport managiament reoords. U.S. Departrnent o1 Transportatuon, US Department of Labor, Bureau U.S. Department of Commert.-e, Bureau ot Economtc

of Airline PessenaerTreflic, Domes!ic.

www.bea.gov.

Figure 11 presents a comparison of changes in average domestic airfares and numbers of enplaned passengers at the Airport from FY 1990 through FY 2006. As shown on Figure 11, the average airfare at the Airport increased in FY 2004 through FY 2006 despite an increase in the market share of the low-cost carriers at the Airport (from approximately 13% in FY 2004 to about 23% in FY 2006). This increase in airfare is partly attributable to a recent attempt by the airlines to offset the rising cost of jet fuel.

F'r1509 A-43

11

AIRFARES AND ENPLANED PASSENGERS Fresno Yosemite International Alrriort

~Oj ·"'° s:," .c,'t- "'°' "Oj 'l,'S fl "'"' "'<:J

Year Average one-way domestic airfare -+- Enp!anAd passengers

Note: Bath average fare data and otiginatlng passenger data are for Flscal Year ended June 30. Sources:

Airline Yields. Figure 12 shows nominal domestic airline yields (average airline revenue per passenger mile) for the Airport and the nation in FY 1990 through FY 2006. In general, domestic airline yield is a function of (a) airfares and (b) the average itinerary lengths for flights at the Airport.

From FY 1996 through FY 2001, average airfares and yields increased as economic activity in the Fresno Metropolitan Area and the nation increased. Throughout those years, average airline yields at the Airport were lower than in the nation. In FY 2004, average airline yields at the Airport began increasing, and continued to increase at a faster rate than in the nation through FY 2006. At the end of FY 2006, a higher average yield was achieved at the Airport than in the nation for the first time in the 16-year period, as shown on Figure 12.

The higher average yield at the Airport compared to the nation in FY 2006 signifies a turning point in the relative value of the Fresno market for airlines serving the Airport. If this trend continues, it is likely that the City will have increasing opportunities to attract new airlines to serve the Airport and additional service from the airlines that currently serve the Airport.

F'r1509 A-44

SI ·e .. :, C ., > 21 ~ .. Q.

Zl C .. (J

12

NOMINAL AIRLINE DOMESTIC YIELDS AT FRESNO YOSEMITE INTERNATIONAL AIRPORT AND INTHE NATION

$0.2~---------------------------~

15·

10

5

0.0 f-----,----,---,-----,----,----,-----,----,----r-----,---r---,----.----r---r----1

'<:/Jq,<:> "o,'<i"' ,._<;,<?,'<> ,0;°'" "0:,9:,'I, 'le""'" 1,""" 'l,"c,'l, '!.""""" 'le"<:}< 'l,"""''o '1,"c:,'o

Year -4-- Fresno Yosemite lnlemaOOnal Nattonw1de

Nole: Y!elds Wr the Arrpor1 and ttie nation are lor Fiscal Year ended June 30.

Sources: U.S. Department of Transportation, Origin~Destination Survey of Airline Passenger Traff1C, Domestic, December 2006.

Air Cargo

The air cargo industry continues to address consolidation and reorganization among the largest air cargo airlines, freight forwarders, and logistics companies. As a result, the historical rates of cargo growth at many airports are changing and may not be in line with regional population growth and economic development.

Cargo activity at the Airport is affected by some of these industry trends. One of the most important trends at the Airport over the past several years is the reduction in mail, partly as a result of more mail being transported by trucks instead of as belly cargo on the passenger airlines. The United States Postal Service contract with FedEx, signed in late 2001, is one of those industry events that has reduced the amount of mail accommodated at the Airport.

Table 12 presents data on enplaned cargo at the Airport since FY 2001. Enplaned air cargo at the Airport decreased an average of 3.7% per year between FY 2001 and FY 2006. Most of the decrease occurred in FY 2002 when total enplaned cargo weight decreased 21. 2% compared with FY 2001 weight. Enplaned cargo carried by the all-cargo carriers at the Airport decreased in FY 2002, but the largest decreases were in the cargo weight carried by UPS Air Cargo and other cargo carriers. Enplaned cargo at the Airport continued to decrease through FY 2004, then

F'r1509 A-45

increased in FY 2005 and FY 2006. Enplaned cargo at the Airport decreased 39.4% in the first 7 months of FY 2007 compared to the same period in FY 2006. This decrease was the result of DHL Worldwide Express reducing its 15 weekly departures on B-767 aircraft to 5 weekly departures on small turboprop aircraft, reflecting the carrier's consolidation of its regional air service operations to March Global Port in Moreno Valley, California.

Fiscal Year (a)

2001 2002 2003 2004 2005 2006

First 7 months 2006 2007

2001-2006 2006-2007

Table 12

HISTORICAL ENPLANED CARGO Fresno Yosemite International Airport

(in pounds except percentages)

Freight and Mail express Total

810,517 17,282,858 18,093,375 124,176 14,142,925 14,267,101 44,046 12,575,507 12,619,553 41,485 12,257,292 12,298,777 34,565 13,352,171 13,386,736 5,800 14,975,800 14,981,600

10,887,542 10,891,250 303 6,604,105 6,604,408

Average annual increase (decrease)

(90.4) (39.3) (39.4)

(a) For Fiscal Years ended June 30.

Source: Airport management records.

KEY FACTORS AFFECTING FUTURE AIRLINE TRAFFIC

Average annual increase (decrease)

--% (21.1) (11.5)

(2.5) 8.8

11.9

(39.4)

In addition to regional population and economic growth, discussed in earlier sections, key factors that will affect airline traffic at the Airport include:

• Economic and political conditions • Aviation security concerns • Financial health of the airline industry • Airline service and routes • Airline competition and airfares • Airline consolidation and alliances • Availability and price of aviation fuel

FYI509 A-46

• Capacity of the national air traffic control system • Capacity of the Airport

These key factors are discussed below.

Economic and Political Conditions

Historically, airline passenger traffic nationwide has correlated closely with the state of the U.S. economy and levels of real disposable income. Future increases in passenger traffic will depend largely on the ability of the nation to sustain growth in economic output and income.

Aviation Security Concerns

Concerns about the safety of airline travel, including the effectiveness of security precautions taken by airlines and government agencies, influence passenger travel behavior and airline travel demand. Anxieties about the safety of flying and the inconveniences and delays associated with security screening procedures have led to both the avoidance of travel, in general, and the substitution of airline travel with surface transportation for shorter trips, in particular.

Safety concerns, delays, and inconvenience in the aftermath of the September 11, 2001, terrorist attacks were largely responsible for the steep decline in airline travel nationwide in 2002. Since September 11, 2001, safety concerns and security precautions have been heightened by hostilities in Afghanistan and Iraq and the possibility of retaliatory terrorist attacks.

Since September 2001, government agencies, airlines, and airport operators have upgraded security measures with the objective of restoring public confidence in the safety of airline travel. These measures include strengthened aircraft cockpit doors, changed flight crew procedures, the increased presence of air marshals, federalization of airport security functions under the Transportation Security Administration (TSA), and more intensive screening of passengers and baggage than prior to September 2001.

Historically, airline travel demand has recovered from the temporary decreases stemming from terrorist attacks, hijackings, aircraft crashes, and international hostilities. Provided that intensified security precautions serve to maintain confidence in the safety of commercial aviation without imposing unacceptable inconveniences for airline travelers, it can be expected that future demand for airline travel at the Airport will depend primarily on economic-not security-factors.

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Financial Health of the Airline Industry

Increases in passenger traffic nationwide will depend partly on the long-term profitability of the airline industry and the associated ability of the industry and individual airlines to invest in aircraft to provide capacity.

A weak economy reduces the demand for airline travel and generally causes fare discounting, resulting in declines in airline revenues. The 1990-1991 economic recession, coupled with increased operating costs and security concerns during the Gulf War, generated then-record financial losses in the U.S. airline industry. These losses put particular pressures on airlines with weak balance sheets, forcing many to seek bankruptcy protection, sell productive assets, lay off workers, reduce service, or discontinue operations in the early 1990s.

Between 1995 and 2000, the airline industry as a whole was profitable, but as a result of the 2001 economic recession and the disruption of the airline industry that followed the September 2001 terrorist attacks, the industry has again experienced huge financial losses. In 2006, revenue passenger miles for the major U.S. airlines, except Southwest Airlines, were about 2% lower than in 2000; yields (revenues per passenger-mile) were about 7% lower; and revenues were about 9% lower.* Between 2001 and 2005, the major U.S. airlines collectively recorded net losses of approximately $42 billion.

In response to those losses, most airlines reduced their route systems and flight schedules and negotiated with their employees, leasing companies, and vendors to reduce costs, either under Chapter 11 bankruptcy protection or the threat of filing for such protection.

United Airlines entered bankruptcy in December 2002, and emerged from bankruptcy with $3 billion in exit financing in February 2006. During the restructuring process, United reduced capacity by discontinuing unprofitable routes and restructuring its fleet, renegotiated its contracts with United Express carriers to reduce the cost of providing flights, eliminated 26,000 jobs, ended employee pensions, and gained pay and work rule concessions from remaining employees in order to reduce costs by $7 billion. While in bankruptcy, United developed a low­fare unit (Ted) and premium transcontinental service, and expanded its enhanced economy class to include some flights operated by United Express. While United's business plan includes the purchase of new aircraft through 2011, the airline recently increased capacity under an initiative to use its current aircraft fleet more efficiently. This initiative involves shortening aircraft turnaround times and further depeaking operations at its hub airports.

*ESG Aviation Services, The Airline Monitor, Vol. 19, Nos. 8 and 9, January/February 2007. Data are for mainline system operations.

F'r1509 A-48

Delta Air Lines reported cumulative net losses of $12.3 billion in 2002 through 2005. During 2004, the airline's credit rating was downgraded, largely because of a cost structure then much higher than that of other airlines, and its market valuation was drastically reduced. In early 2005, Delta implemented plans to reduce costs and restructure its route network, flight schedules, fares, and services, which included eliminating its Dallas/Fort Worth hub and downsizing its Cincinnati hub. Delta also reduced staff, cut compensation for nonunion staff, and negotiated with its pilots and other union staff, as well as vendors and lessors, to achieve additional cost savings. In October 2004, Delta announced an agreement with its pilots' union for pay cuts in return for an ownership stake in the airline and other concessions. Delta also announced new financing arrangements and, in August 2005, raised cash through the sale of Atlantic Southeast Airlines. Notwithstanding the financial relief afforded by these initiatives, Delta filed for Chapter 11 bankruptcy protection in September 2005 and is pursuing further cost savings and productivity gains while in bankruptcy. On November 15, 2006, US Airways made an unsolicited merger proposal to acquire Delta for $8.4 billion. On December 19, 2006, Delta announced that its board of directors rejected the merger with US Airways in favor of continuing to carry out Delta's standalone Plan of Reorganization. Delta's management expects the airline to emerge from bankruptcy in spring 2007.

US Airways filed for Chapter 11 bankruptcy protection in August 2002 and emerged from bankruptcy in March 2003. After failure to achieve targeted cost savings in 2004, the airline again filed for Chapter 11 bankruptcy protection in September 2004. Since November 2004, US Airways has restructured its route network and flight operations and reached agreement with stakeholders to improve liquidity, reduce leasing costs, and ensure continued access to its leased aircraft fleet. As discussed in the later section "Airline Consolidation and Alliances," US Airways and America West Airlines merged in September 2005 (and US Airways simultaneously emerged from bankruptcy), with integration of employees to be implemented over multiple years, to create the fifth or sixth largest airline in the United States, with headquarters in Tempe, Arizona, and plans for primary hubs in Charlotte, Philadelphia, and Phoenix. Both airlines are expected to operate under separate operating certificates for a transition period of 2 to 3 years, keeping flight crew, maintenance, and safety procedures for each airline separate. The merged company will eventually operate under the US Airways name.

American Airlines avoided filing for bankruptcy protection in early 2003 only after obtaining labor cost concessions from its employees.

Continuing losses or unforeseen events that affect overall demand could again force airlines to retrench, seek bankruptcy protection, discontinue marginal operations, or liquidate. The restructuring or liquidation of one or more of the network airlines would drastically affect airline service at many connecting hub airports, present business opportunities for the remaining airlines, and change travel patterns throughout the U.S. aviation system.

F'r1509 A-49

In recent years, the record losses of the network airlines contrast with the financial performance of a number of low-cost carriers, particularly AirTran Airways, JetBlue, and Southwest. However, even before the recent industry contraction, many low­cost startup airlines had difficulty sustaining profitability. Low-cost carrier failures since 2001 include Independence Air, Midway Airlines, National Airlines, and Vanguard Airlines. The viability of the large network airlines will likely be driven by their ability to generate greater fare revenues and to combine the market and air service advantages of their hub systems with lower, more competitive operating costs in relation to their low-cost competitors.

Airline Service and Routes

The basic determinant of passenger demand at an airport is the population and economy of the region served by the airport. However, the overall level of airline service and the number of passengers using an airport also depend to some extent on the route networks of the airlines serving that airport. Airlines are free to enter or leave individual air traffic markets at will. Consequently, it is uncertain which airlines, if any, will serve particular origin-destination markets. Most airlines have emphasized the development of "hub-and-spoke" route networks as a means of increasing their service frequencies, passenger volumes, and profitability. Flights are routed and scheduled through a central transfer hub airport from other points on the airline's route system so that passengers can connect conveniently between flights.

Airline Competition and Airfares

Airfares have an important effect on passenger demand, particularly for relatively short trips where the automobile and other surface modes are viable alternatives for price-sensitive discretionary and leisure travel. Airfares are influenced by airline operating costs, passenger demand, capacity, market presence, and competitive factors. An increasing portion of the typical airfare is accounted for by taxes, fees, and other charges assessed by governmental agencies.

During the late 1980s and early 1990s, the established network airlines experienced increased competition from low-cost carriers and various regional airlines. The response by the established network airlines to the increased competition varied. In some markets, the network airlines reduced service. In other markets, they reduced fares and increased service.

In an attempt to stimulate passenger traffic and remain competitive, most U.S. airlines reduced airfares early in 2001 and, following the September 11, 2001, terrorist attacks, reduced airfares further. In 2002, the average domestic yield for the major U.S. airlines was 12.4 cents per passenger-mile, compared with 14.5 cents in

F'r1509 A-50

2000. * Overcapacity in the industry and other factors caused yields to remain low between 2003 and 2005, reaching a low of 11.7 cents per passenger-mile in 2005. In 2006, the average domestic yield increased to 12.8 cents, reflecting a 6.5% increase in passenger revenue and a 2.2% decrease in revenue passenger miles, as airlines reduced capacity to match demand. Industry analysts have expressed concern about the sustainability of the current yield management system of most of the network airlines, which involves uneconomically low discount fares made available to many leisure travelers and high "walk-up" fares that must be paid by many business travelers. The ability of consumers to book flights easily via the Internet, and the associated transparency of airline pricing, creates additional downward pressure on airfares. Some of the major network airlines have introduced simplified fare structures designed to rationalize their revenue models. Widespread adoption of such rationalized fare structures, along with controls on airline seat capacity are seen as keys to the industry regaining and sustaining profitability.

In many air travel markets nationwide, low-cost carriers provide price competition. At the Airport, airlines such as America West (merged with US Airways in September 2005) provide such competition. Further increases in passenger traffic at the Airport will depend on the continued availability of competitive airfares and service. Since 2001, most of the major network airlines have reduced their systemwide seat capacity while the low-cost carriers have generally increased seat capacity. As a result, the nationwide share of domestic passengers enplaned by the low-cost airlines increased from approximately 21 % in FY 2001 to approximately 26% in FY 2006, based on U.S. DOT T-100 database information.

In the mid-1990s, many of the network airlines established their own low-fare divisions, such as Delta Express, US Airways' Metro Jet, and Shuttle by United, to compete with the low-cost carriers. Most of these operations have since been discontinued or reduced. However, as a result of airline bankruptcies and reorganization since 2001, the network airlines have re-established low-fare divisions to compete with low-cost carriers, including United's low-fare unit Ted and Delta's Song, which provide low-fare long-haul service. Delta's Song was discontinued by Delta in April 2006.

Airline Consolidation and Alliances

In response to competitive pressures, segments of the U.S. airline industry have historically sought to consolidate through mergers and alliances.

In July 2002, a marketing alliance and code-sharing agreement was announced between United and US Airways and, in May 2004, US Airways joined United in the Star Alliance-an alliance of airlines that provide service worldwide, which includes

*ESG Aviation Services, The Airline Monitor, Vol. 19, Nos. 8 and 9, January/February 2007. Data are for mainline system operations.

F'r1509 A-51

Air Canada, Lufthansa German Airlines, Singapore Airlines, and Thai Airways International, among others. In addition to United, Star Alliance carrier US Airways provides service at the Airport. In March 2003, the U.S. DOT approved a marketing and code-sharing agreement among Continental Airlines, Delta, and Northwest Airlines, which links the three airlines' flight schedules and frequent flyer programs. In September 2004, Continental and Northwest joined the Delta-led SkyTeam alliance. Effective February 4, 2005, Southwest Airlines initiated a code-sharing agreement with ATA Airlines. Such airline alliances and code-sharing agreements often increase airline service options available to customers of a particular airline while reducing the potential for competition. Additionally, these alliances can result in new airline service at an airport, with alliance carriers using hub airports as more efficient connecting points for transferring passengers across a partner airline's system.

As noted earlier, US Airways and America West Airlines merged in September 2005. The combined enplaned passenger market share for the two airlines at the Airport was 16.2% in FY 2005, 19.1% in FY 2006, and 18.5% in the first 7 months of 2007. Also previously mentioned, Delta recently rejected a proposed merger with US Airways. A merger of that size would have significant and unknown effects on the domestic airline industry.

Availability and Price of Aviation Fuel

There has been no shortage of aviation fuel since the "fuel crisis" of 1974, which reflected a decrease in production and an increase in prices rather than an actual shortage. The price of aviation fuel, however, continues to be an important and uncertain factor affecting airline operating economics. Historically, jet fuel prices have been particularly sensitive to worldwide political instability.

The invasion and occupation of Iraq; political unrest in other oil-producing countries, including Venezuela; the increasing worldwide demand for oil (particularly from China and India and other countries with rapidly developing economies); and other factors have caused fuel prices to increase sharply since 2003. In November 2006 (the most recent data available at the time this report was prepared), the domestic price of a gallon of jet fuel was 32% higher than in November 2004, and 135% higher than in March 2002, according to the Air Transport Association's Fuel Cost and Consumption Report. High fuel prices have been a major contributor to recent airline industry losses. Individual airlines do not publicly report their consumption or cost of jet fuel at individual airports. According to the Air Transport Association's Airline Cost Index for the third quarter of 2006, jet fuel costs represented the largest item of expense for the airlines (labor was second), approximately 27% of airline operating expenses, an increase from about 12% in the third quarter of 2001. According to many oil industry sources, the factors serving to keep the price of oil at a high level, particularly emerging market

F'r1509 A-52

economic conditions, are likely to remain in place for the foreseeable future. While fuel prices have not affected the ability of airlines to provide service, future high prices will affect airline service, airfares, and passenger numbers. Also, increases in energy prices have contributed to major economic recessions in recent decades.

Capacity of the National Air Traffic Control System

As nationwide demand returns to and exceeds pre-September 2001 levels, flight delays and restrictions are again possible, both on the number of aircraft movements on certain air traffic routes and on the number of landings and takeoffs at certain airports. These restrictions affect airline schedules and passenger traffic nationwide. Increasing demand on the national air traffic control and airport systems could cause delays and restrictions in the future. In addition, nearly half of the nation's air traffic controllers are eligible for retirement over the next decade. Although the FAA is giving priority to: (1) automating and enhancing the computer, radar, and communications equipment of the air traffic control system; (2) developing additional airfield capacity at critical airports through the construction of new runways and the more effective use of existing runways; (3) hiring and training new air traffic controllers; and (4) at certain congested airports, capping growth in numbers of operations, the long-term effectiveness of these measures is uncertain.

Capacity of the Airport

In addition to any future constraints that may be imposed by the capacity of the national air traffic control system, future growth in airline traffic at the Airport will, in the long term, depend on the provision of adequate Airport capacity to accommodate aircraft and passengers. The Airport has sufficient terminal capacity to accommodate the enplaned passenger forecasts presented in this report. It was assumed that existing and planned Airport facilities will accommodate forecast airline traffic at least through the forecast period.

AIRLINE TRAFFIC FORECASTS

Assumptions

Forecasts of airline traffic were prepared taking into account analyses of the economic basis for airline traffic and historical airline traffic, and an assessment of the key factors likely to affect future airline traffic, all as discussed in earlier sections. In developing the forecasts, a statistical analysis indicated that a large share of the variation in passenger traffic at the Airport in recent years can be explained by the airline service (in terms of available seats) and airline fares at the Airport. The strength of this statistical relationship reflects the recent service additions at the

F'r1509 A-53

Airport and the underlying passenger demand from the Fresno Metropolitan Area population base and local economy.

The key assumptions underlying the forecasts of future airline traffic presented in this report are disclosed in this section. In general, it was assumed that growth in airline traffic at the Airport will occur largely as a function of growth in the population and economy of the Fresno Metropolitan Area, and that continued development of airline service at the Airport will not be constrained by the availability of aviation fuel, limitations in airline fleet capacity, limitations in the capacity of the national air transportation system or the Airport, or government policies or actions that restrict growth.

More specifically, it was assumed that, during the forecast period:

1. The national economy will experience moderate growth, averaging between 1.0% and 2.5% per year.

2. The general economy of the Fresno Metropolitan Area will continue to increase, as discussed in the earlier section "Economic Basis for Airline Traffic."

3. No major act of terrorism or war will materially affect airline travel in the United States during the forecast period.

4. The current mix of mainline jet, regional jet, and commuter aircraft serving the Airport will continue at the same approximate distribution.

5. Airfare competition from low-cost airlines at the Airport will be moderate over the next year, but, in general, airfares for flights to and from Fresno will increase from current levels at rates generally consistent with historical trends at the Airport and nationwide.

6. Current and future fluctuations in fuel prices will not affect the ability of the airlines to provide service at the Airport.

7. The national air traffic control system will have sufficient capacity to accommodate airline traffic through the forecast period.

In April 2007, ExpressJet Airlines initiated service to and from the Airport to two destinations in California (San Diego and Ontario). For purposes of this report, the following assumptions were made in developing the forecasts of enplaned passengers and landed weight for ExpressJet:

• The airline will operate two daily nonstop flights using 50-seat regional jet aircraft to each destination.

FYI509 A-54

• A 70% load factor will be achieved on its flights, which is equal to the average load factor for all scheduled airlines at the Airport in FY 2006.

• 60% of ExpressJet passengers will be new passengers, or passengers that would not have otherwise used the Airport if ExpressJet had not initiated service. The remaining 40% of the passengers on ExpressJet were assumed to transition from service by existing airlines at the Airport to the ExpressJet service.

According to the City, Frontier Airlines has stated that it will cease service at the Airport on June 8, 2007. For purposes of this report, the following assumptions were made in developing the forecasts of total enplaned passengers and landed weight at the Airport:

• Frontier will discontinue its once daily service at the Airport on June 8, 2007.

• 50% of Frontier's previously forecast passengers will still travel to and from the Airport, using another airline

• 50% of Frontier's previously forecast passengers will discontinue travel to and from the Airport.

Airline Traffic Forecasts

Table 13 presents historical and forecast enplaned passengers and landed weight at the Airport for FY 2005 through FY 2012.

F'r1509 A-55

~

I ~ 8

• I

' U7

°'

Table 13

AIRLINE TRAFFIC FORECASTS Fresno Yosemite International Airport

FY 2005 - FY 2012

The forecasts presented in this table were prepared using the information and assumptions given in the accompanying text. Inevitably, some of the assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between the forecast and actual results, and those differences may be material.

Annual average Historical Estimated Forecast increase

2005 2006 2007 (a) 2008 2009 2010 2011 2012 2006-2012

Enplaned passengers Mainline jet 101,624 133,481 160,800 128,300 135,600 139,400 142,900 146,300 (1.5%) Existing regional/ commuters 466,417 475,475 465,500 490,200 501,600 513,600 524,400 534,300 2.0 ExpressJet (b) 8,300 50,000 51,500 52,900 54,100 55,200 46.1 Charters 4179 4180 4300 4 600 4700 4900 5 000 5100 3.4

Domestic Total 572,220 613,136 638,900 673,100 693,400 710,800 726,400 740,900 3.2

Mexicana 6198 27000 25 700 28400 29 200 29 900 30500 30.4

Total 572,220 619,334 665,900 698,800 721,800 740,000 756,300 771,400 3.7 Annual increase ( decrease) 8.2% 7.5% 4.5% 3.3% 2.5% 2.2% 2.0%

Landed weight (1,000-pound units) Passenger airlines

Mainline jet 141,110 191,070 258,600 239,300 249,200 252,100 255,200 258,000 5.1% Existing regional/ commuters 619,170 622,899 605,900 624,400 625,700 636,600 646,800 655,700 0.9 ExpressJet (b) --- --- 9 500 61300 61300 61300 61300 61300 45.2

Subtotal 760,280 813,969 874,000 925,000 936,200 950,000 963,300 975,000 3.1

All-cargo airlines 230,543 155,852 157 400 159 000 160 600 162,200 163 800 165 400 1.0

Total 990,823 969,821 1,031,400 1,084,000 1,096,800 1,112,200 1,127,100 1,140,400 2.7 Annual increase (decrease) (2.1%) 6.4% 5.1% 1.2% 1.4% 1.3% 1.2%

Note: For Fiscal Years ended June 30. Landed weight is shown for Signatory Airlines only. Mexicana provides mainline jet service and is assumed to be the only international carrier serving the Airport throughout the forecast period. ExpressJet service assumptions for FY 2008: 200 daily seats at approximately 70% load factor; 60% of passengers on ExpressJet are new to the Fresno market.

(a) Estimated on the basis of 7 months of actual data. (b) For ExpressJet, the average annual increases are from 2007-2012.

Sources: Historical- Aitport management records. Estimated and forecast- Jacobs Consultancy, March 2007.

ENPLANED PASSENGERS

The number of enplaned passengers at the Airport is forecast to increase from 619,334 in FY 2006 to 771,400 in FY 2012. Figure 13 presents a comparison of forecast enplaned passengers at the Airport and forecast economic growth in the Fresno Metropolitan Area.

The total number of enplaned passengers at the Airport is estimated to increase 7.5% in FY 2007, based on 7 months of actual data, compared with the same period in FY 2006. This estimate also includes the initiation of service by ExpressJet Airlines in April 2007, and the announced cessation of service by Frontier Airlines in June 2007. In FY 2008, the number of enplaned passengers is forecast to increase 4.5%, reflecting a full year of service by ExpressJet. From FY 2006 through FY 2012, the total number of enplaned passengers is forecast to increase an average of 3.7% per year, higher than the long-term trend (2.1 % per year from FY 1990 through FY 2006) and the more recent trend (2.8% per year from FY 2000 through FY 2006).

-C II> I:! a,

Q.

Figure ·13

FORECAST ENPLANED PASSENGERS AND PROJECTED ECONOMIC GROWTH

4.5%

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

3.7%

FY 200&-FY 2012 2006-2012 200l!-2012 2004·2012 Enplaned Population Employment Per capita

passengers income

Note: Data for enJ:'11ned passengers are presented for Fresno Yosemtt,e International Airport ind dilator employment, population, and per caprta income are presented for the Fre-5no Malropolit.ein Area,

Sources: Enplened pe5sengar 1oreoast5 wera davelopad by ~Jacobs Consultancy (see "T8.ble 13). Seiec Tables 2 1 -4, and e o1 this report lor th& popuh1tion and economic data presented ebovo.

In FY 2012, the number of enplaned passengers is forecast to be approximately 23% higher than the 626,044 enplaned passengers forecast for the Airport by the FAA* in

F'r1509 A-57

the same year.* The difference in the forecast presented in this report and the forecast prepared by the FAA is that the Federal Fiscal Year (FFY) 2005 data were used as the basis for the FAA forecast, and recent service developments at the Airport were not considered. Also contributing to the disparity of the two forecasts, the FAA forecast shows a declining number of total enplaned passengers at the Airport in FFY 2006 when the number of enplaned passengers actually increased 8.2%.

LANDED WEIGHT

Airline aircraft landed weight at the Airport is forecast to increase from 969,821 thousand-pound units in FY 2006 to 1,140,400 thousand-pound units in FY 2012 (an average annual increase of 2.7% from FY 2006 to FY 2012). The forecast of landed weight was derived from the forecast of enplaned passengers (discussed earlier), considering trends in average aircraft size as well as assumed growth in all­cargo airline aircraft operations.

*Federal Aviation Administration, Terminal Area Forecast, December 2006, for years ending September 30.

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FINANCIAL ANALYSIS

FRAMEWORK FOR AIRPORT SYSTEM FINANCIAL OPERATIONS

The City accounts for Airport System financial activity according to generally accepted accounting principles for governmental entities and the requirements of the Indenture.

The Indenture

Improvements to the Airport System have been financed largely through the issuance of Airport Revenue Bonds under the Indenture, which sets forth the covenants of the City with respect to, among other things in the Airport System:

• Issuing Additional Bonds. The City is required to meet certain conditions in order to issue Additional Bonds, including forecasting Net Revenues (equal to Revenues less Operating Expenses) and Other Available Funds for the 3 years following the Date of Beneficial Occupancy (DBO) of the proposed Capital Improvement, which, for the 2007 Bonds, is the consolidated rental car facility (CRCF). Demonstration of compliance with the Additional Bonds test for the 2007 Bonds was provided to the City under separate cover.

• Establishing rentals, fees, and charges for use of the Airport System. The City is required to establish, fix, revise, prescribe, and collect rentals, fees, and charges and cause to be collected amounts in connection with the services and facilities of the Airport so that, in each Fiscal Year, Net Revenues together with Other Available Funds will, at all times, be at least sufficient to provide for the payment of Operating Expenses for such Fiscal Year and 125% of Adjusted Debt Service for all Outstanding Bonds for such Fiscal Year (in this report, this requirement is referred to as the Rate Covenant). The City may make adjustments from time to time in such rentals, fees, and charges as it deems necessary.

• Paying Operating Expenses and Adjusted Debt Service, among other costs. As discussed later in this report, the Indenture establishes certain funds and accounts for the deposit and use of Revenues to pay Operating Expenses, Adjusted Debt Service, and other costs of the Airport System.

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Airline Agreements

The following Signatory Airlines have signed amended Airline Agreements with the City: Allegiant Air, American Airlines/ American Eagle, Delta Connection/SkyWest Airlines, ExpressJet Airlines, Frontier Airlines, Horizon Air, Mexicana de Aviacion, United Express/SkyWest Airlines, and US Airways Express/Mesa Airlines. The Airline Agreements, which are scheduled to expire in June 2010, provide the basis for, among other things, the use and occupancy of the Airport by the Signatory Airlines.

The two largest sources of airline revenues at the Airport-airline landing fees and Terminal Building space rentals-are not calculated pursuant to a rate-making methodology that is defined in the Airline Agreements, but are determined each year by the City and approved by City Council. Less than 1 % of FY 2006 Revenues were calculated pursuant to the Airline Agreements.

The City uses a cost center residual rate-making methodology to establish the airline landing fee rate, whereby all Airfield Area Cost Center expenses are reduced by certain revenues in the Airfield Area to determine the net amount to be paid by the Signatory Airlines through landing fees. The City uses a compensatory rate-making methodology to establish Terminal Building rental rates per square foot of leased space, whereby Terminal Building costs are divided by square feet of usable space in the Terminal Building.

As discussed later in this report, the City has historical! y offset expenses allocated to the Airfield Area and Terminal Building cost centers with nonairline revenues, and may continue to do so to stabilize rentals, fees, and charges at the Airport, subject to meeting its Rate Covenant and other obligations pursuant to the Indenture.

PASSENGER FACILITY CHARGE REVENUES

PFC Approvals

As approved by the FAA, the City imposes a $4.50 PFC per eligible enplaned passenger at the Airport. Under various FAA approvals, the City has the authority to use approximately $55.9 million in PFC Revenues for PFC-eligible costs. Through June 30, 2006, the City had collected approximately $15.1 million of the $55.9 million in PFC Revenues authorized for collection by the FAA. The City does not expect to reach its $55.9 million in PFC Revenue collection authority during the forecast period.

PFC Revenues are not currently defined as Revenues of the Airport System and are not expected to be defined as such during the forecast period. The treatment and use of PFC Revenues during the forecast period are discussed below.

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PFC Framework

Under the Indenture, the PFC Revenue Fund and two accounts-the Covenanted PFC Account and the PFC Project Account-were established for the annual deposit and use of PFC Revenues.

The City has irrevocably committed to deposit into the Covenanted PFC Account all PFC Revenues attributable to $3.00 per enplaned passenger, including any interest income earned on such revenues (Covenanted PFC Revenues). Pursuant to the Indenture, the City is to accumulate PFC Revenues and interest income in an amount not less than the Minimum PFC Contribution, which, for purposes of this report and under the Indenture, is equal to $1.1 million per Fiscal Year. The PFC Revenues attributable to $3.00 per enplaned passenger are forecast to be greater than the Minimum PFC Contribution in each year of the forecast period. When the Minimum PFC Contribution has been reached, the Indenture requires the City to transfer the Covenanted PFC Revenues to the PFC Debt Service Escrow Fund and use such amounts to pay Debt Service.

PFC Revenues received by the City in excess of the Covenanted PFC Revenues in any year-at the discretion of the City-can be (a) retained in the Covenanted PFC Account, (b) transferred to the Trustee for deposit into the PFC Debt Service Escrow Fund, or (c) transferred to the PFC Project Account to pay pay-as-you-go Project Costs, or (d) transferred to another account established by the City and used for any lawful purpose.

The City expects to deposit all PFC Revenues attributable to $3.00 per enplaned passenger plus associated interest income to the Covenanted PFC Account, transfer such amounts into the PFC Debt Service Escrow Fund when the Minimum PFC Contribution has been reached, and, with all remaining PFC Revenues collected by the City and associated interest income, use such amounts to pay Debt Service.

In calculating Debt Service coverage under the Indenture, the City can exclude the debt service irrevocably committed to be paid from the PFC Debt Service Escrow Fund from the calculation of Debt Service, which has been assumed for purposes of this report.

CAPITAL PROGRAM

The City maintains an ongoing process of evaluating the capital projects necessary to expand Airport System facilities to keep pace with increasing aviation demand. According to the City, the cost of the 2008-2012 Capital Program is estimated to be $117.7 million. Assumptions regarding the funding for these projects, plus associated Operating Expenses, if any, and any other relevant costs are included in the financial forecasts presented in this report.

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The planned projects in the Capital Program and their estimated costs and funding sources are shown in Exhibit A.

New Consolidated Rental Car Facility

The new consolidated rental car facility is to occupy approximately 15 acres of Airport land adjacent to the Terminal Building. The CRCF project is estimated to cost $23.8 million and includes the following elements:

• Architectural and engineering/ design of the new CRCF and roadway improvements

• Site preparation, installation of utilities, and associated paving

• Construction of ready/ return parking spaces

• Construction of service facility and storage areas for servicing, storing, and maintaining rental cars

According to the City, the estimated DBO of the CRCF is January 1, 2009.

Other Projects

In addition to the CRCF, the City expects to undertake an additional $79.1 million in capital improvements at Fresno Yosemite International Airport and an additional $14.8 million in capital improvements at Chandler Executive Airport. As identified in Exhibit A, the major elements of these costs include the following:

• Rehabilitate Taxiways B and C, including removal of the existing aircraft pavement and replacement with new surfaces, upgrade of electrical circuits, and lighting ($19.5 million and $9.7 million, respectively)

• Acquire land needed for the future construction of a detention basin to provide airfield runoff capacity ($10.0 million)

• Continue the Federal Aviation Regulations (FAR) Part 150 Noise Mitigation Program (over 800 homes have been acoustically treated to date) ($12.0 million)

• Rehabilitate general aviation apron ($8.8 million)

• Extend Runway 12R at Chandler Executive Airport to a length of 4,000 feet ($9.0 million)

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• Construct Taxiway H, taxilanes, and northside infrastructure (Phases 2 and 3) at Chandler Executive Airport ($4.6 million)

PLAN OF FINANCING

The major sources of funds the City expects to use for projects in the Capital Program are shown in Exhibits A and B, and are discussed below.

The City is eligible to receive FAA grants-in-aid under the Airport Improvement Program (AIP) for up to 90% of the costs of eligible projects. Certain of these grants are to be received as entitlement grants, the annual amount of which is calculated on the basis of the number of enplaned passengers and landed weight of all-cargo aircraft operations at the Airport. Other, discretionary, grants are awarded on the basis of the FAA' s determination of the priorities for projects at the Airport and at other airports nationwide. The federal funding shown in Exhibit A reflects a combination of (1) grants previously received from the FAA, and (2) expected entitlement and/ or discretionary grants.

As stated earlier, the City imposes a $4.50 PFC per eligible enplaned passenger at the Airport with commitments to use most of the PFC Revenues received each year to pay Debt Service on the Series 2000 Bonds.

The City will receive funding from the voter acceptance of Measure C, a local 0.5% sales tax for transportation purposes. Measure C is expected to provide $1.7 billion in funding over 20 years to Fresno County, including the Airport, for certain transportation purposes. It is anticipated that the sales tax will generate approximately $5.5 million by 2012 (the end of the forecast period considered in this report) for the Airport. For purposes of analysis, the Measure C funds were assumed to match the federal grants for capacity-enhancing projects at the Airport.

In addition to the Measure C funds, Exhibit A identifies an additional $712,630 in matching State grants for several capital improvements at Chandler Executive Airport.

A customer facility charge (CFC) per rental car transaction is imposed at the Airport to pay the costs associated with the new CRCF. Under State of California Assembly Bill 491, airport operators in California are able to collect fees for the development of consolidated rental car facilities or a consolidated ground transportation system for airport rental car companies. The bill, which became effective January 1, 2002, authorizes a $10 CFC per on-airport rental car transaction to fund the costs to finance, design, and construct a consolidated rental car facility and a common-use transportation system.

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The City started collecting the CFC in July 2005 and expects to use CFC revenues as follows:

• Prior to DBO of the CRCF, approximately $4.4 million of CFC revenues are to be used to pay CRCF project costs.

• After DBO, CFC revenues are to be used to pay Debt Service on the 2007 Bonds, the net proceeds of which are to be used to fund the new CRCF at the Airport and used for purposes related to financing, designing, and constructing the CRCF. .

The 2007 Bonds are to be issued on parity with other outstanding Senior Bonds, and are to be payable from and secured by a pledge of and first lien on the Net Revenues of the Airport System. Exhibit B summarizes the estimated sources and uses of proceeds from the 2007 Bonds as provided by Citigroup Global Markets, Inc., the City's underwriters, using information provided by the City.

The sources of funds for the new CRCF, as shown in Exhibit B, are:

• Proceeds from the sale of the 2007 Bonds • CFC revenues prior to DBO of the CRCF • Interest income during construction

The estimated uses of 2007 Bond proceeds, as shown in Exhibit B, are:

• Deposit an amount to the Construction Fund to pay CRCF project costs

• Deposit an amount to the Capitalized Interest Account in the Construction Fund as required to pay interest on the 2007 Bonds during construction

• Pay underwriters' discount, insurance premiums, and other costs of issuance

DEBT SERVICE

Exhibit C presents the City's Debt Service for FY 2004 through FY 2012, including annual principal and interest payments on Outstanding Bonds and the proposed 2007 Bonds. Debt Service for FY 2004 and FY 2005 is based on audited results provided by the City. Debt Service is shown net of capitalized interest.

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The 2007 Bonds are to be issued on parity with the Outstanding Bonds. Debt Service for the 2007 Bonds was provided by Citigroup Global Markets, Inc., using the following assumptions:

Principal amount Bonds to be dated Estimated true interest cost First principal payment date Final maturity

2007Bonds (taxable)

$22,080,000 June 14, 2007

6.3% July 1, 2013 July 1, 2037

Interest on the 2007 Bonds is to be capitalized until DBO (currently estimated to be January 1, 2009) of the new CRCF.

Debt Service on the 2000 Bonds were allocated among cost centers in proportion to the net costs funded with the net proceeds of the 2000 Bonds in each cost center. Debt Service on the 2007 Bonds is allocated to the CRCF.

OPERATING EXPENSES

Exhibit D presents Operating Expenses for FY 2004 through FY 2012. Operating Expenses are shown by expense category and by cost center allocation. Data for FY 2004 through FY 2006 were obtained from the City's annual financial statements; and data for FY 2007 were based on the City's estimate of year-end Operating Expenses.

Operating Expenses include direct and indirect expenses of the Airport System. Direct expenses are expenses directly charged to one of the Airport System cost centers-the Airfield Area, Terminal Building, Parking Lot, Rental Car, Air Cargo, Fixed Base Operator (FBO), Federal Inspection Services (FIS), nonaviation and Chandler (Reliever) Airport. Indirect expenses include expenses for roadways, general maintenance and administration, and security that are allocated to Airport System Cost Centers according to procedures established by the City and applied consistent! y each Fiscal Year.

Operating Expenses were forecast based on estimated FY 2007 results presented in Exhibit D, which reflects assumptions about Airport System staffing levels, and assumed increases in the unit costs of labor, services, utilities, and supplies as a result of price inflation. In particular, it was assumed that:

• The unit cost of salaries, wages, and fringe benefits will increase an average of approximately 2.5% per year during the forecast period, reflecting historical trends.

FYI509 A-65

• The unit cost of materials and supplies will increase an average of approximately 7.5% per year during the forecast period based on historical trends.

• The unit cost for utilities and other services will increase an average of approximately 2.5% per year.

• Operating expenses will increase as additional Airport facilities are constructed in accordance with the planned Capital Program.

The City allocates a portion of its administrative costs to the Airport System, including, but not limited to, the management, maintenance, environmental, information systems, and financial functions of the City. Historically, this operating expense represents one of the largest categories of expense for the Airport System. Personnel services represent another large expense for the Airport System, which is typical of most U. S. airports. Personnel services include all salaries, wages, and benefits for filled personnel positions and, for budgeting purposes, for vacant positions as well.

FY 2006 Operating Expenses

The average annual increase in Operating Expenses for FY 2002 through FY 2006 was 7.5%, excluding costs associated with the Airport's new Federal Inspection Services (FIS) area (Mexicana de Aviacion began service at the Airport in April 2006), and costs that were reimbursed through a Small Air Service Development Grant (Frontier Airlines). Actual Operating Expenses in FY 2006 were approximately 23.9% higher than in FY 2005 if these costs were included.

The largest category of increased Operating Expenses in FY 2006 was Airport services, which are associated with public safety and fire, and other administrative services. In FY 2006, these expenses included $2.2 million of (1) new U.S. Customs and Border Protection services, (2) additional expenses associated with the Airport's new FIS area, as mentioned above, (3) the transfer of public safety and fire personnel from the Airport to the City, and (4) two additional Airport operations specialists, who were added to handle international flights and provide 24-hour airfield coverage.

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Figure 14

FY 2006 OPERATING DISTRIBUTION EXPENSES Fresno Yosemite International Airport

By Major Category By Cost Center

Chandier 3%

Supplies 3%

Personnel Services

40%

Maintenance 2"/4

1---Admfnfstration 42°/0

Source: Airport management records,

Chand~er 3%

7%

Parking 8%

Area " 35%

Other Areas 9%

, ___ "" '··~Terminal

Building 38%

J

These increased expenses in FY 2006 were offset by a decrease in salaries and wages, resulting from a shift in public safety officers and associated costs from the Airport's budget to the City's budget

Certain other expenses also increased, including maintenance and utility services. Electricity costs for all tenant-leased space, the use of tenant equipment, and tenant support facilities are billed directly to such tenants and are not included in the Operating Expenses of the Airport.

As discussed later in this section, the City is currently pursuing "Port of Entry" status for international flights, which means that the cost for U.S. Customs and Border Protection services at the Airport, which are the responsibility of the City, would become the responsibility of the Department of Homeland Security (DHS).

Operating Expenses are allocated to Airport System Cost Centers by Airport staff based on historical Airport System operations and other considerations. As shown on Figure 14 for FY 2006, Operating Expenses in the Terminal Building and Airfield Area accounted for approximately 73% of total Operating Expenses.

FY 2007 Operating Expenses

The average annual increase in Operating Expenses forecast for FY 2007 through FY 2012 is 5.8%. The City's FY 2007 year-end estimate is expected to be

F'r1509 A-67

approximately 20% higher than FY 2006 actual expenses. The year-end estimate is based on 7 months of actual expenses, which reflect, in part, increased pension contributions, increased administrative costs, and additional costs associated with a full year's operation of the FIS area.

The major categories of Operating Expenses for FY 2007 and the distribution of expenses to Airport System Cost Centers are shown on Figure 15.

Chandler 3%

Supplies ll%

Utlll!ies --9%

Personnel Services

39%

Figure 15

FY 2007 BUDGETED OPERATING EXPENSE DISTRIBUTION Fresno Yosemite International Airport

By Major Category

Maintenance 2"!.

Administration ,-- 44*/4

FIS 6%

Parking 8%

Tennlnal Building

33%

By Cost Center

Source; Airport management records.

FY 2008-FY 2012 Operating Expenses

Airfield Arw 44°'/o

Operating Expenses for the remaining years of the forecast period reflect the following assumptions:

• Estimated FY 2007 Operating Expenses were assumed to represent an appropriate "baseline" level of expense for forecasting future year Operating Expenses.

• Additional expenses associated with planned projects expected to be completed during the forecast period are included.

• Certain Operating Expense line items were assumed to increase with forecast increases in enplaned passengers, as presented in previous sections.

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• The City will receive "Port of Entry" status for the Airport from DHS in April 2009 (FY 2009), which will mean that the cost of providing Customs and Border Protection services will transition from the City to DHS. The assumed reductions in Airport Operating Expenses are as follows: $0.3 million in FY 2009, which reflects a partial year reduction, and $1.2 million each year from FY 2010 through FY 2012.

• Inflation for all Operating Expenses was assumed to be approximately 2.5% per year, which reflects the average rate of inflation* in the Fresno area for the 5-year period, 2001-2006.

REVENUES

Table 14 presents the major sources of Airport System Revenues by cost center for FY 2006 (actual) and FY 2012 (forecast). Line-item details for the two significant categories of Revenues-airline revenues and nonairline revenues-are shown in Exhibit E.

The basis for and assumptions used to forecast the financial results of the Airport System through the forecast period are discussed in the following sections.

AIRLINE RENTALS, FEES, AND CHARGES

Airline rentals, fees, and charges are an important source of revenue for the City. In FY 2006, airline revenues represented 23.1 % of Airport Revenues.

Historical and forecast airline rentals, fees, and charges at the Airport, in total and expressed on a per enplaned passenger basis, are shown in Exhibit E.

According to the City, the calculation of airline rentals, fees, and charges is based on the following costs:

• Operating Expenses, including the estimated cost of equipment purchases, capital outlays, and maintenance

• 125% of Adjusted Debt Service (equal to Debt Service less funds in the PFC Debt Service Escrow Fund)

• Amortization of improvements financed by the City from sources other than the proceeds of Bonds, federal grants-in-aid, or PFC Revenues

*Source: U.S. Department of Labor, Bureau of Labor Statistics, from www.bls.gov, March 1, 2007.

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• The Reliever Airport (Chandler) Deficit, which is equal to total operating revenues less expenses at Chandler

• Fines, assessments, judgments, or settlements

• Required deposits to reserve accounts established under the Indenture

Table 14

SOURCES OF AIRPORT SYSTEM REVENUES BY COST CENTER Fresno Yosemite International Airport

For Fiscal Years ending June 30 (in thousands, except percentages)

Actual2006 Percent Forecast 2012 Percent Revenues of total Revenues of total

Airline revenues Landing fees $ 1,976 12.3% $ 1,706 9.0% Terminal Building rentals 1,061 6.6 1,377 7.2 Other 690 ----12 1308 ~

Total airline revenues $ 3,727 23.1% $ 4,391 23.1%

Nonairline revenues Terminal concessions (a) $ 338 2.1% $ 436 2.3% Public automobile parking 4,044 25.1 4,993 26.3 Rental car privilege fees 2,039 12.7 2,596 13.7 Other terminal rentals (b) 391 2.4 494 2.6 Other airfield rentals 1,638 10.2 1,805 9.5 Other 2416 15.0 2519 13.3

Total nonairline revenues $10,866 67.5% $12,843 67.7%

Investment income 297 1.8 334 1.7

CFC revenues (c) 1224 -----22 1419 ----22 Total Revenues $16.114 100.0% $18.987 100.0%

Note: Columns may not add to totals shown because of rounding.

(a) Includes revenue from food and beverage, merchandise, and terminal services. (b) Includes revenue from ISA reimbursements, rental car counters, FIS, service station, and

other terminal space rentals. (c) Prior to DBO (January 1, 2009), CFC revenues are not considered Revenues of the Airport

System as the revenues are being used to pay a portion of the costs to construct the new CRCF.

The assumptions underlying the forecasts of Debt Service and Operating Expenses­the two largest Airport cost components included in airline rentals, fees, and charges-were presented earlier in this report, and the costs allocable to airline cost centers and used to forecast airline rentals, fees, and charges are shown in Exhibit C

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for Debt Service and Exhibit D for Operating Expenses. For purposes of this report, it was assumed that no additional space will be leased by the Signatory Airlines during the forecast period, except the additional space to be leased by ExpressJet effective April 2007.

As mentioned earlier, the Terminal Building rental rate is calculated according to a compensatory rate-making methodology whereby total Terminal Building costs are reduced by loading bridge fees and certain nonairline revenues and the remaining costs are divided by total usable space to determine the rental rate per square foot. In general, usable space is defined as all space in the Terminal Building except that used for mechanical and electrical systems.

The Terminal Building rental rate is then multiplied by the number of square feet rented by the airlines to determine Terminal Building rentals.

Airline landing fees are calculated according to a cost-center residual rate-making methodology, under which the net costs of the Airfield Area (after crediting certain nonairline revenues) are recovered through landing fees assessed per 1,000 pound unit of airline aircraft landed weight.

Other airline revenues shown in Exhibit E include common use equipment charges, FIS fees, gate fees, and reimbursements for security. Such fees and charges are set according to a compensatory rate-making methodology to recover the costs associated with such facilities.

The City has historically offset expenses allocated to the Terminal Building and Airfield Area cost centers with nonairline revenues, and would likely continue to do so to stabilize rentals, fees, and charges at the Airport, subject to meeting its Rate Covenant and other obligations under the Indenture. During the forecast period, it is expected that the City will be able to meet the Rate Covenant and Other Obligations under the Indenture and would not be required to increase Terminal Building rental rates or the airline landing fee rate.

For each airline that is not signatory to an Airline Agreement, the City assesses rentals, fees, and charges following procedures consistent with those outlined in the Airline Agreements, at a premium of 25% over Signatory Airline rates.

NONAIRLINE REVENUES

Exhibit E also summarizes historical and forecast revenues from nonairline tenants and services at the Airport.

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Terminal Concession Revenues

Concessionaires lease terminal space at the Airport pursuant to concession agreements, which provide for payment to the City of the greater of a percentage of gross revenue or a minimum annual guarantee.

Some of these agreements are scheduled to expire during the forecast period. As these agreements expire, the City intends to enter into new concession agreements with similar terms and conditions.

In FY 2006, revenues from terminal concessions represented 2.1 % of Revenues. In general, the forecasts of in-terminal concessions and terminal services revenues were based on (1) forecasts of enplaned passengers presented earlier in this report, (2) recent historical trends in the concession revenues paid to the City, expressed on a per enplaned passenger basis, (3) allowances for inflation of 1.25% per year, and (4) the terms and conditions of agreements with the City. Exceptions to these factors are noted below.

Food and Beverage. Host International, Inc., recently signed an exclusive concession agreement to provide food and beverage services at the Airport, and has since introduced a new Starbucks concession. Under the agreement, which extends to April 2018, the minimum annual guarantee for food and beverage space is $7.32 per square foot per year. The concessionaire pays the City 5% of gross sales on food and beverage and 8% on alcohol sales. Exclusive rights of the concessionaire include the operation of vending machines. The concessionaire has nonexclusive rights to operate a flight kitchen at the Airport. The agreement does not have an option for extension.

Advertising. Under terms of the advertising agreement, Clear Channel Airports (formerly Interspace Airport Advertising) pays the City the greater of a concession fee equal to 36% of gross sales or a minimum annual guarantee. The advertising agreement extends through March 2015 and contains an escalator clause for concession fees contingent on the number of total passengers, up to a maximum of 40% for passengers in excess of 2 million.

News and Gifts. Hudson Group has the exclusive right to operate the newsstand and gift shop concession at the Airport under an agreement that expires in 2019. Under the terms of the agreement, the concessionaire pays a minimum annual guarantee for retail space of approximately $17.40 per square foot per year. The merchandise concession agreement provides for a payment to the City equal to the greater of a percentage fee from 5% to 8% of gross sales on sundries and gifts or the minimum annual guarantee.

Other In-Terminal Concessions. The City receives revenues from telephones, ground transportation, and other concessions under the terms of various

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agreements. These other concession revenues totaled $37,364 in FY 2006 and are forecast to increase in relation to inflation.

Outside Terminal Building Nonairline Revenues

Outside Terminal Building nonairline revenues include, among other things, public automobile parking and rental cars.

Public Automobile Parking. Public automobile parking at the Airport is provided in surface lots adjacent to the Terminal Building. In FY 2006, public parking revenues accounted for 25.1 % of total Revenues.

Table 15 lists the parking facilities at the Airport, the number of spaces in each facility and the parking rates. Ace Parking, Inc., operates the public parking facilities under a management contract with the City. Under this contract, the City retains all rights to implement, among other things, parking rate increases.

Table 15

CURRENT AIRPORT PUBLIC PARKING FACILITIES AND RATES Fresno Yosemite International Airport

Surface parking lots

Short-term surface parking Long-term surface parking Metered parking

n.a. ~ not applicable

Number of spaces

288 1,622

26

Source: Airport management records.

24-hour rate

$12 $8

n.a.

Hourly rate

$3 $8 (flat rate) $0.25 (each 6 minutes)

In addition, approximately 260 parking spaces are provided for employees and Airport tenants at $15 per space per month.

In FY 2006, parking revenues increased 10% over the prior year. The short-term lot was underutilized as a result of the City's construction of a new "cell phone" parking lot for persons picking up and dropping off passengers.

Parking revenues per transaction are a measure of how long customers park at the Airport. Transactions and revenues by lot type for FY 2005 and FY 2006 are shown in Table 16 below.

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Table 16

PARKING REVENUES PER TRANSACTION Fresno Yosemite International Airport

Parking facilities

Short-term surface parking Long-term surface parking Metered parking

Total

Short-term surface parking Long-term surface parking Metered parking

Total

Source: Airport management records.

Percent of total, FY 2005 Transactions

72% 25

----2. 100%

Parking revenues

23% 72

----2 100%

Percent of total, FY 2006

Transactions

71% 26

----2. 100%

Parking revenues

23% 73

___j_

100%

Public automobile parking revenues were forecast on the basis of (1) a review of annual trends in parking revenues per enplaned passenger and per transaction in FY 2005 and FY 2006, (2) moderate increases in the ratio of parking transactions per enplaned passenger and average revenue per enplaned passenger, and (3) forecast increases in the number of enplaned passengers, as presented earlier in this report.

Rental Cars. Rental car revenues are a function of locally generated passenger traffic, contract terms, and changes in the pricing structures of the rental car operations. Figure 16 presents the FY 2006 market shares of gross revenues of the rental car companies that have concession agreements with the City.

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16

RENTAL CAR COMPANY GROSS REVENUE MARKET SHARE, FY 2006 Fresno Yosemite International Airport

Enterprls:e 9.5%

Budgal 11.9%

Dollar 16.9%

Source: Airport management records,

Avis 21.4%

In FY 2006, rental car privilege fees accounted for 12.7% of Airport System Revenues.

The City currently has agreements with six rental car companies-Avis, Budget, Dollar, Enterprise, Hertz, and Vanguard-to operate rental car concessions and lease space at the Airport through DBO of the new CRCF. Under the existing agreements, the City receives privilege fees of 10% of gross revenues against a minimum annual guarantee, plus rentals for counter space, ready and return car parking spaces, and service facilities ground area in the existing rental car facilities.

In March 2007, Enterprise entered into an agreement to purchase Vanguard Rental Car Group and stated that the purchase of Vanguard is expected to close in the third or fourth quarter of 2007. Based on FY 2006 data, the combined company would be the second largest rental car operation at the Airport based on gross revenues. This development in the rental car industry was assumed to have no material effect on the (1) amount of space to be leased by the six on-Airport rental car companies prior to or after DBO of the CRCF, (2) the revenues to be paid collectively to the City, and (3) the number of rental car transactions generated at the Airport.

The new CRCF is to be located on approximately 15 acres of Airport property adjacent to the Terminal Building. The new facility is expected to open January 1, 2009 (estimated DBO), and will enable the six on-Airport rental car companies to consolidate their operations, resulting in increased customer convenience and operating efficiency.

The City and the on-Airport rental car companies are expected to enter into the Restated Concession Agreements and the Extended and Restated Service Facility

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Agreements (collectively, the New Rental Car Agreements) prior to or shortly after the issuance of the 2007 Bonds, which will provide for the use and lease of the new CRCF. The New Rental Car Agreements are to be effective on DBO of the new CRCF and to continue in effect through August 31, 2014, for the concession agreement and through January 1, 2029, for the service facility agreement. In general, the business terms are as follows:

• Privilege fees payable to the City are to equal 10% of gross revenues (subject to a minimum annual guarantee).

• Rentals for the use and lease of counter space in the Terminal Building.

• Rentals for the ready/ return area.

• Ground rents for service facility and storage areas.

• As discussed below, Contingent Rent payments to the City in the event that CFC revenues in any year are less than the Debt Service on the 2007 Bonds in the same year.

• Payment of direct operating expenses associated with the new CRCF. The six on-Airport rental car companies are to be responsible for all operating costs associated with their service center and storage facilities.*

Airport operators in California are able to collect a $10 customer facility charge per rental car transaction for the development of consolidated rental car facilities. The City has been imposing and collecting a $10 CFC since July 1, 2005. In FY 2006 (the first full year of CFC collection), $1.2 million was received from this revenue source. Historical and forecast CFC revenues are shown in Exhibit E.

Figure 17 presents the historical trend in rental car transactions per domestic enplaned passenger at the Airport from FY 2000 through FY 2006, which provides an indication of the propensity of passengers to rent cars at the Airport. Transaction data for Budget** are not available for FY 2000 through FY 2005 when ownership of the operation transitioned from a franchisee to the parent company. Because Enterprise was operating off-Airport prior to October 2004, transaction data for its operations are only available for three quarters of FY 2005 and all of FY 2006.

The historical trends in transactions per domestic enplaned passenger are difficult to assess given (1) the limited availability of complete transaction data and (2) the effect, if any, that the events of September 11, 2001, had on the propensity of passengers to rent cars at the Airport. Trends in transactions per domestic enplaned

*Upon DBO of the new CRCF, Enterprise is to locate its service area on-Airport. **Budget accounted for 11.9% of the gross revenue market share for on-Airport

rental car companies in FY 2006.

F'r1509 A-76

passenger for FY 2005 and FY 2006 were, therefore, used in developing the assumptions used to forecast future transactions, which, when multiplied by the $10 CFC, equals forecast CFC revenues.

Figure 17

TRENDS IN RENTAL CAR TRANSACTIONS PER DOMESTIC ENPLANED PASSENGER Fresno Yosemite International Airport

For Fiscal Years ended June 30

:!! o 0.05

l C .. i= Q

2000 2001 2002 2003 2004 2005 2006

- Transactions per domestic enplaned passenger D Average for period shown

Sources: Airport manag'1mant raoorda tor domQ&lic enplaned passengers. Ranta.I car oornpani~ kir transacijons.

From DBO through year 5 of the new CRCF, any CFC revenues in excess of Debt Service are to be used by the City to reduce total Contingent Rent, if any, that would be payable by the rental car companies. As of DBO, and in the event that CFC revenues collected in any year plus excess CFC revenues during the first 5 years are less than Debt Service on the 2007 Bonds in that same year, the rental car companies would be required to pay the City Contingent Rent equal to 50% of the shortfall in CFC revenues as long as the 2007 Bonds, or a successor series of Bonds, are outstanding.

Rental car and CFC revenues, which appear in multiple line items on Exhibit E, were forecast on the basis of:

• Privilege fees. Forecast numbers of enplaned passengers, as presented earlier in this report, and the average gross rental car revenue per enplaned passenger for the last 3 complete Fiscal Years (2004-2006), which ranged between $2.38 and $3.29 per enplaned passenger. Privilege fees are forecast

FYI509 A-77

to be greater than the minimum annual guarantee in each year of the forecast period.

• Counter rentals in Terminal Building. The rental rate per square foot per year and the amount of leased counter space (approximately 1,565 square feet) are expected to remain the same during the forecast period.

• Rentals in the ready/return area. Under the existing agreements, the rental rate and amount of space leased by the rental car companies are expected to remain the same until DBO of the new CRCF.

As of DBO, the amount of leased space is expected to increase from approximately 124,000 square feet to 225,000 square feet, and to remain at that level through the forecast period.

• Ground rentals for service facility and storage area. Under the existing agreements, the $0.80 rental rate per square foot and the amount of space leased by the rental car companies are expected to remain the same until DBO of the new CRCF.

As of DBO, the amount of leased space is expected to increase from approximately 148,000 square feet to 279,000 square feet, and to remain the same through the forecast period.

• CFC revenues. CFC revenues were forecast on the basis of (1) forecast rental car transactions, which are based on the average number of transactions per domestic enplaned passenger in FY 2005 and FY 2006 applied to the forecast of domestic enplaned passengers presented in this report, and (2) a CFC of $10 per transaction.

Based on the forecast of CFC revenues, the City does not expect to charge the rental car companies Contingent Rent during the forecast period.

Other Terminal Rental Revenues

Other terminal rental revenues include revenues from rental car counters, utility reimbursements, and other facilities. Certain revenues are forecast according to the terms of the various lease agreements currently in effect and the additional revenues expected from agreements for new or expanded facilities. Other revenues are forecast to increase in relation to inflation and/ or the number of enplaned passengers.

Rental Car Counters. As discussed above, all six on-Airport rental car companies lease counter space at the Airport. In FY 2006, the City received $87,173 in revenues for the rental car counters.

F'r1509 A-78

Other Terminal Rentals. The City has a lease agreement for an automobile service station adjacent to the terminal, which encompasses 26,126 square feet at the current rate of $39,918 per year. The agreement is scheduled to expire in 2025 and is adjusted annually based on changes in the Producer Price Index. The City also receives reimbursements for utilities in other areas of the terminal, and fees for the use of the public address system. In FY 2006, revenues from other terminal rentals totaled $391,472.

Employee Parking. The City provides an employee parking lot east of the public parking lot. The employee parking area is within walking distance of the terminal area. Employees (other than City employees) pay a monthly fee of $15.00 to the City to park at the Airport.

Airfield Area Revenues

The City receives revenues in connection with various rentals and fees from Airfield Area contracts and leases. . Revenues are forecast according to the terms of the various existing lease agreements and the additional revenues expected from new agreements for new or expanded facilities.

Military Airport Use Fees. The Aviation Classification and Repair Depot, the California Air National Guard (CANG), and the U.S. Marine Corps all use facilities at the Airport. The CANG has ground leases for approximately 160 acres. These agreements are scheduled to expire in FY 2042 and FY 2047, and are adjusted annually in accordance with the Consumer Price Index. CANG also pays an Airport use fee in lieu of landing fees. In FY 2006, revenues from all military tenants totaled $464,631.

Fuel Flowage Fees. Fixed base operators charge fuel flowage fees at a rate of $0.07 per gallon at the Airport and $0.05 per gallon at Chandler. Fuel flowage fees are not assessed on scheduled airlines or the military. In FY 2006, revenues from fuel flowage fees were $182,167.

Other Airfield Use Fees. Certain airlines, including Allegiant Air and the all cargo airlines, are charged a permit fee for use of the airfield. In FY 2006, $220,201 was received for air taxi permit fees.

Other Revenues. Other Airfield Area revenues include air tanker landing fees (paid by the U.S. Forest Service), aircraft storage fees, site rentals, nonsignatory airline landing fees, military aviation fees, utility reimbursements, and badge fees. Also included in this category is $715,909 in reimbursements associated with a Small Air Service Development Grant. In FY 2006, other Airfield Area revenuess totaled $808,710.

F'r1509 A-79

Other Areas

The City leases Airport System buildings, grounds, and other facilities to both aviation and nonaviation tenants. The site and building rentals from these tenants are governed by the terms of various leases and agreements, many of which extend beyond the forecast period.

Corporate Aviation. Revenues from corporate aviation consist of hangar rentals, site rentals, and utility reimbursements at the Airport. Tenants include SkyWest Airlines, Rogers Helicopter, and the U.S. Forest Service. Their agreements expire in FY 2007, FY 2010, and FY 2031, respectively. In FY 2006, $600,735 was received from corporate aviation tenants.

Fixed Base Operators. Three fixed base operators (FBOs) provide services and maintain facilities at the Airport, including Mercury Air Service, Ross Aviation, and Scott Aviation. Their FBO agreements expire in FY 2029, FY 2018, and FY 2029, respectively. Revenues from the FBOs totaled $419,938 in FY 2006.

Air Cargo Facilities. The City receives ground and building rentals for air cargo facilities at various locations leased by the passenger and all-cargo airlines and freight forwarders. All-cargo tenants include FedEx and UPS Air Cargo. In FY 2006, the City received $290,470 in rentals for cargo facilities. All existing agreements are scheduled to expire before December 2016.

Tower Area. The tower area revenues include rental revenues and utility reimbursement received from the FAA for the lease of space in the Airport Traffic Control Tower (ATCT). In FY 2006, revenues from the tower area totaled $340,549.

Fresno Chandler Executive Airport. Chandler revenues consist of concession fees, hangar rentals, tiedown fees, fuel flowage fees, and other charges associated with operation of the general aviation facility. Three FBOs provide a full range of services for general aviation at Chandler. As shown in Exhibit E, these revenues were $212,025 in FY 2006 and are expected to be approximately 5.3% higher in FY 2007, and forecast to remain relatively flat through the forecast period.

Nonaviation-North and South. The City leases a variety of other commercial sites at the Airport, which include a Wendy's fast food restaurant, a Kentucky Fried Chicken restaurant, a car wash, a convenience store, and office space. An 18-hole executive golf course is also located on Airport property. In FY 2006, $234,015 in nonaviation revenues was received from these and other tenants.

Other Rental Car Fees. Under the existing rental car service center agreements, five rental car companies lease service facility and storage areas at the Airport (Enterprise does not currently operate a service area on the Airport). Additionally, rental car ready/return spaces are leased by all six companies at a rate

F'r1509 A-80

of $20 per space per month. In FY 2006, the City received $199,342 in other rental car fees.

In FY 2010, the first full year of operation of the CRCF following DBO, revenues from ready/ return space rentals and service facility and storage area ground rentals are forecast to be $403,000.

Hotels. The Piccadilly Inn and the Chateau Inn pay ground rent on hotel facilities adjacent to the terminal entrance road, subject to an annual adjustment using the Producer Price Index. In 2006, the City received $118,801 in fees for lease of the hotel sites. The current agreements for the Piccadilly Inn and the Chateau Inn are scheduled to expire on June 30, 2046.

Interest Income

Interest income on investments of moneys held in certain funds and accounts is defined as Revenues under the Indenture. In FY 2006, interest income totaled $296,895 and accounted for 1.8% of Revenues.

APPLICATION OF REVENUES

The Indenture establishes certain funds and accounts for the deposit and use of Revenues. All Revenues, which exclude PFC Revenues, are deposited in the Revenue Fund and are applied monthly in the following order of priority, as shown on Figure 18 and Exhibit F:

F'r1509

l. Operating Fund-To be held by the City to pay amounts appropriated for Operating Expenses pursuant to the current Annual Budget.

2. Debt Service Fund-To be held by the Trustee to pay the Debt Service requirements on all Outstanding Bonds. As stated previously, CFC revenues can be used to pay Debt Service on the 2007 Bonds.

3. Debt Service Reserve Fund-To be held by the Trustee to maintain a balance at least equal to the Debt Service Reserve Requirement established for each series of Outstanding Bonds.

4. Operating Reserve Fund-To be held by the City to maintain the Operating Reserve Requirement, equal to 20% of annual Operating Expenses, and used to pay unbudgeted Operating Expenses.

A-81

APPLICATION OF REVENUES

CURRENT FISCAL YEAR NEXT FISCAL YEAR

Fund or Account Fund or Account

PFC Revenue Fund CFC Revenue: Fund Discribution oi all PFC collections revenues r+

to various funds and accounts (a) Depository ior all Revenues

I • ! L Operating Fund

Covenanted PFC Project Additional PFC PFC Account - Account -Project Account To pay Operating Expenses

Depository 1or To accumulate Depository 1o r J, covenanted portion PFC revenue PF-C collections

of PFC revenue for pay-as-you-go greater Than Debi Service Fund (a) project costs Covenanted .

Porcion To pay Deb, Service on Bonds

! • PFC Debt Service Escrow Fund Debt Service: Reserve Fund To accumulme annual debt service on To rnaintain the Debt Service Reserve

PFC-eligible coses (equal to no less ttmn the Requirement on Bonds Minir1:ur1: PFC Contribwion and no greater

• than PFC-eligible debt setvice)

Operating Reserve Fund

To rnaintain a reserve equal w 20% oi Operating Expenses

* Subordinated lndebtednsss Fund

To pay debt setvice on Subordinate Bonds

+ Renewal and Replacement Fund

To maintain a reserve for rebuilding, reconst11Jcting, repairing, altering, replacing,

and renewing the Airporc

J, Roba!o Fune!

To pay amounts pursuant to any Tax Certificate

/a) Under State of California law, CFCs can only be used to pay costs + associated with financing, designing, and constructing a new Surplus Fund

consolidated rental car facility. At the Airport, CFC revenues are To accurnulate any rnonies rernaining to be used to pay Debt Se Nice on the 2007 Bonds, replenish the in The Revenue Fund and interest earned in

2007 Debt Service Reserve Fund. and then be transferred to the certain other iunds; to pay costs of capital

Surplus Fund to be applied for the purposes mentioned earlier in improvements; to pay costs for other la11.rlul

this re ort. Airport System purposes

p ~ '----------------------------------------------''

Source: City of Fresno Indenture of Trust, June 1. 2000, as supplemented.

Figure 18

SUMMARY OF APPLICATION OF REVENUES UNDER THE INDENTURE

Fresno Yosemite International Airport

May 2007

5. Subordinated Indebtedness Fund-To be held by the Trustee to pay the annual principal, interest, redemption price, or purchase price of Subordinated Indebtedness, or other amounts due for fees, expenses, and the repayment of advances made by any provider of credit enhancement for any Subordinated Indebtedness. Currently, there is no Outstanding Subordinated Indebtedness.

6. Renewal and Replacement Fund-To be held by the City to pay amounts for the cost of renewals, replacements, extensions, betterments, and improvements of the City's Airports, pursuant to the current Annual Budget; or to pay operating costs with respect to prevention or correction of any unusual loss or damage in connection with the Airport System to the extent not scheduled to be paid from the Operating Fund pursuant to the current Annual Budget.

7. Rebate Fund-To be held by the Trustee and, as directed by Bond Counsel, to pay any amount due to satisfy any federal tax law requirements.

8. Surplus Fund-To be held by the City to pay deficiencies in the Debt Service Fund, the Debt Service Reserve Fund, the Subordinated Indebtedness Fund, or the Renewal and Replacement Fund, in that order. As stated previously in this report, any CFC revenues deposited to the Surplus Fund can only be used for purposes related to the new CRCF.

Amounts in the Surplus fund not required to meet a deficiency listed above, upon determination by the City, may be applied for any lawful purpose related to the Airport System.

Application of PFC Revenues

The Indenture also establishes certain funds and accounts and the priority for the flow of PFC Revenues to those funds and accounts. All PFC Revenues are deposited to the PFC Revenue Fund. Amounts from the PFC Revenue Fund are then applied monthly in the following order of priority so long as the 2000 Bonds are outstanding (as shown on Figure 18):

F'r1509

l. Covenanted PFC Account-To be held by the City to accumulate PFC Revenues dedicated to the repayment of the 2000 Bonds, for transfer to the PFC Debt Service Escrow Fund, and to accumulate PFC Revenues for approved pay-as-you-go project costs up to $3 per qualified enplaned passenger, for transfer to the PFC Project Account.

2. PFC Debt Service Escrow Fund-To be held by the Trustee to transfer to the Debt Service Fund, no sooner than 5 days before the Interest Payment Date, and in an amount no less than the Minimum PFC Contribution and no more

A-83

than the succeeding Fiscal Year's Debt Service Requirement on that portion of the 2000 Bonds used to finance PFC-eligible Debt Service.

3. PFC Project Account-To be held by the City to accumulate PFC Revenues for the payment of approved pay-as-you-go project costs.

4. Additional PFC Project Account-To be held by the City to accumulate PFC Revenues in excess of Covenanted PFC Revenues.

DEBT SERVICE COVERAGE

Exhibit G presents forecast Net Revenues and Other Available Funds for FY 2007 through FY 2012 and the calculation of Debt Service coverage according to the Indenture. As shown, Net Revenues and Other Available Funds are forecast to exceed the 125% requirement of Adjusted Debt Service for the Outstanding Bonds.

For reference, Table 17 provides historical data on net revenues and Debt Service coverage.

F'r1509 A-84

~ 8

• I

' 00 U7

Table 17

HISTORICAL NET REVENUES AND DEBT SERVICE COVERAGE UNDER THE INDENTURE Fresno Yosemite International Airport

For Fiscal Years ended June 30 (dollars in thousands)

Calculation of Debt Service coverage 2002 2003 2004 2005 2006 -

Revenues (a) $8,687,797 $11,468,196 $11,433,666 $12,685,791 $16,114,006

Less: CFC revenues (a) (1,223,520)

Less: Operating Expenses (b) (7,797,760) (8,972,602) (8,653,045) (9,276,186) (11,497,488)

Net Revenues $ 890,037 $ 2,495,594 $ 2,780,621 $ 3,409,605 $ 3,392,999

Other Available Funds (c) 69 753 153 568

Total amount available for Debt Service [A] $ 890,037 $ 2,495,594 $ 2,780,621 $ 3,479,358 $ 3,546,567

Debt service coverage on Bonds

Debt Service (d) $1,477,773 $ 2,990,113 $ 3,006,925 $2,998,231 $ 2,961,302

Less PFC revenues (1,100,000) (1,400,955) (1,259,000) (1,100,000) (2,483,500)

Adjusted Debt Service (d) [Bl $ 377,773 $ 1,589,158 $ 1,747,925 $ 1,898,231 $ 477,802

Debt Service coverage [A/BJ 236% 157% 159% 183% 742%

Debt Service Coverage Requirement 125% 125% 125% 125% 125%

(a) CFC revenues, which are defined as Revenues under the Indenture, can only be used under State of California law to pay the costs to financer designr and construct consolidated rental car facilities. As suchr those revenues can not be used to pay Operating Expenses or Debt Service on any Bonds other than the 2007 Bonds, which were not outstanding in the years presented above.

(b) Operating Expenses are identified on a cash basis and include costs associated with Chandler, but exclude costs that are reimbursed with grants.

(c) Other Available Funds reflects interest received on the 2000 Bonds that were offset with credit card fees, which are not included in the operating revenues of the Airport.

(d) Debt Service is net of capitalized interest, amounts on deposit in the PFC Debt Service Escrow Fund, and other funds irrevocably committed to the payment of Debt Service.

Source: Airport management records.

Exhibit A

ESTIMATED PROJECT COSTS AND SOURCES OF FUNDING

AIRPORT CAPITAL PROGRAM

Fresno Airport System

Estimated sources of funding Internally Airport Total

Project costs Total project Federal State Measure generated Revenue funding FY2008 FY2009 FY2010 FY2011 FY2012 costs grants (a) grants (b) C (c) funds (d) Bonds (e) sources

AIRFIELD AREA Rehabilitate Taxiway B 155,000 1,3g1,ooo g,000,000 g,000,000 1g,546,000 11,sg1,ooo 1,gss,000 1g,546,000 Rehabilaate Taxiway C 713,000 g,000,000 g,713,000 8,742,000 g71,ooo g,713,000 Rehabilfate Taxiway B6-02/03 207,000 1,861,000 2,068,000 1,861,000 207,000 2,068,000 Rehabilitate Taxiway B4-02 143,000 1,283,000 1,426,000 1,283,000 143,000 1,426,000 Rehabilaatefwiden/extend Runway 11 R-2gL 3,gso,ooo 3,gso,ooo 3,555,000 3g5,ooo 3,gso,ooo Perimeter gate access control 65,000 65,000 65,000 65,000 Remark Runway 11 L-2gR 135,000 135,000 135,000 135,000

Land acquisition for mitigation basin 10,000,000 10,000,000 g,000,000 1,000,000 10,000,000 FM Part 150 Noise Mitigation Program 308,000 2,770,000 2,222,000 2,222,000 4,444,000 11,gss,000 10,?6g,ooo 1,1g1,ooo 11,gss,000

$1,726,000 $7,305,000 $21,222,000 $15,172,000 $13,444,000 $58,869,000 $52,801,000 $0 $3,671,000 $2,397,000 $0 $58,869,000 TERMINAL BUILDING

Terminal sense of place 300,000 300,000 300,000 300,000 Terminal modifications 4,461,000 4,461,000 3,500,000 gs1,ooo 4,461,000 Rehabilfate comm. aviation apron AC/PCC 500,000 2,350,000 2,850,000 2,565,000 285,000 2,850,000 Concourse roof replacement 10,000 10,000 g,ooo 1,000 10,000

$4,771,000 $0 $500,000 $2,350,000 $0 $7,621,000 $6,074,000 $0 $286,000 $1,261,000 $0 $7,621,000

PARKING LOT 65,000 65,000 5g,ooo 6,000 65,000

RENTAL CAR 23,806,000 23,806,000 23,806,000 23,806,000

AIR CARGO

FEDERAL INSPECTION SERVICES

OTHER Environmental site assessment 300,000 300,000 300,000 300,000 300,000 1,500,000 1,500,000 1,500,000 Facilaies repair/replacement 350,000 350,000 350,000 350,000 350,000 1,750,000 1,750,000 1,750,000 Rehabilfate GA apron 8,254,000 8,254,000 7,42g,ooo 825,000 8,254,000 Acquire ARFF vehicle 1,000,000 1,000,000 goo,ooo 100,000 1,000,000

$650,000 $650,000 $650,000 $650,000 $9,904,000 $12,504,000 $8,329,000 $0 $825,000 $3,350,000 $0 $12,504,000

Total Airport $31,018,000 $7,955,000 $22,372,000 $18,172,000 $23,348,000 $102,865,000 $67,263,000 $0 $4,788,000 $7,008,000 $23,806,000 $102,865,000

CHANDLER Conduct ENEIS for runway extension to 4,000 feet 117,000 684,000 801,000 761,000 20,000 20,000 801,000 Acquire land for Runway 12R extension to 4,000 feet 730,000 730,000 657,000 36,500 36,500 730,000 Runway 12R extension to 4,000 feet 7,500,000 7,500,000 6,750,000 375,000 375,000 7,500,000 Taxiway H, taxilanes & northside infrastructure 1,osg,000 1,sgs,000 1,627,000 4,581,000 4,123,000 22g,ooo 22g,ooo 4,581,000 Rehabilitate taxilanes southside 187,000 567,000 754,000 57g,ooo 37,500 37,500 754,000 Install ASOS 8,000 8,000 8,000 8,000 Terminal rehabilitation & modifications 115,000 115,000 115,000 115,000 Securay improvements 57,000 57,000 57,000 57,000 Construct apron Ph-3 & airport access aoad 288,000 288,000 2sg,ooo 14,500 14,500 288,000

Total Chandler $1,543,000 $2,579,000 $1,627,000 $730,000 $8,355,000 $14,834,000 $13,229,000 $712,500 $675,000 $217,500 $0 $14,834,000

Total project costs and sources of funding $32,561,000 $10,534,000 $23,999,000 $18,902,000 $31,703,000 $117,699,000 $80,492,000 $712,500 $5,463,000 $7,225,500 $23,806,000 $117,699,000

(a) Source: Airport management, except as noted. (b) Assuming AIP funding at go%. (c) Assuming State match continues for Chandler Downtown Airport. (d) Measure C is a 20 year program that was approved by voters (scheduled to begin July 2007). (e) Assuming an alternative funding source after all other sources have been exhausted.

Exhibit B

SOURCES AND USES OF FUNDS FOR 2007 BONDS Fresno Yosemite International Airport

SOURCES OF FUNDS Principal amount of Bonds

Other sources of funds (a) CFCs as of 6/30/06 Forecast CFCs 7/1/06 - 6/30/07 Forecast CFCs 7/1/07 - 6/30/08 Forecast CFCs 7/1/08 - 12/31/08

Interest Income Construction Fund Capitalized Interest Account Coverage Account

Total sources of funds

USES OF FUNDS Construction Fund deposits

Project soft costs Project hard costs Total Project costs

Other fund deposits Capitalized Interest Account Coverage Account

Other uses

Total uses of funds

(a) Reflects revenues through December 31, 2008. Source: Citigroup Capital Markets, Inc.

$22,080,000

$1,224,000 1,254,000 1,285,000

659,000 $4,422,000

$793,000 92,000 33,000

$918,000

$27,420,000

$4,453,000 19,353,000

$23,806,000

$2,118,000 452,000

$2,570,000

1,044,000

$27,420,000

Exhibit C

DEBT SERVICE REQUIREMENTS Fresno Airport System

For Fiscal Years Ending June 30

The forecasts presented in this exhibit were prepared using information from the sources indicated and assumptions provided by, or reviewed with and agreed to by, Airport management, as described in the accompany

Inevitably, some of the assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur, Therefore, there are likely to be differences between the forecast and a

and those differences may be material.

Historical (a) Estimated Forecast 2004 2005 2006 2007 2008 2009 2010 2011

DEBT SERVICE Series 2000 Bonds 2000A (Non-AMT) $601,385 $599,646 $592,260 $595,000 $595,000 $595,000 $595,000 $595,000

2000B(AMT) 2,405,540 2,398,585 2,369,042 2,413,000 2,415,000 2,415,000 2,417,000 2,418,000

Total Debt Service $3,006,925 $2,998,231 $2,961,302 $3,008,000 $3,010,000 $3,010,000 $3,012,000 $3,013,000

Less PFC Revenues (b)

Minimum PFC Revenues ($1,100,000) ($1,100,000) ($1,100,000) ($1,100,000) ($1,100,000) ($1,100,000) ($1,100,000) ($1,100,000)

Additional PFC Revenues (159,000) 0 (1,383,500) (1,313,000) (1,315,000) (1,315,000) (1,317,000) (1,318,000)

PFC Debt Service Escrow Fund ($1,259,000) ($1,100,000) ($2,483,500) ($2,413,000) ($2,415,000) ($2,415,000) ($2,417,000) ($2,418,000)

Adjusted Debt Service $1,747,925 $1,898,231 $477,802 $595,000 $595,000 $595,000 $595,000 $595,000

Series 2007 Bonds 0 0 0 0 0 674,000 1,347,000 1,347,000

Total Adjusted Debt Service $1,747,925 $1,898,231 $477,802 $595,000 $595,000 $1,269,000 $1,942,000 $1,942,000

COST CENTER ALLOCATION ( c)

Airfield Area $123,928 $134,585 $33,876 $42,000 $42,000 $42,000 $42,000 $42,000

Terminal Building 1,166,390 1,266,690 318,837 397,000 397,000 397,000 397,000 397,000

Parking Lot 0 0 0 0 0 0 0 0

Rental Car 0 0 0 0 0 674,000 1,347,000 1,347,000

Air Cargo 0 0 0 0 0 0 0 0

Federal Inspection Services 0 0 0 0 0 0 0 0

Other 457,607 496,957 125,089 156,000 156,000 156,000 156,000 156,000

Chandler 0 0 0 0 0 0 0 0

Total Adjusted Debt Service $1,747,925 $1,898,231 $477,802 $595,000 $595,000 $1,269,000 $1,942,000 $1,942,000

(a) Source: Airport management records (except as noted),

(b) Reflects the City's intent to transfer PFC Revenues ($1.1 million minimum) into the PFC Debt Service Escrow Fund and to offset the annual requirement associated with the Series 2000 Bonds.

(c) Adjusted Debt Service is allocated based on a pro rata share of the Airport Revenue Bonds and associated project costs.

2012

$595,000

2,417,000

$3,012,000

($1,100,000)

(1,317,000)

($2,417,000)

$595,000

1,347,000

$1,942,000

$42,000

397,000

0

1,347,000

0

0

156,000

0

$1,942,000

Exhibit D

OPERATING EXPENSES Fresno Airport System

For Fiscal Years Ending June 30

The forecasts presented in this exhibit were prepared using information from the sources indicated and assumptions provided by, or reviewed with and agreed to by, Airport management, as described in the accompanying text Inevitably, some of the assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur Therefore, there are likely to be differences between the forecast and actual results, and those differences may be material

Summary by expense category Administration (b) (c)

Personnel services

Maintenance Utilities

Supplies

Chandler

Total Operating Expenses

Summary by cost center Airfield Area (b)

Terminal Building Parking Lot

Rental Car

Air Cargo Federal Inspection Services (c) ((

Other

Chandler

Total Operating Expenses

2004

$2,253,119

4,575,482

179,976 1,057,980

230,180

356,308

$8,653,045

$3,296,167

2,250,635 846,166

155,262

37,612

0 1,710,894

356,308

$8,653,045

Historical (a) 2005 2006

$2,447,072 $5,293,072

4,884,416 4,157,309

223,771 259,733 993,213 1,071,353

385,505 351,787

342,209 364,233

$9,276,186 $11,497,488

$3,941,259 $5,614,437

2,297,596 3,894,692 848,469 872,309

183,864 201,740

32,978 70,226

0 725,773 1,629,810 697,827

342,209 364,233

$9,276,186 $11,497,488

(a) Indirect costs have been allocated to direct cost centers on a 50/50 ratio of cost and revenue. (b) Includes $1.1 million Small Air Service Development Grant (FY 2006 $943K & FY 2007 $156K)

Estimate 2007 2008 2009

$6,438,000 $6,416,000 $6,452,000

4,158,000 4,368,000 4,589,000

334,000 368,000 405,000 1,016,000 1,067,000 1,121,000

547,000 603,000 664,000

412,000 433,000 455,000

$12,905,000 $13,255,000 $13,686,000

$4,452,000 $4,470,000 $4,715,000

4,260,000 4,432,000 4,674,000 979,000 1,019,000 1,075,000

493,000 513,000 541,000

81,000 84,000 89,000

1,523,000 1,413,000 1,196,000 861,000 895,000 944,000

412,000 429,000 452,000

$12,905,000 $13,255,000 $13,686,000

(c) Reflects estimated expenses associated with Customs and Border Protection Contract for the Fiscal Year 2007 through April 2009. Source: Airport management. (d) Mexicana de Aviacion began international operations January 2007

Source: Airport management records.

Forecast 2010 2011 2012

$5,833,000 $6,128,000 $6,438,000

4,821,000 5,065,000 5,321,000

446,000 491,000 541,000 1,178,000 1,238,000 1,301,000

732,000 807,000 889,000

478,000 502,000 527,000

$13,488,000 $14,231,000 $15,017,000

$4,973,000 $5,248,000 $5,539,000

4,931,000 5,203,000 5,490,000 1,134,000 1,196,000 1,262,000

571,000 602,000 635,000

94,000 99,000 104,000

312,000 329,000 347,000 996,000 1,051,000 1,109,000

477,000 503,000 531,000

$13,488,000 $14,231,000 $15,017,000

Exhibit E

REVENUES

Fresno Airport System

For Fiscal Years Ending June 30

The forecasts presented in this exhibit were prepared using information from the sources indicated and assumptions provided by, or reviewed with and agreed to by, Airport management, as described in the accompany1

Inevitably, some of the assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur, Therefore, there are likely to be differences between the forecast and a1

and those differences may be material.

Historical Estimated Forecast

2004 2005 2006 2007 2008 2009 2010 2011 2012 AIRLINE REVENUE

Landing fees

Signatory Airlines $1,667,999 $1,874,476 $1,976,203 $1,530,000 $1,528,000 $1,547,000 $1,663,000 $1,686,000 $1,706,000

Nonsignatory airlines 23,625 15,527 37,311 5,000 5,000 5,000 5,000 5,000 5,000

Airline Common Use Equipment charges 0 0 1,732 0 0 52,000 52,000 52,000 52,000

Terminal Building rentals 952,726 1,040,621 1,060,641 1,309,000 1,377,000 1,377,000 1,377,000 1,377,000 1,377,000

Passenger/ Preferential Use Gate Fee 0 0 0 0 0 0 0 0 0

Airline security reimbursement 425,999 455,238 539,125 624,000 640,000 656,000 672,000 689,000 706,000

Federal Inspection Fees (a) 0 0 92,970 449,000 472,000 487,000 500,000 511,000 521,000

Gate fees 15,384 15,250 19,400 15,000 24,000 24,000 24,000 24,000 24,000

Total airline revenue (b) [AJ $3,085,733 $3,401,112 $3,727,382 $3,932,000 $4,046,000 $4,148,000 $4,293,000 $4,344,000 $4,391,000

Enplaned passengers [BJ 542,953 572,220 619,334 665,900 698,800 721,800 740,000 756,300 771,400

Airline cost per enplaned passenger [A/BJ $5,68 $5,94 $6,02 $5,90 $5,79 $5,75 $5,80 $5.74 $5,69

NONAIRLINE REVENUE

Parking $3,375,381 $3,672,570 $4,043,751 $4,310,000 $4,523,000 $4,672,000 $4,790,000 $4,896,000 $4,993,000

Rental cars 1,290,935 1,720,044 2,039,210 2,106,000 2,238,000 2,341,000 2,430,000 2,514,000 2,596,000

Food and beverage 80,725 93,502 105,040 107,000 114,000 119,000 123,000 128,000 132,000

Advertising 89,409 98,302 106,126 113,000 120,000 125,000 130,000 135,000 139,000

News and gifts 72,492 83,671 88,975 94,000 100,000 104,000 108,000 112,000 116,000

Other terminal concessions 33,090 33,239 37,364 40,000 42,000 44,000 46,000 48,000 49,000

$4,942,032 $5,701,328 $6,420,466 $6,770,000 $7,137,000 $7,405,000 $7,627,000 $7,833,000 $8,025,000

Rental car counters $123,126 $135,314 $87,173 $135,000 $135,000 $135,000 $135,000 $135,000 $135,000

Utility reimbursements 57,296 53,395 54,309 50,000 50,000 50,000 50,000 50,000 50,000

Auto service station 34,693 36,020 37,821 40,000 40,000 40,000 40,000 40,000 40,000

TSA security reimbursement (c) 0 0 123,152 200,000 215,000 219,000 219,000 219,000 219,000

Other 15,003 24,275 89,016 118,000 50,000 50,000 50,000 50,000 50,000

$230,118 $249,004 $391,472 $543,000 $490,000 $494,000 $494,000 $494,000 $494,000

Subtotal $5,172,150 $5,950,332 $6,811,937 $7,313,000 $7,627,000 $7,899,000 $8,121,000 $8,327,000 $8,519,000

Exhibit E (page 2 of 2)

REVENUES

Fresno Airport System

For Fiscal Years Ending June 30

Historical (a) Estimated

2004 2005 2006 2007

NONAIRLINE REVENUE (Can't)

Military airport use fees $472,926 $448,671 $464,631 $500,000

Fuel flowage fee 122,090 167,054 182,167 162,000

Air cargo landing fees (d) 161,071 198,101 220,201 275,000

Air tanker landing fees 32,898 26,314 27,982 5,000

Aircraft storage fees (5,020) 8,614 5,359 5,000

Military aviation 11,244 11,244 11,948 12,000

Utility reimbursements 3,438 3,803 4,521 5,000

Concession rentals 8,080 5,740 5,680 5,000

Other (e) 0 0 715,909 384,000

$806,727 $869,541 $1,638,398 $1,353,000

Corporate aviation $657,648 $707,462 $600,735 $602,000

Fixed base operators 379,502 373,962 419,938 438,000

Air cargo rents 323,176 326,249 290,470 155,000

Tower area 208,023 199,851 340,549 200,000

Chandler 205,929 211,203 212,025 223,000

Non-aviation 224,703 226,032 234,015 200,000

Rental car service facility (g) 127,144 127,144 129,287 130,000

Rental car ready/return lot (h) 24,240 34,560 70,055 78,000

CFC revenues (i) 0 0 1,223,520 1,254,000

Company Contingent Rent U) 0 0 0 0

Hotel 111,459 114,449 118,801 100,000

$2,261,824 $2,320,912 $3,639,395 $3,380,000

Total non-airline revenue $8,240,701 $9,140,785 $12,089,730 $12,046,000

Investment income 107,232 143,895 296,895 303,000

Total Airport Revenues $11,433,666 $12,685,791 $16, 114,006 $16,281,000

(a) Forecast FIS fee reflects $15 per deplaned international passenger,

(b) Reflects passenger airline payments only; does not include cargo

(c ) Assuming TSA security reimbursements will continue through 2025.

(d) Forecast landing fee revenues based on forecast landed weight for cargo airlines at the Signatory Airline landing fee rate.

(e) Reflects a $1.1 million Small Air Service Development Grant

2008

$513,000

166,000

289,000

5,000

5,000

12,000

5,000

6,000

0

$1,001,000

$617,000

449,000

160,000

200,000

229,000

205,000

130,000

78,000

1,285,000

0

100,000

$3,453,000

$12,081,000

309,000

$16,436,000

(g) FY2009 reflects anticipated increase to square footage leased in new Consolidated Rental Car Facility (CRCF), Source: Airport management

(h) Prior to FY2009, revenues reflect fixed fee per stall. After DBO of the CRCF, companies are to pay $0.80 per square foot on leased space.

(i) The Airport began collecting Customer Facility Charges in July 2005,

Forecast

2009 2010 2011

$526,000 $539,000 $552,000

170,000 174,000 178,000

316,000 347,000 380,000

5,000 5,000 5,000

5,000 5,000 5,000

12,000 12,000 12,000

5,000 5,000 5,000

6,000 6,000 6,000

0 0 0

$1,045,000 $1,093,000 $1,143,000

$632,000 $648,000 $664,000

460,000 472,000 484,000

160,000 160,000 160,000

200,000 200,000 200,000

235,000 241,000 247,000

210,000 215,000 220,000

192,000 223,000 223,000

146,000 180,000 180,000

1,318,000 1,351,000 1,384,000

0 0 0

100,000 100,000 100,000

$3,653,000 $3,790,000 $3,862,000

$12,597,000 $13,004,000 $13,332,000

315,000 321,000 327,000

$17,060,000 $17,618,000 $18,003,000

0) Rental car companies are required to pay the City Contingent Rent equal to 50% of the shortfall in CFC revenues required to pay annual Debt Service associated with the 2007 Bonds,

Source: FY 2004 through FY 2006 Airport management records,

2012

$566,000

182,000

1,024,000

5,000

5,000

12,000

5,000

6,000

0

$1,805,000

$681,000

496,000

160,000

200,000

253,000

226,000

223,000

180,000

1,419,000

0

100,000

$3,938,000

$14,262,000

334,000

$18,987,000

Exhibit F

APPLICATION OF REVENUES Fresno Airport System

For Fiscal Years Ending June 30

The forecasts presented in this exhibit were prepared using infonnation from the sources indicated and assumptions provided by, or reviewed with and agreed to by, Airport management, as described in the acoorr

text. Inevitably, some of the assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may ocrur. Therefore, there are likely to be differences between the forecast

actual results, and those differences may be material

Forecast

I 2007 I 2008 I 2009 I 2010 I 2011 I 2012 Revenues

Airline revenue $3,932,000 $4,046,000 $4,148,000 $4,293,000 $4,344,000 $4,391,000 Nonairline revenue 12,046,000 12,081,000 12,597,000 13,004,000 13,332,000 14,262,000

Total airline and nonairline revenues $15,978,000 $16,127,000 $16,745,000 $17,297 ,ODO $17,676,000 $18,653,000

Investment income 303,000 309,000 315,000 321,000 327,000 334,000 Total Revenues $16,281,000 $16,436,000 $17,060,000 $17,618,000 $18,003,000 $18,987,000

Application of Revenues

Operating Fund $12,905,000 $13,255,000 $13,686,000 $13,488,000 $14,231,000 $15,017,000 Debt Service Fund

Series 2000 Bonds 595,000 595,000 595,000 595,000 595,000 595,000 Series 2007 Bonds 0 0 674,000 1,347,000 1,347,000 1,347,000

Operating Reserve Fund 282,000 70,000 86,000 0 109,000 157,000 Renewal and Replacement Fund 200,000 200,000 200,000 200,000 200,000 200,000 Surplus Fund 2,299,000 2,316,000 1,819,000 1,988,000 1,521,000 1,671,000

Total application of Revenues $16,281,000 $16,436,000 $17,060,000 $17,618,000 $18,003,000 $18,987,000

Note: Amounts as shown on prior exhibits.

Exhibit G

DEBT SERVICE COVERAGE Fresno Airport System

For Fiscal Years Ending June 30

The forecasts presented in this exhibit were prepared using Information from the sources indicated and assumptions provided by, or reviewed with and agreed to by, Airport management. as described in the accompanying text. Inevitably, some of the assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between the forecast and actual results, and those differences may be material.

Forecast 2007 2008 I 2009 I 2010 2011 I 2012

Revenues $16,281,000 $16,436,000 $17,060,000 $17,618,000 $18,003,000 $18,987,000 Less: CFC revenues prior to DBO {a) (1,254,000) (1,285,000) (659,000) Less: CFC revenues in excess of annual debt service {b) (4,000) (37,000) (72,000) Less: Operating Expenses (12,905,000) (13,255,000) (13,686,000) (13,488,000) (14,231,000) (15,017,000) Net Revenues $2,122,000 $1,896,000 $2,715,000 $4,126,000 $3,735,000 $3,898,000

Other Available Funds {c) 150,000 630,000 630,000 630,000 630,000 630,000 150,000 630,000 630,000 630,000 630,000 630,000

Net Revenues and Other Available Funds [A] $2,272,000 $2,526,000 $3,345,000 $4,756,000 $4,365,000 $4,528,000

Adjusted Debt Seivice Debt Service on 2000 Bonds $3,008,000 $3,010,000 $3,010,000 $3,012,000 $3,013,000 $3,012,000 Less: PFC revenues {d) (2,413,000) (2,415,000) (2,415,000) (2,417,000) (2,418,000) (2,417,000)

595,000 595,000 595,000 595,000 595,000 595,000 Debt Service on 2007 Bonds 0 0 674,000 1,347,000 1,347,000 1,347,000 Adjusted Debt Service [BJ $595,000 $595,000 $1,269,000 $1,942,000 $1,942,000 $1,942,000

Calculated Debt Seivice coverage [A/BJ 382% 425% 264% 245% 225% 233%

Required Debt Service coverage 125% 125% 125% 125% 125% 125%

{a) Given State of California restrictions, CFC revenues prior to DBO of the new CRCF are excluded from the calculation of Debt Service coverage until Debt Service on the 2007 Bonds is payable from Revenues, which is expected to occur on DBO of the new CRCF. DBO is anticipated to be January 1, 2009.

{b) The State of California further restricts that CFC revenues in excess of annual debt service payments for the CRCF are excluded from the calculation of debt service coverage. See the report for additional information about the restrictions.

{c) Includes rolling debt service coverage funded from the 2007 Bond proceeds {$480,499), assuming interest received by the Trustee on the 2000 Bonds {$200,000), and annual credit card fees (50,000) that are assumed to offset debt coverage.

{d) See Exhibit C for additional information.

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APPENDIXB

FUND FINANCIAL STATEMENTS - PROPRIETARY FUNDS - AIRPORTS -FOR THE FISCAL YEAR ENDED JUNE 30, 2006

The following information was extracted from the City of Fresno Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2006, which in accordance with State statutes and Section 804( c) of the City Charter is subject audit. The beginning net assets of the Airport proprietary fund and Airport business activity were restated to correct an error which resulted from Airport Management's determination of the cumulative impact of an under reporting of capital assets.

B-1

(THIS PAGE INTENTIONALLY LEFT BLANK)

CITY OF FRESNO, CALIFORNIA

STATEMENT OF NET ASSETS AIRPORT DEPARTMENT JUNE 30, 2006

Assets

Current Assets:

Cash and Investments Interest Receivable

Receivables, Net

Grants Receivable Inventories

Intergovernmental Receivables

Due from Other Funds

Total Current Assets

Noncurrent Assets:

Restricted:

Cash and Investments Grants and Interest Receivable

Total Restricted Assets

Other Assets:

Other Receivables Other Assets

Unamortized CVP Water Settlement

Accounts Receivable from Solid Waste Rate Payers

Advances to Other Funds

Total Other Assets

Capital Assets: Land

Buildings, Systems and Improvements

Machinery & Equipment Infrastructure

Construction in Progress

Less Accumulated Depreciation

Total Capital Assets, Net

Total Non-Current Assets

Total Assets

$ 611,409

124,367 1,227,751

20,000

35,424

49,460

2,068,411

11,469,790 1,883,947

13,353,737

1,146,332

8,118,411

9,264,743

10,348,315

106,057,034

4,584,364 39,143,718

6,485,013

(38,309,385)

128,309,059

150,927,539

$ 152,995,950

CITY OF FRESNO, CALIFORNIA

STATEMENT OF NET ASSETS AIRPORT DEPARTMENT JUNE 30, 2006 {continued)

Liabilities

Current Liabilities:

Accrued Liabilities Accrued Compensated Absences

Liability for Self Insurance

Unearned Revenue Due to other Funds

Bonds Payable and Certificates of Participation

Capital Lease Obligations Notes Payable

Total Current Liabilities

Non-current Liabilities:

Accrued Compensated Absences Capital Lease Obligations

Liability for Self-Insurance

Bonds Payable and Certificates of Participation Notes Payable

CVP Litigation Settlement

other Liabilities Accrued Closure Costs

Advances From other Funds

Deposits Held for others

Total Non-current Liabilities

Total Liabilities

Net Assets Invested in Capital Assets, Net of Related Debt

Restricted for Debt Service

Unrestricted {Deficit)

Total Net Assets {Deficit)

$ 2,905,422 137,821

158,673

725,000

3,926,916

633,211

39,682,226

531,089

43,530

40,890,056

44,816,972

87,901,834

6,094,895

14,182,249

$ 108,178,978

CITY OF FRESNO, CALIFORNIA

STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS AIRPORT DEPARTMENT YEAR ENDED JUNE 30, 2006

Operating Revenues:

Charges for Services $ 14,668,777

Operating Expenses: Cost of Services 6,949,176

Administration 6,619,366

Amortization 71,925

Depreciation 5,452,256

Total Operating Expenses 19,092,723

Operating Income (Loss) (4,423,946)

Non-operating Revenue (Expenses):

Operating Grants 1,825,217

Interest Income 890,614

Interest Expense (2,216,945)

Passenger Facility Charges 2,779,880

Customer Facility Charges 1,223,520

Gain ( Loss) on Sale of Capital Assets (1,981,224)

Total Non-operating Revenue (Expenses) 2,521,062

Income (Loss) Before Contributions and Transfers (1,902,884)

Capital Contributions 5,105,854

Transfer In Transfer Out (171,584)

Change in Net Assets 3,031,386

Total Net Assets (Deficit) - Beginning -as previously reported 101,456,248

Prior period adjustment - Note 15 3,691,344

Total Net Assets (Deficit) - Beginning -as restated 105,147,592

Total Net Assets (Deficit) - Ending $ 108,178,978

CITY OF FRESNO, CALIFORNIA

STATEMENT OF CASH FLOWS AIRPORT DEPARTMENT YEAR ENDED JUNE 30, 2006

CASH FLOWS FROM OPERATING ACTIVITIES: Cash Received from Customers

Cash Received from lnterfund Services Provided Cash Payment to Suppliers for Services Cash Paid for lnterfund Services Used

Cash Payments to Employees for Services Cash Payment for Claims and Refunds

Net Cash Provided by (Used for) Operating Activities

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES:

Capital contributions Passenger and Customer Facility Charges Interest payments on capital debt

Proceeds from issuance of capital debt Payment for cost of issuance Principal payments on capital debt-bonds

Principal payments on capital debt-notes Principal payment on capital lease obligations Proceeds from capital leases

Proceeds from sale of capital assets Acquisition and construction of capital assets Receipt of restricted deposits

Net Cash Provided by (Used for) Capital and Related Financing Activities

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Operating Grants Interest Payments, Noncapital Borrowings from other Funds Transfers In Transfers Out

Net Cash Provided by (Used for) Non-capital Financing Activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Interest and dividends on Investments {Purchase) Proceeds of investments securities

with trustees

Net cash provided by investing activities

Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

$ 12,059,487 15,873

(8,939,059) (1,620,516) (4,381,498)

(2,865,713)

5,115,900 3,847,393

(2,224,606)

(695,000)

(7,783,651)

(1,739,964)

(171,584)

(171,584)

843,560

843,560

(3,933,701) 13,002,240

$ 9,068,539

CITY OF FRESNO, CALIFORNIA

STATEMENT OF CASH FLOW AIRPORT DEPARTMENT YEAR ENDED JUNE 30, 2006 (Continued)

Reconciliation of operating income (loss) to net cash provided by (used for) operating activities:

Operating income (loss)

Adjustment to reconcile operating income to net cash Provided by (used for) operating activities:

Depreciation expense

Amortization expense

Change in assets and liabilities:

Decrease (increase) in accounts receivable

Decrease (increase) in other receivables

Decrease (increase) in due from other funds

Decrease (increase) in due from other governments

Decrease (increase) in material and supplies inventory

Decrease (increase) in prepaid items

Decrease (increase) in advances to other funds

(Decrease) increase in accrued liabilities

(Decrease) increase in due to other funds

(Decrease) increase advances from other funds (Decrease) increase in other liabilities

(Decrease) increase in CIP Retention payable

(Decrease) increase in unearned revenue

(Decrease) increase in restricted deposits

Net cash provided by (used for) operating activities

Reconciliation of cash and cash equivalents to the balance sheet:

Cash and Investments:

Unrestricted

Restricted

Total cash and investments

Less: Non-cash equivalents

Cash and cash equivalents at end of year on statement

of cash flows

Noncash investing, capital, and financing activities:

Borrowing under capital lease

Decrease in fair value of cash & investments

Amortization of bond premium, discount and loss on refunding

Loss on abandonment of capital assets

Acquisition and construction of capital assets in accounts payable

$

$

$

(4,423,946)

5,452,256

71,925

(854,171 I

1,997,491

(1,057)

(827,205)

(1,952,425)

(545,326)

(888,580)

10,046

(1,960,992)

611,409

11,469,790

12,081,199

(3,012,660)

9,068,539

55,217

3,311

1,981,224

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APPENDIXC

SUMMARY OF CITY INVESTMENT POLICY

The Investment Policy applies to all monies under the control of the Treasurer of the City (the "Treasurer"), normally used in the day-to-day operations of the City, but which are not required for immediate use. All such monies entrusted to the Treasurer will be pooled in a diversified portfolio (the "Investment Pool"). The Treasurer and staff will monitor economic and other conditions and manage the Investment Pool on an active basis.

The monies covered by the Investment Policy are accounted for in the City's General Ledger and reported in the City's Comprehensive Annual Financial Report. These financial assets are accounted for by means of fund accounting, in accordance with Generally Accepted Accounting Principals for govermnental entities. The fund types used to account for them are: (i) General Fund; (ii) Special Revenue Funds; (iii) Capital Project Funds; (iv) Enterprise Funds; (v) Internal Service Funds; and (vi) Fiduciary-Agency Funds.

Highlights oflnvestment Policy

The City maintains a written policy for investing public funds, which is approved annually by the City Council. The basic objectives of which, in order of importance, are as follows: (i) compliance with all State and City legal directives to conform with GAAP as promulgated by the Governmental Accounting Standards Board and to avail itself of guidance furnished by govermnental and industry professional organizations; (ii) safety of funds invested, (iii) maintenance of liquidity sufficient to meet all cash needs of the City as they become due; (iv) optimizing the rate of return on investments within the constraints of safety and liquidity; and (iv) promoting local economic development.

Safety

Investments of the City are undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. To obtain this objective, diversification is required in order that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio. Thus, the standard of prudence used by investment officials of the City is the "prudent person" standard and is applied in the context of managing an overall portfolio.

Authorized Investments

The City is empowered by State law to invest in certain "eligible securities" as defined in the California Govermnent Code Sections 5360 I et seq. and 53635 et seq. Authorized investments also include, in accordance with California Govermnent Code Section 16429.1, investments in the State Local Agency Investment Fund ("LAIF"). Authorization for specific instruments with these general categories, as well as narrower portfolio limitations, including maximum security type concentration, remaining security maturity, minimum credit quality rating, and maximum issuer concentration, are established to include the following:

C-1

n ' N

TABLE C-1 STATE OF CALIFORNIA AND CITY OF FRESNO

Investment Limits by Type As of Jnly 1, 2006

J'vfaximum J\Aaximum Percentage Percentage

Maximum Limit of Limit of J'vfaximum Percentage Maximum Portfolio Portfolio Percentage

Limit of Percentage Per Single Per Single of Single Quality Portfolio Limit of Issuer Issuer Issuer's Debt

Authorized Investments Maturity Rating State Fresno State Fresno State IF resno City of Fresno Debt 5 Years NIA 100% 100% 100% 100% 100% U.S. Treasuries 5 Years NIA 100 100 100 100 100 California Debt 5 Years NIA 100 100 100 100 100 Cal Local Agency Debt 5 Years NIA 100 100 100 100 100 GSE Agencies 5 Years NIA 100 70 100 50 100 Banker's Acceptances 180 Days NIA 40 40 30 30 100 Commercial Paper 270 Days A-1/P-l 25 25 25 25 10 Negotiable CDs 5 Years NIA 30 30 30 30 Shareholders Equity Time Deposits 5 Years Collateral 100 100 100 100 Shareholders Equity Repurchase Agreements(') 1 Year Collateral 100 100 100 100 100 Reverse Repurchase Agreements(2

) 92 Days NIA 20 20 NIA NIA 100 Securities Lending Agreements(2

) 92 Days NIA 20 20 NIA NIA 100 Medium-Term Notes 5 Years A 30 30 30 20 100 Mutual Funds NIA AAA 20 20 10 10 100 Money Market Funds NIA AAA 20 20 20 20 100 Mortgage/ Asset Backed Debt 5 Years AA 20 20 20 20 100 LAIF NIA NIA 100 100 100 100 100

(1) Investments in repurchase agreements may not exceed one year and the market value of the llllderlying securities must maintain a value of 102% or greater of the flmds borrowed against those securities.

(2) Investments in reverse repurchase agreements and security lending agreements require that the securities to be sold or lent must have been owned for a minimum of 30 days prior to the transaction, the total arnmmt of securities may not exceed 20% of the portfolio, the agreement may not exceed a term of 92 days unless there is a guaranteed spread for the entire period, the borrowed funds may not be invested for more than 92 days, unless there is a guaranteed spread for the entire period and such agreements are entered into with the prior approval of the City Council.

Prohibited Investments

The Policy prohibits investing in any investment that could result in a zero interest accrual. No investments may be made in inverse floaters, range notes, or mortgage-derived, interest only strips.

Performance Evaluation and Reporting

Management responsibility for the investment program is delegated to the Controller of the City. The Controller is responsible for establishing written procedures for the operation of the investment program consistent with the investment policy, all transactions undertaken, and establishing a system of controls to regulate the activities of subordinate officials.

The Treasurer is required to prepare and submit monthly and quarterly summary reports for review by the Mayor, City Manager, City Council and internal auditor and a report at least each quarter. The reports are required to list the types of investments showing the par value, book value and fair market value, unrealized gains and losses and the purchase and maturity dates for each security. Such reports are also required to include a summary of total amounts invested by category, with total par value, book value, and fair market values presented; the rate of return on the portfolio, both month or quarter, as applicable, to date and for the previous rolling 12 months; and the total earned interest on the portfolio, both month to date, quarter to date, as applicable, and year to date. A graphic analysis is also required to be prepared showing the asset allocation, the asset allocation compared to Policy limits, the maturity schedule, and a yield comparison among the Portfolio, LAlF and the one year Treasury rate.

Investment Policy Adoption

The City's investment policy is adopted annually by a resolution of the City Council. Any modifications made thereto must be approved by the City Council.

Summary of Current Investments

As of April 30, 2007, the portfolio had a weighted average maturity of 351.4 days and a current market yield of 4.7963%. The following Table C-2 shows the type of investments and other information on the portfolio as of April 30, 2007.

Investment Federal Agency Notes

Local Agency Investment Fund1

Time Deposits

Mutual Funds 1

TOTAL INVESTMENTS

t Future earnings indeterminate.

TABLEC-2 CITY OF FRESNO Portfolio Summary As of April 30, 2007

Amortized Cost

$226,444,423.75

40,000,000.00

64,637,038.38

9 954 382.24

$34,035,844.37

Percent 66.40%

11.73

18.95

2.92

100 00%

Market Value

$226,166,823.04

40,000,000.00

64,637,038.38

9 938 806.00

$340,742,667.42

Source: City of Fresno Finance Department.

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Par Value and Par Accumulated

Value Future Earnings $226,780,000.00 $246,662,923.61

40,000,000.0040 40,000,000.00

64,637,038.38 64,637,038.38

10 000 000 00 10 000 000 00

$341,417,038.38 $361,299,961.99

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APPENDIXD

SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE

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TABLE OF CONTENTS

DEFINITIONS ............................................................................................................................................. I

AUTHORIZATION AND ISSUANCE OF BONDS ................................................................................ 21

General Provisions for Issuance of Bonds; Additional Bonds ...................................................... 21 Refunding Bonds .......................................................................................................................... 24 Swap Agreements ......................................................................................................................... 25 Subordinated Indebtedness ........................................................................................................... 25 Other Obligations .......................................................................................................................... 26

ESTABLISHMENT OF FUNDS AND APPLICATION THEREOF; INVESTMENTS ......................... 26

Funds and Accounts ...................................................................................................................... 26 Construction Fund ......................................................................................................................... 27 Application of Revenues; Flow of Funds ..................................................................................... 27 Operating Fund ............................................................................................................................. 29 Debt Service Fund ........................................................................................................................ 29 2007 Debt Service Reserve Fund .................................................................................................. 29 Operating Reserve Fund ............................................................................................................... 30 Subordinated Indebtedness Fund .................................................................................................. 30 Renewal and Replacement Fund ................................................................................................... 30 Surplus Fund ................................................................................................................................. 31 PFC Revenue Fund ....................................................................................................................... 32 PFC Debt Service Escrow Fund ................................................................................................... 32 Investment of Certain Funds ......................................................................................................... 32

PARTICULAR COVENANTS OF THE CITY ........................................................................................ 32

Sale or Other Disposition of the City Airports ............................................................................. 32 Operation and Maintenance of City Airports ................................................................................ 34 Charges and Enforcement; Rate Covenant ................................................................................... 34 Maintenance oflnsurance ............................................................................................................. 35 Reconstruction; Application oflnsurance and Condemnation Proceeds ...................................... 36

EVENTS OF DEFAULT; REMEDIES ..................................................................................................... 37

Events ofDefault .......................................................................................................................... 37 Appointment of Receiver .............................................................................................................. 38 Enforcement Proceedings ............................................................................................................. 39 Restriction on Owner's Action ..................................................................................................... 39 Remedies Not Exclusive ............................................................................................................... 39 Effect of Waiver and Other Circumstances .................................................................................. 40 2007 Bond Insurer as Sole Holder of 2007 Bonds ........................................................................ 40

SUPPLEMENTAL INDENTURES OF TRUST ....................................................................................... 40

DEFEASANCE .......................................................................................................................................... 41

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The Indenture sets forth the terms of the 2007 Bonds, the nature and extent of the security, various rights of the Bondholders, rights, duties and immunities of the Trustee and the rights and obligations of the City. The following is a summary (the "Summary") of certain provisions of the Indenture. This Summary does not purport to be complete or definitive and is qualified in its entirety by reference to the full terms of the Indenture.

DEFINITIONS

"Account" means an account, including subaccounts, in any of the Funds held and maintained under the Indenture.

"Accountant's Certificate" means a certificate signed by an Independent Certified Public Accountant or a firm oflndependent Certified Public Accountants, selected by the City.

"Accreted Value" means, with respect to any Capital Appreciation Bond and as of any date of calculation, the sum of the Initial Amount of such Bond and the interest accreted and compounded thereon to such date of calculation determined by reference to the applicable Accreted Value Table for the dates indicated thereon and as provided in the Indenture with respect to any other date.

"Accreted Value Table" means, with respect to the Capital Appreciation Bonds, the table attached to the Supplemental Indenture authorizing such Bonds pursuant to the Indenture, indicating as to the smallest Authorized Denomination of such Capital Appreciation Bonds, the Initial Amount thereof, the Accreted Value of such Capital Appreciation Bonds on each date on which interest on such Capital Appreciation Bonds is compounded, and the Accreted Value thereof on the maturity date thereof.

"Additional Bonds" means all Bonds, whether issued in one or more Series, authenticated and delivered on original issuance pursuant to the Indenture, and any Bonds thereafter authenticated and delivered in lieu of or in substitution for such Bonds pursuant to the Indenture.

"Adjustable Rate Bond" means, as of any date, any Bond not bearing interest from such date to the maturity thereof at a specified rate. Whenever the amount of interest due on Adjustable Rate Bonds is to be determined for purposes of the Indenture, the interest rate to be borne by such Bonds during any period as to which such interest rate has not been established will, except as otherwise provided in the Indenture, be deemed to be the most recently published Bond Buyer 25 Bond Revenue Index ( or comparable index if no longer published) plus fifty basis points.

"Adjusted Debt Service" means, as of any date of calculation, with respect to any period, and with respect to any Bonds, an amount equal to the Debt Service accruing on such Bonds during such period adjusted as follows:

(i) interest on Adjustable Rate Bonds will be determined as provided in the definition thereof;

(ii) the amount of interest accruing on such Bonds during all or any portion of such period that an Integrated Swap Agreement is in effect with respect to such Bonds will be deemed to equal the amount to be paid by the City pursuant to such Integrated Swap Agreement;

(iii) the Principal Installments and interest (as allowed by the Federal Aviation Administration) on Grant Bonds will be deleted from such Debt Service;

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(iv) net amounts to be paid by the City pursuant to Swap Agreements, other than Integrated Swap Agreements, during such period will be added to Debt Service;

(v) PFC Revenues deposited ( or for the purpose of certain provisions of the Indenture dealing with issuance of Additional Bonds, projected to be deposited) to the PFC Debt Service Escrow Fund for such period will be applied as a reduction to Debt Service;

(vi) amounts in the applicable Debt Service Reserve Fund ( excluding Financial Guaranties) which are available, together with amounts available in the Debt Service Fund, in accordance with the Indenture or Supplemental Indenture, to pay in full all Outstanding Bonds of a Series, will be applied as a reduction to Debt Service, for that Series of Bonds for the Fiscal Year in which such amounts are to be applied;

(vii) if any Bonds include an option or an obligation to tender all or a portion of such Bonds to the City, the Trustee or another fiduciary or agent and require that such Bonds or portion thereof be purchased if properly presented, then for purposes of determining the amounts of principal and interest due, the options or obligations to tender will be treated as a principal maturity occurring on the first date on which holders or owners thereof may or are required to tender, except that any such option or obligation to tender will be ignored and not treated as a principal maturity, if ( 1) such Bonds are rated in one of the two highest long-term rating categories by Moody's and by S&P or such Bonds are rated in the highest short-term, note or commercial paper rating categories by Moody's and by S&P and (2) funds for the purchase price are to be provided by a letter of credit or standby bond purchase agreement and the obligation of the City with respect to the provider of such letter of credit or standby bond purchase agreement, other than its obligations on such Bonds, will be subordinated to the obligation of the City on the Bonds or, if not subordinate, will be incurred (assuming such immediate tender) under the conditions and meeting the test for the issuance of parity debt set forth in the provision of the Indenture described in clause (g) of subsection 2 under the section of this Summary entitled "General Provisions for Issuance of Bonds; Additional Bonds"; and

(viii) amounts representing capitalized interest or other interest during construction, and other amounts escrowed with the Trustee or an escrow agent for the payment of debt service for a particular Series of Bonds, will be applied as a reduction to Debt Service for that Series of Bonds.

"Annual Budget" means the annual budget, as amended or supplemented, adopted or in effect for a particular Fiscal Year as provided in the Indenture.

"Authorized Denominations" means, (i) with respect to the 2007 Bonds, $5,000 or any integral multiple thereof, and (ii) with respect to any other Bonds, the amount or amounts so designated in the Supplemental Indenture authorizing such Bonds.

"Authorized Representative" means the Chief Administrative Officer, the Director of Administrative Services, the Director of Public Works, the Controller, and any other officer or employee of the City authorized to perform the specific acts or duties to be performed by resolution duly adopted by the City.

"Bond" or "Bonds" means any bond or bonds, as the case may be, authenticated and delivered under and pursuant to the Indenture.

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"Bond Counsel" means an attorney or firm of attorneys of recognized national standing in the field of law relating to municipal bonds selected by the City.

"Bond Law" means the City of Fresno Municipal Improvements Revenue Bond Law, being Article 7 of Chapter 18 of the Municipal Code of the City, which incorporates, to the extent made applicable by such law, the Revenue Bond Law of 1941, being Chapter 6 of Division 2 of Title 5 of the California Government Code, as enacted and as thereafter amended, as adopted by the City pursuant to Sections 3, 5 and 7 of Article XI of the Constitution of the State of California and Section 1223 of the Charter of the City.

"Bond Register" means the registration books for the ownership of the Bonds maintained by the Bond Registrar pursuant to the Indenture.

"Bond Registrar" means the Trustee or any other bank or trust company organized under the laws of any state of the United States of America or national banking association appointed by the City to perform the duties of Bond Registrar enumerated in the Indenture.

"Bond Year" means the period from July I of each year to and including June 30 of the following year except as otherwise provided with respect to any Series of Bonds in the Supplemental Indenture authorizing such Series.

"2007 Bond Insurance Policy" means the insurance policy issued by the 2007 Bond Insurer guaranteeing the scheduled payment of principal of and interest on the 2007 Bonds when due.

"2007 Bond Insurer" means XL Capital Assurance Inc. and any successor thereto or assignee thereof.

"2007 Bonds" means the Bonds authorized by the Indenture, including any Bonds authenticated and delivered in lieu of or in substitution for such Bonds pursuant to the Indenture.

"2007 Project Account" means the Account in the Construction Fund so designated established pursuant to the Indenture.

"2007 Capitalized Interest Account" means the Account in the Debt Service Fund so established pursuant to the Indenture.

"Business Day" means any day of the year on which banks in New York, New York or in the State of California are not required or authorized to remain closed and on which the Trustee, the Paying Agent and the New York Stock Exchange are open.

"Capital Appreciation Bonds" means the Bonds of each Series so designated and which bear interest payable as a portion of the Accreted Value of such Bonds at the maturity or earlier redemption or payment thereof.

"Capital Improvement" means any addition, betterment, replacement, renewal, extension or improvement of the City Airports, including, without limitation, the acquisition of land or any interests therein, which are chargeable to a capital account and capital costs for the extension, reinforcement, enlargement or other improvement of facilities, property or the acquisition of interests therein, whether or not included as part of the City Airports, determined by the City to be necessary or convenient in connection with the utilization of the City Airports.

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"Cede & Co." means Cede & Co., the nominee of DTC as Securities Depository for any Bonds, and any successor nominee of DTC as such Securities Depository.

"City" means the City of Fresno, a charter city and a municipal corporation organized and existing under the constitution and the laws of the State of California, and any successor thereto.

"City Airports" means the airport known as the Fresno Yosemite International Airport, located within the City, and the airport known as the Fresno - Chandler Downtown Airport, located within the City, each as it now exists, including, without limitation, runways, taxiways, landing pads, aprons, beacon sites, obstruction lights, navigational and landing aids, control towers, facilities for storage of aircraft and for parking of automobiles, roadways, passenger and freight terminals, land, easements and rights in land for clear zone and approach purposes, maintenance hangars and related facilities and all equipment, buildings, grounds, facilities, utilities and structures owned, leased or operated in connection with or for the promotion or the accommodation of air commerce and air navigation and services in connection therewith, together with all additions, betterments, extensions, replacements, renewals and improvements thereto which may hereafter be undertaken, and any future airport or aviation facilities, or any interest therein, from time to time hereafter owned, operated or controlled in whole or in part by the City and determined by the City to be a part of the City Airports.

"Code" means the Internal Revenue Code of 1986 and the regulations issued thereunder, as the same may be amended from time to time, and any successor provisions of law. Reference to a particular section of the Code will be deemed to be a reference to any successor to any such section.

"Construction Fund" means the Fund so designated established pursuant to the Indenture.

"Cost" means, with respect to a Capital Improvement, all costs and expenses of planning, designing, acquiring, constructing, installing and fmancing such Capital Improvement, placing such Capital Improvement in operation, demolition and disposal of any property in connection with the acquisition and construction of such Capital Improvement and obtaining governmental approvals, certificates, permits and licenses with respect thereto. The term Cost will include, but will not be limited to:

(a) Costs of preliminary investigation and development, the performance or acquisition of feasibility and planning studies, and the securing ofregulatory approvals, as well as costs for the acquisition of land and interest therein, engineering and contractors' fees, labor, materials, equipment, utility services and supplies, legal fees, fees incurred pursuant to any lending or credit facility or agreement, and fmancing expenses.

(b) Working capital and reserves therefor in such amounts as will be determined by the City to be reasonably required during the acquisition and construction of a Capital Improvement and for placing a Capital Improvement in operation, and such additional amounts of working capital and reserves therefor as may be approved by the City.

( c) Interest accruing in whole or in part on Bonds prior to and during the acquisition and construction of a Capital Improvement or any portion thereof, and for such additional period as the City may approve.

( d) The payment of principal, redemption price, if any, and interest when due (whether at the maturity of principal or at the due date of interest or upon redemption) of any note or other evidence of indebtedness the proceeds of which were applied to any of the costs of a

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Capital Improvement described m the Indenture, including without limitation Subordinated Indebtedness.

(e) Training and testing costs which are properly allocable to the acquisition, construction and placing in operation a Capital Improvement or any portion thereof.

(f) All costs of insurance applicable to the period of acquisition, construction and placing a Capital Improvement or any portion thereof in operation.

(g) All costs relating to injury and damage claims arising out of the acqms1bon, construction or placing in operation a Capital Improvement less available proceeds of insurance.

(h) Legally required or permitted federal, state and local taxes and payments in lieu of taxes allocable for the acquisition, construction or placing in operation of a Capital Improvement.

(i) All Costs of Issuance for Bonds, including the costs of Credit Enhancement for Bonds and any Financial Guaranty.

(j) Amounts due the United States of America as rebate of investment earnings with respect to the proceeds of the Bonds or as penalties in lieu thereof.

(k) Amounts payable with respect to capital costs for the expansion, reinforcement, enlargement or other improvement of facilities, property or interests therein, whether or not included as part of the City Airports, determined by the City as necessary or convenient in connection with the utilization of the City Airports and the costs associated with the removal from service or reduction in service of any facilities as a result of the expansion, reinforcement; enlargement or other improvement of such facilities or the acquisition, construction or placing in operation of a Capital Improvement.

(I) All other costs incurred by the City and properly allocable to the acquisition, construction, or placing in operation of a Capital Improvement or any portion thereof.

"Costs of Issuance" means all the costs of authorization, preparation, sale, issuance and delivery of Bonds and other costs related to the financing and refinancing of the City Airports, including, but not limited to, all printing and document preparation expenses in connection with the Indenture and any other fmancing documents, Bonds and any preliminary and fmal official statements pertaining to Bonds; rating agency fees; CUSIP Service Bureau charges; market study fees; fees and expenses of counsel; fees and expenses of consultants, including Independent Certified Public Accountants and Qualified Independent Airport Consultants; initial fees and expenses of providers of Credit Enhancement; any computer and other expenses; and the initial fees and expenses of the Trustee and its counsel and any Paying Agent and its counsel (including without limitation origination fees and first annual fees payable in advance).

"Covenanted PFC Revenues" means that portion equal to the Covenanted Portion of the revenue received by the City from time to time from PFC Revenues, including without limitation investment income with respect thereto earned after the PFC Revenues have been remitted to the City by the collecting airlines.

"Covenanted PFC Account" means the Account so designated which is created and established within the PFC Revenue Fund.

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"Covenanted Portion" means initially all PFC Revenues received by the City from the collecting airlines attributable to the first $3.00 per enplaned passenger and thereafter will mean the portion of collected PFC Revenues from time to time established by the City pursuant to the Indenture.

"Credit Enhancement" means a letter of credit, an insurance policy or other instrument, other than a Financial Guaranty, pursuant to which a banking institution, insurance company or other fmancial institution agrees to make payments with respect to the Principal Amount, Redemption Price, or purchase price of, or interest on, Bonds.

"Current Interest Bonds" means the Bonds of each Series so designated and which bear interest payable on the Interest Payment Dates applicable to such Series.

"Customer Facility Charge" or "CFC" means any fee imposed by the City from time to time under the CFC Act.

"CFC Act" means California Civil Code Section 1936, including any amendments, successors or replacements thereto.

"CFC Revenues" means the CFC's received by the City.

"Date of Beneficial Occupancy" means the date of completion of the construction of all Capital Improvements financed with the proceeds of a particular Series of Bonds, as evidenced by a certificate of an Authorized Representative in accordance with the Indenture.

"Debt Service" means as of any date of calculation, with respect to any period, and with respect to the Bonds of any Series, an amount equal to the sum of (i) interest accruing during such period on the Outstanding Bonds of such Series, and (ii) that portion of each Principal Installment for the Outstanding Bonds of such Series which would accrue during such period if each such Principal Installment were deemed to accrue daily in equal amounts from the next preceding Principal Installment due date for such Bonds ( or, if there will be no such preceding Principal Installment due date, from a date one year preceding the due date of such Principal Installment or from the date of issuance of the Bonds of such Series, whichever date is later). Such interest and Principal Instalhnents for the Outstanding Bonds of such Series will be calculated on the assumption that no Bonds of such Series Outstanding at the date of calculation will cease to be Outstanding except by reason of the payment of each Principal Installment on the due date thereof.

"2007 Debt Service Account" means the Account in the Debt Service Fund established for the purpose of paying Debt Service on the 2007 Bonds.

"Debt Service Fund" means the Fund so designated established pursuant to the Indenture.

"Debt Service Reserve Funds" means the 2007 Debt Service Reserve Fund and any other Debt Service Reserve Fund established with respect to a Series of Bonds pursuant to the Supplemental Indenture authorizing such Series of Bonds.

"2007 Debt Service Reserve Fund" means the Fund so designated established pursuant to the Indenture.

"Debt Service Reserve Requirement" means, as of any date of calculation by the City with respect to any Series of Bonds, an amount which, when added to the amount of any Financial Guaranties then in effect and delivered pursuant to the Indenture or any Supplemental Indenture then in effect, is

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equal to the least of (A) ten percent (10%) of the initial offering price of such Series of Bonds ( determined in accordance with the Code); (B) Debt Service for the Outstanding Bonds of such Series for the then current or any future Fiscal Year in which such Debt Service is a maximum; or (C) one hundred twenty-five percent (125%) of the average annual Debt Service on such Series of Bonds. In the event a Debt Service Reserve Fund is maintained to secure more than one Series of Bonds, these calculations may be made on a composite basis.

"Defeasance Securities" means direct obligations of, or obligations which are unconditionally guaranteed by, the United States of America, including obligations issued or held in book-entry form on the books of the Department of the Treasury of the United States of America and including a receipt, certificate or any other evidence of an ownership interest in an aforementioned obligation or in specified portions thereof (which may consist of specified portions of interest thereon).

"Depository" means any bank (including the Trustee and its affiliates) or trust company organized under the laws of any state of the United States of America, or any national banking association which is willing and able to accept the office on reasonable and customary terms, authorized by law to act in accordance with the provisions of the Indenture.

"DTC" means The Depository Trust Company, a limited-purpose trust company organized under the laws of the State of New York, and its successors and assigns. References in the Indenture to DTC will include any nominee of DTC in whose name any Bonds are then registered.

"Event of Default" will have the meaning given to such term in the Indenture.

"Excess Reimbursement Obligation" means, for any period of time, the amount required to be paid during such period pursuant to a Reimbursement Agreement as a reimbursement of advances made pursuant to the related Credit Enhancement and the interest on such advances which is in excess of the Primary Reimbursement Obligation for such period.

"Fiduciary or Fiduciaries" means the Trustee, the Bond Registrar, the Paying Agents, the Depositories, or any or all of them, as may be appropriate.

"Final Compounded Amount" means, with respect to any Capital Appreciation Bond, the Accreted Value thereof on its maturity date.

"Financial Guaranty" means any of the following: (i) an irrevocable, unconditional and unexpired letter of credit issued by a bank, a trust company, a national banking association, a corporation subject to registration with the Board of Governors of the Federal Reserve System under the Bank Holding Company Act of 1956 or any successor provision of law, a federal branch pursuant to the International Banking Act of 1978 or any successor provision of law or a domestic branch or agency of a foreign bank which branch or agency is duly licensed or authorized to do business under the laws of any state or territory of the United States of America, the unsecured or uncollateralized long term debt obligations of which, or long term obligations secured or supported by a letter of credit issued by such bank, trust company, national banking association, corporation or branch, are rated at the time such letter of credit is delivered, without regard to qualification of such rating by symbols such as "+" or "-" or numerical notation, in at least the second highest rating category by Moody's or S&P; or (ii) an irrevocable and unconditional policy of insurance or surety bond in full force and effect issued by an insurance company or association duly authorized to do business in the State of New York and the State of California (y) the claims paying ability of which is rated the highest rating accorded by a nationally recognized insurance rating agency or (z) obligations insured by a surety bond or an insurance policy issued by such company or association are rated at the time such surety bond or insurance policy is

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delivered, without regard to qualification of such rating by symbols such as "+" or "-" or numerical notation, in the highest rating category by Moody's or S&P; in each case credited to any Debt Service Reserve Fund established pursuant to the Indenture or any Supplemental Indenture providing for the payment thereunder of moneys when required pursuant to the Indenture or such Supplemental Indenture.

"Fiscal Year" means the twelve (12) month period commencing on July I of each year and ending on the following June 30 or any other period of twelve (12) consecutive months adopted by the City as its fiscal year.

"Fund" means a fund established pursuant to the Indenture.

"Grant Bonds" means Bonds the Principal Installments of which, together with interest ( as allowed by the Federal Aviation Administration), are to be paid from, and which are secured by a pledge of; moneys to be received from the United States of America pursuant to a Letter of Intent requiring the United States of America to make payments to the City in an amount at least equal to such Principal Installments at or prior to the time said Principal Installments are due.

"Indenture" means the Indenture of Trust, dated as of June 15, 2000, by and between the City and the Trustee, as from time to time amended or supplemented by Supplemental Indentures in accordance with the terms of the Indenture.

"Independent Certified Public Accountant" means any certified public accountant or firm of such accountants appointed and paid by the City, and who, or each of whom:

( i) is in fact independent and not under domination of the City;

(ii) does not have any substantial interest, direct or indirect, with the City; and

(iii) is not connected with the City as an officer or employee of the City, but who may be regularly retained to make annual or other audits of the books or reports of the City.

"Initial Amount," means, with respect to any Capital Appreciation Bond, the Accreted Value of such Capital Appreciation Bond on the date of issuance thereof.

"Integrated Swap Agreement" means a Swap Agreement as to which the Trustee has received a certificate of an Authorized Representative stating: (i) the notional amount of such agreement relates to an equal Principal Amount of Bonds identified in such certificate; (ii) the interest rate ( or basis of determining the interest rate) to be paid by parties to such agreement and the dates of payment thereof; and (iii) the amounts to be received by the City pursuant to such Integrated Swap Agreement are at least equal to the interest on such related Bonds during the term of such Swap Agreement.

"Interest Payment Date" means (i) with respect to the 2007 Bonds, each January I and July I, commencing July I, 2007; and (ii) with respect to the Current Interest Bonds of any other Series, the interest payment dates for such Series specified in the Supplemental Indenture authorizing the issuance of such Series.

"Investment Securities" means and include any of the following securities, if and to the extent the same are at the time legal for investment of the City's funds:

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(iv) Defeasance Securities.

(v) Bonds, debentures, notes or other evidences of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America: U.S. Export-Import Bank, Farmers Home Administration, Federal Financing Bank, Federal Housing Administration Debentures, General Services Administration, Government National Mortgage Association and U.S. Maritime Administration.

(vi) New Housing Authority Bonds or Project Notes issued by public agencies or municipalities and fully secured as to the payment of both principal and interest by a pledge of annual contributions to be paid by the United States of America or any agency thereof.

(vii) Senior debt obligations of the Federal Home Loan Bank System; participation certificates and senior debt obligations of the Federal Home Loan Mortgage Corporation; mortgage-backed securities and senior debt obligations of the Federal National Mortgage Association; and senior debt obligations of the Student Loan Marketing Association.

(viii) (a) Direct and general obligations, the payment of which the full faith and credit of the issuer is pledged, of any state of the United States of America or any political subdivision thereof and (b) bonds, notes, warrants, or other evidences of indebtedness of any local agency of any state of the United States of America or any political subdivision thereof, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the local agency, or by a department, board, agency, or authority thereof or any agency or instrumentality thereof which, in the case of securities described in either (a) or (b) above, at the time of investment is rated by Moody's as "P-1,"VMIG-1, MIG-I or "Aa" or better or by S&P as ''A-1 +," ''SP-1" or ''AA" or better.

(ix) Bank time deposits evidenced by certificates of deposit, and bankers' acceptances, issued by any bank, savings and loan association, mutual savings bank or national banking association insured by the Federal Deposit Insurance Corporation (including the Trustee and its affiliates); provided either that the aggregate of such bank time deposits and bankers' acceptances issued by any bank or banking association does not exceed at any one time ten per cent ( 10%) of the aggregate of the capital stock, surplus and undivided profits of such bank, trust company or banking association and that such capital stock, surplus and undivided profits will not be less than Twenty-Five Million Dollars ($25,000,000); or that such deposits are fully and continuously secured by a perfected first security interest in obligations described in paragraphs (i), (ii) or (iii) of this definition held by a party other than such bank or banking association.

(x) Repurchase Agreements with: (I) any domestic bank, or domestic branch of a foreign bank, the long term debt of which is rated at least "A" by S&P and Moody's; or (2) any broker-dealer with "retail customers" or a related affiliate thereof which broker-dealer has, or the parent company (which guarantees the provider) of which has, long-term debt rated at least "A" by S&P and Moody's, which broker-dealer falls under the jurisdiction of the Securities Investors Protection Corporation; or (3) any other entity rated "A" or better by S&P and Moody's and acceptable to the Insurer, provided that:

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(a) The market value of the collateral is maintained at levels and upon such conditions as would be acceptable to S & P and Moody's to maintain an "A" rating in an "A" rated structured financing (with a market value approach);

(b) The Trustee or a third party acting solely as agent therefor or for the City (the "Holder of the Collateral") has possession of the collateral or the collateral has been transferred to the Holder of the Collateral in accordance with applicable state and federal laws ( other than by means of entries on the transferor's books);

( c) The repurchase agreement shall state and an opinion of counsel shall be rendered at the time such collateral is delivered that the Holder of the Collateral has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof (in the case of bearer securities, this means the Holder of the Collateral is in possession);

( d) All other requirements of S&P in respect of repurchase agreements shall be met; and

( e) The repurchase agreement shall provide that if during its term the provider's rating by either Moody's or S&P is withdrawn or suspended or falls below "A" by S&P or by Moody's, the provider must, at the direction of the City or the Trustee (who shall give such direction if so directed by the Bond Insurer), within 10 days of receipt of such direction, repurchase all collateral and terminate the agreement, with no penalty or premium to the City or Trustee.

Notwithstanding the above, if a repurchase agreement has a term of 270 days or less (with no evergreen provision), collateral levels need not be as specified in (a) above, so long as such collateral levels are 103% or better and the provider is rated at least "A" by S&P and Moody's.

(xi) Investment agreements with a domestic or foreign bank or corporation ( other than a life or property casualty insurance company) the long-term debt of which, or, in the case of a guaranteed corporation the long-term debt, or, in the case of a monoline financial guaranty insurance company, claims paying ability, of the guarantor is rated at least "AA" by S&P and "Aa" by Moody's; provided that, by the terms of the investment agreement:

(a) Interest payments are to be made to the Trustee at times and in amounts as necessary to pay debt service ( or, if the investment agreement is for the construction fund, construction draws) on the Bonds;

(b) The invested funds are available for withdrawal without penalty or premium, at any time upon not more than seven days' prior notice; the City and the Trustee hereby agree to give or cause to be given notice in accordance with the terms of the investment agreement so as to receive funds thereunder with no penalty or premium paid;

( c) The investment agreement shall state that is the unconditional and general obligation of, and is not subordinated to any other obligation of, the provider thereof or, if the provider is a bank, the agreement or the opinion of counsel shall state that the obligation of the provider to make payments thereunder ranks pari passu with the

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obligations of the provider to its other depositors and its other unsecured and unsubordinated creditors;

( d) The City or the Trustee receives the opinion of domestic counsel (which opinion shall be addressed to the City and the Bond Insurer) that such investment agreement is legal, valid, binding and enforceable upon the provider in accordance with its terms and of foreign counsel (if applicable) in form and substance acceptable, and addressed to, the Bond Insurer;

( e) The investment agreement shall provide that if during its term

(i) the provider's rating by either S&P or Moody's falls below "AA-" or "Aa3", respectively, the provider shall, at its option, within 10 days of receipt of publication of such downgrade, either (A) collateralize the investment agreement by delivering or transferring in accordance with applicable state and federal laws (other than by means of entries on the provider's books) to the City, the Trustee or a third party acting solely as agent therefor (the "Holder of the Collateral") collateral free and clear of any third-party liens or claims the market value of which collateral is maintained at levels and upon such conditions as would be acceptable to S & P and Moody's to maintain an "A" rating in an "A" rated structured financing (with a market value approach); or (B) repay the principal of and accrued but unpaid interest on the investment, and

(ii) the provider's rating by either S&P or Moody's is withdrawn or suspended or falls below "A-" or "A3", respectively, the provider must, at the direction of the City or the Trustee (who shall give such direction if so directed by the Insurer), within 10 days of receipt of such direction, repay the principal of and accrued but unpaid interest on the investment, in either case with no penalty or premium to the City or Trustee,

(f) The investment agreement shall state and an opinion of counsel shall be rendered, in the event collateral is required to be pledged by the provider under the terms of the investment agreement, at the time such collateral is delivered, that the Holder of the Collateral has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof (in the case of bearer securities, this means the Holder of the Collateral is in possession); and

(g) The investment agreement must provide that if during its term

(i) the provider shall default in its payment obligations, the provider's obligations under the investment agreement shall, at the direction of the City or the Trustee (who shall give such direction if so directed by the Bond Insurer), be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the City or Trustee, as appropriate, and

(ii) the provider shall become insolvent, not pay its debts as they become due, be declared or petition to be declared bankrupt, etc. ("event of insolvency"), the provider's obligations shall automatically be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the Issuer or Trustee, as appropriate.

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

(xiii) State of California Local Agency Investment Fund, a pooled investment fund managed by the State of California Treasurer's office meeting all legal guidelines and requirements for the investment of California public agency funds.

(xiv) Shares in a California common law trust established pursuant to Title 1, Division 7, Chapter 5 of the Government Code of the State of California which invests exclusively in investments permitted by Section 53635 of Title 5, Division 2, Chapter 4 of the Government Code of the State of California, as it may be amended, provided that the consent of the Bond Insurer shall be obtained so long as the Bond Insurance Policy is in effect and the Bond Insurer is not in payment default of its obligations thereunder.

(xv) Money market funds rated "AAm" or "AAm-G" by S&P, or better, including funds for which the Trustee, its affiliates or subsidiaries provide investment advisory or other management services.

(xvi) Any other investment which the City deems to be a prudent investment and which is in compliance with the City's investment policy, provided that such investment is rated "A" or better by Moody's or S&P, and further provided that, so long as the Bond Insurance Policy is in effect and the Bond Insurer is not in default of its payment obligations thereunder, such investment is approved by the Bond Insurer.

"Letter of Intent" means a letter or other evidence of intent from the Federal Aviation Administration of the United States of America to make payments to the City with respect to City Airports facilities or property.

"Maturity Amount" means, (i) with respect to a Capital Appreciation Bond, the Final Compounded Amount thereof, and (ii) with respect to a Current Interest Bond, the stated principal amount thereof.

"Maximum Annual Adjusted Debt Service" means, as of any date of calculation, the Adjusted Debt Service for all Outstanding Bonds for the then current or any future Fiscal Year in which such Adjusted Debt Service is a maximum. In calculating the Maximum Annual Adjusted Debt Service for any Fiscal Year, the City will assume that PFC Revenues will be deposited in the Debt Service Escrow Fund as and to the extent provided in certain provisions of the Indenture described in clauses (g) and (h) of subsection 2 under the section of this Summary entitled "General Provisions for Issuance of Bonds; Additional Bonds."

"Minimum PFC Contribution "means, for any Fiscal Year, the lesser of (i) $1,100,000, (ii) the PFC Projected Debt Service plus, in the case of (i) or (ii), the amount determined by the City to be that portion of any deficiency in the Debt Service Reserve Fund attributable to the portion of the Bonds used to finance PFC-approved Project Costs and (iii) all Covenanted PFC Revenues collected during such Fiscal Year.

"Moody's" means Moody's Investors Service, a corporation organized and existing under the laws of the State of Delaware and its corporate successors.

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"2007 Municipal Bond Insurance Policy" means the financial guaranty insurance policy issued by the 2007 Bond Insurer insuring the payment when due of the principal of and interest on the 2007 Bonds as provided therein.

"Net Revenues" means, with respect to any period, the Revenues for such period less the amount of Operating Expenses during such period.

"Net Rent Lease" means a lease, instalhnent sale agreement or other agreement by the City, relating to a Special Facility designated as such by the City, pursuant to which the lessee or purchaser or other party agrees to pay to the City rentals, installment payments or other payments during the term thereof sufficient to pay when due all costs, including debt service, payable by the City with respect to Special Facility Bonds relating to such Special Facility and to pay in addition all operation and maintenance expenses relating to such Special Facility, including, without limitation, maintenance costs, insurance, and all property taxes and assessments.

"Operating Expenses" means the reasonable and necessary costs of operating, maintaining and administering the City Airports, paid or accrued, including ( among other things) salaries and wages, fees for services, costs of materials, supplies and fuel, reasonable expenses of management, repairs and other expenses necessary to maintain and preserve the City Airports in good repair and working order, reasonable amounts for administration, overhead, insurance, taxes (if any) and other similar costs, capital outlays to the extent budgeted by the City to be paid from the Operating Fund, the fees and expenses of the Fiduciaries, the regularly scheduled fees (but not the repayment of advances or the interest on advances) to be paid pursuant to any Reimbursement Agreement, expenses incurred in connection with the purchase or redemption of Bonds (but not the purchase price or Redemption Price of such Bonds), the amounts required to be paid into the Rebate Fund, and all other costs (including overhead) properly allocable to the operation, maintenance or administration of the City Airports, but excluding in all cases depreciation and obsolescence charges or reserves therefor, amortization of intangibles or other bookkeeping entries of a similar nature, amortization and depreciation of Capital Improvements, charges for the payment of principal and interest on any Bonds or other obligations hereafter issued for City Airports purposes, and costs and expenses attributable to Special Facilities to the extent required to be paid by lessees pursuant to the terms of any Special Facility lease.

"Operating Fund" means the Fund so designated established pursuant to the Indenture.

"Operating Reserve Fund" means the Fund so designated established pursuant to the Indenture.

"Operating Reserve Requirement" means, as of any date of calculation, an amount equal to twenty percent (20%) of the amount included in the then current Annual Budget for Operating Expenses.

"Opinion of Bond Counsel" means a written opinion signed by Bond Counsel.

"Other Available Funds" means any amount of unencumbered funds accumulated in the Surplus Fund which, prior to the beginning of any Fiscal Year, are designated by the City as Other Available Funds and are transferred at the begirming of such Fiscal Year to the Revenue Fund; but in no event may such amount exceed twenty-five percent (25%) of Debt Service (determined prior to deducting any amounts deposited to the PFC Debt Service Escrow Fund) for the Bonds for such Fiscal Year for purposes of the Indenture.

"Outstanding," when used with reference to Bonds, means, as of any date, Bonds theretofore or thereupon being authenticated and delivered under the Indenture except:

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(xvii) Bonds cancelled by the Trustee, or delivered to the Trustee for cancellation, at or prior to such date;

(xviii) Bonds paid or deemed paid pursuant to the Indenture; and

(xix) Bonds in lieu of or in substitution for which other Bonds will have been authenticated and delivered pursuant to the Indenture.

"Owner" means the person registered as the owner of a Bond in the Bond Register.

"Participant" means an entity which is recognized as a participant in the book-entry system of maintaining records with respect to a Series of Bonds by the Securities Depository for such Series of Bonds.

"Passenger Facility Charge" or "PFC" means any passenger facility charge authorized from time to time under the PFC Act or PFC Regulations.

"Paying Agent," when used with reference to any Series of Bonds, means any commercial bank (including the Trustee and its affiliates) or trust company organized under the laws of any state of the United States of America, or any national banking association, designated as paying agent for the Bonds of such Series, and its successor or successors appointed in the manner provided in the Indenture.

"PFC Act" or "PFC Regulations" means respectively 49 U.S.C. §40117, and Title 14, Code of Federal Regulations (CFR) Part 158, including any amendments, successors or replacements thereto (including Public Law No. 106-181).

"PFC Debt Service Escrow Fund" means the Fund so designated which 1s created, and established pursuant to the Indenture.

"PFC Project Account" means the Account so designated which is created and established within the PFC Revenue Fund.

"PFC Projected Debt Service" means the debt service, as calculated by the City, for any period in question, on that portion of the 2000 Bonds used to fmance PFC-approved Project Costs.

"PFC Revenue Fund" means the fund so designated which is created and established pursuant to the Indenture.

"PFC Revenues" means the Passenger Facility Charge receipts collected from enplaned passengers at the Fresno Yosemite International Airport, less any collection or service fee or other amount permitted to be retained by the collecting airlines, which have been approved by the Federal Aviation Administration, pursuant to the PFC Act and PFC Regulations, which are remitted to the City.

"PFC-approved Project Costs" means costs that are approved by the Federal Aviation Administration for PFC funding in accordance with the PFC Act and PFC Regulations.

"Primary Reimbursement Obligation" means, for any period of time, the amount required to be paid during such period pursuant to a Reimbursement Agreement as a reimbursement of advances made pursuant to the related Credit Enhancement and the interest on such advances but only to the extent that such amount is not in excess of the regularly scheduled Debt Service on the Bonds as to which such

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advance was made assuming any Bonds which are Adjustable Rate Bonds bear interest during such period at the interest rate specified in the definition of the term Adjustable Rate Bonds.

"Principal Amount" means, as of any date of calculation, (i) with respect to any Capital Appreciation Bond, the Accreted Value thereof as of such date of calculation, and ( ii) with respect to any Current Interest Bond, the stated principal amount thereof.

"Principal Instalhnent" means, with respect to amounts due for the Bonds of any Series as of any date, ( i) the Principal Amount of all Outstanding Bonds of such Series due on such date for which no Sinking Fund Installments have been established, and (ii) the unsatisfied balance ( determined as provided in the Indenture) of any Sinking Fund Installments due on such date for Outstanding Bonds of such Series, plus the amount of the sinking fund redemption premiums, if any, which would be applicable upon redemption of such Bonds on such date, in a Principal Amount equal to said unsatisfied balance of such Sinking Fund Installments.

"2007 Project" means, the consolidated rental car facility and related improvements at the Airport. The scope of the 2007 Project may be altered by the City so long as an Authorized Representative certifies to the Trustee that such alteration will not materially adversely affect the ability of the City to satisfy its obligations under the Indenture.

"2007 Project Account" means the Account in the Construction Fund so designated established pursuant to the Indenture.

"Qualified Independent Airport Consultant" means a person or firm who or which engages in the business of advising the management of airports concerning the operation and fmancing of airports, including consultation and advice with respect to leases and agreements with airline companies and concessionaires of all types and character and also including advice and consultation generally concerning the use and operation of airports, and which person or firm, by reason of his or its know ledge and experience, has acquired a reputation as a recognized airport consultant and, with respect to the 2007 Bonds, is nationally recognized and acceptable to the 2007 Bond Insurer. Such Qualified Independent Airport Consultant may include a person or firm rendering professional engineering or accounting services in addition to his or its occupation as an airport consultant and may include any person or firm regularly retained by the City as an airport consultant to the City.

"Qualified Provider" means, with respect to any Swap Agreement, a financial institution whose senior long term debt obligations, or whose obligations under any Swap Agreement are guaranteed by a fmancial institution whose senior long term debt obligations, are rated by whichever of Moody's or S&P as then has a rating in effect for Bonds, or both such agencies if both then have a rating in effect for Bonds, at the time the subject Swap Agreement is entered into at least "Aa" in the case of Moody's and "AA" in the case of S&P, or the equivalent thereof.

"Rebate Fund" means the Fund so designated established pursuant to the Indenture.

"Record Date" means (i) with respect to the payment of interest on the 2007 Bonds, the fifteenth (15th

) day of the calendar month preceding each Interest Payment Date; and (ii) with respect to the payment of interest on any other Series of Bonds, the date or dates specified as such in the Supplemental Indenture authorizing such Series.

"Redemption Price" means, with respect to any Bond, the Principal Amount thereof plus the applicable premium, if any, payable upon redemption thereof.

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"Refunding Bonds" means all Bonds, whether issued in one or more Series, authenticated and delivered on original issuance pursuant to the Indenture, and any Bonds thereafter authenticated and delivered in lieu of or in substitution for such Bonds pursuant to the Indenture.

"Reimbursement Agreement" means an agreement with a provider of Credit Enhancement pursuant to which the City agrees to reimburse such provider for advances made pursuant to such Credit Enhancement and to pay interest on such advances; provided, however, that the maximum rate of interest payable on such advances will be specified in such agreement.

"Renewal and Replacement Fund" means the Fund so designated established pursuant to the Indenture.

"Renewal and Replacement Fund Requirement" means $500,000 or such greater or lesser amount as the City will from time to time establish by resolution of the City, and evidenced by a certificate signed by an Authorized Representative and filed with the Trustee.

"Representation Letter" means the letter of representations from the City and the Trustee to, or other instrument or agreement among the City and the Trustee with, a Securities Depository for a Series of Bonds in which the City and the Trustee, among other things, make certain representations to such Securities Depository with respect to such Series of Bonds, the payment thereof, and delivery of notices with respect thereto.

"Revenue Bond Index" means the 25-Bond Revenue Index as published in The Bond Buyer or, if such index will cease to be published, Revenue Bond Index will mean such other commonly published comparable tax-exempt securities index as the City reasonably selects.

"Revenue Fund" means the Fund so designated established pursuant to the Indenture.

"Revenues" means all charges received for and all other income and receipts derived by the City from the, ownership, operation and use of and otherwise pertaining to the City Airports, or any part thereof, whether resulting from extensions, enlargements, repairs, betterments or other improvements to the City Airports, or otherwise, and includes, except to the extent hereinafter expressly excluded, all revenues received by the City from the City Airports, including, without limitation, all rentals, rates, fees and other charges for the use of the City Airports, or for any service rendered by the City in the operation thereof, investment income deposited in the Revenue Fund, the Debt Service Fund or the Surplus Fund but, unless and until deposited in the Revenue Fund, excluding:

(a) moneys received as grants, appropriations or contributions from the United States of America, the State of California or any other governmental entity or agency, the use of which is limited by the grantor or donor to the cost of related City Airports facilities or property;

(b) PFC Revenues and the receipts from any other per-passenger charge as may be hereafter lawfully authorized;

(c) the City;

(d)

proceeds from the Bonds or proceeds from loans or other borrowings obtained by

moneys received with respect to any Net Rent Lease;

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( e) moneys received from insurance proceeds other than loss of use or business interruption insurance proceeds, from the taking by or under eminent domain or from the sale of all or any part of the City Airports;

(f) any payments to be received by the City pursuant to a Swap Agreement;

(g) amounts deposited to the Construction Fund prior to the Date of Beneficial Occupancy;

(h) the proceeds received by the City from the sale or other disposition of all or part of the City Airports property, except amounts representing interest or finance charges in a deferred sale or other similar method of conveyance where a portion of the sale price is payable on a deferred basis, in which case any interest or finance charges will be considered Revenues;

(i) revenues that are derived from properties constituting a part of Fresno Yosemite International Airport that are required to be deposited to the Airways Golf Course Capital Fund; and

(j) Other Available Funds transferred to the Revenue Fund as provided m the Indenture.

The definition of "Revenues" includes "CFC Revenues", subject to the limitations on use of CFC Revenues set forth in Subsection (9) of Section 6. 5 of the Indenture.

"S&P" means Standard & Poor's, a Division of The McGraw-Hill Companies, and its successors.

"Securities Depository" means a trust company or other financial institution which is registered as a "clearing agency" pursuant to the provisions of Section 17 A of the Securities Exchange Act of 1934, as amended, or is otherwise qualified under applicable law to act as securities custodian for Bonds on behalf of the Participants and the beneficial owners of interests in such Bonds.

"Series," when used with reference to the Bonds, means all of the Bonds authenticated and delivered on original issuance and identified pursuant to the Indenture (including any Supplemental Indenture) as a separate Series of Bonds, and any Bonds thereafter authenticated and delivered in lieu of or in substitution for such Bonds pursuant to the Indenture (including any Supplemental Indenture), regardless of variations in maturity, interest rate, Sinking Fund Installments, or other provisions.

"Sinking Fund Installment" means an amount so designated which is established pursuant to the Indenture with respect to the Bonds.

"Special Facility" means any facility designated by the City as such located on property included within the City Airports relating to or used in connection with the City Airports, the cost of which is financed with the proceeds of outstanding Special Facility Bonds.

"Special Facility Bonds" means bonds, notes or other evidences of indebtedness, including without limitation certificates of participation in leases, installment sale agreements and other agreements issued or incurred by the City but excluding Bonds, the proceeds of which were or are to be applied to the costs of any Special Facility (including the refmancing of such costs) and which are payable solely from all or a portion of the rentals, installment payments or other payments received pursuant to a Net Rent Lease of such Special Facility.

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"Sub accounts" means any or all subaccounts in any or all of the Accounts held and maintained under the Indenture.

"Subordinated Indebtedness" means any bond, note or other evidence of indebtedness, including without limitation the obligation to make payments with respect to the repayment of advances made by any provider of credit enhancement for such bond, note, or other evidence of indebtedness, which is expressly made subordinate and junior in right of payment to the Bonds and which complies with the provisions of the Indenture. Any such Subordinated Indebtedness will not be nor be deemed to be Bonds for purposes of the Indenture.

"Subordinated Indebtedness Fund" means the Fund so designated established pursuant to the Indenture.

"Subordinated Indebtedness Indenture" means the resolution, indenture or other instrument authorizing the issuance of any Subordinated Indebtedness and any reimbursement or other agreement with the issuer of any credit enhancement for Subordinated Indebtedness providing for the repayment of any advances made pursuant to such credit enhancement and interest thereon.

"Supplemental Indenture" means any indenture supplemental to or amendatory of the Indenture as theretofore in effect, entered into by the City and the Trustee in accordance with the Indenture.

"Surplus Fund" means the Fund so designated established pursuant to the Indenture.

"Swap Agreement" means an agreement between the City and a Qualified Provider as to which the conditions of the Indenture have been satisfied providing for payments between the parties based on levels of, or changes in, interest rates, stock or other indices or contracts to exchange cash flows or a series of payments or contracts, including without limitation, interest rate floors or caps, options, puts or calls to hedge payment, rate, spread or similar exposure.

"Tax Certificate" means the Tax Certificate, concerning certain matters pertaining to the use and investment of proceeds of any Series of Bonds, executed and delivered by the City on the date of issuance of such Series of Bonds, including any and all exhibits thereto.

"Trustee" means BNY Western Trust Company, its successor or successors and any other entity which may at any time be substituted in its place as trustee pursuant to the Indenture.

"Trust Estate" means, subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture: (i) the Revenues and (ii) all amounts on deposit in the Funds and Accounts held and maintained pursuant to the Indenture ( including amounts in the PFC Debt Service Escrow Fund and Covenanted PFC Account but excluding other PFC Revenues, the PFC Revenue Fund, the Operating Fund, the Rebate Fund, and any Debt Service Reserve Fund for any additional Series of Bonds), including the investments, if any, thereof.

"2007 Financial Guaranty" means the Municipal Bond Debt Service Reserve Insurance Policy issued by the 2007 Bond Insurer.

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AUTHORIZATION AND ISSUANCE OF BONDS

General Provisions for Issnance of Bonds; Additional Bonds

1. One or more Series of Additional Bonds may be issued, authenticated and delivered upon original issuance for the purpose of paying all or a portion of the Cost of any Capital Improvement.

2. All (but not less than all) the Bonds of each Series will be executed by the City for issuance under the Indenture and delivered to the Trustee and thereupon will be authenticated by the Trustee and by it delivered to the City or upon its order, but only upon the receipt by the Trustee of the following items (upon which the Trustee may conclusively rely in determining whether the conditions precedent for the issuance and authentication of such Series of Bonds have been satisfied):

(a) An executed copy of the Indenture as originally executed and certified by an Authorized Representative to be in full force and effect;

(b) An opinion of Bond Counsel to the effect that (i) with respect to the Bonds of any Series, the Supplemental Indenture pursuant to which such Series of Bonds is to be issued, has been duly executed and delivered by the City and constitutes the legal, valid and binding obligation of the City enforceable against it in accordance with the terms thereof; and (ii) the Bonds of such Series constitute the valid and binding special, limited obligations of the City, payable solely from the Trust Estate and any other additional source of funds not included in the Trust Estate if so provided in the Indenture or any Supplemental Indenture; provided, however, that such Opinion of Bond Counsel may include such exceptions and qualifications as will be acceptable to the initial purchaser or purchasers of the Bonds of such Series;

( c) A written order as to the delivery of such Bonds, signed by an Authorized Representative;

( d) An executed copy of the Supplemental Indenture authorizing such Bonds, certified by an Authorized Representative to be in full force and effect, which will, among other provisions, specify: (i) the authorized Principal Amount of the Current Interest Bonds of such Series and the aggregate Initial Amounts for the Capital Appreciation Bonds of each maturity for such Series, and the Series designation of such Bonds; (ii) the purpose or purposes for which such Series of Bonds is being issued, which will be one of the purposes specified in the Indenture; ( iii) the date, and the maturity date or dates, of the Bonds of such Series; (iv) the interest rate or rates on the Current Interest Bonds of such Series ( or, with respect to Adjustable Rate Bonds, the method of determining the interest rate or rates and the maximum interest rate on such Adjustable Rate Bonds), and the Interest Payment Dates therefor (or with respect to Adjustable Rate Bonds, the method of determining the Interest Payment Dates); (v) the yield to maturity and the dates of compounding interest on the Capital Appreciation Bonds of such Series, together with an Accreted Value Table for such Capital Appreciation Bonds indicating the Initial Amount for the smallest Authorized Denomination for such Capital Appreciation Bonds, the Accreted Value thereof on each date for compounding interest, and the Final Compounded Amount thereof (which Accreted Value Table will establish the Accreted Value of such Capital Appreciation Bonds for each of the dates indicated in such Accreted Value Table for all purposes of the Indenture, including the payment of such Capital Appreciation Bonds and the Accreted Value thereof on each compounding date for purposes of determining the Accreted Value thereof between such compounding dates, and the Accreted Value of such Capital Appreciation Bonds for any date not indicated on such Accreted Value Table will be determined by computing and compounding interest in accordance with the Supplemental Indenture authorizing such Capital

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Appreciation Bonds); (vi) Authorized Denominations of, and the manner of dating, numbering and lettering, the Bonds of such Series; (vii) the Paying Agent or Paying Agents and the place or places of payment of the Principal Amount, Redemption Price, if any, of, and interest on, the Bonds of such Series; (viii) the Redemption Price or Prices, if any, and, subject to the provisions of the Indenture, the redemption terms for the Bonds of such Series; (ix) the Sinking Fund Installments, if any, for the Bonds of such Series, provided that each Sinking Fund Installment, if any, will fall upon an Interest Payment Date for such Bonds; (x) if so determined by the City, provisions for the sale of the Bonds of such Series; (xi) whether the Bonds of such Series are to be registered in the name of a Securities Depository, or its nominee, and any provisions appropriate or necessary with respect to the arrangements made with the Securities Depository for such Bonds in the applicable Representation Letter; (xii) the application of the proceeds of the sale of such Bonds including the amount, if any, to be deposited in the Funds and Accounts; (xiii) the terms of any Credit Enhancement for the Bonds of such Series, or any portion thereof, and any provisions relating to such Credit Enhancement, including without limitation, the establishment of Funds or Accounts for the deposit of advances under such Credit Enhancement; (xiv) the Debt Service Reserve Requirement relating to the Debt Service Reserve Fund established thereunder; and (xv) the forms of the Bonds of such Series and of the Trustee's certificate of authentication thereon;

(e) The amount necessary for deposit in the Debt Service Reserve Fund established with respect to a Series of Bonds so that the amount in such Fund will equal the applicable Debt Service Reserve Requirement calculated immediately after the authentication and delivery of such Series of Bonds;

(f) A certificate of an Authorized Representative stating that the City is not in default in the performance of any of the covenants, conditions, agreements or provisions contained in the Indenture and applicable to the City; provided, however, that in the case of Refunding Bonds such certificate may state that upon the application of the proceeds of such Refunding Bonds in accordance with the Supplemental Indenture authorizing their issuance, the City will not be in default in the performance of any of the covenants, conditions, agreements or provisions contained in the Indenture and applicable to the City;

(g) Unless the requirements of any of clauses (a), (h), (i) or (j) of this subsection 2 are satisfied, the Net Revenues, together with Other Available Funds, as determined from the accounting records of the City, for the last Fiscal Year or last twelve (12) month period for which fmancial statements were prepared, whichever is later, preceding the date of the issuance of such Series of Bonds, plus:

(i) An allowance for additional Net Revenues from any additions or improvements to the City Airports to be made from any source, including the proceeds of such Series of Bonds or Bonds previously issued, but which, during all or any part of such Fiscal Year or reported twelve (12) month period, were not in service (but less any Net Revenues attributable to any such additions or improvements and received during such Fiscal Year or reported twelve (12) month period); all in an amount equal to one hundred percent (100%) of the estimated additional average annual Net Revenues to be derived from such additions and improvements for the first twenty-four (24) months in which each addition or improvement is respectively to be in operation, all as shown by the certificate or opinion of a Qualified Independent Airport Consultant; and

(ii) An allowance for additional Net Revenues arising from any increase in the charges made for the use of the City Airports which has become effective prior to the

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issuance of such Series of Bonds, but which, during all or any part of such Fiscal Year or reported twelve (12) month period, was not in effect, in an amount equal to one hundred percent (100%) of the amount by which the Net Revenues would have been increased if such increase in charges had been in effect during the whole of such Fiscal Year or reported twelve (12) month period, as shown by the certificate or opinion of a Qualified Independent Airport Consultant;

will have produced a sum equal to at least one hundred twenty-five percent (125%) of Maximum Annual Adjusted Debt Service with respect to the Bonds to be Outstanding upon the issuance of such Series of Bonds. For the purposes of calculating Maximum Annual Adjusted Debt Service, the City may assume that PFC Revenues to be deposited into the PFC Debt Service Escrow Fund for each future Fiscal Year will equal the PFC Revenues deposited in such Fund in the Fiscal Year preceding the year in which such calculation is made.

(h) With respect to any Series of Additional Bonds issued to pay the Cost of a Capital Improvement and in lieu of satisfying the requirements of clauses (g), (i) or (j) of this subsection 2, a written report of a Qualified Independent Airport Consultant setting forth projections indicating that the estimated annual Net Revenues, together with Other Available Funds, as then estimated by the Qualified Independent Airport Consultant, for each of the first three (3) complete Fiscal Years immediately following the estimated Date of Beneficial Occupancy of the Capital Improvement to be financed from the proceeds of such Series of Additional Bonds will produce a sum equal to at least one hundred twenty-five percent (125%) of Maximum Annual Adjusted Debt Service in each of such years with respect to the Bonds to be Outstanding upon the issuance of such Series of Bonds. For the purposes of calculating Maximum Annual Adjusted Debt Service in each of the three Fiscal Years referenced above, the City will reduce Maximum Annual Adjusted Debt Service by the amount of PFC Revenues projected to be deposited in the PFC Debt Service Escrow Fund in each of such Fiscal Years. Notwithstanding the above, such three-year period will be deemed to end no later than the date which is five years after the end of the Fiscal Year in which such calculation is made.

( i) With respect to any Series of Bonds issued to pay the Cost of completing any Capital Improvement for which Bonds have previously been issued, which Series of Bonds in the aggregate will not exceed I 0% of the Outstanding Principal Amount of the Bonds previously issued for the Cost of such Capital Improvement, and in lieu of satisfying the requirements of clauses (g), (h) or (j) of this subsection 2, a certificate of an Authorized Representative certifying that the amount of proceeds to be available for such Cost of such Capital Improvement will be sufficient to pay the remaining estimated Cost of such Capital Improvement and a certificate of a Qualified Independent Airport Consultant to the effect that the scope of such Capital Improvement has not been materially increased since the last issuance of Bonds in connection with the issuance of which the requirements of clauses (g) or (h) of this subsection 2 were satisfied.

(j) With respect to any Series of Refunding Bonds and in lieu of satisfying the requirements of any of clauses (g), (h) or (i) of this subsection 2, a certificate of an Authorized Representative to the effect that the Debt Service for all Outstanding Bonds in each Fiscal Year after the issuance of such Refunding Bonds, and the application of the proceeds thereof to the refunding of Bonds, will not be greater than the Debt Service for all Outstanding Bonds immediately prior to the issuance of such Refunding Bonds.

(k) Such further documents, moneys and securities as are required by the provisions of the Indenture or any Supplemental Indenture entered into pursuant to the Indenture.

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Refunding Bonds

1. One or more Series of Refunding Bonds may be issued, authenticated and delivered upon original issuance to refund all Outstanding Bonds of one or more Series or all or any Outstanding Bonds within a Series. Refunding Bonds will be issued in a Principal Amount sufficient, together with other moneys available therefor, to accomplish such refunding including providing amounts for the Costs of Issuance of such Refunding Bonds and the making of any deposits into the Funds and Accounts required by the provisions of the Supplemental Indenture authorizing such Series of Refunding Bonds.

2. Refunding Bonds of each Series will be authenticated and delivered by the Trustee only upon receipt by the Trustee (in addition to the documents required by the Indenture with regard to Additional Bonds) of the following items (upon which receipt the Trustee may conclusively rely in determining whether the conditions precedent for the issuance and authentication of such Series of Refunding Bonds have been satisfied):

(a) Irrevocable instructions to the Trustee, satisfactory to it, to give due notice of redemption, on a redemption date or dates specified in such instructions, of any of the refunded Bonds to be redeemed prior to maturity;

(b) Irrevocable instructions to the Trustee, satisfactory to it, to give the notice provided for in the Indenture to the Owners of the Bonds being refunded, if applicable; and

(c) Either (i) sufficient moneys (including moneys withdrawn and deposited pursuant to the Indenture), or (ii) Defeasance Securities in such principal amounts, of such maturities, bearing interest at such rate or rates, and otherwise having such terms and qualifications so that the principal, interest and other payments to be made thereunder will provide sufficient moneys, or (iii) a combination of (i) and (ii) will provide sufficient moneys, in each case, as evidenced by an Accountant's Certificate, to effect payment at the applicable Redemption Price of the refunded Bonds to be redeemed, the purchase price of refunded Bonds tendered for purchase, and of the Principal Amount of refunded Bonds not to be redeemed or purchased, together with accrued interest on such Current Interest Bonds to the redemption, purchase, or maturity date or dates, as the case may be, which moneys and Defeasance Securities will be held by the Trustee in a separate account irrevocably in trust for the respective Owners of the Bonds to be refunded.

Swap Agreements

The City may enter into an Integrated Swap Agreement in connection with the issuance of a Series of Bonds if the City delivers a copy of such Swap Agreement to the Trustee, certified by an Authorized Representative as being in full force and effect, and if the conditions of certain provisions of the Indenture are satisfied in connection with the issuance of such Bonds taking into account such Integrated Swap Agreement. In addition to the right to enter into Integrated Swap Agreements, the City may also, at any time or from time to time, enter into one or more Swap Agreements, including Integrated Swap Agreements.

Whenever the amount due pursuant to a Swap Agreement is based on a variable rate or index and such amount is to be determined for purposes of the Indenture, such variable rate or index during any period as to which such rate or index has not been established will be deemed to be equal to the Revenue Bond Index as of the date of calculation. An Authorized Representative of the City will promptly notify the Trustee in writing of the termination of any Swap Agreement. The Trustee will assume that any Swap

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Agreement delivered pursuant to the Indenture will continue in full force and effect during the stated term thereof unless otherwise notified in writing by an Authorized Representative.

Subordinated Indebtedness

The City may, at any time or from time to time, issue Subordinated Indebtedness for any purpose of the City in connection with the City Airports, including, without limitation, the financing of a part of the cost of a Special Facility or the refunding or payment of any Subordinated Indebtedness or Outstanding Bonds, subject to the terms and conditions of this Section. Such Subordinated Indebtedness may be payable out of and may be secured by a pledge of Revenues and such amounts in the Subordinated Indebtedness Fund as may from time to time be available therefor, provided that any such payment and pledge will be, and will be expressed to be, subordinate and junior in all respects to the payment of the Bonds and the payments required to be made before the payments into the Subordinated Indebtedness Fund pursuant to the Indenture and to the lien of the pledge made pursuant to the Indenture as security for the Bonds, and provided further that, except in the case of Subordinated Indebtedness the proceeds of which will be used to refund or pay Outstanding Bonds or Subordinated Indebtedness, no such Subordinated Indebtedness may be so issued except upon receipt by the Trustee of a certificate of an Authorized Representative stating that the City is not, and will not as the result of the issuance of such Subordinated Indebtedness be, in default in the performance of any of the covenants, conditions, agreements or provisions contained in the Indenture.

Other Obligations

Nothing in the Indenture is intended to restrict or limit the right of the City to issue Grant Bonds or Special Facility Bonds, or to incur other indebtedness or obligations which are payable from any source of funds not included in the Trust Estate.

ESTABLISHMENT OF FUNDS AND APPLICATION THEREOF; INVESTMENTS

Funds and Accounts

There are established by the Indenture the following Funds and Accounts:

(a) Construction Fund, to be held by the City, including the 2007 Costs of Issuance Account and the 2007 Project Account,

(b) Revenue Fund, to be held by the City,

( c) Operating Fund, to be held by the City,

(d) Debt Service Fund, to be held by the Trustee, including the 2007 Debt Service Account and the 2007 Capitalized Interest Account,

(e) 2007 Debt Service Reserve Fund, to be held by the Trustee,

(f) Operating Reserve Fund, to be held by the City,

(g) Subordinated Indebtedness Fund, to be held by the Trustee,

(h) Renewal and Replacement Fund, to be held by the City,

(i) Rebate Fund, to be held by the Trustee,

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(j) Surplus Fund, to be held by the City,

(k) PFC Revenue Fund, including the Covenanted PFC Account and the PFC Project Account, to be held by the City, and

(I) PFC Debt Service Escrow Fund, to be held by the Trustee.

Construction Fund

There will be established in the Construction Fund a special Account, called the "2007 Project Account" for the purpose of paying the Cost of the 2007 Project to be financed with the proceeds of the 2007 Bonds. There will also be established in the Construction Fund a special Account, called the "2007 Costs oflssuance Account" for the purpose of paying the Costs oflssuance of the 2007 Bonds.

The City will make payments from each Account in the Construction Fund, in the amounts and at the times, and in the manner and on the other terms and conditions set forth in the Indenture. The City will apply all moneys received from an Account in the Construction Fund to the payment of the Cost of the applicable Capital Improvement or Cost of Issuance identified in the statement relating to such moneys or, if such Cost was paid from City funds, to the reimbursement of the City for such Cost.

Application of Revenues; Flow of Funds

All Revenues and Other Available Funds will be promptly deposited upon receipt thereof to the credit of the Revenue Fund and applied as provided in the Indenture. As soon as practicable in each month ( except in the case of the Rebate Fund), but in any case no later than the last Business Day of such month in immediately available funds, the City will withdraw from the Revenue Fund and deposit in the following Funds and Accounts, or make the payments indicated below, in the order and in the amounts set forth below:

I. The City will withdraw from the Revenue Fund and deposit in the Operating Fund the amount which, together with any amount therein, is equal to the total amount required for Operating Expenses ( other than deposits to the Rebate Fund) for such month.

2. Subject to certain provisions of the Indenture, the City will withdraw from the Revenue Fund and: (i) transfer to the Trustee for deposit in the Debt Service Fund, the amount, if any, required so that the balance in said Fund will equal the Adjusted Debt Service to accrue on all Outstanding Bonds through and including the last day of such month ( and if Debt Service will be payable on any Bonds during the next succeeding month, the amount, if any, required so that the balance in said Fund will be sufficient to make such payment of Debt Service); (ii) to the extent not included in Debt Service on Bonds representing or securing such Primary Reimbursement Obligation, pay to each provider of Credit Enhancement the Primary Reimbursement Obligation, if any, accruing to the last day of such month in accordance with each applicable Reimbursement Agreement; and (iii) pay to each Qualified Provider the amount, if any, accrued by the City as of the last day of such month in accordance with each applicable Swap Agreement; provided that, for the purposes of computing the amount on deposit in said Fund, there will be excluded from the balance of said Fund: (i) the amount, if any, set aside in said Fund from the proceeds of Bonds (including amounts, if any, transferred thereto from the Construction Fund) for the payment of the Principal Amount, Redemption Price, or purchase price of, or interest on, Bonds less that amount of such proceeds to be applied in accordance with the Indenture to the payment of the Principal Amount, Redemption Price or purchase price of, or interest accrued and unpaid and to accrue on, Bonds to the last day of the then current calendar month; and (ii) the amount, if any, set aside in said Fund for

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the payment of Principal Installments or Redemption Price of, or interest on, Bonds which are then due and payable.

3. Subject to the provisions of the Indenture, the City will withdraw from the Revenue Fund and transfer to the Trustee for deposit in each Debt Service Reserve Fund: (i) an amount sufficient, if deposits are made in twelve equal installments, to make the amount on deposit in such Debt Service Reserve Fund equal to the applicable Debt Service Reserve Requirement, (ii) an amount sufficient to reimburse a drawing on a Financial Guaranty relating to such Debt Service Reserve Fund in accordance with the terms of any Financial Guaranty Agreement; and (iii) the amount, if any, required to pay interest accruing with respect to a drawing on a Financial Guaranty relating to such Debt Service Reserve Fund.

4. The City will withdraw from the Revenue Fund and deposit in the Operating Reserve Fund an amount equal to one-twelfth (1/12) of the applicable Operating Reserve Requirement, but only to the extent such deposit is required to make the balance in the Operating Reserve Fund equal to the Operating Reserve Requirement.

5. The City will withdraw from the Revenue Fund and transfer to the Trustee for deposit in the Subordinated Indebtedness Fund the amount, if any, required to be deposited therein in such month pursuant to each Subordinated Indebtedness Indenture to pay the principal, redemption price, and purchase price of, and interest on, Subordinated Indebtedness and any amounts due with respect to the repayment of advances made by any provider of credit enhancement for Subordinated Indebtedness, and the interest thereon, which will accrue to the end of such month, and any amounts required to replenish any reserve fund with respect to such Subordinated Indebtedness, in such amounts as specified in a written request signed by an Authorized Representative.

6. The City will withdraw from the Revenue Fund and deposit in the Renewal and Replacement Fund the amount, if any, equal to one-twelfth (1 /12 ) of the amount needed to maintain the balance in such Fund equal to the Renewal and Replacement Fund Requirement.

7. Within 45 days of the end of each Bond Year, in accordance with the Indenture, the City will withdraw from the Revenue Fund and transfer to the Trustee for deposit in the Rebate Fund the amount to be paid therein pursuant to any Tax Certificate.

8. On the last Business Day of each month after making the deposits required by paragraph I through paragraph 7 of this Section, the City may withdraw from the Revenue Fund and deposit in the Surplus Fund the balance, if any, of moneys remaining in the Revenue Fund.

9. Notwithstanding the foregoing, CFC Revenues shall be withdrawn from the Revenue Fund each month pursuant to the Indenture and shall be applied solely (i) to pay the Debt Service on 2007 Bonds and to replenish the 2007 Debt Service Reserve Fund, and (ii) to pay Debt Service on, and to replenish debt service reserve funds for, any other Bonds issued to fmance or refmance facilities described in the CFC Act. Any CFC Revenues not transferred from the Revenue Fund and applied pursuant to the preceding sentence shall be deposited in the Surplus Fund and ( i) transferred to the 2007 Debt Service Account or the 2007 Debt Service Reserve Fund pursuant to Section 6.12.1 of the Indenture to be applied as described in the preceding sentence, (ii) designated as Other Available Funds in an amount not to exceed twenty-five percent (25%) of Debt Service on the Series 2007 Bonds for purposes of Sections 2.2 and 8.11 of the Indenture and transferred to the Revenue Fund, or (iii) applied to fmancing, designing and constructing facilities described in the CFC Act or applied for any other purposes permitted pursuant to the CFC Act.

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Operating Fnnd

Amounts in the Operating Fund will be paid out from time to time by the City for reasonable and necessary Operating Expenses.

Debt Service Fund

The Trustee will transfer from the Debt Service Fund: (a) to the respective Paying Agents (i) on or before each Interest Payment Date for any of the Outstanding Bonds the amount required for the interest payable on such date; (ii) on or before each due date therefor, the Principal Amount and, to the extent included in Debt Service, the purchase price of, Outstanding Bonds payable on such due date; and (iii) on or before any redemption date for Outstanding Bonds, the amount required for, the payment of the Redemption Price and any accrued interest on the Bonds then to be redeemed; (b) upon receipt of a written request signed by an Authorized Representative, to the respective providers of Credit Enhancement, on each date a Primary Reimbursement Obligation is due pursuant to a Reimbursement Agreement, the amount of such Primary Reimbursement Obligation to the extent not included in Debt Service on Bonds representing or securing such Primary Reimbursement Obligation; and ( c) upon receipt of a written request signed by an Authorized Representative, to each Qualified Provider the amount payable in accordance with each applicable Swap Agreement. Amounts received by the Paying Agents pursuant to clause (a) of this subsection will be applied by the Paying Agents to the payment of the Principal Amount, Redemption Price or purchase price, as applicable, of, and interest on, the Bonds on and after the due dates thereof.

Any provision of the Indenture to the contrary notwithstanding, so long as there is held in the Debt Service Fund an amount sufficient to pay in full all Outstanding Bonds in accordance with their terms (including Principal Amount or applicable sinking fund Redemption Price and interest thereon), no deposits will be required to be made into the Debt Service Fund.

2007 Debt Service Reserve Fund

In lieu of funding the 2007 Debt Service Reserve Fund with cash or Investment Securities, the City shall cause the 2007 Financial Guaranty to be deposited in the 2007 Debt Service Reserve Fund. In computing the amount on deposit in the 2007 Debt Service Reserve Fund, a Financial Guaranty will be valued at the amount available to be drawn or payable thereunder on the date of computation.

The Trustee will draw upon or otherwise take such action as is necessary in accordance with the terms of the 2007 Financial Guaranty to receive payments with respect thereto (including the giving of notice as required thereunder): (i) on any date on which moneys will be required to be withdrawn from the 2007 Debt Service Reserve Fund and applied to the payment of a Principal Installment or Redemption Price of, or interest on, any 2007 Bonds and such withdrawal cannot be met by amounts on deposit in the 2007 Debt Service Reserve Fund; (ii) unless such Financial Guaranty expires on the fmal maturity date for the Outstanding 2007 Bonds, on the first Business Day which is at least thirty (30) days prior to the expiration date of each Financial Guaranty, in an amount equal to the deficiency which would exist in the 2007 Debt Service Reserve Fund if the Financial Guaranty expired, unless a substitute Financial Guaranty with an expiration date not earlier than one hundred eighty (180) days after the expiration date of the expiring Financial Guaranty is acquired prior to such date or the City deposits funds in the 2007 Debt Service Reserve Fund on or before such date such that the amount in the 2007 Debt Service Reserve Fund on such date (without regard to such expiring Financial Guaranty) is at least equal to the applicable Debt Service Reserve Requirement.

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Operating Reserve Fnnd

Amounts from time to time deposited in the Operating Reserve Fund may be used at any time first, to pay for any Operating Expenses for which amounts are not otherwise available in the Operating Fund; second, to make up for any deficiency in the Debt Service Fund, the Debt Service Reserve Fund and any fund created to provide for the payment, and reserves for the payment, of Subordinate Obligations (in that order); and third, to pay any costs or expenses payable from the Renewal and Replacement Fund for which there are insufficient amounts in the Renewal and Replacement Fund.

Subordinated Indebtedness Fund

Amounts in the Subordinated Indebtedness Fund will, in accordance with written directions signed by an Authorized Representative, be transferred by the Trustee to the trustee or paying agent for Subordinated Indebtedness to be applied as provided in the applicable Subordinated Indebtedness Indentures in amounts necessary to pay the principal, redemption price, and purchase price of, and interest on, Subordinated Indebtedness, amounts due for fees, expenses and the repayment of advances made by any provider of credit enhancement for Subordinated Indebtedness and the interest thereon in accordance with the provisions of, and subject to the priorities, limitations and restrictions provided in, the applicable Subordinated Indebtedness Indentures and the fees and expenses of each trustee and paying agent under a Subordinated Indebtedness Indenture.

Renewal and Replacement Fund

Amounts in the Renewal and Replacement Fund will be used to maintain a reserve for rebuilding, reconstructing, repairing, altering, replacing and renewing the City Airports. Amounts in the Renewal and Replacement Fund will also be applied to the payment of operation and maintenance costs and contingencies for the City Airports, including payments with respect to the prevention or correction of any unusual loss or damage in connection with the City Airports or to prevent a loss of revenue therefrom, all to the extent not scheduled to be paid from amounts in the Operating Fund or Operating Reserve Fund pursuant to the then current Annual Budget.

Surplus Fund

If on any date the amount in the Debt Service Fund is less than the requirement of such Fund pursuant to the Indenture, or the amount in any Debt Service Reserve Fund is less than the applicable Debt Service Reserve Requirement, or the amount in the Subordinated Indebtedness Fund is less than the requirement of such Fund pursuant to the Indenture, or the amount in the Renewal and Replacement Fund is less than the requirement of such Fund pursuant to the Indenture, then the City will transfer to the Trustee or deposit in City-held Funds (as applicable) from the Surplus Fund; first to the Debt Service Fund, second to the applicable Debt Service Reserve Funds, third to the Subordinated Indebtedness Fund, fourth to the Renewal and Replacement Fund, and fifth to the Rebate Fund, as the case may be, the amount necessary ( or all the moneys in the Surplus Fund if less than the amount necessary) to make up any such deficiency.

Amounts in the Surplus Fund not required to meet a deficiency as required by the Indenture will, upon a determination of the City, be applied to or set aside for any one or more of the following:

(a) designation as Other Available Funds to be transferred to the Revenue Fund;

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(b) the purchase or redemption of any Bonds, expenses in connection with the purchase or redemption of any Bonds, or the establishment or augmentation of any reserves which the City determines will be required in connection with the Bonds;

( c) payment into the Subordinated Indebtedness Fund;

( d) the purchase or redemption of any Subordinated Indebtedness, expenses in connection with the purchase or redemption of any Subordinated Indebtedness, or the establishment or augmentation of any reserves which the City determines will be required in connection with any Subordinated Indebtedness;

( e) Operating Expenses or any reserves in connection therewith;

(f) payments into the Construction Fund or the Renewal and Replacement Fund for application to the purposes thereof; and

(g) payments for Capital Improvements; and

(h) any lawful purpose related to the City Airports free and clear of any trust, lien, pledge or assignment securing Bonds or otherwise existing under the Indenture, so long as such expenditure does not affect the exclusion from gross income of the interest on the Bonds under Section 103 of the Code.

PFC Revenue Fund

I. PFC Revenues will be deposited as received into the PFC Revenue Fund. As soon as practicable thereafter, Covenanted PFC Revenues will be deposited into the Covenanted PFC Account within the PFC Revenue Fund.

2. Nothing will prevent the establishment and maintenance of additional PFC accounts within the PFC Revenue Fund if PFC Revenues are received by the City in excess of Covenanted PFC Revenues.

PFC Debt Service Escrow Fund

In each Fiscal Year, but no later than five Business Days prior to the end of such Fiscal Year, the City will maintain in the Covenanted PFC Account all Covenanted PFC Revenues until there has been accumulated in such Account an amount which is no less than the Minimum PFC Contribution. When such amount has been accumulated in the Covenanted PFC Account, the City will immediately transfer such amount to the Trustee for deposit into the PFC Debt Service Escrow Fund.

Any PFC Revenues accumulated in any fiscal year in excess of the amounts required to be transferred to PFC Debt Service Escrow Fund during such fiscal year may be, at the discretion of the City, (a) retained in the Covenanted PFC Account, (b) transferred to the Trustee for deposit in the PFC Debt Service Escrow Fund, ( c) transferred to the PFC Project Account to pay PFC-approved Project Costs, or ( d) transferred to another account as established by the City, to be used for any lawful purpose, including but not limited to the issuance of Subordinated Indebtedness secured by such PFC Revenues.

On or before the fifth day next preceding each Interest Payment Date, the Trustee will transfer from the PFC Debt Service Escrow Fund to the 2000 Debt Service Account of the Debt Service Fund an amount equal to the PFC Projected Debt Service due on such Interest Payment Date and to the 2000 Debt

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Service Reserve Fund any deficiency allocable to PFC-eligible Debt Service, such amount to be determined and communicated in writing by the City to the Trustee at least 10 days next preceding such Interest Payment Date. If the PFC Revenues on deposit are less than such required deposits, the transfers will be made in the order indicated so as to exhaust such PFC Revenues.

Investment of Certain Funds

All moneys held under the Indenture will be invested in Investment Securities pursuant to the terms and provisions of the Indenture.

PARTICULAR COVENANTS OF THE CITY

Sale or Other Disposition of the City Airports

I. The City will not, except in the normal course of business or except as otherwise provided below, sell, lease, mortgage, pledge, encumber, alienate, or otherwise dispose of the City Airports or any portion thereof until all Bonds have been paid in full, or unless provision has been made therefor in accordance with the Indenture; provided, however, that nothing in the Indenture will impair or inhibit the ability of the City to sell or otherwise dispose of the Fresno - Chandler Downtown Airport provided that the City files with the Trustee prior to such sale or disposition a certificate or opinion of a Qualified Independent Airport Consultant certifying that, after giving effect to such sale or disposition on a pro forma basis, the City would have been in compliance with the rate covenant set forth in the Indenture for the most recent Fiscal Year for which such data is available. The City may, however, transfer all of the City Airports to another govermnental entity (including without limitation, any successor of the City) which assumes all of the City's obligations under the Indenture provided that there is delivered to the Trustee and, so long as the Bond Insurance Policy is in effect and the Bond Insurer is not in payment default thereunder, the Bond Insurer, an Opinion of Bond Counsel to the effect that such transfer is authorized by the Indenture and that such transferee governmental entity has the power and authority to perform the City's obligations under the Indenture substantially the same as the City's power and authority.

2. Except as described below, the City will not sell or otherwise dispose of all or any part of the properties constituting the City Airports.

(a) The City will have the right to sell or dispose of any machinery, fixtures, apparatus, tools, instruments or other personal property which may be determined to be part of the City Airports, or any materials used in connection therewith, if such articles are no longer needed or useful in connection with the construction or maintenance of the properties constituting the City Airports or the operation of the City Airports or that such sale or disposition will not materially impair the operating efficiency of the City Airports or reduce the ability of the City to satisfy its obligations under the Indenture.

(b) The City, without notice to the Trustee and free of any obligation to make any replacement thereof or substitution therefor, will have the right to demolish or remove any real property and structures existing as part of the City Airports provided that such removal or demolition does not materially impair the operating efficiency of the City Airports or reduce the ability of the City to satisfy its obligations under the Indenture.

( c) Notwithstanding the provisions of paragraph (b) of this subsection 2, if any real property or structure constituting a part of the City Airports has become inadequate, unsuitable or unnecessary, the City will then have the right to demolish or remove such property and, to the

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extent pennitted by law, may sell or otherwise dispose of all or a part of the same, if the City will construct, acquire, replace or substitute real property or structures having a utility at the City Airports at least equal to that of the property demolished or removed.

Unless some other disposition is required by law, the City may, in its sole discretion, deposit the proceeds resulting from any abandonment, sale or disposition of properties constituting the City Airports in any Account in the Construction Fund or in the Revenue Fund.

3. The City may execute leases, licenses, easements or other agreements in connection with the City Airports; provided, however, that no such lease, license, easement or other agreement will be inconsistent with the tenns of the Indenture; and provided, further, that neither such execution nor any provision in any such lease, license, easement or other agreement will relieve the City of any of its obligations under the Indenture.

Operation and Maintenance of City Airports

The City will at all times maintain and preserve the City Airports and all buildings, facilities and equipment now or hereafter constituting any part of the same in conformity with standards customarily followed in the aviation industry for airports of like size and character. The City will from time to time make all necessary and proper repairs, renewals, replacements and substitutions to the properties of the City Airports, so that at all times business carried on in connection with the City Airports will and can be properly and advantageously conducted in an efficient manner and at reasonable cost, and will operate the City Airports in an efficient and economical manner, consistent with the protection of the Owners of the Bonds and so as to assure that the City Airports will be financially self-sufficient and self-sustaining, and will not commit or allow any waste with respect to the City Airports.

Charges and Enforcement; Rate Covenant

I. The City will establish, fix, revise, prescribe and collect rentals, rates, fees and charges, and cause to be collected, amounts in connection with the services and facilities of the City Airports, as will be required to provide Revenues at least sufficient in each Fiscal Year for the payment of all of the following:

(a) Operating Expenses during such Fiscal Year;

(b) An amount equal to Adjusted Debt Service for such Fiscal Year;

(c) The amount, if any, to be paid during such Fiscal Year into each Debt Service Reserve Fund;

( d) The amount, if any, to be paid in such Fiscal Year into the Operating Reserve Account;

(e) The amount, if any, to be paid m such Fiscal Year into the Subordinated Indebtedness Fund;

(f) The amount, if any, to be paid during such Fiscal Year into the Renewal and Replacement Fund; and

(g) All other charges or other amounts howsoever payable out of Revenues during such Fiscal Year.

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2. In addition to the requirements of paragraph 1 of this Section, the City will establish, fix, revise, prescribe and collect rentals, rates, fees and charges in connection with the services and facilities of the City Airports so as to yield Net Revenues during the then current Fiscal Year in an amount, together with Other Available Funds, which is equal to at least one hundred twenty-five percent (125%) of Adjusted Debt Service for all Outstanding Bonds for said Fiscal Year. The City may make adjustments from time to time in such rentals, rates, fees and charges and may make such classification thereof as it deems necessary. In the event that Operating Expenses or other costs in connection with the operation and maintenance of the City Airports exceed the amounts estimated by the City when establishing rentals, rates, fees and charges in connection with the services and facilities of the City Airports or the Revenues are less than the amounts estimated by the City when establishing such rentals, rates, fees and charges, the City will as soon as practical revise such rentals, rates, fees and charges so as to satisfy the requirements of this Section. The City will not reduce rentals, rates, fees and charges in connection with the services and facilities of the City Airports below those then in effect unless the Revenues from such reduced rates will at all times be sufficient to meet the requirements of this Section.

3. The City will not furnish or supply, or cause to be furnished or supplied, any capacity, use, or service of the City Airports free of charge to any person, firm, or corporation, public or private, and the City will, subject to the terms of the Indenture, enforce the payment of any and all accounts owing to the City by reason of the City Airports by discontinuing such capacity, use or service, or by filing suit therefor, or by both such discontinuance and by filing suit.

Maintenance oflnsurance

Subject in each case to the condition that insurance is obtainable at reasonable rates and upon reasonable terms and conditions:

(a) The City will procure, and maintain at all times while any of the Bonds will be outstanding, insurance on the City Airports against such risks as are usually insurable in connection with other major airports. Such insurance will be adequate in amount and as to the risks insured against, and will be maintained with reasonable insurers.

(b) The City will procure, and maintain so long as any of the Bonds are outstanding, public liability insurance, with combined limits of not less than fifty million dollars ($50,000,000) per occurrence to protect the City from claims for bodily injury or death which may arise from the operations of the City Airports. All such insurance may be combined in one or more policies with one or more insurers and may include hangarkeepers' legal liability and excess insurance with such limits of liability as may be determined by the City.

( c) The City will secure and maintain adequate fidelity insurance or bonds on all officers and employees handling or responsible for funds of the City Airports.

( d) The City may provide in satisfaction of, or in connection with, any insurance required to be maintained under the Indenture a self insured deductible or a self insurance method or plan of protection so long as such plan is (i) a funded program and actuarily sound and (ii) reviewed for adequacy no less often than every two years by an independent insurance consultant nationally recognized as qualified to survey risks and determine the adequacy of self-insurance reserves for self-insurance programs.

The City will file or cause to be filed with the Trustee annually, within one hundred twenty ( 120) days after the close of each Fiscal Year, a certificate setting forth (i) a description in reasonable detail of the insurance then in effect, including any self-insurance fund maintained, pursuant to the requirements of

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this Section and that the City has complied in all respects with the requirements of this Section, and (ii) whether during such year any loss has been incurred relating to the City Airports and, if so, the amount of insurance proceeds, including the proceeds of any self-insurance fund, covering such loss and specifying the reasonable and necessary costs of repair, reconstruction or replacement thereof. The Trustee will have no duty to review the sufficiency of such certificate.

Reconstruction; Application oflnsurance and Condemnation Proceeds

If any useful portion of the City Airports is damaged or destroyed, or taken under the power of eminent domain, the City will as expeditiously as possible undertake and continuously and diligently pursue to completion, or cause to be undertaken and diligently pursued to completion, the repair, reconstruction or replacement thereof. The proceeds of any insurance or condemnation award payable to the City, including the proceeds of any self-insurance fund, paid on account of such damage, destruction or taking ( other than any business interruption loss insurance) will be held in a special account in the Construction Fund established for such purposes and made available for, and to the extent necessary be applied to, the cost of such repair, reconstruction or replacement. Pending such application, such proceeds and condemnation awards will be invested in Investment Securities which mature not later than such times as will be necessary to provide moneys when reasonably expected to be needed to pay such cost of such repair, reconstruction or replacement. Interest earned on the moneys in such Account or such investments will be deposited into such special Account. The proceeds of any insurance, including the proceeds of any self-insurance fund and condemnation awards not applied within thirty-six (36) months after receipt thereof by the City to the cost of such repair, reconstruction or replacement, will be deposited in the Revenue Fund. Notwithstanding the foregoing, in the event that payments are made from the Renewal and Replacement Fund for any such cost of such repair, reconstruction or replacement prior to the availability of insurance proceeds, including the proceeds of any self-insurance fund therefor or condemnation awards, such proceeds when received will be deposited in the Renewal and Replacement Fund to the extent of such payments.

If the proceeds of insurance, including the proceeds of any self-insurance fund or condemnation awards authorized by this Section to be applied to the cost of the repair, reconstruction or replacement of any portion of the City Airports are insufficient for such purpose, the obligations of the City to maintain and preserve the City Airports pursuant to the Indenture will nonetheless continue, but such deficiency may be supplied out of moneys in the Renewal and Replacement Fund to the extent, as shown by a certificate of an Authorized Representative, not needed for the purposes of such Fund.

The proceeds of business interruption loss insurance, if any, will be paid into the Revenue Fund.

EVENTS OF DEFAULT; REMEDIES

Events of Default

If one or more of the following, each of which shall constitute an Event of Default, shall happen:

( i) if default shall be made in the due and punctual payment of the Principal Amount or Redemption Price of any Outstanding Bond when and as the same shall become due and payable, whether at maturity, by call for redemption, or otherwise;

(ii) if default shall be made in the due and punctual payment of any instalhnent of interest on any Outstanding Current Interest Bond: or the unsatisfied balance of any Sinking Fund Instalhnent when and as the same shall become due and payable;

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( iii) if default shall be made by the City in the performance or observance of any other of the covenants, agreements or conditions on its part in the Indenture or in the Outstanding Bonds contained, and such default shall continue for a period of thirty (30) days after written notice thereof to the City by the Trustee or to the City and to the Trustee by the Owners of not less than ten percent (10%) in Principal Amount of the Bonds then Outstanding; provided, however, that if the City shall commence to take curative action within such thirty (30) day period and pursues such curative action with due diligence such period shall be extended to such extent as shall be necessary to enable the City to diligently complete such curative action and such default shall not become an Event of Default for so long as shall be necessary to diligently complete such curative action; provided further, however, that with respect to the 2007 Bonds, such period shall not be extended for more than sixty (60) days without the prior written consent of the 2007 Bond Insurer;

(iv) an order or decree, by a court having jurisdiction in the premises, for relief against the City in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or a receiver, liquidator, assignee, custodian, trustee, sequestrator ( or other similar official) of the City or of any substantial part of the property of the City shall be appointed or an order for the winding up or liquidation of the affairs of the City shall be entered; or a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect shall be instituted by the City or the City shall give its consent to the entry of an order for relief against it in any involuntary case under any such law, or to the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator ( or other similar official) of the City or of any substantial part of the property of the City, or the making by the City of an assigmnent for the benefit of creditors, or the failure of the City generally to pay its debts as they become due, or the admission by the City in writing of such failure, or the taking of any action by the City in furtherance of any such action, or if a receiver of the business or of the property or assets of the City shall be appointed by any court; or

(v) any other Event of Default specified in a Supplemental Indenture;

then, so long as such Event of Default shall be continuing, unless the Principal Amount of all the Bonds shall have already become due and payable, the Trustee or the Owners of not less than a majority in Principal Amount of the Bonds then Outstanding may declare the Principal Amount of all the Bonds then Outstanding, and the interest accrued on the Outstanding Current Interest Bonds, to be due and payable immediately by a notice in writing to the City (and to the Trustee if given by the Owners of Bonds). With respect to the 2007 Bonds, the maturity of the 2007 Bonds may not be accelerated without the prior written consent of the 2007 Bond Insurer. Upon any such declaration, such Principal Amount and interest shall become and be immediately due and payable, anything in the Indenture or in any of the Bonds contained to the contrary notwithstanding; provided, however, that if, at any time after such declaration, but before the Outstanding Bonds shall have matured by their terms, all overdue installments of interest on the Outstanding Current Interest Bonds, together with interest on such overdue installments of interest at the rate or rates borne by the respective Bonds to the extent permitted by law, and the reasonable and proper charges, expenses and liabilities of the Trustee, and all other sums then payable by the City or the Trustee under the Indenture ( except the Principal Amount of the Outstanding Bonds, and interest accrued since the next preceding Interest Payment Date on the Outstanding Current Interest Bonds due and payable solely by virtue of such declaration) shall be paid for the account of the City or provision satisfactory to the Trustee shall be made for such payment, and all defaults under the Outstanding Bonds or under the Indenture ( other than the payment of the Principal Amount and interest due and payable solely by reason of such declaration) shall be cured or be secured to the satisfaction of the Trustee or

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provision deemed by the Trustee to be adequate shall be made therefor, then and in every such case the Owners of a majority in Principal Amount of the Bonds Outstanding, by written notice to the City and to the Trustee, may rescind such declaration and annul such default in its entirety, but no such rescission or annuhnent shall extend to or affect any subsequent default or impair or exhaust any right or power consequent thereon.

Appointment of Receiver

If an Event of Default shall happen and shall not have been remedied, and upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Trustee and of the Owners of the Bonds under the Indenture, the Trustee shall be entitled to make application for the appointment of a receiver or custodian of the City's interest in the City Airports and the Revenues, pending such proceedings, with such power as the court making such appointment shall confer; provided that the appointment of such receiver shall not prevent or limit the operations of the City Airports under any applicable laws, regulations or rulings of the United States of America or the State of California, or any department, agency or bureau of either thereof.

Enforcement Proceedings

If an Event of Default shall happen and shall not have been remedied, then and in every such case, the Trustee, by its agents and attorneys, may proceed, and upon the written request of the Owners of not less than a majority in Principal Amount of the Bonds at the time Outstanding shall proceed, to protect and enforce its rights and the rights of the Owners of the Outstanding Bonds under the Indenture forthwith by a suit or suits in equity or at law, whether for damages or the specific performance of any covenant in the Indenture contained, or in aid of the execution of any power in the Indenture granted or any remedy granted under applicable provisions of the laws of the State of California, or for an accounting by the City as if the City were the trustee of an express trust, or in the enforcement of any other legal or equitable right as the Trustee, being advised by counsel, shall deem most effectual to enforce any of its rights or to perform any of its duties under the Indenture.

Restriction on Owner's Action

Except as otherwise provided in the Indenture, no Owner of any Bond shall have any right to institute any suit, action or proceeding at law or in equity for the enforcement of any provision of the Indenture or the execution of any trust under the Indenture or for any remedy under the Indenture unless such Owner shall have previously given to the Trustee written notice of the happening of an Event of Default, as provided in the Indenture, and the Owners of at least a majority in Principal Amount of the Bonds then Outstanding shall have filed a written request with the Trustee, and shall have offered it reasonable opportunity, either to exercise the powers granted in the Indenture or by the applicable laws of the State of California or to institute such action, suit or proceeding in its own name, and unless such Owners shall have offered to the Trustee adequate security and indemnity against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee shall have refused to comply with such request for a period of sixty (60) days after receipt by it of such notice, request and offer of indemnity, it being understood and intended that no one or more Owners of Bonds shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the pledge created by the Indenture, or to enforce any right under the Indenture, except in the manner therein provided; and that all proceedings at law or in equity to enforce any provision of the Indenture shall be instituted, had and maintained in the manner provided in the Indenture and for the ratable benefit of all Owners of the Outstanding Bonds, subject only to the provisions of the Indenture.

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Remedies Not Exclusive

No remedy by the terms of the Indeuture conferred upon or reserved to the Trustee or the Owners of the Bonds is inteuded to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under the Indeuture or existing at law, including under the law pursuant to which any Series of Bonds shall be issued, or in equity or by statute whether effective on or after the effective date of the Indenture. The assertion or employmeut of any right or remedy under the Indeuture, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.

Effect of Waiver aud Other Circumstauces

I. No delay or omission of the Trustee or any Owner of a Bond to exercise any right or power arising upon the happening of an Event of Default shall impair any right or power or shall be construed to be a waiver of any such Eveut of Default or be an acquiesceuce therein; and every power and remedy given by the Indenture to the Trustee or to the Owners of the Bonds may be exercised from time to time and as ofteu as may be deemed expedient by the Trustee or by the Owners of the Bonds.

2. Prior to the declaration of maturity of the Bonds as provided in the Indenture, the Owners of not less than a majority in Principal Amount of the Bonds at the time Outstanding, or their attomeys­in-fact duly authorized, may on behalf of the Owners of all of the Bonds waive any past default described in clause (iv) of the section entitled "Events of Default" above and its consequences. No such waiver shall extend to any subsequeut or other default or impair any right consequeut thereon.

2007 Boud !usurer as Sole Holder of 2007 Bouds

Notwithstanding anything in the Indeuture to the contrary, so long as the 2007 Bond Insurance Policy is in effect and the 2007 Bond Insurer is not in payment default of its obligations thereunder, the 2007 Bond Insurer will be deemed to be the sole holder of the 2007 Bonds for the purpose of exercising any voting right or privilege or giving any consent or direction or taking any other action that the holders of the 2007 Bonds are eutitled to take pursuant to certain provisions of the Indenture. The Trustee may take no action pursuant to the provisions of the Indenture related to Eveuts of Default and remedies except with the consent, or at the direction, of the 2007 Bond Insurer.

SUPPLEMENTAL INDENTURES OF TRUST

The Indeuture and the rights and obligations of the City and of the Owners of the Bonds and of the Trustee may be modified or ameuded from time to time and at any time by a Supplemental Indenture or Indeutures, which the City may enter into when the writteu conseut of the Owners of at least a majority in aggregate Principal Amount of the Bonds theu Outstanding have beeu filed with the Trustee or if less than all of the several Series of Outstanding Bonds are affected, the writteu consent of the Owners of at least a majority in aggregate Principal Amount of all affected Bonds; provided that if such modification or ameudmeut will, by its terms, not take effect so long as any Bonds of any particular Series and maturity remain Outstanding, the consent of the Owners of such Bonds will not be required and such Bonds will not be deemed to be Outstanding for the purpose of any such calculation of Bonds Outstanding under this Section. No such modification or amendment may (1) extend the fixed maturity of any Bond, or reduce the Principal Amount or Redemption Price thereof, or reduce the amount of any Sinking Fund Installmeut, or reduce the rate of interest thereon or exteud the time of payment of interest thereon, without the conseut of the Owner of each Bond so affected; or (2) reduce the aforesaid percentage of Bonds the conseut of the Owners of which is required to effect any such modification or ameudmeut, or permit the creation of any other lien on the Trust Estate, or deprive the Owners of the Bonds of the lien of

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the pledge made pursuant to the Indenture on the Trust Estate ( except as expressly provided in the Indenture), in each case without the consent of the Owners of all of the Bonds then Outstanding.

The Indenture and the rights and obligations of the City, the Trustee and the Owners of the Bonds may also be modified or amended from time to time and at any time by a Supplemental Indenture or Supplemental Indentures, which the City and the Trustee may enter into without the consent of any Owner of Bonds, but only to the extent permitted by law, to provide for the issuance of additional Series of Bonds in accordance with the Indenture and, so long as such modification or amendment will not materially adversely affect the interests of the Owners of the Bonds, for any one or more of the following purposes:

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

(ii) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision, contained in the Indenture, or in regard to matters or questions arising under the Indenture, as the City may deem necessary or desirable;

(iii) to modify, amend or supplement the Indenture in such manner as to permit the qualification of the Indenture under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute;

(iv) to modify, amend or supplement the Indenture in any other respect.

Notwithstanding anything in the Indenture to the contrary, the terms and provisions of the Indenture and the rights and obligations of the City, the Trustee, and of the Owners of the Bonds Outstanding under the Indenture may be modified or amended in any respect upon the execution and filing by the City of a Supplemental Indenture and the written consent of the Owners of all of the Bonds then Outstanding, such consent to be given as provided in the Indenture, except that no notice to the Owners of the Bonds will be required; provided, however, that no such modification or amendment may change or modify any of the rights or obligations of any Fiduciary without the filing with the Trustee of the written assent thereto of such Fiduciary in addition to the consent of the Owners of the Bonds.

DEFEASANCE

I. If the City pays or causes to be paid, or there is otherwise paid, to the Owners of all Bonds the Principal Amount or Redemption Price, if any, of the Bonds, and interest due or to become due on the Current Interest Bonds, at the times and in the manner stipulated therein and in the Indenture, then the pledge of the Trust Estate under the Indenture and all covenants, agreements and other obligations of the City to the Owners (other than the covenants described above under "Tax Matters"), will thereupon cease, terminate and become void and be discharged and satisfied. In such event, the Trustee will cause an accounting for such period or periods as will be requested by the City to be prepared and filed with the City and, upon the request of the City will execute and deliver to the City all such instruments as the City may reasonably request to evidence such discharge and satisfaction, and the Fiduciaries will pay over or deliver, as directed by the City, all moneys or securities held by them pursuant to the Indenture which are not required for the payment of the Principal Amount or Redemption Price, if any, of the Bonds and interest on the Current Interest Bonds. If the City will pay or cause to be paid, or there will otherwise be

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paid, to the Owners of any Outstanding Bonds the Principal Amount or Redemption Price, if any, of the Bonds and interest due or to become due on the Current Interest Bonds, at the times and in the manner stipulated therein and in the Indenture, such Bonds will cease to be entitled to any lien, benefit or security under the Indenture, and all covenants, agreements and obligations of the City to the Owners of such Bonds (other than the covenants described above under "Tax Matters"), will thereupon cease, terminate and become void and be discharged and satisfied.

2. Bonds, or interest instalhnents on Current Interest Bonds, for the payment or redemption of which moneys have been set aside and are held in trust by the Paying Agents (through deposit pursuant to the Indenture of funds for such payment or redemption or otherwise) at the maturity, redemption date, or interest payment date thereof, as applicable, will be deemed to have been paid within the meaning and with the effect expressed in paragraph 1 of this Section. Any Outstanding Bond ( or any portion thereof in an Authorized Denomination) will prior to the maturity or redemption date thereof be deemed to have been paid within the meaning and with the effect expressed in paragraph 1 of this Section ( except that the obligations under the Indenture with respect to the payment of the Principal Amount of the Bonds and the interest on the Current Interest Bonds from the sources provided, to transfer and exchange Bonds and to giving the notices of the redemption of Bonds to be redeemed as provided in the Indenture will continue) if (a) in case said Bond ( or portion thereof) is to be redeemed on any date prior to maturity, the City has given to the Trustee irrevocable instructions to give notice of redemption of such Bond ( or portion thereof) on said date as provided in the Indenture, (b) there will have been deposited with the Trustee either moneys (including moneys withdrawn and deposited pursuant to the Indenture) in an amount which will be sufficient, or Defeasance Securities issued or held in book-entry form) the principal of and the interest on which when due will provide moneys which, together with the moneys, if any, deposited with the Trustee at the same time, will be sufficient, in each case as evidenced by an Accountant's Certificate, to pay when due the Principal Amount or Redemption Price, as applicable, of said Bond ( or portion thereof) and, if said Bond is a Current Interest Bond, interest due and to become due on said Bond ( or portion thereof) on and prior to the redemption date or maturity date thereof, as the case may be, and ( c) if such Bond ( or portion thereof) is not to be paid or redeemed within sixty (60) days of the date of the deposit required by (b) above, the City has given the Trustee in form satisfactory to it irrevocable instructions to mail, as soon as practicable, by first-class mail, postage prepaid, to the Owners of such Bond, at the last address, if any, appearing upon the Bond Register, a notice that the deposit required by (b) above has been made with the Trustee and that said Bond ( or the applicable portion thereof) is deemed to have been paid in accordance with this Section and stating such maturity or redemption date upon which moneys are to be available for the payment of the Principal Amount or Redemption Price, as applicable, of said Bond. Any notice given pursuant to clause ( c) of this subsection 2 with respect to Bonds which constitute less than all of the Outstanding Bonds of any maturity within a Series will specify the letter and number or other distinguishing mark of each such Bond. Any notice given pursuant to clause ( c) of this subsection 2 with respect to less than the full Principal Amount of a Bond will specify the Principal Amount of such Bond which will be deemed paid pursuant to this Section and notify the Owner of such Bond that such Bond must be surrendered as provided in subsection 6 of this Section. The receipt of any notice required by this Section will not be a condition precedent to the payment of Bonds in accordance with this Section and the failure of any Owner to receive any such notice will not affect the validity of the proceedings for the payment of Bonds in accordance with the Indenture. Neither Defeasance Securities nor moneys deposited with the Trustee pursuant to the Indenture nor principal or interest payments on any such Defeasance Securities may be withdrawn or used for any purpose other than, and will be held in trust for, the payment of the Principal Amount or Redemption Price, as applicable, of said Bonds and the interest on said Current Interest Bonds; provided that any cash received from such principal or interest payments on such Defeasance Securities deposited with the Trustee, (A) to the extent such cash shall not be required at any time for such purpose, as evidenced by an Accountant's Certificate, will be paid over upon the written direction of an Authorized Representative as received by the Trustee, free and clear of any trust, lien, pledge or assignment securing said Bonds or otherwise

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existing under the Indenture, and (B) to the extent such cash will be required for such purpose at a later date, will, to the extent practicable, at the written direction of an Authorized Representative, be reinvested in Defeasance Securities maturing at times and in amounts sufficient to pay when due the Principal Amount or Redemption Price, as applicable, of said Bonds and the interest to become due on said Current Interest Bonds on and prior to such redemption date or maturity date thereof, as the case may be, and interest earned from such discharged with regard to the 2007 Bonds unless all amounts due or to become due to the 2007 Bond Insurer have been paid in full or duly provided for.

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APPENDIXE

FORM OF THE CONTINUING DISCLOSURE CERTIFICATE

This Continuing Disclosure Certificate (the "Disclosure Certificate") is executed and delivered by the City of Fresno, a municipal corporation and chartered city duly organized and validly existing under the Constitution and the laws of the State of California (the "City") in connection with the issuance of $22,000,000 principal amount of its City of Fresno Airport Revenue Bonds, Taxable Series 2007 A (the "Series 2007 Bonds"). The Series 2007 Bonds are being issued pursuant to an Indenture of Trust dated as of June 15, 2000, by and between the City and The Bank of New York Trust Company, N.A., as successor in interest to BNY Western Trust Company, as trustee (the "Trustee"), as amended and supplemented by a First Supplemental Indenture dated as of May 1, 2007 (as so supplemented, the "Indenture"), by and between the City and the Trustee, and a Resolution by the City Council of the City adopted on May 8, 2007. The City covenants and agrees as follows:

SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the Holders of the Series 2007 Bonds and in order to assist the Participating Underwriter in complying with the Rule ( defined below).

SECTION 2. Defmitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section 2, the following capitalized terms shall have the following meanings:

"Annual Report" shall mean any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.

"Beneficial Owner" shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds ( including persons holding Bonds through nominees, depositories or other intermediaries).

"Central Post Office" shall mean the DisclosureUSA website ( currently http://www.disclosureusa.org) maintained by the Municipal Advisory Council of Texas or any successor thereto or any other organization or method approved by the staff or members of the Securities and Exchange Commission as an intermediary through which issuers may make filings required in compliance with the Rule.

"Disclosure Representative" shall mean the Controller of the City or her or his designee, or such other officer or employee as the City shall designate in writing to the Dissemination Agent from time to time.

"Dissemination Agent" shall mean any person designated in writing by the City to act as the agent for the City in complying with the filing requirements of the Rules.

"Holders" shall mean either the registered owners of the Series 2007 Bonds, or, if the Series 2007 Bonds are registered in the name of The Depository Trust Company or another recognized depository, any applicable participant in its depository system.

"Listed Events" shall mean any of the events listed in Section 5( a) of this Disclosure Certificate.

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"National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. A list of the current National Repositories approved by the S.E.C. may be found at the S.E.C. website: http://www.sec.gov/info/municipal/mmsir.htm.

"Official Statement" shall mean the Official Statement dated May 31, 2007 relating to the Series 2007 Bonds.

"Participating Underwriter" shall mean Citigroup Global Markets, Inc., as the original underwriter of the Series 2007 Bonds, which is required to comply with the Rule in connection with offering of the Series 2007 Bonds.

"Repository" shall mean each National Repository and each State Repository.

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

"S.E. C." shall mean the Securities and Exchange Commission.

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

SECTION 3. Provision of Annual Reports.

(a) Not later than 270 days following the end of the City's Fiscal Year (which currently is June 30), commencing with the report due following the end of the Fiscal Year ended June 30, 2007, the City shall, or shall cause the Dissemination Agent to, provide to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 15 Business Days prior to said date, the City shall provide the Annual Report to the Dissemination Agent. In each case, the Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the City may be submitted separately from the balance of the Annual Report, and later than the date required above for the filing of the Annual Report if not available by that date. The Dissemination Agent shall have no duty or obligation to review such Annual Report.

(b) If by 15 Business Days prior to the date specified in subsection (a) for providing the Annual Report to Repositories, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall notify the City of such failure to receive the Annual Report.

( c) If the Dissemination Agent is unable to verify that an Annual Report has been provided to the Repositories by the date required in subsection (a), the Dissemination Agent shall send a notice to each Repository in substantially the form attached as Exhibit A.

(d) The Dissemination Agent shall:

(i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and each State Repository, if any; and

(ii) provided it has received the Annual Report from the City pursuant to Section 3( a), file the Annual Report with each Repository by the date required therefore by

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Section 3(a), and file any notice of a Listed Event, if requested by the City, as soon as practicable following receipt from the City of such notice; and

(iii) provided it has received the Annual Report from the City pursuant to Section 3( a), file a report with the City certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided and listing all the Repositories to which it was provided.

(e) Notwithstanding any other provision of this Disclosure Certificate, the City and Dissemination Agent reserve the right to make any of the aforementioned filings through the Central Post Office.

SECTION 4. Content of Annual Reports. The City's Annual Report shall contain or incorporate by reference the following:

(a) The audited fmancial statements of the City for the Fiscal Year most recently ended, prepared in accordance with generally accepted accounting principles as promulgated to apply to govermnental entities from time to time by the Govermnent Accounting Standards Board and reporting standards as set forth by the State Controller in "State of California Accounting Standards and Procedures for Counties." If the audited financial statements of the City are not available by the time the Annual Report is required to be filed as described above, the Annual Report shall contain unaudited fmancial statements in a format similar to the fmancial statements contained in the fmal Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.

(b) To the extent not included in the fmancial statements, the following types of information will be provided in one or more reports (references are to the tables included in the Report of the Airport Consultant, attached as Appendix A to the Official Statement, with the exception of items (b )(iii) and (b )(vi) which tables are included in the Official Statement):

(i) Air Traffic Data

(A) Scheduled Airlines serving the Airport (similar to Table 7 in the Report of the Airport Consultant;

(B) Daily Scheduled Nonstop Airline Departures (similar to Table 11 in the Report of the Airport Consultant);

(C) Historical Enplaned Passengers (similar to Table 12 in the Report of the Airport Consultant);

(D) Enplaned Passengers by Airline (similar to Figure 5 in the Report of the Airport Consultant); and

(E) Origin - Destination Passenger Market Shares and Airline Service (similar to Table 10 in the Report of the Airport Consultant).

(ii) Cargo Traffic Data (similar to Table 12 in the Report of the Airport Consultant);

(iii) Airline Shares of Landed Weight (similar to Table 10 in the Official Statement);

(iv) Aircraft Operation (similar to Table 9 in the Report of the Airport Consultant);

(v) Revenues and Expenses of the Airport, including CFC Revenues (similar to Exhibit E to the Report of the Airport Consultant);

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Consultant).

(vi) Landing Fees and Terminal Rentals (similar to Table 12 m the Official Statement); and

(vii) Debt Service Coverage (similar to Exhibit G to the Report of the Airport

Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board or the Repositories. The City shall clearly identify each such other document so included by reference.

The contents, presentation and format of the Annual Reports may be modified from time to time as determined in the judgment of the City to conform to changes in accounting or disclosure principles or practices and legal requirements followed by or applicable to the City or to reflect changes in the business, structure, operations, legal form of the City or any mergers, consolidations, acquisitions or dispositions made by or affecting the City; provided that any such modifications shall comply with the requirements of the Rule.

SECTION 5. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Series 2007 Bonds, if material:

and

(i)

(ii)

(iii)

(iv)

(v)

(vi)

(vii)

(viii)

(ix)

(x)

principal and interest payment delinquencies;

non-payment related defaults;

unscheduled draws on debt service reserves reflecting fmancial difficulties;

unscheduled draws on credit enhancements reflecting fmancial difficulties;

substitution of credit or liquidity providers, or their failure to perform;

adverse tax opinions or events affecting the tax status of the Bonds;

modifications to the rights of Owners of the Bonds;

Bond calls other than mandatory sinking fund prepayments;

defeasances;

release, substitution, or sale of property, if any, securing repayment of the bonds;

(xi) rating changes.

(b) Whenever the City obtains knowledge of the occurrence of a Listed Event, the City shall as soon as possible determine if such event would be material under applicable federal securities laws; provided that any event under subsection ( a )(vi) will always be deemed material. The Dissemination Agent shall have no duty or obligation to determine the materiality thereof.

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( c) If the City detennines that know ledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the City shall promptly file or cause the Dissemination Agent to file a notice of such occurrence with the Municipal Securities Rulemaking Board and the State Repository, if any, or the Repositories. Notwithstanding the foregoing, notice of, a Listed Event described in subsections (a)(viii) and (a)(ix) need not be given under this subsection if notice of the underlying event is given to Holders of affected Bonds pursuant to the Indenture.

SECTION 6. Termination of Reporting Obligation. The City's obligations under this Disclosure Certificate shall terminate upon the defeasance, prior redemption or payment in full of all of the Series 2007 Bonds. If such termination occurs prior to the final maturity of the Series 2007 Bonds, the city shall give notice of such termination in the same manner as for a listed Event described in Section 5( c).

SECTION 7. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent may resign at any time upon delivery of written notice thereof to the City at least sixty (60) days prior to the effective date of such resignation. If at any time there is not any other designated Dissemination Agent, the Trustee shall be the Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the City pursuant to this Disclosure Certificate. The Initial Dissemination Agent is MuniFinancial.

SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied with respect to such amendment or waiver:

(a) If the amendment or waiver relates to the provisions of Sections 3(a), 4, or 5(a), it may only be made in connection with a change in circumstances which arise from a change in legal requirements, change in law or a change in the nature, identity or status of an obligated person with respect to the Series 2007 Bonds or the type of business conducted by such person;

(b) The undertaking in this Disclosure Certificate, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Series 2007 Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) The amendment or waiver either (i) is approved by the Holders of the Series 2007 Bonds in the same manner as provided in the Indenture for amendments to such Indenture with the consent of Holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Series 2007 Bonds.

In the event of any amendment or waiver of a provision of this Disclosure Certificate, the City shall describe such amendment in the next Annual Report. and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type ( or in the case of a change of accounting principles, on the presentation) offmancial information being presented by the City.

SECTION 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City 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 City chooses to include any information in any Annual Report or notice of

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occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Disclosure Certificate 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 City to comply with any provision of this Disclosure Certificate, any Holder or Beneficial Owner of the Series 2007 Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with their respective obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Indenture and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance.

SECTION I I. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Series 2007 Bonds, and shall create no rights in any other person or entity.

SECTION 12. Governing Law. This Disclosure Certificate shall be governed by the laws of the State of California.

Date: May 31, 2007

CITY OF FRESNO

By: _____________ _ Treasurer and Controller

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EXHIBIT A

NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT

Name oflssuer:

Name of Bond Issue:

Date oflssuance:

City of Fresno

$22,000,000 principal amount of its City of Fresno Airport Revenue Bonds, Taxable Series 2007 A

May 31, 2007

NOTICE IS HEREBY GIVEN that the City of Fresno (the "City") has not provided an Annual Report with respect to the above-named Bonds as required by the Disclosure Certificate executed in connection with the issuance of the Series 2007 Bonds and Section 13.09 of the Indenture. The City anticipates that the Annual Report will be filed by

------

Dated: -------

CITY OF FRESNO

By: ----------------

Name: ---------------

Title: ---------------

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APPENDIX F

INFORMATION REGARDING DTC AND THE BOOK-ENTRY ONLY SYSTEM

Introductiou

The iuformatiou below couceruiug DTC aud DTC's book-eutry system has beeu obtaiued from DTC, aud the City assumes uo respousibility for the accuracy or completeuess thereof. DTC has established a book-eutry depository system pursuaut to certaiu agreemeuts betweeu DTC aud its participauts (the "Participauts"). The City is uot a party to those agreemeuts. The City aud the Trustee do uot have auy respousibility or obligatiou to DTC Participauts, to the persous for whom they act as uomiuees, or to auy other persou who is uot showu ou the registratiou books as beiug au owuer of the Series 2007 Bouds, with respect to auy matter iucludiug (i) the accuracy of auy records maiutaiued by DTC or auy of its Participauts, (ii) the paymeut by DTC or its Participauts of auy amouut iu respect of the priucipal of, redemptiou price of, or iuterest ou the Series 2007 Bouds; (iii) the delivery of auy uotice which is permitted or required to be giveu to registered owuers uuder the lndeuture; (iv) the selectiou by DTC or auy of its Participauts of auy persou to receive paymeut iu the eveut of a partial redemptiou of the Series 2007 Bouds; (v) auy couseut giveu or other actiou takeu by DTC as registered owuer; or (vi) auy other matter. The City aud the Trustee cauuot aud do uot give auy assurauces that DTC, its Participauts or others will distribute paymeuts of priucipal of or iuterest ou the Series 2007 Bouds paid to DTC or its uomiuee, as the registered owuer, or give auy uotices to the Beueficial Owuers or that they will do so ou a timely basis or will serve aud act iu a mauuer described iu this Official Statemeut.

Geueral

DTC will act as securities depository for the Series 2007 Bonds. The Series 2007 Bonds will be issued as fully registered securities registered in the name of Cede & Co. (DTC's partnership nominee). One fully registered Series 2007 Bonds certificate will be issued for each maturity of the Series 2007 Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC.

DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17 A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2.2 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, in tum, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation, and Emerging Markets Clearing Corporation, ("NSCC," "FICC" and "EMCC," also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA.

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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 and www.dtc.org. The information contained in such websites is not incorporated by reference herein.

Purchases of the Series 2007 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2007 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 confinnation 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 the transaction. Transfers of ownership interests in the Series 2007 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 Series 2007 Bonds, except in the event that use of the book-entry system for the Series 2007 Bonds is discontinued.

To facilitate subsequent transfers, all Series 2007 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 Series 2007 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.

Redemption notices shall be sent to DTC. If less than all of the Series 2007 Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Onmibus Proxy to the City as soon as possible after the record date. The Onmibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Series 2007 Bonds are credited on the record date (identified in a listing attached to the Onmibus Proxy).

Principal, sinking fund and interest payments on the Series 2007 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative ofDTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from City or the Trustee, 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 Trustee or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, sinking fund and interest payments to Cede & Co. ( or such other nominee as may be requested by an authorized representative ofDTC) is the responsibility of the Trustee,

F-2

disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

SO LONG AS CEDE & CO. IS THE REGISTERED OWNER OF THE SERIES 2007 BONDS, AS NOMINEE OF DTC, REFERENCES HEREIN TO THE OWNERS OR OWNERS OF BONDS SHALL MEAN CEDE & CO., AS AFORESAID, AND SHALL NOT MEAN THE BENEFICIAL OWNERS OF THE SERIES 2007 BONDS.

Discontinuance ofDTC Services

DTC may discontinue providing its services as securities depository with respect to the Series 2007 Bonds at any time by giving reasonable notice to the City or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, Series 2007 Bond certificates will be printed and delivered as described in the Indenture.

The City may decide to discontinue use of the system of book-entry transfers through DTC ( or a successor securities depository). In that event, Series 2007 Bond certificates will be printed and delivered as described in the Indenture.

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APPENDIXG

PROPOSED FORM OF OPINION OF BOND COUNSEL

City of Fresno Fresno, California

Ladies and Gentlemen:

[Closing Date]

City of Fresno Airport Revenue Bonds Taxable Series 2007

(Final Opinion)

We have acted as bond counsel to the City of Fresno (the "Issuer") in connection with the issuance of $22,000,000 aggregate principal amount of City of Fresno Airport Revenue Bonds, Taxable Series 2007 (the "Bonds"), issued pursuant to the City of Fresno Municipal Improvements Revenue Bond Law ( constituting Article 7 of Chapter 18 of the Municipal Code of the City of Fresno) and the Indenture of Trust, dated as of June 15, 2000, between the Issuer and The Bank of New York Trust Company, N.A. (as successor in interest to BNY Western Trust Company), as trustee (the "Trustee"), as supplemented by the First Supplemental Indenture, dated as of May 1, 2007, between the Issuer and the Trustee ( collectively, the "Indenture"). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture.

In such connection, we have reviewed the Indenture, opinions of counsel to the Issuer and the Trustee, certificates of the Issuer, the Trustee, Jacobs Consultancy, Inc. (as to the additional bonds test under the Indenture) and others, and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein.

The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof. Accordingly, this opinion is not intended to, and may not, be relied upon in connection with any such actions, events or matters. Our engagement with respect to the Bonds has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the Issuer. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents, and of the legal conclusions contained in the opinions, referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Indenture. We call attention to the fact that the rights and obligations under the Bonds and the Indenture and their enforceability may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors' rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against cities in the State of California. We express no opinion with respect to any indemnification, contribution, penalty, choice of law, choice of forum, choice of venue, waiver or severability provisions contained in the foregoing documents, nor do we express any opinion with respect to the state or quality of title to or interest in any of the assets described in or as subject to the lien of the Indenture or the accuracy or sufficiency of the description contained therein of, or the remedies available to enforce liens on, any such assets. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Bonds and express no opinion with respect thereto.

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

1. The Bonds constitute the valid and binding limited obligations of the Issuer.

2. The Indenture has been duly executed and delivered by, and constitutes the valid and binding obligation of, the Issuer. The Indenture creates a valid pledge, to secure the payment of the principal of and interest on the Bonds, of the Revenues and amounts held by the Trustee in certain funds or accounts established pursuant to the Indenture, subject to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture, and subject to limitations on the use of certain Revenues.

3. The Bonds are not a lien or charge upon the funds or property of the Issuer except to the extent of the aforementioned pledge. Neither the faith and credit nor the taxing power of the Issuer, the State of California or any political subdivision thereof is pledged to the payment of the principal of or interest on the Bonds. The Bonds are not a debt of the State of California, and said State is not liable for the payment thereof.

4. Interest on the Bonds is exempt from State of California personal income taxes. Interest on the Bonds is not excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds.

Faithfully yours, ORRICK, HERRINGTON & SUTCLIFFE LLP

per

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APPENDIXH

SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY

H-1

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MUNICIPAL BOND INSURANCE POLICY

ISSUER:

BONDS:

1221 Avenue of the Americas New York, New York 10020 Telephone (212) 478-3400

Policy No: [

Effective Date: [

XL Capital Assurance Inc. (XLCA), a New Yark stock insurance company, in consideration of the payment of the premium and subject to the terms of this Policy (which includes each endorsement attached hereto), hereby agrees unconditionally and irrevocably to pay to the trustee (the "Trustee") or the paying agent (the "Paying Agent") (as set forth in the documentation providing for the issuance of and securing the Bonds) for the benefit of the Owners of the Bonds or, at the election of XLCA, to each Owner, that portion of the principal and interest on the nds that shall become Due for Payment but shall be unpaid by reason of Nonpayment.

XLCA will pay such amounts to or for the benefit of the Owner th day on which such principal and interest becomes Due for Payment or one (I) Business Day followin e B on w ·chXLCA shall have received Notice of Nonpayment (provided that Notice will be deemed receiv on giv. s1 ay 1 it is received prior to 10:00 a.m. Pacific time on such Business Day; otherwise it will be ee e re IVed n e ext siness Day), but only upon receipt by XLCA, in a form reasonably satisfactory to it, f e e o he r' right to receive payment of the principal or interest then Due for Payment and (b) evide e, i p riate · struments of assignment, that all of the Owner's rights with respect to payment of sucMi'l<i.n.bir is D e for Payment shall thereupon vest in XLCA Upon such disbursement, XLCA shall beco y appurtenant coupon to the Bond or the right to receipt of payment of principal and i fully subrogated to the rights of the Owner, including the Owner's right to receive payme s t of any payment by XLCA hereunder. Payment by XLCA to the Trustee or Paying Age t e all, to the extent thereof, discharge the obligation of XLCA under this Policy.

become Due for Payment the Owner pursuant to f preference to such O ner w · XLCA to the extent f c

The following meanings specified for all purposes of this Policy, except to the extent such terms are expressly modified by a ent to this Policy. "Business Day" means any day other than (a) a Saturday or Sunday or (b) a day on which bank, inst' lions in the State of California, the State of New Yark or the Insurer's Fiscal Agent are authorized or required by law or executive order to remain closed. "Due for Payment", when referring to the principal of Bonds, is when the stated maturity date or a mandatory redemption date for the application of a required sinking fund installment has been reached and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by application of required sinking fund installments), acceleration or other advancement of maturity, unless XLCA shall elect, in its sole discretion, to pay such principal due upon such acceleration; and, when referring to interest on the Bonds, is when the stated date for payment of interest has been reached. "Nonpayment" means the failure of the Issuer to have provided sufficient funds to the Trustee or Paying Agent for payment in full of all principal and interest on the Bonds which are Due for Payment. "Notice" means telephonic or telecopied notice, subsequently confirmed in a signed writing, or written notice by registered or certified mail, from an Owner, the Trustee or the Paying Agent to XLCA which notice shall specify (a) the person or entity making the claim, (b) the Policy Number, (c) the claimed amount and (d) the date such claimed amount became Due for Payment. "Owner" means, in respect of a Bond, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof, except that "Owner" shall not include the Issuer or any person or entity whose direct or indirect obligation constitutes the underlying security for the Bonds.

XLCAP-005 (Muni Spec - California 12-2001)

1

XLCA may, by giving written notice to the Trustee and the Paying Age , Fiscal Agent") for purposes of this Policy. From and after the date of receipt b notice, which shall specify the name and notice address of the Insurer's Fisc

oint a fiscal agent (the "Insurer's e and the Paying Agent of such

o s of all notices required to be Fi al Agent and to XLCA and de b XLCA under this Policy

iscal Agent is the agent y t of the Insurer's Fiscal Agent

aue hereunder.

delivered to XLCA pursuant to this Policy shall be simultaneously delive i:I t shall not be deemed received until received by both and (b) all paym ts r may be made directly by XLCA or by the Insurer's Fiscal Agent OIJ,OOQ"'l of XLCA only and the Insurer's Fiscal Agent shall in no event be I or any failure of XLCA to deposit or cause to be deposited s c'i,.r1M1.i\od

Except to the extent expressly modified by an (b) the Premium on this Policy is not refundable £ or other acceleration payment which at any tim XLCA, nor against any risk other than No;,rv··, modified, altered or affected by any othe

IN THE EVENT THA~;J,'C THIS POLICY ARE NOT ARTICLE 12119(b) OFT

!icy is non•cancelable by XLCA, and lie e not insure against loss of any prepayment

cl o any Bond, other than at the sole option of o the full undertaking of XLCA and shall not be mg any modification or amendment thereto.

E INSOLVENT, ANY CLAIMS ARISING UNDER A GUARANTY INSURANCE FUND SPECIFIED IN

CE CODE.

olicy to be executed on its behalf by its duly authorized officers.

SPECIMEN Name: Name: Title: Title:

XLCAP,005 (Muni Spec· California 12·2001)

2

APPENDIX I

SPECIMEN DEBT SERVICE RESERVE INSURANCE POLICY

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1221 Avenue of the Americas New York, New York 10020 Telephone (212) 478-3400

DEBT SERVICE RESERVE INSURANCE POLICY

ISSUER: Policy No.:

BONDS: Effective Date:

Premium:

XL CAPITAL ASSURANCE INC. ("XLCA"), a New York stock in r received, hereby unconditionally and irrevocably agrees to pa "Beneficiary") under the documentation (the "Bond Docu,.,.,.,.," securing the Bonds, for the benefit of the Owners, subject o y to each endorsement hereto), that portion of the principal o d i er for Payment but shall be unpaid by reason ofNonpay th

c1 ry o he later of the Business Day usiness Day next following the

onpayment, in a form reasonably r eived on a given Business Day if it is

o s c usiness Day; otherwise, it will be deemed an No c o payment received by XLCA is incomplete or

f his Po icy, it shall be deemed not to have been received d XLCA shall promptly so advise the Beneficiary,

ce o Nonpayment. Payment by XLCA to the Beneficiary e ent thereof, discharge the obligation of XLCA under this

s 1 become entitled to reimbursement of the amount so paid .b<:...t"llll<IJ~-p ses) pursuant to the Financial Guaranty Agreement. Upon disbursement

s al ecome the owner of the Bond, any appurtenant coupon to the Bond or mcipal of or interest on the Bond and shall be fully subrogated to the

rights of the Owner, · clud· g the Owner's right to receive payments under the Bond and all insurance policies in respect of the ond, to the extent of any payment by XLCA hereunder.

The amount available under this Policy for payment shall not exceed the Policy Limit. The amount available at any particular time to be paid to the Beneficiary under the terms of this Policy shall automatically be reduced by any payment under this Policy. However, after such payment, the amount available under this Policy shall be reinstated in full or in part, but only up to the Policy Limit, to the extent of the reimbursement of such payment ( exclusive of interest and expenses) to XLCA by or on behalf of the Issuer. Within three Business Days of such reimbursement, XLCA shall provide the Beneficiary and the Issuer with notice of the reimbursement and reinstatement.

Payment under this Policy shall not be available with respect to (a) any Nonpayment that occurs prior to the Effective Date or after the Termination Date of this Policy or (b) Bonds that are not outstanding under the Bond Document. If the amount payable under this Policy is also payable under another insurance policy or surety bond insuring the Bonds, payment first shall be made under this Policy to the extent of the amount available under this Policy up to the Policy Limit. In no event shall XLCA incur duplicate liability for the same amounts owing with respect to the Bonds that are covered under this Policy and any other insurance policy or surety bond that XLCA has issued.

Except to the extent expressly modified by an endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. "Business Day" means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the State of California or the State of New York are, or the Insurer's Fiscal Agent is, authorized or required by or executive order to remain closed. "Due for Payment' means (a) when referring to the princir. o nd, payable on the stated maturity date thereof or on a mandatory sinking fund redemptio ate d the Bond or the Bond Document and does not refer to any earlier date on which pay t 1 e bY. re o f call for redemption ( other than by mandatory sinking fund redemption), acceler on d of maturity unless XLCA shall elect, in its sole discretion, to pay such pr· c a du po s h cc ation together with any accrued interest to the date of acceleration and es on a Bond, payable on the date stated in the Bond for payment of int est. ara Agreement' means the Financial Guaranty Agreement dated as of the c ·v res ct of this Policy, as the same may be amended or supplemented from time t f " eans, in respect of a Bond, the failure of the Issuer to have provided su 1cien ull of all principal and interest that is Due for Payment on such Bond. ':N pa c de, in respect of a Bond, any payment of principal or interest that is Du m t m~--_.-~ ner by or on behalf of the Issuer that has been recovered from such t t e States Bankruptcy Code by a trustee in bankruptcy in accordance 1 , n ea ab! order of a court having competent jurisdiction. "Notice" means teleco ·ed nob , sub qu 1rmed in a signed writing, or written notice by registered or certified il,~m h B fici to XLCA substantially in the form of Attachment I which notice sh spe · Jaj"th per n o entity making the claim, (b) the Policy Number, (c) the claimed amount n"-l.>H-><:. at uch cl · ed amount became Due for Payment. "Owner" means, in

nt who, at the time of Nonpayment, is entitled under the terms of such c1p I rest thereunder, except that "Owner" shall not include the Issuer or se ire tor indirect obligation constitutes the underlying security for the Bonds.

"Policy Limit" shall be tm>-<1..-tLar amount of the debt service reserve fund required to be maintained for the Bonds by the Bond Document from time to time (the "Debt Service Reserve Requirement"), but in no event shall the Policy Limit exceed $[ Amount of Debt Reserve ]. The Policy Limit shall automatically and irrevocably be reduced from time to time by the amount of each reduction in the Debt Service Reserve Requirement, as provided in the Bond Document. "Termination Date" means the earlier of (i) [Final Maturity of Bonds] and (ii) the date the Bonds are no longer outstanding under the Bond Document.

XLCA may appoint a fiscal agent (the "Insurer's Fiscal Agent") for purposes of this Policy by giving written notice to the Beneficiary specifying the name and notice address of the Insurer's Fiscal Agent. From and after the date of receipt of such notice by the Beneficiary, (a) copies of all notices required to be delivered to XLCA pursuant to this Policy shall be simultaneously delivered to the Insurer's Fiscal Agent and to XLCA pursuant to this Policy and shall not be deemed received until received by both and (b) all payments required to be made by XLCA under this Policy may be made directly by XLCA or by the Insurer's Fiscal Agent on behalf ofXLCA. The Insurer's Fiscal Agent is the agent ofXLCA only and the Insurer's Fiscal Agent shall in no event be liable to any Owner for any act of the Insurer's Fiscal Agent or any failure of XLCA to deposit or cause to be deposited sufficient funds to make payments due under this Policy.

To the fullest extent permitted by applicable law, XLCA agrees not to assert, and hereby waives, only for the benefit of each Owner, all rights (whether by counterclaim set or otherwise) and defenses (including, without limitation, the defense of fraud) whether acqu· ed brogation, assigmnent or otherwise, to the extent that such rights and defenses may be avai le C to avoid payment of its obligations under this Policy in accordance with the express pro si f this Ii .

This Policy shall be governed by and interpreted under J'l'"I"'~ hereunder in connection with any amount due her urr

R'i,.,rn/'Vork, and any suit n by the Issuer or the ice of Nonpayment can be Beneficiary and only within one year after the dat ·'-"'""·"'"

made pursuant to the terms of this Policy.

This Policy sets forth in full the undertaking agreement or instrument, including any mod·fic tio an endorsement hereto, (a) any premiu pa including payment, or provision being ad canceled or revoked.

IN THE EVENT HA: POLICY ARE NOT CO E 12119(b) OF THE CALIF,1.~,;;;::~iii~lli''-'

odified, altered or affected by any other o. Except to the extent expressly modified by

cy is nonrefundable for any reason whatsoever, nds prior to maturity and (b) this Policy may not be

COME INSOLVENT, ANY CLAIMS ARISING UNDER TIDS GUARANTY INSURANCE FUND SPECIFIED IN ARTICLE

In witness whereof, XL CAPITAL ASSURANCE INC. is Policy to be executed on its behalf by its duly authorized officers.

XL CAPITAL ASSURANCE INC.

SPECIMEN Name: Title:

Attachment I Policy No.[ ................. ]

NOTICE OF NONPAYMENT

XL CAPITAL ASSURANCE INC. 1221 Avenue of the Americas New York, New York 10020

Attention:

Reference is made to the Policy No. [ ................. ] (the " Assurance Inc. ("XLCA"). The terms which are capitalized have the meanings specified in the Policy unless the context

The Beneficiary hereby certifies that:

I. $ became [ will become] D ---

·cy") issued by XL Capital not otherwise defined

2. The amount $ , which is$ ----- -----

Vl(ll"l!Jne to pay such amount 1s ,\.,"\{+~,e "Deficiency Amount");

3. The Beneficiary he exceed the lesser of (i) the the Policy which in no ev•?~•'<lc

which amount does not -----

. · the amount available to be drawn under

5. The .....,_~,.,,n l\11'ti!r requests that payment of the amount specified in 3. above be l'olh,,(, and directs that payment under the Policy be made to the

following account by ank ire transfer of federal or other immediately available funds in the Policy:

______________________ [Beneficiary's Account]

[Any Person Who Knowingly And With Intent To Defraud An l u Person File An Application For Insurance Or Statement O lai False Information; Or Conceals For The Purpose Of is ·ng Any Fact Material Thereto, Commits A Fraudulent I, sur c Be Subject To A Civil Penalty Not To Exceed Fill Of The Claim For Each Such Violation.] [Fo issuers in certain states.]

[Beneficiary]

nee Company Or Other n ining Any Materially ifo tion Concerning

And Shall Also 'tl'''""', he Stated Value