UBS Financial Services Inc.

Transcription

1 NEW ISSUE BOOK-ENTRY ONLY NOT RATED In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California ( Bond Counsel ), under existing statutes, regulations, rulings and judicial decisions, and assuming certain representations and compliance with certain covenants and requirements described more fully herein, interest (and original issue discount) on the 2005 Series A Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest (and original issue discount) on the 2005 Series A Bonds is exempt from State of California personal income tax. The difference between the issue price of a 2005 Series A Bond (the first price at which a substantial amount of the 2005 Series A Bonds of a maturity is to be sold to the public) and the stated redemption price at maturity with respect to such 2005 Series A Bond constitutes original issue discount. See TAX MATTERS herein. $14,030,000 CORONA-NORCO UNIFIED SCHOOL DISTRICT PUBLIC FINANCING AUTHORITY SPECIAL TAX REVENUE BONDS, 2005 SERIES A Dated: Date of Delivery Due: September 1, as shown below This Official Statement describes the $14,030,000 * Corona-Norco Unified School District Public Financing Authority Special Tax Revenue Bonds, 2005 Series A (the 2005 Series A Bonds ). The 2005 Series A Bonds are being issued by the Corona-Norco Unified School District Public Financing Authority (the Authority ) pursuant to an Indenture of Trust, dated as of April 1, 2005 (the Indenture ), by and between the Authority and U.S. Bank National Association, as trustee (the Trustee ), and will be secured as described herein. The 2005 Series A Bonds are being issued to purchase certain Local Obligations (as described herein) issued on behalf of Improvement Area C of Community Facilities District No of the Corona-Norco Unified School District, issued by Community Facilities District No of the Corona-Norco Unified School District and issued by Community Facilities District No of the Corona-Norco Unified School District (each a District, and collectively, the Districts ). The Districts were formed by the Board of Education of the Corona-Norco Unified School District to finance various public improvements needed to develop property within the Districts. See THE COMMUNITY FACILITIES DISTRICTS. The Local Obligations are being issued by the Districts pursuant to the Mello-Roos Community Facilities Act of 1982, as amended and will be paid from special taxes levied on property within the Districts and interest capitalized through September 1, 2006 with respect to District Nos and 03-2, and through September 1, 2005 with respect to District No See SECURITY FOR THE 2005 SERIES A BONDS. The 2005 Series A Bonds are being issued in fully registered book-entry form, initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ). Purchasers will not receive certificates representing their interest in the 2005 Series A Bonds. Individual purchases will be in principal amounts of $5,000 or in any integral multiple thereof. Payments of principal of and interest on the 2005 Series A Bonds will be paid by the Trustee to DTC for subsequent disbursement to DTC Participants who will remit such payments to the beneficial owners of the 2005 Series A Bonds. See APPENDIX F BOOK-ENTRY ONLY SYSTEM herein. Interest on the 2005 Series A Bonds is payable on March 1 and September 1 of each year, commencing September 1, The 2005 Series A Bonds are subject to optional, special mandatory and mandatory sinking fund redemption prior to maturity as set forth herein. See THE 2005 SERIES A BONDS Redemption herein. The 2005 Series A Bonds are limited obligations of the Authority. The 2005 Series A Bonds are payable solely from Revenues (as defined herein) of the Authority and from certain other amounts on deposit in funds and accounts under the Indenture. Revenues will consist primarily of payments received by the Authority from the Districts on the Local Obligations, which payments are to be made from Special Taxes received by the Districts as more fully described herein. See SECURITY FOR THE 2005 SERIES A BONDS and THE 2005 SERIES A BONDS herein. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CORONA-NORCO UNIFIED SCHOOL DISTRICT, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE 2005 SERIES A BONDS. THE AUTHORITY HAS NO TAXING POWER. EXCEPT FOR THE REVENUES, NO OTHER REVENUES OR TAXES ARE PLEDGED TO THE PAYMENT OF THE 2005 SERIES A BONDS. THE 2005 SERIES A BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE CORONA-NORCO UNIFIED SCHOOL DISTRICT OR THE DISTRICTS OR GENERAL OBLIGATIONS OF THE AUTHORITY, BUT ARE LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM REVENUES AND CERTAIN AMOUNTS HELD UNDER THE INDENTURE AS MORE FULLY DESCRIBED HEREIN. THE PURCHASE OF THE 2005 SERIES A BONDS INVOLVES RISKS NOT SUITABLE FOR ALL INVESTORS. SEE THE SECTION OF THIS OFFICIAL STATEMENT ENTITLED SPECIAL RISK FACTORS FOR A DISCUSSION OF CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED, IN ADDITION TO THE OTHER MATTERS SET FORTH HEREIN, IN CONSIDERING THE INVESTMENT QUALITY OF THE 2005 SERIES A BONDS. MATURITY SCHEDULE (See Inside Cover Page) This cover page contains certain information for quick reference only. It is not a complete summary of the 2005 Series A Bonds. Investors should read the entire Official Statement to obtain information essential to the making of an informed investment decision. The 2005 Series A Bonds are offered when, as and if issued, subject to approval as to their legality by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel and Disclosure Counsel. Certain legal matters will be passed on for the Authority, the Districts and the Corona-Norco Unified School District by Parker & Covert LLP, Tustin, California, as the general counsel for said entities. It is anticipated that the 2005 Series A Bonds will be available for delivery to DTC in New York, New York on or about April 13, UBS Financial Services Inc. Dated: March 30, 2005

2 Maturity Date (September 1) Principal Amount Interest Rate MATURITY SCHEDULE $4,470,000 Serial Bonds Yield Maturity Date (September 1) Principal Amount Interest Rate 2006 $ 50, % 2.700% 2014 $ 315, % 4.570% , , , , , , , , , , , , , Yield $2,395, % Term Bonds due September 1, 2025 Price: $7,165, % Term Bonds due September 1, 2035 Price:

3 CORONA-NORCO UNIFIED SCHOOL DISTRICT PUBLIC FINANCING AUTHORITY Bill Hedrick, Chairman Maggie Little, Secretary Sharon R. Martinez, Director Pat A. Scott, Director Cathy L. Sciortino, Director CORONA-NORCO UNIFIED SCHOOL DISTRICT COUNTY OF RIVERSIDE, CALIFORNIA BOARD OF EDUCATION Bill Hedrick, President Pat A. Scott, Vice President Maggie Little, Clerk Sharon R. Martinez, Member Cathy L. Sciortino, Member SCHOOL DISTRICT ADMINISTRATORS Lee V. Pollard, Superintendent David M. LaVelle, Deputy Superintendent, Human Resources Anita LaVelle, Assistant Superintendent, Curriculum and Instruction Thomas R. Pike, Assistant Superintendent, Student Services Ted Rozzi, Assistant Superintendent, Facilities Dale Saugstad, Assistant Superintendent, Business Services BOND COUNSEL AND DISCLOSURE COUNSEL Stradling Yocca Carlson & Rauth, a Professional Corporation Newport Beach, California SCHOOL DISTRICT AND DISTRICTS COUNSEL Parker & Covert, LLP Tustin, California SPECIAL TAX CONSULTANT Special District Financing & Administration Escondido, California REAL ESTATE APPRAISER Bruce W. Hull & Associates Tustin, California TRUSTEE U.S. Bank National Association Los Angeles, California

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5 TABLE OF CONTENTS Page INTRODUCTION... 1 General... 1 Authority for Issuance... 1 Description of the 2005 Series A Bonds... 1 Sources of Payment... 2 The Community Facilities Districts... 3 Appraisal... 5 Forward Looking Statements... 5 Tax Matters... 6 Professionals Involved in the Offering... 6 Continuing Disclosure... 6 Bond Owners Risks... 7 Other Information... 7 THE AUTHORITY... 7 ESTIMATED SOURCES AND USES OF FUNDS... 8 THE 2005 SERIES A BONDS... 8 General... 8 Redemption... 9 Selection of Bonds for Redemption Notice of Redemption Effect of Notice of Redemption Registration of Exchange or Transfer Debt Service Schedule; Coverage Additional Bonds SECURITY FOR THE 2005 SERIES A BONDS General Revenue Fund Reserve Fund Ownership of Local Obligations Payment of the Local Obligations Special Tax Fund for the Local Obligations Rates and Methods of Apportionment of the Special Tax Levy and Collection of Special Taxes Covenant for Superior Court Foreclosure Letters of Credit Additional Local Obligations Estimated Debt Service Coverage THE COMMUNITY FACILITIES DISTRICTS Improvement Area C of CFD No CFD No CFD No Direct and Overlapping Indebtedness Estimated Value-to-Lien Ratios Expected Tax Burden PROPERTY OWNERSHIP AND THE DEVELOPMENTS General Description of the Developments i-

6 TABLE OF CONTENTS (continued) Page Centex Homes Hovnanian Riverbend and Forecast Homes Blackmon Homes Alexander Communities History of Property Tax Payments; Loan Defaults; Litigation; Bankruptcy Appraisal SPECIAL RISK FACTORS Risks of Real Estate Secured Investments Generally Assumption of No Further Development in the Districts Limited Obligations Insufficiency of Special Taxes Failure to Develop; Concentration of Ownership Future Land Use Regulations and Growth Control Initiatives Natural Disasters Endangered Species Hazardous Substances Terrorist Events Appraised Value Parity Taxes, Special Assessments and Land Development Costs Payment of the Special Tax is not a Personal Obligation of the Owners Disclosures to Future Purchasers Special Tax Delinquencies FDIC/Federal Government Interests in Properties Bankruptcy and Foreclosure No Acceleration Provision Limitations on Remedies Loss of Tax Exemption Limited Secondary Market Proposition Ballot Initiatives CONTINUING DISCLOSURE TAX MATTERS LEGAL OPINION LITIGATION NO RATING UNDERWRITING FINANCIAL INTERESTS PENDING LEGISLATION ADDITIONAL INFORMATION ii-

7 TABLE OF CONTENTS (continued) Page APPENDIX A RATES AND METHODS OF APPORTIONMENT OF SPECIAL TAX...A-1 APPENDIX B APPRAISAL REPORT... B-1 APPENDIX C FORM OF OPINION OF BOND COUNSEL... C-1 APPENDIX D SUMMARY OF CERTAIN PROVISIONS OF THE BOND DOCUMENTS...D-1 APPENDIX E CONTINUING DISCLOSURE AGREEMENTS... E-1 APPENDIX F BOOK-ENTRY ONLY SYSTEM...F-1 -iii-

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9 Except where otherwise indicated, all information contained in this Official Statement has been provided by the Authority, the School District and the Districts. No dealer, broker, salesperson or other person has been authorized by the Authority, the School District, the Districts, the Trustee or the Underwriter to give any information or to make any representations in connection with the offer or sale of the 2005 Series A Bonds other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by the Authority, the School District, the Districts, the Trustee or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the 2005 Series A Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. The information set forth herein which has been obtained from third party sources is believed to be reliable but is not guaranteed as to accuracy or completeness by the Districts, the School District or the Authority. This Official Statement is not to be construed as a contract with the purchasers or Owners of the 2005 Series A Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy of completeness of such information. The information and expressions of opinion 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 Authority, the School District, the Districts or any other parties described herein since the date hereof. All summaries of the Indenture or other documents are made subject to the provisions of such documents respectively and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the School District for further information in connection therewith. Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as plan, expect, estimate, project, budget or other similar words. Such forward-looking statements include, but are not limited to, certain statements contained in the information under the caption THE COMMUNITY FACILITIES DISTRICT and PROPERTY OWNERSHIP AND THE DEVELOPMENTS. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The Authority does not plan to issue any updates or revisions to the forward-looking statements set forth in this Official Statement. The Authority is obligated to provide continuing disclosure for certain historical information only. See the caption CONTINUING DISCLOSURE herein. IN CONNECTION WITH THE OFFERING OF THE 2005 SERIES A BONDS, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF SUCH 2005 SERIES A BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE 2005 SERIES A BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE 2005 SERIES A BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.

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11 $14,030,000 CORONA-NORCO UNIFIED SCHOOL DISTRICT PUBLIC FINANCING AUTHORITY SPECIAL TAX REVENUE BONDS, 2005 SERIES A INTRODUCTION This introduction is not a summary of this Official Statement and is qualified by the more complete and detailed information contained in the entire Official Statement and the documents described or summarized herein. The sale of the 2005 Series A Bonds to potential investors is made only by means of the entire Official Statement. General This Official Statement, including the cover page, the inside cover page and the Appendices hereto, is provided to furnish certain information in connection with the issuance and sale by the Corona-Norco Unified School District Public Financing Authority, a California joint exercise of powers authority (the Authority ), of $14,030,000 aggregate principal amount of Corona-Norco Unified School District Public Financing Authority Special Tax Revenue Bonds, 2005 Series A (the 2005 Series A Bonds ). The 2005 Series A Bonds and any Additional Bonds issued under the Indenture (defined below) are collectively referred to hereunder as the Bonds. All information for investors regarding the Authority, the Corona-Norco Unified School District (the School District ), the Developers (defined below), and the 2005 Series A Bonds is contained in this Official Statement. While the School District and the Developers maintain internet websites for various purposes, none of the information on such websites is incorporated by reference herein or constitutes a part of this Official Statement. Capitalized terms not defined herein shall have the meaning set forth in APPENDIX D hereto. Authority for Issuance The 2005 Series A Bonds are being issued pursuant to the provisions of an Indenture of Trust (the Indenture ), dated as of April 1, 2005, by and between the Authority and U.S. Bank National Association, as trustee (the Trustee ), and pursuant to the Marks-Roos Local Bond Pooling Act of 1985, as amended, constituting Article 4 of Chapter 5, Division 7, Title 1 of the Government Code of the State of California (the Bond Law ). Neither the faith and credit nor the taxing power of the Corona-Norco Unified School District, the State of California or any political subdivision thereof is pledged to the payment of the 2005 Series A Bonds. The Authority has no taxing power. Except for the Revenues, no other revenues or taxes are pledged to the payment of the 2005 Series A Bonds. The 2005 Series A Bonds are not general or special obligations of the Corona-Norco Unified School District or Improvement Area C of Community Facilities District No of the Corona-Norco Unified School District, or Community Facilities District No of the Corona-Norco Unified School District, or Community Facilities District No of the Corona-Norco Unified School District, or general obligations of the Authority, but are limited obligations of the Authority payable solely from Revenues and certain amounts held under the Indenture as more fully described herein. Description of the 2005 Series A Bonds The 2005 Series A Bonds will be issued as fully registered bonds in book-entry only form initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ). The Bonds will be sold in denominations of $5,000 each or any integral multiple thereof and will be

12 dated as of and bear interest from the date of delivery of the 2005 Series A Bonds (the Delivery Date ), at the rates set forth on the inside cover page hereof. See THE 2005 SERIES A BONDS herein. Principal of, premium, if any, and interest on the 2005 Series A Bonds is payable by the Trustee to DTC. Disbursement of such payments to DTC Participants is the responsibility of DTC and disbursement of such payments to the beneficial owner of each 2005 Series A Bond (each a Beneficial Owner ) is the responsibility of DTC Participants. In the event that the book-entry-only system is no longer used with respect to the 2005 Series A Bonds, the Beneficial Owners will become the registered owners of the 2005 Series A Bonds and will be paid principal and interest by the Trustee, all as described herein. See APPENDIX F BOOK-ENTRY-ONLY SYSTEM herein. The 2005 Series A Bonds are subject to optional redemption, special mandatory redemption and mandatory sinking fund redemption as described herein. For a more complete description of the 2005 Series A Bonds and the basic documentation pursuant to which they are being sold and delivered, see THE 2005 SERIES A BONDS and APPENDIX D SUMMARY OF CERTAIN PROVISIONS OF THE BOND DOCUMENTS herein. The 2005 Series A Bonds are being issued to finance the acquisition by the Authority of bonds issued by Community Facilities District No of the Corona-Norco Unified School District ( CFD No ) on behalf of Improvement Area C ( Improvement Area C of CFD No ), bonds issued by Community Facilities District No of the Corona-Norco Unified School District ( CFD No ) and bonds issued by Community Facilities District No of the Corona-Norco Unified School District ( CFD No ). Improvement Area C of CFD No. 01-2, CFD No. 03-5, and CFD No are sometimes referred to herein as each a District and collectively, the Districts. The bonds for Improvement Area C of CFD No are referred to herein as the CFD No Local Obligations, the bonds for CFD No are referred to herein as the CFD No Local Obligations, and the bonds of CFD No are referred to herein as the CFD No Local Obligations. The CFD No Local Obligations, the CFD No Local Obligations, and the CFD No Local Obligations and any additional local obligations purchased by the Authority pursuant to the Indenture are referred to herein collectively as the Local Obligations. The Local Obligations are being issued pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (Government Code Sections et. seq.) (the Act ), to pay for the acquisition and construction of various public improvements needed with respect to the proposed development within the Districts. The Local Obligations are being issued pursuant to the Act and under a resolution of the Board of Education of the School District acting as the legislative body of each District, and three Local Obligation bond indentures, each dated as of April 1, 2005 (the Local Obligation Bond Indentures ), by and between U.S. Bank National Association, as fiscal agent (the Fiscal Agent ) for the Local Obligations and each of CFD No on behalf of the Improvement Area C of CFD No. 01-2, CFD No and CFD No Sources of Payment The 2005 Series A Bonds are secured by the Revenues received by the Trustee and by any other amounts held in certain funds and accounts established pursuant to the Indenture. Revenues are defined in the Indenture as (a) all amounts received from each District with respect to any Local Obligations; (b) any proceeds of the Bonds deposited with the Trustee and all moneys deposited and held from time to time by the Trustee in the funds and accounts established under the Indenture with respect to the Bonds (other than the Rebate Fund and the Surplus Fund); and (c) investment income with respect to moneys held by the Trustee in the funds and accounts established under the Indenture with respect to the Bonds (other than the Rebate Fund). The Local Obligations of each District are payable from the special taxes levied on real property within the boundaries of each District and received by each District (the Special Taxes ), less amounts applied to the payment of administrative expenses incurred by each District. The Special Taxes are collected 2

13 on the regular property tax bills sent to the owners of real property within each District. See SECURITY FOR THE 2005 SERIES A BONDS Payment of the Local Obligations, SECURITY FOR THE 2005 SERIES A BONDS Levy and Collection of Special Taxes and THE COMMUNITY FACILITIES DISTRICTS herein. The Authority has established a Reserve Fund for the 2005 Series A Bonds pursuant to the Indenture, and a separate Improvement Area C of CFD No Account, a separate CFD No Account, and a separate CFD No Account therein. Pursuant to the Indenture, the Reserve Fund is required to be funded at the Reserve Requirement (as defined below). The Reserve Requirement required under the Indenture as of any date of calculation will be an amount equal to the least of (i) 10% of the initial principal amount of the Bonds, (ii) Maximum Annual Debt Service on the Bonds, or (iii) 125% of average Annual Debt Service on the Bonds. The Reserve Requirement may be satisfied in whole or in part by a Credit Facility. Each District Account within the Reserve Fund shall, as of any date of calculation, have on deposit therein an amount equal to the least of (i) 10% of the initial principal amount of the Local Obligations of the District, (ii) Maximum Annual Debt Service on the Outstanding Local Obligations of the District, (iii) 125% of average Annual Debt Service on the Outstanding Local Obligations of the District, or (iv) the amount initially deposited therein on the Closing Date; provided, however, that the sum of these amounts shall always equal the Reserve Requirement on any date of calculation. See SECURITY FOR THE 2005 SERIES A BONDS Reserve Fund herein. Initially, the Reserve Fund will be funded, and the Reserve Requirement satisfied, from proceeds of the Local Obligations deposited with the Authority with $577, being deposited into the Improvement Area C of CFD No Account, $193, being deposited into the CFD No Account, and $182, being deposited into the CFD No Account. See SECURITY FOR THE 2005 SERIES A BONDS Reserve Fund herein. In the event of a deficiency in Revenues resulting from a delinquency in the payment of the Local Obligations, the Trustee will transfer the amount of such deficiency to the Interest Account and/or the Principal Account established under the Indenture only from the Account of the Reserve Fund established for such delinquent Local Obligations. Amounts on deposit in the Improvement Area C of CFD No Account of the Reserve Fund are available only to make up a deficiency resulting from a default on the CFD No Local Obligations. Amounts in the CFD No Account of the Reserve Fund are available only to make up a deficiency resulting from a default on the CFD No Local Obligations. Amounts in the CFD No Account of the Reserve Fund are available only to make up a deficiency resulting from a default on the CFD No Local Obligations. The Community Facilities Districts The Act was enacted by the California Legislature to provide an alternate method of financing certain public facilities and services, especially in developing areas. Once duly established, a community facilities district is a legally constituted governmental entity established for the purpose of financing specific facilities and services within defined boundaries. Subject to approval by a two-thirds vote of the qualified electors within a district and compliance with the provisions of the Act, a community facilities district may issue bonds and levy and collect special taxes to repay its bonds. Each District was established and the levy of Special Taxes on the real property within the boundaries of each District and the incurrence by each District of bonded indebtedness was authorized pursuant to the Act. Each District was established to acquire and construct certain school facilities and certain non-school facilities pursuant to joint community facilities agreements. See THE COMMUNITY FACILITIES DISTRICTS herein. 3

14 The Local Obligations of a District will be repaid from Special Taxes levied on the taxable parcels within such District. The amount of the Special Taxes to be levied annually on a parcel in a District will depend on its classification in accordance with the applicable Rate and Method of Apportionment of Special Tax, which is based on whether the property is developed or undeveloped and on the type of development (e.g., residential, nonresidential, size of dwelling unit, phase of tract map). See SECURITY FOR THE 2005 SERIES A BONDS Rates and Methods of Apportionment of the Special Tax and APPENDIX A RATES AND METHODS OF APPORTIONMENT OF SPECIAL TAX. Each District has covenanted for the benefit of the Authority as the owner of the Local Obligations that, under certain circumstances described herein, it will commence judicial foreclosure proceedings with respect to delinquent Special Taxes on property within such District and will diligently pursue such proceedings to completion. See SECURITY FOR THE 2005 SERIES A BONDS Levy and Collection of Special Taxes and SECURITY FOR THE 2005 SERIES A BONDS Covenant for Superior Court Foreclosure. Improvement Area C of CFD No consists of approximately gross acres and approximately 69.5 net developable acres located within the boundary of the School District in the City of Corona ( Corona ) and in the County of Riverside ( County ). Improvement Area C of CFD No is being developed by Centex Homes, a Nevada general partnership ( Centex Homes ) into two communities. A development known as Silverwood is expected to contain 87 single family attached residential units at buildout and a development known as Copperleaf is expected to contain 149 single family detached residential units at buildout. The CFD No Local Obligations will be payable from Special Taxes levied on the 236 lots of taxable property in Improvement Area C only. See THE COMMUNITY FACILITIES DISTRICTS Improvement Area C of CFD No and PROPERTY OWNERSHIP AND THE DEVELOPMENTS Centex Homes herein. CFD No consists of approximately 46.2 gross acres and approximately 44.4 net developable acres located within the boundary of the School District in Corona planned to be developed into 160 single family detached residential units by two developers. 80 lots within CFD No are owned by K. Hovnanian at Riverbend, LLC, a California limited liability company ( Hovnanian Riverbend ) and are being developed in a project known as Riverbend II. K. Hovnanian Forecast Homes, Inc., a California corporation ( Forecast Homes ), an affiliate of Hovnanian Riverbend, is developing 80 lots within CFD No in a project known as Legacy III. At buildout, Hovnanian Riverbend and Forecast Homes anticipate that CFD No will contain 160 single family detached residential units subject to the levy of Special Taxes on taxable property in CFD No See THE COMMUNITY FACILITIES DISTRICTS CFD No and PROPERTY OWNERSHIP AND THE DEVELOPMENTS K. Hovnanian and Forecast Homes herein. CFD No consists of approximately gross acres and approximately net developable acres located within the boundary of the School District in the Mira Loma area of the County. CFD No is divided into three different tax zones, Tax Zone A, Tax Zone B and Tax Zone C. The property in Tax Zone A of CFD No has been developed by Alexander Communities, Inc., a California corporation ( Alexander Communities ) through an affiliate known as A.C. Taylor, LLC, into a 15 single family detached residential unit development known as Serrano Ridge. Tax Zone B of CFD No is being developed by Centex Homes and is expected to contain 49 single family detached residential units at buildout in a development known as Town Square. Tax Zone C of CFD No was developed by Blackmon Homes, Inc., a California corporation ( Blackmon Homes ) into a 16 single family detached residential unit development known as Mountain Grove Estates. At buildout, it is anticipated that CFD No will contain 80 single family detached residential units subject to the levy of Special Taxes on taxable property in CFD No See THE COMMUNITY FACILITIES DISTRICTS CFD No and PROPERTY OWNERSHIP AND THE DEVELOPMENTS Alexander Communities, Centex Homes and Blackmon Homes herein. 4

15 Centex Homes, Hovnanian Riverbend, Forecast Homes, Blackmon Homes and Alexander Communities are individually referred herein as a Developer and collectively as the Developers. See PROPERTY OWNERSHIP AND THE DEVELOPMENTS herein. Appraisal An appraisal report of the land and existing improvements within the Districts was prepared by Bruce W. Hull & Associates, Inc., Tustin, California (the Appraiser ), and establishes a date of value of January 3, The Appraisal Report is entitled Summary Appraisal Report Complete Appraisal of Improvement Area C of CFD No. 01-2, CFD No. 03-5, and CFD No of the Corona-Norco Unified School District Riverside County, State of California (the Appraisal Report). See APPENDIX B APPRAISAL REPORT. The Appraisal Report provides an estimate of the market value of the fee simple interest of the parcels within which were owned by the Developers or individual homeowners as of January 3, The Appraiser is of the opinion that the market value of the land and improvements in existence within Improvement Area C of CFD No as of January 3, 2005, was $39,245,000. This produces an estimated value-to-lien ratio (including the CFD No Local Obligations and all direct and overlapping land secured debt) of 4.53 to 1 within Improvement Area C of CFD No The Appraiser is of the opinion that the market value of the land and improvements in existence within CFD No as of January 3, 2005, was $32,025,000. This produces an estimated value-to-lien ratio (including the CFD No Local Obligations and all direct and overlapping land secured debt) of to 1 within CFD No The Appraiser is of the opinion that the market value of the land and improvements in existence within CFD No as of January 3, 2005, was $31,245,000. This produces an estimated value-to-lien ratio (including the CFD No Local Obligations and all direct and overlapping land secured debt) of to 1 within CFD No The Appraisal Report is based upon a variety of assumptions and limiting conditions that are described in APPENDIX B. The Authority, the Underwriter, the School District and the Districts do not guarantee the accuracy of the Appraisal Report. See THE COMMUNITY FACILITIES DISTRICTS Estimated Value-to-Lien Ratios. There is no assurance that the property within the Districts can be sold for the amounts set forth in the Appraisal Report or that any parcel can be sold for a price sufficient to pay the Special Tax for that parcel in the event of a default in payment of Special Taxes by the owner of such parcel. See SPECIAL RISK FACTORS Appraised Value and APPENDIX B APPRAISAL REPORT herein. Forward Looking Statements Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as plan, expect, estimate, project, budget or other similar words. Such forward-looking statements include, but are not limited to, certain statements contained in the information under the captions THE COMMUNITY FACILITIES DISTRICTS, PROPERTY OWNERSHIP AND THE DEVELOPMENT and APPENDIX B APPRAISAL REPORT. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The Authority does not plan to issue any updates or revisions to the forward-looking statements set forth in this Official Statement. The Authority is obligated to provide continuing disclosure for certain historical information only. See the caption CONTINUING 5

16 DISCLOSURE herein. In evaluating such statements, potential investors should specifically consider the various factors which could cause actual events or results to differ materially from those indicated by such forward-looking statements. Tax Matters In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California ( Bond Counsel ), under existing statutes, regulations, rulings and judicial decisions, and assuming certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) on the 2005 Series A Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest (and original issue discount) on the 2005 Series A Bonds is exempt from State of California personal income tax. See TAX MATTERS herein. Set forth in APPENDIX C is the form of opinion Bond Counsel is expected to deliver in connection with the issuance of the 2005 Series A Bonds. For a more complete discussion of such opinion and certain other tax consequences incident to the ownership of the 2005 Series A Bonds, including certain exceptions to the tax treatment of interest, see TAX MATTERS herein. Professionals Involved in the Offering U.S. Bank National Association, will act as Trustee under the Indenture and as Fiscal Agent under the Local Obligation Bond Indentures. UBS Financial Services Inc. will act as the Underwriter of the 2005 Series A Bonds. Certain proceedings in connection with the issuance and delivery of the 2005 Series A Bonds are subject to the approval of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California which will act as Bond Counsel and Disclosure Counsel. Certain legal matters will be passed on for the Authority, the School District and the Districts by Parker & Covert LLP, Tustin, California, general counsel for those entities. Other professional services have been performed by Bruce W. Hull & Associates, Inc., Tustin, California, as Appraiser, and Special District Financing and Administration, Escondido, California, as Special Tax Consultant and as Dissemination Agent under the Continuing Disclosure Agreement and the Developer Disclosure Undertakings (as defined herein). For information concerning respects in which certain of the above-mentioned professionals, advisors, counsel and agents may have a financial or other interest in the offering of the 2005 Series A Bonds, see FINANCIAL INTERESTS herein. Continuing Disclosure The Authority, Centex Homes, Hovnanian Riverbend and Forecast Homes have agreed to provide, or cause to be provided, to each nationally recognized municipal securities information repository and any public or private repository or entity designated by the State as a state repository for purposes of Rule 15c2-12 adopted by the Securities and Exchange Commission (the Commission ) certain annual financial information and operating data. The Authority, Centex Homes, Hovnanian Riverbend and Forecast Homes have further agreed to provide, in a timely manner, notice of certain material events. These covenants have been made in order to assist the Underwriter in complying with Rule 15c2-12. See CONTINUING DISCLOSURE and APPENDIX E CONTINUING DISCLOSURE AGREEMENTS herein for a description of the specific nature of the annual reports to be filed by the Authority, Centex Homes, Hovnanian Riverbend and Forecast Homes, and notices of material events and a summary description of the terms of the continuing disclosure undertakings pursuant to which such annual reports are to be made. Centex Homes, Hovnanian Riverbend s and Forecast Homes respective obligation to provide annual financial information and operating data will 6

17 terminate when such party, or any affiliate thereof, is not responsible for 20 percent or more of the annual Special Tax levy within the applicable District. Bond Owners Risks Certain events could affect the timely repayment of the principal of and interest on the 2005 Series A Bonds when due. See the section of this Official Statement entitled SPECIAL RISK FACTORS for a discussion of certain factors which should be considered, in addition to other matters set forth herein, in evaluating an investment in the 2005 Series A Bonds. The 2005 Series A Bonds are not rated by any nationally recognized rating agency. The purchase of the 2005 Series A Bonds involves risks, and the 2005 Series A Bonds are not appropriate investments for all types of investors. See SPECIAL RISK FACTORS herein. Other Information This Official Statement speaks only as of its date, and the information contained herein is subject to change. Brief descriptions of the 2005 Series A Bonds, the Local Obligations, the security for the 2005 Series A Bonds, Special Risk Factors, the Districts, the School District, the Authority, the Developers and other information are included in this Official Statement. Such descriptions and information do not purport to be comprehensive or definitive. The descriptions herein of the 2005 Series A Bonds, the Local Obligations, the Indenture, the Local Obligation Bond Indentures, resolutions and other documents are qualified in their entirety by reference to the forms thereof and the information with respect thereto included in the 2005 Series A Bonds, the Local Obligations, such resolutions, indentures and other documents. All such descriptions are further qualified in their entirety by reference to laws and to principles of equity relating to or affecting generally the enforcement of creditors rights. APPENDIX D contains definitions and a description of certain terms relating to the 2005 Series A Bonds and the Local Obligations. Copies of the Indenture and the Local Obligation Bond Indentures may be obtained from the office of the Clerk of the Board of Education of the Corona-Norco Unified School District, 2820 Clark Avenue, Norco, California , Attention: Facilities Department. THE AUTHORITY The Authority is a joint powers authority duly organized and existing under and pursuant to that certain Joint Exercise of Powers Agreement (the Agreement ) dated as of June 4, 1996, by and between the School District and Community Facilities District No of the School District and under the provisions of Articles 1 through 4 (commencing with Section 6500) of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California (the Joint Powers Act ), and is authorized pursuant to Article 4 of the Act (the Bond Law ) to borrow money for the purpose of financing the acquisition of bonds, notes and other obligations of the School District and other local agencies in order to provide financing for public capital improvements of such local agencies. The Authority is governed by a board of five directors, consisting of the members of the Board of Education of the School District (the Board of Directors ). The Chairman of the Authority is the President of the Board of Education. The Authority is specifically granted all of the powers specified in the Joint Powers Act, including but not limited to the power to issue bonds and to sell such bonds to public or private purchasers by public or negotiated sale. The Authority is entitled to exercise powers common to its members and necessary to accomplish the purposes for which is was formed. 7

18 ESTIMATED SOURCES AND USES OF FUNDS The following table sets forth the expected sources and uses of 2005 Series A Bond proceeds: Sources Principal Amount of Bonds $ 14,030, Original Issue Discount 21, Total Sources $ 14,008, Uses (1) Available for Acquisition and Construction of Improvements (2) $ 11,532, Administrative Expenses (3) 30, Reserve Fund (4) 954, Costs of Issuance Account (5) 435, Capitalized Interest (6) 831, Underwriter s Discount 224, Total Uses $ 14,008, (1) The Total Sources set forth above, less the Underwriter s Discount, will initially be deposited in the Purchase Fund under the Indenture and used to purchase the Local Obligations. The Fiscal Agent, pursuant to the Local Obligation Bond Indentures, will transfer to the Trustee the amounts specified in this table under Reserve Fund and Costs of Issuance Account from funds received by each District from the sale of the Local Obligations to the Authority. (2) Includes $6,979, to be deposited into the Improvement Area C of CFD No Acquisition and Construction Fund, $2,381, to be deposited into the CFD No Acquisition and Construction Fund and $2,171, to be deposited into the CFD No Acquisition and Construction Fund under the Local Obligation Bond Indentures. (3) Includes $20, to be deposited into the Improvement Area C of CFD No Administrative Expense Account of the Special Tax Fund, $6, to be deposited into the CFD No Administrative Expense Account of the Special Tax Fund and $3, to be deposited into the CFD No Administrative Expense Account of the Special Tax Fund. (4) Includes $577, to be deposited into the Improvement Area C of CFD No Account of the Reserve Fund, $193, to be deposited into the CFD No Account of the Reserve Fund and $182, to be deposited into the CFD No Account of the Reserve Fund under the Indenture. (5) Costs of Issuance include Bond Counsel fees, Districts counsel fees, Trustee and Fiscal Agent fees, fees for printing this Official Statement and other miscellaneous fees related to District formation and issuance of the 2005 Series A Bonds. (6) Includes $591, to be deposited into the Improvement Area C of CFD No Interest Account of the Special Tax Fund, $54, to be deposited into the CFD No Interest Account of the Special Tax Fund and $185, to be deposited into the CFD No Interest Account of the Special Tax Fund under each Local Obligation Bond Indenture to pay the interest coming due on each issue of Local Obligations through October 13, 2006 for Improvement Area C of CFD No and CFD No. 03-2, and through September 1, 2005 for CFD No Source: The Underwriter. General THE 2005 SERIES A BONDS The 2005 Series A Bonds will be issued in the aggregate principal amount of $14,030,000. The 2005 Series A Bonds will be issued in book-entry form and DTC will act as securities depository for the 2005 Series A Bonds. So long as the 2005 Series A Bonds are held in book-entry form, principal of, premium, if any, and interest on the 2005 Series A Bonds will be payable directly to DTC for distribution to the Beneficial Owners of the 2005 Series A Bonds in accordance with the procedures adopted by DTC. See APPENDIX F BOOK-ENTRY ONLY SYSTEM below. The 2005 Series A Bonds will be issued in denominations of $5,000 or any integral multiple thereof. The 2005 Series A Bonds will be dated as of and bear interest from the Delivery Date. Interest on the

19 Series A Bonds will be paid in lawful money of the United States of America semiannually on March 1 and September 1 each year commencing on September 1, 2005 (each, an Interest Payment Date ). Interest on the 2005 Series A Bonds will be calculated on the basis of a 360-day year comprised of twelve 30-day months. Interest on any 2005 Series A Bond will be payable from the Interest Payment Date next preceding the date of authentication of each 2005 Series A Bond, unless (i) such 2005 Series A Bond is authenticated after a Record Date and on or before the following Interest Payment Date, in which event interest shall be payable from such Interest Payment Date, or (ii) such 2005 Series A Bond is authenticated on or before the Record Date for the first Interest Payment Date, in which event interest will be payable from the Delivery Date; provided, however, that if, as of the date of authentication of any 2005 Series A Bond, interest thereon is in default, such 2005 Series A Bond will bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon or from the Delivery Date, if no interest has been paid or made available for payment. The 2005 Series A Bonds will mature on September 1 in the principal amounts and years as shown on the inside cover page hereof and are subject to optional redemption, special mandatory redemption and mandatory sinking fund redemption as shown below. Redemption Optional Redemption. The 2005 Series A Bonds may be redeemed, upon at least 30 days prior written notice to the Trustee, at the option of the Authority from any source of available funds, including the optional prepayment of the Local Obligations, prior to maturity on any Interest Payment Date on or after September 1, 2005, in whole or in part from such maturities as are selected by the Authority, and by lot within a maturity, at the following redemption prices, expressed as a percentage of the principal amount of the 2005 Series A Bonds to be redeemed, together with accrued interest to the date of redemption: Redemption Dates Redemption Price Interest Payment Dates from September 1, 2005 through March 1, % September 1, 2013 and March 1, September 1, 2014 and March 1, September 1, 2015 and thereafter 100 Special Mandatory Redemption. The 2005 Series A Bonds are subject to special mandatory redemption, in whole, or in part, as nearly as practicable, on a pro rata basis among maturities and by lot within a maturity, from and to the extent of any redemption of Local Obligations pursuant to the Local Obligation Bond Indentures as a result of the prepayment of Special Taxes, at a redemption price as set forth in the following table, expressed as a percentage of the principal amount of the 2005 Series A Bonds to be redeemed, together with accrued interest to the date of redemption: Redemption Dates Redemption Price Interest Payment Dates from September 1, 2005 through March 1, % September 1, 2013 and March 1, September 1, 2014 and March 1, September 1, 2015 and thereafter 100 Mandatory Sinking Fund Redemption. The 2005 Series A Bonds maturing September 1, 2025 are also subject to mandatory sinking fund redemption in part, by lot, on September 1, 2021 and in each September 1 thereafter until maturity from sinking fund payments, at a redemption price equal to the principal 9

20 amount thereof to be redeemed, without premium, in the aggregate principal amounts set forth in the following table, plus accrued interest thereon to the date of redemption. * Final maturity Redemption Date (September 1) Principal Amount To Be Redeemed 2021 $ 440, , , , * 530,000 Total $ 2,395,000 The 2005 Series A Bonds maturing September 1, 2035 are also subject to mandatory sinking fund redemption in part, by lot, on September 1, 2026 and in each September 1 thereafter until maturity from sinking fund payments, at a redemption price equal to the principal amount thereof to be redeemed, without premium, in the aggregate principal amounts set forth in the following table, plus accrued interest thereon to the date of redemption. * Final maturity Redemption Date (September 1) Principal Amount To Be Redeemed 2026 $ 560, , , , , , , , , * 895,000 Total $ 7,165,000 If some but not all of the 2005 Series A Bonds maturing September 1, 2025 and September 1, 2035 have been redeemed as described above under Optional Redemption or Special Mandatory Redemption, the total amount of all future sinking fund payments will be reduced by the aggregate principal amount of such 2005 Series A Bonds so redeemed, to be allocated among the applicable remaining sinking fund payments as nearly as practicable on a pro rata basis in integral multiples of $5,000, as determined by the Trustee. Purchase In Lieu of Redemption. In lieu of the mandatory sinking fund redemption of the 2005 Series A Bonds maturing September 1, 2025 and September 1, 2035, Revenues on deposit in the Revenue Fund which are to be transferred to the Principal Account may also be used and withdrawn by the Trustee at any time, upon the written Request of the Authority, for the purchase of the 2005 Series A Bonds maturing September 1, 2025 and September 1, 2035 at public or private sale as and when and at such prices as the Authority may in its discretion determine (which prices including brokerage and other charges shall not be in excess of the principal amount of the 2005 Series A Bonds being purchased). The principal amount of the 2005 Series A Bonds maturing September 1, 2025 and September 1, 2035 so purchased by the Authority in any twelve-month period ending on July 1 in any year shall be credited towards and shall reduce a 10

21 corresponding principal amount of the 2005 Series A Bonds maturing September 1, 2025 and September 1, 2035, respectively, required to be redeemed pursuant to the mandatory sinking fund provisions described above on September 1 in such year; provided that evidence satisfactory to the Trustee of such purchase has been delivered to the Trustee by said July 1. Selection of Bonds for Redemption If less than all of a maturity of the 2005 Series A Bonds are to be redeemed, the Trustee shall select the 2005 Series A Bonds to be redeemed from all 2005 Series A Bonds of such maturity not previously called for redemption, by lot in any manner which the Trustee in its sole discretion shall deem fair and appropriate; provided that, upon a redemption of 2005 Series A Bonds upon prepayment of the Local Obligations, the Trustee shall redeem the same maturities of 2005 Series A Bonds as the maturities of the Local Obligations prepaid. For purposes of such selection, all 2005 Series A Bonds shall be deemed to be comprised of separate $5,000 authorized denominations, and such separate authorized denominations shall be treated as separate 2005 Series A Bonds which may be separately redeemed. Notice of Redemption So long as the 2005 Series A Bonds are held in book-entry form, notice of redemption will be mailed by the Trustee only to DTC and not to the Beneficial Owners of 2005 Series A Bonds under the DTC book-entry only system. Neither the Authority nor the Trustee is responsible for notifying the Beneficial Owners, who are to be notified in accordance with the procedures in effect for the DTC book-entry system. See APPENDIX F BOOK-ENTRY ONLY SYSTEM herein. The notice of redemption will be mailed by first class mail, postage prepaid, by the Trustee to Bondowners at least 30 days but not more than 60 days prior to the redemption date. The notice of redemption will state the date of the notice, the redemption date, the redemption place, and the redemption price and will designate the CUSIP numbers, bond numbers (if less than all of a maturity are to be redeemed) and maturity or maturities of the 2005 Series A Bonds to be redeemed. The actual receipt by any Bondowner of such notice of redemption is not a condition precedent to redemption, and neither the failure to receive such notice nor any defect therein will affect the validity of the proceedings for redemption or the cessation of interest on the redemption date. Effect of Notice of Redemption From and after the date fixed for redemption, if funds available for the payment of the principal of and interest (and premium, if any) on the 2005 Series A Bonds so called for redemption have been duly provided, such 2005 Series A Bonds will cease to be entitled to any benefit under the Indenture other than the right to receive payment of the redemption price, and no interest will accrue thereon from and after the redemption date specified in the notice. All 2005 Series A Bonds which are redeemed will be cancelled and destroyed. Registration of Exchange or Transfer So long as the 2005 Series A Bonds remain in book-entry form, transfer and exchange of the beneficial ownership of any of the 2005 Series A Bonds will be accomplished in accordance the provisions of the DTC book-entry system. In the event of a termination of such book-entry system with respect to the 2005 Series A Bonds, the 2005 Series A Bonds may be transferred and exchanged in accordance with the terms of the Indenture. See APPENDIX D SUMMARY OF CERTAIN PROVISIONS OF THE BOND DOCUMENTS. 11

22 Debt Service Schedule; Coverage The debt service schedule for the 2005 Series A Bonds (including mandatory sinking fund redemptions) is set forth below: Year Ending (September 1) Principal Interest (1) (1) 2005 Series A Bonds Aggregate Debt Service (1) Local Obligation Revenues (1) Coverage (2) 2006 $ 50,000 $ 704, $ 754, $ 754, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,000 94, , , ,000 48, , , Totals $ 14,030,000 $ 14,163, $ 28,193, $ 28,193, Does not include $270, to be paid from capitalized interest on September 1, (2) Coverage calculated by dividing Local Obligation Revenues column 2005 Series A Bonds Aggregate Debt Service Column. Source: The Underwriter. Additional Bonds Other than for the purpose of refunding the 2005 Series A Bonds and any Additional Bonds issued for refunding purposes, no additional bonds entitled to a lien on the Revenues may be issued under the Indenture. See Appendix D SUMMARY OF CERTAIN PROVISIONS OF THE BOND DOCUMENTS. 12

23 SECURITY FOR THE 2005 SERIES A BONDS General OWNERSHIP OF THE 2005 SERIES A BONDS IS SUBJECT TO RISKS NOT SUITABLE FOR ALL INVESTORS. POTENTIAL INVESTORS ARE ADVISED TO CAREFULLY READ THE SECTION OF THIS OFFICIAL STATEMENT ENTITLED SPECIAL RISK FACTORS. THE 2005 SERIES A BONDS ARE LIMITED OBLIGATIONS OF THE AUTHORITY. THE 2005 SERIES A BONDS ARE PAYABLE SOLELY FROM REVENUES OF THE AUTHORITY AND FROM CERTAIN OTHER AMOUNTS ON DEPOSIT IN FUNDS AND ACCOUNTS UNDER THE INDENTURE OTHER THAN THE REBATE FUND. REVENUES WILL CONSIST PRIMARILY OF PAYMENTS RECEIVED BY THE AUTHORITY FROM THE DISTRICTS ON THE LOCAL OBLIGATIONS, WHICH PAYMENTS ARE TO BE MADE FROM SPECIAL TAXES RECEIVED BY THE DISTRICTS. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CORONA-NORCO UNIFIED SCHOOL DISTRICT, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE 2005 SERIES A BONDS. THE AUTHORITY HAS NO TAXING POWER. EXCEPT FOR THE REVENUES, NO OTHER REVENUES OR TAXES ARE PLEDGED TO THE PAYMENT OF THE 2005 SERIES A BONDS. THE 2005 SERIES A BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE CORONA-NORCO UNIFIED SCHOOL DISTRICT OR THE DISTRICTS OR GENERAL OBLIGATIONS OF THE AUTHORITY, BUT ARE LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM REVENUES AND CERTAIN AMOUNTS HELD UNDER THE INDENTURE AS MORE FULLY DESCRIBED HEREIN. THE 2005 SERIES A BONDS DO NOT CONSTITUTE AN INDEBTEDNESS OF THE AUTHORITY, THE DISTRICTS, THE SCHOOL DISTRICT, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. The 2005 Series A Bonds are secured by a first lien on and pledge of Revenues. Revenues are defined in the Indenture as (i) all amounts received by the Authority from each District pursuant to the Local Obligations, (ii) any proceeds of the Bonds originally deposited with the Trustee and all moneys deposited and held from time to time by the Trustee in the funds and accounts established pursuant to the Indenture with respect to the Bonds, (other than the Rebate Fund), and (iii) all investment income on any moneys held by the Trustee in funds and accounts established under the Indenture with respect to the Bonds (other than the Rebate Fund). The Revenues will be obtained by the Authority primarily from payments of the principal of and interest on the Local Obligations. The Local Obligations of a District and the interest thereon are payable from a portion of the annual Special Taxes to be levied and collected on the real property within such District subject to the Special Taxes including the proceeds, if any, from the sale of property delinquent in the payment of its Special Taxes. Annual payments of the principal of, and interest on, the Local Obligations of a District are payable from that portion of the Special Taxes collected within such District remaining after the payment of Administrative Expenses (the Net Taxes ). See Payment of the Local Obligations below. The Authority has covenanted that other than the issuance of bonds issued to refund, in whole or in part, the 2005 Series A Bonds, it will not issue indebtedness payable from the Revenues. Each District has covenanted in its Local Obligation Bond Indenture that it will not issue any additional Local Obligations on a parity with the Local Obligations being purchased by the Authority except as permitted in its Local Obligation Bond Indenture. See Additional Local Obligations herein. However, neither the Authority nor the Districts have any control over the amount of additional debt payable from taxes or assessments on all or a 13

24 portion of the property within the Districts that may be issued in the future by other governmental entities or districts having jurisdiction over all or a portion of the land within the Districts. See THE COMMUNITY FACILITIES DISTRICTS Direct and Overlapping Indebtedness herein. To the extent such indebtedness is payable from assessments, other special taxes levied pursuant to the Act or ad valorem taxes, such assessments, special taxes and ad valorem taxes may have a lien on the property within the Districts on a parity with the lien of the Special Taxes. See SPECIAL RISK FACTORS Parity Taxes, Special Assessments and Land Development Costs herein. Revenue Fund All Revenues will be promptly deposited by the Trustee upon receipt thereof in the Revenue Fund; provided, however, that any Revenues which represent the payment of delinquent principal of or interest on a Local Obligation will immediately be deposited to the Account of the Reserve Fund established for the District which issued such Local Obligation to the extent necessary to replenish the amount in such Account to its portion of the Reserve Requirement, with any amount in excess of that needed to replenish such Account remaining in the Revenue Fund; and, provided further, that any Revenues which represent the redemption proceeds of Local Obligations resulting from Special Tax prepayments will immediately be deposited in the Redemption Account. On each Interest Payment Date and date for redemption of the 2005 Series A Bonds, the Trustee will transfer from the Revenue Fund, and deposit into the following respective accounts of the Revenue Fund the following amounts in the following order of priority, the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority: Interest Account. On each Interest Payment Date and redemption date, the Trustee will deposit in the Interest Account an amount required to cause the aggregate amount on deposit in the Interest Account to equal the amount of interest becoming due and payable on such date on all Outstanding 2005 Series A Bonds or to be paid on the 2005 Series A Bonds being redeemed on such date. All moneys in the Interest Account will be used and withdrawn by the Trustee solely for the purpose of paying interest on the 2005 Series A Bonds as it becomes due and payable (including accrued interest on any 2005 Series A Bonds redeemed prior to maturity). In the event that the amounts on deposit in the Interest Account on any Interest Payment Date or redemption date, after any transfers from the Reserve Fund pursuant to the Indenture, are insufficient for any reason to pay the aggregate amount of interest then coming due and payable on the Outstanding 2005 Series A Bonds, the Trustee will apply such amounts to the payment of interest on each of the Outstanding 2005 Series A Bonds on a pro rata basis so that an equal percentage of the interest due on each 2005 Series A Bond is paid. Principal Account. On each Interest Payment Date on which the principal of the 2005 Series A Bonds is payable (either at the maturity thereof or as a result of mandatory sinking fund redemption), the Trustee will deposit in the Principal Account an amount required to cause the aggregate amount on deposit in the Principal Account to equal the principal amount of the 2005 Series A Bonds coming due and payable on such Interest Payment Date, or required to be redeemed on such date. All moneys in the Principal Account will be used and withdrawn by the Trustee solely for the purpose of (i) paying the principal of the 2005 Series A Bonds at the maturity thereof, and (ii) paying the principal of the 2005 Series A Term Bonds upon the mandatory sinking fund redemption thereof. In the event that the amounts on deposit in the Principal Account on any Interest Payment Date, after any transfers from the Reserve Fund pursuant to the Indenture, are insufficient for any reason to pay the aggregate principal amount of the Outstanding 2005 Series A Bonds and Additional Bonds then coming due and payable (whether at maturity or upon the mandatory sinking fund redemption thereof), the Trustee will apply such amounts to the payment of the principal of the Outstanding 2005 Series A Bonds and Additional Bonds which mature by their terms or are to be redeemed pursuant to mandatory sinking fund redemption on such Interest Payment Date on a pro rata basis. 14

25 Redemption Account. All moneys in the Redemption Account will be used and withdrawn by the Trustee solely for the purpose of (i) paying the principal of and premium (if any) on the 2005 Series A Bonds upon special mandatory redemption thereof, or (ii) paying the principal of and premium (if any) on any 2005 Series A Bonds upon the optional redemption thereof. Reserve Fund. On each Interest Payment Date on which the balance in the Reserve Fund is less than the Reserve Requirement, the Trustee will transfer from the Revenue Fund an amount sufficient to increase the balance in the Reserve Fund to the Reserve Requirement, with such amounts being credited to the Accounts of the Reserve Fund so as to maintain the balances in each Account as required by the Indenture. If on any Interest Payment Date the amount on deposit in the Revenue Fund is inadequate to make the transfers described under the captions Interest Account or Principal Account above as a result of a payment default on a Local Obligation, the Trustee will immediately notify the Superintendent of the School District of the amount needed to make the required deposits. In the event that following such notice the Trustee receives additional payments from a District to cure such shortfall, the Trustee will deposit the amount received from such District to that District s Account of the Reserve Fund with any amount in excess of that needed to replenish such Account being deposited in the Revenue Fund. Rebate Fund. On each September 1 after the deposit of Revenues into the accounts and funds related to the 2005 Series A Bonds as described above, upon request of the Authority, the Trustee will transfer from the Revenue Fund to the Rebate Fund such amount as specified by the Authority. All funds deposited in the Rebate Fund are held by the Trustee in trust for payment to the United States Treasury as set forth in the Indenture. Surplus Fund. On September 2 of each year, after all of the foregoing transfers and deposits have been made, all amounts remaining on deposit in the Revenue Fund will be deposited in the Surplus Fund. Amounts in the Surplus Fund are no longer considered to be Revenues and are not pledged to repay the 2005 Series A Bonds. Amounts on deposit in the Surplus Fund, after setting aside an amount necessary to pay Administrative Expenses, as provided for in the Indenture, will be transferred to the Special Tax Funds of each District in accordance with the formula set forth in the Indenture, as amended from time to time, and will be applied by the Districts to reduce the Special Tax levy therein. In the event that the Local Obligations of a District have been paid or defeased such that such District is no longer obligated to levy Special Taxes to repay Local Obligations, then such amounts in the Surplus Fund will be disbursed only to the Districts that are continuing to levy Special Taxes to repay Local Obligations. In the event that all Local Obligations have been paid or defeased such that each District is no longer obligated to levy Special Taxes to repay the Local Obligations, any amounts in the Surplus Fund may be used by the Authority for any lawful purpose. Reserve Fund See APPENDIX D hereto for a more detailed description of certain provisions of the Indenture. The Indenture provides that the Reserve Fund must be maintained in an amount equal to the Reserve Requirement. Upon the issuance of the 2005 Series A Bonds, $577, is required to be deposited in the Improvement Area C of CFD No Account of the Reserve Fund, $193, is required to be deposited in the CFD No Account of the Reserve Fund and $182, is required to be deposited in the CFD No Account of the Reserve Fund. Each District Account within the Reserve Fund shall, as of any date of calculation, have on deposit therein an amount equal to the least of (i) 10% of the initial principal amount of the Local Obligations of the District, (ii) Maximum Annual Debt Service on the Outstanding Local Obligations of the District, (iii) 125% of average Annual Debt Service on the Outstanding Local Obligations of the District, or (iv) the amount initially deposited therein on the Closing Date; provided, however, that the sum of these amounts for all Districts shall always equal the Reserve Requirement on any date of calculation. In the event that Additional Bonds are issued, or if the amount of the Reserve Requirement is reduced because of the 15

26 payment at maturity or partial redemption of the Bonds, the Trustee shall, at the written direction of the Authority, adjust the balance in any Account or create new Accounts provided that the total amount in the Reserve Fund equals the Reserve Requirement. Moneys in the Reserve Fund may be used to pay the principal of, including sinking fund payments, and interest on the Bonds when due in the event that the moneys in the Interest Account and the Principal Account of the Revenue Fund are insufficient therefor. In addition, cash amounts in the Reserve Fund may be applied in connection with an optional redemption or a special mandatory redemption or a defeasance of the Bonds in whole or in part, or when the balance therein equals the principal and interest due on the Bonds to and including maturity, or to pay the principal of and interest due on the Bonds to maturity. Amounts transferred in connection with a redemption or defeasance of Bonds will be transferred from the Account of the Reserve Fund established for the District which have caused such redemption or defeasance through a redemption of the Local Obligations of such District. Any amounts in the Reserve Fund in excess of what the Reserve Requirement will be following an optional redemption, special mandatory redemption or partial defeasance of the 2005 Series A Bonds will be applied toward the optional redemption, special mandatory redemption or defeasance of 2005 Series A Bonds, as applicable. If the amounts in the Interest Account or the Principal Account of the Revenue Fund are insufficient to pay the principal of, including sinking fund payments, or interest on the Bonds when due, the Trustee will withdraw from the Reserve Fund for deposit in the Interest Account and the Principal Account, as applicable, moneys necessary for such purposes in the following priority and subject to the following limitations: (i) if the insufficiency was caused by a delinquency in the payment of a Local Obligation, the Trustee will transfer up to the amount of the delinquency from the Account of the Reserve Fund established for the District which issued such Local Obligation to the Interest Account or the Principal Account, as applicable; and (ii) all cash and investments in an Account of the Reserve Fund will be transferred for payment of debt service on the Bonds before any drawing may be made on any Credit Facility included within such Account. Amounts on deposit in an Account of the Reserve Fund established for a District, other than interest earnings which are transferred to the Interest Account as permitted by the Indenture, may only be transferred by the Trustee to the Revenue Fund to pay the principal of and interest on the Bonds to the extent necessary to cure a default on such District s Local Obligations, or in connection with a redemption or defeasance of such Local Obligation and a corresponding principal amount of the Bonds. Amounts on deposit in one District Account of the Reserve Fund are not available to cure a deficiency resulting from a default on the Local Obligations issued by the another District. Ownership of Local Obligations The Authority may not cause or permit the Trustee to sell all or a portion of the Local Obligations unless the following conditions are met: (a) the Authority delivers to the Trustee a certificate of an Independent Accountant to the effect that, following the disposition of such Local Obligations, the Revenues to be paid to the Authority (assuming the timely payment of amounts due with respect to all remaining Local Obligations not then in default), together with interest and principal due on any noncallable Federal Securities (as defined in the Indenture) pledged to the repayment of the Bonds and the Revenues then on deposit in the funds and accounts established under the Indenture, will be sufficient to pay the principal of and interest on the Bonds when due; (b) if any Bonds are then rated by Moody s or S&P, the Authority delivers to the Trustee a certificate of Moody s, if Moody s then rates such Bonds, and S&P, if S&P then rates such Bonds, to the effect that such rating will not be withdrawn or reduced as a result of such sale of Local Obligations; and 16

27 (c) the Authority delivers to the Trustee an opinion of Bond Counsel that such sale of Local Obligations is authorized under the provisions of the Indenture and will not adversely affect the exclusion of interest on any Bonds (as to those issued on a tax-exempt basis) from gross income for purposes of federal income taxation. Payment of the Local Obligations Each of the Local Obligations has been issued under and is governed by the terms of the applicable Local Obligation Bond Indenture. See APPENDIX D hereto for a description of certain provisions of the Local Obligation Bond Indentures. The Revenues are primarily composed of payments of interest and principal to be received by the Authority, as owner of the Local Obligations. A portion of the proceeds from the sale of the Local Obligations will be used to fund capitalized interest on the Local Obligations to pay the interest due through October 13, 2006 with respect to the CFD No Local Obligations and the CFD No Local Obligations, and through September 1, 2005 with respect to the CFD No Local Obligations. The Local Obligations and the interest thereon are payable from the Special Taxes remaining after payment of the administrative expenses of a District as provided in the Local Obligation Bond Indentures. The amount of Special Taxes that each District may levy in a District in any year is strictly limited by the maximum rates approved by the qualified electors within such District. See Rates and Methods of Apportionment of the Special Tax below and APPENDIX A hereto. Each of the Local Obligation Bond Indentures provides that the respective Local Obligations are subject to optional redemption, special mandatory redemption and mandatory sinking fund redemption as described below. The Local Obligations of a District may be redeemed, at the option of such District, from any source of funds on any Interest Payment Date for the Local Obligations in whole, or in part from such maturities as are designated by the District and by lot within a maturity, at the following redemption prices, expressed as a percentage of the principal amount of the Local Obligations to be redeemed, together with accrued interest to the date of redemption: Redemption Dates Redemption Price Interest Payment Dates from September 1, 2005 through March 1, % September 1, 2013 and March 1, September 1, 2014 and March 1, September 1, 2015 and thereafter 100 The Local Obligations of a District are subject to special mandatory redemption, in whole or in part, on a pro rata basis among maturities, as nearly as practicable, on any Interest Payment Date from and to the extent of any prepayment of Special Taxes within such District, at a redemption price as set forth in the following table, expressed as percentages of the principal amount of the Local Obligations to be redeemed, together with accrued interest to the date of redemption: Redemption Dates Redemption Price Interest Payment Dates from September 1, 2005 through March 1, % September 1, 2013 and March 1, September 1, 2014 and March 1, September 1, 2015 and thereafter

28 Each of the Local Obligations maturing September 1, 2025 and September 1, 2035 shall be called before maturity and redeemed, from the Sinking Fund Payments that have been deposited into the Redemption Account established under the respective Local Obligation Bond Indentures, on September 1, 2021 and September 1, 2026, respectively, and on each September 1 thereafter prior to maturity, in accordance with the schedule of Sinking Fund Payments set forth below. The Local Obligations so called for redemption shall be selected by the Fiscal Agent by lot and shall be redeemed at a redemption price equal to the principal amount of such Local Obligations, plus accrued interest to the redemption date, without premium, as follows: * Final maturity CFD NO LOCAL OBLIGATIONS MATURING SEPTEMBER 1, 2025 Redemption Date (September 1) Principal Amount 2021 $ 265, , , , * 325,000 Total $ 1,460,000 * Final maturity CFD NO LOCAL OBLIGATIONS MATURING SEPTEMBER 1, 2035 Redemption Date (September 1) Principal Amount 2026 $ 340, , , , , , , , , * 545,000 Total $ 4,360,000 18

29 CFD NO LOCAL OBLIGATIONS MATURING SEPTEMBER 1, 2025 Redemption Date (September 1) Principal Amount 2021 $ 90, , , , * 105,000 Total $ 480,000 * Final maturity CFD NO LOCAL OBLIGATIONS MATURING SEPTEMBER 1, 2035 Redemption Date (September 1) Principal Amount 2026 $ 115, , , , , , , , , * 180,000 Total $ 1,445,000 * Final maturity CFD NO LOCAL OBLIGATIONS MATURING SEPTEMBER 1, 2025 Redemption Date (September 1) Principal Amount 2021 $ 85, , , , * 100,000 Total $ 455,000 * Final maturity 19

30 CFD NO LOCAL OBLIGATIONS MATURING SEPTEMBER 1, 2035 Redemption Date (September 1) Principal Amount 2026 $ 105, , , , , , , , , * 170,000 Total $ 1,360,000 * Final maturity In the event of a partial optional or special mandatory redemption of the CFD No Local Obligations, CFD No Local Obligations or CFD No Local Obligations maturing September 1, 2025 or September 1, 2035, the remaining mandatory sinking fund payments for the applicable Local Obligations so redeemed will be reduced by the aggregate principal amount so redeemed, as nearly as practicable on a pro rata basis in integral multiples of $5,000, as determined by the Fiscal Agent. So long as the Local Obligations are owned by the Authority, each District may optionally redeem such District s Local Obligations only if (i) it shall have delivered to the Authority a certificate of an Independent Financial Consultant to the effect that, following such optional redemption of such Local Obligations, the Revenues, assuming timely payment on all Local Obligations to remain outstanding, will be adequate to make timely payment of the principal of and interest on the 2005 Series A Bonds, and (ii) the Authority has consented, in writing, to such optional redemption by the District. The Net Taxes of a District and any interest earned on such amounts (while any of such amounts are held in the applicable Special Tax Fund and any account therein other than the Administrative Expense Account) constitute a trust fund for the payment of the principal of, and interest on, the Local Obligations issued on behalf of such District. Special Taxes and other amounts, if any, deposited in the Acquisition and Construction Fund, the Rebate Fund, the Special Reserve Fund and the Administrative Expense Account of the Special Tax Fund created pursuant to each of the Local Obligation Bond Indentures are not pledged to the payment of any of the Local Obligations, and none of the Acquisition and Construction Fund, the Rebate Fund, the Special Reserve Fund or the Administrative Expense Account of the Special Tax Fund created pursuant to the Local Obligation Bond Indentures shall be construed as a trust fund held for the benefit of the owners of any Local Obligations. Each District is legally authorized and has covenanted to cause the levy of the Special Taxes within its boundaries in an amount determined according to a methodology which each District and the qualified electors of each District have approved (each a Rate and Method of Apportionment of Special Tax ). See THE COMMUNITY FACILITIES DISTRICTS below. The Rate and Method of Apportionment of Special Tax for each District apportions the total amount of Special Taxes to be collected within such District among the taxable parcels in such District as more particularly described herein. See Rates and Methods of Apportionment of the Special Tax below and APPENDIX A hereto. 20

31 Special Tax Fund for the Local Obligations When received by each District, the Special Taxes collected in each District are required to be deposited into the Special Tax Fund for such District. The Fiscal Agent is directed to transfer amounts on deposit in the Special Tax Fund for a District pursuant to the provisions of the Local Obligation Bond Indenture for such District to the following accounts and funds, in order of priority: (i) (ii) (iii) (iv) (v) (vi) (vii) Administrative Expense Account of the Special Tax Fund; Interest Account of the Special Tax Fund; Principal Account of the Special Tax Fund; Redemption Account of the Special Tax Fund; Reserve Account of the Special Tax Fund; Rebate Fund; and Special Reserve Fund. For a detailed description of the provisions of the Local Obligation Bond Indentures relating to the above-referenced funds and accounts see APPENDIX D hereto. Rates and Methods of Apportionment of the Special Tax Each District has adopted a Rate and Method of Apportionment of Special Tax following a public hearing and an election conducted within such District pursuant to the provisions of the Act. The Rate and Method of Apportionment of Special Tax for each District is contained in APPENDIX A hereto. Each Rate and Method of Apportionment of Special Tax includes a multi-step process by which the Board of Education of the School District will determine the amount of Special Tax to be levied against each parcel of Developed Property and each parcel of Undeveloped Property in the applicable District for each fiscal year. This amount will be used to pay annual debt service on the applicable Local Obligations, administrative expenses and other authorized costs. Subject to the limitations of the maximum Special Taxes for each District as described in APPENDIX A hereto, the Board of Education of the School District will follow the multi-step process in the Rate and Method of Apportionment of Special Tax for each District set forth in APPENDIX A hereto until the amount of the Special Tax levy equals the amount required to be collected to pay annual debt service on its Local Obligations and administrative costs. For each Rate and Method of Apportionment, the Maximum Special Tax for each Assessor s Parcel classified as Developed Property is the greater of the applicable Assigned Special Tax or the amount derived by the application of the Backup Special Tax. Pursuant to the Rate and Method of Apportionment of Special Tax for Improvement Area C of CFD No. 01-2, the Assigned Special Tax for Developed Property for Residential Property in Improvement Area C of CFD No is $2,157 per residential unit 2,700 square feet or less, $2,524 per residential unit 2,701 square feet to 3,200 square feet, $2,707 per residential unit 3,201 square feet to 3,400 square feet, $2,891 per residential unit 3,401 square feet to 3,600 square feet, $3,148 per residential unit 3,601 square feet to 3,900 square feet, and $3,258 per residential unit 3,901 square feet or more. The Assigned Special Tax for Non-Residential Property in Improvement Area C of CFD No is $10,414 per acre. 21

32 Pursuant to the Rate and Method of Apportionment of Special for CFD No. 03-2, the Assigned Special Tax for Developed Property for Residential Property in CFD No is $1,591 per residential unit of 3,001 square feet or less, $1,697 per residential unit 3,001 to 3,250 square feet, $1,762 per residential unit 3,251 square feet to 3,500 square feet, $1,790 per residential unit of 3,501 square feet to 4,000 square feet, and $2,008 per residential unit of 4,000 square feet or greater. The Assigned Special Tax for Developed Non-Residential Property within CFD No is $8,000 per acre. Pursuant to the Rate and Method of Apportionment of Special Tax for Tax Zone A of CFD No. 03-5, the Assigned Special Tax for Developed Property for Residential Property in CFD No is $2,413 per residential unit less than 3,000 square feet, $3,090 per residential unit 3,000 square feet to 3,499 square feet and $3,213 per residential unit greater than 3,500 square feet. The Assigned Special Tax for Non-Residential Property in Tax Zone A of CFD No is $13,958 per acre. The Assigned Special Tax for Developed Property for Residential Property in Tax Zone B of CFD No is $2,503 per residential unit less than 3,500 square feet, $3,069 per residential unit 3,500 square feet to 3,899 square feet and $3,230 per residential unit of 3,900 square feet or greater. The Assigned Special Tax for Non-Residential Property in Tax Zone B of CFD No is $14,990 per acre. The Assigned Special Tax for Developed Property for Residential Property in Tax Zone C of CFD No is $2,582 per residential unit less than 2,600 square feet, $3,067 per residential unit 2,600 square feet to 2,999 square feet and $3,354 per residential unit of 3,000 square feet or greater. The Assigned Special Tax for Non-Residential Property in Tax Zone C of CFD No is $13,917 per acre. The Backup Special Tax for Developed Property and the Maximum Special Tax for Undeveloped Property, Taxable Association Property and Taxable Public Property within Improvement Area C of CFD No are each $10,414 per acre. The Backup Special Tax for Developed Property and the Maximum Special Tax for Undeveloped Property, Taxable Association Property and Taxable Public Property within CFD No are each $8,000 per acre. The Backup Special Tax for Developed Property and the Maximum Special Tax for Undeveloped Property, Taxable Association Property and Taxable Public Property within Tax Zone A of CFD No are each $13,958 per acre. The Backup Special Tax for Developed Property and the Maximum Special Tax for Undeveloped Property, Taxable Association Property and Taxable Public Property within Tax Zone B of CFD No are each $14,990 per acre. The Backup Special Tax for Developed Property and the Maximum Special Tax for Undeveloped Property, Taxable Association Property and Taxable Public Property within Tax Zone C of CFD No are each $13,917 per acre. To the extent required to meet the applicable Special Tax Requirement for a District, the Special Tax will be levied on all Assessor s Parcels subject to the Special Tax within such District for so long as any Local Obligations of such District are outstanding. To the extent any delinquent Special Taxes remain uncollected within Improvement Area C of CFD No prior to or after all CFD No Improvement Area C Local Obligations are retired, the Special Tax may be levied within Improvement Area C of CFD No where the delinquency exists through, but not later than, fiscal year to the extent necessary to reimburse Improvement Area A of CFD No for uncollected Special Taxes. 22

33 To the extent any delinquent Special Taxes remain uncollected within CFD No prior to or after all CFD No Local Obligations are retired, the Special Tax may be levied within CFD No where the delinquency exists through, but not later than, fiscal year to the extent necessary to reimburse CFD No for uncollected Special Taxes. To the extent any delinquent Special Taxes remain uncollected within CFD No prior to or after all CFD No Local Obligations are retired, the Special Tax may be levied within CFD No where the delinquency exists through, but not later than, fiscal year to the extent necessary to reimburse CFD No for uncollected Special Taxes. Prior to the issuance of the 2005 Series A Bonds, the Special Tax Consultant (as defined in the Indenture) will certify that the applicable Special Tax for a District in any particular year assuming current land uses, if collected in the maximum amounts permitted pursuant to the Rate and Method of Apportionment of Special Tax for such District, would generate at least 110% of the sum of maximum debt service payable with respect to the Local Obligations to be issued on behalf of such District plus such District s share of Administrative Expenses. Levy and Collection of Special Taxes Each District has covenanted in its Local Obligation Bond Indenture to cause the Special Taxes for such District to be levied in each Fiscal Year in accordance with the Rate and Method of Apportionment of Special Tax for such District in an amount (up to the maximum rates and amounts permitted by the formula) that, together with other available amounts on deposit with the Fiscal Agent, is sufficient to pay the principal of and interest and premium, if any, on the Local Obligations issued by such District, to pay Administrative Expenses for such District and to replenish the Account of the Reserve Fund established for such District under the Indenture. However, because each Rate and Method of Apportionment of Special Tax includes a maximum Special Tax rate (the Maximum Special Tax Rate ), each District can give no assurance that Special Taxes will be collected in an amount sufficient for such purposes. The Special Taxes imposed in each District are customarily billed with ad valorem property taxes and collected by the County. When received by each District, such Special Taxes will be transferred to the Fiscal Agent and deposited by the Fiscal Agent in the Special Tax Fund of the applicable District to be held first for the payment of Administrative Expenses and then for payment of debt service on the applicable Local Obligations. Although the Special Tax installments levied for each District will constitute liens on taxed parcels within such District, they will not constitute personal indebtedness of the owners of such parcels. There is no assurance that the owners will be financially able to pay the annual Special Tax installments or that they will pay such taxes even if financially able to do so. See SPECIAL RISK FACTORS and especially SPECIAL RISK FACTORS Special Tax Delinquencies herein. Covenant for Superior Court Foreclosure In the event of a delinquency in the payment of any installment of Special Taxes, each District is authorized pursuant to Section of the Act to order institution of an action in the Superior Courts of the State to foreclose any lien therefor. In such action, the real property subject to the Special Taxes may be sold at a judicial foreclosure sale. The ability of each District to foreclose the lien of delinquent unpaid Special Taxes may be limited in certain instances and may require prior consent of the property owner in the event the property is owned by or is in receivership of the Federal Deposit Insurance Corporation (the FDIC ). See SPECIAL RISK FACTORS Bankruptcy and Foreclosure and SPECIAL RISK FACTORS Special Tax Delinquencies herein. 23

34 Such judicial foreclosure proceedings are not mandatory. However, in the Local Obligation Bond Indentures, each District has covenanted with the owners of the Local Obligations, including the Authority, that it will (i) commence judicial foreclosure proceedings against parcels with delinquent Special Taxes in excess of $5,000 by October 1 following the close of each fiscal year in which such Special Taxes were due, (ii) commence judicial foreclosure proceedings against all parcels with delinquent Special Taxes in a District by the October 1 following the close of each fiscal year in which it receives Special Taxes in an amount which is less than 95% of the total Special Tax levied in such District or the amount on deposit in the Account of the Reserve Fund established for the applicable Local Obligations under the Indenture is less than its required balance, and (iii) diligently pursue such foreclosure proceedings until the delinquent Special Taxes are paid. If foreclosure is necessary and other funds (including amounts in the Reserve Fund) have been exhausted, debt service payments on the 2005 Series A Bonds could be delayed until the foreclosure proceedings have ended with the receipt of any foreclosure sale proceeds. Judicial foreclosure actions are subject to the normal delays associated with court cases and may be further slowed by bankruptcy actions, involvement by agencies of the federal government and other factors beyond the control of the School District, the Authority and the Districts. See SPECIAL RISK FACTORS Bankruptcy and Foreclosure herein. Moreover, no assurances can be given that the real property subject to foreclosure and sale at a judicial foreclosure sale will be sold or, if sold, that the proceeds of such sale will be sufficient to pay any delinquent Special Tax installment. See SPECIAL RISK FACTORS Appraised Value herein. Although the Act authorizes the Districts to cause such an action to be commenced and diligently pursued to completion, the Act does not impose on the Districts or the School District any obligation to purchase or acquire any lot or parcel of property sold at a foreclosure sale if there is no other purchaser at such sale. The Act provides that, in the case of a delinquency, the Special Tax will have the same lien priority as is provided for ad valorem taxes. Letters of Credit Centex Homes, Hovnanian Riverbend and Forecast Homes (each a Letter of Credit Obligor and collectively, the Letter of Credit Obligors ) will each be required to provide a letter of credit to the Fiscal Agent, as beneficiary, to secure payment of Special Taxes levied on their respective properties within the Districts as described below. Centex Homes is providing an irrevocable letter of credit to secure payment of Special Taxes levied on its property in Improvement Area C of CFD No and a letter of credit to secure payment of Special Taxes levied on its property in CFD No Hovnanian Riverbend is providing an irrevocable letter of credit to secure payment of Special Taxes levied on the property it is developing in CFD No. 03-2, and Forecast Homes is providing an irrevocable letter of credit to secure payment of Special Taxes levied on the property it is developing in CFD No (each a Letter of Credit, and collectively, the Letters of Credit ). The initial letter of credit bank providing the Letters of Credit is Bank of America, N.A. ( BofA ). Stated Amount and Initial Term. During the initial fiscal year in which the Letters of Credit are in effect, the Stated Amount of each Letter of Credit must equal the amount of the Letter of Credit Obligor s (or its affiliates) share of one year s debt service on the Local Obligations secured in part by Special Taxes levied on such Letter of Credit Obligor s (or its affiliates) property to secure payment of the semiannual installment payments of the Special Tax levied on all lots and parcels levied on such Letter of Credit Obligor s (or its affiliates) property. Duration and Conditions of Release. The initial terms of the Letters of Credit will expire July 1, The Letter of Credit Obligors will maintain and cause the issuing bank, which will initially be BofA, to annually renew the Letter of Credit for a District until 60% of the lots in such District have been sold to individual homebuyers. The Letter of Credit for a District will be released once the required number of homes within such District have been sold to individual homeowners. 24

35 The Stated Amount of the Letters of Credit will each be recalculated on June 1 of each year, to reflect the estimated amount of annual Special Taxes to be levied on the property owned by the Letter of Credit Obligors (or their affiliates) or their successors-in-interest (other than individual homeowners) in the applicable District for the next fiscal year. On or before June 1 of each year, commencing June 1, 2005, and in connection with any recalculation of the Stated Amount of any Letter of Credit, the applicable District will determine and certify to the Trustee, in writing, the new Stated Amount of the applicable Letter of Credit. In addition, if any applicable District determines at any time that 60% or more of the lots in such District have been sold to individual homebuyers, then the Letter of Credit securing payment of Special Taxes in such District will be released. Annual Renewal. CFD No. 01-2, CFD No and CFD No will cause the Letter of Credit Obligors to provide to the Fiscal Agent, no later than June 15 of each year, irrevocable written commitments by the Letter of Credit Bank to provide the Letters of Credit securing Special Taxes of the Letter of Credit Obligors (or their affiliates), or to extend or replace the existing Letters of Credit in an amount equal to the Stated Amount of each Letter of Credit required by July 1 of each year. If the Fiscal Agent does not receive either a replacement of each Letter of Credit or an irrevocable written commitment from the Letter of Credit Bank that it will renew or issue each Letter of Credit when due, the Fiscal Agent will immediately, with no further authorization or instruction, draw upon the existing Letter of Credit not renewed in the full Stated Amount thereof. The Fiscal Agent will deposit the proceeds of such draw into the applicable Letter of Credit Account for use as described in the applicable Local Obligation Bond Indenture. Failure by the Letter of Credit Obligors to maintain and renew the Letters of Credit applicable thereto are not events of default under the Local Obligation Bond Indentures. Draws on the Letters of Credit. No later than five days before each Interest Payment Date, the Fiscal Agent is required to determine whether amounts on deposit in the Principal Account and Interest Account of the Special Tax Fund on that Interest Payment Date will be sufficient to make the next payment of principal of and interest on the CFD 01-2 Local Obligations, the CFD No Local Obligations and the CFD No Local Obligations under the applicable Local Obligation Bond Indenture, and to notify the applicable District of any deficiency. If amounts in the Principal Account and Interest Account of the Special Tax Fund will be insufficient to pay principal of and interest on such Local Obligations, and the shortfall is attributable to a Letter of Credit Obligor s delinquency in the payment of Special Taxes for the property owned by it or its successors-in-interest (other than individual homeowners) in the applicable District, the Fiscal Agent will, prior to any withdrawals from the Account of the Reserve Fund established under the Indenture for such Local Obligations, draw upon the applicable Letter of Credit provided by such delinquent Letter of Credit Obligor in an amount no greater than the delinquent Special Taxes levied on property owned by such delinquent Letter of Credit Obligor (or any affiliate thereof). The Fiscal Agent will deposit the proceeds of any such draw upon the a Letter of Credit into the applicable Letter of Credit Account established under the applicable Local Obligation Bond Indenture and, on the day preceding the Interest Payment Date, and prior to any transfers from the Account of Reserve Fund established under the applicable Local Obligation Bond Indenture, transfer such amounts from the applicable Letter of Credit Account to the applicable Principal Account and Interest Account of the Special Tax Fund. Reimbursement of the Letter of Credit Bank. The Districts have no obligation to reimburse the Letter of Credit Bank for draws on the Letters of Credit except from (i) any proceeds of a draw on a Letter of Credit not required to pay debt service on the applicable Local Obligations on the Interest Payment Date for which the draw was made, and (ii) delinquent Special Taxes subsequently received by such District with respect to the property corresponding to the delinquent Special Taxes. 25

36 The obligations of the Letter of Credit Bank under the Letters of Credit are not contingent upon reimbursement for any draws thereon from any source. Final Release of Funds in the Letter of Credit Accounts. The Fiscal Agent will immediately return to the Letter of Credit Bank amounts that remain on deposit in the Letter of Credit Account of a Local Obligation Bond Indenture on any July 1 if the following conditions are met: (i) 60% of the lots within the applicable District are owned by individual homeowners, (ii) such moneys are not required to pay debt service on the applicable Local Obligations on the following Interest Payment Date as a result of delinquencies in the payment of Special Taxes by the applicable Letter of Credit Obligor (or any affiliate thereof) or its successors-in-interest (other than individual homeowners), and (iii) the applicable Letter of Credit Obligor (or any affiliate thereof) or its successors-in-interest (other than individual homeowners) are not delinquent in the payment of its Special Taxes. Enforcement of the Letters of Credit. If the Letter of Credit Bank wrongfully refuses to honor any drawing made on its Letters of Credit, the applicable District, on behalf of the Authority, as the owner of the applicable Local Obligations, is required to immediately bring an action and pursue any remedy available at law or in equity for the purpose of compelling the Letter of Credit Bank to honor such drawing and to enforce the provisions of the Letters of Credit. Description of the Letter of Credit Bank. Bank of America, N.A. is the initial provider of the Letters of Credit. BofA is a national banking association organized under the laws of the United States, with its principal executive offices located in Charlotte, North Carolina. BofA is a wholly-owned indirect subsidiary of Bank of America Corporation ( BofA Corporation ) and is engaged in general consumer banking, commercial banking and trust business, offering a wide range of commercial, corporate, international, financial market, retail and fiduciary banking services. As of December 31, 2004, BofA had consolidated assets of approximately $772 billion, consolidated deposits of approximately $530 billion and stockholder s equity of approximately $54 billion based on regulatory accounting principles. Recent Developments: On April 1, 2004 BofA Corporation completed its merger with FleetBoston Financial Corporation ( FleetBoston ). BofA is expected to merge with Fleet National Bank, BofA Corporation s other principal banking subsidiary, during the second quarter of BofA Corporation is a bank holding company and a financial holding company, with its principal executive offices located in Charlotte, North Carolina. Additional information regarding BofA Corporation is set forth in its Annual Report on Form 10-K for the fiscal year ended December 31, 2004, together with any subsequent documents it filed with the Commission pursuant to the Securities Exchange Act of 1934, as amended (the Exchange Act ). Moody s Investors Service, Inc. ( Moody s ) currently rates BofA s long-term debt as Aa1 and short-term debt as P-1. Standard & Poor s currently rates BofA s long-term debt as AA and its short-term debt as A-1+. Fitch Ratings, Inc. ( Fitch ) currently rates long-term debt of BofA s as AA- and short-term debt as F1+. Further information with respect to such ratings may be obtained from Moody's, Standard & Poor's and Fitch, respectively. No assurances can be given that the current ratings of the BofA s instruments will be maintained. BofA will provide copies of the most recent Bank of America Corporation Annual Report on Form 10-K, any subsequent reports on Form 10-Q, and any required reports on Form 8-K (in each case as filed with the Commission pursuant to the Exchange Act), and the publicly available portions of the most recent 26

37 quarterly Call Report of BofA delivered to the Comptroller of the Currency, without charge, to each person to whom this document is delivered, on the written request of such person. Written requests should be directed to: Bank of America Corporate Communications 100 North Tryon Street, 18th Floor Charlotte, North Carolina Attention: Corporate Communications ALTHOUGH THE LETTERS OF CREDIT ARE BINDING OBLIGATIONS OF BOFA, THE 2005 SERIES A BONDS AND THE LOCAL OBLIGATIONS ARE NOT DEPOSITS OR OBLIGATIONS OF BOFA CORPORATION OR ANY OF ITS AFFILIATED BANKS AND ARE NOT GUARANTEED BY ANY OF THESE ENTITIES. THE 2005 SERIES A BONDS AND THE LOCAL OBLIGATIONS ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY AND ARE SUBJECT TO CERTAIN INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. The information contained in this section relates to and has been obtained from BofA. The information concerning BofA Corporation and BofA contained herein is furnished solely to provide limited introductory information regarding BofA Corporation and BofA and does not purport to be comprehensive. Such information is qualified in its entirety by the detailed information appearing in the documents and financial statements referenced above. The delivery hereof shall not create any implication that there has been no change in the affairs of BofA Corporation or BofA since the date hereof, or that the information contained or referred to in this section is correct as of any time subsequent to its date. Additional Local Obligations Other than for the purpose of refunding Outstanding Local Obligations, no additional Local Obligations entitled to a lien on the Special Taxes may be issued under the Local Obligation Bond Indentures which are secured on a parity with the Local Obligations. Estimated Debt Service Coverage Debt service on the 2005 Series A Bonds is payable from principal of and interest on the Local Obligations. In the event of delinquencies in Special Tax payments in any of the Districts, the payments on the Local Obligations would be reduced and the estimated coverage ratios will not be achieved. The ability of each District to make annual debt service payments on its Local Obligations is strengthened by its ability to levy Special Taxes up to their maximum rates for such District in the event of delinquencies in that District. In the event that delinquencies occur in the receipt of Special Taxes for a District in any fiscal year, that District may increase the Special Tax levy in such District up to the maximum rates in the following fiscal year. The Special Taxes collected within a District are pledged to the payment of only the Local Obligations issued by such District. Thus, if the Special Taxes received from one District are insufficient to pay the principal and interest due with respect to the Local Obligations issued by such District, the amount of the Special Tax to be levied in a future fiscal year may be increased only in that District, not in any other District. Although the Special Tax levies may be increased, due to the delay between the levy and the collection of Special Taxes, the increase would not be available to cure any delinquencies for a period of one year or more. In addition, an increase in the Special Tax rates may affect the ability or willingness of property owners, especially owners of unimproved property, in a District to pay their Special Taxes. See SECURITY FOR THE 2005 SERIES A BONDS Rates and Methods of Apportionment of the Special Tax and APPENDIX A 27

38 hereto for a description of the procedures for increasing the amount of Special Taxes and SPECIAL RISK FACTORS Insufficiency of Special Taxes. Tables 1A through 1C illustrate the estimated aggregate coverage for debt service on the applicable Local Obligations by (i) comparing the estimated aggregate maximum Special Tax generating ability in each of the Districts, assuming no further development of properties in the Districts subsequent to January 30, 2005, to the estimated annual debt service on the corresponding Local Obligations, and (ii) comparing the estimated aggregate maximum Special Tax generating ability in each of the Districts, assuming development of properties in the Districts to buildout, to the estimated annual debt service on the corresponding Local Obligations. See PROPERTY OWNERSHIP AND THE DEVELOPMENTS for a description of the projected buildout of each District. 28

39 Year Ending September 1, TABLE 1A CORONA-NORCO UNIFIED SCHOOL DISTRICT IMPROVEMENT AREA C OF COMMUNITY FACILITIES DISTRICT NO ESTIMATED COVERAGE FROM MAXIMUM SPECIAL TAXES Estimated Net Special Tax Revenues for Improvement Area C of CFD No (1) CFD No Local Obligations Debt Service Estimated Debt Service Coverage (2) Estimated Net Assigned Special Tax Revenues for Improvement Area C of CFD No at Buildout (3) Estimated Debt Service Coverage at Buildout (4) 2005 N/A $ 163, N/A N/A N/A 2006 N/A 427, N/A N/A N/A 2007 $ 706, , % $ 693, % , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Totals $ 20,494, $ 17,280, $ 20,103,322 (1) Interest on the CFD No Improvement Area C Local Obligations is capitalized through October 13, Estimated Net Special Tax Revenues for Improvement Area C of CFD No based on development status as of January 30, 2005, assuming no further development, less $20,000 of Administrative Expenses payable prior to debt service. (2) Calculated by dividing the Estimated Net Special Tax Revenues for Improvement Area C of CFD No column by the CFD No Local Obligations Debt Service column. (3) Estimated Assigned Special Taxes at buildout less $20,000 of Administrative Expenses payable prior to debt service. No assurance can be given that buildout will occur as projected. (4) Calculated by dividing the Estimated Net Assigned Special Tax Revenues for Improvement Area C of CFD No at Buildout column by the CFD No Local Obligations Debt Service column. Source: Special District Financing & Administration. 29

40 Year Ending September 1, TABLE 1B CORONA-NORCO UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO ESTIMATED COVERAGE FROM MAXIMUM SPECIAL TAXES Estimated Net Special Tax Revenues for CFD No (1) CFD No Local Obligations Debt Service Estimated Debt Service Coverage (2) Estimated Net Assigned Special Tax Revenues for CFD No at Buildout (3) Estimated Debt Service Coverage at Buildout (4) 2005 N/A $ 54, N/A N/A N/A 2006 $ 218, , % $ 213, % , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Totals $6,549,720 $ 5,781, $ 6,391,500 (1) Interest on the CFD No Local Obligations is capitalized through September 1, Estimated Net Special Tax Revenues for CFD No based on development status as of January 30, 2005, assuming no further development, less $20,000 of Administrative Expenses payable prior to debt service. (2) Calculated by dividing the Estimated Net Special Tax Revenues for CFD No column by the CFD No Local Obligations Debt Service column. (3) Estimated Assigned Special Taxes at buildout less $20,000 of Administrative Expenses payable prior to debt service. No assurance can be given that buildout will occur as projected. (4) Calculated by dividing the Estimated Net Assigned Special Tax Revenues for CFD No at Buildout column by CFD No Local Obligations Debt Service column. Source: Special District Financing & Administration. 30

41 Year Ending September 1, TABLE 1C CORONA-NORCO UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO ESTIMATED COVERAGE FROM MAXIMUM SPECIAL TAXES Estimated Net Special Tax Revenues for CFD No (1) CFD No Local Obligations Debt Service Estimated Debt Service Coverage (2) Estimated Net Assigned Special Tax Revenues for CFD No at Buildout (3) Estimated Debt Service Coverage at Buildout (4) 2005 N/A $ 51, N/A N/A N/A 2006 N/A 133, N/A N/A N/A 2007 $ 269, , % $ 260, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,016 Totals $7,825,563 $ 5,402, $7,540, % (1) Interest on the CFD No Local Obligations is capitalized through October 13, Estimated Net Special Tax Revenues for CFD No based on development status as of January 30, 2005, assuming no further development, less $20,000 of Administrative Expenses payable prior to debt service. (2) Calculated by dividing the Estimated Net Special Tax Revenues for CFD No column by the CFD No Local Obligations Debt Service column. (3) Estimated Assigned Special Taxes at buildout less $20,000 of Administrative Expenses payable prior to debt service. No assurance can be given that buildout will occur as projected. (4) Calculated by dividing the Estimated Net Assigned Special Tax Revenues for CFD No at Buildout column by the CFD No Local Obligations Debt Service column. Source: Special District Financing & Administration. 31

42 Improvement Area C of CFD No THE COMMUNITY FACILITIES DISTRICTS General Description of Improvement Area C of CFD No Improvement Area C of CFD No consists of approximately gross acres and approximately 69.5 net developable acres located within the boundaries of the School District in Corona in the County. 87 lots in Improvement Area C of CFD No are expected to be developed by Centex Homes into an 87 single family detached unit development known as Silverwood and 149 lots in Improvement Area C of CFD No are expected to be developed by Centex Homes into a 149 single family detached unit development known as Copperleaf. Summary of Community Facilities District Procedures. Pursuant to the Act, the Board adopted Resolution Nos. 67 and 68 (collectively, the CFD No Resolution of Intention ) on December 18, 2001, stating its intent to establish CFD No. 01-2, to designate Improvement Areas A, B and C therein and to authorize the levy of Special Taxes within each Improvement Area within the boundaries of CFD No to pay principal of and interest on bonded indebtedness of such Improvement Area in an aggregate principal amount not to exceed $7,500,000 within Improvement Area C. The School District, Corona and Top Capital, a California limited liability company ( Top Capital ) and former owner of the property in Improvement Area C of CFD No entered into a Joint Community Facilities Agreement, dated as of February 5, 2002, regarding the financing of various public improvements necessary to service the property in Improvement Area C of CFD No. 01-2, as amended pursuant to an Addendum to Joint Community Facilities Agreement, entered into as of January 13, 2004, by and between the School District and Centex Homes (collectively, the CFD No Facilities Agreement ). Subsequent to a noticed public hearing on February 5, 2002, the Board adopted Resolution Nos. 78 and 79 (collectively, the CFD No Resolution of Formation ) which established CFD No. 01-2, authorized the levy of a special tax within each Improvement Area of CFD No subject to voter approval, determined the necessity to incur bonded indebtedness in an amount not to exceed $7,500,000 within Improvement Area C of CFD No and called an election within each Improvement Area of CFD No on the propositions of incurring bonded indebtedness within each Improvement Area, levying a special tax within each Improvement Area and setting an appropriations limit. On February 8, 2002, an election was held within each Improvement Area of CFD No in which the landowners eligible to vote approved the proposition authorizing the issuance of bonds in an amount not to exceed $7,500,000 in Improvement Area C of CFD No to finance the acquisition, design, construction, lease, equipping and/or improvement of school sites and school facilities and certain facilities to be owned by Corona (collectively, the Facilities ), the levy of the special tax for each Improvement Area described in the Resolution of Formation and an appropriations limit for CFD No On December 2, 2003, the Board adopted Resolution No. 62 to consider amending the rate and method of apportionment within Improvement Area C of CFD No On January 13, 2004, after a noticed public hearing, the Board adopted Resolution No. 115 approving the amendment to the rate and method of apportionment for Improvement Area C of CFD No and calling an election of the landowners therein for January 16, On January 13, 2004 the Board adopted a resolution which increased the maximum amount of bonded indebtedness for Improvement Area C of CFD No from $7,500,000 to $8,500,000. On January 16, 2004, an election was held within Improvement Area C of CFD No. 01-2, and the amendment to the rate and method of apportionment for Improvement Area C of CFD No and the increase in the amount of bonded indebtedness was unanimously approved. On February 3, 2004, the Board adopted Resolution No. 120 certifying the results of the election. On February 26, 2004, Amendment No. 1 to the Notice of Special Tax Lien was recorded in the County Recorder s Office of Riverside County, California. The amended rate and method of apportionment for Improvement Area C of 32

43 CFD No is included in APPENDIX A RATES AND METHODS OF APPORTIONMENT OF SPECIAL TAX hereto. Pursuant to a resolution adopted on March 1, 2005, the Board, acting as the legislative body of CFD No. 01-2, authorized the issuance and delivery of the CFD No Local Obligations. The CFD No Local Obligations are being issued and delivered pursuant to the provisions of the Act and the CFD No Local Obligation Bond Indenture. The CFD No Local Obligations are being sold to the Authority pursuant to a purchase contract (the Purchase Contract ) among the Districts, the Underwriter and the Authority. For more complete information, see SECURITY FOR THE 2005 SERIES A BONDS herein. Description of the Authorized Facilities. The facilities authorized to be acquired or constructed with the proceeds of the CFD No Local Obligations include (i) the acquisition of school sites; (ii) the acquisition, design, construction, lease, equipping and/or improvement thereon of school facilities; and (iii) the acquisition and construction of certain roadway and traffic facilities, water and sewer improvements, storm drain facilities, regional park and recreation facilities, library facilities and fire and law enforcement facilities, all as described in the CFD No Facilities Agreement. Under the CFD No Facilities Agreement, proceeds of the CFD No Local Obligations will be used first to finance $3,352,771 of school sites and facilities described in (i) and (ii) above (the CFD No School Facilities ), with any remaining CFD No Local Obligation proceeds to be applied to finance the facilities described in (iii) above (the CFD No City Facilities ) which will be acquired or constructed by Corona. The estimated amount of CFD No Local Obligation proceeds projected to be available to finance the cost of the public facilities eligible to be financed with the proceeds of the CFD No Local Obligations are described in Table 2 below. The CFD No Local Obligation proceeds will be reserved first to finance the CFD No School Facilities with the remainder being applied to finance the CFD No City Facilities. Source: Special District Financing & Administration. CFD No TABLE 2 CORONA-NORCO UNIFIED SCHOOL DISTRICT IMPROVEMENT AREA C OF COMMUNITY FACILITIES DISTRICT NO ESTIMATED PROCEEDS FOR FACILITIES 33 Total CFD No School Facilities $ 3,327, CFD No City Facilities 3,651, TOTAL ESTIMATED COSTS $ 6,979, CFD No consists of approximately 46.2 gross acres located within the boundary of the School District in the Mira Loma area of the County of Riverside. CFD No is being developed by Hovnanian Riverbend and Forecast Homes into two residential neighborhoods known as Riverbend II and Legacy III. Riverbend II is expected to contain 80 single family detached units and Legacy III is expected to contain 80 single family detached units. At buildout it is anticipated that CFD No will contain 160 single family detached residential units subject to the levy of Special Taxes. See PROPERTY OWNERSHIP AND THE DEVELOPMENTS Hovnanian Riverbend and Forecast Homes herein. Summary of Community Facilities District Procedures. Pursuant to the Act, the Board adopted Resolution Nos. 72 and 73 (collectively, the CFD No Resolution of Intention ) on

44 November 4, 2003, stating its intent to establish CFD No and to authorize the levy of Special Taxes within the boundaries of CFD No to pay principal of and interest on bonded indebtedness of CFD NO. 03-2, and to incur bonded indebtedness in CFD No in an aggregate principal amount not to exceed $4,500,000. The Joint Community Facilities Agreement by and among the School District, Jurupa Area Recreation and Park District ( JARPD ), and Hovnanian Riverbend, dated January 13, 2004 (the CFD No Joint Community Facilities Agreement ) regards the financing of various public improvements by CFD No Subsequent to a noticed public hearing on December 16, 2003, the Board adopted Resolution Nos. 111 and 112 (collectively, the CFD No Resolution of Formation ) which established CFD No. 03-2, authorized the levy of a special tax within CFD No subject to voter approval, determined the necessity to incur bonded indebtedness in an amount not to exceed $4,500,000 within CFD No and called an election within CFD No on the propositions of incurring bonded indebtedness therein, levying a special tax and setting an appropriations limit. On January 16, 2004, an election was held within CFD No in which the landowners eligible to vote approved the proposition authorizing the issuance of bonds in an amount not to exceed $4,500,000 in CFD No to finance the acquisition, design, construction, lease, equipping and/or improvement of school sites and school facilities and certain facilities to be owned by Corona (collectively, the CFD No Facilities ), the levy of the special tax described in the CFD No Resolution of Formation and an appropriations limit for CFD No Pursuant to a resolution adopted on March 1, 2005, the Board, acting as the legislative body of CFD No. 03-2, authorized the issuance and delivery of the CFD No Local Obligations. The CFD No Local Obligations are being issued and delivered pursuant to the provisions of the Act and the CFD No Local Obligation Bond Indenture. The CFD No Local Obligations are being sold to the Authority pursuant to the Purchase Contract. For more complete information, see SECURITY FOR THE 2005 SERIES A BONDS herein. Description of the Authorized Facilities. The facilities authorized to be acquired or constructed with the proceeds of the CFD No Local Obligations include (i) the acquisition of school sites; (ii) the acquisition, design, construction, lease, equipping and/or improvement thereon of school facilities; and (iii) the acquisition and construction of certain regional park and recreation facilities, library facilities and fire and law enforcement facilities, all as described in the CFD No Joint Community Facilities Agreement. Under the CFD No Joint Community Facilities Agreement, proceeds of the CFD No Local Obligations will be used first to finance $1,938, of school facilities described in (i) and (ii) above (the CFD No School Facilities ), with any remaining CFD No Local Obligations proceeds to be applied to finance the facilities described in (iii) above (the CFD No Recreation Facilities ) which will be acquired or constructed by JARP. The estimated amount of CFD No Local Obligation proceeds projected to be available to finance the public facilities are described in Table 3 below. The CFD No Local Obligation proceeds will be reserved first to finance the CFD No School Facilities with the remainder being applied to finance the CFD No Recreation Facilities. 34

45 Source: Special District Financing & Administration. CFD No TABLE 3 CORONA-NORCO UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO ESTIMATED PROCEEDS FOR FACILITIES 35 Total CFD No School Facilities $ 1,938, CFD No Recreation Facilities 233, TOTAL ESTIMATED COSTS $ 2,171, CFD No consists of approximately gross acres and approximately net developable acres located within the boundary of the School District in the City. The land within CFD No is being developed by three developers. Alexander Communities has developed Tax Zone A of CFD No into a 15 single family detached unit development known as Serrano Ridge. Tax Zone B of CFD No is being developed by Centex Homes and is expected to contain 49 single family detached units at buildout in a development known as Town Square. Tax Zone C of CFD No was developed by Blackmon Homes into a 16 single family detached unit development known as Mountain Grove Estates. At buildout it is anticipated that CFD No will contain 80 single family detached residential units subject to the levy of Special Taxes. See PROPERTY OWNERSHIP AND THE DEVELOPMENTS Centex Homes, Blackmon Homes and Alexander Communities herein. Summary of Community Facilities District Procedures. Pursuant to the Act, the Board adopted Resolution Nos. 65 and 66 (collectively, the CFD No Resolution of Intention ) on October 21, 2003, stating its intent to establish CFD No and to authorize the levy of Special Taxes within the boundaries of CFD No to pay principal of and interest on bonded indebtedness, and to incur bonded indebtedness in CFD No in an aggregate principal amount not to exceed $3,500,000. The Joint Community Facilities Agreement by and among the City, the School District and A.C. Taylor, LLC, dated November 19, 2003, the Joint Community Facilities Agreement by and among the School District, the City and Corona Ontario LLC, a California limited liability company, dated November 19, 2003 and the Joint Community Facilities Agreement by and among the School District, the City and Centex Homes, dated November 19, 2003 (collectively, the CFD No Joint Community Facilities Agreements ) relate to the financing of various public improvements by CFD No Subsequent to a noticed public hearing on December 2, 2003, the Board adopted Resolution Nos. 101 and 102 (collectively, the CFD No Resolution of Formation ) which established CFD No. 03-5, authorizing the levy of a special tax within CFD No subject to voter approval, determined the necessity to incur bonded indebtedness in an amount not to exceed $3,500,000 within CFD No and called an election within CFD No on the proposition of incurring bonded indebtedness therein, levying a special tax and setting an appropriations limit. On December 2, 2003, an election was held within CFD No in which the landowners eligible to vote approved the proposition authorizing the issuance of bonds in an amount not to exceed $3,500,000 in CFD No to finance the acquisition, design, construction, lease, equipping and/or improvement of school sites and school facilities (collectively, the CFD No Facilities ), the levy of the special tax for CFD No Resolution of Formation and an appropriations limit for CFD No Pursuant to a resolution adopted on March 1, 2005, the Board, acting as the legislative body of CFD No. 03-5, authorized the issuance and delivery of the CFD No Local Obligations. The CFD No. 03-5

46 Local Obligations are being issued and delivered pursuant to the provisions of the Act and the CFD No Local Obligation Bond Indenture. The CFD No Local Obligations are being sold to the Authority pursuant to the Purchase Contract. For more complete information, see SECURITY FOR THE 2005 SERIES A BONDS herein. Description of the Authorized Facilities. The facilities authorized to be acquired or constructed with the proceeds of the CFD No Local Obligations include (i) the acquisition of school sites and (ii) the acquisition, design, construction, lease, equipping and/or improvement thereon of school facilities, and (iii) the acquisition and construction of certain roadway and traffic facilities, water and sewer improvements, storm drain facilities, regional park and recreation facilities, library facilities and fire and law enforcement facilities, all as described in the CFD No Joint Community Facilities Agreements. Under the CFD No Joint Community Facilities Agreements, proceeds of the CFD No Local Obligations will be used first to finance $1,058,366 of school facilities described in (i) and (ii) above (the CFD No School Facilities ), with any remaining CFD No Local Obligations proceeds to be applied to finance the facilities described in (iii) above (the CFD No City Facilities ) which will be acquired or constructed by Corona. The estimated amount of CFD No Local Obligation proceeds projected to be available to finance the public facilities are described in Table 4 below. Source: Special District Financing & Administration. Direct and Overlapping Indebtedness TABLE 4 CORONA-NORCO UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO ESTIMATED PROCEEDS FOR FACILITIES 36 Total CFD No School Facilities $ 1,073, CFD No City Facilities 1,307, $ 2,381, The ability of the Developers or future owners of land within the Districts to pay the Special Taxes could be affected by the existence of other taxes and assessments imposed upon the property. Certain of these taxes relate to direct and overlapping tax and assessment debt set forth below in Table 5 with respect to Improvement Area C of CFD No. 01-2, in Table 6 with respect to CFD No and in Table 7 with respect to CFD No (each a Debt Report and, collectively, the Debt Reports ). Other public agencies whose boundaries overlap those of a District could, without the consent of the District, and in certain cases without the consent of the owners of the land within such District, impose additional taxes or assessment liens on the property within such District in order to finance additional public improvements to be located inside of or outside of such area. The lien created on the property within the Districts through the levy of such additional taxes or assessments may be on a parity with the lien of the Special Taxes. See SPECIAL RISK FACTORS Parity Taxes, Special Assessments and Land Development Costs herein. The assessed values in Tables 5, 6 and 7 below may include areas in the Districts to be used as streets and easements and other non-residential uses. As a result, 2005 Series A Bondowners should not rely on such assessed valuations to reflect the value of parcels which were the basis of the Appraisal. The Debt Reports have been derived from data assembled and reported to the Districts by California Municipal Statistics, Inc. and Special District Financing and Administration. While the information in Tables 5, 6 and 7 is believed to

47 be reliable, neither the Authority, the Districts, the School District nor the Underwriter have independently verified the information in the Debt Reports and do not guarantee their completeness or accuracy. Improvement Area C of CFD No Set forth below is the Debt Report for Improvement Area C of CFD No The table indicates that the assessed value of the property within Improvement Area C has been determined to be $33,206,031 for fiscal year , according to Special District Financing and Administration. The property within Improvement Area C of CFD No is subject to existing tax obligations which secure debt totaling approximately $159,684, which together with the principal amount of the CFD No Local Obligations, is approximately 26.08% of the fiscal year assessed valuation of the assessor s parcels which make up Improvement Area C of CFD No TABLE 5 COMMUNITY FACILITIES DISTRICT NO OF THE CORONA- NORCO UNIFIED SCHOOL DISTRICT (IMPROVEMENT AREA C) DIRECT AND OVERLAPPING DEBT (AS OF JANUARY 1, 2005) Local Secured Assessed Valuation: $33,206,031 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 1/1/05 Metropolitan Water District 0.003% $ 11,673 Riverside City Community College District ,900 Corona-Norco Unified School District ,651 City of Corona ,640 Corona-Norco Unified School District Community Facilities District No. 01-2, I.A. C ,500,000 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $8,659,684 OVERLAPPING GENERAL FUND OBLIGATION DEBT: Riverside County General Fund Obligations 0.032% $201,630 Riverside County Board of Education Certificates of Participation ,909 Corona-Norco Unified School District Certificates of Participation ,548 City of Corona General Fund Obligations ,204 TOTAL GROSS OVERLAPPING GENERAL FUND OBLIGATION DEBT $472,291 Less: Riverside County self-supporting obligations 6,713 TOTAL NET OVERLAPPING GENERAL FUND OBLIGATION DEBT $465,578 GROSS COMBINED TOTAL DEBT $9,132,155 (1) NET COMBINED TOTAL DEBT $9,125,262 Ratios to Assessed Valuation: Direct Debt % Total Direct and Overlapping Tax and Assessment Debt % Gross Combined Total Debt % Net Combined Total Debt % (1) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations. Source: California Municipal Statistics, Inc. and Special District Financing and Administration. CFD No Set forth below is the Debt Report for CFD No The table indicates that the assessed value of the property within CFD No has been determined to be $5,778,146 for fiscal year , according to 37

48 Special District Financing and Administration. The property within CFD No is subject to existing tax obligations which secure debt totaling approximately $26,987, which, together with the principal amount of the CFD No Local Obligations, is approximately 50.13% of the fiscal year assessed valuation of the assessor s parcels which make up CFD No TABLE 6 COMMUNITY FACILITIES DISTRICT NO OF THE CORONA- NORCO UNIFIED SCHOOL DISTRICT DIRECT AND OVERLAPPING DEBT (AS OF JANUARY 1, 2005) Local Secured Assessed Valuation: $5,778,146 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 1/1/05 Metropolitan Water District % $ 1,556 Riverside City Community College District ,150 Corona-Norco Unified School District ,899 City of Corona ,382 Corona-Norco Unified School District Community Facilities District No ,870,000 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $2,896,987 OVERLAPPING GENERAL FUND OBLIGATION DEBT: Riverside County General Fund Obligations 0.006% $37,806 Riverside County Board of Education Certificates of Participation Corona-Norco Unified School District Certificates of Participation ,060 City of Corona General Fund Obligations ,337 TOTAL GROSS OVERLAPPING GENERAL FUND OBLIGATION DEBT $84,936 Less: Riverside County self-supporting obligations 1,259 TOTAL NET OVERLAPPING GENERAL FUND OBLIGATION DEBT $83,677 GROSS COMBINED TOTAL DEBT $2,981,923 (1) NET COMBINED TOTAL DEBT $2,980,664 Ratios to Assessed Valuation: Direct Debt % Total Direct and Overlapping Tax and Assessment Debt % Gross Combined Total Debt % Net Combined Total Debt % (1) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations. Source: California Municipal Statistics, Inc. and Special District Financing and Administration. CFD No Set forth below is the Debt Report for CFD No The table indicates that the assessed value of the property within CFD No has been determined to be $4,879,951 for fiscal year , according to Special District Financing and Administration. The property within CFD No is subject to existing tax obligations which secure debt totaling approximately $21,617, which, together with the principal amount of the CFD No Local Obligations, is approximately 54.95% of the fiscal year assessed valuation of the assessor s parcels which make up CFD No

49 TABLE 7 COMMUNITY FACILITIES DISTRICT NO OF THE CORONA- NORCO UNIFIED SCHOOL DISTRICT DIRECT AND OVERLAPPING DEBT (AS OF JANUARY 1, 2005) Local Secured Assessed Valuation: $4,879,951 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 1/1/05 Metropolitan Water District % $ 1,556 Riverside City Community College District ,500 Corona-Norco Unified School District ,561 Corona-Norco Unified School District Community Facilities District No ,660,000 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $2,681,617 OVERLAPPING GENERAL FUND OBLIGATION DEBT: Riverside County General Fund Obligations 0.005% $31,505 Riverside County Board of Education Certificates of Participation Corona-Norco Unified School District Certificates of Participation ,951 TOTAL GROSS OVERLAPPING GENERAL FUND OBLIGATION DEBT $44,067 Less: Riverside County self-supporting obligations 1,049 TOTAL NET OVERLAPPING GENERAL FUND OBLIGATION DEBT $43,018 GROSS COMBINED TOTAL DEBT $2,725,684 (1) NET COMBINED TOTAL DEBT $2,724,635 Ratios to Assessed Valuation: Direct Debt % Total Direct and Overlapping Tax and Assessment Debt % Gross Combined Total Debt % Net Combined Total Debt % (1) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations. Source: California Municipal Statistics, Inc. and Special District Financing and Administration. Estimated Value-to-Lien Ratios Tables 8, 9 and 10 below set forth the estimated appraised value-to-lien ratios for the property within the Districts calculated based on the values in the Appraisal and the principal amount of the Local Obligations. The Authority will not annually conduct an appraisal of this property and, therefore, the estimated appraised value-to-lien ratios will not be annually updated. The Authority will update the value-to-lien information annually in its Annual Report to be filed under the Continuing Disclosure Agreement, based on assessed valuations. See APPENDIX E CONTINUING DISCLOSURE AGREEMENTS herein. Tables 8, 9 and 10 do not include the overlapping debt payable from taxes levied on property within the Districts, and if such amounts were included, the resulting estimated value-to-lien ratios are somewhat lower than shown in these tables as described below. The values reported in the Appraisal are based upon a number of assumptions and limiting conditions, and no assurance can be given that any property could actually be sold for its appraised value at a foreclosure sale. See SPECIAL RISK FACTORS Appraised Value. While the information contained in Tables 8, 9 and 10 is believed to be reliable, it has not been independently verified by the Authority, the School District, the Underwriter or the Districts and is not guaranteed as to completeness or accuracy. The total fiscal year assessed value of the property within (i) Improvement Area C of CFD No is $33,206,031, (ii) CFD No is $5,778,146 and (iii) CFD No is $4,879,951. The 39

50 estimated assessed value-to-lien ratio for such property based on the assessed values for fiscal year , including the Local Obligations and the overlapping land-secured debt described in Tables 5, 6 and 7 is (i) 3.83 to 1 in Improvement Area C of CFD No. 01-2, (ii) 2.01 to 1 in CFD No. 03-5, (iii) 1.82 to 1 in CFD No In the annual report to be filed by the Authority pursuant to the Continuing Disclosure Agreement, Tables 8, 9 and 10 will be updated based upon assessed values, not appraised values. Improvement Area C of CFD No Based upon the assumptions and limiting conditions set forth in the Appraisal, the Appraiser is of the opinion that the market value of the property within Improvement Area C of CFD No was $39,245,000 as of January 3, 2005, based on a sales comparison approach. This valuation results in an appraised value-to-lien ratio within Improvement Area C of CFD No of approximately 4.62 to 1 with respect to the $8,500,000 principal amount of the CFD No Local Obligations, excluding other direct and overlapping debt. As set forth in Table 5 herein, there is $159,684 of direct and overlapping debt which is payable from taxes and assessments levied on property within Improvement Area C of CFD No which, if included in the estimated appraised value-to-lien calculations, would lower the ratios somewhat from that stated above and in Table 8 below. Including such amount, the estimated appraised value-to-lien ratio for Improvement Area C of CFD No as a whole would be approximately 4.53 to 1. Table 8 illustrates what the estimated appraised value-to-lien ratio would be based on the appraised value as of January 3, 2005, the land use status as of January 30, 2005 within Improvement Area C of CFD No and estimated debt service on the CFD No Local Obligations, assuming no capitalized interest and a Special Tax levy to pay for a full year of debt service on the CFD No Local Obligations in fiscal year Owner (1) TABLE 8 COMMUNITY FACILITIES DISTRICT NO (IMPROVEMENT AREA C) OF THE CORONA-NORCO UNIFIED SCHOOL DISTRICT ESTIMATED VALUE-TO-LIEN RATIOS BASED ON APPRAISAL Number of Lots Development Status (2) Appraised Property Value Estimated Special Tax Levy (3) Percent of Estimated Special Tax Levy (3)(4) Share of CFD No Improvement Area C Local Obligations (5) Estimated Appraised Value-to-Lien Ratio (6) Centex Homes 7 Developed $ 1,164,047 $ 20, % $ 389, to 1 Centex Homes 229 Undeveloped 38,080, , ,110, to 1 Total 236 $39,245,000 $ 447, % $8,500, to 1 (1) Based on ownership as of January 3, 2005, the date of the Appraisal. (2) Developed Property is property for which a permit was issued as of January 30, 2005 and Undeveloped Property represents taxable residential property for which a building permit was not issued as of January 30, (3) Estimated Special Tax levy for fiscal year based on ownership as of January 3, 2005 and development status as of January 30, 2005, assuming no further development. The Estimated Special Tax levy column includes Assigned Special Tax attributable to each parcel of Developed Property plus the difference between such Assigned Special Tax on Developed Property and the estimated debt service on the CFD No Local Obligations, assuming no capitalized interest, plus $20,000 in Administrative Expenses levied on Undeveloped Property. (4) Assumes no change in ownership from the date of the Appraisal. (5) Share of CFD No Local Obligations is calculated by taking the Percent of Estimated Special Tax Levy column and multiplying that percentage by the aggregate principal amount of the CFD No Local Obligations. (6) Calculated by dividing Appraised Property Value column by Share of CFD No Local Obligations column. Does not include $159,684 of direct and overlapping land secured debt, which if included, would result in a lower Estimated Appraised Value-to-Lien Ratio. Source: The Appraiser and Special District Financing and Administration. 40

51 CFD No Based upon the assumptions and limiting conditions set forth in the Appraisal, the Appraiser is of the opinion that the market value of the property within CFD No was $32,025,000 as of January 3, 2005, based on a sales comparison approach. This valuation results in an appraised value-to-lien ratio within CFD No of approximately to 1 with respect to the $2,870,000 principal amount of the CFD No Local Obligations, excluding other direct and overlapping debt. As set forth in Table 6 herein, there is $26,987 of direct and overlapping debt which is payable from taxes and assessments levied on property within CFD No which, if included in the estimated value-to-lien calculations, would lower the ratios somewhat from that stated above and in Table 9 below. Including such amount, the estimated appraised valueto-lien ratio for CFD No as a whole would be approximately to 1. For fiscal year , $95,893 of Special Taxes were levied on Developed Property within CFD No and there was not a levy on Undeveloped Property. These amounts will be applied by the School District to construct school facilities and are not pledged to repay the CFD No Local Obligations. Table 9 illustrates what the estimated appraised value-to-lien ratio would be based on the appraised value as of January 3, 2005, the land use status as of January 30, 2005 within CFD No and estimated debt service on the CFD No Local Obligations, assuming no capitalized interest and a Special Tax levy to pay for a full year of debt service on the CFD No Local Obligations. Owners (1) TABLE 9 COMMUNITY FACILITIES DISTRICT NO OF THE CORONA-NORCO UNIFIED SCHOOL DISTRICT ESTIMATED VALUE-TO-LIEN RATIOS BASED ON APPRAISAL Tax Zone Number of Lots Development Status (2) Appraised Property Value 41 Estimated Special Tax Levy (3) Percent of Estimated Special Tax Levy (3)(4) Share of CFD No Local Obligations (5) Estimated Appraised Value-to-Lien Ratio (6) Centex Homes B 44 Developed $14,225,000 $123, % $ 1,622, to 1 Centex Homes B 5 Undeveloped 1,150, Alexander Communities A 1 Developed 445,000 2, , to 1 Individual Homeowners A 14 Developed 8,045,000 43, , to 1 Individual Homeowners C 16 Developed 8,160,000 49, , to 1 Total 80 $32,025,000 $218, % $ 2,870, to 1 (1) Based on ownership as of January 3, 2005, the date of the Appraisal. (2) Developed Property is property for which a permit was issued as of January 30, 2005 and Undeveloped Property represents taxable residential property for which a building permit was not issued as of January 30, (3) Estimated Special Tax levy for fiscal year based on ownership as of January 3, 2005, the date of the Appraisal and development status as of January 30, 2005, assuming no further development. The Estimated Special Tax levy for fiscal year column includes Assigned Special Tax attributable to each parcel of Developed Property, assuming no capitalized interest, plus $20,000 in Administrative Expenses levied on Undeveloped Property. (4) Assumes no change in ownership from the date of the Appraisal. (5) Share of CFD No Local Obligations is calculated by taking the Percent of Estimated Special Tax Levy column and multiplying that percentage by the aggregate principal amount of the CFD No Local Obligations. Amounts in Share of CFD No Local Obligations column do not match the amounts determined using the percentages shown in the Percent of Estimated Special Tax Levy column due to rounding of such percentages. (6) Calculated by dividing Appraised Property Value column by Share of CFD No Local Obligations column. Does not include $26,987 of direct and overlapping land secured debt, which if included, would result in a lower Estimated Appraised Value-to-Lien Ratio. Source: The Appraiser and Special District Financing and Administration. CFD No Based upon the assumptions and limiting conditions set forth in the Appraisal, the Appraiser is of the opinion that the market value of the property within CFD No was $31,245,000 as of January 3, 2005, based on a sales comparison approach. This valuation results in an appraised value-to-lien ratio within CFD No of approximately to 1 with respect to the $2,660,000 principal amount of the

52 CFD No Local Obligations, excluding other direct and overlapping debt. As set forth in Table 7 herein, there is $21,617 of direct and overlapping debt which is payable from taxes and assessments levied on property within CFD No which, if included in the estimated value-to-lien calculations, would lower the ratios somewhat from that stated above and in Table 10 below. Including such amount, the estimated appraised value-to-lien ratio for CFD No as a whole would be approximately to 1. For fiscal year , $18,503 of Special Taxes were levied on Developed Property within CFD No and there was not a levy on Undeveloped Property. These amounts will be applied by the School District to construct school facilities and are not pledged to repay the CFD No Local Obligations. Table 10 illustrates what the estimated appraised value-to-lien ratio would be based on the appraised value as of January 3, 2005, the land use status as of January 30, 2005 within CFD No and estimated debt service on the CFD No Local Obligations, assuming no capitalized interest and a Special Tax levy to pay for a full year of debt service on the CFD No Local Obligations. Owner (1) TABLE 10 COMMUNITY FACILITIES DISTRICT NO OF THE CORONA-NORCO UNIFIED SCHOOL DISTRICT ESTIMATED VALUE-TO-LIEN RATIOS BASED ON APPRAISAL Number of Lots Development Status (2) Appraised Property Value Fiscal Year Assigned Special Tax Levy (3) Percent of Assigned Special Taxes (3)(4) Share of CFD No Local Obligations (5) Estimated Appraised Value-to-Lien Ratio (6) Hovnanian Riverbend 80 Developed $17,320,000 $ 81, % $ 1,382, to 1 Forecast Homes 62 Developed 10,791,875 74, ,277, to 1 Forecast Homes 18 Undeveloped 3,133, Total 160 $31,245,000 $ 156, % $ 2,660, to 1 (1) Based on ownership as of January 3, 2005, the date of the Appraisal. (2) Developed Property is property for which a permit was issued as of January 30, 2005 and Undeveloped Property represents taxable residential property for which a building permit was not issued as of January 30, (3) Estimated Special Tax levy for fiscal year based on ownership as of January 3, 2005, the date of the Appraisal and development status as of January 30, 2005, assuming no further development. The Estimated Special Tax levy for fiscal year column includes Assigned Special Tax attributable to each parcel of Developed Property, assuming no capitalized interest, plus $20,000 in Administrative Expenses. (4) Assumes no change in ownership from the date of the Appraisal. (5) Share of CFD No Local Obligations is calculated by taking the Percent of Estimated Special Tax Levy column and multiplying that percentage by the aggregate principal amount of the CFD No Local Obligations. Amounts in the Share of CFD No Local Obligations column do not match the amounts determined using the percentages shown in the Percent of Estimated Special Tax Levy column due to rounding of such percentages. (6) Calculated by dividing Appraised Property Value column by Share of CFD No Local Obligations column. Does not include $21,617 of direct and overlapping land secured debt, which if included, would result in a lower Estimated Appraised Value-to-Lien Ratio. Source: The Appraiser and Special District Financing and Administration. Expected Tax Burden It is expected that the total tax burden on the single-family residential units within each District will be less than 2% of the initial base sales price of such units. Table 11 below sets forth an estimated property tax bill for a single-family residential unit with the lowest base sales price in the development plan of each Developer. The total effective tax rate as a percentage of the base sales prices for these single-family residential units is projected to be (i) 1.65% for the sample unit in the Silverwood development, (ii) 1.60% for the sample unit in the Copperleaf development, (iii) 1.42% for the sample unit in the Riverbend II 42

53 development, (iv) 1.48% for the sample unit in the Legacy III development, and (v) 1.51% for the sample unit in the Town Square development, based on the base sales prices as of January 3, 2005 provided by each of the Developers. The information in Table 11 has been derived from data supplied by independent third parties which is believed to be reliable. However, neither the Authority, the Districts, the School District, nor the Underwriter have independently verified the information and do not guarantee its completeness or accuracy. TABLE 11 SAMPLE PROPERTY TAX BILL PROJECTED FOR FISCAL YEAR FOR A SINGLE FAMILY UNIT FOR EACH DEVELOPER AND EACH DEVELOPMENT Project Name Copperleaf Silverwood Riverbend II Legacy III Towne Center Developer Centex Homes Centex Homes Hovnanian Riverbend Forecast Centex Homes CFD Improvement Area/Tax Zone C C N/A N/A B Tract No Plan Square Footage of Dwelling Unit 2,968 2,718 2,828 2,300 2,928 Estimated Base Sales Price (1) $ 610,000 $ 562,990 $ 526,490 $ 452,990 $ 594,990 Ad Valorem Property Taxes ( ) Basic Levy $ 6, $ 5, $ 5, $ 4, $ 5, City of Corona Debt Service (.00529%) Riverside Community College (.018%) Metropolitan Water District (.00580%) Corona-Norco Unified School District Total General Property Taxes $ 6, $ 5, $ 5, $ 4, $ 6, Assessments, Special Taxes & Parcel Charges Corona-Norco Unified School District CFDs (2) $ 2, $ 2, $ 1, $ 1, $ 2, Metropolitan Water District - Standby West Corona Lighting Maintenance District No Corona CFD Flood Control CSA No Flood Control Stormwater/Clean water CSA Jurupa Lighting Maintenance District , Zone D Jurupa CFD No JARPD CFD Other Special Assessments JARPD Park & Recreation Maintenance NW Mosquito & Vector Control District Total Assessments and Parcel Charges $ 3, $ 3, $ 2, $ 2, $ 2, Projected Total Property Tax $ 9, $ 9, $ 7, $ 6, $ 9, Projected Effective Tax Rate 1.60% 1.65% 1.42% 1.48% 1.51% (1) Reflects estimated base price for the lowest priced plan of each Developer as of January 3, 2005, as provided by the Developers. (2) Reflects the estimated Fiscal Year maximum Special Tax applicable to each parcel, assuming each parcel is classified as Developed Property. Source: Special District Financing and Administration. 43

54 PROPERTY OWNERSHIP AND THE DEVELOPMENTS The Developers have provided the following information, which has not been independently verified by the Authority, the School District, the Underwriter or the Districts and is not guaranteed as to accuracy by any of such entities. No assurance can be given that the proposed development will occur as described herein or that it will be completed in a timely manner, if at all. This information should not be construed to suggest that the 2005 Series A Bonds, the Revenues securing the 2005 Series A Bonds or the Special Taxes securing the Local Obligations are personal obligations of the Developers or any other property owner or that, in the event of a default in payment of a Special Tax, a foreclosure sale would result in sufficient proceeds to pay the delinquency or that a deficiency action against a Developer is an available remedy. See SPECIAL RISK FACTORS herein. General Description of the Developments Improvement Area C of CFD No consists of approximately gross acres and approximately 69.5 net developable acres located within the boundaries of the School District in Corona. Improvement Area C of CFD No is being developed by Centex Homes into two communities. The development known as Silverwood is expected to contain 87 single family detached units at buildout and the development known as Copperleaf is expected to contain 149 single family detached units at buildout. The CFD No Local Obligations will be payable from Special Taxes levied on the taxable property in Improvement Area C only. See THE COMMUNITY FACILITIES DISTRICTS Improvement Area C of CFD No and PROPERTY OWNERSHIP AND THE DEVELOPMENTS Centex Homes herein. CFD No consists of approximately 46.2 gross acres and approximately 44.4 net developable acres located within the boundary of the School District in Corona. The property in CFD No is being developed by Hovnanian Riverbend and Forecast Homes into two residential neighborhoods known as Riverbend II and Legacy III. Riverbend II is expected to contain 80 single family detached units and Legacy III is expected to contain 80 single family detached units. At buildout it is anticipated that CFD No will contain 160 single family detached residential units subject to the levy of Special Taxes on taxable property in CFD No See THE COMMUNITY FACILITIES DISTRICTS CFD No and PROPERTY OWNERSHIP AND THE DEVELOPMENTS Hovnanian Riverbend and Forecast Homes herein. CFD No consists of approximately 26.1 gross acres and approximately net developable acres located within the boundaries of the School District in Corona. CFD No is divided into three different tax zones, Tax Zone A, Tax Zone B and Tax Zone C. The property in Tax Zone A of CFD No has been developed by Alexander Communities into a 15 single family detached unit development known as Serrano Ridge. Tax Zone B of CFD No is being developed by Centex Homes and is expected to contain 49 single family detached units at buildout in a development known as Town Square. Tax Zone C of CFD No was developed by Blackmon Homes into a 16 single family detached unit development known as Mountain Grove Estates. At buildout it is anticipated that CFD No will contain 80 single family detached residential units subject to the levy of Special Taxes on taxable property in CFD No See THE COMMUNITY FACILITIES DISTRICTS CFD No and PROPERTY OWNERSHIP AND THE DEVELOPMENTS Alexander Communities, Centex Homes and Blackmon Homes herein. Centex Homes Background and Experience. Centex Homes is one of the nation s largest home builders, operating in more than 90 markets in 26 states. It constructed approximately 26,400 homes in the fiscal year ending March 31, 2003, and approximately 30,000 homes in the fiscal year ending March 31, In general, 44

55 Centex Homes buys and develops lots and land and builds single family detached homes, townhomes and low rise condominiums for sale to both first time and move up buyers. The property being developed by Centex Homes in Improvement Area C of CFD No and CFD No is being developed by the South West Division of Centex Homes. Centex Homes has operated in the South Coast (comprising Orange County) since The President of the South Coast Division of Centex Homes is Richard P. Douglass, who joined Centex Homes in Centex Homes, a Nevada general partnership, is the home building subsidiary of Centex Corporation, a publicly traded company whose common stock is traded on the New York Stock Exchange under the symbol CTX. The managing general partner of Centex Homes is Centex Real Estate Corporation, a Nevada corporation ( Centex Real Estate Corporation ), another subsidiary of Centex Corporation. Centex Corporation s Annual Report on Form 10-K for the fiscal year ended March 31, 2004 as filed by Centex Corporation with the Commission pursuant to the Exchange Act, as amended, sets forth certain data relative to the consolidated financial position of Centex Corporation and its subsidiaries as of that date. The Commission maintains an Internet Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission, including Centex Corporation. The address of such Internet Web site is Information may also be obtained from the company itself at Centex Headquarters, 2728 North Harwood, Dallas, Texas 75201, telephone number: (214) Recent Projects. Projects recent developed or under active development by the South Coast Division of Centex Homes are detailed below: Project Location Number of Units Square Footage Range Selling Price ($ Thousand) Units Sold as of January 3, 2005 Castellina Orange County, California Sutter s Hill Orange County, California Casita Orange, California Tomlinson Park Brea, California Hillpointe Chino Hills, California Emerald Crest Corona, California Ellington Upland, California Canterbury Chino, California The Vineyards Ontario, California Source: Centex Homes. The Developments. Centex Homes project known as Silverwood within Improvement Area C of CFD No is expected to contain 87 single family residential units at buildout ranging in size from 2,718 square feet to 3,687 square feet. Based on current development plans, the proposed residential units will have three different floor plans and the following estimated square footage and base sales prices: (1) Plan Base sales prices as of January 3, Source: Centex Homes. Number of Units Size Square Feet Estimated Base Sales Price (1) ,718 $562, , , , ,990 Centex Homes project known as Copperleaf within Improvement Area C of CFD No is expected to contain 149 single family residential units at buildout, ranging in size from 2,968 square feet to 45

56 4,249 square feet. Based on current development plans, the proposed residential units will have four different floor plans and the following estimated square footage and base sales prices: (1) Plan Number of Units Estimated base sales price as of January 3, Source: Centex Homes. Size Square Feet Estimated Base Sales Price (1) ,968 $ 610, , , , , , ,000 The property within Improvement Area C of CFD No is designated Low Medium Density Residential, Low Density Residential and Estate per the General Plan encompassing the property. The property is subject to Specific Plan SPA Per Specific Plan SPA , the property is designated for Low Density Residential allowing for single family dwelling units on minimum lot sizes of 9,600 square feet. Centex Homes project known as Town Square within Tax Zone B of CFD No is expected to contain 49 single family residential units at buildout, ranging in size from 2,928 square feet to 3,640 square feet. Based on current development plans, the proposed residential units will have three different floor plans and the following estimated square footage and base sales prices: (1) Plan Number of Units Estimated base sales price as of January 3, Source: Centex Homes. Size Square Feet Estimated Base Sales Price (1) 1 7 2,928 $ 594, , ,990 2x 5 2, , , ,990 3x 3 3, ,990 The property within Tax Zone B of CFD No is designated Low Density Residential per the General Plan encompassing the property. The property is partially zoned R and partially zoned R allowing single family dwellings on minimum lot sizes of 8,400 square feet and 9,600 square feet, respectively. Status of Land Use Approvals and Development. With respect to the property being developed by Centex Homes, otherwise known as Silverwood, which lies within the boundaries of Improvement Area C of CFD No. 01-2, a Mitigated Negative Declaration was adopted by the Corona City Council in connection with the approval of Tentative Tract Map No by the Corona City Council which was approved by the Corona City Council on August 3, Final Tract Map No is expected to be recorded in March, 2005, encompassing the entire Silverwood and Copperleaf developments. Centex Homes represents that there are no outstanding conditions remaining to be satisfied in order to record Final Tract Map No Centex Homes plans to develop Silverwood in seven phases. As of January 3, 2005, three model homes were completed, no homes had closed escrow to individual homeowners and no homes were under 46

57 construction. On January 29, 2005, Silverwood opened for sales and as of January 29, 2005 had entered into four sales contracts. Centex Homes Copperleaf development project is located within the boundaries of Improvement Area C of CFD No Centex Homes plans to develop Copperleaf in ten phases. As of January 3, 2005, four model homes were under construction and are expected to be completed by the end of March 2005, no homes had closed escrow to individual homeowners and no homes were under construction. On January 29, 2005, Copperleaf opened for sales and as of January 29, 2005, Centex Homes had entered into four sales contracts. With respect to the property being developed by Centex Homes, otherwise known as Town Square, which lies within the boundaries of Tax Zone B of CFD No. 03-5, a Mitigated Negative Declaration was adopted by the Corona City Council in connection with the approval of Tentative Tract Map No by the Corona City Council, which was approved by the Corona City Council on April 21, Final Tract Map No was recorded on August 18, 2004 encompassing the entire Town Square development. Centex Homes plans to develop Town Square in 7 phases. As of January 3, 2005, three model homes were completed, no homes had closed escrow to individual homeowners and 44 homes were under construction. Financing Plan. The full development of Centex Homes property in Improvement Area C of CFD No and Tax Zone B of CFD No will require the expenditure by Centex Homes of substantial amounts both directly related to Centex Homes property and for other infrastructure improvements located outside of Improvement Area C of CFD No and Tax Zone B of CFD No As of January 3, 2005, Centex Homes had expended approximately $36,969,345 in acquiring its land in Improvement Area C and in infrastructure development costs, approximately $34,023 in home construction costs, and approximately $543,594 in other development, marketing and sales costs related to its development in Improvement Area C of CFD No Centex Homes expects the remaining infrastructure development costs, home construction costs and other development, marketing and sales costs related to its development in Improvement Area C of CFD No to be approximately $18,256,860, $50,777,863 and $1,086,171, respectively. Centex Homes expects to finance these remaining costs through a combination of proceeds of the CFD No Improvement Area C Local Obligation Bonds and home sales revenue, and, if necessary, cash on hand or internal funding. Of the 236 homes proposed to be constructed by Centex Homes within Improvement Area C of CFD No. 01-2, Centex Homes currently expects to sell and convey to individual homeowners approximately 90 homes in 2005 and 146 homes in Centex Homes believes that it will have sufficient funds available to complete its proposed development in Improvement Area C of CFD No While Centex Homes does not expect that the completion of the project within Improvement Area C of CFD No will require additional internal funding, Centex Homes believes that it could provide additional internal funding, if needed. There is no assurance that amounts necessary to finance the remaining development costs within Improvement Area C of CFD No will be available from Centex Homes, from Centex Corporation, or from any other source, when needed. Neither Centex Homes, nor Centex Corporation, nor any of their affiliates are under any legal obligation of any kind to expend funds for the development of the property within Improvement Area C of CFD No Any internal funding by Centex Homes or Centex Corporation to finance development costs within Improvement Area C of CFD No is entirely voluntary. If and to the extent that internal financing, sales revenues and Centex Homes share of proceeds of the CFD No Improvement Area C Local Obligation Bonds are inadequate to pay the costs to complete the planned development within Improvement Area C of CFD No and other financing by Centex Homes is 47

58 not put into place, there could be a shortfall in the funds required to complete the proposed development by Centex Homes in Improvement Area C of CFD No and portions of the project may not be developed. As of January 3, 2005, Centex Homes had expended approximately $6,378,212 in acquiring its land in Tax Zone B of CFD No and in infrastructure development costs, approximately $4,765,000 in home construction costs, and approximately $347,000 in other development, marketing and sales costs related to its development in Tax Zone B of CFD No Centex Homes expects the remaining infrastructure development costs, home construction costs and other development, marketing and sales costs related to its development in Tax Zone B of CFD No to be approximately $782,000, $5,582,000 and $430,000, respectively. Centex Homes expects to finance these remaining costs through a combination of proceeds of the Tax Zone B of CFD No Local Obligation Bonds and home sales revenue, and, if necessary, cash on hand or internal funding. Centex Homes currently expects to sell and convey to individual homeowners all of the 49 homes proposed to be constructed by Centex Homes within Tax Zone B of CFD No in Centex Homes believes that it will have sufficient funds available to complete its proposed development in Tax Zone B of CFD No While Centex Homes does not expect that the completion of the project within Tax Zone B of CFD No will require additional internal funding from Centex Homes, Centex Homes believes that it could provide additional internal funding, if needed. There is no assurance that amounts necessary to finance the remaining site development costs within Tax Zone B of CFD No will be available from Centex Homes, Centex Corporation, or from any other source, when needed. Neither Centex Homes, nor Centex Corporation, nor any of their affiliates are under any legal obligation of any kind to expend funds for the development of the property within Tax Zone B of CFD No Any internal funding by Centex Homes or Centex Corporation to finance development costs within Tax Zone B of CFD No is entirely voluntary. If and to the extent that internal financing, sales revenues and Centex Homes share of proceeds of the CFD No Local Obligation Bonds are inadequate to pay the costs to complete the planned development within Tax Zone B of CFD No and other financing by Centex Homes is not put into place, there could be a shortfall in the funds required to complete the proposed development by Centex Homes in CFD No and portions of the project may not be developed. Hovnanian Riverbend and Forecast Homes Hovnanian Riverbend is the developer of the Riverbend II project within CFD No K. Hovnanian Developments of California Inc., a California corporation ( K. Hovnanian ) is the sole member of Hovnanian Riverbend. K. Hovnanian is a 100% subsidiary of Hovnanian Enterprises, Inc. ( Hovnanian Enterprises ). Forecast Homes is the developer of the Legacy III project within CFD No Forecast Homes was formed by Hovnanian Enterprises, through a subsidiary, to take title to the homebuilding assets of The Forecast Group L.P. ( Forecast ), which was a reorganization of the home building businesses owned by the James Previti Family Trust. Hovnanian Enterprises acquired the California home building assets of The Forecast Group L.P. on January 4, Hovnanian Enterprises is the sole shareholder of K. Hovnanian which in turn is the sole shareholder of Forecast Homes. Hovnanian Enterprises is one of the nation s largest homebuilders with operations in Arizona, California, Delaware, Florida, Maryland, Michigan, Minnesota, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Texas, Virginia and West Virginia. Hovnanian Enterprises homes are marketed and sold by affiliated companies under several trade names such as Westminster Homes, Fortis Homes, Diamond Homes and others, but a consolidation for nationwide utilization of the marketing brand of K. Hovnanian Homes TM is underway. The Hovnanian Enterprises family of companies is also one of the nation s largest sellers of homes to active adults, under the name of K. Hovnanian s Four Seasons 48

59 communities. Financial information about Hovnanian Enterprises, which includes performance of its affiliated companies but only on a consolidated basis, is currently included in documents filed with the Commission, particularly in its Annual Reports on Form 10-K and its most recent quarterly reports on Form 10-Q. It is anticipated that future financial information filed by Hovnanian Enterprises with the Commission will continue to reflect performance of Forecast Homes and Hovnanian Riverbend but that such performance will be continue to be included in such reports only on a consolidated basis. Recent Projects. Recently completed projects and projects currently under active development by certain affiliates of Hovnanian Riverbend comprising the California Coastal Region of the Hovnanian Enterprises family of companies include: (1) Project Number of Units Location Projected/Actual Sellout Date (1) Trail Ridge 100 Ladera Ranch, California September 2003 Mosaic 89 Ladera Ranch, California April 2005 La Habra Knolls 48 La Habra, California January 2005 Hilltop 103 Encinitas, California April 2004 Four Seasons Hemet-Championships 174 Hemet, California February 2006 As of January 3, Source: K. Hovnanian. The Developments. Riverbend II. Riverbend II within CFD No is expected to contain 80 single family residential units at buildout, ranging in size from approximately 2,828 square feet to 4,209 square feet. As of January 3, 2005, no units had closed escrow to individual homeowners, 30 units were under construction, of which 12 were 95% complete, and 50 lots were in a partially finished condition. As of January 3, 2005, K. Hovnanian had released 46 units in Riverbend II and 42 were either reserved or under sales contract. Based on current development plans, the proposed residential units will have four different floor plans and the following estimated square footage and base sales prices: (1) Plan Number of Units Estimated base sales price as of January 3, Source: K. Hovnanian. Size Square Feet Estimated Base Sales Price (1) ,828 $ 526, , , , , , ,490 49

60 Legacy III. Legacy III within CFD No is expected to contain 80 single family residential units at buildout, ranging in size from approximately 2,300 square feet to 3,751 square feet. As of January 3, 2005, no units had closed escrow to individual homeowners, 50 units were under construction and the remaining 30 lots were in a partially finished condition. Based on current development plans, the proposed residential units will have four different floor plans and the following estimated square footage and base sales prices: (1) Plan Number of Units Estimated base sales price as of January 3, Source: Forecast Homes. Size Square Feet Estimated Base Sales Price (1) ,300 $ 452, , , , , , ,790 The property within CFD No is zoned R-1 allowing single family dwellings on minimum lot sizes of 7,200 square feet. The General Plan designation is R2B allowing two to five single family dwelling units per acre. Status of Land Use Approvals and Development. A Mitigated Negative Declaration was adopted by the Riverside County Board of Supervisors in connection with the approval of Tentative Tract Map No by the County of Riverside Board of Supervisors on October 7, Final Tract Map No was recorded on June 25, 2004 encompassing the entire Riverbend II and Legacy III developments. As of January 3, 2005, within CFD No grading was completed, utilities had been stubbed to each lot and infrastructure improvements were approximately 80% completed, with final completion of all infrastructure improvements scheduled for May Financing Plans. Hovnanian Riverbend. Land development costs, including any onsite and offsite public and private improvements, and construction costs to build the 80 proposed homes within Riverbend II, and property taxes with respect to the development, are being financed by a combination of equity contributions, anticipated bond proceeds of CFD No and intercompany borrowings. As of January 3, 2005, Hovnanian Riverbend had expended approximately $3,641,200 in acquiring its land in CFD No. 03-2, approximately $5,805,938 in infrastructure development costs (including permits and fees) and the expenditures of Hovnanian Riverbend in home construction and other development, marketing and sales costs were approximately $5,897,854. Hovnanian Riverbend expects the remaining infrastructure development costs, home construction costs and other development, marketing and sales costs to be approximately $16,551,504. Hovnanian Riverbend expects to finance the remaining development costs through a combination of proceeds of the CFD No Local Obligations and the proceeds of home sales. There is no assurance that amounts necessary to finance the remaining development costs within CFD No will be available from Hovnanian Riverbend, K. Hovnanian, Hovnanian Enterprises, or any other source, when needed. Neither Hovnanian Riverbend, Hovnanian Enterprises, nor K. Hovnanian, nor any of their affiliated entities are under any legal obligation of any kind to expend funds for the development of the property within CFD No Any contributions or loans by Hovnanian Riverbend, K. Hovnanian, Hovnanian Enterprises, or any other affiliated entity to fund costs of development within CFD No are entirely voluntary. 50

61 The tables below summarize the actual sources and uses of funds and projected sources and uses of funds to complete both Riverbend II within CFD No. 03-2: (1) TABLE 12 RIVERBEND II SOURCES AND USES OF FUNDS AS OF JANUARY 3, 2005 Incurred through 12/31/ /01/2005 through 10/31/2005 Total SOURCES: Housing Sales Revenues: $ - $ 43,726,655 $ 43,726,655 Equity Contributions (1) 15,344,992 (15,344,992) - Estimated Bond Proceeds - 1,085,816 1,085,816 TOTAL SOURCES: $ 15,344,992 $ 29,467,479 $ 44,812,471 USES: Land Acquisition $ 3,641,200 $ - $ 3,641,200 Land Improvements 5,805,938 2,811,309 8,617,247 Home Construction 5,897,854 9,675,167 15,573,021 Indirects, Overhead & Sales Costs - 4,065,028 4,065,028 TOTAL USES: $ 15,344,992 $ 16,551,504 $ 31,896,496 SOURCES IN EXCESS OF USES: $ 0 $ 12,915,975 $ 12,915,975 Amount in parentheses represents repayment of equity contributions. Source: Hovnanian Riverbend. Forecast Homes. Land development costs, including any onsite and offsite public and private improvements, and construction costs to build the 80 proposed homes within Legacy III, and property taxes with respect to the development, are being financed by a combination of equity contributions, anticipated bond proceeds of CFD No and intercompany borrowings. As of January 3, 2005, Forecast Homes had expended approximately $3,898,800 in acquiring its land in the CFD No. 03-2, approximately $6,744,412 in infrastructure development costs (including permits and fees) and approximately $3,167,526 in home construction and other development, marketing and sales costs. Forecast Homes expects the remaining infrastructure development costs, home construction costs and other development, marketing and sales costs to be approximately $14,203,801. Forecast Homes expects to finance the remaining development costs through a combination of proceeds of the CFD No Local Obligations and the proceeds of home sales. There is no assurance that amounts necessary to finance the remaining development costs within CFD No will be available from Forecast Homes, K. Hovnanian, Hovnanian Enterprises, or any other source, when needed. Neither Forecast Homes, K. Hovnanian, Hovnanian Enterprises, nor any of their affiliated entities are under any legal obligation of any kind to expend funds for the development of the property within CFD No Any contributions or loans by Forecast Homes, K. Hovnanian, Hovnanian Enterprises, or any other affiliated entity to fund costs of development within CFD No are entirely voluntary. The tables below summarize the actual sources and uses of funds and projected sources and uses of funds to complete the Legacy III development within CFD No. 03-2: 51

62 (1) TABLE 13 LEGACY III SOURCES AND USES OF FUNDS AS OF JANUARY 3, 2005 Incurred through 12/31/ /01/2005 through 06/30/2006 Total SOURCES: Housing Sales Revenues: $ - $ 41,499,196 $ 41,499,196 Equity Contributions (1) 13,810,738 (13,810,738) - Estimated Bond Proceeds - 1,085,816 1,085,816 TOTAL SOURCES: $ 13,810,738 $ 28,774,274 $ 42,585,012 USES: Land Acquisition $ 3,898,800 $ - $ 3,898,800 Land Improvements 6,744,412 1,606,603 8,351,015 Home Construction 3,167,526 9,507,452 12,674,978 Indirects, Overhead & Sales Costs - 3,193,386 3,193,386 TOTAL USES: $ 13,810,738 $ 14,307,441 $ 28,118,179 SOURCES IN EXCESS OF USES: $ 0 $ 14,466,833 $ 14,466,833 Amounts in parentheses represent repayment of equity contributions. Source: Forecast Homes. Blackmon Homes Blackmon Homes is a real estate development and construction firm. Blackmon Homes specializes in the construction of single-family homes directed at entry-level and move-up buyers. Blackmon Homes has constructed homes throughout Southern California, particularly in Riverside County and San Bernardino County. Jeffrey L. Blackmon is the President of Blackmon Homes. Mr. Blackmon has 27 years of experience in the construction industry as a residential developer. The Development. Mountain Grove Estates within Tax Zone C of CFD No contains 16 single family residential units ranging in size from 2,475 square feet to 3,215 square feet. All units have been built and conveyed to individual homeowners. The residential units have three different floor plans and the following estimated square footage and base sales prices: (1) Plan Number of Units Size Square Feet Average Closing Sales Price (1) 1 5 2,950 $495, , , , ,990 Closing sales prices averaged as of January 3, Source: Blackmon Homes. Alexander Communities Ownership of Property. A.C. Taylor, LLC, a California limited liability company ( AC Taylor ) was formed for the sole purpose of acquiring the real property in Tax Zone A of CFD No and constructing 52

63 the Serrano Ridge project. Alexander Communities, Inc., a California corporation ( Alexander Communities ), is the managing member of A.C. Taylor, has a 50% ownership interest in AC Taylor, and is wholly-owned by Guy C. Alexander, Jr., its President, and Guy C. Alexander III, its Vice-President and Chief Operating Officer. The Development. Serrano Ridge within Tax Zone A of CFD No is expected to contain 15 single family residential units at buildout, ranging in size from approximately 2,661 square feet to 3,544 square feet. As of January 3, 2005, 14 units had closed escrow to individual homeowners and 1 unit was under construction. Based on current development plans, the proposed residential units have three different floor plans and the following estimated square footage and base sales prices: (1) Plan Number of Units Average closing sales price as of January 3, Source: Alexander Communities. Size Square Feet Average Closing Sales Price (1) 1 2 2,661 $536, , , , ,199 History of Property Tax Payments; Loan Defaults; Litigation; Bankruptcy Forecast Homes and Hovnanian Riverbend represent that neither it nor any entity in which it has an ownership interest has ever been delinquent in the payment of any ad valorem property tax, special assessment or special taxes that was not cured within the fiscal year in which the tax or assessment was levied. As a large, nation-wide developer of residential projects, Centex Homes cannot represent with assurance that neither it nor any entity in which it has a controlling ownership interest has ever been delinquent in the payment of ad valorem property taxes; however, to the actual knowledge of the employees of Centex Homes involved in the issuance of the 2005 Series A Bonds, neither it nor any entity in which it has a controlling ownership interest has ever been delinquent in the payment of any ad valorem property tax, special assessment or special taxes on property included within the boundaries of (i) one of its residential or commercial developments, (ii) a community facilities district, or (iii) an assessment district, that was not cured either within the fiscal year in which the tax or assessment was levied or prior to a foreclosure. Forecast Homes, Hovnanian Riverbend and Centex Homes also represent that neither it nor any partnership in which it has an ownership interest is in payment default on any loans, lines of credit or other obligation, the result of which could have a material adverse effect on such Developer s ability to complete its proposed development within the Districts. Until the completion and sale of substantially all of the lots to home buyers, the receipt of the Special Taxes is dependent on the willingness and the ability of the Developers or their successors to pay the Special Taxes when due. Neither the Developers nor any of their affiliated entities are under any legal obligation of any kind to expend funds for the development of the property within the Districts. See SPECIAL RISK FACTORS Failure to Develop; Concentration of Ownership herein. Appraisal In the Appraisal, the Appraiser valued the property within the Districts as of January 3, 2005, based upon a sales comparison approach to value coupled with a discounted cash flow for existing inventory. The Appraiser arrived at the value based upon a number of assumptions and limiting conditions contained in the Appraisal and set forth in Appendix B. The sales comparison approach to value is the process in which a 53

64 market value estimate is derived by analyzing the market for similar properties and comparing these properties to the parcels to be appraised. The value of the land concluded by the Appraiser takes into account the special tax liens that exist on the property within the Districts. The Appraiser assigned a finished lot value and then deducted the remaining costs to complete the finished lots, excluding any of the finishing costs which are to be paid for with Local Obligation proceeds, and added any improvements made by the Developers which improve the property beyond a finished lot condition. The discounted cash flow took into account the fair market value of the completed homes owned by the Developers, the marketing and selling costs associated with selling off the homes, a profit due to the Developer of the homes, and a discount rate reflecting both the risk associated with selling off the homes and the true value of money during the estimated absorption period. The Appraiser has concluded that the value of the property within the Districts was, as of January 3, 2005, $102,515,000, broken down by District as described below. Improvement Area C of CFD No Centex Homes Sky Ranch Estates (Silverwood and Copperleaf). The Appraiser has valued the four completed model homes and three model homes under construction, and the 229 finished and partially finished lots owned by Centex Homes as of the date of value of the Appraisal within Improvement Area C of CFD No at approximately $39,245,000. CFD No Hovnanian Riverbend Riverbend II. The Appraiser has valued the twelve production homes approximately 95% complete as of the date of value of the Appraisal at $5,535,000 and the 68 lots in the in finished or partially finished condition at approximately $11,785,000. Forecast Homes Legacy III. The Appraiser has valued the 80 lots in the in finished or partially finished condition at approximately $13,925,000. CFD No Alexander Communities Serrano Ridge. The Appraiser has valued the one production home owned by Alexander Communities and the 14 completed homes owned by individual homeowners as of the date of value of the Appraisal at approximately $8,490,000. Centex Homes Town Square at Marketplace. The Appraiser has valued the three model homes and twelve production homes which are 95% complete as of the date of value of the Appraisal at $7,555,000 and the remaining 34 lots in the in finished or partially finished condition at approximately $7,820,000. Blackmon Homes Mountain Grove. The Appraiser has valued the 16 homes completed and owned by individual homeowners within Mountain Grove as of the date of value of the Appraisal at approximately $8,160,000. In arriving at its statement of value, the Appraiser assumes that the remaining development costs provided by the Developers are accurate, there are no hidden or unapparent conditions of the property or subsoil that render it more or less valuable, that all required licenses, certificates of occupancy or other legislative or administrative authorizations from governmental agencies or private entities or organizations have been or can be obtained, that no hazardous waste and/or toxic materials are located on the property within the Districts that would affect the development process, that the improvements to be funded with the Local Obligations are completed and that the proposed development is constructed in a timely manner with no adverse delays. See SPECIAL RISK FACTORS Failure to Develop; Concentration of Ownership herein. No assurance can be given that the assumptions made by the Appraiser will, in fact, be realized, and, as a result, no assurance can be given that the property within the Districts could be sold at the appraised values included in the Appraisal. 54

65 SPECIAL RISK FACTORS The purchase of the 2005 Series A Bonds involves a high degree of investment risk and, therefore, the 2005 Series A Bonds are not appropriate investments for all investors. Neither the 2005 Series A Bonds nor any of the Local Obligations have been rated by a rating agency. The following is a discussion of certain risk factors which should be considered, in addition to other matters set forth herein, in evaluating the investment quality of the 2005 Series A Bonds. This discussion does not purport to be comprehensive or definitive. The occurrence of one or more of the events discussed herein could adversely affect the ability or willingness of property owners in a District to pay their Special Taxes when due. Such failures to pay Special Taxes could result in the inability of a District to make full and punctual payments of debt service on the Local Obligations which, in turn, could impair the ability of the Authority to make full and punctual payments of debt service on the 2005 Series A Bonds. In addition, the occurrence of one or more of the events discussed herein could adversely affect the value of the property in the Districts, the value of the Local Obligations and the value of the 2005 Series A Bonds in the secondary market. See Appraised Value and Limited Secondary Market below. Risks of Real Estate Secured Investments Generally The 2005 Series A Bond Owners will be subject to the risks generally incident to an investment secured by real estate, including, without limitation, (i) adverse changes in local market conditions, such as changes in the market value of real property in and around the vicinity of the Districts, the supply of or demand for competitive properties in such area, and the market value of residential property or buildings and/or sites in the event of sale or foreclosure; (ii) changes in real estate tax rates and other operating expenses, governmental rules (including, without limitation, zoning laws and laws relating to endangered species and hazardous materials) and fiscal policies; and (iii) natural disasters (including, without limitation, earthquakes and floods), which may result in uninsured losses. Assumption of No Further Development in the Districts No representation is made herein by the Districts as to whether any further development will occur in the Districts. A number of uncertainties exist as to the timing, cost and nature of any future improvements in the Districts, and investors should not assume that further development will occur in the District in order to generate more Special Taxes with which to repay the Local Obligations which, in turn, are the source of repayment of the 2005 Series A Bonds. Certain factors which could adversely impact the remaining development within the Districts are described below. Limited Obligations The Local Obligations and the interest thereon, and in turn, the 2005 Series A Bonds, are not payable from the general funds of the School District. Except with respect to the Special Taxes, neither the credit nor the taxing power of the Districts or the School District is pledged for the payment of the Local Obligations or the interest thereon, and except to compel a levy of the Special Taxes securing the Local Obligations, no Owner of the 2005 Series A Bonds may compel the exercise of any taxing power by the Districts or the School District or force the forfeiture of any School District or Districts property. The principal of, premium, if any, and interest on the 2005 Series A Bonds are not a debt of the School District or the Districts or a legal or equitable pledge, charge, lien or encumbrance upon any of the School District s or the Districts property or upon any of the School District s or the Districts income, receipts or revenues, except the Revenues and other amounts pledged under the Indenture. 55

66 Insufficiency of Special Taxes Under the Rate and Method of Apportionment of Special Tax for each District, the Special Tax is levied on each taxable parcel of Developed Property and Undeveloped Property up to the Maximum Special Tax rate for such parcel. See SECURITY FOR THE 2005 SERIES A BONDS Rates and Methods of Apportionment of Special Tax. Accordingly, until a substantial portion of the land within the Districts is developed, the timely payment of the Local Obligations and thus the 2005 Series A Bonds will depend on the willingness and ability of the owners of undeveloped and partially developed property to pay such Special Taxes when due. See Failure to Develop Properties; Concentration of Ownership and Appraised Value below for a discussion of the risks associated with undeveloped property. Based on the development status within the Districts as of January 3, 2005, the estimated Maximum Special Taxes that could be collected annually, based on an estimated classification of property for fiscal year and the net usable acres in each of the proposed developments are: (i) $706,693 in Improvement Area C of CFD No. 01-2, which is approximately 1.22 times maximum annual debt service due on the CFD No Local Obligations, (ii) $218,324 in CFD No. 03-5, which is approximately 1.13 times maximum annual debt service due on the CFD No Local Obligations, and (iii) $269,847 in CFD No. 03-2, which is approximately 1.48 times maximum annual debt service due on the CFD No Local Obligations. See Tables 1A through 1C herein. The Rate and Method of Apportionment of Special Tax governing the levy of the Special Tax within Improvement Area C of CFD No expressly exempts up to 55.5 acres of public property and homeowners association property. If for any reason property within Improvement Area C of CFD No becomes exempt from taxation by reason of ownership by a non-taxable entity or homeowners association, subject to the limitations of the maximum authorized rates, the Special Tax will be reallocated to the remaining taxable properties within Improvement Area C of CFD No This would result in the owners of such property paying a greater amount of the Special Tax and could have an adverse impact upon the ability and willingness of the owners of such property to pay the Special Tax when due. The Rate and Method of Apportionment of Special Tax governing the levy of the Special Tax within CFD No expressly exempts up to 3.66 acres of public property and homeowners association property within Tax Zone A of CFD No. 03-5, acres of public property and homeowners association property are exempt within Tax Zone B of CFD No and 3.92 acres of public property and homeowners association property are exempt within Tax Zone C of CFD No If for any reason property within CFD No becomes exempt from taxation by reason of ownership by a non-taxable entity or homeowners association, subject to the limitations of the maximum authorized rates, the Special Tax will be reallocated to the remaining taxable properties within CFD No This would result in the owners of such property paying a greater amount of the Special Tax and could have an adverse impact upon the ability and willingness of the owners of such property to pay the Special Tax when due. The Rate and Method of Apportionment of Special Tax governing the levy of the Special Tax within CFD No expressly exempts up to two acres of public property and homeowners association property. If for any reason property within CFD No becomes exempt from taxation by reason of ownership by a nontaxable entity or homeowners association, subject to the limitations of the maximum authorized rates, the Special Tax will be reallocated to the remaining taxable properties within CFD No This would result in the owners of such property paying a greater amount of the Special Tax and could have an adverse impact upon the ability and willingness of the owners of such property to pay the Special Tax when due. Notwithstanding that the aggregate Maximum Special Taxes that may be levied in each District exceeds debt service due on the applicable Local Obligations, the Special Taxes collected could be inadequate to make timely payment of such debt service either because of nonpayment or because property becomes exempt from taxation. 56

67 The Act provides that, if any property within the Districts not otherwise exempt from the Special Tax is acquired by a public entity through a negotiated transaction, or by gift or devise, the Special Tax will continue to be levied on the property acquired and be payable by the public entity that acquired the property. In addition, the Act provides that, if property subject to the Special Tax is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Tax with respect to that property is to be treated as if it were a special assessment and be paid from the eminent domain award. The constitutionality and operation of these provisions of the Act have not been tested in the courts. If for any reason property within a District becomes exempt from taxation by reason of ownership by a non-taxable entity such as the federal government, another public agency or a religious organization, subject to the limitation of the maximum authorized rates, the applicable Special Tax will be reallocated to the remaining taxable parcels within such District. This would result in the owners of such remaining taxable property paying a greater amount of the Special Tax and could have an adverse impact upon the payment of the Special Tax. Moreover, if a substantial portion of land within a District became exempt from the Special Tax because of public ownership, or otherwise, the maximum Special Tax which could be levied upon the remaining acreage in such District might not be sufficient to pay the principal of and interest on the applicable Local Obligations when due and a default could occur with respect to the payment of such principal and interest and, in turn, result in insufficient Revenues to repay the 2005 Series A Bonds. Failure to Develop; Concentration of Ownership Until the completion and sale of substantially all of the lots to home buyers, the receipt of the Special Taxes is dependent on the willingness and the ability of the Developers, or their successors, to pay the Special Taxes when due. As of January 3, 2005, Centex Homes owned land responsible for 100% of the projected fiscal year Special Taxes to be levied within Improvement Area C of CFD No and for approximately 56.53% of the projected fiscal year Special Taxes to be levied within CFD No As of January 3, 2005, Alexander Communities owned land responsible for approximately 1.10% of the projected fiscal year Special Tax levy in CFD No As of January 3, 2005, Hovnanian Riverbend owned land responsible for approximately 51.96% of the projected fiscal year Special Tax levy in CFD No and Forecast Homes owned land responsible for approximately 48.04% of the projected fiscal year Special Tax levy in CFD No The purchasers of the lots for which a contract of sale has been entered into are unlikely to complete the purchase of such lots in the event single-family residences are not constructed thereon by the Developers in a timely manner. As of January 30, 2005, Centex Homes had obtained building permits for seven of the 236 homes expected to be built by Centex Homes within Improvement Area C of CFD No and all building permits for the 49 homes expected to be built by Centex Homes within Tax Zone B of CFD No As of January 30, 2005, Hovnanian Riverbend had obtained 80 building permits for the 80 homes expected to be built by Hovnanian Riverbend in CFD No As of January 30, 2005, Forecast Homes had obtained 62 building permits for the 80 homes expected to be built by Forecast Homes in CFD No There may be subsequent transfers of ownership of the property within the Districts prior to completion of development. Failure of the Developers, or any successors, to pay the annual Special Taxes when due could result in a default in payments of the principal of, and interest on, the Local Obligations, when due. No assurance can be given that the Developers will complete the intended construction and development in each District. As a result, no assurance can be given that the Developers or the potential purchasers of lots within the Districts will pay Special Taxes in the future or that they will be able to pay such Special Taxes on a timely basis. See Bankruptcy and Foreclosure below, for a discussion of certain limitations on the Districts ability to pursue judicial proceedings with respect to delinquent parcels. Undeveloped or partially developed land is inherently less valuable than developed land and provides less security to the 2005 Series A Bondowners should it be necessary for the Districts to foreclose on the property due to the nonpayment of Special Taxes. The failure to complete development of the required 57

68 infrastructure for developments in the Districts as planned, or substantial delays in the completion of the developments or the required infrastructure for the developments due to litigation or other causes may reduce the value of the property within the Districts and increase the length of time during which Special Taxes will be payable from undeveloped property, and may affect the willingness and ability of the owners of property within the Districts to pay the Special Taxes when due. There can be no assurance that land development operations within the Districts will not be adversely affected by a future deterioration of the real estate market and economic conditions or future local, State and federal governmental policies relating to real estate development, the income tax treatment of real property ownership, or the national economy. A slowdown or stoppage of the development process and the absorption rate could adversely affect land values and reduce the ability or desire of the property owners to pay the annual Special Taxes. In that event, there could be a default in the payment of principal of, and interest on, the Local Obligations and, in turn, the 2005 Series A Bonds when due. Owners of the 2005 Series A Bonds should assume that any event that significantly impacts the ability to develop land in the Districts would cause the property values within the Districts to decrease substantially from those estimated by the Appraiser and could affect the willingness and ability of the owners of such land within the Districts to pay the Special Taxes when due. Future Land Use Regulations and Growth Control Initiatives It is possible that future growth control initiatives could be enacted by the voters or future local, state or federal land use regulations could be adopted by governmental agencies and be made applicable to the development of the portions of the Districts not yet developed with the effect of negatively impacting the ability of the owners of such land to complete the development of such land if they should desire to develop it. This possibility presents a risk to prospective purchasers of the 2005 Series A Bonds in that an inability to complete desired development increases the risk that the 2005 Series A Bonds will not be repaid when due. The owners of the 2005 Series A Bonds should assume that any reduction in the permitted density, significant increase in the cost of the development planned within the Districts, or substantial delay in the development caused by growth and building permit restrictions, or more restrictive land use regulations, would cause the values of such land within the Districts to decrease. A reduction in land values increases the likelihood that in the event of a delinquency in payment of Special Taxes a foreclosure action will result in inadequate funds to repay the 2005 Series A Bonds when due. Completion of construction of any proposed structures on the vacant land within the Districts is subject to the receipt of approvals from a number of public agencies concerning the layout and design of such structures, land use, health and safety requirements and other matters. The failure to obtain any such approval could adversely affect the planned development of such land. Natural Disasters The land within the Districts, like all California communities, may be subject to unpredictable seismic activity, fires, floods or other natural disasters. Portions of the property in Improvement Area C of CFD No lie within the Alquist-Priolo Earthquake Fault Hazard Zone for the Whittier-Elsinore fault system. The occurrence of one of these natural disasters in a District could result in substantial damage to properties in such District which, in turn, could substantially reduce the value of such properties and could affect the ability or willingness of the property owners to pay their Special Taxes. Any major damage to structures as a result of natural disasters could result in a greater reliance on undeveloped property in the payment of Special Taxes. 58

69 Endangered Species During the 1990s, there was an increase in activity at the State and federal level related to the possible listing of certain plant and animal species found in the southern California area as endangered species. An increase in the number of endangered species would curtail development in a number of areas. At present, the properties within the Districts are not known to be inhabited by any plant or animal species which is on the endangered species list or which either the California Fish and Game Commission or the United States Fish and Wildlife Service has proposed for addition to the endangered species list. Notwithstanding this fact, new species are proposed to be added to the State and federal protected lists on a regular basis. Any action by the State or federal governments to protect species located on or adjacent to the property within the Districts could negatively impact the Developers ability to complete the development as planned. This, in turn, could reduce the likelihood of timely payment of the Special Tax and would likely reduce the value of the land estimated by the Appraiser and the potential revenues available at a foreclosure sale for delinquent Special Taxes. See SPECIAL RISK FACTORS Failure to Develop; Concentration of Ownership and Appraised Value. Hazardous Substances The value of a parcel may be reduced as a result of the presence of a hazardous substance. In general, the owners and operators of a parcel may be required by law to remedy conditions of the parcel relating to releases or threatened releases of hazardous substances. The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as CERCLA or the Superfund Act, is the most well-known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner or operator is obligated to remedy a hazardous substance condition of property whether or not the owner or operator has anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the taxed parcels be affected by a hazardous substance, is to reduce the marketability and value of the parcel by the costs of remedying the condition, because the purchaser, upon becoming owner, will become obligated to remedy the condition just as is the seller. Further, it is possible that liabilities may arise in the future with respect to any of the parcels resulting from the existence, currently, on the parcel of a substance presently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly affect the value of a parcel that is realizable upon a delinquency. None of the Authority, the Districts, the School District or the Developers has knowledge of any hazardous substances being located on the property within the Districts. Terrorist Events Neither the Districts nor the Developers can predict the economic effect of the ongoing threat of terrorism and the response of the United States government to such threats, though impacts could be significant. No assurance can be given that the direct and indirect consequences of military and/or terrorist activities in this country or abroad will not have an effect on the Districts, the Developers or property owners in the Districts, which may include, among other effects, a slowdown in home sales and a decrease in land values in the Districts. 59

70 Appraised Value The value of the property within the Districts is a critical factor in determining the investment quality of the 2005 Series A Bonds. If a property owner is delinquent in the payment of Special Taxes, the Districts only remedy is to commence foreclosure proceedings in an attempt to obtain funds to pay the Special Taxes. Reductions in property values due to a downturn in the economy, the direct or indirect consequences of military and/or terrorist actions in this country or abroad, physical events such as earthquakes, fires or floods, stricter land use regulations, delays in development or other events will adversely impact the security underlying the Special Taxes. See THE COMMUNITY FACILITIES DISTRICTS Estimated Value-to- Lien Ratios herein. The assessed values set forth in this Official Statement do not represent market values arrived at through an appraisal process and generally reflect only the sales price of a parcel when acquired by its current owner, adjusted annually by an amount determined by the Riverside County Assessor, generally not to exceed an increase of more than 2% per fiscal year. No assurance can be given that a parcel could actually be sold for its assessed value. Based on certain definitions, assumptions and limiting conditions contained in the Appraisal, the Appraiser has valued the property within the Districts that will be subject to Special Taxes to repay the Local Obligations as of January 3, 2005 as follows: (i) $39,245,000 regarding the land within Improvement Area C of CFD No. 01-2, (ii) $32,025,000 regarding the land within CFD No and (iii) $31,245,000 regarding the land within CFD No These values assume the completion of the facilities to be financed with the proceeds of the Local Obligations. See APPENDIX B APPRAISAL REPORT attached hereto. The Appraisal is based on the assumptions and limiting conditions as stated in APPENDIX B APPRAISAL REPORT The Appraisal does not reflect any possible negative impact which could occur by reason of an inability of the Developers to obtain any needed development approval or permit, the presence of hazardous substances within the Districts, hidden or unapparent conditions of the property or soil, failure to obtain proper zoning, licenses or similar required permits, failure to comply with the Americans with Disabilities Act, or other similar situations. The Appraisal assumes that the proposed developments are constructed in a timely manner without adverse delays. Prospective purchasers of the 2005 Series A Bonds should not assume that the land within the Districts could be sold for the appraised value at a foreclosure sale for delinquent Special Taxes. In arriving at the estimate of value, the Appraiser assumes that any sale will be unaffected by undue stimulus and will occur following a reasonable marketing period, which is not always present in a foreclosure sale. See the Appraisal included as APPENDIX B for a description of the other assumptions made by the Appraiser and for the definitions and limiting conditions used by the Appraiser in arriving at the estimated value of property within the Districts. No assurance can be given that any bid will be received for a parcel with delinquent Special Taxes offered for sale at foreclosure or, if a bid is received, that such bid will be sufficient to pay all delinquent Special Taxes. See SECURITY FOR THE 2005 SERIES A BONDS Covenant for Superior Court Foreclosure. Parity Taxes, Special Assessments and Land Development Costs Property within the Districts is subject to taxes and other charges levied by several other public agencies. See THE COMMUNITY FACILITIES DISTRICTS Direct and Overlapping Indebtedness. The Special Taxes and any penalties thereon will constitute a lien against the lots and parcels of land on which they will be annually imposed until they are paid. Such lien is on a parity with the lien of all special 60

71 taxes and special assessments levied by other agencies and is co-equal to and independent of the lien for general ad valorem property taxes regardless of when they are imposed upon the same property. The Special Taxes have priority over all existing and future private liens imposed on the property except, possibly, for liens or security interests held by the Federal Deposit Insurance Corporation. See Bankruptcy and Foreclosure below. Development of land within the Districts is contingent upon construction or acquisition of major public improvements such as arterial streets, water distribution facilities, sewage collection and transmission facilities, drainage and flood protection facilities, gas, telephone and electrical facilities, schools, parks and street lighting, as well as local in-tract improvements and on-site grading and related improvements. Certain of these improvements have been acquired and/or completed; however, there can be no assurance that the remaining improvements will be constructed or will be constructed in time for development to proceed as currently expected. The cost of these additional improvements plus the public and private in-tract, on-site and off-site improvements could increase the public and private debt for which the land within the Districts is security. This increased debt could reduce the ability or desire of the property owners to pay the annual Special Taxes levied against the property. In that event there could be a default in the payment of principal of and interest on the Local Obligations and, thus, the 2005 Series A Bonds when due. See THE COMMUNITY FACILITIES DISTRICTS Direct and Overlapping Indebtedness herein. Neither the Authority, the Districts nor the School District has control over the ability of other entities and districts to issue indebtedness secured by special taxes or assessments payable from all or a portion of the property within the Districts. In addition, the landowners within the Districts may, without the consent or knowledge of the School District, petition other public agencies to issue public indebtedness secured by special taxes or assessments. Any such special taxes or assessments may have a lien on such property on a parity with the Special Taxes and could reduce the estimated value-to-lien ratios for property within the Districts. See THE COMMUNITY FACILITIES DISTRICTS Estimated Value-to-Lien Ratios. Payment of the Special Tax is not a Personal Obligation of the Owners An owner of a taxable parcel is not personally obligated to pay the Special Tax. Rather, the Special Tax is an obligation which is secured only by a lien against the taxable parcel. If the proceeds received from the sale of a taxable parcel following a Special Tax delinquency are not sufficient, taking into account other liens imposed by public agencies, to pay the full amount of the Special Tax delinquency, the District has no recourse against the owner of the parcel. Disclosures to Future Purchasers The willingness or ability of an owner of a parcel to pay the Special Tax may be affected by whether or not the owner was given due notice of the Special Tax authorization at the time the owner purchased the parcel, was informed of the amount of the Special Tax on the parcel should the Special Tax be levied at the maximum tax rate and the risk of such a levy and, at the time of such a levy, has the ability to pay it as well as pay other expenses and obligations. Each District has caused a notice of the Special Tax that may be levied against the taxable parcels in each District to be recorded in the Office of the Recorder for the County. While title companies normally refer to such notices in title reports, there can be no guarantee that such reference will be made or, if made, that a prospective purchaser or lender will consider such Special Tax obligation in the purchase of a property within the Districts or lending of money thereon. The Act requires the subdivider (or its agent or representative) of a subdivision to notify a prospective purchaser or long-term lessor of any lot, parcel, or unit subject to a Mello-Roos special tax of the existence and maximum amount of such special tax using a statutorily prescribed form. California Civil Code Section b requires that in the case of transfers other than those covered by the above requirement, the 61

72 seller must at least make a good faith effort to notify the prospective purchaser of the special tax lien in a format prescribed by statute. Failure by an owner of the property to comply with the above requirements, or failure by a purchaser or lessor to consider or understand the nature and existence of the Special Tax, could adversely affect the willingness and ability of the purchaser or lessor to pay the Special Tax when due. Special Tax Delinquencies Under provisions of the Act, the Special Taxes, from which funds necessary for the payment of principal of and interest on the Local Obligations and, thus, the 2005 Series A Bonds are derived, are customarily billed to the properties within each District on the ad valorem property tax bills sent by the County to owners of such properties. The Act currently provides that such Special Tax installments are due and payable, and bear the same penalties and interest for non-payment, as do ad valorem property tax installments. See SECURITY FOR THE 2005 SERIES A BONDS Covenant for Superior Court Foreclosure, for a discussion of the provisions which apply, and procedures which each District is obligated to follow under the Local Obligation Bond Indentures, in the event of delinquencies in the payment of Special Taxes. See Bankruptcy and Foreclosure below for a discussion of the policy of the Federal Deposit Insurance Corporation (the FDIC ) regarding the payment of special taxes and assessment and limitations on the District s ability to foreclose on the lien of the Special Taxes in certain circumstances. FDIC/Federal Government Interests in Properties The ability of the Districts to foreclose the lien of delinquent unpaid Special Tax installments may be limited with regard to properties in which the Federal Deposit Insurance Corporation (the FDIC ) has an interest. In the event that any financial institution making any loan which is secured by real property within the Districts is taken over by the FDIC, and prior thereto or thereafter the loan or loans go into default, then the ability of the Districts to collect interest and penalties specified by State law and to foreclose the lien of delinquent unpaid Special Taxes may be limited. The FDIC s policy statement regarding the payment of state and local real property taxes (the Policy Statement ) provides that property owned by the FDIC is subject to state and local real property taxes only if those taxes are assessed according to the property s value, and that the FDIC is immune from real property taxes assessed on any basis other than property value. According to the Policy Statement, the FDIC will pay its property tax obligations when they become due and payable and will pay claims for delinquent property taxes as promptly as is consistent with sound business practice and the orderly administration of the institution s affairs, unless abandonment of the FDIC s interest in the property is appropriate. The FDIC will pay claims for interest on delinquent property taxes owed at the rate provided under state law, to the extent the interest payment obligation is secured by a valid lien. The FDIC will not pay any amounts in the nature of fines or penalties and will not pay nor recognize liens for such amounts. If any property taxes (including interest) on FDIC-owned property are secured by a valid lien (in effect before the property became owned by the FDIC), the FDIC will pay those claims. The Policy Statement further provides that no property of the FDIC is subject to levy, attachment, garnishment, foreclosure or sale without the FDIC s consent. In addition, the FDIC will not permit a lien or security interest held by the FDIC to be eliminated by foreclosure without the FDIC s consent. The Policy Statement states that the FDIC generally will not pay non-ad valorem taxes, including special assessments, on property in which it has a fee interest unless the amount of tax is fixed at the time that the FDIC acquires its fee interest in the property, nor will it recognize the validity of any lien to the extent it purports to secure the payment of any such amounts. Special taxes imposed under the Mello-Roos Act and a special tax formula which determines the special tax due each year are specifically identified in the Policy Statement as being imposed each year and therefore covered by the FDIC s federal immunity. 62

73 The Districts are unable to predict what effect the application of the Policy Statement would have in the event of a delinquency in the payment of Special Taxes on a parcel within each District in which the FDIC has or obtains an interest, although prohibiting the lien of the FDIC to be foreclosed out at a judicial foreclosure sale could reduce or eliminate the number of persons willing to purchase a parcel at a foreclosure sale. Such an outcome could cause a draw on the Reserve Fund and perhaps, ultimately, a default in payment on the 2005 Series A Bonds. Bankruptcy and Foreclosure Bankruptcy, insolvency and other laws generally affecting creditors rights could adversely impact the interests of owners of the Bonds in at least two ways. First, the payment of property owners taxes and the ability of the Districts to foreclose the lien of a delinquent unpaid Special Tax pursuant to its covenant to pursue judicial foreclosure proceedings may be limited by bankruptcy, insolvency or other laws generally affecting creditors rights or by the laws of the State relating to judicial foreclosure. See SECURITY FOR THE 2005 SERIES A BONDS Covenant for Superior Court Foreclosure herein. In addition, the prosecution of a foreclosure action could be delayed due to many reasons, including crowded local court calendars or lengthy procedural delays. Secondly, the Bankruptcy Code might prevent moneys on deposit in the Special Tax Fund from being applied to pay the principal of and interest on the Local Obligations and/or to redeem Local Obligations and moneys on deposit in the Revenue Fund from being applied to pay debt service of on the 2005 Series A Bonds if bankruptcy proceedings were brought by or against the Developers or their successors and if the court found that any of such landowners had an interest in such moneys within the meaning of Section 541(a)(1) of the Bankruptcy Code. Although a bankruptcy proceeding would not cause the Special Taxes to become extinguished, the amount and priority of any Special Tax lien could be modified if the value of the property falls below the value of the lien. If the value of the property is less than the lien, such excess amount could be treated as an unsecured claim by the bankruptcy court. In addition, bankruptcy of a property owner could result in a delay in procuring Superior Court foreclosure proceedings. Such delay would increase the likelihood of a delay or default in payment of the principal of, and interest on, the 2005 Series A Bonds and the possibility of delinquent tax installments not being paid in full. On July 30, 1992, the United States Court of Appeals for the Ninth Circuit issued its opinion in a bankruptcy case entitled In re Glasply Marine Industries. In that case, the court held that ad valorem property taxes levied by Snohomish County in the State of Washington after the date that the property owner filed a petition for bankruptcy were not entitled to priority over a secured creditor with a prior lien on the property. Although the court upheld the priority of unpaid taxes imposed before the bankruptcy petition, unpaid taxes imposed after the filing of the bankruptcy petition were declared to be administrative expenses of the bankruptcy estate, payable after all secured creditors. As a result, the secured creditor was able to foreclose on the property and retain all the proceeds of the sale except the amount of the pre-petition taxes. The Bankruptcy Reform Act of 1994 (the Bankruptcy Reform Act ) included a provision which excepts from the Bankruptcy Code s automatic stay provisions, the creation of a statutory lien for an ad valorem property tax imposed by... a political subdivision of a state if such tax comes due after the filing of the petition by a debtor in bankruptcy court. This amendment effectively makes the Glasply holding inoperative as it relates to ad valorem real property taxes. However, it is possible that the original rationale of the Glasply ruling could still result in the treatment of post-petition special taxes as administrative expenses, rather than as tax liens secured by real property, at least during the pendency of bankruptcy proceedings. According to the court s ruling, as administrative expenses, post-petition taxes would be paid, assuming that the debtor had sufficient assets to do so. In certain circumstances, payment of such 63

74 administrative expenses may be allowed to be deferred. Once the property is transferred out of the bankruptcy estate (through foreclosure or otherwise), it would at that time become subject to current ad valorem taxes. The Act provides that the Special Taxes are secured by a continuing lien which is subject to the same lien priority in the case of delinquency as ad valorem taxes. No case law exists with respect to how a bankruptcy court would treat the lien for Special Taxes levied after the filing of a petition in bankruptcy. Glasply is controlling precedent on bankruptcy courts in the State. If the Glasply precedent was applied to the levy of the Special Taxes, the amount of Special Taxes received from parcels whose owners declare bankruptcy could be reduced. The various legal opinions to be delivered concurrently with the delivery of the 2005 Series A Bonds (including Bond Counsel s approving legal opinion) will be qualified, as to the enforceability of the various legal instruments, by moratorium, bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally. No Acceleration Provision The 2005 Series A Bonds do not contain a provision allowing for the acceleration of the 2005 Series A Bonds in the event of a payment default or other default under the terms of the 2005 Series A Bonds or the Indenture. Pursuant to the Indenture, an Owner of the 2005 Series A Bonds is given the right for the equal benefit and protection of all owners similarly situated to pursue certain remedies described in APPENDIX D SUMMARY OF CERTAIN PROVISIONS OF THE BOND DOCUMENTS SUMMARY OF INDENTURE OF TRUST EVENTS OF DEFAULT AND REMEDIES. Limitations on Remedies Remedies available to the Owners of the 2005 Series A Bonds may be limited by a variety of factors and may be inadequate to assure the timely payment of principal of and interest on the 2005 Series A Bonds or to preserve the exclusion from gross income for federal income tax purposes of interest on the 2005 Series A Bonds. Bond Counsel has limited its opinion as to the enforceability of the 2005 Series A Bonds and of the Indenture to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium, or other similar laws affecting generally the enforcement of creditors rights, by equitable principles, by the exercise of judicial discretion and by limitations on remedies against public agencies in the State. The lack of availability of certain remedies or the limitation of remedies may entail risks of delay, limitation or modification of the rights of the owners of the 2005 Series A Bonds. Loss of Tax Exemption As discussed under the caption TAX MATTERS herein, interest on the 2005 Series A Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the 2005 Series A Bonds were issued, as a result of future acts or omissions of the Authority or the Districts in violation of its covenants in the Indenture or the Local Obligation Bond Indentures, respectively. Should such an event of taxability occur, the 2005 Series A Bonds are not subject to a special redemption and will remain outstanding until maturity or until redeemed under one of the other redemption provisions contained in the Indenture. Limited Secondary Market There can be no guarantee that there will be a secondary market for the 2005 Series A Bonds or, if a secondary market exists, that the 2005 Series A Bonds can be sold for any particular price. Although the 64

75 Authority and the Developers have committed to provide certain financial information and operating data on an annual basis, there can be no assurance that such information will be available to Owners of the 2005 Series A Bonds on a timely basis. The failure to provide the required annual information does not give rise to monetary damages but merely an action for specific performance. Occasionally, because of general market conditions, lack of current information, the absence of a credit rating, or adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then prevailing circumstances. Such prices could be substantially different from the original purchase price. Proposition 218 An initiative measure commonly referred to as the Right to Vote on Taxes Act (the Initiative ) was approved by the voters of the State of California at the November 5, 1996 general election. The Initiative added Article XIIIC and Article XIIID to the California Constitution. According to the Title and Summary of the Initiative prepared by the California Attorney General, the Initiative limits the authority of local governments to impose taxes and property-related assessments, fees and charges. The provisions of the Initiative continue to be interpreted by the courts. The Initiative could potentially impact the Special Taxes available to the Districts to pay the principal of and interest on the Local Obligations as described below. Among other things, Section 3 of Article XIII states that... the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge. The Act provides for a procedure which includes notice, hearing, protest and voting requirements to alter the rate and method of apportionment of an existing special tax. However, the Act prohibits a legislative body from adopting any resolution to reduce the rate of any special tax or terminate the levy of any special tax pledged to repay any debt incurred pursuant to the Act unless such legislative body determines that the reduction or termination of the special tax would not interfere with the timely retirement of that debt. On August 1, 1997, a bill was signed into law by the Governor of the State enacting Government Code Section 5854, which states that: Section 3 of Article XIIIC of the California Constitution, as adopted at the November 5, 1996, general election, shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after that date, assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of contractual rights protected by Section 10 of Article I of the United States Constitution. Accordingly, although the matter is not free from doubt, it is likely that the Initiative has not conferred on the voters the power to repeal or reduce the Special Taxes if such reduction would interfere with the timely retirement of the Local Obligations. It may be possible, however, for voters or the Board of Education acting as the legislative body of each District to reduce the Special Taxes in a manner which does not interfere with the timely repayment of the Local Obligations, but which does reduce the maximum amount of Special Taxes that may be levied in any year below the existing levels. Therefore, no assurance can be given with respect to the levy of Special Taxes for Administrative Expenses. Furthermore, no assurance can be given with respect to the future levy of the Special Taxes in amounts greater than the amount necessary for the timely retirement of the Local Obligations. Nevertheless, to the maximum extent that the law permits it to do so, each District has covenanted that it will not initiate proceedings under the Act to reduce the maximum Special Tax rates in each District below an amount equal to 110 percent of the sum of estimated Administrative Expenses allocable to such District and gross debt service for the Local Obligations of such District in each Bond Year. Each District has also covenanted that, in the event an initiative is adopted which purports to alter the Rate and Method of Apportionment of Special Tax for the District, it will commence and pursue legal action in order to preserve its 65

76 ability to comply with the foregoing covenant. However, no assurance can be given as to the enforceability of the foregoing covenants. The interpretation and application of the Initiative will ultimately be determined by the courts with respect to a number of the matters discussed above, and it is not possible at this time to predict with certainty the outcome of such determination or the timeliness of any remedy afforded by the courts. See SPECIAL RISK FACTORS Limitations on Remedies. Ballot Initiatives Articles XIII A, XIII B, XIII C and XIII D, all of which placed certain limitations on the power of local agencies to tax, collect and expend revenues, were adopted pursuant to measures qualified for the ballot pursuant to California s constitutional initiative process and the State Legislature has in the past enacted legislation which has altered the spending limitations or established minimum funding provisions for particular activities. From time to time, other initiative measures could be adopted by California voters or legislation enacted by the legislature. The adoption of any such initiative or legislation might place limitations on the ability of the State, the School District, or the Districts to increase revenues or to increase appropriations or on the ability of the landowners within the Districts to complete proposed future development. See Failure to Develop Properties; Concentration of Ownership herein. CONTINUING DISCLOSURE Pursuant to a Continuing Disclosure Agreement (the Continuing Disclosure Agreement ), the Authority has agreed to provide, or cause to be provided, to each nationally recognized municipal securities information repository and any public or private repository or entity designated by the State as a state repository for purposes of Rule 15c2-12 adopted by the Commission (each, a Repository ) certain annual financial information and operating data concerning the Districts. The Authority has never failed within the last five years to comply in all material respects with any previous undertakings with regard to the Rule to provide annual reports or notices of material events. The Annual Report to be filed by the Authority will include audited financial statements of the Authority and the Districts, if any are prepared, and additional financial and operating data concerning the Districts as set forth in Section 4 of the Continuing Disclosure Agreement attached hereto as APPENDIX E. Centex Homes, Hovnanian Riverbend and Forecast Homes will enter into a Developer Disclosure Agreement in the form attached in APPENDIX E hereto (the Developer Disclosure Undertakings ) pursuant to which Centex Homes, Hovnanian Riverbend and Forecast Homes will each covenant to provide an Annual Report not later than six months after the end of such entity s fiscal year, beginning with the annual report due in The Annual Reports provided by Centex Homes, Hovnanian Riverbend and Forecast Homes are to contain financial and operating data outlined in Section 4 of the Developer Disclosure Undertaking attached in APPENDIX E. The Developer Disclosure Undertakings terminate on the date that is the earlier of (i) the date the 2005 Series A Bonds are no longer outstanding, (ii) the date on which neither such entity executing a Developer Disclosure Undertaking nor an affiliate thereof owns property in the applicable District which is responsible for 20 percent or more of the annual Special Tax levy for such District, or (iii) the date on which all Special Taxes levied on the property within such District are paid or prepaid in full. The Continuing Disclosure Agreement and the Developer Disclosure Undertakings will inure solely to the benefit of the applicable District, any Dissemination Agent, the Underwriter and owners or beneficial owners from time to time of the 2005 Series A Bonds. A default under any of such agreements is not a default under the Indenture and the sole remedy following a default is an action to compel performance by the defaulting party with the terms of the Continuing Disclosure Undertaking or Developer Disclosure Undertakings. Centex Homes, Hovnanian Riverbend and Forecast Homes each represents that to its actual 66

77 knowledge it has never failed to comply in all material respects with any previous undertakings imposed upon it to provide disclosure reports or notices of material events pursuant to the Rule. The Continuing Disclosure Agreement and the Developer Disclosure Undertakings provide that any required filing may be made through a central depository approved by the Commission. TAX MATTERS In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel, under exiting statutes, regulations, rulings and judicial decisions, interest (and original issue discount) on the 2005 Series A Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest (and original issue discount) on the 2005 Series A Bonds is exempt from State of California personal income tax. Bond Counsel notes that, with respect to corporations, interest (and original issue discount) on the 2005 Series A Bonds will be included as an adjustment in the calculation of alternative minimum taxable income, which may affect the alternative minimum tax liability of such corporations. The difference between the issue price of a 2005 Series A Bond (the first price at which a substantial amount of the 2005 Series A Bonds of a maturity is to be sold to the public) and the stated redemption price at maturity with respect to such 2005 Series A Bond constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a 2005 Series A Bond Owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a 2005 Series A Bond Owner will increase the 2005 Series A Bond Owner s basis in the applicable 2005 Series A Bond. Bond Counsel s opinion as to the exclusion from gross income for federal income tax purposes of interest (and original issue discount) on the 2005 Series A Bonds is based upon certain representations of fact and certifications made by the Authority, the Districts, the Underwriter and others and is subject to the condition that the Authority and the Districts comply with all requirements of the Code that must be satisfied subsequent to the issuance of the 2005 Series A Bonds to assure that interest (and original issue discount) on the 2005 Series A Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest (and original issue discount) on the 2005 Series A Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2005 Series A Bonds. The Authority and the Districts have each covenanted to comply with all such requirements. The amount by which a 2005 Series A Bond Owner s original basis for determining loss on sale or exchange in the applicable 2005 Series A Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable bond premium, which must be amortized under Section 171 of the Code; such amortizable bond premium reduces the 2005 Series A Bond Owner s basis in the applicable 2005 Series A Bond (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of 2005 Series A Bond premium may result in a 2005 Series A Bond Owner realizing a taxable gain when a 2005 Series A Bond is sold by the 2005 Series A Bond Owner for an amount equal to or less (under certain circumstances) than the original cost of the 2005 Series A Bond to the Bond Owner. Purchasers of the 2005 Series A Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable bond premium. Should the interest (and original issue discount) on the 2005 Series A Bonds become includable in gross income for federal income tax purposes, the 2005 Series A Bonds are not subject to early redemption as a result of such occurrence and will remain outstanding until maturity or until otherwise redeemed in accordance with the Indenture. 67

78 The Internal Revenue Service (the IRS ) has initiated an expanded program for the auditing of taxexempt bond issues, including both random and targeted audits. It is possible that the 2005 Series A Bonds will be selected for audit by the IRS. It is also possible that the market value of the 2005 Series A Bonds might be affected as a result of such an audit of the 2005 Series A Bonds (or by an audit of similar securities). Bond Counsel s opinion may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date of issuance of the 2005 Series A Bonds. Bond Counsel has not undertaken to determine, or to inform any person, whether any such action or events are taken or do occur, or whether such actions or events may adversely affect the value or tax treatment of a 2005 Series A Bond and Bond Counsel expresses no opinion with respect thereto. Certain requirements and procedures contained or referred to in the Indenture, the Tax Certificate and the Local Obligation Bond Indentures may be changed and certain actions (including, without limitation, defeasance of the 2005 Series A Bonds) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. Bond Counsel expresses no opinion as to any 2005 Series A Bond or the interest thereon if any such change occurs or action is taken or omitted upon the advice or approval of anyone other than Bond Counsel. Although Bond Counsel has rendered an opinion that interest (and original issue discount) on the 2005 Series A Bonds is excluded from gross income for federal income tax purposes provided that the Authority and the Districts continue to comply with certain requirements of the Code, the accrual or receipt of interest on the 2005 Series A Bonds may otherwise affect the tax liability of the recipient. The extent of these other tax consequences will depend upon the recipient s particular tax status and other items of income or deductions. Bond Counsel expresses no opinion regarding any such consequences. Accordingly, all potential purchasers should consult their tax advisors before purchasing any of the 2005 Series A Bonds. LEGAL OPINION The validity of the 2005 Series A Bonds and certain other legal matters are subject to the approving opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel. A complete copy of the proposed form of Bond Counsel opinion is contained in APPENDIX C hereto and will accompany the 2005 Series A Bonds. Certain legal matters will be passed upon for the Authority, the School District and the Districts by Parker & Covert LLP, Tustin, California, and for the Authority by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, as Disclosure Counsel. Bond Counsel and Disclosure Counsel expresses no opinion to the owners of the Bonds as to the accuracy, completeness or fairness of this Official Statement or other offering materials relating to the Bonds and expressly disclaims any duty to advise the Owners of the 2005 Series A Bonds as to matters related to the Official Statement. LITIGATION No litigation is pending or, to the knowledge of the Authority, the School District or the Districts, threatened concerning the validity of the 2005 Series A Bonds or the Local Obligations and a certificate of each District and the Authority to that effect will be furnished to the Underwriter at the time of the original delivery of the 2005 Series A Bonds. Each District is not aware of any litigation pending or threatened which questions the existence of such District, or the School District or contests the authority of each District to levy and collect the Special Taxes or to issue and retire the Local Obligations. NO RATING The Authority has not made and does not contemplate making application to any rating agency for the assignment of a rating of the 2005 Series A Bonds. 68

79 UNDERWRITING The 2005 Series A Bonds are being purchased by UBS Financial Services Inc. (the Underwriter ). The Underwriter has agreed to purchase the 2005 Series A Bonds at a price of $13,784, (being $14,030,000 aggregate principal amount thereof, less Underwriter s discount of $224, and less original issue discount of $21,215.55). The purchase contract relating to the 2005 Series A Bonds provides that the Underwriter will purchase all of the 2005 Series A Bonds if any are purchased. The obligation to make such purchase is subject to certain terms and conditions set forth in such purchase contract, the approval of certain legal matters by counsel and certain other conditions. The Underwriter may offer and sell the 2005 Series A Bonds to certain dealers and others at prices lower than the offering price stated on the cover page thereof. The offering price may be changed from time to time by the Underwriter. FINANCIAL INTERESTS The fees being paid to the Underwriter and Bond Counsel are contingent upon the issuance and delivery of the 2005 Series A Bonds. From time to time, Bond Counsel represents the Underwriter on matters unrelated to the 2005 Series A Bonds. PENDING LEGISLATION Neither the Authority nor the Districts are aware of any significant pending legislation which would have material adverse consequences on the 2005 Series A Bonds, the ability of the Authority to pay the principal of and interest on the 2005 Series A Bonds when due or the ability of the Districts to pay the principal of and interest on the Local Obligations. ADDITIONAL INFORMATION The purpose of this Official Statement is to supply information to prospective buyers of the 2005 Series A Bonds. Quotations and summaries and explanations of the 2005 Series A Bonds and documents contained in this Official Statement do not purport to be complete, and reference is made to such documents for full and complete statements and their provisions. The execution and delivery of this Official Statement by the Executive Director of the Authority has been duly authorized by the Board of Directors of the Authority. CORONA-NORCO UNIFIED SCHOOL DISTRICT PUBLIC FINANCING AUTHORITY By: /s/ Lee V. Pollard Executive Director 69

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81 APPENDIX A FIRST AMENDED RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX FOR COMMUNITY FACILITIES DISTRICT NO CORONA-NORCO UNIFIED SCHOOL DISTRICT (IMPROVEMENT AREA C) A Special Tax as hereinafter defined shall be levied on all Assessor s Parcels in Improvement Area C of Community Facilities District No of the Corona-Norco Unified School District ( CFD No ) and collected each Fiscal Year, in an amount determined by the Board of Education of the Corona-Norco Unified School District (the Board ) through the application of the appropriate Special Tax for Developed Property, Undeveloped Property, Taxable Association Property, and Taxable Public Property as described below. All of the real property within Improvement Area C of CFD No. 01-2, unless exempted by law or by the provisions hereof, shall be taxed for the purposes, to the extent and in the manner herein provided. A. DEFINITIONS The terms hereinafter set forth have the following meanings: Acre or Acreage means the land area of an Assessor s Parcel as shown on the Assessor s Parcel Map, or if the land area is not shown on an Assessor s Parcel Map, the land area shown on the applicable final map, lot line adjustment, condominium plan, or other recorded parcel map. Act means the Mello-Roos Community Facilities Act of 1982, as amended, being Chapter 2.5, Part 1 of Division 2 of Title 5 of the California Government Code of the State of California. Administrative Expenses means the following actual or reasonably estimated costs directly related to the administration of CFD No and allocable to Improvement Area C: the costs of computing the Special Taxes and preparing the annual Special Tax collection schedules (whether by the School District, CFD No. 01-2, or a designee thereof); the costs of collecting the Special Taxes (whether by the School District or otherwise); the costs of remitting the Special Taxes to the fiscal agent or trustee; the costs of the fiscal agent or trustee (including its legal counsel) in the discharge of the duties required of it under the Indenture; the costs to the School District, CFD No or any designee thereof of complying with arbitrage rebate requirements; the costs to the School District, CFD No or any designee thereof of complying with School District, CFD No or obligated persons disclosure requirements associated with applicable federal and state securities laws and of the Act; the costs associated with preparing Special Tax disclosure statements and responding to public inquiries regarding the Special Taxes; the costs of the School District, CFD No or any designee thereof related to an appeal of the Special Tax; the costs associated with the release of funds from an escrow account. Administrative Expenses shall also include amounts advanced by the School District or CFD No for any other administrative purposes of CFD No. 01-2, including attorney s fees and other costs related to commencing and pursuing to completion any foreclosure of delinquent Special Taxes. Assessor s Parcel means a lot or parcel shown in an Assessor s Parcel Map with an assigned Assessor s Parcel number. Assessor s Parcel Map means an official map of the Assessor of the County of Riverside designating parcels by Assessor s Parcel number. A-1

82 Association Property means any property owned by, irrevocably offered or dedicated to, or for which an easement for purposes of right of way has been granted to a property owner association, including any master or sub-association. Assigned Special Tax means the Special Tax for each Land Use Category of Developed Property, as determined in accordance with Section C.1.a. below. Backup Special Tax means the Special Tax amount set forth in Section C.l.b. below. Bonds means any bonds or other indebtedness (as defined in the Act), whether in one or more series, secured by the levy of Special Taxes within Improvement Area C. CFD Administrator means an official of the School District, or designee thereof, responsible for determining the Special Tax Requirement and providing for the levy and collection of the Special Taxes. Developed Property means all Assessor s Parcels, exclusive of Taxable Association Property and Taxable Public Property, for which a building permit has been issued as of June 30 th of the Fiscal Year preceding the Fiscal Year for which Special Taxes are being levied. Final Subdivision means a subdivision of property by recordation of a final map, parcel map, or lot line adjustment, pursuant to the Subdivision Map Act (California Government Code Section et seq.) or recordation of a condominium plan pursuant to California Civil Code 1352 that creates individual lots for which building permits may be issued without further subdivision. Fiscal Year means the period starting on July 1 and ending on the following June 30. Improvement Area C means the area so identified on the boundary map of CFD No Indenture means the indenture, fiscal agent agreement, trust agreement, resolution or other instrument pursuant to which Bonds are issued, as modified, amended and/or supplemented from time to time, and any instrument replacing or supplementing the same. Land Use Category means any of the categories listed in Table 1. Maximum Special Tax means the maximum Special Tax, determined in accordance with Section C, which can be levied in any Fiscal Year on any Assessor s Parcel of Taxable Property. Non-Residential Property means all Assessor s Parcels of Developed Property for which a building permit was issued for a non-residential use. Occupied Property means all Assessor s Parcels of Residential Property which have been sold to the initial occupant. Public Property means property owned by, irrevocably offered or dedicated to, or for which an easement for purposes of public right-of-way has been granted to the federal government, the State of California, the County of Riverside, or the City of Corona or any local government or other public agency, provided that any property leased by a public agency to a private entity and subject to taxation under Section of the Act shall be taxed and classified according to its use. Proportionately means for Developed Property that the ratio of the actual Special Tax levy to the Assigned Special Tax is the same for all Assessors Parcels of Developed Property within a Land Use A-2

83 Category. For Undeveloped Property, Taxable Public Property and Taxable Association Property, Proportionately means that the ratio of the actual Special Tax levy per Acre to the Maximum Special Tax per Acre is the same for all Assessor s Parcels of Undeveloped Property, Taxable Public Property and Taxable Association Property. Residential Property means all Assessor s Parcels of Developed Property for which a building permit has been issued for purposes of constructing one or more residential dwelling units. School District means the Corona-Norco Unified School District. Special Tax means the special tax to be levied in each Fiscal Year on each Assessor s Parcel of Taxable Property to fund the Special Tax Requirement. Special Tax Requirement means for Improvement Area C that amount required in any Fiscal Year for CFD No to: (i) pay debt service on all outstanding Bonds; (ii) pay periodic costs on the Bonds, including but not limited to, credit enhancement and rebate payments on the Bonds; (iii) pay Administrative Expenses; and (iv) pay any amounts required to establish or replenish any reserve funds for the outstanding Bonds; (v) pay directly or accumulate funds for the acquisition or construction of facilities to the extent that the inclusion of such amount does not increase the Special Tax levy on Undeveloped Property; less (vi) a credit for funds available to reduce the annual Special Tax levy as determined pursuant to the Indenture. Taxable Property means all of the Assessor s Parcels within Improvement Area C which are not exempt from the Special Tax pursuant to law or Section E below. Taxable Association Property means all Association Property which is not exempt from the Special Tax pursuant to Section E below. Taxable Public Property means all Public Property which is not exempt from the Special Tax pursuant to Section E below. Undeveloped Property means all Taxable Property not classified as Developed Property, exclusive of Taxable Association Property and Taxable Public Property. B. ASSIGNMENT TO CLASS AND LAND USE CATEGORY Each Fiscal Year, all Taxable Property shall be classified as Developed Property, Undeveloped Property, Association Property, or Public Property and shall be subject to the levy of Special Taxes in accordance with this Rate and Method of Apportionment as determined pursuant to Sections C and D below. Developed Property which satisfies the criteria for Residential Property and Non-Residential Property shall be assigned thereto. Association Property and Public Property which is not exempt from the Special Tax shall be assigned to Taxable Association Property and Taxable Public Property, respectively. For purposes of determining the applicable Table 1 Assigned Special Tax for Developed Property, each Assessor s Parcel of Residential Property shall be assigned to a Land Use Category based upon the house square footage of improvements constructed or to be constructed on such Assessor s Parcel and each Assessor s Parcel of Non-Residential Property shall be assigned to the applicable Non-Residential Land Use Category. With respect to Residential Property, the square footage of improvements shall be determined from the most recent building permit issued prior to the Assessor s Parcel being classified as Occupied Property, and shall be exclusive of garages or other structures which are not used as living space. A-3

84 C. MAXIMUM SPECIAL TAX RATE 1. Developed Property The Maximum Special Tax for each Assessor s Parcel classified as Developed Property shall be the greater of (i) the applicable Table 1 Assigned Special Tax or (ii) the amount derived by application of the Backup Special Tax. a. Assigned Special Tax The Assigned Special Tax for each Land Use Category within Improvement Area C is shown in Table 1 below. TABLE 1 Assigned Special Taxes for Developed Property Community Facilities District No (Improvement Area C) Improvement Area C Land Use Category Taxable Unit Mountain- Gate III Square Feet of Dwelling Unit Assigned Special Tax per Taxable Unit 1 - Residential DU <= 2,700 $2, Residential DU 2,701-3,200 $2, Residential DU 3,201-3,400 $2, Residential DU 3,401-3,600 $2, Residential DU 3,601-3,900 $3, Residential DU >= 3,901 $3, Non-Residential Acre N/A $10,414 b. Backup Special Tax The Backup Special Tax attributable to each Acre of a Final Subdivision within Improvement Area C is equal to the amount shown in Table 2. Improvement Area TABLE 2 Backup Special Tax for Community Facilities District No (Improvement Area C) Project Name Tentative or Final Subdivision Tract No. Backup Special Tax per Acre C Mountaingate III Tract No $10,414 The Backup Special Tax attributable to a Final Subdivision within Improvement Area C is equal to the Backup Special Tax per Acre multiplied by the Acreage of all Taxable Property, exclusive of any Taxable Association Property and Taxable Public Property, within such Final Subdivision. If a Final Subdivision within Improvement Area C includes Assessor s Parcels of Taxable Property for which building permits for both residential and A-4

85 non-residential construction may be issued, exclusive of Taxable Association Property and Taxable Public Property, then the Backup Special Tax for each Assessor s Parcel of Residential Property within Improvement Area C shall be computed exclusive of the Acreage of Assessor s Parcels of property for which building permits for non-residential property may be issued. The Backup Special Tax for each Assessor s Parcel of Residential Property in a Final Subdivision shall be computed by dividing the aggregate Backup Special Tax attributable to the Assessor s Parcels of Taxable Property for which building permits for residential construction have or may be issued, as determined in the preceding paragraph, by the number of such Assessor s Parcels (i.e., the number of residential lots) within such Final Subdivision. The Backup Special Tax for each Assessor s Parcel of Non-Residential Property in a Final Subdivision shall be equal to Backup Tax Per Acre shown in Table 2 multiplied by the Acreage of such Assessor s Parcel within such Final Subdivision. Notwithstanding the foregoing, if Assessor s Parcels of Residential Property are subsequently changed or modified by recordation of a lot line adjustment or similar instrument, then the Backup Special Tax shall be recalculated to equal the amount of the Backup Special Tax that would have been generated if such change did not take place. 2. Undeveloped Property, Taxable Association Property and Taxable Public Property The Maximum Special Tax for Undeveloped Property, Taxable Association Property and Taxable Public Property shall be $10,414 per Acre for Improvement Area C. D. METHOD OF APPORTIONMENT OF THE SPECIAL TAX Commencing with Fiscal Year and for each following Fiscal Year, the Board shall determine the Special Tax Requirement and shall levy the Special Tax until the amount of Special Taxes equals the Special Tax Requirement. The Special Tax shall be levied each Fiscal Year as follows: First: The Special Tax shall be levied Proportionately on each Assessor s Parcel of Developed Property at up to 100% of the applicable Assigned Special Tax to satisfy the Special Tax Requirement; Second: If additional monies are needed to satisfy the Special Tax Requirement after the first step has been completed, the Special Tax shall be levied Proportionately on each Assessor s Parcel of Undeveloped Property at up to 100% of the Maximum Special Tax for Undeveloped Property; Third: If additional moneys are needed to satisfy the Special Tax Requirement after the first two steps have been completed, the Special Tax to be levied on each Assessor s Parcel of Developed Property whose Maximum Special Tax is derived by the application of the Backup Special Tax shall be increased Proportionately from the Assigned Special Tax up to the Maximum Special Tax for each such Assessor s Parcel; Fourth: If additional moneys are needed to satisfy the Special Tax Requirement after the first three steps have been completed, the Special Tax shall be levied Proportionately on each Assessor s Parcel of Taxable Association Property and/or Taxable Public Property at up to 100% of its Maximum Special Tax. A-5

86 Notwithstanding the above, under no circumstances will the Special Taxes levied against any Assessor s Parcel of Residential Property for which an occupancy permit for private residential use has been issued be increased by more than ten percent (10%) per Fiscal Year as a consequence of delinquency or default by the owner of any other Assessor s Parcel within Improvement Area C of CFD No E. EXEMPTIONS No Special Tax shall be levied on up to 55.5 Acres in Improvement Area C of: (i) Public Property or (ii) Association Property. If the total Acres of Public Property and Association Property exceeds 55.5 Acres in Improvement Area C, then the Acres exceeding such total shall be taxed as Taxable Association Property and/or Taxable Public Property as set forth in Section D. The CFD Administrator will assign tax-exempt status for these Acres in the chronological order in which property becomes Public Property or Association Property. F. MANNER OF COLLECTION The Special Tax shall be collected in the same manner and at the same time as ordinary ad valorem property taxes; provided, however, that CFD No may directly bill the Special Tax, may collect Special Taxes at a different time or in a different manner if necessary to meet its financial obligations, and may covenant to foreclose and may actually foreclose on Assessor s Parcels having delinquent Special Taxes as permitted by the Act. G. APPEALS Any landowner or resident who feels that the amount of the Special Tax levied on their Assessor s Parcel is in error may submit a written appeal to CFD No The CFD Administrator shall review the appeal and if the CFD Administrator concurs, the amount of the Special Tax levied shall be appropriately modified. The Board may interpret this Rate and Method of Apportionment of Special Tax for purposes of clarifying any ambiguity and make determinations relative to the annual administration of the Special Tax and any landowner or resident appeals. Any decision of the Board shall be final and binding as to all persons. H. PREPAYMENT OF SPECIAL TAX The Special Tax levied against Developed Property, Taxable Public Property, and Taxable Association Property may be prepaid. The prepayment amount for an Assessor s Parcel will be equal to the present value of the Maximum Special Tax applicable to such Assessor s Parcel, using a discount rate that is equal to the yield on the Bonds and the remaining term of the Bonds. For any prepayment that occurs prior to the issuance of Bonds, the discount rate used in this calculation shall be 6.15% and the term shall be over which the Special Tax may be levied as provided for in Section I. Any unpaid Special Taxes, interest, and penalties which have been entered on the Assessor s tax roll that apply to an Assessor s Parcel for which prepayment is sought, shall be paid in addition to the amount determined in the preceding paragraph at the date of prepayment. I. TERM OF THE SPECIAL TAX For each year that any Bonds are outstanding the Special Tax shall be levied on all Assessor s Parcels subject to the Special Tax. If any delinquent Special Taxes remain uncollected prior to or A-6

87 after all Bonds are retired, the Special Tax may be levied to the extent necessary to reimburse Improvement Area C of CFD No for uncollected Special Taxes associated with the levy of such Special Taxes, but not later than the Fiscal Year. A-7

88 RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX FOR COMMUNITY FACILITIES DISTRICT NO CORONA-NORCO UNIFIED SCHOOL DISTRICT A Special Tax as hereinafter defined shall be levied on all Assessor s Parcels in Community Facilities District No of the Corona-Norco Unified School District ( CFD No ) and collected each Fiscal Year, in an amount determined by the Board of Education of the Corona-Norco Unified School District (the Board ) through the application of the appropriate Special Tax for Developed Property, Undeveloped Property, Taxable Association Property, and Taxable Public Property as described below. All of the real property within CFD No. 03-5, unless exempted by law or by the provisions hereof, shall be taxed for the purposes, to the extent and in the manner herein provided. A. DEFINITIONS The terms hereinafter set forth have the following meaning: Acre or Acreage means the land area of an Assessor s Parcel as shown on the Assessor s Parcel Map, or if the land area is not shown on an Assessor s Parcel Map, the land area shown on the applicable final map, lot line adjustment, condominium plan, or other recorded parcel map. Act means the Mello-Roos Community Facilities Act of 1982, as amended, being Chapter 2.5, Part 1 of Division 2 of Title 5 of the California Government Code of the State of California. Administrative Expenses means the following actual or reasonably estimated costs directly related to the administration of CFD No the costs of computing the Special Taxes and preparing the annual Special Tax collection schedules (whether by the School District, CFD No. 03-5, or a designee thereof); the costs of collecting the Special Taxes (whether by the School District or otherwise); the costs of remitting the Special Taxes to the fiscal agent or trustee; the costs of the fiscal agent or trustee (including its legal counsel) in the discharge of the duties required of it under the Indenture; the costs to the School District, CFD No or any designee thereof to comply with arbitrage rebate requirements; the costs to the School District, CFD No or any designee thereof to comply with School District, CFD No or obligated persons disclosure requirements associated with applicable federal and state securities laws and of the Act; the costs associated with preparing Special Tax disclosure statements and responding to public inquiries regarding the Special Taxes; the costs of the School District, CFD No or any designee thereof related to an appeal of the Special Tax; the costs associated with the release of funds from an escrow account. Administrative Expenses shall also include amounts advanced by the School District or CFD No for any other administrative purposes of CFD No. 03-5, including attorney s fees and other costs related to commencing and pursuing to completion any foreclosure of delinquent Special Taxes. Assessor s Parcel means a lot or parcel shown in an Assessor s Parcel Map with an assigned Assessor s Parcel number. Assessor s Parcel Map means an official map of the Assessor of the County of Riverside designating parcels by Assessor s Parcel number. Association Property means any property owned by, irrevocably offered or dedicated to, or for which an easement for purposes of right of way has been granted to a property owner association, including any master or sub-association. Assigned Special Tax means the Special Tax for each Land Use Category of Developed Property, as determined in accordance with Section C.1.a. below. A-8

89 Backup Special Tax means the Special Tax amount set forth in Section C.l.b. below. Bonds means any bonds or other indebtedness (as defined in the Act), whether in one or more series, secured by the levy of Special Taxes within CFD CFD Administrator means an official of the School District, or designee thereof, responsible for determining the Special Tax Requirement and providing for the levy and collection of the Special Taxes. Developed Property means all Assessor s Parcels, exclusive of Taxable Association Property and Taxable Public Property, for which a building permit has been issued as of June 30th of the Fiscal Year preceding the Fiscal Year for which Special Taxes are being levied. Final Subdivision means a subdivision of property by recordation of a final map, parcel map, or lot line adjustment, pursuant to the Subdivision Map Act (California Government Code Section et seq.) or recordation of a condominium plan pursuant to California Civil Code 1352 that creates individual lots for which building permits may be issued without further subdivision. Fiscal Year means the period starting on July 1 and ending on the following June 30. Indenture means the indenture, fiscal agent agreement, trust agreement, resolution or other instrument pursuant to which Bonds are issued, as modified, amended and/or supplemented from time to time, and any instrument replacing or supplementing the same. Land Use Category means any of the categories listed in Table 1, Table 2 and Table 3. Maximum Special Tax means the maximum Special Tax, determined in accordance with Section C, which can be levied in any Fiscal Year on any Assessor s Parcel of Taxable Property. Non-Residential Property means all Assessor s Parcels of Developed Property for which a building permit was issued for a non-residential use. Proportionately means for Developed Property that the ratio of the actual Special Tax levy to the Assigned Special Tax is the same for all Assessors Parcels of Developed Property. For Undeveloped Property, Taxable Public Property and Taxable Association Property, Proportionately means that the ratio of the actual Special Tax levy per Acre to the Maximum Special Tax per Acre is the same for all Assessor s Parcels of Undeveloped Property, Taxable Public Property and Taxable Association Property. Public Property means property owned by, irrevocably offered or dedicated to, or for which an easement for purposes of public right-of-way has been granted to the federal government, the State of California, the County of Riverside, or the City of Corona or any local government or other public agency, provided that any property leased by a public agency to a private entity and subject to taxation under Section of the Act shall be taxed and classified according to its use. Residential Property means all Assessor s Parcels of Developed Property for which a building permit has been issued for purposes of constructing one or more residential dwelling units. School District means the Corona-Norco Unified School District. Special Tax means the special tax to be levied in each Fiscal Year on each Assessor s Parcel of Taxable Property to fund the Special Tax Requirement. A-9

90 Special Tax Requirement means that amount required in any Fiscal Year for CFD No to: (i) pay debt service on all outstanding Bonds; (ii) pay periodic costs on the Bonds, including but not limited to, credit enhancement and rebate payments on the Bonds; (iii) pay Administrative Expenses; (iv) pay any amounts required to establish or replenish any reserve funds for the outstanding Bonds; and (v) pay directly or accumulate funds for the acquisition or construction of facilities to the extent that the inclusion of such amount does not increase the Special Tax levy on Undeveloped Property; less (vi) a credit for funds available to reduce the annual Special Tax levy as determined pursuant to the Indenture. Tax Zone A means a specific geographic location as depicted as Zone A on the Boundary Map of CFD No Tax Zone B means a specific geographic location as depicted as Zone B on the Boundary Map of CFD No Tax Zone C means a specific geographic location as depicted as Zone C on the Boundary Map of CFD No Taxable Property means all of the Assessor s Parcels which are not exempt from the Special Tax pursuant to law or Section E below. Taxable Association Property means all Association Property which is not exempt from the Special Tax pursuant to Section E below. Taxable Public Property means all Public Property which is not exempt from the Special Tax pursuant to Section E below. Undeveloped Property means all Taxable Property not classified as Developed Property, exclusive of Taxable Association Property and Taxable Public Property. B. ASSIGNMENT TO CLASS AND LAND USE CATEGORY Each Fiscal Year, all Taxable Property shall be classified as Developed Property, Undeveloped Property, Association Property, or Public Property and shall be subject to the levy of Special Taxes in accordance with this Rate and Method of Apportionment as determined pursuant to Sections C and D below. Developed Property which satisfies the criteria for Residential Property and Non-Residential Property shall be assigned thereto. Association Property and Public Property which is not exempt from the Special Tax shall be assigned to Taxable Association Property and Taxable Public Property, respectively. C. MAXIMUM SPECIAL TAX RATE 1. Developed Property The Maximum Special Tax for each Assessor s Parcel classified as Developed Property shall be the greater of (i) the applicable Assigned Special Tax described in Table 1, Table 2 and Table 3 below or (ii) the amount derived by application of the Backup Special Tax. a. Assigned Special Tax The Assigned Special Tax for each Land Use Category within Tax Zone A is shown in Table 1 below. A-10

91 TABLE 1 Assigned Special Taxes for Developed Property Community Facilities District No Tax Zone A Tax Zone A Land Use Category Taxable Unit Square Feet of Dwelling Unit Assigned Special Tax per Taxable Unit City of 1 - Residential DU <3,000 $2,413 Corona 2 - Residential DU 3,000 3,499 $3,090 Tract No. 3 - Residential DU >= 3,500 $3, Non-Residential Acre N/A $13,958 The Assigned Special Tax for each Land Use Category within Tax Zone B is shown in Table 2 below. TABLE 2 Assigned Special Taxes for Developed Property Community Facilities District No Tax Zone B Tax Zone B Land Use Category Taxable Unit Square Feet of Dwelling Unit Assigned Special Tax per Taxable Unit City of 1 - Residential DU <3,500 $2,503 Corona 2 - Residential DU 3,500-3,899 $3,069 Tract No. 3 - Residential DU >= 3,900 $3, Non-Residential Acre N/A $14,990 The Assigned Special Tax for each Land Use Category within Tax Zone C is shown in Table 3 below. TABLE 3 Assigned Special Taxes for Developed Property Community Facilities District No Tax Zone C Tax Zone C Land Use Category Taxable Unit Square Feet of Dwelling Unit Assigned Special Tax per Taxable Unit City of 1 - Residential DU <2,600 $2,582 Corona 2 - Residential DU 2,600 2,999 $3,067 Tract No. 3 - Residential DU >= 3,000 $3, Non-Residential Acre N/A $13,917 b. Backup Special Tax The Backup Special Tax attributable to each Acre of a Final Subdivision is equal to the amount shown in Table 4. A-11

92 Tax Zone TABLE 4 Backup Special Tax for Community Facilities District No Tentative or Final Subdivision Tract No. Backup Special Tax per Acre A $13,958 B $14,990 C $13,917 The Backup Special Tax attributable to a Final Subdivision is equal to the Backup Special Tax per Acre multiplied by the Acreage of all Taxable Property, exclusive of any Taxable Association Property and Taxable Public Property, within such Final Subdivision. If a Final Subdivision includes Assessor s Parcels of Taxable Property for which building permits for both residential and non-residential construction may be issued, exclusive of Taxable Association Property and Taxable Public Property, then the Backup Special Tax for each Assessor s Parcel of Residential Property shall be computed exclusive of the Acreage of Assessor s Parcels of property for which building permits for non-residential property may be issued. The Backup Special Tax for each Assessor s Parcel of Residential Property in a Final Subdivision shall be computed by dividing the aggregate Backup Special Tax attributable to the Assessor s Parcels of Taxable Property for which building permits for residential construction have or may be issued, as determined in the preceding paragraph, by the number of such Assessor s Parcels (i.e., the number of residential lots) within such Final Subdivision. The Backup Special Tax for each Assessor s Parcel of Non-Residential Property in a Final Subdivision shall be equal to Backup Tax per Acre shown in Table 4 multiplied by the Acreage of such Assessor s Parcel within such Final Subdivision. Notwithstanding the foregoing, if Assessor s Parcels of Residential Property are subsequently changed or modified by recordation of a lot lime adjustment or similar instrument, then the Backup Special Tax shall be recalculated to equal the amount of the Backup Special Tax that would have been generated if such change did not take place. 2. Undeveloped Property, Taxable Association Property and Taxable Public Property The Maximum Special Tax for Undeveloped Property, Taxable Association Property and Taxable Public Property shall be $13,958 per Acre for Tax Zone A, $14,990 for Tax Zone B and $13,917 for Tax Zone C. D. METHOD OF APPORTIONMENT OF THE SPECIAL TAX Commencing with Fiscal Year and for each following Fiscal Year, the Board shall determine the Special Tax Requirement and shall levy the Special Tax until the amount of Special Taxes equals the Special Tax Requirement. The Special Tax shall be levied each Fiscal Year as follows: A-12

93 First: The Special Tax shall be levied Proportionately on each Assessor s Parcel of Developed Property within Tax Zone A, Tax Zone B and Tax Zone C at up to 100% of the applicable Assigned Special Tax to satisfy the Special Tax Requirement; Second: If additional monies are needed to satisfy the Special Tax Requirement after the first step has been completed, the Special Tax shall be levied Proportionately on each Assessor s Parcel of Undeveloped Property at up to 100% of the Maximum Special Tax for Undeveloped Property; Third: If additional moneys are needed to satisfy the Special Tax Requirement after the first two steps have been completed, the Special Tax to be levied on each Assessor s Parcel of Developed Property whose Maximum Special Tax is derived by the application of the Backup Special Tax shall be increased Proportionately from the Assigned Special Tax up to the Maximum Special Tax for each such Assessor s Parcel; Fourth: If additional moneys are needed to satisfy the Special Tax Requirement after the first three steps have been completed, the Special Tax shall be levied Proportionately on each Assessor s Parcel of Taxable Association Property and/or Taxable Public Property at up to 100% of its Maximum Special Tax. Notwithstanding the above, under no circumstances will the Special Taxes levied against any Assessor s Parcel of Residential Property for which an occupancy permit for private residential use has been issued be increased by more than ten percent (10%) per Fiscal Year as a consequence of delinquency or default by the owner of any other Assessor s Parcel within CFD No E. EXEMPTIONS 1. The CFD Administrator shall classify the following Assessor Parcel(s) as exempt property: (i) Public Property, (ii) Association Property, and (iii) Assessor s Parcels with public or utility easements making impractical their utilization for other than the purposes set forth in the easement; provided, however, that no such classification shall reduce the sum of all Taxable Property within Tax Zone A to less than 3.66 Acres, Tax Zone B to less than Acres and Tax Zone C to less than 3.92 Acres. Notwithstanding the preceding sentence, the CFD Administrator shall not classify an Assessor s Parcel described in this paragraph as exempt property if such classification would reduce the sum of all Taxable Property within Tax Zone A to less than 3.66 Acres, Tax Zone B to less than Acres and Tax Zone C to less than 3.92 Acres. Assessor s Parcels which cannot be classified as exempt property because such classification would reduce the Acreage of all Taxable Property within Tax Zone A to less than 3.66 Acres, Tax Zone B to less than Acres and Tax Zone C to less than 3.92 Acres will be classified as either Taxable Public Property, Taxable Association Property, or Undeveloped Property, as applicable and shall be taxed as such. Tax exempt status for purposes of this paragraph will be assigned by the CFD Administrator in the chronological order in which property becomes exempt property. 2. The Maximum Special Tax obligation for any property which would be classified as Public Property upon its transfer or dedication to a public agency but which cannot be classified as exempt property as described in paragraph 1 of Section E shall be prepaid in full by the seller pursuant to Section H, prior to the transfer/dedication of such property to such public agency. Until the Maximum Special Tax obligation for any such Public Property is prepaid, the property shall continue to be subject to the levy of the Special Tax as Taxable Public Property. A-13

94 F. MANNER OF COLLECTION The Special Tax shall be collected in the same manner and at the same time as ordinary ad valorem property taxes; provided, however, that CFD No may directly bill the Special Tax, may collect Special Taxes at a different time or in a different manner if necessary to meet its financial obligations, and may covenant to foreclose and may actually foreclose on Assessor s Parcels having delinquent Special Taxes as permitted by the Act. G. APPEALS Any landowner or resident who feels that the amount of the Special Tax levied on their Assessor s Parcel is in error may submit a written appeal to CFD No The CFD Administrator shall review the appeal and if the CFD Administrator concurs, the amount of the Special Tax levied shall be appropriately modified. The Board may interpret this Rate and Method of Apportionment of Special Tax for purposes of clarifying any ambiguity and make determinations relative to the annual administration of the Special Tax and any landowner or resident appeals. Any decision of the Board shall be final and binding as to all persons. H. PREPAYMENT OF SPECIAL TAX The Special Tax levied against Developed Property, Taxable Public Property, and Taxable Association Property may be prepaid. The prepayment amount for an Assessor s Parcel will be equal to the present value of the Maximum Special Tax applicable to such Assessor s Parcel, using a discount rate that is equal to the yield on the Bonds and the remaining term of the Bonds. For any prepayment that occurs prior to the issuance of Bonds, the discount rate used in this calculation shall be 6.5% and the term shall be over which the Special Tax may be levied as provided for in Section I. Any unpaid Special Taxes, interest, and penalties which have been entered on the Assessor s tax roll that apply to an Assessor s Parcel for which prepayment is sought, shall be paid in addition to the amount determined in the preceding paragraph at the date of prepayment. I. TERM OF THE SPECIAL TAX For each year that any Bonds are outstanding the Special Tax shall be levied on all Assessor s Parcels subject to the Special Tax. If any delinquent Special Taxes remain uncollected prior to or after all Bonds are retired, the Special Tax may be levied to the extent necessary to reimburse CFD No for uncollected Special Taxes associated with the levy of such Special Taxes, but not later than the Fiscal Year. A-14

95 RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX FOR COMMUNITY FACILITIES DISTRICT NO CORONA-NORCO UNIFIED SCHOOL DISTRICT A Special Tax as hereinafter defined shall be levied on all Assessor s Parcels in Community Facilities District No of the Corona-Norco Unified School District (the CFD ) and collected each Fiscal Year, in an amount determined by the Board of Education of the Corona-Norco Unified School District (the Board ) through the application of the appropriate Special Tax for Developed Property, Undeveloped Property, Taxable Association Property, and Taxable Public Property as described below. All of the real property within the CFD, unless exempted by law or by the provisions hereof, shall be taxed for the purposes, to the extent and in the manner herein provided. A. DEFINITIONS The terms hereinafter set forth have the following meanings: Acre or Acreage means the land area of an Assessor s Parcel as shown on the Assessor s Parcel Map, or if the land area is not shown on an Assessor s Parcel Map, the land area shown on the applicable final map, lot line adjustment, condominium plan, or other recorded parcel map. Act means the Mello-Roos Community Facilities Act of 1982, as amended, being Chapter 2.5, Part 1 of Division 2 of Title 5 of the California Government Code of the State of California. Administrative Expenses means the following actual or reasonably estimated costs directly related and allocable to the administration of the CFD: the costs of computing the Special Taxes and preparing the annual Special Tax collection schedules (whether by the School District, the CFD, or a designee thereof); the costs of collecting the Special Taxes (whether by the School District or otherwise); the costs of remitting the Special Taxes to the fiscal agent or trustee; the costs of the fiscal agent or trustee (including its legal counsel) in the discharge of the duties required of it under the Indenture; the costs to the School District, the CFD or any designee thereof of complying with arbitrage rebate requirements; the costs to the School District, the CFD or any designee thereof of complying with School District, the CFD or obligated persons disclosure requirements associated with applicable federal and state securities laws and of the Act; the costs associated with preparing Special Tax disclosure statements and responding to public inquiries regarding the Special Taxes; the costs of the School District, the CFD or any designee thereof related to an appeal of the Special Tax; the costs associated with the release of funds from an escrow account. Administrative Expenses shall also include amounts advanced by the School District or the CFD for any other administrative purposes of the CFD, including attorney s fees and other costs related to commencing and pursuing to completion any foreclosure of delinquent Special Taxes. Assessor s Parcel means a lot or parcel shown in an Assessor s Parcel Map with an assigned Assessor s Parcel number. Assessor s Parcel Map means an official map of the Assessor of the County of Riverside designating parcels by Assessor s Parcel number. Association Property means any property owned by, irrevocably offered or dedicated to, or for which an easement for purposes of right of way has been granted to a property owner association, including any master or sub-association. A-15

96 Assigned Special Tax means the Special Tax for each Land Use Category of Developed Property, as determined in accordance with Section C.1.a. below. Backup Special Tax means the Special Tax amount set forth in Section C.1.b. below. Bonds means any bonds or other indebtedness (as defined in the Act), whether in one or more series, secured by the levy of Special Taxes within the CFD. CFD Administrator means an official of the School District, or designee thereof, responsible for determining the Special Tax Requirement and providing for the levy and collection of the Special Taxes. Developed Property means all Assessor s Parcels, exclusive of Taxable Association Property and Taxable Public Property, for which a building permit has been issued as of June 30th of the Fiscal Year preceding the Fiscal Year for which Special Taxes are being levied. Final Subdivision means a subdivision of property by recordation of a final map, parcel map, or lot line adjustment, pursuant to the Subdivision Map Act (California Government Code Section et seq.) or recordation of a condominium plan pursuant to California Civil Code 1352 That creates individual lots for which building permits may be issued without further subdivision. Fiscal Year means the period starting on July 1 and ending on the following June 30. Indenture means the indenture, fiscal agent agreement, trust agreement, resolution or other instrument pursuant to which Bonds are issued, as modified, amended and/or supplemented from time to time, and any instrument replacing or supplementing the same. Land Use Category means any of the categories listed in Table 1. Maximum Special Tax means the maximum Special Tax, determined in accordance with Section C, which can be levied in any Fiscal Year on any Assessor s Parcel of Taxable Property. Non-Residential Property means all Assessor s Parcels of Developed Property for which a building permit was issued for a non-residential use. Public Property means property owned by, irrevocably offered or dedicated to, or for which an easement for purposes of public right-of-way has been granted to the federal government, the State of California, the County of Riverside, or any local government or other public agency, provided that any property leased by a public agency to a private entity and subject to taxation under Section of the Act shall be taxed and classified according to its use. Proportionately means for Developed Property that the ratio of the actual Special Tax levy to the Assigned Special Tax is the same for all Assessors Parcels of Developed Property within a Land Use Category. For Undeveloped Property, Taxable Public Property and Taxable Association Property, Proportionately means that the ratios of the actual Special Tax levy per Acre to the Maximum Special Tax per Acre is the same for all Assessor s Parcels of Undeveloped Property, Taxable Public Property and Taxable Association Property. Residential Property means all Assessor s Parcels of Developed Property for which a building permit has been issued for purposes of constructing one or more residential dwelling units. School District means the Corona-Norco Unified School District. A-16

97 Special Tax means the special tax to be levied in each Fiscal Year on each Assessor s Parcel of Taxable Property to fund the Special Tax Requirement. Special Tax Requirement means for that amount required in any Fiscal Year to: (i) pay debt service on all outstanding Bonds; (ii) pay periodic costs on the Bonds, including but not limited to, credit enhancement and rebate payments on the Bonds; (iii) pay Administrative Expenses; and (iv) pay any amounts required to establish or replenish any reserve funds for the outstanding Bonds; (v) pay directly or accumulate funds for the acquisition or construction of facilities to the extent that the inclusion of such amount does not increase the Special Tax levy on Undeveloped Property or cause the application of the Backup Special Tax to be levied on Developed Property; less (vi) a credit for funds available to reduce the annual Special Tax levy as determined pursuant to the Indenture. Taxable Association Property means all Association Property, which is not exempt from the Special Tax pursuant to Section E below. Taxable Property means all of the Assessor s Parcels within the CFD which are not exempt from the Special Tax pursuant to law or Section E below. Taxable Public Property means all Public Property, which is not exempt from the Special Tax pursuant to Section E below. Undeveloped Property means all Taxable Property not classified as Developed Property, exclusive of Taxable Association Property and Taxable Public Property. B. ASSIGNMENT TO CLASS AND LAND USE CATEGORY Each Fiscal Year, all Taxable Property shall be classified as Developed Property, Undeveloped Property, Association Property, or Public Property and shall be subject to the levy of Special Taxes in accordance with this Rate and Method of Apportionment as determined pursuant to Sections C and D below. Developed Property, which satisfies the criteria for Residential Property and Non-Residential Property, shall be assigned thereto. Association Property and Public Property, which is not exempt from the Special Tax, shall be assigned to Taxable Association Property and Taxable Public Property, respectively. For purposes of determining the applicable Table 1 Assigned Special Tax for Developed Property, each Assessor s Parcel of Residential Property shall be assigned to a Land Use Category based upon the house square; footage of improvements constructed or to be constructed on such Assessor s Parcel and each Assessor s Parcel of Non-Residential Property shall be assigned to the applicable Non- Residential Land Use Category. With respect to Residential Property, the square footage of improvements shall be determined from the most recent building permit issued prior to the Assessor s Parcel being classified as Occupied Property, and shall be exclusive of garages or other structures which are not used as living space. C. MAXIMUM SPECIAL TAX RATE 1. Developed Property The Maximum Special Tax for each Assessor s Parcel classified as Developed Property shall be the greater of (i) the applicable Table 1 Assigned Special Tax or (ii) the amount derived by application of the Backup Special Tax. A-17

98 a. Assigned Special Tax The Assigned Special Tax for each Land Use Category within the CFD is shown in Table 1 below. Land Use Category TABLE 1 Assigned Special Taxes for Developed Property Community Facilities District No Taxable Unit Residential Floor Area Assigned Special Tax per Taxable Unit 1 Residential Property A Detached Unit DU Under 3,001 square feet $1,591 B Detached Unit DU 3,001 square feet to 3,250 $1,697 square feet C Detached Unit DU 3,251 square feet to 3,500 $1,762 square feet D Detached Unit DU 3,501 square feet to 4,000 $1,790 square feet E Detached Unit DU Over 4,000 square feet $2, Non-Residential Property Acre N/A $8,000 b. Backup Special Tax The Backup Special Tax attributable to each Assessor s Parcel of a Final Subdivision within the CFD is equal to $8,000 per Acre. The Backup Special Tax attributable to a Final Subdivision within the CFD is equal to the Backup Special Tax per Acre multiplied by the Acreage of all Taxable Property, exclusive of any Taxable Association Property and Taxable Public Property, within such Final Subdivision. If a Final Subdivision within the CFD includes Assessor s Parcels of Taxable Property for which building permits for both residential and non-residential construction may be issued, exclusive of Taxable Association Property and Taxable Public Property, then the Backup Special Tax for each Assessor s Parcel of Residential Property within the CFD shall be computed exclusive of the Acreage of Assessor s Parcels of property for which building permits for non-residential property may be issued. The Backup Special Tax for each Assessor s Parcel of Residential Property in a Final Subdivision shall be computed by dividing the aggregate Backup Special Tax attributable to the Assessor s Parcels of Taxable Property for which building permits for residential construction have or may be issued, as determined in the preceding paragraph, by the number of such Assessor s Parcels (i.e., the number of residential lots) within such Final Subdivision. The Backup Special Tax for each Assessor s Parcel of Non-Residential Property in a Final Subdivision within the CFD shall be equal to $8,000 multiplied by the Acreage of such Assessor s Parcel within such Final Subdivision. A-18

99 Notwithstanding the foregoing, if Assessor s Parcels of Residential Property are subsequently changed or modified by recordation of a lot line adjustment or similar instrument, then the Backup Special Tax shall be recalculated to equal the amount of the Backup Special Tax that would have been generated if such change did not take place. 2. Undeveloped Property, Taxable Association Property and Taxable Public Property The Maximum Special Tax for Undeveloped Property, Taxable Association Property and Taxable Public Property shall be $8,000 per Acre for the CFD. D. METHOD OF APPORTIONMENT OF THE SPECIAL TAX Commencing with Fiscal Year and for each following Fiscal Year, the Board shall determine the Special Tax Requirement and shall levy the Special Tax until the amount of Special Taxes equals the Special Tax Requirement. The Special Tax shall be levied each Fiscal Year as follows: First: The Special Tax shall be levied Proportionately on each Assessor s Parcel of Developed Property at up to 100% of the applicable Assigned Special Tax to satisfy the Special Tax Requirement. Second: If additional monies are needed to satisfy the Special Tax Requirement after the first step has been completed, the Special Tax shall be levied Proportionately on each Assessor s Parcel of Undeveloped Property at up to 100% of the Maximum Special Tax for Undeveloped Property. Third: If additional moneys are needed to satisfy the Special Tax Requirement after the first two steps have been completed, the Special Tax to be levied on each Assessor s Parcel of Developed Property whose Maximum Special Tax is derived by the application of the Backup Special Tax shall be increased Proportionately from the Assigned Special Tax up to the Maximum Special Tax for each such Assessor s Parcel. Fourth: If additional moneys are needed to satisfy the Special Tax Requirement after the first three steps have been completed, the Special Tax shall be levied Proportionately on each Assessor s Parcel of Taxable Association Property and/or Taxable Public Property at up to 100% of its Maximum Special Tax. Notwithstanding the above, under no circumstances will the Special Taxes levied against any Assessor s Parcel of Residential Property for which an occupancy permit for private residential use has been issued be increased by more than ten percent (10%) per Fiscal Year as a consequence of delinquency or default by the owner of any other Assessor s Parcel within the CFD. E. EXEMPTIONS No Special Tax shall be levied on up to 2.00 Acres of: (i) Public Property or (ii) Association Property. If the total Acres of Public Property and Association Property exceed 2.0 Acres in the CFD, then the Acres exceeding such total shall be taxed as Taxable Association Property and/or Taxable Public Property as set forth in Section D. The CFD Administrator will assign tax-exempt status for these Acres in the chronological order in which property becomes Public Property or Association Property. A-19

100 F. MANNER OF COLLECTION The Special Tax shall be collected in the same manner and at the same time as ordinary ad valorem property taxes; provided, however, that the CFD may directly bill the Special Tax, may collect Special Taxes at a different time or in a different manner if necessary to meet its financial obligations, and may covenant to foreclose and may actually foreclose on Assessor s Parcels having delinquent Special Taxes as permitted by the Act. G. APPEALS Any landowner or resident who feels that the amount of the Special Tax levied on their Assessor s Parcel is in error may submit a written appeal to the CFD. The CFD Administrator shall review the appeal and if the CFD Administrator concurs, the amount of the Special Tax levied shall be appropriately modified. The Board may interpret this Rate and Method of Apportionment of Special Tax for purposes of clarifying any ambiguity and make determinations relative to the annual administration of the Special Tax and any landowner or resident appeals. Any decision of the Board shall be final and binding as to all persons. H. PREPAYMENT OF SPECIAL TAX The Special Tax levied against Developed Property, Taxable Public Property, and Taxable Association Property may be prepaid. The prepayment amount for an Assessor s Parcel will be equal to the present value of the Maximum Special Tax applicable to such Assessor s Parcel, using a discount rate that is equal to the yield on the Bonds and the remaining term of the Bonds. For any prepayment that occurs prior to the issuance of Bonds, the discount rate used in this calculation shall be 6.25 and the term shall be over which the Special Tax may be levied as provided for in Section I. Any unpaid Special Taxes, interest, and penalties which have been entered on the tax rolls that apply to an Assessor s Parcel for which prepayment is sought, shall be paid in addition to the amount determined in the preceding paragraph at the date of prepayment. I. TERM OF THE SPECIAL TAX For each year that any Bonds are outstanding the Special Tax shall be levied on all Assessor s Parcels subject to the Special Tax. If any delinquent Special Taxes remain uncollected prior to or after all Bonds are retired, the Special Tax may be levied to the extent necessary to reimburse the CFD for uncollected Special Taxes associated with the levy of such Special Taxes, but not later than the Fiscal Year. A-20

101 APPENDIX B APPRAISAL REPORT B-1

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