$3,505,000 CITY OF CHINO HILLS REASSESSMENT DISTRICT NO LIMITED OBLIGATION IMPROVEMENT BONDS

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1 NEW ISSUE BOOK-ENTRY-ONLY NOT RATED (See CONCLUDING INFORMATION No Rating on the Bonds; Secondary Market herein) In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the City, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the Code ) and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. See LEGAL MATTERS Tax Matters. SAN BERNARDINO COUNTY STATE OF CALIFORNIA $3,505,000 CITY OF CHINO HILLS REASSESSMENT DISTRICT NO LIMITED OBLIGATION IMPROVEMENT BONDS Dated: Date of Delivery Due: September 2 as Shown on the Inside Front Cover. The cover page contains certain information for quick reference only. It is not a summary of the issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. Investment in the Bonds involves risks. See RISK FACTORS herein for a discussion of special risk factors that should be considered in evaluating the investment quality of the Bonds. The City of Chino Hills Reassessment District No. 10-1, Limited Obligation Improvement Bonds (the Bonds ) are being issued by the City of Chino Hills (the City ) pursuant to an Indenture, dated as of August 1, 2010 (the Indenture ), by and between the City and U.S. Bank National Association, as trustee (the Trustee ) to: (i) refund outstanding obligations of the City of Chino Hills Reassessment District 1995, (ii) pay costs related to the issuance of the Bonds, and (iii) make a deposit to a Reserve Fund for the Bonds. The Bonds are being issued pursuant to provisions of the Refunding Act of 1984 for 1915 Improvement Act Bonds (the Act ). The Bonds are payable from reassessments levied pursuant to the Act. See SOURCES OF PAYMENT FOR THE BONDS and RISK FACTORS herein. Interest on the Bonds is payable semiannually on September 2 and March 2 each year, commencing March 2, 2011 (each, an Interest Payment Date ), until maturity. The Bonds are subject to optional and special mandatory redemption as described herein. See THE BONDS - Redemption herein. The Bonds are offered when, as and if issued subject to the approval as to their legality by Orrick, Herrington & Sutcliffe LLP, Los Angeles, California, Bond Counsel and certain other conditions. Certain legal matters will be passed on for the City by the City Attorney and by Fulbright & Jaworski L.L.P., Los Angeles, California, Disclosure Counsel and for the Underwriter by its Counsel, Nossaman LLP, Irvine, California. It is anticipated that the Bonds in book-entry form will be available for delivery through the facilities of The Depository Trust Company, New York, New York on or about August 19, The date of this Official Statement is August 5, 2010.

2 $3,505,000 CITY OF CHINO HILLS REASSESSMENT DISTRICT NO LIMITED OBLIGATION IMPROVEMENT BONDS MATURITY SCHEDULE (Base CUSIP 16957H) Maturity Date Principal Interest Reoffering September 2 Amount Rate Yield CUSIP 2011 $265, % 2.00% BR , BS , BT , BU , BV , BW , BX , BY , * BZ , CA , CB5 * Yield calculated to the September 2, 2016 optional call date. CUSIP A registered trademark of the American Bankers Association. Copyright Standard & Poor s, a Division of The McGraw-Hill Companies, Inc. CUSIP data herein is provided by Standard & Poor s CUSIP Service Bureau. This data in not intended to create a database and does not serve in any way as a substitute for the CUSIP Service Bureau. CUSIP numbers are provided for convenience of reference only. Neither the City nor the Underwriter takes any responsibility for the accuracy of such numbers.

3 GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT Use of Official Statement. This Official Statement is submitted in connection with the offer and sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Estimates and Forecasts. This Official Statement contains statements which, to the extent they are not recitations of historical fact, constitute forward-looking statements, within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. In this respect, such forward-looking statements are generally identified by the use of words estimate, project, plan, budget, anticipate, expect, intend, or believe or the negative thereof or other variations thereon or comparable terminology. The achievement of certain results or other expectations contained in such forward-looking statements involves known or unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be significantly different than those expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, uncertainties relating to economic conditions, the effect of changes in the amounts and timing of receipt of revenues, the availability and sufficiency of Reassessments, change in circumstances adversely affecting the projected use of proceeds, and risks involving pertinent court decisions. The City does not plan to issue any updates or revisions to those forward-looking statements if or when its expectations, or events, conditions or circumstances on which such statements are based change. Potential investors are cautioned that such statements are only predictions and that actual events or results may differ materially. 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. Limit of Offering. No dealer, broker, salesperson or other person has been authorized by the City to give any information or to make any representations in connection with the offer or sale of the Bonds other than those contained herein and if given or made, such other information or representation must not be relied upon as having been authorized by the City, the Financial Advisor 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 Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. Involvement of Underwriter. The Underwriter has submitted the following statement for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. Information Subject to Change. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or any other entity described or referenced herein since the date hereof. All summaries of the documents referred to in this Official Statement 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. Stabilization of Prices. In connection with this offering, the Underwriter may overallot or effect transactions which stabilize or maintain the market price of the 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 Underwriter may offer and sell the Bonds to certain dealers and others at prices lower than the public offering prices set forth on the inside front cover page hereof and said public offering prices may be changed from time to time by the Underwriter. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXCEPTION FROM THE REGISTRATION REQUIREMENTS CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.

4 CITY OF CHINO HILLS, CALIFORNIA CITY COUNCIL W.C. Bill Kruger, Mayor Ed Graham, Vice Mayor Art Bennett, Council Member Gwenn Norton-Perry, Council Member Peter Rogers, Council Member CITY STAFF Michael S. Fleager, City Manager Mary M. McDuffee, City Clerk Mark D. Hensley, City Attorney Kathleen Gotch, Assistant City Manager Christine Kelly, Community Development Director Judy R. Lancaster, Finance Director/City Treasurer Jonathan Marshall, Community Services Director John Mura, Public Works Director Steve Nix, City Engineer PROFESSIONAL SERVICES Bond Counsel Orrick, Herrington & Sutcliffe LLP Los Angeles, California Disclosure Counsel Fulbright & Jaworski L.L.P. Los Angeles, California Financial Advisor Harrell & Company Advisors, LLC Orange, California Reassessment Engineer Willdan Financial Services Temecula, California Trustee and Escrow Bank U.S. Bank National Association Los Angeles, California Verification Agent Grant Thornton LLP Minneapolis, Minnesota

5 TABLE OF CONTENTS INTRODUCTION... 1 The City... 1 The District... 1 Security and Sources of Repayment for the Bonds... 1 Purpose... 2 Property Values... 2 Tax Exemption... 2 Professionals Involved in the Offering... 3 Offering of the Bonds... 3 Information Concerning this Official Statement... 3 THE BONDS... 4 General Provisions... 4 Book-Entry-Only System... 5 Redemption... 5 Scheduled Debt Service on the Bonds... 7 THE FINANCING PLAN... 8 The Refunding Program... 8 Estimated Uses of Funds... 8 THE DISTRICT... 9 General... 9 Assessed Values... 9 Assessed Value to Reassessment Lien Ratios Largest Property Ownership Delinquencies Effective Tax Rates Direct and Overlapping Debt SOURCES OF PAYMENT FOR THE BONDS Repayment of the Bonds Reserve Fund RISK FACTORS General Risks of Real Estate Secured Investments Generally Risks Related to Current Real Estate Market Conditions Foreclosure and Sale Proceedings Depletion of Reserve Fund Valuation of Property in the District Factors Affecting Parcel Value and Aggregate Values Concentration of Ownership Prepayment of Reassessments Other Possible Claims Upon the Value of a Reassessment Parcel Direct and Overlapping Indebtedness Adjustable Rate and Non-Conventional Mortgages Payments by FDIC Bankruptcy Proceedings Payment of the Reassessment Not a Personal Obligation No City Obligation to Pay Debt Service Loss of Tax Exemption IRS Audit of Tax-Exempt Bond Issues Economic Uncertainty No Acceleration Provision Proposition Ballot Initiatives and Legislative Measures Limited Secondary Market Limitations on Remedies LEGAL MATTERS Enforceability of Remedies Approval of Legal Proceedings Tax Matters Absence of Litigation CONCLUDING INFORMATION No Rating on the Bonds; Secondary Market Underwriting Verifications of Mathematical Computations The Financial Advisor Continuing Disclosure Execution APPENDIX A - CITY OF CHINO HILLS INFORMATION STATEMENT APPENDIX B SUMMARY OF PRINCIPAL LEGAL DOCUMENTS APPENDIX C FORM OF CONTINUING DISCLOSURE AGREEMENT APPENDIX D ASSESSMENT PARCEL LISTING APPENDIX E - PROPOSED FORM OF OPINION OF BOND COUNSEL APPENDIX F DTC AND THE BOOK- ENTRY-ONLY SYSTEM

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7 OFFICIAL STATEMENT $3,505,000 CITY OF CHINO HILLS REASSESSMENT DISTRICT NO LIMITED OBLIGATION IMPROVEMENT BONDS This Official Statement which includes the cover page and appendices (the Official Statement ) is provided to furnish certain information concerning the sale of the City of Chino Hills Reassessment District No Limited Obligation Improvement Bonds (the Bonds ), in the aggregate principal amount of $3,505,000. INTRODUCTION The description and summaries of various documents hereinafter set forth do not purport to be comprehensive or definitive, and reference is made to each document for the complete details of all terms and conditions. All statements herein are qualified in their entirety by reference to each document. All capitalized terms used in this Official Statement and not otherwise defined herein have the same meaning as in the Indenture (defined below). The City The City is a municipal corporation and general law city under the laws of the State of California operating under the council-manager form of government. The City was incorporated in 1991 under the laws of the State of California. It encompasses 46 square miles in southwestern San Bernardino County (the County ). Neighboring communities include the cities of Chino and Diamond Bar. As of January 1, 2010, the City has a population of approximately 79,000. For further information concerning the City see APPENDIX A - CITY OF CHINO HILLS INFORMATION STATEMENT herein. The District Reassessment District No (the District ) was created by the City pursuant to proceedings taken under the Refunding Act of 1984 for 1915 Improvement Act Bonds (the Act ). The District encompasses portions of property in the City located in the villages of Woodview, Rincon, the Oaks, and approximately, 25% of Soquel Canyon, 10% of Los Ranchos, and 5% of Carbon Canyon. The District covers over 3.5 square miles, with a total of 4,608 parcels, of which 1,992 parcels are subject to the Reassessments (as defined below) securing the Bonds. See THE DISTRICT herein. Security and Sources of Repayment for the Bonds The Bonds will be issued under the Indenture, dated as of August 1, 2010 (the Indenture ), between the City and U.S. Bank National Association, Los Angeles, California, as trustee (the Trustee ) (see APPENDIX B - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS herein) and pursuant to the Act. 1

8 The Bonds are limited obligations of the City secured by a first lien on the unpaid reassessments (the Reassessments ) levied by the City on the parcels in the District with unpaid reassessments (the Reassessment Parcels ) pursuant to the Act and the funds pledged therefor under the Indenture. Reassessments levied on the property in the District are estimated to be sufficient, if paid timely, to pay the aggregate amount of the principal and interest on the Bonds. See SOURCES OF PAYMENT FOR THE BONDS and RISK FACTORS herein. The City has covenanted to cause foreclosure proceedings to be commenced and prosecuted against Reassessment Parcels with delinquent installments of Reassessments under certain circumstances. For a more detailed description of the foreclosure covenant see SOURCES OF PAYMENT FOR THE BONDS - Repayment of the Bonds - Covenant to Commence Foreclosure Proceedings. The Bonds are special obligations of the City payable solely from the unpaid Reassessments and other assets pledged therefor under the Indenture. The Bonds do not constitute a debt or liability of the City, the State of California or of any political subdivision thereof, other than the City to the limited extent described herein. The City shall only be obligated to pay the principal of the Bonds, and the interest thereon, from the funds described herein, and neither the faith and credit nor the taxing power of the City or the State of California or any political subdivision thereof is pledged to the payment of the principal of or the interest on the Bonds, except to the limited extent described herein. See SOURCES OF PAYMENT FOR THE BONDS and RISK FACTORS herein. Purpose Proceeds from the Bonds will be used to (i) refund the outstanding obligations of the City of Chino Hills Reassessment District 1995, (ii) pay costs related to the issuance of the Bonds, and (iii) make a deposit to a Reserve Fund for the Bonds (see THE FINANCING PLAN Estimated Uses of Funds herein). Property Values The City has relied on the assessed valuations of the County Assessor used for the purposes of general taxes for the valuations for all of the 1,992 Reassessment Parcels presented in this Official Statement. See RISK FACTORS and THE DISTRICT Assessed Values. Reassessments in the amount of $360,712 are currently levied on property where the assessed value is less than the Reassessment (see THE DISTRICT Assessed Value to Reassessment Lien Ratios. Tax Exemption In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the City, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the Code ) and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. See LEGAL MATTERS - Tax Matters herein. 2

9 Professionals Involved in the Offering The legal proceedings relating to the issuance of the Bonds are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Los Angeles, California, Bond Counsel. Certain legal matters will be passed on for the City by Mark D. Hensley, City Attorney, and by Fulbright & Jaworski L.L.P., Los Angeles, California, as Disclosure Counsel and for the Underwriter by its Counsel, Nossaman LLP, Irvine, California. U.S. Bank National Association, Los Angeles, California, will serve as the trustee, paying agent, registrar, authentication and transfer agent for the Bonds and perform the functions required of it under the Indenture for the payment of the principal of and interest and any premium on the Bonds and all activities related to the redemption of the Bonds. Harrell & Company Advisors, LLC, Orange, California, Financial Advisor, advised the City as to the financial structure and certain other financial matters relating to the Bonds. Offering of the Bonds Authority for Issuance. The Bonds are issued by the City pursuant to the Act and Resolution No. 10R-40 adopted by the City Council on July 13, 2010 (the Resolution ). The Bonds are being sold to Stone & Youngberg LLC (the Underwriter ), pursuant to a Bond Purchase Agreement authorized by the Resolution. Offering and Delivery of the Bonds. The Bonds are offered, when, as and if issued, subject to the approval as to their legality by Orrick, Herrington & Sutcliffe LLP, Los Angeles, California, as Bond Counsel. It is anticipated that the Bonds, in book-entry form, will be available for delivery on or about August 19, 2010, through the facilities of The Depository Trust Company. Information Concerning this Official Statement This Official Statement speaks only as of its date. The information set forth herein has been obtained by the City with the assistance of Harrell & Company Advisors, LLC, (the Financial Advisor ) from sources which are believed to be reliable. Such information is not guaranteed as to accuracy or completeness, nor has it been independently verified and is not to be construed as a representation by the Financial Advisor, Disclosure Counsel or Underwriter. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended as such and are not to be construed as representations of fact. The information and expressions of opinion herein are subject to change without notice and the delivery of this Official Statement shall not, under any circumstances, create any implication that there has been no change in the information or opinions set forth herein or in the affairs of the City since the date hereof. Availability of Legal Documents. The summaries and references contained herein with respect to the Indenture and other statutes or documents do not purport to be comprehensive or definitive and are qualified by reference to each such document or statute, and references to the Bonds are qualified in their entirety by reference to the form thereof included in the Indenture. Capitalized terms used herein and not defined shall have the meaning set forth in the Indenture. Copies of the documents described herein are available for inspection during the period of initial offering of the Bonds at the offices of the Financial Advisor, Harrell & Company Advisors, LLC, 333 City Boulevard West, Suite 1430, Orange, California 92868, telephone (714) Copies of these documents may be obtained after delivery of the Bonds from the City of Chino Hills, City Center Drive, Chino Hills, California

10 General Provisions THE BONDS Repayment of the Bonds. The Bonds will be dated as of the Closing Date and will mature as set forth on the inside front cover page, and will be issued in denominations of $5,000 and any integral multiples thereof (an Authorized Denomination ). Interest is payable on the Bonds at the rates per annum set forth on the inside front cover page hereof, payable on March 2, 2011 and on each September 2 and March 2 thereafter (the Interest Payment Dates ). Interest with respect to the Bonds will be computed on the basis of a year comprised of 360 days and twelve 30-day months. Interest on the Bonds will be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event interest thereon will be payable from such Interest Payment Date, (ii) a Bond is authenticated on or before the first Record Date, in which event interest thereon will be payable from the Closing Date, or (iii) interest on any Bond is in default as of the date of authentication thereof, in which event interest thereon will be payable from the date to which interest has previously been paid or duly provided for. Interest will be paid in lawful money of the United States on each Interest Payment Date. Interest will be paid by check of the Trustee mailed by first class mail, postage prepaid, on each Interest Payment Date to the Owners of the Bonds at their respective addresses shown on the registration books maintained by the Trustee as of the close of business on the preceding Record Date. Notwithstanding the foregoing, interest on any Bond which is not punctually paid or duly provided for on any Interest Payment Date will, if and to the extent that amounts subsequently become available therefor, be paid on a payment date established by the Trustee to the Owner in whose name the ownership of such Bond is registered on the registration books at the close of business on a special record date to be established by the Trustee for the payment of such defaulted interest, notice of which will be given to such Owner not less than ten days prior to such special record date. The principal of the Bonds will be payable in lawful money of the United States of America upon presentation and surrender thereof upon maturity or earlier redemption at the Office of the Trustee. Transfer or Exchange of Bonds. Any Bond may be transferred upon the Registration Books by the Person in whose name it is registered, upon surrender of such Bond for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Trustee. Whenever any Bond or Bonds will be surrendered for transfer, the City will execute and the Trustee will authenticate and will deliver a new Bond or Bonds of the same maturity in a like aggregate principal amount, in any Authorized Denomination. The Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of Bonds of the same maturity of other Authorized Denominations. The Trustee will require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. The Trustee will not be obligated to make any transfer or exchange of Bonds during the period established by the Trustee for the selection of Bonds for redemption, or with respect to any Bonds selected for redemption. The foregoing provisions regarding the transfer and exchange of the Bonds apply only if the book-entry only system is discontinued. So long as the Bonds are in the book-entry system of DTC as described below, the rules of DTC will apply for the transfer and exchange of Bonds. 4

11 Book-Entry-Only System The Depository Trust Company ( DTC ), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered Bond will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. Purchasers of beneficial interests in the Bonds will not receive physical certificates. For information on DTC and its book-entry system, see APPENDIX F. Discontinuance of Book-Entry-Only System. DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the District or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, Bonds are required to be printed and delivered as described in the Indenture. The District may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, the Bonds will be printed and delivered as described in the Indenture. Redemption Optional Redemption. The Bonds may be redeemed prior to maturity, in whole or in part, at the option of the District beginning on March 2, 2011 and on any Interest Payment Date thereafter, from any source of available funds, at a redemption price (expressed as a percentage of the principal amount of Bonds to be redeemed) together with accrued interest to the date fixed for redemption as follows: Redemption Dates Redemption Prices March 2, 2011 through and including March 2, % September 2, 2014 and March 2, % September 2, 2015 and March 2, % September 2, 2016 and any Interest Payment Date thereafter 100% Mandatory Redemption from Reassessment Prepayments. The Bonds are subject to mandatory redemption prior to their stated maturities, in whole or in part, beginning on March 2, 2011 and on any Interest Payment Date thereafter, from and to the extent of any prepayment of Reassessments, at a redemption price (expressed as a percentage of the principal amount of the Bonds to be redeemed) together with accrued interest thereon to the date of redemption, as follows: Redemption Dates Redemption Prices March 2, 2011 through and including March 2, % September 2, 2014 and March 2, % September 2, 2015 and March 2, % September 2, 2016 and any Interest Payment Date thereafter 100% Under the Indenture, the Trustee will deposit amounts received from the District as a prepayment of a Reassessment with respect to a parcel within the District in the Prepayment Account of the Redemption Fund and apply such funds to the mandatory redemption of Bonds. The City will notify the Trustee of Bonds to be called for redemption upon prepayment of Reassessments in amounts sufficient therefor, or whenever sufficient surplus funds are available therefor in the Redemption Fund. 5

12 Selection of Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the Bonds, the Trustee will select the Bonds to be redeemed from all Bonds not previously called for redemption (a) with respect to any partial redemption of the Bonds as described under Optional Redemption above, among maturities of Bonds as directed in a written request of the City, (b) with respect to any partial redemption of the Bonds as described under Mandatory Redemption from Reassessment Prepayments above, among maturities of Bonds on a pro rata basis as nearly as practicable, and by lot among Bonds with the same maturity in any manner which the Trustee in its sole discretion will deem appropriate. For purposes of such selection, all Bonds will be deemed to be comprised of separate $5,000 denominations and such separate denominations will be treated as separate Bonds which may be separately redeemed. Notice of Redemption. The Trustee on behalf and at the expense of the City will mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books at least 30 but not more than 60 days prior to the date fixed for redemption. Neither the failure to receive any notice so mailed, nor any defect in such notice, will affect the validity of the proceedings for the redemption of the Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption. With respect to any notice of any optional redemption of Bonds, unless at the time such notice is given the Bonds to be redeemed will be deemed to have been paid, such notice will state that such redemption is conditional upon receipt by the Trustee, on or prior to the date fixed for such redemption, of moneys that, together with other available amounts held by the Trustee, are sufficient to pay the redemption price of, and accrued interest on, the Bonds to be redeemed, and that if such moneys will not have been so received said notice will be of no force and effect and the City will not be required to redeem such Bonds. In the event a notice of redemption of Bonds contains such a condition and such moneys are not so received, the redemption of Bonds as described in the conditional notice of redemption will not be made and the Trustee will, within a reasonable time after the date on which such redemption was to occur, give notice to the Owners and in the manner in which the notice of redemption was given, that such moneys were not so received and that there will be no redemption of Bonds pursuant to such notice of redemption. Partial Redemption. Upon surrender of any Bonds redeemed in part only, the City will execute and the Trustee will authenticate and deliver to the Owner thereof, at the expense of the City, a new Bond or Bonds in authorized denominations in an aggregate principal amount equal to the unredeemed portion of the Bonds surrendered. Effect of Redemption. If, on the date fixed for redemption, moneys for the redemption price of all the Bonds to be redeemed, together with interest to said date, will be held by the Trustee so as to be available therefor on such date, and, if notice of redemption thereof will have been mailed as described above and not canceled, then, from and after said date, interest on said Bonds will cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the redemption of Bonds will be held in trust for the account of the Owners of the Bonds so to be redeemed without liability to such Owners for interest thereon. 6

13 Scheduled Debt Service on the Bonds The following is the scheduled annual Debt Service on the Bonds. Bond Year Ending September 2 Principal Interest Annual Debt Service 2011 $ 265, $ 148, $ 413, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Total $3,505, $1,032, $4,537,

14 The Refunding Program THE FINANCING PLAN In 1995, the City formed the Reassessment District 1995 (the 1995 District ) for the purpose of issuing its Limited Obligation Refunding Improvement Bonds (the 1995 Bonds ). The proceeds from the 1995 Bonds were used to redeem the outstanding principal of the County of San Bernardino, Chino Hills Assessment District No R (the Original District ) 1915 Act Limited Obligation Refunding Bonds (the Prior Bonds ). See THE DISTRICT herein. On the Delivery Date of the Bonds, $6,790,000 of the 1995 Bonds remains outstanding. On the Delivery Date, proceeds of the Bonds, together with other funds on hand, will be deposited in trust with U.S. Bank National Association, the fiscal agent for the 1995 Bonds (the 1995 Fiscal Agent ). Pursuant to an Escrow Agreement (the Escrow Agreement ) dated as of August 1, 2010 by and between the District and the 1995 Fiscal Agent acting as Escrow Bank (the Escrow Bank ), the District will deposit proceeds of the Bonds with the Escrow Bank in an amount sufficient, together with other funds deposited therewith, to pay the redemption price of the 1995 Bonds pursuant to an optional redemption of the 1995 Bonds on September 2, The lien of the 1995 Bonds, including, without limitation, the pledge of the Reassessments to repay the 1995 Bonds, will be discharged, terminated and of no further force and effect upon the deposit with the 1995 Fiscal Agent of the amounts required pursuant to the Escrow Agreement. Estimated Uses of Funds The net proceeds from the sale of the Bonds, equal to $3,459, (par amount of $3,505,000, less net original issue discount of $3, and less Underwriter s discount of $42,060.00), will be applied as follows: Transfer to Escrow Bank $2,944, Reserve Fund (1) 350, Costs of Issuance Fund (2) 164, Total Uses $3,459, (1) Equal to the Reserve Requirement for the Bonds as of the closing date. See SOURCES OF PAYMENT FOR THE BONDS Reserve Fund. (2) Costs of Issuance includes Bond Counsel fee, Disclosure Counsel fee, Trustee fees, Financial Advisor fee, Reassessment Engineer fee, printing costs and other miscellaneous costs of issuance. The District will also deposit $3,370, held by the City and the 1995 Fiscal Agent for the 1995 Bonds and $923, on deposit in the 1995 Bonds reserve fund held by the 1995 Fiscal Agent for deposit under the Escrow Agreement. 8

15 THE DISTRICT The information set forth herein regarding ownership of real property in the District and the property owners within the District was obtained through the City and others and has not been independently verified. Neither the City, the Financial Advisor nor the Underwriter make any representation as to the accuracy or completeness of any such information. This information has been included because it is considered relevant to an informed evaluation of the District. The information should not be construed to suggest that the Bonds or the Reassessments that are pledged to pay debt service on the Bonds are personal obligations of the property owners within the District. The owners of property within the District will not be personally liable for payments of the Reassessments. General The District encompasses over 2,400 acres and overlays the City s Specific Plan villages of Woodview, Rincon and the Oaks, and approximately 25% of the Soquel Canyon neighborhood, 10% of the Los Ranchos neighborhood and 5% of Carbon Canyon area. The District extends from north of Grand Avenue to south of Soquel Canyon Parkway, bordered on the east by the Chino Valley Freeway, and the west by Carbon Canyon. Currently there are 1,992 Reassessment Parcels securing the Bonds out of the 4,608 total parcels within the District boundaries. The District s history began when the County of San Bernardino formed Assessment District No R pursuant to the Municipal Improvement Act of 1913 and issued the Prior Bonds payable from special assessments levied in the Original District. The proceeds of the Prior Bonds were used to refinance obligations that financed construction of infrastructure improvements within the Original District, including streets, sewers, water and drainage facilities. The Original District is within the incorporated area of the City and, upon incorporation, the City became the successor in interest with respect to the Original District and the Prior Bonds. The City then formed the 1995 District and issued the 1995 Bonds pursuant to the Act to refund the Prior Bonds. The Prior Bonds were issued in the framework of a County ordinance which established certain policies and requirements for the financing of infrastructure facilities within the Chino Hills Specific Plan Area. The ordinance provided for the collection of certain developer fees at the time of pulling building permits. The development fee collected in connection with an assessed parcel was to be used, in part, to pay off the outstanding assessment on the parcel and to extinguish the lien of the assessment. Any of these prepayment amounts were used to call and redeem the Prior Bonds. A consequence of this requirement was the resulting reassessment parcels basically included only undeveloped parcels in One purpose of the 1995 District was to change this policy and requirement to permit property owners to elect to leave a reassessment in place in lieu of paying a portion of the development fees. As a result of the County ordinance and other prepayments through the years, only 1,992 of the 4,608 parcels within the District are subject to the Reassessments and constitute Reassessment Parcels. Also, as a consequence of the County ordinance, a large percentage (43.7%) of the Reassessment lien is assessed on vacant land. Assessed Values For all Reassessment Parcels, the County-determined assessed valuation is provided as an estimate for purposes of valuation. The County assessed valuation is derived from the Fiscal Year 2009/10 County Assessor s assessed valuation of land and improvements. APPENDIX D ASSESSMENT PARCEL LISTING contains a complete list of Reassessment Parcels, Fiscal Year 2009/10 assessed values and Reassessment liens. The County s assessed valuation of land and improvements is based on the base year assessed value (which may or may not be reflective of the fair market value of the land and improvements) increased by a maximum of 2% a year each year thereafter, as allowed under Article XIIIA of the Constitution of the State of California. Values may also be decreased if inflation is negative (for example, the inflation factor for Fiscal Year 2010/11 is %). Therefore, the assessor s value 9

16 typically does not accurately reflect the fair market value of the land and improvements which may be higher or lower than the Assessor s value. Further, due to timing, the Assessor s value may not reflect the most recent sale price of a parcel or new construction on a parcel. See RISK FACTORS Valuation of Property in the District herein. The fair market value can only be established through the sale of the property or an M.A.I. appraisal of the property within the District. The City has not undertaken to obtain an M.A.I. appraisal of the property within the District. Assessed Value Appeals. Further, property owners in the District may appeal the County Assessor s value, and if successful, such appeals may result in a lowering of assessed values in future years. As of June 2010, the District is aware of assessed valuation appeals filed for Fiscal Year 2009/10 by 46 property owners in the District and for Fiscal Year 2008/09 by 22 property owners in the District. Four of the property owners with the largest Reassessments, shown in Table No. 3 have filed appeals in Fiscal Year 2009/10: New Albertson s, OMP Chino Hills Partners, LPC Chino Hills and Chino Hills Golden Triangle. New Albertson s is requesting a reduction in value of $2.5 million (25% of the current value). The other three property owners have appealed the value of vacant land, and combined have requested a reduction in value from the existing $30,891,000 to $128,000. New Albertson s and LPC Chino Hills also have appeals pending for their Fiscal Year 2008/09 values. The District cannot estimate if the appeals will be successful, and if so, how much of a reduction in assessed value might be allowed. While the assessed value may be reduced by the County Assessor if the appeals are successful, the assessed value has no bearing on the calculation of the Special Taxes, only on the calculation of ad valorem taxes. Proposition 8 Reductions. Proposition 8 provides for the assessment of real property at the lesser of its originally determined (base year) full cash value compounded annually by the inflation factor, or its full cash value as of the lien date, taking into account reductions in value due to damage, destruction, obsolescence or other factors causing a decline in market value. Reductions based on Proposition 8 do not establish new base year values, and the property may be reassessed as of the following lien date up to the lower of the then-current fair market value or the factored base year value. The District is aware of 716 properties (706 residential and 10 non-residential) in the District that were subject to reductions in assessed values by the County Assessor as a result of Proposition 8 in Fiscal Year 2009/10. Such reductions totaled $84.3 million and ranged in percentage from less than 1% of assessed value to over 30% of assessed value, with an average reduction of 18%. The average assessed value for residential properties, which were mainly single family homes, was $636,000 in Fiscal Year 2008/09 and $519,000 in Fiscal Year 2009/10. Only one of the non-residential properties, owned by Gilded Age Investment, is included in the list of largest properties owners found in Table No. 3. This properties value was reduced by 13% from $6.65 million to $5.77 million. While the assessed value may be reduced by the County Assessor as a result of Proposition 8, the assessed value has no bearing on the calculation of the Reassessments, only on the calculation of ad valorem taxes. Individual Proposition 8 adjustments for the Fiscal Year 2010/11 assessed value of property in the District is not yet available. The County Assessor has released information concerning the overall change in secured assessed value in the City of Chino Hills, as well as information on the total amount of Proposition 8 adjustments City-wide for Fiscal Year 2010/11. According to the County Assessor s report dated June 30, 2010, the secured assessed value of all property in the City for Fiscal Year 2010/11 increased 0.14% compared to Fiscal Year 2009/10. There are 4,538 parcels in the City that will receive a Proposition 8 adjustment in Fiscal Year 2010/11, representing 0.5% of total City assessed value. The average adjustment is $9,935. The City does not currently know if any of the parcels that will be subject to adjustment in Fiscal Year 2010/11 are located within the District. The District cannot guarantee that further reductions in assessed value will not occur in future years. See RISK FACTORS Valuation of Property in the District Proposition 8 Adjustments. Investors must recognize the uncertainties with respect to the assessed values of the Reassessment Parcels, since the Bonds are secured by the Reassessment Parcels. See RISK FACTORS herein. 10

17 Table No. 1 presents the historical assessed value of the parcels in the District, currently designated Reassessment District 1995 (see RISK FACTORS Valuation of Property in the District herein). The total assessed value of property in the District declined between Fiscal Year 2008/09 and Fiscal Year 2009/10 as a result of Proposition 8 adjustments made by the County Assessor, as described above, or home sales at lower prices than existing assessed values. In addition, 19 parcels with value of $10 million prepaid existing reassessments during Fiscal Year 2009/10 and are excluded from Table No. 1 values in Fiscal Year 2009/10. Further the inflation rate to be applied to assessed value in Fiscal Year 2010/11 is a negative factor. Subsequent to the printing of the Preliminary Official Statement, the equalized tax roll value for Fiscal Year 2010/11 became available. Willdan Financial Services reports that the equalized tax roll value for the District for Fiscal Year 2010/11 is $1,047,448,718, an overall decline of 1.2% from the prior Fiscal Year. TABLE NO. 1 REASSESSMENT DISTRICT 1995 HISTORICAL ASSESSED VALUES Fiscal Year Land Improvements Total 2005/06 $305,670,975 $474,242,586 $ 779,913, /07 366,170, ,099, ,269, /08 427,941, ,581,564 1,113,523, /09 456,330, ,011,446 1,187,341, /10 (1) 399,260, ,755,606 1,060,015,758 Source: County of San Bernardino, as compiled by Willdan Financial Services. (1) Excluding $10,038,723 of assessed value for parcels which prepaid reassessments during Fiscal Year 2009/10. Assessed Value to Reassessment Lien Ratios Assessed valuation to reassessment lien ratios are derived by dividing the 2009/10 Fiscal Year County assessor s assessed valuation amount of land plus improvements, if any, by the unpaid assessments. For example, a 3:1 ratio means that the assessed value is three times the total assessment lien amount. According to the County Assessor s Office, the aggregate assessed valuation of land and improvements of the 1,992 Reassessment Parcels with unpaid reassessments is $1,060,015,758 for Fiscal Year 2009/10. The total lien on the Reassessment Parcels is $3,505,000. The aggregate value-to-lien ratio is (see APPENDIX D ASSESSMENT PARCEL LISTING herein). Ratios on individual Reassessment Parcels range from 0.0:1 to over 1,000:1. The aggregate value-to-lien ratio including all current overlapping tax and assessment debt of $37,674,246 is 28.1:1(see Direct and Overlapping Debt below). Subsequent to the issuance of the Bonds, taking the overlapping debt into account, the aggregate value-tolien ratio is 30.8:1. Potential purchasers of the Bonds should be aware that if a Reassessment Parcel bears a reassessment in excess of its market value, then there may be little incentive for the owner of the Assessment Parcel to pay the reassessment on such Reassessment Parcel and little likelihood that such property would be purchased in a foreclosure sale. See APPENDIX D ASSESSMENT PARCEL LISTING for various assessed value to lien ratios and RISK FACTORS describing risks relating to market values of Reassessment Parcels. 11

18 Some of the largest Reassessments in the District are levied on vacant property. See Largest Property Ownership below. In total, 43.7% of the Reassessment lien is on assessed on vacant land, and 25 property owners are responsible for over 50% of the total Reassessment. In addition, Reassessments in the amount of $360,712 are currently levied on property where the assessed value is less than the Reassessment (see THE DISTRICT Assessed Value to Reassessment Lien Ratios ). Table No. 2 categorizes the assessed value to lien ratios for the Reassessment Parcels including Reassessment District No. 10-1, but excluding overlapping Community Facilities Districts and any other overlapping debt (see Effective Tax Rates and Direct and Overlapping Debt below). All property owners listed separately in Table No. 2 are current in the payment of property taxes through Fiscal Year 2009/10. TABLE NO. 2 CITY OF CHINO HILLS REASSESSMENT DISTRICT NO SUMMARY LIEN TO ASSESSED VALUE RATIO (VALUES AS OF JANUARY 1, 2009) Number 2009/10 Reassessment Assessed of Assessed District Value- % of Property Owner Parcels Value No To-Lien Total Below 3:1 Southern California Gas Co. 1 $ - $ 4, % Desatoff, Lori & Higgins, Ronald (1) , % Higgins Brick Co. (1) 1 25, , % Desatoff, Lori & Sanders, Judy (1) 1 19,809 57, % Weeda, Adrianna Irrev Tr (1) 1 35,185 95, % Higgins Brick Co. (1) 1 3,582 8, % Amato, Josephine Trust 1 2,432 3, % Desatoff, Lori & Higgins, Ronald (1) 1 22,060 23, % Wang, Cheng Wen & Wang, Shirley (1) 1 100,727 87, % Aerojet-General Corp (1) 1 157,640 61, % , , % 3:1 to 5:1 Rivendell Land Company 1 6,201 1, % Wang, Cheng Wen & Yu, Trust (1) 1 453,125 98, % 2 459,326 99, % 5:1 to 10:1 (1) 4 689, , % 10:1 to 25:1 5 1,147,560 88, % Over 25:1 1,971 1,057,352,170 2,700, % 1,992 $1,060,015,758 $3,505, % Source: Willdan Financial Services, as compiled by the Financial Advisor. (1) See Largest Property Ownership below. 12