NEW ISSUE (BOOK-ENTRY ONLY) Standard & Poor's: "AAA"/"BBB" (Assured Guaranty Insured- See "Ratings" herein)

In the opinion of Harper & Burns, LLP, Orange, California, Bond Counsel, under existing statutes, regzJations, rulings and judicial decisions, and asswning the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest on the Bonds is excluded from gross income for federal income tax pwposes 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 CoW1sel, interest on the Bonds is exempt from State of California personal income tax. In addition, the difference between the issue price of a Bond (the first price at which a substantial amount of the Bonds of a maturity are to be sold to the puhlic) and the stated redemption price at maturity with respect to a Bond constitutes original issue discoW1t, and the amount of original issue discoW1t that accrues to the owner of the Bond is excluded from the gross income of such owner for federal income tax pwposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and is exempt from State of California personal income tax. See "TAX A1ATTERS" herein with respect to tax consequences of ownership of the Bonds.

$7,625,000 CITY OF NORCO

COMMUNITY FACILITIES DISTRICT NO. 97-1 (Norco Hills)

2005 Special Tax Refunding Bonds Dated: Date of Initial Delivery Due: October 1, as shown below

Interest on the City of Norco Community Facilities District No. 97-1 (Norco Hills), 2005 Special Tax Refunding Bonds (the "Bonds"), will be payable on April I and October 1 (each an "Interest Payment Date") of each year commencing April 1, 2006. The Bonds will be delivered in fully registered form only and, when issued, will be registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York ("DTC"). DTC will act as securities depository of the Bonds. Ownership interest in the Bonds may be purchased, in denominations of $5,000, or any integral multiple thereof, in book-entry form only as described herein.

The proceeds from the sale of the Bonds will be used for the purpose of advance refunding the City of Norco Conununity Facilities District No. 97-1 (the "District"), located in the City of Norco, California (the "City") 2000 Special Tax Bonds (the "Refunded Bonds"), to flmd a reserve fund, and to pay the costs of issuing the Bonds.

The Bonds are authorized to be issued pursuant to the Mello-Roos Conununity Facilities Act of 1982, as amended (Sections 53311, et seq., of the California Goverrunent Code) and a Fiscal Agent Agreement adopted by the City Council of the City, as the District's legislative body (the "Fiscal Agent Agreement") by and between the City (on behalf of the District) and U.S. Bank National Association (the "Fiscal Agent"). The Bonds are secured by and payable from a pledge of the Special Tax Revenues (as defined herein) derived from certain Special Taxes collected by the District from real property within its boundaries, from the proceeds of any foreclosure actions brought following a delinquency in the payment of the Special Tax, and from amounts held in certain flmds pursuant to the Fiscal Agent Agreement, all as more fully described herein.

The Bonds are subject to redemption as described herein. See "THE BONDS-Optional Redemption."

Maturity (October 1)

2006 2007 2008 2009 2010 2011 2012 2013

Amount $230,000

190,000 195,000 195,000 205,000 215,000 225,000 230,000

Interest Rate

3.000% 3.000 3.125 3.250 4.000 3.500 3.625 4.250

Yield 3.000% 3.150 3.250 3.400 3.550 3.700 3.850 4.000

MATURITY SCHEDULE (Base CUSIP 655534)

CU SIP Maturity Suffix (October 1) CDS 2014 CE3 2015 CFO 2016 CG8 2017 CH6 2018 CJ2 2019 CK9 2020 CL7

Amount $240,000

245,000 260,000 275,000 285,000 295,000 305,000

Interest Rate

4.250% 4.500 4.500 4.250 4.350 4.400 4.500

$4,035,000 -4.875% CUSIP Suffix CU7 Term Bonds due October 1, 2030 - Yield 4.950%

Yield 4.100% 4.200 4.300 4.400 4.500 4.550 4.600

CU SIP Suffix CMS CN3 CPS CQ6 CR4 CS2 CTO

The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under a financial guaranty insurance policy (the "Policy") to be issued concurrently with the delivery of the Bonds by Assured Guaranty Corp. ("Assured Guaranty" or the "Insurer").

Neither the full faith and credit nor the taxing power of the City, the County of Riverside (the "County"), the State of California (the "State") or any political subdivision of any of the foregoing is pledged to the payment of the Bonds. Except for the Special Tax Revenues, no other taxes are pledged to the payment on the Bonds. The Bonds are not general or special obligations of the City nor general obligations of the District, but are limited obligations of the District payable solely from Special Tax Revenues and other amounts held under the Fiscal Agent Agreement as more fully described herein.

The purchase of the Bonds involves significant risks and the Bonds are not appropriate investments for all investors. See the section of this Official Statement entitled "RISK FACTORS" for a discussion of risk factors that should be considered in addition to the other matters set forth herein in evaluating the investment quality of the Bonds.

This cover page contains certain information for quick reference only. It is not a summary of this financing. Prospective investors must read the entire Official Statement and other documents referred to herein to obtain information essential to the making of an informed investment decision.

The Bonds are offered when, and if issued, subject to approval as to their legality by Harper & Bums, LLP, Orange, California, Bond CoW1sel. Certain legal matters will be passed upon for the District and the City by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Discloswe CoW1sel. It is anticipated that the Bonds will be available for delivery in book-entry form toDTC in New York, New York on or about November 21, 2005.

-·- W1mR11,-;n Mrnu::,ni ~JiTHRTTTli'"

The Date of this Official Statement is November 10, 2005

CITY OF NORCO, CALIFORNIA

CITY COUNCIL

Herb Higgins, Mayor Kathy Azevedo,Mayor pro Tem

Hal H. Clark, Councilmember Frank Hall, Councilmember

Harvey Sullivan, Councilmember

CITY STAFF

Jeff Allred, Executive Director and City Manager Andy Okoro, City Finance Director

Debra L. McNay, City Clerk Cheryl Roberts, Deputy City Clerk

Garret Bruinsma, Agency and City Treasurer

SPECIAL SERVICES

Bond Counsel Harper & Bums, LLP

Orange, California

Fiscal Agent U.S. Bank National Association

Los Angeles, California

Financial Advisor Urban Futures, Inc. Orange, California

Disclosure Counsel Stradling Y occa Carlson & Rauth

a Professional Corporation Newport Beach, California

Undenvriter Wedbush Morgan Securities

Solana Beach, California

District Administrator MuniFinancial

Temecula, California

TABLE OF CONTENTS

INTRODUCTION ................................................ 1 THEBONDS ........................................................ 3

Authority for Issuance ....................................... 3 Description of the Bonds ................................... 3 Optional Redemption ......................................... 4 Mandatory Sinking Payment Redemption ......... 4 Purchase of Bonds by District ........................... 4 Notice of Redemption ........................................ 4 Selection of Bonds to be Redeemed .................. 5 Book-Entry System ............................................ 5 Estimated Sources and Uses of Funds ............... 6 Debt Service Schedule ....................................... 7

SECURITY FOR THE BONDS ........................... 8 General.. ............................................................. 8 The Special Tax ................................................. 9 Reserve Requirement.. ....................................... 9 Limited Obligations ........................................... 9 Covenant for Superior Court Foreclosure .......... 9

THE FISCAL AGENT AGREEMENT .............. 10 Covenants of the District ................................. 14 Deposit and Investment of Moneys in Funds .. 17 Amendments Permitted .................................... 19 Control Rights of the Insurer ........................... 19 Defeasance ....................................................... 20

THE COMMUNITY FACILITIES DISTRICT .. 20 General Information Regarding the District .... 20 The CFD Improvements .................................. 20 Development.. .................................................. 20 Assessed Value to Lien Ratios ......................... 21 Special Tax Formula ........................................ 22 Maximum Special Tax Rate ............................ 22 Method of Apportiomnent of the Special

Tax to Developed Property and Undeveloped Property .................................. 23

Exempt Property .............................................. 23 Changes to Tract No. 25779 ............................ 23 Prepayment of the Special Tax ........................ 24 Cancellation of Base Special Tax .................... 24 Direct and Overlapping Debt.. ......................... 25 Special Tax Administrator.. ............................. 25

RISK FACTORS ................................................ 25

Insufficiency of Special Tax Revenues ........... 26 Foreclosure Proceedings for Delinquent

Special Taxes ............................................... 27 Direct and Overlapping Indebtedness; Parity

Taxes ............................................................ 28 Assessed Value ................................................ 28 Geologic, Topographic and Climatic

Conditions .................................................... 28 Endangered Species ......................................... 29 Hazardous Substances ..................................... 29 No Acceleration Provision .............................. 30 Loss of Tax Exemption ................................... 30 Limited Secondary Market.. ............................ 30 Bankruptcy ...................................................... 30 Zoning and Land Use ...................................... 31

THE BOND INSURANCE POLICY .................... 32 THE BOND INSURER ......................................... 32

Capitalization of Assured Guaranty Corp ....... 33 Ratings ............................................................. 35

TAX MATTERS .................................................... 35 LEGAL OPINION ................................................. 36 CONTINUING DISCLOSURE ............................. 36 LITIGATION ......................................................... 37 UNDERWRITING ................................................ 37 VERIFICATION OF MATHEMATICAL

ACCURACY ................................................... 37 PROFESSIONAL FEES ........................................ 38 MISCELLANEOUS .............................................. 38 Appendix A - Supplemental Information -

The City of Norco ........................ A-1 Appendix B - Definitions.................................... B-1 Appendix C - Rate and Method of

Apportiomnent of Special Tax ..... C-1 Appendix D - Form of Opinion of Bond

Council ......................................... D-1 Appendix E - Continuing Disclosure

Agreement.................................... E-1 Appendix F - Information Concerning The

Depository Trust Company .......... F-1 Appendix G Specimen Financial Guaranty

Insurance Policy........................... G-1

No dealer, broker, salesperson or other person has been authorized to give any information or to make any representations other than those contained in this Official Statement in connection with the offering described herein, and if given or made, such other information or representations must not be relied upon as having been authorized by the City, the District 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 any person, in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale.

This Official Statement is not to be construed as a contract with the purchasers of the 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 information set forth herein has been obtained from official and other sources and the City, the District and the Underwriter have a reasonable basis for believing that the information set forth is accurate. The information and expressions of opinion stated herein are subject to change without notice. Neither the delivery of this Official Statement nor the sale of any of the Bonds implies that the information herein is correct as of any time subsequent to the date hereof. The delivery of this Official Statement shall not, under any circumstances, create any implication that there has been no change in the affairs of the City, the District, or the major participants in the Project. All summaries of the Bonds, the resolution authorizing their issuance, the Fiscal Agent Agreement and the other documents discussed herein are made subject to the provisions of such documents and do not purport to be complete statements of any or all of the provisions thereof. Reference is hereby made to the Bonds, said resolution, the Fiscal Agent Agreement and such other documents on file with the Secretary of the District for further information.

This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose.

In connection with this offering, the Undeiwriter may overallot or effect transactions which stabilize or maintain the market price of the Bonds at a level above that which might otheiwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Undeiwriter may offer and sell the Bonds to certain dealers and others at prices lower than the public offering prices set forth on the front cover hereof and said public offering prices may be changed from time to time by the Undeiwriter.

The Bonds have not been registered under the Securities Act of 1933, as amended, in reliance upon an exemption contained in such act. The Bonds have not been registered or qualified under the securities laws of any state. These securities have not been approved or disapproved by the Securities and Exchange Commission or any State Securities Commission nor has the Securities Exchange Commission or any State Securities Commission passed upon the accuracy or adequacy of this Official Statement. Any representation to the contrary is a criminal offense.

$7,625,000 CITY OF NORCO

COMMUNITY FACILITIES DISTRICT NO. 97-1 (Norco Hills)

2005 SPECIAL TAX REFUNDING BONDS

INTRODUCTION

The purpose of this Official Statement is to provide certain information concerning the issuance of the City of Norco Community Facilities District No. 97-1 (Norco Hills) 2005 Special Tax Refunding Bonds (the "Bonds") in the aggregate principal amount of $7,625,000. Terms not otherwise defined herein are defined in "APPENDIX B - DEFINITIONS."

The Mello-Roos Community Facilities Act of 1982, as amended, commencing at Section 53311, et seq., of the California Government Code (the "Act"), was enacted by the California Legislature to provide an alternative method of funding certain essential public capital facilities and services, especially in developing areas of the State of California (the "State"). Once duly established, a community facilities district is a legally constituted governmental entity within defined boundaries, with the governing board or legislative body of the local agency acting on its behalf. Subject to approval by a two-thirds vote of the qualified electors voting, and compliance with the provisions of the Act, a legislative body of a local agency may issue bonds for a community facilities district and may levy and collect a special tax within such district to repay such indebtedness.

Pursuant to the Act, the City of Norco (the "City") adopted Resolution No. 97-52 on June 18, 1997, stating its intention to establish Community Facilities District No. 97-1 ("Norco Hills") (the "District"). Pursuant to Ordinance No. 724, adopted by the City Council on August 6, 1997, and its Amended Ordinance No. 751, adopted on September 1, 1999 (the "Ordinance of Formation"), the District was formed, bonded indebtedness in an aggregate principal amount not to exceed $3,000,000 was authorized and an election was held pursuant to the Act on August 6, 1997. The qualified electors, being the landowners, within the boundaries of the District authorized the District to incur bonded indebtedness in a principal amount not to exceed $3,000,000 to finance certain public facilities and services (the "CFD Improvements") to meet the needs of new development within the District, approved the Special Tax Formula, the levy of a special tax (the "Special Tax") to pay the principal and interest on the Bonds and annual administrative expenses of the District and to make any replenishment to the Reserve Fund consistent with the Special Tax Formula and the Act.

Pursuant to the Act, the five members of the City Council now act as the legislative body for the District by virtue of their election to the City Council. District administrative services are provided by the City staff.

Under the provisions of the Act, on January 5, 2000, the City Council of the City of Norco, pursuant to a Petition of the Property Owners and an election of said Property Owners adopted its Resolution No. 2000-02 (the "Resolution") which resolution approved and amended the Special Tax Formula to pay the principal and interest on the Bonds, the annual administrative expenses of the District and replenish the Reserve Fund to the Reserve Requirement consistent with this Special Tax Formula, the Act and the Resolution, and which authorized the District to incur bonded indebtedness in a principal amount not to exceed $8,000,000.

The net proceeds of the Bonds will be used to advance refund City of Norco Conununity Facilities District No. 97-1 (Norco Hills) 2000 Special Tax Refunding Bonds (the "Refunded Bonds"), to fund a reserve fund and to pay the costs of issuing the Bonds. See "THE BONDS­Estimated Sources and Uses of Funds" herein.

The District is located in the southeast portion of the City approximately one-half mile east of Interstate 15 at the intersection of Norco Hills Road and Hidden Valley Parkway and consists of approximately 235 gross acres. (See "THE COMMUNITY FACILITIES DISTRICT" herein).

The Bonds will be secured by the Special Tax Revenues, defined as the proceeds of the Special Taxes received by the City, including any scheduled payments and any prepayments thereof, interest thereon and proceeds of the redemption or sale of the property sold as a result of foreclosure of the lien of the Special Taxes to the amount of said lien and interest thereon. Special Taxes are included on the regular property tax bills sent to the record owners of property within the District. See "SECURITY FOR THE BONDS-The Special Tax." The District has covenanted for the benefit of the owners of the Bonds (the "Bondowners") that, under certain circumstances described herein, it will commence judicial foreclosure proceedings with respect to delinquent Special Taxes on property within the District within 90 days after determining that Special Taxes are delinquent and will diligently pursue such proceedings to completion. See "SECURITY FOR THE BONDS-Covenant for Superior Court Foreclosure."

The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under a financial guaranty insurance policy (the "Policy") to be issued concurrently with the delivery of the Bonds by Assured Guaranty Corp. ("Assured Guaranty" or the "Insurer).

Neither the faith and credit nor the taxing power of the County, the City, the State or any political subdivision thereof is pledged to the payment of the Bonds. Except for the Special Tax Revenues, no other taxes are pledged to the payment of the Bonds. The Bonds are not general or special obligations of the City or the District, but are limited obligations of the District payable solely from Special Tax Revenues and other amounts held under the Fiscal Agent Agreement as more fully described herein.

See the section of this Official Statement entitled "RISK FACTORS" for a discussion of special factors which should be considered, in addition to the other matters set forth herein, in considering the investment quality of the Bonds.

Brief descriptions of the Bonds, Security for the Bonds, Risk Factors, the District, the CFD Improvements, the City 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 Bonds, the Fiscal Agent Agreement, the Continuing Disclosure Agreement, and other documents are qualified in their entirety by reference to the forms thereof and the information with respect thereto included in the Bonds, such resolutions 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.

Copies of such documents may be obtained from the office of the City, City Clerk's Office, 2870 Clark Avenue, Norco, California 92860 or Wedbush Morgan Securities, 201 Lomas Santa Fe Drive, Suite 500, Solana Beach, California 92075.

2

THE BONDS

Authority for Issuance

The District was established and bonded indebtedness in an amount not to exceed $8,000,000 was authorized pursuant to provisions of the Act. The proposition relating to the incurring of the indebtedness was consolidated with the proposition relating to the levying of the Special Tax into one proposition and submitted to and approved by the qualified electors of the District on January 5, 2000. In accordance with the Act, the qualified electors in the District, being the landowners, were entitled to cast one vote for each acre, or portion of an acre, of land owned within the District. At the time, Western Pacific Housing Norco Estates, LLC, a Delaware Limited Liability Company (the "Developer") was the only owner of land within the District. The City Council as the legislative body of the District, approved the amended Special Tax Formula on January 5, 2000. The Special Tax Formula and the amount of the Special Tax that can be collected from the land within the District is more fully described in the section herein entitled "SECURITY FOR THE BONDS - The Special Tax" and "THE COMMUNITY FACILITIES DISTRICT."

The Bonds will be issued pursuant to the Act, the Fiscal Agent Agreement and Resolution No. 2005-81 adopted by the City Council on November 2, 2005 (the "Resolution").

Description of the Bonds

The Bonds will be issued in the aggregate principal amount of $7,625,000 in fully registered form only and, when issued, will be registered in the name of Cede & Co. as nominee of DTC. DTC will act as securities depository of the Bonds. Ownership interest in the Bonds may be purchased, in denominations of $5,000, or any integral multiple thereof, in book-entry form only as described herein. Upon receipt of payments of principal of, premium, if any, and interest on the Bonds, DTC will in tum remit such principal, premium, if any, and interest to the participants in DTC (as described herein) for subsequent disbursement to the beneficial owners of the Bonds. See "APPENDIX F - INFORMATION CONCERNING THE DEPOSITORY TRUST COMPANY" below.

The Bonds will be dated as of the date of initial delivery thereof (the "Dated Date"), and interest thereon shall be payable at the rates set forth on the cover page hereof from the Interest Payment Date next preceding the date of authentication thereof, unless: (i) such date of authentication is an Interest Payment Date, in which event interest shall be payable from such date of authentication; (ii) such date of authentication is after a Record Date ( as hereinafter defined) but prior to the immediately succeeding Interest Payment Date, in which event interest shall be payable from the Interest Payment Date immediately succeeding the date of authentication; or (iii) the date of authentication is prior to the close of business on the first Record Date, in which event interest shall be payable from the Dated Date. The Interest Payment Dates are April I and October I of each year commencing April I, 2006. The "Record Date" is the 15th day of the month preceding each Interest Payment Date whether or not such day is a Business Day (as defined in the Fiscal Agent Agreement).

3

Optional Redemption

The Bonds maturing on or before October 1, 2015, are not subject to optional redemption prior to maturity. The Bonds maturing after October 1, 2015 may be redeemed, at the option of the District, on October 1, 2015, or on any date thereafter prior to maturity in whole or in part, in the manner determined by the District at a redemption price of the principal amount thereof, without a premium, together with accrued interest to the date of redemption.

Mandatory Sinking Payment Redemption

Bonds maturing on October 1, 2030 (the "Term Bonds") are subject to mandatory sinking payment redemption in part, by lot, prior to maturity from sinking payments made on October 1, 2021, and on each October 1 thereafter to and including October 1, 2030, at a redemption price equal to 100% of the principal amount thereof plus accrued interest to the redemption date without premium. The following payments are calculated to be sufficient to redeem the principal amount of Term Bonds:

2030 Tenn Bonds

October 1 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 (maturity)

Principal Amount $325,000 340,000 355,000 370,000 390,000 410,000 430,000 450,000 470,000 495 000

The amounts in the foregoing tables shall be reduced, as a result of any prior partial redemption of the Bonds pursuant to the Fiscal Agent Agreement, as specified in writing by the City Finance Director to the Fiscal Agent, in inverse order of sinking fund payment date.

Purchase of Bonds by District

In lieu of redemption under the provisions of the Fiscal Agent Agreement and with the consent of the Insurer, moneys on deposit in the Bond Fund may be used to purchase Bonds at public or private sale at such prices as the District may in its discretion determine; but in no event may Bonds be purchased at a price in excess of the principal amount thereof plus accrued interest to the date of purchase and any premium which would otherwise be due if such Bonds were to be redeemed in accordance with the Fiscal Agent Agreement.

Notice of Redemption

When Bonds are due for redemption under the Fiscal Agent Agreement or under another redemption provision set forth in a Supplemental Agreement, the Fiscal Agent shall give notice, in the name of the District, of the redemption of the Bonds. Such notice of redemption shall ( a) specify the CUSIP numbers, the serial numbers and the maturity date or dates of the Bonds selected for redemption, except that where all the Bonds are subject to redemption, or all the Bonds of one maturity, are to be redeemed, the serial numbers thereof need not be specified; (b) state the date fixed for redemption and surrender of the Bonds to be redeemed; ( c) state the

4

redemption price; ( d) state the place or places where the Bonds are to be redeemed; ( e) in the case of the Bonds to be redeemed only in part, state the portion of such Bond which is to be redeemed; (f) state the date of issue of the Bonds as originally issued; (g) state the rate of interest borne by each Bond being redeemed; and (h) state any other descriptive information needed to identify accurately the Bonds being redeemed as shall be specified by the District. Such notice shall further state that on the date fixed for redemption, there shall become due and payable on each Bond or portion thereof called for redemption, the principal thereof, together with any premium, and interest accrued to the redemption date, and that from and after such date, interest thereon shall cease to accrue and be payable. At least 30 days but no more than 60 days prior to the redemption date, the Fiscal Agent shall mail a copy of such notice, by first class mail, postage prepaid, to the Original Purchaser, to the Securities Depositories, to one or more Information Services, and to the respective Owners thereof at their addresses appearing on the Bond Register. The actual receipt by the Owner of any Bond of notice of such redemption shall not be a condition precedent thereto, and neither any defect therein nor any failure of an Owner to receive such notice shall affect the validity of the proceedings for the redemption of such Bonds, or the cessation of interest on the redemption date. A certificate by the Fiscal Agent that notice of such redemption has been given as herein provided shall be conclusive as against all parties and the Owner shall not be entitled to show that he or she failed to receive notice of such redemption.

Selection of Bonds to be Redeemed

Whenever provision is made for the redemption of less than all of the Bonds or any given portion thereof, the Fiscal Agent shall select the Bonds to be redeemed, from all Bonds or such given portion thereof not previously called for redemption, among maturities as directed in writing by the Finance Director (who shall specify Bonds to be redeemed so as to maintain, as much as practicable, the same debt service profile for the Bonds as in effect prior to such redemption; except that, in connection with any partial optional redemption pursuant, other than from amounts in the Bond Fund as a result of transfers from the Special Tax Prepayments Account and the Reserve Fund pursuant to the Fiscal Agent Agreement, the Bonds to be redeemed shall be selected pro rata among maturities, and by lot within a maturity, such selection within a maturity to be done in any manner which the Fiscal Agent deems appropriate.

Book-Entry System

General. DTC will act as securities depository for the Bonds, and the Bonds will be registered in the name of Cede & Co. (DTC's nominee). One fully-registered Bond certificate will be issued for each maturity of the Bonds in the aggregate principal amount of such maturity and will be deposited with DTC. So long as Cede & Co. is the registered owner of the Bonds, references herein to the Owners of the Bonds shall mean Cede & Co. and shall not mean the Beneficial Owners.

The District and the Underwriter cannot and do not give any assurances that DTC Participants or others will distribute payments with respect to the Bonds received by DTC or its nominee as the registered Owner, or any redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or that DTC will service and act in the manner described in this Official Statement.

See Appendix F for a further description of DTC and its book-entry system. The information presented therein is based solely on information provided by DTC.

Discontinuation of Book-Entry System Payments to Owners. In the event that the book­entry system described above is no longer used with respect to the Bonds, replacement Bonds will be issued to and registered in the name of the Owner and thereafter the principal of the

5

Bonds will be payable upon surrender thereof at the office of the Fiscal Agent. Interest on the Bonds will be payable on each Interest Payment Date to the registered owner thereof as of the close of business on the Record Date immediately preceding each Interest Payment Date, such interest to be paid by check of the Fiscal Agent, mailed by first-class mail to the registered owner at such owner's address as it appears on the bond register ( or at such other address as is furnished to the Fiscal Agent in writing by the registered owner). The principal of and interest on the Bonds shall be payable in lawful money of the United States of America.

Estimated Sources and Uses of Funds

The Bond proceeds will be applied approximately as follows:

Sources of Funds Principal Amount of Bonds ....................................... . Refunded Bonds Funds and Accounts ....................... .

Total Sources ................................................. .

Uses of Funds Underwriter's Discount .............................................. . Original Issue Discount ............................................. . Reserve Fund ( 1) ........................................................ . Costs oflssuance Fund .............................................. . Refunded Bonds Escrow Fund (2) ............................. . Administrative Expense Fund .................................... .

Total Uses ...................................................... .

$7,625,000.00 564 432.19

$8,189,432.19

$ 93,406.25 45,987.65

523,352.50 352, 728.38

7, 148,957.41 25 000.00

$8,189,432.19

(1) Funded in an amount equal to the Reserve Requirement on the Bonds. (2) An amount sufficient to purchase United States Treasury Obligations which when added

to the interest earnings thereon, will be sufficient to pay principal of, redemption premium and interest on the Refunded Bonds through and including October 1, 2010 as provided in the Refunded Bonds Escrow Agreement.

6

Debt Service Schedule

The table below sets forth the annual debt service payments on the Bonds.

Year Ending October 1

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Total

Principal $ 230,000.00

190,000.00 195,000.00 195,000.00 205,000.00 215,000.00 225,000.00 230,000.00 240,000.00 245,000.00 260,000.00 275,000.00 285,000.00 295,000.00 305,000.00 325,000.00 340,000.00 355,000.00 370,000.00 390,000.00 410,000.00 430,000.00 450,000.00 470,000.00 495 000.00

$7,625,000.00

(1) Based on a net interest cost of 4.824%.

7

Interest (1) $ 292,010.32

332,208.76 326,508.76 320,415.00 314,077.50 305,877.50 298,352.50 290,196.26 280,421.26 270,221.26 259,196.26 247,496.26 235,808.76 223,411.26 210,431.26 196,706.26 180,862.50 164,287.50 146,981.26 128,943.76 109,931.26 89,943.76 68,981.26 47,043.76 24 131.26

$5,364,445.50

Total Debt Service $ 522,010.32

522,208.76 521,508.76 515,415.00 519,077.50 520,877.50 523,352.50 520,196.26 520,421.26 515,221.26 519, 196.26 522,496.26 520,808.76 518,411.26 515,431.26 521,706.26 520,862.50 519,287.50 516,981.26 518,943.76 519,931.26 519,943.76 518,981.26 517,043.76 519 131.26

$12,989,445.50

SECURITY FOR THE BONDS

The Bonds are secured by the pledge of the Special Tax Revenues (as defined below) derived from Special Taxes collected by the City from taxable property within the District and from amounts held in all funds pursuant to the Fiscal Agent Agreement, other than amounts deposited in the Administrative Expense Fund, or amounts in the Excess Investment Earnings Fund required to be rebated to the United States in accordance with Section 148 of the Internal Revenue Code of 1986, as amended (the "Code").

General

Under the Fiscal Agent Agreement, "Special Taxes" are defined as the taxes authorized to be levied by the District and in accordance with the Ordinance, the Resolution of Formation, the Act and the voter approval obtained in connection with the formation of the District. "Special Tax Revenues" are defined as the proceeds of the Special Taxes received by the City, including any scheduled payments and any prepayments thereof, interest thereon, interest earnings on the Reserve Fund and proceeds of the redemption or sale of the property sold as a result of foreclosure of the lien of the Special Taxes to the amount of said lien and interest thereon. Notwithstanding the foregoing, "Special Tax Revenues" do not include any penalties collected in connection with delinquent Special Taxes.

Annual payments of principal and interest on the Bonds shall be equally payable from the Special Tax Revenues collected during that year without priority for number, date of the Bonds, date of sale, date of execution or date of delivery. The amount of Special Taxes that the District may levy in any year is strictly limited by the maximum rates approved by the qualified electors within the District. See "THE COMMUNITY FACILITIES DISTRICT-Special Tax Formula" and "APPENDIX C-RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX."

The Special Tax Revenues and any interest earned on such Special Tax Revenues (while held in the Special Tax Fund and any account therein other than the Administrative Expense Fund and the Excess Investment Earnings Fund) shall constitute a trust fund for the payment of the principal of, and interest on, all the Bonds. So long as any of the Bonds or interest thereon are unpaid, the Special Tax Revenues and interest earned thereon (while held in the Special Tax Fund and any account therein other than the Administrative Expense Fund and the Excess Investment Earnings Fund) shall not be used for any other purpose, except as permitted by the Fiscal Agent Agreement, and shall be held in trust for the benefit of the Bondowners and shall be applied pursuant to the Fiscal Agent Agreement. Special Taxes and other amounts, if any, deposited in the Excess Investment Earnings Fund and the Administrative Expense Fund shall no longer be considered to be pledged to the payment of any of the Bonds, and neither the Excess Investment Earnings Fund nor the Administrative Expense Fund shall be construed as a trust fund held for the benefit of the Bondowners.

In the opinion of Bond Counsel, under existing laws, regulations, rulings and judicial decisions, the Special Taxes are exempt from the tax rate limitation of California Constitution Article XIIIA pursuant to Section 4 thereof as a "special tax" authorized by a two-thirds vote of the qualified electors in the District. Consequently, the District is legally authorized and has covenanted in the Fiscal Agent Agreement to cause the levy and collection of the Special Taxes in an amount determined according to a methodology which the City Council and the qualified electors have approved (the "Special Tax Formula"). See "SECURITY FOR THE BONDS-The Special Tax" below. The Special Tax Formula apportions the total amount of Special Taxes to be collected among the taxable parcels in the District as more particularly described herein. See "THE COMMUNITY FACILITIES DISTRICT-Special Tax Formula" and "APPENDIX C­RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX."

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Although the Special Taxes will be levied against taxable parcels within the District, they do not constitute a personal indebtedness of the respective property owners. There is no assurance that the property owners will be financially able to pay the annual Special Taxes or that they will pay such taxes even if financially able to do so. See "RISK FACTORS" herein.

The Special Tax

In accordance with provisions of the Act, the City established the District for the purpose of providing certain public facilities and services to serve proposed development within the District. Under the provisions of the Act, on February 2, 2000 the City Council of the City adopted its Resolution No. 2000-00 (the "Resolution"), which resolution authorized the issuance and sale of the Bonds, in the aggregate principal amount of not to exceed $8,000,000 provided that such issuance would be in accordance with the Act; and on January 5, 2000, the City Council of the City adopted its Resolution to alter the Rate and Method of Apportionment of the Special Tax for the District, which resolution approved the amended Special Tax Formula to pay the principal and interest on the Bonds, the annual administrative expenses of the District and to replenish the Reserve Fund to the Reserve Requirement consistent with the Special Tax Formula, the Act and the Ordinance (the "Special Tax Requirement").

The Special Taxes will be levied and collected at the same time and in the same manner as general property taxes by the County. The Special Tax Revenues will be transferred to the Finance Director for deposit in the Special Tax Fund as soon as practicable after each date on which the Special Taxes have been apportioned to the District by the County Auditor-Controller and in no event later than seven days prior to the Interest Payment Date when such Special Tax Revenues shall be required.

Reserve Requirement

In order to secure further the payment of principal and interest on the Bonds, the District shall deposit Bond proceeds in an amount equal to the Reserve Requirement into the Reserve Fund held by the Fiscal Agent. The Reserve Requirement is defined in the Fiscal Agent Agreement as of any date of calculation an amount equal to the least of (i) the then Maximum Annual Debt Service for the Bonds, (ii) 125% of the then average Annual Debt Service on the Bonds, and (iii) 10% of the initial principal amount of the Bonds.

Moneys in the Reserve Fund shall be used for the purpose of making transfers to the Bond Fund in the event of any deficiency in the Bond Fund as further described herein.

Limited Obligations

The City's obligations are limited obligations of the City on behalf of the District and are payable solely from and secured solely by the Special Tax Revenues and the amounts in the Special Tax Fund, the Bond Fund (including the Special Tax Prepayments Account therein) and the Reserve Fund.

Covenant for Superior Court Foreclosure

Pursuant to Section 53356.1 of the Act, the City covenants in the Fiscal Agent Agreement with and for the benefit of the Bondowners that it will order, and cause to be commenced as hereinafter provided, and thereafter diligently prosecute to judgment (unless such delinquency is theretofore brought current), an action in the superior court to foreclose the lien of any Special Tax or installment thereof not paid when due as provided in the following two paragraphs. The City shall notify the City Attorney of any such delinquency of which it is aware, and the City Attorney shall commence, or cause to be commenced, such proceedings.

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On or about July 1st of each Fiscal Year, the City shall compare the amount of Special Taxes theretofore levied in the District to the amount of Special Tax Revenues theretofore received by the City.

Individual Delinquencies. If the City determines that any single parcel subject to the Special Tax in the District is delinquent in the payment of Special Taxes in the aggregate amount of $5,000 or more, then the City shall send or cause to be sent a notice of delinquency (and a demand for immediate payment thereof) to the property owner within 45 days of such determination, and (if the delinquency remains uncured) foreclosure proceedings shall be commenced by the City within 90 days of such determination.

Aggregate Delinquencies. If the City determines that (i) the total amount of delinquent Special Tax for the prior Fiscal Year for the entire District, exceeds 5% of the total Special Tax due and payable for the prior Fiscal Year, or (ii) there are ten (10) or fewer owners of real property within the District, determined by reference to the latest available secured property tax roll of the County, the City shall notify or cause to be notified property owners who are then delinquent in the payment of Special Taxes (and demand immediate payment of the delinquency) within 45 days of such determination, and shall commence foreclosure proceedings within 90 days of such determination against each parcel of land in the District with a Special Tax delinquency.

The City may waive delinquency penalties and redemption penalties if it determines that (i) the waivers shall apply only to parcels delinquent at the time of the determination, (ii) the waivers shall only be available with respect to parcels for which all past due and currently due Special Taxes and all other costs are paid in full within a limited period of time specified in the determination, (iii) the waivers shall be available only with respect to parcels sold or otherwise transferred to new owners unrelated to the owner responsible for the delinquency, and (iv) the waivers are in the best interest of the Bondowners.

THE FISCAL AGENT AGREEMENT

The following is a brief summary of certain provisions of the Fiscal Agent Agreement. This summary is not intended to be definitive and is qualified in its entirety by reference to such document for the complete terms thereof A copy of the Fiscal Agent Agreement is available upon request from the District.

Deposits of Bond Proceeds. The proceeds of the purchase of the Bonds by the Original Purchaser will be paid to the Fiscal Agent, who shall set aside, pay over and deposit such proceeds on the Closing Date, together with funds transferred in connection with the redemption of the Refunded Bonds, as follows:

(A) to the Reserve Fund $523,352.50 (being an amount equal to the Reserve Requirement as of the Closing Date);

(B) to the Administrative Expense Fund $25,000.00;

(C) to the Costs oflssuance Fund $352, 728.38; and

(D) to the Refunded Bonds Escrow Fund $7, 148,957.41.

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Refunded Bonds Escrow Fund.

The District appoints the Fiscal Agent as Escrow Bank pursuant to the Refunded Bonds Escrow Agreement. The Escrow Bank agrees to establish and maintain an irrevocable escrow fund to be designated the Refunded Bonds Escrow Fund (the "Escrow Fund"). The Escrow Fund will be invested in United States Treasury Obligations as provided in the Refunded Bonds Escrow Agreement and used for the payment of the principal of, redemption premium and interest on the Refunded Bonds through and including October 1, 2010.

Costs of Issuance Fund.

There will be continued as a separate fund to be held by the Fiscal Agent, the City of Norco Community Facilities District No. 97-1 (Norco Hills) 2005 Special Tax Refunding Bonds, Costs of Issuance Fund, to the credit of which a deposit shall be made as required by the Fiscal Agent Agreement. Moneys in the Costs of Issuance Fund shall be held in trust by the Fiscal Agent and shall be disbursed as provided in the Fiscal Agent Agreement for the payment or reimbursement of Costs of Issuance.

Reserve Fund.

There will be continued as a separate fund to be held by the Fiscal Agent, the City of Norco Community Facilities District No. 97-1 (Norco Hills) 2005 Special Tax Refunding Bonds, Reserve Fund, to the credit of which a deposit shall be made as required by the Fiscal Agent Agreement equal to the Reserve Requirement as of the Closing Date for the Bonds, and deposits shall be made as provided in the Fiscal Agent Agreement. Moneys in the Reserve Fund shall be held in trust by the Fiscal Agent for the benefit of the Owners of the Bonds as a reserve for the payment of principal of, and interest and any premium on, the Bonds and shall be subject to a lien in favor of the Owners of the Bonds.

Except as otherwise provided in the Fiscal Agent Agreement, all amounts deposited in the Reserve Fund shall be used and withdrawn by the Fiscal Agent solely for the purpose of making transfers to the Bond Fund in the event of any deficiency at any time in the Bond Fund of the amount then required for payment of the principal of, and interest and any premium on, the Bonds or, in accordance with the provisions of the Fiscal Agent Agreement, for the purpose of redeeming Bonds from the Bond Fund. Amounts in the Reserve Fund shall also be available to the City in accordance with the Fiscal Agent Agreement to satisfy any arbitrage rebate obligation.

Whenever transfer is made from the Reserve Fund to the Bond Fund due to a deficiency in the Bond Fund, the Fiscal Agent shall provide written notice thereof to the City Finance Director and the Insurer, specifying the amount withdrawn.

Whenever, on the Business Day prior to any Interest Payment Date, or on any other date at the request of the City Finance Director, the amount in the Reserve Fund exceeds the Reserve Requirement, the Fiscal Agent shall provide written notice to the City Finance Director of the amount of the excess and shall transfer an amount equal to the excess from the Reserve Fund to the Bond Fund to be used for the payment of interest on the Bonds on the next Interest Payment Date in accordance with the Fiscal Agent Agreement.

Whenever the balance in the Reserve Fund equals or exceeds the amount required to redeem or pay the Outstanding Bonds, including interest accrued to the date of payment or redemption and premium, if any, due upon redemption, the Fiscal Agent shall upon the written direction of the City Finance Director transfer the amount in the Reserve Fund to the Bond Fund to be applied, on the next succeeding Interest Payment Date to the payment and redemption, in

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accordance with Fiscal Agent Agreement, of all of the Outstanding Bonds. In the event that the amount so transferred from the Reserve Fund to the Bond Fund exceeds the amount required to pay and redeem the Outstanding Bonds, the balance in the Reserve Fund shall be transferred to the City to be used for any lawful purpose of the City.

Notwithstanding the foregoing, no amounts shall be transferred from the Reserve Fund pursuant to Fiscal Agent Agreement until after (i) the calculation of any amounts due to the federal government following payment of the Bonds and withdrawal of any such amount from the Reserve Fund for purposes of making such payment to the federal government, and (ii) payment of any fees and expenses due to the Fiscal Agent.

Whenever Special Taxes are prepaid and Bonds are to be redeemed with the proceeds of such prepayment pursuant to the Fiscal Agent Agreement, a proportionate amount in the Reserve Fund ( determined on the basis of the principal of Bonds to be redeemed, and the original principal of the Bonds) shall be transferred on the Business Day prior to the redemption date by the Fiscal Agent to the Bond Fund to be applied to the redemption of the Bonds pursuant to the Fiscal Agent Agreement.

Bond Fund.

There will be continued as a separate fund to be held by the Fiscal Agent the City of Norco Community Facilities District No. 97-1 (Norco Hills) 2005 Special Tax Refunding Bonds, Bond Fund, to the credit of which deposits shall be made as required by the Fiscal Agent Agreement, and any other amounts required to be deposited therein by the Fiscal Agent Agreement or the Act. There is also created pursuant to the Fiscal Agent Agreement in the Bond Fund a separate account held by the Fiscal Agent, the Special Tax Prepayments Account, to the credit of which deposits shall be made as provided in the Fiscal Agent Agreement.

Moneys in the Bond Fund and the account therein shall be held in trust by the Fiscal Agent for the benefit of the Owners of the Bonds, shall be disbursed for the payment of the principal of, and interest and any premium on, the Bonds as provided below, and, pending such disbursement, shall be subject to a lien in favor of the Owners of the Bonds.

Bond Fund Disbursements. On each Interest Payment Date, the Fiscal Agent shall withdraw from the Bond Fund and pay to the Owners of the Bonds the principal, and interest and any premium, then due and payable on the Bonds, including any amounts due on the Bonds by reason of the sinking payments, or a redemption of the Bonds required by the Fiscal Agent Agreement, such payments to be made in the priority listed in the second succeeding paragraph. Notwithstanding the foregoing, amounts in the Bond Fund as a result of a transfer pursuant to the Fiscal Agent Agreement shall be used to pay the principal of and interest on the Bonds prior to the use of any other amounts in the Bond Fund for such purpose.

In the event that amounts in the Bond Fund are insufficient for the purposes set forth in the preceding paragraph, the Fiscal Agent shall withdraw from the Reserve Fund to the extent of any funds therein amounts to cover the amount of such Bond Fund insufficiency. Amounts so withdrawn from the Reserve Fund shall be deposited in the Bond Fund.

If, after the foregoing transfers, there are insufficient funds in the Bond Fund to make the payments provided for in the Fiscal Agent Agreement, the Fiscal Agent shall apply the available funds first to the payment of interest on the Bonds, then to the payment of principal due on the Bonds other than by reason of sinking payments, and then to payment of principal due on the Bonds by reason of sinking payments. Any sinking payment not made as scheduled shall be added to the sinking payment to be made on the next sinking payment date.

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Special Tax Prepayments Account Disbursements. Moneys in the Special Tax Prepayments Account shall be transferred by the Fiscal Agent to the Bond Fund on the next date for which notice of redemption of Bonds can timely be given to the Bondowners under the Fiscal Agent Agreement.

Special Tax Fund.

There will be established as a separate fund to be held by the City Finance Director, the City of Norco Community Facilities District No. 97-1 (Norco Hills) 2005 Special Tax Refunding Bonds, Special Tax Fund, to the credit of which the City on behalf of the District shall deposit, as soon as practicable following receipt, all Special Tax Revenues received by the City and any amounts required by the Fiscal Agent Agreement to be deposited therein; provided that any proceeds of Special Tax Prepayments shall be transferred by the City Finance Director to the Fiscal Agent for deposit by the Fiscal Agent in the Special Tax Prepayments Account established pursuant to the Fiscal Agent Agreement. Moneys in the Special Tax Fund shall be held in trust by the City for the benefit of the City and the Owners of the Bonds, shall be disbursed as provided below and, pending disbursement, shall be subject to a lien in favor of the Owners of the Bonds and the City.

From time to time as needed to pay the obligations of the District, but no later than five (5) Business Days before each Interest Payment Date, the City Finance Director shall withdraw from the Special Tax Fund and transfer the following amounts in the following order of priority (i) to the Bond Fund an amount, taking into account any amounts then on deposit in the Bond Fund and any expected transfers from the Improvement Fund, the Reserve Fund and the Special Tax Prepayments Account to the Bond Fund, such that the amount in the Bond Fund equals the principal (including any sinking payment), premium, if any, and interest due on the Bonds on the next Interest Payment Date, (ii) to the Reserve Fund an amount, taking into account amounts then on deposit in the Reserve Fund, such that the amount in the Reserve Fund is equal to the Reserve Requirement. In any Bond Year, to the extent that the transfers required by clause (i) of the preceding sentence have been made, and the amount on deposit in the Reserve Fund is at least equal to the Reserve Requirement, all other amounts then on deposit in, or deposited to, the Special Tax Fund in such Bond Year shall be transferred by the City Finance Director to the Administrative Expense Fund.

Administrative Expense Fund.

There will be continued as a separate fund to be held by the City and designated as the City of Norco Community Facilities District No. 97-1 (Norco Hills) 2005 Special Tax Refunding Bonds, Administrative Expense Fund to the credit of which deposits shall be made as required by the Fiscal Agent Agreement. Moneys in the Administrative Expense Fund shall be held in trust by the City Finance Director for the benefit of the City, and shall be disbursed as provided below.

Amounts in the Administrative Expense Fund shall be withdrawn and paid to the City or its order upon receipt by the Finance Director of an Officer's Certificate stating the amount to be withdrawn, that such amount is to be used to pay an Administrative Expense or a Costs of Issuance, and the nature of such Administrative Expense or Costs of Issuance. Amounts transferred from the Costs of Issuance Fund to the Administrative Expense Fund pursuant to the Fiscal Agent Agreement shall be separately identified at all times, and shall be expended for purposes of the Administrative Expense Fund prior to the use of amounts transferred to the Administrative Expense Fund from the Special Tax Fund pursuant to the Fiscal Agent Agreement.

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Annually, on the last day of each Fiscal Year commencing with the last day of Fiscal Year 2005-06, the Finance Director shall withdraw any amounts then remaining in the Administrative Expense Fund that have not been allocated to pay Administrative Expenses incurred but not yet paid, and which are not otherwise encumbered, and transfer such amounts to the Special Tax Fund.

Covenants of the District

So long as any of the Bonds are Outstanding and unpaid, the City on behalf of the District makes the following covenants with the Bondowners under the provisions of the Act and the Fiscal Agent Agreement (to be performed by the City or its proper officers, agents or employees), which covenants are necessary and desirable to secure the Bonds and tend to make them more marketable; provided, however, that said covenants do not require the District to expend any funds or moneys other than the Special Tax Revenues or any moneys deposited in the funds and accounts created under the Fiscal Agent Agreement and legally available therefor:

Punctual Payment. The City on behalf of the District will punctually pay or cause to be paid the principal of, and interest and any premium on, the Bonds when and as due in strict conformity with the terms of the Fiscal Agent Agreement and any Supplemental Agreement, and it will faithfully observe and perform all of the conditions covenants and requirements of the Fiscal Agent Agreement and all Supplemental Agreements and of the Bonds.

Limited Obligation. The Bonds are limited obligations of the District and are payable solely from and secured solely by the Special Tax Revenues and the amounts in the Bond Fund, the Reserve Fund and the Special Tax Fund.

Extension of Time for Payment. In order to prevent any accumulation of claims for interest after maturity, the City shall not, directly or indirectly, extend or consent to the extension of the time for the payment of any claim for interest on any of the Bonds and shall not, directly or indirectly, be a party to the approval of any such arrangement by purchasing or funding said claims for interest or in any other manner. In case any such claim for interest shall be extended or funded, whether or not with the consent of the City, such claim for interest so extended or funded shall not be entitled, in case of default, to the benefits of the Fiscal Agent Agreement, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest which shall not have so extended or funded.

Against Encumbrances. The City will not encumber, pledge or place any charge or lien upon any of the Special Tax Revenues or other amounts pledged to the Bonds superior to or on a parity with the pledge and lien herein created for the benefit of the Bonds, except as permitted by the Fiscal Agent Agreement.

Books and Records. The City will keep, or cause to be kept, proper books of records and accounts, separate from all other records and accounts of the City, in which complete and correct entries shall be made of all transactions relating to the expenditure of amounts disbursed from the Administrative Expense Fund and the Special Tax Fund and to the Special Tax Revenues. Such books of record and accounts shall at all times during business hours be subject to the inspection of the Fiscal Agent and the Owners of not less than ten percent (10%) of the principal amount of the Bonds then Outstanding, or their representatives duly authorized in writing.

The Fiscal Agent will keep, or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the Fiscal Agent, in which complete and correct entries shall be made of all transactions relating to the expenditure of amounts disbursed from the Bond Fund, the Improvement Fund, the Reserve Fund and the Costs of Issuance Fund. Such

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books of record and accounts shall at all times during business hours be subject to the inspection of the District, the Insurer and the Owners of not less than ten percent (10%) of the principal amount of the Bonds then Outstanding, or their representatives duly authorized in writing.

Protection of Security and Rights of Owners. The City will preserve and protect the security of the Bonds and the rights of the Owners, and will warrant and defend their rights against all claims and demands of all persons. From and after the delivery of any of the Bonds by the City, the Bonds shall be incontestable by the City.

Compliance with Law. The City will comply with all applicable provisions of the Act and law in completing the construction and acquisition of the CFD Improvements.

Collection of Special Tax Revenues. The City shall comply with all requirements of the Act so as to assure the timely collection of Special Tax Revenues including without limitation, the enforcement of delinquent Special Taxes.

On or within five ( 5) Business Days of each June 1, the Fiscal Agent shall provide the City with a notice stating the amount then on deposit in the Bond Fund, the Capitalized Interest Account and the Reserve Fund, and informing the City that the Special Taxes may need to be levied pursuant to the Ordinance as necessary to provide for Annual Debt Service and Administrative Expenses and replenishment (if necessary) of the Reserve Fund so that the balances therein equal the Reserve Requirement. The receipt of or failure to receive such notice by the City shall in no way affect the obligations of the City under the following two paragraphs, and the Fiscal Agent shall not be responsible for any inability or failure to provide such notice. Upon receipt of such notice, the City shall communicate with the Auditor to ascertain the relevant parcels on which the Special Taxes are to be levied, taking into account any parcel splits during the preceding and then current year.

The City shall effect the levy of the Special Taxes each Fiscal Year in accordance with the Ordinance by each August 2nd that the Bonds are outstanding, or otherwise such that the computation of the levy is complete before the final date on which the County Auditor will accept the transmission of the Special Tax amounts for the parcels within the District for inclusion on the next real property tax roll. Upon the completion of the computation of the amounts of the levy, the City Finance Director shall prepare or cause to be prepared, and shall transmit to the County Auditor, such data as the County Auditor requires to include the levy of the Special Taxes on the next real property tax roll.

The City shall fix and levy the amount of Special Taxes within the District required for the payment of principal of and interest on any outstanding Bonds of the District becoming due and payable during the ensuing year, including any necessary replenishment or expenditure of the Reserve Fund for the Bonds and an amount estimated to be sufficient to pay the Administrative Expenses (including amounts necessary to discharge any obligation under the Fiscal Agent Agreement) during such year, taking into account the balances in such funds and in the Special Tax Fund. The Special Taxes so levied shall not exceed the authorized amounts as provided in the proceedings pursuant to the Resolution of Formation.

The Special Taxes shall be payable and be collected in the same manner and at the same time and in the same installment as the general taxes on real property are payable, and have the same priority, become delinquent at the same time and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do the ad valorem taxes on real property.

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Notwithstanding the foregoing, the City Finance Director may in his discretion cause the collection of any Special Taxes by direct, first class mail billing to the then owner of each parcel so owned in lieu of billing for such Special Taxes in the same manner as general taxes as aforesaid. Such direct mail billing shall be made not later than November 1 of the Fiscal Year and shall direct the owner of the property affected to pay the Special Taxes directly to the City Finance Director in two equal installments, the first of which shall be due and delinquent if not paid on December 10 and the second of which may be paid with the first and which, in any event, shall be due and delinquent if not paid on April 10 of the Fiscal Year. Any such Special Taxes so billed shall have the same priority and bear the same proportionate penalties and interest after delinquency as do the ad valorem taxes on real property.

Covenant to Foreclose. Pursuant to Section 53356.1 of the Act, the City covenants with and for the benefit of the Owners of the Bonds that it will order, and cause to be commenced as provided, and diligently prosecute to judgment (unless such delinquency is theretofore brought current), an action in the superior court to foreclose the lien of any Special Tax or installment thereof not paid when due as provided in the following two paragraphs. The City shall notify the City Attorney of any such delinquency of which it is aware, and the City Attorney shall commence, or cause to be commenced, such proceedings.

On or about July 1st of each Fiscal Year, the City shall compare the amount of Special Taxes levied in the District to the amount of Special Tax Revenues received by the City, and:

(A) Individual Delinquencies. If the City determines that any single parcel subject to the Special Tax in the District is delinquent in the payment of Special Taxes in the aggregate amount of $5,000 or more, then the City shall send or cause to be sent a notice of delinquency ( and a demand for immediate payment thereof) to the property owner within 45 days of such determination, and (if the delinquency remains uncured) foreclosure proceedings shall be commenced by the District within 90 days of such determination.

(B) Aggregate Delinquencies. If the City determines that (i) the total amount of delinquent Special Tax for the prior Fiscal Year for the entire District, (including the total of delinquencies under subsection (A) above), exceeds 5% of the total Special Tax due and payable for the prior Fiscal Year, or (ii) there are ten (10) or fewer owners ofreal property within the District, determined by reference to the latest available secured property tax roll of the County, the District shall notify or cause to be notified property owners who are then delinquent in the payment of Special Taxes ( and demand immediate payment of the delinquency) within 45 days of such determination, and shall commence foreclosure proceedings within 90 days of such determination against each parcel of land in the District with a Special Tax delinquency.

The City may waive delinquency penalties and redemption penalties if it determines that (i) the waivers shall apply only to parcels delinquent at the time of the determination, (ii) the waivers shall only be available with respect to parcels for which all past due and currently due Special Taxes and all other costs are paid in full within a limited period of time specified in the determination, (iii) the waivers shall be available only with respect to parcels sold or otherwise transferred to new owners unrelated to the owner responsible for the delinquency, and (iv) the waivers are in the best interest of the debt holders.

Further Assurances. The City will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Fiscal Agent Agreement, and for the better assuring and confirming unto the Owners of the rights and benefits provided in the Fiscal Agent Agreement.

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Private Activity Bond Limitations. The City shall assure that the proceeds of the Bonds are not so used as to cause the Bonds to satisfy the private business tests of section 14l(b) of the Code or the private loan financing test of section 14l(c) of the Code.

Federal Guarantee Prohibition. The City shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause the Bonds to be "federally guaranteed" within the meaning of Section l 49(b) of the Code.

Rebate Requirement. The City shall take any and all actions necessary to assure compliance with section l 48(f) of the Code, relating to the rebate of excess investment earnings, if any, to the federal government, to the extent that such section is applicable to the Bonds.

If necessary, the City may use amounts in the Reserve Fund, amounts on deposit in the Administrative Expense Fund, and any other funds available to the District, including amounts advanced by the City, in its sole discretion, to be repaid by the District as soon as practicable from amounts described in the preceding clauses, to satisfy its obligations under the Fiscal Agent Agreement. The City shall take note of any investment of monies in excess of the yield on the Bonds, and shall take such actions as are necessary to ensure compliance with the Fiscal Agent Agreement, such as increasing the portion of the Special Tax levy for Administration Expenses as appropriate to have funds available in the Administrative Expense Fund to satisfy any rebate liability under the Fiscal Agent Agreement.

No Arbitrage. The City shall not take, or permit or suffer to be taken by the Fiscal Agent or otherwise, any action with respect to the proceeds of the Bonds which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the date of issuance of the Bonds would have caused the Bonds to be "arbitrage bonds" within the meaning of section 148 of the Code.

Yield of the Bonds. In determining the yield of the Bonds, the City will take into account redemption (including premium, if any) in advance of maturity based on the reasonable expectations of the City, as of the Closing Date, regarding prepayments of Special Taxes and use of prepayments for redemption of the Bonds, without regard to whether or not prepayments are received or Bonds redeemed.

Maintenance of Tax-Exemption. The City shall take all actions necessary to assure the exclusion of interest on the Bonds from the gross income of the Owners of the Bonds to the same extent as such interest is permitted to be excluded from gross income under the Code as in effect on the date of issuance of the Bonds.

Continuing Disclosure to Owners. In addition to its obligations under the Fiscal Agent Agreement, the City covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Agreement. Notwithstanding any other provision of the Fiscal Agent Agreement, failure of the City to comply with the Continuing Disclosure Agreement shall not be considered a default thereunder; however, any Participating Underwriter ( as defined in the Continuing Disclosure Agreement) or any holder or beneficial Owner of the Bonds may take such actions as may be necessary and appropriate to compel performance by the City of its obligations thereunder, including seeking mandate or specific performance by court order.

Deposit and Investment of Moneys in Funds

Moneys in any fund or account created or established by the Fiscal Agent Agreement and held by the Fiscal Agent shall be invested by the Fiscal Agent in Permitted Investments, as

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directed pursuant to an Officer's Certificate filed with the Fiscal Agent at least two (2) Business Days in advance of the making of such investments. In the absence of any such Officer's Certificate, the Fiscal Agent shall invest, to the extent reasonably practicable, any such moneys in investments contained in paragraph ( 4) of the definition of Permitted Investments. The City Finance Director shall make note of any investment of funds in excess of the yield on the Bonds, so that appropriate actions can be taken to assure compliance with the Fiscal Agent Agreement.

Moneys in any fund or account created or established by the Fiscal Agent Agreement and held by the City Finance Director shall be invested by the City Finance Director in any Permitted Investment, which in any event by their terms mature prior to the date on which such moneys are required to be paid out; provided that amounts on deposit in the Administrative Expense Fund may be invested in any lawful investment the City may make. Obligations purchased as an investment of moneys in any fund shall be deemed to be part of such fund or account, subject, however, to the requirements of the Fiscal Agent Agreement for transfer of interest earnings and profits resulting from investment of amounts in funds and accounts. Whenever any moneys are required to be transferred by the City to the Fiscal Agent, such transfer may be accomplished by transferring a like amount of Permitted Investments.

The Fiscal Agent and its affiliates or the City may act as sponsor, advisor, depository, principal or agent in the acquisition or disposition of any investment. Neither the Fiscal Agent nor the City shall incur any liability for losses arising from any investments made pursuant to the Fiscal Agent Agreement. The Fiscal Agent shall not be required to determine the legality of any investments.

Except as otherwise provided, all investments of amounts deposited in any fund or account created by or pursuant to the Fiscal Agent Agreement, or otherwise containing gross proceeds of the Bonds (within the meaning of section 148 of the Code) shall be acquired, disposed of, and valued ( as of the date that valuation is required by the Fiscal Agent Agreement or the Code) at Fair Market Value. Investments in funds or accounts ( or portions thereof) that are subject to a yield restriction under the applicable provisions of the Code and (unless valuation is undertaken at least annually) investments in the subaccounts within the Reserve Fund shall be valued at their present value (within the meaning of section 148 of the Code). The Fiscal Agent shall not be liable for verification of the application of such sections of the Code.

Investments in any and all funds and accounts may be commingled in a separate fund or funds for purposes of making, holding and disposing of investments, notwithstanding provisions therein for transfer to or holding in or to the credit of particular funds or accounts of amounts received or held by the Fiscal Agent or the City Finance Director, provided that the Fiscal Agent or the City Finance Director, as applicable, shall at all times account for such investments strictly in accordance with the funds and accounts to which they are credited and otherwise as provided in the Fiscal Agent Agreement.

The Fiscal Agent or the City, as applicable, shall sell at Fair Market Value, or present for redemption, any investment security whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund or account to which such investment security is credited and neither the Fiscal Agent nor the City shall be liable or responsible for any loss resulting from the acquisition or disposition of such investment security. The Fiscal Agent or an affiliate may act as principal or agent for the purchase of any investment security and shall be entitled to the customary fee thereof.

The City acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the City the right to receive brokerage confirmations of security transactions as they occur, the City specifically waives receipt of such confirmations

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to the extent permitted by law. The Fiscal Agent will furnish the City periodic cash transaction statements which include detail for all investment transactions made by the Fiscal Agent.

Amendments Permitted

The Fiscal Agent Agreement and the rights and obligations of the District and of the Owners of the Bonds may be modified or amended at any time by a Supplemental Agreement pursuant to the affirmative vote at a meeting of Owners, or with the written consent without a meeting, of the Insurer or the Owners of at least sixty percent (60%) in aggregate principal amount of the Bonds then Outstanding and the Insurer, exclusive of Bonds disqualified. No such modification or amendment shall (i) extend the maturity of any Bond or reduce the interest rate thereon, or otherwise alter or impair the obligation of the City to pay the principal of, and the interest and any premium on, any Bond, without the express consent of the Owner of such Bond, or (ii) permit the creation by the City of any pledge or lien upon the Special Taxes superior to or on a parity with the pledge and lien created for the benefit of the Bonds ( except as otherwise permitted by the Act, the laws of the State of California or the Fiscal Agent Agreement), or (iii) reduce the percentage of Bonds required for the amendment thereof. Any such amendment may not modify any of the rights or obligations of the Fiscal Agent without its written consent.

The Fiscal Agent Agreement and the rights and obligations of the District and of the Owners may also be modified or amended at any time by a Supplemental Agreement, without the Consent of any Owners, only to the extent permitted by law and only for any one or more of the following purposes:

(A) to add to the covenants and agreements of the City, other covenants and agreements thereafter to be observed, or to limit or surrender any right or power reserved to or conferred upon the City on behalf of the District;

(B) to make modifications not adversely affecting any outstanding series of Bonds of the City on behalf of the District in any material respect;

(C) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in, or in regard to questions arising under the Fiscal Agent Agreement, as the City and the Fiscal Agent may deem necessary or desirable and not inconsistent with the Fiscal Agent Agreement, and which shall not adversely affect the rights of the Owners of the Bonds in any material respect; and

(D) desirable to Bonds.

to make such additions, deletions or modifications as may be necessary or assure exemption from gross federal income taxation of interest on the

Control Rights of the Insurer

Assured Guaranty shall be deemed to be the holder of all of the Bonds for purposes of (a) exercising all remedies and directing the Fiscal Agent to take actions or for any other purposes following an Event of Default ( as defined in the Fiscal Agent Agreement), and (b) granting any consent, direction or approval or taking any action permitted by or required under the Fiscal Agent Agreement, as the case may be, to be granted or taken by the holders of such Bonds.

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Defeasance

In the event that the principal and/or interest due on the Bonds shall be paid by Assured Guaranty pursuant to the Policy, the Bonds shall remain outstanding for all purposes, not be defeased or otherwise satisfied and not be considered paid by the City, and the assignment and pledge of the trust estate and all covenants, agreements and other obligations of the City to the registered owners shall continue to exist and shall run to the benefit of Assured Guaranty, and Assured Guaranty shall be subrogated to the rights of such registered owners including, without limitation, any rights that such owners may have in respect of securities law violations arising from the offer and sale of the Bonds.

THE COMMUNITY FACILITIES DISTRICT

General Information Regarding the District

General. The Community Facilities District was formed as described in "INTRODUCTION" herein. The City Council of the City of Norco acts as the legislative body of the Community Facilities District.

The Community Facilities District consists of approximately 235 gross acres. The land has been subdivided into a total of 221 lots, which vary in size between about one-half and six acres. Of the 221 lots, three have been dedicated to the City, one for a possible fire station; one for "establishing a wetland mitigation area within the boundaries of this Map;" and the third for an equestrian park. These three lots which total approximately 6.05 acres in size are not part of the Community Facilities District. Of the remaining 218 lots, one lot (approximately 3.9 acres), at the main entrance into the community off of Hidden Valley Parkway, is zoned for commercial uses, and is exempt from the levy of Special Taxes. The remaining 217 lots are fully developed with single-family residential uses. The Community Facilities District is located in the southeasterly part of the City approximately one-half mile east oflnterstate 15 at the intersection of Norco Hills Road and Hidden Valley Parkway. This is an Equestrian Residential District with a minimum lot size of 20, 000 square feet, and a minimum dwelling size of 2, 404 square feet.

Utilities. Utility services for parcels in the Community Facilities District are provided by the City of Norco, Southern California Edison, Southern California Gas Company and Pacific Bell Telephone. Students in the Community Facilities District attend Norco Elementary School, Norco Intermediate School, and Norco High School which are part of the Corona-Norco Unified School District.

The CFD Improvements

Public improvements financed with the proceeds of the Refunded Bonds include the following: streets identified as Tucson Road, Deadwood Road, and portions of Stetson Drive, Thoroughbred Drive and El Paso Drive, including grading, base, paving, curbs and gutters; sewer facilities, water facilities, drainage facilities, horse trails and all other facilities that are appurtenant to the completion of the construction thereof; traffic signals, including the modification of the traffic signal at El Paso Drive and Hidden Valley Parkway; a water pumping station located near Appaloosa Road; and other Public Facilities for which development fees were paid to the City or other public agency as a condition of the development of the Property.

Development

CFD No. 97-1 (Norco Hills) is a fully built out area comprising both residential and commercial use. The CFD has 221 lots, three of which were dedicated to the City of Norco. Of

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the remaining 218 lots, 217 are residential while 1 is designated for commercial use. Only the residential lots are subject to the Special Tax.

The lot designated for commercial use is a small retail center with two buildings: one is home to a Sav-On Drug Store, and the other has several users, including a sandwich shop, hair salon, and an exercise facility.

The residential portion of the CFD consists of 217 homes divided into two models: Bridlecrest and Crestmont. The Bridlecrest homes range in square footage from 2,404 to 2,942. The smallest of the Bridlecrest homes is a 4-bedroom, 2 Yz -bath while the largest of the homes is a 4-bedroom, 3-bath. The Crestmont homes range in square footage from 3,394 to 3,895. The smallest of the Crestmont homes is a 4-bedroom, 3 Yz-bath model; while the largest of the homes is a 6-bedroom, 3 Yz-bath.

The median lot size, one-half smaller and one-half larger, is 27,246 square feet; while the mean lot size is 36,918 square feet.

Flood Zone. The Property is located on the Federal Emergency Management Agency (FEMA) Floor Insurance Rate Map (FIRM) 060256, Dated February 15, 1979. It is located in Zone C, an area of minimal flooding.

Fault Hazard. The Property is not located in an Alquist Priolo Special Studies Zone, which would indicate earthquake fault zones. The Community Facilities District is in the County of Riverside. All of Riverside County is categorized in earthquake Zone 4 as that zone is defined in the Uniform Building Code ("UBC"). Zone 4 is the highest probability of the four earthquake probability zones. The homes in the Community have been designed to withstand the magnitude and frequency of earthquakes as expected to occur in Zone 4. Should an earthquake occur, the structural design of the homes at the Community are not designed to eliminate damage to the buildings, but only to minimize the probability of collapse of the building. The first priority of the UBC is life safety and not damage control.

Assessed Value to Lien Ratios

General. Value to lien ratios have traditionally been used in land-secured bond issues as a measure of the "collateral" supporting the willingness of property owners to pay their special taxes and assessments ( and, in effect, their general property taxes as well). The value to lien ratio is mathematically a fraction, the numerator of which is the value of the property and the denominator of which is the "lien" of the Special Taxes. A value to lien ratio is only one measure of credit quality in land-secured bond issues and may not even be the most significant indication of credit quality. Other factors of credit quality include the location of the district, experience of developers, size of project, length of absorption period, foreclosure covenants, status of development, size of reserve fund, land uses and private debt holders .

Value-to-Lien Ratios in the District. Assuming an assessed value of the taxable property within the District of $103,747,912 and $7,555,000 in principal amount of Bonds issued and delivered, the value to lien ratio with respect to the Taxable Property within the District is 13.70 to 1. The lien attributed to each property only reflects that property's share of the principal amount of the Bonds; the lien does not reflect other debt obligations or liens encumbering the property. See "Direct and Overlapping Debt" herein.

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A breakdown of the parcels in the District by value to lien and Special Tax is as follows:

Number 2005/06 Value to Bonded Of 2005/06 Assessed 2005/06 Maxim nm Bonded Debt Category Parcels Vaine S11ecial Tax S11ecial Tax Debt 20:1 to 24.99:1 17 $ 12,996,941.00 $ 46,373.34 $ 48,329.00 $ 602,700.60 15: 1 to 19.99: 1 31 18,343,607.00 84,900.54 88,481.00 1,103,427.59 10:1 to 14.99:1 167 71,678,208.00 449,724.76 468,691.00 5,844,995.00 5: 1 to 9.99: 1 2 729 156.00 5 688.12 5 928.00 73 926.81

Total 217 $103,747,912.00 $586,686. 76 $611,429.00 $7,625,000.00

Special Tax Formula

On July 1 of each year, all Taxable Property within CFD No. 97-1 shall be categorized either as a Developed Property, Undeveloped Property, Taxable Public Property, or Taxable Association Property and shall be subject to tax in accordance with the Rate and Method of Apportiorunent. See "APPENDIX C-RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX."

Developed Property consisting of Residential Property shall be assigned to Classes 1 through 6 based upon the house square footage to be constructed on such Assessor's Parcel as set forth on the most recent building permit issued for such property. The square footage of a house assigned to Classes 1 through 6 shall be calculated by measuring the internal living space of each unit located within the Assessor's Parcel, exclusive of garages or other structures which are not used as living spaces.

Maximum Special Tax Rate

Developed Property. The Maximum Special Tax for an Assessor's Parcel of Residential Property classified as Developed Property in Classes 1 through 6 shall be the greater of: (1) the Base Special Tax or (ii) the amount determined by reference to the table below. The Maximum Special Tax for an Assessor's Parcel of Non-Residential Property classified as Developed Property shall be $3,253 per Acre.

Class 1 2 3 4 5 6

Land Use Residential Property Residential Property Residential Property Residential Property Residential Property Residential Property

House Square Footage 3, 701 square feet and above 3,401 to 3,700 square feet 3,101 to 3,400 square feet 2,801 to 3,100 square feet 2,501 to 2,800 square feet 2, 500 square feet and below

Applicable Tax Rate $3,090 per unit

2,964 per unit 2,819 per unit 2,664 per unit 2,374 per unit 2,335 per unit

Undeveloped Property. The Maximum Special Tax for an Assessor's Parcel classified as Undeveloped Property shall be $3,253 per Acre.

Taxable Public Property and Taxable Association Property. The Maximum Special Tax for an Assessor's Parcel classified as Taxable Public Property and Taxable Association Property shall be $3,253 per Acre.

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Method of Apportionment of the Special Tax to Developed Property and Undeveloped Property

Commencing in Fiscal Year 2006-2007, and for each Fiscal Year thereafter, the City Council shall levy the Special Tax until the amount of the 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 tax rate set forth in the above table for Residential Property and at up to 100% of the Maximum Special Tax rate for Non-Residential Property as determined above as needed to satisfy the Special Tax Requirement;

Second: If additional moneys 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 I 00% of the Maximum Special Tax rate as determined above;

Third: If additional moneys are needed to satisfy the Special Tax Requirement after the first two steps have been completed, then the levy of the Special Tax on each Assessor's Parcel of Residential Property classified as Developed Property whose Maximum Special Tax rate is determined through application of the Base Special Tax shall be increased proportionately from the applicable rates as determined by the above table up to the Maximum Special Tax for each such Assessor's Parcel; and

Fourth: If additional moneys are needed to satisfy the Special Tax Requirement after the first three steps has been completed, then the Special Tax shall be levied proportionately on each Assessor's Parcel of Taxable Public Property and Taxable Association property at up to 100% of the Maximum Special Tax rate as determined above.

Notwithstanding the above, under no circumstances will the Special Tax levied against any Assessor's Parcel used as a private residence be increased as a consequence of delinquency or default by the owner of any other Assessor's Parcel within CFD No. 97-1 by more than ten (10) percent per Fiscal Year.

Exempt Property

The City Council shall not impose or levy a Special Tax on up to 37.046 Acres of Assessor's Parcels of exempt property within CFD 97-1 in accordance with the following priorities: (i) Lot 219 designated as commercial use in Tract No. 25779 recorded on September 13, 1999, (ii) publicly owned property, and (iii) property owned in common by the owners of residences within a subdivision, which in the case of (ii) and (iii) above may include, but not limited to, such items as streets, parks, drainageways, open-space, greenbelt areas, and walkways. Any Assessor's Parcels described in the preceding sentence which exceed 37.046 Acres shall be classified as Taxable Public Property or Taxable Association Property, as applicable, and subject to the Maximum Special Tax as provided for in Section C and shall be subject to the levy of Special Tax as provided for in the forth step in Section D.

Changes to Tract No. 25779

The Base Special Tax of CFD No. 97-1 has been established based on the land use configurations contained within Tract No. 25779 which was recorded on September 13, 1999. In the event Tract No. 25779 is amended to change its land use configurations, the Base Special Tax shall be an amount equal to $.0747 per lot square foot multiplied by the total lot square

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footage of the Assessor's Parcel of Residential Property classified as Developed Property within the amended area of the tract map.

Prepayment of the Special Tax

The Maximum Special Tax obligation may be prepaid and permanently satisfied by an Assessor's Parcel of Developed Property, Undeveloped Property for which a building permit has been issued, Taxable Public Property or Taxable Association Property; provided that a prepayment may only be made if there are no delinquent Special Taxes with respect to such Assessor's Parcel at the time of prepayment. An owner of an Assessor's Parcel intending to prepay the Maximum Tax obligation shall provide the City with written notice of intent to prepay and within 30 days of receipt of such written notice, the City shall notify such owner of the prepayment amount of such Assessor's Parcel. The City may charge a reasonable fee for providing this figure. See APPENDIX C herein.

Cancellation of Base Special Tax

The City Council may determine that Assessor's Parcels of Residential Property classified as Developed Property shall not be subject to the levy of the Base Special Tax and that such rate shall no longer be effective if it determines that the annual Maximum Special Tax revenues ( exclusive of the Base Special Tax rate) which would be produced from the levy of Special Tax on all Assessor Parcels of Developed Property within CFD No. 97-1 would be equal to at least 1.1 times the maximum annual debt service on all Bonds of CFD No. 97-1. If the City Council determines that the Base Special Tax rate shall no longer be effective, the owners of such Assessor's parcels shall be relieved of the obligation to disclose the Base Special Tax rate. See APPENDIX C herein.

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Direct and Overlapping Debt

The following table reflects the estimated direct and overlapping debt within the District.

2005-06 Local Secured Assessed Valuation: $113,954,684

DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: Metropolitan Water District Riverside City Conununity College District Corona-Norco Unified School District City of Norco Conununity Facilities District No. 97-1

TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT

OVERLAPPING GENERAL FUND DEBT: Riverside County General Flllld Obligations Riverside County Board of Education Certificates of Participation Corona-Norco Unified School District General Fund Obligations

TOTAL GROSS OVERLAPPING GENERAL FUND DEBT Less: Riverside Collllty self-supporting obligations)

TOTAL NET OVERLAPPING GENERAL FUND DEBT

GROSS COMBINED TOTAL DEBT NET COMBINED TOT AL DEBT

Ratios to 2005-06 Assessed Valuation: Direct Debt ($6,315,000) ................................................................ 5.54% Total Direct and Overlapping Tax and Assessment Debt ................ 5.97% Gross Combined Total Debt ............................................................ 6.16% Net Combined Total Debt ................................................................ 6.16%

STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/05: $0

(I) Based on 2004-05 ratios. (2) Excludes Mello-Roos Act bonds to be sold.

% A1n~licable (1) Debt 10/15/05 0.002% $ 8,388 0.208 139,227 0.621 338,381

100.000 6315000 $6,800,996

% Am2licable (3) Debt 10/15/05 0.025% $155,248 0.025 3,054 0.179 61 281

$219,583 ---2,J_lJ

$214,450

$7,020,579 $7,015,446

(3) Based on 2004-05 redevelopment adjusted all property assessed valuation of $25,541, 184.

(2)

(4)

( 4) Excludes tax and revenue anticipation notes, revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations.

Source: California Municipal Statistics.

Special Tax Administrator

MuniFinancial is the administrator (the "Administrator") of the Special Tax within the District. Each year in which Special Taxes are levied, the Administrator will prepare calculations, levies and reports of Special Taxes for the District. The levies are prepared for inclusion on the annual County of Riverside tax roll. The Administrator will also prepare annually the tax reports, continuing disclosure reports, State CDIAC reports, and required arbitrage calculations. All information and statements of activity of the District are submitted to the City, property owners, prospective buyers, and any and all interested parties for review.

RISK FACTORS

The purchase of the Bonds involves significant risks and the Bonds are not appropriate investments for all investors. Neither the faith and credit nor the taxing power of the City, the County, the State or any political subdivision thereof is pledged to the payment of the Bonds. Except for the Special Tax Revenues referred to above, no other taxes are pledged to the payment of the Bonds. The Bonds are not general or special obligations of the District or the

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City, but are limited obligations of the District payable solely from the Special Tax Revenues and certain other moneys as more fully described herein.

The purchase of the Bonds involves a significant degree of investment risk and, therefore, the Bonds are not appropriate investments for many types of investors. The following is a discussion of certain risk factors which should be considered in evaluating the investment quality of the 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 or lessees in the District to pay their Special Taxes when due. Such failure to pay Special Taxes could result in the inability of the District to make full and punctual payments of debt service on the Bonds. In addition, the occurrence of one or more of the events discussed herein could adversely affect the value of the property in the District and the value of the Bonds in the secondary market. See "Limited Secondary Market" below.

Insufficiency of Special Tax Revenues

As discussed below, Special Tax Revenues may not produce revenues sufficient to pay the debt service on Bonds either due to nonpayment of the amounts levied or in the event that acreage within the District were to become exempt from taxation due to the transfer of title to a public agency.

In order to pay debt service on the Bonds, it is necessary that the Special Taxes levied against land within the District be paid in a timely manner. Should the Special Taxes not be paid on time, the District has established a Reserve Fund in an amount equal to the Reserve Requirement to pay debt service on the Bonds to the extent other funds are not available. See "SECURITY FOR THE BONDS-Reserve Requirement." The District expects that the annual debt service on the Bonds will not exceed the Reserve Requirement. Under the Fiscal Agent Agreement, the District has covenanted to maintain in the Reserve Fund an amount equal to the Reserve Requirement; subject, however, to the limitation that the District may not levy the Special Tax in any fiscal year at a rate in excess of the maximum amounts permitted under the Special Tax Formula. See "APPENDIX C-Rate and Method of Apportionment of Special Tax." As a result, if a significant number of delinquencies occurs, the District will be unable to replenish the Reserve Fund to the Reserve Requirement due to the limitations on the Maximum Special Tax. If such defaults were to continue in successive years, the Reserve Fund would soon be depleted and a default on the Bonds would occur.

The Act provides that, if any property within the District not otherwise exempt from the Special Tax is acquired by a public entity through a negotiated transaction, or by gift or devise, the Special Tax will continue to be levied on and enforceable against the public entity that acquired the property. In addition, the Act provides that, if property subject to the Special Tax is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Tax with respect to that property is to be treated as if it were a special assessment and 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 the 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 Special Tax, the Special Tax will be reallocated to the remaining taxable parcels within the District. 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 payment of the Special Tax. Moreover, if a substantial portion of additional land within the 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 might not be sufficient to pay principal

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of and interest on the Bonds when due and a default will occur with respect to the payment of such principal and interest.

Foredosure Proceedings for Delinquent Special Taxes

The District has covenanted to institute foreclosure proceedings to sell any property with delinquent Special Taxes in order to obtain funds to pay debt service on the Bonds. If foreclosure proceedings were ever instituted, any mortgage or deed of trust holder could, but would not be required to, advance the amount of the delinquent Special Tax to protect its security interest. See "SECURITY FOR THE BONDS-Covenant for Superior Court Foreclosure" for provisions which apply in the event of such foreclosure and which the District is required to follow in the event of delinquencies in the payment of the Special Tax.

In the event that sales or foreclosures of property are necessary, there could be a delay in payments to Owners of the Bonds (if the Reserve Fund has been depleted) pending such sales or the prosecution of such foreclosure proceedings and receipt by the City on behalf of the District of the proceeds of sale. However, within the limits of the Special Tax, the City on behalf of the District may adjust the Special Tax levied on taxable parcels in the District, subject to the limitation on the Maximum Special Tax, to provide an amount required to pay interest on, principal of, and redemption premiums, if any, on the Bonds, and the amount, if any, necessary to replenish the Reserve Fund to an amount equal to the Reserve Requirement for the Bonds and to pay all current expenses. There is, however, no assurance that the total amount of the Special Tax that could be levied and collected against taxable parcels in the District will be at all times sufficient to pay the amounts required to be paid by the Fiscal Agent Agreement, even if the Special Tax is levied at the Maximum Special Tax rates. See "Bankruptcy."

No assurance can be given that the real property subject to sale or foreclosure will be sold, or if sold, that the proceeds of sale will be sufficient to pay any delinquent installments of the Special Tax. The Act does not require the City to purchase or otherwise acquire any lot or parcel of property to be sold at foreclosure if there is no other purchaser at such sale. The Act and the Fiscal Agent Agreement do specify that the Special Tax will have the same lien priority as for ad valorem property taxes in the case of delinquency. Section 53356.6 of the Act requires that property sold pursuant to foreclosure under the Act be sold for not less than the amount of judgment in the foreclosure action, plus post judgment interest and authorized costs, unless the consent of the Insurer or the owners of 75% of the Outstanding Bonds and the Insurer is obtained. The Fiscal Agent Agreement provides that the City may waive delinquency penalties and redemption penalties if it determines that (i) the waivers shall apply only to parcels delinquent at the time of the determination, (ii) the waivers shall only be available with respect to parcels for which all past due and currently due Special Taxes and all other costs are paid in full within a limited period of time specified in the determination, (iii) the waivers shall be available only with respect to parcels sold or otherwise transferred to new owners unrelated to the owner responsible for the delinquency, and (iv) the waivers are in the best interest of the Owners.

The purchase of a Bond by an Owner constitutes consent to these provisions.

Failure by current or subsequent owners of the property within the District to pay the Special Taxes when due, depletion of the Reserve Fund, delay in foreclosure proceedings, or the inability of the District to sell parcels which have been subject to foreclosure proceedings for amounts sufficient to cover the delinquent Special Taxes levied against such parcels may result in the inability of the District to make full or punctual payments of debt service on the Bonds and Owners of the Bonds would therefore be adversely affected.

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Unpaid Special Taxes do not constitute a personal indebtedness of the current or subsequent owners of the property within the District. There is no assurance that any current or subsequent owner of a parcel of land included in the District will be able to pay the Special Taxes or that it will pay such Special Taxes even though financially able to do so.

Direct and Overlapping Indebtedness; Parity Taxes

The Special Taxes and any penalties thereon will constitute a lien against the taxable land on which they will be annually imposed until they are paid. Such lien is on a parity with all special taxes and special assessments and is co-equal to and independent of the lien for general property taxes regardless of when they are imposed upon the same property. See "THE COMMUNITY FACILITIES DISTRICT - Direct and Overlapping Debt." The Special Taxes have priority over all existing and future private liens imposed on the taxable property in the District except, possibly, for liens or security interests held by the Federal Deposit Insurance Corporation. See "Bankruptcy" below. The imposition of additional special taxes, special assessments and general property taxes will increase the amount of parity and co-equal liens which must be satisfied in foreclosure.

The ability of an owner or lessee of land within the District to pay the Special Taxes could be affected by the existence of other taxes and assessments imposed upon the property. Neither the District nor the City, however, have 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 District. In addition, the landowners within the District may, without the consent or knowledge of the City, petition other public agencies to issue public indebtedness secured by special taxes or assessments. Other public agencies whose boundaries overlap those of the District could, without the consent of the District, and in certain cases without the consent of the owners of the land within the District, impose additional taxes or assessment liens on the property within the District in order to finance public improvements to be located inside of or outside of the District. The lien created on the property within the District through the levy of such additional taxes or assessments may be on a parity with the lien of the Special Taxes and could reduce the estimated value-to-lien ratio for property within the District. See "THE COMMUNITY FACILITIES DISTRICT - Direct and Overlapping Debt".

Assessed Value

Prospective purchasers of the Bonds should not assume that the land within the District could be sold for the assessed amount at a foreclosure sale for delinquent Special Taxes.

The value of land within the District is a critical factor in determining the investment quality of the Bonds. Such value could be adversely affected by economic factors beyond the District's control, such as a decline in property values due to an oversupply of commercial property in the real estate market, limited demand by commercial users, or the complete or partial destruction of property caused by, among other eventualities, earthquake, flood or other natural disaster, or by environmental pollution or contamination. See "- Geologic, Topographic and Climatic Conditions" "- Endangered Species" and "- Hazardous Substance" below. If a property owner defaults in the payment of a Special Tax, the District's only remedy is to commence foreclosing proceedings in an attempt to obtain funds to pay the delinquent Special Tax which may not realize the full value of the land.

Geologic, Topographic and Climatic Conditions

The market value of the land and improvements within the District can be adversely affected by a variety of factors. Such factors include, without limitation, geologic conditions

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(such as earthquakes), topographic conditions and climatic conditions (such as droughts, fire hazard and floods).

Some of these factors have been taken into account, to a limited extent, in the design of CFD Improvements. Further, building codes require that some of these factors be taken into account in the design of private improvements of the parcels. The City has adopted the 1994 Uniform Building Code standards with regards to seismic standards. Design criteria in any of these circumstances are established upon the basis of a variety of considerations and may change, leaving previously designed improvements unaffected by more stringent subsequently established criteria. In general, design criteria reflect a balance at the time of establishment between the present costs of protection and the future costs of lack of protection, based in part upon a present perception of the probability that the condition will occur and the seriousness of the condition should it occur. Consequently, neither the absence of nor the establishment of design criteria with respect to any particular condition means that the City has evaluated the condition and has established design criteria in the situations in which such criteria are needed to preserve value, or has established such criteria at levels that will preserve value. To the contrary, the City anticipates that one or more of such conditions may occur and may result in damage to improvements of varying seriousness, that the damage may entail significant repair or replacement costs and that repair or replacement may never occur either because of the cost or because repair or replacement will not facilitate habitability or other use, or because other considerations preclude such repair or replacement. Under any of these circumstances, the actual value of the parcels and the possessors interests may well depreciate or disappear, notwithstanding the establishment of design criteria for any such condition. If the values depreciate, the landowners may be unwilling to pay their respective Special Taxes.

Endangered Species

During the past several years, there has been 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 is expected to curtail development in a number of areas. At present, the property within the District is not known to be inhabited by any plant or animal species 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 District could negatively impact the landowners' ability to complete the development as planned. This, in tum, could reduce the likelihood of timely payment of the Special Taxes and would likely reduce the value of the land and the potential revenues available at a foreclosure sale for delinquent Special Taxes. See "- Failure to Develop Properties" and "- Assessed Value" above.

Hazardous Substances

While government taxes, assessments and charges are common claims against the value of a parcel, other less common claims may also be relevant. One such claim that may be serious in terms of the potential reduction in the value of a parcel is a claim with regard to a hazardous substance. In general, the owners and operators of a parcel may be required by law to remedy conditions 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 "Super Fund 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 in effect. Under many of these laws, the owner ( or operator) is obligated to remedy a hazardous substance condition of a parcel whether or not the owner ( or operator) had

29

anything to do with creating the condition or handling the hazardous substance. The effect, therefore, should any of the parcels within the District be affected by a hazardous substance, is to reduce the marketability and value of the parcels by the costs of remedying the condition because the prospective purchaser of such a parcel will, upon becoming the owner of such parcel, become obligated to remedy the condition just as the seller of such a parcel is.

The District has not independently verified, and is not aware, that the owner ( or operator) of the property within the District has any past or current liability for hazardous materials with respect to such a property. It is possible that such liabilities do currently exist and that the District is not aware of such liabilities.

It is possible that such hazardous substance liabilities may arise in the future with respect to the Project resulting from the existence, currently, of a substance presently classified as hazardous which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently, on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. Additionally, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling such substance. All of these possibilities could significantly affect the value of a parcel. If a parcel's value is impacted, the owner or lessee thereof may be unwilling to pay its Special Taxes. In addition, the Bondholders may not be able to recover their investment through the foreclosure of such property.

No Acceleration Provision

The Bonds do not contain a provision allowing for the acceleration of the Bonds in the event of a payment default or other default under the terms of the Bonds or the Fiscal Agent Agreement. Pursuant to the Fiscal Agent Agreement, any owner of any of the Bonds is given the right for the equal benefit and protection of all owners similarly situated to pursue certain remedies described under "THE FISCAL AGENT AGREEMENT."

Loss of Tax Exemption

As discussed under the caption "TAX MATTERS," interest on the Bonds could become includable in gross income for purposes of federal income taxation, retroactive to the date the Bonds were issued, as a result of future acts or omissions of the City on behalf of the District in violation of its covenants.

Limited Secondary Market

There can be no guarantee that there will be a secondary market for the Bonds or, if a secondary market exists, that such Bonds can be sold for any particular price. Although the City has 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 Bondowners 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 for the Bonds or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then prevailing circumstances. Such prices could be substantially different from the original purchase price.

Bankruptcy

The payment of property owners' taxes and the ability of the District to foreclose the lien of delinquent unpaid Special Taxes pursuant to the foreclosure covenant, may be limited by

30

bankruptcy, insolvency, or other laws generally affecting creditors' rights or by the laws of the State relating to judicial foreclosure. See "SECURITY FOR THE BONDS-The Special Tax."

The various legal opinions delivered concurrently with the delivery of the Bonds (including Bond Counsel's approving legal opinion) were qualified, as to the enforceability of the various legal instruments, by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally.

Although bankruptcy proceedings would not cause the Special Taxes to become extinguished, 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 part of the principal of, and interest on, the 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 Glaspy Marine Industries. Inc., In that case, the court held that real 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.

According to the court's ruling, as administrative expenses, post-petition taxes would have to be paid, assuming that the debtor had sufficient assets to do so. In certain circumstances, payment of such administrative expenses may be allowed to be deferred. Once the property is transferred out of the bankruptcy estate (through foreclosure or otherwise) it would be at that time become subject to current real property taxes.

Glaspy is a controlling precedent on bankruptcy courts in the State of California. The lien date for property taxes in California is the January 1 preceding the fiscal year for which the taxes are levied. Therefore, under Glaspy, a bankruptcy petition filing would prevent the lien for property taxes levied in subsequent fiscal years to attach so long as the property was a part of the estate in bankruptcy. To the extent Glaspy is applied to Special Taxes owed by property owners within the District who file for bankruptcy, the amount of Special Taxes available to pay the Bonds may be reduced.

Zoning and Land Use

Zoning and land use decisions for property within the City are made by the City Council. The City has adopted land use policies as part of its general plans, providing for various zoning and land use designations for property within its boundaries. The provisions and the designations of land use categories for property within the District are consistent with those land use policies.

The applicable zoning for the District is Specific Plan Rural Residential, in accordance with the Norco Hills Specific Plan dated August 1, 1990. The fact that property currently is within a particular zoning or land use designation does not mean that the owner of that property has a vested right to develop that property within such designations. The owner would be obligated to continue to obtain all necessary building and other permits to continue with development.

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THE BOND INSURANCE POLICY

The following information is not complete and reference is made to Appendix G for a specimen of the financial guaranty insurance policy (the "Policy") of Assured Guaranty Corp. ("Assured Guaranty" or the "Insurer").

Assured Guaranty has made a commitment to issue the Policy relating to the Bonds, effective as of the date of issuance of such Bonds. Under the terms of the Policy, Assured Guaranty will unconditionally and irrevocably guarantee to pay that portion of principal and interest on the Bonds that becomes Due for Payment but shall be unpaid by reason of Nonpayment by the City (the "Insured Payments"). Insured Payments shall not include any additional amounts owing by the City solely as a result of the failure by the Fiscal Agent to pay such amount when due and payable, including without limitation any such additional amounts as may be attributable to penalties or default interest rates, amounts in respect of indenmification, or any other additional amounts payable by the Fiscal Agent by reason of such failure. The Policy is non-cancelable for any reason, including without limitation the non-payment of premmm.

"Due for Payment," when referring to the principal of the Bonds means the stated maturity date thereof, or the date on which such Bonds shall have been duly called for mandatory sinking fund redemption, and does not refer to any earlier date on which payment is due by reason of a call for redemption ( other than by mandatory sinking fund redemption), acceleration or other advancement of maturity (unless Assured Guaranty in its sole discretion elects to make any principal payment, in whole or in part, on such earlier date) and, when referring to interest on such Bonds, means the stated dates for payment of interest.

"Nonpayment" means the failure of the City to have provided sufficient funds to the Fiscal Agent for payment in full of all principal and interest Due for Payment on the Bonds. It is further understood that the term Non payment in respect of a Bond also includes any amount that is paid, credited, transferred or delivered to the holder of such Bond in respect of any Insured Payment by the Fiscal Agent, which amount has been rescinded or recovered from or otherwise required to be returned or repaid by such holders pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final, nonappealable order of a court having competent jurisdiction that such payment constitutes an avoidable preference with respect to such holder within the meaning of any applicable bankruptcy law. Nonpayment does not include nonpayment of principal or interest caused by the failure of the Fiscal Agent, to pay such amount when due and payable.

Assured Guaranty will pay each portion of an Insured Payment that is Due for Payment and unpaid by reason of Nonpayment by the City to the Fiscal Agent, as beneficiary of the Policy on behalf of the holders of the Bonds on the later to occur of (i) the date such principal or interest becomes Due for Payment or (ii) the business day next following the day on which Assured Guaranty receives notice of claim therefor in accordance with the terms of the Policy.

Assured Guaranty shall be subrogated to the rights of the holders of the Bonds to receive payments in respect of the Insured Payments to the extent of any payment by Assured Guaranty under the Policy.

THE BOND INSURER

Assured Guaranty Corp. ("Assured Guaranty") is a Maryland-domiciled insurance company regulated by the Maryland Insurance Administration and licensed to conduct financial guaranty insurance business in forty-seven states, the District of Columbia and Puerto Rico.

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Assured Guaranty commenced operations in 1988. Assured Guaranty is a wholly owned, indirect subsidiary of Assured Guaranty Ltd. ("AGL"), a Bermuda-based holding company whose shares are publicly held and are listed on the New York Stock Exchange under the symbol "AGO." AGL, through its operating subsidiaries, provides credit enhancement products to the public finance, structured finance and mortgage markets. Neither AGL nor any of its shareholders is obligated to pay any debts of Assured Guaranty or any claims under any insurance policy issued by Assured Guaranty.

Assured Guaranty is subject to insurance laws and regulations in Maryland and in New York (and in other jurisdictions in which it is licensed) that, among other things, (i) limit Assured Guaranty's business to financial guaranty insurance and related lines, (ii) prescribe minimum solvency requirements, including capital and surplus requirements, (iii) limit classes and concentrations of investments, (iv) regulate the amount of both the aggregate and individual risks that may be insured, (v) limit the payment of dividends by Assured Guaranty, (vi) require the maintenance of contingency reserves, and (vii) govern changes in control and transactions among affiliates. Certain state laws to which Assured Guaranty is subject also require the approval of policy rates and forms.

Assured Guaranty's financial strength is rated "AAA" by Standard & Poor's, a division of The McGraw-Hill Companies, Inc., "AAA" by Fitch, Inc. and "Aal" by Moody's Investors Service, Inc. Each rating of Assured Guaranty should be evaluated independently. An explanation of the significance of the above ratings may be obtained from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold any security, and such ratings are subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of any security guaranteed by Assured Guaranty. Assured Guaranty does not guaranty the market price of the securities it guarantees, nor does it guaranty that the ratings on such securities will not be revised or withdrawn.

Capitalization of Assured Guaranty Corp.

As of December 31, 2004, Assured Guaranty had total admitted assets of$1,278,208,171 (audited), total liabilities of $1,041,463,558 (audited), total surplus of $236,744,613 (audited) and total statutory capital (surplus plus contingency reserves) of $755,118,880 (audited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. As of June 30, 2005, Assured Guaranty had total admitted assets of $1,116,713,411 (unaudited), total liabilities of $839,301,627 (unaudited), total surplus of $277,411,784 (unaudited) and total statutory capital (surplus plus contingency reserves) of $820, 777,512 (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. The Maryland Insurance Administration recognizes only statutory accounting practices for determining and reporting the financial condition and results of operations of an insurance company, for determining its solvency under the Maryland Insurance Code, and for determining whether its financial condition warrants the payment of a dividend to its stockholders. No consideration is given by the Maryland Insurance Administration to financial statements prepared in accordance with accounting principles generally accepted in the United States ("GAAP") in making such determinations.

The following documents are hereby incorporated by reference into this Official Statement and shall be deemed to be a part hereof:

• The consolidated balance sheets of Assured Guaranty as of December 31, 2004 and December 31, 2003 and the related consolidated statements of operations and

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comprehensive income, of shareholder's equity and of cash flows for each of the three years in the period ended December 31, 2004, prepared in accordance with GAAP, included as Exhibit 99.1 to the Annual Report on Form 10-K of AGL for the fiscal year ended December 31, 2004 (which was filed with the Securities and Exchange Commission (the "SEC") on March 22, 2005);

• The unaudited consolidated balance sheet and statement of shareholder's equity of Assured Guaranty as of and for the period ended March 31, 2005, respectively, and the related consolidated statements of operations and comprehensive income and cash flows for the three months ended March 31, 2005 and March 31, 2004, prepared in accordance with GAAP, included as Exhibit 99.1 to the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005 (which was filed by AGL with the SEC on May 12, 2005);

• The unaudited consolidated balance sheet and statement of shareholder's equity of Assured Guaranty as of and for the period ended June 30, 2005, respectively, the related consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2005 and June 30, 2004, and the statements of cash flows for the six months ended June 30, 2005 and June 30, 2004, prepared in accordance with GAAP, included as Exhibit 99.1 to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2005 (which was filed by AGL with the SEC on August 15, 2005); and

• The Current Reports on Form 8-K filed by AGL with the SEC on April 12, 2005, April 20, 2005, May 10, 2005, May 18, 2005, June 24, 2005, August 5, 2005, and October 12, 2005 as they relate to Assured Guaranty.

Any statement contained in a document incorporated herein by reference or contained herein under the heading "The Bond Insurer" shall be modified or superseded for purposes of this Official Statement to the extent that a statement contained herein or in any subsequently filed document which is incorporated by reference herein also modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement.

All consolidated financial statements of Assured Guaranty included in documents filed by AGL with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, subsequent to the date of this Official Statement and prior to the termination of the offering of the Bonds shall be deemed to be incorporated by reference into this Official Statement and to be a part hereof from the respective dates of filing such consolidated financial statements.

Copies of the consolidated financial statements of Assured Guaranty incorporated by reference herein and of the statutory financial statements filed by Assured Guaranty with the Maryland Insurance Administration are available upon request by contacting Assured Guaranty at 1325 Avenue of the Americas, New York, New York 10019 or by calling Assured Guaranty at (212) 974-0100.

Assured Guaranty makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, Assured Guaranty makes no representation regarding, nor does it accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding Assured Guaranty supplied by Assured Guaranty and presented under the heading "The Bond Insurer."

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Ratings

Standard & Poor's Ratings Group has assigned its municipal rating of "AAA" to this issue of Bonds with the understanding that upon delivery of the Bonds, a policy insuring the payment when due of the principal of and interest on the Bonds will be issued by Assured Guaranty. These ratings reflect the rating agency's view of the creditworthiness of the Bond Insurer. In addition, Standard & Poor's Ratings Group has assigned a municipal bond rating of "BBB" to the Bonds. This rating reflects the view of Standard & Poor's Ratings Group as to the credit quality of the Bonds without regard to the delivery of the Financial Guaranty Insurance Policy. The ratings reflect only the views of the rating organization, and explanation of the significance of the ratings may be obtained from Standard & Poor's Ratings Group, 55 Water Street, New York, New York 10041 (212) 438-2124. There is no assurance that the ratings will continue for any given period of time or that it will not be revised downward or withdrawn entirely by the respective rating agency, if in the judgment of the rating agency circumstances so warrant. Any such downward revision or withdrawal of the ratings may have an adverse effect on the market price of the Bonds.

TAX MATTERS

In the opm10n of Harper & Burns, LLP, Orange, California, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, interest on the 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 on the Bonds is exempt from State of California personal income tax. Bond Counsel notes that, with respect to corporations, interest on the 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. In addition, the difference between the issue price of a Bond (the first price at which a substantial amount of the Bonds of a maturity are to be sold to the public) and the stated redemption price at maturity with respect to a Bond constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Bondowner before receipt of cash attributable to such excludable income. The amount of original issue discount that accrues to the owner of the Bond is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and its exempt from State of California personal income tax.

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

Bond Counsel's opinions may be affected by actions taken ( or not taken) or events occurring ( or not occurring) after the date hereof. Bond Counsel has not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. Although Bond Counsel has rendered an opinion that interest ( and original issue discount) on the Bonds is excluded from gross income for federal income tax purposes provided that the District continues to comply with certain requirements of the Code and the Act, the ownership of the

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Bonds and the accrual or receipt of interest ( and original issue discount) on the Bonds may otherwise affect the tax liability of certain persons. Bond Counsel expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any of the Bonds, all potential purchasers should consult their tax advisors with respect to collateral tax consequences of the Bonds.

LEGAL OPINION

The opinion of the Bond Counsel firm of Harper & Bums, LLP, Orange, California, approving the validity of the Bonds and stating that interest on the Bonds is excludable from gross income under Section 103 of the Code and such interest is also exempt from personal income taxes of the State of California under present State income tax laws, will be furnished to the purchaser at the time of delivery of the Bonds at the expense of the District. Compensation for Bond Counsel's services is contingent upon the sale and delivery of the Bonds.

A copy of such opinion, certified by an officer of the District by such officer's facsimile signature, will be printed on the back of each definitive Bond. No charge will be made to the purchaser for such printing or certification.

The legal opinion is only as to legality and is not intended to be, nor is it to be interpreted or relied upon as, a disclosure document or an express or implied recommendation as to the investment quality of the Bonds.

In the further opinion of Bond Counsel, interest on the Bonds is excluded from California personal income taxes.

A copy of the form of opinion of Bond Counsel is attached hereto as APPENDIX D.

Certain matters will be passed upon for the District by its disclosure counsel, Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California.

CONTINUING DISCLOSURE

In the Fiscal Agent Agreement, the District has covenanted for the benefit of the Owners and Beneficial Owners of the Bonds to comply with the District's Continuing Disclosure Agreement. The District's Continuing Disclosure Agreement requires the District to provide certain financial information and operating data relating to the Project within seven months after the end of the District's Fiscal Year (the "Annual Report") and to provide notices of the occurrence of certain enumerated events (the "Listed Events"). The Annual Reports are required to be filed with each Nationally Recognized Municipal Securities Information Repository. Notices of Listed Events are required to be filed with the Municipal Securities Rulemaking Board. The specific nature of the information to be included in the Annual Reports and the Listed Events are set forth in the form of the District's Continuing Disclosure Agreement attached hereto as Appendix E. These obligations have been undertaken by the District in order to assist the Underwriter in complying with Securities and Exchange Commission Rule l 5c2-12(b )(5) (the "Rule").

It should be noted that the District is required to file its financial statements with its Annual Report. This requirement has been included in the District's Continuing Disclosure Agreement solely to satisfy the provisions of the Rule. It should also be noted that the list of significant events which the District has agreed to report includes three items which have absolutely no application whatsoever to the Bonds. These items have been included in the list with respect to the Bonds solely to satisfy the requirements of the Rule. Thus, any implication from the inclusion of these items in the list to the contrary notwithstanding, there are no credit

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enhancements applicable to the Bonds, there are no credit or liquidity providers with respect to the Bonds, and the Bonds have not been assigned a rating.

Notwithstanding any provision of the Fiscal Agent Agreement, failure of the District to comply with the District's Continuing Disclosure Agreement shall not be considered an event of default under the Fiscal Agent Agreement; however, any owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations with respect to the District's Continuing Disclosure Agreement.

The District has never failed to comply in all material respects with any previous undertaking with regard to the Rule to provide Annual Reports or notices of material events.

LITIGATION

At the time of delivery of and payment for the Bonds, the District will certify that there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court or governmental or public entity pending or, to the best knowledge of the District, threatened against the District (i) which affects or seeks to prohibit, restrain or enjoin the issuance of the Bonds or the execution or delivery of the Fiscal Agent Agreement, (ii) contesting the validity of the Fiscal Agent Agreement, the powers of the District to enter into or perform its obligations under the Fiscal Agent Agreement, or the existence or powers of the District, or (iii) which, if determined adversely to the District, would materially impair the District's ability to meet its obligations under the Fiscal Agent Agreement or materially and adversely affect the District's financial condition.

UNDERWRITING

The Bonds are to be purchased by Wedbush Morgan Securities (the "Underwriter") at a price of $7,485,606.10 (being the principal amount of the Bonds, less an Underwriter's discount of $93,406.25 and original issue discount of $45,987.65). The initial public offering prices of the Bonds may be changed from time to time by the Underwriter. The purchase agreement pursuant to which the Bonds are being purchased provides that the Underwriter will purchase all of the Bonds if any are purchased and that the obligation to make such purchase is subject to certain terms and conditions set forth in the purchase agreement, including, among others, to the approval of certain legal matters by legal counsel.

The Underwriter may offer and sell Bonds to certain dealers, banks and others at a price lower than the offering price stated on the cover page hereof. The offering price may be changed from time to time by the Underwriter.

VERIFICATION OF MATHEMATICAL ACCURACY

McGladrey & Pullen, LLP, Minneapolis, Minnesota, independent accountants, upon delivery of the Bonds, will deliver a report on the mathematical accuracy of certain computations, contained in schedules provided to them that were prepared by the City, relating to the yield and sufficiency of moneys and securities deposited into the Refunded Bonds Escrow Fund created under the Refunded Bonds Escrow Agreement to pay, when due, the principal, whether at maturity or upon prior redemption, interest and redemption premium requirements with respect to the Refunded Bonds.

The report of McGladrey & Pullen, LLP will include the statement that the scope of its engagement is limited to verifying the mathematical accuracy of the computations contained in

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such schedules provided to it, and that it has no obligation to update its report because of events occurring, or data or information coming to its attention, subsequent to the date of its report.

PROFESSIONAL FEES

In connection with the issuance of the Bonds, compensation payable to the Financial Advisor, the Underwriter, Bond Counsel and Disclosure Counsel is contingent upon the issuance of the Bonds.

MISCELLANEOUS

All of the summaries of the Fiscal Agent Agreement and other agreements and documents contained herein are made subject to the provisions of such documents respectively and do not purport to be complete statements of any or all such provisions. Reference is hereby made to such documents on file with the District for further information in connection therewith.

Any statements made in the Official Statement involving matters of opinion or estimates, whether or not expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized.

The preparation and distribution of this Official Statement have been authorized by the District.

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CITY OF NORCO COMMUNITY FACILITIES DISTRICT NO. 97-1

By: /s/ Herb Higgins Mayor of the City of Norco Acting as the Presiding Officer of the Legislative Body of Community Facilities District No. 97-1

APPENDIX A

SUPPLEMENTAL INFORMATION

THE CITY OF NORCO

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SUPPLEMENTAL INFORMATION THE CITY OF NORCO

The following information concerning the City of Norco and surrounding areas are included only for the purpose of supplying general information regarding the community. The Bonds are not a debt of the City of Norco, State of California or any of its political subdivisions, and neither said City, said State nor any of its political subdivisions is liable therefor.

General Description and Background

Incorporated on December 28, 1964, the City of Norco now functions under a Council/Manager form of Government. A five member City Council, including the Mayor, is elected at large. The City Treasurer is appointed by the City Council.

Population

The City's population, as of January 1, 2005 was 26, 700, according to the California State Department of Finance. A historical summary of the City's population is shown below.

Year 1992 1993 1994 1995 1996 1997 1998

Population 23,500 23,850 24,350 24,250 24,500 24,650 25,500

City of Norco Population (1)

Year 1999 2000 2001 2002 2003 2004 2005

Population 25,600 25,900 24,450 24,950 25,400 25,500 26,700

(1) State Department of Finance, Demographic Research Unit, estimate as of January 1 of each year.

The following sets forth the County of Riverside and the State of California population estimates from 1996 to January 1, 2005:

Riverside County and State of California Estimated Population

Year (January 1)

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Riverside County

1,381,800 1,400,400 1,441,000 1,481,200 1,522,900 1,609,400 1,648,800 1, 719,000 1,776,700 1,877,000

State of California 32,223,000 32,670,000 33,226,000 33,773,000 34,336,000 34,818,000 35,049,000 35,612,000 36,144,000 36,810,000

Source: State of California Department of Finance, Demographic Research Unit, estimate as of January 1 of each year.

A-1

City's Financial Statistics

A summary of the City's tax levies and collections is as follows:

Fiscal Year 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05

Secured Property Tax Levies and Collections Fiscal Years 1989-90 to 2003-04

Total Tax Levy $878,414.50

835,996.29 945,486.20 852,987.30 625,606.61 612,162.06 611,212.34 654,702.41 658,998.96 666,268.82 671,041.35 674,973.74 703,781.15 748,841.43 788,185.84 908,576.23

Current Tax Collections

$812,367. 58 764,347.05 847,532.85 756,828.90 606,109.37 546,569.44 546,656.07 586,255.16 618,755.14 612,292.42 628,168.52 635,647.14 669,123.24 736,870.17 779,765.00 901,056.38

Source: Riverside County Office of Auditor-Controller.

Percent of Levy Collected

92.5% 91.0 89.6 88.7 96.8 89.2 87.4 89.5 93.9 91.9 93.6 94.2 95.1 98.4 98.9 99.2

A summary of the City's assessed values of taxable property is as follows:

Fiscal Year 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

Assessed Values of Taxable Property Fiscal Years 1990-91 to 2005-06

Secured Valuation

$ 749,330,006 819,194,788 865,843,839 901,043,725 911,557,820 929,290,741 938,010,862 961, 168,624 993,079,115

1,037,642,661 1,163,249,554 1,276, 152,310 1,439,247,883 1,572, 160,083 1,794,787,797 2,177,618,396

Unsecured Valuation

$21,149,964 23,374,633 22,254,280 19,781,785 20,093,577 25,779,588 27,817,569 25,463,907 29,023,593 39,779,054 46,389,133 62,262,168 70,217,107 29,141,000 75,419,306 95,435,876

Source: California Municipal Statistics.

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Total Assessed Valuation

$ 770,479,970 842,569,421 888,098,119 920,825,510 931,651,397 955,070,329 965,828,431 986,632,531

1,022,102,708 1,077,421,715 1,209,638,687 1,338,414,478 1,509,464,990 1,601,301,083 1,870,207,103 2,273,054,272

Commercial Activity

The number of establishments selling merchandise subject to sales tax in the City and the valuation of taxable transactions is presented in the following table.

City of Norco Taxable Retail Sales

Number of Permits and Valuation of Taxable Transactions

Retail Stores Total All Outlets Number Taxable Number Taxable

of Permits Transactions of Permits Transactions 1993 190 $121,114,000 603 $140,204,000 1994 203 137,076,000 614 154,515,000 1995 198 164,795,000 624 181,515,000 1996 215 187,449,000 633 209, 199,000 1997 215 210,102,000 632 241, 749,000 1998 228 246,644,000 639 283,606,000 1999 273 310,019,000 665 347, 775,000 2000 284 341,089,000 685 396,535,000 2001 299 371,806,000 701 428,851,000 2002 326 393,413,000 771 456,408,000 2003 333 421,667,000 798 487,537,000 2004 (1) 371 330,340,000 806 375,603,000

(1) Through Third Quarter, 2004. Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax).

The following table demonstrates the level of taxable sales transactions in the County of Riverside:

County of Riverside Taxable Sales Transactions

(in OOO's)

T;n1e of Business 2001 2002 2003 2004 {12

Apparel Group $ 565,295 $ 610,388 $ 746,015 $ 592,656 General Merchandise Group 2,275,736 2,459,046 2,671,971 2,043,505 Specialty Group 1,379,979 1,501,106 1,649,224 1,309,404 Food Stores Group 930,232 967,171 1,028,392 797,472 Eating and Drinking Group 1,465,467 1,559,215 1,713,632 1,439,929 Household Group 526,083 594,049 691,051 609,236 Building Materials Group 1,339,020 1,427,831 1,678,347 1,675,728 Automotive Group 4,148,261 4,563,779 5,198,391 4,496,252 All Other Retail Stores Group 543,208 568,148 653,929 580,861 Business and Personal Services 832,562 881,524 944,658 752,647 All Other Outlets 4,225,712 4,366,737 4,733,525 4,055,396

TOTAL ALL OUTLETS $18,231,555 $19,498,994 $21,709,135 $18,353,086

(1) Through Third Quarter, 2004. Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax).

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Employment and Industry

The City is included in the Riverside-San Bernardino labor market area. The distribution of employment in the Riverside-San Bernardino labor market is as follows:

Employment by Industry

Riverside-San Bernardino Labor Market Area

2002 2003 2004 2005 {3} Agriculture 20,900 20,300 18,800 16,600 Natural Resources and Mining 1,200 1,200 1,200 1,200 Construction 88,400 90,900 110,800 120,400 Manufacturing 118,600 115,400 120,000 121,300 Trade, Transportation and Utilities 219,400 225,400 250,400 255,400 Information 14,600 14,100 13,800 13,700 Financial Activities 38,200 39,500 45,300 46,500 Professional and Business Services 101,700 106,800 125,200 129,600 Educational and Health Services 106,000 112,400 117,700 116,200 Leisure and Hospitality 104,400 107,200 115,200 113,900 Other Services 37,100 38,100 38,800 39,600 Government 212,700 211 400 211,500 205,800 Total, All Industries 1 050 700 1084000 1, 168,500 1, 180,200

Total Civilian Labor Force (2) 1,562,300 1,638,800 1,647,900 1,684,300 Total Unemployment 78,200 96,300 93,900 90,800 Unemployment Rate 5.0% 5.9% 5.7% 5.4%

(1) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers and workers on strike.

(2) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic workers and workers on strike.

(3) Through July, 2005. Source: State Employment Development Department, Labor Market Information Division.

Major Employers

The largest manufacturing and non-manufacturing employers m the Corona-Norco community area are shown below.

Manufacturing Employment

Company Watson Pharmaceutical Fender Musical Instruments Dart Container Silvercrest/Western Homes Corp. Golden Cheese Co. of California Boone International Circle Seal Controls, Inc. International Food Solutions GS Creations, Inc. R.W. Lyall & Co., Inc.

Product/Service Prescription pharmaceuticals Musical equipment Plastic Manufactured housing Cheese Chalk boards Valves, regulators & manifold systems Packaging for special food products Oak Furniture Gas distribution systems

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Employment 1,300

692 656 350 334 300 280 250 250 245

Non-Manufacturing Employment

Company Corona-Norco Unified School District Corona Regional Medical Center Na val Warfare Assessment Division City of Corona HCI, Inc. Kaiser Permanente DynCorp Core-Mark

Product/Service Public school system Hospital services Weapons Research Municipal Government Telecommunications Health maintenance Data processing Store supply distributor

Source: Riverside County Economic Development Agency.

Construction Activity

Employment 3,792

993 850 682 600 500 325 300

The following is a five-year summary of the valuation of residential building permits issued in the City.

City of Norco Building Permit Valuation

(Valuation in Thousands of Dollars)

Residential 2001 2002 2003 2004 2005 {12 New Single-Dwelling $39,450 $16,040 $25,126 $25,883 $16,264 New Multi-Dwelling 2,721 680 2 041 $ 2,041 1 020

Total Residential $42, 171 $16,720 $27,167 $27,923 $17,285

No. of New Dwelling Units Single-Dwelling 140 59 91 94 59 Multi-Dwelling 40 10 30 30 15

Total Units 180 69 121 124 74

(1) Through July, 2005. Source: "California Building Permit Activity," Economic Sciences Corporation.

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Direct and Overlapping Debt

The following table reflects the estimated direct and overlapping debt within the City.

2004-05 Assessed Valuation: Redevelopment Incremental Valuation: Adjusted Assessed Valuation:

$1,870,207,103 971 862 931

$ 898 344 172

DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: Metropolitan Water District Riverside City Conununity College District Alvord Unified School District Corona-Norco Unified School District City ofN orco City of Norco Conununity Facilities District No. 93-1 City of Norco Conununity Facilities District No. 97-1 City of Norco Conununity Facilities District No. 2001-1 City of Norco Conununity Facilities District No. 2002-1 Corona-Norco Unified School District Conununity Facilities District No. 88-1 City of Norco 1915 Act Bonds

TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT

OVERLAPPING GENERAL FUND DEBT: Riverside County General Flllld Obligations Riverside County Board of Education Certificates of Participation Alvord Unified School District Certificates of Participation Corona-Norco Unified School District Certificates of Participation

TOTAL GROSS OVERLAPPING GENERAL FUND DEBT Less: Riverside County self-supporting obligations

TOTAL NET OVERLAPPING GENERAL FUND DEBT

GROSS COMBINED TOTAL DEBT NET COMBINED TOT AL DEBT

Ratios to 2004-05 Assessed Valuation: Direct Debt ...................................................................................... 0.00% Total Direct and Overlapping Tax and Assessment Debt ................ 2.49%

Ratios to Adjusted Assessed Valuation: Gross Combined Total Debt ............................................................ 6.03% Net Combined Total Debt ................................................................ 6.01 %

STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/05: $0

(I) Excludes tax allocation bonds to be sold.

% Aimlicable Debt 10/1/05 0.068% $ 285,185 2.101 1,406,328 0.012 5,845 6.281 3,422,493

100.000 0 100.000 1,895,000 100.000 6,315,000 89.112 29,086,157

100.000 2,135,000 10.663 221,509

100.000 1740000 $46,512,517

0.866% $5,377,788 0.866 105,782 0.012 2,896 6.281 2150300

$7,636,766 177 809

$7,458,957

$54,149,283 $53,971,474

(1)

(2)

(2) 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.

Utilities

Southern California Edison provides Norco with electric power. Natural gas is provided by Southern California Gas Company. Water and sewer services are provided by the City of Norco and refuse collection is provided by a private collector through a franchise arrangement with the City of Norco.

Transportation

Norco is served by or is adjacent to a variety of excellent land and air transportation facilities. Air service to all points is available at Ontario International Airport, 13 miles to the north, at Orange County Airport, 60 miles to the southwest and at Los Angeles International Airport, 60 miles to the west.

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Norco is served by the Riverside Freeway (Calif. 91) to the south and the Pomona Freeway (Calif. 60) to the north, which are joined by Interstate 15 through the City. These principal arteries link the City to the vast interlocking freeway network of the Los Angeles Area.

Interstate bus service is available via the Greyhound facilities in the adjacent City of Corona. Local bus service is provided by the Riverside Transit Authority.

Community Services

The City of Norco Department of Parks, Recreation and Community Services offers a wide range of recreational and leisure programs, services and activities for the citizens of Norco and the surrounding communities. The Department also operates the Animal Control Division.

The Department operates 12 Parks, all offering various recreational opportunities, from open park space and play areas to picnic shelters and lighted sports fields. The City is also proud to operate Ingalls Park, a large equestrian complex which includes the City's major rodeo facility, a banquet and convention facility, and a variety of other amenities.

The Community Center Complex is home to a wide range of recreational and sports programs, special events and classes. The Center offers a variety of facilities, including a 15,000 square foot gym, Community Center Ball field, the Norco Children's Center, the Norco Community Center Pool, and a number of meeting halls and classrooms. Meeting and banquet facilities are available to rent for small gatherings to larger meetings, and banquets for up to 400 people.

The Recreation Division provides a range of programs, special events, classes and sports programs for small children to seniors.

The Norco Senior Citizen Center is an 8000 square foot facility offering activities for seniors of all ages in our community.

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APPENDIXB

DEFINITIONS

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DEFINITIONS

The following are definitions of certain terms contained in the Fiscal Agent Agreement and used in this Official Statement.

"Acquisition Agreement" means any agreement, including any supplement to any such agreement, between the City and another entity, pursuant to which portions of the Project shall be acquired by the City.

"Act" means the Mello-Roos Community Facilities Act of 1982, as amended, being Sections 53311 et seq. of the California Government Code.

"Administrative Expense Fund" means the fund by that name created pursuant to the Fiscal Agent Agreement.

"Administrative Expenses" means costs directly related to the administration of the District consisting of the costs of computing the Special Taxes and preparing the annual Special Tax collection schedules (whether by the City Finance Director or designee thereof or both) and the costs of collecting the Special Taxes (whether by the County or otherwise); the costs of remitting the Special Taxes to the Fiscal Agent; fees and costs of the Fiscal Agent (including its legal counsel) in the discharge of the duties required of it under the Fiscal Agreement; the costs of the City or its designee of complying with the disclosure provisions of the Act, the Continuing Disclosure Agreement and this Agreement, including those related to public inquiries regarding the Special Tax and disclosures to Bondowners and the Original Purchaser; the costs of the City or its designee related to an appeal of the Special Tax; any amounts required to be rebated to the federal government in order for the City to comply with the Fiscal Agent Agreement; an allocable share of the salaries of the City staff directly related to the foregoing and a proportionate amount of City general administrative overhead related thereto. Administrative Expenses shall also include amounts advanced by the City for any administrative purpose of the District, including costs related to prepayments of Special Taxes, recordings related to such prepayments and satisfaction of Special Taxes, amounts advanced to ensure compliance with the Fiscal Agent Agreement, and the costs of commencing foreclosure of delinquent Special Taxes. Payment of Administrative Expenses shall be subordinate to the payment of Debt Service.

"Agreement" means the Fiscal Agent Agreement, as it may be amended or supplemented from time to time by any Supplemental Agreement adopted pursuant to the provisions thereof.

"Alternate Maximum Special Tax" means the amount of Special Tax computed by multiplying the Net Taxable Square Footage of a Parcel by the rate per square foot.

"Annual Debt Service" means, for each Bond Year, the sum of (i) the interest due on the Outstanding Bonds in such Bond Year, assuming that the Outstanding Bonds are retired as scheduled (including by reason of the provisions of the Fiscal Agent Agreement providing for mandatory sinking payments), and (ii) the principal amount of the Outstanding Bonds due in such Bond Year (including any mandatory sinking payment due in such Bond Year) pursuant to the Fiscal Agent Agreement.

"Assessor's Parcel Map" means an official map of the County Assessor of the County of Riverside designating Parcels by Assessor's Parcel Number.

"Auditor" or "County Auditor" means the Auditor/Controller of the County of Riverside.

"Authority" means the Norco Financing Authority, a joint exercise of powers entity duly organized and existing under the laws of the State, and its successors and assigns.

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"Authorized Officer" means the City Manager, the Assistant City Manager, the City Finance Director, the Director of Development Services, the City Clerk or any other officer or employee authorized by the City Council of the City (acting as Administrator of the District) or by an Authorized Officer to undertake the action required to be undertaken by an Authorized Officer.

"Beneficial Owner" means any person which has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any bonds (including persons holding Bonds through nominees, depositories or other intermediaries).

"Bond Counsel" means any attorney or firm of attorneys acceptable to the City and nationally recognized for expertise in rendering opinions as to the legality and tax-exempt status of securities issued by public entities.

"Bond Year" means the period beginning on the Closing Date and ending on October 1, 2006 and each one-year period thereafter.

"Bonds" means the City of Norco Community Facilities District No. 97-1 (Norco Hills) 2005 Special Tax Refunding Bonds at any time Outstanding under the Fiscal Agent Agreement or any Supplemental Agreement.

"Business Day" means any day other than (i) a Saturday or a Sunday,. or (ii) a day on which banking institutions in the state in which the Fiscal Agent has its principal corporate trust office are authorized or obligated by law or executive order to be closed.

"CDIAC" means the California Debt and Investment Advisory Commission of the Office of the State Treasurer of the State of California or any successor, agency or bureau thereto.

"CFD Improvements" means all of the improvements financed by the Refunded Bonds and as described in the Ordinance of Formation.

"City" means the City of Norco, California, and any successor thereto.

"City Attorney" means any attorney or firm of attorneys employed by the City in the capacity of City Attorney.

"City Finance Director" or "Finance Director" means the Finance Director of the City or such other officer or employee of the City performing the functions of the chief financial officer of the City.

"Closing Date" means the date upon which there is a physical delivery of the Bonds in exchange for the amount representing the purchase price of the Bonds by the Original Purchaser.

"Code" means the Internal Revenue Code of 1986 as in effect on the date of issuance of the Bonds or ( except as otherwise referenced herein) as it may be amended to apply to obligations issued on the date of issuance of the Bonds, together with applicable proposed, temporary and final regulations promulgated, and applicable official public guidance published, under the Code.

"Continuing Disclosure Agreement" shall mean that certain Continuing Disclosure Agreement executed by the City and the Fiscal Agent, dated the Closing Date, as originally executed and as it may be amended from time to time in accordance with the terms thereof.

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"Costs of Issuance" means items of expense payable or reimbursable directly or indirectly by the City and related to the authorization, sale and issuance of the Bonds, which items of expense shall include, but not be limited to, printing costs, costs of reproducing and binding documents, closing costs, filing and recording fees, initial fees and charges of the Fiscal Agent including its first annual administration fee, expenses incurred by the City in connection with the issuance of the Bonds and the establishment of the District, special tax consultant fees and expenses, preliminary engineering fees and expenses, Bond (underwriter's) discount, legal fees and charges, including bond counsel, disclosure counsel, financial consultants' fees, charges for execution, transportation and safekeeping of the Bonds and other costs, charges and fees in connection with the foregoing.

"Costs of Issuance Fund" means the fund by that name created pursuant to the Fiscal Agent Agreement.

"County" means the County of Riverside, California.

"County Auditor" means the auditor/controller of the County.

"DTC" means the Depository Trust Company, New York, New York, and its successors and assigns.

"Debt Service" means the scheduled amount of interest and amortization of principal payable on the Bonds during the period of computation, excluding amounts scheduled during such period which relate to principal which has been retired before the beginning of such period.

"Depository" means (a) initially, DTC, and (b) any other Securities Depository acting as Depositor pursuant to the Fiscal Agent Agreement.

"Developed Property" means all Taxable Property, exclusive of Taxable Public Property and Taxable Association Property, in CFD No. 97-1 for which a building permit has been issued as of June 30 of the preceding Fiscal Year.

"District" means the City of Norco Community Facilities District No. 97-1 (Norco Hills).

"Fair Market Value" means the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm's length transaction ( determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of section 1273 of the Code) and, otherwise, the term "Fair Market Value" means the acquisition price in a bona fide arm's length transaction (as referenced above) if (i) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Code, (ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations under the Code, (iii) the investment is a United States Treasury Security--State and Local Government Series that is acquired in accordance with applicable regulations of the United States Bureau of Public Debt, or (iv) the investment is the Local Agency Investment Fund of the State of California but only if at all times during which the investment is held its yield is reasonably expected to be equal to or greater than the yield on a reasonably comparable direct obligation of the United States.

"Federal Securities" means any of the following which are non-callable and which at the time of investment are legal investments under the laws of the State of California for funds held

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by the Fiscal Agent: (i) direct general obligations of the United States of America (including obligations issued or held in book entry form on the books of the United States Department of the Treasury) and obligations, the payment of principal of and interest on which are directly or indirectly guaranteed by the United States of America, including, without limitation, such of the foregoing which are commonly referred to as "stripped" obligations and coupons; or (ii) any of the following obligations of the following agencies of the United States of America: (a) certificates of beneficial ownership issued by the Farmers Home Administration, (b) participation certificates issued by the General Services Administration, ( c) mortgage-backed bonds or pass-through obligations issued and guaranteed by the Government National Mortgage Association, , and ( d) public housing notes and bonds guaranteed by the United States of America.

"Fiscal Agent" means the Fiscal Agent appointed by the City and acting as an independent fiscal agent with the duties and powers herein provided, its successors and assigns, and any other corporation or association which may at any time be substituted in its place, as provided in the Fiscal Agent Agreement.

"Fiscal Agent Agreement" means the agreement by that name approved by the Resolution setting forth the terms of the Bonds, and as it may be amended and/or supplemented from time to time.

"Fiscal Year" means the twelve-month period extending from July 1st in a calendar year to June 30th of the succeeding year, both dates inclusive.

"Gross Floor Area" means the area, by square feet rounded up to the nearest whole integer, included within the surrounding exterior walls of a building, including each floor of a multiple story building, as determined by the Finance Director by reference to City or County approved building plans or other such documentation as the Finance Director shall determine applicable.

"Independent Financial Consultant" means any consultant or firm of such consultants appointed by the City or the Finance Director, and who, or each of whom: (i) is judged by the Finance Director to have experience in matters relating to the issuance and/or administration of bonds under the Act; (ii) is in fact independent and not under the domination of the City; (iii) does not have any substantial interest, direct or indirect, with or in the City, or any owner of real property in the District, or any real property in the District; and (iv) is not connected with the City as an officer or employee of the City, but who may be regularly retained to make reports to the City.

"Information Services" means any one or more of the national information services in the business of disseminating notices of redemption of obligations such as the Bonds or in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/ or such services providing information with respect to called bonds as the City may designate in an Officer's Certificate delivered to the Fiscal Agent.

"Interest Payment Dates" means April 1 and October 1 of each year, commencmg April 1, 2006.

"Maximum Annual Debt Service" means the largest Annual Debt Service for any Bond Year after the calculation is made through the final maturity date of any Outstanding Bonds.

"Maximum Special Tax" means the maximum Special Tax, determined in accordance with the Rate and Method of Apportionment of Special Tax that can be levied by the City

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Council in any Fiscal Year on Developed Property, Undeveloped Property, Taxable Public Property, and Taxable Association Property, as applicable.

"Net Taxable Square Foot" means the measure of land area of a Parcel that is Taxable Property, in square feet of land, rounded up to the nearest whole integer, for Developed Property or Undeveloped Property, as calculated from the current applicable Assessor's Parcel Map.

"Officer's Certificate" means a written certificate of the City signed by an Authorized Officer of the City.

"Ordinance" means any ordinance of the City, acting as the legislative body of the District, levying the Special Taxes.

"Ordinance of Formation" means Ordinance No. 751, adopted by the City of Norco on September 1, 1999.

"Original Purchaser" means Wedbush Morgan Securities.

"Outstanding" when used as of any particular time with reference to Bonds, means (subject to the provisions of the Fiscal Agent Agreement) all Bonds except: (i) Bonds theretofore canceled by the Fiscal Agent or surrendered to the Fiscal Agent for cancellation; (ii) Bonds paid or deemed to have been paid within the meaning of the Fiscal Agent Agreement; and (iii) Bonds in lieu of or in substitution for which other Bonds shall have been authorized, executed, issued and delivered by the City pursuant to the Agreement or any Supplemental Agreement.

"Owner" or "Bondowner" means any person who shall be the registered owner of any Outstanding Bond.

"Parcel" means any County Assessor's parcel or portion thereof that 1s within the boundaries of the District based on the equalized tax rolls of the County.

"Participating Underwriter" shall have the meaning ascribed thereto in the Continuing Disclosure Certificate

"Permitted Investments" means, for the moneys held in the Funds and Accounts hereunder, any of the following that at the time of investment is a legal investment for the City under the laws of the State and is permitted under the City's Investment Policy:

(1) United States Treasury notes, bonds, bills, or certificates of indebtedness, or those for which the faith and credit of the United States are pledged for the payment of principal and interest.

(2) Obligations issued by banks for cooperatives, federal land banks, federal intermediate credit banks, federal home loan banks, the Federal Home Loan Bank Board, the Tennessee Valley Authority, or in obligations, participations, or other instruments of, or issued by, or fully guaranteed as to principal and interest by, the Federal National Mortgage Association; or in guaranteed portions of Small Business Administration notes; or in obligations, participations, or other instruments of, or issued by, a federal agency or a United States government-sponsored enterprise.

_(3) Any investment agreement acceptable to the Insurer with a financial institut10n or insurance company which: (a) has an outstanding issue of unsecured, uninsured or unguaranteed debt obligations or a claims paying ability rated in either "AA" or "AAA" rated long-term rating categories by Moody's and Standard & Poor's;

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and (b) is fully secured by U.S. Treasury and Federal Agency obligations described in items (i) and (ii) above which are (A) valued not less frequently than monthly and have a fair market value, exclusive of accrued interest, at all times at least equal to 103% times the principal amount of the investment, (B) held by the Fiscal Agent or other custodian acceptable to the Fiscal Agent, (C) subject to a perfected first lien in the Fiscal Agent, and (D) free and clear from all third party liens and ( c) which investment agreement is approved by Moody's and Standard & Poor's to the extent required by such ratings agency to maintain the ratings on the Bonds.

( 4) Money market funds registered under the Investment Company Act of 1940, whose shares are registered under the Securities Act of 1933, rated by Standard & Poor's AAAm-G or AAAm, and if rated by Moody's rated Aaa/mrl +, including funds for which the Fiscal Agent or an affiliate provides investment advise or other services.

(5) Shares in a California common law trust established pursuant to Title 1, Division 7, Chapter 5 of the Government Code of the State of California which invests exclusively in investments permitted by Section 53636 of Title 5, Division 2, Chapter 4 of the Government Code of the State of California, as it may be amended.

(6) Certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by the Federal Deposit Insurance Corporation.

(7) Negotiable certificates of deposit issued by an nationally or state-chartered bank or a state or federal savings and loan association or by a state-licensed branch of a foreign bank; provided that the senior debt obligations of the issuing institution are rated "AA" or better by Moody's or Standard & Poor's.

(8) Commercial paper rated in the highest short-term rating category, as provided by Moody's Investors Services Inc. or Standard & Poor's Corporation; provided that the issuing corporation is organized and operating within the United States, has total assets in excess of $500 million and has an "A" or higher rating for its long-term debt, if any, as provided by Moody's or Standard & Poor's. Purchases of eligible commercial paper may not exceed 180 days maturity nor represent more than 10 percent of the outstanding paper of an issuing corporation.

(9) Bankers acceptances issued by domestic banks or domestic branches of foreign banks, which are eligible for purchase by the Federal Reserve System, the short­term paper of which is rated in the highest category by Moody's and Standard & Poor's, which purchases may not exceed 270 days.

"Project" means the Facilities more particularly described in the Ordinance of Formation.

"Project Land" means the real property underlying the Project.

"Public Facilities" consist of everything owned by the Joint Powers Authority.

"Rate and Method of Apportionment" means the Special Tax Formula.

"Record Date" means the fifteenth day of the month next preceding the month of the applicable Interest Payment Date, whether or not such day is a Business Day.

"Refunded Bonds" means the outstanding principal balance of the City of Norco Community Facilities District No. 97-1 (Norco Hills) 2000 Special Tax Bonds.

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"Refunded Bonds Escrow Agreement" means the Escrow Agreement dated November 1, 2005 by and between the City on behalf of the District and the Refunded Bonds Escrow Bank.

"Refunded Bonds Escrow Bank" means U.S. Bank National Association.

"Refunded Bonds Escrow Fund" means the account by that name established by the City pursuant to the Refunded Bonds Escrow Agreement.

"Reserve Requirement" means, as of any date of calculation an amount equal to the least of (i) the then Maximum Annual Debt Service, (ii) one hundred twenty-five percent (125%) of the then average Annual Debt Service, and (iii) ten percent (10%) of the initial principal amount of the Bonds issued hereunder.

"S&P" means Standard & Poor's Ratings Service, a division of McGraw-Hill, and any successor thereto

"Securities Depositories" means The Depository Trust Company, 711 Stewart Avenue, Garden City, New York 11530, Fax-(516)227-4039 or -4190; Midwest Securities Trust Company, Capital Structures-Call Notification, 440 South LaSalle Street, Chicago, Illinois 60605, Fax-(312)663-2343; Philadelphia Depository Trust Company, Reorganization Division, 1900 Market Street, Philadelphia, Pennsylvania 19103, Attention: Bond Department, Tel(215)496-5058; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the City may designate in an Officer's Certificate delivered to the Fiscal Agent.

"Special Tax" or "Special Taxes" means the special taxes levied within the District pursuant to the Act, the Ordinance and the Fiscal Agent Agreement.

"Special Tax Consultant" or "Tax Consultant" means any independent financial or tax consultant retained by the City for the purpose of computing the Special Taxes.

"Special Tax Formula" means the amended Rate and Method of Apportionment as approved by the City Council acting as the legislative body of District on January 5, 2000.

"Special Tax Liability" for any Fiscal Year is an amount sufficient to pay Debt Service for such Fiscal Year, Administrative Expenses for such Fiscal Year, an amount necessary, as determined by the Finance Director, to offset projected tax delinquencies that may occur in such Fiscal Year based on prior Fiscal Year delinquencies and to otherwise replenish any reserve fund established for the Bonds, and all payments required to be made in the applicable Fiscal Year under the Fiscal Agent Agreement for the Bonds and any supplements thereto.

"Special Tax Prepayments" means the proceeds of any Special Tax prepayments received by the City, as calculated pursuant to the Rate and Method of Apportionment of the Special Taxes for the District, less any administrative fees or penalties collected as part of any such prepayment.

"Special Tax Requirement" means that amount required in any Fiscal Year for CFD No. 97-1 to: (i) pay annual Debt Service on the Bonds; (ii) pay periodic costs on the bonds, including but not limited to, credit enhancement and rebate payments on the Bonds, (iii) pay any amount required to establish or replenish any reserve funds for all Bonds, and (iv) pay reasonable Administrative Expenses of CFD No. 97-1; less (v) a credit for funds available to reduce the annual Special Tax levy, as determined pursuant to the bond indenture.

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"Special Tax Revenues" means the proceeds of the Special Taxes received by the City, including any scheduled payments and any prepayments thereof, interest thereon, interest earnings on the Reserve Fund and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes to the amount of said lien and interest thereon. "Special Tax Revenues" does not include any penalties collected in connection with delinquent Special Taxes.

"State" means the State of California.

"Supplemental Agreement" means an agreement the execution of which is authorized by a resolution which has been duly adopted by the City under the Act and which agreement is amendatory of or supplemental to the Fiscal Agent Agreement, but only if and to the extent that such agreement is specifically authorized hereunder.

"Taxable Property" means the Acreage of an Assessor's Parcel within the boundaries of CFD No. 97-1, which is not exempt from the Special Tax pursuant to law or to the Rate and Method of Apportionment of Special Tax.

"Taxable Public Property" means all publicly owned property located within CFD No. 97-1 which is not exempt from the Special Tax pursuant to the Rate and method of Apportionment of Special Tax.

"Undeveloped Property" means all Taxable Property in CFD No. 97-1 not classified as Developed Property, Taxable Public Property, or Taxable Association Property.

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APPENDIXC

RATE AND METHOD OF

APPORTIONMENT OF SPECIAL TAX

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APPENDIXC

RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX FOR COMMUNITY FACILITIES DISTRICT NO. 97-1

OF THE CITY OF NORCO

A Special Tax applicable to each Assessor's Parcel in Community Facilities District No. 97-1 of the City of Norco (herein "CFD No. 97-1") shall be levied and collected according to the tax liability determined by the City Council of the City of Norco acting in its capacity as the legislative body of CFD No. 97-1 (herein the "City Council") through the application of the appropriate amount or rate for "Developed Property", "Undeveloped Property," "Taxable Public Property", or "Taxable Association Property" as described below. All of the property in CFD No. 97-1, unless exempted by law or by the provisions of Section E. below, 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, or if the land area is not shown on an Assessor's Parcel, the land area shown on the applicable final map, parcel map, or other recorded County parcel map.

"Administrative Expenses" means any ordinary and necessary expenses of the City to carry out the administration ofCFD No. 97-1.

"Assessor's Parcel" means a lot or parcel as designated on a map of the Riverside County Assessor and which has been assigned a discrete identifying parcel number.

"Base Special Tax" means an amount equal to $2,710 per unit for Residential Property or the amount provided for in Section F., as applicable.

"Bonds" means any bonds or other debt (as defined in Section 53317(d) of the Mello-Roos Community Facilities Act of 1982 or "Act") issued by CFD No. 97-1.

"City" means the City of Norco.

"Developed Property" means all Taxable Property, exclusive of Taxable Public Property and Taxable Association Property, in CFD No. 97-1 for which a building permit has been issued as of June 30 of the preceding Fiscal Year.

"Fiscal Year" means the period starting on July 1 and ending the following June 30.

"Maximum Special Tax" means the maximum Special Tax, determined in accordance with Section C., that can be levied by the City Council in any Fiscal Year on Developed Property, Undeveloped Property, Taxable Public Property, and Taxable Association Property, as applicable.

"Non-Residential Property" means all Assessor's Parcels of Developed Property for which a building permit was issued for any non-residential use.

"Outstanding Bonds" means all previously issued Bonds which will remain outstanding after the first interest and/or principal payment date following the current Fiscal Year, excluding Bonds to be redeemed at a later date with the proceeds of prior prepayments of Maximum Special Taxes.

"Residential Property" means all Assessor's Parcels of Developed Property for which a building permit was issued for purposes of constructing one or more residential dwelling units.

"Special Tax" means the amount actually apportioned and levied by the City Council in any Fiscal Year on Developed Property, Undeveloped Property, Taxable Public Property, and Taxable Association Property in accordance with Section D.

"Special Tax Requirement" means that amount required in any Fiscal Year for CFD No. 97-1 to: (i) pay annual debt service on the Bonds; (ii) pay periodic cost on the Bonds, including but not limited to, credit enhancement and rebate payments on the Bonds, (iii) pay any amount required to establish or replenish any reserve funds for all Bonds, and (iv) pay reasonable Administrative Expenses ofCFD No. 97-1; less (v) a credit for funds available to reduce the annual Special Tax levy, as determined pursuant to the bond indenture.

"Taxable Association Property" means all association property located within CFD No. 97-1 which is not exempt from the Special Tax pursuant to Section E. below.

"Taxable Property" means the Acreage of an Assessor's Parcel within the boundaries of CFD No. 97-1, which is not exempt from the Special Tax pursuant to law or Section E. below.

"Taxable Public Property" means all publicly owned property located within CFD No. 97-1 which is not exempt from the Special Tax pursuant to Section E. below.

"Undeveloped Property" means all Taxable Property in CFD No. 97-1 not classified as Developed Property, Taxable Public Property, or Taxable Association Property.

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B. ASSIGNMENT TO LAND USE CLASS

On July I of each year, all Taxable Property within CFD No. 97-1 shall be categorized either as a Developed Property, Undeveloped Property, Taxable Public Property, or Taxable Association Property and shall be subject to tax in accordance with this Rate and Method of Apportionment determined pursuant to Section C. and D. below.

Developed Property consisting of Residential Property shall be assigned to Classes I through 6 based upon the house square footage to be constructed on such Assessor's Parcel as set forth on the most recent building permit issued for such property. The square footage of a house assigned to Classes I through 6 shall be calculated by measuring the internal living space of each unit located within the Assessor's Parcel, exclusive of garages or other structures which are not used as living spaces.

C. MAXIMUM SPECIAL TAX RATE

I. Developed Property

The Maximum Special Tax for an Assessor's Parcel of Residential Property classified as Developed Property in Classes I through 6 shall be the greater of: (i) the Base Special Tax or (ii) the amount determined by reference to Table I. The Maximum Special Tax for an Assessor's Parcel of Non-Residential Property classified as Developed Property shall be $3,253 per Acre.

TABLE I

Class Land Use House Sguare Footage Applicable Tax Rate I Residential 3,701 Sq. Ft. and above $3,090 per unit

Property

2 Residential 3,401 to 3, 700 Sq. Ft. $2,964 per unit Property

3 Residential 3,101 to 3,400 Sq. Ft. $2,819 per unit Property

4 Residential 2,801 to 3, 100 Sq. Ft. $2,664 per unit Property

5 Residential 2,501 to 2,800 Sq. Ft. $2,374 per unit Property

6 Residential 2,500 Sq. Ft and below $2,335 per unit Property

2. Undeveloped Propertv

The Maximum Special Tax for an Assessor's Parcel classified as Undeveloped Property shall be $3,253 per Acre.

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3. Taxable Public Property and Taxable Association Property

The Maximum Special Tax for an Assessor's Parcel classified as Taxable Public Property and Taxable Association Property shall be $3,253 per Acre.

D. METHOD OF APPORTIONMENT OF THE SPECIAL TAX TO DEVELOPED PROPERTY AND UNDEVELOPED PROPERTY

Commencing in Fiscal Year 2000-2001, and for each Fiscal Year thereafter, the City Council shall levy the Special Tax until the amount of the 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 tax rate set forth in Table 1 for Residential Property and at up to 100% of the Maximum Special Tax rate for Non­Residential Property as determined by reference to Section C. as needed to satisfy the Special Tax Requirement;

Second: If additional moneys 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 rate as determined by reference to Section C.;

Third: If additional moneys are needed to satisfy the Special Tax Requirement after the first two steps have been completed, then the levy of the Special Tax on each Assessor's Parcel of Residential Property classified as Developed Property whose Maximum Special Tax rate is determined through application of the Base Special Tax shall be increased proportionately from the applicable Table 1 rates up to the Maximum Special Tax for each such Assessor's Parcel.; and

Fourth: If additional moneys are needed to satisfy the Special Tax Requirement after the first three steps has been completed, then the Special Tax shall be levied proportionately on each Assessor's Parcel of Taxable Public Property and Taxable Association Property at up to 100% of the Maximum Special Tax rate as determined by reference to Section C.

Notwithstanding the above, under no circumstances will the Special Tax levied against any Assessor's Parcel used as a private residence be increased as a consequence of delinquency or default by the owner of any other Assessor's Parcel within CFD No. 97-1 by more than ten (10) percent per Fiscal Year.

E. EXEMPTPROPERTY

The City Council shall not impose or levy a Special Tax on up to 35.19 Acres of Assessor's Parcels of exempt property within CFD No. 97-1 in accordance with the following priorities: (i) Lot 219 designated as commercial use in Tract No. 25779 recorded on September 13,

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1999, (ii) publicly owned property, and (iii) property owned in common by the owners of residences within a subdivision, which in the case of (ii) and (iii) above may include, but not limited to, such items as streets, parks, drainageways, open-space, and greenbelt areas, and walkways. Any Assessor's Parcels described in the preceding sentence which exceed 35.19 Acres shall be classified as Taxable Public Property or Taxable Association Property, as applicable, and subject to the Maximum Special Tax as provided for in Section C and shall be subject to the levy of Special Tax as provided for in the forth step in Section D.

F. CHANGES TO TRACT NO. 25779

The Base Special Tax of CFD No. 97-1 has been established based on the land use configurations contained within Tract No. 25779 which was recorded on September 13, 1999. In the event Tract No. 25779 is amended to change its land use configurations, the Base Special Tax shall be an amount equal to $.0747 per lot square foot multiplied by the total lot square footage of the Assessor's Parcel of Residential Property classified as Developed Property within the amended area of the tract map.

G. MANNER OF COLLECTION

The Special Taxes of CFD No. 97-1 will be collected in the same manner and at the same time as ordinary ad valorem property taxes and the Special Tax will be subject to the same penalties and procedures, sale and lien priority in the case of delinquency as is provided for with ad valorem taxes.

H. TERM OF THE SPECIAL TAX

For each year that any Bonds of CFD No. 97-1 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. 97-1 for uncollected Special Taxes and administrative costs associated with the levy of such Special Taxes, but not later than the 2033-34 Fiscal Year.

I. PREPAYMENT OF THE SPECIAL TAX

1. Prepayment in Full

The Maximum Special Tax obligation may be prepaid and permanently satisfied by an Assessor's Parcel of Developed Property, Undeveloped Property for which a building permit has been issued, Taxable Public Property or Taxable Association Property; provided that a prepayment may only be made if there are no delinquent Special Taxes with respect to such Assessor's Parcel at the time of prepayment. An owner of an Assessor's Parcel intending to prepay the Maximum Tax obligation shall provide the City with written notice of intent to prepay and within 30 days of receipt of such written notice, the City shall notify such owner of the prepayment amount of such Assessor's Parcel. The City may charge a reasonable fee for providing this figure.

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As of the proposed date of prepayment, the Prepayment Amount (defined below) shall be calculated as summarized below:

Paragraph No.:

Bond Redemption Amount Plus: Redemption Premium Plus: Defeasance Amount Plus: Administrative Fees and Expenses Less: Reserve Fund Credit Total: Prepayment Amount

1. For Assessor's Parcels of Developed Property compute the applicable rate in Table 1 and the Base Special Tax for the Assessor's Parcel to be prepaid. For Assessor's Parcels of Undeveloped Property to be prepaid, compute the_ applicable rate in Table 1 and the Base Special Tax for such Assessor's Parcel as if it was already designated as Developed Property based upon the building permit which has already been issued for that Assessor's Parcel. For Assessor's Parcels of Taxable Public Property or Taxable Association Property to be prepaid, compute the applicable Maximum Special Tax for that Assessor's Parcel.

2. ( a) Divide the applicable rate in Table 1 ( or the Maximum Special Tax for Taxable Public Property or Taxable Association Property) computed pursuant to paragraph 1 by the total estimated Special Tax revenues which could be charged using the rates in Table 1 based on the expected development of all property in CFD No. 97-1, excluding any Assessor's Parcels which have been prepaid.

(b) Divide the Base Special Tax ( or the Maximum Special Tax for Taxable Public Property or Taxable Association Property) computed pursuant to paragraph 1 by the total estimated Base Special Tax revenues which could be charged on all property in CFD No. 97-1, excluding any Assessor's Parcels which have been prepaid.

3. Multiply the larger quotient computed pursuant to paragraph 2( a) or 2(b) by the Outstanding Bonds to compute the amount of Outstanding Bonds to be retired and prepaid (the "Bond Redemption Amount").

4. Multiply the Bond Redemption Amount computed pursuant to paragraph 3 by the applicable redemption premium, if any, on the Outstanding Bonds to be redeemed (the "Redemption Premium").

5. Compute the amount needed to pay interest on the Bond Redemption Amount from the first bond interest and/or principal payment date following the current Fiscal Year until the earliest redemption date for the Outstanding Bonds.

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6. Determine the Special Taxes levied on the Assessor's Parcel in the current Fiscal Year which have not yet been paid.

7. Compute the amount the City reasonably expects to derive from the reinvestment of the Prepayment Amount less Administrative Fees and Expenses until the redemption date for the Outstanding Bonds to be redeemed with the prepayment.

8. Add the amounts computed pursuant to paragraphs 5 and 6 and subtract the amount computed pursuant to paragraph 7 (the "Defeasance Amount").

9. Determine the costs of computation of the prepayment, the costs to invest the prepayment proceeds, the costs of redeeming Bonds, and the costs of recording any notices to evidence the prepayment and the redemption (the "Administrative Fees and Expenses").

10. Determine the reserve fund credit (the "Reserve Fund Credit") based on the lesser of: ( a) the expected reduction in the reserve requirement ( as defined in the Indenture), if any, associated with the redemption of Outstanding Bonds as a result of the prepayment, or (b) the amount derived by subtracting the new reserve requirement ( as defined in the Indenture) in effect after the redemption of Outstanding Bonds as a result of the prepayment from the balance in the reserve fund on the prepayment date, but in no event shall such amount be less than zero.

11. The prepayment is equal to the sum of the amounts computed pursuant to paragraphs 3, 4, 8, and 9, less the amount computed pursuant to paragraphs 10 (the "Prepayment Amount").

12. The portion of the Prepayment Amount computed pursuant to paragraphs 3, 4, 8, and 10 shall be deposited into the appropriate fund as established under the Indenture and be used to retire Outstanding Bonds or make debt service payments. The amount computed pursuant to paragraph 9 shall be retained by the City.

As a result of the payment of the current Fiscal Year's Special Tax levy as determined under paragraph 6 (above), the City shall remove the current Fiscal Year's Special Tax levy for such Assessor's Parcel from the County tax roll. With respect to any Assessor's Parcel that is prepaid, the City shall cause a suitable notice to be recorded in compliance with the Act, to indicate the prepayment of Special Taxes and the release of the Special Tax lien on such Assessor's Parcel, and the obligation of such Assessor's Parcel to pay the Special Tax shall cease.

Notwithstanding the foregoing, no Special Tax prepayment shall be allowed unless the amount of Maximum Special Taxes that may be levied on Taxable Property within CFD No. 97-1 both prior to and after the proposed prepayment is at least 1.1 times the maximum annual debt service on all Outstanding Bonds.

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2. Prepayment in Part

The Maximum Special Tax on an Assessor's Parcel of Developed Property or an Assessor's Parcel of Undeveloped Property for which a building permit has been issued may be partially prepaid. The amount of the prepayment shall be calculated as in Section I. l; except that a partial prepayment shall be calculated according to the following formula:

These terms have the following meaning:

PP ~ the partial prepayment PE ~ the Prepayment Amount calculated according to Section I. l. F ~ the percent by which the owner of the Assessor's Parcel(s) is partially prepaying the

Maximum Special Tax.

The owner of an Assessor's Parcel who desires to partially prepay the Maximum Special Tax shall notify the City of: (i) such owner's intent to partially prepay the Maximum Special Tax, and (ii) the percentage by which the Maximum Special Tax shall be prepaid. The City shall provide the owner with a statement of the amount required for the partial prepayment of the Maximum Special Tax for an Assessor's Parcel within 30 days of the request and may charge a reasonable fee for providing this service.

With respect to any Assessor's Parcel that is partially prepaid, the City shall (i) distribute the funds remitted to it according to Paragraph 10 of Section I. l., and (ii) indicate in the records of CFD No. 97-1 that there has been a partial prepayment of the Maximum Special Tax and that a portion of the Base Special Tax and the applicable rate in Table 1 equal to the outstanding percentage (1.00 - F) of the remaining Base Special Tax and the applicable rate in Table 1 shall continue to be authorized to be levied on such Assessor's Parcel pursuant to Section D.

J. CANCELLATION OF BASE SPECIAL TAX

The City Council may determine that Assessor's Parcels of Residential Property classified as Developed Property shall not be subject to the levy of the Base Special Tax and that such rate shall no longer be effective, if it determines, that the annual Maximum Special Tax revenues ( exclusive of the Base Special Tax rate) which would be produced from the levy of Special Tax on all Assessor Parcels of Developed Property within CFD No. 97-1 would be equal to at least 1.1 times the maximum annual debt service on all Bonds ofCFD No. 97-1. If the City Council determines that the Base Special Tax rate shall no longer be effective, the owners of such Assessor's Parcels shall be relieved of the obligation to disclose the Base Special Tax rate.

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APPENDIXD

FORM OF OPINION OF BOND COUNSEL

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LAW OFFICES OF

HARPER & BURNS LLP A LIMITED LIABILITY PARTNERSHIP INCLUDING A PROFESSIONAL CORPORATION

JOHN R HARPER* ALAN R BURNS COLIN R BURNS

OF COUNSEL JUDI A CURTIN* MICHAEL MONTGOMERY*

*A PROFESSIONAL CORPORATION

November 21, 2005

Members of the City Council CITY OF NORCO

453 S GLASSELL STREET ORANGE, CALIFORNIA 92888

(714) 771-7728 FAX (714) 744-3350

2870 Clark Avenue Norco, California 92562

RIVERSIDE I SAN BERNARDINO CO (951) 874-0898

Opinion: $7,625,000 City of Norco Community Facilities District 97-1 (Norco Hills) 2005 Special Tax Refunding Bonds

Members of the City Council:

We have acted as Bond Counsel in connection with the issuance by the City of Norco on behalf of the City of Norco Community Facilities District No. 97-1 (the "City") of its $7,625,000 City of Norco Community Facilities District No. 97-1 (Norco Hills) 2005 Special Tax Refunding Bonds (the "Bonds"), pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (Section 53311 et seq., of the California Government Code) (the "Act"), a Fiscal Agent Agreement, dated as of November 1, 2005 (the "Fiscal Agent Agreement"), by and between the City on behalf of the City of Norco Community Facilities District No. 97-1 (Norco Hills) (the "District") and U. S. Bank National Association as Fiscal Agent, and Resolution No. 2005-81 adopted by the City Council of the City on November 2, 2005 (the "Resolution"). We have examined the law and such certified proceedings and other documents we deem necessary to render this opinion.

As to questions of fact material to our opinion, we have relied upon representations of the City on behalf of the District contained in the Ordinance of Formation and in the certified proceedings and certificates of public officials and others furnished to us, without undertaking to verify the same by independent investigation.

Based upon the foregoing, we are of the opinion, under existing law, as follows:

1. The City is duly created and validly existing as a municipal corporation, with the power to adopt the Ordinance of Formation, enter into the Fiscal Agent Agreement and perform the agreements on its part contained therein and issue the Bonds.

2. The Fiscal Agent Agreement has been duly entered into by the City on behalf of the District and constitutes a valid and binding obligation of the City on behalf of the District enforceable upon the City on behalf of the District.

Members of the City Council CITY OF NORCO November 21, 2005

3. Pursuant to the Act, the Fiscal Agent Agreement creates a valid lien on the funds pledged by the Fiscal Agent Agreement for the security of the Bonds.

4. The Bonds have been duly authorized, executed and delivered by the City on behalf of the District and are valid and binding limited obligations of the City on behalf of the District, payable solely from the sources provided therefore in the Fiscal Agent Agreement.

5. The interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; it should be noted, however, that, for the purpose of computing the alternative minimum tax imposed on corporations ( as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings. The opinions set forth in the preceding sentence are subject to the condition that the City on behalf of the District comply with all requirements of the Internal Revenue Code of 1986 that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be excluded from gross income for federal income tax purposes. The City on behalf of the District has covenanted to comply with such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. We express no opinion regarding other federal tax consequences arising with respect to the Bonds.

6. The interest on the Bonds is exempt from personal income taxation imposed by the State of California.

The rights of the owners of the Bonds and the enforce ability of the Bonds, the Ordinance of Formation and the Fiscal Agent Agreement may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar Laws affecting creditors' rights heretofore or hereafter enacted and also may be subject to the exercise of judicial discretion in appropriate cases.

Respectfully Submitted,

HARPER & BURNS LLP

John R. Harper

APPENDIXE

CONTINUING DISCLOSURE AGREEMENT

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APPENDIXE

CONTINUING DISCLOSURE AGREEMENT

This Continuing Disclosure Agreement (the "Disclosure Agreement") is executed by and between the City of Norco Community Facilities District No. 97-1 (the "District") and U.S. Bank National Association, a national banking association (the "Dissemination Agent") in connection with the issuance of the $7,625,000 City of Norco Community Facilities District No. 97-1, (Norco Hills) 2005 Special Tax Refunding Bonds (the "Bonds"). The Bonds are being issued pursuant to a Fiscal Agent Agreement dated as of November I, 2005 (the "Fiscal Agent Agreement"), by and between the District and U.S. Bank National Association, as fiscal agent thereunder (the "Fiscal Agent"). The District and the Dissemination Agent covenant and agree as follows:

Section I. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the District and the Dissemination Agent for the benefit of the Owners and Beneficial Owners of the Bonds and in order to assist the Participating Underwriters in complying with S.E.C. Rule 15c2-12(b)(5).

Section 2. Definitions. In addition to the definitions set forth in the Fiscal Agent Agreement, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:

"Annual Report" shall mean any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.

"CFD Improvements" shall mean all of the improvements financed by the Refunded Bonds and as described in the Ordinance of Formation.

"Disclosure Representative" shall mean the City Manager of the City on behalf of the District or his or her designee, or such other officer or employee as the District shall designate in writing to the Fiscal Agent from time to time.

"Dissemination Agent" shall mean the U.S. Bank National Association, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the District and which has filed with the Fiscal Agent a written acceptance of such designation.

"Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Agreement.

"National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purpose of the Rule.

"Participating Underwriter" shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds.

"Refunded Bonds" shall mean the City of Norco Community Facilities District No. 97-1, 1997 Special Tax Bonds.

"Repository" shall mean each National Repository and each State Repository.

"Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

"State Repository" shall mean any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission.

"Tax-exempt" shall mean that interest on the Bonds is excluded from gross income for federal income tax purposes, whether or not such interest is includable as an item of tax preference or otherwise includable directly or indirectly for purposes of calculating any other tax liability, including any alternative minimum tax or environmental tax.

Section 3. Provision of Annual/ Annual Reports.

(a) The District shall, or shall cause the Dissemination Agent to, not later than February I of each year, commencing February I, 2007, provide to each Repository, the Participating Underwriter and each owner of more than $1,000,000 aggregate principal amount of Bonds a Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Agreement. The audited financial statements of the City may be submitted annually on or before May I of each year with respect to the preceding Fiscal Year. Such Financial Statements may be submitted separately from and later than the balance of the Annual Report if they are not available by the date required above for the filing of the audited financial statements. The Dissemination Agent shall have no duty to review or approve the content of the Annual Report, or any part thereof.

(b) Not later than fifteen (15) Business Days prior to the date specified in subsection (a) for providing the Annual Report to Repositories, the District shall provide the Annual Report to the Dissemination Agent and the Fiscal Agent (if the Fiscal Agent is not the Dissemination Agent). If by fifteen (15) Business Days prior to such date, the Fiscal Agent or the Dissemination Agent has not received a copy of the Annual Report, the Fiscal Agent or the Dissemination Agent shall contact the District to determine if the District is in compliance with subsection (a).

( c) If the Dissemination Agent is unable to verify that an Annual Report has been provided to Repositories by the date required in subsection (a), the Dissemination Agent shall send a notice to each Repository in substantially the form attached as Exhibit A.

( d) The District shall:

(i) determine prior to the date for providing the Annual Report the name and address of each National Repository and each State Repository, if any; and

(ii) file a report with the Fiscal Agent certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided and listing all the Repositories to which it was provided.

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Section 4. Content of Annual Reports. The District's Annual Report shall contain or include by reference the following:

(a) With respect to the Annual Report, the audited financial statements of the City for the most recently ended Fiscal Year, prepared in accordance with generally accepted accounting principles applicable from time to time. If the City's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final official statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.

(b) Other information relating to the District which 1s material to the Bonds, including:

(i) The dollar amount of special taxes levied for the most recent year.

(ii) The dollar amount of special taxes collected from the property owners.

(iii) If available, the amount of delinquencies greater than 60 days, and in the event that total delinquencies amount to more than five percent (5%) of the amounts of special taxes due in any year, a list of delinquent property owners.

(iv) Identify property owners responsible for 10% or more of the special taxes along with their respective percentage.

(v) All fund balances in all Funds and Accounts for the Bonds. The District shall provide any Bondholder with this information more frequently than annually within thirty (30) days of the written request of the Bondholder.

(vi) The total amount of Bonds Outstanding.

(vii) The amount of principal and interest to be paid in the current year.

(b) The parties to this Disclosure Agreement agree to assist the District and Dissemination Agent in preparing and providing the information necessary to prepare the Annual Report.

Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The District shall clearly identify each such other document so included by reference.

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Section 5. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section 5, the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds:

(i) principal and interest payment delinquencies;

(ii) non-payment related defaults;

(iii) modifications to rights of Owners of Bonds;

(iv) optional, contingent or unscheduled bond calls;

(v) defeasances;

(vi) rating changes;

(vii) adverse tax opinions or events adversely affecting the tax-exempt status of the Bonds;

(viii) unscheduled draws on the Reserve Fund reflecting financial difficulties;

(ix) unscheduled draws on the municipal bond insurance policy reflecting financial difficulties;

(x) substitution of the provider of the municipal bond insurance policy, or any failure by the insurer to perform on the municipal bond insurance policy; and

(xi) release, substitution or sale of property secunng repayment of the Bonds.

(a) The Fiscal Agent shall, promptly upon obtaining actual knowledge at the office of the Fiscal Agent specified in Section 13 hereof of the occurrence of any of the Listed Events, contact the Disclosure Representative, inform such person of the event, and request that the District promptly notify the Dissemination Agent in writing to report the event pursuant to subsection (a), provided that any failure by the Fiscal Agent to so notify the District and make such request shall not relieve the District of its duty to report Listed Events as required by this Section 5.

(b) Whenever the District obtains knowledge of the occurrence of a Listed Event, whether because of a notice from the Fiscal Agent pursuant to subsection (b) or otherwise, the District shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (a) and provide all information not in Dissemination Agent's possession needed to prepare such report.

( c) If the Dissemination Agent has been instructed by the District to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the Repositories and each State Repository. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(4) and (5) need not be given under this subsection any earlier than the

4

notice (if any) of the underlying event is given to Owners of affected Bonds pursuant to the Fiscal Agent Agreement. Notice of a Listed Event is only required under this Section 5 following the occurrence of the Listed Event.

(d) The Dissemination Agent may conclusively rely on an opm1on of counsel provided by the District that the District's instructions to the Dissemination Agent under this Section 5 comply with the requirements of the Rule.

Section 6. Termination of Reporting Obligation. The District's and the Dissemination Agent's obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5.

Section 7. Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under the Disclosure Agreement, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. Dissemination Agent may terminate its duties hereunder by 60 days prior written notice to the District and the Fiscal Agent. The District shall pay reasonable compensation to the Dissemination Agent and all of Dissemination Agent's out-of-pocket expenses, including reasonable attorneys' fees.

Section 8. Amendment. Notwithstanding any other provision of this Disclosure Agreement, the District and the Dissemination Agent may amend this Disclosure Agreement (and the Dissemination Agent shall agree to any amendment so requested by the District which in the sole judgment of Dissemination Agent shall not impose any greater duties, nor risk of liability on the Dissemination Agent), and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied:

(a) If the amendment relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Bonds, or the type of business conducted.

(b) The undertaking, as amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

( c) The proposed amendment is approved by the Owners of the Bonds in the same manner as provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of Owners.

In the event of any amendment of a provision of this Disclosure Agreement, the District shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the District. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5( c ), and (ii) the Annual Report for the year in which the

5

change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The Dissemination Agent may rely on an opinion of counsel provided by District that the amendment or waiver complies with the requirements of the Rule.

Section 9. Additional Information. Nothing m this Disclosure Agreement shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the District shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

Section I 0. Default. In the event of a failure of the District or the Dissemination Agent to comply with any provision of this Disclosure Agreement, the Fiscal Agent may (and, at the request of any Participating Underwriter or the Owners of at least 25% aggregate principal amount of Outstanding Bonds, which request is accompanied by indemnification satisfactory to Fiscal Agent and reimbursement of its fees and expenses, including fees and expenses of its counsel, shall), or any Owner or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District or Dissemination Agent, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Fiscal Agent Agreement and the sole remedy under this Disclosure Agreement in the event of any failure of the District or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance.

Section 11. Duties, Immunities and Liabilities of Fiscal Agent and Dissemination Agent. Article VII of the Fiscal Agent Agreement is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Fiscal Agent Agreement. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees, affiliates and agents, harmless against any loss, expense (including attorney's fees) and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. No person shall have any right to commence any action against the Fiscal Agent or Dissemination Agent seeking any remedy other than to compel specific performance of this Disclosure Agreement. The Fiscal Agent or Dissemination Agent shall not be liable under any circumstances for monetary damages to any person for any breach of this Disclosure Agreement.

Section 12. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the District, the Fiscal Agent, the Dissemination Agent, the Participating Underwriters and Owners and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity.

6

Section 13. Notices. Notices should be sent in writing to the following addresses. The following information may be conclusively relied upon until changed in writing.

Disclosure Representative:

Dissemination Agent:

City of Norco Communities Facilities District No. 97-1 c/o City of Norco 2870 Clark Avenue Norco, CA 92860 909/735-3900 909/270-5622 (fax)

U.S. Bank National Association 550 South Hope Street, Suite 500 Los Angeles, California 90071 Attn: Cmporate Trust Department 213/533-8707 213/533-8729 (fax)

Section 14. Counteroarts. This Disclosure Agreement may be executed in several counteiparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

Date: December I, 2005 CITY OF NORCO COMMUNITY FACILITIES DISTRICT NO. 97-1

By: _______________ _ City Manager

U.S. BANK NATIONAL ASSOCIATION, as Dissemination Agent

By: ________________ _ Authorized Signatory

7

EXHIBIT A

NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT

Name of District:

Name of Bond Issue:

Date of Issuance:

City of Norco Community Facilities District No. 97-1

City of Norco Community Facilities District No. 97-1, 2005 Special Tax Refunding Bonds

------' 2005

NOTICE IS HEREBY GIVEN that the City of Norco Community Facilities District No. 97-1 has not provided an Annual Report with respect to the above-named Bonds as required by the Fiscal Agent Agreement, dated as of December I, 2005 by and between the District and U.S. Bank National Association. [The District anticipates that the Annual Report will be filed by ________ .]

Dated:

cc: District

U.S. BANK NATIONAL ASSOCIATION, on behalf of District

A-1

APPENDIXF

INFORMATION CONCERNING

THE DEPOSITORY TRUST COMPANY

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APPENDIXF

INFORMATION CONCERNING THE DEPOSITORY TRUST COMP ANY

The following description of the procedures and record-keeping with respect to beneficial ownership interests in the Bonds, payment of principal, interest and other payments on the Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interests in such Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the following information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be.

The Depository Trust Company ("DTC"), New York, NY, will act as secunt1es 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 certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC.

DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17 A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in tum, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard &

F-1

Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Conunission.

Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in tum to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.

To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.

Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be prepaid.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Onmibus Proxy to the Agency as soon as possible after the record date. The Onmibus Proxy assigns Cede & Co. 's consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Principal, premium, if any, and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC 's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the Agency or the Trustee, on payment date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities

F-2

held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC nor its nominee, the Trustee, or the Agency, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, premium, if any, and interest to Cede & Co. ( or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the Agency or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, physical Bonds are required to be printed and delivered.

The Agency may decide to discontinue use of the system of book-entry transfers through DTC ( or a successor securities depository). In that event, physical Bonds will be printed and delivered.

The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the City and Agency believe to be reliable, but the City and Agency take no responsibility for the accuracy thereof.

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APPENDIXG

SPECIMEN FINANCIAL GUARANTY

INSURANCE POLICY

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Assured Guaranty Corp. 1325 Avenue of the Americas New York, New York 10019

Issuer:

Bonds:

Effective Date:

Financial Guaranty Insurance Policy

Policy No. __ _

Premium:

Term:

$

The period from and including the Effective Date to and including the date on which all Insured Payments (including Avoided Payments) have been paid.

Assured Guaranty Corp., a Maryland insurance company ("Assured Guaranty"), in consideration of the payment of the premium set forth above and subject to the terms of this financial guaranty insurance policy (the "Policy"), hereby unconditionally and irrevocably agrees to pay to [inse/1 name of paying agen~, as paying agent (the "Paying Agent") (as set forth in the documentation providing for the issuance of and securing the above-referenced Bonds (the "Bonds"; such documentation, the "Transaction Documentation")) for the benefit of e o ders of the Bonds (the "Holders"), and in any case subject to the terms of this PolicY. interest on the Bonds that shall become Due for Payment (a by reason of Nonpayment by the Issuer (as herei de in c hereinafter the "Insured Payments"). Ins P y h II ot in owing by the Issuer solely as a f h fa1 u e b due and payable, inclucfu..,..,wi!H, penalties or to i t to any other a terms used in

lrn,i.....--ssuch Insured Payments to the Paying Agent on the later to rri..--· able principal or interest becomes Due for Payment, or (ii) the Business

Day next folio · e day on which Assured Guaranty shall have Received a completed notice of claim in the form attached hereto as Exhibit A. Payment by Assured Guaranty to the Paying Agent for the benefit of the Holders shall discharge the obligation of Assured Guaranty under this Policy to the extent of such payment. The Paying Agent will disburse the Insured Payments to the Holders in accordance with the terms of the Transaction Documentation only upon receipt by the Paying Agent, in form reasonably satisfactory to it, of (i) evidence of the Holde~s right to receive such payments, and (ii) evidence, including any appropriate instruments of assignment, that all of the Holder's rights to payment of such principal or interest Due for Payment shall thereupon vest in Assured Guaranty. Upon such disbursement, Assured Guaranty shall become the Holder of the Bond, appurtenant coupon thereto, or right to payment of principal or interest thereon, and shall be fully subrogated to all of the Holde~s right, title and interest thereunder, including without limitation the right to payment thereof.

This Policy is non-cancelable for any reason. The premium on this Policy is not refundable for any reason, including without limitation any payment of the Bonds prior to maturity. This Policy

does not insure against loss of any prepayment premium which may be payable with respect to all or any portion of any Bond at any time, or the failure of the Paying Agent to remit amounts received hereunder to the Holder in accordance with the terms of the Transaction Documentation. No payment shall be made under this Policy in excess of the Policy Limit. No payment shall be made under this Policy with respect to a Bond if the Holder is the Issuer of such Bond.

At any time during the Term of the Policy, Assured Guaranty may appoint a fiscal agent (the "Fiscal Agent") for purposes of this Policy by written notice to the Paying Agent, specifying the name and notice address of such Fiscal Agent. From and after the date of receipt of such notice by the Paying Agent, copies of all notices and documents required to be delivered Assured Guaranty pursuant to this Policy shall be simultaneously delivered to the · t and to Assured Guaranty. All payments required to be made by Assured y u d rt i olicy may be made directly by Assured Guaranty or by the Fiscal A e ss red aranty. The Fiscal Agent is the agent of Assured Guaranty o h F1 I i o e ent be liable to the Paying Agent for any acts of the Fi I ent G to be deposited, sufficient f nd o m k

l\lr--81h'V\amo nt at is paid, credited, transferred or delivered to a Holder in resp ent y the Paying Agent, which amount has been rescinded or recovered fr ise r ired to be returned or repaid by such Holder pursuant to the United States Bankr ptcy by a trustee in bankruptcy in accordance with a final, nonappealable order of a court hav1 competent jurisdiction that such payment constitutes an avoidable preference with respect to such holder.

"Business Day" means any day other than (i) a Saturday or Sunday, (ii) any day on which the offices of the Paying Agent or Assured Guaranty are closed, or (iii) any day on which banking institutions are authorized or required by law, executive order or governmental decree to be closed in New York City or in the States of California, Maryland or New York.

"Due for Payment" means, when referring to the principal of a Bond, the stated maturity date thereof, or the date on which such Bond shall have been duly called for mandatory sinking fund redemption, and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity (unless Assured Guaranty in its sole discretion elects to make any principal payment, in whole or in part, on such earlier date) and means, when referring to interest on a Bond, the stated date for payment of such interest.

"Nonpayment" in respect of a Bond means the failure of the Issuer to have provided sufficient funds to the Paying Agent for payment in full of all principal and interest Due for Payment on such Bond. It is further understood that the term "Nonpayment" in respect of a Bond includes any Avoided Payment.

"Notice" means a written notice from a Holder or the Paying Agent mailed by registered mail or personally delivered or telecopied to Assured Guaranty at 1325 Avenue of the Americas, New York, NY 10019, Telephone Number: (212) 974-0100, Facsimile Number: (212) 581-3268, Attention: Risk Management, with a copy to the General Counsel, or to such other address as shall be specified by Assured Guaranty to the Paying Agent in writing.

"Policy Limit" means $[ ], together with interest thereon at the rate or rates set forth in the Transaction Documentation; provided, however, that nothing set forth herein shall be construed to include in the coverage provided by this Policy interest calculated at a default rate.

"Receipt" or "Received" means actual receipt or notice of or, if notice is given by overnight or other delivery service, or by certified or registered United States mail, by ad · ery receipt signed by a person authorized to accept delivery on behalf of the person tow n ti e was given.

matter here including wi

r es not to assert, and s to the extent that such

t f claims made under

uaranty with respect to the subject ed by any other agreement or instrument,

o or amendment thereof.

Thi r y ill be g rned by, and shall be construed in accordance with, the laws of the State of Cal orni (o er than with respect to its conflicts of laws principles).

In the event Assured Guaranty becomes insolvent, any claims arising under this Policy are excluded from coverage by the California Insurance Guaranty Association established pursuant to Article 15.2 (commencing with Section 1063) of Chapter 1 of Part 2 of Division 1 of the California Insurance Code.

IN WITNESS WHEREOF, Assured Guaranty has caused this Policy to be affixed with its corporate seal and to be signed by its duly authorized officer to become effective and binding upon Assured Guaranty by virtue of such signature.

SEAL

ASSURED GUARANTY CORP.

By: _____________ _ Name: Title:

Assured Guaranty Corp. 1325 Avenue of the Americas New York, New York 10019 Attention: General Counsel

EXHIBIT A

NOTICE OF CLAIM

The undersigned, [a duly authorized officer of [PAYING AGENT]] [a Holder of the Bonds] (the "Paying Agent" or the "Holder"), hereby certifies to Assured Guarani or . (the "Insurer") with reference to Financial Guaranty Insurance Policy No. lie ") t at:

y ent and unpaid by i $[insert applicable

(iv) [If the undersigned is the Paying Agent] Payment should be made by credit to the following account:

Upon payment of the applicable Defaulted Amount(s), the Insurer shall be subrogated to the rights of the Paying Agent and the Holder of the Bonds with respect to such payment.

Capitalized terms used in this Notice of Claim and not otherwise defined herein shall have the respective meanings ascribed thereto in the Policy.

This Notice of Claim may be revoked at any time by written notice of such revocation by the [Paying Agent][Holder] to the Insurer, if and only to the extent that moneys are actually received prior to any such revocation from a source other than the Insurer with respect to the Defaulted Amount set forth herein.

IN WITNESS WHEREOF, the undersigned has executed and delivered this Notice of Claim as of the __ day of of 20

[PAYING AGENT /HOLDER]

By: ________ _ Name: Title: